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2023 DIGILAW 684 (AP)

Navata Eco Bricks v. Punjab National Bank

2023-04-11

B.V.L.N.CHAKRAVARTHI, U.DURGA PRASAD RAO

body2023
ORDER: U. DURGA PRASAD RAO, J. The petitioner prays for a writ of mandamus declaring the action of 1st respondent-bank in threatening to dispossess and take physical possession of petitioner’s leasehold property of office-cum-industrial building (for short, ‘the schedule property’), pursuant to the order dated 22.04.2022 in Crl.M.P.No.1072/2022 in C.F.No.390/2022 passed by the Chief Metropolitan Magistrate, Vijayawada, and notice of warrant dated 08.06.2022 issued by the Advocate Commissioner for taking physical possession of the subject property without considering the representation of the petitioner as illegal, arbitrary and violative of Articles 14, 21, 19(1)(g) and 300A of the Constitution of India and devoid of principles of natural justice and consequently direct the 1st respondent-Bank not to interfere with the petitioner’s possession of the schedule property. 2. The petitioner’s case succinctly is thus: (a) The petitioner is the proprietor of NAVATA ECO BRICKS and running brick industry under the name and style of ‘NAVATA ECO BRICKS’ and also aquaculture in the schedule property which was obtained by the petitioner from 5th respondent under a registered Lease Deed dated 12.03.2015 vide document No.1684/2015. The duration of the lease is for eight years commencing from 01.12.2014 to 30.11.2022. (b) While so, a notice dated 08.06.2022 along with a copy of order dated 22.04.2022 in Crl.MP.No.1078/2022 in C.F.No.390/2022 passed by the learned Chief Metropolitan Magistrate, Vijayawada was issued by the Advocate Commissioner to the petitioner informing that by virtue of the Court orders he was proposing to take physical possession of the schedule property and requested the petitioner to vacate the schedule property on or before 16.06.2022. The petitioner and her staff informed about the registered lease obtained by the petitioner and their conducting brick industry and aquaculture in the subject property and also about the subsistence of Lease Deed till 30.11.2022. However, the Advocate Commissioner did not heed to their words and insisted them to vacate the schedule property. There is any amount of threat of dispossession looming large on the petitioner. The intended action is violative of the canons of the provisions contained in the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (for short, ‘the SARFAESI Act’). Hence the writ petition. 3. The 1st respondent filed counter and opposed the writ petition inter alia contending thus: (a) The 3rd respondent, who borrowed loan from the 1st respondent-bank, is none other than the husband of writ petitioner. Hence the writ petition. 3. The 1st respondent filed counter and opposed the writ petition inter alia contending thus: (a) The 3rd respondent, who borrowed loan from the 1st respondent-bank, is none other than the husband of writ petitioner. The 5th respondent, who is one of the guarantors, is the father of writ petitioner. Thus, the writ petitioner and respondents 2 to 5 are all family members. The 2nd respondent is R.G. Constructions and 4th respondent is its Managing Partner. (b) While so, the 2nd respondent / borrower was sanctioned a term loan of Rs.10.00 Cr. on 07.04.2017 for development and construction of residential apartment named as ‘Euphoria Lifestyle Apartments’ against the security of the subject property. On failure of the 2nd respondent to repay the loan, its account was declared as NPA and the 1st respondent-bank filed O.A.No.1183/2018 against respondents 2 to 5 before the Debts Recovery Tribunal, Visakhapatnam and said O.A. was allowed on 29.07.2021. Thereafter, the 1st respondent took the proceedings under the SARFAESI Act and issued possession notice with regard to the secured assets and a e-auction notice dated 18.12.2018 was also issued. (c) Challenging the said notice, the 2nd respondent filed W.P.No.213/2019 contending that the 2nd respondent is a Micro, Small and Medium Enterprise (MSME) and the bank has not extended benefits available to MSME enterprise as per the guidelines issued by the Reserve Bank of India. (d) Pending the above writ petition, the 2nd respondent filed another W.P.No.919/2019 challenging the decision of 1st respondent in not extending One Time Settlement (OTS) scheme to 2nd respondent and to restructure the loan. This Court was pleased to dispose of W.P.N.o.213/2019 and W.P.No.919/2019 with an observation that in the event the respondents 2 to 5 deposit Rs.9,58,00,000/-by 31.10.2021, the bank shall not proceed under the SARFAESI Act against the secured assets of the 2nd respondent and in case of their failure, the entire dues of the bank shall stand revived and it shall be open for the bank to proceed against the respondents 2 to 5 in accordance with law. The respondents 2 to 5 paid only Rs.1.00 Cr. out of the settled amount of Rs.9.58 Cr. (e) In view of the failure of respondents 2 to 5, the bank issued Sale Notice dated 10.12.2021 under the SARFAESI Act. Challenging the said notice, the respondents 2 to 5 filed W.P.No.31227/2021. The respondents 2 to 5 paid only Rs.1.00 Cr. out of the settled amount of Rs.9.58 Cr. (e) In view of the failure of respondents 2 to 5, the bank issued Sale Notice dated 10.12.2021 under the SARFAESI Act. Challenging the said notice, the respondents 2 to 5 filed W.P.No.31227/2021. This Court passed an order dated 18.01.2022 and directed the respondents 2 to 5 to pay Rs.3.00 Cr. and also directed 1st respondent-bank to proceed with e-auction without confirming the same. The respondents 2 to 5 have not honoured the said order also. (f) In view of the failure of respondents 2 to 5, the 1st respondent-bank filed Crl.M.P.No.1078/2022 before the Chief Metropolitan Magistrate, Vijayawada and by order dated 22.04.2022 the learned Chief Metropolitan Magistrate appointed an Advocate Commissioner to take possession of the subject property. The Advocate Commissioner filed a Memo dated 17.06.2022 stating that he has taken physical possession of schedule property which consists of a big fish tank and two unused fish tanks and some household items and there are no traces of manufacturing of any type of eco bricks. Aggrieved by the action of the Advocate Commissioner, the present writ petition is filed by the petitioner. (g) It is contended that the petitioner claims to have taken the subject property on lease for the purpose of eco brick manufacturing unit, but in fact aquaculture is being conducted in the subject property in violation of the terms of the lease and hence, the lease shall be deemed to be terminated. Therefore, the Lease Deed dated 12.03.2015 will not come to the aid of the petitioner. Further, the Advocate Commissioner had already taken physical possession of the property. Therefore, the writ petition is not maintainable. The 1st respondent prayed to dismiss the writ petition. 4. Heard arguments of Sri P.Anand Seshu, learned counsel for petitioner, and Sri Bachina Hanumantha Rao, learned counsel for 1st respondent. 5. Learned counsel for the petitioner would submit that the petitioner is a registered lease holder of the subject property under registered lease dated 12.03.2015 and the petitioner is in effective physical possession of the subject property and carrying on the business of eco bricks and aqua culture in the subject property and the said lease will be subsisting till 30.11.2022 whereas the 1st respondent bank granted term loan to the 2nd respondent on mortgage of the subject property on 07.04.2017. Therefore, the mortgage in favour of the 1st respondent was long after the lease dead and as such the 1st respondent cannot pre-empt over the leasehold rights of the petitioner and take possession of subject property through Advocate Commissioner. Learned counsel would vehemently argue that the contention of 1st respondent bank that the petitioner violated the terms of the lease by conducting aqua business while the lease was granted to her only for eco bricks business and thereby the lease shall be deemed to be determined is preposterous for the reason that the alleged violation of terms of the lease is an issue between the lessor and lessee, in which the 1st respondent bank has no say. Regarding rights of lessee in respect of mortgaged property the petitioner relied upon (1) Bajarang Shyamsunder Agarwal v. Central Bank of India, AIR 2019 SC 5017 and Harshad Govardhan Sondagar v. International Assets Reconstruction Company Ltd, (2014) 6 SCC 1 = MANU/SC/0377/2014. He thus prayed to allow the writ petition. 6. Per contra, learned counsel for respondent Sri B. Hanumantha Rao while admitting that the lease in favour of the petitioner preceded the mortgage in favour of the 1st respondent bank, however would argue that the 1st respondent bank has succeeded in all the previous litigations brought forth by the borrowers. In some of those matters though this Court directed the borrowers to deposit the amounts they did not honour the orders and in those circumstances the bank had to take recourse under the SARFAESI Act and got appointed Advocate Commissioner to take physical possession of the property to proceed with auction sale. However at this stage, the borrowers raised a fresh dispute through the lessee/writ petitioner who is none other than the wife of 3rd respondent. He would vehemently argue that the objections of the writ petitioner are quite untenable because writ petitioner has violated the terms of the lease, inasmuch as, she has been carrying on the aqua business though in fact lease was granted for running eco brick business and thereby, he would emphasize, the lease shall be deemed to be terminated paving way for the 1st respondent bank to initiate auction proceedings. He thus prayed to dismiss the writ petition. 7. He thus prayed to dismiss the writ petition. 7. The points for consideration in this writ petition are: (i) Whether the writ petitioner was a lawful tenant of 5th respondent in respect of schedule property by the date of notice issued by the Advocate Commissioner to take physical possession of the said property ? (ii) Whether the petitioner violated the terms of the lease and if so the lease was determined and whether the 1st respondent/ bank can challenge the aforesaid violation if any ? 8. POINTS 1 and 2: Admitted facts are that the writ petitioner is the daughter of the 5th respondent and wife of the 3rd respondent. Respondents 3 and 4 are the partners in the 2nd respondent – construction concern. Be that as it may, the registered lease deed dated 12.03.2015, a copy of which is filed along with the material papers in the writ petition would show, the said lease deed was executed by the 5th respondent in favour of his daughter i.e., the writ petitioner leasing out the schedule property for a period of 8 years from 01.12.2014 to 30.11.2022 on a monthly rental of Rs.50,000/-. The terms would show that the lessee shall utilize the leased premises for production of eco bricks only and not for any other purpose. Since the lease deed is a registered document, there can be no demur about its execution. While so, it is a further admitted fact that the 2nd respondent construction concern has borrowed a term loan from the 1st respondent bank on 07.04.2017 for the development and construction of residential apartments named “Euporia Lifestyle Apartments” on the security of the said property. Thus it is clear that the lease in favour of the petitioner over the subject property was prior to the mortgage in favour of the 1st respondent bank. 9. While so, on the default committed by the borrowers, it appears the 1st respondent bank declared the loan account as NPA on 31.08.2018 and later filed OA.No.1183 of 2018 against the respondents 2 to 5 for recovery of the loan amount before the Debts Recovery Tribunal (DRT), Visakhapatnam and the Tribunal allowed the said O.A on 29.07.2021. The DRT issued recovery certificate for a sum of Rs.8,62,35,296/-together with interest authorizing the 1st respondent bank to realize the said amount from the respondents 2 to 5 by sale of mortgaged property. The DRT issued recovery certificate for a sum of Rs.8,62,35,296/-together with interest authorizing the 1st respondent bank to realize the said amount from the respondents 2 to 5 by sale of mortgaged property. Subsequently, some writ petitions are filed by the borrowers resisting the 1st respondent bank from proceeding in the matter whose details are not much relevant. Suffice to say that in those writ petitions also direction was given to respondents 2 to 5 to deposit the agreed amounts as directed by the Court but they failed to do so. Ultimately, the 1st respondent bank filed Crl.M.P.No.1078/2022 before the Chief Metropolitan Magistrate, Vijayawada and sought for appointment of Advocate Commissioner to take physical possession of the subject property to enable the 1st respondent bank to sell the same in the auction. The Advocate Commissioner was accordingly appointed and he seems to have issued notice dated 08.06.2022 to the petitioner to vacate the premises. At that juncture, the petitioner who is a lessee in respect of the subject property came into arena objected against dispossession stating that she has been a lawful tenant even since prior to the mortgage in favour of the 1st respondent bank. When the Advocate Commissioner did not heed her she filed Crl.M.P.No.____of 2022 in Crl.M.P.No.1078 of 2022 before the Chief Metropolitan Magistrate, Vijayawada praying to recall the possession warrant dated 22.04.2022 issued by the said Court. However, no order seems to have been passed by the said Court. Hence the instant writ petition. 10. The rights and liabilities in respect of a mortgaged property over which the proceedings under SARFAESI Act are initiated are no more res integra. In Harshad Govardhan’s case (supra 2) the Apex Court happened to consider the rights of lessees who are inducted into mortgaged property by the borrower either prior or subsequent to mortgage created in favour of the bank. Regarding the remedies available to such lessees, the Apex Court has observed thus: “21. In Harshad Govardhan’s case (supra 2) the Apex Court happened to consider the rights of lessees who are inducted into mortgaged property by the borrower either prior or subsequent to mortgage created in favour of the bank. Regarding the remedies available to such lessees, the Apex Court has observed thus: “21. When, therefore, a lessee becomes aware of the possession being taken by the secured creditor, in respect of the secured asset in respect of which he is the lessee, from the possession notice which is delivered, affixed or published in Sub-rule (1) and Sub-rule (2) of Rule 8 of the Security Interest (Enforcement) Rules, 2002, he may either surrender possession or resist the attempt of the secured creditor to take the possession of the secured asset by producing before the authorised officer proof that he was inducted as a lessee prior to the creation of the mortgage or that he was a lessee under the mortgagor in accordance with the provisions of Section 65A of the Transfer of Property Act and that the lease does not stand determined in accordance with Section 111 of the Transfer of Property Act. If the lessee surrenders possession, the lease even if valid gets determined in accordance with clause (f) of Section 111 of the Transfer of Property Act, but if he resists the attempt of the secured creditor to take possession, the authorised officer cannot evict the lessee by force but has to file an application before the Chief Metropolitan Magistrate or the District Magistrate under Section 14 of the SARFAESI Act and state in the affidavit accompanying the application, the name and address of the person claiming to be the lessee. When such an application is filed, the Chief Metropolitan Magistrate or the District Magistrate will have to give a notice and give an opportunity of hearing to the person claiming to be the lessee as well as to the secured creditor, consistent with the principles of natural justice, and then take a decision. When such an application is filed, the Chief Metropolitan Magistrate or the District Magistrate will have to give a notice and give an opportunity of hearing to the person claiming to be the lessee as well as to the secured creditor, consistent with the principles of natural justice, and then take a decision. If the Chief Metropolitan Magistrate or District Magistrate is satisfied that there is a valid lease created before the mortgage or there is a valid lease created after the mortgage in accordance with the requirements of Section 65A of the Transfer of Property Act and that the lease has not been determined in accordance with the provisions of Section 111 of the Transfer of Property Act, he cannot pass an order for delivering possession of the secured asset to the secured creditor. But in case he comes to the conclusion that there is in fact no valid lease made either before creation of the mortgage or after creation of the mortgage satisfying the requirements of Section 65A of the Transfer of Property Act or that even though there was a valid lease, the lease stands determined in accordance with Section 111 of the Transfer of Property Act, he can pass an order for delivering possession of the secured asset to the secured creditor. 22. Sub-section (3) of Section 14 of the SARFAESI Act provides that no act of the Chief Metropolitan Magistrate or the District Magistrate or any officer authorised by the Chief Metropolitan Magistrate or District Magistrate done in pursuance of Section 14 shall be called in question in any court or before any authority. The SARFAESI Act, therefore, attaches finality to the decision of the Chief Metropolitan Magistrate or the District Magistrate and this decision cannot be challenged before any court or any authority. But this Court has repeatedly held that statutory provisions attaching finality to the decision of an authority excluding the power of any other authority or Court to examine such a decision will not be a bar for the High Court or this Court to exercise jurisdiction vested by the Constitution because a statutory provision cannot take away a power vested by the Constitution. To quote, the observations of this Court in Columbia Sportswear Company v. Director of Income Tax, Bangalore [MANU/SC/0613/2012 : (2012) 11 SCC 224 ]; “17. To quote, the observations of this Court in Columbia Sportswear Company v. Director of Income Tax, Bangalore [MANU/SC/0613/2012 : (2012) 11 SCC 224 ]; “17. Considering the settled position of law that the powers of this Court under Article 136 of the Constitution and the powers of the High Court under Articles 226 and 227 of the Constitution could not be affected by the provisions made in a statute by the Legislature making the decision of the tribunal final or conclusive, we hold that Sub-section (1) of Section 245S of the Act, insofar as, it makes the advance ruling of the Authority binding on the applicant, in respect of the transaction and on the Commissioner and income-tax authorities subordinate to him, does not bar the jurisdiction of this Court under Article 136 of the Constitution or the jurisdiction of the High Court under Articles 226 and 227 of the Constitution to entertain a challenge to the advance ruling of the Authority.” In our view, therefore, the decision of the Chief Metropolitan Magistrate or the District Magistrate can be challenged before the High Court under Articles 226 and 227 of the Constitution by any aggrieved party and if such a challenge is made, the High Court can examine the decision of the Chief Metropolitan Magistrate or the District Magistrate, as the case may be, in accordance with the settled principles of law.” 11. Thus in the above decision Hon’ble Apex Court has pellucidly stated that if a lessee resists the attempts of the secured creditor from taking possession of the mortgaged property on the ground that he was a lessee even prior to the creation of the mortgage in favour of the secured creditor, then the authorized officer cannot evict the lessee but he has to file an application before the Chief Metropolitan Magistrate concerned U/s 14 of the SARFAESI Act, in which case a duty will be cast on Chief Metropolitan Magistrate to issue notices to the lessee and conduct enquiry with regard to legal validity of the lease propounded by the lessee and to pass an appropriate order thereon. Hon’ble Apex Court further held that since the act of Chief Metropolitan Magistrate in pursuance of Section 14(3) of the SARFAESI Act cannot be questioned in any Court or before any authority, obviously the remedy lies in the form of Article 226 and 227 of the Constitution of India to the aggrieved party. 12. While so, upon considering its earlier decisions Hon’ble Apex Court in Bajarang Shyamsunder Agarwal’s case (supra 1) has held thus: “25. In our view, the objective of SARFAESI Act, coupled with the T.P. Act and the Rent Act are required to be reconciled herein in the following manner: a) If a valid tenancy under law is in existence even prior to the creation of the mortgage, the tenant's possession cannot be disturbed by the secured creditor by taking possession of the property. The lease has to be determined in accordance with Section 111 of the TP Act for determination of leases. As the existence of a prior existing lease inevitably affects the risk undertaken by the bank while providing the loan, it is expected of Banks/Creditors to have conducted a standard due diligence in this regard. Where the bank has proceeded to accept such a property as mortgage, it will be presumed that it has consented to the risk that comes as a consequence of the existing tenancy. In such a situation, the rights of a rightful tenant cannot be compromised under the SARFAESI Act proceedings. b) If a tenancy under law comes into existence after the creation of a mortgage, but prior to the issuance of notice Under Section 13(2) of the SARFAESI Act, it has to satisfy the conditions of Section 65-A of the T.P. Act. c) In any case, if any of the tenants claim that he is entitled to possession of a secured asset for a term of more than a year, it has to be supported by the execution of a registered instrument. In the absence of a registered instrument, if the tenant relies on an unregistered instrument or an oral agreement accompanied by delivery of possession, the tenant is not entitled to possession of the secured asset for more than the period prescribed Under Section 107 of the T.P. Act.” 13. In the absence of a registered instrument, if the tenant relies on an unregistered instrument or an oral agreement accompanied by delivery of possession, the tenant is not entitled to possession of the secured asset for more than the period prescribed Under Section 107 of the T.P. Act.” 13. With the above jurisprudence, when the facts of the present case are considered, admittedly as on the date of issuance of the possession notice by the Advocate Commissioner, a valid registered lease deed had been in existence. In fact the petitioner has resisted the attempt of the Advocate Commissioner to take possession and also filed an application before the Chief Metropolitan Magistrate, Vijayawada to consider his lease and drop the proceedings but of no avail. Therefore, the only avenue for the petitioner is to file writ petition before this Court as observed in the above decision. Therefore, the contention of the 1st respondent bank that the writ petition is not maintainable at the instance of lessee/petitioner does not hold water and the other contention of the 1st respondent bank that the petitioner has violated the terms of the lease and thereby the lease shall be deemed to be determined also cannot be appreciated for the reason, as rightly argued by the petitioner, violation if any of the terms of the lease is an issue between the lessor and lessee and the 1st respondent bank being a third party cannot question. Therefore, in any view, the proceedings initiated by the 1st respondent bank U/s 14 of SARFAESI Act in its endeavour to take physical possession of the subject property during the subsistence of a valid lease are illegal and untenable and liable to be set aside. To that extent the writ petitioner deserves an order in this writ petition. 14. However, that is not the end of the matter. During the pendency of the writ petition, the lease period came to an end w.e.f 01.12.2022 because as per the lease deed the term of the lease is for 8 years commencing from 01.12.2014 to 30.11.2022. It is not brought to our notice whether any renewal of the lease was entered into by the parties. Therefore, under law the 1st respondent bank has a right to take proceedings afresh, under the provisions of SARFAESI Act for taking physical possession of the subject property and to conduct auction sale. It is not brought to our notice whether any renewal of the lease was entered into by the parties. Therefore, under law the 1st respondent bank has a right to take proceedings afresh, under the provisions of SARFAESI Act for taking physical possession of the subject property and to conduct auction sale. In such an event, if the writ petitioner puts up any claim on the strength of a renewed lease if any, the validity of such claim shall be a subject matter of adjudication under applicable laws. 15. Accordingly, with the above observations, this writ petition is allowed and the proceedings initiated by the 1st respondent bank in Crl.MP.No.1078/2022 on the file of Chief Metropolitan Magistrate, Vijayawada U/s 14 of the SARFAESI Act to take physical possession of the subject property and to conduct auction sale are hereby set aside in view of a valid registered lease deed being in force in favour of petitioner as on the date of issuance of notice by the Advocate Commissioner. It is made clear that this order will not debar the 1st respondent bank to initiate fresh proceedings under relevant laws. No costs. As a sequel, interlocutory application pending, if any, shall stand closed.