1 W.P.6306.07 IN THE HIGH COURT OF JUDICATURE AT BOMBAY BENCH AT AURANGABAD WRIT PETITION NO.6306 OF 2007 Ashok Motiram Patil, Age 42 years, Occup. Business, R/o Plot No.14 Bharatnagar, Housing Co. Op. Society, Jyotinagar,Aurangabad. ...PETITIONER. VERSUS 1. L.I.C. Housing Finance Limited, Yashodhan Building Behind Baba Petrol Pump,Bhagyanagar, Aurangabad through its Authorised Officer. 2. The Union of India, Ministry of Finance, Through its Secretary, New Delhi. ...RESPONDENTS. ... Shri.R.R.Mantri,Advocate for Petitioner. Shri.Rajesh B.Shah,Advocate for Respondent No.1. ... CORAM: NARESH H. PATIL AND K.K. TATED, JJ. ORDER RESERVED ON : 07th JULY, 2010. ORDER PRONOUNCED ON: 23rd JULY, 2010. ORDER : (PER K.K.TATED, J.) 1. Heard Mr. R. R. Mantri, learned counsel for 2 W.P.6306.07 Petitioner and Shri. Rajesh B. Shah, learned counsel for Respondent No.1 extensively. 2. By this petition under Article 226 and 227 of the Constitution of India, the petitioner is challenging the action of respondent NO.1-L.I.C. Housing Finance Limited, in resorting to the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Hereinafter referred to as “Said Act”) A FEW FACTS OF THE CASE ARE AS UNDER : 3. The petitioner has taken financial assistance from the respondent No.1-LIC for the purpose of residential house. On the request of petitioner, the respondent NO.1-LIC has sanctioned financial assistance of Rs. 2,75,000/-(Rs. Two Lakhs Seventy Five Thousand) to the petitioner by loan offer letter dated 8th November, 1996. It is specifically stated in the said loan offer letter dated 8th 3 W.P.6306.07 November, 1996 that the respondent No.1 will charge interest at the rate of 17% p. a.(Payable monthly) and the repayment of loan was equated by monthly installment of Rs.2750/-(Rupees Two Thousand Seven Hundred and Fifty). The petitioner for the purpose of availing loan facility, mortgaged the open plot of land as security for repayment of loan to respondent No.1. The petitioner created a equitable mortgage by deposit of title deeds on 5th November, 1998 of the property bearing registered sale deed No. 2844 dated 13th September, 1995 being Plot NO.14 Bharat Nagar Co-Operative Housing Society CTS No. 16036-1-19 near Jyoti Nagar Shahanoorwadi, Aurangabad. 4. It is the case of the petitioner that initially he deposited some amount towards repayment of loan, but thereafter could not deposit the amount due to financial difficulties as petitioner suffered huge loss in his business. 4 W.P.6306.07 5. It is the case of the petitioner that the respondent NO.1-LIC issued notice under section 13(2) of the Said Act dated 10th September, 2006 claiming sum of Rs.5,14,651.63 Paise (Rupees Five Lakhs Fourteen Thousand Six Hundred Fifty One and Sixty Three Paise) from the petitioner. It is the case of the petitioner that the said notice was not received by the petitioner at material point of time. In the month of June-July 2007, the petitioner deposited an amount of Rs.2,19,000/- (Rs. Two Lakhs Nineteen Thousand) and earlier to it, he had also deposited approximately Rs. 35,000/-(Rs. Thirty Five Thousand) with respondent No.1-LIC towards repayment of loan amount. Thus, the petitioner, in all deposited sum of Rs. 2,52,000/- (Rs. Two Lakhs Fifty Two Thousand) with respondent NO.1-LIC. 6. It is the case of the petitioner that, he suddenly received vacation notice on 29th October, 2007, whereby the respondent No.1 directed the petitioner to vacate his residential house within 5 W.P.6306.07 seven days from the receipt of notice invoking the provisions under section 13(4) of the Said Act. 7. The learned Counsel appearing on behalf of the petitioner submits that action taken by the respondent NO.1 under the said Act is against justice, equity and good conscience and same is liable to be set aside on following points. a] The respondent NO.1 can not take action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 against the petitioner. b] The notification dated 10th November, 2003 issued by the Ministry of Finance (Department of Economic Affairs) (Banking Division) is not applicable to the respondent NO.1. c] The petitioner had not received any notice under section 13(2) of the Said Act. d] Now there is no open plot of land. 8. The learned counsel appearing on behalf of the petitioner submits that the respondent NO.1 is not Financial Institution as defined under section 6 W.P.6306.07 2(m) of the Said Act. Section 2(m) reads as under:- “2(m) “financial institution” means- (i) a public financial institution within the meaning of section 4-A of the Companies Act, 1956(1 of 1956); (ii) any institution specified by the Central Government under sub- clause(ii)of clause (h)of section 2 of the Recovery of debts Due to Banks and Financial Institutions Act, 1993(51 of 1993); (iii) The International Finance Corporation established under the International Finance Corporation (Status, Immunities and Privileges) Act, 1958(42 of 1958); (iv) any other institution or non-banking financial company as defined in clause(f)of section 45-I of the Reserve Bank of India Act, 1934(2 of 1934), which the Central Government may, by notification, specify as financial institution for the purposes of this Act; 9. The learned counsel further submits that the respondent no.1 is not Financial Institution as defined under Said Act and therefore, the respondent No.1 has no right to take any action 7 W.P.6306.07 against the petitioner by attaching and selling the property to recover the loan amount. He submits that only Institution which are specifically defined under section 2(m) of the Said Act, can take action under the Said Act. Therefore, action taken by the respondent No.1 against the petitioner is against the principles of natural justice, equity and good conscience and same is liable to be set aside. 10. The learned counsel appearing on behalf of the petitioner submits that the notification issued by the Ministry of Finance dated 10th November, 2003 is not applicable to the respondent No.1. He submits that it is specifically noted in the said notification that “LIC Housing Finance Ltd. Bombay” is only defined as Financial Institution under section 2(m) of the Said Act. No where it is stated in the said notification that LIC Housing Finance Aurangabad is also covered by the said notification. Therefore, the respondent NO.1 is not entitled to resort the provision of Said 8 W.P.6306.07 Act against the petitioner. 11. The learned counsel appearing on behalf of the petitioner submits that not a single notice is received by the petitioner under section 13(2) of the Said Act from the respondent No.1. Therefore, without following due process of law the respondent NO.1 started taking action against the petitioner for recovery of the said loan amount, therefore, the same is liable to be set aside. 12. The learned counsel appearing on behalf of the petitioner further submits that as on today open plot mortgaged by the petitioner in favour of the respondent No.1, is not available. The petitioner constructed his house long-back and therefore, respondent No.1-LIC have no right to take action against the constructed house, when in fact open plot of land was mortgaged with them. Therefore, action taken by the respondent No.1 is against law. 9 W.P.6306.07 13. On the other hand, the learned counsel appearing on behalf of respondent No.1 submits that respondent No.1-LIC followed due process of law and attached petitioner’s property. He submits that respondent No.1-LIC is a Financial Institution as defined under section 2(m) of the Said Act. He submits that Union of India issued a notification dated 10th November, 2003 and included respondent No.1’s name as Financial Institution under the Said Act. He submits that respondent No.1 is branch of LIC Housing Finance Ltd., and its registered corporate office is at Bombay. Once registered corporate office is declared as Financial Institution under section 2(m) of the Said Act, all its branches are deemed to be Financial Institutions, as per the Said Act. There is no substance in the submission of petitioner that only LIC Housing Finance Ltd. Mumbai is declared as financial Institution under section 2(m) vide notification dated 10th November, 2003 by Ministry of Finance. He submits that once head office is declared as Financial Institution, all 10 W.P.6306.07 its branches deemed to have been treated as Financial Institutions under the Said Act. Therefore, action taken by the respondent no.1 under the Said Act is according to law. 14. It is the contention of the learned counsel appearing on behalf of the respondent No.1- LIC that respondent No.1 had issued demand notice under section 13(2) of the Said Act, dated 10th December, 2005 to the petitioner by registered post A.D. The respondent No.1 further submits that so as to take precaution the respondent NO.1- LIC also published the notice under section 13(2) of the Said Act in daily News Paper “Sakal”, dated 30th January, 2007. The said notice returned unserved from postal department with remark “Intimation given”. He submits that if petitioner failed to collect the copy of the notice from postal department then he can not raise objection of non receipt of legal notice. In law, it is good service, therefore, action taken by the respondent No.1 is according to law, after 11 W.P.6306.07 following due process of law. 15. The learned counsel appearing on behalf of the respondent No.1 submits that at the time of taking loan, the petitioner mortgaged open plot of land in favour of the respondent No.1-LIC Housing Finance. Thereafter, he constructed a house on the said open plot of land, therefore, in view of section 70 of the Transfer of Property Act, respondent No.1-LIC Housing Finance is entitled to take appropriate steps for recovery of their loan amount against land as well as constructed house. Section 70, illustration (b) of the Transfer of Property Act reads as under :- “70 If, after the date of a mortgage, any accession is made to the mortgaged property, the mortgagee, in the absence of a contract to the contrary, shall, for the purposes of the security, be entitled to such accession. ILLUSTRATION (b) A mortgages a certain plot of building land to B and afterwards erects a house on the plot. For the purpose of his security, B is entitled to the house as well as the plot. 12 W.P.6306.07 . It is clear from the Section 70 of the Transfer of the Property Act reproduced above, that the accession made to the mortgaged property subsequent to the execution of mortgage forms part and parcel of the security provided under the mortgage. The Apex Court in the matter of Standard Chartered Bank and another Vs. Custodian and another reported in AIR 2000 Supreme Court 1488, held that accretion to the pledged property becomes part and parcel of the pledge itself. The para Nos. 49, 50 and 51 reads as under:- “49 If the accretions are regarded as property which come to existence after the date when the party was notified then in view of T.B. Ruia's case income generated after the date of notification would fall outside the net of Section 3(3). It, therefore, became necessary for this Court in T.B. Ruia's case to observe in paragraph 9 that if the attached property is shares then the dividends, bonus and rights shares would also be regarded as attached property. If this be so then would pledge not extend to 13 W.P.6306.07 these accretions to the shares which were pledged? In this connection it is relevant to notice that Story on Law of Bailment at para 292 has stated thus: "By the pledge of a thing, not only the thing itself is pledged, but also, accessory, the natural increase thereof. As if a flock of sheep are pledged, the young, afterwards born, are also pledged." This passage has been relied upon by "Chitty on Contract", 28th Edition at page 162 where it is noted that "If during the pledge there is an increase in the value of the thing pledged, the pledgee is entitled to the increase as part of his security. "To the same effect is the view contained in Halsbury's Laws of England Vol.36 para 123 where it is stated in connection with the special property of the pawnee "If during the contract there is any increase in the value of the security, the pawnee is entitled to that increase as part of his security". 50] From the aforesaid it would follow that what Section 163 of the Contract 14 W.P.6306.07 Act really means is that accretions in respect of the goods bailed cannot be a property of the bailee but must be returned when the goods themselves bailed are returned. A necessary corollary to this would be that as the pledge extends to such accretions then when the pledged goods are returned these accretions must also be given back. But if the pledge extends to such natural increase of the pledged goods it must follow that the pledgee would not only have the right to retain the said accretions but also have the right to sell the same along with original shares pledged for the purposes of realising amounts due to it and in respect of which the shares were pledged as a security. Not only will this be in line with the aforesaid observations of this Court in T.B. Ruia's case( 1996 AIR SCW 3826: AIR 1997 SC 442) but in arriving at this conclusion we find support from the Halsbury's Laws of England Vol .2 para 1524, where dealing with the bailee's duty to account it was observed that "When the return of the 15 W.P.6306.07 bailed chattel constitutes part of the bailee's obligation, he must restore not only. the chattel itself, but also all increments, profits and earnings immediately derived from it."It would follow from the aforesaid that the accretions to the pledged property would continue to be retained by the pawnee and, in the case of a notified party, like in the present case, the accretions to the pledged property would also be regarded as attached property to be dealt with in the manner in which the pledged shares have to be dealt with. 51] It is not possible to accept the contention of the custodian that as and when any accretion takes place the pawnee is under Section 163 liable to hand over the accretion to the pawnor. It is true that the words "upon redemption" as used in Sections 63 and 64 of the Transfer of Property Act are not included in Section 163 of Contract Act but it is to be seen that if the accretion is to be regarded as forming part of the bailed property then such accretion must remain with 16 W.P.6306.07 the pawnee and be dealt with by him in the same manner as the pledged shares. In other words the accretions form an integral part of the attached shares as on the date of attachment, as held in T.B. Ruia's case,(1996 AIR SCW 3826: AIR 1997 SC 442) and it follows that it would also be an integral part of the shares when they were pledged and would, therefore, constitute a part of the pledged security. The appellant bank would, therefore, be entitled to retain the same and deal with them as pledged stocks. The decision of the Special Court that the bonus shares, dividend and interest which had accrued on the pledged shares were not themselves the subject matter of the pledge and must, therefore, be handed over by the appellant bank to the custodian cannot be sustained”. 16. We have heard both the counsel at length. It is admitted fact that the petitioner obtained a loan of Rs.2,75,000/- from the respondent No.1, as per loan offer letter 8th November, 1996. He also 17 W.P.6306.07 agreed to pay the interest @ 17% p.a. At the time of taking loan, the petitioner mortgaged his open plot of land in favour of respondent NO.1. It is admitted fact that the petitioner failed to pay the agreed installments from time to time, therefore, respondent No.1 initiated action under the Said Act. . The contention of the learned counsel appearing for the petitioner that the respondent No.1 can not take action under the Said Act against the petitioner is not acceptable. The respondent No.1 is declared as Financial Institution under section 2(m) of the Said Act by Government notification dated 10th November, 2003. The respondent NO.1 also issued a notice dated 10th December, 2005 under section 13(2) of the Said Act to the petitioner by registered post A.D. The said notice returned unserved with postal remark ”Intimation given”. The petitioner has declined to accept the notice sent by registered post. It has been stated by postal authority on registered 18 W.P.6306.07 post envelop that intimation left to the petitioner that a registered letter has been received in his name and that he should collect the same from the post office. It is settled that a notice refused to be accepted by the addressee can be presumed to have been served on him vide (Haricharan Singh V.s Smt. Shivrani and others) 1981(2)SCC 535 and (Jagdish Singh Vs. Natthu Singh) 1992(1) SCC 647. 17. In the present case, respondent No.1 brought on record the documentary proof to show that postal authority returned packet containing notice under section 13(2) of the Said Act with remark that “Intimation given”, therefore, it is to be presumed that the petitioner received demand notice. Not only that the respondent No.1 also published notice under section 13(2) of the Said Act in the daily News Paper “Sakal” dated 30th January, 2007. Therefore, submission made by the learned counsel for the petitioner about 19 W.P.6306.07 applicability of the Said Act and service of notice is not acceptable. 18. The objection raised by the learned counsel appearing on behalf of the petitioner that as on today open plot is not available for taking any action is not acceptable in law. The section 70 of the Transfer of Property Act is very clear that respondent NO.1 can take action for recovery of their loan amount in respect of plot of land along with structure standing therein. Therefore, there is no substance in the objection raised by the petitioner about the non availability of open plot of land in the present case. 19. Apart from that under section 17 of the Said Act alternate remedy is available to the petitioner. The Apex Court in the matter of Mardia Chemicals Ltd and others Vs. Union of India and others reported in 2004(4)Supreme Court Cases Page No.311 held that the Civil Court have no jurisdiction to entertain any dispute arising 20 W.P.6306.07 under Said Act, Para 50 of the said judgment reads as under:- “50] It has also been submitted that an appeal is entertainable before the Debt 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 Debt Recovery Tribunal or the appellate Tribunal is empowered to determine. Thus before any action or measure is taken under sub-section (4) of Section 13, it is submitted by Mr. Salve one of the counsel for respondents that there would be no bar to approach the civil court. Therefore, it cannot be said 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 Debt Recovery Tribunal or appellate Tribunal is empowered to determine in respect of any action taken "or to be 21 W.P.6306.07 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 Debt 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 the Debt Recovery Tribunal, apart from those matters in which measures have already been taken under sub-section (4) of Section 13.” 20. Thus the petitioner has alternate remedy to take appropriate action under Said Act. The respondent No.1-LIC has initiated action as contemplated by the provisions of Section 13(2) of 22 W.P.6306.07 the Said Act to enforce security created in favour of bank by the petitioner hence respondent No.1- LIC under section 13(1) of the Said Act is entitled to enforce its security as matter of right in accordance with section 13 of the Said Act that too without intervention of the Court or Tribunal. Issuance of notice under section 13(2) of the Said Act is initial step to enforce security of the respondent NO.1, which will ultimately culminate as contemplated by section 13(4) of the Said Act to realize outstanding dues. Thus, intervention of the Civil Court at the stage of notice under section 13(2) of the Act is not contemplated. 21. In view of the above mentioned facts and circumstances, we do not find any substance in the present petition. The petition is dismissed accordingly. Sd/- Sd/- [K.K. TATED, J.] [NARESH H. PATIL, J.] MTK 23 W.P.6306.07