CW 3804/10 //1// In the High Court of Judicature for Rajasthan Jaipur Bench ** Civil Writ Petition No.3804/2010 BD & P Hotels (India) (P) Ltd Versus District Judge, Jhunjhunu & Ors. /Reportable/ Date of Order ::: 11/11/2010 Hon'ble Mr. Justice Ajay Rastogi Mr. Alok Sharma with Mr. Jaideep Singh , for petitioner Mr. Kamlakar Sharma for respondent-6 (TFCI) Mr. NK Maloo & ) Mr. Parag Rastogi) for respondent-7 (Silver City Landmark Mr. GP Sharma, & ) Mr. Mahendra Goyal ) for respondent-2 to 4. Instant petition has been filed by M/s BD & P Hotels (India) (P) Ltd who was in possession of Hotel Mukandgarh Resorts since 04/08/2009 on having purchased lease hold rights through respondent-6 (secured creditor) under Securitisation & Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002 (“SARFAESI Act”), but has been dispossessed on 09/03/2010 pursuant to warrant of possession issued by the Executing Court, Jhunjhunu on 05/03/2010 in Execution Appl.No.35/2009) at the behest of decree holder in execution of Arbitral Award dt. 15/02/2009 passed for recovery of possession and arrears along with interest against its lessee (respondent-5), possession whereof was taken over by secured creditor (TFCI- respondent-6) with whom lease hold rights were mortgaged creating security interest by CW 3804/10 //2// respondent-5 with the consent of lessor (respondent-2 to 4) on 22/08/2008. Question arising for consideration in instant case is as to whether petitioner in whose favour lease hold rights over Mukandgarh property was transferred as an assignee of secured creditor (TFCI) under SARFAESI Act and after the possession was transferred, in absence of any conditions of lease being violated after having come into possession, could be dispossessed by Executing Court by issuance of warrant of possession impugned dt. 05/03/2010 in execution of Arbitral Award/ decree dt.15/02/2009 passed in arbitration proceedings between lessor (respondents-2 to 4) & original lessee (respondent-5), wherein indisputably neither secured creditor (TFCI) nor its assignee (petitioner) at any point of time were heard, while the lessee (respondent- 5) was not holding possession of the property on the date of Arbitral Award/decree (supra) on account of being dispossessed by secured creditors under SARFAESI Act, in such situation, whether remedy lies to approach civil court for being dispossessed, by filing application U/s 47 CPC read with O.21, R.97 & 99, CPC or writ petition U/Art.226 & 227 of the Constitution is maintainable against warrant of possession impugned (supra). CW 3804/10 //3// Facts relevant for examining the controversy set forth are that Hotel Mukandgarh Resorts situated at Mukandgarh (“Mukandgarh property”) was initially leased out by its owner (respondents-3 & 4) vide registered lease deed dt.25/09/1992 in favour of M/s Mukundgarh Resorts with a right to sub- lease – pursuant to which, original lessee (M/s Mukundgarh Resorts) sub-leased Mukangarh Property in favour of M/s Cross Country Hotels (P) Ltd (respondent-5) for a period of 30 years w.e.f. 14/07/1992 on the terms & conditions vide registered lease deed dt. 13/10/1992. Under Cl.5 of lease deed, the lessee has an option to create encumbrances on lease hold rights possessed by them in favour of financial institution for loan/finances for development of the Fort; and under the authority of Cl.5 whereof besides consent (Ann.R.6/1 & R.6/2) given by respondents-2 to 4 in 1993, mortgaged lease hold rights of Mukandgarh property with respondent-6 (TFCI) by creating security interest over the property. It appears that defaults were committed by the mortgagor (respondent No.5) in regard to the loan granted by respondent-6 (secured creditor); as such Org. Appl.-26/2000 was filed by secured creditor (respondent-6) CW 3804/10 //4// before Debts Recovery Tribunal, New Delhi (“DRT”) but pendente application, SARFAESI Act 2002 came into force and thereafter notice dt.08/01/2003 U/s 13(2) of SARFAESI Act was served calling upon respondent-5 to repay the amount within 60 days and since respondent-5 was unable to pay outstanding loan within stipulated period provided U/s 13(2) and pursuant to aforesaid notice, authorised officer of respondent-6 took possession of Mukandgarh property on 22/08/2008 under SARFAESI Act. Possession being taken over (supra) was challenged by respondent-5 (borrower) by way of CWP-9609/2008 which was dismissed vide order dt.17/04/2009 observing that remedy of appeal lies U/s 17 of SARFAESI Act. However, in compliance with security Interest (Enforcement) Rules, 2002, the secured creditor (respondent-6) got possession notice published in Times of India, New Delhi (Edn) dt.26/08/2008 & Rajasthan Patrika (Edn) dt.27/08/2008. That apart, authorised officer also published notice for Sale of lease hold rights of Mukandgarh Property besides other properties in Economic Times, N.Delhi (Edn) dt.16/06/2009 – pursuant to which, petitioner tendered its bid for a sum of Rs.Two crores Twenty lacs & One hundred vide letter CW 3804/10 //5// dt.21/07/2009 which was over & above reserved price set out by respondent-6 and being successful bidder, sale certificate dt. 04/08/2009 (Ann.8) as regards Mukandgarh property was issued by respondent-6 in favour of petitioner – pursuant to which possession was handed over to the petitioner on 04/08/2009 and either of respondents-2 to 5 has not raised objection at any stage. It has been further averred that after taking possession of Mukandgarh property, huge money has been invested in renovation whereof by the petitioner. It has come on record that on 05/07/2005, legal notice was served by the lessor (respondent-2) calling upon M/s Cross Country Hotels (lessee) to rectify the breaches within 3 months and terminated the lease by forfeiture & breaches on the part of the lessee. It will be pertinent to mention that at that time, lease hold rights were mortgaged with financial institution and security interest was created with the consent of lessor (respondent-2 to 4) but this material fact was not disclosed. On application being filed under Arbitration Act, Sole Arbitrator was appointed by the Court vide order dt.15/09/2006 to decide the dispute of breaches being committed & determination of CW 3804/10 //6// lease deed and after adjudication in course of arbitration proceedings in Appl.35/2009, Award was passed on 15/02/2009 in favour of respondents-2 to 4 for recovery of possession & arrears of rent along with interest from the judgment debtor (respondent-5); and in terms of S.36 of Arbitration Act, Arbitral Award was considered as a decree of civil court and pursuant to decree/Award, application came to be filed before learned Executing Court and warrant of possession was issued on 05/03/2010 - in execution whereof, possession of Mukandgarh property was taken over and the petitioner was dispossessed from Mukandgarh property on 09/03/2010 impugned herein. It has also come on record that on 10/03/2010, M/s Mukandgarh Resorts (P) Ltd sub-leased Mukandgarh property vide registered lease deed and possession was handed over to respondent-7 who is presently in possession of the property in question. While issuing notices, this Court vide order dt.15/03/2010 stayed operation of warrant of possession dt.05/03/2010 issued by learned Executing Court and it was further directed that the petitioner be continued in possession of the property in question. Pursuant to ad interim order dt.15/03/2010, petitioner moved an application before the CW 3804/10 //7// learned Executing Court for restoration of possession. However, Executing Court observed that since possession was handed over to the decree holder on 09/03/2010 in execution of Artbitral Award dt.15/02/2009; as such no further order can now be passed and petitioner may seek clarification from this court. Since after possession being taken over while dispossessing petitioner through decree holder who further sub-leased Mukand Garh property in favour of respondent-7 (M/s Silver City Landmark (P) Ltd), at this stage, an application was moved by respondent-7 seeking permission to implead as party respondent which was allowed by the Court vide order dt.21/04/2010. However, when the matter came up on application filed by petitioner seeking direction for restoration of possession being arbitrarily taken over pursuant to warrant of possession dt.05/03/2010; at this stage, matter was finally heard at joint request. Counsel for petitioner vehemently contended that the Executing Court being Civil court has no jurisdiction in issuing warrant of possession dt.05/03/2010 pursuant to Arbitral decree in regard to Mukandgarh property as it was in clear contravention of Ss.34 & 35 of SARFAESI Act which exclusively CW 3804/10 //8// bars jurisdiction of civil court in respect of any suit or proceedings under SARFAESI Act. S.35 of Act specifically over-rides other laws inconsistent with any other law in force; as such learned Executing court exceeded in its jurisdiction to execute Arbitral Award dt.15/02/2009 in regard to Mukandgarh property being subject matter under SARFAESI Act and the petitioner being in possession of the property in question pursuant to public auction held under SARFAESI Act and this fact was required to be taken note of by learned Executing court before issuing warrant of possession impugned herein; such action of the learned Executing Court is wholly without jurisdiction. Counsel further submits that lease hold rights being transferred in favour of petitioner under SARFAESI Act as assignee of the secured creditor and in terms of s.13(6), it shall have the same effect as being transferred by owner of secured asset; and in instant case, transfer of lease hold rights in favour of petitioner would have to be construed as if made by respondents-2 to 4; as such once lease hold rights were transferred in favour of petitioner and in terms of sale certificate, petitioner came into possession of Mukandgarh property on 04/08/2009, any CW 3804/10 //9// purported subsequent lease created in favour of respondent-7 would not have any binding effect on the rights of petitioner. In support, Counsel placed reliance upon decisions in Saraswasti Bai Trimbak Vs. Damodar D. Motiwale (2002(4) SCC 481); Mardia Chemicals Vs. Union of India (AIR 2004 sC 2371), taking assistance whereof, Counsel submits that once action has been taken on the basis of Special Act, acts of civil court are dehors of provisions of the Act and the Arbitral decree is un-executable qua the petitioner who is an assignee of secured creditor (TFCI) under SARFAESI Act. It has further been urged that lease hold rights were mortgaged by respondent-5 with respondent-6 in terms of Cl.5 of lease deed with written consent of the respondents-2 to 4; as such right to resumption as is available with respondents-2 to 4 could not have been exercised terminating lease before its expiry without informing respondent-6 (secured creditors) & unless encumbrances are cleared, termination of lease was not permitted under the law. Counsel further contends that Arbitral Award cannot prevail over proceedings under SARFAESI Act and once possession of Mukandgarh property was taken over by secured creditors CW 3804/10 //10// on 22/08/2008 U/s 13(4) of SARFAESI Act and lease hold rights were transferred to the petitioner as its assignee pursuant to sale certificate issued by secured creditor, only remedy lies with borrower/respondent-6 (original lessee) or by respondents-2 to 4 being party to creation of mortgage to take recourse as provided U/s 17 of SARFAESI Act by approaching DRT. In support, Counsel placed reliance upon decision of Delhi High Court in Kohinoor Creations Vs. Syndicate Bank (2006 (132) Co. Cases 417). Counsel for respondents-2 to 4 & 7 jointly submit that writ petition is not maintainable against warrant of possession dt. 05/03/2010 issued by Executing Court in execution of Arbitral Award dt.15/02/2009; and has supported the warrant of possession impugned. Counsel further submit that warrant of possession was issued in execution proceedings U/O 21, CPC, against which only remedy available is to file objections U/s 47 read with O.21 Rr.97 & 99, CPC before Executing Court. In support, Counsel placed reliance upon decisions in Ashan Devi Vs. Phulwari Devi (AIR 2004 SC 511), Ghanshyam Das Gupta Vs. Anant Kumar Sinha (1991 (4) SCC 379), Shreenath Vs. Rajesh (1998 (4) SCC 543), Metro Marins Vs. Bonus Watch Co. (P) Ltd (2004 CW 3804/10 //11// (2) WLC (SC) 705) and of this Court in Hanuman Prasad Vs. Municipal Board Uniara (1999(3) WLC 705). Main thrust of respondents is that once arbitral Award has not been challenged in instant proceedings and in execution thereof, warrant of possession impugned has been issued by Executing Court in favour of decree holder; the bar of S.34 of SARFAESI Act which restrained civil court to entertain any suit or proceeding in respect of matter which DRT or Appellate Tribunal is empowered under SARFAESI Act, has no application in the facts of instant case. This Court has considered rival contentions of Counsel for the parties and with their assistance, examined material on record. Before examining the controversy, it would be relevant to observe that the Arbitral Award dt.15/02/2009 passed by learned Arbitrator for recovery of possession to the decree holder (lessor/ respondents-2 to 4) and arrears alongwith interest is not under challenge for being examined before this Court and rightly so, since either party if aggrieved by Arbitral Award, objections could have been filed U/s 34 of the Arbitration Act. Cls.5, 7(d) & 9 of lease deed dt. 13/10/1992 (Ann.1) being relevant are quoted CW 3804/10 //12// ad infra: “5. That it has been agreed to that the lessee shall have a right to create encumbrances on the lease hold rights possessed by them in favour of any financial institution for loan/finances raised for the development of fort, subject to the condition that the encumbrances are cleared before the expiry/ termination of the lease period.” 7. The lessor herein covenants with the lessee as under: (d) to terminate the lease and enter upon the premises in case of breach of the agreed terms by giving prior notice of atleast 3 months provided the breach committed by the lessee is not rectified during the notice period. 9. Arbitration Clause - Both the parties have agreed to settle all their disputes in respect of this lease deed whether relating to the meaning or interpretation of any of the clauses or of tenancy itself in accordance with the Arbitration Act 1940 or any other statute in force.” Indisputably pursuant to registered lease deed dt.25/09/1992, original lessee - M/s Mukandgarh Resorts has a right to sub- lease the Mukandgarh property - on the basis whereof, it was sub-leased by M/s Mukangarh Resorts in favour of M/s Cross country Hotels (respondent-5) for 30 years on the terms & CW 3804/10 //13// conditions vide registered deed dt.13/10/1992. Cl.5 & 7 whereof vested a right in favour of lessee (respondent-5) to create encumbrances on the lease hold rights possessed by them in favour of a financial institution for loan/finances raised for development of Fort, with a condition that encumbrances are to be cleared before expiry/ termination of lease period. That apart, Cl.7 (d) of lease deed dt.13/10/1992 (Ann.1) further vested a right in favour of lessor to terminate the lease, itself, and enter upon the premises in case of breach of the agreed terms by three months prior notice provided the breaches allegedly committed by lessee are not rectified during notice period. While Cl.9 of lease deed provides that in case there being any dispute in respect of lease deed either relating to meaning or interpretation of any of clauses or of tenancy, the same could have been settled by arbitration. In terms of Cl.5 of lease deed, the lessee (respondent-5) after taking prior consent of lessors (respondents-2 to 4) mortgaged its lease hold rights of Mukandgarh property with financial institution (TFCI) as is evident from documents (Ann.R6/1 - dt. 19/06/1993 duly supported by affidavit of lessors & Ann.R6/2) placed by respondent-6 CW 3804/10 //14// (TFCI) on record wherein it has inter-alia intimated to lessee (M/s Cross Country Hotels, respondent-5) that intimation would be given to secured creditor (TFCI-respondent-6) before exercise of right of resumption of the property as contemplated in lease deed and three months' notice shall be substituted by six months notice as provided vide Ann.R6/1 & R6/2. Security interest was ultimately created by lessee (Cross Country Hotels) on 06/09/1993 in favour of respondent-6 (TFCI) by depositing its title deeds. At a later stage, when lessee committed defaults in making payment of outstanding loan through installments, as a result whereof, secured creditors (TFCI) re-called the loan and a notice dt.08/01/2003 was duly served upon borrower-lessee (Cross Country Hotels) U/s 13 (2) of SARFAESI Act calling upon to make payment of outstanding loan. However, after the procedure as provided under SARFAESI Act, secured creditors (respondent-6) took possession of Mukandgarh property on 22/08/2008. Notice of taking possession was published in news papers including Times of India & Rajasthan Patrika. Thereafter secured creditors published notice regarding sale of lease hold rights of Mukandgarh property on CW 3804/10 //15// 16/06/2009 - in process whereof, present petitioner being highest bidder, its bid was accepted vide letter dt.22/07/2009 and being successful bidder, sale certificate dt. 04/08/2009 (Ann.8) was issued by respondent-6 (TFCI) in favour of petitioner; accordingly, possession of lease holds rights over Mukandgarh property was handed over to petitioner, who indisputably, as assignee of secured creditors (TFCI) took possession under SARFAESI Act, to which indisputably, neither respondents-2 to 4 nor the borrower/lessee (M/s Cross Country Hotels) raised objection at any stage; and lease holds rights of Mukandgarh property were vested in favour of transferee (petitioner) through secured creditor (TFCI) as contemplated U/s 13(6) of SARFAESI Act. In other words, after taking possession of lease holds rights under S.13(4) by secured creditor (TFCI), all rights stood vested in the transferee of Mukandgarh property as if transferred by owner of the leased property as contemplated U/s 13(6) of SARFAESI Act. Thus, taking note of facts of instant case (supra), viz., after the secured creditor (TFCI) having taken possession of secured asset (Mukandgarh property) on 22/08/2008 and publication of public notice of CW 3804/10 //16// taking possession (supra) so also notice for sale of secured asset widely circulated and after accepting the bid of petitioner in whose favour, sale certificate was issued, transferred possession of secured asset to the petitioner being assignee of secured creditor, it would be presumed that secured asset was transferred in favour of petitioner as if transfer being made by owner of secured asset, which in instant case certainly is lessor (respondents-2 to 4). Much stress was laid by Counsel for petitioner that Ss.34 & 35 of SARFAESI Act, civil court has no jurisdiction and there is statutory bar for civil court to examine proceedings initiated under SARFAESI Act and if at all any party including borrower is aggrieved, remedy lies by filing appeal U/s 17 of SARFAESI Act. S.34 of SARFAESI Act reads ad infra: “34. Civil court not to have jurisdiction.- No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or under the Recovery of Debts Due to Banks and Financial Institutions CW 3804/10 //17// Act, 1993 (51 of 1993).” A perusal of statutory provisions (supra) clearly depicts exclusion of jurisdiction of civil court in respect of matters being taken up before DRT for adjudication under SARFAESI Act, but that will not oust jurisdiction of civil court to examine inter-se civil rights of parties and it is very obvious because the DRT or appellate Tribunal is not the competent forum to adjudicate civil rights except rights covered under SARFAESI Act; and if any one is aggrieved by process initiated by secured creditor under SARFAESI Act, that certainly debars jurisdiction of civil court and remedy lies only U/s 17 of DRT Act for adjudication but all other civil rights of the inter-party are supposed to be adjudicated by civil court unless the parties have a recourse to any other informal forum of resolution of the dispute by choice. The scheme of the SARFAESI Act as it now stands after the 2004 Amendment for enforcement of security interest is that notwithstanding the provisions of Section 69 or Section 69-A of the Transfer of Property Act, any security interest created in favour of a secured creditor may be enforced, without the intervention of the Court or Tribunal, in accordance with the provisions of the Act. CW 3804/10 //18// Chapter III of the Act deals with enforcement of security interest and begins with Section 13 - Sub-Sections (1) to (6) whereof being relevant are extracted ad infra: “13. Enforcement of security interest.- (1) Notwithstanding anything contained in Section 69 or section 69A of the Transfer of Property Act, 1882 (4 of 1882), any security interest created in favour of any secured creditor may be enforced, without the intervention of the court or tribunal, by such creditor in accordance with the provisions of this Act. (2) Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of no- tice failing which the secured creditor shall be entitled to exercise all or any of the rights under sub-section (4). (3) The notice referred to in sub section (2) shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of nonpayment of secured debts by the borrower. CW 3804/10 //19// (3A) If, on receipt of the notice under sub-section (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within one week of receipt of such representation or objection the reasons for non-acceptance of the repre- sentation or objection to the borrower. Provided that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal under section 17 or the Court of District Judge under section 17A. (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 realising the secured asset; (b) take over the management of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale and realise the secured asset; Provided that the right to transfer by way of lease assignment or sale shall CW 3804/10 //20// 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 bor- rower 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; (d) 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.” (6) Any transfer of secured asset after taking possession thereof or take over of management under sub-section (4), by the secured creditor or by the manager on behalf of the secured creditors shall vest in the transferee all rights in, or in relation to, the secured asset transferred as if the transfer had been