Allowed

Bank of Baroda v. the State of Karnataka

Karnataka HC6 Jan 2023WP/6327/2022

Case brief

AI extract

What is this about?

The Karnataka High Court allowed a writ petition filed by Bank of Baroda seeking registration of a sale certificate. The Court held that a civil court injunction against borrowers does not restrain a secured creditor bank, as the bank was not a party to the civil suit and the injunction specifically excluded third parties.

What did the court decide?

Issue of mandamus to the Sub-Registrar to register the Sale Certificate dated 29.11.2021 issued by Petitioner No. 1 in favour of Petitioner No. 2.

Bank of Baroda Vs the State of Karnataka — Civil Procedure and Limitation | Karnataka HC (2023)

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WP No. 6327 of 2022

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 6^TH DAY OF JANUARY, 2023

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BEFORE

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THE HON'BLE MR JUSTICE M.NAGAPRASANNA WRIT PETITION NO. 6327 OF 2022 (GM-RES)

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BETWEEN:

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BANK OF BARODA (ERSTWHILE VIJAYA BANK) A BODY CORPORATE CONSTITUTED BY AND UNDER THE BANKING COMPANIES (ACQUISITION AND TRANSFER OF UNDERTAKINGS) ACT, 1970, HAVING HEAD OFFICE SITUATED AT BARODA BHAVAN R C DUTT ROAD ALKAPURI VADODARA GUJARATH STATE CORPORATE OFFICE AT MUMBAI AND BRNACH OFFICE AT MSRS NAGAR BENGALURU 560 076 KARNATAKA REPRESENTED BY ITS CHIEF MANAGER.

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Digitally signed by PADMAVATHI B K Location: HIGH COURT OF KARNATAKA

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MR. SRINIDHI KASTURI S/O KASTURI RANGACHAR AGED ABOUT 41 YEARS RESIDING AT NO.309 R.V.LAKSHMANA VILAS 2^ND MAIN, 2^ND CROSS RAMANJANEYA NAGAR

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WP No. 6327 of 2022

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CHIKKALASANDRA, SUBRAMANYAPURA BENGALURU – 560 061.

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…PETITIONERS

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(BY SRI.N.N.DAMODAR., ADVOCATE)

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AND:

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THE STATE OF KARNATAKA REVENUE DEPARTMENT MULTI STORIED BUILDING DR.AMBEDKAR VEEDHI BENGALURU 560 001 BY ITS SECRETARY.

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THE DISTRICT REGISTRAR JAYANAGAR DISTRICT OFFICE AT NO.623, OLD NO.622 10^TH ‘C’ MAIN ROAD 4^TH BLOCK, JAYANAGAR BENGALURU – 560 011.

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THE SUB REGISTRAR J.P.NAGAR OFFICE AT NO.8, AMEET ARCADE ANJANAPURA MAIN ROAD AMRUTH NAGAR ANJANDARI LAYOUT KONANAKUNTE, BENGALURU – 560 062.

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MRS. JYOTHI R.K AGED ABOUT 42 YEARS W/O MR.VENKATESH.

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MR.VENKATESH S/O SRI NARASIMHAIAH

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BOTH ARE RESIDING AT NO.1643 -2, 40^TH ‘A’ CROSS ANUGRAHA LAYOUT BTM LAYOUT 2^ND STAGE NEAR PRESIDENCY SCHOOL BENGALURU – 560 076.

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SRI VENU GOPAL C., AGED ABOUT 47 YEARS S/O GANGA NAIDU R/AT FLAT NO.204 SRI VANDANA ORCHID, LAKSHMI STREET 1^ST MAIN, NEAR T.R.HOSPITAL KOTHANUR DINNE MAIN ROAD J.P.NAGAR, VII PHASE BENGALURU – 560 078.

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…RESPONDENTS

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(BY SRI.B.V.KRISHNA, AGA R1 TO R3; SRI T.N.GOPALA GOWDA, ADVCOATE FOR R6 R4 AND R5 ARE SERVED)

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THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO DIRECTION IN THE NATURE OF MANDAMUS TO THE R-2 AND 3 TO REGISTER THE SALE CERTIFICATE DTD. 29.11.2021 ISSUED BY THE P-1 BANK IN FAVOUR OF P-2 (ANNX-H) BY TAKING REQUISITE STAMP DUTY AND REGISTRATION CHARGES.

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THIS WRIT PETITION, COMING ON FOR PRELIMINARY HEARING IN ‘B’ GROUP, THIS DAY, THE COURT MADE THE FOLLOWING:

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WP No. 6327 of 2022

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ORDER

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The petitioners are before this Court seeking the following

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prayers:

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“a) Issue a writ, order or direction in the nature of mandamus to the Respondent No.2 and 3 to register the Sale Certificate dated 29.11.2021 issued by the Petitioner No.1 Bank in favour of Petitioner No.2 (Annexure-H) by taking requisite Stamp Duty and Registration charges.

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b) Issue any other writ, order or direction as this Hon’ble Court deems fit in the circumstances of the case in the interest of justice and equity.”

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Heard Sri.N.N.Damodar, learned counsel appearing for

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petitioners, Sri.B.V.Krishna, learned Additional Government Advocate appearing for respondents 1 to 3 and Sri.T.N.Gopalagowda, learned counsel appearing for respondent No.6.

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The issue in the lis lies in a narrow compass. Respondent No.4 being the proprietor of one M/s.Balaji Glass and Plywood along with her husband respondent No.5 (‘Borrowers’ for short) seek certain finances from the petitioner-Bank of Baroda (‘Bank’ for short). The borrowers default in payment. The Bank institutes proceedings under the

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Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (‘SARFAESI Act’ for short) after having declared the loan of borrowers to be a nonperforming asset. After such declaration, it transpires that the 6^th respondent files a civil suit in O.S.No.4338 of 2020 in which the borrowers are the defendants and the concerned Court passes an order directing the borrowers not to alienate the property.

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The issue now would be whether the Bank who is the secured creditor could initiate proceedings under the SARFAESI Act to redeem its secured credit i.e., the property that is in mortgage or will have to await the decision of the Civil Court in which admittedly the Bank is not a party. Therefore, the issue that is to be considered is, whether the order of injunction of the Civil Court granted in favour of an agreement holder (plaintiff), against the borrowers would operate as an embargo upon the Bank to take the proceedings under the SARFAESI Act to its logical end.

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The issue need not detain this Court for long or delve

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deep into the matter, as the Division bench of the High Court of Punjab and Haryana while answering a similar issue in the case

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of ALLAHABAD BANK V. DISTRICT MAGISTRATE,

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LUDHIANA¹ has held as follows:

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“ISSUE NO.2

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[16] The next issue which comes up for consideration is whether the petitioner bank secured creditor would be bound by an order passed by a Civil Court in a lis inter se between parties pertaining to the secured asset, not having impleaded the secured creditor? Learned State Counsel has argued that even though the bank is not a party in the said civil suits, but since the Court has restrained interference in the possession of the plaintiff therein, therefore taking over physical possession at the instance of the bank would amount to infringement of the interim stay orders. In other words, the argument is that the interim stay order in favor of the plaintiff would bind even the bank even if it is not a party to the civil suit.

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[17] We do not find merit in the aforesaid argument. It has been noticed above, that admittedly in none of the two civil suits, the bank is a party defendant. The first civil suit is filed by a plaintiff tenant and the relief so claimed is also restricted therein to the defendant landlord and not against the bank. Not only thus, the interim order dined 13.07.2018 clarifies that the said injunction would not be applicable to third parties which are not impleaded in the said civil suit. The relevant portion of the order dated 13.07.2018 is extracted as under-

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1 CM No.3178-CWP of 2021 in CWP No.4916 of 2020 disposed on 06.09.2021

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"8. Before parting with this under, it is hereby made clear that due compliance of Order 39 Rule CPC be made forthwith and copy of this order also given for effecting service upon the defendant on filing of PF, RC and copies of documents immediately, failing which, this order shall cease to have its effect. it is further made clear that nothing contained herein shall be construed so as to effect the rights of other parties, who are not formally arrayed as a party in the present suit."

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[Emphasis supplied)

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It is thus more than clear, that the Civil Court in its order has clearly restricted the applicability of the interim protection only to the parties to the said suit. Since the bank is not a party to the said suit as yet and there is no specific restraint order against the bank, the said order, could not have been treated to have restrained respondents Nos.1 to 3 or the bank to take physical possession of the secured asset, as none of them have been restrained by virtue of the aforesaid order.

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[18] Even otherwise, it is well settled that any order passed by the Civil Court, would bind only those, who are arrayed as a party in the said civil suit Rights of a third party who is not a party to the civil suit cannot be said be adversely effected by an order passed by the civil Court in such a suit, unless specifically impleaded in a representative capacity. Hon'ble Supreme Court in Bengal Ambuja Housing Development Ltd. V/s Promila Sanfui 2016 (1) SCC 743 held in Para 18 and 19 as under:

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"18. Further, in the instant case the under of temporary injunction dated 03.07.2006 was purportedly granted by consent is also not sustainable in law The question of consent be given in either the appellant Housing Board or the predecessors in interest who ore its vendors did not arise as they were not parties

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to the said suit. It is a well settled principle of law that either temporary or permanent injunction can be granted only against the parties to a suit. Further the purported consent order in terms of Order XXXIX of the Code of Civil Procedure is only binding as against the parties to the suit. In such a case, the order of the Subordinate Judge to grant police protection against the appellant Housing Board which is enjoying the property is erroneous in law and is liable to be set aside.

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19. The original owner in the instant case, late Gangadas Pal was an intermediary in khas possession of the land in question in terms of Section 6 of the West Bengal Estates Acquisition Act, 1953. Thus, the learned Subordinate Judge did not have the jurisdiction to entertain any suit with respect to the said property, in light of the provision of Section 57B (2)(a), (b) and (c) of the West Bengal Estates Acquisition Act, 1953, which states as under:

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"578. Bar to jurisdiction of Civil Court in respect of certain matters-

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(2) No Civil Court shall entertain any suit or application concerning any land or any estate, or any right in such estate, if it relates to…

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a. alteration of any entry in the record-ofrights finally published, revised, made, corrected or modified under any of the provisions of Chapter V.

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b. a dispute involving determination of the question, either expressly or by implication, whether a raiyat, or an intermediary, is or is not entitled to retain under the provisions of

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this Act such land or estate or right in such estate, as the case may be, or

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c. any matter which under any of the provisions of this Act is to be, or has already been, enquired into, decided, dealt with or determined by the State Government or any authority specified therein."

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In view of the fact that the right, title and interest upon the disputed property has been settled in favour of the vendors of the appellant Housing Board, who are the legal heirs of the late Gangadas Pal, who was an intermediary of the land in question in terms of Section 6 of the West Bengal Estates Acquisition Act, 1953, adding of the property in question to the suit schedule property in dispute cannot be the subject matter of partition in view of the express provisions of the West Bengal Estates Acquisition Act, 1953 which excludes the jurisdiction of the civil Court in respect of any rights in such estate as entry in record of rights is published. In the instant case, the names of the heirs of late Gangadas Pal were included in the record of rights in pursuance of the order passed in the Writ Petitions in connection with the Big Raiyat Case No. 5 of 1967, which order was affirmed by this Court in the case of Sulekha Pal, referred to supra.

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[Emphasis supplied)

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It thus clear that an order passed in a civil dispute would hind only those who are impleaded in the suit. The argument of the learned counsel for the applicants / respondent Nos. 1 and 3, that the civil court order would still bind the bank even if it is not a party to the suit, therefore cannot sustain.

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[19] Still further, we find that the instant issue is squarely covered in favor of non-applicant / petitioner

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WP No. 6327 of 2022

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Bank by a Division Bench judgment of this Court in the case of Punjab and Sind Bank Vs District Magistrate Mohali bearing CWP No. 13068 of 2014 decided on 22.12.2014 . In the cited case, the bank was denied assistance to take physical possession of a secured asset under Section 14 of the Securitisation Act, 2002 by the District Magistrate on the ground that a civil suit has been filed by an occupant of a part of the secured asset, and the Civil Court has granted interim stay against the defendant/landlord. Consequently, the District Magistrate contended that the tenant cannot be evicted even though the bank may not have been a party in the said civil suit. While rejecting the argument of the respondent (District Magistrate), the Division Bench held as under:

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“We find that the following three questions are required to be adjudicated upon:

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(1) What is the effect of the order of status quo granted by the Civil Judge (Junior Division), Mohali on 15.04.2013 in a civil suit tilted "M/s Eclat Institute of Hospitality Management & another Vs. Hotel Ashiana & others for permanent injunction restraining the defendants from interfering in the peaceful running of the plaintiff institute in the premises of Hotel Mare Royale. The order dated 15.04.2013 read as under:

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"Counsel for the plaintiff suffered a statement that plain shall not make fresh admission in the garb of the stay order and if any admission is made, it shall not be utilized to agitate grant of interim injunction. Now to come up for filing written statement on 29.04.2013, in the meantime, the parties shall maintain status quo ante regarding the possession over the suit property at the time of filing of suit."

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(2) What is the effect of attachment proceedings initiated by the Tax Recovery Officer pursuant to demands of Rs.1,62,92,047/- in terms of the order of the Settlement Commission?

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(3) Whether the affidavit in support of application under Section 14 of the SARFAESI Act is a forged and fabricated document?

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Having heard learned counsel for the parties at length, we find that the interim order passed by the Civil Court on 15.04.2013 relates to running of the plaintiff - M/s Eclat Institute of Hospitality Management in the premises of the Hotel Marc Royale. The stand of the borrower is that the said Institute was given permission to run hospitality management on leave and license basis in pursuance of Memorandum of Arrangement dated 04.06.2008. The plaintiff - Institute in the said suit has claimed limited relief against forcible dispossession in respect of premises in its possession for carrying on the Hospitality Management Institute. The Bank is not a party to such suit. The order of status quo passed in the said suit does not affect the rights of the mortgagee to take possession of the property mortgage. The rights of the person in possession is subject to the rights of the owner to be adjudicated upon in accordance with law. But the said order of status quo cannot be made a shield to deny the right of recovery of possession to the Bank being a secured creditor. Therefore, the order of status quo has been wrongly made basis by the Additional District Magistrate to deny the right of possession to the Bank. The Bank is entitled to the possession of the mortgaged property subject to the rights of the plaintiff in the suit.

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Reliance of Mr. Ratta on a judgment of Gujarat High Court in Manjudevi R. Somani Vs. Union of India decided on 25.11.2013 is not tenable. In the said case, the borrower challenged an order passed in the proceedings under Section 14 of the SARFAESI Act. It was found that the Chief

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Metropolitan Magistrate or Additional Chief Metropolitan Magistrate have not been authorized to exercise the powers conferred under Section 14 of the Act. Thus, we find that the dues of the Income Tax Department, in these circumstances, will have preference amongst only the unsecured creditors, but the Bank as a secured creditor has a priority over the assets of the borrower."

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[Emphasis supplied]

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[20] While applying the aforesaid principles to the facts of the present case, it is clear that since the petitioner bank is not a party to either of the civil suits which have been referred to by respondents Nos. 1 and 3, the interim orders passed therein would not effect the rights of the petitioner. In view of conspicuous absence of the bank in the civil suit, the Civil Court in both the above referred matters shall be construed to be adjudicating the dispute involved between the two private parties in suit and not with respect to the entitlement of the petitioner-secured creditor to enforce the secured asset, even though the suit may involve rights upon secured/mortgaged asset.

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[21] Apart from having examined broad legal principles, it would now be relevant to deal with the respective orders passed in each of the two civil suits, which are being treated as legal impediment by the Applicant/ Respondent No. 1 to 3 to deny assistance to the petitioner bank under Section 14 of the Act, 2002. The first civil suit, is filed by the plaintiff claiming itself to be a tenant in the secured asset. In our view the same cannot be treated to be a legal impediment for the secured creditor to enforce it claim, for the following reasons:-

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(i) The relief claimed in the suit is only against the defendant/landlord and no relief has been claimed by the plaintiff therein against the petitioner bank.

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(ii) Secured Creditor - Petitioner Bank is not a party to the civil suit and hence no order can adversely effect its rights.

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(iii) There is no prayer for seeking an injunction against the secured creditor by the plaintiff / tenant for enforcement of security interest (nor such a prayer could be maintainable before the Civil Court).

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(iv) If the plaintiff / tenant would have been aggrieved of the action of the secured creditor/bank to take physical possession. the remedy was to approach the DRT under Section 17(4-A) of the Act, 2002.

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[22] As regards the second civil suit is concerned, we find that the order of attachment before judgment passed under Order 38 Rule 5 CPC, would also not effect the rights of the secured creditor/petitioner to take physical possession for the following reasons:

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(i) Firstly, in terms of Section at of the Transfer of Property Act, 1882 undisputedly attachment vide order dated: 03.09.2019, is subsequent to the mortgage already having been created upon the secured asset in favor of the secured creditor and hence cannot have preference over the prior charge of mortgage in favor of the secured creditor [see para 27.5 of Kamla Engg & Steel Industries V/s. Punjab National Bank 2020 (4) PLR 669].

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(ii) Secondly, an act of attachment amounts to creation of an unsecured charge which is always subject to charges already created prior in time, especially a prior secured charge upon a property.

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(iii) Thirdly, the effect of attachment is only to create a charge in order to restrain the owner from dealing with the property and hence cannot in any way be equated with an injunction against a secured creditor (who even otherwise

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is not a party defendant in the civil suit) to enforce a security already created in its favor.

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(iv) Fourthly, as noticed above, keeping in view the jurisdiction of the Civil Court as discussed above, proceedings before civil Court cannot be treated to be an adjudication of the rights of the secured creditor, for which aggrieved party is to approach the DRT.

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(V) Even otherwise, it is not understandable as to how property/secured asset concededly owned by Sh. Anuj Kapoor (guarantor in Securitisation proceedings) could be got attached for the dues recoverable from the defendant No. 1 company M/s Creative Yarn Pvt. Ltd. which a separate juristic person.

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[23] Further, since the scope of adjudication before the Civil Court would not involve determination of any right of a secured creditor on account of lack of jurisdiction in view of Section 17 read with Section 34 of the Act, 2002, no order passed by the Civil Court could be construed to be a restraint order on the secured creditor to enforce us security under the provisions of the Securitisation Act, 2002. This is subject to an exception that unless the secured creditor is specifically impleaded as a party defendant and an interim order is passed specifically restraining the secured creditor to enforce the security interest. We hasten to add, that the maintainability of such suit, would still have to be tested on the principles as noticed above.

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[24] For the reasons stated aforesaid, we thus hold, that none of the two orders passed by the Ld. Civil Court i.e. dated 13.07.2018/07.11.2019 and 03.09.2019 passed in "Nalanda Woolens Ltd. Vis Anuj Kapoor" and "Nalanda Spinners Ltd. V/S Creative Yarn Pvt. Ltd.", respectively could have been treated to have restrained the petitioner bank or Respondent No. 1 or 3 to enforce the secured assets under the provisions of the Securitisation Act, 2002.”

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The issue before the Division Bench was identical to the

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issue in the case at hand. The Civil Court therein has granted certain orders which came in the way of the Bank enforcing their secured assets. The Division Bench of Punjab and Haryana High Court has answered the issue in favour of the Bank holding that the order passed by the Civil Court in which the Bank was not a party will not come in the way of the Bank exercising its right under the Act.

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The issue in the case at hand is, when the Bank sought to register the property which was subject matter of auction, before the jurisdictional sub-registrar in favour of the 2^nd petitioner, it is turned down on the ground that the Civil Court has granted an order of injunction directing the defendants therein ie., the borrowers herein, not to alienate the property. The issue being answered by the Division Bench of Punjab and Haryana Court, to which I am in respectful agreement of, I deem it appropriate to pass the following:

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ORDER

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(i) Writ Petition is allowed.

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(ii) Mandamus issues to the 3^rd respondent SubRegistrar to register the documents that is brought before it by the 1^st petitioner–Bank, in accordance with law.

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Sd/JUDGE

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BKP

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List No.: 1 Sl No.: 82

Bank of Baroda v. the State of Karnataka

Case brief

What is this about?

What did the court decide?

Bank of Baroda v. the State of Karnataka

Case brief

What is this about?

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