IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD (Special Original Jurisdiction) SUNDAY, THE SIXTH DAY OF SEPTEMBER TWO THOUSAND AND NINE PRESENT THE HON'BLE MR JUSTICE GHULAM MOHAMMED and THE HON'BLE MR JUSTICE VILAS V. AFZULPURKAR WRIT PETITION NO : 1563 of 2005 Between: 1 P. Mansoor Ali Khan, S/o. Hazi P. Samdane, R/o. D.No. 21-A/2, 1413/A/143/12, Old Mahabalipuram Road, Chennai. 2 Hazi P. Samdane, S/o. Mansoor Khan, R/o. D.No. 27/2/605, A.C. NAGAR, Nellore. ..... PETITIONER(S) AND 1 State Bank of Hyderabad, Rep. by its Chief Manager, Stone Housepet, Nellore. 2 The Authorised Officer, State Bank of Hyderabad, Stone Housepet, Nellore. 3 The Regional Manager, State Bank of Hyderabad, Tirupathi, Chittor District. 4 B. Balaji Singh, S/o. Niot Known to the Petitioners, 1/1097 Banglow Thota, Nawabpet, Nellore District. .....RESPONDENT(S) Petition under Article 226 of the constitution of India praying that in the circumstances stated in the Affidavit filed herein the High Court will be pleased to issue writ of Mandamus or any other appropriate Writ or direction declaring the order of Debt Recovery Tribunal Visakhapatnam passed in Appeal No. 43/2004 dated 12-1- 2005 and the action of the 1st respondent in conducting the sale of the property on 28-8-2004 as illegal arbitrary and contrary to the provisions of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 and consequently set aside the same and pass such other order or further orders. Counsel for the Petitioner: MR.O.MANOHER REDDY Counsel for the Respondent No.: MR.K.V.SIMHADRI The Court made the following : ORDER: (Per Sri Justice GHULAM MOHAMMED) This Writ Petition has been filed by the petitioners assailing the legality and validity of the order dated 12.1.2005 passed by the Debt Recovery Tribunal, Visakhapatnam passed in Appeal No. 43 of 2004 and the action of the first respondent in conducting the sale of the property in question on 28.8.2004 as illegal arbitrary. Brief facts of the case are that the first petitioner is the son of second petitioner and both of them have approached the State Bank of Hyderabad, Nellore for grant of educational loan of Rs. 2 lakhs to the first petitioner for prosecuting higher studies at Swin Burne University of Technology Victoria State, Australia for computer integrated manufacturing course. It is stated that for the purpose of security, the property bearing Plot No. 39, in approved layout No. 1/9\82 in CAS No. 353/3, Patta No. 42 of Nellore was given as security and as per the agreement, the amount has to be repaid in 36 instalments of Rs. 3000/- each beginning from March 1995. Thereafter, certain amounts have been paid and on the ground that the first petitioner left his education by committing default, a notice has been issued and thereafter a suit O.S.No. 146 of 1998 was filed by the Bank on the file of Senior Civil Judge Court, Nellore for recovery of an amount of Rs. 2,48,063/- with subsequent interest at the rate of 15.5.% per annum from the date of suit till the date of realization. It is stated that the respondent-Bank has initiated proceedings under the provisions of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short ‘the Act’) and a notice under Section 13(2) of the Act was issued on 8.5.2003 and subsequently a notice under Section 13(4) of the Act has been issued for a total amount of Rs. 5,80,140/- plus interest. Questioning the same, petitioners filed Writ Petition No. 26041 of 2003 and the same was dismissed by this Court on 22.4.2004. During the interregnum period the second petitioner approached the Bank to settle the matter under one time settlement scheme. It is stated that the respondents without considering the plea of the petitioners for settlement under one time settlement have published the auction notice in Eenadu daily news paper on 28.7.2004 for a sum of Rs. 5,80,140/- and date of auction was fixed on 28.8.2004 at 11.00 AM. It is stated that on 9.8.2004 the petitioners made an application to the first respondent requesting him to stop the auction proceedings since the subject matter is pending in O.S.No. 146 of 1998 and the first respondent informed on 20.8.2004 stating that there is no bar under the Act to proceed with the auction. Thereafter, in the suit the petitioner filed I.A. No. 575 of 2004 for injunction to restrain the respondent from auctioning the property. The said application was dismissed on 27.8.2004 and immediately on 28.8.2004 before auction the second petitioner approached the first respondent and gave a cheque for Rs. 50,000/- with a requisition that the balance amount will be paid after negotiations and requested to stop the auction. As the first respondent refused, the second petitioner issued a cheque for Rs. 4,35,000/- immediately before completion of the auction with a covering letter requesting the Branch Manager to accept the said cheque and states that the balance amount would be paid. It is stated that as the Branch Manager refused to receive the same, the petitioner sent the cheque to the Regional Manager at Tirupati on the same day by courier and met the Regional Manager on 1.9.2004 at 3.00 PM and requested him to stop the auction proceedings. As the Regional Manager refused to stop the auction process, the petitioners constrained to invoke the jurisdiction of the Debt Recovery Tribunal at Visakhapatnam by way of filing Appeal No. 43 of 2004. Respondent-Bank also filed a detailed counter denying the allegations made in the petition but admitting the offer of Rs. 50,000/- made by the petitioners and also the cheque for Rs. 4,35,000/- issued by them and stated that the same was not accepted on the ground that the auction was already conducted on 28.8.2004. After hearing both the parties, the Tribunal dismissed the appeal. Aggrieved by the same, the present Writ Petition has been filed. The learned counsel appearing for the petitioners contended that the petitioners have given an amount of Rs. 50,000/-on the date on which auction was held on 28.8.2000 and they prepared a cheque for Rs. 4,35,000/- and the bank manager at Regional Office refused to receive the courier. The finding given by the Tribunal suffers from jurisdictional error and the tribunal ought not to have dismissed the appeal holding that the appeal is not maintainable inasmuch as pursuant to the direction given by the Tribunal he has estimated the amount and that the order clearly says that ‘sale’ shall not be confirmed. He also contended that the Bank has issued notice under Section 13(2) of the Act and thereafter an order was passed under Section 13(4) of the Act. Section 13(4) of the Act reads as under: “13(4) In case the borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:- (a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realizing the secured asset; (b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realizing the secured asset: provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt: provided further that where the management of whole, of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security or the debt;) (c ) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor; (c) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt.” The expression ‘measures’ include even with regard to all steps taken by the Bank to realize the secured debts. Even when once the property is put to action, the entire sale process comes within the purview of Section 13(4) o the Act. Against that order, an appeal is provided under Section 17 of the Act. The learned counsel for the petitioners also has drawn our attention to Section 13(8) of the Act, which reads as under: “ If the dues of the secured creditor together with all costs, charges and expenses incurred by him are tendered to the secured creditor at any time before the date fixed for sale or transfer, the secured asset shall not be sold or transferred by the secured creditor, and no further step shall be taken by him for transfer or sale of that secured asset.” He also drawn our attention to Rule 9 of the Security Interest (Enforcement) Rules, 2002, which reads as under: “9. Time of sale, issues of sale certificate and delivery of possession etc: (1) No sale of immovable property under these rules shall take place before the expiry of thirty days from the date on which the public notice of sale is published in newspapers as referred to in the proviso to sub-rule (6) or notice of sale has been served to the borrower. (2) The sale shall be confirmed in favour of the purchaser who has offered the highest sale price in his bid or tender or quotation or offer to the authorized officer and shall be subject to confirmation by the secured creditor: Provided that no sale under this rule shall be confirmed, if the amount offered by sale price is less than the reserve price, specified under sub-rule (5) of Rule 9: Provided further that if the authorized officer fails to obtain a price higher than the reserve price, he may, with the consent of the borrower and the secured creditor effect the sale at such price. (3) on every sale of immovable property, the purchaser shall immediately pay a deposit of twenty- five per cent of the amount of the sale price, to the authorized officer conducting the sale and in default of such deposit, the property shall forthwith be sold again. (4) The balance amount of purchase price payable shall be paid by the purchaser to the authorized officer on or before the fifteenth day of confirmation of sale of the immovable property or such extended period as may be agreed upon in writing between the parties. (5) In default of payment within the period mentioned in sub-rule (4), the deposit shall be forfeited and the property shall be resold and the defaulting purchaser shall forfeit all claim to the property or to any part of the sum for which it may be subsequently sold. (6) On confirmation of sale by the secured creditor and if the terms of payment have been complied with, the authorized officer exercising the power of sale shall issue a certificate of sale of the immovable property in favour of the purchaser in the form given in Appendix V to these rules. (7) Where the immovable property sold is subject to any encumbrances, the authorized officer may, if he thinks fit, allow the purchaser to deposit with him the money required to discharge the encumbrances and any interest due thereon together with such additional amount that may be sufficient to meet the contingencies or further costs, expenses and interest as may be determined by him. (8) On such deposit of money for discharge of the encumbrances, the authorized officer may issue or cause the purchaser to issue notices to the persons interested in or entitled to the money deposited with him and take steps to make the payment accordingly. (9) The authorized officer shall deliver the property to the purchaser free from encumbrances known to the secured creditor on deposit of money as specified in sub-rule (7) above. (10) The certificate of sale issued under sub-rule (6) shall specifically mention that whether the purchaser has purchased the immovable secured asset free from any encumbrances known to the secured creditor or not.” The finding of the Tribunal is that when once the sale is completed, the same stands confirmed on payment of bid amount. That finding is opposed to the scheme of the Act and also the provisions of the expression ‘tranfser’. Since the expression ‘transfer’ is not used and is not defined under the Act but nonetheless Section 2(2) of the Act, words and expressions used and defined in the Indian Contract Act, 1872 (9 of 1872) or the Transfer of Property Act, 1882 (4 of 1882) or the Companies Act, 1956 (1 of 1956) or the Securities and Exchange Board of India Act, 1992 (15 o 1992) shall have the same meaning respectively assigned to them in those Acts. Under Section 5 of the Transfer of Property Act, the expression ‘transfer of property’ defined as under: “5. Transfer of Property defined:- In the following sections ‘transfer of property’ means an act by which a living person coveys property, in present or in future, to one or more other living persons, or to himself and one or more other living persons; and ‘to transfer property’ is to perform such act. In this section ‘living person’ includes a company or association or body of individuals, whether incorporated or not, but nothing herein contained shall affect any law for the time being in force relating to transfer of property to or by companies, associations or bodies of individuals.” He further drawn our attention to Section 69 of the Transfer of Property Act, which reads as under: “69. Power of sale when valid.- (1) A mortgagee, or any person acting on his behalf, shall, subject to the provisions of this section have power to sell or concur in selling the mortgaged property or any part thereof, in default of payment of the mortgage-money, without the intervention of the court, in the following cases and in no others, namely: (a) where the mortgage is an English mortgage, and neither the mortgagor nor the mortgagee is a Hindu, Mohammedan or Buddhist or a member of any other race, sect, tribe or class from time to time specified in this behalf by the State Government in the Official Gazette; (b) where a power of sale without the intervention of the court is expressly conferred on the mortgagee by the mortgage-deed and the mortgagee is the Government; (c) where a power of sale without the intervention of the court is expressly conferred on the mortgagee by the mortgage-deed and the mortgaged property or any part thereof was, on the date of the execution of the mortgage- deed, situate within the towns of Calcutta, Madras, Bombay, or in any other town or area which the State Government may, by notification in the Official Gazette, specify in this behalf. (2) No such power shall be exercised unless and until: (a) notice in writing requiring payment of the principal money has been served on the mortgagor, or on one of several mortgagors, and default has been made in payment of the principal money, or of part thereof, for three months after such service; or (b) some interest under the mortgage amounting at least to five hundred rupees is in arrear and unpaid for three months after becoming due. (3) When a sale has been made in professed exercise of such a power, the title of the purchaser shall not be impeachable on the ground that no case had arisen to authorize the sale, or that due notice was not given, or that the power was otherwise improperly or irregularly exercised; but any person damnified by an unauthorized or improper or irregular exercise of the power shall have his remedy in damages against the person exercising the power. (4) The money which is received by the mortgagee, arising from the sale, after discharge of prior encumbrances, if any, to which the sale is not made subject, or after payment into court under Sectioin 57 of a sum to meet any prior encumbrance, shall, in the absence of a contract to the contrary, be held by him in trust to be applied by him, first, in payment of all costs, charges and expenses properly incurred by him as incident to the sale or any attempted sale; and, secondly, in discharge of the mortgage-money and costs and other money, if any, due under the mortgage; and the residue of the money so received shall be paid to the person entitled to the mortgaged property, or authorized to give receipts for the proceeds of the sale thereof. (5) Nothing in this section or in Section 69-A applies to powers conferred before the first day of July, 1882.” He also drawn our attention to the decision of the Supreme Court in MARDIA CHEMICALS LIMITED VS. UNION OF INDIA[1] wherein it has been held as under: “49. On behalf of one of the respondents Sri Andhyarujina submitted that as a matter of fact Section 13 of the Act leaves more scope and provides wider protection to the borrower as compared to in the case of an English mortgage and in connection with the above submission it has been pointed out that in case of an English mortgage and in connection with the above submission it has been pointed out that in case of an English mortgage there is no scope of intervention of the court unless a case is made out before the court that action of the mortgagee is fraudulent or it is a case of the like nature. Otherwise, as provided under sub-section (3) of Section 69 a mortgagor shall only be entitled to damages for the wrongful or irregular sale of the property. Whereas, it is submitted, under the Securitization Rules it is provided that before putting the property on sale the authorized officer has to obtain the valuation of immovable property, a reserved price is to be fixed and a notice of 30 days before sale is to be served on the borrower. In this connection, Rule 9, the relevant rule of the Security Interest (Enforcement) Rules, 2002 is quoted. “9. Time of sale, issue of sale certificate and delivery of possession etc.- 1) No sale of immovable property under these rules shall take place before the expiry of thirty days from the date on which the public notice of sale is published in news papers as referred to in the proviso to sub-rule (6) or notice of sale has been served to the borrower. 2) The sale shall be confirmed in favour of the purchaser who has offered the highest sale price in his bid or tender or quotation or offer to the authorized officer and shall be subject to confirmation by the secured creditor: * * * (3)-(10) * * * Therefore, during this period which would be in all more than 60 days it would be open for a borrower to approach the Debts Recovery Tribunal and file a petition for any appropriate relief and if a case is so made out, he can even get a relief of stay, in exercise of ancillary power which vests in the Tribunal as per decisions referred and reported as ITO v. M.K.Mohd.Kunhi ((AIR 1969 SC 430)) and Allahabad Bank v. Radha Krishna Maity ((1999) 6 SCC 755. Again referring to Section 19 of the Act, it is pointed out that in case in the end the Tribunal finds that the secured assets have been wrongfully transferred or taken possession of, an order for return of such assets can be passed and the borrower in that event shall also be entitled to compensation. 50. It has also been submitted that an appeal is entertainable before the Debts Recovery Tribunal only after such measures as provided in sub-section (4) of Section 13 are taken and Section 34 bars to entertain any proceeding in respect of a matter which the Debts Recovery Tribunal or the Appellate Tribunal is empowered to determine. Thus before any action or measure is taken under sub-section (4) of Section 13, it is submitted by Mr.Salve, one of the counsel for the respondents that there would be no bar to approach the civil court. Therefore, it cannot be said that no remedy is available to the borrowers. We, however, find that this contention as advanced by Shri Salve is not correct. A full reading of Section 34 shows that the jurisdiction of the civil court is barred in respect of matters which a Debts Recovery Tribunal or an Appellate Tribunal is empowered to determine in respect of any action taken “ or to be taken in pursuance of any power conferred under this Act”. That is to say, the prohibition covers even matters which can be taken cognizance of by the Debts Recovery Tribunal though no measure in that direction has so far been taken under sub-section (4) of Section 13. It is further to be noted that the bar of jurisdiction is in respect of a proceeding which matter may be taken to the Tribunal. Therefore, any matter in respect of which an action may be taken even later on, the civil court shall have no jurisdiction to entertain any proceeding thereof. The bar of civil court thus applies to all such matters which may be taken cognizance of by the Debts Recovery Tribunal, apart from those matters in which measures have already been taken under sub- section (4) of Section 13. 51. However, to a very limited extent jurisdiction of the civil court can also be invoked, where for example, the action of the secured creditor is alleged to be fraudulent or his 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. We find such a scope having been recognized in the two decisions of the Madras High Court which have been relied upon heavily by the learned Attorney General as well appearing for the Union of India viz., V.Narasimhachariar (AIR 1955 Mad 135), a judgment of the learned Single Judge where it is observed as follows in para 22: “22. The remedies of a mortgagor against the mortgagee who is acting in violation of the rights, duties and obligations are two fold in character. The mortgagor can come to the court before sale with an injunction for staying the sale if there are materials to show that the power of sale is being exercised in a fraudulent or improper manner contrary to the terms of the mortgage. But the pleadings in an action for restraining a sale by mortgagee must clearly disclose a fraud or irregularity on the basis of which relief is sought. Adams v. Scott. (1859) 7 WR 213, 249). I need not point out that this restraint on the exercise of the power of sale will be exercised by courts only under the limited circumstances mentioned above because otherwise to grant such an injunction would be to cancel one of the clauses of the deed to which both the parties had agreed and annual one of the chief securities on which persons advancing moneys on morgages rely ( See Ghose, Rashbehary: Law of Mortgages, Vol.II, 4th Edn.p.784) 52. The other decision on which reliance has been placed is A.Batcha Saheb v. Nariman K.Irani (AIR 1955 Mad.491) more particularly on para 8. 53. We also find it appropriate to mention at this stage that in reply to the submission made by Shri Dholakia on behalf of the guarantors that even though a guarantor may stand discharged as envisaged under Sections 133 and 135 of the Indian Contract Act e.g. where any variance