Dismissed

Ms Prisan Cineplex Private Limited v. Karur Vysya Bank

DRT3 Apr 2024SA/1/2024

Case brief

AI extract

What is this about?

The Debts Recovery Tribunal dismissed an application by a sub-tenant seeking to set aside an order allowing the bank commissioner to take physical possession. The Tribunal held the unregistered sub-lease deed was invalid under the Transfer of Property Act and the civil court decree did not bind the non-impleaded bank.

What did the court decide?

Application SA No.1/2024 dismissed; parties to bear their own costs.

Ms Prisan Cineplex Private Limited versus Karur… — Contract and Commercial Disputes | DRT (2024)

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IN THE DEBTS RECOVERY TRIBUNAL –I AT CHENNAI

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Dated this 3^rd Day of April, 2024

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PRESENT: SHRI A.S.JAYACHANDRA Presiding Officer

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S.A.No.1 of 2024

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M/s. Prisan Cineplex Pvt Ltd.,

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Rep. by its Director Prithvi Bharath No. 123, Bhavani Road, Erode 638 004

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. . . Applicant/3rd Party

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-Vs-

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1. The Authorized Officer/Chief Manager,

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Karur Vysya Bank, Asset Recovery Branch, R.S.No. 170/9, Uthankudi Village, Near Mattuthavani Bus Stand, Madurai-625 107

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2. Sri Maharaja Refineries,

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A partnership firm, Rep by its Partner Mr.S.Saradha, No. 125, Bhavani Road, Erode-638 004.

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3. Mr.S.Saradha

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W/o, P.Sathiyamoorthy, No.119, Bhavani Main Road, Erode-638 004.

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4. Mr.P.Sathyamoorthy,

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S/o, K.Paramasivam No. 119, Bhavani Main Road, Erode-638 004.

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5. Mrs.P.Parameswari W/o, Palanisamy, No. 119, Bhavani Main Road, Erode-638 004.

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6. Mr.K.Paramasivam, S/o Karuppannan No. 119, Bhavani Main Road, Erode-638 004.

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7. M/s. Maharaja Theme Parks & Resorts Pvt., Ltd., Rep. by the Liquidator, Mrs.Aneetha Subramaniam, No. 119, Bhavani Road, Erode-638 004.

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8. M/s. Sri Maharaja Industries, Rep by its Proprietor Mr.K.Paramasivam, No. 119, Bhavani Road, Erode-638 004. . . . Defendants

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Ld. Counsel for Applicant :- M/s.Sh.Swaranam J. Rajagopalan. Ld. Counsel for Defendant No.1 :- M/s.R. Venkatesan

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Defendants 2 to 8 not being proceeded with as per the order dated 29.02.2024 since no relief claimed against them.

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This is a petition filed under Section 17(1) of the SARFAESI Act seeking setting aside of the orders dated 09.01.2024 in Crl. M.P. No.43699 of 2023 on the files of the Ld. C.J.M. Coimbatore.

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The Applicant is neither a borrower nor a guarantor, a third party.

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FACTS OF THE CASE :-

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1.1 The Applicant Company which is neither a borrower nor a guarantor challenges the orders of the Ld. CJM, Coimbatore passed under Section 14 of the SARFAESI Act, in which the Defendant No.1 had obtained an order seeking the assistance of the Court Commissioner to take Physical Possession of the properties mentioned in the present Application. Such an order of the Ld. CJM, Coimbatore is against the Defendants 2 to 8 herein.

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1.2 The properties in question belonged to Defendant 4 & 6 who had leased out the said properties in favour of 7^th Defendant for a period of 30 years under a Registered Deed 04.06.2004. The 7^th Defendant was empowered to sub-lease by a supplementary deed dated 26.03.2015.

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1.3 Accordingly, the 7^th Defendant whose lease-hold right expires by 31.07.2033, had sub-leased to the Applicant on 01.08.2016 for a period of seventeen years. Thus the Applicant is a sub-tenant.

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1.4 It is submitted that the 4^th Defendant on 08.12.2018 attempted to evict the Applicant Company and thereafter this Applicant moved OS No.1621/2018 before the Ld. III Addl. Sub-Judge, Coimbatore and obtained an injunction. The said suit ended in exparte decree in the nature of a perpetual injunction restraining 7^th Defendant from interfering in the Possession of this Applicant except under due process of law. In the said suit, it is noted that the Defendant after filing the written statement did not contest and was set exparte by the Civil Court.

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1.5 Since the Applicant apprehends that he could be disposed pursuant to the orders of the Ld. CJM, Coimbatore, he prays for setting aside the orders of the Ld. CJM, Coimbatore in the instant proceedings.

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GROUNDS :-

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2.1 The rights of the 7^th Defendant over the properties flow prior to the date of mortgage with the 1^st Defendant Bank and the same continues till 31.07.2033. Suppressing this fact, the impugned order is obtained by the Bank from the Court of Ld. CJM, Coimbatore.

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2.2 The decree in favour of this Applicant in OS No.1621/2018 is in force and the same has not been reversed by any superior court thereon and therefore contends that the orders of the Ld. CJM is against the decree in favour of the applicant.

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2.3 The Applicant can only be disposed by the provisions of the Tamilnadu regulations of rights and responsibilities of land lords and tenants act 2017 and not by the procedure of law under the SARFAESI Act.

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2.4 The Defendant No.1 Bank had proceeded against the 7^th Defendant Company before the NCLT and therefore, it cannot dispute the sub-lease in favour of this Applicant, which was never brought to the knowledge of the Ld. CJM, Coimbatore. Certain case law is cited in the grounds.

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2.5 The impugned order is passed without verification of facts and nonapplication of mind. The Bank had also not described the properties, which consists of certain buildings, theatre, etc.

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CASE OF THE DEFENDANT NO.1 :-

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3.1 The Defendant Bank – filed caveat and was served with the copies of the Application on the 1^st date of hearing. This Tribunal noted that the other Defendants are only pro-forma parties, since no relief is sought and further noted that the matter would be proceeded upon filing of the counter vide order dated 29.02.2024. The 1^st

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Defendant filed its detailed counter / reply statement along with documents. The gist of the same is as follows:-

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(a) The application averments are untrue, baseless, frivolous and not sustainable on facts and law.

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(b) Defendants 2 to 8 colluded with this Applicant and this Applicant has no cause of action. The facts are twisted.

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(c) The sub-lease deed from which the Applicant claims right is not a registered document and the same is wrongly portrayed as registered document. The Applicant is not legally inducted and has no locus to present the instant application.

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(d) 8^th Defendant proprietary concern is held by 6^th Defendant. The 2^nd Defendant firm is consisting of two partners namely 3^rd and 4^th Defendants. Both firm and the proprietary concern run in the name and style of M/s.Maharaja Enterprises by the 4^th Defendant. 7^th Defendant is a private company and the share holders include Defendants 3,4,6 and the signatory to this SA and one Ms.Sundari who are the family members and Defendant No.4 and Defendant No.6 are its Directors, which is a family concern. The counter is supported by the documents which are produced particularly the information obtained from the Registrar of Companies.

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(e) The present Applicant Company was floated by Defendants 4 & 6 and they resigned to induct two sons of Defendant No.4 and the signatory to the SA was inducted as one of the Directors on 19.08.2016 to the Applicant Company. Thus the Applicant Company is a shadow unit of the borrowers and guarantors (D2 to D8).

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(f) The Defendant No.8 had availed the credit facilities through its proprietor Mr.Paramasivam from the contesting Bank on 14.06.2013 with Defendants, 4, 6 Dharaneedharan & Defendant No.7 as guarantors and executed the loan documents. The Defendant No.2 is a partnership firm, where Defendants 3 & 4 are the partners, which also availed the credit facilities on 27.12.2011 guaranteed by the other Defendants. The title deeds of the properties were deposited on 07.03.2005 and confirmed under a deed dated 23.04.2012, which is registered. The said mortgage is further

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extended under a deed dated 14.06.2023 registered on 25.06.2014. The same was further registered in the year 2016.

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(g) The lease deed executed in favour of 7^th Defendant from whom the Applicant claims certain rights had also joined in the execution of mortgage of deposit of title deeds in favour of the bank on 07.03.2005 and there stood a transfer of interest in favour of the bank in the property prior to the date on which the Applicant claims rights. The deed if any including the supplementary dated 26.03.2015 executed between Defendant 4,5 & 6 on the one part and Defendant No.7 on the other part is without the consent or knowledge of this Bank, and the same does not bind the bank.

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(h) Any right claimed by the Applicant has no legal force. This sub-lease deed is the product of collusion among Defendants 2 to 8 and the Applicant has not come with clean hands.

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(i) Demand Notice dated 08.03.2017 is issued consequent to classification of NPA on 08.02.2017. The borrowers did not comply. The bank took possession of the assets on 01.03.2017 by publishing the notices serving and affixing the same. Suppressing these facts, Defendants 4 & 6 had filed a collusive suit in OS No.1621/2018 against the 7^th Defendant which was not properly contested. The unregistered sale deed produced before the Ld. Civil Court was impounded to levy stamp duty and penalty. The mere payment of the stamp duty and penalty does not make the deed a registered one. The deed on which the rights are claimed are not binding the Defendant Bank and the same is per-se illegal. Further, the same is contravening the provisions of Section 65-A of the TP Act. The bank was not impleaded in the Original Suit. The mere registration of the decree cannot be equated with the registration of the lease deed especially when the suit is collusive in nature. It is also submitted that the Defendant in the said suit was ordered to be liquidated in the year 2019 and the same was not intimated to the Ld. Sub-Judge. Hence the decree has no legal force. The allegations that the Applicant had invested huge sums are false and that the allegations made in the Civil Suit against the 4^th Defendant is a preposterous contention. The Original Suit was conducted by the parties despite the moratorium against the Defendant therein arising out of NCLT Proceedings, and thus the said decree has no force and especially the

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same does not bind this applicant. The bank had also produced the NCLT Orders.

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(j) The sale notice (dt.21.04.2023) was published earlier and failed for want of bidders. The SAs 269 & 270 / 2017 were dismissed by this Tribunal after re-numbering as TSA No.37 & 44 of 2023 by an order dated 05.10.2023. This Defendant moved before the Ld. CJM, Coimbatore, which was allowed to take physical possession.

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(k) This Applicant was inducted during the subsistence of mortgage with the bank and the same does not confer any right to seek any relief. The decree in the civil suit is not binding the Defendant bank since the bank is not a party in the civil suit.

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(l) The present liability of the borrowers stands at Rs.475,41,99,934.41p as on 31.01.2024 and the present application is filed only to procrastinate the liability. This applicant is the wing of Defendants 2 to 8 who are liable to pay the money. One TA No.41/2023 is filed for recovery and the said application is pending before this Tribunal. The contesting Defendant seeks dismissal of the SA.

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POINT FOR DETERMINATION :-

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4.1 Heard the Ld. Counsel for the parties. Perused the pleadings and the documents produced on either side. In the wake of rival submissions, the only point that arises for determination in the present SA is:-

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“Whether the Applicant had made out a case for setting aside the orders of the Ld. CJM dated 09.01.2024 in Crl.M.P. No.43699/2023?”

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ANSWERS TO THE POINT FOR DETERMINATION:-

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5.1 The Ld. Counsel appearing for the applicant vehemently argues that the impugned order in as much as disturbing the independent rights of the applicant company who is the sub-lease right holder is against the law. He points out to the

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ruling of Bajarang Shyamsunder Agarwal Vs. Central Bank of India & Ano. 2019 SCC (9) P.94 and submits that even though Section 35 of the SARFAESI Act has a non obstante clause, it will not over ride the statutory rights of the tenants. He further points out that the sublease deed subsists till the year 2033 and till the sublease expires the bank cannot be allowed to uproot the possession of the applicant.

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5.2 On the other hand the Ld. Counsel for the Defendant No.1 Bank submits that the very source of such claim is opposed to law since the sub-lease deed is not registered as required under Section 17 of the Indian Registration Act. This Tribunal has given careful thought to the submissions of the rival parties. No doubt the law laid down in Bajarang Shyamsunder Agarwal (Supra) holds that the statutory rights of the tenants cannot be over ridden; the Hon'ble Supreme Court while dealing in the said case had also laid down certain guidelines. One of the foremost guidelines are:-

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“In any case, if any of the tenants claim that he is entitled to possession of a secured asset for a term of more than a year, it has to be supported by the execution of a registered instrument. In the absence of a registered instrument, if the tenant relies on an unregistered instrument or an oral agreement accompanied by delivery of possession, the tenant is not entitled to possession of the secured asset for more than the period prescribed underSection 107 of the T.P. Act. (Para 24.3)”

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Admittedly the sublease deed dated 01.08.2016 is not registered. In view of the above the ruling relied does not help the Applicant, especially in view of sublease alleged is created after the creation of mortgage and not registered.

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5.3 This Tribunal cannot lose sight of the subsequent rulings of the Hon'ble Supreme Court in Hemaraj Ratnakar Salian Vs. HDFC Bank Ltd. 2021 SCC Online 611 , it is held after analyzing the ruling in Bajarang Shyamsunder Agarwal (Supra) observes that:

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A Three Judge Bench of this Court in Bajarang Shyamsunder Agarwal v. Central Bank of India & Anr.3, after considering almost all decisions of this Court, in relation to the right of a tenant in possession of the secured asset, has held that if a valid tenancy under law is in existence even prior to the creation of the mortgage, such tenant’s possession cannot be disturbed by the secured creditor by taking possession of the property. If a tenancy under law comes into existence after the creation of a mortgage but prior to issuance of a notice under Section 13(2) of the SARFAESI Act, it has to satisfy the conditions of Section 65A of the Transfer of Property Act, 1882. If a tenant claims that he is entitled to possession of a Secured Asset for a term of more than a year, it has to be supported by the execution of a registered instrument. In the said decision of this Court, it was clarified that in the absence of a registered instrument, if the tenant only relies upon an unregistered instrument or an oral agreement accompanied by delivery of possession, the tenant is not entitled to possession of the secured asset for more than the period prescribed under the provisions of the Transfer of Property Act. It was held thus:

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(2019) 9 SCC 94

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“24.1. If a valid tenancy under law is in existence even prior to the creation of the mortgage, the tenant’s possession cannot be disturbed by the secured creditor by taking possession of the property. The lease has to be determined in accordance with Section 111 of the TP Act for determination of leases. As the existence of a prior existing lease inevitably affects the risk undertaken by the bank while providing the loan, it is expected of banks/creditors to have conducted a standard due diligence in this regard. Where the bank has proceeded to accept such a property as mortgage, it will be presumed that it has consented to the risk that comes as a consequence of the existing tenancy. In such a situation, the rights of a rightful tenant cannot be compromised under the SARFAESI Act proceedings. 24.2. If a tenancy under law comes into existence after the creation of a mortgage, but prior to the issuance of notice under Section 13(2) of the SARFAESI Act, it has to satisfy the conditions of Section 65-A of the TP Act.

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24.3. In any case, if any of the tenants claim that he is entitled to possession of a secured asset for a term of more than a year, it has to be supported by the execution of a registered instrument. In the absence of a registered instrument, if the tenant relies on an unregistered instrument or an oral agreement accompanied by delivery of possession, the tenant is not entitled to possession of the secured asset for more than the period prescribed under Section 107 of the TP Act.”

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It was further held that the Rent Act would not come to the aid of a “tenantinsufferance” vis-à-vis SARFAESI Act due to the operation of Section 13(2) read with Section 13(13) of the SARFAESI Act. It was held as follows:

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“35. The operation of the Rent Act cannot be extended to a “tenant-insufferance” vis-à-vis the SARFAESI Act, due to the operation of Section 13(2) read with Section 13(13) of the SARFAESI Act. A contrary interpretation would violate the intention of the legislature to provide for Section 13(13), which has a valuable role in making the SARFAESI Act a self executory

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instrument for debts recovery. Moreover, such an interpretation would also violate the mandate of Section 35, SARFAESI Act which is couched in broad terms.”

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5.4 In view of the above ruling, the document relied by the Applicant to contend that he is entitled for the protection cannot be countenanced for the following reasons.

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(a) The sub-lease deed dated 01.08.2016 is not registered and is in nullity in the eye of law.

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(b) That the decree of perpetual injunction obtained against the 7^th Defendant is not binding on the Defendant No.1 Bank, since it is not a party to the suit.

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(c) Mere registration of decree as contented by the Ld. Counsel for the Applicant cannot be equated with the registering of the document dated 01.08.2016.

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(d) The demonstration through documents by the Ld. Counsel for the Bank clearly establishes that the Applicant Company is a shadow of the borrowers and the deed on which the rights are claimed suffers from illegality and the same cannot be held as sanctified under the law. It only shows that the Applicant Company is the shadow unit of the borrowers. Hence the application itself is not bonafide.

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5.5 The ground that the Defendant No.1 Bank obtained the orders of the Ld. CJM suppressing the fact that the schedule property is in lawful possession of the Applicant cannot be accepted since the 7^th Defendant who had filed the written statement before the Civil Court had never disclosed the security interest he created in favour of the Defendant No.1 in his written statement, so that the present Applicant who was the plaintiff could be in a position to implead the bank. The 7^th Defendant herein who had filed the WS in the Civil Court did not contest thereafter. This gives room to presume the collusive nature of the suit which the Ld. Counsel for the bank had vehemently argued and established through various documents to

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show that all the other Defendants are belonging to a close knit of relation in various firms, proprietary and being Directors of the borrowing companies.

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5.6 The Ld. Counsel appearing for the Defendant No.1 Bank had also relied on the Bajarang Shyamsunder Agarwal (Supra) to urge that the case of the Applicant is not based on valid lease and this Tribunal cannot accord any sanctity to such documents. He also relied on M/s.Trilok Chand Fabrication Pvt. Ltd. Vs. State of UP and Ors. 2024-AHC-5811-DB to emphasise that no lease beyond the period of eleven months can be created without a registered document as the same is barred under Section 106 of the TP Act. He also relied on Sameer Mukerjee Vs. Davinder K.Bajaj CDJ 2001 SC 283 to submit that under Section 107 of the TP Act, a lease of immovable property for a term exceeding one year can be made only under a registered instrument and any lease otherwise would be void. He also relied on Balakrishna Rama Tarle and Ano Vs. Phoenix ARC Pvt. Ltd. CDJ 2022 SC 1047 to submit that a judgement cannot be interpreted and applied to fact situation by reading it as a statute. Further reliance is placed in RV Bhupal Prasad Vs. State of UP CDJ 1995 009 to submit that tenant in continued possession after the expiry of lease with the consent of the land lord will be considered as tenant by sufferance. The tenancy by sufferance cannot create relationship of land lord and tenant. He also relied on the ruling of NK Jinnah and others Vs. Sub-Registrar & Ors. WP No.29875 of 2023 and WMP Nos.29482 to 29484 of 2023 DD 18.02.2023 of Hon'ble Madras High Court to urge that mere payment of the stamp duty will not validate the document and declare the rights of the parties. This ruling is urged to submit that the payment of the stamp duty and penalty on the unregistered sublease deed does not validate it in the eyes of law.

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5.7 To sum up the grounds urged that the Applicant is a valid tenant cannot be accepted in view of the clear position of law on the subject discussed above. The other ground that the Defendant had suppressed the fact of sub-lease before the Ld. CJM, cannot be accepted since neither the borrower/guarantor namely the 7^th

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Defendant had not intimated the bank about the sub-lease. The other ground that the decree in OS No.1621/2018 is not binding on the Defendant No.1 Bank.

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5.8 It is to be noted that Ld. Civil Court had restrained the Defendant No.7 from interfering in the peaceful and enjoyment of the properties of the Applicant Company except under the due process of law. That does not mean that the Defendant Bank is also restrained. In fact the process of law is already initiated under the SARFAESI Act. Even if it is assumed for the moment that the Defendant Bank is proceeding as successor in interest of the 7^th Defendant, the process of law entrains in accordance with the statute.

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5.9 It is pertinent to note that in Indian Bank Vs. Vishalakshi and another CA 6295/2015 dt.23.09.2019 SC, it is held that the proceedings of the Ld. CJM is only a procedural step and purely and administrative order. No adjudicatory process is involved. After going through the order of the Ld. CJM, in the lights of the facts pleaded, this Tribunal does not find any improprietary in the impugned order and thus the same is not liable to be interfered. After considering the entire spectrum of the allegations and the grounds urged, this Tribunal is unable to find any illegality or impropriety in the orders of the Ld. CJM. Accordingly the following:

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SA No.1/2024 stands dismissed. Parties to bear their own costs.

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Sd/- (A.S.JAYACHANDRA) PRESIDING OFFICER DRT-I, CHENNAI

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(Dictated to PS, who directly typed in the system, corrected, signed and pronounced by me on this 3^rd Day of April, 2024)

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Ms Prisan Cineplex Private Limited v. Karur Vysya Bank

Case brief

What is this about?

What did the court decide?

Ms Prisan Cineplex Private Limited v. Karur Vysya Bank

Case brief

What is this about?

What did the court decide?

What the court decided

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