IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 17-11-2009 CORAM THE HONOURABLE MR.JUSTICE M.CHOCKALINGAM AND THE HONOURABLE MR.JUSTICE V.PERIYA KARUPPIAH OSA No.262 of 2009 and MP Nos.1 to 3 of 2009 M/s.Merit Resorts Pvt. Ltd. Represented by its Director Mrs.S.Shalini No.1997, 13th Main Road Anna Nagar Chennai 600 040. .. Appellant vs 1.Canara Bank Teynampet Branch Chennai 600 018. 2.Sri Lakshmiammal Educational Trust rep. By its Trustee No.29, Tilak Street T.Nagar, Chennai 600 017. .. Respondents Original side appeal preferred under Order XXXVI Rule 9 of O.S. Rules read with Clause 15 of the Letters Patent against the judgment and decree passed by this Court in O.A.No.474 of 2009 in C.S.No.407 of 2009 dated 17.8.2009. For Appellant : Mr.T.V.Ramanujun,Senior Counsel for Mr.G.Desingu For Respondents : Mr.T.K.Seshadri, Senior Counsel for Mr.Srinath Sridevan for R1 Mr.G.Masilamani,Senior Counsel for Mr.Venkatesh Mahadevan for R2 JUDGMENT (Judgment of the Court was delivered by M.CHOCKALINGAM, J.) This intracourt appeal has arisen from the order of the learned Single Judge of this Court made in O.A.No.474 of 2009 in C.S.No.407 of 2009 declining to grant interim injunction. https://hcservices.ecourts.gov.in/hcservices/ 2.Pending the suit for declaration that the sale certificate issued by the first defendant bank dated 15.10.2007 registered as document No.1875/2007 on 17.10.2007 at the office of SRO, Udhagamandalam is null and void and not binding on the plaintiff's property and for permanent injunction restraining the defendants from in any manner directly or indirectly acting upon the said sale certificate, the instant application seeking interim injunction restraining the respondents from in any manner directly or indirectly acting upon the sale certificate dated 15.10.2007, a registered one with the Sub Registrar, Udhagamandalam, by taking possession of the property pending disposal of the suit. 3.After the grant of ad-interim injunction at the time of the initiation of the proceedings, the respondents filed their counter affidavits. On enquiry, the learned Single Judge has dismissed the said application with costs. Aggrieved, the plaintiff has brought forth this appeal. 4.The following would emerge as admitted facts: (a) The appellant/plaintiff, a private limited company consisting of three Directors namely Sarangapani, Shalini and Harshavardhan, was sanctioned a loan to the tune of Rs.16 crores by Canara Bank, Teynampet Branch, Chennai, shown as the first respondent, on 27.12.2004 as against the rent receivable from the lands measuring 10.34 acres situated in R.S.No.1222/1 at Udhagamandalam, apart from the building measuring 72220 sq. ft. situated in that land. The said property was leased out to one M/s.Merit International Education Foundation. It was agreed that the loan was to be repaid in 84 monthly instalments. The lease amount was to be deposited in an account with the first respondent bank. The appellant company executed security documents in favour of the bank, and a deed of mortgage was also executed by Harshavardhan in favour of the bank. The said property was purchased by the company by way of 3 sale deeds, for an extent of 3 acres, 4.34 acres and 3 acres respectively. One of the Directors of the company namely S.Harshavardhan resigned from the Directorship in January 2005. The same was also notified to the Registrar of Companies. After his resignation, there were only two Directors. (b) On a complaint given by the first respondent bank before the CBI that the documents in respect of the properties were found to be forged, the CBI took up investigation on 16.1.2007, and the same was pending. Classifying the account as non performing asset account, the bank issued a notice under Sec.13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, on 10.9.2005. The same was also published in the newspaper on 4.1.2006. On receipt of the notice, the erstwhile Director Harshavardhan sent a reply on behalf of the other two Directors also. He also filed an application before the Debt Recovery Tribunal (DRT), and the same was dismissed. The first respondent bank issued a sale notice on 30.8.2007, inviting tenders from the general public. The other two Directors challenged the same in S.A.No.260 of 2007 before the DRT, and the same was dismissed on 3.10.2007. In the meanwhile, the second respondent trust submitted its tender on 4.10.2007, quoting a sum of Rs.10.05 crores. The said https://hcservices.ecourts.gov.in/hcservices/ offer was accepted. The sale was made, and it was also confirmed since the said offer was the highest. The sale certificate was also issued in favour of the second respondent, and the same was also registered with the Sub Registrar's Office at Ooty on 17.10.2007. An appeal filed by the appellant before the Debt Recovery Appellate Tribunal (DRAT), Chennai, in INSA 732/2007 was dismissed on 18.7.2008. Mrs.Shalini filed a writ petition in WP No.23709 of 2008, and the same was also dismissed. Under such circumstances, the plaintiff filed the instant suit challenging the sale certificate alleging that the first respondent bank had played fraud in bringing the properties for sale, and no valid mortgage was created in favour of the bank. 5.The learned Senior Counsel Mr.T.V.Ramanujun appearing for the appellant would submit that the suit mentioned landed property along with the building belonged to the company; that one of the Directors of the Company namely Harshavardhan has resigned in the month of January 2005; that the company had not passed any resolution for availing the loan in dispute from the first respondent bank, nor it had authorized the said Harshavardhan to execute the documents on behalf of the company; that the other two Directors never stood as guarantors for any loan on behalf of the company; that the credit record as if the company had guaranteed for the loan was nothing but a creation by the bank; that even on the complaint made by the first respondent bank to the CBI alleging that all the documents placed in the hands of the bank were forged, the CBI on a thorough investigation found them to be forged, and thus the bank has given the loan on the strength of the so-called mortgage which covered the forged documents; that under the circumstances, there was no valid mortgage in the eye of law; that it is pertinent to point out that all the original title deeds in respect of the sale deeds by which the properties were purchased were in the custody of the company; that the bank has failed in its duty by not verifying the genuineness of the documents placed, but has granted the loan, and thus there was no equitable mortgage created; that since a fraud has been played by the bank, an equitable mortgage cannot be created on the strength of forged documents of title; that the circumstances would clearly indicate that a fraud has been played by the bank, and in such circumstances, the proceedings initiated by the bank under Sec.13 of the SARFAESI Act was improper; that during the relevant time when the notice was issued, the other two Directors were in foreign country; that the proceedings initiated by the erstwhile Director before the DRT was also done without authority; that though the proceedings before the DRT were dismissed, it will not bind the company; that only when the sale notice was issued, the other two Directors came to know about the loan; that immediately, they challenged the same before the DRT, and that proceeding was dismissed; and that the impugned sale certificate cannot usurp the company's title to the suit properties. 6.The learned Senior Counsel would further add that it is pertinent to point out that the Company has neither mortgaged the property belonging to them with any bank, nor availed any loan from any bank; that even the company had not authorized any person to raise any loan on behalf of the company; that the creation of mortgage is bogus; that the certificate issued by the Sub Registrar https://hcservices.ecourts.gov.in/hcservices/ would indicate that the documents which are in the custody of the company, are genuine; that the same would also establish that the documents which are in the custody of the bank, are not at all genuine; that under the circumstances, the mortgage created with the help of the forged documents, cannot create a valid mortgage; that according to the CBI, the documents pertaining to the properties were all forged documents; that it is also to be noted that no secured interest was created by the company over the said property since there were no proper deposit of title deeds in favour of the bank for creating an equitable mortgage; and that it would be quite clear that the sale conducted is not valid in nature, and the sale certificate issued in favour of the second respondent is null and void. 7.It is further urged by the learned Senior Counsel that the appellant has made out a prima facie case that the title deeds in the custody of the bank are not genuine which would not create a valid mortgage in favour of the bank; that under the circumstances, the action initiated by the bank would become null and void; that the Supreme Court has held in a decision reported in Dalpat Kumar and another Vs. Prahlad Sing and Others (1992(1) SCC 719) that the Court still have to satisfy the non-interference by the Court would result in irreparable injuries to the party seeking relief, and there is no other remedy available to the party; that in the instant case, the appellant has no other remedy available except to approach the Court seeking protection from dispossession, and if dispossessed irreparable injury would be caused to them; that it is an admitted position that the plaintiff is in lawful possession of the property; but, the same is now tried to be interfered or dispossessed by the respondents; that the decision of the Supreme Court reported in 2009- 2 LAW WEEKLY 546 that if the plaintiff is in lawful possession of the property, an order of injunction can be granted has got to be applied to the present facts of the case since the possession of the plaintiff is lawful; that it has also been held by the Apex Court in 2009-4 CTC 74 that the Tribunals like DRTs are not civil courts since third party does not have an independent right to approach the Tribunal, and approaching the Tribunal is dependent on the application filed by the Bank, and no declaratory right can be sought for by the said parties before the DRT; that under the stated circumstances, the learned Single Judge should have granted the interim relief as asked for, and hence the order under challenge has got to be set aside. 8.The learned Senior Counsel also relied on the following decisions of the Apex Court: (i)(2006) 5 SUPREME COURT CASES 275 (GROUPE CHIMIQUE TUNISIEN SA V. SOUTHERN PETROCHEMICALS INDUSTRIES CORPN. LTD.) and (ii)(2007) 4 SUPREME COURT CASES 221 (A.V.PAPAYYA SASTRY AND OTHERS V. GOVT. OF A.P. AND OTHERS). 9.The respective learned Senior Counsel Mr.T.K.Seshadri for the first respondent and Mr.G.Masilamani for the second respondent in sustaining the order of the learned Single Judge, vehemently put forth their elaborate arguments. https://hcservices.ecourts.gov.in/hcservices/ 10.Admittedly M/s.Merit Resorts Private Limited, the appellant herein, is a private limited company having three partners namely Mrs.Shalini, her husband Mr.Sarangapani and also their son Mr.Harshavardhan. Thus, it could be seen that it is a family concern. It is not in controversy that a credit facility on the prime security of the suit mentioned immovable property at Ooty along with the other immovable property at Chennai, was made available to the company by the first respondent bank. The said Harshavardhan representing the company as the Managing Director, has executed a mortgage deed by deposit of title deeds pertaining to the property as collateral security. The agreement entered into between the parties would also indicate that the bank granted a loan of Rs.16 crores to the borrower-cum-lessor, and the company had undertaken to repay the principal sum borrowed with accrued interest. The borrower as a lessor undertook to pay the monthly rent to the bank to the tune of Rs.28,94,892/- with effect from 7.1.2005, and the same was to be given credit to the account. Due to the default, the first respondent bank in exercise of its rights as found in the agreement, has initiated proceedings under the SARFAESI Act after issuing a legal notice demanding payment of Rs.10,77,02,656/-. The entire proceedings have commenced therefrom. 11.Before adverting to the question whether the appellant is entitled for an interim injunction as asked for in the plaint, it would be better to look into the different proceedings initiated by the appellant company and its Directors. The first respondent bank due to the non-compliance of the demand made under the legal notice dated 31.10.2005, referred to above, issued a notice under Sec.13(2) of the SARFAESI Act calling for the repayment of the principal along with interest within 60 days therefrom and indicating the account as a non performing account. The company through its Managing Director Harshavardhan issued a reply through its counsel on 23.1.2006. A perusal of the notice would indicate that the same was issued on behalf of the appellant/company and its other Directors, and there was a candid admission that the security offered was of high value, and it was above the credit facility availed by the company. While the matter stood thus, the company represented by the Managing Director along with the lessee who was in possession of the property at Ooty represented by its Trustee Sarangapani, challenged the said notice under Sec.13(2) of the SARFAESI Act issued by the first respondent bank before the DRT in SA No.27 of 2006 under Sec.17 of the SARFAESI Act. On dismissal, an appeal was also preferred before the DRAT in INSA No.272 of 2006 which was withdrawn by the appellants therein. 12.Further, as contemplated under Sec.13(4) of the SARFAESI Act, the first respondent bank issued a notice in two dailies namely Hindu and Dhinathanthi dated 5.9.2006 indicating the taking of symbolic possession of the property in question. Aggrieved over the said notice, an appeal was preferred in SA No.109 of 2007 before the DRT by the Company represented by the Managing Director and the Trust- lessee, and the stay granted in that appeal was vacated on 17.8.2007. Thereafter, the first respondent bank called for tenders from the general public by way of a sale notice with regard to the property in question. At that juncture, the second respondent put forth its https://hcservices.ecourts.gov.in/hcservices/ offer, which was found to be the highest. Then, the sale was confirmed, and a sale certificate in favour of the second respondent was issued on 15.10.2007, which was registered on 17.10.2007 at the Office of the Sub Registrar, Ootacamund. The revenue patta for the property has also been transferred to the name of the second respondent. It is pertinent to point out that during the pendency of SA 109 of 2007, referred to above, Mrs.S.Shalini a Director, who is representing the company in the present plaint, preferred an appeal in her individual capacity in SA No.260 of 2007 before the DRT challenging the sale notice dated 30.8.2007. While dismissing the said appeal, the DRT pointed out that Mrs.Shalini was only a Director of the petitioner company individually, and she was not a proper party to sue, and she did not purchase any right over the assets of the company, and all the properties belonged to the company, a juristic person. She preferred an appeal against the order in SA 260/2007 before the DRAT, Chennai, in RA No.54 of 2008 on 18.10.2007. It remains to be stated that this appeal was preferred after the issuance of the sale certificate to the second respondent and registration of the same on 17.10.2007. However, the DRAT upheld the order of the DRT by dismissing RA 54/2008. 13.Apart from the above, representing the appellant company Mrs.Shalini filed a suit in O.S.No.293 of 2007 before the District Munsif's Court, Udhagamandalam, for permanent injunction against the second respondent. Though ad-interim status quo was originally granted in I.A.No.851 of 2007, the same was subsequently vacated in the month of March 2008. The writ petition filed in WP 23709/2008 challenging the order of the DRAT in RA 54/2008 was dismissed by this Court on 17.4.2009. From the order of this Court in the said writ petition, Mrs.Shalini preferred SLP (Civil) No.11505/2009 before the Apex Court. The same was dismissed at the admission stage on 14.5.2009. On dismissal of WP No.23709/2008, the second respondent filed a petition under Sec.14 of the SARFAESI Act before the Sessions Court, Udhagamandalam, in Crl.M.P.No.141/2009 seeking permission to take physical possession of the property and also for police protection. When the same was ordered on 29.4.2009, the instant suit was filed in CS No.407 of 2009 on 30.4.2009 seeking a declaration that the sale certificate was null and void. The lessee who was in possession of the suit property pursuant to the deed of lease on 15.1.2000, filed WP No.16914/2009 seeking a writ of certiorari to quash the orders of the Sessions Judge in Crl.M.P.No.141/2009 granting police protection. A Division Bench of this Court has dismissed the same by an elaborate order. 14.A careful scrutiny of the averments made and the contentions put forth by the appellant company represented by Mrs.Shalini as a Director of the company and also in her individual capacity, would clearly indicate that she has repeated the very same ground in all the above proceedings. While the sale notice dated 30.8.2007 was challenged by Mrs.Shalini in SA No.260/2007 before the DRT, an order came to be passed which runs as follows: "In this case also, it is clearly found that the borrower executed a valid loan documents and has also created secured assets in favour of the Respondent bank with regard to Ooty property and the amount was down graded https://hcservices.ecourts.gov.in/hcservices/ as NPA category and also due to the default committed by the borrower in paying the amounts due, the respondent bank has taken proceedings under the above mentioned SARFAESI Act in accordance with law only. Further the appellant has not clearly and specifically mentioned the provisions of law violated by the Respondent bank. That apart, it is found that there is no violation of provisions of SARFAESI Act in the actions taken by the Respondent bank. From the above-mentioned circumstances, it is found that mandatory provisions have been complied with properly by the Respondent bank. The appellant has not established in any proper manner about the violation of the provisions of the SARFAESI Act by the Respondent bank. Further the appellant has not raised any valid, cogent, convincing, genuine, good, just, lawful, legal, legitimate and proper representation or objection to various steps taken by the Respondent bank. Taking into consideration of all aspects of this case, it is found that the Respondent bank is entitled to proceed under SARFAESI Act to recover the amounts due to the bank. Though the appellant has stated, that the said measures of the Respondent bank is illegal, it is found that the appellant has not established the same in an acceptable manner." 15.It remains to be stated that it is not a case where either the appellant company or its Directors have not exhausted their remedy under Sec.17 of the SARFAESI Act. The Company through its Managing Director and also another Director Mr.Sarangapani while challenging the notice issued under Sec.13(2) of the said Act in SA No.27 of 2006 before the DRT, Mrs.Shalini in her individual capacity has challenged the same in SA No.260/2007, both under Sec.17 of the SARFAESI Act. Even after the dismissal of the appeal in SA No.260/2007, she has preferred an appeal in RA 54/2008 before the DRAT, and on the dismissal of the said appeal, she has preferred WP 23709 of 2008. Further, on the dismissal of the said writ petition, she has preferred SLP (Civil) No.11505 of 2009 which also met an order of dismissal on 14.5.2009. All would clearly indicate that the company was acting through its Managing Director and also through another Director Mr.Sarangapani and has challenged all the proceedings of the first respondent bank namely the notice under Sec.13(2) of the said Act, sale notice, etc., while Mrs.Shalini not only as a Director but also in her individual capacity has made all the above proceedings in which she failed. Both the proceedings one by the company and the other by Mrs.Shalini as a Director, were taken and proceeded with simultaneously. 16.It is pertinent to point out that the appellant company consisted of three Directors namely one Managing Director, Mr.Harshavardhan, the son, and two other Directors Mrs.Shalini and her husband Mr.Sarangapani. The Managing Director who executed the mortgage, challenged the proceedings all along stating that the property was of a higher value; and that it was not a fit case where bank could invoke the provisions of SARFAESI Act. Contrarily, Mrs.Shalini has taken all the proceedings alleging repeatedly that there was no valid mortgage at all since the documents pertaining to the collateral security were all forged documents. This would be https://hcservices.ecourts.gov.in/hcservices/ quite indicative of the fact that having executed the mortgage and availed crores of rupees from the first respondent bank, the Directors of the appellant company have acted in collusion to defeat the rights and interest of the first respondent bank. 17.As far as the second respondent was concerned, after the issuance of the sale certificate on 15.10.2007, pursuant to the sale in its favour and registration on 17.10.2007, he has filed an application before the Sessions Court, Udhagamandalam, under Sec.14 of the SARFAESI Act in Crl.M.P.No.141/2009 for taking physical possession with police aid, and the same was ordered. The said order was challenged by Mrs.Shalini in W.P.No.9700/2009 seeking to quash the order, and the same was dismissed. It can be well stated that sufficient materials are placed before the Court to indicate that after the above orders of the Court in Crl.M.P.No.141/2009 and also in WP 9700/2009, the second respondent has taken physical possession of the property, and they are in possession of the property. Hence the contention put forth by the learned Counsel for the appellant that the second respondent has taken forcible possession of the property has got to be rejected as one meritless, and accordingly, it is rejected. 18.The bone of contentions by the appellant before the trial Court and equally here also is that it is not a case where the provisions of the SARFAESI Act could be applied since there was no valid mortgage by deposit of title deeds; that the documents which were placed in the hands of the first respondent bank were only forged documents; and that so long as there was no valid security in the eye of law, the provisions of the said enactment cannot be invoked by the first respondent. It is also further added that the bank was a party to the fraud and hence the bank should not be allowed to bring the property for sale on the strength of the same. This contention cannot be countenanced for more reasons than one. The present suit is filed by the appellant company represented by Mrs.S.Shalini one of its directors. She has already filed a suit for permanent injunction in O.S.No.293 of 2007 on the file of the District Munsif's Court, Ooty, along with an application for interim orders in I.A.No.851 of 2007. Paragraph 2 of the affidavit in support of the said interlocutory application reads as follows: "I submit that the said company approached Canara Bank, Teynampet Branch, Chennai for a loan to put up additional building, and accordingly the loan was sanctioned after following all necessary formalities on 18.12.2004. Subsequently 1/3 of the loan amount was also repaid by the company. While this is so, on 30.10.2005, the bank had issued a notice with various allegations and recalled the loan." The above would clearly indicate that Mrs.Shalini while filing the said application, has specifically admitted the sanction of the loan after following the procedural formalities and that 1/3rd of the loan amount was also repaid. Thus, the fact that the loan was