IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE P.R.RAMAN & THE HONOURABLE MR. JUSTICE P.BHAVADASAN MONDAY, THE 17TH AUGUST 2009 / 26TH SRAVANA 1931 FAO.No. 174 of 2009() --------------------- I.A. 369/2009 IN OS.41/2009 of SUB COURT, THIRUVALLA .................... APPELLANT/PETITIONER/PLAINTIFF ---------------------------------------------------- T.O.ALEYAS, THOTTATHIL HOUSE, MUTHOOR P.O., THIRUVALLA. BY ADV. SRI.E.K.NANDAKUMAR SRI.A.K.JAYASANKAR NAMBIAR SRI.K.JOHN MATHAI SRI.P.BENNY THOMAS SRI.ANIL D. NAIR RESPONDENT(S)/RESPONDENTS/ DEFENDANTS: ------------------------------------------------------------------- 1. M/S.CITY UNION BANK LTD., CENTRAL OFFICE AT NO.149, T.S.R. (BIG) STREET, KUMBAKONAM -612 001, TAMIL NADU. 2. CITY UNION BANK, ILLAMPALLIL TOWERS, RAMANCHIRA, THIRUVALLA-689 107. 3. M/S.T.O.ABRAHAM & COMPANY, ENGINEERS AND CONSTRUCTORS (P) LTD., MUTHOOR P.O., THIRUVALLA-689 107, REPRESENTED BY ITS MANAGING DIRECTOR. ADDL. R4 IMPLEADED. 4. ABRAHAM BABY, S/O. T.O. BABY, RESIDING AT MARY SADANAM, THURUTHIKADU P.O., MALLAPPALLY TALUK, PATHANAMTHITTA DIST. ADDL. R4 IMPLEADED AS PER ORDER IN I.A. 2633/2009 DTD. 5.8.2009. ADV. SRI.V.CHITAMBARESH, SENIOR ADVOCATE FOR ADDL.R4 SRI.P.HARIDAS FOR ADDL.R4 SRI.A.KUMAR FOR R1 & R2 THIS FIRST APPEAL FROM ORDERS HAVING BEEN FINALLY HEARD ON 05/08/2009, THE COURT ON 17/08/2009 DELIVERED THE FOLLOWING: P.R. RAMAN & P. BHAVADASAN, JJ. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - F.A.O. No. 174 of 2009 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 17th day of August, 2009. JUDGMENT Bhavadasan, J, Of the many concerns belonging to the family of the plaintiff, one is the third defendant Company. Plaintiff is one of the shareholders. The Company undertakes execution of Government construction contracts and other private works. The Company enjoys financial facilities with the second defendant Bank. The plaintiff has several other accounts with the second defendant Bank at its various branches. The third defendant Company enjoyed Over Draft loan facility of Rs.100 Lakhs availed of in the year 2001. On the request of the Directors of the Company, the first defendant granted a conditional sanction for an overdraft facility named Overdraft Other Secured (OSOD) for a limit of Rs.100 Lakhs. There were 19 conditions attached to the sanction. The conditions FAO.174/2009. 2 are not very relevant for the present purpose. The plaintiff was shown the sanction letter and he was given to understand that the other members of the family had offered themselves as guarantors and their property as guarantee, the plaintiff was also requested to stand as guarantor. He did so but had not offered the properties belonging to him a guarantee. It is alleged in the plaint that the plaintiff had deposited the title deeds of plaint A schedule property much earlier to the sanctioning of OSOD by the Bank so also the B schedule property. Title deeds so deposited by the plaintiff was for an entirely different debt than the one involved in the suit. Title deeds were deposited for the loan availed for the business run by the plaintiff by name and style, St.Marys Motors. On 24.12.2003 the Bank issued a notice to the plaintiff demanding the outstanding amount in the loan account of the third defendant Company. The plaintiff would say that the Bank had violated the conditions in the sanction letter and to the surprise he came to realise that the title FAO.174/2009. 3 deeds deposited by the plaintiff for an entirely different loan has been manipulated and concocted by the Bank for the purpose of showing it as a guarantee for the loan given to the third defendant. It is stated that Sri.Bobby T. Kuriakose, the purported co-guarantor for the same loan was infact away from India and he could not have created an equitable mortgage as alleged by the Bank. It amounts to clear fraud. The proposal mooted by the Bank to sell plaint A schedule property is illegal, fraudulent and against the terms of the sanction letter. It is reiterated that the plaintiff did not intend to provide plaint schedule properties as security for the loan availed of by the third defendant Company. Alleging that the fraudulent act of the Bank cannot be accepted, he prayed for a declaration that the loan agreement dated 22.2.2001 and consequent document executed by the plaintiff in favour of the defendant Bank are inoperative, invalid and vitiated by fraud. He seeks certain other reliefs also, which are not very relevant. Along FAO.174/2009. 4 with the plaint the plaintiff moved I.A.369 of 2009 for temporary injunction restraining the Bank from enforcing the mortgage in relation to plaint A and B schedule properties. 2. Before the court below, the third defendant remained ex-parte and the first and second respondents resisted the petitions. It is pointed out by them that neither the suit nor the interlocutory application is maintainable. It was stated that the court has no jurisdiction to try the suit and since the matter is pending before the Debt Recovery Tribunal and also because the provisions under a) Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (herein after referred to as 'DRT Act') and b) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (herein after referred to as 'SARFAESI Act'. As per Section 34 of SARFAESI Act, Civil Court has no jurisdiction in the matter. The Bank denied the allegation of manipulation and concoction of the documents and allegation of FAO.174/2009. 5 fraud. It was pointed out by them that in several communications addressed to the plaintiff and other guarantors, and in the notices issued by the Bank, the Bank had mentioned the properties mortgaged by the plaintiff and other persons. In none of the reply communications sent by the plaintiff there was any objection regarding the properties shown as mortgaged in the Bank, which belonged to the plaintiff. According to them, the fraud was committed by the plaintiff and other Directors of the Company, who are adopting all sorts of methods to avoid repayment of loan. These respondents pointed out that initially neither before the DRT in the proceedings initiated by the Bank nor in the appeal filed by the plaintiff and others as per the provisions of SARFAESI Act, there was any allegation that the plaintiff had not offered plaint A and B schedule properties as security and that the Bank had played a fraud. They therefore prayed for a dismissal of the petition. FAO.174/2009. 6 3. For the purpose of the interlocutory application, the court below had Exts.A1 to A5 marked on the side of the plaintiff and Exts.B1 to B7 marked on the side of the defendants. On the basis of the materials before it, the court below accepted the plea made by the first and second respondent Bank that the jurisdiction of the court in such matters is excluded by Section 34 of the SARFAESI Act, and accordingly the petition was dismissed. The said order is assailed. 4. The question that arises for consideration is whether any interference is called for with the order of the court below. 5. Learned counsel appearing for the appellant reiterated the very same contentions urged before the court below and which were declined by the said court. According to the learned counsel, Ext.A1, which is the sanction letter, would clearly show that it was not on the basis of any mortgage of the plaint schedule property executed by the plaintiff that the loan was FAO.174/2009. 7 sanctioned to the third defendant Company. At no point of time, according to the learned counsel, the plaintiff had created an equitable mortgage in relation to the plaint schedule properties in favour of the Bank. The plaintiff was under the bona fide belief that there was only a personal guarantee. According to the counsel, this vital aspect has been omitted to be noticed by the court below and therefore the order is unsustainable. Learned counsel pointed out that the court below was not justified in coming to the conclusion that the suit was barred by Section 34 of the SARFAESI Act. According to the learned counsel since fraud has been alleged, the civil court retains jurisdiction to try the suit. For the above proposition, learned counsel relied on the decision reported in Mardia Chemicals Ltd. v. Union of India ((2004) 4 SCC 311). 6. Learned counsel appearing for respondents 1 and 2 on the other hand contended that the court below has considered FAO.174/2009. 8 the entire matter in detail and has come to the right conclusion. In the light of the evidence produced before the court below, it is idle for the plaintiff to contend that he had not executed an equitable mortgage in favour of the Bank in relation to plaint A and B schedule properties. Learned counsel drew attention of this court to various communications between the parties and it was pointed out that in several notices issued by the Bank, the Bank had specified the properties mortgaged to them by various persons including the plaintiff. In none of the reply communications, there was a complaint that the Bank had either manipulated or concocted any document or had played any fraud on them. Learned counsel referred to the written statement filed by the plaintiff in the O.A. before the Debt Recovery Tribunal and so also in the memorandum of appeal filed under Section 17 of the SARFAESI Act and contended that in none of the proceedings, initially, the plaintiff ever had a case of fraud or manipulation. In fact it was after his FAO.174/2009. 9 inability to get favourable orders from the DRT that he has moved the civil court. The allegation of fraud are without basis and has made with the sole intention to somehow protract the proceedings initiated by the Bank. 7. The court below, as already noticed, came to the conclusion that by virtue of Section 34 of the SARFAESI Act, the suit is barred. 8. Heavy reliance was placed on the decision already mentioned above. In the said decision the various provisions of the SARFAESI Act were considered and in paragraphs 50 and 51 of the judgment, it was observed as follows: “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 FAO.174/2009. 10 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 FAO.174/2009. 11 the Debts Recovery Tribunal, apart from those matters in which measures have already been taken under sub- section (4) of Section 13. 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 recognised 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, namely, V.Narasimhachariar, IR at pp.141 and 144, 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 twofold 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 FAO.174/2009. 12 power of a 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, I 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 annul one of the chief securities on which persons advancing moneys on mortgages rely. (See Ghose, Rashbehary: Law of Mortgages, Vol.II, 4th Edn., p.784)”” On the basis of the above decision it was contended by the appellant that since fraud has been alleged, the court below was not justified in declining to entertain the suit. 9. Before going into the above question, the facts available in the case may be noticed. The trump card of the FAO.174/2009. 13 plaintiff is Ext.A1, which is the sanction letter. That is not in dispute. It shows the primary security and collateral security offered by the borrowers for the credit facility sanctioned by the Bank. Obviously, it does not include the plaint schedule property. But it will be erroneous to confine the claim of the plaintiff on this solitary item of evidence. 10. Learned counsel appearing for the Bank has submitted a paper book, which contains the documents produced by them before the court below and other documents for perusal. It is seen that there is a course of communication prior and subsequent to Ext.A1 between the plaintiff and others on one hand and the Bank on the other relating to the loan involved in the suit. 11. The Bank started the proceedings for recovery of the loan in the year 2003. From then onwards, communications have been exchanged between the parties. Legal notices have been sent by the Bank to the borrowers including the plaintiff. The FAO.174/2009. 14 Bank has produced the Original Application filed by them before th DRT and also the counter affidavit filed by the plaintiff in the case before the Tribunal. The application filed by the Bank before the Tribunal makes mention of various documents produced by them. One may at once refer to the notice dated 24.12.2003 issued by the Bank to the borrowers including the plaintiff, who is shown as serial No.3. It makes mention of the OSOD facility availed of by the Company and the role of other persons in the loan transaction. The notice made specific mention about the property involved in the suit and made it clear that in case the loan account is not cleared soon, the Bank will be forced to proceed against the properties. In fact it is specifically mentioned that the third among the persons shown in the notice, ie., the plaintiff, has created an equitable mortgage in favour of the Bank in respect of the plaint schedule property. It is interesting to note that the reply was sent by the plaintiff and two others, that is dated 27.1.2004. The FAO.174/2009. 15 plaintiff and others plead that they will try to liquidate the outstanding amount to the Bank at the earliest. They speak about the family disputes, which has caused some hindrance in clearing off the loan. It is interesting to note that the plaintiff and others say that they were aware of the fact that the property mortgaged are insufficient to clear of the debt. It is significant to notice that the plaintiff had no case then that the properties mentioned in the notice dated 24.12.2003 were infact not mortgaged by him in relation to the OSOD facility availed of by the Company. 12. A perusal of the written statement filed by the third defendant in O.A.80 of 2004, who is none other than the plaintiff herein, it does not contain the contention that the mortgage claim of the Bank as far as he is concerned was invalid or was the result of the fraud played by the Bank. In fact the mortgage claim of the Bank in respect of the properties of the plaintiff is accepted by the third defendant therein. In the affidavit filed by the plaintiff herein FAO.174/2009. 16 in the said proceedings, he accepts equitable mortgage created by various parties in relation to the OSOD facility including the plaintiff. 13. One cannot omit to notice the fact that the plaintiff had filed an appeal before the DRT as per Section 17 of the SARFAESI Act against the proceedings initiated by the Bank under the said Act. In that appeal also initially there was no claim by the plaintiff that the equitable mortgage claimed by the Bank in respect of the plaint schedule property is vitiated by concoction, manipulation or fraud. On the one hand, the stand taken was that one of the co-guarantors were not in India at the relevant time and therefore the mortgage created by him is invalid. Much later, the plaintiff sought to amend the written statement before the Debt Recovery Tribunal and the appeal memorandum before the Tribunal incorporating the plea of fraud. It was soon thereafter that the suit was laid. These facts have been noticed by the court FAO.174/2009. 17 below. Various other correspondences were also referred to by the court below, which would indicate that the plaintiff had accepted the equitable mortgage as claimed by the Bank. 14. It may be recollected that the claim of the plaintiff is that he had deposited his title deeds in respect of the plaint schedule properties for an entirely different transaction. There was no attempt from the side of the plaintiff to call for the documents from the Bank concerned to show that what he says is true. 15. The Bank had issued notice under the SARFAESI Act intimating the borrowers that they intended to proceed under the Act. In that notice also the Bank had mentioned about the properties, over which equitable mortgage was created by the borrowers and co-guarantors including the Company. In that notice also the Bank had specified the plaint schedule property as an item over which the equitable mortgage has been created. There was no case for the plaintiff then that the said claim of the Bank is FAO.174/2009. 18 contrary to the facts and a fraud has been played on the borrowers. 16. Except simply saying that a fraud has been committed, no details are given. It was not as if the fact was concealed by the Bank from the knowledge of the plaintiff. As early as in 2003 the Bank had alerted the plaintiff that they would be compelled to proceed against the properties equitably mortgaged to them, which include the plaint schedule properties in case the loan is not cleared. Till 2009 when the plaintiff failed to get any relief from the DRT, he has now come forward with the present suit to escape from the liability. This can be treated only as an after thought to keep the Bank at bay. 17. The claim of the appellant that only when they had occasion to pursue Ext.A1 they came to know about the fraud played by the Bank cannot be accepted for the moment. As already noticed, the various correspondences between the Bank, borrowers and the co-guarantors clearly reveal the security offered FAO.174/2009. 19 and that includes the plaint schedule properties also. It cannot be assumed that the plaintiff had simply ignored the claim of the Bank and remained under the bonafide belief that he had not offered any of his properties as security for the loan availed by the Company. 18. What in fact the plaintiff would say is that the documents given by him to the Bank were in respect of a totally different loan and that he had no intention to create equitable mortgage in relation to the credit facilities offered to the Company under OSOD. One fails to understand how the claim of fraud could be made. The question as to whether plaint schedule properties were offered as security for OSOD given to the Company is a pure question of fact and if the plaintiff has a case that he had not offered the same, he could have established it before the Tribunal. The mere allegation that a fraud has been played by itself is not sufficient to clothe the civil court with jurisdiction to entertain the FAO.174/2009. 20 suit. As already noticed, the details of the fraud have not been disclosed. 19. At the time of considering the interlocutory applications, the three aspects to be considered are i) prima facie case, ii) balance of convenience and iii) irreparable injury. 20. It has already been noticed that on a consideration of the available materials, it cannot be said that the plaintiff had no intention to create an equitable mortgage in respect of the plaint schedule properties and that the Bank had manipulated the records. On the other hand, it can be said that since from 2003 onwards the Bank had been alerting the borrowers and guarantors and intimating them that unless the debt is immediately cleared, they will be constrained to proceed against the properties offered as security. It is significant to notice that in almost all the communications in which the Bank claims to take further steps, the properties mortgaged to them have been mentioned,which include FAO.174/2009. 21 the plaint schedule properties also. Even assuming initially that the plaintiff was under the bonafide belief that the plaint schedule properties have not been offered as security, atleast when he received the communications, he should have been more careful and should have ascertained the truth. Instead, he kept on sending reply accepting the claim of the Bank and pleading for time to clear all the debts. It is now known that the properties are posted for sale. One must notice that there were proceedings before the DRT in which too till the present suit was laid there was no claim made by the plaintiff that the reliance placed on by the Bank on the equitable mortgage created in respect of the plaint schedule properties was vitiated by fraud. Much later a plea was sought to be incorporated by way of amendment. One cannot simply accept the claim of the plaintiff that he had ignored all the communications received by him and he bonafide believed that he had not created equitable mortgage in respect of the plaint schedule FAO.174/2009. 22 properties in relation to OSOD loan availed of by the Company. 21. The two other facts, balance of convenience and irreparable injury also do not go in favour of the plaintiff. It is given to understand that the debt now is approximately Rs. Two Crores. 22. There was a fervent plea that the plaint schedule properties would fetch nearly Rs.Five Crores. Well, as rightly pointed out by the learned counsel for the respondent Bank the