Ind Bank Housing Limited v. The Debts Recovery Appellate Tribunal & Ors

IN THE HIGH COURT OF JUDICATURE AT MADRASDated: 21.11.2008Coram:THE HONOURABLE MR.JUSTICE S.J.MUKHOPADHAYAANDTHE HONOURABLE MR.JUSTICE V.DHANAPALANWrit Petition No.20255 of 2008& M.P.No.1 of 2008Ind Bank Housing Limited,Corporate Office,rep. by its Company Secretary and Authorised Officer,Ind Bank Housing Limited,Corporate Office,No.480, Anna Salai,Nandanam, Chennai-35. .. Petitionervs.1. The Debts Recovery Appellate Tribunal, No.55, Ethiraj Salai, Chennai-600 008.2. M.Jayaram3. Jagan Mohan Rao,4. M/s.Shristi Estates and Investments Pvt. Ltd., Rep. by its Managing Director Mr.V.Subbaiah, No.66, Luz Church Road, Mylapore, Chennai-600 004. .. RespondentsWrit Petition filed under Article 226 of the Constitution ofIndia, praying for issuance of a Writ of Certiorari, calling for therecords pertaining to the order dated 28.7.2008 passed in IN (SA).No.338 of 2008 on the file of the Debts Recovery Appellate Tribunal,Chennai, the first respondent herein (against the order dated26.3.2008 passed in S.A.No.169 of 2007 on the file of the DebtsRecovery Tribunal-2, Chennai) and quash the same. For Petitioner : Mr.Jayesh B.Dolia for M/s.Aiyar & Dolia For Respondents : Mr.B.Kumar, Senior Counsel for M/s.G.Govindarajan for RR-2 & 3 https://hcservices.ecourts.gov.in/hcservices/ OrderS.J.Mukhopadhaya,JThe Writ Petition has been preferred by Ind Bank HousingLimited (hereinafter referred to as 'the Bank') against the commoninterim order dated 28.7.2008 passed by the Debts Recovery AppellateTribunal (for short, 'the DRAT'), Chennai in I.A.No.796 and 797 of2008 in IN(SARFAESI).No.338 of 2008.2. By the said common interim order dated 28.7.2008, the DRATwhile holding that the liability of the second respondent herein,namely M.Jayaram (one of the guarantors) is yet to be decidedultimately on merits, passed a conditional interim order of stay ondeposition of Rs.50 lakhs in two equal instalments, each at Rs.25lakhs, first one payable on or before 2.9.2008 and the second onepayable on or before 6.10.2008 with further order that if the secondrespondent herein fails to comply with the above conditions, theproceedings in IN (SA).No.338 of 2008 stands disposed of without anyfurther reference to the DRAT. On such deposit, the writ petitioner-Bank was directed by the DRAT to keep the said amount in an interestearning no-lien account, until further orders.3. While the writ petitioner-Bank took plea that the DRATcannot waive the amount below 25% of the claim amount, according tothe second respondent-guarantor, the DRAT has jurisdiction to decidethe 'prima-facie' claim and can pass conditional order of interimstay.4. From the pleadings/records, it appears that the second andthird respondents (guarantors) are the owners of 68.25 cents ofland(s) comprised in S.No.68/5 situated at No.10, Five Furlong Road,Guindy, Velacherry Village, Chennai-32. Originally, they approachedfourth respondent-M/s.Shristi Estates and Investments PrivateLimited, by its Managing Director Mr.V.Subbaiah (builder) for jointdevelopment of the land(s) in question by promoting the same intoresidential flat(s) at the ratio of 60:40, i.e. 60% built-up areato be shared by the builder and the balance 40% built-up area to bethe shared by the owners (i.e. guarantors). To that extent, aMemorandum of Understanding was reduced into writing on 13.12.1993,pursuant to which the possession of the land(s) has also been handedover to the builder.5. Fourth respondent-builder availed of the financialassistance from the writ petitioner-Bank by way of project loan.According to the writ petitioner-Bank, the account of fourthrespondent-borrower having become a 'non-performing asset' (forshort, 'the NPA'), the Bank issued a notice under Section 13(2) ofthe Securitisation and Reconstruction of Financial Assets andEnforcement of Security Interest Act (for short, 'the NPA Act'),calling upon the second, third and fourth respondents(guarantors/borrower) to pay the due amount(s) as on 28.2.2006,viz., Rs.15,72,47,661/-. Respondents 2, 3 and 4(guarantors/borrower) having failed to pay the due amount(s), theBank initiated action u/s 13(4) of the NPA Act, for taking the https://hcservices.ecourts.gov.in/hcservices/ possession of the secured asset(s), on 20.7.2006 and showing theintention of sale, on 5.8.2006. 6. Second respondent (one of the guarantors) filed Application(appeal) under Section 17 of the NPA Act before the Debts RecoveryTribunal (for short, 'the DRT')-I, Chennai, and by order dated10.8.2006, the DRT-I, in S.A.SR.No.1449 of 2006, passed ex-parteinterim order, without any condition of payment.7. In the meantime, 13 persons who have purchased the flat(s)from the builder (fourth respondent0, also preferred application(s)(appeal(s)) u/s 17 of the NPA Act, before the DRT-I, Chennai.8. The application (appeal) preferred by second respondentherein and the application(s)(appeal(s) ) preferred by the abovesaid 13 purchasers, were subsequently transferred to DRT-2, Chennai. 9. The appeal(s) preferred by 13 purchasers of the flat(s), wasdisposed of with a direction to them to deposit their respectiveamount(s) with the Bank, with their previous alleged payment beingmade to fourth respondent-builder (borrower). Accordingly, the writpetitioner-Bank recovered a sum of Rs.1,77,19,902/- as on 31.7.2008.10. The appeal preferred by the second respondent (guarantor)u/s 17 of the NPA Act, was numbered as SARFAESI Appeal No.169 of2007, was dismissed by the DRT-2, Chennai on 26.3.2008, againstwhich, second respondent-M.Jayaram, preferred appeal u/s 18(1) ofthe NPA Act before the DRAT, Chennai; the DRAT, by the impugnedconditional interim order of stay on 28.7.2008, directed to payRs.50 lakhs in two equal instalments (supra).11. It was submitted on behalf of the writ petitioner-Bank thatfourth respondent-borrower was able to protract the proceedings forabout two years without making any payment to the Bank, though hugepublic money is involved in this case, viz., to an extent ofRs.1,018.58 lakhs and the proportionate share of respondents 2 and3-guarantors, is 40% of the amount. 12. The case of second and third respondents (guarantors) isthat they have executed a "Power of Attorney" on 17.10.1994,appointing fourth respondent (borrower--builder) as their 'Agent' todeal with the land(s) in all respects and to give the same as acollateral security for the project loan to the tune of Rs.2 crores,to be availed of by the builder. After Rs.2 crores loan was grantedin favour of the builder, who was permitted to draw a sum of Rs.75lakhs, which the builder drew from the Bank and on the same day, thebuilder deposited the amount with the Bank as a margin money, foravailing of the loan of Rs.4 crores purportedly to start a spinningindustry or some such project(s). This is totally against the normsof the writ petitioner-Bank, as the loan of Rs.2 crores was grantedon a mortgage, expressly, for the development of the property(ies)in question by constructing the residential flat(s), but thebuilder (fourth respondent) invested Rs.75 lakhs for some otherpurpose. The writ petitioner-Bank having gone into a deep slumberfor more than a decade, has chosen to wake up only subsequently, byinitiating action against respondents 2 and 3 (guarantors) for their https://hcservices.ecourts.gov.in/hcservices/ 40% share alone and thereafter chose to include 60% share of fourthrespondent (builder), for initiating action under the provisions ofthe NPA Act. According to respondents 2 and 3, there is a collisionbetween the Bank and the borrower (builder). 13. Learned Senior Counsel appearing for respondents 2 and 3(guarantors) submitted that, in fact, without deciding the debt(s)due to the Bank, the DRAT cannot pass the impugned order under thesecond proviso to Section 18(1) of the NPA Act. It was alsosubmitted that 13 flat owners of the subject property(ies), who wereallegedly the purchasers from the builder (fourth respondent-borrower), without even obtaining any 'no objection' from the writpetitioner-Bank, preferred appeal(s) u/s 17 of the NPA Act, beforethe DRT-2 and the DRT-2, directed them to pay the amount @Rs.2,000/- per square feet and the Bank was also directed to executethe sale certificate. It is further submitted on behalf of respondents 2 and 3 thatthe DRAT has not properly appreciated the facts and the DRAT shouldhave waived the pre-deposit, instead of asking respondents 2 and 3to deposit a sum of Rs.50/- lakhs towards pre-deposit. No such ordercould have been passed by the DRAT, there being a dispute as to thequantum to be apportioned between the guarantors and builder and theamount allegedly payable by the guarantors. It is only after thedetermination of the liability of respondents 2 and 3, on merits,such order of pre-deposit could have been passed by the DRAT.14. In the counter affidavit filed in this Writ Petition, thedetails of extent of the flat(s) in question, the amount(s) payableby the flat owner(s), 40% of the due amount(s) as may be calculatedafter adjusting the aforesaid amount(s), etc., have been shown, butaccording to us, those details are not required to be determined forconsidering the issue in question.15. We have heard the learned counsel appearing for the partiesand noticed their rival contentions.16. A Division Bench of this Court, in the case of "Indian Bankand others vs. M/s.Hamosons Apparels Private Ltd and others", videcommon order dated 18.11.2008 in W.P.Nos.3958, 3959 and 5172 of 2008and 17009 of 2007 and C.R.P(PD) Nos.1519 and 3301 of 2007, held thatin all cases, irrespective of the fact whether application underSection 19 of the Recovery of Debts Due to Banks and FinancialInstitutions Act, 1993 has been filed by the secured creditor/Bankor filed and determined or filed and pending, the aggrieved personis to pay the pre-deposit amount under the second proviso to Section18(1) of the NPA Act, even for the interim order passed by the DRT,or against the order of rejection for not grant of interim order orfor any other relief, if the appeal is filed under Section 18 of theNPA Act, the aggrieved person is to pay the pre-deposit amount underthe second proviso to Section 18(1) of the NPA Act, on the basis ofthe claim made by the secured credit/Bank, if the amount due has notbeen determined by the DRT. 17. In view of the aforesaid decision of the Division Bench ofthis Court, in the case of "Indian Bank and others", the stand taken https://hcservices.ecourts.gov.in/hcservices/ by the petitioner-Bank that the DRAT ought not to have passed theimpugned order under the second proviso to Section 18(1) of the NPAAct, without prior determination of the debt amount due to thesecured creditor/Bank, cannot be accepted, and the same is rejected. 18. So far as 60% share of the builder (borrower) (i.e. fourthrespondent herein) and 40% share of the owners (guarantors) (i.e.Respondents 2 and 3 herein) of the property(ies) in question, isconcerned, it is only an agreement/arrangement (Memorandum ofUnderstanding), between the parties in regard to their respectiveshare(s) for the purpose of developing the secured property(ies) inquestion and the same being an internal arrangement between them,the writ petitioner-Bank is no way concerned with the same. What ismortgaged with the Bank (writ petitioner) is only the secured asset(s) (land(s)) in question, which allegedly belong to the owners(respondents 2 and 3 herein). Therefore, the writ petitioner-IndBank Housing Limited, is not concerned as to whether the securedasset(s) are developed or being developed or not developed, as theloan was granted to the borrower (fourth respondent) on the basis ofthe valuation of the property(ies) which have not been developedwhile granting loan to the borrower.19. Under Section 13(2) of the NPA Act, it is always open forthe secured creditor (Bank) to give notice to person(s) who haveacquired any of the secured asset(s) from the borrower(s) and fromwhom any money is due or may become due to the borrower(s) and ifnot satisfied with reply, may proceed under Section 13(4) of the NPAAct.20. In the present case on hand, both the builder (fourthrespondent-borrower) and the owners (respondents 2 and 3-guarantors)of the secured asset(s), come within the definition of "borrower"u/s 2(f) of the NPA Act and hence, it is open for the DRT/DRAT toask such person(s) (13 flat owners in the present case) to pay suchamount(s) due to the secured creditor (Bank) as the payment(s)towards the secured debt(s).21. In the aforesaid background, it is not even necessary forthe writ petitioner-Bank to ask respondents 2 and 3 to pay theamount(s) to the extent of 40% of their share, nor was it necessaryfor the DRAT to calculate the amount(s) of pre-deposit u/s 18(1) ofthe NPA Act, on the basis of 40% share of respondents 2 and 3; ifsuch calculation has been done on the basis of 40% share ofrespondents 2 and 3, it is to their advantage. It was open for thewrit petitioner-Bank to give notice for the total claim amount(s)due to the writ petitioner-Bank, both to the borrower and to theguarantors for taking common action u/s 13(4) of the NPA Act inregard to the secured asset(s) in question; in such a case, it isalso open for the DRAT to calculate the amount(s) of pre-deposit u/s18(1) of the NPA Act, on the basis of the total claim as was made bythe writ petitioner-Bank. https://hcservices.ecourts.gov.in/hcservices/

22. The Writ Petition is dismissed being devoid of merits, withthe aforesaid observations, with no order as to costs. TheMiscellaneous Petition is closed. sd/-Asst.Registrar/true copy/Sub Asst.RegistrarcsTo The Presiding Officer, Debts Recovery Appellate Tribunal, Chennai.+ 1 c.c. to Mr. G. Govindarajan, Advocate. S.R.No.65130. Order in Writ Petition No.20255 of 2008KU (CO)GSK 26.11.2008.