Allowed

A.O.,Axis Bank v. M.Selvamoorthy & Ors.

DRAT14 Sept 2022REGULAR APPEAL/160/2018

Case brief

AI extract

What is this about?

The Appellant Bank appealed against the Tribunal below's order dismissing its appeal in a securitisation application. The Tribunal had set aside the bank's possession notice, holding that loan disbursement violated a Construction Agreement between the borrower and owner, irrelevant to the bank. This court held the Tribunal exceeded its jurisdiction under Section 17 of the SARFAESI Act by examining

What did the court decide?

Appeal allowed, impugned order of DRT-II dated 03.09.2018 set aside, Securitisation Application dismissed.

A.O.,Axis Bank versus M.Selvamoorthy & Ors. — Banking and Recovery | DRAT (2022)

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RA (SA) 160/2018

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IN THE DEBT RECOVERY APPELLATE TRIBUNAL AT CHENNAI

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Dated the 14^th of September, 2022

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PRESENT: Hon’ble Mr. Justice S. Ravi Kumar

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CHAIRPERSON

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RA (SA) 160/2018

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[SA No.276/2017 on the file of DRT-II, Chennai]

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Between

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The Authorised Officer,

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Axis Bank, RAC Arcot Plaza, Old No.38, New No.165,

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Arcot Road, Kodambakkam, Chennai – 600 024.

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……Appellant

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And

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M. Selvamoorthy,

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No. 170, Chittibabu Street,

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Kalaignar Nagar, St. Thomas Mount,

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Chennai – 600 016.

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Shri N. Sowrirajan,

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No.51/2, Lake View Road,

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West Mambalam, Chennai – 600 033.

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Mr. Neelamegam, No.51/2, Lake View Road, West Mambalam, Chennai – 600 033.

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M/s. Annapoorni Shelters Private Limited, Rep. by its Managing Director, S. Nachiappan, Block L-8, Flat F, Sarvarmangala Colony, Ashok Nagar, Chennai – 600 083.

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….. Respondents

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Respondent Nos. 2 to 4 are given up

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Counsel for Appellant : Mr. V.V. Sivakumar Counsel for Respondent No.1 : Mr. T. Saikrishnan

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RA (SA) 160/2018

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ORDER

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This Appeal is against Order dated 03.09.2018 in SA 276/2017 on the file of DRT-II, Chennai.

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Brief facts leading to this Appeal are as follows:-

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First Respondent herein filed above referred Securitisation Application SA 276/2017 questioning

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Possession Notice dated 28.11.2017 with a prayer to set aside the same and restrain Appellant Bank from proceeding in any manner against Schedule property. According to 1^st Respondent, he decided to develop his property by constructing Flats, for which he engaged services of Respondent No.4, and both of them entered into a Joint Venture Agreement dated 16.06.2014, according to which, Respondent No.4 was to construct three Flats in Schedule mentioned property namely two Flats in first floor and one flat in second floor. According to 1^st Respondent, Respondent

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RA (SA) 160/2018

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No.4 brought Respondent No.2 stating that Respondent No.2 is interested in purchasing one Flat; by believing said representation, 1^st Respondent agreed to sell one Flat in 1^st floor for a sum of Rs.45 Lakhs, and a Construction Agreement was entered among Respondent Nos. 1, 2 and 4 herein, on 23.07.2014. According to 1^st Respondent, Respondent No.2 approached Appellant Bank for loan and Appellant Bank, while releasing loan amount, paid a sum of Rs.5.43 Lakhs to 1^st Respondent, and remaining loan amount to Respondent No.4, contrary to terms of Agreement dated 23.07.2014. According to 1^st Respondent, on receipt of Rs.5.43 Lakhs, Sale Deed and Construction Agreement dated 23.07.2014 was presented for registration, and sale was duly registered on 01.09.2014 in Office of Joint-I, Sub Registrar, Saidapet, Chennai (South). According to 1^st Respondent, Respondent No.2 cannot create any security interest over said property, and as such, Appellant Bank cannot proceed against Schedule property. According to 1^st Respondent, he filed a Civil Suit before Sub Court at Kanchipuram for declaration that Sale Deed dated 01.09.2014 and Construction Agreement dated

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RA (SA) 160/2018

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23.07.2014 are null and void , and not binding on 1^st Respondent. According to 1^st Respondent, as construction is not completed, there is no question of creating any mortgage by Respondent No.2 in favour of Appellant Bank in respect of Flat purchased under sale deed registered as document No.9364 of 2014. First Respondent also contended that Possession Notice has not been published in accordance with law, and on these grounds, prayed to set aside Possession Notice dated 28.11.2017.

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Appellant Bank opposed the request of 1^st Respondent and filed a Counter contending that Application is wholly misconceived, and unsustainable and liable to be dismissed in limine . Appellant Bank contended that Respondent No.2 deposited title deed and created equitable mortgage over Schedule mentioned property for Home Loan, and loan amount was disbursed as requested by Respondent No.2, and a sum of Rs.5.43 Lakhs is paid to Respondent No.1 only as

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per request of Respondent No.2 and Respondent No.3, who are borrower and guarantor. Appellant Bank further contended

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RA (SA) 160/2018

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as Respondent Nos. 2 and 3 committed default, loan account was classified as Non-Performing Asset (NPA) on 09.02.2016, and thereafter, issued Demand Notice dated 16.09.2017 under Section 13(2) of SARFAESI Act, 2002, and later issued Possession Notice dated 28.11.2017 under Section 13(4) of SARFAESI Act, 2002. Appellant Bank further contended that Possession Notice was published in ‘Trinity Mirror’ English daily and ‘Makkal Kural’ vernacular daily, on 30.11.2017, thereby followed all provisions and Rules of SARFAESI Act, 2002.

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Tribunal below, on a consideration of contentions and rival contentions, held that Appellant Bank disbursed money contrary to the terms of Construction Agreement dated 23.07.2014, therefore, act of Appellant Bank is not tenable, and on that ground, allowed Securitisation Application; aggrieved by the same, Appellant Bank preferred present Appeal.

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RA (SA) 160/2018

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Appellant Bank and 1^st Respondent filed Written Submissions which are reiterated at the time of oral submissions and other Respondents are given up.

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As already referred to above, 1^st Respondent challenged action of Appellant Bank on two grounds; firstly that, Respondent No.2 has no right to mortgage the Schedule mentioned property, therefore, there is no security interest created on the Schedule mentioned property; secondly, Possession Notice dated 28.11.2017 is not served and published in accordance with Security Interest (Enforcement) Rules, 2002 (in short Rules, 2002). Though, second contention of 1^st Respondent is not accepted by Tribunal below, 1^st Respondent has not chosen to prefer any Appeal by challenging said finding. Tribunal below, set aside action of Appellant Bank, only on the ground that, Appellant Bank disbursed loan amount contrary to the terms of Construction Agreement.

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RA (SA) 160/2018

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Advocate for Appellant Bank submitted that sanctioned loan amount is disbursed as per the instructions received from Respondent Nos.2 and 3 through Disbursement Request Form dated 23.08.2014. He submitted that Respondent No.2 deposited Sale Deed dated 01.09.2014 executed by 1^st Respondent, as security for loan amount. Advocate for Appellant Bank further submitted that main grievance of 1^st Respondent is that as construction is not completed, disbursement of amount to Respondent No.4 is in violation of Construction Agreement dated 23.07.2014, which is accepted by Tribunal below. Advocate for Appellant Bank would contend that loan is granted on deposit of Sale Deed dated 01.09.2014 and it is a registered document for purchase of 362 sq. ft., undivided share of land in 1552 sq. ft., from 1^st Respondent, therefore, proper security interest has been created in favour of Appellant Bank, therefore, entitled to enforce the same as per provisions of SARFAESI Act, 2002. Advocate for Appellant Bank would further contend that non

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receipt of sale consideration is an inter se dispute between Respondent No.1 and Respondent No. 2, and Appellant Bank

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RA (SA) 160/2018

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is not a party to Construction Agreement dated 23.07.2014.

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He further submitted that there is no obligation on part of Appellant Bank to disburse loan amount as per conditions of Construction Agreement dated 23.07.2014, as Appellant Bank is not a party to said Agreement, and those conditions are not binding on Appellant Bank. Advocate for Appellant Bank further submitted that 1^st Respondent, having filed a Civil Suit

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for declaration in respect of Sale Deed and Construction Agreement as null and void , cannot be allowed to contend that those documents are not binding until Civil Court grants a Decree in his favour. He submitted that Tribunal below, without considering these aspects, examined issue beyond the scope of enquiry under Section 17 of SARFAESI Act, 2002, and therefore, its Order is liable to be set aside.

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On the other hand, Advocate for 1^st Respondent supported Order of Tribunal below, and contended that, as Respondent No.2 does not have any right, interest and title over Schedule mentioned property until payment of sale consideration to 1^st Respondent as per terms and conditions of

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RA (SA) 160/2018

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Construction Agreement dated 23.07.2014, Tribunal below is right in setting aside action initiated by Authorized Officer of Appellant Bank, and there are no grounds to interfere with Order of Tribunal below.

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As seen from pleadings in Securitisation Application, entire grievance of 1^st Respondent is in respect of nonpayment of balance sale consideration by Respondent No.2 herein. As rightly pointed out by Advocate for Appellant Bank, Appellant Bank is not a party to Construction Agreement dated 23.07.2014, and it is a document among Respondent Nos.1, 2 & 4, and terms and conditions of said document would only bind Respondent Nos. 1, 2 & 4, being parties to it, and any violation as to its enforcement could be amongst themselves, but that document cannot be enforced against Appellant Bank, simply because, that was also taken along with Sale Deed at the time of sanctioning loan. As rightly pointed out by Advocate for Appellant Bank, that Agreement is taken only for collateral purpose, but loan is advanced on the basis of Sale Deed dated 01.09.2014, through which 1^st

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RA (SA) 160/2018

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Respondent conveyed 362 sq. ft. of undivided share of land, in favour of Respondent No.2, unless that Sale Deed is set aside,

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it is not open to 1^st Respondent to contend that it is not binding on him, and Respondent No.2 cannot get any rights under said document. As rightly pointed out by Advocate for Appellant Bank, scope of enquiry under Section 17 of SARFAESI Act, 2002, is to examine as to correctness of measures, but not to examine title disputes. Unfortunately, Tribunal below, without looking at provisions of SARFAESI Act, 2002, carried away with submissions of 1^st Respondent, and decided rights of parties as per terms and conditions of Construction Agreement dated 23.07.2014, and set aside measures initiated by Authorized Officer of Appellant Bank under SARFAESI Act, 2002, on the ground that 1^st Respondent did not receive full sale consideration. As already referred to above, Appellant Bank is not a party to Construction Agreement dated 23.07.2014, and those terms and conditions cannot bind Appellant Bank, still, Tribunal below held that disbursement is made contrary to terms and conditions of Construction Agreement dated 23.07.2014. As

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RA (SA) 160/2018

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rightly pointed out by Advocate for Appellant, Appellant Bank is bound by instructions of Respondent Nos. 2 and 3, who are borrower and guarantor, and it cannot disburse money contrary to request of Respondent Nos.2 and 3. It is clear from record that Disbursement Request Form is obtained from Respondent Nos.2 and 3, and only on the basis of such request, money is disbursed, for which, 1^st Respondent cannot object. As rightly pointed out by Advocate for Appellant Bank, remedy of 1^st Respondent is not before DRT by invoking Section 17 of SARFAESI Act, 2002, and without examining the same, Tribunal below decided the issue as if it is a Civil Court.

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On a scrutiny of material, I am of the considered view that Tribunal below travelled beyond its jurisdiction and passed impugned Order, therefore, same is liable to be set aside.

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RA (SA) 160/2018

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For the reasons stated above, Appeal RA (SA) 160/2018 is allowed and impugned Order dated 03.09.2018 of DRT-II, Chennai is set aside. Consequently, SA 276/2017 on the file of DRT-II, Chennai is dismissed. Parties shall bear their own costs. All pending IAs, if any, stand closed.

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[Dictated to Athistamani, PS, transcribed by her, corrected, signed and pronounced by me in open court, this 14^th of September, 2022]

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Sd/- [ Justice S. Ravi Kumar ] CHAIRPERSON

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A.O.,Axis Bank v. M.Selvamoorthy & Ors.

Case brief

What is this about?

What did the court decide?

A.O.,Axis Bank v. M.Selvamoorthy & Ors.

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

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