WPC 13152/2009 & 5317/2010 Page 1 of 24 * IN THE HIGH COURT OF DELHI AT NEW DELHI + W.P.(C) Nos. 13152/2009 & 5317/2010 % Reserved on: 07th October, 2010 Pronounced on: 1st November, 2010 1. W.P.(C) No.13152/2009 M/S. RAM MURTY PYARA LAL & ORS. .... Petitioners Through: Mr. Sudhir Nandrajog, Senior Advocate with Mr. Rohit Nagpal & Ms. Sahila Lamba,Advocates. VERSUS CENTRAL BANK OF INDIA AND OTHERS ....Respondents Through: Mr. Jaswinder Singh, Advocate for R-1. Mr. Jayant Bhushan, Sr. Advocate with Mr. C.Mohan Rao & Mr. Lokesh Kumar, Advocates for R-2 to R-5. 2. W.P.(C) No. 5317/2010 M/S. PRAGATI BUILDERS AND PROMOTERS & ORS. .... Petitioners Through: Mr. Jayant Bhushan, Sr. Advocate with Mr. C.Mohan Rao and Mr. Lokesh Kumar, Advocates VERSUS M/S. RAM MURTY PYARA LAL & ORS. ....Respondents Through: Mr. Sudhir Nandrajog, Sr. Advocate with Mr. Rohit Nagpal and Ms. Sahila Lamba, Advocates for R-1 to R-3 Mr. Jaswinder Singh, Adv. for R- 4. WPC 13152/2009 & 5317/2010 Page 2 of 24 CORAM: HON’BLE MR. JUSTICE SANJAY KISHAN KAUL HON’BLE MR. JUSTICE VALMIKI J.MEHTA 1. Whether the Reporters of local papers may be allowed to see the judgment? Yes 2. To be referred to the Reporter or not? Yes 3. Whether the judgment should be reported in the Digest? Yes JUDGMENT VALMIKI J. MEHTA, J W.P.(C) No.13152/2009 1. The petitioners by means of the present petition under Article 226 of the Constitution of India impugn the order dated 18.9.2009 passed by the Debt Recovery Appellate Tribunal (DRAT). By the impugned order, DRAT dismissed the appeal of the present petitioners filed against the order dated 4.3.2008 passed by the Debt Recovery Tribunal (DRT). By the impugned orders the DRT and the DRAT have rejected the prayer of the petitioners-borrowers seeking redemption of the mortgaged property on the ground that the auction purchase stood concluded and the stage for exercising the option of redemption had come to an end. 2. The facts of the case are that the petitioners as the borrowers availed of financial limits from the respondent No.1 herein Central Bank of India. On account of default of the petitioners in WPC 13152/2009 & 5317/2010 Page 3 of 24 payment of the dues, the respondent No.1 bank exercised its rights under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). Auction of property took place on 11.6.2005 after the petitioners failed to comply with the notice of demand issued under Section 13(2) of the SARFAESI Act. Respondent Nos.2 to 5 were the successful auction purchasers. It was only after about two and half years in November, 2007 that the petitioners made an application for seeking redemption of the mortgaged property by seeking to pay the outstanding dues. Applications were filed before the DRT in November, 2007 and January, 2008 and which were dismissed by the DRT vide its order dated 4.3.2008 and which order was confirmed by the DRAT by the impugned order dated 18.9.2009. 3. The respondent No.1 bank and the auction purchasers have disputed the prayer of the petitioners. The respondent No.1 bank argued that the objections filed by the petitioners to the notice under Section 13(2) were after the expiry of the statutory period and the reply was antedated to 9.11.2004 and which was received by the bank on 10.11.2004 i.e. after the statutory period of sixty days of service of the notice under Section 13(2) of the SARFAESI Act on 9.9.2004. It has also been argued by the respondent No.1 bank and the auction purchasers respondent Nos.2 to 5 that the petitioners did their utmost and used all malafide tactics to stall the sale of the mortgaged property. It is argued that the petitioners falsely set up two separate WPC 13152/2009 & 5317/2010 Page 4 of 24 tenancies claiming statutory protection under the Delhi Rent Control Act, 1958. One tenancy was claimed in favour of Smt. Shruti Aggarwal (sister-in-law) in respect of ground floor on monthly rent of Rs.2500/- (i.e. less than the statutory limit of Rs.3500/-) under the Delhi Rent Control Act, 1958. The second tenancy was in respect of the first floor in favour of Sh. Harish Aggarwal (father-in-law) on a monthly rent of Rs.2800/-. These persons filed suit in the original side of this Hon‟ble Court and this Court granted interim order against dispossession which continued till 23.12.2009. The suit also came to be dismissed by the learned Single Judge on 23.12.2009 recording that the suit is a collusive one between the borrowers and the purported tenants. In the suit, Local Commissioner was appointed to find out the actual persons in possession and the Local Commissioner reported that it is in fact the borrowers who were in physical possession of the property and that belongings in the cupboard were of Sh. Amit Aggarwal and the books lying in the premises were of Ms. Kavya daughter of Sh. Amit Aggarwal. It is argued that the malafides of the borrowers and the purported tenants became clear from the fact that lease deeds were on stamp papers dated 1.9.1998 but the licence was granted to the stamp vendor one Mr. Ramesh Chand only on 31.3.1999. After dismissal of the suit, the purported tenants filed an S.A. before the DRT under Section 17 of the SARFAESI Act and which also was dismissed by the DRT on 29.1.2010 holding the tenancies to be not bonafide. WPC 13152/2009 & 5317/2010 Page 5 of 24 4. The petitioners, thereafter, filed S.A. under Section 17 of the SARFAESI Act before the DRT. Various grounds of challenge have been laid by the petitioners for challenging the auction sale proceedings. One ground was that the equitable mortgage was not an equitable mortgage because the title deeds were only given to the bank to show credit worthiness. Another ground is that the reply to the objections filed under Section 13(3A) were not given within a period of one month and that further proceedings could have been taken under Section 13(4) of the SARFAESI Act. The plea of tenancy in favour of Smt. Shruti Aggarwal and Sh. Harish Aggarwal was also taken that the leases were created in the year 1998 before the alleged mortgage of the property. Pleas of violation of the provisions of SARFAESI Act and the Rules framed thereunder were also taken with respect to notices not having been issued to the petitioners and not published as required. Other defences have also been raised. This petition was opposed by the respondent No.1 bank and the auction purchasers and the issues pleaded by the petitioners were denied. The bank inter-alia pleaded that the petition was barred by time as it was filed beyond the period of 45 days of the action having been taken under Section 13(4) of the SARFAESI Act. The auction purchasers also opposed the S.A. by disputing the case as set up by the petitioners under Section 17. This petition was ultimately dismissed by the DRT vide its order dated 24.5.2010 and appeal against the said order of the DRT is pending before the DRAT. The WPC 13152/2009 & 5317/2010 Page 6 of 24 DRAT, vide its order dated 23.7.2010 stayed further proceedings under the SARFAESI Act subject to the petitioners herein depositing 50% of the amount shown to be due in the notice under Section 13(2) of the Act. That order has been challenged by the respondent Nos.2 to 5 herein in W.P.(C) No.5317/2010 which has also been heard by us alongwith the present petition and is being disposed of alongwith the present writ petition. 5. The main issue which is called for decision in the present petition is the stage till which the right of redemption can be exercised over the mortgaged property. The contention of the respondents herein is that as per Section 13(8) of the SARFAESI Act, the stage for exercise of redemption is only till the date fixed for sale/transfer under Section and not 13(8) and not thereafter. Section 13(8) reads as under: “Section 13. Enforcement of security interest.-(8) If the dues of the secured creditor together with all costs, charges and expenses incurred by him are tendered to the secured creditor at any time before the date fixed for sale or transfer, the secured asset shall not be sold or transferred by the secured creditor, and no further step shall be taken by him for transfer or sale of that secured asset.” (emphasis added) On the other hand, on behalf of the petitioners, the right of redemption was claimed in terms of the relevant provisions of the Transfer of Property Act and also certain provisions of order 21 of the Code of Civil Procedure, 1908 (CPC). Reliance was placed on various judgments of the Supreme Court under the Transfer of Property Act & CPC in support of the plea of the right of redemption. WPC 13152/2009 & 5317/2010 Page 7 of 24 6. The arguments in this case were concluded on 22.9.2010. However, on reading of certain provisions of the SARFAESI Act, more particularly sub-sections (2) to (4) of Section 17, there seemed to emerge a position as to the lack of finality of the auction sale and the consequent right to redemption until the disposal of the S.A. filed by the petitioners under Section 17 of the SARFAESI Act. There also seemed to emerge a position that there is an automatic stay of proceedings under Section 13 (4) on filing of an S.A under Section 17 and consequently of Section 13 (8) not coming into play entitling a right of redemption of the mortgaged property including of auction sale since S.A. under Section 17 was still pending. The matter was therefore listed for directions on 27.9.2010 and on which date as also on 4.10.2010, we further heard the counsel for the parties. The parties were also directed to file their written submissions and the matter ultimately came to be reserved on 7.10.2010. 7. Sub-sections (2) to (4) of Section 17 read as under: “Section 17. Right to appeal.-(2) The Debts Recovery Tribunal shall consider whether any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor for enforcement of security are in accordance with the provisions of this Act and the rules made thereudner. (3) If, the Debts Recovery Tribunal, after examining the facts and circumstances of the case and evidence produced by the parties, comes to the conclusion that any of the measures referred to in sub-section (4) of Section 13, taken by the secured creditor are not in accordance with the provisions of this Act and the rules made thereunder, and require restoration of the management of WPC 13152/2009 & 5317/2010 Page 8 of 24 the secured assets to the borrower or restoration of possession of the secured assets to the borrower, it may by order, declare the recourse to any one or more measures referred to in-sub-section (4) of section 13 taken by the secured assets as invalid and restore the possession of the secured assets to the borrower or restore the management of the secured assets to the borrower, as the case may be, and pass such order as it may consider appropriate and necessary in relation to any of the recourse taken by the secured creditor under sub- section (4) of section 13. (4) If, the Debts Recovery Tribunal declares the recourse taken by a secured creditor under sub-section (4) of section 13, is in accordance with the provisions of this Act and the rules made thereunder, then, notwithstanding anything contained in any other law for the time being in force, the secured creditor shall be entitled to take recourse to one or more of the measures specified under sub-section (4) of section 13 to recover his secured debt.” (Emphasis added) 8. The first aspect is whether the provisions of the Transfer of Property Act, including Sections 60 and 69, will apply or whether the provisions of the SARFAESI Act will apply with respect to redemption. 9. To this aspect we have no doubt in our minds that the provisions of the SARFAESI Act will apply because the said Act is a special Act dealing with respective rights and obligations with respect to proceedings to be taken thereunder. It is trite that a special legislation will prevail over a general legislation. We need not burden our judgment with case laws on this point and which indeed are legion. The provisions of the SARFAESI Act will therefore prevail in case of any conflict and inconsistency of any provision therein with any provisions of the Transfer of Property Act and the CPC. That being so, various judgments which have been cited on behalf of the petitioners under the WPC 13152/2009 & 5317/2010 Page 9 of 24 provisions of the Transfer of Property Act and the CPC would not apply at all. We are, therefore, not referring to those judgments and distinguishing them individually. 10. We have already reproduced the provisions of Section 13(8) and Section 17 sub sections (2) to (4) above. Section 13 sub section (8) in plain language provides that no steps with regard to the transfer or sale of secured assets can take place if dues of the secured creditors together with cost charges and expenses incurred are tendered to the secured creditor at any time before the date fixed for sale/transfer. However, sub sections (2) to (4) of Section 17 provide that the DRT in the proceedings under Section 17 has the right to declare whether the action of the secured creditor taken under Section 13(4) is or is not in accordance with the provisions of the SARFAESI Act. In case, the DRT comes to the conclusion that the action taken by the secured creditor is not in accordance with the provisions of the SARFAESI Act and the rules framed thereunder, then, by virtue of sub section (3), DRT can declare the actions taken pursuant to Section 13(4) as invalid and pass necessary orders including of cancellation of the auction sale proceedings and restoring the possession of the secured asset to the borrower. Thus, a conjoint reading of the provisions of Section 13(8) on one hand and sub sections (2) to (4) of Section 17 on the other hand, bring out the position that although the right of redemption is to be ordinarily exercised before the date fixed for sale of transfer, however, even if the auction sale proceedings take place but in case the WPC 13152/2009 & 5317/2010 Page 10 of 24 borrower succeeds in the S.A. under Section 17, the auction sale proceedings can be cancelled and since fresh auction sale may have to be conducted the right of redemption can again be exercised at that stage when a fresh date will be fixed for sale/transfer. There is a vital difference in this legal position and the legal position which emerges under the provisions of Order 21 of the CPC. Whereas under relevant rules and sub rules of Order 21 of CPC, and as interpreted by the Supreme Court, even if a decree is set aside a bonafide purchaser for value at an auction sale proceedings gets a complete title in case he purchases the property without any notice of any dispute or claims with respect to the auctioned property, however under the SARFAESI Act, the DRT has complete powers under the provisions of sub sections (2) to (4) of Section 17 to set aside the auction sale and restore back the possession of the secured asset to the borrower. Clearly, therefore, the auction sale proceedings are not final under the SARFAESI Act unless the S.A. of the borrower under Section 17 is decided. A purchaser at an auction sale cannot claim title merely because the auction sale proceedings for concluded in his favour and a necessary sale certificate issued as the same as per sub- sections (2) to (4) of Section 17 is subject to final decision on an S.A filed under Section 17. However, auction sale and steps under Section 13(4) can continue unless the applicant in the S.A. under Section 17 takes appropriate interim orders. WPC 13152/2009 & 5317/2010 Page 11 of 24 11. This very issue, namely, whether auction sale proceedings can go on in spite of an S.A. filed by the borrower under Section 17 was decided by a Full Bench of the Madras High Court in the judgment reported as Lakshmi Shankar Mills (P) Ltd. Vs. Authorised Officer, Indian Bank (FB) AIR 2008 Madras 181. Speaking for the Full Bench, A.P.Shah, CJ held that it is the duty of the borrower to obtain stay of auction sale proceedings in a petition under Section 17 and in case of failure to obtain stay of the auction sale proceedings, the auction sale proceedings can go on and be concluded. The four questions were framed by the Full Bench in the case of Lakshmi Shankar Mills (P) Ltd. for being answered read as under:- “ (i) Whether even where no stay is prayed for by the Borrower, during pendency of the proceedings under Section 17 before the Debt Recovery Tribunal, the Secured Creditor can proceed to auction the secured asset even before a declaration envisaged under Section 17(4) of the SARFAESI Act as made by the Debt Recovery Tribunal? (ii) Whether for granting any stay of auction, the Debt Recovery Tribunal can impose any condition relating to deposit? (iii) Whether, even before finalisation of the proceedings under Section 17 of the SARFAESI Act, the Debt Recovery Appellate Tribunal has any incidental or ancillary power to pass any interim order relating to restoration of possession or restoration of management, subject to imposition of any reasonable condition as deemed fit and proper? (iv) What is the scope of enquiry under Section 17 of the SARFAESI Act and whether the merits of the contentions raised by the borrower can be decided while dealing with the question relating to validity of the action taken by the Bank under Section 13 of the Act?” WPC 13152/2009 & 5317/2010 Page 12 of 24 12. With regard to question no.(i) above, the Full Bench in the case of Lakshmi Shankar Mills (P) Ltd. (supra) held that there is nothing in Section 17 of the Securitization Act which would indicate that the legislature intended that there would be automatic stay of the proceedings under Section 13(4) on filing of an application under Section 17. On question no. (ii), it was held that a Tribunal while granting stay of auction can impose a condition relating to deposit of monies by the applicant under Section 17. The relevant paragraphs with regard to these questions which have been answered by the Full Bench are paragraphs 10 to 17, and with which we agree, read as under:- “10. The first question is whether the right of the bank to take proceedings under Section 13(4) shall remain suspended on filing an application under Section 17. The second question concerns the jurisdiction of the Debt Recovery Tribunal to impose a condition of deposit for grant of stay of auction. Section 13(4) of the Securitisation Act is pivotal to the whole controversy. It provides that a secured creditor may enforce any security interest without intervention of the court or tribunal irrespective of Section 69 or Section 69-A of the Transfer of Property Act where according to Sub-section (2) of Section 13 the borrower is a defaulter in repayment of the secured debt or any instalment of repayment and further the debt standing against him has been classified as a non-performing asset by the secured creditor. Sub-section (2) of Section 13 further provides that before taking any steps in the direction of realizing the dues, the secured creditor must serve a notice in writing to the borrower requiring him to discharge the liabilities within a period of 60 days failing which the secured creditor would be entitled to take any of the measures as provided in Sub- section (4) of Section 13. Sub-section (4) of Section 13 provides for four measures which can be taken by the secured creditor in case of non-compliance with the notice served upon the borrower namely, (a) to take possession of the secured assets including the right to transfer the secured WPC 13152/2009 & 5317/2010 Page 13 of 24 assets by way of lease, assignment or sale; (b) to take over the management of the secured assets including the right to transfer; (c) to appoint a manager to manage the secured assets which have been taken possession of by the secured creditor; and (d) to require any person who had acquired any secured assets from the borrower or from whom any money is due to the borrower to pay the same as it may be sufficient to pay the secured debt. Sub-section 3-A, which has been inserted by the amendment, provides that 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 representation or objection to the borrower. The proviso to Sub-section 3-A provides 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 17-A. In Mardia Chemical's case, the Supreme Court has clearly held that such right accrues only if measures are taken under Sub-section (4) of Section 13 of the Securitisation Act (para.48 SCC page 348). Therefore, only if one or other measure is taken by the secured creditor, a cause of action arises for any person or borrower to prefer an application under Section 17 of the Securitisation Act. 11. Under Sub-section (1) of Section 17 any person aggrieved by any of the measures referred to in Sub-section (4) of Section 13 taken by the secured creditor can prefer an appeal (application) to the Debts Recovery Tribunal within 45 days from the date on which such measures had been taken. Under Sub-section (2) of Section 17, the Tribunal is bound to consider whether any of the measures referred to under Sub- section (4) of Section 13 taken by the secured creditors are in accordance with the provisions of the Act. Under Sub-section (3) of Section 17, after examining the facts and circumstances of the case, and evidence produced by the parties, if the Tribunal comes to the conclusion that any of the measures referred to in Sub-section (4) of Section 13 taken by the secured creditor are not in accordance with the provisions of the Act and the rules, and require restoration of the management of the business or restoration of possession of the secured assets to the borrower, it may declare such WPC 13152/2009 & 5317/2010 Page 14 of 24 action as invalid and restore possession of the secured assets to the borrower or restore the management of the business to the borrower, as the case may be. As a necessary corollary, Sub-section (4) of Section 17 provides that if the Tribunal declares that the recourse taken by the secured creditor under Sub-section (4) of Section 13 was in accordance with the provisions of the Act and the rules made thereunder, then, notwithstanding anything contained in the Act or any other law for the time being in force, the secured creditor shall be entitled to take recourse to one or more of the measures specified under Sub-section (4) of Section 13 to recover his secured debt. 12. On a plain reading of Section 17, it is seen that the Tribunal has wide powers to restore possession in favour of the borrower, if such action taken under Sub-section (4) of Section 13 is declared invalid. Even where the property is