Dismissed

Mr. Anant Subrya Bhat & 2 Ors. v. Phonex Arc Private Limited & 5 Ors.

DRAT15 Feb 2024MISC APPEAL/22/2018

Case brief

AI extract

What is this about?

The Debt Recovery Appellate Tribunal dismissed the appeal by purchasers seeking to quash a District Recovery Tribunal order. The Tribunal held that a valid prior mortgage existed and the sale was subject to encumbrances, finding no merit in the challenge to the lower court's decision.

What did the court decide?

The Appeal has no merits and is dismissed. The impugned order of the D.R.T. is upheld.

Mr. Anant Subrya Bhat & 2 Ors. versus Phonex Arc Private… — Banking and Recovery | DRAT (2024)

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BEFORE THE DEBTS RECOVERY APPELLATE TRIBUNAL, AT: MUMBAI Present: Mr Justice Ashok Menon, Chairperson Misc. Appeal No. 22/2018

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Between

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Anant Subrya Bhat & Ors. … Appellant/s V/s.

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Phoenix ARC Pvt. Ltd. & Ors. …Respondent/s

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Mr Vinod Joshi along with Ms Shivani Chandolkar and Ms Darshana Kadekot, Advocate for Appellants.

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Mr Sanjay Ananbhawane, i/b M/s M & S Legal Ventures, Advocate for Respondent No. 1.

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Mr Aniket Kamble, i/b M/s Onkar Warange, Advocate for Respondents Nos. 2 & 3.

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Order dated: 15/02/2024:-

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The Appellants are in appeal impugning the order dated 02.02.2018 in Securitisation Application (S.A.) No. 185 of 2016 on the files of the Debts Recovery Tribunal-I, Mumbai (D.R.T.). The S.A. filed by the Applicants was dismissed. The Appellants claim to be purchasers of the two flats namely flat Nos. 701 and 702 in the C wing 7th Floor, Balaji Angan, Sector -3, near NIFT College, Kharghar, Navi Mumbai. The first Respondent Phoenix ARC Pvt. Ltd. proceeded against the said flats under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (‘SARFAESI Act’, for short) for the realisation of the debt due from Respondents Nos. 4 to 6 who are the erstwhile owners of the said flats.

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The second Respondent Jankalyan Sahakari Bank Ltd. through the third Respondent Special Recovery Officer had initiated action for the realisation of the amount due from the fourth Respondent under the provisions of the Co-operative Societies Act for the realisation of a sum of ₹1,10,31,255/- during the year 2005. A Recovery Certificate was issued by the Assistant Registrar, Co-operative Societies on 21.12.2010. In the execution of the certificate, a warrant of the attachment was issued on 07.01.2011 to attach the flats. On 18.06.2011, public notice and proclamations were issued in English and vernacular newspapers for the sale of the flats on 21.07.2011. The Appellants were declared as the highest bidder in the auction and the sale deeds were executed on 27.09.2011 and 20.10.2011. Due diligence was done and a title report was obtained on 02.11.2011 indicating that there were no encumbrances on the flats. The City Industrial Development Corporation (CIDCO) had also issued a certificate in favour of the Appellants. The Balaji Angan CHS also recorded the transfer of the flats on 22.01.2012. The Assistant Manager of the second Respondent bank had addressed the Estate Manager of CIDCO informing them about the purchase of the flats by the Appellants. Electricity Bills were paid by the Appellants.

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Citi Financial Consumer Finance India Ltd, a non-banking financial institution had allegedly lent money to Respondents Nos. 4 to 6 on mortgaging the subject flats. The debt was transferred to the first Respondent and steps were taken under the provisions of the SARFAESI Act by the first Respondent. Order was obtained under Sec. 14 of the SARFAESI Act to take physical possession of the flats.

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The Appellants approached the second Respondent but they were informed that the property was purchased by them in a public auction on an ‘as is where is’ basis and therefore, it is for them to protect their interest. In consequence of that response from the second Respondent, the Appellants moved the D.R.T. by filing the aforesaid S.A. The D.R.T., vide the impugned order, dismissed the S.A. holding that there was already a mortgage in favour of Citi Financial Consumer Finance Ltd. created by Respondents Nos. 4 to 6. The second and third Respondents had identified the flats as the property of the debtors who had also availed the loan from the second Respondent attached the property and sold it in the auction. The right of the mortgagee cannot be extinguished and therefore, the claim of the Appellants over the property was not sustainable. Hence, the S.A. was dismissed.

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The possession of the flats was taken on 21.11.2023 by the first Respondent. The Appellants seek to quash the impugned order of the D.R.T. as well as the order of the District Magistrate ordering physical possession to be taken by the first Respondent.

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The facts in this case would indicate that a valid mortgage was created by Respondent Nos. 4 to 6 as early as 2007 in favour of Citi Financial Consumer Finance India Ltd. The proceeding before the Joint Registrar was filed in 2005 but the attachment of the property was ordered only on 07.01.2011 which is consequent to the creation of the mortgage. It is also pertinent to note that the Appellants had executed Undertaking cum Indemnity Bond in favour of CIDCO wherein they had undertaken as follows:

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“4. We say that they have applied to CIDCO for transfer of the said flat in our names from the name of Mr Madhav Kanitkar.

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Taking into consideration the aforesaid facts, we say that, if any claim arises from Mr Madhav D. Kanitkar and/or the mortgagee bank or any financial institution or from anybody else against the said flat, the corporation is to be indemnified. We further say that this condition is free from legal objection and therefore, we are ready and accept willingly and voluntarily. In case any such subsequent claim arises as mentioned above, we hereby undertake to indemnify and keep indemnified the corporation from such claim. Hence, this declaration is on oath.

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This affidavit-cum-undertaking is required to be submitted before CIDCO authorities to obtain CIDCO transfer in respect of the said flat in our name.

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At this moment undertake to indemnify and keep indemnified the CIDCO for any loss, harm or damage that may be caused to or suffered by CIDCO Ltd. and its office bearers by way of any claim/s raised by Mr Madhav Kanitkar or any person/s heirs claiming through Mr Madhav Kanitkar or by way of any claim/s raised by any bank/financial institution/person/s/ Government Authorities on account of nonpayment of any dues charges, liabilities, etc; in respect of the said flat after the transfer of the said flat in our name, we shall be responsible for the same and we shall make good all such loss, harm or damage caused to or suffered by the corporation and its officer in respect thereof.”

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Rule 107 of the Co-operative Societies Rules specifically states the procedure for attachment and sale of the property under the Cooperative Societies Act and indicates that such attachment and sale shall be subject to prior encumbrances. Sub Rule (11) (f) reads thus:

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“When any immovable property sold under these rules, the sale shall be subject to the prior encumbrances on the property, in any. The applicant shall, when the amount for realisation of which the sale is held exceed Rs. 100/-, furnish to the Recovery Officer within such time as may be fixed by him or by the Recovery Officer, an encumbrances certificate from the Registration Department for the period of not less than 12 years prior to the date of attachment of the property sought to be sold, or in cases falling under the proviso to sub-rule (10), prior to the date of the application for execution. The time for production of the encumbrance certificate may be extended at the discretion of the Recovery Officer, as the case may be. The sale shall be by public auction to the highest bidder.”

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A reading of the rule would indicate that the encumbrance certificate had to be obtained before conducting the sale and the sale shall be subject to such encumbrances. The Appellants cannot, therefore, ignore the existence of the mortgage and their sale is subject to

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encumbrance created in favour of Citi Financial Consumer India Ltd. I find no reason to interfere with the findings of the D.R.T. The Appeal has no merits and is, therefore, dismissed.

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Sd/Chairperson

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mks-01

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Mr. Anant Subrya Bhat & 2 Ors. v. Phonex Arc Private Limited & 5 Ors.

Case brief

What is this about?

What did the court decide?

Mr. Anant Subrya Bhat & 2 Ors. v. Phonex Arc Private Limited & 5 Ors.

Case brief

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What did the court decide?

What the court decided

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