CIVIL WRIT PETITION NO. 13074 OF 2009 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. DATE OF DECISION : August 26, 2009. Parties Name Harjinder Singh ...PETITIONER VERSUS Debt Recovery Tribunal and others ...RESPONDENTS CORAM: HON'BLE MR. JUSTICE JASBIR SINGH PRESENT: Mr. Pawan Kumar, Sr. Adv., with Mr. Swapan Sheory, Advocate, for the petitioner. JASBIR SINGH, J. ORDER: Petitioner has filed this writ petition to lay challenge to an order dated August 7, 2009 (P-15), vide which his prayer to get possession of house No. 3096, Sector 21-D, Chandigarh, was rejected. House in dispute is the ownership of respondent No. 3, who stood as a guarantor, for repayment of loan, advanced to respondent No. 6 by respondent No. 2. Record reveals that when respondent No. 6 failed to repay the CIVIL WRIT PETITION NO. 13074 OF 2009 -2- loan amount, the respondent – Bank filed a recovery suit before respondent No. 1 and an ex parte decree was passed against the loanee and the guarantors on March 30, 2004, for recovery of an amount of Rs. 21,67,602/-. As per law, certificate was issued to recover the above said amount by sale of the house in question, which was lying mortgaged with respondent No. 2. Respondents No. 3 to 7 filed an application for setting aside ex parte judgment and decree dated March 30, 2004. In the meantime, auction of the house in question was fixed. To stay the same, respondents No. 3 to 7 filed an application on April 6, 2005, before the Recovery Officer (P-1) by stating that an appeal, filed by respondent No. 6, is pending before the Appellate Authority for Industrial & Financial Reconstruction (in short AAIFR) and in view of the provisions of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (in short SICA Act ), the recovery proceedings be stayed. Recovery officer dismissed that application vide order dated April 21, 2005, primarily, on the ground that the loanee and the guarantors have failed to bring on record sufficient evidence to prove that any matter is pending before AAIFR. This finding was given not-with-standing a fact that the loanees had produced a copy of the Cause List dated October 28, 2004, showing detail of cases listed for hearing before the said authority on that date. Auction was conducted on April 23, 2005, and the house in question was sold for an amount of Rs. 1 crore 26 lakhs, to the petitioner. Respondents No. 3 to 6 filed an application before respondent No. 1 with a prayer that the sale of the house in question be set aside and the auction may not be confirmed. On that application, stay order was not granted. Consequent thereto, the Recovery Officer confirmed the sale in favour of the petitioner and appointed a Local Commissioner to CIVIL WRIT PETITION NO. 13074 OF 2009 -3- hand over possession of the house in question to the petitioner vide order dated July 27, 2005. Respondent No. 3 came to this Court by filing Civil Writ Petition No. 11957 of 2005, laying challenge to the orders, mentioned above. However, the same was not entertained and disposed of on October 25, 2005, on the ground that a statutory remedy was available to the petitioners therein. However, liberty was granted to the respondent No. 3 to avail that statutory remedy. Respondents No. 3 to 7 went in appeal, which was dismissed by respondent No. 1 qua respondents No. 3 to 5. However, it was kept pending so far as respondents No. 6 and 7 were concerned and recovery proceedings qua them were kept suspended till decision of the appeal pending before AAIFR. Relief was declined to the respondents No. 3 to 5, primarily on the ground that safeguard as envisaged under Section 22 of the SICA Act was not available to a guarantor of a loanee. Respondents No. 3 to 5 went in appeal, which was allowed by the Debt Recovery Appellate Tribunal on November 1, 2006. It was observed, as a matter of fact, that when Recovery Officer rejected objections, filed by respondents No. 3 to 5, on April 21, 2005, proceedings were pending before the AAIFR. It was further held that protection under Section 22 of the SICA Act was available to a guarantor also and the Recovery Officer was not justified in proceeding further with the enquiry and auctioning the property in dispute. Amount deposited by the petitioners, towards price of the house in question, was ordered to be returned to him. It was further observed that the Debt Recovery Tribunal was not justified in dismissing appeal qua respondents No. 3 to 5. The Appellate Tribunal further observed that there shall be stay of all further proceedings pending before the Presiding Officer, Debt CIVIL WRIT PETITION NO. 13074 OF 2009 -4- Recovery Tribunal and the Recovery Officer relating to that dispute, till a decision is taken by the AAIFR. The petitioner challenged order dated November 1, 2006, passed by the Appellate Tribunal by filing a Civil Writ Petition No. 20175 of 2006, which was dismissed on February 25, 2008 (P- 13). It was specifically held that assumption of jurisdiction by the Recovery Officer, for initiating recovery proceedings, in terms of the recovery certificate was illegal, all the subsequent proceedings were liable to be quashed. It was further observed that interest of the petitioner had already been protected in order passed by the Appellate Tribunal on November 1, 2006. The Bank was ordered to refund money in favour of the petitioner, along with interest accrued thereon. It is an admitted fact that appeal of respondent No. 6, which was pending before the AAIFR, was dismissed on February 1, 2008. At that stage, petitioner moved an application before respondent No. 1 with a prayer that he be put in possession of the house, purchased by him in auction held on April 23, 2005, which was dismissed vide the impugned order. Counsel for the petitioner has vehemently contended that respondent No. 1 was not justified in passing the impugned order. To claim relief, he has relied upon following observations made by the Appellate Tribunal in its order dated November 1, 2006: “It is further held, the DRT, Chandigarh could not have refused to stay all further proceedings either on its file or on the file of the Recovery Officer relating to this dispute. In the circumstances, there shall be stay of all further proceedings pending on the files of the Presiding Officer and the Recovery Officer relating to this case till a decision is taken by the CIVIL WRIT PETITION NO. 13074 OF 2009 -5- AAIFR.” It is contention of counsel for the petitioner that not-with- standing dismissal of the writ petition, filed by him against order, mentioned above, after dismissal of appeal filed by respondent No. 6 by the AAIFR on February 1, 2008, the petitioner was entitled to get possession of the house in question. After hearing counsel for the parties, this Court feels that argument raised is fallacious. It is apparent from the records that an ex parte decree was passed against respondents No. 3 to 5 on March 30, 2004. They moved an application to set aside the same. In the meantime, on the basis of recovery certificate issued by respondent No. 1, the Recovery Officer started process to auction the mortgaged property in question. Respondents No. 3 to 7 filed an application before the Recovery Officer on April 6, 2005, by stating that the matter, at the instance of respondent No. 7 is pending before the AAIFR and in view of the provisions of Section 22 of SICA Act, auction qua property of the guarantors be stayed, however, that prayer was rejected. Before proceeding further, it is necessary to note down the provisions of Section 22 of the SICA Act, which reads thus: “ 22. Suspension of legal proceedings, contracts, etc.-(1) Where in respect of an industrial company, an inquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under section 25 relating to an industrial company is pending, then, CIVIL WRIT PETITION NO. 13074 OF 2009 -6- notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law, no proceedings for the winding up of the Industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof (and no suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company) shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority.” During arguments, counsel for the petitioner has failed to controvert that respondents No. 3 to 7 were entitled to get protection of Section 22 of the SICA Act. If that is so, as has been held by a Division Bench of this Court vide judgment dated February 25, 2008, (P-13), the Recovery Officer was not justified in auctioning the property in dispute. Against order, passed by the Recovery Officer, respondents No. 3 to 7 went to respondent No. 1. Qua respondents No. 3 to 5, appeal was dismissed on July 26, 2006, primarily on the ground that no protection was available to a guarantor under the provisions of Section 22(1) of the SICA Act. This Court feels that in view of the settled law , above said finding was not correct. Respondents No. 3 to 5 went in appeal. The Appellate Tribunal CIVIL WRIT PETITION NO. 13074 OF 2009 -7- vide judgment dated November 1, 2006, gave a specific finding that when Recovery Officer dismissed objection application, filed by respondents No. 3 to 5, proceedings, to set aside ex parte decree, at the instance of respondents No. 3 to 7 were pending before the Debt Recovery Tribunal and also that the proceedings at the instance of respondent No. 6 were pending before the AAIFR. The Tribunal further observed that finding of respondent No. 1 that benefit under Section 22 of the SICA Act cannot be extended to a guarantor was not correct. By taking note of facts of the case, the Tribunal observed as under: “The decision of Hon'ble Supreme Court in Kailash Nath Aggarwal and others Versus Pradeshiya Industrial & Investment Corporation of UP Limited, relied upon by the Tribunal below is distinguishable with that of the ratio laid down by the Hon'ble Supreme Court in Patheja Bros., Forgings & Stampings Vs. ICICI. The three Judge Bench of the Hon'ble Supreme Court in Patheja case while examining the earlier view taken by the Hon'ble Supreme Court has held that the protection under Section 22 is extendable even to the guarantors. In the light of the view taken by the Hon'ble Supreme Court in Patheja's case and the provisions under Section 34 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, it is difficult to deny the protection available under Section 22 of SICA in view of the ratio laid down by the Hon'ble Supreme Court in Patheja's case. As rightly pointed out by the learned counsel for the appellants, in the Kailash Nath Agarwal's case, protection was sought CIVIL WRIT PETITION NO. 13074 OF 2009 -8- under the provisions of the Pradeshiya Industrial & Investment Corporation of UP Limited and, therefore, the Hon'ble Supreme Court tried to distinguish between the suit and proceedings and in the facts of that case, held that protection cannot be extended to such of those parties who claim benefit under the provisions of the UP Act. As discussed, there is no ambiguity in the facts of the case and the protection which is available to the appellants under section 22 of the SICA. In that view of the matter, I have no hesitation to hold that the Recovery Officer could not have proceeded with further enquiry including that of auctioning the property when there is a statutory bar under Section 22 of the SICA.” A reading of contents of the order, extracted above, clearly shows that the Appellate Tribunal had set aside the action initiated by the Recovery Officer. It was specifically observed that the Recovery Officer could not have put the property to auction, in view of a bar created by Section 22 of the SICA Act. Not only this, when granting relief of refund of money, to the petitioner, in para No. 10 of the judgment, mentioned above, it was specifically stated that the Recovery Officer should not have put the property to auction when it was brought to his notice that the proceedings were pending before the AAIFR and that the bar under Section 22 of the SICA Act was applicable. A Division Bench of this Court affirmed the finding given by the Appellate Tribunal by observing as under: “In our opinion, once the initiation of the auction proceedings was wholly without jurisdiction in view of Section 22 of SICA CIVIL WRIT PETITION NO. 13074 OF 2009 -9- and the Recovery Officer has illegally proceeded with the auction proceedings, then the entire auction proceedings are to be set aside and the order of confirmation of sale was not to be separately questioned. Such an order can be challenged on the ground of illegality in conducting the auction only when the Recovery Officer had the jurisdiction to auction the property. Here in the instant case, the Recovery Officer has wrongly dismissed the stay application, in spite of the pendency of appeal before AAIFR. In our opinion, the very assumption of the jurisdiction by the Recovery Officer for initiating the recovery proceedings in terms of the Recovery certificate was illegal. Therefore, all the subsequent proceedings are liable to be quashed. The interest of the petitioner has already been protected in the impugned order, when it has been ordered that the respondent bank will release the money of the auction purchaser (petitioner herein) along with accrued interest. We have been informed that the petitioner has received the refund along with interest, though stated to be accepted under protest.” Finding given by the Division Bench leaves no doubt that all the proceedings starting from putting the property to auction and subsequent thereto were null and void. Admittedly, protection under Section 22 of the SICA Act was available to respondents No. 3 to 7. If that was so, Recovery Officer was not justified in selling the property. Contention of counsel for the petitioner that the stay order was granted till finalization of the appeal pending before the AAIFR and thereafter petitioner was entitled to CIVIL WRIT PETITION NO. 13074 OF 2009 -10- get possession of the property in dispute, in view of the findings noted above, is liable to be rejected. So far as sale in favour of the petitioner is concerned, without any ambiguity, Appellate Tribunal and a Division Bench of this Court held that it was without any jurisdiction. If that is so, it is very surprising as to how and under what circumstances, the petitioner can claim possession of the house in question on the basis of auction, which was set aside by the Appellate Tribunal and that order was affirmed by this Court. No case is made out for interference. Dismissed. ( Jasbir Singh ) Judge August 26, 2009. DKC