Kerala High Court
State Bank Of India vs Satheesh Babu on 6 August, 2015
Author: Ashok Bhushan
Bench: Ashok Bhushan, A.M.Shaffique
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT:
THE HONOURABLE THE CHIEF JUSTICE MR.ASHOK BHUSHAN
&
THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE
THURSDAY, THE 7TH DAY OF APRIL 2016/18TH CHAITHRA, 1938
WA.No. 2488 of 2015 () IN WP(C).5365/2015
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AGAINST THE ORDER/JUDGMENT IN WP(C).5365/2015 of HIGH COURT OF KERALA
DATED 06-08-2015
APPELLANT(S)/RESPONDENTS 1 & 2:
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1. STATE BANK OF INDIA
STATE BANK OF INDIA STRESSED ASSETS RESOLUTION CENTRE
LOCAL HEAD OFFICE ANNEX (WING I) 1ST FLOOR
CHILD WELFARE COMPLEX, LMS COMPOUND
THIRUVANANTHAPURAM
PIN-695 033 REPRESENTED BY ITS CHIEF MANAGER.
2. THE AUTHORISED OFFICER, STATE BANK OF INDIA,
STRESSED ASSETS RESOLUTION CENTRE
LOCAL HEAD OFFICE ANNEX (WING I) 1ST FLOOR
CHILD WELFARE COMPLEX, LMS COMPOUND
THIRUVANANTHAPURAM, PIN-695 033
BY ADV. SRI.R.S.KALKURA
RESPONDENT(S)/PETITONER & RESPONDENTS 3 TO 5:
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1. SATHEESH BABU, AGED 57 YEARS
S/O.LATE SRI.K.MADHAVAN, RESIDING AT ANJALI, TC-2/869
PRA-145, PUTHUPPALLYLANE, MEDICAL COLLEGE.P.O.
THIRUVANANTHAPURAM, PIN-695 011.
2. K.A.THOMAS, AGED ABOUT 70 YEARS,
S/O.LATE ABRAHAM, GILEAD, AGED 70 YEARS
MALLAPPUZHASSERRY VILLAGE, PUNNAKKAD.P.O.
KOZHENCHERY TALUK, PATHANAMTHITTA, PIN-689 652.
3. SOSAMMA THOMAS, D/O.ALEYAMMA, GILEAD,
MALLAPPIZHASSERRY VILLAGE, , AGED 65 YEARS
PUNNAKKAD.P.O., KOZHENCHERY TALUK, PATHANAMTHITTA
PIN-689 652.
4. THE STATE OF KERALA
REPRESENTED BY ITS SECRETARY, REVENUE DEPARTMENT
GOVERNMENT SECRETARIAT,THIRUVANANTHAPURAM
PIN-695 001.
R1 BY ADV. SRI.P.CHANDRASEKHAR
R1 BY ADV. SRI.THOMAS M.JACOB
R1 BY ADV. SRI.AKHIL K.MADHAV
R1 BY ADV. SRI.T.R.JERRY SEBASTIAN
R4 BY SR GOVERNMENT PLEADER SRI.P.I.DAVIS
R2 & 3 BY SRI.D.KISHORE
THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 23-03-2016, THE
COURT ON 07-04-2016 DELIVERED THE FOLLOWING:
ASHOK BHUSHAN, C.J.
&
A.M. SHAFFIQUE, J.
================
W.A. No. 2488 of 2015
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Dated this, the 7th day of April, 2016
J U D G M E N T
Shaffique, J.
This appeal is filed by the respondents 1 and 2 in WP(C) No. 5365/2015 challenging judgment dated 6/8/2015 by which the learned Single Judge disposed of the writ petition directing the Bank to issue a fresh sale certificate to the petitioner and to effect delivery of the property within a specified time.
2. The short facts involved in the writ petition would disclose that the 1st respondent in the appeal, who is hereinafter referred to as the petitioner, purchased certain item of property in an auction conducted by the 1st appellant exercising power under the SARFAESI Act, 2002. Pursuant to the auction, he deposited the entire amount of `81 lakhs. Petitioner submits that he entered into a contract for sale of the property purchased by him with the 3rd and 4th respondents. The sale consideration was `1,50,00,000/- which he received and executed an agreement on 7/11/2008. As W.A. No.2488/15 -:2:- per the terms of the agreement, the sale certificate had to be obtained in the name of respondents 3 and 4. Accordingly, Ext.P3 sale certificate had been issued by the 2nd appellant, Authorized Officer in favour of respondents 3 and 4. Petitioner submits that after the auction, it was found that there had been substantial arrears and dues in respect of the property. Though sale certificate was issued, the property was not given delivery nor the sale certificate was registered in favour of respondents 3 and 4. In the meantime, a dispute had arisen between petitioner and respondents 3 and 4 and they approached this Court by filing WP (C) No. 3011/2012 seeking for a direction to deliver the property and to register the sale deed in their favour. By judgment dated 13/3/2012 in WP(C) No. 3011/12, this Court disposed of the writ petition directing the Bank to register the sale certificate issued in the name of respondents 3 and 4 and also to deliver the property in terms of Rule 9(9) of the Security Interest (Enforcement) Rules, 2002. However, the registration did not take place as according the petitioner, Bank was not amenable for incorporating a clause to safeguard the interest of respondents 3 and 4. Respondents 3 and 4 approached this Court again by filing WP(C) No. W.A. No.2488/15 -:3:- 20707/2013 seeking refund of `81 lakhs paid by them. During the pendency of the writ petition, the petitioner settled the matter with respondents 3 and 4 by paying back the entire amount. An affidavit was filed before this Court along with letter dated 17/10/2013, which is produced as Ext.P5. In the said letter addressed by respondents 3 and 4 to the Authorized Officer, they confirmed of having received certain amounts from the petitioner in full and final settlement and they have also stated that they were surrendering the sale certificate and that all prior agreements shall stand terminated. The writ petition was disposed of by this Court as per judgment dated 4/11/2013 observing that "it is open to the Bank to issue the sale certificate to the 3rd respondent or to his nominee notwithstanding Ext.P8 judgment in view of the changed circumstances". Ext.P8 is the judgment in WP(C) No. 3011/2012. The 3rd and 4th respondent surrendered the sale certificate as per letter dated 7/11/2013. The Bank filed RP No.941/13 in WP(C) No. 20707/13 seeking to review the said judgment on the ground that a sale certificate had already been issued and the Bank cannot issue another sale certificate. By order dated 10/12/2013 in RP No.941/2013, this W.A. No.2488/15 -:4:- Court deleted para 3 of judgment dated 4/11/2013. However, it was made clear that the right of the 3rd respondent in the writ petition (petitioner herein) to get a fresh sale certificate issued in his name is left open to be agitated before the appropriate forum. Later, the petitioner filed RP No. 248/2014 in WP(C) No. 3011/2012, seeking for a direction to the Bank to issue sale certificate in his name. By order dated 7/1/2015 it was clarified that directions in WP(C) No. 3011/2012 will not stand in the way of the review petitioner in seeking remedies mentioned therein against the Bank in appropriate legal proceedings.
3. According to the petitioner, he is the auction purchaser and the agreement between respondent 3 and 4 did not fructify. Though a sale certificate was issued, as the property was not registered or delivered, he is entitled for a sale certificate in his name or in the name of his nominee. Petitioner therefore inter alia sought for the following reliefs:
"(i) Issue a writ of Mandamus or such other appropriate writ, direction or order commanding the 1st and 2nd respondents to issue fresh Sale Certificate to the petitioner or his nominee in respect of the property auctioned by the petitioner in place of Ext.P3 Sale Certificate within a time W.A. No.2488/15 -:5:- frame fixed by this Honourable Court.
(ii) Issue a writ of Mandamus or such other appropriate writ, direction or order commanding the 1st and 2nd respondents to deliver the property auctioned to the petitioner or his nominee within a time fame fixed by this Honourable Court.
(iii) Issue a writ of Mandamus or such other appropriate writ, direction or order commanding the 1st and 2nd respondents to handover the original title deed of the predecessors in interest and all prior documents of the property in issue that was entrusted to the bank at the time of taking loan and creating mortgage, within a time frame fixed by this Honourable Court."
4. The writ petition was opposed by the 1st respondent who filed counter affidavit inter alia contending that though the property was sold in favour of the petitioner, he requested for issuing sale certificate in the name of respondents 3 and 4. Once the sale certificate had been issued, there cannot be another sale certificate issued in favour of the petitioner. Therefore, according to them, no such relief could be granted. It is also stated that once the sale certificate is issued in terms of Rule 9(6) of the Security Interest (Enforcement) Rules, 2002, the sale proceedings become complete and absolute. As far as registration is W.A. No.2488/15 -:6:- concerned, it is not mandatory and it is for the purchaser at his own volition to take necessary steps to get the same registered at the Sub Registrar's office. It is stated that the Bank was not averse to registering the property, but since respondents 3 and 4 have not approached for registration, the same was not done. It is contended that no direction could be issued as the petitioner has no legal right to raise such a demand.
5. Learned Single Judge however observed that when the contract between the Bank, petitioner and respondents 3 and 4 stands discharged on account of non performance and the other two parties to the contract have no dispute, Bank cannot contend that there is a sale between the petitioner and respondents 3 and
4. It is therefore observed that the sale certificate issued by the Bank has no legality. It is further observed that as far as contract between the Bank and the petitioner is concerned, the Bank is under obligation to issue sale certificate in favour of a nominee to whom transfer of ownership would pass legally. It was observed that having agreed to the proposal of the petitioner that the sale shall be effected in the name of nominee, when there is withdrawal of the terms of the agreement, it amounts to W.A. No.2488/15 -:7:- arbitrariness and accordingly, learned Single Judge observed that to avoid further controversy, Bank has to issue a sale certificate in favour of the petitioner.
6. Learned counsel for the Bank Sri.R.S.Kalkura contended that as far as the Bank is concerned, the sale is complete when the sale certificate is issued as provided under Rule 9(6). Thereafter, it is for the property owner to get the sale certificate registered. If they want to cancel the sale certificate, it has to be done by executing a proper deed. If they want to assign the property in favour of the petitioner, still, they have to execute a proper document in accordance with law. As far as the Bank is concerned, the sale has been complete on issuance of sale certificate. Learned counsel also placed reliance on the judgment of this Court in Kottakkal Co-operative Urban Bank v. T.Balakrishnan and another (2008 (2) KLT 456), wherein a learned Single Judge of this Court while considering the question regarding the procedure to be adopted in a matter relating to possession being taken, held at para 7 as under:
"7. While there is a vesting of right, exclusively with the transferee under a sale in terms of S.13(6), W.A. No.2488/15 -:8:- such vesting of sale gives the transferee the right to demand the secured creditor for actual physical possession. Such vesting, by operation of S.13(6), is in relation to the secured asset as if the transfer had been made by the owner of such secured asset. Such deemed vesting, by operation of law, gives the entitlement to the transferee to insist that the secured creditor puts the transferee in de facto possession by dispossessing the secured debtor who continues in de facto possession only by the choice of the secured creditor to take only de jure possession, leaving the secured debtor with actual possession. Therefore, the secured creditor, who has taken over de jure possession continues to be a secured creditor, duty bound to give the transferee de facto possession and such liability of the secured creditor gives sufficient standing to sustain the application for dispossession of the secured debtor, of de facto possession over the security interest, by recourse to S.14 of the Act. On this count also, a secured creditor who has not taken de facto possession but has proceeded and completed transfers on the basis of de jure possession is entitled to apply for assistance of the Chief Metropolitan Magistrate or the District Magistrate, as the case may be, for taking over actual physical possession from the secured debtor. The result of that proceedings would be that the secured debtor would be dispossessed of actual possession and de facto possession would be taken by the secured creditor, who would then, duty bound, as he is, W.A. No.2488/15 -:9:- transfer such de facto possession to the transferee of rights under S.13(6) of the Act."
7. Another judgment relied upon is M/s.MGM Pooja Buildtech Private Limited v. Chief Manager and the Sub- Registrar (AIR 2014 Karnataka 13). This judgment is by a learned Single Judge of Karnataka High Court. It is relied upon to contend that when a certificate of sale is issued under the SARFAESI Act, 2002 read with the rules, registration is not compulsory in terms of Section 17(2)(xii) of the Registration Act.
8. Another judgment relied upon is of a learned Single Judge of Madhya Pradesh High Court (Gwalior Bench) Ms. Gaurav Enterprises v. State Bank of India (AIR 2012 MP 35). This judgment is relied upon for the proposition that once the sale of a secured asset is completed in public auction, which ended in issuance of a sale certificate as per Rule 9(7) of the 2002 Rules, the same is complete and absolute.
9. Reference is also made to the Division Bench judgment of Madras High Court in K. Chidambara Manickam v. Shakeena (AIR 2008 Madras 108). This is also a case where the Division Bench had to consider the scope and effect of W.A. No.2488/15 -:10:- registration when a property is sold and a certificate is issued in terms of the SARFAESI Act and the rules framed thereunder. It was held that the sale of the secured asset was in public auction as per Section 13(4) of SARFAESI Act, which ended in issuance of a sale certificate as per Rule 9(7) of the Rules and is a complete and absolute sale for the purpose of SARFAESI Act and the same need not be registered under the provisions of the Registration Act.
10. On this basis, it is argued that as far as the Bank is concerned, when sale certificate had been issued in favour of respondents 3 and 4, the sale is complete and if at all the petitioner wants a transfer of the property in his name, the respondents 3 and 4 have to assign the property in favour of the petitioner.
11. On the other hand, learned counsel appearing on behalf of the petitioner submits that it is by virtue of Ext.P1 letter dated 17/12/2007 petitioner had submitted quotation on condition that the property may be registered in his name or in the name of his nominee whom he may appoint. It is argued that it is pursuant to the above arrangement that the sale was effected and therefore the Bank came under obligation to issue sale W.A. No.2488/15 -:11:- certificate either in the name of the petitioner or in the name of his nominee. He had entered into Ext.P2 agreement with respondents 3 and 4. However, the said agreement did not fructify and in the meantime the sale certificate has been issued in favour of respondents 3 and 4 on 6/11/2008. It is stated that when the document is incomplete, in so far as it is not in stamp paper and unregistered, it will not confer any right on respondents 3 and 4. Now that respondents 3 and 4 have backed out of the transaction for various reasons, and they have returned the sale certificate to the Bank, nothing prevents the Bank from issuing sale certificate in favour of the petitioner. It is submitted that if the course adopted by the Bank is undertaken, unnecessarily, two stamp duty and registration fee will have to be paid. Learned counsel also relied upon judgment of the Supreme Court in Mathew Varghese v. M.Amritha Kumar [(2014) 5 SCC 610] wherein the Apex Court had occasion to consider the procedure to be adopted when the sale is adjourned and the right of the mortgagor to redeem the mortgage before completion of sale. It is held that for the same to be effected under Sec.13(8) of the SARFAESI Act, the procedure under Rule 8 read with Rule 9(1) W.A. No.2488/15 -:12:- has to be followed. It is argued that the sale will be complete only after registration of sale and therefore, if a mortgagor can seek for redemption before the sale deed is registered, it apparently indicates that the sale becomes complete only on execution of a registered document.
12. Learned counsel appearing on behalf of respondent 3 and 4 submits that they have no objection in the Bank issuing a sale certificate in favour of the petitioner as the contractual obligations between them have already been settled. They have received back their money from the petitioner and they are willing to execute any document by which property can be settled in favour of the petitioner. However, it was stated that there is no necessity for paying stamp duty twice if a sale is to be effected by the Bank in favour of respondents 3 and 4 and thereafter the respondents 3 and 4 executing another sale deed in favour of the petitioner.
13. Learned Single Judge proceeded on the basis that there is a tripartite agreement between the parties, but, however, the sale certificate had become invalid as one of the parties had backed out the agreement.
W.A. No.2488/15 -:13:-
14. Taking into consideration the arguments on either side, we are of the view that this case has to be considered in the light of the statutory provisions available under the SARFAESI Act and the Rules framed thereunder.
15. Chapter III of the SARFAESI Act, 2002 relates to enforcement of security interest. Section 13(4) of the Act permits the secured creditor to take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured debt. Section 13(6) indicates that any transfer of secured asset after taking possession by the secured creditor shall vest in the transferee all rights in, or in relation to, the secured asset transferred as if the transfer had been made by the owner of the secured asset. Section 14 permits the secured creditor to approach the Chief Metropolitan Magistrate or District Magistrate within whose jurisdiction the secured asset is situated for taking possession of the secured asset by the secured creditor or if any of the secured asset is required to be sold or transferred by the secured creditor under the provisions of the Act. The procedure for sale of property is in terms with the Security Interest (Enforcement) W.A. No.2488/15 -:14:- Rules, 2002. Sale of immovable secured assets is dealt with under Rule 8. Sub rule (8) of Rule 8 states that sale by any method other than public auction or public tender shall be on such terms as may be settled between the parties in writing. Rule 9 relates to the procedure to be followed for issuance of sale certificate, delivery of possession etc. Sub rule (2) indicates that 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 authorized officer and it shall be subject to confirmation by the secured creditor. Rules further indicate that sale shall be confirmed on receipt of the entire amount by the purchaser. Sub rule (6) indicates that on confirmation of sale by the secured creditor and if the terms of payment have been complied with, the authorized 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 the Rules. Sub rule (10) indicates that the certificate of sale issued under sub rule (6) shall specifically mention whether the purchaser has purchased immovable secured asset free from any encumbrances known to the secured creditor or not.
W.A. No.2488/15 -:15:-
16. The contention urged by the appellants is that once the sale certificate has been issued in terms of Rule 9 (6) of the Rules in Appendix V form, there is completion of sale. In the case on hand, though the offer was made by the petitioner, sale certificate was issued in the name of respondents 3 and 4 as per an agreement between the petitioner and the Bank. What is the effect of the sale certificate issued in terms of Rule 9(6) gains importance. Section 13(6) indicates that any transfer of the secured asset after taking possession thereof by the secured creditor shall vest in the transferee all rights in, or in relation to, the secured asset. Sec.13 (6) reads as under:
"(6) Any transfer of secured asset after taking possession thereof or take over of management under sub-section (4), by the secured creditor or by the manager on behalf of the secured creditors shall vest in the transferee all rights in, or in relation to, the secured asset transferred as if the transfer had been made by the owner of such secured asset."
The petitioner has a contention that possession of property has not been handed over to respondents 3 and 4. Though sale certificate had been issued in their favour, there is no vesting of W.A. No.2488/15 -:16:- any rights in relation to the secured asset unless possession is handed over. Therefore, in the case on hand, issuance of sale certificate by itself will not amount to vesting of all the rights on the transferee. In such a situation, when a request is made by the holder of the sale certificate, nothing prevents the Bank in issuing a fresh sale certificate in favour of the petitioner.
17. At this juncture, it is worthwhile to consider the question whether the sale certificate becomes valid only on registering the same in accordance with the Registration Act. In Mathew Varghese's case (supra), the Supreme Court was considering the question whether the sale of property in favour of the auction purchaser was in accordance with the procedure prescribed and whether the borrower's right can be said to be infringed. After considering the various statutory provisions, including the provisions of the Transfer of Property Act, it was held that the borrower gets a right to assail the sale until the deed is registered in favour of the buyer. It is argued that when a such a proposition has been held by the Supreme Court, in the absence of registration of sale certificate, there is no sale in the eye of law.
W.A. No.2488/15 -:17:-
18. On an analysis of the 2002 Act and the Enforcement Rules, the following facts are clear:
(i) In terms of Section 13(4)(a), Secured Creditor has the right to take possession of secured assets of the borrower and recover the debt by sale of the secured asset.
(ii) Section 13(6) provides that any transfer of secured asset after taking possession thereof by the secured creditor shall vest in the transferee all rights in, or in relation to, the secured asset as if the transfer had been made by the owner of the secured asset.
(iii) Rule 8 of Enforcement Rules permits the authorised officer to take or cause to be taken possession of the secured asset by delivering a possession notice as nearly as possible in Appendix IV to the rules to the borrower and by affixture on the outer door or at such conspicuous place of the property.
(iv) Rule 8(2) provides for publication of possession notice as referred to in sub-rule (1).
(v) Rule 8(3) indicates that if the possession is actually taken by the authorised officer, such property shall be kept in his own custody.
W.A. No.2488/15 -:18:-
(vi) Rule 9(2) of the Enforcement Rules indicates that the sale shall be confirmed by the authorised officer in favour of the purchaser who has offered the highest sale price in his bid, tender, quotation or offer and the same shall be subject to confirmation by the secured creditor.
(vii) Rule 9 (6) provides that when the secured creditor has confirmed the sale 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 the Rules.
(viii) Rule 9(9) further indicates that the authorised officer shall deliver the property to the purchaser free from encumbrances known to the secured creditor on deposit of any amount as specified in sub-rule (7).
(ix) Sub-rule (7) is attracted when the immovable property is sold subject to any encumbrances. In such instances, the authorized officer may allow the purchaser to deposit the money required to discharge the encumbrances and interest due thereon and additional amount if any to meet the necessary expenses. W.A. No.2488/15 -:19:-
(x) Certificate of sale issued under Rule 9(6) shall specifically mention whether the purchaser has purchased the immovable secured asset free from any encumbrances known to the secured creditor or not.
19. The aforesaid being the statutory provisions, as far as the Bank is concerned, the sale of property is effected when sale certificate is issued in favour of the purchaser. But, as far as the transferee is concerned, vesting of all rights of the owner of the secured asset comes into effect only when there is a transfer of secured asset after taking possession of the property.
20. Petitioner has a case that possession had not been taken so far by respondents 3 and 4 and therefore, the sale is not complete. There cannot be dispute about the proposition that sale certificate itself amounts to a transfer of title provided possession is given in favour of the purchaser. Though it is contended by the learned counsel for the petitioner that to complete the sale, registration is compulsory, having regard to the provisions of the special enactment, it cannot be contended that registration of the sale certificate is compulsory for completing the sale. This position has been clearly held by the W.A. No.2488/15 -:20:- Division Bench of the Madras High Court in K. Chidambara Manickam (supra).
21. The only aspect therefore that remains is that possession has not been handed over in favour of respondents 3 and 4 in order to complete the transfer. That apart, the sale certificate has not so far been engrossed in a stamp paper. In such circumstances, when respondents 3 and 4 had requested the Bank that the sale certificate may be issued in favour of the petitioner, the Bank though not under a legal obligation to provide a fresh certificate in favour of the petitioner, still, taking into account the overall factual scenario, and the fact that the possession of the property has not been granted in favour of respondents 3 and 4, we are of the view that such a request ought to have been considered by the appellant Bank.
22. Though we do not agree with the finding of the learned Single Judge that the tripartite contract has not been complied by the Bank, still, taking into consideration the factual scenario involved in the case and the fact that possession of the property is not so far handed over, the learned Single Judge was justified in directing the Bank to issue a sale certificate in favour of the W.A. No.2488/15 -:21:- petitioner.
Hence, we modify the directions issued by the learned Single Judge to the following extent and the appeal is disposed of as under:
(1) That the petitioner and respondents 3 and 4 shall seek for cancellation of the sale certificate issued in favour of the respondents 3 and 4 within a period of 15 days from the date of receipt of a copy of this judgment.
(2) On receipt of the said request, the appellant Bank shall cancel the sale certificate issued in favour of respondents 3 and 4 and issue a fresh sale certificate in favour of the petitioner in the requisite stamp paper to be furnished by the petitioner.
(3) The Bank shall effect necessary registration as requested by the petitioner on the petitioner incurring all expenditure in that regard.
Sd/-
ASHOK BHUSHAN, CHIEF JUSTICE Sd/-
A.M. SHAFFIQUE, JUDGE
Rp //True Copy//
PS to Judge