IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD (Special Original Jurisdiction) MONDAY, THE THIRTEENTH DAY OF JULY TWO THOUSAND AND NINE PRESENT THE HON'BLE MR JUSTICE GHULAM MOHAMMED and THE HON'BLE MR JUSTICE VILAS V. AFZULPURKAR WRIT PETITION No.5198 of 2009 Between: 1 Lanka Venkata (Krishna) Subrahmanyam S/o.L.K.H.Sarma R/o. Plot No.77, D.No. 3-9-639/77, Anitha nagar, Bandlaguda, GSI post Office, Vanasthali puram, Hyderabad-68. 2 L.Sita Mahalakshmi, W/o L.V.Subrahmanyam R/o.D.No.22-4, Saraswathi nagar,Lothukunta, Secunderabad- 500 015 3 L.Sarada, D/o.Late L.V.SUbrahmanyam R/o.D.No.22-4, Saraswathi nagar, Lothukunta, Secunderabad- 500 015 4 L.Anand, S/o.Late Subrahmanyam, R/oD.No.22-4, Saraswathi nagar, Lothukunta, Secunderabad- 500 015 5 L.Kusuma Katyayani, D/o Late L.V.Subrahmanyam R/o.D.No.22-4, Saraswathinagar,Lothukunta,Sec'bad-500 015 Petitioner 2 to 5 brought on records as LRs of the deceased Petitioner as per Court Order dt:08-07-2009 in WPMP.15897/2009 ..... PETITIONERS AND 1 The Branch Manager, Andhra Bank, Nagole Branch, Hyderabad. 2 B.Sankarayya M/s. Rajesh Food Products, Plot No.7, Block No.40, Autonagar, Vanasthalipuram, Hyderabad (Company address) S/o. Yadagiri, Plot No.3, Aadarsha Nagar Colony, Nagole, Hyderabad-68. .....RESPONDENTS 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 an appropriate order, writ or direction more particularly one in the nature of Writ of Mandamus by declaring: (1) by declaring the impugned notice dt. 16.1.2009, issued by the 1st respondent under Section 13 (2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, proposing to proceed against petitioner's immovable property which was provided as security to the loan under a deposit of title deed through a registered simple mortgage in favour of the 1st respondent, towards recovery of outstanding debt due by the 2nd respondent to the 1st respondent as illegal, unjust, unsustainable against him inoperative and thus to set aside the same. (ii) to declare that the collateral security in the form of a deposit of title deeds of petitioner's property under a registered simple mortgage deed executed by him in favour of the 1st respondent when a total loan of Rs.10 lakhs sanctioned by the 1st respondent to the business purpose of the 2nd respondents M/s. Rajesh Food Products, situated at Plot No.7, Block No.40, Auto Nagar, Vanasthalipuram, Hyderabad 500 070, on the ground of acts of violation of the terms and conditions of sanction of loan by disposing the hypothicated machinery by the 2nd respondent to the 3rd party without the knowledge and permission of the 1st respondent and consequent acts of negligence by not pursuing with the hypothicated machinery which is placed in the court custody of a criminal court at Hyathnagar, Hyderabad covered in a criminal case, and collusion with the 2nd respondent by the 1st respondent only with a view to sell away his property which is a security to the loan, by operation of law under Sections 139 and 141 of the Indian Contract Act as discharged from security. (iii) consequently to direct the 1st respondent to release the registered sale deed of petitioner's property which is covered under a registered mortgage and hand over to him. Counsel for the Petitioner:MR.P.NARASIMHA RAO Counsel for the Respondent No.: DR.K.LAKSHMI NARASIMHA (SC FOR ANDHRA BANK) The Court made the following : p ORDER: (Per Sri Justice Ghulam Mohammed) This writ petition is filed seeking a writ of mandamus to declare the notice, dated 16.01.2009, issued by the first respondent under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short ‘the Act’), proposing to proceed against the petitioners’ immovable property, as illegal and arbitrary. 2. The petitioners state that their father i.e., the first petitioner, stood as guarantor to the second respondent for a term loan of Rs.5 lakh, obtained by him from the first respondent Bank, on 13.03.2007, for the purpose of purchasing the machinery and in this context, he executed a registered simple mortgage deed in favour of the Bank keeping his plot bearing F.No.C2, 2nd floor, Sai Karthik Enclave, Khairatabad. They further state that as the second respondent sustained loss in his business, he sold away the machinery, which is under hypothecation to the first respondent Bank, to one of his creditors and filed a fictitious criminal complaint against one D.Santhosh and got the machinery seized by the police. Ultimately, it is in the custody of VII Metropolitan Magistrate, Cyberabad. Thereafter, the first respondent Bank issued a notice, dated 22.11.2008, to the second respondent and the first petitioner for payment of loan amounting to Rs.8,43,052/- jointly and severally, but they did not repay the same. Therefore, it issued the impugned notice under Section 13(2) of the Act to the first petitioner proposing to sell away his property, which was secured under simple mortgage. Hence, he filed the present writ petition. 3. The first respondent Bank filed a detailed counter-affidavit stating that the first petitioner is the co-obligant i.e., co-borrower of the loan along with the second respondent and mortgaged his fixed assets as security to the loan under registered mortgage deed dated 15.05.2007. It is stated that as they failed to repay the loan amount, the Bank got issued a notice to both of them. When the Bank authorities visited the factory, they were informed that the machinery and the stock were stolen by somebody and a case in Crime No.691 of 2008 was registered before Vanasthalipuram Police Station. On information that the said machinery is under the custody of VII Metropolitan Magistrate, Cyberabad, the Bank has filed a memo informing the Court about the hypothecation charge on the machinery and the stock. Since the Unit was not functioning and the payment of interest and installments were stopped, the Bank issued the impugned notice under Section 13(2) of the Act to the first petitioner and the second respondent. 4. Learned counsel for the petitioners vehemently contended that as the principal borrower i.e. the second respondent has violated the terms and conditions of the loan, the first petitioner would stand discharged from the collateral security under Sections 133, 139 and 141 of the Indian Contract Act, 1872 (for short ‘the Act, 1872’) and as such, the Bank has no authority to proceed against their immovable property. He has drawn the attention of this Court to the judgment reported in STATE BANK OF INDIA vs. M/s. VENKATESWARA STORES[1] wherein it was held has under: “The Hypothecation deed relating to an actionable claim and followed by a document vesting a right to receive the money and give full discharge to the debtor is normally adopted whenever a transfer of an actionable claim is intended. If the actionable claim takes the form of a negotiable instrument like a promissory note, mere hypothecation will give the hypothecater an equitable right to charge or to proceed against it as security. In such a case, of course, the hypothecation itself will not enable recovery of the money due under the promissory note, until a decree is obtained. However, if there is an endorsement transferring the right under the promissory note, the actionable claim itself is transferred and the transferee would be in a position to recover the money due under the promissory note without obtaining a decree on the debt itself. But where actionable claim is merely an intangible asset, the transfer is effected only by execution of a hypothecation bond with a right to recover the same or a regular transfer by a document of the debt itself. In this case, since the hypothecation was intended to be in the form of a floating charge on all the movables and debts outstanding, in addition to the execution of the hypothecation bond, the defendants have also executed a power of attorney. In such a case, we have no doubt that if a debt comes into existence, that debt gets transferred to the Bank so that no third party could claim any right over the same”. 5. Learned counsel for the first respondent Bank contended that the first petitioner is not a guarantor of the loan borrowed by the second respondent, but he is a co-borrower and gave his property as a collateral security for the purpose of availing the loan and therefore, he is fully liable and accountable for the loan obtained by the second respondent. He further contended that the first petitioner and the second respondent have sold away the machinery, which is under hypothecation, to their creditors and filed a false complaint before the police alleging that the machinery was stolen by some unknown offenders. He further contended that now the machinery and the stock are in the custody of VII Metropolitan Magistrate, Cyberabad and that as the value of the security was far below the liability, the Bank has no option except to proceed against the property of the petitioners under Section 13(2) of the Act. Section 133 of the Act, 1872 reads as under: “Discharge of the surety by variance in terms of contract- Any variance, made without the surety’s consent, in the terms of the contract between the principal debtor and the creditor, discharges the surety as to transactions subsequent to the variance.” Section 135 of the Act, 1872 reads as under: “Discharge of surety when creditor compounds with, gives time to, or agrees not to sue, principal debtor-A contract between the creditor and the principal debtor, by which the creditor makes a composition with, or promises to give time to, or not to sue, the principal debtor, discharges the surety, unless the surety assents to such contract. Section 141 of the Act, 1872 reads as under: Surety’s right to benefit of creditor’s securities- A surety is entitled to the benefit of every security which the creditor has against the principal debtor at the time when the contract of suretyship is entered into, whether the surety knows of the existence of such security or not; and, if the creditor loses or, without the consent of the surety, parts with such security, the surety is discharged to the extent of the value of the security. 6. A perusal of the material on record shows that the first petitioner is a co-obligant i.e., co-borrower and executed a deed of mortgage in respect of the immovable property. The definition ‘borrower’ under Section 2(f) of the Act reads as under: “borrower” means any person who has been granted financial assistance by any bank or financial institution or who has given any guarantee or created any mortgage or pledge as security for the financial assistance granted by any bank or financial institution and includes a person who becomes borrower of a securitisation company or reconstruction company consequent upon acquisition by it of any rights or interest of any bank or financial institution in relation to such financial assistance”. The definition of the ‘borrower’ is very exhaustive, which includes even the guarantor and also any other person, who stood as security. 7. From the counter-affidavit, it can be seen that the machinery and the stock, which were under hypothecation, are in the custody of VII Metropolitan Magistrate, Cyberabad, in connection with Crime No.691 of 2008. In view of the fact that the property would be damaged and its value would be reduced, the first respondent Bank filed an application for release of the same before the learned Magistrate. However, Section 13(11) of the Act discloses that without prejudice to the rights conferred on the secured creditor under or by this Section, secured creditor shall be entitled to proceed against the guarantors or sell the pledged assets without first taking any other measures specified in Clauses (a) to (d) of Sub-Section (4) in relation to the secured assets under this Act. 8. For the foregoing reasons, the contention of the petitioners that the first respondent Bank cannot proceed against the property of the petitioners without taking action against the principal borrower, cannot be accepted. Hence, there are no merits in the writ petition and it is accordingly, dismissed. No order as to costs. _____________________ GHULAM MOHAMMED, J ________________________ VILAS V. AFZULPURKAR, J Date:13.07.2009 sj [1] AIR 1987 MADRAS 221