Indian Bank v. M/s. Punjab National Bank

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 22-07-2009CORAMTHE HONOURABLE MR. JUSTICE P.K. MISRAANDTHE HONOURABLE MR. JUSTICE R. SUBBIAHWRIT PETITION NO.25502 OF 2007Indian Bank,rep. by its Branch Manager,Overseas Branch(now transferred to ARMB)55, Ethiraj Salai,Chennai 600 008... PetitionerVs.1.M/s. Punjab National Bank,Rep. by its Senior Manager,Purasawalkam Branch,Chennai 600 084.2.The Debts Recovery Appellate Tribunal,No.55, Ethiraj Salai,Chennai 600 008.3.The Recovery Officer,The Debts Recovery Tribunal III,NO.57, 1st Floor, I Main Road,West CIT Nagar,Chennai 600 035... RespondentsPetition filed under Article 226 of the Constitution of Indiafor the issuance of Writ of Certiorari to call for the recordspertaining to the order dated 29.1.2007 passed in M.A.No.175 of 2006by the Debts Recovery Appellate Tribunal, Chennai and quash the same.For Petitioner: Mr. Jayish Dolia for M/s. Aiyar & DoliaFor Respondent-1: Mr.R. Umasuthan https://hcservices.ecourts.gov.in/hcservices/ J U D G M E N TP.K. MISRA, JThis writ petition is a fight between two NationalisedBanks, namely Indian Bank and Punjab National Bank, in the matterrelating to applicability of Section 78 of the Transfer of PropertyAct.2. The secured property in question was mortgaged by theundisputed owner with the Indian Bank on 10.5.1989, the petitioner inthe present writ petition, by depositing certified copies of thetitle deeds. The very same owner of the property subsequentlycreated another equitable mortgage over the very same property bydepositing the original title deeds with Punjab National Bank, on10.6.1989. Two banks had separately filed independent suits, whichwere transferred to the Debt Recovery Tribunals as per The Recoveryof Debts Due to Banks and Financial Institutions Act, 1993, and twoseparate orders were passed in their favour. When the PunjabNational Bank took steps to put the property for sale, objection wasraised by Indian Bank. The Debt Recovery Officer faced with theconundrum directed that the matter should be placed before thePresiding Officer of the Debt Recovery Tribunal. The contention ofthe Indian Bank before the Tribunal was to the effect that it wasadmittedly the prior mortgagee and, since at the time of creation ofthe equitable mortgage the owner had informed that the original titledeeds such as sale deed and the Will were lost and untraceable, thecertified copies of the sale deed and the Will were deposited andsubsequently the Bank also obtained an affidavit from the owner on28.7.1989, wherein it had been indicated that the original titledeeds were lost.3. The contention of the Punjab National Bank was to theeffect that the Indian Bank had acted negligently in accepting thecertified copies of the sale deed and the Will for creation of theequitable mortgage without proper verification and because of suchnegligence, the owner of the property, who was in possession of theoriginal sale deed and the original Will, created another equitablemortgage subsequently by deposit of such original documents. 4. The Debt Recovery Tribunal by referring to Section 58(f)of the Transfer of Property Act concluded that in law there was nobar in creating equitable mortgage by deposit of certified copy ofthe title deeds. The Tribunal by referring to the decisions of theCalcutta High Court reported in AIR 1961 Cal. 300 (LLOYDS BANK v.P.E. GUZDAR & COMPANY) and Kerala High Court reported in 1983 Kerala38 (STATE BANK OF INDIA v. KERALA FINANCIAL CORPORATION) furtherobserved that Punjab National Bank had not proved that Indian Bank https://hcservices.ecourts.gov.in/hcservices/ was in gross neglect while creating equitable mortgage and furtherIndian Bank had shown due diligence by obtaining sworn affidavit fromthe owner that the title deeds have been lost. Accordingly, itobserved that from out of the sale proceeds of the mortgagedproperty, the debt in favour of the Indian Bank has to be met andthereafter the surplus can be applied towards the debt in favour ofPunjab National Bank. This decision of the DRT was the subjectmatter of challenge in Appeal No.8 of 2002 filed before the DebtRecovery Appellate Tribunal (DRAT) by the Punjab National Bank.5. The DRAT, while reversing the judgment of the DRT,observed that Indian Bank had not taken proper care and caution whileaccepting the certified copies of the sale deed and the Will forcreation of the equitable mortgage. By applying the principle ofSection 78 of the Transfer of Property Act, DRAT has concluded thatsince Indian Bank was not diligent in getting proper documents fromthe borrower and the original owner took advantage by producing theoriginal deeds before Punjab National Bank for obtaining subsequentloan by deposit of original title deeds, the Punjab National Bank wasentitled to have priority as contemplated in Section 78 of the Act.6. Learned counsel appearing for the Indian Bank /appellant submitted that since creation of equitable mortgage bydeposit of certified copies of the documents of title is permissible,it cannot be said that there was any negligence far less grossnegligence on the part of the Indian Bank in creation of the mortgageand, therefore, the order passed by the Appellate Tribunal is notsustainable. 7. Learned counsel appearing for Punjab National Bank, onthe other hand, submitted that DRAT has considered the relevant factsand circumstances and come to the proper conclusion by applying theprinciple enshrined in Section 78 of the Transfer of Property Actand, therefore, there is no error of law in such order, justifyinginterference by the High Court while exercising jurisdiction underArticle 226 of the Constitution.8. Though initially there was some difference of opinionexpressed by various High Courts in India relating to validity ofcreation of equitable mortgage on deposit of certified copies of theoriginal title deeds, it can be now taken to be well settled thatthere is no legal embargo for creation of the equitable mortgage bydeposit of certified copies of original title deeds. At least thisposition appears to be well accepted so far as Madras High Court isconcerned as apparent from several decisions such as 1993(1) LW 456(M.A.V.R. NATARAJA NADAR & SONS AND 2 OTHERS v. STATE BANK OF INDIA)and 1995(1) LW 516 (RAJU PILLAI & 4 OTHERS v. V.P. PARAMASIVAM & 7OTHERS). The only question, therefore, is notwithstanding the fact https://hcservices.ecourts.gov.in/hcservices/ that a valid equitable mortgage had been created in favour of IndianBank in anterior point of time, whether it can be postponed in favourof the subsequent mortgagee, namely, Punjab National Bank, byapplying the principle of Section 78 of the Act. 9. Section 78 of the Transfer of Property Act is to thefollowing effect :-"78. Postponement of prior mortgagee.- Where, throughthe fraud, misrepresentation or gross neglect of priormortgagee, another person has been induced to advance moneyon the security of the mortgaged property, the priormortgagee shall be postponed to the subsequent mortgagee."10. In the present case, there is no question of fraud ormisrepresentation. The only requirement is whether it can be saidthat because of any gross neglect of the prior mortgagee, namely, theIndian Bank, Punjab National Bank had been induced to advance moneyon the security of the very same mortgaged property.11. Learned counsel for the Indian Bank has contended thatit cannot be said that Indian bank by its action has induced PunjabNational Bank to advance money on the security of the very samemortgaged property. In our considered opinion, this submission,however, is not acceptable, as there is no requirement that thesubsequent mortgagee should have been induced by the prior mortgagee.On the other hand, it is apparent that because the original titledeeds were all along with the owner, such owner was able to inducePunjab National Bank to advance money on the security of the verysame mortgaged property. The basic question therefore remains iswhether the Indian Bank can be said to have acted in a grosslynegligent manner by accepting creation of equitable mortgage on thebasis of certified copies of the original title deeds. 12. In the present case, there is no dispute that the ownerclaims title by virtue of a sale deed of the year 1935 and asubsequent registered Will. However, at the time of creation of theequitable mortgage, dated 10.5.1989, the Indian Bank does not appearto have acted in a manner expected of a man of ordinary prudence. Itis no doubt true that about two months after creation of suchequitable mortgage, the Indian Bank had obtained an affidavit fromthe original owner that the original title deeds were lost. This,however, instead of fortifying the case of the Indian Bank on thequestion of negligence, in our opinion, would only be a circumstanceto prove that at the time of creation of equitable mortgage, theIndian Bank had not acted prudently as would have been expected froma nationalised bank.13. If the original owner had stated at the beginning thatoriginal title deeds were lost, in normal circumstances, a bank would https://hcservices.ecourts.gov.in/hcservices/ be expected to make certain verification or even require theintending borrower to publish adequate notice. Moreover, the factthat the affidavit was taken two months after would only indicatethat at the initial stage no query was made regarding the absence oforiginal title deeds. Otherwise, under such normal circumstances,one would have expected that the Bank would obtain an affidavit onthe date of transaction itself. From the facts and circumstances ofthe case, it is apparent that the Indian Bank in its apparent hurryto enter into the transaction, had omitted to take minimum precautionand because of such negligence on the part of the Indian Bank, theowner of the property was subsequently able to induce Punjab NationalBank to advance loan by creating equitable mortgage by deposit oforiginal title deeds. This is precisely the conclusion of theAppellate Tribunal. Whether there was gross negligence on the partof the Indian Bank was essentially a mixed question of fact and law.It cannot be said that the Appellate Tribunal has misapplied the law.If the Appellate Tribunal, on the basis of the facts andcircumstances of the case, has come to a factual conclusion can it besaid that there was an error of law apparent on the face of recordrequiring interference by the High Court in exercise of jurisdictionunder Article 226/227 of the Constitution of India. 14. Counsel for the Indian Bank vehemently contended thatthe burden was on the Punjab National Bank to plead and prove thatthere was gross neglect on the part of the Indian Bank. Can it besaid that the facts and circumstances were not sufficient to provegross negligence ?15. From the facts and circumstances, which have beennoticed by the Recovery Officer and subsequently by DRT as well asDRAT, the following undisputed circumstances emerge :-(1) The Indian Bank had accepted the certified copies of theoriginal title deeds i.e., sale deed and the registered Will at thetime of creation of the equitable mortgage.(2) There is nothing to indicate that Indian Bank had taken anycare at the time of creation of mortgage to investigate as to why theoriginal title deeds were not produced.(3) Affidavit to the effect that the original title deeds werelost was given by the owner after about two months.16. From these circumstances, which are not in dispute atall, the reasonable inference as has been drawn by the AppellateTribunal is that the Indian Bank had not taken proper care at thethreshold. https://hcservices.ecourts.gov.in/hcservices/

17. For the aforesaid reasons, we are unable to interferewith the order passed by the Debts Recovery Appellate Tribunal.Accordingly, the writ petition is dismissed. No costs.Sd/Asst.Registrar/true copy/Sub Asst.RegistrardpkTo1.The Debts Recovery Appellate Tribunal,No.55, Ethiraj Salai,Chennai 600 008.2.The Recovery Officer,The Debts Recovery Tribunal III,NO.57, 1st Floor, I Main Road,West CIT Nagar, Chennai 600 035.1 cc To M/S.Aiyar & Dolia, Advocate, SR.33493.WP.25502/2007 KK(CO)RVL 31.07.2009