Partly allowed

Jai prakash agarwal and Ors. v. Kotak Mahendra Bank and Anr.

DRAT7 Aug 2024REGULAR APPEAL/84/2019

Case brief

AI extract

What is this about?

The Devenue Recovery Appellate Tribunal held that borrowers of a secured creditor are proper parties, not necessary parties, in Section 17 proceedings under the SARFAESI Act. The appeal was partly allowed to implead the borrowers as opposite parties. The court clarified that arbitration and SARFAESI proceedings can run simultaneously and that a pending civil suit does not prevent such adjudication

What did the court decide?

Appellants directed to implead borrowers of secured creditor as opposite parties in Section 17 SARFAESI Act application; DRT to hear and decide within four months.

Jai prakash agarwal and Ors. versus Kotak Mahendra Bank and… — Banking and Recovery | DRAT (2024)

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REPORTABLE / NOT REPORTABLE

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IN THE DEBTS RECOVERY APPELLATE TRIBUNAL AT KOLKATA

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Appl. No. 84 of 2019

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(Arising out of S.A. 1191 of 2017 in DRT-II Hyderabad)

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THE HON’BLE JUSTICE SHRI ANIL KUMAR SRIVASTAVA, CHAIRPERSON

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07.08.2024

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Jai Prakash Agarwal residing at House No. 3-5-45 Ramkote, Hyderabad – 500001.

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2.Mahesh Kumar Agarwal S/o. Lare Bachan Pershad Agarwal residing at House No. 3-5-45, Ramkote, Hyderabad-500001

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3.Vishnu Agarwal S/o. Lare Bachan Pershad Agarwal residing at House No. 3-5-45, Ramkote, Hyderabad500001

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4.Sanjay Agarwal S/o. Late Bachan Pershad Agarwal residing at House No. 3-5-45, Ramkote, Hyderabad500001

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... Appellants

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--Vs--

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Kotak Mahendra Bank having office at 27, Bandra Kurla Complex, Bandra (East), Mumbai

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2.Kotak Mahindra Bank having office at 6-31109/1/P202 Pavani Towers, Somajiguda, Hyderabad.

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... Respondents

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For Appellant : Mr. Nemani Srinivas, ld. adv. Mr. Nikunj Berlia, Ld. adv.

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Ms. MosaratReyaz, ld. Adv.

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For Respondent : Mr. A. K. Dhandhania, ld. Senior counsel on virtual mode Mr. Rajiv Maity, ld. adv.

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THE APPELLATE TRIBUNAL :

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Instant appeal is arising against the order dated 06.05.2019

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passed by learned DRT-II Hyderabad in S.A. 1191 of 2017 [Shri Jai Prakash Agarwal&Ors. Vs. Kotak Mahindra Bank] whereby S.A.

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was dismissed on the ground of non-joinder of necessary party. Feeling aggrieved, appellant preferred the appeal.

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Heard learned counsel for the appellants as well as learned counsel for the respondent and perused the records.

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As would appear from the record, a sale deed was allegedly executed by S/Sri Bajrang Prasad Agarwal, Kanhayalal Agarwal and Ramesh Kumar Mittal. Sale deed was executed on 02.08.2010 in favour of S/Sri Naresh Kumar Agarwal, Kamal Kumar Agarwal and Vimal Kumar Agarwal for the property admeasuring 1081.02 Sq. Yards situated at Ramkote, Hyderabad, Andhra Pradesh. Subsequent to the execution of the sale deed purchaser namely, Naresh Kumar Agarwal, Kamal Kumar Agarwal and Vimal Kumar Agarwal approached Bajaj Finance Ltd. for sanction of credit facility, which was duly granted to them to the extent of Rs.2.86 crore in 2011 by creating equitable mortgage depositing title deed of immovable property admeasuring 871.23 Sq. Yard bearing municipal number 3-5-45.

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Subsequent thereto a Civil Suit No. 531 of 2013 was filed before the 10^th Additional Judge, City Civil Court, Hyderabad seeking relief for declaration that sale deed dated 02.08.2010 is not binding so far as it relates to 240.3 Sq. Yard along with prayer for injunction. Suit was filed on different grounds which are not much relevance in coming to a decision in this appeal.

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In the meantime, Bajaj Finance Ltd. has put a claim against Naresh Kumar Agarwal, Kamal Kumar Agarwal and Vimal Kumar Agarwal along with M/s Kamdhenu & Co., which was referred to the Arbitrator who passed an award on 21.02.2013 directing them to pay the dues of Rs.3,85,06,292/- along with interest with a direction that in case of default to pay the amount, claimant can recover the amount by way of sale of the immovable property of the borrower admeasuring 240.3 Sq. Yard situated at Eden Garden Road, Ramkote, Hyderabad. This award was not challenged. Execution petition was filed, which is pending. Thereafter, the loan was assigned by the Bajaj Finance Ltd. to Kotak Mahindra Bank vide Assignment Deed dated 04.12.2015. Consequent thereto the bank (hereinafter referred to as secured creditor) initiated securitisation proceeding for recovering the dues. Notice u/s 13(2) of the SARFAESI Act, 2002 (hereinafter referred to as Act) was issued. Thereafter, on receipt of the notice u/s 13(4) of the Act dated 20.02.2017 appellant herein filed S.A. No. 1191 of 2017 challenging the measures taken by the secured creditor for a relief to declare the possession notice null and void. Civil suit no. 531 of 2013 is pending before the City Civil Court, Hyderabad wherein an injunction order was passed in favour of the applicants. Accordingly, their share in the property could not be proceeded with by the secured creditor in securitization proceeding.

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Opposition filed by the respondent secured creditor stating that the Civil Suit filed by the appellant is a collusive suit. They have not disclosed the contents of the suit in the S.A. Further, the secured asset was mortgaged with the secured creditor by their borrower by creating equitable mortgage. Parallel proceeding under the Arbitration Act and SARFAESI Act could be initiated by the secured creditor. It is further stated that the borrowers of the secured creditor are the necessary party to the S.A. who has not been impleaded. Accordingly, S.A. was dismissed.

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Learned DRT after considering the submissions made by the learned counsel for the parties has recorded a finding to the effect that borrowers of the secured creditor are necessary party to the S.A. proceeding. Hence, S.A. is bad for non-joinder of necessary party and accordingly dismissed the S.A.

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Learned counsel for the appellant would submit that borrowers are not the necessary party. At best they can be proper party, but the fate of the S.A. is not dependent upon the impleadment of the borrowers of the secured creditor. It is further submitted that once Arbitration proceeding was initiated by the predecessor in interest of the secured creditor, parallel proceeding under the SARFAESI Act could not be initiated. Challenge to the sale deed was made by the appellants on independent ground. The Civil Suit is pending for adjudication. Secured creditor has been impleaded as defendant in the suit,

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who has also filed written statement in the suit. It is further submitted that the fate of the civil suit could be the deciding factor for initiating any action against the appellants in respect of the secured creditor.

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Per contra, learned counsel for the respondent would submit that learned DRT has rightly dismissed the S.A. holding that their borrowers are necessary party to the proceeding, but they have not been impleaded as respondents in the S.A. mala-fidely so that the securitization proceeding could not be proceeded with by the secured creditor. It is further submitted that civil suit filed by the appellant against the borrower of the secured creditor is a collusive suit just to deprive the secured creditor from their right to recover the dues. It is further submitted that proceeding in the S.A. and Arbitration proceeding can be drawn simultaneously.

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The fact borne out from the record is that sale deed was executed by the appellants as well as borrowers of the secured creditor which was subsequently challenged by the appellants on different grounds. Civil Suit No. 513 of 20013 is still pending before the Civil Court wherein an injunction order was passed in favour of the appellants securing their possession. Apart from the secured asset part of the share of the appellant was sold by the secured creditor. Arbitration award was passed and execution proceeding to the extent of 240.3 Sq. Yard are still pending.

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As far as the question of parallel proceeding under Arbitration Act and Securitization Act are concerned, this issue is

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not res integra as it was held by the Hon’ble Apex Court in M.D. Frozen Foods Exports Pvt. Ltd &Ors. Vs. Hero Fincrop Ltd.

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[(2017) 16 SCC 741] in Para 32 that provisions of SARFAESI Act are a remedy in addition to the provisions of the Arbitration Act. Further, it was held that SARFAESI proceeding is in the nature of enforcement proceeding while Arbitration proceeding is an adjudicatory proceeding. Accordingly, I am of the view that both the proceedings can be undertaken simultaneously.

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As far as pending civil suit is concerned, secured creditor moved an application for impleadment which was allowed. Secured creditor was impleaded as defendant in the suit and is contesting the civil suit by filing written statement. Whether the sale deed is liable to be cancelled or not is to be adjudicated by the Civil Court. That issue cannot be decided by the DRT. So long sale deed is not set aside it cannot be ascertained as to whether this asset originally belongs to the borrowers of the secured creditor or not? The injunction order is already in force in favour of the appellants.

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However, as far as impleadment of the borrowers is concerned it is to be looked into whether they are necessary party or proper party? There is a distinction between necessary and proper party. Necessary party is one without whom relief could not be granted in favour of the applicant while proper party is one in whose absence relief can be granted. In the present case borrowers are proper party to the proceeding of the S.A.

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filed u/s 17 of the Act who should be impleaded as Opposite Party in the S.A. for deciding the matter.

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Accordingly, I am of the view that since borrowers of the secured creditor are proper party, hence they should be impleaded in the S.A. as Opposite Party. Accordingly, to this extent appeal deserves to be allowed.

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O R D E R

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Appeal is partly allowed to the extent that the appellants shall implead the borrowers of the secured creditor as opposite party in the S.A. filed u/s17 of the Act. Thereafter, learned DRT should issue notice to them and should decide the S.A. in accordance with law after affording opportunity of hearing. It is expected that learned DRT should make an endeavour to decide the S.A. expeditiously preferably within a period of four months from the date of receipt of copy of the order without granting any unnecessary adjournment to either of the party as the S.A. is pending since 2017. Costs easy.

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File be consigned to record room.

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Copy of the order be supplied to the appellant and the respondents and a copy be also forwarded to the concerned DRT. Copy of the judgement/Final Order be uploaded in the Tribunal’s website.

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Order dictated, signed and pronounced by me in the open Court on this the 07^th day of August, 2024.

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(Anil Kumar Srivastava, J) Chairperson

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Dated : 07.08.2024 - /pkb

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Jai prakash agarwal and Ors. v. Kotak Mahendra Bank and Anr.

Case brief

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Jai prakash agarwal and Ors. v. Kotak Mahendra Bank and Anr.

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