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The Code Of Civil Procedure (Amendment) Act, 2002
Section 13 in The Code Of Civil Procedure (Amendment) Act, 2002
The Interest Act, 1978
Article 227 in The Constitution Of India 1949
M/S Transcore vs Union Of India & Anr on 29 November, 2006

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Madras High Court
Tamilnad Mercantile Bank Ltd vs R.Rangaswamy on 13 April, 2010

IN THE HIGH COURT OF JUDICATURE AT MADRAS

DATED : 13.04.2010

CORAM :

THE HONBLE MR. JUSTICE S.TAMILVANAN

C.R.P (NPD) No.4173 of 2009

and M.P.No.1 of 2009

Tamilnad Mercantile Bank Ltd.,

George Town Branch, Rep. by its

Chief Manager,

STS Complex, I Floor,

No.194, Anna Pillai Street,

Broadway, Chennai  600 001. .... Petitioner

vs.

1. R.Rangaswamy

2. M/s. KICM (Madras) Ltd.,

A Company Registered under

Companies Act,

Registered Office at

Kekkatty Road, Ketty Village,

Yellanhalli Post,

Nilgris District  643 243. .... Respondents

Civil Revision Petition filed against the Order, dated 12.11.2009 made in E.A.No.28 of 2009 in E.P.No.15 of 2008 in O.S.No.4 of 2007 on the file of the District Court, Ootacamund.

For Petitioner : Mr.P.S.Raman, Senior Counsel

for Mr.V.Chandrasekaran

For Respondents : Mr.S.K.Rakhunathan for R1

O R D E R

The Civil Revision Petition is directed under Article 227 of the Constitution of India against the Order and Decretal Order, dated 12.11.2009 made in E.A.No.28 of 2009 in E.P.No.15 of 2008 in O.S.No.4 of 2007 on the file of the District Court, Ootacamund.

2. The petition in E.A.No.28 of 2009 was filed under Order XXI Rule 58 and Section 151 CPC r/w Rule 175 of Civil Rules of Practice by the petitioner / claimant, seeking an order allowing the claim petition and release the property described in the schedule herein from the attachment made by the Court below in E.P.No.15 of 2008 in O.S.No.4 of 2007. Counter was filed by the first respondent / decree-holder as well as the second respondent / judgment-debtor.

3. It is seen from the Docket order, dated 12.11.2009 passed in E.A.No.28 of 2009 that the Court below has dismissed the Execution Application, which reads as follows :

"Heard. Since sale papers are filed, subject to the mortgager of the bank, this petition becomes infructuous, hence petition is dismissed. No costs. "

4. Mr.P.S.Raman, learned Senior Counsel appearing for the petitioner / claimant submitted that the District Court has committed patent error, by summarily dismissing the application filed under E.A.No.28 of 2009 by its order, dated 12.11.2009. In the grounds of appeal, the petitioner has stated that the amount payable towards the decree obtained by the first respondent is only Rs.55,43,870/-, whereas the outstanding amount payable to the petitioner bank by the second respondent, who is stated as judgment-debtor is Rs.16,29,57,436/- as on 12.03.2009.

5. Learned Senior Counsel argued that the Court below , without affording proper opportunity to the petitioner bank, being the mortgagee of the property, passed an order of attachment to bring the property for sale to realise the amount payable to the first respondent / decree-holder. According to the petitioner, it is a registered mortgage created in favour of the petitioner herein, the first respondent / decree-holder could have knowledge about the right of the petitioner as mortgagee. Only after releasing the amount payable to the petitioner bank under the mortgage, the first respondent can exercise his right, based on the attachment made, pursuant to the decree obtained by him. If there is any balance left out, after realising the amount due and payable to the petitioner, the first respondent will be entitled to the amount towards the satisfaction of the decree. Learned Senior Counsel also drew the attention of this Court to Sections 13 (4) and 34 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ( herein after referred to as 'SARFAESI ACT').

6. It was further argued that as per Sub-section 4 (a) of Section 13 of SARFAESI ACT, the Bank took possession of the secured assets of the borrower including the right to transfer by way of leases, assignment or sale for realising the secured asset. When the borrower fails to discharge his liability in full within the period specified in Sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover the amount.

7. It is not in dispute that the petitioner / claimant is a scheduled bank and also a secured creditor for the loan obtained by the second respondent herein and as such, the petitioner, being the mortgagee is entitled to realise the amount by bringing the mortgaged property for sale.

8. Mr.S.K.Rakhunathan, learned counsel appearing for the first respondent / decree-holder submitted that there is no error committed by the first respondent / decree-holder in bringing the property for sale, pursuant to the decree obtained by him. Learned counsel for the first respondent has not disputed the fact that mortgage was created on the property in favour of the petitioner Bank by the second respondent. However, the learned counsel contended that the attachment made pursuant to the decree obtained by the first respondent need not be raised.

9. Learned Senior counsel appearing for the petitioner also drew the attention of this Court to Section 34 of the SARFAESI Act, under which there is a bar of Civil Court jurisdiction. As per Section 34 of the SARFAESI Act, no civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under the Act to determined and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.

10. Learned Senior Counsel appearing for the petitioner submitted that as per Section 34 of SARFAESI Act, action taken under the Act will prevail over the jurisdiction of the civil court in view of the overriding effect available.

11. Per contra, Mr.S.K.Rakhunathan, learned counsel appearing for the first respondent / decree-holder submitted that the first respondent, being the decree-holder is entitled to file Execution Petition, in order to realise the decree amount and the first respondent's right cannot be denied by the petitioner. According to him, the bar of civil jurisdiction under Section 34 of SARFAESI Act is not applicable to the claim of the first respondent, as he is not claiming anything against the Act and he is stranger to the revision petitioner herein.

12. As per Order 21 Rule 58 (2) CPC, all questions (including questions relating to right, title or interest in the property attached) arising between the parties to a proceeding or their representatives under the Rule, which are relevant for the adjudication of the claim or objection, shall be determined by the Court dealing with the claim or objection and not by a separate suit and therefore, it is clear that to decide all questions relating to right, title or interest in the property, no separate suit is required to be filed by the parties.

13. In the instant case, it is not in dispute that the first respondent had obtained a decree and pursuant to the decree, attached the property belongs to the second respondent / Judgment-debtor on 23.01.2009. It is seen that three registered mortgage deeds had been created in favour of the petitioner bank by the second respondent herein on 17.09.2004, 05.11.2004 and 13.06.2005 respectively. The demand notices under SARFAESI Act was issued to the mortgagor by the petitioner herein on 29.10.2008 and 31.10.2008, as per the copies of the said document available at page numbers 49 and 52 of the typed set. As per letter, dated 12.03.2009, the District Court, Ootacamand, intimated the attachment to the Sub-Registrar, Coonoor stating that the immovable property was attached on 23.01.2009, as per the order passed in E.P.R.No.15 of 2008 in O.S.No.4 of 2007 on the file of the said Court. Therefore, it is not in dispute that the three registered mortgages were earlier to the attachment made in the Execution Petition in E.P.R.No.15 of 2008. Similarly, demand notices under SARFAESI Act had been sent to the second respondent, mortgagor on 29.10.208 and 31.10.2008 respectively, prior to the attachment made in the Execution Petition in favour of the petitioner herein.

14. It is not in dispute that the first respondent / decree-holder in the suit in O.S.No.4 of 2007 is a stranger to the petitioner bank, as far as the demand notices sent under the SARFAESI Act are concerned. The suit filed by the first respondent in O.S.No.4 of 2007 is a simple money suit to release the amount advanced by the first respondent to the second respondent herein and therefore, the decree obtained by the first respondent cannot be construed as a bar in taking action under Section 34 of the SARFAESI Act. However, the order of attachment, dated 30.01.2009 made on the property is concerned, it can be construed only as a second charge created on the property, since earlier charge was created by the second respondent / judgment-debtor in favour of the petitioner Bank, in spite of subsequent attachment made in favour of the first respondent / decree-holder, the petitioner bank has priority in realising the amount due, as first charge holder over the property.

15. Learned Senior counsel for the petitioner relied on the decision, Transcore vs. Union of India, reported in 2008 (I) SCC 125, in support of his contention and argued that the impugned order is not legally sustainable. In the said decision, the Hon'ble Apex Court has made it clear that in the event of non-payment of secured debts by the borrower, notice of demand given under Section 13(2) under the Act is very similar to that of notice of demand made under Section 156 of the Income Tax Act, 1961. After classification of the account due and payable under the SARFAESI Act, a last opportunity is given to the borrower, which is sixty days to repay the debt. The scheme of Sections 13 (2), (3) and (3-A) of the SARFAESI Act shows that notice given under Section 13 (2) is not merely a show cause notice, but it is a notice of demand of amount and an action being taken under the SARFAESI Act. This Section 13 (13) further fortifies the view that notice under Section 13 (2) is not merely a show cause notice and in fact, Section 13 (13) indicates that the notice under Section 13 (2) in effect operates as an attachment / injunction restraining the borrower from disposing of secured assets. As per the ruling of the Hon'ble Apex Court, it is made clear that the notice issued under Section 13 (2) in effect operates as an attachment or injunction restraining the borrower from disposing of the secured assets.

16. In the light of the decision of the Hon'ble Apex Court, as per Section 13 (2) of the Act, in effect operates an attachment or injunction restraining the borrower, namely the second respondent herein from disposing of the secured assets.

17. In the landmark Judgment, relating to SARFAESI Act, Mardia Chemicals Ltd., vs. Union of India, reported in 2004 (4) SCC 311, a Full Bench of the Hon'ble Apex Court has ruled that the provisions as contained under Sections 13 and 17 of the Act provide an adequate and efficacious mechanism to consider and decide objections / disputes raised by a borrower against the measures contemplated under Section 13, in view of the bar on approaching the civil court under Section 34 of the Act. In view of Section 34 of the Act, the Civil Court jurisdiction is ousted to entertain any suit or proceeding in respect of any matter relating to Debts Recovery Tribunal or the Appellate Tribunal, which is empowered under this Act and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under the Act or under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.

18. It is an admitted fact that the properties, attached in the Executing Proceedings in E.P.No.15 of 2008 on the file of the Court below are the properties already mortgaged to the petitioner bank, under the registered mortgage deeds, dated 17.09.2004, 05.11.2004 and 13.06.2005. As mortgagor, the second respondent herein had failed to discharge the debts and demand notices dated 29.10.2008 and 31.10.2008 respectively were issued under the SARFAESI Act by the petitioner. In such circumstances, as per the ruling of the Hon'ble Apex Court rendered in 2008 (1) SCC 125 (cited supra), it is to be construed that the notice sent under Section 13 (2) is not a mere show cause notice, but which constitutes an action taken by the bank under the SARFAESI Act. Therefore, the first respondent, being the decree-holder can attach any property belongs to the second respondent, judgment-debtor, only subject to the first mortgage created in favour of the petitioner bank and also the proceeding initiated under the Act.

19. Learned counsel appearing for the first respondent submitted that an order passed under Order 21 Rule 58 CPC is an appealable order and therefore, the revision preferred under Article 227 by the petitioner herein is not legally sustainable. It is a settled proposition of law that when there is an abuse of process of Court, to meet the ends of justice, the superintending power is vested with this Court under Article 227 of the Constitution of India. In the instant case, the Court below has passed a crippled impugned order against the mandate of Order 21 Rule 58 CPC. It cannot be disputed that under Order 21 Rule 58 CPC, the Court has to pass a speaking order, especially when it is an appealable order. However, it is seen that the Court below has not discussed anything on the pleadings of the petitioner, counter raised by the respondents and the reasons for the dismissal of the Execution Application, hence, as contended by the learned Senior counsel for the petitioner, it has to be construed only crippled order and not a speaking order, though provision mandates for a speaking order, as it is an appealable order and further, the impugned order is against the provisions of SARFAESI Act, which bars the civil court jurisdiction in respect of any proceeding taken under the said Act. Though there is no bar for the first respondent / decree-holder in filing a suit independently against the second respondent / judgment-debtor and he being the decree-holder can attach the property and bring the same for sale to realise the amount, so as to satisfy the decree, which is subject to the provisions of SARFAESI Act, since already proceeding was initiated by the petitioner Bank over the property under the SARFAESI Act. It is seen that demand notices were already issued by the petitioner-Bank under SARFAESI Act, hence, the firs respondent / decree-holder is not entitled to bring the property for sale by claiming preferential right, by way of subsequent attachment made on the property in the E.P Proceedings.

20. It is well settled that as per Order 21 Rule 58 (2) CPC, Executing Court cannot summarily reject or dismiss the petition filed by the revision petitioner, who has preferential right over the property under SARFAESI Act, having first charge over the property as mortgagee. The amount due and payable towards the petitioner bank is Rs.16,29,57,436/- as on 12.03.2009. Hence, against the right of the Revision Petition in realising the aforesaid amount, the first respondent / decree-holder cannot bring the property for sale to realise his amount, since the revision petitioner has first charge / attachment over the property. It cannot be disputed that if the property is brought for sale in the E.P, it would certainly prejudice the right of the revision petitioner. As the notice issued under Section 13 (2) on 29.10.2008 itself has to be construed as an attachment or injunction restraining the second respondent mortgagor from alienating the property, in the same analogy, the first respondent / decree-holder, who got only subsequent attachment or charge over the property cannot claim preferential right over the property than the petitioner, who got earlier attachment.

21. Considering the facts and circumstances of the case and in the light of the decisions rendered by the Hon'ble Apex Court referred to above, I am of the view that the order passed by the court below is against the provisions of SARFAESI Act and also against the provisions of Order 21 Rule 58 of the Code of Civil Procedure, hence, the same is liable to be set aside.

22. In the result, this Civil Revision Petition is allowed and the impugned order passed by the Court below on 12.11.2009 in E.A.No.28 of 2009 in E.P.No.15 of 2008 on the file of the District Court, Ootacamand is set aside. Consequently, connected miscellaneous petition is closed. However, no order as to costs. tsvn

To

The District Court

Ootacamund