Writ Petition (Civil) No. 4538 of 2005 Page 1 of 37 IN THE HIGH COURT OF DELHI AT NEW DELHI W.P.(C) 4538/2005 & CM Appls 3256/2005, 3872/05, 5625/05 Reserved on: August 17, 2010 Decision on : September 7, 2010 KUNTH SECURITIES PVT. LTD. ..... Petitioner Through: Mr. Sudhir Nandrajog, Senior Advocate with Mr. Vinay Gupta, Mr. K.K. Mishra and Mr. Mahender Singh, Advocates versus PUNJAB & SIND BANK LTD. & ORS ..... Respondents Through: Mr. Rajinder Wali, Advocate for R-1. Mr. Amit Sibal, Mr. Vinay Tripathi, Advocates for R-2. Mr. Arvind Nayar and Ms. Divya Jain, Advocates for R-3. CORAM: JUSTICE S. MURALIDHAR 1. Whether Reporters of local papers may be allowed to see the judgment? No 2. To be referred to the Reporter or not? Yes 3. Whether the judgment should be reported in Digest? Yes JUDGMENT 07.09.2010 1. The Petitioner, Kunth Securities Private Limited (KSPL), through its Director Mr. R.K. Gupta, filed this petition on 19th February 2005 against the Respondent Punjab & Sind Bank („Bank‟) seeking two reliefs. The first is for a writ of mandamus to the Respondent to issue „No Objection Certificate‟ („NOC‟) releasing one-fourth portions of the property at 7-A, Rajpur Road, Delhi („property in question‟) under the lien of the Bank on the Petitioner depositing three equivalent sums of ` 1,62,50,000/- each respectively and for a writ of mandamus to the Bank “to instantly and immediately direct the owners of the subject property to execute the sale deed” in respect of the property in question Writ Petition (Civil) No. 4538 of 2005 Page 2 of 37 at 7-A, Rajpur Road, Delhi admeasuring 4200 sq.yds in favour of the Petitioner on their being provided with the copies of all the four NOCs as may procured by the Petitioner and to abide by the orders passed by this Court in Writ Petition (Civil) No. 6088 of 2003. The third prayer is for a mandamus to the Bank to receive and appropriate “an amount to be so deposited by the Petitioner in a specific period of time” as part consideration for the sale of the property in question; and upon receiving the entire sale consideration of ` 6.50 crores, to hand over the original deed of the title in respect of the property in question so deposited by the owners with the Bank with an intent to create an equitable mortgage, free from its charge of the Bank in all respects. Background facts 2. The narration of facts set out in the petition are that the property in question admeasuring 8800 sq.yards was purchased on 19th January 1956 from Mr. Inder Narain Seth in the joint names of Mr. Ramesh Chand Jain, Mr. Sudesh Chand Jain, Mr. Umesh Chand Jain, Mr. Subhash Chand Jain and Mr. Prabhash Chand Jain for a total sale consideration of ` 1 lakh. At that point of time Mr. Ramesh Chand Jain was 19 years old and the remaining four were minors under the guardianship of their father late Mr. P.S. Jain son of Late Mr. Jayanti Prasad Jain. On 22nd March 1957, a deed of partition was executed between Mr. P.S. Jain, Smt. Illaichi Devi wife of Mr. P.S. Jain, Mr. Ramesh Chand Jain, aged about 20 years and four other minor sons of Mr. P.S. Jain. It is stated that the partition deed provided that the movable properties mentioned in the First Schedule thereto were the Writ Petition (Civil) No. 4538 of 2005 Page 3 of 37 joint properties of the said family, part of which was ancestral and part acquired through earnings of the individual members including that of the Hindu Undivided Family („HUF‟) thrown into common stock. The Petitioner claims that the property in question had been equally partitioned in terms of the aforementioned deed of partition among the brothers. In the site plan attached to the First Schedule, the respective shares of all the five brothers had been earmarked and reflected in different colours. 3. Upon the expiry of Mr. P.S. Jain in November 1965, his share in the property went to the share of his wife Smt. Illaichi Devi. The said position continued till 31st August 1976. On 3rd September 1976, all the owners are stated to have jointly mortgaged the property in question in favour of the Bank in lieu of a term loan of ` 10 lakhs. The petition proceeds to narrate how a default was committed in the repayment of loan which resulted in the Bank initiating the proceedings for recovery. It is stated that the owners preferred not to contest these proceedings but to suffer a consent decree and undertook to repay the decretal amount in equal instalments. The Respondent No. 1 Bank instituted execution proceedings against the firms, companies (of which the borrowers were partners or directors) for recovery of the decretal amount. 4. Civil Suit No. 707 of 1983 was filed by the Bank in this Court for recovery of ` 20,57,658.33 representing the amount of principal due together with interest and other charges. A compromise was entered between the parties and a decree was passed in terms of the compromise. Writ Petition (Civil) No. 4538 of 2005 Page 4 of 37 After paying the instalments of ` 25,000/- per month for some time, defaults were again committed by the Judgment Debtors („JDs‟). Subsequently, the Bank filed an Execution Petition No. 128 of 1994 in this Court. It is stated that the JDs could not honour their commitments to repay the balance amount in instalments. Meanwhile, the execution petition was transferred to the Debt Recovery Tribunal („DRT‟), New Delhi on 13th December 1995 in terms of the Recovery of Debts due to Banks & Financial Institutions Act, 1993 („DRT Act‟). 5. It is stated that while the execution proceedings were pending, the Recovery Officer of the DRT, New Delhi issued a proclamation of sale in respect of the property in question and fixed the date for auction as 17th December 1998. The reserve price of the property was initially kept at ` 1 crore, which was subsequently enhanced to ` 6.50 crores. It is stated that objections were preferred by the Certificate Debtors („CDs‟) against the order of proclamation of sale in R.C. No. 5/98 under Part III of Appendix „B‟ of the DRT Act. The Petitioner states that “meanwhile flats were constructed and sold out to various prospective buyers on the vacant half portion within the knowledge of the banks.” The Bank had not included the portion of the flats in the proposed auction. It is stated that despite the above assurance the property in question was put to public auction on 17th December 1998. However, no prospective purchaser turned up to bid on the date of auction and resultantly the auction had to be abandoned. Thereafter on 26th April 1999 at the instance of the Decree Holder („DH‟) Bank, the Recovery Officer of the DRT, New Delhi issued attachment order as regards the movable assets Writ Petition (Civil) No. 4538 of 2005 Page 5 of 37 of Mr. R.C. Jain located in the property in question. It is stated that under the garb of attaching the said movable properties, the Bank officials ransacked the house and on strong exception having been taken by the borrowers in the matter, the DRT, New Delhi withdrew the Recovery Certificate. 6. An FIR and a charge sheet was also filed at the instance of the Bank against the borrowers at Police Station Civil Lines, Delhi. The Bank, aggrieved by the withdrawal of the Recovery Certificate as aforesaid, preferred an appeal before the Debt Recovery Appellate Tribunal („DRAT‟), Mumbai. During the course of arguments on 17th February 2000 before the DRAT, its Chairman was informed by learned counsel appearing for the CDs that the auction sale did not fetch any prospective purchaser at the reserved price fixed. It was brought to the notice of the Chairman that the property can be sold by private negotiations. While disposing of the said appeal on 17th December 2000, the Chairman, DRAT ordered as under: “In view of this statement, I think that Recovery officer can very well exercise powers conferred by Rule 66 of Procedure for recovery of Tax Rules which are required to be followed for recovery of dues under recovery certificate issued by the Presiding Officer. As such, instead of deciding this appeal on merits, I direct the Certificate Debtors to make application before Presiding Officer, Debts Recovery Tribunal, Delhi seeking permission to sell property by mentioned in Rule 66 (1) and for that purpose order of the Presiding Officer withdrawing recovery certificate is set aside. Writ Petition (Civil) No. 4538 of 2005 Page 6 of 37 Recovery Officer shall grant such certificate to the Certificate Debtors on the terms and conditions as stated above namely amount recovered by sale shall be deposited with Debts Recovery Tribunal to the extent of dues of the certificated creditor Bank. The Recovery Officer shall act under directions, control, superintendence and supervision of the Presiding Officer in this behalf. The Recovery Officer shall grant permission as stated above within period of two weeks from the date of receipt of this order by him, and private sale by the certificated debtors shall be completed within four weeks.” The appeal was disposed of by the DRAT without expressing any opinion on merits. 7. The writ petition then states that in the Execution Petition No. 126 of 1994 pending in this Court, the question of the property in question had cropped up and in the said proceedings, this Court had “equally permitted sale of the property” in the sum of ` 6.5 crores. Enclosed with the petition are copies of the orders dated 24th November 1999 passed by the learned Single Judge of this Court in the Execution Petition No. 126 of 1994 recording the statement of learned counsel for the JD that there is a purchaser for property No. 7-A, Rajpur Road, Delhi who is willing to purchase it for ` 6 crores and 20 lakhs and that in order to demonstrate his bonafides, he is willing to deposit ` 10 lakhs. The JD was asked to contact the DH Bank. This was reiterated by this Court on 25th January 2000. On 9th August 2000, the Court was informed that the Bank was agreeable for the private sale by the JD of half of the mortgaged property for ` 6.75 crores subject to deposit of ` 20 lakhs in Writ Petition (Civil) No. 4538 of 2005 Page 7 of 37 advance in the Court. The JD was asked to seek instructions. On 20th September 2000, the Court was informed that the DH is agreeable to sale of half of the property for ` 6.50 crores subject to deposit of ` 20 lakhs by the JD. 8. It is stated in the petition that meanwhile Mr. R.C. Jain, one of the JDs, had been pursuing the matter with the Respondent Bank for one time settlement (OTS) in accordance with the guidelines issued by the Reserve Bank of India („RBI‟) in relation to non-performing asset (NPA) accounts. In response to a communication dated 17th December 2000, the Bank wrote to the legal advisor of the CDs on 26th February 2001 providing a list of 176 accounts. The Bank offered to settle all the cases as a compact and package OTS calling upon the CDs to pay ` 11,24,99,000/-. The CDs are stated to have submitted their acceptance of such proposal on 5th March 2001. On 19th March 2001, the CDs wrote to the Bank seeking its response and sent a reminder on 22nd March 2001. 9. It is stated that “with great difficulty, the owners were in a position to make the Petitioner agreeable to purchase the said property” admeasuring 4200 sq. yards “along with all and whatever constructions had been raised thereon for a sum of ` 6.50 crores as consideration for purchase on mutually agreed terms and conditions. This is how that the Petitioner is stated to have entered the picture. 10. It is stated that one of the borrowers Mr. Prabhash Chand Jain filed Writ Petition (Civil) No. 4538 of 2005 Page 8 of 37 an application before the DRT, New Delhi under Section 22 of the DRT Act read with Rule 18 of the Rules framed thereunder bringing on record the fact of the compromise having been entered into by the borrower group and the Bank. According to the Petitioner, there being a necessity „for something concrete to be brought in writing‟, an agreement was entered into between Mr. R.K. Jain, one of the borrowers and the Petitioner on 20th February 2002. 11. It is interesting that in the said agreement, a copy of which is annexed as Annexure P-14 to the present writ petition, the Party of the Second Part Mr. R.K. Jain had revealed to the Petitioner (Party of the First Part) that the property in question was under the mortgage, charge and lien of the Bank in respect of few credit facilities availed by the “group of the Party of the Second Part”; the Bank was desirous of bringing the property to sale for realisation of its decretal/settlement amounts; Mr. R.K. Jain was equally desirous to liquidate the property and to reduce the liability of their group to the extent of the total sale realisation out of the sale proceeds; that a compromise had been arrived at between the Bank and the group of Mr. R.K. Jain (i.e. the borrower group) whereby the group was to pay a sum of `11,24,99,000/-; that the High Court of Delhi as well as the DRAT, Mumbai had consented and allowed sale of the aforesaid property at 7-A, Rajpur Road, Delhi by mutual negotiations as it was apprehended that public auction may not yield any prospective customer; that pursuant to the negotiations and deliberations, the „deal‟ was „struck‟ in the sum of ` 6.5 crores with the Petitioner having already deposited a sum of ` 10 lakhs with the Bank Writ Petition (Civil) No. 4538 of 2005 Page 9 of 37 on this count; that an application had been filed under Section 22 of the DRT Act before the DRT and that in the said application it had been mentioned that the Party of the Second Part i.e. Mr. R.K. Jain and his other family members were “practically in possession of more than 80% of the property and 20% or so is under the use and occupation of a co- mortgagor Mr. Subhash Chand and his family” and that the parties had discussed the matter pertaining to the handing over of the possession. It was set down in the agreement that it shall “not in any way effect adversely or prejudicially the rights, interests and security of the mortgage Bank i.e. the Punjab & Sind Bank”, that it is the responsibility of the Bank to have its possession conveyed to it by the Party of the Second Part as and when it so desires on the date of execution of the transfer deed or even earlier provided the handing over of the possession is with the consent of the Bank. It was further provided that the Petitioner would not insist on any condition precedent in the implementation of the sale deed regarding handing over of the peaceful and vacant possession of the property in question, under occupation of the Party of the Second Part. By virtue of the agreement, “the role of the mortgagee Bank is extinguished in respect of the liability of the bank to hand over vacant and peaceful possession to the purchaser as per mutual agreed terms and conditions. However, it shall be obligatory on the part of the mortgagee Bank to get the possession of the remaining portion which is with Mr. Subhash Jain and his family members.” 12. On 26th February 2002 the Presiding Officer, DRT, Delhi passed an order on the said application filed by Mr. Prabhash Jain seeking private Writ Petition (Civil) No. 4538 of 2005 Page 10 of 37 sale of the property in terms of the order passed by the DRAT, Mumbai. However, in the said order, it was directed as under: “However, the private sale shall be done before the Recovery Officer in accordance with Rule 66 (1) of the Income Tax Rules CDs may produce a buyer before the Recovery Officer and the bid may be accepted by the Recovery Officer in accordance with rules and also keeping in mind the orders passed by the Hon‟ble DRAT, Mumbai. The property is in possession of CDs/co- mortgagers, Recovery Officer shall appoint a receiver to take possession of the property from the CDs/occupants so that vacant possession of the property is handed over to the proposed buyer. After bid is accepted Recovery Officer shall issue sale certificate expeditiously in accordance with law.” 13. The matter then went to the Recovery Officer at the instance of the Bank which had appointed Mr. Amit Dhall, Advocate as Court Receiver to take possession of the subject property. The Court Receiver was directed to get the vacant possession after giving notices to the present occupants of the building. The Court Receiver was also directed to take assistance of police from the concerned police station. The CDs were directed to produce the prospective buyer for the subject property before the Recovery Officer so as to finalise the sale in terms of the orders of the DRAT, Mumbai and the DRT, Delhi. The Court Receiver addressed a letter dated 13th March 2002 to the occupants of the subject property asking them to vacate the premises. 14. Aggrieved by the above order, the borrowers preferred an appeal under Section 30 of the DRT Act before the DRT, Delhi which heard Writ Petition (Civil) No. 4538 of 2005 Page 11 of 37 arguments on 19th March 2002. The appeal was dismissed as pre-mature. The borrowers, Mr. R.K. Jain and others, filed Writ Petition (Civil) No. 2049 of 2002 in this Court. By an order dated 1st April 2002 the Division Bench of this Court noted that the Petitioners therein could invoke the alternative remedy by way of an appeal and accordingly dismissed the petition. They then preferred an appeal before the DRAT, New Delhi. It is stated that in the meanwhile the borrowers entered into a mutual settlement and the Bank also conceded to extend the time for the execution and implementation of the compromise entered into between them. On the above basis, Suit No. 654 of 2002 filed by Mr. Siddharth Jain in this Court stood withdrawn. 15. The Petition proceeds to state that in the meanwhile the Petitioner had entered into an agreement with M/s. Futuristic Properties (Pvt.) Limited („FPPL‟) in terms of which the Petitioner with the help of FPPL submitted a plan to the Municipal Corporation of Delhi („MCD‟). After carrying out the necessary demolition of the existing structures, it raised new constructions on the property in question admeasuring 4200 sq. yards. The Petitioner states that a copy of this agreement was delivered to the Bank. The Petitioner further states that although it was pursuing the matter with the Bank no concrete step was taken by the Bank to execute and implement the contract i.e. “on receipt of Rs. 6.5 crores to transfer the property” to the Petitioner. The Petitioner does not dispute that apart from depositing a sum of ` 10 lakhs with the Bank on 1st February 2002 which was kept in „No Lien Account‟, no further payment was made. Writ Petition (Civil) No. 4538 of 2005 Page 12 of 37 16. The Petitioner then filed Writ Petition (Civil) No. 6088 of 2003 which was disposed of by this Court by an order dated 22nd September 2003 with the following directions: “Respondents 2 to 5 shall take necessary steps for execution of the sale deed in favour of the Petitioner on or before 31st December 2003. The Petitioner shall deposit the full amount of Rs. 6.5 crores with Respondent No. 1 Bank prior to the execution of the sale deed. Simultaneously on deposit of the amount, Respondent No. 1 Bank will give a no objection and no lien certificate in respect of the portion being sold to the Petitioner along with copies of earlier title documents. Respondent No. 1 bank will also ensure production of prior title documents before Sub-Registrar which may be required for registration of sale deed in question. Insofar as the prayer for sanction of plan is concerned, learned counsel for the Petitioner does not press this relief at this stage since occasion has not arisen as yet for the Corporation to consider the plans of the Petitioner. The writ petition is disposed of with the aforesaid direction.” 17. On 5th December 2003, the Petitioner KSPL wrote a letter to the Bank stating inter alia as under: “In this connection we have considered all aspects of payment and we propose to make payment as under: a) Down payment of Rs.100 lacs by 31st December 2003 b) Balance payment by 31st March, 2004 Writ Petition (Civil) No. 4538 of 2005 Page 13 of 37 We hope you will be kind enough to accept the aforesaid payment terms and we request you to kindly convey your consent to Honourable Delhi High Court on next date of hearing which is scheduled on 15th December 2003.” 18. The Petitioner moved an application being CM No. 13237 of 2003 in the disposed of petition being Writ Petition (Civil) No. 6088 of 2003 which was heard on 15th December 2003 in which the following order was passed: “Learned counsel for the Petitioner and Respondent No. 1 states that it is agreed between the parties that the Petitioner would deposit a sum of Rs. 1 crore on or before 31st December 2003 and the balance amount on or before 31st March 2004. However, this is subject to the condition that in case the Petitioner fails to make the full payment of the balance amount on or before 31st March 2004, the amount of Rs. 1 crores deposited by the Petitioner would stand forfeited. This is an arrangement arrived at between the parties subsequent to the order dated 22nd September 2003. In view of the aforesaid, the directions for payment in pursuance to the order dated 22nd September 2003 stand modified as aforesaid on the consent of the parties. The application stands disposed of. Dasti to learned counsel for the parties.” 19. On 31st December 2003, the Petitioner wrote to the Bank enclosing three cheques - one for ` 40 lakhs and two for ` 25 lakhs each, all dated 31st December 2003 and requested the bank “to adjust and appropriate this amount of ` 1 crore towards part liquidation of the OTS amount of Writ Petition (Civil) No. 4538 of 2005 Page 14 of 37 PS Jain Group and subsequent payment also be adjusted accordingly.” The Petitioner also wrote to the Bank on 30th December 2003 requesting to encash the FDR for a sum of ` 10 lakhs towards part payment for purchase of the property in question. On 13th March 2004, the lawyers for the Respondent Bank wrote to the borrowers referring to the terms of settlement entered into with the borrowers and stating that in the event of any delay or default whatsoever in adhering to any of the terms and conditions “all such rebates, concessions as provided by our client shall be deemed to be withdrawn forthwith and our client shall be entitled to proceed to recover all amounts due to it.” On the same date, i.e. 13th March 2004, a separate letter was addressed to the Petitioner KSPL referring to the earlier letter dated 13th October 2003 addressed by the Petitioner assuring that they will deposit with the Bank ` 65 lakhs towards „Biana‟ within a period of fifteen days and balance 90% within six month from the date of „Biana‟. The Petitioner was informed that it was agreed to extend the payment/adjustment of the compromise amount arrived at “with the