IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE S.SIRI JAGAN THURSDAY, THE 28TH JULY 2011 / 6TH SRAVANA 1933 WP(C).No. 14751 of 2006(F) -------------------------- PETITIONER ------------------- THE ERNAKULAM DISTRICT CO-OPERATIVE BANK, KOTHAMANGALAM BRANCH, REPRESENTED BY ITS MANAGER. BY ADV. SRI.P.V.SURENDRANATH SRI.V.A.ABDUL JALEEL RESPONDENT(S): ------------------------ 1. STATE OF KERALA, REPRESENTED BY ITS SECRETARY TO REVENUE DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM. 2. DEPUTY TAHSILDAR (REVENUE RECOVERY), KERALA FINANCIAL CORPORATION, KALOOR, ERNAKULAM-17. 3. KERALA FINANCIAL CORPORATION, VELLAYAMBALAM, TRIVANDRUM. 4. THOMAS, S/O.LOUIZ, CHIRAMEL HOUSE, PAIMATTOM, NELLIMATTOM, MANIKINAR P.O., KOTHAMANGALAM. ADV. SRI.M.M.SAYED MUHAMMED, SC, KFC FOR R3 SRI.P.PARAMESWARAN NAIR, SC, KFC FOR R3 SRI.VARGHESE C.KURIAKOSE FOR R4 SRI.PRAVEEN K. JOY FOR R4 SMT.THANKOM.G FOR R4 SRI.E.M.MURUGAN FOR R4 SRI.K.JAJU BABU,SC,KERALA FINANCIAL COR FOR R3 GOVERNMENT PLEADER SRI.ANTONY MUKKATH FOR R1 & R2 THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 28/07/2011. THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: dmb WP(C).No. 14751 of 2006 APPENDIX PETITIONER'S EXHIBITS:- EXT.P1:- COPY OF THE NOTICE DTD 20.1.2005 ISSUED BY THE 2ND RESPONDENT EXT.P2:- COPY OF THE OBJECTION SUBMITTED BY THE PETITIONER BEFORE THE 2ND RESPONDENT ON 19.5.2006 EXT.P3:- COPY OF THE LOAN DOCUMENT DTD 19.11.2004 EXECUTED BY THE 4TH RESPONDENT IN FAVOUR OF THE PETITIONER EXT.P4:- COPY OF THE TITLE DEED WITH RESPECT TO THE PROPERTY, REGISTERED SALE DEED NO.508/2001 DTD 19.11.2001 OF SRO KOTHAMANGALAM EXT.P5:- COPY OF THE CONFIRMATION LETTER DTD 20.11.2004 ISSUED BY THE 4TH RESPONDENT EXT.P6:- COPY OF THE ENCUMBRANCE CERTIFICATE DTD 2.9.2002 FOR THE PERIOD FROM 1.1.1981 TO 19.8.2002 EXT.P7:- COPY OF THE ENCUMBRANCE CERTIFICATE DTD 24.07.2004 FOR THE PERIOD UP TO 23.7.2004 EXT.P8:- COPY OF THE REGISTERED MORTGAGE DEED NO.7225/2004 DTD 9.11.2004 EXT.P9:- COPY OF THE ENCUMBRANCE CERTIFICATE FOR THE PERIOD FROM 1.1.2004 TO 20.11.2004 EXT.P10:- COPY OF THE ENCUMBRANCE CERTIFICATE FOR THE PERIOD FROM 19.11.2004 TO 31.01.2005 RESPONDENTS' EXHIBITS:- EXT.R3(a):- COPY OF LETTER DTD 21.8.2008 VIDE NO.DTE.68/04/RR/KFC.802 ISSUED BY THE DEPUTY TAHSILDAR (RR) EXT.R3(b):- COPY OF LETTER DTD 23.9.08 SENT BY THE PETITIONER TO THE 3RD RESPONDENT //TRUE COPY// P.A TO JUDGE S. SIRI JAGAN, J. ------------------------------------------- W.P.(C) No.14751 OF 2006 ---------------------------------------------- Dated this the 28th day of July, 2011 JUDGMENT The petitioner is a Co-operative Bank. They advanced amounts to the 4th respondent. As security for due repayment of the loan amounts, the 4th respondent mortgaged 1.23 hectares of property belonging to the 4th respondent in Survey Nos. 611/1A/21W/187, 611/1A/26W/283, 611/1A/25W/235, 608/1, 608/2A of Keerampara Village of Kothamangalam Taluk in favour of the petitioner. The 4th respondent defaulted repayment of the amounts. The petitioner initiated proceedings for recovery of the same. While so, the 2nd respondent issued Ext.P1 notice of attachment of the said properties under Section 36 of the Revenue Recovery Act stated to be in exercise of powers under Section 32G of the State Financial Corporations Act for recovery of amounts due from the 4th respondent to the Kerala Financial Corporation (KFC), the 3rd respondent herein. That is under challenge in this writ petition. The petitioner seeks the following reliefs: W.P.(C)No.14751/06 2 “(i) To issue a writ of certiorari quashing and setting aside Ext.P1 to the extent that it takes in the security property mortgaged in favour of the petitioner by the 4th respondent as per Ext.P3 to P8. (ii) To issue a writ of mandamus commanding the respondents 2 & 3 not to proceed against the security property covered by Ext.P3 to P8 in any manner whatsoever” 2. The 4th respondent supports the petitioner to contend that as the property in question has been mortgaged to the petitioner on 19.11.2004, prior to the attachment on 22.1.2005 the petitioner has first charge over the property in question. The 3rd respondent Kerala Financial Corporation would contend to the contrary. According to them, the 4th respondent had availed of loan amounts from the Kerala Financial Corporation which has not been repaid. For recovery of that amount, a demand notice was issued on 5.5.2004. That was received by the 4th respondent on 11.5.2004. The revenue recovery requisition was issued to the Collector on 17.9.2004 and the Revenue Recovery certificate was issued on 17.11.2004, all of which were prior to the mortgage in favour of the petitioner on 19.11.2004. According to the Kerala Financial Corporation, in view of Section 32G of the State Financial Corporations Act, read with notification under Section W.P.(C)No.14751/06 3 71 of the Revenue Recovery Act, the mortgage in favour of the petitioner being one entered into by the defaulter, after service of the written demand on the 4th respondent, the mortgage is not binding on the Government and consequently on the Kerala Financial Corporation. The learned counsel for the Kerala Financial Corporation would therefore contend that the charge of the Kerala Financial Corporation is superior to the charge of the petitioner bank and therefore, the Kerala Financial Corporation has first charge over the properties in question. 3. On the other hand, the learned counsel for the petitioner would argue that since, admittedly, the attachment of the property by the Kerala Financial Corporation and the revenue officials was subsequent to the mortgage on 19.11.2004, the bank has preferential charge over the property, insofar as the relevant dates are the date of mortgage and the date of attachment. According to the petitioner, since the date of attachment is subsequent to the date of mortgage, the bank has prior charge over the property. The learned counsel for the petitioner bank would further W.P.(C)No.14751/06 4 contend that the mortgage in favour of the bank would be invalid only if it is proved that the mortgage has been effected with intent to defeat or delay the recovery of the arrears due to the Kerala Financial Corporation, which is not the case is here. Insofar as the 4th respondent had mortgaged his other properties in favour of the Kerala Financial Corporation, which mortgage was accepted as sufficient to cover the loan amounts and therefore, the 4th respondent need not have transferred this property to defeat or delay the recovery of the arrears due to the petitioner bank. According to the petitioner, only if the KFC proves that the mortgage in favour of the petitioner bank is intended to defeat or delay the recovery of the arrears, the mortgage can be set aside by virtue of powers under sub section 44 (3) failing which the mortgage would stand in which case the attachment being subsequent to the mortgage, the mortgage would prevail over the attachment. 4. I have considered the rival contentions in detail. Section 44 of the Kerala Revenue Recovery Act reads thus: “44. Effect of engagements and transfers by the defaulter.- (1) Any engagement entered into by the defaulter with any one in respect of any immovable property after the service of the written demand on him shall not be binding W.P.(C)No.14751/06 5 upon the Government. (2) Any transfer of immovable property made by a defaulter after public revenue due on any land from his has fallen in arrear, with intent to defeat or delay the recovery of such arrear, shall not be binding upon the Government. (3) Where a defaulter transfers immovable property to a near relative or for grossly inadequate consideration after public revenue due on any land from him has fallen in arrear, it shall be presumed until the contrary is proved, that such transfer is made with intent to defeat or delay the recovery of such arrear, and the Collector or the authorised officer may, subject to the order of a competent Court, proceed to recover such arrear of public revenue by attachment and sale of the property so transferred, as if such transfer has not taken place: Provided that, before proceeding to attach such property, the Collector or the authorised officer shall- (i) give the defaulter an opportunity of being heard; and (ii) record his reasons therefor in writing.” The contention of the Kerala Financial Corporation is that the three sub sections of Section 44 are mutually exclusive and should be read separately. Therefore, according to them, once sub Section (1) is satisfied, the mortgage in favour of the bank is not binding on the Government. I am unable to subscribe to that view. I am of opinion that all the three sub sections of Section 44 have to be read together and the mortgage would be invalid only if the Kerala Financial Corporation proves the elements of sub section (2) namely, intent to defeat or delay W.P.(C)No.14751/06 6 the recovery of arrears due to the Kerala Financial Corporation. As rightly pointed out by the learned counsel for the petitioner bank, the loan advanced by Kerala Financial Corporation to the 4th respondent was sufficiently secured by mortgage of other properties of the 4th respondent. This is not disputed before me by the Kerala Financial Corporation. That means the Kerala Financial Corporation was satisfied that the properties mortgaged were sufficient to cover the repayment of the loan sanctioned by the Kerala Financial Corporation to the 4th respondent. If that be so, I am unable to hold that when the 4th respondent mortgaged the subject properties to the petitioner bank, there was an intent to defeat or delay the recovery of arrears due to the Kerala Financial Corporation, by mortgaging the unencumbered property of the 4th respondent in favour of the petitioner bank. I am of opinion that unless the revenue authorities succeeds in proving that the mortgage in favour of the petitioner bank by the 4th respondent was with intent to defeat or delay for recovery of the arrears due to the Kerala Financial Corporation, the Government and the Kerala Financial Corporation cannot lay any claim for prior charge in W.P.(C)No.14751/06 7 respect of this property. Since I have already found that the Kerala Financial Corporation and the revenue authorities have not succeeded in proving the same, insofar as the attachment pursuant to the revenue recovery proceedings was after the mortgage in favour of the petitioner bank, the petitioner bank has prior charge over the property for their dues in preference to the charge pursuant to the attachment by the revenue authorities at the instance of the Kerala Financial Corporation. The result of the above discussion is that over the property in question the petitioner bank has prior charge in preference to the Kerala Financial Corporation. 5. But, of course, if after satisfying the debt of the petitioner, if any amounts are left out of the amounts obtained by the sale of the subject properties, the Kerala Financial Corporation is certainly entitled to lay claim on the same by virtue of the attachment. Therefore, Ext.P1 itself cannot be said to be unsustainable. It can only be that the attachment would be subject to the prior charge of the petitioner bank over the property. Therefore, it is not necessary to quash Ext.P1 as such. It would be sufficient to declare that the W.P.(C)No.14751/06 8 petitioner bank has prior charge over the property in question in preference to the charge created by Ext.P1 by the revenue authorities. It is submitted that the petitioner bank has already initiated proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act against the property in question for recovery of the amounts due to them. The bank would be free to pursue the same and take it to its logical conclusion in accordance with law. But, I make it clear that the sale by the petitioner shall be with prior notice to the Kerala Financial Corporation at every stage and it would be open to the Kerala Financial Corporation to challenge the same, if the Kerala Financial Corporation has any case that there is any irregularity in the sale. Any amount left after satisfying the dues of the petitioner Bank, from the sale proceeds, the same shall be handed over to the Revenue Authorities towards dues of the KFC under intimation to the 4th respondent. The writ petition is disposed of as above. S. SIRI JAGAN, JUDGE acd W.P.(C)No.14751/06 9 W.P.(C)No.14751/06 10