Allowed

State Bank Of India v. Bank of Baroda

DRAT5 Feb 2025REGULAR APPEAL/124/2017

Case brief

AI extract

What is this about?

The DRAT allowed an appeal by State Bank of India challenging SARFAESI proceedings initiated by Bank of Baroda. The court held that SBI had a first charge over the secured assets due to its earlier mortgage creation. The court emphasized the bank's duty to verify title clearing before loan sanction, citing the borrower's lack of absolute title due to prior gift deeds.

What did the court decide?

The impugned judgment dismissing the SARFAESI application is set aside; the original S.A. is allowed; all actions initiated by the Respondent Bank are quashed.

State Bank Of India versus Bank of Baroda — Banking and Recovery | DRAT (2025)

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Reportable/Non-Reportable

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Appeal No. 124 of 2017-DRAT-Kolkata

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IN THE DEBTS RECOVERY APPELLATE TRIBUNAL AT KOLKATA

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Appeal No. 124 of 2017

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(Arising out of S.A. 1012 of 2017 of DRT-I, Hyderabad)

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HON’BLE MR. JUSTICE ANIL KUMAR SRIVASTAVA CHAIRPERSON

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State Bank of India, SAM Branch, State Bank of India, Stressed Assets Management Branch, Khairatabad, Hyderabad Telangana, Represented by its Authorised Officer.

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… Appellant

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-Versus-

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Bank of Baroda (Earlier Vijaya Bank), Jubilee Hills Branch, Hyderabad, Represented by its Chief Manager and Also Authorized Officer.

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M/s GVS Infracon [I] Private Limited, Rep. by its Director, Sri Gundluri Srinivas, Son of late Venkateswara Rao, H. No: 10-2-289/56, Shanthi Nagar, Masab Tank, Hyderbad - 500 057;

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M/s SSVG Infrastrcuture [India] Private Limited, Represented by its Director, Sri Sri Gundluri Srinivas, Son of late Venkateswara Rao, H. No: 10-2-289/56, Shanthi Nagar, Masab Tank, Hyderbad - 500 057;

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Sri Gundluri Srinivas, Son of late Venkateswara Rao, H. No: 10-2-289/56, Shanthi Nagar, Masab Tank, Hyderbad - 500 057;

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Smt Gundluri Bharati Devi wife of Srinivas, Sri Gundluri Srinivas, H. No: 10-2-289/56, Shanthi Nagar, Masab Tank, Hyderbad - 500 057, Telangana State.

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… Respondents

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Counsel for Appellants … Mr. Ajay Gaggar (Virtual) Counsel for Respondents … Mr. N.V. Subba Raju JUDGMENT : 5^th February, 2025

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THE APPELLATE TRIBUNAL :

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1. The instant appeal has been preferred against the judgment and order dated 11.05.2017 passed by DRT, Hyderabad dismissing the S.A. 1012 of 2017

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Appeal No. 124 of 2017-DRAT-Kolkata (Old S.A. 178 of 2012) (State Bank of India -vs- Vijaya Bank & Others).

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2. As per the pleadings of the parties, an application under Section 17 of the SARFAESI Act, 2002 was filed by the Appellant Bank challenging the measures taken by the 1 Respondent i.e. Vijaya Bank (now merged with Bank of Baroda) challenging the Demand notice dated 17.06.2011 under Section 13 (2) of the SARFAESI Act, 2002 (hereinafter referred to as the ‘Act’) and Possession Notice dated 20.08.2011, under Section 13(4) of the Act, and also taking physical possession of the first floor of the application schedule property under Section 14 of the Act, on the ground that Respondents No. 4 and 5, namely, Sri Gundluri Srinivas and his wife Smt. Gundluri Bharathi Devi, who are the promoters of various companies, availed various credit facilities from the Appellant Bank by offering personal guarantees as well as various securities. Original Registered Gift Deeds bearing Doc. Nos. 1243 of 2006, 1241 of 2006, 3433 of 2004, 3434 of 2004 were deposited along with link documents in respect of Flat Nos. G-101 to G-104 in Ground level, 1^st floor, Flat Nos. 202 & 203 in 2^nd floor of Srinivas Gundluri Complex, D.No.12-2-460, HUDA, Asifnagar New Layout, Mehdipatnam, Hyderabad on 28.07.2010.

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3. The 1^st Respondent claiming rights over the application schedule property as mortgage, initiated proceedings under the provisions of SARFAESI Act, 2002 by issuing demand notice under Section 13(2) of the Act dated 17.06.2011 to the Respondent No. 4 claiming that the Respondent No. 4

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Appeal No. 124 of 2017-DRAT-Kolkata availed loan facilities in the year 2006 and 2007 by creating mortgage over the application schedule property to an extent of Rs.3,99,34,512.00 as on 17.06.2011. The 1^st Respondent also issued Possession Notice dated 20.08.2011 and thereafter physical possession of the first floor of the application schedule property was taken. 4. O.A. No. 617 of 2011 was also filed by the Respondent Bank, i.e. Vijaya Bank, impleading the Appellant Bank as one of the Defendants and it was well within the knowledge of the Respondent Bank that Respondents No.4 and 5 have created security Interest in favour of the SARFAESI Applicant. The Appellant Bank came to know about the SARFAESI proceedings initiated by the 1^st Respondent/Bank only when M/s Reliance Retail Limited, tenant of ground floor of the schedule property, filed a writ petition against the 1^st Respondent/Bank in W.P. No. 6283 of 2012 on 09.03.2012 before the Hon'ble High Court of Andhra Pradesh.

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5. The 1^st Respondent filed opposition stating that Respondents No.4 and 5 have availed loan facilities from them on 08.03.2006, for the due repayment of which, the Respondents No. 4 and 5 stood as guarantors and also created mortgage over the secured asset by deposit of original sale deed vide Document No. 1894 of 2003, dated 04.07.2003 registered before SRO, Golkonda and also executed Memorandum of Deposit of Title Deeds. 6. On 28.02.2011, at the request of the Respondent No.4, original Title Deeds were returned to the Respondent No.4

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Appeal No. 124 of 2017-DRAT-Kolkata by the 1^st Respondent Bank but the same were not returned back by him. On coming to know about the fraud played by the Respondent No.4, criminal complaint was lodged before the CBI and criminal case is proceeding against Respondent No.4. It is further stated that no construction of four flats on the ground floor was made so, claim of the SARFAESI Applicant Bank was denied by the Respondent No. 1.

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Learned DRT-I, Hyderabad framed the following two issues:

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1) Whether the Applicant Bank has made out any valid grounds for quashing the proceedings initiated by the 1st Respondent Bank against the application schedule property under the provisions of SARFAESI Act, 2002?

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2) To what relief?

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7. In issue No.1, Learned DRT, Hyderabad recorded the finding that it cannot be held that the SARFAESI Applicant was having no knowledge about the charge created in favour of the 1^st Respondent. Further prior charge over the application schedule property was held to be in favour of the 1^st Respondent. Accordingly, it was held that the 1^st Respondent, i.e. Vijaya Bank (merged with Bank of Baroda), is entitled to proceed against the application schedule property, being secured asset.

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8. Being aggrieved, the Appellant preferred the appeal.

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9. Learned Counsel for the Appellant would submit that Appellant Bank has the First Charge over the schedule property. Initially, Respondent No. 4, namely Gundluri Srinivas, purchased the entire property being property bearing house No.12-02-460 on Plot No.6, Group Housing in TS No.13/1, Block J, Ward No.21 situated at Gudimalkapur

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Appeal No. 124 of 2017-DRAT-Kolkata village, Asifnagar Mandal, Mehdipatnam, Hyderabad and a building thereon with ground plus five upper floors. Subsequent thereto, Gift Deeds No. 3417 of 2004, 3418 of 2004, 3419 of 2004, 3420 of 2004, were executed by him in favour of his wife, Respondent No. 5, namely, Smt. Gundluri Bharati Devi, on 08.09.2004. Gift Deeds No. 3432 of 2004, 3433 of 2004, 3434 of 2004 and 3431 of 2004 were executed in favour of Smt. Gundluri Bharati Devi on 09.09.2004. On 08.03.2006, allegedly loan was sanctioned by the 1^st Respondent in favour of Respondents No.4 and 5 on the basis of equitable mortgage created by deposit of original Sale Deed No.1894 of 2003 dated 04.07.2003. Thereafter, Gift Deeds No. 1243 of 2006 and 1241 of 2006 were executed by the Respondent No.4 in favour of his wife, Respondent No.5. On 21.07.2010, the Appellant Bank sanctioned Cash Credit facility of Rs. 5.00 crores to the Respondent No.2 against the security of equitable mortgage and personal guarantee of Respondents No.4 and 5. Agreement of loan and other necessary documents were executed. Memorandum, recording creation of mortgage by deposit of title deeds by Respondent No.5, was executed in favour of the Appellant Bank by deposit of all the Gift Deeds. Thereafter, on 31.10.2010, loan was sanctioned in favour of Respondent No. 3 and Agreement of Guarantee was executed by Respondents No. 4 and 5. Equitable mortgage was created by Respondents No. 4 and 5. Learned Counsel for the

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Appeal No. 124 of 2017-DRAT-Kolkata Appellant would submit that First Charge over the schedule properties is in favour of the Appellant Bank as Respondent No. 4 has executed Gift Deeds in favour of his wife, Respondent No. 5 which were duly deposited in favour of the Appellant Bank. Accordingly, the Appellant Bank has right over the secured assets or the properties bearing No.12-02-460 on Plot No.6, Group Housing in TS No.13/1, Block J, Ward No.21, situated at Gudimalkapur village, Asifnagar Mandal, Mehidipatnam, Hyderabad and a building thereon with ground plus five upper floors which he had purchased vide Sale Deed No.1894 of 2003 as Gift Deeds, including the undivided share, were already executed in favour of his wife, Smt. Gundluri Bharati Devi. Further a memo was executed by the Respondents No. 4 and 5 in favour of the 1^st Respondent but as far as mortgage is concerned, it was not registered, as required under Section 17(e) of the Registration Act. The Title Deeds, deposited with the 1^st Respondent, have already been taken out by the Respondent No.4. Allegedly, Respondent No.1 lodged criminal case against Respondents No.4 and 5 and the said criminal case is in progress. But it is submitted that it does not create any right in favour of the Respondent No. 1.

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10. Per contra, Learned Counsel for the Respondent No. 1 would submit that loan facility was extended in favour of Respondent No. 4 and Respondent No. 5 on the basis of original Sale Deed deposited by the Respondent No. 4. At that time, the flats were not constructed. A request was made by the Respondent No. 4 to the Authorized Officer of

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Appeal No. 124 of 2017-DRAT-Kolkata

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the Respondent No. 1 to the effect that he has to produce the original Title Deed before the GHMC Authorities and hence, the original Title Deed was returned to him. An assurance was also given to return the same. Accordingly, original Title Deeds were returned to the Respondent No. 4 but he did not return the same to the authorized officer of the Respondent No. 1. He misrepresented him regarding the production of the original Sale Deed before the GHMC Authorities. Consequently, a criminal complaint was lodged against the Respondents No. 4 and 5 wherein the criminal trial is under progress. It is further submitted that a First Charge over the secured assets was of Respondent Bank. The Appellant was having full knowledge of the Charge already created in favour of the Respondent Bank. Accordingly, application is liable to be dismissed.

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11. Admittedly, Respondents No. 4 and 5, who are the alleged Borrowers of the Appellant as well as Respondent Bank, have neither put in their appearance before the Learned DRT nor in the appeal. It means that they enjoyed the fruits out of their activities by playing fraud upon the Bank. Thereafter, as per the Respondent Bank, criminal complaint was also lodged against them. They are facing trial before the criminal Court. However, the dispute is in between the two Secured Creditors mainly on the issue as to which Secured Creditor or Bank is having the First Charge over the secured assets. There cannot be any dispute on the issue that both the Banks have disbursed the amount. 12. Now, at the very first step, it has to be seen as to

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Appeal No. 124 of 2017-DRAT-Kolkata whether sufficient vigilant and diligent steps were taken by the Banks at the time of sanctioning and disbursing the loan?

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13. Appellant has claimed that the loan was sanctioned in the year 2010 to Respondent No. 5. It is not in dispute that the Respondents No. 4 and 5 are husband and wife. It is also not in dispute that Respondent No. 4 purchased the entire property by way of a Registered Sale Deed dated 4^th July, 2003. Now, he executed different Gift Deeds in favour of his wife, Respondent No. 5, in the year 2004 and 2006. All these Gift Deeds are registered documents. It is also not in dispute that the Respondent No. 1 has sanctioned and disbursed the loan on 8.3.2006 whereby equitable mortgage was created in favour of the Respondent No. 1 by deposit of original Sale Deed in favour of Respondent No.4. A Letter of Undertaking was also given by the Respondent No. 4 in favour of the Respondent Bank for receiving the rents. It is also not in dispute that Appellant Bank sanctioned and disbursed the loan on 21^st July, 2010 by deposit of the Original Title Deed by the Respondent No. 4. 14. Now, the sole question arises about the genuineness of the transaction?

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15. The original Title Deed was deposited by the Respondent No. 4 in favour of the Appellant in the year 2010. A plea is taken by the Respondent that after deposit of the original Title Deed with the Respondent Bank, Respondent No. 4 made a request for return of the Title Deed for some purpose in the GHMC. Authorised Officer

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Appeal No. 124 of 2017-DRAT-Kolkata returned the Title Deed to the Borrower but the Borrower did not return the same to the Authorised Officer. Subsequently, a criminal complaint was lodged against the Borrower and the Guarantor wherein they are facing criminal trial.

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16. The issue now arises as to how, without liquidating the loan amount, the Authorised Officer could return the Original Title Deed?

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17. An equitable mortgage was created in favour of the Respondent No. 1 by deposit of original Sale Deed in favour of Respondent No.4 wherein security document was the Title Deed but without ensuring any other security document the Authorised Officer returned the same at his own risk. But such a plea could not help the Respondents as nothing was endorsed on the Title Deed regarding the loan having been sanctioned by the Respondents. Same Title Deed was deposited by the Borrowers with the Appellant Bank for creating equitable mortgage which was in accordance with law. Although criminal trial is pending against the Borrower and the Guarantor, the same cannot absolve the Respondent Bank from its liabilities.

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18. There is another aspect in the matter. In a recent judgment, the Hon’ble Apex Court has cautioned the Banks to exercise all due diligence at the time of sanctioning the loan and to find out whether any encumbrances over the secured assets exists or the Borrower or the Guarantor, as the case may be, has the absolute title over the secured assets.

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Appeal No. 124 of 2017-DRAT-Kolkata

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19. The Hon’ble Apex Court in Central Bank of India -vsSmt. Pratibha Jain (2025 SCC OnLine 121) has held in paragraph 44 that :

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“44. Before we close this litigation, we deem it necessary to observe that Banks should remain very careful with inadequate title clearance reports, more particularly, when such reports are obtained cheaply and at times for external reasons. This concerns the protection of public money and is in the larger public interest. Therefore, it is essential for the Reserve Bank of India and other stakeholders to collaborate in developing a standardized and practical approach for preparing title search report before sanctioning loans and also for the purpose of determining liability (including potential criminal action) of the Officer who approves loan. Additionally, there would be standard guidelines for fees and costs associated with title search reports so as to ensure that they maintain high quality.”

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19. Respondent No. 4 has executed different Gift Deeds in favour of his wife in the year 2004 and 2006. All these Deeds are registered documents; hence it was incumbent upon the Bank, at the time of sanctioning the loan, to find out the person, who has the absolute title over the secured assets; they cannot escape their responsibility by simply saying that they obtained legal opinion by their legal panel Counsel. There is a procedure for obtaining NonEncumbrance Certificate which should have been followed by the Bank. Some direction has been issued by the Hon’ble Apex Court. When the secured assets were already gifted by the Respondent No. 4, husband, in favour of the Respondent No. 3, wife, then how he could have a valid title to mortgage the property in favour of the Bank? These Gift Deeds have never been revoked. No doubt, they could have been revoked but there is nothing on record to show that they have ever been revoked at any point of time. Hence, there is no absolute title in favour of the Respondent No. 4.

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Appeal No. 124 of 2017-DRAT-Kolkata Accordingly, when the loan was sanctioned by the Respondent No.1/Bank, Respondent No. 4 was not having a valid title in his favour.

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20. There are certain pleas for executing sham documents which issue is not to be looked into at this stage because the creation of mortgage in favour of the Respondent Bank itself is not proved; hence, the First Charge over the secured assets could not be held in favour of the Respondent No. 1/Bank rather; the Appellant Bank was having the First Charge over the secured assets. Accordingly, I am of the considered view that the Learned DRT has erred in dismissing the SARFAESI Application. Accordingly, appeal deserves to be allowed.

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O R D E R

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Appeal is allowed. The impugned judgment and order dated 11.05.2017 passed by DRT, Hyderabad dismissing the S.A. 1012 of 2017 (Old S.A. 178 of 2012) (State Bank of India -vs- Vijaya Bank & Others), is set aside. Consequently, S.A. 1012 of 2017 (Old S.A. 178 of 2012) is allowed. All the actions initiated by the Respondent Bank are set aside.

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No order as to costs.

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Copy of the order be supplied to Appellant and the Respondents and a copy be also forwarded to the concerned DRT.

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File be consigned to Record room.

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Order signed, dated and pronounced in open Court.

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(Anil Kumar Srivastava,J) Chairperson

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Appeal No. 124 of 2017-DRAT-Kolkata

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Dated: 5^th February, 2025 - Ac/Hyderabad

State Bank Of India v. Bank of Baroda

Case brief

What is this about?

What did the court decide?

State Bank Of India v. Bank of Baroda

Case brief

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