JUDGMENT
S.S. Parkar, J. (Chairperson)
1. The main questions that are raised in this appeal are firstly whether the Debts Recovery Tribunal has jurisdiction to decide the validity of the lease created in favour of the respondent No. 1 Corporation and secondly whether the creation of lease is hit by the doctrine of lis pendens.
2. This appeal has been filed challenging the order dated 5.8.2005 passed by the learned Presiding Officer of DRT, Nagpur partly allowing the application filed by the respondent No. 1 under Section 17 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and directing the appellant Bank to deliver physical possession of the property to the respondent No. 1 on payment of rent and giving undertaking to pay the monthly rent in advance to the Bank.
3. The brief facts, which gave rise to the present appeal are as follows:
The respondent No. 2 M/s. Kamakshi Hotels (P) Ltd. had taken loan from the appellant Bank by executing documents like term loan agreement and created equitable mortgage by deposit of title deeds in favour of the Bank in respect of the property, inter alia, a land which was an open plot. On 30.6.2003 the respondent No. 2 created a lease in favour of the respondent No. 1 Corporation in respect of a small portion of that land. On 4.7.2003, the appellant Bank issued notice under Section 13 of the Securitization Act to the respondent No. 2, the borrower, and took symbolic possession on 15.11.2004 of the mortgaged property including the portion of the plot leased out to the Corporation. Thereafter, the respondent No. 1 Corporation moved the High Court, Nagpur Bench by filing Writ Petition No. 5416/ 2004. The said writ petition was withdrawn with liberty to avail the remedy of applying under Section 17 of the Securitization Act. Consequently, S.A. No. 11/ 2005 was filed under Section 17 of the Securitization Act, which was partly allowed by the DRT on 5.8.2005 against which the present appeal is filed. The physical possession of the land was taken by the appellants on 5.2.2005. It is grievance of the respondent No. 1 Corporation that despite interim order passed by this Tribunal for handling over the possession of the petrol pump set up by the respondent No. 1 which was confirmed by the Supreme Court in the proceedings taken before the Apex Court against the interim order, the appellants have not so far handed over the possession of the petrol pump to the respondent No. 1 Corporation.
4. On behalf of the appellants, it is contended that when the action was taken by the appellants in accordance with the provisions of the Securitization Act, the DRT had no jurisdiction to direct handing over of the possession of the property to the respondent No. 1. Reliance was placed on the provisions of Section 13 of the Securitization Act and it is argued that when the borrower, i.e. respondent No. 2 to this appeal, makes any default in repayment of secured debt, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice. If the amount of debt is not paid, the appellants are entitled to exercise all or any of the rights under Sub-section (4) of Section 13 including taking possession of the secured assets of the borrower. When the possession is taken in accordance with Section 13 of the Act, the DRT has no jurisdiction to order handing back the possession of the secured property to the respondent No. 1 Corporation. Reliance was placed on Clause 8 of the term loan agreement dated 28.2.1997 executed between the appellant Bank and the respondent No. 2 borrower. The said Clause No. 8 reads as follows:
Clause 8 – The borrower/s shall not, without the written consent of the Bank, create in any manner any charge, lien or other encumbrance on the property/ assets and security given to the Bank in the respect of such advance or create any interest on such security in favour of any other party or person.
5. On the basis of the aforesaid clause in the term loan agreement, it is argued that the borrower had no power or right to create any charge or encumbrance or lien in favour of any other party or person like the respondent No. 1 Corporation to whom the portion of the property was given on lease on which they have set up a petrol pump.
6. In this respect, it would be relevant to refer to Sub-section (1) of the Section 13 of the Securitization Act, which reads as follows:
Section 13(1) – Notwithstanding anything contained in Section 69 or Section 69A of the Transfer of Property Act, 1882 (4 of 1882), any security interest created in favour of any secured creditor may be enforced, without the intervention of Court or Tribunal, by such creditor in accordance with the provisions of this Act.
Relying on the use of non-obstante words in the aforesaid sub-section, it is vehemently argued on behalf of the appellants that the respondent No. 1 Corporation cannot defend its rights by relying on the provisions of Transfer of Property Act including Section 65A of the Act. Reliance is also placed on the interpretation of the provisions of Securitization Act by the Supreme Court in the case of Mardia Chemicals Ltd. v. Union of India II (2004) BC 397 (SC) : 110 (2004) DLT 665 (SC) : 2004(5) All MR (SC) 484, whereby the Supreme Court has upheld the provisions of the said Act ousting the jurisdiction of Civil Court in the matters to which the provisions of the Securitization Act apply. From the provisions of Sub-section (1) of Section 13 of the Securitization Act quoted above, it is clear that the provisions of Sections 69 and 69A of the Transfer of Property Act, which pertain to the power of the mortgagee for sale and appointment of Receiver in respect of mortgaged property are excluded or overridden by Section 13(1) of the Securitization Act. It cannot be gainsaid that other provisions of the Transfer of Property Act are not excluded from operation including Section 65A of the Transfer of Property Act, which permits the mortgagor like the respondent No. 2 i.e. the borrower to give the mortgaged property on lease.
7. However, on behalf of the respondent No. 1 Corporation, it is argued that there was no valid and binding contract between the parties i.e. Bank. No doubt, one of the modes of creation of mortgage is by deposit of title deeds, which under the definition of such mortgage given under Section 58(f) of Transfer of Property Act, does not require execution of deed for creation of such mortgage. In any event, the document dated 6.3.1997, which acknowledges the deposit of title deeds by the borrower with the Bank is an acknowledgement, which does not contain any prohibition against the borrower to create lease or any other limited interest in respect of the property in favour of third party. Reliance is therefore placed on behalf of the appellant Bank only on Clause 8 of the term loan agreement, dated 28.2.1997 which was prior in point of time to the creation of the mortgage by deposit of title deeds on 6.3.1997. If the parties had wanted to impose some restriction or prohibition on the borrower to give on lease the plot of land to the third party they would have and ought to have incorporated such term in the mortgage dated 6.3.1997 by deposit of title deeds.
8. While on behalf of the appellants it is argued that Clause 8 of the term loan agreement will have to be read as a condition of the mortgage created by deposit of title deed on behalf of the respondent No. 1 it is contended that condition contained in Clause 8 of the earlier document dated 28.2.1997 cannot be read as a condition in the mortgage subsequently created on 6.3.1997. It is also contended, by relying on the provisions of Section 65A, that the contract or condition, contrary to the provisions of Section 65A(1), in order to make it applicable to the mortgaged property, will have to be expressed in the mortgage deed itself by virtue of Sub-section (3) thereof and not in any other document like term loan agreement, especially when it was executed before creation of the mortgage and does not give particulars of the property on which mortgage was created. In my opinion, when an important legal right of a party is sought to be taken away i.e. the right of the mortgagor to give mortgaged property on lease, contrary intention has to be unequivocally expressed in the mortgage deed. Neither there is such express condition contained in the document dated 6.3.1997 nor Clause 8 of the term loan agreement executed states in express words about the creation of mortgage of property by title deeds to which the provisions of Clause 8 of the term loan agreement would be applicable. In my opinion in the absence of such express condition or intention to the contrary as envisaged under Sub-section (3) of Section 65A the right vested under Sub-section (1) cannot be taken away. In order to bring a case under the provisions of Sub-section (3) of Section 65A, the appellants will have to show strict compliance of the requirement of the contrary intention as it would take away the right of the mortgagor vested under Sub-section (1) of Section 65A of the Transfer of Property Act.
9. It is also argued on behalf of the respondent No. 1 that what was leased to the respondent No. 1 by the borrower is a portion of the piece of land mortgaged to the Bank for the purpose of running the petrol pump and what was mortgaged to the Bank was an open plot of land and not the petrol pump constructed by the respondent No. 1 lessee. Consequently, if the mortgagor himself cannot evict the lessee without following due process of law, the appellant Bank, which only steps into the shoes of the mortgagor, cannot evict the respondent No. 1 Corporation without initiating eviction proceedings under the provisions of Transfer of Property Act or Rent Control Act.
10. From the copy of the lease annexed to the reply affidavit dated 30.6.2003, it appears that what was leased to the respondent No. 1 was only a small portion of piece of land mortgaged to the Bank for the purpose of running the petrol pump set up by the respondent No. 1. It is argued on behalf of the respondent No. 1 Corporation that the argument advanced on behalf of the appellants that lessee are paying meagre rent @ Rs. 5,000/- p.m., is without substance, as the lease deed also shows that the lessees have deposited an amount of Rs. 1,20,000/- and are required to pay all rates, taxes, charges, duties, burdens, assessments, outgoings and impositions payable then or that may be levied and become payable thereafter upon the demised premises.
11. On behalf of the appellants, it is then argued that before proceedings were initiated under the provisions of Securitization Act, the appellants had moved the Co-operative Court and obtained injunction against the respondent No. 2 borrower under the provisions of Maharashtra Co-operative Societies Act, 1960. From the copy of the order annexed to the appeal memo, it is clear that the Co-operative Court had passed the interim order on 24.4.2002 restraining the borrower from disposing of any of the properties secured to the Bank until further orders. If there was an injunction order from disposing of any of the properties, the borrower was prohibited from only selling the properties and not from leasing out the properties. If there had been any prohibition from leasing out the property, the appellant would have initiated proceedings for contempt of Court, which was not done.
12. The next argument advanced on behalf of the appellants is that the application under Section 17 of the Securitization Act is required to be made within a period of 45 days. However, the said application had not been made within the prescribed period of limitation and, therefore, it should not have been entertained by the DRT. The Bank had taken symbolic possession of the property in question on 5.11.2004 and physical possession was taken on 5.4.2005 and the application under Section 17 was made on 22.3.2005. Section 17 allows any person aggrieved by any of the measure taken under Section 13(4) of the Securitization Act to make an application within a period of 45 days from the date of the measures. The respondent No. 1 Corporation cannot be said to have been really aggrieved after symbolic possession was taken by the Bank because in that event, the property, could have been sold by the Bank only subject to the right of the lessee. After the symbolic possession was taken, the respondent No. 1 Corporation had moved the High Court in a writ petition. It cannot be said that the application under Section 17 ought to have been filed against taking of the symbolic possession on 5.11.2004. The respondent No. 1 Corporation can be said to have been really aggrieved from the measure taken by the appellant Bank under Section 13(4), when physical possession of the premises in the occupation of the respondent No. 1 Corporation was taken on 5.2.2005. As the physical possession was taken by the appellants on 5.2.2005 the application made on 22.3.2005 under Section 17 of the Act was within limitation.
13. Moreover, Section 37 of the Securitization Act provides that the provisions of the said Act or the rules made thereunder shall be in addition to, and not in derogation of any other law for the time being in force. Therefore, Section 65A of the Transfer of Property Act is applicable. If the appellants want to take away the rights of the mortgagor under Section 65A of the Transfer of Property Act to lease the property they will have to ensure and prove strictly that there was prohibition in the mortgage deed to lease the property.
14. The contention raised on behalf of the respondent is that reliance on Sections 34 and 35 of the Securitization Act would also not help the appellants because under Section 34 of the Act jurisdiction of the Civil Court has been ousted, while Section 35 of the Act has overriding effect, notwithstanding anything inconsistent therewith contained in any other law for the time, being in force or any instrument having effect by virtue of any such law. The provisions of Section 65A of the Transfer of Property Act are not inconsistent with the provisions of Section 13 of the Act. The property mortgaged to the appellant Bank can be sold by it as the mortgagor could have sold in subject to the right of the lessee.
15. Reliance is placed on behalf of the respondents on the judgment of the Supreme Court in the case of Dev Raj Dogra and Ors. v. Gyan Chand Jain and Ors. , that is a case where the owner of the building had mortgaged the property by deposit of title deeds to a Bank. The suit was filed by the Bank to recover its dues. The decree was passed by consent of parties in favour of the mortgagee Bank. The consent terms provided that in case the amount was not paid by the mortgagor within a specified time, the Bank, which was a decree holder, could enforce the decree by sale of premises after the judgment debtor leased out portion of the premises. On failure to pay the decretal amount, as per the consent decree, the premises were sold in public auction. It was contended that the purchaser in public auction has a right for physical possession of the property from the tenants. It was held that the auction purchaser was entitled to symbolic possession of the property i.e. subject to the rights of the lessee.
16. On behalf of the appellants also some judgments were cited to which reference may be made at this stage. Firstly in the case of Asha Oil Foods Pvt. Ltd. v. The Jalgaon Janta Sahakari Bank Ltd. and Ors. IV (2005) BC 29 (DB) : 2005(2) All MR 721. Division Bench of the Bombay High Court has held that the Securitization Act overrides Co-operative Societies Act and the Bank can take action against the borrower under Section 13 of the Act notwithstanding the fact that the recovery certificate was issued under the Co-operative Societies Act. However, the said point does not arise for any consideration in this appeal. Reliance on another judgment of the Division Bench of the Bombay High Court in the case of Shri Wardhaman s/o Samjibhai Dharamsi and Anr. v. Bank of Maharashtra 2006 (2) All MR 218, will also not be of any assistance to the appellant’s case, in which it was held that the secured creditor like a Bank was entitled to move under the provisions of the Securitization Act although the proceedings had already been initiated and were pending under the provisions of RDB Act. Next reliance was placed on behalf of the appellants on the judgment of a Division Bench of the Bombay High Court in the case of Yukta Mookhey v. Bank of India and Ors. 2006 (2) All MR 737. That was a case where petitioner was a licensee and she had herself revoked the licence and refused to vacate the flat unless she received the deposit amount back with interest. The High Court held that she had no legal right to continue in the premises. The ratio of that decision also has no application to this case.
17. Now the main question which requires to be considered is whether in view of Section 52 of the Transfer of Property Act the lease created by the respondent No. 2 in favour of the respondent No. 1 is valid or not. Section 65A of the Transfer of Property Act permits the mortgagor in possession of the property to create lease in respect of the mortgaged property. It is not in dispute that the possession of the property in question was all along with or until possession was taken by the Bank under Section 13(4) of the Securitization Act was with the mortgagor and the lease was created in favour of the respondent No. 1 at the time when possession of the property was with the mortgagor. The question whether lease created under Section 65A of the Transfer of Property Act is valid or not in view of Section 52 of the Transfer of Property Act has been considered by the Full Bench of Bombay High Court in the case of Anaji Thamaji Patil v. Ragho Bhivraj Patil and Anr. , which was cited on behalf of the appellants. No doubt the Full Bench has categorically held that the provisions of Section 65A are subject to the doctrine of lis pendens embodied in Section 52 of the Transfer of Property Act. In other words, Section 52 governs and overrides Section 65A of the Transfer of Property Act. However, the Full Bench has gone a step further and considered whether the lease created in respect of the agricultural land by the purchaser of the land from borrower or judgment debtor was valid or not. In that case, simple mortgage was created in respect of the agricultural property by way of security for repayment of the loan. The borrower who was owner of the land had sold the property to another person, who had created lease during the pendency of the execution proceedings. After considering rights of the mortgagee not in possession, it was held that the lease created by the transferee of the original owner/the mortgagor, was valid. What weighed with the Full Bench in that case was that under a simple mortgage only right the mortgagee has is to sell the property for recovery of the loan amount but not to process the property, nor to derive any income out of the said property as in the case of an unsufructuary mortgage. No doubt, in the instant case the mortgage created was not a simple mortgage but a mortgage by deposit of title deeds. It has, however, for all purposes, the same effect and consequences as in the case of a simple mortgage as expressly provided by Section 96 of the Transfer of Property Act, which reads as follows:
Section 96 – Mortgage by deposit of title-deeds
The provisions hereinbefore contained which apply lo a simple mortgage shall, so far as may be, apply to a mortgage by deposit of title-deeds.
18. Essentially the effects of a mortgage by deposit of title deeds are the same as that of a simple mortgage. For example, possession of the property remains with the mortgagor and not with the mortgagee and the only right the mortgagee has is to sell the property for the purpose of recovery of his dues. These two factors weighed with the Full Bench to uphold the validity of the lease created of the agricultural land not by the borrower himself but by the person who had purchased the mortgaged property from the mortgagor. Therefore, in my opinion, ratio of the decision of the Full Bench squarely applies to the present case. The fact that the Full Bench was considering the case of a simple mortgage, while in the instant case, we are concerned with the right of a mortgagee by deposit of title deeds would, therefore, make no difference as sought to be argued on behalf of the appellants. The decision of the Full Bench did not rest simply on the fact that it was a case of simple mortgage but it considered the rights and consequence arising from the creation of a simple mortgage which are akin to the rights and consequences which flow from a mortgage by deposit of title deeds and, therefore, ratio of the said decision is squarely applicable on the present case.
19. It was lastly submitted on behalf of the appellants that the appellants had a right to take possession of the property both under the provisions of the Co-operative Societies Act, under which also the proceedings were initiated by the appellant Bank, as well as under the provisions of the Securitization Act. In my view that will not make any difference. In both these enactments, the appellants had a right to take possession not for enjoying the property as an owner but to sell the property and recover their dues from the sale proceeds thereof. Under none of the aforesaid enactments, the appellant Bank becomes the owner of the property and, therefore, since the lease is created in favour of a third party, the appellants will have to take possession of the property subject to the rights of the lessee.
20. In view of the aforesaid position of law, I see no reason to interfere in the impugned order, by which the respondent No. 1 are asked to pay rent to the appellants before physical possession of the property is delivered to them, which was obtained by the appellant Bank previously. In the result, this appeal is dismissed with no order as to costs.
Considering the legal points involved in the appeal, I record my appreciation for valuable assistance rendered by both the sides.