The Tribunal dismissed the appeal filed by a lessee in the Scheduled Property seeking quashing of the Metropolitan Magistrate's order allowing the bank to take possession. The Court held that the lease deed executed after the demand notice was void under the SARFAESI Act.
The appeal was dismissed with no order as to cost.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
IN THE DEBTS RECOVERYTRIBUNAL-I, KARNATAKA AT BENGALURU
Dated this the 18th day of May,2023
Present: Sri. IMTIAZ ALI
Presiding Officer
S.A.No.560/2022
BETWEEN:
Smt, Sharada Bai M.
W/o. Late Mohan Rao T.S
Aged about 69 years
Residing at No. 5,2nd Floor
East facing House, 1s Cross l-* Main, Gundappa Road Basaveshwara Layout
Opposite RadhakrishnaPublicSchool Nagashetty Halli Bengaluru 560 094
.. APPELLANT
AND:
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Opposite Radhakrishna Public School,NagashettYHalli Bengaluru 560094
RESPONDENTS
Advocate onrecord/Apneared for: Appellant: SriC. Raju
Respondents: Sri B.S.Mahendra
FINAL ORDER
The Appellanthas filed the present Appeal under Section 17 of the SARFAESIAct, 2002 (for short "Act"J, seeking for quashing/setting asidethe order dated25'07 '2022passedin Crl' Misc.No.4204 /2022,by the VIII AdditionalChief Metropolitan Magistrate, Bengaluruin respect of the Schedule Property for recovery ofloan amount of Rs.1,51,68,593 (Rupees one crore fifty one lakh sixtyeight thousandfive hundred Ninety three
only) along withinterestthereon,charges, costetc'
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S.A.No.560/2022
3
West 34 fee!North to South 49'5", in all measuring 1683 square feet. Theapplicant is a lesseeunder the Second Respondentby virtue ofthe leaseagreement dated 05.01.2018by paying a sum of Rs.5,00,000/-(Rupees five lakhs onlyJ to the Second Respondentas refundable security deposit and subsequentlythe said leasedeed has been register ed on 24,03,2022,registeredas No. GNR-1-04689-2027'2022,storedin C'D'No'GNRD 960' in the office of theSenior Sub-Registrar' Gandihinagar(Ganganagar)' Bengaluru.The Second Respondent has availed immovable property loanfrom the First Respondenton the securityof the aforesaidpropertyvide loan account No' EMI310 N 295' in sum of Rs.42,00,000/-(Rupees forty two lakhs only) and it appears that, theSecond Respondent became defaulter in the matter of repaymentof loan to the 1$ Respondent and hence' the First Respondenthas registereda disputebefore the Joint Registrar of Co-operativeSocieties,Bengaluru' videDispute No' ARD/UBF/247 /20L6-lT,allegingthat' the Second Respondentis due ina principal sum of Rs' 4l'77 '897(Rupees forty-onelakhs seventy-seventhousand eight hundred ninety-seven only) and includinginterest and other costsand the SecondRespondentis
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S.A.No.560/2022
4
due and liable topay to the1't Respondent a sum of Rs'46,45,408 fRupeesforty six lakhs forty five thousand four hundredeight only). The Joint Registrar ofCo-operativeSocieties,passed an order dated 30.05.2077, allowingthe claim petitionand directing the second Respondent and othersto pay to the first Respondent a sum of Rs.46,45,408 togetherwith future interestat 74o/oper annum andpenal interestof 2o/o per annum from 28'05.2016 till the date of discharge of entire liability.Before intimationof proceeding before the foint Registrar orafter registrationof the dispute the second Respondentwas not heard by the 1't Respondent or the loint Registrarof Co-operativeSocieties. The second Respondent was totally keptin dark and therefore, the Second Respondent couldnot know about the proceedings.The first Respondent has filed anotherdispute before the foint Registrar of Co-operative Societies,Bengaluru, against the Second Respondent in Dispute No. fRD/UBF /26/2018-79,stating to have obtained loan for renovationofhouse in a sum of Rs.50,00,000/- and is a defaulter and obtainedan order dated 72.03.2019,for a sum of Rs.55,31,693 togetherwith future interest and costs. In both the disputes noticewhatsoever has been servedon the
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5.A.No.560/2022
second Respondent and the applicant is absolutely unaware of the orders passed by the foint Registrar of Co-operative Societies, Bengaluru. Thereafter, the first Respondent has filed execution and obtained an order dated 25.07.2022, in Crl. Misc. No. 4204/2022, on the file of the VUI Additional Chief Metropolitan Magistrate, Bengaluru, and the Hon'ble Court while allowing the petition filed by the 1't Respondent under Section 14 of SARFAESI Act, has ordered that, the first Respondentis entitled to take possession of petition scheduleproperty towards satisfaction of loan amount due by thesecondRespondent and further ordered that, Sri Ramesh M. Advocate(Enrolment No.MR/3676 12007), appointedas Court Commissioner to take possession of the petition Schedule Property fromthe Respondents and hand it over to the firstRespondentwithin 3 months from the date of his appointmentand further the court commissioner while executing thewarrant shall preparean inventory and reportthe same to the court and if necessary,the court commissioner may requestjurisdictionalpolicefor assistance and such otherreliefshas been granted.That on the basis ofthe said order,the firstRespondent issued a notice dated
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S. A. N o.s60/2022
03.08.2022,tothe second Respondentfor deliveryof possession
of the securedassetson or after eight days from the date of the notice dated03.08.2022.She is a seniorcitizen and she do not have any othershelter for her living and she has paid her hard earned moneyfor obtainingthe house propertyon lease from the second Respondent.The Applicant is absolutely unaware of the second Respondenthaving availed loan from the first Respondentand in the event the applicant is evicted from the premises in heruse and occupation,the applicantwill be thrown to streets withoutshelter which iniurycannot be compensated by any means.If the first Respondent repays the lease amount to the Applicant,the Applicantcan secure alternate premises from the said amountand quit the property and handovervacant possession of theproperty to the first Respondent'Hence' this applicationwas filed by the Applicant with the prayer to quash the impugnedorder dated 25'07 '022passedin Crl. Misc. No.4204/2022 by the VIII AdditionalChief
MetropolitanMagistrate, Bangalore'
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s.A.No.s60/2022
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s.A. N o. s60/202 2
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S.A.No.560/2022
24.09.20L7in respectof two different loan accounts' The First Respondentfurther submitted that the said loan is due for repaymenUthe repayments are not madeas per the schedule' Hence,the First Respondent has initiatedaction under Section 13(4) oftheSARFAESIAct'IOOZandhas issued sixty days notice to the SecondRespondentvide First Respondent Demand Notice dated17.03.2 022 in compliancewith the Section13(2) of the said Act,calling upon the second Respondentto pay the outstandingdues of Rs.1,51,68,593/-(Rupeesone crore fifty one lakhssixty-eightthousandfive hundredand ninety three only) as on 16.03.2022'The said notice was served to the second Respondent/Borrowerby RPAD' Despite the same' the Borrower /secondRespondent failed and neglectedto pay back the dues containedin the Demand Notice' The first Respondentis entitled to takepossessionof the mortgage/Hypothecated/Charged property i.e'above said propertymortgagedby the second Respondent,which is a secured asset'Since the first Respondent hasgranted the financial assistance to the second Respondent and thesecond Respondenthas created mortgageof the above
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S.A.No.560/2022
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said property in favour of the first Respondent the above asset is a secured asset.
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S.A.No.560/2022
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Schedule Property and published in two leading newspapers. Consequently the First Respondent has taken symbolic possession of the Schedule Property. The first Respondent further states that it has filed the Petition under Section 14 ofthe Securitization Act before the Additional Chief Metropolitan Magistrate at Bangalore in Crl. Misc,No.4202/2022 and the Additional Chief Metropolitan Magistratepassed an order for taking possession of the mortgaged property and later on, the first Respondent has executed the order of theACMMand obtained the physicalpossession of the mortgagedproperty.In view of the above facts, theRespondent Bankprayedfor dismissal of the Appeal with cost,
(a) Whether the Appellant / Borrowerhas made out a case to be allowed? and
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S.A. N 0.560/202 2
(b) To what relief, the parties are entitled ?
REASONS
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S.A.No.s60/2022
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per the impugned order, the firstRespondentBank *^entitled ).' to take possession of theScheduleproperty towards satisfaction of the loan amountpayable by the second Respondent. When on the basis of the suchorder,the first RespondentBankissued notice dated 03.08.2022for deliveryof possession of the secured asset the Appellantapproached this.Tribunalseekingrelief. According to her, shehas been living.Sthe secured asseton ondL, lease from the secondRespondent^shealso claimed have I deposited an amountof Rs.5,00,000/-to the second Respondent -lltot towards security deposits'She further stated^the leasedeed was \r. registered on 24.03.2023.Therefore,the Appellant claimed protection from evicting her fromthe secured assets'In this regard, Section 2(zc) oftheSARFAESIAct defines securedasset as the property on whichSecurity Interest is created. With respect to an immovableproperty, a secured interest is -the effectuated in asecuredasset by way mortgage inninterestof l. secured creditor.In the instant case,the secondRespondent being a borrowerhas createdthe mortgageof the Schedule properties by way ofdeposit of title deedstowards security for repayment of theloan availed by him. When the second
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s.A.No.s60/2022
14
Respondent failed to repay the loan amount, the first Respondent Bank issued several remainders. Ultimately, finding no other alternative, the asset ofthe second Respondent was classified as non-performing assets way back in the year 2017. Accordingly, the first Respondent Bank issued a Demand Notice on 77.03.2022 under Section 13(2J of the SARFAESI Act, Despite receipt of the said notice, the second Respondent failed topay the due amount to the first Respondent Bank. Thereafter,Possession ttotice *I affixed on the Schedule Property, which would beevident from the photographs submitted by thefirst Respondent Bank'
The Possession Notice r., shown intvvo documents clearly reveals that the PosseSsionNotice was published in two Newspapers as required underthe law.Findingno other optiory when the Borrower did notcome forward to repay the loan amount, the RespondentBank approachedthe VIII Additional Chief Metropolitan Magistrate,Bengaluru by submittingan affidavit applicationunderSection 14 of the SARFAESIAct for taking physicalpossession.Learned Magistrateby Order dated 25.07.2022 while allowing theapplication permitted the
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s.A.No.560/2022
15
Authorised Officer oftheRespondent Bank to take possession of the Schedule Propertywith the assistance of the Police' The Appellant has submitted thatin the presentcase, the concerned Magistrate did not bring onrecord the order of satisfaction as required under Secondproviso toSection 14 and without complying the statutoryrequirement, the permission was issued to the Authorised Officerof the RespondentBank to take possession of the ScheduleProperty. Ongoing through the documents as well asthe impugnedorder, this Tribunalis satisfied that theRespondent Bankhad filed an application in terms of requirementof the Section14 of the SARFAESIAct before the concernedMagistrateand on being satisfied,the Magistrate concernedhas issued permission to the Authorised Officer of theRespondentBank to take possession of the Schedule Property.The satisfaction of the concerned Magistrate has to satisff himselfwith the contents of the application supported byan affidavit and passed a suitable order thereonfor purpose of takingpossessionof the ScheduleProperty'For the purpose of the takingpossession, the Bank has to complywith the requirementof Section 13[a) of the SARFAESIAct'The
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s.A.No.56o/2022
16
Learned Magistrate passed an order permitting the Authorised Officer of the Respondent Bank to takepossession of the Schedule Property with the help of Police. It appears from the materials on record that the Borrower after availing loan facility from the Respondent Bank had failed to make repayment of the loan amount. At the time of availing of the loan facility, a charge over the Schedule Property was created by way of security.The Respondent Bank preferred an application u/s. 74 ofthe SARFAESI Act for an order of taking over thepossession ofthe secured asset. In such a situation, the Learned Magistrate after scrutinizing the application asprovided inSection 14 ofthe SARFAESI Act and after being satisfied has authorizedan advocate to take possession of the scheduleproperty lascourt commissioner and handover the same to the firstRespondent Bank. Section 13(a) of the SARFAEST e.t ,trtufi-,t"secured ^t creditor may take recourse to any of themeasures mentionedin the Section to recover the Debt,in case the Borrower is unable to discharge his liability in full withinthe 60 days period from the dateC of notice as mentioned underSection1'3(2) ofthe SARFAESI Act. Section 13[13) of theSARFAESIAct states that
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S.A.No.560/2022
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after the receiptofthenotice, no borrowershall lease any ofthe secured assetsmentionedin the notice, without obtainingthe priorpermissionfromthesecuredcreditor'Intheinstantcase' the Appellantwasinductedinto the securedasset by the second Respondent thatis the Borroweron 24'03'2022'which is the date of registrationof lease deed after the first Respondent Bank has issuedthe DemandNotice on 77 '03'2022 under Section 13(2) of the SARFAESIAct. Thus, it seemsthat the said lease deed was registered forthe purposeof filing this appeal before this Tribunal. Suchlease deed is void as the SARFAESIAct itself prohibits any creationof encumbrancewithoutprior permission after a noticehas been issued by the first RespondentBank'Thus' in thepresent situation, the RespondentBank has rightly approachedthe Learned Magistratein order to recoverthe possession of thesecured asset' The lease in question which was registeredon 24.03.2022 wouldalso be void ardmay not be coveredunderthe Rent ControlAct as it was createdafter the property wasput up for mortgageduring the year 2017while availingthe loan by the second Respondent'In the instantcase' the secondRespondent createdthe leasedeed in question for
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s.A.No.s60/2022
18
sole purpose of defeating the interest ofthe secured creditorr. In these circumstances, the Appellant is not entitled to get any relief
from this Tribunal as the impugned order passed by the Learned Magistrate do not suffer from any infirmities. Accordingly, the Appeal being devoid of merits, is liable to be dismissed.
ORDER
In the result, S.A.No.560/2022 is dismissed.
Interim order, if any, stands vacated, Pending IA's, if any,
also stand closed.
There will be no order as to cost.
(Dictated to the Stenographer, after its transcription and necessary corrections, signed and pronounced by me in the Open Court on this the 18th day ofMay,2023)
r,rr,)'ll,lo PRESIDING OFFICER DRT-I, Bengaluru
,.sr..
3 issues framed by the court
Whether the lease executed after the demand notice under SARFAESI Act can invalidate the possession order.
Whether the Secured Creditor is entitled to take possession of the mortgaged property despite the lease held by the Appellant.
Whether the impugned order of the Metropolitan Magistrate suffers from any infirmities requiring intervention by the Tribunal.
5 provisions across 1 enactments
Sharada Bai M.
Mahila Co-operative Bank Ltd
Sri M. Narayana Swamy
IMTIAZ ALI
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
