Indian Kanoon - Search engine for Indian Law

Pvr 12 comapl 360-17 Axis-22-10-18.odt Submissions on behalf of the Bank/Appellants

14. Mr.Rafiq A.Dada, Mr.Tulzapurkar, Mr.Dhakephalkar, learned Senior Counsel, and Mr.Tamboli have represented the bank in these appeals.

Submissions in Appeal no.360 of 2017

15. Mr.Rafiq Dada, learned Senior Counsel appearing for the Bank in Appeal no.360 of 2017 contended that the plaint in its entirety is liable to be rejected against the bank, in view of the specific bar created by Section 34 of Securitisation Act, and a remedy being available to an aggrieved person/ plaintiffs, against the bank under Section 17 of the Securitisation Act. Referring to the decisions of the Supreme Court in Mardia Chemicals Ltd. & Ors. Vs. Union of India & Ors.1 and Jagdish Singh versus Heeralal & Ors.2 it is submitted that law in regard to the jurisdiction of the DRT and the bar to the jurisdiction of the Civil Court as created by Section 34 of the Securitization Act is well settled in these decisions. It is submitted that in view of the mortgage of the project as created by Orbit in favour of the bank, the bank has superior rights, and if the plaintiffs contend that they have higher rights over the bank, then as a requirement of law, it was necessary for the plaintiffs to invoke the jurisdiction of the DRT under Section 17 of the Securitisation Act. It is then contended that the plaint is required to be read in its entirety as 1 (2004)4 SCC 311 2 (2014) 1 SCC 479 Pvr 13 comapl 360-17 Axis-22-10-18.odt framed against the bank and on such reading of the plaint it is clearly revealed that the suit directly concerns the security rights of the bank qua the project and the measures which are adopted by the bank under the Securitization Act. It is submitted that entertaining such a suit against the bank, would be defeating the legislative intent of a remedy which being provided by Section 17 of the Securitisation Act. It is submitted that by clever drafting of the plaint the bar as created under section 34 of the Securitization Act cannot be defeated. It is submitted that the plaintiff's contention that a case of fraud has been alleged in the plaint against the bank is untenable as according to the bank, a plain reading of the averments relating to fraud as made in the plaint, can by no stretch of imagination and even remotely can be accepted and understood as a case of fraud played by the bank, as per the requirement of the provisions of Order VI Rule 4 of the CPC. It is submitted that also there is no plea of fraud with regard to the creating of security interest in banks favour. It is submitted that the bare plea, that bank is hand-in-glove with Orbit, is not sufficient to maintain the suit against the Bank. On merits it is contended that an unregistered MOU as entered by Orbit with the plaintiffs to purchase the flat would not create any right of the plaintiff in the project so as to affect the security interest of the bank. In any case, even going by the MOU once the plaintiffs have concurred in the MOU and acknowledged the Pvr 14 comapl 360-17 Axis-22-10-18.odt mortgage as made in favour of the Axis Bank, it cannot be said that any fraud is played by the bank, so as to carve out an exception for maintaining a civil suit on the Mardia principle and overcome the bar created by Section 34 of the Securitisation Act. Referring to the prayers in the plaint, it is pointed out that there is no prayer in the alternative against the bank and the averments which are made against the bank in the plaint are not in aid of any relief. It is submitted that there is no claim for damages which is made against the bank and the only prayer for damages is against Orbit. It is submitted that in any case the legality of the mortgage in favour of the Axis bank cannot be decided by the civil court and it is only the Debt Recovery Tribunal which can decide such issue and this position is accepted by the learned Single Judge as observed in paragraph 13 of the impugned order. It is submitted that the adjudication on priority of the rights of the parties in the mortgaged property, can only be subject matter of adjudication before the DRT and if the plaintiffs succeed to establish that their rights are prior to that of the bank, only in that case the sale can be confirmed in favour of the plaintiffs. It is next submitted that the adjudicating machinery created under the Securitisation Act is the only remedy provided by law for determination of all the issues qua the rights of the bank in regard to the advances made. In the statutory scheme the bank cannot be dragged into a prolonged litigation before the civil court, frustrating its rights on Pvr 15 comapl 360-17 Axis-22-10-18.odt the secured assets thereby causing a serious prejudice to the financial interest of the bank and the security rights created in the said assets in favour of the bank by the borrowers under registered. It is for these reasons that the provisions of Section 17 of Securitisation Act confers a right "in any person" to approach the DRT. Even the argument of due diligence not being complied by the bank, is misconceived, as there is no claim for damages against the bank. It is submitted that as there is no registered agreement entered into between the plaintiffs and Orbit as per the requirement of Sections 4 and 9 of the MOFA. Thus, MOFA was clearly not applicable. The protection under Section 9 of the MOFA would be available only when there is an agreement between the parties and the agreement is registered. It is submitted that in the present case the MOU was executed on a stamp paper of Rs.100/- and the said agreement is neither registered nor stamp duty has been paid. It is next submitted that as clear from the recitals of the MOU, the plaintiffs were aware that the project is mortgaged by Orbit in favour of the Bank, however, despite such awareness, no steps whatsoever were taken by the plaintiff to register the flat purchase agreement between the plaintiff and Orbit. The validity of the mortgage is also not questioned in the plaint, and thus, the plain consequence of Sections 4 and 9 of the MOFA cannot be avoided, in the absence of a registered agreement. Section 9 of the MOFA cannot be pressed into service in vacuum and without any Pvr 16 comapl 360-17 Axis-22-10-18.odt sequitur. In support of his submission, Mr.Dada has placed reliance on the decision of Madras High Court in Arasa Kumar & Anr. Vs. Nallammal & Ors.3; (ii) the decision of the Supreme Court in Hansa V. Gandhi Vs. Deep Shankar Roy & Ors. 4; (iii) the decision of the Division Bench of this Court in State Bank of India Vs. Jigishaben B.Sanghavi & Ors.5; (iv) the decision of the Supreme Court in the case Mardia Chemicals Ltd. & Ors. Vs. Union of India & Ors.(supra) Submissions in Appeal No.362 of 2017 16 Mr.Tulzapurkar, learned Senior Counsel for the bank in Appeal No.362 of 2017 has made the following submissions:

(b) of the Transfer of Property Act,1882, section 8 of the MOFA Act, it is next submitted that the plaintiffs could have approached DRT under section 17 of the Securitisation Act only if possession of the flats was to be with the plaintiffs and not otherwise, as section 34 of the Securitisation Act would recognize only possessory rights. It is submitted that contribution of the plaintiff and other flat purchasers towards construction of the building was about Rs.83 crores of rupees and thus, there was not only a legitimate expectation of Orbit completing the project but also of putting the plaintiff in possession of the respective flats which were being sold to the plaintiff. Considering all these circumstances, the remedy of approaching the DRT was not an appropriate remedy, and suit as filed against the bank was maintainable. It is submitted that incidental reliefs can also be granted by a Civil Court and thus the reliefs which are prayed are incidental to the main reliefs. The bank would be a necessary party as and when a conveyance is required to be executed by Orbit in case a decree for specific performance was to be granted. It is thus, necessary that the bank is a necessary party to the suit.

52. In Mardia (supra), the Supreme Court was considering the challenge to the legality of the provisions of Sections 13, 15, 17 and Section 34 of the Securitisation Act. The Court examined the provisions of Section 34 which bars jurisdiction of the Civil Court to entertain any suit or proceedings, in respect of any matter which a Debt Recovery Tribunal or the appellate Tribunal is empowered under the Secrutisation Act to determine, in respect of any action taken or to be taken, in pursuance of any power conferred by or under the Secrutisation Act or under the Recovery of Debts Due to Banks and Financial Institutions Act,1993. The Court also examined the provisions of Section 35 of the Secrutisation Act, which provides for the Act to have an overriding effect all other laws, and as to why and in what circumstances it was thought necessary by the legislature to provide for a non obstante clause in sub-section (1) of Section 13 of the Secrutisation Act. It was observed that the situation as prevailed in Pvr 62 comapl 360-17 Axis-22-10-18.odt 1882 when the Transfer of Property Act was enacted, has undergone a sea-change and what was conceived to be correct in the situation then prevailing, may not be so in the present day scenario. It was observed that functions of different institutions including the banking and financial institutions have changed and new functions have been introduced for financing the industries etc., and a new economic and fiscal environment exits, after more than 100 years after the enactment of the Transfer of Property Act was initially brought into force. The Court referred to the report of Rajamannar Committee appointed by Government of India which submitted its report in 1977 indicating the effect of the changed situation and the efficacy of the provisions of the Transfer of Property Act. The Court also examined the Narasimham Committee Report 1998 which advocates for a legal framework which should clearly define the rights and liabilities of the parties to the contract and provisions for speedy resolution of disputes, being a sine qua non for efficient trade and commerce, especially for financial intermediation. A reference is also made to the guidelines of the Reserve Bank of India in relation to classifying the Non Performing Assets (NPA) and the appropriate remedies available to the borrowers. The Court noted the adequate safeguards which are available to the borrowers as provided under Section 13 of the Act. The court also considered the contention that an appeal under Section 17 would be entertainable Pvr 63 comapl 360-17 Axis-22-10-18.odt before the Debt Recovery Tribunal, only after such measures as provided under sub-section (4) of Section 13 are taken. The court held that a full reading of section 34 shows that the jurisdiction of the civil court is barred, in respect of matters which a Debt Recovery Tribunal or appellate Tribunal is empowered to determine, in regard to any action taken or "to be taken" in pursuance of any power conferred under Securitisation Act and thus the prohibition under Section 34, covers even the matters which can be taken cognizance by the Debt Recovery Tribunal though no measure in that direction was taken under sub- section (4) of Section 13. It was held that the bar of jurisdiction of the civil court, applies to all such matters which may be taken cognizance by the Debt Recovery Tribunal, apart from those matters in which measures have already been taken under sub-section (4) of Section 13. The Court however held, that to a very limited extent jurisdiction of the civil court can also be invoked, where the action of the secured creditor is alleged to be fraudulent or their claim may be so absurd and untenable which may not require any probe, whatsoever or to say precisely to the extent the scope is permissible to bring an action in the civil court in the cases of English mortgages.

70. We thus see much substance in the contention as urged on behalf of the bank, that the averments as made in the plaint are sufficient to reach to a conclusion that the plaint as against the bank is barred by the provisions of Section 34 of the Securitisation Act.

Pvr 81 comapl 360-17 Axis-22-10-18.odt

71. We now consider whether the plaint(s) in any of these suits fall within the exceptions as carved out in paragraph 51 of the decision of the Supreme Court in Mardia Chemicals Ltd (supra), namely whether the case of the plaintiffs as made out in the plaint is such that the action of the bank ( secured creditor) can be said to be fraudulent or the bank's claim is so absurd and untenable that it may not require any probe whatsoever, so as to hold that the plaints in these suits are maintainable against the bank, by overcoming the bar of Section 34 of the Securitisation Act.