IN THE HIGH COURT OF JUDICATURE AT MADRAS DATE :17.04.2009 CORAM THE HONOURABLE MR.JUSTICE S.J.MUKHOPADHAYA AND THE HONOURABLE MR.JUSTICE V.DHANAPALAN W.P. NO. 23709 OF 2008 AND M.P. NO. 1 OF 2008 Mrs. S.Shaalini .. Petitioner - Vs - 1. Debt Recovery Tribunal – I 770-A, Spencer Plaza, 6th Floor Chennai – 2. 2. Debt Recovery Appellate Tribunal Indian Bank Circle Office, 4th Floor Wellington Estate Chennai – 8. 3. The Authorised Officer Canara Bank, Teynampet Branch Chennai – 18. 4. Sri Lakshmiammal Educational Trust 29, Tilak Street, T.Nagar Chennai – 17. .. Respondents Writ petition filed under Article 226 of the constitution of India to issue a writ of certiorari to call for the records of the first respondent and second respondent in S.A. No.260/07 and RA (SARFAESI) 54/08 and to quash the orders dated 3rd Oct., 2007 and 18th July, 2008 respectively made therein. For Petitioner : Mr. V.T.Gopalan, SC, for Mr.G.Desingu For Respondents: Mr. Seshadri, SC for Mr.Srinath Sridevan for R-3 Mr. G.Masilamani, SC for Mr. Venkatesh Mahadevan for R-4 R1 & R2 - Tribunal ORDER S.J.MUKHOPADHAYA, J. The petitioner, one of the Director and shareholder of Merit Resorts Pvt. Ltd., (hereinafter referred to as 'company') has preferred the writ petition against the order dated 3rd Oct., 2007, https://hcservices.ecourts.gov.in/hcservices/ passed by the Debts Recovery Tribunal – I, Chennai (hereinafter referred to as 'DRT') and order dated 18th July, 2008, passed by Debts Recovery Appellate Tribunal, Chennai (hereinafter referred to as 'Appellate Tribunal'). The DRT, while dismissed the appeal u/s 17 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act, 2002 (hereinafter referred to as 'SARFAESI Act'), the Appellate Tribunal affirmed the same giving rise to the present writ petition. 2. The petitioner is one of the founder Director of M/s.Merit Resorts Pvt., Ltd., a company incorporated under the Companies Act. The said company obtained loan from Canara Bank, Chennai (hereinafter referred to as 'Bank') and having failed to pay the same, the Bank took steps u/s 13 (2) followed by Section 13 (4) of the SARFAESI Act against the company. The company filed an appeal before the DRT in S.A. No.27/06 challenging the notice u/s 13 (2), which was dismissed as premature, followed by a subsequent appeal for action u/s 13 (4) in s.A. No.109/06, in which a conditional order passed by DRT, but having not complied, the appeal was dismissed. The petitioner, thereafter, filed an appeal u/s 17 in S.A. No.2602/07 before the DRT showing herself as one of the Director and shareholder of the company. She also claims to be one of the Trustees of M/s.Merit International Education Foundation, a trust registered under the Indian Trusts Act (hereinafter referred to as 'Trust'). The petitioner challenged the notice on the ground that the property brought on sale belongs to the Trust. Further ground taken was that the petitioner was not served with notice u/s 13 (2) nor u/s 13 (4) of the SARFAESI Act. It was argued on behalf of the petitioner that there was no forged mortgage in respect of the schedule property at Ooty created in favour of the Bank as the company has not deposited any of the title deeds in respect of the said property of which possession taken by the Bank. It was also brought to the notice of the DRT that the Bank filed complaint against the petitioner and others, including Bank officials that the loan documents were forged, in view of which CBI initiated investigation and, therefore, the Bank, ought to have awaited for the outcome of the investigation. It was also contended on behalf of the petitioner before the Tribunals that the schedule property brought for sale is an education institution and more than 150 students, teaching and non-teaching staff were involved and that the pettioner did not sign any documents nor guaranteed about repayment of loan by the company. The measures taken by the Bank are not valid in law and, hence, liable to be set aside. 3. The DRT, while dismissed the appeal u/s 17 on merit, also held that the petitioner being not a person aggrieved, application u/s 17 was not maintainable. Similar view was expressed by the Appellate Tribunal. 4. Before this Court, learned senior counsel for the petitioner while made similar submission as noted above, also relied on https://hcservices.ecourts.gov.in/hcservices/ documents to suggest that as one of Director of the company, the petitioner has locus to maintain the application u/s 17 of the SARFAESI Act. The submission was opposed by learned senior counsel appearing on behalf of the respondent Bank. It was submitted that the company availed loan from the Bank on 27th Dec., 2004, by creating equitable mortgage of land and buildings located at Ooty. The petitioner filed the appeal before the DRT in the capacity of Director and shareholder of the company and, therefore, she cannot plead case as one of the Trustee of the Trust. The recovery proceeding initiated by the Bank proceeded independently of the criminal case under investigation by the CBI. The petitioner being the Director and shareholder of the company has no locus standi to challenge the measures initiated by the Bank, not being an aggrieved person nor any notice u/s 13 (2) or 13 (4) was required to be served on the petitioner. 5. We have heard the learned counsel for the parties and noticed the rival contentions. The question that arises for determination are :- a) Whether it was incumbent on the part of the Bank to serve notice u/s 13 (2) or 13 (4) of the SARFAESI Act on the petitioner; and b) Whether the petitioner is a 'person aggrieved', for the purpose of mantainability of appeal u/s 17 of the SARFAESI Act. 6. In the present case, the petitioner had taken specific plea that the title deeds in respect of the local property was not deposited and loan documents as available with the bank officials are forged and she did not sign any of the documents nor guaranteed the due payment of the loan by the said company. It is also not in dispute that the principal borrower is the company. Therefore, it is clear that the petitioner is neither the principal borrower nor she is the guarantor (which also comes within the meaning of borrower) and, thereby, not entitled to claim for any notice u/s 13 (2) or 13 (4) of the SARFAESI Act. 7. The other question is whether the petitioner is a 'person aggrieved' to maintain an application u/s 17 of the SARFAESI Act. It is not in dispute that the appeal u/s 17 was filed by the petitioner in her individual capacity as the Director of the company and shareholder of the company. The application was never filed as one of the guarantor or as one fo the Trustee of the Trust nor filed on behalf of the company. In fact, the appeal u/s 17 initially was filed by the company in S.A. No.27/06, which was dismissed as premature, having filed against notice u/s 13 (2). Later, another appeal u/s 17 was filed by the company after action u/s 13 (4) in S.A. No.109/06, which was also dismissed, conditional order passed by Tribunal having not complied. The company, thereafter, never moved before the Appellate Tribunal in appeal u/s 18. https://hcservices.ecourts.gov.in/hcservices/ It is not in dispute that the schedule property at Ooty did not belong to the petitioner, she has no right and title over the same. The Bank had taken specific plea, referring to the FIR, that the Bank had only stated that the documents of title of mortgaged properties at Chennai are forged. The Bank nowhere alleged that the documents of title of Ooty property are forged. It is only the Ooty property which is being brought for sale under the SARFAESI Act. The question whether the title deed of Chennai property are genuine or forged has no relevance or bearing with the Ooty property as brought for sale. From this perspective, it will be clear that the petitioner, in her individual capacity, is not aggrieved and, therefore, do not come within the meaning of 'person aggrieved' for maintaining an application u/s 17. 8. Learned senior counsel for the petitioner relied on Supreme Court decision in Bennet Coleman Company – Vs – Union of India (1972 (2) SCC 788) to show that the shareholders right are equally and necessarily affected, if the rights of the company are affected. Reliance was placed on Supreme Court decision in R.C.Cooper – Vs – Union of India (1970 (1) SCC 248) which is referred to as Bank Nationalisation case, which has also been noticed by Supreme Court in Bennet Coleman Co. (supra). In the Bank Nationalisation case, the Supreme Court held that the shareholder's right are equally and necessarily affected if the rights of the company are affected. 9. It is true that a shareholder has interest in the company, but that is not the issue to be determined in this case. The question is whether the shareholder has got any interest in the property of the company; such shareholder has a right to get a notice u/s 13 (2) and 13 (4) of the SARFAESI Act and shareholder comes within the meaning of a 'person aggrieved' for maintaining an appeal u/s 17. 10. In Mrs. Bacha F.Guzdar – Vs – Commissioner of Income Tax, Bombay (AIR 1955 SC 74), the question fell for consideration whether the shareholder has got interest in the property of the company. In the said case, the Supreme Court observed as follows :- “A shareholder has got no interest in the property of the company though he has undoubtedly a right to participate in the profits if and when the company decides to divide him. The interest of a shareholder 'vis-a-vis' the company was explained in the Sholapur Mills case – 'Charanjit Lal – Vs – Union of India' AIR 1951 SC 41 at pp.54, 55 (B). That judgment negatives the position taken up on behalf of the appellant that a shareholder has got a right in the property of the company. It is true that the shareholders of the company have the sole determining voice in administering the affairs of the company and are entitled, as provided by the Articles of Association, to declare that such dividends should be distributed out of the profits of the company to the shareholders but the interest of the shareholder either individually or collectively does not amount https://hcservices.ecourts.gov.in/hcservices/ to more than a right to participate in the profits of the company. The company is juristic person and is distinct from the shareholders. It is the company which owns the property and not the shareholders. The dividend is a share of the profits declared by the company as liable to be distributed among the shares. Reliance is placed on behalf of the appellant on a passage in Buckley's Companies Act (12th Edn. Page 894) where the etymological meaning of dividend is given as dividendum, the total divisible sum but in its ordinary sense it means the sum paid and received as the quotient forming the share of the divisible sum payable to the recipient. This statement does not justify the contention that shareholders are owners of a divisible sum or that they are owners of the property of the company.” 11. From the aforesaid facts and finding of Supreme Court, we are of the following view :- a) The petitioner do not come within the definition of 'borrower' u/s 2 (f) of the SARFAESI Act, having not granted financial assistance by the Bank nor having given any guarantee or created any mortgage or placed as security for such financial assistance granted by the Bank. Therefore, the petitioner is not entitled for any notice u/s 13 (2) or 13 (4) of the SARFAESI Act. Therefore, on merit, the petitioner has no case and, thereby, no interference is called for against the order passed by DRT as affirmed by the Appellate Tribunal. b) The petitioner has no right on the secured asset, being a shareholder of the company and, therefore, if the Ooty property is brought on sale, she cannot maintain a petition u/s 17 as she does not come within the definition of a 'person aggrieved'. 12. In view of our finding and as there is no merit, the writ petition is dismissed. Consequently, connected miscellaneous petition is also dismissed. But there shall be no order as to costs. Sd/ Asst.Registrar /true copy/ Sub Asst.Registrar https://hcservices.ecourts.gov.in/hcservices/ GLN To 1. The Debt Recovery Tribunal – I 770-A, Spencer Plaza, 6th Floor Chennai – 2. 2. The Debt Recovery Appellate Tribunal Indian Bank Circle Office, 4th Floor Wellington Estate, Chennai – 8. 3. The Authorised Officer Canara Bank, Teynampet Branch Chennai – 18. 2 ccs To Mr.G.Desingu, Advocate, SR.14866 1 cc To Mr.Venkatesh Mahadevan, Advocate, SR.15027 W.P. NO. 23709 OF 2008 NTK(CO) SRA(21/4/2009) https://hcservices.ecourts.gov.in/hcservices/