Rajasthan High Court - Jaipur
Silver City Landmark Pvt Ltd vs Bd And P Hotels (India )Ltd Ors on 17 March, 2011
Bench: Arun Mishra, Mohammad Rafiq
IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR 1. D.B. Civil Special Appeal (Writ) No.635/2010 Silver City Landmark Pvt. Ltd. vs. BD & P Hotels (India) Pvt. Ltd. & Ors. 2. D.B. Civil Special Appeal (Writ) No.641/2010 M/s. Mukundgarh Resorts & Ors. vs. District Judge, Jhunjhunu & Ors. Date of order :: 17.3.2011. HON'BLE THE CHIEF JUSTICE MR. ARUN MISHRA HON'BLE MR. JUSTICE MOHAMMAD RAFIQ Mr. N.K. Maloo, Sr. Advocate with Shri Parag Rastogi) Shri S.R. Bajwa, Sr. Advocate with Shri G.P. Sharma) for appellants. Mr. Alok Sharma, Sr. Advocate with Mr. Harsh Sahu) Mr. Jaideep Singh) Mr. Kamlakar Sharma, Sr. Advocate with) Ms. Alankrita Sharma ) for respondents.
*** In these appeals the question involved is that whether the lessor namely M/s. Mukundgarh Resorts having leased out the property to the lessee M/s. Cross Country Hotels Pvt. Ltd. with the specific stipulation in clause-5 of the lease agreement that the lessee shall have a right to create encumbrances on the lease hold rights possessed by them in favour of any financial institution for loan/finances raised for the development of fort, can claim the possession from the lessee without accounting for the encumbrances created by lessee on having obtained loan of Rs.10.23 crores inter alia with respect to property in question and the property having been sold under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as `SARFAESI Act') to BD & P Hotels (India) Pvt. Ltd. on 4.8.2009 by Tourism Finance Corporation of India Ltd. (hereinafter referred to as`TFCI'), who had taken possession from lessee-M/s. Cross Country Hotels Pvt. Ltd. on 22.8.2008, Whether possession could have been taken by lessor-M/s. Mukundgarh Resorts in execution of the arbitration proceedings as against the lessee M/s. Cross Country Hotels Pvt. Ltd. on 9.3.2010 pursuant to the arbitration award dated 15.2.2010 in which TFCI or the transferee namely BD & P Hotels (India) Pvt. Ltd. were not the parties.
Facts in short giving rise to the appeals are that HUF consisting of Shri Ajit Singh and Smt. Ratan Kanwar transferred property to M/s. Mukundgarh Resorts by way of lease executed on 25.9.1992. M/s. Mukundgarh Resorts, consisting of same persons as partners Shri Ajit Singh and Smt. Ratan Kanwar. M/s. Mukundgarh Resorts executed lease in favour of M/s. Cross Country Hotels Pvt. Ltd. on 13.10.1992. In the lease deed executed between M/s. Mukundgarh Resorts and M/s. Cross Country Hotels Pvt. Ltd., there was specific stipulation by which the M/s. Cross Country Hotels Pvt. was authorised to create encumbrances on the lease hold rights possessed by them in favour of any financial institution for loan/finances raised for the development of fort. Acting upon the aforesaid stipulation in the lease deed the lease hold rights were mortgaged by deposition of title deed in favour of TFCI, an undertaking of Government of India by lessee-M/s. Country Hotels Pvt. Ltd. The TFCI advanced 10.23 crores rupees to M/s. Cross Country Hotels Pvt. Ltd. There was default by M/s. Cross Country Hotels Pvt. Ltd. in making payment of loan to TFCI, who was a secured creditor. Consequently, in the year 2000, original application was filed by TFCI before the Debt Recovery Tribunal (hereinafter referred to as `DRT') as against M/s. Cross Country Hotels Pvt. Ltd. However, on coming into force the SARFAESI Act, on 8.1.2003 notice was issued by TFCI to M/s. Cross Country Hotels Pvt. Ltd. for taking action under section 13(2) of the SARFAESI ordinance at the relevant time. These proceedings were assailed by lessee-M/s. Cross Country Hotels Pvt. Ltd. in the High Court of Delhi by filing CWP No.6707/08 and a writ petition no.9609/08 was also filed in this Court after the property was sold in the proceedings under SARFAESI Act. The writ petition no.9609/08 filed by lessee-M/s. Cross Country Hotels Pvt. Ltd. was dismissed by single bench of this Court on 17.4.09 in which it assailed the taking over of the possession by authorised officer of TFCI of the secured assets on 22.8.08 pursuant to the demand notice dated 8.1.03 u/s.13(4) of the SARFAESI Act. An appeal/application was also filed u/s.17 of the SARFAESI Act before the Debt Recovery Tribunal, New Delhi by the lessee M/s. Cross Country Hotels Pvt. Ltd.
The possession was taken by TFCI from M/s. Cross Country Hotels Pvt. Ltd. on 22.8.08 is not in dispute. The possession was taken over from M/s. Cross Country Hotels Pvt. Ltd., by the mortgagee-TFCI on 22.8.08, notices were also published in the daily newspaper of national fame i.e. Times of India and Rajasthan Patriki (hindi edition) on 26th and 27th August, 08 respectively. Thereafter, M/s. Cross Country Hotels Pvt. Ltd. was not in possession of the property with effect from 22.8.08. The fact is also not in dispute that notice was published for sale of the property in Economic Times newspaper on 16.6.09, thereafter the property was sold by TFCI for realisation of the secured debt to BD & P Hotels (India) Pvt. Ltd. on 4.8.09 and assignee BD & P Hotels (India) Pvt. Ltd. was placed in possession of the property on the date of purchase i.e. 4.8.09.
Though M/s. Cross Country Hotels Pvt. Ltd. was not in possession, however, in the proceedings of arbitration, which was initiated on 15.9.06 between lessor-M/s. Mukundgarh Resorts and lessee-M/s. Cross Country Hotels Pvt. Ltd., an award was passed on 15.2.09. It is not in dispute that TFCI and BD & P Hotels (India) Pvt. Ltd. were not party to the arbitration proceedings. No notice was issued to them of the proceedings by the Arbitrator. The possession had been taken by TFCI from M/s. Cross Country Hotels Pvt. Ltd. on 22.8.08 before the award was passed. Later on execution was filed by M/s.Mukundgarh Resorts as the Arbitrator has passed the award in favour of M/s.Mukundgarh Resorts terminating the lease hold rights of M/s. Cross Country Hotels Pvt. Ltd. as there was failure on the part of M/s. Cross Country Hotels Pvt. Ltd. to make the payment of the lease amount ensured in the lease deed of 25.9.92 which was executed by M/s. Mukundgarh Resorts in their favour. The execution proceedings were filed before the District Court, Jhunjhunu. In these proceedings, possession was sought on the strength of arbitration award, which was passed in favour of lessor-M/s. Mukundgarh Resorts. In these proceedings, it is not in dispute that the possession was sought from M/s. Cross Country Hotels Pvt. Ltd. only. The possession was not sought from TFCI or its transferee BD & P Hotels (India) Pvt. Ltd. whereas TFCI was put in possession on 22.8.08 and BD & P Hotels (India) Pvt. Ltd. on 4.8.09. Thereafter, warrant no.43 dated 5.3.2010 was issued for taking possession from M/s. Cross Country Hotels Pvt. Ltd. Warrant of possession was not issued against assignee BD & P Hotels (India) Pvt. Ltd. No warrant of possession was even issued against mortgagee-TFCI. This fact was not disclosed before the executing court that an order has been passed under SARFAESI Act in which possession had been taken from lessee-mortgagor-M/s. Cross Country Hotels Pvt. Ltd. by mortgagee-TFCI on 22.2.08. It was not disclosed that there was subsequent sale made by TFCI in favour of assignee-BD & P Hotels (India) Pvt. Ltd. for realising the secured debt in the sum of Rs.2,20,00,000/- (Two crores and twenty lacs) and under warrant of possession issued by executing court, the BD & P Hotels (India) Pvt. Ltd. was dispossessed on 9.3.2010. After taking possession on 9.3.2010, the property was leased out on 10.3.2010 to Silver City Landmark Pvt. Ltd. and Silver City Landmark Pvt. Ltd. was placed in possession of the property for 18 years and during pendency of these intra court appeals, a sale deed has been executed by Ajit Singh and Ratan Kanwar selling the Mukundgarh property in question to M/s. Sampada Land Developers Pvt. Ltd. The authorised signatory of M/s. Sampada Land Developers Pvt. Ltd. is one of the Director in Silver City Land Marks Pvt. Ltd.
The BD & P Hotels (India) Pvt. Ltd. filed writ application before the single bench assailing the dispossession in pursuance of the award. Prayer was made to quash the warrant of possession and the execution proceedings pursuant to the award which was passed. It was also submitted that by playing fraud and concealing the fact from the executing court, warrant has been procured. It was disclosed in the petition that petitioner had been dispossessed in fraudulent manner. It was submitted that petitioner could not have been dispossessed in the execution proceedings since it was a assignee of the secured creditor of TFCI under SARFAESI Act. It was also submitted that without accounting for the charge created upon the property and the investment made, the possession could not have been taken from TFCI or the petitioner. In arbitration proceedings, petitioner and TFCI were not heard. Possession was not with M/s. Cross Country Hotels Pvt. Ltd. on the date of arbitration award. In the proceedings under SARFAESI Act, M/s. Cross Country Hotels Pvt. Ltd. could not succeed and the writ petition was dismissed. In view of the proceedings which were undertaken before DRT, possession could not have been taken by the lessor M/s. Mukundgarh Resorts, particularly in view of clause-5, there was no right to take possession. There was express consent by M/s. Mukundgarh Resorts for creating charge over the property by obtaining the loan from financial institution for development.
Interim stay was granted by this Court on 24.10.2008 in the writ petition no.9609/08 directing that BD & P Hotels (India) Pvt. Ltd. to continue in possession of the property. An application was filed before the executing court for restoring back the possession. However, the executing court passed an order on 29.3.2010 to the effect that since possession was delivered before grant of interim stay by the High Court, as such appropriate order should be obtained from the High Court for restoring back the possession.
It was contended on behalf of respondents in their return that there is a remedy to file appropriate objections under Order 21 Rule 97 of Code of Civil Procedure before the executing court and writ petition cannot be said to be maintainable. It was open to the lessor to resume the lease granted to the lessee as lessee had defaulted in payment of the lease money. It was not necessary to implead TFCI as party in the arbitration proceedings or to implead the assignee-purchaser from TFCI i.e. BD & P Hotels (India) Pvt. Ltd. There was no effect of SARFAESI proceedings as said Act itself was not applicable to a lease. It was not necessary before the executing court to array TFCI or BD & P Hotels (India) Pvt. Ltd., as only judgement debtor was required to be impleaded. The writ petition was not the appropriate remedy. There is no prayer for restoration of possession made in the writ petition. Consequently, the possession cannot be restored. When the application was filed before executing court for restoration of possession, that has to be treated under Order 21 Rule 1999 and once it has been rejected, remedy was to file appeal against that order.
The Single Judge by the impugned order has held that sale certificate has been issued under SARFAESI Act in favour of BD & P Hotels (India) Pvt. Ltd., which has not been challenged, modified or set aside. The lessor could not have terminated the lease without satisfying the encumbrances created of lease hold rights in favour of mortgagee/ secured creditor/ financial institution. In the instant case lease hold transferee is assignee of secured creditor under SARFAESI Act, thus there was no justification to invoke inter se civil rights by adopting methods under Order 47 read with Order 21, Rule 99 of CPC. It is open to the aggrieved party to take recourse to the proceedings under Section 17 of the SARFAESI Act. Petitioner BD & P Hotels (India) Pvt. Ltd. could not have been dispossessed in execution of warrant of possession issued on 5.3.2010. The arbitral award/decree dated 15.2.2009 was not executable qua the petitioner. In case any breach was committed by lessee i.e. M/s. Cross Country Hotels Pvt. Ltd. after having put in possession, the parties to the lease will be at liberty for the appropriate remedy.
Aggrieved by the decision rendered by the single bench M/s. Mukundgarh Resorts and Silver City Landmark Pvt. Ltd. have preferred the intra court appeals. On the one hand on every date, prayer was made on behalf of appellants to extend the life of the interim order based on undertaking given on behalf of BD & P Hotels (India) Pvt. Ltd. that it will not take the possession of the property till the matter is heard and on every date, that order was being extended. However, Ajit Singh and Ratan Kanwar, partners of appellant M/s. Mukundgarh Resorts (in SAW No.641/2010), have executed the sale deed dated 7.3.2011 and sold the property in question to M/s. Sampada Land Developers Pvt. Ltd.
Mr. S.R. Bajwa, learned Senior Counsel appearing on behalf of M/s. Mukundgarh Resorts in SAW No.641/2010 and Mr. N.K. Maloo, learned Senior Counsel appearing on behalf of Silver City Landmark Pvt. Ltd. in SAW No.635/2010 submitted that the decision rendered by single bench is not in accordance with law. In the matter of execution proceedings of the arbitral award/decree, the appropriate remedy was to file objections under Order 21 Rule 97 of the Code of Civil Procedure before dispossession and under Order 21 Rule 99 after the dispossession. The SARFAESI Act was not applicable in view of the provisions contained in Section 31(e) as it was a case of lease. Security interest has been defined in Section 2(zf) of the SARFAESI Act. The lease is ousted from the purview of security interest as defined in the aforesaid provision. In case, there was any grievance with the arbitral award, the writ petition could not be said to be the appropriate remedy. The writ petition was not maintainable. There was no merger of mortgage and lease hold rights. There was no necessity to account for the investment made in the property or to pay to the mortgagee by the lessor. Lessor-Mukundgarh Resorts could have determined the lease due to violation of terms and conditions of the lease deed executed in favour of M/s. Cross Country Hotels Pvt. Ltd. It was not necessary to implead BD & P Hotels (India) Pvt. Ltd. or TFC in the execution proceedings of arbitration award as only judgement debtor was required to be impleaded i.e. M/s. Cross Country Hotels Pvt. Ltd. The remedy was under Section 47 of CPC. In such matters of civil rights relating to mortgage etc., writ petition could not be said to be the appropriate remedy. No prayer was made for restoration of possession in the writ application. Having failed to pray for restoration of possession, the writ petition could not be said to be maintainable. In view of the availability of the efficacious alternative remedy, the invocation of writ jurisdiction could not be said to be justified.
Shri Alok Sharma, learned Senior Counsel appearing on behalf of BD & P Hotels (India) Pvt. Ltd. and Shri Kamlakar Sharma, learned Senior Counsel appearing on behalf of TFCI have submitted that fraud of serious kind has been played by the lessor and lessee against assignee-BD & P Hotels (India) Pvt. Ltd. and mortgagee-TFCI. It was not necessary to invoke the provisions of Section 47, Order 21 Rule 97 or Rule 99 CPC as sale certificate was issued in favour of BD & P Hotels (India) Pvt. Ltd. under SARFAESI Act by TFCI. In view of the provisions contained in Section 13(6) and Section 34 of the SARFAESI Act, the arbitral award was not executable, even otherwise once mortgagee has been put in possession of the property and investment has been made in the property of the amount advanced under the mortgage without accounting for the investment so made, possession cannot be resumed by the lessor. As on the date on which arbitral award was passed, it was known to M/s. Mukundgarh Resorts as well as to M/s. Cross Country Hotels Pvt. Ltd. that possession had already been taken by TFCI from M/s. Cross Country Hotels Pvt. Ltd. on 22.8.2008 with respect to which newspaper publications were made in Times of India and Rajasthan Patrika and thereafter the possession was taken and for the purpose of sale of the property also, advertisement was issued in Economic Times on 16.6.09 and thereafter the property was sold on 4.8.09 to BD & P Hotels (India) Pvt. Ltd. by the TFCI, secured creditor. It was also to the knowledge of M/s. Mukundgarh Resorts and M/s. Cross Country Hotels Pvt. Ltd. inspite of that effort was made to frustrate the sale certificate and having failed in the writ petition in Delhi High Court, in writ petition filed in this Court, which was dismissed by single bench on 17.4.09 and M/s. Cross Country Hotels Pvt. Ltd. having availed the remedy under Section 17 of the SARFAESI Act and has filed appeal before the DRT, it was not open to obtain the possession, till the sale certificate stands. Even otherwise, no notice was issued to the transferee for taking possession, who was assignee of the rights. Consequently it was not open to the executing court to deliver the possession from them. The warrant of possession was illegally procured from executing court by suppressing the material facts of proceedings under SARFAESI Act and dismissal of the writ petition etc. There is no bar for exercising writ jurisdiction in such a matter when serious kind of fraud has been played and huge investment of several crores of rupees having been made by TFCI and purchaser BD & P Hotels (India) Pvt. Ltd. The possession could not have been obtained without accounting for the improvement made and the money spent, in view of the explicit covenant in clause (5) of the lease agreement executed between the lessor and lessee i.e. M/s. Mukundgarh Resorts and M/s. Cross Country Hotels Pvt. Ltd. It would amount to fraud on fraud in case money is not accounted for and possession is obtained without impleading them in the execution and arbitral proceedings.
Clause-5 of the lease agreement executed between lessor M/s. Mukundgarh Resorts and lessee M/s. Cross Country Hotels Pvt. Ltd. is quoted below:
5. That it has been agreed to that the lessee shall have a right to create encumbrances on the lease hold rights possessed by them in favour of any financial institution for loan/finances raised for the development of fort, subject to the condition that the encumbrances are cleared before the expiry/termination of the lease period.
Reading of the clause-5 of the agreement makes it clear that M/s. Cross Country Hotels Pvt. Ltd. was authorised to create encumbrances on the lease hold rights possessed by them in favour of any financial institution acting thereupon for the development of the Mukundgarh Resorts and other properties. The huge amount of Rs.10.23 crores was obtained inter alia for the development of property in question and amount was not paid back to the financial institution-TFCI. Consequently, the TFCI filed the proceedings initially before DRT. However, when SARFAESI ordinance came into force notice section 13(2) was issued in the proceedings for taking possession from mortgagor-M/s. Cross Country Hotels Pvt. Ltd. Notices were issued in the Times of India and Rajasthan Patrika on 26th and 27th August, 2008 respectively. The possession was taken under the SARFAESI Act. Thereafter, writ petition was filed by M/s. Cross Country Hotels Pvt. Ltd. versus Union of India and others. The proceedings under the SARFAESI Act of taking over possession of secured assets vide demand notice dated 8.1.03 issued under Section 13(2) and the taking over the possession of the properties by authorised officer on 22.8.08 were assailed in the CWP No.9609/08, which was dismissed by this Court vide order dated 17.4.2009. Against the interim order passed in the aforesaid writ application on 24.10.2008, the matter travelled to the Apex Court in Special Leave to Appeal (Civil) No.26738/08. The Apex Court directed the maintenance of status quo meaning thereby that possession was not to be restored back to M/s. Cross Country Hotels Pvt. Ltd. As against the final decision, which was rendered by the single bench on 17.4.09 in the aforesaid writ petition, SAW No.527/09 was filed, which was dismissed by this Court on 20.7.2009. In the decision rendered by this Court, it has been noted that against taking over of the possession of the property under Section 13(4) of the Act on 22.8.08, M/s. Cross Country Hotels Pvt. Ltd. preferred writ petition before the High Court of Delhi, which was withdrawn with liberty to avail the remedy available under law and the same was dismissed on 16.9.08. Prayer was made before the Delhi High Court to restore back the possession to lessee-mortgagor M/s. Cross Country Hotels Pvt. Ltd. It is also mentioned in order that appeal (application) was filed by M/s. Cross Country Hotels Pvt. Ltd. before DRT under Section 17 of SARFAESI Act.
In the instant case, it is apparent that possession was handed over to BD & P Hotels (India) Pvt. Ltd. in the proceedings under SARFAESI Act and against those proceedings, appeal was pending before DRT and it is not the case that sale certificate has been set aside by the DRT in those proceedings. The writ petition filed challenging the taking over of the possession, was also dismissed on merits by single bench of this Court on 17.4.09. Thereafter, SAW no.527/09 filed thereagainst was also dismissed on 20.7.09. It is also clear that at no point of time, Arbitrator issued notice to TFCI or to BD & P Hotels (India) Pvt. Ltd. They were not parties to the arbitral proceedings. The award was passed behind their back. It was known to M/s. Mukundgarh Resorts Ltd. also that property was no more in possession of lessee-M/s. Cross Country Hotels Pvt. Ltd. The property was permitted to be mortgaged by M/s. Mukundgarh Resorts in favour of financial institution for obtaining the loan for development of the fort and loan was disbursed by TFCI, money had been invested. The Arbitrator did not consider the proceedings initiated under SARFAESI Act, is not in dispute. It appears that Arbitrator was not appraised of the fact that not only sale certificate has been issued, but possession has been delivered by TFCI to BD & P Hotels (India) Pvt. Ltd. in SARFAESI Act proceedings. Arbitrator passed award in favour of M/s. Mukundgarh Resorts and that was put to execution as against M/s. Cross Country Hotels Pvt. Ltd. knowing fully well that M/s. Cross Country Hotels Pvt. Ltd. was not in possession as on the date of passing of the award itself. Issue was framed by the Arbitrator whether TFCI was necessary party, still the relevant factors were not considered and it was held that TFCI was not a necessary party to the arbitral proceedings. In our considered opinion, once the mortgage was permitted to be created by lessor and investments were made in the property after obtaining the loan under the express provision in clause-5 of the lease deed executed by M/s. Mukundgarh Resorts, M/s. Mukundgarh Resorts was bound to account for the investments made and it had no right to take possession without accounting for the investments which were made in the property by mortgagee-TFCI by lending the huge amount and property having been purchased from it by the assignee BD & P Hotels (India) Pvt. Ltd. of those rights. Though right was available to M/s. Mukundgarh Resorts to secure the lease amount but not to resume the possession of the property. We are fortified in our view by decision of Apex Court in Parameswaran Govindan vs. Krishnan Bhaskaran & Ors.-1993 Supp (1) SCC 572 where the question came up for consideration before their Lordships of Apex Court with respect to mortgagee's right to continue in possession for recovery of the compensation under the mortgage under Section 4 and 5 of the Kerala Compensation for Tenants' Improvements Act, 1958. Their Lordships of Apex Court in para 6 and 7 of the judgement has held as under:
6. A conjoint reading of Sections 4 and 5 clearly postulates that a decree of eviction passed against tenant namely recovery of possession of land from the tenant cannot be enforced until the compensation determined under the Improvements Act is paid. Section 4 gives substantive right to payment of compensation for improvements made by him or his predecessors-in-interest, etc. Until such payment is made, the tenant shall be entitled to remain in possession and the decree of eviction shall not be executed. Payment is a condition precedent under Section 4 and Section 5 provides the procedure by which the right secured under the Act is to be enforced. The right to compensation given under Section 4 is a right to the improvements made by a tenant while in possession and enjoyment of the land before decree of ejectment was passed against him. Section 4(1) begins by saying that every tenant shall, on eviction, be entitled to compensation for improvements which were made by him. Therefore, the right to compensation springs into existence from his continuance in possession as a tenant before decree of eviction was passed and until the compensation is paid he is entitled to remain in possession. For the purpose of improvements, the mortgagee has been treated by fiction of law to be a tenant. The object of the Improvements Act is to make provision for payment of compensation for improvements made by tenants. Sub-section (2) of Section 4 preserves the pre-existing contract; the right and liabilities thereunder. Thus it is clear that right to possession under Section 60 of the Transfer of property Act, on redemption is kept uneffected.
7. The Improvements Act only hedges the right to eviction and gives right to remain as a mortgagee till the payment for improvements are made or deposited so that the mortgagee/tenant is not driven to a separate suit. Sections 7 to 16 prescribes procedure for computation and Section 5 prohibits eviction till date of payment or deposit. Thus far and no further. His continuance in possession is by virtue of contractual relationship, but by operation of statute his possession after redemption remained lawful. His deeming tenancy under the Improvements Act is only to enable him to recover the improvements determined under the Improvements Act. It confers no other higher rights. It does not clothe him with any right to statutory protection qua the mortgage. From June 21, 1961, but for the Improvements Act, his possession would be unlawful. Section 4-A of the Act would not denude the right to re-possession of the mortgagor under Section 60 of the Transfer of Property Act without assent of the President of India. Therefore, merely because the respondents remained in possession as mortgagees, they cannot acquire the status as deemed tenant under Section 4-A tagging the period from June 21, 1961 till the date the Amending Act came into force and thereafter to compute continuous possession as mortgagee for not less than 50 years immediately preceding Amendment Act 35 of 1969 to the Act.
It follows from the aforesaid decision that possession cannot be taken from a mortgagee unless and until the investment made are accounted for.
In Bahadur vs. Raja Moti Chand & Ors.-AIR 1925 Allahabad 580, it has been held that in a case of mortgage by tenant, who is expressly authorised by lease to mortgage, in such case by virtue of extinction of lease does not extinguish mortgage unless the mortgagee had opportunity to prevent that extinction and possession cannot be taken by lessor. It has been held thus:
If a tenant is entitled to make a mortgage of his land and thus to transfer his interest in the tenancy to a third party, the interest so transferred under the express authority of the zamindar should not be allowed to be extinguished, unless the person who has acquired that interest has had an opportunity to prevent that extinction. This seems to be a just and equitable view which we are bound to uphold unless there is a statutory provision to the contrary. We find nothing in S.18 which would compel us to hold a contrary opinion.
We are, therefore, of opinion that the ejectment proceedings in the Revenue Court, although they put an end to the tenancy of the defendant No.2 did not have the necessary effect of destroying the rights and interests of the mortgagees, defendants Nos.10 and 11. If the interests of the mortgagees, defendants Nos.10 and 11, subsisted even after the ejectment proceedings, then it is clear that those rights were capable of being put up for sale and purchased by the present plaintiff. The result of the purchase made by the present plaintiff would then be that he would be entitled to occupy the land and hold it on till he is redeemed by the zamindar who must be deemed to have stepped into the shoes of the tenant-mortgagor whom he has ejected. The view of the Courts below then that nothing passed to the plaintiff by the auction-purchase is not sound and must be over-ruled.
Under Section 60 of the Transfer of Property Act also mortgagor can take the possession from mortgagee only after payment of mortgaged money. In the instant case, the loan was advanced by TFCI by keeping lease hold rights under mortgage. TFCI was a mortgagee of the lease hold rights and lease hold rights were assigned by sale to BD & P Hotels (India) Pvt. Ltd. In our considered opinion, it was not open in view of the assignments having been made of lease hold rights in favour of BD & P Hotels (India) Pvt. Ltd. to take possession in the execution and arbitral award from BD & P Hotels (India) Pvt. Ltd. assignee of lease hold rights under a sale certificate issued by TFCI in the proceedings under SARFAESI Act. Section 60 of the Transfer of Property Act is quoted below:
60. Right of mortgagor to redeem- At any time after the principal money has become due, the mortgagor has a right, on payment or tender, at a proper time and place, of the mortgage-money, to require the mortgagee (a) to deliver to the mortgagor the mortgage-deed and all documents relating to the mortgaged property which are in the possession of power of the mortgagee, (b) where the mortgagee is in possession of the mortgaged property, to deliver possession thereof to the mortgagor and (c) at the cost of mortgagor either to re-transfer the mortgaged property to him or to such third person as he may direct, or to execute and (where the mortgage has been effected by a registered instrument) to have registered on acknowledgment in writing that any right in derogation of his interest transferred to the mortgagee has been extinguished.
Provided that the right conferred by this section has not been extinguished by act of the parties or by decree of a Court.
The right conferred by this section is called a right to redeem and a suit to enforce it is called a suit for redemption.
Nothing in this section shall be deemed to render invalid any provision to the effect that, if the time fixed for payment of the principal money has been allowed to pass or no such time has been fixed, the mortgagee shall be entitled to reasonable notice before payment or tender of such money.
Bare reading of Section 60 of Transfer of Property Act made it clear that at any time after the principal money has become due, the mortgagor has a right, on payment or tender, to take possession from the mortgagee. Thus, the lessor M/s. Mukundgarh Resorts having agreed in lease deed for such a mortgage, was bound by the transaction effected by mortgagor-M/s. Cross Country Hotels Pvt. Ltd. and could not have taken possession from mortgagee-TFCI or from its assignee without accounting for the loan for investments made and the money invested.
The Apex Court in Gambangi Applaswamy Naidu & Ors. vs. Behara Venkataramanayya Patro & Ors.-(1984) 4 SCC 382 has considered the question whether on redemption by mortgagor-owner whether the tenancy right of the mortgagee-tenant would be extinguished by implied surrender. The Apex Court laid down that it depends upon terms of the mortgage and circumstances of the case. It was held on fact that tenancy rights were not extinguished and mortgagor-owner not entitled to delivery of possession of the premises on redemption.
Cheriyan Sosamma & Ors. vs. Sundaressan Pillai Saraswathy Amma & Ors. -(1999) 3 SCC 251, the question was of genuineness of lease agreement despite execution of the mortgage on the redemption of mortgage. The Hon'ble Apex Court held that there cannot be merger of interest of lessee with that of mortgagee. There cannot be automatic termination of lease and hence lessee-mortgagee not required to deliver actual or physical possession of the property. Their Lordships also laid down that unless there is merger of both the rights on redemption of mortgage, plaintiff is not required to get the physical possession of the property.
Mr. N.K. Maloo, learned Senior Counsel has also relied upon the judgement in Ram Kinkar Banerjee & Ors. vs. Satya Charan Srimani & Ors.-AIR 1939 Privy Council 14, in which it has been laid down that by english law and by indian law that an assignee of a lease is liable by privity of estate for all the burdens of the lease, burdens which are imposed upon him by the mere assignment whether he enters into possession or not. There is no dispute with the aforesaid proposition. It is open to lessor to enforce the right to rental under the lease, but at the same time lessor has to account for the improvements made on the property with its consent. Their Lordships have also considered that after the mortgage, legal right of redemption under Section 60 of the Transfer of Property Act is available. In such case, he retained a legal interest in the property.
Reliance has also been placed on decision of Treasurer of Charitable Endowments vs. S.F.B. Tyabji-AIR (35) 1948 Bombay 349 wherein the question was considered of lessor consent for assignment. There was assignment of lease by lessee without consent of lessor. The assignment was held to be valid and it was laid down that lessor was only entitled to sue lessee for damages. There is no privity of contract between lessor and assignee. There is only privity of estate. Lessee is bound on contract and is not freed from obligations running with the land and is not relieved. Notice of termination is to be served on lessee and not on assignee. The decision is of no help as in the instant case, encumbrances was created with the consent of the lessor as per specific covenant in clause-5 of the lease deed. Thus the lessor is bound by the said privity of contract.
Reliance has also been placed on the decision in the matter of M/s. Disco Electronics Ltd.(In Liquidation)-AIR 1997 Delhi 251 to contend that TFCI would not have acquired superior rights than that of lessee. We are not impressed by the submissions as in the instant case, question is of creation of encumbrances upon the property with the consent of the lessor which has to be accounted for.
Mr. N.K. Maloo, learned Senior Counsel for appellants has relied upon Section 108(j) of the Transfer of Property Act, 1882. Section 108(j) is quoted below:-
108. Rights and liabilities of lessor and lessee- In the absence of a contract or local usage to the contrary, the lessor and lessee of immovable property, as against one another, respectively, possess the rights and are subject to the liabilities mentioned in the rules next following, or such of them as are applicable to the property leased:-
(j) the lessee may transfer absolutely or by way of mortgage or sub-lease the whole or any part of his interest in the property, and any transferee of such interest or part may again transfer it. The lessee shall not, by reason only of such transfer, cease to be subject to any of the liabilities attaching to the lease;
Nothing in this clause shall be deemed to authorise a tenant having an untransferable right of occupancy, the farmer of an estate in respect of which default has been made in paying revenue, or the lessee of an estate under the management of a Court of Wards, to assign his interest as such tenant, farmer or lessee.
The aforesaid provision provides that lessee may transfer absolutely or by way of mortgage, the whole or any part of his interest in the property. However, lessee shall still be bound to fulfill the liability under the lease as provided in the aforesaid provision. In our considered opinion, it is open to the lessor to recover the amount of lease money from lessee M/s. Cross Country Hotels Pvt. Ltd. till the possession was enjoyed by it and lease hold rights were mortgaged in favour of financial institution-TFCI. With the consent of lessor, TFCI had taken the possession, liability, if any, for rental under the law can also be fastened against TFCI or from assignee of the rights BD & P Hotels (India) Pvt. Ltd. under sale certificate issued by TFCI under SARFAESI Act. The section 108(j) is general provision however question in instant case is that once the lessor has agreed for the mortgage of the lease hold rights, it can take the possession from the mortgagee or assignee of the lease hold rights under the sale certificate issued by the mortgagee without they are being impleaded in the proceedings for ejectment which were in the form of arbitration in the instant case.
Reliance was also placed upon Section 108(m) of the Transfer of Property Act which provides the general obligation of the lessee with respect to keeping the property in good condition as it was in at the time when he was put in possession. Reliance was also placed upon Section 108(q) which provides that on determination of the lease, the lessee is bound to put the lessor into possession of the property. There cannot be any dispute that tenant is bound to keep the property in good condition as it was in at the time, he was put in possession. But in the instant case in view of the express stipulation of the lease deed granted by lessor, lessee has incurred encumbrances upon the property by mortgaging the lease hold rights and obtained huge loan in crores for development of the property in question and after money having been invested, the property was not in the same condition, but improvements were made. Thus on the basis of strength of Section 108(m) and (q) which are ordinary obligations of lessee, the case is not advanced at all. The other rights and encumbrances having been created in the instant case, were required to be accounted for.
Mr. N.K. Maloo, learned Senior Counsel for appellants has further relied upon Section 115 of the Transfer of Property Act, 1882, which relates to the effect of surrender and forfeiture on under-leases. Shri Maloo has submitted that right under the lease can be enforced by the lessor against a lessee and there can be forfeiture of the lease due to non-fulfillment of the conditions of the lease and mortgagee was not a necessary party in the arbitral proceedings. We are not at all impressed by the submissions. In the instant case, lessee could not have surrendered or gifted lessor what he had not got himself. In view of provisions of Section 115 of the Transfer of Property Act, even right of under-lessee cannot be effected by surrender. In the instant case, there was an assignment of lease hold rights by way of mortgage in favour of TFCI with the express consent of lessor by the lessee and then financial institution for realisation of its debt has assigned the rights by issuing sale certificate for a sum of Rs.2,20,00,000/- in favour of BD & P Hotels (India) Pvt. Ltd.
In Jodoonath vs. Schoene Kilbum & Co.-(1884) 9 Cal. 671, it has been held, considering Section 115 of the Transfer of Property Act that relinquishment by a patnidar of his interest does not affect subordinate interests. On the same principle, it has been held in Rannu Rai vs. Rafi-ud-din-(1905) 27 All 82; Brij Kumar vs. Sheo Kumar-(1915) 37 All 444, 29 IC 215 (Full Bench); Chhiddu vs. Sheo Mangal Singh-(1917) 39 All 186, 39 IC 585 and Kenchadi Lal vs. Jabarsha-AIR 1936 Nag 171 that if an occupancy tenant mortgages his tenancy and then surrenders it to the zamindar, the surrender will not prejudice the rights of the mortgagee. Thus, we are of the considered opinion that rights of the mortgagee and assignee of the mortgagee under sale certificate issued under SARFAESI Act will not be prejudiced by the arbitration award obtained behind their back by M/s. Mukundgarh Resorts.
Mr. N.K. Maloo relied upon the decision Assam High Court in Kshiroda Sundari Bhattacharyya vs. Bhupendra Mohan Deb & Ors.-AIR 1961 Assam 70, in which it was held that mortgagee cannot be regarded as assignee of the lessee's interest and it was not open to him to set up the plea that even after forfeiture of lease, he was entitled to remain in possession. In the said decision, there was no consent for creation of the mortgage rights by the lessor. The decision is based on particular clauses of the lease agreement between the lessor and lessee, particularly clause-9 of the lease, which was totally different. The lease was, in fact, to supervise the operations with a view to safeguard the lessor's interest. From the decision of Shankerrao Govindrao vs. Kisanlal Nagarmal-AIR 1950 Madh-B 19, which has been relied upon by Assam High Court, it does not appear that there was mortgage and that too with the consent of the lessor for the development and investments in the property itself. Thus the decision is distinguishable.
In the instant case, we find that the property belonging to Shri Ajit Singh and Smt. Ratan Kanwar, members of the HUF, was leased to M/s. Mukundgarh Resorts, a partnership firm consisting of aforesaid two members Shri Ajit Singh and Smt. Ratan Kanwar and these lessors executed a lease deed in favour of lessee M/s. Cross Country Hotels Pvt. Ltd. and authorised M/s. Cross Country Hotels Pvt. Ltd. to obtain loan from financial institution for development in the property and that was obtained and the factum of creation of encumbrances was specifically authorised by specific covenant in the lease deed in clause-5. The money having been invested in the property of the lessor on the express consent by the mortgagee, lessor had no right to take possession from the mortgagee and from the assignee BD & P Hotels (India) Pvt. Ltd. The TFCI would not have advanced the money to lessee, but for aforesaid stipulation in the lease deed to create the encumbrances upon the property, thus it would amount to perpetuating a fraud, if they are permitted to determine the lease and take the possession of the property.
In view of the aforesaid, it is not necessary to go into various other submissions even assuming that there was no sale under the provisions of SARFAESI Act. Admittedly, TFCI was a mortgagee of lease hold rights with the consent of lessor-M/s. Mukundgarh Resorts created by lessee-M/s. Cross Country Hotels Pvt. Ltd. as per clause 5 of the lease deed. There was no right to take possession by determining the lease of M/s. Cross Country Hotels Pvt. Ltd. The lessor-M/s. Mukundgarh Resorts could not have taken possession when lessee-M/s. Cross Country Hotels Pvt. Ltd. itself was not in possession. When with the consent, the charge of mortgage was created prima facie, lessor was bound by the terms and conditions in the mortgage deed.
However, the proceedings under SARFAESI Act fortifies the submission of BD & P Hotels (India) Pvt. Ltd. that by virtue of issuance of sale certificate by mortgagee-TFCI under the SARFAESI Act and the Rules of 2002, the mortgagor-M/s. Cross Country Hotels Pvt. Ltd. having failed in the writ application and sale certificate having not been set aside in proceedings under Section 17 possession could not have been taken in execution of the arbitral award in the aforesaid manner.
It was submitted that there was no merger of lease hold rights into the mortgage, hence possession could be taken by lessor. We are not impressed by the submission as there was mortgage of lease hold rights which were assigned under SARFAESI Act and there was assignee of the rights under sale certificate issued under the said Act. Thus the submissions has no legs to stand.
It was submitted by Mr. S.R. Bajwa and Mr. N.K. Maloo, learned Senior Advocates that SARFAESI Act has no application. Prima facie it appears that TFCI was having security interest as defined in Section 2(zf) of the Act. Section 2(zf) is quoted below:
2(zf) security interest means right, title and interest of any kind whatsoever upon property, created in favour of any secured creditor and includes any mortgage, charge, hypothecation, assignment other than those specific in section 31.
It was further submitted by learned counsel for the appellants that in view of Section 31(e) of the Act, the leases are excluded within the purview of the Act. Section 31(e) is quoted thus:
31. Provisions of this Act not to apply in certain cases- The provisions of this Act shall not apply to-
(e) any conditional sale, hire-purchase or lease or any other contract in which no security interest has been created.
We are of the prima facie opinion that applicability of SARFAESI Act could not have been ousted in the instant case. Apart from that, as this question was also required to be considered in the proceedings filed u/s.17 of the SARFAESI Act. We leave this issue to be finally decided in those proceedings.
Coming now to the submissions of the learned Senior Counsel appearing on behalf of appellants with respect to non-maintainability of the writ petition due to availability of the alternative remedy. Reliance has been placed by Shri Bajwa, learned Senior Counsel on the decisions in Ghan Shyam Das Gupta & Anr. vs. Anant Kumar Sinha & Ors.-(1991) 4 SCC 379; Durga Prasad vs. Naveen Chandra & Ors.-(1996) 3 SCC 300; Shreenath & Anr. vs. Rajesh & Ors.-AIR 1998 SC 1827; Ashan Devi & Anr. vs. Phulwasi Devi-AIR 2004 SC 511; U.P. State Bridge Corporation Ltd. & Ors. vs. U.P. Rajya Setu Nigam S. Karamchari Sangh-AIR 2005 SC 4067; Shivanand Gaurishankar Baswanti vs. Laxmi Vishnu Textile Mills & Ors.-(2008) 13 SCC 323; United Bank of India vs. Satyawati Tondon & Ors.-AIR 2010 SC 3413; Union of India vs. M/s. Jagat Ram Trehan & Sons-AIR 1996 Delhi 191; Hanuman Prasad vs. Municipal Board, Uniara-1999 (3) WLC (Raj.) 705.
We are not impressed by the submission that due to availability of the alternative remedy, the single bench should not have entertained writ petition. In the instant case, it does not lie in the mouth of appellants to contend so. The lessee could not succeed in the writ petition filed in this Court to assail the taking over of possession by TFCI on 22.8.08. In the interim order, in the said writ petition, certain arrangement was ordered by this Court to restore possession to M/s. Cross Country Hotels Pvt. Ltd. on making certain payment in installments of Rs.10 lacs. SLP was filed before the Apex Court (Civil) No.26738/08, in which the Apex Court directed maintenance of status quo with respect of possession. Thus the lessee could not succeed to obtain the possession and did not deposit any amount. What could not be attained in those proceedings and in the proceedings under SARFAESI Act filed under Section 17 of the said Act before the DRT, could not have been obtained, behind the back of TFCI and its assignee holding the sale certificate. Even otherwise, against wholly unauthorised warrant of possession and patent illegality having been committed in the instant case of obtaining the award inter se lessor and lessee, knowing fully well that proceedings under SARFAESI Act had taken place and the rights have been assigned, there was no right available with lessor to resume the lease and take possession of the leased property. Even otherwise, as against the warrant of possession issued by the executing court, which was district court, in the instant case, a petition was also maintainable under Article 227 of the Constitution of India. Thus, in our opinion, writ petition was clearly maintainable and was rightly entertained by the single bench and interference made was proper. It was not a case of third party in possession other than lessee, thus there was no justification for invoking Section 47 or Order 21 Rule 97 and Order 21 Rule 99 of CPC. In the instant case, lease hold rights were transferred as assignee of secured creditor under SARFAESI Act. Thus we have no hesitation in rejecting the submission as to non-maintainability of writ application due to alternative remedy. As a matter of fact, it was for the appellants to take recourse to the appropriate proceedings to assail action taken under SARFAESI Act. They could not have taken the possession in execution of the arbitration award.
Shri Alok Sharma, learned Senior Counsel has relied on the decision of Hon'ble Supreme Court in Jai Narain Parasrampuria & Ors. vs. Pushpa Devi Saraf & Ors.-(2006) 7 SCC 756 laying that fraud vitiates every solemn act. Any order or decree obtained by practicing fraud is a nullity. A plea of fraud can be raised even in a collateral proceeding.
Submission was also raised that an application was also filed for restoring back the possession, the same was rejected by the executing court, hence the same amount to Order 21 Rule 99, which was appeable, Hence, no interference could have been made in the appeal. We have gone through the order passed by the executing court on 29.3.2010 made available to us by learned counsel appearing on behalf of appellants. Bare reading of the same goes to indicate that it was not an order deciding the objections under Order 21 Rule 99, no such objection was filed under said provision. Simple prayer was made for restoration of the possession as this Court has directed that BD & P Hotels (India) Pvt. Ltd. to continue in possession since possession had been delivered earlier before passing of the stay order. BD & P Hotels (India) Pvt. Ltd. was advised by executing court to secure specific order from the High Court for restoring back the possession. Thus, there was no question of filing appeal against such order.
Coming now to the submission of the learned Senior Counsel appearing on behalf of appellants that writ petition is not maintainable as prayer for restoration of possession has not been made. We are not at all impressed by the submission. The prayer has been made to quash the warrant of possession. It has been clearly pleaded in the writ petition that in execution of warrant of possession, petitioner BD & P Hotels (India) Pvt. Ltd. has been dispossessed. In our considered opinion the effect of quashment of warrant of possession would be that whatever has taken place under it shall have to be reverted back. Restoration of possession is a necessary corollary to follow on quashment of warrant of possession under which possession had been delivered. Apart from that prayer has also been made to prohibit the Court from executing arbitral award, which has been obtained fraudulently. In our opinion, warrant of possession has been rightly quashed as award is un-executable vis-a-vis to BP & P Hotels (India) Pvt. Ltd., assignee under sale certificate issued by TFCI.
It was also submitted on behalf of appellants that in the auction notice of the property, it was mentioned that property was to be sold by TFCI AS IS WHERE IS AND WHATEVER THERE IS basis and later on these terms were deleted while affecting the sale in favour of BD & P Hotels Pvt. Ltd. Thus, BD & P Hotels Pvt. Ltd. knew very well that there were dues and default of the rental payable to lessor by lessee. Thus, they are bound by the arbitration proceedings. The submission cannot be accepted even assuming that BD & P Hotels Pvt. Ltd. was aware of the defaults committed by the lessee in making payment of rental to the lessor. It is apparent from the notice that TFCI has undertaken to make payment of arrears of rental for M/s. Mukundgarh resorts upto the date of handing over the possession of the property and there were no other encumbrances known to the secured creditor i.e. TFCI, in spite of that rental was not asked by the lessor from TFCI and behind its back the arbitration award was obtained. For the aforesaid reasons, we have no hesitation in rejecting the submission.
In view of aforesaid, we find that there is no merit in the intra court appeals. However, we find disturbing feature in the instant case is that on every date, the appellants have prayed for continuation of the interim order passed not to take possession. However, the case could not be heard for one reason or the other. Taking advantage of the situation, M/s. Mukundgarh Resorts have alienated the property in favour of M/s. Sampada Land Developers Pvt. Ltd. vide sale deed dated 7.3.2011. As litigation in form of the appeal was pending, the alienation was subject to these proceedings and right of BD & P Hotels (India) Pvt. Ltd. for restoration of possession is not at all to be defeated by sale made by Ajit Singh and Ratan Kanwar, members of HUF (also partners of M/s. Mukundgarh Resorts) in favour of M/s. Sampada Land Developers Pvt. Ltd.
Mr. Alok Sharma, learned Senior Counsel has submitted that BD & P Hotels (India) Pvt. Ltd. reserves right to get compensation in appropriate proceedings for depriving them of user and of the money invested by them in the property. In our view, they are free to do so in independent proceedings. M/s. Mukundgarh Resorts is also free to take appropriate steps with respect to releasing of the lease money from M/s. Cross Country Hotels Pvt. Ltd. or from the date on which the TFCI was placed in possession from it or from the assignee of TFCI however in accordance with law, liability, if any, has to be worked out in appropriate proceedings.
Let executing court restore back the possession within three weeks from today. We impose a cost of Rs.50,000/- upon each of the appellants. Prayer has been made by Mr. Alok Sharma, learned Senior Counsel that the amount of cost be deposited with the Rajasthan State Legal Service Authority for legal aid to the poor. Let the cost amount be deposited by the appellants with the Rajasthan State Legal Services Authority. The appeals are dismissed.
(MOHAMMAD RAFIQ), J. (ARUN MISHRA),CJ. RS/-