Dismissed

National Laminate Corporation v. the Cosmos Co-Op Bank Ltd.

DRAT19 Jul 2022IA/204/2022

Case brief

AI extract

What is this about?

The DRAT dismissed an interim application filed by a partnership firm seeking a stay on the Debts Recovery Tribunal's order dismissing a securitization application. The court held that the alleged lease was collusive and bogus, upholding the CMM's direction to take over possession under the SARFAESI Act.

What did the court decide?

The interim application for stay and restraint against taking over possession was dismissed.

National Laminate Corporation versus the Cosmos… — Contract and Commercial Disputes | DRAT (2022)

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BEFORE THE DEBTS RECOVERY APPELLATE TRIBUNAL, AT: MUMBAI Present : Mr. Justice Ashok Menon, Chairperson

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I.A. No. 204/2022 (Stay)

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In Appeal No. 37/2022

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Between

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M/s. National Laminate Corporation, … Appellant/s a Partnership Firm, through its Partner, Mrs. Sushila Hansraj Gala

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V/s.

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The Cosmos Co-operative Bank Ltd. & Anr. …Respondent/s

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Mr. Dinesh Purandare along with Mr. Alok Mishra, Advocate for Appellant.

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Mr. Rishabh Shah, i/b M/s. Raval-Shah & Co., Advocate for Respondent No.1.

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-: Order dated: 19/07/2022:-

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The aforesaid appeal was filed by the Applicant in Securitization Application (S.A.) No. 119/2016 on the files of Debts Recovery Tribunal No. II, Mumbai (the D.R.T. for short) impugning order dated 30.03.2021 of the Ld. Presiding Officer (the Ld. P.O. for short). The present application i.e. I.A. No. 204/2022 is for staying the operation of the impugned order. The facts as are required for disposal of this application, in brief, are thus:

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The aforesaid S.A. was filed by the applicant u/s 17(1) of the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Act, 2002 (the SARFAESI Act for short) on being aggrieved with the Sarfaesi measures initiated by the first

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Respondent Bank to take over possession of the secured assets and put them up for sale.

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The Appellant M/s. National Laminate Corporation was initially a sole proprietorship business run by its sole proprietor Mr. Jayantilal L Nisar who was conducting the business of plywood and other wood products. He claims that the property situated at Glowmetal Compound, Safed Pool, Village Mohili, Sakinaka, Taluka Kurla in the Registration District, Sub-District of Mumbai Suburban, bearing Survey No.63, Hissa No.1 (Part) and City Survey No.569 and admeasuring about 2,299 square yards, equivalent to 1,922.3 square metres which are now being proceeded against under the SARFAESI Act( subject property) was taken on lease by him on 01.09.2000 from the 2^nd defendant Subhnen Ply Pvt. Ltd. a company, the owner of the property, on an annual rent of Rs.60,000/- which was enhanced to Rs.1,20,000/- after eighteen months.

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The proprietorship was thereafter constituted into a partnership firm in and around 2008, and one of the directors of Defendant No.2 company viz. Ms. Gunvantiben Nenshi Shah was made a partner and the firm was registered. The tenancy continued and rent receipts were issued for rent received by the company. It is also stated that the audited statement of Defendant No.2 company mentions the receipt of rent as an income of the company and standard deduction also claimed by the company under the provision of the Income Tax Act.

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The Appellant contends that on 25.03.2013, a few strangers together with representatives of Defendant No.2 company visited the subject property. On inquiry by Jayanthilal, it was informed by

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the officers of the company that the property is put for sale and the appellant firm was directed to vacate the premises at the earliest after terminating the lease.

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In order to protect the possession of the property and apprehend forcible eviction, the appellant firm filed a suit on 01.04.2013 as R.A.D. Suit No. 614/2014 before the Small Causes Court at Mumbai seeking a declaration of the firm’s tenancy rights and a consequential injunction prohibiting the defendants therein from interfering with peaceful possession of the property. The firm obtained a temporary injunction against the D2 company. On 08.09.2015 a few officers of the 1^st Defendant Bank visited the subject property and the appellant firm came to know about the creation of a mortgage by the D2 company and also realised that the Bank is taking over possession of the secured assets because of the alleged default committed by the company. The appellant resisted and the officers retreated with a threat to return for forcible possession with Police aid.

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The appellant thereafter came to know about the pendency of case No.154/SA/2015 a proceeding before the Chief Metropolitan Magistrate Court, Mumbai, (C.M.M. for short) filed by the Bank u/s 14 of the SARFAESI Act to take over physical possession of the property. The C.M.M. vide order dated 18.06.2015 directed the Assistant Registrar of the Court to take over possession of the subject property.

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The aforesaid order of C.M.M. was challenged by the appellant before the Bombay High Court Writ Petition (W.P) No. 2419/2015. However, the Hon’ble High Court dismissed W.P on 09.10.2015 and

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the appellant was constrained to take up the matter before the Hon’ble Supreme High Court of India. On 20.01.2016 the order of the C.M.M. dated 18.06.2015, as well as an order dated 09.10.2015 of the Hon’ble Bombay High Court in W.P No. 2419/2015 were set aside.

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To the utter surprise of the appellant firm, the C.M.M. passed another order on 30.07.2016 deputing an Advocate Commissioner to take over physical possession of the property and the appellant received a notice on 03.10.2016 sent by the Advocate Commissioner informing about the taking over of the possession of the subject property on 10.10.2016. This is when the appellant firm approached the D.R.T. with S.A. No.119/2016. After detailed consideration of the materials before the Tribunal, the learned P.O. vide the impugned judgment dated 30.03.2021 dismissed S.A. No. 119/2016. The appellant is before this Tribunal impugning that judgment in the S.A.

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In I.A. No. 204/2022, which is up for consideration at present, the appellant seeks a temporary relief to stay the operation of the impugned order dismissing the S.A. pending the final disposal of the appeal and also to restrain Respondents in any manner from disturbing the appellant firm’s use, occupation and the possession of the subject property.

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The Respondent had in the S.A before the D.R.T filed a reply stating that the mortgage agreement between the Respondent Bank and the 2^nd Defendant was executed in the year 1998 and that the Defendant company defaulted payment of the amount and as a consequence of which on 31.03.2012 the loan was classified as Non

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Performing Assets (N.P.A. for short). On 30.01.2013, the Bank issued a demand notice u/s 13(2) the SARFAESI Act calling upon the second Defendant to pay a total sum of Rs.21,92,40,388.85. Though the notice was served on the 2^nd Defendant on 02.02.2013 no objections were raised. The outstanding amount thereafter mounted to Rs.30 Crores and the Respondent Bank approached the Court of Chief Metropolitan Magistrate seeking physical possession of the secured assets under S.14 of the SARFAESI Act. The Ld. C.M.M. vide order dated 18.06.2016 directed the Assistant Registrar of Bandra Center Court to take over possession of the secured assets. It is contended that the mortgagor had not created any lease of the property at the time of mortgaging the property. The alleged was admittedly created in 2000 in favour of the proprietorship belonging to Shri. Jayantilal L. Nishar. It is further submitted that the 2^nd Defendant company had no right to create a lease of the mortgaged property by virtue of Section 65-A of the Transfer of Property Act. Hence the alleged lease is bad in law. The lease deed was allegedly executed on 01.09.2000 and the tenancy allegedly came into effect on 21.12.2000. The Mortgage Deed which was annexed as Exhibit A to the reply before the D.R.T. was executed on 22.06.1998. The Respondent Bank also contends that u/s 55 of the Maharashtra Rent Control Act, an agreement for tenancy is to be mandatorily registered which was not done in the instant case. The collusion between the Appellant and the 2^nd Defendant company is further established by the fact that one of the Directors of the second Defendant company viz. Ms. Gunvantiben Nenshi Shah is none other than the wife of one of the directors of the company, Shri. Nenshi L. Shah, who had also executed the mortgage deed. It is

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further pointed out that the Appellant Mr. Jayantilal Lakhamshi Nishar is also the brother-in-law of Shri. Nenshi L. Shah. The recital in the rent deed for doubling the rent after 18 months is also a suspicious circumstance. The objection raised by the Appellant regarding the C.M.M. appointing an Advocate Commissioner to take over the possession of the property cannot be challenged in view of the latest decision of the Hon’ble Supreme Court indicating that the Advocate Commissioner is an officer of the Court. In the R.A.D. Suit No. 614/2014 filed before the Small Causes Court, Mumbai, by the appellant firm a temporary order of injunction was passed against the 2^nd Defendant company. In view of the above circumstances, it is clear that it is a collusive suit filed with the intention to defeat the legal action taken by the secured creditor. The Bank is not a party to that Suit. The Hon’ble High Court had dismissed the W.P. filed by the Appellant observing that the tenancy executed on an unregistered document is not acceptable. It was also observed that the mortgagor is guilty of suppression of facts. The attempt made by the Appellant to take resort to the judgment of the Hon’ble Supreme Court dated 20.01.2016 is not of any assistance to the appellant in view of the fact that it was rendered prior to the amendment incorporating Section 17 (4A) of the SARFAESI Act, wherein the jurisdiction is given to the D.R.T. to examine whether the lease or tenancy is contrary to the Section 65-A of the Transfer of Property Act and whether it is contrary to the terms of the mortgage. It is under such circumstances that the C.M.M. had considered the application u/s 14 of the SARFAESI Act and directed the Advocate Commissioner to take over possession of the subject property vide order dated 30.07.2016. Hence, the Respondent prays that there is no reason to interfere with

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the impugned order of the Ld. P.O., and that the Appellant is not entitled to get that order set aside under any circumstances.

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Heard the learned counsel Shri. Dinesh Purandare along with Mr. Alok Mishra appearing for the Appellant and Mr. Rishabh Shah, appearing for the Respondent Bank. Records and documents were perused.

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There is no dispute that the mortgage of the property was much prior to the alleged lease. The averment is that Mr. Jayantilal L Nisar had taken the subject property on lease on 01.09.2000 and started functioning there from 21.12.2000. No rent receipts whatsoever pertaining to that period have been produced. The rent receipts produced starting from 2008 onwards are subsequent to the creation of the firm by inducting Ms. Gunvantiben Nenshi Shah as a partner, which, according to the Respondent Bank was with a specific purpose. Admittedly, she is the wife of the mortgagor and also a Director of the 2^nd Defendant company. The fact that the rent received from the Appellant has been accounted for in the company’s audited accounts is also not of much consequence as the Appellant and the company were allegedly hand in glove to create the evidence. No electricity bills, telephone bills or and such other evidence pertaining to the functioning of the Appellant’s ply-wood business in the subject premises prior to 2008 are produced. The fact that the Appellant and the Directors of the 2^nd Defendant company including the mortgagor Shri. Nenshi L. Shah who signed and executed the mortgage deed on 02.06.1998 indicates that they were determined to create evidence about the lease to get over the mortgage somehow or the other. It is also pertinent to note that the

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lease deed has not been registered despite there being a statutory provision to register year-to-year leases. The suit before the Small Causes Court is apparently a collusive one because the company alone is made a defendant and obviously they were not going to defend the suit. The creation of the firm was consequent to the classification of the debt as N.P.A. would further bolster the case of the Bank that a fictitious tenancy was being created for the purpose of stalling the measures under the SARFAESI Act.

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The decision of the Hon’ble Supreme Court setting aside the Bombay High Court’s decision is of no avail since nothing has been stated therein to establish the tenancy in favour of the Appellant. The claim of the Appellant is not supported by any cogent or conclusive evidence. The action taken by the C.M.M. to take over the possession of the property cannot be held to be erroneous. What is protected by the SARFAESI Act is a valid and legal tenancy. The Ld. P.O. has discussed the evidence and materials placed on record at great length to conclude that the tenancy is bogus and collusive. I find no reason to overturn that decision. I rely upon the decision of the Hon’ble Apex Court in Bajarang Shyamsunder Agarwal Vs. Central Bank of India & Ors. (2019) 9 SCC 94 in support of observations made by me. The Application has, therefore, no merits and requires to be dismissed and I do so. As a result, the Application is dismissed.

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The Appellant is not entitled to any stay of proceedings or to suspension of the impugned Order. I. A 204 of 2022 stands dismissed.

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Sd/Chairperson

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dpj-1

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National Laminate Corporation v. the Cosmos Co-Op Bank Ltd.

Case brief

What is this about?

What did the court decide?

National Laminate Corporation v. the Cosmos Co-Op Bank Ltd.

Case brief

What is this about?

What did the court decide?

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