sat 1/16 NMS 7-2017.doc IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION NOTICE OF MOTION NO.7 OF 2017 IN SUIT NO.8 OF 2017 [ENTITY] Plaintiff/Applicant vs. M/s.[ENTITY] & Ors. Defendants WITH NOTICE OF MOTION NO. 1206 OF 2017 IN SUIT NO.8 OF 2017 [ENTITY] Applicant/Defendant No.15 In the matter [ENTITY] Plaintiff vs. M/s.[ENTITY] & Ors. Defendants WITH NOTICE OF MOTION (L) NO.30 OF 2017 IN COMMERCIAL SUIT NO.192 OF 2017 [ENTITY] Plaintiff/Applicant Versus M/s. [ENTITY] and Anr. Defendants WITH NOTICE OF MOTION NO. 323 OF 2017 (NOB) IN COMMERCIAL SUIT NO.192 OF 2017 [ENTITY] Applicant/Defendant No.2 In the matter between Uploaded on - 02/08/2017 Downloaded on - 08/08/2017 01:39:36 sat 2/16 NMS 7-2017.doc [ENTITY] Plaintiff Versus M/s. [ENTITY] and Anr. Defendants WITH NOTICE OF MOTION NO.199 OF 2017 IN SUIT NO.62 OF 2017 [ENTITY] & Anr. Plaintiffs/Applicants Versus M/s. [ENTITY] and Anr. Defendants WITH NOTICE OF MOTION NO. 1208 OF 2017 (NOB) IN SUIT NO.62 OF 2017 [ENTITY] Applicant/Defendant No.2. In the matter between [ENTITY] & Anr. Plaintiffs Versus M/s. [ENTITY] and Anr. Defendants WITH NOTICE 0F MOTION NO. 207 OF 2017 IN SUIT NO.60 OF 2017 [ENTITY] Plaintiff/Applicant Versus M/s. [ENTITY] and Anr. Defendants WITH NOTICE 0F MOTION NO. 1207 OF 2017 IN SUIT NO.60 OF 2017 [ENTITY] Applicant/Defendant No.2. In the matter between Uploaded on - 02/08/2017 Downloaded on - 08/08/2017 01:39:36 sat 3/16 NMS 7-2017.doc [ENTITY] Plaintiff Versus M/s. [ENTITY] and Anr. Defendants WITH NOTICE OF MOTION (L) NO. 349 OF 2017 IN [CASE NUMBER] [ENTITY] Plaintiff/Applicant Versus M/s. [ENTITY] and Anr. Defendants WITH NOTICE OF MOTION NO. 377 OF 2017 (NOB) IN [CASE NUMBER] [ENTITY] Applicant/Defendant No.3 In the matter between [ENTITY] Plaintiff Versus M/s. [ENTITY] and Ors. Defendants Mr.[ENTITY] a/w. Ms.[ENTITY] and Ms.[ENTITY] i/b. N.N. Vaishnawa & Co. for Plaintiff in S/8/2017. Mr.[ENTITY] i/b. [ENTITY] & Co., for the Plaintiff/s in S/60/2017 & 62/2017 and for Defendant Nos. 6 & 12 in S/8/2017. Ms.[ENTITY] a/w. Mr.[ENTITY] and Mr.[ENTITY] I/b. M/s.Khaitan and Khaitan, for Plaintiffs in COMS/192/2017. Mr.[ENTITY], a/w. Mr.[ENTITY] and Mr.[ENTITY] i/b. M. Mulla Associates, for Plaintiff in COMSL/327/2017 (COMS/450/2017) and for Defendant No.14 in S/8/2017. Ms.[ENTITY], Senior Advocate with Mr.[ENTITY] a/w. Mr.[ENTITY] and Mr.[ENTITY] i/b. Cyril Amarchand Uploaded on - 02/08/2017 Downloaded on - 08/08/2017 01:39:36 sat 4/16 NMS 7-2017.doc Mangaldas, for Defendant No.15 in S/8/2017, and for Defendant No.2 in S/60/2017, S/62/2017 and COMS/192/2017. Ms.[ENTITY] I/b. Mr.[ENTITY] for Defendant No.9 in S/8/2017. Mr.[ENTITY] a/w. Mr.[ENTITY] and Mr.[ENTITY] for Defendant No.8 in S/8/2017. Mr.[ENTITY], OSD, from the office of Court Receiver present in person. CORAM : [ENTITY], J. 26 JULY 2017 [ENTITY] :
Heard learned Counsel for the parties.
2 These two notices of motion (Notices of Motion Nos.1206 of 2017 and 1207 of 2017) have been taken out in two different suits. There are three companion notices of motion (Notices of Motion Nos.323 of 2017, 1208 of 2017 and 377 of 2017), taken out in three other suits, which are not on board, but which involve the same controversy. These latter motions are mentioned, taken on board and called out by consent, and heard together with the two former motions.
3 All five suits seek specific performance of agreements for sale of flats, respectively, entered into between the Plaintiffs and M/s.[ENTITY] ('[ENTITY]'), who is a developer in respect of certain property, in which these flats are situated. M/s.[ENTITY] ('Axis Bank') have been arraigned as a party Defendant in all five suits purportedly on the ground that there is a collusive mortgage between [ENTITY] and Axis Bank by which sat 5/16 NMS 7-2017.doc they have sought to defeat the Plaintiffs' rights. Various reliefs have been sought in these suits not only against [ENTITY] but also against Axis Bank. These five notices of motion have been taken out by Axis Bank purportedly on the footing that the suits, insofar as Axis Bank is concerned, are barred by the provisions of [SECTION] of the [ACT] (for short "[ACT]").
4 The case of Axis Bank, in a nutshell, is that it has initiated proceedings under [SECTION] and [SECTION] of the [ACT] and taken symbolic possession of the building in which these flats, which are the subject matter of these five suits, are situated. It is the case of Axis Bank that insofar as the suits against it are concerned, the questions raised in the suits qua it can be determined by the Debts Recovery Tribunal ('DRT') under [SECTION] of the [ACT], if the Plaintiffs were to apply under that section, being aggrieved by any of the measures taken by Axis Bank under [SECTION] of the [ACT]. It is submitted that, accordingly, under the provisions of [SECTION] of the [ACT], the present suits are barred and the plaints are liable to be rejected as against Axis Bank under [SECTION] of the [ACT] ("Code") 5 Before we consider the application of Axis Bank, the facts of the suits alleged by the respective Plaintiffs may be briefly noted :
[CASE NUMBER]
6 This suit is filed by the Plaintiff inter alia praying for a decree sat 6/16 NMS 7-2017.doc for specific performance of her agreement for sale inter alia by completing construction of the two flats purchased by her in the project known as "[ENTITY] Haven" described in the suit, in accordance with the agreement for sale executed by [ENTITY] (Defendant No.1) in her favour, and handing over possession of the flats to her. She claims in the suit that as much as [ENTITY], Axis Bank (arraigned as Defendant No.15 in her suit) be directed to comply with all obligations under [ACT] (for short "[ACT]") which are set out in prayer clause (a) of her suit. The suit agreement for sale is said to be reflected in the letter of confirmation of booking of the flat dated 16 April 2009 read with e-mail dated 21 January 2015, under which she has agreed to purchase and acquire the two flats at a total consideration of Rs.12.45 crores. It is the case of the Plaintiff that she has paid from time to time various sums towards this purchase aggregating to about Rs.9.23 crores, the receipt of which has been duly acknowledged by [ENTITY]. Some other purchasers of flats in the suit building have also been arraigned as defendants in this suit. Among these, some appear to have purchased flats vide registered agreements for sale, whilst others having agreed to do so under similar allotment letters. It is the grievance of the Plaintiff that in spite of various reminders on her part, [ENTITY] has not entered into and registered any agreement for sale as required under the provisions of [ACT]. It is submitted that the Plaintiff and these other flat purchasers have in all paid more than Rs.200 crores to [ENTITY] from time to time towards purchase of their respective flats in the suit building. The suit building, originally to be comprised of thirty-two floors, has been under construction. After all flats in the building were booked (the bookings being of the years 2009, 2010 and 2011 and even later), the Axis Bank claims to have advanced a loan to [ENTITY] around the year 2013 on the security of the suit building. The grievance of the Plaintiff is that this loan is a fraudulent and sat 7/16 NMS 7-2017.doc collusive act as between [ENTITY] and Axis Bank. In particular, it is stated that Axis Bank have failed to carry out any due diligence, while granting this loan to [ENTITY] purportedly on the security of the suit building. It is submitted that had any due diligence search been taken, the records of [ENTITY] would have revealed receipt of substantial money from various purchasers, who had booked flats in the suit building. Besides want of due diligence search, it is submitted by the Plaintiff that there was not even a public notice issued by Axis Bank before advancing this loan. It is submitted that Axis Bank very well knew that the building to be constructed by [ENTITY] was for sale of flats to members of public, attracting provisions of [ACT], which inter alia require the building to be conveyed free of any encumbrance to the body of flat purchasers. Based on these averments, a two-fold case is made out by the Plaintiff against Axis Bank. Firstly, it is submitted that the mortgage was a fraudulent and collusive act as between [ENTITY] and Axis Bank and is not, accordingly, binding on the Plaintiff and other flat purchasers, who, at any rate, have a prior charge over the suit property, that is to say, individual flats forming part of the suit property, under the provisions of [ACT]. Secondly, the Plaintiff's case against Axis Bank is that in the alternative, as a transferee under the mortgage in respect of the suit building, Axis Bank has assumed the character of a 'promoter' as defined under [ACT] and is accordingly bound and liable as much as [ENTITY] to perform all the obligations of 'promoter' under [ACT], which inter alia include delivery of possession of the respective premises free from all encumbrances to the purchasers including the Plaintiff after completing the sale building.
[CASE NUMBER] 7 The Plaintiff in this suit also claims to be an agreement sat 8/16 NMS 7-2017.doc
purchaser in respect of a duplex flat admeasuring about 7344 sq.ft. in the suit building. The agreement is said to be contained in various communications of [ENTITY] annexed as Exhibits 1 to A-5 to the plaint and a Memorandum of Understanding entered into between [ENTITY] and the Plaintiff. The Plaintiff claims to have paid a sum of Rs.29,02,79,000/- from out of the total consideration of Rs.30,00,000/- for purchase of the suit flat. The grievance of the Plaintiff is similar to the Plaintiff in [CASE NUMBER] referred to above. The case against Axis Bank is also on the same lines. In particular, it is submitted by this Plaintiff that certain employees of Axis Bank were hand in glove with the representatives of [ENTITY] and the subject loan was granted by Axis Bank to [ENTITY] for illegal and unlawful gains and without any proper scrutiny or title search or due diligence. The relief claimed against Axis Bank in this suit requires Axis Bank to confirm the sale of the suit flat to the Plaintiff with delivery of possession of the flat within a specific timeline and for a declaration that the Plaintiff has a first charge on the flat. Besides, the Plaintiff seeks various interlocutory reliefs against both [ENTITY] and Axis Bank in aid of the main reliefs.
[CASE NUMBER] 8 The Plaintiff is an agreement purchaser in respect of a duplex flat in the suit building admeasuring 7608 sq.ft. saleable area for a sum of Rs.38,25,00,000/-. The Plaintiff claims to have paid an aggregate sum of Rs.26,77,50,000/- to [ENTITY] under this agreement, contained originally in a letter of allotment and followed by a Memorandum of Understanding executed between the parties. One of the grievances of the Plaintiff in this suit against Axis Bank is that it had as a charge holder in respect of the suit building granted its NOC for sale of the suit flat to the Plaintiff and could sat 9/16 NMS 7-2017.doc not afterwards back out from its commitment as was proposed to be done under a letter addressed by it to the Plaintiff (letter dated 4 October 2016).
[CASE NUMBER] 9 The Plaintiff in this suit is an agreement purchaser of a duplex flat in the suit building of a saleable area of 7555 sq.ft. for an aggregate consideration of Rs.24,00,00,000/-. The agreement is contained in a Memorandum of Understanding dated 28 September 2009 entered into between [ENTITY] and the Plaintiff. The Plaintiff claims to have paid an aggregate sum of Rs.14,65,00,000/- to [ENTITY] under this agreement. It is the case of the Plaintiff that the loan was advanced by Axis Bank to [ENTITY] with knowledge of the Plaintiff's right to the suit flat. The relief sought against Axis Bank is that it should be directed to confirm the sale of the suit flat to the Plaintiff.
[CASE NUMBER] 10 The Plaintiff in this suit claims specific performance of an agreement for sale in respect of two flats comprising of the entire 30 th and 31st floors of the suit building admeasuring saleable area of 11,643 sq.ft. for a total consideration of Rs.28,60,00,000/-. The agreement is said to be contained in a letter of allotment dated 3 March 2010 issued by [ENTITY]. The Plaintiff claims to have paid this entire consideration to [ENTITY]. The Plaintiff's case against Axis Bank is that [ENTITY] already having sold the suit flat to the Plaintiff, no right could have been created in favour of Axis Bank as mortgagee or otherwise. It is prayed by the Plaintiff that along with [ENTITY], Axis Bank be also directed to jointly and severally comply with all obligations under [ACT] including execution and registration of the sat 10/16 NMS 7-2017.doc agreement for sale, completion of the project, and delivery of the suit flat to the Plaintiff.
11 We have to consider the application for rejection of plaint under [SECTION] filed by Axis Bank in these five suits in the light of the facts recounted above. Various issues arise in connection with this application. The first, of course, is whether or not a plaint can be rejected as against one particular Defendant, whilst maintaining the same against others, under [SECTION] of the Code. Ms.[ENTITY], learned Senior Counsel appearing for Axis Bank, relies on a Division Bench judgment of our court in the case of [PRECEDENT] Relying on this judgment, learned Counsel submits that there is no legal bar under [SECTION] in rejecting the plaint only against some of the Defendants. The Division Bench of our court noted various precedents in this behalf, including some judgments of the Supreme Court where plaint was rejected against one or other of the Defendants, and held that there was no such bar. In view of the clear exposition of law by the Division Bench in [PRECEDENT], it cannot be gainsaid that a plaint in an appropriate case can be rejected under [SECTION] of the Code against some of the Defendants. The argument of learned Counsel for the Plaintiff in [CASE NUMBER] that the judgment of [ENTITY] is in the context of rejection of plaint under [SECTION] and not under [SECTION], really has no substance. It is true that the plaint was rejected in [ENTITY] on the basis that it did not disclose any cause of action against the particular defendant and therefore, liable to be rejected under [SECTION]. There is no reason, however, why that principle should not be applied to a case where the suit appears from the statements in the plaint to be barred by any law against a 1 [PRECEDENT] sat 11/16 NMS 7-2017.doc particular defendant or defendants. There is nothing either in principle or in authority to suggest that the two cases, namely, a case under [SECTION] and one under [SECTION], differ in this respect. On the other hand, some of the authorities referred to by our Division Bench in [ENTITY] are cases where the plaint was rejected against some or other of the defendants on the ground of a legal bar, that is to say, under [SECTION].
12 Granted that as a matter of principle, a plaint can be rejected against some of the defendants, it is important to consider in what circumstances it can be so rejected. Whether under [SECTION] or under [SECTION], non-disclosure of cause of action or legal bar, as the case may be, must be in respect of the plaint or the suit as a whole. If the plaint as a whole and read in the light of all its averments does not disclose any cause of action against a particular defendant, it may well be rejected under [SECTION]. So also, if the suit as a whole appears from the statements in the plaint to be barred by any law against any particular defendant, the plaint may be rejected. In either of these cases, the rejection must be of the whole of the plaint or the suit, as the case may be. There is no manner of doubt that the plaint cannot be rejected partially on the ground that that part does not disclose any cause of action or that part of the suit is barred by law against any defendant. In other words, it is not permissible to split the cause of action brought before the court by a plaintiff and based on such splitting, reject the plaint partially.
13 Keeping this principle in mind, let us now consider the merits of the arguments of Ms.[ENTITY] concerning the bar under [SECTION] of the [ACT], which prohibits civil courts from entertaining any suit or proceeding in respect of any matter which the debt recovery tribunal or sat 12/16 NMS 7-2017.doc appellate tribunal constituted under the [ACT] is empowered by or under that act to determine and also from granting an injunction in respect of any action taken or to be taken in pursuance of any power conferred by or under that Act or under the Recovery of Debts due to [ACT]. The question, therefore, which we have to consider here, in the light of what is discussed above, is, whether the DRT is empowered to determine the subject matter of the suit as a whole as against Axis Bank. The answer is clearly in the negative. Ms.[ENTITY] argues that the Plaintiff's prayer for a declaration that there is no legally enforcible charge or mortgage in favour of Axis Bank in respect of the suit building is a matter, which can be determined by the DRT. Indeed it can be. But then, the alternative prayer that Axis Bank be jointly and severally ordered along with [ENTITY] to comply with all its obligations under [ACT] on the footing that by virtue of transfer of property created in its favour by [ENTITY], it is in the position of a promoter vis-a-vis the flat purchasers, is clearly out of bounds for the DRT. The DRT cannot be said to be competent to determine a prayer such as this or direct, on the basis of such determination, specific performance of a contract for sale of property. If it cannot, there is no question of rejecting that part of the claim against Axis Bank under [SECTION] Madras High Court in the case of [PRECEDENT] has explained the law in the following words :
"30. [SECTION], [ACT] and bar of jurisdiction created under relevant Sections in respect of the Co-operative Societies Act, Arbitration and Conciliation Act, 1996 and also Section 29 of the Recovery of Debts due to [ACT] and under Rule 40 of the Income Tax (Certificate 2 II (2005) BC 127 sat 13/16 NMS 7-2017.doc Proceedings) Rules, 1962 and also the bar under the [ACT] were all considered by this Court and the Apex Court as referred supra and now, it is manifestly clear that the power under [SECTION] of the [ACT] is not absolute and the same is subject to certain restrictions, they are:
(1) that the parties, who filed the suit, must be party to the liabilities created in favour of the secured creditor, (2) the disputes between the parties could be resolved under the provisions of the Act itself, (3) that if the claim made by the parties is outside the jurisdiction of the Debts Recovery Tribunal or the appellate tribunal or any action taken or to be taken under this Act and also under the Recovery of Debt due to [ACT] and the dispute raised by the parties cannot be adjudicated by any of the tribunal or authority, created under the act or under any other Act, the right of the parties to approach the Civil Court for appropriate relief cannot be deprived and taken away."
I am in respectful agreement with the above statement of law by Madras High court. If a claim made by the parties to the suit is outside the jurisdiction of the DRT or the appellate tribunal and any disputes raised by the parties in that behalf cannot be adjudicated by them, the right of the parties to approach the civil court for appropriate relief in that behalf cannot be said to be deprived or taken away.
15 Ms.[ENTITY] argues that [SECTION] of the [ACT] gives right to any person, that is to say, any person other than the borrower, to also approach the DRT in an application under [SECTION]. Learned Counsel relies on the judgment of the Supreme Court in the case of [PRECEDENT] in this behalf. No doubt, any person can approach the DRT under [SECTION] if he is aggrieved by any order under [SECTION] of the [ACT] but the point to be considered still is, if any particular relief claimed / to be claimed by such person can be granted by DRT. If not, there [PRECEDENT] sat 14/16 NMS 7-2017.doc is no question of relegating him to any application under [SECTION]. His remedy before the civil court in respect of that relief is clearly not barred by the provisions of [SECTION] of the [ACT] read with [SECTION] of that Act.
16 Besides, as held by the Supreme Court in the case of [PRECEDENT], there is a well known exception to the bar of jurisdiction of the civil court in respect of an action of a secured creditor under the [ACT]. If the action of the secured creditor is alleged to be fraudulent, it is certainly permissible to bring the matter before the civil court. Ms.[ENTITY], however, refers to the judgment of a Division Bench of our court in the case of [PRECEDENT] and relying on this case, submits that the pleadings in such a case must "clearly disclose" a fraud or irregularity on the basis of which the relief is sought. No doubt, this is the requirement of law, for without such requirement, it will be permissible for any person to approach the civil court in a matter clearly covered by [SECTION] read with [SECTION] of the [ACT] by simply alleging fraud as a matter of form and without indicating any substance for raising such plea. Noticing the facts of our case, however, there are sufficient averments in the plaint, which suggest that there is indeed a case to go to trial on fraud. As I have noted above, whilst noticing the facts of [CASE NUMBER], Axis Bank appears to have advanced this loan, for which the alleged security interest is created, much after the project was initiated by [ENTITY]. The bookings started sometime in 2009 if not earlier and were made through the following years; nearly Rs.200 crores, as per the estimate of the Plaintiff in [CASE NUMBER], were collected by [ENTITY] from flat purchasers. Practically, all flats proposed to be constructed in the [PRECEDENT] sat 15/16 NMS 7-2017.doc suit building were agreed to be sold either by registered agreements by means of allotment letters with acknowledged receipts of substantial amounts of monies towards such sales. In these facts, Axis Bank would have had to go for due diligence and take inspection of various records, which the promoter of a project covered under [ACT] is expected to maintain under the provisions of [ACT]. Without doing this, it is the allegation of the Plaintiff, Axis Bank went ahead and colluded through some of its employees with [ENTITY] and granted loan to it on the security of the suit building, which clearly has an adverse effect on the rights of the flat purchasers. The allegations concerning the lack of due diligence on the part of Axis Bank as also want of a public notice before advancing such loan, in the peculiar facts and circumstances of the case and read with the allegations of collusion as between some of its officers and [ENTITY], clearly spell out a case which ought to go to trial. It is not a case, where, by clever drafting, the Plaintiff seeks to sustain the jurisdiction of a civil court by a simple and bald allegation of fraud, which is merely in form and not in substance.
17 For all these reasons, there is no merit in the application for rejection of plaint as against Axis Bank.
18 The notices of motion are all, accordingly, rejected. Costs to be costs in the cause.
19 Ms.[ENTITY] applies for stay of further proceedings in the suits for a limited period. Axis Bank has not had any ad-interim relief in this behalf till date. After hearing them fully and this court having comprehensively rejected their case for rejection of the plaint on the basis of such hearing, there is no question of now granting any stay of proceedings. Anyway, there sat 16/16 NMS 7-2017.doc is a [SECTION] issue, which is already framed in the matter based on the self-same averments of Axis Bank, which are discussed above, and with the consent of Axis Bank. The court shall proceed with the hearing of that issue.
[CASE NUMBER] and Notices of Motion (Lodging) Nos.30 of 2017 and 349 of 2017 are stood over and adjourned to the hearing of the suits on the preliminary issue of jurisdiction.
([ENTITY], J.)