M/S. TRIPOWER ENTERPRISES (PRIVATE) LIMITED v. STATE BANK OF INDIA & Ors.

From the Judgment and Order dated 06.09.2019 of the High Court of Judicature at Madras in W.P. No. 11522 of 2019. Tushar Mehta, SG, Vinay Prabhakar Navare, V. Giri, Gopal Shankarnarayan, Sr. Advs., A. Radhakrishnan, Sanjay Kapur, Harshal Narayan, Ms. Megha Karnwal, C.S. Kiran, P. Ravishankar Rao, Amith, Aswathi M.K., Ms. M. Venmani, Ms. Gayathri Verma, Ms. Shivani Jena, G. Venkateswaramoorthy, S. Gowthaman, Advs. for the appearing parties. The Judgment of the Court was delivered by A. M. KHANWILKAR, J.

#1. Leave granted.

#2. This appeal takes exception to the judgment and order dated 6.9.2019 passed by the High Court of Judicature at Madras (for short, “the High Court”) in Writ Petition No. 11522/2019, whereby the High Court reversed the order dated 29.3.2019 passed by the Debts Recovery Appellate Tribunal (for short, “the DRAT”) at Chennai in M.A. No. 90/ 2018 allowing the application filed by the respondent No. 1 - State Bank of India (for short, “the Bank”) before the Debts Recovery Tribunal (for short, “the DRT”) at Madurai being I.A. No. 995/2017 in O.A. No. 11/ 2008, directing return of original documents – Exhibits A110 to A114 deposited by the Bank before the DRT in O.A. No. 11/2008. In other words, the High Court affirmed the order of the DRT rejecting subject application. A B C D E F G H 630 SUPREME COURT REPORTS [2020] 7 S.C.R.

#3. Shorn of unnecessary factual matrix, suffice it to observe that the respondent No. 3 – M/s. Rukmini Mills Ltd. (for short, “the borrower”) had availed of financial credit from the Bank, for which the respondent No. 2 – Associated Trading Corporation Pvt. Ltd. (for short, “the guarantor”) had offered its immovable property by way of mortgage to the Bank. The borrower committed default, as a result of which the Bank declared it as a Non-Performing Asset (for short, “NPA”) and then proceeded to file O.A. No. 11/2008 before the DRT at Madurai. The Bank also issued notice for taking symbolic possession of the secured assets, on 13.5.2008 and after considering the reply of the guarantor, took symbolic possession of the secured assets on 15.10.2008. The guarantor filed a petition being SA No. 225/2008 before the DRT at Madurai, challenging the possession notice dated 15.10.2008 issued by the Bank under Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, “the 2002 Act”), which came to be rejected by the DRT on 10.2.2011. The guarantor then filed an appeal being AIR(SA) No. 222/2011 against this decision, which was dismissed on 8.2.2013 on the ground of non-payment of pre-deposit amount. The guarantor did not carry that matter any further.

#4. The secured assets offered by the guarantor were eventually put up for public auction by the Bank for recovery of outstanding dues to the extent of Rs.350.12 lakhs. The appellant ultimately turned out to be the highest bidder in the e-auction conducted by the Bank on 28.2.2017. Sale certificate in respect of the secured assets purchased by the appellant in public auction conducted by the Bank, was issued on 29.4.2017. Before the auction was finalised in favour of the appellant, the Bank had already moved an application before the DRT being I.A. No. 995/2017 in O.A. No. 11/2008 for return of the original documents deposited with the DRT, as the Bank would be obliged to hand over the same to the auction purchaser upon issue of sale certificate. That application was rejected by the DRT on 9.11.2018, essentially on the ground that the issue raised by the guarantor that there was no valid mortgage in respect of the secured assets referred to as ‘B’ schedule properties and that equitable mortgage in respect of the said properties have been created by incompetent persons, was still to be examined by the DRT in the main proceedings being O.A. No. 11/2008. The DRT rejected the application for the following reasons: - A B C D E F G H M/S. TRIPOWER ENTERPRISES (PRIVATE) LIMITED v. STATE BANK OF INDIA & ORS. [A. M. KHANWILKAR, J.] 631 “4……. it was decided that the property absolutely belonged to them and that therefore, any mortgage created in respect of their property is illegal and void and that the petitioner bank has itself stated in para-5 & 6 of the counter proof affidavit that D-10 & D-11 have been added as parties to the OA, since they claim over a part of the ‘B’ schedule property mortgaged by D-4 company and that in order to avoid multiplicity of proceedings, D-8 to D-11 have been added as parties to the Original Application for better adjudication of respective claim over the mortgaged properties. The Ld. Counsel for R-10 further contended that the marked documents cannot be returned unless final order is passed in the main OA and that if the documents are handed over to the auction purchaser, before passing of final order, it will create more problems and multiplicity of proceedings and that therefore, the petition is liable to be dismissed.

#5. Even though, R-2 & R-3 who are said to represent the R-1 mill used to appear before in person before this Tribunal for all hearings, neither filed any counter statement nor did advance any argument. Similarly, the R-5, who is represented by his counsel neither filed any counter statement nor did advance argument.

#6. The petitioner bank has filed the original application OA No. 11/2008 against the Respondents 1 to 11 herein, who are the Defendants-1 to 11, for recovery of sum of Rs.25,49,19,820.41 ps/- with future interest thereon. The contention of the petitioner bank with regard to creation of equitable mortgage over the OA ‘B’ Schedule mentioned properties by R-4 company, in favour of the petitioner bank for the above said loan facilities availed by R-1 company has been stoutly denied by R-4 company, in its written statement, filed in the OA. There is no dispute with regard to sale of some of the OA’B’ Schedule mentioned properties in the e-auction held on 28.02.17 under the SARFAESI proceedings initiated by the petitioner bank herein, to M/s. Tripower Enterprise Pvt. Ltd., Chennai-115.

#7. R-4 company has filed its written statement in the OA, wherein it has been alleged that no valid mortgage over OA ‘B’ schedule properties had been created by R-4 company and that equitable mortgage over the above said properties had been created by incompetent persons on behalf of R-4 company by fabricating A B C D E F G H 632 SUPREME COURT REPORTS [2020] 7 S.C.R. false records. But the rival contention of the petitioner bank is that valid equitable mortgage has been created over the above said properties by R-4 company. This vital issue has to be decided only after conclusion of the inquiry in the original application pending before this Tribunal. In the meanwhile, this petition has been filed for return of the original documents, which have been marked as Exh. A-110 to A-114.

#8. The mere reason that R-4 company and R-10 have not raised the above said issue during the SARFAESI proceedings, cannot be a valid reason to strengthen the contention of the petitioner bank that R-4 company & R-10 cannot raise this objection in the original application, since the SARFAESI proceedings are of summary proceedings in nature. In the original application, all the contesting defendants have filed their written statement and that OA has reached the stage for inquiry. Therefore, this Tribunal is of the considered view that the issue as to whether there is valid creation of equitable mortgage over the OA ‘B’ schedule mentioned properties, has to be decided only in the original application, along with the issue as to whether the petitioner bank is entitled for recovery of sum of Rs.25,49,19,820.41ps/- and with future interest thereon. Further the documents, which are sought for by the petitioner bank, have already been marked as Exh.A- 110 to A-114. Therefore, passing an order in this petition for return of the above mentioned documents to the petitioner bank would cause prejudice, at this stage, to decide the vital issue as to whether valid mortgage has been created over some of the OA ‘B’ schedule properties by R-4 company. In view of the foregoing reasons, this petition stand dismissed.” The Bank carried the matter in appeal before the DRAT at Chennai by way of M.A. No. 90/2018. The DRAT, however, reversed the decision of the DRT and observed thus: - “7. On careful perusal of pleadings of parties and submission of counsel of parties and record, it becomes clear that R4 has preferred an appeal against order passed in SA 225/2008. But it was dismissed for want of compliance OD pre-deposit. On 09.06.2015, in OA 11/2008 by way of IA 357, 3544448, 359, Mr. Balasubramanian and Mr. Thiagarajan brought some facts A B C D E F G H M/S. TRIPOWER ENTERPRISES (PRIVATE) LIMITED v. STATE BANK OF INDIA & ORS. [A. M. KHANWILKAR, J.] 633 on record regarding objections pertains to signature of memorandum of deposit of titles deeds by unauthorised persons. The record reveals that borrowers/guarantors availed loan from appellant bank decaded ago (i.e.) in the years 1990, relationship between bank and guarantor had taken and for loan of R1 company R4 company stood as guarantor and behind both companies the same person was the instrument. It can safely be presumed and inferred that loan was availed by common predecessor of respondents/defendants who floated various Companies according to need and convenience in such a background if OA filed in the year 2008 was kept pending even after 10 years, then bank had a right for recovery of money. In this background, bank had proceeded for sale of property in the year 2017 and bonfire auction purchaser has spent more than Rs.60 crores on it. In such a situation, the memo of part satisfaction of IA should have been taken on record in that spirit only.

#8. In so far as disputes regarding ownership of the company between brothers and extended relatives should not adversely affect the right of recovery. Such disputes are endless. Bonafides of defaulters can be perceived and presumed if they were willing to repay the dues. During the course of arguments also it was transpired that R-4 is not feeling himself liable for any repayment whatsoever. The SARFAESI appeal filed by R-4 in the year 2008 itself had attained finality. In such a situation recovery made by bank under SARFAESI Act should be acknowledged and respected for all purposes. The dispute/battle between family members of defaulters should not create or cause or prejudice against bank or bonfire purchaser. When seeing the gestures of repayments to be made by respondents, their objection cannot be created as a sign of honesty and bonfires. Rather they can be presumed as a culprit and deferring the recovery proceedings.

#9. In this back drop, IA filed by bank deserves to be allowed and it should have been allowed by presiding officer. The bank has to receive the relevant five documents after keeping the photocopy of documents on record because bank has also a responsibility towards auction purchaser who had spent [sic] a sum of more than Rs.60 crores about two years ago. A B C D E F G H 634 SUPREME COURT REPORTS [2020] 7 S.C.R. A B C D E F G H

#10. Hence, Appeal stands allowed and impugned order is set aside. It is made clear that this tribunal has not expressed any opinion about legality of mortgage. The presiding officer will decide this issue on merits after hearing of parties according to law without being influenced by this order at all. Simply in view of the fact that bank had a recovery of a sum of Rs.60 crores and defaulters are not willing and has no capacity of sum of Rs.60 crores and defaulters are not willing and has no capacity of such payment, impugned order is set aside. DRT will return the documents to the bank for further proceedings and presiding Officer will adjudicate the OA after hearing both parties according to law.

#11. Impugned order is set aside.” Accordingly, the DRAT allowed the application preferred by the Bank and directed return of the original documents - Exhibits A110 to A114 to the Bank.

#5. Feeling aggrieved, the guarantor filed a writ petition before the High Court, being Writ Petition No. 11522/2019. The High Court, after considering the factual matrix, was pleased to restore the order passed by the DRT, rejecting the application preferred by the Bank. For doing so, the High Court observed as follows: - “10. On a careful consideration of the materials available on record, the judgment relied upon by the learned counsel appearing for the 1st respondent and the submissions made by the learned counsel on either side, it could be seen that O.A. No. 11 of 2008 was filed by the 1 st respondent-Bank for recovery of a sum of Rs.25,49,19,820.41 together with future interest. Schedule ‘B’ in the Schedule of properties mentioned in O.A. No. 11 of 2008 was sold in e-auction on 28.02.2017 for a sale consideration of Rs.60,25,00,000/- under the SARFAESI proceedings to the auction purchaser, viz., M/s. Tripower Enterprises Private Limited and the sale certificate was also issued in their favour. However, the auction purchaser, is not a party either in the Original Application or in this Writ Petition. The 1st respondent also filed a memo for recording part satisfaction.

#11. It is also not in dispute that the sale made in favour of M/s. Tripower Enterprises Private Limited by the 1st respondent- Bank has not been challenged by the petitioner Company, who M/S. TRIPOWER ENTERPRISES (PRIVATE) LIMITED v. STATE BANK OF INDIA & ORS. [A. M. KHANWILKAR, J.] 635 claimed title to the property. The petitioner has challenged the possession notice dated 10.02.2011 in S.A. No. 225 of 2008 and the same was dismissed by the Debts Recovery Tribunal. However, the Tribunal did not go into the other issues relating to the subsequent extension of the mortgage done by the persons, since the proceedings under Section 17 of the SARFAESI Act is summary proceedings.

#12. The petitioner contended that there is no valid creation of mortgage or extension of mortgage over the Schedule ‘B’ property. The respondents 10 and 11 claimed that the property originally belonged to their father and by virtue of the decree granted by a competent Civil Court, declaring them as absolute owners of an extent of 1.80 acres, they became the absolute owners. Further, the 10th respondent has stated that out of the extent of 1.80 acres, an extent of 1.40 acres was acquired by the Government for Thillai Ganga Nagar Subway and in the remaining 40 cents, some extent of properties were sold to third parties and therefore, the petitioner could not have mortgaged an extent of 1.80 acres with the 1st respondent-Bank. The petitioner also contended that there was no valid mortgage in respect of Schedule ‘B’ property mentioned in O.A.No.11 of 2008 and the mortgage was created by an incompetent person on behalf of the petitioner Company by fabricating false records.

#13. The case put up by the respective parties is a matter for evidence and the same can be decided only after the conclusion of the trial in the Original Application pending before the Debts Recovery Tribunal. The original documents were marked as Exs.A110 to A114 in O.A.No.11 of 2008. The Debts Recovery Tribunal, while disposing of the application, observed that the Original Application has reached the stage of inquiry and therefore, the Tribunal was of the view that the issue as to whether there was valid creation of equitable mortgage over the Schedule ‘B’ property mentioned in the O.A.No.11 of 2008 has to be decided only in the Original Application, along with the issue as to whether the 1st respondent-Bank is entitled for recovery of the amount with future interest.

#14. That apart, when the documents were marked as Exs.A110 to A114 before the Debts Recovery Tribunal the documents cannot A B C D E F G H 636 SUPREME COURT REPORTS [2020] 7 S.C.R. A B C D E F G H be allowed to be returned even before the disposal of the Original Application. The Debt Recovery Appellate Tribunal without considering the case of the parties had set aside the order of the Debts Recovery Tribunal finding that the sale made in favour of the auction purchaser has become final. When the core issue is with regard to creation of mortgage, the same can be decided only in the Original Application, the order passed by the Debt Recovery Appellate Tribunal without considering the same cannot stand. If the Debts Recovery Tribunal, after trial, ultimately comes to the conclusion that there was no valid mortgage in respect of the Schedule ‘B’ property mentioned in O.A.No.11 of 2008, in that case, it would further complicate the dispute. The Appellate Tribunal, instead of setting aside the order passed by the Debts Recovery Tribunal, should have directed the Debts Recovery Tribunal to dispose of the appeal, within a time frame and further directed the Debts Recovery Tribunal to consider the application in I.A.No.995 of 2017 along with the Original Application.

#15. In these circumstances, we are of the considered view that in the interest of justice, the Debts Recovery Tribunal should retain the documents marked as Exs.A110 to A114 till the disposal of O.A.No.11 of 2008 and a direction can be given to the Debts Recovery Tribunal to dispose of the Original Application within a time frame.” The High Court, however, after setting aside the order of DRAT at Chennai, directed remand of I.A. No. 995/2017 in O.A. No. 11/2008 to the DRT at Madurai for deciding the same afresh and to dispose of the main matter bearing O.A. No. 11/2008 together, on merits and in accordance with law within four months from the date of receipt of the said order.

#6. Feeling aggrieved, the appellant being the auction purchaser, has assailed the aforesaid decision of the High Court in the present appeal by way of special leave. The Bank has supported the stand of the appellant. The thrust of the argument of the appellant is that it having purchased the property in a public auction conducted by the Bank andupon complying with necessary formalities and further, having received the sale certificate in that regard, in law, was entitled to get the original title documents in respect of the stated properties, which were lying with the DRT in O.A. No. 11/2008. According to the appellant, the M/S. TRIPOWER ENTERPRISES (PRIVATE) LIMITED v. STATE BANK OF INDIA & ORS. [A. M. KHANWILKAR, J.] 637 guarantor had filed writ petition before the High Court challenging the direction issued by the DRAT vide order dated 29.3.2019 for return of original documents despite in the past it had unsuccessfully challenged the notice for taking possessionof the stated properties. Another petition filed by the guarantor for issue of restraint order against the Bank to desist from proceeding with the public auction, was also rejected. Similarly, the guarantor had unsuccessfully challenged the auction concluded in favour of the appellant. In all these proceedings, the very contention about the mortgage in question being invalid and created by incompetent persons was raised and negatived. According to the appellant, the guarantor on affidavit had admitted the factum of mortgage in question created in favour of the Bank, and one of its Directors had also offered to pay the outstanding dues of Rs.350.12 lakhs, if some more time for payment was granted. Considering all these aspects, contends the appellant, the High Court should not have shown any indulgence to the guarantor and the writ petition filed by it ought to have been rejected. Further, the High Court misdirected itself by taking into account matters disregarding the consistent opinion recorded against the guarantor by the DRT and the DRAT and in certain proceedings, by the High Court and even this Court.

#7. The guarantor, on the other hand, would urge that it had not taken any loan from the Bank. The borrower had been borrowing money from the bank against the security by deposit of title deeds and equitable mortgage created on 12.4.1984. However, the Bank extended further loans to the borrower in 1990 and 1992, to which the guarantor was not a party. As a matter of fact, the equitable mortgage was not created by the authorised person of the guarantor nor it was party to the extensions of mortgage. In the proceedings before the DRT, it has been observed in order dated 9.6.2015 that the documents for extension of the alleged mortgage dated 12.4.1984, were signed by Mr. S. Balasubramaniam (personal guarantor/respondent No. 4). It is asserted that he was never a Director of the respondent No. 2 company/guarantor and was a stranger to it. It is urged that the jurisdiction of DRT under the 2002 Act is only supervisory over the actions initiated by the Bank under Section 13 of that Act. It cannot decide the substantial issues and disputes regarding the genuineness or validity of the mortgage itself. Reliance is placed on Transcore vs. Union of India & Anr.1, Authorised Officer, 1 (2008) 1 SCC 125 (paragraph 30) A B C D E F G H 638 SUPREME COURT REPORTS [2020] 7 S.C.R. A B C D E F G H Indian Overseas Bank & Anr. Vs. Ashok Saw Mill2, Standard Chartered Bank vs. Dharminder Bhohi & Ors.3, Axis Bank vs. SBS Organics Private Limited & Anr.4, M.D. Frozen Foods Exports Private Limited & Ors. vs. Hero Fincorp Limited5 and Shakeena & Anr. vs. Bank of India & Ors.6. It is then urged that the principle of res judicata will have no application to the opinion already recorded by the DRT or DRAT and at the same time, the guarantor cannot be denuded from pursuing the objection regarding validity of the mortgage in appropriate proceedings including in pending O.A. The guarantor has pointed out the similarities and dissimilarities in the 2002 Act, the Transfer of Property Act, 1882 and the Code of Civil Procedure, 1908 to contend that the remedy under Section 13(4) of the 2002 Act is only an enabling provision, pending final adjudication of liability. It is urged that at least the cases wherein the validity of mortgage is put in issue or the factum of existence of mortgage itself is in dispute, will have to be dealt with in a different manner than a case where the factum of existence of mortgage is admitted. The DRT can only examine the issues regarding procedural irregularities committed by the Bank and not decide the disputed question about the existence or validity of the mortgage itself, unlike in proceedings under the Recovery of Debts and Bankruptcy Act, 1993 (for short, “the 1993 Act”). Reliance is placed on E. Subbulakshmi vs. State of Tamil Nadu through Secretary to Government & Ors.7 and M.D. Frozen Foods Exports Private Limited (supra). It is then urged that there is no warranty of title in a Court auction, much less in a public auction, wherein the doctrine of caveat emptor applies. Reliance is placed on The Ahmedabad Municipal Corporation of the City of Ahmedabad vs. Haji Abdulgafur Haji Hussenbhai8 to buttress the argument that it is imperative for the purchaser to ascertain and satisfy himself about the title of the property. It is then urged that the order passed by the DRT which was subject matter of challenge before the High Court was only an interlocutory order, for which reason this Court should be loath to interfere, especially when the High Court has only remanded the matter with direction to expeditiously dispose of the main proceedings pending