The Br. Manager vs The Meenachil Co.Op. Agrl. & Rural on 15 September, 2004

Kerala High Court
The Br. Manager vs The Meenachil Co.Op. Agrl. & Rural on 15 September, 2004




OP No. 3787 of 1999(A)

                      ...  Petitioner


                       ...       Respondent

                For Petitioner  :SRI.ANTONY DOMINIC

                For Respondent  :GOVERNMENT PLEADER

 Dated :     15/09/2004
 O R D E R

.PL 58
.TM 3
.BM 3

—————————[email protected]@

O.P.NO.3787 OF [email protected]@

—————————[email protected]@
Dated this the 15th day of September, [email protected]@
[email protected]@
((HDR 0
[OP 3787/1999]


.HE 1
.SP 2

By order dated 28-12-1998 (Ext.P8), the Joint
Registrar of Co-operative Societies, Kottayam (third
respondent herein) had overruled the objections of the
petitioner in the matter of confirmation of sale of a
landed property, admeasuring 2 acres and 98 cents of land
with a building in Sy.No.341/4 of Thalapalam Village.
This was purported to be in exercise of powers under
section 21(3) of the Kerala State Co-operative
Agricultural Development Banks Act, 1984 (Act 20 of 1984)
[herein after referred to as Act 20 of 1984]. [email protected]@
application was at the instance of the first
respondent–The Meenachil Co-operative Agricultural and
Rural Development Bank Ltd. The objector was the
petitioner–Kerala State Financial Enterprises Limited,
represented by its Branch Manager, who had a claim that
the property had been already mortgaged to them prior to
the encumbrance created in favour of the first
respondent–Bank. 4th Respondent was the owner of the
properties, at the time when the properties had been
mortgaged in favour of the petitioner, in the year 1994,
by deposit of title deeds, as security in respect of Kuri
transactions. Original Petition has been filed inter
alia challenging the above order.

2. Respondents 4 and 5 had been subscribers to
two Kuries in Chitty No.2/94 and had been assigned
Chittal Nos.30 and 25 respectively. When the Kuries got
prized, as required for the release of the prize amount,
an equitable mortgage in respect of the property
concerned had been created on 04-07-1994 and the title
deeds in respect of the above land had been deposited
with the petitioner-company. This is no where disputed.

3. There was default in the future remittances.
The dues were quantified as Rs.4,00,030/- as on
14-02-1997. Being a notified establishment, under
section 71 of the Revenue Recovery Act, a requisition had
been made to the District Collector, Kottayam for
initiating action for recovering the amounts due from the
said respondents. The petitioner refers to the
certificates issued by the District Collector dated
22-02-1997 and 24-02-1997. A demand notice prior to
attachment had been duly issued on 12-03-1997 by the
Special Deputy Tahsildar (RR), Ernakulam, and properties
were attached on 27-01-1998.

4. It is stated that while these steps were in
progress, a public notice had come to the knowledge of
the petitioner, published by the first respondent–Bank.
The 4th respondent was therein shown as a defaulter and
the sale notification included properties as
aforementioned, as to be sold on 11-02-1998. It is
further submitted that in spite of objections, the sale
proceedings were carried on and since there were no
bidders forthcoming, the first respondent–Bank
themselves had purchased the properties in auction. Such
action under the provisions of Act 20 of 1984 required
confirmation by the notified authority. Objections were
filed before the Joint Registrar, in the above context,
by the Kerala State Financial Enterprises. However, he
was not prepared to see eye to eye with the claims of the
petitioner. The order passed was to the following

.SP 1

“Whereas no application with deposit has
been made under sub-section (1) of Section
21 of the said Act and whereas the Sale
Officer has duly applied to make an order
confirming the sale, in exercise of powers
confirmed to me under sub-section (3) of
Section 21 of the said Act. I am inclined
to confirm the sale of property of 2 acres
and 98 cents in Survey 341/4 (Re-Sy.238/3)
of Thalapalam Village which was sold in
public auction by the Sale Officer,
Meenachil Co-operative Agricultural and
Rural Development Bank, Pala on 11-02-1998,
and the sale shall become absolute and the
property shall be deemed to have vested in
the purchasers, viz. the Meenachil
Cooperative Agricultural Development Bank
Ltd.No.K.197, Pala from the date and time
of sale.”

.SP 2

Want of deposit of the amounts specified in the
proclamation of sale was thus pointed out as a reason for
not acting upon the objections.

5. In the present Original Petition, the
above order is challenged as also all the proceedings
leading thereto. A declaration also has been sought for
to the effect that the sale conducted ignoring the
mortgage given in favour of the petitioner is illegal and

6. Sri.Antony Dominic, on behalf of the
petitioner, submits that the first respondent–Bank as
also the Joint Registrar of Co-operative Societies (3rd
respondent) were in error to overrule the objections of
the petitioner, whereby valid and legal rights of the
petitioner have been practically set at naught.
According to him, even if the Bank was proceeding under a
special enactment, rejection of the claims of the
petitioner could not at all have been justified.
Infirmities touching the root of the transaction had
weakened the claims of the Bank, to the advantage of the
petitioner. The executive powers of the Governmental
authorities have been exercised without full application
of mind and overlooking the provisions of the statute and
objections raised.

7. When the initial sale had been notified,
the first respondent–Bank had divulged certain further
details to the petitioner, so as to assert the position
that always they were in the driver’s seat. According to
them, Smt.Rosamma George, Muthupunnackal, Plassanal had
taken three loans from the first respondent–Bank as
K.M.S.E3/95-96 for Rs.50,000/-; PLMS E5/95-96 for
Rs.20,000/- and RHE 88/94-95 for Rs.3,00,000/-. The
properties, referred to in the notice, namely 2 acres and
98 cents in her name and possession, were shown as
security, and it was only after executing appropriate
Gehans (Nos.G.54/95, G.64/95 and H.39/95) that loans were
sanctioned and paid. She had done so along with her
husband Sri.M.K.George, who was the transferor and the
title was impeccable. Sri.M.K.George is the 4th
respondent and Smt.Rosamma George (his wife) is the 6th
respondent herein. It has presently come up that some
time during 1995 Sri.George had, by a registered
document, transferred the properties in favour of his
wife, which facilitated her to subject the properties to
encumbrance for money received. The loans had been
received and the default compelled the first
respondent-Bank to resort to coercive proceedings. These
were the basic facts, which have to be adverted to, while
disposing of this Original Petition.

8. By the counter affidavit filed by the
first respondent–Bank, claims that they had entered
into financial transactions with Rosamma George, in the
normal course of business, and all precautionary measures
had been taken and in view of the insulating provisions
for safeguarding the transactions under Act 20 of 1984.
Ext.P8 was impeccably valid, and the petitioner could not
have agitated any legally sustainable claims. Reference
had been made by the learned counsel to Sections 10, 12
and 21 of Act 20 of 1984. Also, it was a case, where
notices prescribed under section 12 of the Act in respect
of the transactions had been duly served with the Village
Officer, Thalapalam on 07-04-1995, 03-06-1995 and
12-07-1995 [Exts.R1(a) to R1(c)]. Therefore, when legal
formalities, religiously had been complied with, and when
there was default on the side of the loanees, it would
have been possible for them to put the properties on sale
without intervention of the Court. After the sale, only
on deposit of the amounts due, it would have been
possible for an objector to get the sale set aside.
Since the application filed before the competent
authority was defective, no interference could have been
permissible. It had been pointed out that when the
property was put to sale on 11-02-1998, Bank had bid the
property for an amount of Rs.4,35,000/and such sale alone
has been confirmed.

9. Sri.Antony Dominic submits that the
provisions of Act 20 of 1984 normally would have come to
secure the interest of the institutions like the first
respondent, but in the present case, the basic defects in
the transactions exposed them to risks, as the property
was already under equitable mortgage to them. At no
point of time, Bank had any valid rights over the
properties. Appropriation steps by them as per Ext.P8
were therefore inconsequential and the right of the
petitioner was indefeasible. We may examine the issue in
the aforesaid background.

10. Since reliance has been placed by the
Bank on Section 12(2) of the Kerala State Co-operative
Agricultural Development Banks Act, the provision could
be extracted herein below:

.SP 1
“(2) Notwithstanding anything contained in any
law for the time being in force, a Gehan
created or mortgage or hypothecation executed
in favour of the Agricultural Development Bank
or a primary bank shall take precedence over
any attachment or equitable mortgage over the
properties, where, after publication of a
notice in the prescribed form, the claim or
interest under such attachment or equitable
mortgage has not been notified to such bank
within the time prescribed in the said notice.”

.SP 2

Thus, it is submitted that if at all the petitioner
initially had any claims, so long as they did not put up
any such claims of equitable mortgage to them, after
Exts.R1(a) to R1(c), the legal effect was that such
claims automatically became subordinate to their rights
over the property. Therefore, the petitioner had no
enforceable legal rights and any claims become
subservient to the rights of the Bank.

11. As defined under section 2(e) of the Act,
a Gehan is a special charge on properties in favour of
the lending Bank. By a mere declaration in writing by
the borrowers for securing payment of money advanced or
to be advanced by way of loan, it will have all the
characteristics of a valid mortgage. Security of such
loan is ensured by the Act. A loan under section 9(3) of
the Act is recoverable by the Bank concerned in case of
default of payment in the same manner as if they are
arrears of public revenue due on land. Charge on movable
or immovable property is ensured by expressly reserving
in favour of the Bank a right of sale without
intervention of Court, in case of default. (see Section
10(1) of the Act). It is also provided that
notwithstanding anything contained in the Registration
Act, or any other law for the time being in force, it
shall not be necessary to register any Gehan or mortgage
or hypothecation created or executed in favour of the
Agricultural Development Bank or a primary bank, provided
the Agricultural Development Bank or the primary bank, as
the case may be, sends a copy of the declaration or
instrument, whereby such documents, including Gehan had
created to the Registering Officer of the area concerned
within stipulated time. The Registering Officer is
expected to file a copy thereof in Book No.1 kept under
the Registration Act and thereupon it is deemed to create
an interest in the property. The Bank had complied with
these formalities.

12. The argument of the respondent therefore
was that in view of section 12(2) of the Act and the
publication of notice, the proceedings for sale became
unimpeachable. The further submission was that the sale
could have been annulled only as provided under section
21 of the Act and since there was no deposit coming from
the petitioner, which was a precondition, no rights
remained to be adjudicated. Act 20 of 1984 was intended
to facilitate a more efficient working of Co-operative
Agricultural Development Banks in the State, and the
special provisions as above were incorporated so as to
ensure that the transactions entered into by the
institution were fully protected and recovery steps were
flawlessly efficient.

13. However, on an examination of the
attending circumstances, as highlighted by the
petitioner, it is evident that notwithstanding the
watertight provisions in the Act, certain basic
irregularities have effectively undermined the rights of
the Bank of an opportunity to assert the rights as
against the claims of the petitioner. Even though in the
counter affidavit, the Bank claimed that they were
convinced that the applicant for the loan had valid and
marketable title over the properties proposed to be
mortgaged, and that the same is absolutely encumbered as
on 15-03-1995 and that there was no third party interest
over the properties, the facts appear to be otherwise.
The dates of availing of the three loans respectively
were 20th of April 1995, 7th June 1995 and 15th of July
1995. But well before that the 4th respondent had
encumbered the property concerned in favour of the
petitioner, in the year 1994. The title deed of the
properties, as could be seen from the counter affidavit
filed by the Bank, is having registration No.74/95 of the
Sub Registrar’s Office, Erattupetta. The loans had been
applied for by Smt.Rosamma George (6th respondent), after
she got the rights by the said transaction. It is but
evident that the 4th respondent–husband after
encumbering the properties in favour of the petitioner in
the year 1994 had transferred the properties in favour of
his wife in the year 1995. Such a transfer, during the
subsistence of the encumbrance, could not have validly
conferred any rights on the 6th respondent to the
detriment of the petitioner. Perhaps the first
respondent–Bank had bona fide intended to enter into
transactions, but a lacuna was in fact there. The 6th
respondent presented the documents and applied for loan,
misrepresenting the bank that she was having ownership
and title over the properties, which she never had
legally acquired. Therefore, the contention of the Bank
that there was proper scrutiny or that there was
marketable title enjoyed by the 6th respondent is without
basis. This erodes the substratum of their stand.

14. Because, if that be the case, the notices
sent to the Village Officer [Exts.R1(a) to R1(c)], as
envisaged by section 12 of Act 20 of 1984, did not
thereby create any further rights than the bank received
from the mortgage arrangement. The rights were defective
and unenforceable. The notices, though purported to have
been made under section 12(2) of the Act, were incapable
of creating any right because of the inherent defect.
Even though the petitioner had overlooked/omitted to make
an objection against Exts.R1(a) to R1(c), that did not
place them under any special disability, since the 6th
respondent’s surrender was in respect of properties over
which she had no legal rights. The exhibits produced
indicated that Rosamma George was party to a Gehan about
which notice was published in the Village Office. The
petitioner had no relation or transaction with Rosamma
George and were not expected to be alerted because of
such notice, even though the property had been described.
It became inconsequential as far as the petitioner’s
rights were concerned. Resultantly, situation is that
the bank had attempted to enforce the Gehan which was
unenforceable. The rituals of publication, sale and
consequent confirmation was not sufficient enough to
clothe them with any specific advantage to the detriment
of the petitioner.

15. Under section 11 of the Act, every
persons who applies for a loan from a primary bank was
expected to make a declaration that the property on which
Gehan is created as security in the loan transaction is
free from encumbrances. Section 11(3) provides that a
person who makes a false declaration shall be punishable
with imprisonment. Also it is not as if such a
contingency of fraud is overlooked by Act 20 of 1984.
Section 11(2) of the Act speaks of the remedy.
Notwithstanding anything contained in any law for the
time being in force, where a declaration given by a
loanee is false or defective, the Bank will have a first
charge on all other movable and immovable properties of
the applicant, and all such properties shall be deemed to
have been included in the Gehan, mortgage or
hypothecation created or executed by the applicant as
security for the loan granted. Theoretically, at least
it may be possible for the Bank to proceed against the
4th respondent or the 6th respondent, at their option, in
case they want to enforce their claims.

16. It is beyond dispute that mortgage by
deposit of title deeds is a valid procedure, accepted
under the Transfer of Property Act, for creating an
encumbrance. Under section 58(a) of the Act, a mortgage
is a transfer of interest in specific immovable property.
This may be for the purpose of securing the payment of
money advanced or to be advanced by way of a loan. It
includes an existing or future debt over the performance
of an engagement which may give right to pecuniary
liability. It is undisputable that in respect of a Kuri
transaction the petitioner had entered into such an
arrangement. The law recognizes a mortgage by deposit of
title deeds. When a person delivers to the creditor or
the agent, document of title to immovable property with
intend to create a security thereon, the transaction is a
mortgage by deposit of title deeds (Section 58 (f) of the
Transfer of Property Act). The petitioner claims that a
mortgage deed as envisaged under section 2(17) of the
Indian Stamps Act is in existence. A mortgager therefore
is disabled from further encumbering the properties in
any case without the junction of mortgagee. It can well
be presumed that a liability is automatically attached to
the property and it is a burden imposed upon the land and
the interest in the land, by the owner of the land.

17. Advertence may also be made to the
dictionary meaning of the term `mortgage’, see Black’s
Law Dictionary, 7th Edition, by Bryan A.Garner. It is
described as a conveyance of title to property that is
given as security for the payment of a debt or the
performance of a duty and that will become void upon
payment or performance according to the stipulated terms.
It is also “a lien against property that is granted to
secure an obligation (such as a debt) and that is
extinguished upon payment or performance according to
stipulated terms. Thus, the mortgage presupposes a
(notional) conveyance of title as such, though on limited
terms and the mortgager may continue the occupation of
the property.

18. While dealing with creation of
encumbrances, which did not amount to sale, as pointed
out by Leonard A.Jones in “A treatise on the Law or
Mortgages”, the chief distinction between a mortgage and
a pledge is that by a mortgage the general title is
transferred to the mortgagee, subject to be re-vested by
performance of the condition; while by a pledge the
pledgor retains the general title in himself, and parts
with the possession for a special purpose. It can
therefore be stated that by a mortgage, the title is
presumed as transferred; by a pledge, the possession
alone is parted with. Therefore, if this Court does not
step in, that may result in an illegality being

19. The inescapable conclusion is that the
safeguards taken by the first respondent–Bank, while
advancing the loan to the 4th and 6th respondents, were
inadequate. Their bravado by itself fails to bring in
dividends, though in the first round they got a technical
victory. Though there was appearance on behalf of
respondents 4 and 6, they had not chosen to divulge their
stand vis-a-vis the transactions. The loan had been
obtained by the 6th respondent for investing in the
property itself, for a building, and it is not for me to
fathom the reasons which prompted them on such an
adventure. A fraud apparently has to be ruled out, but I
am not certain.

20. I find that while adjudicating the claims
of the petitioner, the Joint Registrar had not taken
notice of all legal aspects, which should have come
within the scope of his enquiry. The notification
followed by auction and confirmation, as could be seen
from Exts.P1, P3 and P8, in so far as the properties
mortgaged to the first respondent–Bank are declared as
invalid and irregular. They have not legally interfered
with or unsettled the rights of the petitioner.

21. A contention had been raised by the
learned counsel for the first respondent–Bank that the
Original Petition is not maintainable, since the
petitioner’s right would have been only an appeal to the
Government under section 83(1)(j) of the Co-operative
Societies Act. However, since the matter was pending for
long, at this point of time, I do not think it is proper
for me to relegate the parties to such course, as the
delay may adversely affect the claims, obligations and
rights of two institutions, as well as private parties.
Therefore, I am not prepared to accept the objection.

22. During the pendency of these proceedings,
by Ext.R1(e) the Deputy Collector (RR) had put the
properties concerned for sale on 29-04-2003 in
continuation of the proceedings initiated at the request
of the petitioner. It will be open for the petitioner to
get on with Ext.R1(e) proceedings. The first respondent
too will be entitled to take independent steps for
safeguarding their interests.

23. Notwithstanding this judgment, it will be
open to the parties to negotiate among themselves and
come to agreed settlements. The properties appear to be
valuable, and the effort always should be to generate the
maximum price, to benefit, if possible the 4th respondent
also. I may refer to the observations of the Supreme
Court in this regard, made in M/[email protected]@
Enterprises (P) Ltd. v. State of Bihar & Ors.[2004 (5)@@
Supreme 485], which explicitly lays down the principles,
in paragraph 17, as following for guidance:

.SP 1

“17. We are of the view that the
sale effected in favour of respondent No.6
cannot be sustained. It is axiomatic that
the statutory powers vested in the State
Financial Corporation under the State
Financial Corporation Act, must be
exercised bona fide. The presumption that
public officials will discharge their
duties honestly and in accordance with the
law may be rebutted by establishing
circumstances which reasonably probabalize
the abuse of that power. In such event it
is for the concerned officer to explain the
circumstances which are set up against him.
If there is no credible explanation
forthcoming the Court can assume that the
impugned action was improper [See:

M/s.Pannalal Binjraj & Ors. v. Union of
India & Ors. AIR
1957 SC 397, 409].

Doubtless some of the restrictions placed
on State Financial Corporations exercising
their powers under Section 29 of the State
Financial Corporation Act, as prescribed in
Mahesh Chandra v. Regional Manager,
U.P.Financial Corpn.
1993 (2) SCC 279, are
longer in place in view of the subsequent
decision in Haryana Financial State
Corporation v. Jagdamba Oils Mills.

However, in over-ruling the decision in
Mahesh Chandra, this Court has affirmed the
view taken in Chairman and Managing
Director, SIPCOT, Madras v. Contromix
1995 (4) SCC 595 and said that in
the matter of sale under Section 29, the
State Financial Corporation must act in
accordance with the statute and must not
act unfairly i.e. unreasonably. If they
do their action can be called into question
under Article 226. Reasonableness is to be
tested against the dominant consideration
to secure the best price for the property
to be sold. “This can only be achieved
when there is a maximum participation in
the process of sale and everybody has an
opportunity of making an offer. Public
auction after adequate publicity ensures
participation of every person who is
interesting (interested?) in purchasing the
property and generally secures the best


.SP 2

24. This equally will be applicable to the
petitioner, as any other statutory body, who comes within
the purview of State under Article 12 of the Constitution
of India.

The Original Petition will stand allowed. No
order as to costs.

15th September, 2004.


((HDR 0

.HE 2
.SP 1



O.P.NO.3787 OF [email protected]@


J U D G M E N [email protected]@


                                     Dated:     day of September, 2004

        16 [OP 3787/1999]	- 

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