IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD (Special Original Jurisdiction) TUESDAY, THE THIRTIETH DAY OF SEPTEMBER TWO THOUSAND AND EIGHT PRESENT THE HON'BLE MR JUSTICE B.SESHASAYANA REDDY WRIT PETITION NO : 15510 of 2008 Between: 1 Pavan Kumar Gaur, S/o. Kailash Chand Gaur, Door No.5-3-68/1/A, Premavathipet village, Rajendranagar Mandal, Ranga Reddy District. 2 H.P.Sharma Processors Rep by Partner Kailash, Chand Gaur,S/o. Madanlal Gaur, R/o. 313, Laxmi road, 8th Cross, Shantinagar, Banalore, 3 Eskee Steel Industries, Rep by Partner, Kailash Chandra Gaur,S/o. Mandalal Gaur, aged 60 years, Occ Business, Door No.5-3-68/1/A, Premavathipet Village, Rajendranagar Mandal, Ranga Reddy District. ..... PETITIONER(S) AND 1 State Bank of Hyderabad, Exhibition Grounds Branch, M.J.Road, Hyderabad.Rep by Manager. 2 State Bank of Hyderabad, Head Office, Gun foundry, Rep by General Manager. 3 M/s Krivin Steels Limited, Regd Office.34, 3rd Floor, Twin city commercial Complex M.J.Market, Hyderabad, rep by MD, Hanuman Prasad Sharma,S/o. Moolchand Sharma, aged 59 years, Flat No.310,Malti Naik Plaza, Beside Sabarwal Travels, Hanumantekdi Road, Hyderabad. 4 Hanuman Prasad sharma, S/o. Moolchand Sharma, Flat No.310,Malti Naik Plaza, Beside Sabarwal Travels, Hanumantekdi Road, Hyderabad. .....RESPONDENT(S) Petition under Article 226 of the constitution of India praying that in the circumstances stated in the Aﬃdavit ﬁled herein the High Court will be pleased to to issue a Writ or direction more in the nature of Writ of Mandamus, a. To declare the action of Respondent No.1 & 2 in initiating and issuing demand notice dated 2-7-2008 as arbitrary, sham, null and void, ignoring the interest of petitioners, b. any other direction relief or relief's deem ﬁt and proper in the circumstances of the case and in the interest of justice. Counsel for the Petitioner: MR.R.RAVI KUMAR Counsel for the Respondent No.: MR.ADDEPALLI SURYANARAYANA The Court made the following : O R D E R: The petitioners who are three in number have ﬁled this writ petition with a prayer to declare the action of State Bank of Hyderabad, Exhibition Grounds Branch, Hyderabad represented by Manager-1st respondent and State Bank of Hyderabad, Head Oﬃce, Gunfoundry, represented by its General Manager-2nd respondent in initiating and issuing demand notice dated 2.7.2008 issued under section 13(2) of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short Act, 2002) as null and void. Sri.Pavan Kumar Gaur has sworn to the writ aﬃdavit. The case of the petitioners as set out in the writ aﬃdavit, in brief, is : Hanuman Prasad Sharma-4th respondent as Proprietor of H.P.Sharma Processors-2 nd petitioner approached M/s Eskee Steel Industries represented by its Partner-Kailash Chandra Gaur-3 rd petitioner for a loan of Rs.178 lakhs for liquidating the liability of R4 to Vijaya Bank. After clearing the dues to Vijaya Bank, 2nd petitioner ﬁrm was constituted and assets and liabilities of proprietary concern were brought into the partnership ﬁrm. R4 brought the properties which were mortgaged to Vijaya Bank and released on payment of Rs.178 lakhs as his capital to the partnership firm. Registered lease deed was executed by R4 in favour of 3rd petitioner for carrying on the business at Door No.5-3- 68/1/A, Premavathipet village, Rajendranagar Mandal, Ranga Reddy District. The lease was initially for a period of 11 months. However, 2nd petitioner continued to be in occupation of the premises even after expiry of 11 months lease period. Subsequently R4 retired from 2nd petitioner ﬁrm on 30.9.2005 thereby whatever rights R4 got in the 2nd petitioner ﬁrm had become extinct. The 3rd petitioner has been carrying on the business at Door.No.5-3-68/1/A, Premavathipet village, Rajendranagar Mandal, Ranga Reddy District. The 2nd petitioner ﬁrm represented by Kailash Chand Gaur has executed registered sale deed doc.No.102 of 2008 dated 9.1.2008 in respect of land admeasuring 4477 square yards in Survey No.47, 48 and 52 situated at Premavathi pet village, Rajendranagar Mandal, R.R. District. R4 ﬁgured as an attesting witness in the registered sale deed dated 9.1.2008. 1st petitioner, on noticing the writings on the compound wall by the Oﬃcers of 1st and 2nd respondents, issued legal notice dated 12.6.2008 narrating the entire facts under which 1st petitioner became the owner of the leased premises. R1 and R2 sent a reply to the notice issued by 1st petitioner. The petitioners came to know that R1 and R2 issued paper publication in the daily Deccan Chronicle dated 2.7.2008 with regard to the proceedings initiated under section 13(2) of the Act, 2002 for recovery of the amounts due from R3 and R4. In the said notice R3 and R4 were given 60 days time to submit their representation before taking further proceedings under section 13(4) of the Act, 2002. In a way it is the claim of the petitioners that the properties against which proceedings were initiated under the Act, 2002 belong to them and that R3 and R4 had no right to create charge over the properties in favour of R1 and R2. Notice before admission came to be ordered on 21.7.2008. Sri.Addepalli Suryanarayana, learned Standing Counsel entered appearance on behalf of R1 and R2 and ﬁled counter aﬃdavit. Sri.Kishore Roy, learned counsel entered appearance on behalf of R3 and R4 and filed counter affidavit. The counter aﬃdavit of R1 and R2 in brief, is: The petitioners are third parties to the ﬁnancial transaction between the respondents on the one hand and R3 and R4 on the other hand and therefore the petitioners cannot interdict the proceedings initiated by these respondents under Act, 2002. The properties ;were mortgaged to the Bank by H.P.Sharma as sole proprietor of H.P. Sharma Processors, by depositing the title deeds. The events highlighted by the writ petitioner that took place between the period of formation of the proprietary concern and the date of creation of equitable mortgage by H.P.Sharma as a guarantor for the facilities allowed to R3 are not within the knowledge of the Bank. The documents of partnership deed and the documents of retirement deed and consequential sale deed are created by the petitioners with the connivance of R4 to defraud the bank. R3 availed O.D. limit of Rs.1.00 crore from R1-Bank on 23.2.2006 represented by H.P.Sharma as its Managing Director. As a security for due repayment of the amount advanced, H.P.Sharma representing H.P. Sharma Processors has created equitable mortgage of the property. The property was mortgaged to the bank on 23.2.2006 and there were no encumbrances over the said property as on the date of creation of charge in favour of Bank. Since the borrower failed to repay the loan, the account was treated as non-performing asset as on 31.5.2008 and proceedings were initiated under Act, 2002 by issuing a demand notice dated 5.6.2008 to the borrower as well as the mortgager. Since the notice returned unserved, the bank published a notice in local newspaper on 1.7.2008. The mortgagor i.e. H.P.Sharma Processors replied to the Bank. He did not resist the proceedings initiated by the Bank. While so, the petitioners ﬁled the present writ petition challenging the notice under section 13(2) of the Act, 2002. The constitution of the partnership ﬁrm on 21.4.2005 and subsequent retirement deed have been denied. For better appreciation, I may refer para 5 of the counter aﬃdavit, which reads as under: “5. The contention of the petitioner is that a partnership ﬁrm was reconstituted under partnership deed dated 21.4.2005 under which the proprietary concern H.P. Sharma Processors became partnership ﬁrm consisting of H.P.Sharma, Kailash Chandra Gaur and Rakesh Gaur and later in view of the retirement deed dated 30- 9-2005, the 4th respondent H.P. Sharma retired from the ﬁrm allowing other two partners to continue and as such he has no title to mortgage the property to the State Bank of Hyderabad. In this regard, it is to be mentioned that the 4th respondent Mr.H.P.Sharma has ﬁled a counter aﬃdavit and placed on record yet another retirement deed (05AA 892463) dated 30.9.2005 under which Mr.Kailash Chandra Gaur and Rakesh Gaur who were admitted as partners in April, 2005 have retired as partners after the amounts were repaid to them and the ﬁrm got back the original status as proprietary concern of H.P.Sharma Processors. The above aspects clearly show that the petitioners, 4th respondent Mr.H.P.Sharma and Mr.Rakesh Gaur in a most calculated way executed the documents with an intention to defraud the nationalized bank. The fact that two inconsistent retirement deeds were appear to have been executed on the same day clearly show the mischievous intention of the parties to the documents. It is also clear that the partnership was never entered with a view to carry on business but entered only to create documents to nullify the rights of the legitimate parties. Even the recitals of the document of partnership do not show transfer of property by the proprietary concern to the partnership ﬁrm created on 21.4.2005. The partnership deed is not a valid document as the same is executed contrary to the provisions of Stamp Act. The lease deed do not confer any rights to the 3rd petitioner as the same is not an enforceable document and it expired due to aﬄux of time and for the fact that no business activity continued at the schedule premises. The lease deed is also intended to defraud the creditors and not entered with an intention to act on. Mere obtaining Vat registration and ﬁling returns and payment of taxes, the petitioners cannot be allowed to contend that they carried business in the schedule premises. The contention of the petitioners that the partnership ﬁrm represented by Mr.Kailash Chandra Gaur executed Sale deed dated 9.1.2008 in favour of 1st respondent Mr.Pavan Kumar Gaur (son of the vendor himself) for the properties clearly show that the sale document is executed only to create confusion without any right and not with an intention to act upon Mr.Kailash Chandra Gaur cannot legally represent the ﬁrm. When the vendor Mr.Kailash Chandra Gaur himself do not have right to the property he cannot convey any better title to his son Mr.Pavan Kumar Gaur. The Encumberance Certiﬁcate obtained for all the 4 items of properties covered by 4 sale deeds in favour of H.P.Sharma Processors do not show the transfer made in favour of Mr.Pavan Kumar Gaur, the 1st petitioner by Mr.Kailash Chandra Gaur by representing ﬁrm without authority. The boundaries do not tally with the properties.” Sri.Hanuman Prasad Sharma has sworn to the counter aﬃdavit ﬁled on behalf of 3 rd and 4th respondents. The 3rd respondent is a company represented by R4. The counter aﬃdvit of R3 and R4 in brief, is : R4 being the proprietor of H.P.Sharma Processors purchased 4477 square yards of land in Survey Nos.47, 48 and 52 of Kattedan, Hyderabad under registered sale deeds. H.P.Sharma Processors as a proprietary concern availed certain credit facilities from Vijaya bank on 17.7.1999. Mrs.Kanta Sharma w/o H.P.Sharma and Shiv Prakash Sharma, s/o Late Mool Chandji Sharma stood as guarantors. H.P. Sharma Processors was regular in payment of amounts and the sanction limit was increased from time to time. In the year 2003 there was slump in the market and therefore H.P.Sharma Processors was not in a position to pay regular monthly instalments and therefore H.P. Sharma Processors made a request to the Bank to reschedule the loan. The bank agreed and accordingly rephased the various credit facilities. H.P.Sharma Processors unit manufactures G.I. wires. Since H.P.Sharma Processors failed to pay the loan amount, the bank issued notice under section 13(2) of Act, 2002 demanding an amount of Rs.1,78,12,963.20 paise. The recovery Oﬃcer of the Bank conducted inventory of the secured asset and threatened to take possession of a running unit on 14.9.2004. H.P.Sharma Processors ﬁled an appeal being No.108 of 2004 before the Debt Recovery Tribunal and obtained stay of all further proceedings. While so, R4 approached father of 1st petitioner, who was carrying the business under the name and style of M/s Modern Wire and Allied Products in the 4477 sq. yards as a tenant, for ﬁnancial help to clear the dues of Vijaya Bank. H.P.Sharma Processors executed a promissory note in favour of father of 1st petitioner. Mr.Rakesh Gaur requested R4 to execute a partnership deed which was duly complied with on 21.4.2005 but the property of H.P.Sharma Processors was never transferred to the partnership concern. The partnership ﬁrm comprising Hanuman Prasad Sharma, Kailash Chandra Gaur, Pawan Kumar Gaur never carried any business in the property admeasuring 4477 square yards and it was the tenant which alone carried on the business in the premises. The father of the 1st petitioner representing M/s Modern Wire and Allied Products took the premises along with plant and machinery, infrastructure on lease on 15.12.2003. Thus, father of 1st petitioner was to pay rent of Rs.2.00 lakhs per month. After the expiry of the lease, H.P.Sharma Processors got issued a legal notice on 12.6.2007 to vacate the premises together with plant and machinery in as is where is basis along with all infrastructure. The proprietor of H.P.Sharma Processors repaid the amount to father of 1st petitioner and his brother and as such father of 1st petitioner and Rakesh Gaur retired from the partnership ﬁrm w.e.f. 30.9.2007. Thus, H.P.Sharma Processors continued as a proprietary concern. R4 came to know that father of 1st petitioner and his brother representing the partnership ﬁrm which stood dissolved w.e.f. 30.9.2007 executed sale deed on behalf of the partnership ﬁrm in respect of land admeasuring 4477 square yards in favour of 1st petitioner who is no other than the son of Kailash Chand Gaur. R4 ﬁled O.P.No.728 of 2008 on the ﬁle of I Additional District Judge, R.R. District invoking arbitration clause in the partnership deed and the said O.P. is pending for adjudication. R4 also lodged a report before the Station House Oﬃcer, Rajendra Nagar Police Station and a case in Crime No.1024 of 2008 is pending investigation under sections 383, 386, 420, 406 and 506 r/w 120-B IPC against the petitioners and others for perpetuating fraud. When the writ petition came up for admission hearing, with the consent of learned counsel for the parties, it is taken up for final disposal. Heard Sri.Srinivas, learned Senior Counsel appearing for the petitioners and learned Counsel appearing for R1 and R2 and learned counsel appearing for R3 and R4. Learned Senior Counsel appearing for the petitioners submits that since R1 and R2 had initiated proceedings under section 13(2) of Act, 2002 against the property owned by the petitioners, they are entitled to approach the Court invoking the jurisdiction under Article 226 of the Constitution with a prayer to declare that the notice under section 13(2) of the Act, 2002 is illegal and void. He would further contend that as on the date of initiation of the proceedings against the property under the Act, 2002, R4 is no more the owner in view of the registered sale deeds dated 9.1.2008 wherein H.P. Sharma ﬁgured as an attesting witness. Learned Senior Counsel urged that R4 has no title to the property as on the date of initiation of proceedings under the Act, 2002, and in which case the bank would not be in a position to transfer the property to third party as required under section 13(6) of the Act, 2002. It is strenuously contended by learned Senior Counsel that 3rd petitioner continued to be in occupation of the premises as a lessee and unless R3 is legally evicted from the premises, the question of R1 and R2 taking possession consequent to any order to be passed under section 13(4) of the Act does not arise. Various other contentions have been advanced by learned Senior Counsel to assert that the 3rd petitioner parted a considerable amount of Rs.178.00 lakhs to clear the dues of R3 and R4 and thereby the properties mortgaged to Vijaya Bank came to be released and thereafter the property was brought into the partnership concern and consequent on H.P.Sharma retiring from the partnership concern leaving the property with the other two surviving partners of the ﬁrm and thus whatever rights H.P.Sharma had over the property stood vested with the two surviving partners. He would further contend that the property came to be acquired by the 1st petitioner under registered sale deeds dated 9.1.2008. In support of his submissions, reliance has been placed on the decisions of Supreme Court in PRESTIGE LIGHTS LTD. STATE BANK OF INDIA [1], decision of Gujarat High Court in SHOKLINGAM KAPPUSWAMI MUDLIYAR V. INDIAN BANK AND OTHERS[2], and the decision of Calcutta High Court in Manager, UCO Bank v. SAMAR SARKAR[3]. Learned Standing Counsel appearing for R1 and R2 submits that retirement deeds pressed into service by the petitioners cannot be looked into as there was no public notice as contemplated under section 72 of the Partnership Act. He would also submit that H.P.Sharma Processors, a proprietary concern, deposited title deeds in respect of the properties owned by him as a security for the loan and as on the date of deposit of title deeds he was the owner and possessor of the property and even if any documents are executed in favour of petitioners subsequent to the creating of charge, they do not eﬀect the right of R1 and R2 to initiate proceedings under Act, 2002. It is also contended by him that the retirement deed under which H.P.Sharma allegedly relinquished his rights over the immovable property cannot be looked into as the same being unregistered and unstamped. Learned counsel took me to Section 2(10) of the Stamp Act to buttress his submission. He placed reliance on the decisions of our High Court in ASHOK SHARDA v. SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA[4], PUNJAB AND SIND BANK V. RATAN STEEL COMPANY [5] and a decision of Karnataka High Court in HUTCHISON ESSAR SOUTH LTD. V. UNION BANK OF INDIA[6] to buttress his submissions. Learned counsel appearing for R3 and R4 submits that R4 has already invoked the arbitration clause for adjudication of disputes in respect of partnership ﬁrm and ﬁled O.P. for appointment of an arbitrator. He would further contend that 4th respondent ﬁled a criminal case for the fraud played by the petitioners and the same is under investigation. The petitioners claim the property which has been mortgaged to R1 and R2 on the basis of the sale deeds said to have been executed on 09.01.2008. It is also their contention that prior to the execution of the sale deed, 3rd petitioner came to be in occupation of the premises as a lessee. The principal contention of the petitioners is that as on the date of R1 and R2 initiating proceedings under the Act, 2002, 4th petitioner lost title over it and therefore notice issued under section 13(2) of the Act, 2002 is null and void. Indisputably 4th respondent purchased the property against which proceedings have been initiated under the provisions of Act, 2002. The original documents are deposited by R4 with R1 and R2 as a security for the loan. Consequent on the loan availed by R3 being treated as NPA (Non performing assets), proceedings have been initiated by R1 and R2 under Act, 2002. The constitutional validity of Section 14 of Act, 2002 has also been upheld by this court in W.P.No.26663 and 27553 of 2005 (M/s SIDDHI VINAYAKA HOTELS (P) LTD V UNION OF INDIA). The relevant portion of that judgment are extracted below: “ An analysis of the above reproduced provisions show that by virtue of non-obstante clause contained in sub-section (1) of section 13 any security interest created in favour of any secured creditor may be enforced without the intervention of the court or tribunal. In terms of sub-section (2) the secured creditor can issue notice to the borrower requiring the latter to discharge his liabilities within sixty days from the date of notice. Such notice is required to be delivered in accordance with Rule 3 of the Rules. On receipt of notice issued under sub-section (2), the borrower can make a representation or raise objection against the demand. The secured creditor is required to consider such representation or objection. If it is found that the representation or objection is not acceptable or tenable, then the secured creditor is duty bound to communicate the reasons for non-acceptance to the borrower. If the borrower fails to discharge his liability in full within a period of sixty days specified in sub-section (2), the secured creditor can take recourse to one or the other mode as specified in sub-section (4 ). One of the modes is to take over the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realizing the secured asset. The secured creditor can also appoint any person to manage the secured assets of which possession has been taken over. Any person who may have acquired any of the secured assets from the borrower can also be called upon to pay such sum of money as may be suﬃcient to pay the secured debt. Section 14 (1) lays down that where the possession of any secured asset is required to be taken by the secured creditor or if any of the secured asset is required to be sold or transferred by the secured creditor, then he may, for the purpose of taking possession or control of any such secured asset make an application in writing to the Chief metropolitan Magistrate or the District Magistrate within whose jurisdiction any such secured asset or other documents relating thereto is situated or is found for taking possession thereof. On receipt of such request, the Chief metropolitan Magistrate or as the case may be, the District Magistrate shall take possession of the asset or document and forward the same to the secured creditor. Sub-section (2) of Section 14 empowers the Chief Metropolitan magistrate or the District Magistrate to take appropriate steps or use, or cause to be used, such force, as may be necessary for taking possession of secured assets and documents relating thereto. Sub-section (3) of Section 14 declares that any action taken by the Chief Metropolitan Magistrate or the District magistrate under Section 14 shall not be called in question by any court or before any authority. Section 17 which is captioned as "right to appeal" lays down that any person (including the borrower) aggrieved by any of the measures taken under sub- section (4) of Section 13 by the secured creditor or his authorized oﬃcer can make an application to the Debts Recovery Tribunal within forty ﬁve days from the date of taking of such measures. Under sub-section (2)of Section 17 the Debts Recovery Tribunal is required to consider whether any of the measures taken by the secured creditor under sub-section (4) of Section 13 for enforcement of security is in accordance with the provisions of the Act and rules made there under. If the Tribunal comes to the conclusion that such measure is not in accordance with the provisions of the Securitisation Act and the Rules, then it may require restoration of management of business to the borrower or restoration of possession of the secured assets and declare that the action taken by the secured creditor is invalid. The Tribunal can pass any other appropriate order in regard to the steps taken by the secured creditor under Section 13 (4 ). If the Tribunal declares that the action taken by the secured creditor is in consonance with sub-section (4) of Section 13 then such creditor can take recourse to one or more of the modes mentioned in Section 13 for the purpose of recovery of secured debts. A conjoint reading of Section 13 (4) and 14 makes it clear that the source of power to take possession of the secured assets of the borrower can be traced in section 13 (4) and not under Section 14, which has been enacted as an aid for execution of the decision taken by the secured creditors to take possession of the secured assets or documents. To put it diﬀerently the substantive provision entitling the secured creditor to take possession of the secured assets is contained in Section 13 (4)