FA/3277/2004 1/10 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD FIRST APPEAL No. 3277 of 2004 with CIVIL APPLICATION NO. 10138 OF 2004 For Approval and Signature: HONOURABLE MR.JUSTICE R.S.GARG HONOURABLE MR.JUSTICE K.M.MEHTA ============================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ============================================================== TOURISMFINANACECORPORATIONOFINDIALIMITED – Appellant(s) Versus DECORAPLYWOOD & 1 – Defendant(s) ============================================================== Appearance : MS PP LAHERI for Appellant(s) : 1, MR DHARMESH V SHAH for Defendant(s) : 1, MR LALIT M PATEL for Defendant(s) : 1, MR HARMISH K SHAH for Defendant(s) : 2, ================================================================== CORAM : HONOURABLE MR.JUSTICE R.S.GARG and HONOURABLE MR.JUSTICE K.M.MEHTA FA/3277/2004 2/10 JUDGMENT Date : 03/10/2005 ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE R.S.GARG) Rule. With the consent of the parties, the matter is finally heard. 2. This is an appeal under Section 96 read with Order XXI Rule 58 of the Code of Civil Procedure, 1908 (for short “the CPC”) against the judgement/order dated 18.8.2004 passed by the City Civil Judge (Senior Division), Gandhinagar, rejecting the appellant's Notice of Motion/Third Party Objections filed in Darkhast No. 8 of 2003 in execution of a decree dated 3.1.2003 in Summary Suit No. 3860 of 2002 and permitting respondent No. 1/decree holder M/s. Decora Plywood to take further steps for execution of Jangam Warrant issued earlier in the execution proceedings. 3. The facts necessary for disposal of the present appeal are that the appellant Tourism Finance Corporation of India Limited, is Public Limited Company incorporated under the provisions of the Companies Act, 1956, the appellant has been declared as Financial Institution and in its capacity as such it had extended certain loan FA/3277/2004 3/10 JUDGMENT facility to respondent No. 2, namely, Saffrony Entertainment Technology Ltd., the loan facility was to the tune of Rs. 4 crores under the agreement dated 20.10.2000. Certain other loan facilities were also provided to the present respondent No. 2 by Central Bank of India and Bank of Baroda for amount of Rs. 2.5 crores and 2 crores respectively. Against grant of the aforesaid financial facilities/benefits by the present appellant, respondent No. 2 had executed various documents in favour of the appellant which include Deed of hypothecation dated 20.10.2000, mortgage of immovable properties of respondent No. 2 and personal guarantees dated 20.10.2000 executed by the Directors of respondent No. 2. According to the appellant, the Deed of hypothecation was executed in favour of the appellant creating first charge of the appellant pari passu with Central Bank of India and Bank of Baroda. According to the appellant, the charge of hypothecation created in favour of the appellant is duly registered with the Registrar of Companies by Form No. 8 and Form No. 13 both dated 23.11.2000 having registration No. 04-36483 and 04-36493. According to the appellant, respondent No. 2 failed to comply with the terms and conditions on which the aforesaid financial facilities were sanctioned by the appellant, therefore, in view of FA/3277/2004 4/10 JUDGMENT the defaults committed by respondent No. 2, the appellant issued a recall notice dated 13.1.2004 to respondent No. 2. It is also the case of the appellant that on 12.10.2004 a notice was issued under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. Under the said notice, the appellant called upon respondent No. 2 to pay aggregated sum of Rs. 5,57,82,862/- due as on 15.1.2004. 4. On 19.11.2002, respondent No. 1 M/s. Decora Plywood filed Summary Suit No. 3860 of 2002 before the trial Court for recovery of an amount of Rs. 7,23,666/- with further interest at the rate of 18% per annum from 17.11.2002 till actual payment etc. The City Civil Court granted decree in the sum of Rs. 7,16,432/- with interest in favour of respondent No. 2 vide its judgement and order dated 3.1.2003. In view of the said judgement and decree, respondent No. 1 initiated execution proceedings in the trial Court being Darkhast No. 8 of 2003. The trial Court issued notice on the Jangam Warrant dated 6.2.2003. According to the appellant, the said warrant includes Blue Star A.C. Machine Model No. GS 83B T-50B S.No. 901867 dated -2001 K-380/415 P.H.3 HZ-50 RLA 207 FA/3277/2004 5/10 JUDGMENT SW 975, in execution of the warrant, the bailiff took possession of the said Air Conditioning machine. The appellant after it came to know about all these facts, submitted his objection under Order XXI Rule 58 of the CPC before the trial Court. It was submitted that as the hypothecation agreement was made in favour of the appellant and as the appellant held first charge over the property pari passu with other two banks, the property could not be attached nor can be sold in execution of the decree. 5. The decree holder resisted the application and submitted that the charge was not duly created, it was not properly registered, the hypothecation Deed was not in accordance with law, it was not admissible in evidence, it was not duly and properly stamped. It was also submitted that no hypothecation could be created in relation to the property which was to be purchased in future. After hearing the parties, the learned trial Court without entering into any of the legal questions or without appreciating any factual aspect, rejected the objections observing that as the Air Conditioning machine was purchased after execution of the hypothecation Deed, the objections were not maintainable. Being aggrieved by FA/3277/2004 6/10 JUDGMENT the rejection of the objections, the appellant objector is before this Court. 6. The learned counsel for the appellant submits that as Order XXI Rule 58 is a complete Code in itself and provides a complete procedure, the Court below could not adopt a slipshod approach and reject the objection without appreciating any reasons. It is also submitted that the order passed by the Court below is cavalier, cryptic and does not take into consideration any of the questions raised by the parties. 7. The learned counsel for respondent No. 1/Decree holder submits that the learned trial Court was justified in rejecting the objection especially when it found that the property was purchased much after execution of the hypothecation Deed. 8. Order XXI Rule 58 of the CPC provides where any claim is preferred to, or any objection is made to the attachment of, any property attached in execution of a decree on the ground that such property is not liable to , the Court shall proceed to adjudicate upon the claim or objection in accordance with the provisions as FA/3277/2004 7/10 JUDGMENT contained in Rule 58 of Order XXI. Sub-rule (2) provides that all questions including questions relating to right, title or interest in the property attached, arising between the parties to a proceeding or their representatives under Rule 58 and relevant to the adjudication of the claim or objection, shall be determined by the Court dealing with the claim or objection and not by a separate suit. Sub-rule (3) provides that after determination of the questions referred to in sub-rule (2), the Court may allow claim or objection and release the property from attachment either wholly or in part; disallow the claim or objection, continue the attachment subject to any mortgage, charge of other interest in favour of any person; pass such order as in the circumstances of the case it deems fit. Under sub-rule (4) any order made after adjudication can be challenged in appeal as if the order is a decree. Sub-rule (5) provides that where a claim or an objection is preferred and the Court, under the proviso to sub-rule (1) refuses to entertain it, the party against whom such order is made, may institute a suit to establish the right which he claims to the property. 9. When a Court entertains an objection and proceeds to decide the same then such an order can always be FA/3277/2004 8/10 JUDGMENT subjected to an appeal. In a given case the Court may say that it would not entertain the objection and leave the party to file a suit but the Court is not allowed to entertain the objection and reject the same summarily by saying that the objections are not maintainable. In the present case the Court below entertained the objections, therefore, a suit cannot be filed but at the same time without entering into process of adjudication or enquiry, the Court below rejected the objection by saying that the property under attachment was purchased subsequent to execution of the hypothecation Deed. We are not commenting upon the findings recorded by the Court below, we are commenting upon the manner in which the Court below has decided the objections. The Court below should have made an inquiry that whether the fact asserted by the appellant was correct and whether the objection raised by the decree holder could be allowed. The Court below was required to enter into arena of facts and thereafter was to decide the legality of the terms that the hypothecation agreement shall continue to affect the movable properties to be purchased in future. Whether such a term would be valid or not and whether that term/covenant would create any right in favour of the person extending loan will have to be decided by the FA/3277/2004 9/10 JUDGMENT Court concerned. The Court could not say that the property was purchased subsequent to making of hypothecation, therefore, the objections were not maintainable. In our considered opinion, the Court below failed in discharging its duties and also failed in observing the terms as provided under Rule 58 of Order XXI. 10. The order passed by the Court below deserves to and is accordingly set aside. The matter is remitted to the Court concerned with the direction to dispose of the matter in accordance with law and the observations as aforesaid preferably within a period of two months from the date of appearance of the parties because the property under attachment is deteriorating every day and losing its value. Early disposal of the objections would protect the interest of all concerned. The parties present in the Court shall appear before the learned Court below on 14.10.2005. Direct service is permitted. No order as to costs. 11. It also goes without saying that if other banks/bank have/has filed some objections against attachment then the said objections shall also be decided simultaneously. It is expected of the parties that they shall co-operate in the early disposal of the matter. FA/3277/2004 10/10 JUDGMENT 12. In view of the disposal of the First Appeal, the Civil Application stands disposed of. (R.S. GARG, J) (K.M. MEHTA, J) (pkn)