THE HON'BLE SRI JUSTICE P.S.NARAYANA Writ Petition Nos.6846 and 17527 of 2007 Date: December, 2007 Between :- W.P.No.6846/2007 S.Ravi Kanth .. Petitioner And The A.P.Mahesh Cooperative Urban Bank Ltd., Regd.Office 5-3-89, III Floor, N.S.Road, Hyderabad, rep. by its Authorized Officer, Under Securitisation Act, 2002 (Central Act 54 of 2002) and 3 others .. Respondents W.P.No.17527 of 2007 M/s.Shila Homes, a partnership firm Rep. by its Managing Partner Mr.PVSN Murthy, Having registered Office at 6-5-563/A2, Erramanzil, Hyderabad – 82 .. Petitioner And The A.P.Mahesh Cooperative Urban Bank Ltd., Regd.Office 5-3-89, III Floor, N.S.Road, Hyderabad, rep. by its Authorized Officer. .. Respondent THE HON'BLE SRI JUSTICE P.S.NARAYANA Writ Petition Nos.6846 and 17527 of 2007 COMMON ORDER:- Heard Sri K.V.Simhadri and Smt.Vedavani, the Counsel representing the writ petitioners in these Writ Petitions and also Sri Ravi Kondaveeti and Sri Y.Ramatheertha, Counsel representing the respondents. 2. W.P.No.6846/2007 is filed by one S.Ravi Kanth, praying for a Writ of Mandamus declaring the action of the A.P.Mahesh Cooperative Urban Bank Ltd., in filing the Crl.M.P.No.954/2002 under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter in short referred to as ‘the Act’ for the purpose of convenience) before the Chief Metropolitan Magistrate, Hyderabad without first issuing the mandatory notice u/s.13(4) of the Act is arbitrary, illegal and violative of the Act and also violative of principles of natural justice and consequently set aside the Order of the Chief Metropolitan Magistrate passed in Crl.M.P.No.954/2002, dt.16-3-2007 appointing an Advocate Commissioner to take over possession of the petition schedule property insofar as it concerns the petitioner’s property in Flat No.102 in 2nd Floor (Northern side) of “Murthy Mansion” admeasuring 1650 sq.ft (including balcony, car parking and common are) together with proportionate undivided share in the land measuring 49.3 sq.yds, out of the total land measuring 691 sq.yds., in the premises bearing M.C.H.No.8-3-167/D19 in Survey No.137, on Plot No.19, situated at Kalyan Nagar, Phase-I, Yousufguda, Hyderabad and pass such other suitable orders. 3. W.P.No.17527/2007 is filed by M/s.Shilpa Homes, a partnership firm, represented by its Managing Partner praying for a Writ of Mandamus declaring the action of the respondent – A.P.Mahesh Cooperative Urban Bank Ltd., in filing Crl.M.P.No.954/2002 under Section 14 of the Act without issuing the mandatory notice under Section 13(4) of the Act is arbitrary, illegal and violative of the Act and also violative of principles of natural justice and consequently set aside the order of the Chief Metropolitan Magistrate made in Crl.M.P.No.954/2002 dt.16-3-2007 and order payment of costs as per the letter dt.19-12-2006 as directed by the Debts Recovery Appellate Tribunal in RA (SERFAEASI) No.42 of 2006 and pass such other suitable orders. 4. This Court issued rule nisi in W.P.No.6846/2007 on 10-9-2007. On 5-4-2007 this Court made the following order:- “Pending further orders in the Writ Petition, there shall be stay of all further proceedings pursuant to the order dated 16-3-2007 of the learned Chief Metropolitan Magistrate, Hyderabad in Crl.M.P.No.954 of 2002, including taking possession of the property bearing Flat No.102 (Northern side), 2nd floor, Murthy Mansion and admeasuring 1650 sq.fts., together with proportionate undivided share in the land measuring 49.3sq.yards out of the total land measuring 691 sq.yds in premises bearing M.C.H. No.8-3-167/D19 in survey No.137, Plot No.19, Kalyan Nagar, Phase-I, Yousufguda, Hyderabad. Notice.” 5. It is brought to the notice of this Court that there is a connected Writ Petition and hence it was directed to list W.P.No.6846/2007 along with W.P.No.17527/2007. 6. In W.P.No.17527/2007 rule nisi was issued on 20-8- 2007 and while ordering notice in W.P.M.P.No.22430/2007 pending further orders, interim stay as prayed for had been granted. 7. M/s.Shilpa Homes, the writ petitioner in W.P.No.17527/2007, is shown as 2nd respondent in W.P.No.6846/2007. In view of the commonality of both facts and law involved in both these Writ Petitions, these Writ Petitions are being disposed of by this common order. 8. Sri Simhadri, the learned Counsel representing the writ petitioner in W.P.No.6846/2007 had taken this Court through the averments made in the affidavit filed in support of the Writ Petition, the series of events, how the petitioner purchased the property and how the notice had been affixed at the premises of the petitioner and how the property of the petitioner was not shown even in the notice. The learned Counsel traced the historical background of the litigation commencing from the arbitration proceedings and the original Award made in this regard and how the property of the petitioner was not shown and subsequent thereto how the same had been amended to include the property of the petitioner as well. The learned Counsel also while elaborating his submissions had taken this Court through the sequence of events and would maintain that the Award is nonest in the eye of law and the appeal filed by the borrowers had been allowed by the Appellate Tribunal, Chinnai. The learned Counsel also pointed out to certain other proceedings and the Orders made therein. The learned Counsel also would maintain that the Banking Institution being a Cooperative Bank, it would not fall within the meaning of the Banking Company and it is doubtful whether the provisions of the Act can be invoked in this regard. The learned Counsel also contended that notice under Section 13(4) of the Act being mandatory, without exhausting the same, Section 14 of the Act cannot be straight away invoked. Incidentally, the learned Counsel also had drawn the attention of this Court to Section 81 of the Transfer of Property Act, 1882. 9. Smt.Vedavani, the learned Counsel representing the writ petitioner in W.P.No.17527/2007 incidentally who is also shown as one of the respondents as R.2 in W.P.No.6846/2007, had explained the clear directions made by the D.R.A.T. and would maintain that those directions are not followed by the Banking Institution. The learned Counsel also contended that notice under Section 13(4) of the Act being mandatory, without exhausting the same, Section 14 of the Act cannot be straight away invoked. The learned Counsel while making elaborate submissions had drawn the attention of this Court to different provisions of the Act and also the Rules made thereunder and would maintain that not only the directions of the D.R.A.T. had not been followed by the Banking Institution in question, further the impugned proceedings are liable to be quashed since the mandatory notice under Section 13(4) of the Act had not been given before resorting to the invocation of Section 14 of the Act. 10. Sri Ravi Kondaveeti, the learned standing Counsel representing the Cooperative Bank had taken this Court through the respective pleadings of the parties and the material placed before the Court and further explained the scope and ambit of Section 13(2), Section 13(4) and Section 14 of the Act as well and placed strong reliance on the decision of the Division Bench of the Madras High Court and also the Division Bench of the Bombay High Court and would maintain that in the light of the views expressed by both the Division Benches of the Madras High Court and the Bombay High Court as well, the stand taken by the writ petitioners to be negatived and in the light of the same, the directions of D.R.A.T. would fall into insignificance. 11. Sri Ramatheertha, the learned Counsel representing R.3 and R.4 had tried to distinguish the decisions on which reliance had been placed by Sri Ravi Kondaveeti and also would emphasize that in the light of Rule 8 and also the clear provisions of Section 13(2) and Section 13(4) of the Act, it may have to be held that a Banking Institution cannot resort to Section 14 of the Act without following the procedure under Section 13(4) of the Act. The learned Counsel also pointed out to Rule 9 of the Rules and ultimately would conclude that in such circumstances, unless the procedure as ordained by the provisions of the Act and the Rules had been followed, no further proceedings can be further proceeded with. 12. Heard the Counsel and perused the material available on record. 13. In the affidavit filed in support of the Writ Petition, it is averred in W.P.No.6846/2007 that the 1st respondent – A.P.Mahesh Cooperative Urban Bank Ltd., a Multi State Cooperative Bank, a Scheduled Bank, has been carrying on business all over India and hence it is a State within the meaning of the Article 12 of the Constitution of India. While narrating the brief facts which lead to the filing of the present Writ Petition, it is averred that the petitioner had purchased Flat No.102 in 2nd floor of “Murthy Mansion” admeasuring 1650 sq.fts. (including balcony, car parking and common area) together with proportionate undivided share in the land measuring 49.3 Sq.Yds., out of the total land measuring 691 Sq.Yds., in the premises bearing M.C.H.No.8-3-167/D19 in survey No.137, on Plot No.19 situated at Kalyan Nagar, Phase-I, Yousufguda, Hyderabad from respondents 2 to 4 herein vide registered sale deed dt.28-10-2002 bearing document No.3732 of 2002 for a valuable sale consideration. It is also stated that at present the flat is in occupation of the petitioner and also stated that he had purchased the said flat by obtaining loan from ICICI Home Finance Company Ltd., and at the time of purchase, he had made reasonable enquiry with regard to the marketable title of the respondents 2 to 4 by way of obtaining Encumbrance Certificate from the office of the Sub-Registrar, Banjara Hils, Hyderabad, which showed that the same is in the name of respondents 2 to 4 and as such, there was no occasion for the petitioner to doubt their title. The petitioner also further states that the 2nd respondent had also written a letter to the ICICI Bank stating that they have sold the said flat to him, that the flat is not subject to any encumbrance, charge or liability and they have no objection for his mortgaging the said flat to the Bank by way of security for the loan obtained by him. While so, the respondents 2 to 4 herein appear to have obtained overdraft loan of Rs.50 lakhs from the 1st respondent bank by keeping certain movable and immovable properties as equitable mortgage and that on their failure to repay the loan, the 1st respondent Bank has filed Rc.No.28/05-03 under Section 84 of the Multi State Cooperative Societies Act 39 of 2002 in the Court of the Central Registrar/Arbitrator for recovery of a sum of Rs.54,26,694/- and that after filing of the said case, the respondents 2 to 4 herein appear to have made certain payments. However, the Central Registrar/Arbitrator had passed an Award on 17-11-2003 directing the respondents therein to repay the outstanding loan amount of Rs.28,46,958/- with further interest from 1-10-2003 giving two months time for Redemption of Award from 17- 11-2003 and in case of failure the amount shall be recovered by attaching and sale of their properties mentioned in the schedule “A” and “B” and other movable and immovable properties, which does not include the property of the petitioner. The petitioner further stated that on his insistence, he was informed by the respondents 2 to 4 that his flat is not covered under the mortgaged immovable properties to the bank and that they have also given him letters of correspondence addressed by the 2nd respondent to the 1st respondent for release of the property from marriage before sale of flat. However, consequent to the said Award dt.17-11-2003, the 1st respondent bank has issued a notice under Section 13(4) of the Act on 25-8-2004 for attachment of the said property towards the loan obtained by respondents 2 to 4. Further the petitioner also averred that he questioned inclusion of his property for attachment by way of filing S.A.No.119/2004 before the Debts Recovery Tribunal at Hyderabad and obtained stay orders, dt.11-11-2004 in I.A.No.1335/2004 on the ground that the Schedule-A and Schedule-B properties in Award, dt.17-11-2003 does not include his property and that in the meanwhile, the 1st respondent filed an application before the Registrar/Arbitrator for modification of the Award, dt.17-11- 2003 and obtained a modification order on 13-9-2004 from the Registrar/Arbitrator for inserting his flat in the list of immovable properties for attachment. Further it is stated that challenging the above proceedings dt.13-9- 2004 the petitioner filed W.P.No.20746/2004 on the file of this Court to set aside the order dt.13-9-2004 through which his property was included in the mortgaged list of properties. The same was dismissed by this Court by order dt.14-6-2005 observing as hereunder:- “There is a dispute between the contestants as to whether the petitioner herein purchased the flat on the northern side of the second floor of the apartment block known as “Murthy Mansion”, after the same was released for mortgage by the second respondent-Bank at the behest of the builder. Further it is brought to the notice of this Court that after obtaining necessary modification from the first respondent, the second respondent Bank issued Bank issued a notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short ‘Securitisation Act’). Challenging the same, the petitioner moved an appeal, application before the Debts Recovery Tribunal, Hyderabad, and obtained interim orders of stay of dispossession. As the second respondent-Bank claims right over the flat purchased by the petitioner by reason of the impugned order dated 13-9-2004, and as the petitioner also already impugned the said notice before the appropriate forum, this Court is of the considered opinion that the petitioner cannot be permitted to pursue two remedies simultaneously in relation to the same cause of action. As there are questions of fact involved in the matter, it would be in the interest of the petitioner himself to pursue the remedy under the Securitisation Act and seek redressal. Till the said matter is finally settled, in view of the orders passed by the Debts Recovery Tribunal, the second respondent-Bank has to seek appropriate orders from the Debts Recovery Tribunal before taking further action pursuant to the impugned Award.” Further it is stated that challenging the notice issued by the 1st respondent under Section 13(4) of the Act, the 2nd respondent also filed S.A.No.85/2004 on the file of Debts Recovery Tribunal and the same was allowed in part by the Tribunal by an order dt.5-10-2005 setting aside the notice issued under Section 13(4) of the Act observing that the Bank has not complied with Rule 8(2) of the Act before issuing the said notice and holding that there is no need to issue notice under Section 13(2) afresh. Challenging the same, the 2nd respondent filed an appeal before the Debts Recovery Appellate Tribunal, Chennai in RA(SARFAESI) No.42/2006 challenging the very proceedings under the Act while proceedings under arbitration are pending. The Debts Recovery Appellate Tribunal at Chennai allowed the RA(SARFAESI) No.42/2006 in part by order dt.26-10-2006. Meanwhile as per the order of the Appellate Tribunal, the 2nd respondent had also deposited a sum of Rs.7 lakhs with the 1st respondent-Bank. The said RA(SARFAESI) No.42/2006 before the Debts Recovery Appellate Tribunal, Chennai, appears to have been filed by M/s.Shila Homes, a Partnership firm, and also P.V.S.N.Moorthy. The relevant portion of the said order reads as hereunder:- “The apprehension of the appellants appears to be that they would not be allowed to raise all the contentions, which they have already raised in the application filed before the Debts Recovery Tribunal and, therefore, their right would be prejudiced. It is also further submitted that the appellants have already incurred the payment of Court fees and no cost was awarded by the Debts Recovery Tribunal and if the appellants have to challenge the measures that would be taken by the respondent once again under Section 13(4), they have to pay Court fee once again, which would unnecessarily burden the appellants. As far as the first contention of the appellant is concerned, I would like to make it clear that the appellants are always at liberty to raise all the contentions, which they have already raised and they are also entitled to raise further contentions on the measures that would be taken by the respondent under Section 13(4) and they would not be precluded at all from raising all the contentions and therefore the first contention of the appellants is answered accordingly. As far as the second contention of the appellants that they have to spend amount for the Court fee for the second time, if they were to challenge the measures that would be taken by the respondent under Section 13(4) of the Act, requires consideration. As the DRT had set aside the measures taken under Section 13(4) of the SARFAESI Act, the application filed by the appellants could have been allowed with cost, but no cost has been awarded. There is no provision for refund of the Court fee in the DRT Act. That in the said circumstances, I am able to perceive the hardship that would be caused to the appellant in paying the Court fee once again. Hence, I am included to set aside the Order of the Tribunal with regard to the cost alone, as I feel that the appellants are entitled to cost. In the result, the appeal is allowed in part no doubt the order with regard to “no costs” passed by the Debts Recovery Tribunal, Hyderabad is set aside and it is held that the appellants are entitled to costs. The appellants have filed an application for waiver of the deposit as required under Section 18 of the Act, in which this Tribunal by its order dt.19-7-2006 directed the appellant to deposit a sum of Rs.7 lakhs with the respondent Bank and the said sum was also deposited by the appellants and it is with the respondent Bank. As the appellants have questioned the validity of the measures taken under Section 13(4) of the Act, and the same was allowed by the Debts Recovery Tribunal, and it was not questioned by the respondent Bank, the appellants pray for refund of the said amount. Without prejudice to the rights and contentions of the appellants, the respondent Bank is hereby directed to keep the said amount of Rs.7 lakhs in an interest earning no lien account for a period of one year and if no action is taken by the respondent within the said time, the appellants are entitled to get back the amount. Appeal is ordered accordingly.” It is further stated that the petitioner also filed O.S.No.107/2006 on the file of the Court of the II- Additional Chief Judge, City Civil Court, Hyderabad against the respondents for a declaration that the petitioner is the owner of the subject flat and the same is free from encumbrance, including the alleged mortgage between the respondents 2 to 4 and respondent 1 Bank and for other consequential reliefs. Pending the suit, the petitioner also filed an application I.A.No.1122/2006 for interim injunction restraining the 1st respondent Bank from interfering with his peaceful possession enjoyment of the property and on 29-3-2006 an order of status quo was granted. The said order is still in force. The respondents are contesting the suit. Further it is stated by the petitioner that to his shock and surprise, suppressing all the above mentioned facts and without making the petitioner as a party respondent to the proceedings, the 1st respondent filed an application under Section 14 of the Act before the Court of the Chief Metropolitan Magistrate, Hyderabad bearing Crl.M.P.No.954/2007 praying for taking of physical possession of the property described in the schedule of property and hand over the same to it. Incidentally, the petitioner’s property was also shown and the learned Chief Metropolitan Magistrate, by order dt.16- 3-2007 appointed one Smt.A.Anantha Laxmi as Advocate-Commissioner and issued Advocate- Commissioner’s Warrant directing her to take physical possession of the property and handover the same to the 1st respondent Bank. Pursuant to the said order, the learned Advocate Commissioner had issued a letter, dt.26-3-2007, fixing the date for taking physical possession of the scheduled property, which also includes the petitioner flat, on 7-4-2007 at 10.30 a.m. Further it is also stated by the petitioner that the said notice was served on his tenant at flat No.102 and that after receiving the said notice, he had approached the Court of Chief Metropolitan Magistrate and verified in the office and noted down the contents of the application filed by the 1st respondent under Section 14 of the Act along with affidavit and list of documents attached to the petition. Certain grounds had been specifically raised and it is stated that the action of the 1st respondent in approaching the Court of Chief Metropolitan Magistrate, Hyderabad, under Section 14 of the Act without first taking the recourse to Section 13(4) of the Act is arbitrary and illegal since notice under Section 13(4) of the Act before proceeding Section 14 of the Act is mandatory. Further it is stated that the 1st respondent should have seen that the earlier notice issued under Section 13(4), dt.25-8- 2004 was set aside the Debts Recovery Tribunal, Hyderabad and the same was upheld by the Debts Recovery Appellate Tribunal, Chennai and it was also further observed by the Appellate Tribunal in its order dt.26-10-2006 that the 2nd respondent herein is always at liberty to raise all the contentions, which they have already raised and they are also entitled to raise further contentions on the measures that would be taken by the respondent under Section 13(4) and they would not be precluded at all from raising all the contentions. This shows that there was a specific direction to the 1st respondent to issue Section 13(4) Notice giving opportunity to the 2nd respondent. The petitioner is neither borrower nor guarantor to the alleged marriage loan but he is bona fide purchaser of flat and is in possession and that therefore, not following the same has resulted in violation of the petitioner’s valuable right of defence. It is also averred that the 1st respondent should have the petitioner as a party to the proceedings before the Chief Metropolitan Magistrate, Hyderabad and that the 1st respondent was well aware of the petitioner interest in the petition schedule property of Crl.M.P.No.954/2007. Further it is averred that the 1st respondent herein obtained the order under Section 14 of the Act suppressing the fact that there is an order of status quo over the property of the petitioner made by the II- Additional Chief Judge in I.A.No.1122/2006 in O.S.No.107/2006. It is also stated that the claim of the 1st respondent in the affidavit filed in Crl.M.P.No.954/2007 before the Chief Metropolitan Magistrate that they went to the petition schedule property on 27-12-2006 which is factually incorrect as there is no occasion for the Bank to approach the premises to take possession without following the due process of law and that the petitioner had been informed by his tenant that nobody visited the premises on 27-12-2006 and he had received only on 27- 3-2007 the letter of the Advocate Commissioner, dt.26-3- 2007 along with order dt.16-3-2007. Further it is stated that the 1st respondent should have seen that there is a dispute as to whether the petitioner had purchased the property after release of the same from mortgage or not and the same is yet to be decided by a competent Court. It is also stated that the 1st respondent should have seen that as per the Award of the Registrar/Arbitrator, dt.17-11- 2003, there are other valuable properties mentioned in Schedule-A to the said order which are mortgaged with the 1st respondent Bank towards security for the loan obtained by the respondents 2 to 4 and that the 1st respondent, for the reasons best known to him, instead of proceeding against those properties, proceeding against petitioner’s property which is under dispute and which action is highly unjustified. Further it is also averred that even assuming that petitioner’s property is under mortgage, the 1st respondent should have seen that as per clause-10 of Deed of Mortgage, dt.14-6-2002, it was incumbent upon him to release one flat at least