Mr. Surjitsinh Amarsinh Mangrola v. Authorised Officer Bank of Baroda

DRAT6 Sept 2024REGULAR APPEAL/5/2024

Case brief

AI extract

What is this about?

Appellant seeking quashing of bank's auction of mortgaged property and refund of ₹2 crore deposit paid by him. Court held appellant not entitled to stop sale but granted refund with interest.

What did the court decide?

Bank directed to pay appellant ₹2 crores plus 9% interest from 03.07.2018; auction sale remained undisturbed.

What the court decided

Mr. Surjitsinh Amarsinh Mangrola versus Authorised… — Insolvency and Bankruptcy | DRAT (2024)

¶1

BEFORE THE DEBTS RECOVERY APPELLATE TRIBUNAL, AT: MUMBAI Present: Mr Justice Ashok Menon, Chairperson Appeal No. 05/2024

¶2

Between

¶3

Surjitsinh Amarsinh Mangrola … Appellant/s

¶4

V/s.

¶5

Authorised Officer, Bank of Baroda & Ors. …Respondent/s Mr Rafeeq Peermohideen along with Ms Somya Tripathi, i/b M/s T. N. Tripathi & Co., Advocates for the Appellant. Mr A.R. Bamne along with Mr Nilesh Bamne, i/b M/s A.R. Bamne & Co., Advocate for Respondent Bank.

¶6

-: Order dated: 06/09/2024:-

¶7

The appellant assails the judgment and order dated 31/03/2023 dismissing the Securitisation Application (S.A.) No. 282 of 2020 by the Debts Recovery Tribunal-II, Ahmedabad (D.R.T). Hence this appeal under Sec. 18 (1) of the Securitisation & Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002 (“SARFAESI Act”, for short).

¶8

The facts can be encapsulated thus:

¶9

The 2^nd respondent Vishal Malleables Ltd., the borrower, had borrowed money from the first respondent Bank of Baroda, and the order to secure the debt, the Bungalow in Plot No. 91 admeasuring 595.52 m² having a construction of 1300 m² in city survey No. 2485, Ward No. 1, Municipal Ward No. A/4, Pritamnagar Society, village Kasak, Taluka and District Baruch (subject property) was mortgaged. Repayment of the loan was defaulted resulting in the bank initiating

¶10

¶11

proceedings under the provisions of the SARFAESI Act after the classification of the account as non-performing assets (NPA) followed by the issuance of a demand notice under Sec. 13 (2) demanding the debt due from the borrower. Original Application (O.A.) was also filed before the D.R.T. for recovery of ₹ 38,42,69,198.49.

¶12

Pending the O.A., a compromise was arrived at between the creditor bank, the borrower company and the guarantors and a OneTime Settlement (OTS) was sanctioned by the bank vide letter dated 01/08/2016. The borrower was willing to sell its properties with the consent of the bank to pay off the debt. The subject property belonging to the borrower was also intended to be sold. The appellant was interested in purchasing that bungalow and was willing to deposit ₹2.27 crores towards the sale consideration subject to the issuance of a no objection certificate by the bank. After several discussions with the bank officials, on 11/06/2018, the appellant, submitted a representation to the bank. The appellant entered into an agreement for sale with the authorised representative of the borrower company on 29/06/2018. The bank issued a provisional NOC for the sale of the subject property to the borrower on 22/06/2018 subject to the proposed revalidation request of the borrower. An extension of the compromise was sought by the borrower till 30/09/2018 vide letter dated 01/08/2018 which was allegedly approved by the bank. In consequence, the borrower submitted a check for ₹ 2 crores drawn by the appellant together with a proposal dated 29/06/2018. The bank allegedly insisted on RTGS payment and the same was complied with. The said amount was to be deposited in a “No Lien account”.

¶13

¶14

However, the bank appropriated the said amount towards the debt due from the borrower. Neither was the agreed NOC issued nor were the title deeds released or attachment lifted by the bank over the subject property. The subject property was put up for auction sale. On getting the information, the appellant filed the S.A. to get the auction notice quashed.

¶15

Per contra, the respondent bank contended that the S.A. was filed with the ulterior motives of thwarting the sale and the recovery proceedings initiated by the bank. It is contended that the appellant has no locus standi to question the sale. There was no privity of contract between the appellant and the bank as there is no agreement between the bank and the appellant considering the subject property, and therefore, the appellant has no right to question the recovery proceedings initiated by the bank. The appellant cannot prevent the bank from appropriating the amount paid by the borrower towards the debt due. Any agreement entered into between the appellant and the borrower is not binding upon the bank. It is contended that the bank had never agreed to the issuance of an NOC for the sale of the subject property to the appellant on payment of money towards sale consideration. In case the appellant has deposited any amount, it is at his own risk. SCA No. 9868/2020 filed by the appellant before the Hon'ble High Court of Gujarat was withdrawn without getting any favourable orders.

¶16

The question that arises for consideration is whether the appellant is entitled to a restraining order against the respondent bank from disposing of, alienating, auctioning, confirming the sale of the

¶17

¶18

subject property, or issuing of a sale certificate qua that property in favour of the second respondent. In the S.A., prayer is also sought to quash the e-auction dated 28/09/2020 and to direct the respondent bank to hand over the original title deeds in respect of the subject property, and to issue a final NOC concerning the property. The appellant has also sought a direction against the bank to return the amount of ₹2 crores deposited by him towards the sale consideration for the purchase of the subject property.

¶19

The present situation is that the respondent bank has not only appropriated ₹2 crores allegedly paid by the appellant towards sale consideration for the subject property but has also sold the subject property in public auction to the third respondent for ₹1.50 crores which is ₹50 lakhs less than the amount offered by the appellant. 7. The respondent bank contends that though the bank had issued a provisional NOC to the borrower for the sale of the property, on condition that the amount of sale consideration is to be deposited by the purchaser in an escrow account with the bank and thereafter the bank would issue a NOC permitting the borrower to proceed with the sale. The records would indicate that the cheque drawn on the account of the appellant for ₹2 crores was submitted by the borrower to the bank together with a letter explicitly stating that the cheque was issued by the appellant towards sale consideration for the purchase of the subject property. The impugned judgment states that there is no privity of contract between the bank and the appellant and therefore, the appellant cannot enforce the agreement for sale against the bank. The High Court of Delhi has in Utair Aviation vs. Jagson Airlines Ltd. & Ano.

¶20

¶21

2012 SCC OnLine Del. 2114 , wherein it is held thus:

¶22

“28. A reading of the aforementioned judicial opinion coupled with well recognized exceptions that the privity can be created by virtue of conduct acknowledgement and admission, it becomes clear that any case where one party is made aware about the relationship of the other party with that of a stranger and the said party proceeds to contract out only with other party in question, knowing fully well the participation and role of the said stranger, further, it corresponds with the said third party/stranger, and conduct suggests kind of relationship, then there can be said to be a nexus or a privity which can be said to have been created by virtue of conduct. The said question essentially becomes a question of fact and basing upon the said fact finding, the law has to be necessarily applied as to whether the said person is a complete stranger to a contract or whether the privity can be said to have been created by way of conduct.”

¶23

The respondent bank had admittedly issued a provisional NOC on 22/06/2018 consenting to the sale of the property and stating that it had no objection to the sale of the property stated therein as “Bungalow No. 91”. This would indicate that the respondent bank was fully aware that the cheque for ₹2 crores was being submitted by the borrower towards sale consideration. The bank cannot pretend to be ignorant of the fact that the cheque was drawn on the account maintained by the appellant. The averment that the cheque was submitted by the borrower to clear off the debt under the OTS scheme is not acceptable. The initial payment towards the OTS scheme was to be made by the borrower by sale of the subject property to the appellant towards which the sale consideration of ₹2 crores was submitted by way of a cheque. The bank makes an endorsement on the letter stating that the amount has to be paid by way of RTGS. Accordingly, the amount was paid by way of RTGS from the account of the appellant and not the borrower. The bank also cannot pretend to be ignorant of this fact. Despite having agreed to sell the subject

¶24

¶25

property provisionally to the appellant and having issued a provisional NOC for the sale of the subject property, the bank cannot turn around by stating that the said amount is to be adjusted towards the debt and the property would again be sold to a third party.

¶26

I agree with the proposition that the agreement cannot be enforced and the appellant does not have the right to get the property sold to him unless there was a tri-partite agreement with the bank and the borrower wherein the bank also agrees to assign the property to the appellant. However, the bank cannot have the cake and eat it too. After having accepted the money realising fully well that it is coming from the appellant towards the sale consideration for the purchase of the subject property, the bank could not have retreated from the provisional NOC given to the borrower for the sale of the property.

¶27

The subject property has now already been sold to the third respondent for lesser consideration than what was agreed to be paid by the appellant. As a result, the bank has sustained a loss in the value of the property. The appellant is not a borrower and he could not be expected to pay the amount for discharge of debt due from the borrower. The understanding of the bank that the appellant was paying money for and on behalf of the borrower gratuitously, with no benefit to himself, is very hard to believe.

¶28

Though the appellant is not entitled to relief getting the Sarfaesi measures quashed, he is entitled to refund the amount that he has paid from the bank together with interest for illegal retention. The appeal is, therefore, allowed in part and the impugned order is set aside to the extent that the appellant is entitled to get a refund of the amount paid

¶29

¶30

by him.

¶31

In the result, the respondent bank is directed to pay a sum of Rs.2 crores to the appellant together with interest at the rate of 9% per annum with effect from 03.07.2018, till realisation. The sale in pursuance to the Sarfaesi measures shall be undisturbed.

¶32

Chairperson

¶33

mks-01

¶34

Mr. Surjitsinh Amarsinh Mangrola v. Authorised Officer Bank of Baroda

Case brief

What is this about?

What did the court decide?

What the court decided

Mr. Surjitsinh Amarsinh Mangrola v. Authorised Officer Bank of Baroda

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Cases cited

Statutes considered

Parties & counsel

Coram

Case details

All orders in this case

Similar cases

Mr. Bhaktaraj Raghunath Thigale versus State Bank of India

Smfg India Home Finance Ltd. versus Ramchandra Sadigale

Smfg India Home Finance Ltd. versus Ramchandra Sadigale

woodman veneers Pvt. Ltd. and Ors. versus Hdb Financial Services Ltd.

Dashmesh Airconditioning Engineers Pvt. Ltd. versus Asset Care and Reconstruction Enterprise Ltd.

Kamal Jagannath Jadhav versus Jm Financial Assets Reconstruction Company Limited