Dismissed

Canara Bank, v. Messrs Komal Enterprises and Others

DRT3 Mar 2026OA/169/2023

Case brief

AI extract

What is this about?

The DRT dismissed a securitization application filed by third-party applicants seeking withdrawal of enforcement proceedings initiated by an Asset Reconstruction Company against original borrowers. The court held that no service of notices on the third parties was required as they bore no contractual liability.

What did the court decide?

The Securitization Application seeking orders to withdraw execution and notice under the Act was dismissed.

Canara Bank, versus Messrs Komal Enterprises and Others — Banking and Recovery | DRT (2026)

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DEBTS RECOVERY TRIBUNAL-III, CHANDIGARH

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PRESIDED OVER: SH. MRIDULESH KUMAR SINGH

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SECURITIZATION APPLICATION NO.169/2023

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Date of Institution: 22.08.2023 Date of Decision: 03.03.2026

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Sh. Yushutosh S/o Sh. Rajinder Kumar, R/o H.No. 430-B New Mata Gujri Enclave, Kharar, SAS Nagar Mohali

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Smt. Seema Kumari W/o Sh. Rajinder Kumar, R/o H.No. 430-B, New Mata Gujri Enclave, Kharar, SAS Nagar Mohali

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--Applicants

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Versus

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Authorised Officer, Edelweiss Asset Reconstruction Company Ltd., Room No. E-3, 2^nd Floor, Delhi Press, Rani Jhansi Road, Jhandewalan, New Delhi

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Edelweiss Asset Reconstruction Company Ltd., Room No. E-3, 2^nd Floor, Delhi Press, Rani Jhansi Road, Jhandewalan, New Delhi through its Authorised Officer

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IDFC First Bank (Erstwhile Capital First) one Indiabulls Centre, Tower 2A & 2B, 10^th Floor, Senapati Bapat Marg, Lower Parel (West) Mumbai 400013

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Sh. Nirbhai Singh S/o Sh. Harbhajan Singh, R/o House No. 47, Sunny Enclave, Kharar, Mohali, Punjab 140301

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Second Address:

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Gagan Cloth Shop No.2, Mata Gujri Enclave, Kharar, Mohali, Punjab 140301

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Smt. Amarjit Kaur W/o Sh. Nirbhai Singh, R/o H. No. 47, Sunny Enclave, Kharar, Mohali, Punjab 140301 Second Address:

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Gagan Cloth Shop No.2, Mata Gujri Enclave, Kharar, Mohali, Punjab 140301

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2 SA/169/2023 YUSHUTOSH AND ANOTHER VS. EDELWEISS ASSET RECONSTRUCTION COMPANY LTD. AND OTHERS

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Sh. Jai Singh S/o Sh. Radha Singh, R/o House No. 379/2, Sector A-1, Chandigarh 160031

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--Respondents Argued by: Sh. Atul Sharma, Advocate for Applicants Sh. Harsh Chopra, Advocate for Respondent No. 1 & 2 Ms. Pooja Arora, Advocate proxy for Sh. Arjun Grover, Advocate for Respondent No.3 (through VC) Respondent Nos. 4 to 6 already ex parte vide order dated 31.10.2023

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FINAL ORDER

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(1) This Securitization Application was filed under Section 17 (1) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as ‘the Act’ for brevity) to issue orders and directions to the Financial Institution to immediately withdraw their execution and notice issued under the Act & their alleged actions/notice issued under Section 14 of the Act. (2) It was stated in the application that the present application is being tendered by the applicants being third party (owner in possession); that respondent No.1 had issued possession notice dated 09.08.2023, which was never served upon the applicants being third party; that no notice under Section 13(2) of the Act has been served upon applicants till date and therefore their rights under the provisions of section 13 (3-A) of the Act has been virtually being taken away from them; that applicants are owner in possession of the property in question i.e., Constructed dwelling unit at Village Kharar, H.B. No. 184, District SAS Nagar Mohali, Punjab; that respondent No.1 had obtained an order of possession dated 09.08.2023 (Annexure A-1) without purposely and very carefully not complying with the Rules for apparent reasons; that applicants had placed their proposal for grant of financial assistance from respondent No.3, which after due deliberation has

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3 SA/169/2023 YUSHUTOSH AND ANOTHER VS. EDELWEISS ASSET RECONSTRUCTION COMPANY LTD. AND OTHERS

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granted the loan to the applicants; that keeping in view the pre-condition of the clearance of any charge over the property the respondent No.3 had not done their due diligence but had sought legal opinion from their Advocate and all the process qua the charge being created under the category of mortgage had been performed by the bank as such too; that applicants were enjoying the financial assistance granted by the respondent No.3 and had accordingly being updating the accounts for the loan obtained by them since its release; that respondent No.1 is proceeding against the property of the applicants qua a loan purported to have been sanctioned in the name of respondent No.4 & 5; that the actions initiated by the respondent No.1 claiming their right over the property of the applicants being mortgagee prior to the sanction of the amounts to the applicants by its own banker i.e., the respondent No. 3 is hopelessly barred by limitation and keeping in view the provisions of Article 65 of the Limitation Act, 1963 even if both the sake of argument it is taken that the respondent No.4 had mortgaged the property prior the sale of the property to the applicants, the "aspect of adverse possession" and the rights of the applicants would emerge for consideration of this Tribunal. Therefore, it was prayed that the present SA may kindly be allowed.

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(3) Reply filed by respondent Nos. 1 & 2. (4) It is stated in the reply that act of the respondent Nos. 1 & 2 is in compliance with the provisions of the Act and there is no illegality in the SARFAESI Proceedings; that loan was sanctioned to the respondent Nos. 4 to 6 by the original lender and due to defaults committed by them, the loan account was classified as NPA on 01.01.2017 by the Original Lender in accordance with the guidelines and directives issued by the RBI in this regard; that subsequently, in accordance with the Section 5 of the Act, the Original Lender i.e., DHFL assigned the aforementioned Loan account along with the underlying security therein vide an Assignment Agreement dated 04.10.2019 in favour of respondent Nos. 1 & 2 i.e., Edelweiss Asset Reconstruction Company Ltd. acting in its capacity as the Trustee of EARC Trust SC 371; that thereafter,

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SA/169/2023

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YUSHUTOSH AND ANOTHER VS. EDELWEISS ASSET RECONSTRUCTION COMPANY LTD. AND OTHERS

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respondent Nos. 1 & 2 issued demand notice under Section 13(2) of the Act dated 20.10.2020 in compliance of provisions of the Act; that it is specifically denied that the applicants are the owners in possession of the mortgaged property against which the SARFAESI proceedings are initiated under the Act; that loan was sanctioned vide sanction letter dated 29.07.2010 for Rs. 7,47,230/- to respondent Nos. 4 to 6 and Loan Agreement was executed between the original lender and respondent Nos. 4 to 6 on 31.07.2010 and out of the total sanctioned loan, amount of Rs. 7.00 Lacs was paid to the Seller of the Property and details of the same were clearly specified in the sale deed dated 02.08.2010 (Annexure R1/3) executed in favour of respondent Nos. 4 & 5 and the same property, particularly as specified in Demand notice 13(2) of the Act having Hadbast No. 184 was mortgaged by way of creation of equitable mortgage in favour of DHFL (original lender); that the buyer/vendee required to exercise the due diligence and needs to verify the sanctity of the documents before buying the property, which in the present case is missing absolutely; that sale deed in favour of respondent Nos. 4 & 5 acts as Public Notice which itself contains details of the amount financed by the Original lender and the applicants have failed to exercise the due diligence; that it is admitted fact by the applicants in the para 5.9 of the present SA that “Keeping in the view the precondition of the clearance of any charge over the property the Respondent No. 3 had not done their due diligence"; that it is very interesting fact that whole fraudulent transaction between respondent Nos. 4 & 5 and applicants was carried out in span of few years i.e., buying of the property by respondent Nos. 4 & 5 on 02.08.2010 with the loan money financed by the Original lender and subsequent sale to the applicants on 13.10.2013 was carried out with the sole purpose of playing fraud with the respondent Nos. 1 & 2; that it is clear cut from the above scenario that whole transaction between the applicants and the respondent Nos. 4 & 5 was carried out intentionally to thwart the SARFAESI proceedings initiated against them; that the loan was sanctioned and disbursed prior to the alleged

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SA/169/2023

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YUSHUTOSH AND ANOTHER VS. EDELWEISS ASSET RECONSTRUCTION COMPANY LTD. AND OTHERS

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Sale Deeds being relied upon by the applicants in the present SA; that therefore, the present SA is liable to be dismissed with heavy cost; that notice dated 09.08.2023 under Section 14 of the Act was issued in compliance of provisions of Act and all such acts of the respondent Nos. 1 & 2 are in compliance with the provisions of the Act; that notice dated 09.08.2023 under Section 14 of the Act was issued to the borrowers and the guarantors of the loan sanctioned being the owners in possession of the mortgaged property in question and the applicants are in collusion with respondent Nos. 4 & 5 trying to create the misleading picture in the mind of this Tribunal just to avoid the repayment of loan amount and thwart the SARFAESI proceedings under the Act; that all the notices were duly issued in compliance of provisions of Act to the respondent Nos. 4 to 6 and applicants have no privity of contract; that all the actions initiated by respondent Nos. 1 & 2 are strictly in accordance with the Act and Rules, therefore it was prayed that the present SA may kindly be dismissed being devoid of any merit.

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(5) Reply filed by respondent No. 3.

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(6) It is stated in the reply that respondent No.3 is inter-alia engaged into the business of providing Credit/Loan facilities to its customers and accepting deposits from the public at large; that in fact, the applicants are neither seeking any relief from respondent No.3 nor they challenged any action of respondent No.3 in the instant application; that the instant SA pertains to the mortgaged property, which has been mortgaged by the applicants with respondent No.3 to secure the loan sought therefrom and the mortgaged property is being wrongly enforced by the respondent Nos. 1 & 2 under the Act by misusing the process of law; that applicants in the year 2018, had availed Loan facility i.e., Loan against property bearing account number 14443408 from respondent No.3 to the tune of Rs.17 Lacs; that to secure the above-mentioned loan facility, the property in question was duly mortgaged in the said loan account; that at the time of seeking the loan, the borrowers assured the respondent No.3 to regularly pay EMIs towards the loan availed by

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SA/169/2023

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YUSHUTOSH AND ANOTHER VS. EDELWEISS ASSET RECONSTRUCTION COMPANY LTD. AND OTHERS

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the borrowers, on due dates; that upon the consequences of failure to pay timely EMIs, the bank will have the right to enforce the mortgaged property in its favour; that it is suffice to state that at the time of sanctioning the loan, the respondent No.3 got carried out due diligence of the property in question and categorically getting conducted a title search qua the property in question and thereafter sanctioned the Loan against property in favour of applicants to the tune of Rs. 17 Lacs for a tenure of 228 months, while stating that mode of creation of the security in the loan account shall be mortgage on the property in question; that at the time of carrying out due diligence by the respondent No.3, no charge was registered thereon in favour of respondent Nos. 1 & 2 and the property was free from any sort of charges; that consequently, the property in question which belongs to the applicants, created an equitable mortgage in favour of the respondent No.3; that accordingly, being condition precedent as per the loaning documents, the respondent No.3 fulfilled all the due formalities qua the loan in question inter-alia for creating an equitable mortgage while retaining the original Title Deed qua the property in question with the respondent No.3; that in the instant case bank has carried out due diligence of the property in question and has also registered its charge over the mortgaged property with the revenue authorities as also with CERSAI; that the recovery process initiated by the respondent Nos. 1 & 2 is purely illegal and is not as per the provisions of the Act; that respondent No.3 has an essence of a public unit, being custodian of public money, which works in a transparent manner and in case the respondent Nos. 1 & 2 are permitted to proceed against the mortgaged property, the same shall cause grave prejudice to respondent No.3; that once at the time of carrying out due diligence by the respondent No.3, no charge was registered thereon in favour of respondent Nos. 1 & 2 and the property was free from any sort of charges, thus, in a most belated manner now respondent Nos. 1 & 2 cannot be permitted to take any sort of action against the mortgaged property by wrongly invoking the provisions of the Act.

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7 SA/169/2023 YUSHUTOSH AND ANOTHER VS. EDELWEISS ASSET RECONSTRUCTION COMPANY LTD. AND OTHERS

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(7) No reply to SA was filed by respondent Nos. 4 to 6.

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(8) Replications filed by applicants to the replies filed by respondent Nos. 1 & 2 as well as respondent No.3, wherein the contents of SA were reiterated and that of the replies to the SA contrary to the facts mentioned in the SA were denied.

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(9) I have heard arguments advanced by Sh. Atul Sharma, Advocate for Applicants, Sh. Harsh Chopra, Advocate for Respondent Nos. 1 & 2 and Ms. Pooja Arora, Advocate for Respondent No. 3 and gone through the record carefully.

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(10) Sh. Atul Sharma, Advocate argued that respondent Nos. 1 & 2 have no charge or lien over the property in question, therefore respondent Nos. 1 & 2 have no right to initiate SARFAESI proceedings against the said property. It was further argued that respondent Nos. 1 & 2 cannot be permitted to circumvent the provisions of law as there is no charge over the property in question and there is noncompliance of Section 23 of the Act.

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(11) Per contra, Sh. Harsh Chopra, Advocate argued that mortgage by way of creation of equitable mortgage in favour of original lender by the respondent Nos. 4 & 5 was executed. It was further argued that property in question was purchased by respondent Nos. 4 & 5 with the loan amount sanctioned by the original lender and details of the same are well incorporated in the sale deed dated 02.08.2010 (Annexure R1/3). It was further argued that therefore, there exist a valid equitable charge on the mortgaged property and respondent Nos. 1 & 2 are well within its rights to exercise the same under the Act. It was further argued that since inception the whole transaction took place between the original lender and respondent Nos. 4 & 5 starting with sanctioning of the loan amount for financing the property in question itself and the same was validly mortgaged by way equitable mortgage in favour of the original lender. It was further argued that with regard to compliance of Section 23 is concerned, it is mentioned that loan was sanctioned by the original lender to respondent Nos. 4 & 5 in July, 2010, whereas at that time there was no provision for the registration

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SA/169/2023

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YUSHUTOSH AND ANOTHER VS. EDELWEISS ASSET RECONSTRUCTION COMPANY LTD. AND OTHERS

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of charge with the Central Registry and mortgage effected by equitable mortgage itself was sufficient to enforce the mortgage rights. It was further argued that even after the incorporation of the process of registration of charge in 2016, it was made mandatory for the new transactions and the transaction which were already subsisting on or before the date of establishment of Central Registry under Section 20(1) of the Act was not mandatory. It was further argued that no time limit was prescribed in tune with financial norms decided to get the charge registered with Central Registry and copy of the charge creation with Central Registry is annexed as Annexure R-1/4.

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(12) Sh. Harsh Chopra, Advocate has filed Annexure R1/4 copy of CERSAI Report in which it reveals that property in question was registered with the Central Registry on 23.09.2019. Admittedly, original lender DHFL had sanctioned loan to respondent Nos. 4 & 5 in the year 2010 and DHFL assigned the aforementioned Loan account along with the underlying security therein vide an Assignment Agreement dated 04.10.2019 in favour of respondent Nos. 1 & 2 i.e., Edelweiss Asset Reconstruction Company Ltd. Notice under Section 13(2) of the Act was issued on 20.10.2020, therefore admittedly, before initiation of SARFAESI proceedings the charge was registered with the Central Registry. As far as due diligence by respondent No.3 or applicants is concerned, none has argued that respondent No.3 had seen the chain of title. Admittedly, the sale deed of property in question in favour of respondent Nos. 4 & 5 is with respondent Nos. 1 & 2 as the same was deposited with DHFL while availing the credit facilities by respondent Nos. 4 & 5. It was supposed on the part of respondent No.3 before granting credit facility to applicants to see the chain of title deeds but it appears that respondent No.3 has not obtained the title deed, which was executed in favour of respondent Nos. 4 & 5 through which they were the owner of the property in question.

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(13) In the considered opinion of this Tribunal, it is correct that original lender has granted the credit facility in favour of respondent Nos. 4 & 5 in the year 2010 and thereafter, the loan was assigned in favour of

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9 SA/169/2023 YUSHUTOSH AND ANOTHER VS. EDELWEISS ASSET RECONSTRUCTION COMPANY LTD. AND OTHERS

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respondent Nos. 1 & 2 and by respondent No.3 in favour of applicants in the year 2018. It is correct that respondent Nos. 4 & 5 have after availing credit facility from respondent Nos. 1 & 2 not cleared the same before sale of the property in question in favour of applicants and they have not turned up in this SA to defend them. This fact shows that respondent Nos. 4 & 5 have committed fraud with applicants but on the basis of this fraud applicants or respondent No.3 have not got any right over and above respondent Nos. 1 & 2.

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(14) Sh. Atul Sharma, Advocate further argued that respondent Nos. 1 & 2 have not performed their duty of verifying the ownership of the property while sanctioning such loans as the property was not in physical possession and ownership of the respective owners then too.

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(15) Per contra, Sh. Harsh Chopra, Advocate argued that at the time of sanctioning the loan, the property in question was in possession of the seller/vendor of the sale deed dated 02.08.2010 executed between seller/vendor and respondent Nos. 4 & 5 and on the execution of the same, possession of the property in question was handed over to the respondent Nos. 4 & 5, who are borrowers of the respondent Nos. 1 & 2 and got the loan sanctioned from the original lender for purchase of the property in question and they are the owners in possession since then and SARFAESI proceedings are initiated against the borrowers and guarantor i.e., respondent Nos. 4 to 6. It was further argued that applicants have no privity of contract and are just roped in the whole process just to thwart the SARFAESI proceedings.

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(16) There is nothing on record to show that respondent Nos. 1 & 2 have granted the credit facility without any verification. Therefore, there is no merit in the above argument of Sh. Atul Sharma, Advocate. (17) Sh. Atul Sharma, Advocate further argued that no notices under Section 13(2) & 13(4) of the Act were served upon applicants. It was further argued that since no notice under Section 13(2) of the Act was served upon applicants, therefore right to file objections

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10 SA/169/2023 YUSHUTOSH AND ANOTHER VS. EDELWEISS ASSET RECONSTRUCTION COMPANY LTD. AND OTHERS

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under Section 13(3-A) of the Act was snatched by respondent Nos.1 & 2 from applicants.

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(18) Per contra , Sh. Harsh Chopra, Advocate argued that respondent Nos. 4 & 5, who are borrowers of the respondent Nos. 1 & 2 had got the loan sanctioned from original lender for purchase of the property in question and they are the owners in possession since then and all the notices under the Act were issued to them and were duly served including by means of affixation. It was further argued that applicants only at the stage of actual physical possession have filed the present SA with the sole aim to thwart the SARFAESI Proceedings. It was further argued that applicants are third party as they have no concern with the loan in question.

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(19) Since applicants were neither borrowers nor guarantors nor mortgagors in the loan in question, which was granted by respondent Nos. 1 & 2 to respondent Nos. 4 to 6 and they are third party, therefore there is no obligation upon respondent Nos. 1 & 2 for service of notices under the Act upon applicants. Therefore, non-service of notices under Section 13(2) & 13(4) of the Act upon applicants had any effect.

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(20) Sh. Atul Sharma, Advocate further argued that respondent Nos. 1 & 2 had obtained an order at the back of the applicants from the Office of the District Magistrate without following the procedure of law and by not placing the original facts of the matter before the District Magistrate.

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(21) Per contra , Sh. Harsh Chopra, Advocate argued that respondent Nos. 1 & 2 has duly followed the procedure prescribed under the Act and have brought to light the correct facts before the Ld. DM and the applicants being Third Party and not relevant to the loan facilities, question of service of notices to them does not arise. It was further argued that notice under Section 13(4) of the Act was duly affixed upon the mortgaged property and applicants chose to stay shut and at this stage, filing the present SA clearly depicts their malafide and malicious intentions to derail the recovery proceedings of respondent Nos. 1 & 2.

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SA/169/2023 YUSHUTOSH AND ANOTHER VS. EDELWEISS ASSET RECONSTRUCTION COMPANY LTD. AND OTHERS

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(22) Since applicants were neither borrowers nor guarantors nor mortgagors in the loan in question and they are third party, therefore there is no obligation upon respondent Nos. 1 & 2 for service of notices under the Act upon applicants. Therefore, non-service of notices under the Act upon applicants had any effect. (23) No other point was argued/pressed.

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(24) After considering the above facts, circumstances as well as after perusal of record, no case is made out by applicants in their favour and this SA is liable to be dismissed.

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(25) Accordingly, this SA is dismissed. Record be consigned to record room after due compliance.

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Date: 03.03.2026

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Pronounced by me in the open Tribunal.

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(MRIDULESH KUMAR SINGH) Presiding Officer, DRT-III, Chandigarh

Canara Bank, v. Messrs Komal Enterprises and Others

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Canara Bank, v. Messrs Komal Enterprises and Others

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