AJN 00-OS-APEAL106.10
1
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
APPEAL NO.106 OF 2010
IN
NOTICE OF MOTION NO.67 OF 2009
IN
INSOLVENCY PETITION NO.46 OF 2002
Re. 1. B.D. Agarwal )
2. Mrs. Sangeeta B. Agarwal ) ... Insolvents
EX-PARTE:
Ghisalal C. Shah of Mumbai, )
Indian Inahbitant, residing at 173, )
Dubash Building, 1st floor, Room )
No.16, V.P. Road, Mumbai - 400 )
004. )... Petitioning
Creditor
Krystal Stone Exports Limited, )
through its Director Mr. Popat Lal )
Kanadia, residing at 115, )
Saraswati Sadan, Keshavji Nayak )
Road, Chinch Bunder, Mumbai - )
400 009. ) ... Appellants
(Orig. Applicants)
Versus
1. Official Assignee, High Court, )
Bombay. )
2. G.C. Shah, the abovenamed )
Petitioning Creditor. ) ... Respondents
(Orig. Respondents).
::: Downloaded on - 09/06/2013 17:08:52 :::
AJN 00-OS-APEAL106.10
2
WITH
NOTICE OF MOTION NO.68 OF 2009
IN
INSOLVENCY PETITION NO.46 OF 2002
Ref: As above.
EX-PARTE:
Ghisalal C. Shah )
Address as above. )... Petitioning
Creditor
And
Central Bank of India, Tonk Road, )
Branchy, B-19/20, Rama Enclave, )
Shopping Centre, Lalkothi, Area )
Tank Road, Jaipur, Rajasthan. ) ... Applicants
And
Official Assignee, High Court, )
Bombay. ) ... Respondent
WITH
REPORT NO.8 OF 2009 of the Official Assignee
IN
INSOLVENCY PETITION NO.46 OF 2002
Re. 1. B.D. Agarwal )
2. Mrs. Sangeeta B. Agarwal ) ... Insolvents
Versus
EX-PARTE:
Ghisalal C. Shah )
Address as stated above. )... Petitioning
Creditor
::: Downloaded on - 09/06/2013 17:08:52 :::
AJN 00-OS-APEAL106.10
3
Mr. S.A. Tawate for the appellants.
Mr. O.A. Das for Central Bank of India.
Mr. Kishore Jain i/b Nisha Parmar for the Official Assignee.
Mr. Y.C. Parikh, Official Assignee present in the court.
CORAM: MRS. RANJANA DESAI &
RANJIT MORE, JJ.
DATE ON WHICH THE JUDGMENT IS
RESERVED : 4TH MARCH, 2011.
DATE ON WHICH THE JUDGMENT IS
PRONOUNCED: 28TH MARCH, 2011.
JUDGMENT:- (Per Smt. Ranjana Desai, J.)
1. Admit. The respondents waive service. By consent
of the parties, taken up for hearing, forthwith.
2. The appellants have challenged in this appeal order
dated 1/12/2009 passed by learned Single Judge of this
court. By the impugned order, learned Single Judge has
disposed of Notice of Motion No.67 of 2009, Notice of
Motion No.68 of 2009 and Report No.8 of 2009 submitted
by the Official Assignee. The present appeal revolves
::: Downloaded on – 09/06/2013 17:08:52 :::
AJN 00-OS-APEAL106.10
4
around Flat No.305, Blase View ‘A’ Co-operative Housing
Society Limited, Matherpada Road, Amboli, Andheri
(West), Mumbai – 400 058, (for short, “the said flat”).
3. Notice of Motion No.67 of 2009 was taken out by the
appellants – Krystal Stone Exports Limited, inter alia,
praying that the Official Assignee be directed to restore
the possession of the said flat to the appellants. In the
affidavit in support of the notice of motion filed by one
Popat Lal Kanadia, who claims to be the Director of the
appellants, it is stated that the said flat is owned by Mrs.
Sangeeta Agarwal; that it is mortgaged to Central Bank of
India (for convenience, “Central Bank”), who is the
secured creditor of the appellants; that the said flat is
given to the appellants by Mrs. Sangeeta Agarwal on a
lease agreement on 11/4/1996 for a period of 15 years
and that the said agreement is in force upto 10/4/2011. It
is further stated that, therefore, the Official Assignee had
no reason to take physical possession of the said flat
because it falls outside the purview of the Presidency
::: Downloaded on – 09/06/2013 17:08:52 :::
AJN 00-OS-APEAL106.10
5
Towns Insolvency Act, 1909. It is further stated that the
said flat being a mortgaged property, cannot be sold or
used by the Official Assignee for any reason whatsoever;
that the secured creditor who is a bank has not
relinquished its charge on the said flat which is mortgaged
with the bank and, therefore, the Official Assignee has no
right to take possession thereof. A categorical statement
is made in the affidavit that the appellants were in lawful
possession of the said flat and by putting its own lock on
the said flat on 9/9/2009, the Official Assignee has
disturbed the appellants’ lawful possession.
4. Notice of Motion No.68 of 2009 was taken out by the
Central Bank having its Branch Office at Jaipur, Rajasthan
praying that the Official Assignee be directed to hand over
the said flat to the Central Bank in order to sell the same
under the Securitization and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002 (for
short, the SARFAESI Act”). It is also prayed that the
Official Assignee may be restrained from selling,
::: Downloaded on – 09/06/2013 17:08:52 :::
AJN 00-OS-APEAL106.10
6
alienating, dealing with and creating any third party right
in the said flat. In the affidavit in support of this notice of
motion filed by one Narendra Khandelwal, Senior
Manager, Central Bank, it is stated that Mrs. Sangeeta
Agarwal and her husband Bansi Dhar Agarwal are
declared as Insolvents pursuant to the order passed by
this court and pursuant to the said order, the Official
Assignee has taken over possession of the said flat. It is
further stated that the Central Bank has given credit
facilities to the appellants and in order to secure the said
credit facilities, the said flat has been mortgaged by Mrs.
Sangeeta Agarwal in favour of Central Bank. It is further
stated that the parties have not paid the outstanding dues
and, their accounts have become Non Performing Assets
(for short, “the NPA”). It is further stated that the
Central Bank had filed original application in the Debts
Recovery Tribunal (for short, “the DRT”) against
Insolvents at Jaipur being Original Application No.234 of
2002 to recover a sum of Rs.3,91,44,184.48 with further
interest. The said original application was decreed on
::: Downloaded on – 09/06/2013 17:08:52 :::
AJN 00-OS-APEAL106.10
7
31/3/2006. The Central Bank filed an execution petition
and a demand notice came to be issued to the Judgment
Debtors. Pursuant to the order passed by the Recovery
Officer, the Central Bank is stated to have taken
possession of the said flat from the Official Assignee. The
Insolvents preferred an appeal before the Debt Recovery
Appellate Tribunal (for short, “the DRAT”), Delhi, against
the ex-parte decree and the DRAT set aside the ex-parte
decree and directed the DRT to rehear the matter which is
pending before the DRT, Jaipur. Pursuant to the order
passed by the Recovery Officer dated 24/8/2009, the
Central Bank returned the possession of the said flat to
the Official Assignee. It is further stated that pending the
DRT proceedings, the Central Bank initiated action under
the SARFAESI Act. It issued notice under Section 13(2) of
the SARFAESI Act, which was followed by notice under
Section 13(4) thereof. Since, the said flat was in
possession of the Official Assignee, the Central Bank
informed the Official Assignee about the action taken
under the SARFAESI Act and requested the Official
::: Downloaded on – 09/06/2013 17:08:52 :::
AJN 00-OS-APEAL106.10
8
Assignee to hand over possession of the said flat to the
Central Bank in order to sell the same. However, the
Official Assignee did not respond to the Central Bank’s
letter dated 19/9/2009 to the above effect. According to
the Central Bank, as on 2/10/2009, when the affidavit was
filed the outstanding dues of the Central Bank against the
Insolvents are more than Rs.4 crores. Therefore, Notice of
Motion No.68 of 2009 was taken out by the Central Bank
praying that the Official Assignee be directed to hand over
possession of the said flat to them.
5. In his report being Report No.8 of 2009, the Official
Assignee has stated that Mrs. Sangeeta Agarwal and her
husband Bansi Dhar Agarwal were adjudicated as
Insolvents by order dated 3/6/2003 and, therefore, the
Official Assignee took symbolic possession of the said flat
standing in the name of Mrs. Sangeeta Agarwal. On
10/1/2008, DRT, Jaipur in Original Application No.25 of
2006 filed by the Central Bank, directed that the symbolic
possession of the said flat be handed over to the receiver
::: Downloaded on – 09/06/2013 17:08:52 :::
AJN 00-OS-APEAL106.10
9
of the DRT. Accordingly, the possession was handed over
to the receiver of the DRT on 22/1/2008. By order dated
24/8/2009, DRT, Jaipur, again directed that the possession
of the said flat be handed over to the Official Assignee.
The Official Assignee has submitted that Lease Agreement
dated 11/4/1996, purportedly entered into by and
between the Insolvent Mrs. Sangeeta Agarwal and M/s.
Krystal Stone Export Limited under which Mrs. Sangeeta
Agarwal has leased out the said flat to the Appellants is
not registered. The Official Assignee has stated that as
per Clause 10 of the terms and conditions of the said
Agreement, in case, the lessee does not perform and/or
carry out the terms and conditions of the agreement or
commits defaults in payment of rent, the lessor shall be
entitled to terminate the agreement. The Official
Assignee has further stated that as per the xerox copies
of the Society’s letter dated 10/1/2001 and 15/2/2001, the
lessee has not paid the Society’s dues and is in arrears.
It is the Official Assignee’s case that in view of the fact
that the order of adjudication is passed by this court
::: Downloaded on – 09/06/2013 17:08:52 :::
AJN 00-OS-APEAL106.10
10
against the Insolvent Mrs. Sangeeta Agarwal, the Official
Assignee has stepped into the shoes of the said Insolvent
and as assignee of the assets and estates of the Insolvent
– Mrs. Sangeeta Agarwal, he has decided to terminate
Lease Agreement dated 11/4/1996. The Official Assignee
has, therefore, prayed that the court may pass an order
authorizing the Official Assignee to terminate the said
lease agreement.
igThe Official Assignee has further
prayed that he may be permitted to hold the possession
of the said flat which is handed over to him by the
receiver of the DRT, Jaipur.
6. By the impugned order, learned Single Judge has
ordered the Official Assignee to hand over the said flat to
the Central Bank because the Central Bank being a
secured creditor, has initiated action under the SARFAESI
Act and has issued notice under Section 13(2) of the
SARFAESI Act and has also issued notice of possession
dated 16/2/2009.
::: Downloaded on – 09/06/2013 17:08:52 :::
AJN 00-OS-APEAL106.10
11
7. So far as the appellants' notice of motion is
concerned, learned Single Judge has observed that the
said lease agreement is entered into by Insolvent No.2
Mrs. Sangeeta Agarwal, who is the wife of Insolvent No.1
Bansi Dhar Agarwal, the director of the company; that the
lease agreement is not registered and that the lease
rental is only Rs.1/- per month. It is further observed that
since the Official Assignee has taken only symbolic
possession of the said flat, if the appellants have any
grievance, the appellants will have to take recourse
according to law. Learned Single Judge has further
observed that upon the order of adjudication, the property
has vested in the Official Assignee. The Official Assignee
was, therefore, granted permission to terminate the lease
agreement.
8. Written arguments have been filed on behalf of the
appellants. Mr. Tawate, counsel for the appellants has
reiterated the submissions incorporated in the written
arguments. He submitted that the Official Assignee’s
::: Downloaded on – 09/06/2013 17:08:52 :::
AJN 00-OS-APEAL106.10
12
report dated 30/9/2009 states that he had merely taken
symbolic possession of the said flat. Counsel submitted
that learned Single Judge directed that possession of the
said flat be handed over to the Central Bank by the
Official Assignee. The Official Assignee though had
stated in his report that he had taken symbolic possession
of the said flat, he handed over physical possession
thereof to the Central Bank by breaking open the lock of
the said flat. Thus, the possession was handed over
without following due process of law. Counsel submitted
that by handing over possession of the said flat to the
Central Bank, the Insolvency Court has virtually passed an
eviction order which it could not have passed because
only the Small Causes Court has exclusive jurisdiction to
pass such an order. In this connection, counsel relied on
the judgment of this court in Ramesh Kumar Jhamb &
Anr. v. Official Assignee, High Court, Bombay &
Ors. AIR 1993 Bom. 374. Counsel submitted that the
Official Assignee has not filed any reply to Notice of
Motion No.67 of 2009 taken out by the appellants and,
::: Downloaded on – 09/06/2013 17:08:52 :::
AJN 00-OS-APEAL106.10
13
therefore, the averments made by the appellants have
been admitted. Counsel submitted that learned Single
Judge dismissed Notice of Motion No.67 of 2009 without
giving any valid reasons for the dismissal. Counsel
submitted that the Central Bank has not produced any
evidence to substantiate its contention that the said flat
was mortgaged to it and, therefore, the finding of learned
Single Judge that the bank is a secured creditor is not
supported by any evidence and is patently erroneous.
Counsel submitted that permission granted to terminate
the lease agreement by learned Single Judge is illegal
because whether the lease agreement is valid or not can
only be decided by the Small Causes Court. Counsel
submitted that the Central Bank did not make the
appellants party to Notice of Motion No.68 of 2009 though
the appellants were lawful occupants of the said flat and,
therefore, the said notice of motion ought to have been
dismissed for misjoinder of the party. Counsel submitted
that the impugned order passed by learned Single Judge
who was the Insolvency Judge granting possession of the
::: Downloaded on – 09/06/2013 17:08:52 :::
AJN 00-OS-APEAL106.10
14
said flat to the Central Bank does not fall under the
framework of insolvency proceedings and, therefore,
learned Single Judge should not have entertained Notice
of Motion No.68 of 2009 filed by a stranger to the
insolvency proceedings. Counsel relied on the order
passed by DRT, Jaipur dated 5/11/2009. Counsel
submitted that the Central Bank cannot file two recovery
proceedings one at DRT, Jaipur and another at Bombay.
Counsel also relied on judgment of the Andhra Pradesh
High Court in Khaja Atheequallah & Ors. v. Union
Bank of India, AIR 2010 AP 65. Counsel submitted that
in the circumstances, the impugned order be set aside.
9. We have permitted learned counsel Mr. Jain to
appear for the Official Assignee and assist us. He has
accordingly assisted us. Mr. Das, learned counsel for the
Central Bank and Mr. Jain, learned counsel for the Official
Assignee submitted that no interference is necessary with
the impugned order because it is perfectly legal and
justified. Written submissions have been filed by Mr. Jain.
::: Downloaded on – 09/06/2013 17:08:52 :::
AJN 00-OS-APEAL106.10
15
We have carefully perused the same. Compilation of
several orders passed in respect of the Insolvents have
been produced by Mr. Jain as directed by this court. We
have carefully perused these orders.
10. Admittedly, learned Single Judge of this court by his
order dated 3/6/2003 adjudged B.D. Agarwal, Director of
the appellants and his wife Sangeeta Agarwal Insolvents.
As per provisions of Section 17 of the Presidency Towns
Insolvency Act, 1909, all the assets and properties of the
Insolvents vested in the Official Assignee on that day.
11. The affidavit filed on behalf of the Central Bank by its
Senior Manager – Mr. Khandelwal discloses that the
appellants have availed of various credit facilities from the
Central Bank, Tank Road Branch, Jaipur and the said flat
has been mortgaged by Insolvent Mrs. Sangeeta Agarwal
to the Central Bank. It must be stated here that in the
affidavit in support of the notice of motion taken out by
the appellants, the appellants have admitted that the said
::: Downloaded on – 09/06/2013 17:08:52 :::
AJN 00-OS-APEAL106.10
16
flat is mortgaged to the Central Bank and the Central
Bank is the secured creditor. Surprisingly, despite this
clear averment made in the affidavit, a statement is made
before us on behalf of the appellants that the Central
Bank is not a secured creditor. We un-hesitantly reject
this submission. Going back to the affidavit of Mr.
Khandelwal, it is further stated in the affidavit that the
appellants have not paid the outstanding dues of the
Central Bank and, therefore, its account has become a
NPA. Proceedings filed by the Central Bank for recovery
of its dues are pending in DRT, Jaipur. Pending those
proceedings, the Central Bank has initiated proceedings
under the SARFAESI Act against the appellants and the
Insolvents B.D. Agarwal and Mrs. Sangeeta Agarwal. It is
asserted in the affidavit that the Central Bank has issued
notice under Section 13(2) and Section 13(4) of the
SARFAESI Act.
12. In Transcore v. Union of India & Anr. (2008) 1
SCC 125, the Supreme Court was inter alia considering
::: Downloaded on – 09/06/2013 17:08:52 :::
AJN 00-OS-APEAL106.10
17
the question whether recourse to take possession of the
secured assets of the borrower in terms of Section 13(4)
of the SARFAESI Act comprehends the power to take
actual possession of the immoveable property. The
Supreme Court considered the provisions of the SARFAESI
Act and held that it deals with crystalized liabilities. The
Supreme Court held that Section 13(2) proceeds on the
basis that the borrower is under a liability; that the debt
has become due and that the borrower’s account in the
books of account of the bank is classified as substandard.
The Supreme Court observed that Sections 13(1) and
13(2) of the SARFAESI Act proceed on the basis that the
security interest in the bank needs to be expeditiously
enforced. The Supreme Court further held that there is no
dichotomy between constructive possession and physical
possession. In view of this, in our opinion, learned Single
Judge was right in directing the Official Assignee to hand
over the said flat to the Central Bank. Learned Single
Judge has not determined any question, which the court of
exclusive jurisdiction created under the Rent Act, can
::: Downloaded on – 09/06/2013 17:08:52 :::
AJN 00-OS-APEAL106.10
18
decide and, hence, Ramesh Kumar Jhamb’s case has
no application to this case. Learned Single Judge has
rightly observed that if the appellant has any grievance
against the Central Bank, it would be open to the
appellant to take recourse according to law. In this
connection, reference must be made to Section 17 of the
SARFAESI Act which gives right to any person, including
borrower to file an appeal to the DRT if he is aggrieved by
any measures taken under Section 13(4) of the SARFAESI
Act. Section 18 provides for an appeal against the order
passed by the DRT. Apart from Transcore, there are
several other judgments of the Supreme Court in which
the importance of the expeditious and effective nature of
the remedies under Sections 17 and 18 of the SARFAESI
Act is stressed. In this connection, we may usefully refer
to Mardia Chemicals Ltd., etc. etc. v. Union of India
& Ors., etc. etc. AIR 2004 SC 2371; United Bank of
India v. Satyawati Tondon & Ors. AIR 2010 SC
3413 and Kanaiyalal Lalchand Sachdev & Ors. v.
State of Maharashtra & Ors. in Criminal Appeal Nos.
::: Downloaded on – 09/06/2013 17:08:52 :::
AJN 00-OS-APEAL106.10
19
338-340 of 2011 dated 17/2/2011.
13. We must note that an incorrect statement is made by
the appellants in the affidavit in support of the Notice of
Motion No.67 of 2009 that on 9/9/2009, the appellants
were in lawful possession of the said flat. In the order
dated 1/8/2006 passed by learned Single Judge (Dr. D.Y.
Chandrachud, J.) while dealing with Notice of Motion No.54
of 2006 taken out by the appellants for annulment of
insolvency proceedings, it is observed that the Official
Assignee was informed by the Co-operative Housing
Society by letter dated 20/3/2006 that the 1st Insolvent i.e.
B.D. Agarwal had attempted to forcibly break open the
said flat and he was prevented by the Managing
Committee from doing so. This conduct of B.D. Agarwal is
not consistent with the appellants’ claim of being in lawful
possession of the said flat on 9/9/2009. So far as the
Official Assignee’s claim is concerned, in our opinion,
Section 13(7) of the SARFAESI Act can take care of it.
::: Downloaded on – 09/06/2013 17:08:52 :::
AJN 00-OS-APEAL106.10
20
14. Reliance placed by learned counsel on the judgment
of the Andhra Pradesh High Court in Khaja Atheequllah
is misplaced because, though in this judgment, the
Andhra Pradesh High Court has considered the provisions
of Sections 13 and 14 of the SARFAESI Act, attention of
the court was not drawn to the judgment of the Supreme
Court in Transcore which has discussed the provisions of
the SARFAESI Act in depth and held that the SARFAESI Act
deals with crystallized liability. Scope of remedy under
Sections 17 and 18 of the SARFAESI Act is also not
discussed by the Andhra Pradesh High Court. It is
pertinent to note that in M/s. Trade Well & Anr. v.
Indian Bank & Anr. 2007 (1) Bom.C.R. (Cri.) 783, a
Division Bench of this court to which one of us (Smt.
Ranjana Desai, J.) was a party, has after referring to
Transcore and Mardia Chemicals held that remedy
provided under Section 17 is an efficacious alternative
remedy available to the third party as well as to the
borrower. Referring to the observations of the Supreme
Court in Mardia Chemicals Limited, this court has
::: Downloaded on – 09/06/2013 17:08:52 :::
AJN 00-OS-APEAL106.10
21
observed that proceedings under Section 17 of the
SARFAESI Act are in lieu of a suit and, therefore, all
possible grievances can be raised before the DRT. This
would obviously include grievance about jurisdiction.
15. So far as the grievance of the appellants that the
lease agreement is wrongly terminated is concerned, we
have already noted that after the adjudication order was
passed, the property vested in the Official Assignee under
Section 17 of the Presidency Towns Insolvency Act, 1909.
Clause 10 of the said agreement entitles the owner to
terminate the said agreement if there is breach of any of
the terms and conditions of the said agreement. Since
according to the Official Assignee, the appellants had
failed to pay the Society charges, the Official Assignee
rightly sought permission from learned Single Judge to
terminate the said agreement. It is pertinent to note that
what weighed with learned Single Judge is the fact that
the lease agreement is entered into by Insolvent 2 – Ms.
Sangita Agarwal, who is or, in any event, was at the
::: Downloaded on – 09/06/2013 17:08:52 :::
AJN 00-OS-APEAL106.10
22
material time, wife of Insolvent 1, who was a director of
the company; that the lease agreement which is for a
period of 15 years has not been registered and that the
lease rental is an amount of Rs.1/- per month. Learned
Single Judge, therefore, cannot be faulted for having
granted permission.
16. Admittedly, the applicants have filed a suit in the
Small Causes Court at Bombay being RAD Suit No.939 of
2010 in which it is prayed that the appellants may be
declared as tenant in respect of the said flat and that the
termination of the lease agreement dated 11/4/1996 by
the Official Assignee is illegal and valid and it be set
aside. It is, therefore, not proper for us to express any
opinion on this issue. Therefore, we do not want to say
anything further on this issue.
17. In the ultimate analysis, we are of the opinion that
there is no merit in the appeal and it will have to be
dismissed. Before closing, we must mention that reckless
::: Downloaded on – 09/06/2013 17:08:52 :::
AJN 00-OS-APEAL106.10
23
allegations were made at the instance of the appellants
by the counsel for the appellants against counsel for the
Central Bank and counsel for the Official Assignee. This
compelled us to ask for various orders passed by this
court against the Insolvents. We have gone through those
orders. We find that reckless allegations were also made
by the appellants against learned Single Judge of this
court (V.C. Daga, J.) and counsel for the respondents that
Insolvent B.D. Agarwal was forced to file undertaking by
them. In subsequent orders, this court has adversely
commented upon this conduct of Insolvents. Insolvent
B.D. Agarwal was arrested and then released on bail. It is
pertinent to note that by order dated 8/3/2011, a Division
Bench presided over by Justice D.K. Deshmukh in two
appeals being Appeal (L) No.521 of 2010 and Appeal (L)
No.638 of 2010 has observed that both the appeals have
been unnecessarily filed and they have resulted in abuse
of process of the court. The appellants were directed to
pay as and by way of costs of notice of motion and appeal
Rs.25,000/- each to the Official Assignee in each of the
::: Downloaded on – 09/06/2013 17:08:52 :::
AJN 00-OS-APEAL106.10
24
appeal. We refrain from taking any such action against
the appellants only with a hope that wiser counsel will
prevail and the Insolvents would refrain from making such
allegations in future.
18. The Official Assignee is permitted to pay the fees of
advocate Mr. Jain from the estate of the insolvent.
19. Appeal is dismissed.
[MRS. RANJANA DESAI, J.]
[RANJIT MORE, J.]
::: Downloaded on – 09/06/2013 17:08:52 :::