Dismissed

A.O. Arcil v. Mr.P.Somasundaram

DRAT21 Feb 2025REGULAR APPEAL/71/2019

Case brief

AI extract

What is this about?

The Appellant appealed against the DRT's dismissal of its application under Section 17 of the SARFAESI Act. The Tribunal held that since no mortgage deed was executed and thus no security interest was created on the property purchased by the respondent, the bank had no right to take possession. The appeal was dismissed.

What did the court decide?

The appeal is dismissed confirming the order of the DRT, II, Bangalore; parties bear their own costs.

A.O. Arcil versus Mr.P.Somasundaram — Banking and Recovery | DRAT (2025)

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IN THE DEBT RECOVERY APPELLATE TRIBUNAL AT CHENNAI

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Dated the 21^st day of February, 2025

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PRESENT: HON’BLE MR. JUSTICE G. CHANDRASEKHARAN

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CHAIRPERSON

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RA (SA) 71/2019

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(Arising out of TSA 56/2017 on the file of DRT - II, Bangalore)

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Between

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The Authorized Officer, ARMS, A Division of Assets Reconstruction Company (India) Ltd, No.29, 10^th Floor, The Ruby Senapati Bapat Marg Dadar (W) Mumbai 400 028 And also at: Unit No.305, 3^rd Floor, Kedia Arcade, No.92, Infantry Road, Bengaluru – 560 001 …..Appellant

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And

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Mr.P.Somasundaram, S/o. Mr. Perumal, Residing at Flat No.110, Ground Floor, HUDCO Group 3, II Phase, KHB Colony, Hootagalli, Mysuru Tq & District ...Respondent Counsel for Appellant : M/s.V.Jayachandran Associates Counsel for Respondent : Mr. T.R.Udayakumar

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ORDER

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This appeal is filed against the order passed in TSA 56/2017 by the Ld. Presiding Officer, DRT – II, Bangalore.

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Respondent filed the aforesaid SA challenging the possession notice dated 21.08.2015. Respondent claiming himself as absolute owner and in possession of the property bearing Flat No.110, Ground Floor, LIG, HUDOC Group – 3, II Phase, KHB Colony, Hootagalli, Mysuru Taluk and District, measuring 34 square meters, purchasing the same from its owner Mr. K.M.Umeshkumar through a registered sale deed dated 25.04.2014, filed the aforesaid SA. This property was originally allotted to Mr.P.Murali, S/o. P.Munirathanam through a sale deed dated 22.02.2007. He sold the property to Mr.K.M.Umeshkumar on 01.07.2011 and from him respondent purchased the property on 25.04.2014. Before purchasing the property, respondent verified the title and encumbrance certificate and found that there was no adverse entry in respect of the property purchased. Respondent was also not served with any notice prior to the issuance of possession notice and therefore, respondent filed the above said SA challenging the possession notice dated 21.08.2015. After contest, agreeing with the case of the respondent, TSA was allowed. Aggrieved by the same, this appeal is filed.

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Ld. Counsel for appellant submitted that one Mr.P.Murali, submitted a loan application dated 12.07.2006 for the purchase of constructed flat. On the basis of his application, the respondent bank sanctioned a sum of Rs.2 Lakhs through the Sanction Proceedings dated 28.07.2006. The Sanction Proceedings describes about the flat to be purchased by the borrower. The borrower had also executed an agreement in favour of the bank expressing his intention to create a mortgage. Thereafter, the loan amount was released to him. Since the borrower had not repaid the amount, the bank issued Demand Notice under Sec. 13(2) of the SARFAESI Act on 19.05.2015. That was received

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by the borrower. The Demand Notice was also published in newspapers both in English and vernacular language. The borrower had not chosen to pay the amount and therefore Possession notice dated 21.08.2015 was issued, which was received by the borrower and published in newspapers as well. In the said circumstances, the respondent who claims to be a bonafide purchaser filed TSA 56/2017 as a third party. The Ld. Presiding Officer, DRT – II, Bangalore, without going through the materials produced and the submissions of the Ld. Counsel for the appellant, allowed TSA 56/2017.

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It is the submission of the Ld. Counsel for the appellant that only the measures taken by the secured creditor can be challenged by the borrower or any aggrieved person. In the case beforehand, the respondent is not a borrower and he claims himself as a bonafide purchaser. When there is an intention to create mortgage on the part of the borrower, which is evidenced by the agreement, the order allowing the SA on the ground that the respondent is a bonafide purchaser is not correct.

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In reply to this submission, Ld. Counsel for the respondent submitted that no security interest was created against the property purchased by the respondent. Prior to purchase, respondent verified the encumbrance certificate and found that there was no encumbrance and thus, as a bonafide purchaser, he purchased the property. The measures under SARFAESI Act can be initiated only if there is any security interest created. Since there is no security interest created, the very issuance of the Demand notice followed by Possession Notice, against the property purchased by the respondent is not in tune with the scheme in the Act. Submitting so, Ld. Counsel prayed for confirming the order of the Ld. Presiding officer, DRT – II, Bangalore and dismiss this appeal.

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Considered the rival submissions and perused the records.

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From the documents produced, it is evident that one Mr. P.Murali, borrowed a loan for Rs. 2 Lakhs from the appellant bank. It is true that he had also executed an agreement to create a mortgage. However, it is informed that in continuance of this agreement, he had not executed any mortgage deed in favour of the bank. Admittedly, Demand Notice and Possession Notice had been sent to the borrower; however, he neither responded nor repaid the loan amount. The question now is whether when a security interest is not created in respect of the property purchased by the respondent, can the bank proceed against the property and take possession. The answer is an emphatic NO. The very title of the SARFAESI Act is that the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. Admittedly, no security interest was created in respect of the property purchased by the respondent. It is the case of the respondent that prior to purchase, he verified the Encumbrance certificate and found no encumbrance and therefore he purchased the property as a bonafide purchaser. When that be the case and when no security interest is created and that the debt sanctioned in favour of the borrower, Mr. P.Murali, is not a secured debt, this Tribunal is of the view that the allowing of TSA 56/2017 cannot be faulted.

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In view of the said circumstances, this Tribunal confirms the order passed by the Ld. Presiding Officer, DRT – II, Bangalore in TSA 56/2017 dated 12.06.2017.

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Accordingly, this appeal RA (SA) 71/2019 is dismissed. Parties shall bear their own costs.

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Pending IAs, if any, stand closed.

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[Dictated to Steno (DD), transcribed by her, corrected, signed and pronounced by me in open court, this 21^st February, 2025]

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Sd/- (JUSTICE G. CHANDRASEKHARAN) CHAIRPERSON

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A.O. Arcil v. Mr.P.Somasundaram

Case brief

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A.O. Arcil v. Mr.P.Somasundaram

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