Allowed

M/S.Indian Overseas Bank v. Mrs.Leelamma Mathew

Kerala HC17 Mar 2022RFA/379/2014

Case brief

AI extract

What is this about?

The High Court set aside the lower court's decree awarding compensation to a bank depositor who bought a property under siege of 14.4% deficiency in area sold by a judgment debtor to a third party. The Court held that the bank did not commit fraud and the seizure falls under Section 34 of the SARFAESI Act.

What did the court decide?

Judgment and decree of the court below set aside and suit dismissed. The parties shall suffer their respective costs.

M/S.Indian Overseas Bank Vs Mrs.Leelamma Mathew — Banking and Recovery | Kerala HC (2022)

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IN THE HIGH COURT OF KERALA AT ERNAKULAM

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PRESENT

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THE HONOURABLE MR. JUSTICE P.B.SURESH KUMAR

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THE HONOURABLE MRS. JUSTICE C.S. SUDHA

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THURSDAY, THE 17^TH DAY OF MARCH 2022 / 26TH PHALGUNA, 1943

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RFA NO. 379 OF 2014

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AGAINST THE JUDGMENT AND DECREE DATED 31.01.2014 IN OS 630/2012 OF SUB COURT,

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KOZHIKODE

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APPELLANTS/DEFENDANTS

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1 M/S.INDIAN OVERSEAS BANK, A BANKING COMPANY HAVING ITS HEAD OFFICE AT 76/3, ANNA SALI, CHENNAI 600 002, TAMIL NADU, REPRESENTED BY THE CHIEF MANAGER, PALAKKAD BRANCH.

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2 INDIAN OVERSEAS BANK, REGIONAL OFFICE CHEROOTTY ROAD, KOZHIKODE 673 032, REPRESENTED BY ITS CHIEF MANAGER AND AUTHORIZED OFFICER.

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3 INDIAN OVERSEAS BANK, G.B ROAD, PALAKKAD 678 001, REPRESENTED BY THE CHIEF MANAGER

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BY ADVS.SRI.K.N.SIVASANKARAN SRI.SUNIL SHANKAR

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RESPONDENT/PLAINTIFF

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MRS.LEELAMMA MATHEW, AGED 51, W/O M.T. FRANCIS, DONUM DEL. NELLIKODE HOUSING COLONY, CHEVAYOOR P.O, KOZHIKODE 673017, NELLIKODE AMSOM DESOM, KOZHIKODE TALUK.

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BY ADV SRI.JAWAHAR JOSE

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THIS REGULAR FIRST APPEAL HAVING COME UP FOR HEARING ON 08.03.2022, THE COURT ON 17.03.2022 DELIVERED THE FOLLOWING:

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P.B.SURESH KUMAR & C.S.SUDHA, JJ.

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Dated this the 17^th day of March, 2022

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J U D G M E N T

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C.S.Sudha, J.

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This is an appeal against the judgment and decree dated 31/01/2014 in O.S.No.630/2012 on the file of the Subordinate Judge’s Court, Kozhikode. The suit is one for money/compensation. The court below decreed the suit. Hence the defendants have come up in appeal. The sole plaintiff is the respondent herein. The parties in this appeal will be referred to as described in the suit.

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The defendants (the Bank) on 24/01/2007 through its authorised officer, published Ext.A1 public notice inviting sealed tenders/bids relating to sale of 54 cents of property i n Survey No.48/1 in Tirur Taluk, Tanur Village, Keraladheeswarapuram Desom, which property the bank was stated to be in possession pursuant to th e proceedings initiated by them under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (the Act) in their capacity as secured creditor. The plaintiff, through her husband, after being shown the

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property, submitted her bid, namely Ext.A2, stating that she was ready to buy the property for a sale consideration of ₹ 32,05,000/-. In the bid she had also stated that she was making the offer subject to the condition that absolute ownership and possession of the property should be transferred to her without any encumbrance. To this she received Ext.A3 reply dated 05/03/2007 from the Bank informing her that the Bank had invited tenders on the basis of “AS IS WHERE IS” and “AS IS WHAT IS” condition and if she was willing to buy the property on the said condition, she is to inform the Bank of the same on or before 10/03/2007, failing which the Bank would take it that she was not ready to buy the plot. The plaintiff responded by Ext.A4 letter dated 08/03/2007 stating that her tender need only be considered if the Bank could transfer absolute ownership and possession over the entire 54 cents of property without any encumbrance, if not, she was withdrawing from her offer and that her earnest money may be returned. Later when the plaintiff’s husband met the second defendant, he was informed that the Bank had filed a case before the Chief Judicial Magistrate Court, Manjeri, to take physical possession of the 54 cents of land and that the plaintiff need pay the remaining amount as and when the Bank directed her. Thereafter the plaintiff was contacted by the Bank and informed that they had acquired possession of the entire 54 cents of land as

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per the order of the CJM, Manjeri, and as such the Bank was ready to sell the property without any encumbrance to the plaintiff. Accordingly, the plaintiff issued three cheques dated 11/10/2007, 16/10/2007 and 17/10/2007 towards the balance sale consideration and on 21/11/2007 the Bank issued Ext.A5 sale certificate. All the documents relating to the property were then handed over to the plaintiff. On 01/02/2010 Ext.A5 sale certificate was registered. Pursuant to the same when the plaintiff and her husband approached the Village Office for mutation of the property, they were informed that tax would be accepted only for 39.60 cents of property. It was seen that 14.40 cents of property had been sold by the owner, i.e., the judgment debtor to a third party and as such what was transferred to the plaintiff was only 39.60 cents of property and not the entire extent of 54 cents as stated in Ext.A5 sale certificate. The plaintiff on enquiry, came to know that the Bank was well aware of this deficiency in extent based on Ext.A10 report dated 21/11/2007 of the Tahsildar. In the report it is clearly stated that property taken possession of is excluding the property that had been assigned by the judgment debtor. The copy of the report of the Tahsildar had been communicated to the Bank also. Thus, the Bank was well aware of the fact that they did not have the right to sell the entire extent of 54 cents of land to the plaintiff, which fact was deliberately concealed

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from the plaintiff and an amount of ₹ 32,05,000/- collected from her as sale consideration for the entire property. The defendants have thus played fraud on the plaintiff and made unlawful profit out of the transaction and hence the suit claiming compensation of an amount of ₹ 60,10,000/- with interest and costs from the defendants and their assets.

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The Bank filed written statement denying the allegation

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that the plaintiff was unaware of the deficiency in extent of the property. According to them, the property was purchased by the plaintiff being fully aware of the same. The allegations to the contrary are made to suit the case set up in the plaint. No fraud was ever played by the defendants on the plaintiff. The suit is not maintainable and hence the same is liable to be dismissed with costs.

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Before the court below, PW1 and PW2 were examined and Exts.A1 to A14 were marked on the side of the plaintiff. On the side of the defendants/Bank, DW1 was examined. No documentary evidence was adduced by the defendants/Bank. After considering the oral and documentary evidence and also hearing the parties, the court below accepted the case of the plaintiff that she had been defrauded by the defendants/Bank and hence decreed the suit.

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5 . Heard Sri.Sunil Shankar, the learned counsel for the

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appellants and Sri.Jawahar Jose, the learned counsel for the respondent.

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The points that arise for consideration in this appeal

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are :-

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(i) Has the plaintiff established fraud in the conduct of sale of the property by the defendants/Bank to take the suit out of the bar contemplated under Section 34 of the Act?

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(ii) If fraud has been established, what is the remedy available to the plaintiff?

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(iii) Is the plaintiff entitled to damages? If so, the measure of damages?

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(iv) Is there is any infirmity in the findings of the court below calling for an interference by this Court?

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Point No.(i) – According to the court below, the

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defendants/Bank at the time of Ext.A1 notice and at the time of issuance of Ext.A5 sale certificate, was well aware of the fact that the total extent of the property was only 39.60 cents and not 54 cents. Ext.A10 report dated 21/11/2007 filed by the Tahsildar in the proceedings initiated by the bank before the CJM, Manjeri, the copy of which was given to the bank, clearly

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states that the extent of the property taken possession of, is excluding the extent of property sold by the judgment debtor. In spite of this, the bank issued Ext.A5 sale certificate dated 21/11/2007 for the entire extent of 54 cents of property, thus defrauding the plaintiff. However, the court below has not taken notice of the contention raised by the defendants/Bank in their written statement in which they have no case that they were not aware of the deficiency of the extent of the property. On the other hand, their specific case is that the plaintiff was also well aware of this fact and that it was knowing this, the plaintiff had gone ahead and taken sale of the property. This contention of the defendants/Bank is not seen considered by the court below. The stand taken in this appeal is also that the Bank was unaware of the deficiency in extent and that if at all they came to know of the same, it was only after they had received Ext.A10 report dated 21/11/2007, which was after they had issued Ext.A5 sale certificate. Ext.A5 sale certificate is also dated 21/11/2007. The date on which the bank had actually received Ext.A10 report is not clear. This probably must have been the argument advanced before the court below also. However, a party cannot go beyond his pleadings and hence we will consider the matter on the basis of the pleadings raised by both parties before the court below.

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As stated earlier, the case of the plaintiff is one of

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complete ignorance of the deficiency in extent of the property, which is disputed by the defendants/Bank, whose specific case is that the plaintiff was well aware of the same. Therefore, we shall examine whether the said contention is true. Clauses 6 and 8 of Ext.A1 Notice Inviting Tenders from the Public read –

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“6) It is the responsibility of the tenderers to inspect and satisfy themselves about the assets and specification before participating in the tender.

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1. xxxxxxx

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1. The above secured asset will be sold in “AS IS WHERE IS” and “AS IS WHAT IS” Condition.”(Emphasis supplied)

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Referring to the aforesaid clauses, it was argued by the learned counsel for

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the Bank that unlike in a case of private sale, where the rule ‘caveat emptor’ or ‘buyer beware’ is applicable, the said principle is not applicable in the instant case as it is a statutory sale conducted, wherein it was incumbent on the part of the plaintiff/buyer to have made diligent enquiries before proceeding with the sale of the property. Having not done so, she cannot now turn around and cry foul after lapse of a few years. In support of this argument, reference was made to the following decisions -

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The Ahmedabad Municipal Corporation of the city of Ahmedabad v. Haji Abdulgafur Haji Hussenbhai - 1971(1) SCC 757 ; Babu Lal

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Hargovindas v. The State of Gujarat - 1971(1) SCC 767 ; Rangiah Chettiar and Kempammal Trust v. Authorised Officer & Asst. General Manager, Punjab National Bank – MANU/TN/9743/2019 ; Asset Reconstruction Company (India) Ltd. v. Florita Buildcon Private Limited – MANU/MH/2602/2016 ; Electrosteel Castings Limited v. UV Asset Reconstruction Company Limited – MANU/SC/1150/2021 ; Agarwal Tracom Pvt. Ltd. v. Punjab National Bank - MANU/SC/1494/2017 ; R. Shanmugachandran v. The Chief Manager Indian Bank Asset Recovery Management – MANU/TN/1243/2012 ; Mathew Varghese v. M. Amritha Kumar – MANU/SC/0114/2014 ; Mahendra Mahato v. The Central Bank of India – MANU/WB/0561/2014.

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Per contra, it is argued by the learned counsel for the

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plaintiff that had the Bank been unaware of the deficiency in extent, the aforesaid argument advanced on behalf of the Bank would hold good. On the other hand, here the specific case of the plaintiff is that the Bank had deliberately concealed the deficiency in extent of the property and thus played fraud on the plaintiff and hence she is entitled to claim damages/compensation. So, the bar under Section 34 of the Act is not in

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any way attracted in the light of Section 32 of the Act. Reference was made to the following decisions –

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– Trojan & Co. Ltd. v. N.N.Nagappa Chettiar

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MANU/SC/0005/1953 ; Malhotra v. Choudhury – 1978(3) WLR 825 ; M/s.TCI Distribution Centres Ltd. v. The Official Liquidator, High Court, Madras - 2009 SCC Online Mad 1481 : 2009(8) Mad LJ 1238.

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A sale conducted at the instance of a secured creditor, will certainly be a measure taken by the secured creditor under Section 13(4) of the Act to bring it within the scope of Section 17(1) of the Act. So, an auction purchaser would certainly come within the meaning of the term ‘aggrieved person’ as contemplated under Section 17(1) of the Act. But here, the case of the plaintiff is that the Bank had played fraud on her in the conduct of the sale of the property. Sections 32 and 34 of the Act read –

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“32. Protection of action taken in good faith

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No suit, prosecution or other legal proceedings shall lie against any secured creditor or any of his officers or manager exercising any of the rights of the secured creditor or borrower for anything done or omitted to be done in good faith under this Act.

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34. Civil Court not to have jurisdiction

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No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993).”

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The aforesaid provisions make it clear that only if it is shown that an

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action taken by the Bank was not in good faith, the civil court gets jurisdiction or a suit can be filed.

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It is not easy to give a definition of what constitutes ‘fraud’ in the extensive signification in which that term is understood by Civil Courts of Justice. Fraud, in the contemplation of a Civil Court, may be said to include properly all acts, omissions, and concealments which involve a breach of legal or equitable duty, trust or confidence, justly reposed, and are injurious to another, or by which an undue or unconscientious advantage is taken of by another. All surprise, trick, cunning, dissembling and other unfair way that is used to cheat any one is considered as fraud. Fraud in all cases implies a wilful act on the part of anyone, whereby another is sought to be deprived, by illegal or inequitable

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means, of what he is entitled to (Kerr on the Law of Fraud and Mistake. Seventh Edition).

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As stated earlier, the defendants/Bank in their written

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statement do not have a case that they were unaware of the deficiency in extent. Now the question is, did the plaintiff also know of this fact? Ext.A2 bid submitted by the plaintiff reads thus –

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“QUOTATION

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In response to the advertisement published in the Hindu daily by the authorised officer I.O.B. Regional office Calicut. I offer my highest quotation of Rs.32,05,000/- (Rupees thirty two lakh and five thousand only) being the sale price of 54 cents of land and temporary shed in S.No.48/1 Tirur Taluk, subject to the condition that absolute ownership and vacant possessions of the full extent of property without encumbrance. D.D. for Rs.20000/- (Rupees twenty thousand) is enclosed here with D.D.No.002299”

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Ext.A2 is a conditional bid that has been offered by the plaintiff. To this,

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the defendants/Bank gave Ext.A3 reply which reads –

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“Your offer for the property mortgaged to the Bank 54 cents of land with a shed under Sy.No.48/1 at Keraladheeswarapuram Village in Tanur.

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We refer to your offer of Rs.32.05 Lacs for purchase of the captioned property in response to the advertisement dated 23.01.2007 in the Hindu and the Mathrubhumi.

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Since our invitation to the public for tenders had stated that the

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property would be sold in ‘AS IS WHERE IS’ and ‘AS IS WHAT IS’ condition, we are unable to confirm the sale in your favour as your offer is subject to the condition that vacant possession of the property be given to you upon sale.

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In the circumstances, please inform us on or before 10.03.2007 as to whether you, as the highest bidder, are prepared to take the property in the present condition. In case we do not hear from you on or before 10.03.2007, we will assume that you are not interested in purchasing the property in ‘AS IS WHERE IS’ and ‘AS IS WHAT IS CONDITION’.”

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In reply to Ext.A3, the plaintiff gave Ext.A4 letter which reads –

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“Kind attention is invited to the subject and reference cited. First of all I inform you that I am not ready to purchase the property in ‘AS IS WHERE IS’ and ‘AS IS WHAT IS’ condition.

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In my quotation (offer) itself cited in the reference 1^st , I clearly mentioned that absolute ownership and vacant possession of the full extent of property (54 cents) without any encumbrances must be given. Once more I mention that I am ready to purchase the property only if absolute ownership, vacant possession and full enjoyment of 54 cents of land and temporary shed in Survey No.48/1 at Keraladheeswarapuram in Tirur Taluk, free from all encumbrances is given. Otherwise I am not ready to purchase the property. If you are not able to assign absolute ownership, vac ant possession and full enjoymen t of the property mentioned above, I am ready to withdraw my quotation, if you return the DD enclosed with the quotation or give Rs.20,000/- (Rupees twenty thousand only) to me. Please inform your decision in this regard at an earlier date….”

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A stand is seen taken in the cross examination of PW1, the husband of the

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plaintiff, that the Bank had not received Ext.A4 letter. However, this contention is not seen seriously pursued. Therefore, we will take it that Ext.A4 was in fact received by the defendants/Bank. According to the Bank, the plaintiff only wanted vacant possession of the property and hence as demanded by her, they moved the CJM concerned under the relevant provisions of the Act and pursuant to the order of the CJM, possession was taken over by the Tahsildar and handed over to the Bank. In Ext.A10 report of the Tahsildar it is stated that the property that has been taken possession of from the tenant and handed over to the Bank – the secured creditor, is excluding the portion of the property that had been assigned by the judgment debtor to third parties. In Ext.A1, it is clearly stated that the sale being conducted is on ‘AS IS WHERE IS’ and ‘AS IS WHAT IS’ condition. Ext.A1 notice also says that it is the responsibility of the tenderers to inspect and satisfy themselves about the assets and specification of the property before participating in the tender. PW1 in his cross examination was asked whether he had made any enquiries relating to the property. PW1 has no case that he was not aware of the terms and conditions stated in Ext.A1 notice. He admitted that when he had submitted Ext.A2 quotation, he entertained no doubt(s) relating to the title of the property. But when Ext.A2 was given, a workshop was functioning in the

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property and so they said that their bid/quotation need be accepted by the Bank only if the workshop was evicted and vacant possession of the property given. PW1 admits that before submitting Ext.A2, he had never verified or inspected the documents relating to the property. He had only looked into the documents that were shown to him by the Bank. On further questioning, he answered that he did not feel it necessary to inspect or make enquiries relating to the other documents in respect of the property. He further went on to depose that at the time when Ext.A2 was given, he had no reasons to doubt the title to the property or Ext.A1. His only doubt was relating to the possession of the property. The testimony of PW1 will make it clear that no attempt was made by the plaintiff or her husband to make any enquiries whatsoever regarding the property, which was expected of from a bidder as stipulated in Ext.A1 notice. As held by the Honourable Supreme Co urt in Ahmedabad Municipal Corporation of the city of Ahmedabad v. Haji Abdulgafur Haji Hussenbhai - 1971(1) SCC 757 , relied on by the defendants/Bank, there is no warranty of title in an auction sale. It is axiomatic that the purchaser at the auction sale takes the property subject to all the defects of title and the doctrine of caveat emptor or purchaser beware, applies to such a purchase. However, this doctrine does not apply to a case where the judgment debtor has no

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saleable interest at all in the property sold. A bonafide purchaser takes property he buys, free of all charges of which he has no notice actual or constructive. He is said to have constructive notice when ordinary prudence and care would have impelled him to undertake an inquiry which would have disclosed the charge. If for instance, the charge is created by a registered document, then the purchaser would be held to have constructive notice of that charge inasmuch as a prudent purchaser would and in ordinary course, search the registers before effecting the purchase.

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12. Here in the instant case, the case of the plaintiff is not

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that the judgment debtor had no saleable interest in the property. On the other hand, her case is that, the judgment debtor had sold a portion of the property even before the property was mortgaged with the defendants/Bank and so he did not have title or possession over the entire extent of 54 cents. In the proceedings initiated by the Bank before the CJM-Manjeri, it was that extent of property minus the property that had been sold by the judgment debtor that had been taken possession of by the Tahsildar concerned. The property that was taken possession by the Tahsildar and handed over to the Bank is stated to be 39.60 cents of property. Therefore, for the deficit 14.40 cents, there must certainly be a registered document and had the plaintiff and her husband been diligent and made necessary

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enquiries as was expected of them, they would certainly have come to know of the existence of this document(s) before they proceeded with the purchase of the property, which enquiries they were bound to make as per the stipulations contained in Ext.A1 notice. Absolutely no enquiries are seen to have been made by the plaintiff or her husband and no explanation(s) has been given for not making any enquiries. PW1 also admitted that he had gone to the site and inspected the property before proceeding with the purchase. The deficiency stated is not one or two cents of property, but 14.40 cents, which in all probability must have been apparent or noticed by the plaintiff when she visited the plot. Therefore, as contended by the Bank, and as is seen from the testimony of PW1, the only condition put forward by the plaintiff at the time of Ext.A2 seems to have been that they wanted the workshop to be evicted and vacant possession of the property given. The bank initiated steps to take possession of the property. Possession was obtained as evidenced by Ext.A10 report of the Tahsildar, pursuant to which the balance sale consideration was paid and thereafter Ext.A5 sale certificate issued.

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13. Further, a detailed procedure while resorting to sale of an immovable secured asset is prescribed under R.8 and R.9 of the Security Interest (Enforcement) Rules, 2002 (the Rules). This has got a twin

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objective, namely, by virtue of the stipulation contained in S.13(8) of the Act read along with R.8(6) and R.9(1), the owner / borrower should have clear notice of 30 days before the date and time when the sale or transfer of the secured asset would be made, as that alone would, enable the owner / borrower to take all efforts to retain his or her ownership by tendering the dues of the secured creditor before that date and time. Secondly, when such a secured asset of an immovable property is brought for sale, the intending purchasers should know the nature of the property, the extent of liability pertaining to the said property, any other encumbrances pertaining to the said property, the minimum price below which one cannot make a bid and the total liability of the borrower to the secured creditor. (See Mathew Varghese v. M.Amritha Kumar – AIR 2015 SC 50 ). The aforesaid statutory provisions make it clear that a sale could take place only after the expiry of 30 days from the date of the public notice. As held by the Apex court, one of the purposes of giving 30 days’ time is to enable all intending purchasers to make sufficient enquiries as a person of normal diligence and ordinary prudence would do while buying any immovable property. This has never been done by the plaintiff or her husband for which no cogent reason or for that matter any reason has been given. It is true that the secured creditor has a duty to disclose the encumbrances that comes to his

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notice. However, that would not mean that it obliterates or completely exonerates the purchaser of his liability to exercise due diligence and to make enquiries and to scrutinise the title to the property. Had the plaintiff and her husband exercised due diligence in making enquiries relating to the property, which they were bound to carry out, especially in the light of the stipulation in Ext.A1 that the property is being offered for sale in “AS IS WHERE IS’ and ‘AS IS WHAT IS’ condition, they would certainly have come to know of the deficiency. Having not done so, the plaintiff after a lapse of considerable time cannot come to the court feigning ignorance or alleging fraud.

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14. The materials on record probabilise the case of the defendants that the plaintiff was well aware of the deficiency in extent and that appears to be the reason why the plaintiff did not find it necessary to make any enquiries whatsoever relating to the property. Ext.A5 sale certificate issued on 21/11/2007 is seen registered only on 01/02/2010 which is nearly three years after the issuance of Ext.A5. It appears that a case of fraud has been brought in by the plaintiff only to take the present suit out of the ambit of Section 34 of the Act. Otherwise, in case she was aggrieved by the sale conducted by the Bank, she ought to have moved the Debt Recovery Tribunal within the time limit provided under Section 17 of

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the Act. This is not a case where a diligent purchaser came to know about the defect after the period of limitation prescribed for moving an application under Section 17 of the Act. This is also not a case where the debtor or the secured creditor did not have any saleable interest at all in the property. In such a case, certainly the auction purchaser would not be left without any remedy because it may be possible that at least in some cases that the auction purchaser may came to know of the defect much after the period prescribed under Section 17 of the Act. In such cases, the aggrieved party can certainly move the civil court for setting aside the sale and getting back the money deposited towards the sale consideration and in case of fraud, would be entitled to compensation or damages as well. But this is not a case in which the judgment debtor did not have title over the entire extent of the property. Therefore, it is not a case of no saleable interest at all in the property. As no fraud is seen to have been committed by the Bank, the bar under Section 34 of the Act is certainly attracted. Point answered accordingly.

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15. Point no.(ii) & (iii) – In the light of the finding under Point no.(i), these issues do not arise for consideration.

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16. Point no. (iv): - In the result, the appeal is allowed.

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The judgment and decree of the court below is set aside and the suit is

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dismissed. The parties shall suffer their respective costs.

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