M/s.Merit International Educational Foundation (Regd.) v. Canara Bank & Ors.

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 24.8.2009CORAM:THE HONOURABLE MR.JUSTICE ELIPE DHARMA RAOANDTHE HONOURABLE MR.JUSTICE M.VENUGOPALWrit Petition No.16914 of 2009andM.P.No.1 of 2009M/s.Merit International Educational Foundation (Regd.)represented by its Trustee Mr.M.R.Sarangapani,No.320/199, Royapettah High Road,Mylapore, Chennai-600004... Petitioner Vs.1.The Authorised Officer, Canara Bank, Teynampet Branch, Teynampet, Chennai-18.2.Sri Lakshmi Ammal Educational Trust, represented by its Authorised Signatory S.K.Annadurai, No.29, Tilak Street, T.Nagar, Chennai-600017... Respondents Writ Petition filed under Article 226 of the Constitution,praying to issue a Writ of Certiorari to call for the records on thefile of the Sessions Judge of Nilgiris at Udhagamandalam inCr.M.P.No.141/2009 and quash the order dated 29.4.2009 grantingpolice protection to take possession of the petitioner's propertymeasuring an extent of 10.34 acres namely the land and buildingbearing Door No.4/278 Ooty-Kothagiri Main Road, Doddabetta junction,Nilgiris-643001 comprised in R.S.No.222/1,NewR.S.No.630/1,buildingmeasuring 77,222 sq.ft.For petitioner : Mr.S.Ramasamy for Mr.G.DesinguFor R.1 : Mr.G.Masilamani, Senior Counsel for Mr.Srinath SridevanFor R.2Mr.Venkatesh Mahadevan https://hcservices.ecourts.gov.in/hcservices/ O R D E RELIPE DHARMA RAO, J.One M/s.Merit Resorts Private Limited, having their office atNo.547, Anna Salai, Chennai-600018 (hereinafter referred to as the'borrower company') had borrowed a sum of Rs.13 crores as loan fromthe first respondent Bank and created an equitable mortgage over theproperty at Door No.4/278, Ooty-Kotagiri Main Road, DoddabettaJunction, Nilgiris as a security for the above said loan. Since thesaid company has committed default in payments, the first respondentBank had issued a notice dated 31.10.2005, demanding payment of thesum of Rs.10,77,02,656/= together with interest at the rate of 10%p.a. from 1.9.2005 and as the borrower company did not comply withthe above demand, the first respondent Bank initiated the proceedingsunder the Securitisation and Reconstruction of Financial Assets andEnforcement of Security Interest Act, 2002 (Act 54 of 2002) (SARFAESIAct in short) and issued a statutory notice under Section 13(2) ofthe SARFAESI Act to the said company on 4.1.2006, calling upon thesaid borrower company to repay the sum of Rs.10,77,02,656/= (RupeesTen Crores Seventy Seven Lakhs Two Thousand Six Hundred and Fifty sixonly) and also published the said notice in the English Daily 'TheHindu'. The said notice issued under Section 13(2) was challenged bythe borrower company before the Debts Recovery Tribunal-I, Chennai inS.A.No.27 of 2006 and the same was dismissed by the Tribunal, asbeing premature, since it was challenging only the notice issuedunder Section 13(2). 2. Thereupon, the first respondent Bank issued a notice ofpossession under Section 13(4) of the SARFAESI Act on 5.9.2006.Again the borrower company preferred an appeal in S.A.No.109 of 2007as against the said possession notice, before the Debts RecoveryTribunal-I, Chennai and the Tribunal has granted an interimconditional order in favour of the borrower company, but since thesaid conditional order was not complied with, the interim order wasvacated by the Tribunal and the said order of the Tribunal hasattained finality. Therefore, the first respondent Bank had issuedthe sale notice on 30.8.2007, inviting tenders from the generalpublic for the auction of the properties. 3. Challenging the said sale notice, one Shalini, said to beone of the Directors of the borrower company preferred an appeal inS.A.No.260 of 2007 before the Debts Recovery Tribunal-I, Chennai andthe same was dismissed by the Tribunal on 18.10.2007, holding thatthe sale of the property sought to be injuncted, was owned only bythe borrower company vide sale deeds registered as DocumentNos.340/1999, 657/1999 and 906/2001 and a Director of the saidcompany, individually, is not a proper party to sue and that aDirector or a shareholder of a company, while subscribing to the https://hcservices.ecourts.gov.in/hcservices/ shares of the company, do not purchase any right over the assets ofthe company and the company per se, in the eye of law, would alwaysremain a juristic person, with all rights to own movable andimmovable assets and sue or be sued in its own name. This order ofthe Tribunal was unsuccessfully challenged before the Debt RecoveryAppellate Tribunal in R.A.(SARFAESI) 54/2008 by the said DirectorShalini and the same was also dismissed on 18.7.2008. Thereupon, shefiled W.P.No.23709 of 2008 before this Court, which was dismissed bythis Court on 17.4.2009. It seems, even the Special Leave PetitionNo.11505 of 2009 filed before Honourable Apex Court has met the samefate of dismissal. Thus, with dismissal orders served at allappellate and revisional forums, upto the Honourable Apex Court, asagainst the above said Director of the borrower company, the orderpassed by the Tribunal has attained finality.4. In the meantime, the first respondent Bank has proceededwith the sale and conducted auction on 4.10.2007, wherein the secondrespondent has emerged as the successful purchaser. According to thefirst respondent Bank, the second respondent/purchaser had compliedwith all the conditions of auction sale and therefore, they haveissued a Certificate of Sale in favour of the second respondent Truston 15.10.2007 and the same has been registered as Document No.1875 of2007 on 17.10.2007 in the office of the Sub Registrar at Ootacamund. 5. Thereupon, the first respondent Bank and the secondrespondent/auction purchaser have filed a petition under Section 14of the SARFAESI Act before the learned District Judge-cum-ChiefJudicial Magistrate at Udhagamandalam in C.M.P.No.141 of 2009 asagainst the above said M/s.Merit Resorts Private Limited, theborrower company, represented by its Managing DirectorMr.S.Harshavardhan as the first respondent and its Directors asrespondents 2 to 6 and the present writ petitioner viz. M/s.MeritInternational Educational Foundation as the seventh respondent. Inthe said petition, it has been prayed to issue appropriate orders anddirections to take forcible possession of the secured assets togetherwith documents, by using such force as may be necessary and fromwhosoever found in possession and by breaking open the locks, if thesituation so demands and to hand over the same to the secondrespondent Trust herein, as provided under Section 14 of the SARFAESIAct and the Security Interest Enforcement Rules framed thereunder andalso to issue appropriate orders to the concerned Police Stationwithin whose jurisdiction the said secured assets are situated, toprovide necessary police protection during the taking over of thesecured properties. The learned District and Sessions Judge-cum-Chief Judicial Magistrate, Udhagamandalam, by the impugned orderdated 29.4.2009 has allowed the said petition filed by therespondents herein, who are the creditor Bank and the auctionpurchaser, ordering that they can take possession of the propertieswith the help of police and the concerned police having jurisdiction https://hcservices.ecourts.gov.in/hcservices/ over the place in which the above properties are situate, are alsodirected to give necessary aid in accordance with law to them to takepossession of the properties. 6. This order passed by the learned District and SessionsJudge-cum-Chief Judicial Magistrate, Udhagamandalam is underchallenge in this writ petition by the petitioner. The case of thepetitioner is that they are an Educational Trust formed with theobjective to provide qualitative education in Hotel Management,Catering Technology, in-house training and such other activities ofeducation and since they required substantial area of accommodationto accommodate its students at single large area for better co-ordination among students, easy accessibility to laboratories,libraries etc., they have entered into an agreement of lease with theborrower company viz. M/s.Merit Resorts Private Limited Company on27.4.1998 and subsequently a Memorandum of Understanding for lease ofHostel accommodation on 21.4.2009. 7. According to the petitioner, as per the said Memorandum ofUnderstanding, it was agreed between the writ petitioner and theborrower company that the borrower company shall offer 1,50,000square feet (approximately) for the hostel accommodation of students,besides provision of auditorium, conference halls, sports area withsuch other amenities; that they shall be making lease rental advanceof Rs.1200 lakhs for the ongoing proposed accommodation project; thatthe original title deeds of the property would be deposited by theborrower company with the writ petitioner till the refund of leaseadvances by the company. It has been submitted by the petitioner thatin terms of the agreement, the writ petitioner Trust had paid totallya sum of Rs.9,40,03,512/= as long term lease advance as on 31.3.2002and the lessor company had constructed a built up area about 70,000sq.ft. and further in terms of the Memorandum of Understanding, theowners of the property had, on 31.3.2002, deposited the title deedsof the property viz. land and building at Door No.4/278, Ooty-Kothagiri Road, Kodapetta Junction, Nigiris with the writ petitioneras security for the lease advances paid by the writ petitioner andthereby created an equitable mortgage over the schedule property. 8. The writ petitioner would further submit that one of theDirectors of the borrower company fabricated an agreement of leasedated 15.1.2000 as if the writ petitioner Trust agreed to pay annualrent of Rs.3 crores for the period of 15 years commencing from1.4.2000 and based on the said rental agreement, he had approachedthe first respondent Bank and obtained CAN Rent Loan to the extent ofRs.16 crores on 27.12.2004 and the loan was to be repaid in 84monthly statements and that the said Director had resigned from theDirectorship on 13.1.2005. The petitioner would submit that the saidex-Director had fabricated the loan documents, as if the loan wasavailed by the company and he had also forged documents of the title https://hcservices.ecourts.gov.in/hcservices/ deeds in respect of the Ooty property and created equitable mortgage.9. It has also been submitted that the order of the learnedSessions Judge, Udhagamandalam, permitting the respondents to takepossession of the property, knowing fully well that the property isoccupied by a tenant namely the writ petitioner, would amount totaking delivery of the property, which is in possession of thepetitioner as a lawful tenant without following the due process oflaw. It has also been submitted that the Bank cannot invoke theprovision of Section 14 of the SARFAESI Act to take possession of aproperty which is in the possession of a lawful tenant and byallowing the respondent to take possession of a property from thehands of lawful tenant would violate the principles of naturaljustice as a tenant is not a borrower and was inducted to theproperty much before the mortgage was created. On such and othergrounds, the writ petitioner would pray to set aside the impugnedorder.10. Heard Mr.S.Ramasamy, learned counsel for the petitionerand Mr.G.Masilamani, learned senior counsel for the respondents.11. The learned counsel for the petitioner would attack theimpugned order on the ground that the order has been passed by theDistrict Judge, which is impermissible under Section 14 of theSARFAESI Act and on this ground itself, the impugned order is liableto be set aside.12. For better appreciation, we extract hereunder Section 14of the SARFAESI Act:"14. Chief Metropolitan Magistrate or District Magistrateto assist secured creditor in taking possession ofsecured asset -(1) Where the possession of any secured asset is requiredto be taken by the secured creditor or if any of thesecured asset is required to be sold or transferred bythe secured creditor under the provisions of this Act,the secured creditor may, for the purpose of takingpossession or control of any such secured asset, request,in writing, the Chief Metropolitan Magistrate or theDistrict Magistrate within whose jurisdiction any suchsecured asset or other documents relating thereto may besituated or found, to take possession thereof, and theChief Metropolitan Magistrate or, as the case may be, theDistrict Magistrate shall, on such request being made tohim -(a) take possession of such asset and documents relatingthereto; and(b) forward such asset and documents to the securedcreditor. https://hcservices.ecourts.gov.in/hcservices/ (2) For the purpose of securing compliance with theprovisions of sub-section (1), the Chief MetropolitanMagistrate or the District Magistrate may take or causeto be taken such steps and use, or cause to be used,suchforce, as may, in his opinion, be necessary. (3) No act of the Chief Metropolitan Magistrate or theDistrict Magistrate done in pursuance of this sectionshall be called in question in any Court or before anyauthority."13. On a careful perusal of the above Section, there is nodoubt or ambiguity, that an application under this Section has to befiled by the secured creditor either before the Chief MetropolitanMagistrate or the District Magistrate.14. At this juncture, we feel it appropriate to mention thatin a similar case, a learned single Judge of the Madurai Bench ofthis Court in Criminal Original Petition (MD) No.3102 of 2008, filedunder Section 482of the Criminal Procedure Code, had referred alegal question to be decided by a Division Bench, as to whether theterm 'Chief Metropolitan Magistrate' used in Section 14 of theSARFAESI Act includes 'Chief Judicial Magistrate also' since theterms "Chief Metropolitan Magistrate and District Magistrate" havenot been defined in the SARFAESI Act. In the above said matter, thisDivision Bench had the occasion to hear and decide the matter, whilewe were sitting at Madurai Bench of this Court. By our order dated30.7.2008 in the above said Criminal Original Petition (MD) No.3102of 2008 [INDIAN OVERSEAS BANK, K.ABISHEKAPURAM BRANCH, MANNAPURAM,TIRUCHIRAPPALLI-620020, REP.BY THE AUTHORIZED OFFICER, A.RASHEEDKHANvs. M/s.SREE ARAVINDH STEELS LTD. AND OTHERS], it has been held that'the term 'Chief Metropolitan Magistrate' will have reference to aMetropolitan area and the term 'Chief Judicial Magistrate' will havereference to an area outside a Metropolitan area' and therefore, theChief Judicial Magistrate, is having the jurisdiction to entertainthe petition filed by the secured creditor under Section 14 of theSARFAESI Act. Now, therefore, there is no doubt that the term 'ChiefMetropolitan Magistrate' used in Section 14 of the SARFAESI Act willhave reference even to the Chief Judicial Magistrate. Therefore, itfollows that a petition under Section 14 of the SARFAESI Act can befiled before a Chief Metropolitan Magistrate, in a metropolitan area,before a Chief Judicial Magistrate in his jurisdictional area or theDistrict Magistrate regarding other areas like the rural areas, asthe case may be.15. In these circumstances, now we have to see as to whetherthe argument advanced on the part of the learned counsel for thepetitioner that the impugned order having been passed by the DistrictJudge, which is impermissible under Section 14 of the SARFAESI Act,the same is liable to be set aside, merit consideration or not. https://hcservices.ecourts.gov.in/hcservices/

16. The judicial district of Nilgiris is headed by theDistrict Judge-cum-Chief Judicial Magistrate. Therefore, the learnedJudge will act as the District Judge, Sessions Judge and also as theChief Judicial Magistrate, depending upon the nature of the case hedeals with. As could be seen from the petition in C.M.P.No.141 of2009, it has been filed before 'the Chief Judicial Magistrate-cum-District Judge at Udhagamandalam' and the learned Judge hasentertained the petition, in his capacity as the Chief JudicialMagistrate. But, a typographical error has crept into the order,mentioning the designation of the learned Judge as the 'SessionsJudge', instead of mentioning it as the 'District and Sessions Judge-cum-Chief Judicial Magistrate', and from such an inadvertenttypographical error, no advantage would flow to the petitioner.Therefore, this argument advanced on the part of the petitioner meritno consideration and the same is, accordingly, rejected.17. Coming to the other argument advanced on the part of thelearned counsel for the petitioner that since they being the lawfultenants, the Bank cannot invoke the provision of Section 14 of theSARFAESI Act to take possession of a property, it is to be mentionedthat the property belongs to the borrower company and a portion ofthe same is said to have been leased out to the petitioner Trust.The Founding Directors of both the borrower company and the presentwrit petitioner Trust are one and the same viz. Mr.M.R.Sarangpani,his wife Mrs.S.Shalini and son Mr.S.Harshavardhan. One more thing tobe pointed out is that a tripartite agreement has been entered intoby the borrower company, the first respondent Bank and the lesseei.e. the present writ petitioner Trust on 7.1.2005, wherein it hasbeen agreed that the borrower directed the lessee to pay the monthlyrent to the Bank and authorized the Bank to receive the monthly rentof Rs.28,94,892/= directly from the lessee and in clause clause 6(a)of the said agreement, it has been agreed that 'if the lesseedefaults in paying even one month rent (within) the stipulated time,the bank shall, without concurrence of the borrower/lessor, beentitled to initiate appropriate steps including termination of leaseand such steps shall be taken at the sole discretion of the bank andwithout any obligation on the part of the Bank'. Significantly, inthis tripartite agreement, the said S.Harshavardhan has signed as'authorised signatory' both for the borrower company (i.e. the ownerof the property) and for the lessee Trust. The Bank hasproceededagainst the property in a lawful and legal manner, which wereunsuccessfully challenged by the borrower company and its Directorsat various levels. The rights would flow to the lessee or thepurchaser only from the original owner. When the original ownerhimself has suffered an order at the hands of the judicial forums,the tenant or the purchaser cannot cling on his so called rightsflown to him from the original owner. In the case on hand, theborrower company has offered the property as a security and the same https://hcservices.ecourts.gov.in/hcservices/ has been brought for sale by the respondent Bank, after followingdue process of law. If any prejudice is caused to the petitioner byvirtue of the orders passed against the borrower company, whomortgaged the land and obtained loan, before the expiry of the leaseperiod, he can claim damages or any such other reliefs against theowner of the property. If at all, if they are so advised, thepetitioner Trust has to sue the borrower company, which has leasedout the property to the petitioner Trust. Therefore, this argumentadvanced on the part of the petitioner also must fail. In thepresent case, since as has already been observed by us supra, thelessee Trust is nothing but an off-shoot of the borrower company, anysuch initiation of the proceedings by the lessee Trust against theborrower company, may only amount to spitting on the sky.18. On a perusal of the entire materials placed on record, itis seen that as against the very same impugned order passed by thelearned District Judge-cum-Chief Judicial Magistrate, Udhagamandalam,the above said Shalini, said to be one of the Directors of theborrower company, had filed Criminal Revision Case No.472 of 2009before this Court in her individual capacity, praying to quash theorder passed in Crl.M.P.No.141 of 2009. The said Revision Petitionwas dismissed as withdrawn on 6.5.2009. Thereafter, she has filedW.P.No.9200 of 2009 again in her individual capacity as one of theDirectors of the borrower company, praying to quash the very sameimpugned order and the said writ petition was also dismissed aswithdrawn on 8.6.2009. Thereafter, W.P.No.10228 of 2009 was filed bythe borrower company M/s.Merit Resorts Private Limited, representedby its Director Mrs.S.Shalini, again for the same relief of settingaside the order passed by the learned District Judge-cum-ChiefJudicial Magistrate, Udhagamandalam in Crl.M.P.No.141 of 2009. ADivision Bench of this Court, while taking up the said matter alongwith two other similar matters, by the common order dated 30.7.2009,on a thorough discussion of the entire case, has dismissed the saidwrit petition as devoid of merits. On such dismissal of the writpetition filed by Mrs.S.Shalini, the present writ petition came to befiled by her husband Mr.Sarangapani as the Trustee of M/s.MeritInternational Education Foundation on 19.8.2009. On a close scrutinyof the entire materials placed on record, we are able to find that itis nothing but a old wine in the new bottle and it appears that thepetitioner is trying to deviate itself from the borrower company, asif they both are different entities, when the facts on record speakotherwise and make it crystal clear that the founder directors ofboth the borrower company and the lessee Trust are one and the same.19. A desperate attempt has been made on the part of thepetitioner that if the respondents are permitted to take over thepossession, much injustice will be caused to the students, who arenumbering nearly 2,500 and pursuing their studies with the Collegebeing run by the petitioner Trust. The petitioner placed much https://hcservices.ecourts.gov.in/hcservices/ reliance on the Memorandum of Understanding dated 21.4.2009, enteredinto by the borrower company and the petitioner Trust. As hasalready been discussed supra, the SARFAESI proceedings are pendingagainst the borrower company from the beginning of the year 2006 andthereafter, all futile attempts are being made on the part of theborrower company or its Directors to stall the proceedings somehow orother. Knowing pretty well the consequences and the lack of legalsanctity for such an understanding, the petitioner, who is nothingbut an off-shoot of the borrower company, cannot be permitted toputforth this type of argument, seeking clemency of this Court. 20. Viewing from any angle, this petition merit noconsideration and as has already been observed by us supra, thispetition is nothing but an extension of the delay tactics beingplayed on the part of the borrower company, of course through thepetitioner Trust, which is nothing but an off-shoot of the borrowercompany.For all the above reasons, this writ petition is dismissed.No costs. Consequently, M.P.No.1 of 2009 is also dismissed.Sd/Asst.Registrar/true copy/Sub Asst.RegistrarRaoTo1. The Sessions Judge,Nilgiris at Ootacamandalam.2. The Authorised Officer,Canara Bank,Teynampet Branch,Chennai - 18.1 cc To Mr.Venkatesh Mahadevan, Advocate, SR.40765.2 cc To Mr.G.Desingu, Advocate, SR.40747.Order in W.P.No.16914/2009KA(CO)RVL 28.08.2009