Madras High Court
Shakeena And P. Shahul Hameed vs Bank Of India And Ors. on 9 March, 2007
Equivalent citations: AIR2008MAD10, [2007]138COMPCAS976(MAD), AIR 2008 MADRAS 10, 2008 (2) ALL LJ NOC 355, 2008 (2) ABR (NOC) 190 (MAD), 2008 AIHC NOC 134, (2007) 2 MAD LJ 846, (2007) 81 CORLA 65, (2007) 138 COMCAS 976, (2008) 2 BANKCLR 95, (2007) 3 CTC 543 (MAD)
Author: A. Kulasekaran
Bench: A. Kulasekaran
JUDGMENT A. Kulasekaran, J.
1. Since the impugned orders in these writ petitions are one and the same and the secured asset involved are the same, further common issue involved in both the writ petitions, hence, they are disposed of by this common order.
2. The case of the petitioners is that the petitioners availed of loans from the first respondent-bank by mortgaging their properties; that they were directed to discharge the loan amount with interest at 11.75 per cent, per annum within a period of 60 days; that the petitioner sent representations on December 10, 2004, and December 30, 2004, requesting the respondent-bank to consider a one-time settlement to settle the dues; that since there was no reply, the petitioners filed S.A. Nos. 21 and 22 of 2005 before the Debts Recovery Tribunal, which were dismissed; that the second respondent sent a letter dated November 11, 2005, informing that the mortgaged property will be brought to sale after the expiry of 30 days from that date by public auction and they brought the property for auction on December 19, 2005; that the petitioners approached the first respondent-bank on January 2, 2006, and deposited three cheques for a total sum of Rs. 25,21,446 to discharge the amount due and payable in respect of the notice issued to the petitioners; that the first respondent - bank returned the said cheques on January 4, 2006, informing that the property had already been sold and the sale was to be confirmed on or before January 17, 2006; that the petitioners filed I.A. Nos. 13 and 14 of 2006 for condoning the delay in filing the petition to restore the said appeals, which were dismissed on the ground that the auction purchaser, who is the third respondent herein, paid the entire sale consideration and the sale certificate was issued to him on January 6, 2006; that again the petitioners sent a notice dated January 13, 2006, enclosing demand drafts for Rs. 25,00,000 drawn in favour of the second respondent and informed that the balance amount would be paid, which were received by the respondents; that after having received the said demand drafts, instead of setting aside the sale, they sent another notice dated January 6, 2006, informing that the successful bidder has remitted the balance amount on January 4, 2006; that the respondents ought to have proceeded with taking possession of the mortgaged property within 30 days/especially when the mortgagor had paid the entire amount and hence, these writ petitions have been filed.
3. The case of the respondents is that the petitioners have availed of various loans from the first respondent; that they defaulted in repayment of the dues of the said loans and consequently the respondents invoked the provisions of SARFAESI Act to recover the dues by proceeding against the secured assets; that notices of demand under Section 13(2) was issued on December 1, 2004; that the petitioners received the said notices and submitted their reply, seeking time up to February 5, 2005, for payment of the dues, but they have not paid the dues and thereafter, the first respondent invoked Section 13(4) of the SARFAESI Act and took constructive/symbolic possession of the secured assets on February 8, 2005; that the petitioners challenged the said auction initiated by the respondents by filing appeals in S.A. Nos. 21 and 22 of 2005 under Section 17 of the SARFAESI Act before the Debts Recovery Tribunal and in the said appeal, a conditional order of stay directing the petitioners to pay a sum of Rs. 1.50 lakhs each, which was not complied with, as a result of which, the interim order granted in the said appeal was vacated and later the said appeals were also dismissed for default on September 28, 2005; that the first respondent brought the secured assets for sale and the petitioner neither objected to the same nor challenged the same; that the sale was held on December 19, 2005; that the third respondent was the successful bidder, who offered a sum of Rs. 42,51,000 and also complied with all the terms and conditions of sale and hence, the sale was confirmed in his favour and the third respondent also paid the entire sale consideration on January 4, 2006; that a sum of Rs. 12,40,000 was given credit to the loan account of the petitioner in W.P. No. 634 of 2006 and a sum of Rs. 12,52,350 was given credit to the loan account of the petitioner in W.P. No. 635 of 2006 and their loan accounts were closed; that the sale certificate was also issued to the third respondent on January 6, 2006; that the petitioners have filed petitions to restore S.A. Nos. 21 and 22 of 2005, which were also dismissed for non-payment of court fee on January 10, 2006; that these writ petitions have been filed at that stage; that after deducting a sum of Rs. 10,000 towards legal expenses of the first respondent, the balance amount of Rs. 17,48,250 was lying with the first respondent; that the first respondent returned a sum of Rs. 17,25,000 to the petitioner in W.P. No. 634 of 2006, which was returned; that the petitioners forwarded demand drafts for Rs. 25,00,000 drawn in favour of the second respondent, which was received on January 17, 2006, along with a anti-dated letter January 12, 2006, but the second respondent did not encash the demand draft.
4. Learned Counsel for the petitioners has submitted that the respondents failed to appreciate Section 37 of the SARFAESI Act and Rule 60 of the Second Schedule to the Income-tax Rules, hence they ought to have waited for 30 days to enable the petitioner to pay 5 per cent, of the sale amount and other charges. In support of his contention, learned Counsel for the petitioner has relied on the judgment rendered in the case of Mardia Chemicals Ltd. v. Union of India , wherein it was held in paragraph 54 as under (page 406):
In so far as the argument advanced on behalf of the petitioners that by virtue of the provisions contained under Sub-section 4 of Section 13 the borrowers lose their right of redemption of the mortgage, in reply it is submitted that rather such a right is preserved under Sub-section (8) of Section 13 of the Act. Where a borrower tenders to the creditor the amount due with costs and expenses incurred, no further steps for sale of the property are to take place. In this connection, a reference has also been made by the learned Attorney General to the decision in Narandas Karsondas v. S.A. Kamtam , which provides that a mortgagor can exercise his right of redemption any time until the final sale of the property by execution of a conveyance. Shri Sibal, however, submits that it is the amount due according to the secured creditor which shall have to be deposited to redeem the property. May be so, some difference regarding the amount due may be there but it cannot be said that right of redemption of property is completely lost. In cases where no such dispute is there, the right can be exercised and in other cases the question of difference in amount may be kept open and got decided before sale of property.
5. Learned Counsel for the first respondent has submitted that under Section 13 of the SARFAESI Act, if all the dues to the secured creditor with cost, expenses are paid to the secured creditor before the time fixed for auction, the secured asset shall not be sold, however, the SARFAESI Act does not contain any provision for setting aside the sale; that once the sale is effected, it is not open to the borrower or guarantor or mortgagor to set aside the same, on any ground, which is also evident from Rules 3, 4 and 9 of the Security Interest (Enforcement) Rules, in which the purchaser shall pay 25 per cent, of the sale consideration immediately on the date fixed for sale and the balance sale consideration within 15 days from the date of confirmation of sale; that on payment of the entire sale consideration, the purchaser is entitled to get the sale certificate registered in his favour and prayed for dismissal of these writ petitions.
6. Learned Counsel for the third respondent has submitted that the third respondent was the highest bidder, whose bid was accepted and he also paid the entire sale consideration within the time stipulated and the sale certificate was also issued to him; that the petitioners had filed Section As. before the Debts Recovery Tribunal where conditional orders were passed which was not complied with and later the same was dismissed; that after issuance of sale certificate, the present writ petitions were filed invoking Article 226 of the Constitution of India; that this Court may not interfere, even if there is a technical violation of law and prayed for dismissal of these writ petitions.
7. This Court carefully considered the submissions of learned Counsel on either side and also perused the material records placed.
(i) Section 13(8) of the SARFAESI Act reads as under:
If the dues of the secured creditor together with all costs, charges and expenses incurred by him are tendered to the secured creditor at any time before the date fixed for sale or transfer, the secured asset shall not be sold or transferred by the secured creditor, and no further step shall be taken by him for transfer or sale of that secured asset.
(ii) Section 35 of the SARFAESI Act reads as under:
The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.
(iii) Section 37 of the SARFAESI Act reads as under:
The provisions of this Act or the rules made thereunder shall be in addition to and not in derogation of the Companies Act, 1956 (1 of 1956), the Securities Contracts (Regulation) Act 1956 (42 of 1956), the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) or any other law for the time being in force.
8. Rule 9 of the Security Interest (Enforcement) Rules, 2002, read as under:
Rule 9. Time of sale, issue of sale certificate and delivery of possession, etc. - (1) No sale of immovable property under these rules shall take place before the expiry of thirty days from the date on which the public notice of sale is published in newspapers as referred to in the proviso to Sub-rule (6) or notice of sale has been served to the borrower.
(2) The sale shall be confirmed in favour of the purchaser who has offered the highest sale price in his bid or tender or quotation or offer to the authorised officer and shall be subject to confirmation by the secured creditor:
Provided that no sale under this rule shall be confirmed, if the amount offered by sale price is less than the reserve price, specified under Sub-rule (5) of Rule 9:
Provided further that if the authorised officer fails to obtain a price higher than the reserve price, he may, with the consent of the borrower and the secured creditor effect the sale at such price.
(3) On every sale of immovable property, the purchaser shall immediately pay a deposit of twenty five per cent, of the amount of the sale price, to the authorised officer conducting the sale and in default of such deposit, the property shall forthwith be sold again.
(4) The balance amount of purchase price payable shall be paid by the purchaser to the authorised officer on or before the fifteenth day of confirmation of sale of the immovable property or such extended period as may be agreed upon in writing between the parties.
(5) In default of payment within the period mentioned in Sub-rule (4) the deposit shall be forfeited and the property shall be resold and the defaulting purchaser shall forfeit all claim to the property or to any part of the sum for which it may be subsequently sold.
(6) On confirmation of sale by the secured creditor and if the terms of payment have been complied with, the authorised officer exercising the power of sale shall issue a certificate of sale of the immovable property in favour of the purchaser in the form given in Appendix-V to these rules.
(7) Where the immovable property sold is subject to any encumbrances, the authorised officer may if he thinks fit, allow the purchaser to deposit with him the money required to discharge the encumbrances and any interest due thereon together with such additional amount that may be sufficient to meet the contingencies or further cost, expenses and interest as may be determined by him.
(8) On such deposit of money for discharge of the encumbrances, the authorised officer may issue or cause the purchaser to issue notices to the persons interested in or entitled to the money deposited with him and take steps to make the payment accordingly.
(9) The authorised officer shall deliver the property to the purchaser free from encumbrances known to the secured creditor on deposit of money as specified in Sub-rule (7) above.
(10) The certificate of sale issued under Sub-rule (6) shall specifically mention that whether the purchaser has purchased the immovable secured asset free from any encumbrances known to the secured creditor or not.
9. Chapter III of the Securitisation Act relates to enforcement of security interest. Section 13 of Chapter III deals with any security interest created in favour of any secured creditor may be notwithstanding anything contained in Sections 69 and 69A of the Transfer of Property Act be enforced without the intervention of the court or Tribunal by such creditor in accordance with the provisions of the said section. Sub-section (8) of Section 13 provides that if the dues of the secured creditor together with all costs, charges and expenses incurred by him are tendered to the secured creditor at any time before the date fixed for sale or transfer, the secured assets shall not be sold or transferred by the secured creditor and no further steps shall be taken by him for transfer or sale of that secured asset.
10. Rule 9 of the Security Interest (Enforcement) Rules, 2002, relates to the time of sale, issues of sale certificate and delivery of possession, etc. No sale of immovable property under this rule shall take place before the expiry of 30 days on which public notice of sale is published in newspapers as referred to in the proviso to Sub-rule (6) or notice of sale has been served to the borrower.
11. Sub-rule (3) of Rule 9 says that on every sale of immovable property, the purchaser shall immediately pay a deposit of 25 per cent, of the amount of the sale price to the authorised officer conducting the sale and in default of such deposit, the property shall forthwith be sold again.
12. Sub-rule (4) of Rule 9 says that the balance amount of purchase price payable shall be paid by the purchaser to the authorised officer on or before the fifteenth day of confirmation of sale of the immovable property or such extended period as may be agreed upon in writing between the parties.
13. In the case on hand, it is not in dispute that the respondent bank issued notice dated October 19, 2004, under Section 13(2) of the SARFAESI Act calling upon the petitioners to discharge the loan in sixty days. The petitioners have not complied with the said notice. The respondent-bank exercised its powers under Section 13(4) of the said Act and took possession of the property on February 8, 2005, and issued notice dated November 11, 2005, again calling upon the petitioners to pay the arrears in thirty days failing which the property would be brought for auction. On November 15, 2005, the bank issued necessary advertisement in newspapers fixing auction dated as December 19, 2005, in terms of Rule 9 of the Security Interest (Enforcement) Rule, 2003.
14. In the meantime, the petitioners have filed S.A. Nos. 21 and 22 of 2005 before the Debts Recovery Tribunal under Section 17 of the SARFAESI Act and challenging the notice under Section 13(4) of the said Act and sought for stay and the same was granted with a condition to pay Rs. 1,50,000 each but the said condition was not complied with, hence the Section As. were dismissed on September 28, 2005.
15. As scheduled auction was held on December 19, 2005, in which the third respondent has offered the highest amount of Rs. 42,51,000 which was accepted and he paid 25 per cent, as per Rule 9(3) of the said Rules and on January 4, 2006, he paid the entire balance amount. On January 6, 2006, sale certificate was issued to the third respondent, however, the sale is yet to be registered.
16. In the meantime, the petitioner has filed I.A. Nos. 14 of 2005 and 15 of 2005 to restore S.A. Nos. 21 and 22 of 2005, which were dismissed on January 10, 2006, at that stage, the present writ petitions were filed.
17. On January 13, 2006, the petitioner has issued lawyer's notice enclosing demand draft for Rs. 25,000 drawn in the personal name of the second respondent, which was received by the second respondent on January 17, 2006. It is stated that the demand draft was not encashed by respondents Nos. 1 and 2.
18. The argument of counsel for the petitioner is that the petitioners have sent three cheques for Rs. 25,21,246 on January 2, 2006, i.e., even prior to the issuance of sale certificate on January 6, 2006, but they were returned on the ground that sale was already over and confirmation to be made shortly, which is in contravention to the provisions of Sub-section (8) of Section 13 of the Act. It is further stated by learned Counsel for the petitioner that if the dues of the secured creditor, together with all costs, charges and expenses incurred by him are tendered to the secured creditor at any time before the date fixed for sale or transfer, the secured assets shall not be sold or transferred to the secured creditor and no further steps shall be taken by him for transfer or sale of the secured asset. Learned Counsel for the petitioner insisted on the "words" employed in Sub-section (8) that "for sale or transfer, sold or transfer" indicate that even though auction was over, till the transfer of possession is effected, dues of the secured creditor, together with all costs, charges and expenses incurred by him are tendered, it should have been received by them, but without doing so, the cheques were returned, hence, the sale in favour of the third respondent is invalid. It is further pointed out by counsel for the petitioner that the petitioner has sent lawyer's notice dated January 13, 2006, enclosing the demand draft for Rs. 25 lakhs, which was received by the respondent-bank, but not encashed; that issuance of the cheque dated January 2, 2006, and demand draft dated January 13, 2006, made it clear that prior to delivery of possession by the bank to the third respondent, the dues were tendered. In support of this contention, learned Counsel for the petitioner relied on the decision of the hon'ble Supreme Court reported in Narandas Karsondas v. S.A. Kamtam , wherein in paragraphs Nos. 34 and 35, it was held thus (page 254):
34. The right of redemption which is embodied in Section 60 of the Transfer of Property Act is available to the mortgagor unless it has been extinguished by the act of parties. The combined effect of Section 54 of the Transfer of Property Act and Section 17 of the Indian Registration Act is that a contract for sale in respect of immovable property of the value of more than one hundred rupees without registration cannot extinguish the equity of redemption. In India it is only on execution of the conveyance and registration of transfer of the mortgagor's interest by registered instrument that the mortgagor's right of redemption will be extinguished. The conferment of power to sell without intervention of the court in a mortgage deed by itself will not deprive the mortgagor of his right to redemption. The extinction of the right of redemption has to be subsequent to the deed conferring such power. The right of redemption is not extinguished at the expiry of the period. The equity of redemption is not extinguished by mere contract for sale.
35. The mortgagor's right to redeem will survive until there has been completion of sale by the mortgagee by a registered deed. In England a sale of property takes place by agreement but it is not so in our country. The power to sell shall not be exercised unless and until notice in writing requiring payment of the principal money has been served on the mortgagor. Further, Section 69(3) of the Transfer of Property Act shows that when a sale has been made in professed exercise of such a power, the title of the purchaser shall not be impeachable on the ground that no case had arisen to authorise the sale. Therefore, until the sale is complete by registration the mortgagor does not lose right of redemption.
19. Relying on the abovesaid judgment of the hon'ble Supreme Court, learned Counsel for the petitioner argued that the right of redemption which is embodied in Section 60 of the Transfer of Property Act is available to the mortgagor unless it has been extinguished by the act of parties; that until the sale is complete by registration, the mortgagor does not lose right of redemption. It is further pointed out by learned Counsel for the petitioner that the respondents in their counter in paragraph 8 has admitted that "later, the respondents issued sale certificate to the purchaser on November 6, 2006. However, the same is yet to be registered". The further argument of counsel for the petitioner is that Rule 60 of Schedule II to the Income-tax Rules is applicable to the SARFAESI Act, Section 37 made it clear that the provisions of the SARFAESI Act shall be in addition to and not in derogation of other Acts. Learned Counsel for the petitioner further relied on the decision reported in Mardia Chemicals Ltd. v. Union of India , which is extracted above, wherein their Lordships have held that where a borrower tenders to the creditor the amount due with costs and expenses incurred, no further steps for sale of property are to take place, for which their Lordships relied on the decision reported in Narandas Karsondas v. S.A. Kamtam [1977] 3 SCC 247, which provides that mortgagor can exercise his right of redemption any time until the final sale of property by execution of conveyance. Even some difference regarding amount due may be there but it cannot be said that the right of redemption of property is completely lost.
20. Learned Counsel for respondents Nos. 1 and 2 submitted that the respondents denied the argument of the petitioner that they deposited three cheques for a total sum of Rs. 25,27,446. In so far as demand draft for Rs. 25 lakhs was sent along with advocate notice dated January 13, 2006, by the petitioner is concerned, it is stated by counsel for respondents Nos. 1 and 2 that the same was received by them only on January 17, 2006, i.e., after the confirmation made on January 6, 2006, however, the same was not encashed. In so far as the averment regarding denial of receipt of three cheques is concerned, the petitioner has not filed any reply.
21. Now, it has to be decided as to whether the demand draft sent by the petitioners along with the advocate notice dated January 13, 2006, which is stated to have been received by respondents Nos. 1 and 2 on January 17, 2006, would protect the right of redemption of the petitioner or not. Admittedly, in this case, the conveyance is not executed. In this context, it would be appropriate to look into the decision of the hon'ble Supreme Court reported in Narandas Karsondas v. S.A. Kamtam , wherein it is held that the mortgagor's right to redeem survives until there has been completion of sale by the mortgagee by a registration of sale deed. In this context, it is also relevant to refer to Sub-section (8) of Section 13 of the SARFAESI Act wherein it is stated that "if the dues of the secured creditor together with all costs, charges and expenses incurred by him are tendered to the secured creditor at any time before the date fixed for sale or transfer, the secured assets shall not be sold or transferred by the secured creditor and no further steps shall be taken by him for transfer or sale of that secured asset". The words employed in Sub-section (8) of Section 13, namely, "sale or transfer" connotes execution of the conveyance/registered sale deed. Admittedly, in paragraph 8 of the counter of respondents Nos. 1 and 2, it is mentioned that "sale is yet to be registered". In this case, it is not in dispute that the sale deeds are not executed by respondents Nos. 1 and 2 in favour of the third respondent till January 17, 2006, on which date, respondents Nos. 1 and 2 have received the demand draft for Rs. 25 lakhs sent by the petitioner, hence, this Court is of the considered view that the petitioners right of redemption has not been extinguished. Even if there is some difference with regard to the amount due to respondents Nos. 1 and 2, it cannot be stated that the right of redemption of property has been completely lost. If there is any amount still payable by the petitioners, after adjusting the sum of Rs. 25 lakhs, they are directed to pay the same within a period of four weeks from today.
22. In view of the abovesaid conclusion, this Court is of the view that no finding is necessary in this case, as to whether Rule 60 of the Second Schedule to the Income-tax Rules is applicable or not and the same is answered accordingly.
23. An argument was advanced by learned Counsel for the respondents that an alternative and efficacious remedy is available to the petitioners before the Debts Recovery Tribunal, hence, seeking the relief under Article 226 of the Constitution of India is not maintainable. In the instant case, the question as to what is the true connotation of the words "sale" or "transfer" or "sold" or "transferred" and whether the right of the mortgagor is extinguished by action or execution of conveyance was a question of law, hence, this court, in order to decide the same, have entertained these writ petitions. In this context, it would be appropriate to refer the decision rendered by the hon'ble Supreme Court in the State of U.P. v. Indian Hume Pipe Co. Ltd. , wherein in paragraph 4 it was held thus (page 1134):
4. Lastly, it was feebly argued by Mr. Manchanda that the High Court ought not to have entertained the writ petition and should have allowed the assessee to avail of the remedies provided to him under the U.P. Sales Tax Act, particularly when questions of fact had to be determined. In the instant case, the question as to what is the true connotation of the words 'sanitary fittings' and whether the hume pipes manufactured and sold by the respondent were sanitary fittings within the meaning of that expression was a question of law and since the entire material on the basis of which this question could be determined was placed before the sales tax officer and it pointed in one and only one direction, namely, that the hume pipes were not sanitary fittings and there was nothing to show otherwise, the High Court was justified in entertaining the writ petition. Moreover, there is no rule of law that the High Court should not entertain a writ petition where an alternative remedy is available to a party. It is always a discretion with the court and if the discretion has been exercised by the High Court not unreasonably or perversely, it is settled practice of this Court not to interfere with the exercise of discretion by the High Court. The High Court in the present case entertained the writ petition and decided the question of law arising in it and in our opinion rightly....
24. In view of the said discussions, the writ petitions are allowed in the above terms. No costs. Consequently, connected miscellaneous petitions are closed.