ASHISH BHALLA vs CENTRAL BANK OF INDIA on 20 February 2024

1. 1. Branch Manager, Central Bank of India, Branch Sisamau, Kanpur Nagar.

2. 2. Sri Ramu Jaiswal, Sri Munnu Lal Jaiswal, R/o 7/125, Swaroop Nagar, Kanpur.

.....Defendants

Present:

**For the Appellant** : Shri S. K. Gupta along with Sh. Maneesh Mehrotra, Advocates **For the Respondent Bank** : Shri Awadesh Kumar Pal, Advocate **For Auction Purchaser** : Shri Raj Kumar Tiwari **Dated : 20.02.2024****JUDGMENT**

1. This appeal has been filed by the appellant who is neither borrower nor guarantor but a third party aggrieved person, challenging the order dated 11.01.2024, passed by the Recovery Officer in DRC No. 215 of 2002 with regard to the property in question i.e. Plot No. 621, having area 1 Bigha, 1 Biswa and 15 Biswansi situated at Bagdaundhi, Banger, Pargana, Tehsil and District Kanpur Dehat and property Plot No. 629C, having area 1 Bigha situated at Bagdaundhi, Banger, Pargana, Tehsil and District Kanpur Dehat.

2. The reply of the appeal could not be filed by the Ld. Counsel for the respondent Bank. However, the Ld. Counsel for the respondent Bank requested the matter may be decided on the basis of the written arguments already filed by him on behalf of the respondent Bank.

3. Ld. Counsel for the auction purchaser also submitted that he is ready to argue the case without filing reply.

4. Ld. Counsels for the parties are heard on the merits of the case.

5. Ld. Counsel for the appellant submitted that the property in question was sold by Shri Harish Kumar Dadlani, s/o Shri Bhagwan Das Dadlani to Shri Dinesh Kumar Awasthi in the year 1996 and in the year 1997, Shri Dinesh Kumar Awasthi, the legal heir of the mortgagor sold the said property to the father of the appellant namely Sri Narendra Pratap Bhalla and since then the appellant is residing in the property in question and accordingly, he is an aggrieved person.

6. Ld. Counsel for the appellant further submitted that by mortgage of the property, the transfer right does not go with the mortgagee i.e. Bank. In this regard, the Ld. Counsel for the appellant has drawn the attention of this Tribunal towards section 58 (f) of the Transfer of Property Act, 1882 which is reproduced herein below:- **"58[(f) Mortgage by deposit of title-deeds.--** Where a person in any of the following towns, namely, the towns of Calcutta, Madras ⁶[and Bombay], ⁷\*\*\* and in any other town which the ⁸[State Government concerned] may, by notification in the Official Gazette, specify in this behalf, delivers to a creditor or his agent documents of title to immovable property, with intent to create a security thereon, the transaction is called a mortgage by deposit of title-deeds."

7. It is submitted by the Ld. Counsel for the appellant that the observation of the Recovery Officer in the order dated 11.01.2024 that if the property is purchased during the mortgage then the same would be null and void. It is submitted that the property in question was purchased by the father of the appellant in the year 1997 while the Recovery Officer has passed the attachment order on 29.10.2002. Hence, deed existing in favour of the appellant is valid subject to the liability. It is further submitted that if the appellant had purchased the property after 29.10.2002 then no value of the sale deed could be accepted. In this regard, the Ld. Counsel for the appellant has placed reliance upon the Rule 43 to 46 of the Income Tax Rules, 1962 which are reproduced herein below:- **43. Forms and certificates for the purpose of sub-sections (1) and (1A) of section 230. –**

1. (1) An undertaking to be furnished to the prescribed authority by a person not domiciled in India from the persons referred to in clause (i) or clause (ii), as the case may be, shall be in Form No. 30A.

2. (2) A no-objection certificate to be issued by the prescribed authority under sub-section (1) of section 230 shall be in Form No. 30B and shall be valid for the period mentioned therein.

3. (3) The information to be furnished by a person domiciled in India shall be in Form No. 30C.

4. (4) An application under the first proviso to sub-section (1A) of section 230 may be made in Form No. 31.

5. (5) A tax clearance certificate issued under the first proviso to sub-section (1A) of section 230 shall be in Form No. 33 and shall be valid for the period mentioned therein.

6. (6) A copy of the undertaking referred to in sub-rule (1) and the no-objection certificate referred to in sub-rule (2) shall be forwarded to the Chief Commissioner or Director General, as the case may be, having jurisdiction over the persons referred to in clause (i) or clause (ii) of sub-section (1) of section 230.

**44. Production of certificate. -** Any person leaving India shall, at the request of any Customs Officer, produce to him for examination the tax clearance certificate or the exemption certificate, as the case may be.

**44A. Application for tax clearance certificate for registration of documents in certain cases. -** An application under sub-section (2) of section 230A for a certificate under sub-section (1) of that section shall be made in duplicate in Form No. 34A to the Assessing Officer.

**44B. Grant of tax clearance certificate or refusal. -** Within 60 days of the receipt of the application referred to in rule 44A, the Assessing Officer shall-

1. (i) if he is satisfied that the applicant has either paid or made satisfactory provision for payment of all existing liabilities under the enactments specified in clause (a) of sub-section (1) of section 230A or that the registration of the document referred to in the application will not prejudicially affect the recovery of any such liability, grant the certificate and forward the same to the registering officer concerned ; or

(ii) if he is not so satisfied, pass an order in writing refusing to grant the certificate, recording his reasons therefor.

**45. Form of appeal to Commissioner (Appeals).** - (1) An appeal to the Commissioner (Appeals) shall be made in Form No. 35.

(2) Form No. 35 shall be furnished in the following manner, namely:- (a) in the case of a person who is required to furnish return of income electronically under sub- rule (3) of rule 12,-

(i) by furnishing the form electronically under digital signature, if the return of income is furnished under digital signature;

(ii) by furnishing the form electronically through electronic verification code in a case not covered under sub-clause (i); (b) in a case where the assessee has the option to furnish the return of income in paper form, by furnishing the form electronically in accordance with clause (a) of sub-rule(2) or in paper form.

(3) The form of appeal referred to in sub-rule (1), shall be verified by the person who is authorised to verify the return of income under section 140 of the Act, as applicable to the assessee.

(4) Any document accompanying Form No. 35 shall be furnished in the manner in which the said form is furnished.

(5) The Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems), as the case may be, shall-

(i) specify the procedure for electronic filing of Form No.35 and documents;

(ii) specify the data structure, standards and manner of generation of electronic verification code, referred to in sub-rule(2), for the purpose of verification of the person furnishing the said form; and

(iii) be responsible for formulating and implementing appropriate security, archival and retrieval of policies in relation to the said form so furnished.

**46. Mode of service.** - (1) The intimation of any such order as is referred to in clause (c) of sub-section (2) of section 249 shall be served in the same manner as is laid down in section 282 for the service of a notice or requisition.

(2) Any other order, not being a notice or requisition, which is to be sent or communicated to, or served on, any person shall be sent, communicated or served either by post or as if it were a summons issued by a Court under the Code of Civil Procedure, 1908 (5 of 1908).

**46A. Production of additional evidence before the Deputy Commissioner (Appeals) and Commissioner (Appeals).** - (1) The appellant shall not be entitled to produce before the Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals), any evidence, whether oral or documentary, other than the evidence produced by him during the course of proceedings before the Assessing Officer, except in the following circumstances, namely :- (a) where the Assessing Officer has refused to admit evidence which ought to have been admitted ; or (b) where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the Assessing Officer ; or

Commissioner (Appeals) records in writing the reasons for its admission.

(3) The Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) shall not take into account any evidence produced under sub-rule (1) unless the Assessing Officer has been allowed a reasonable opportunity- (a) to examine the evidence or document or to cross-examine the witness produced by the appellant, or (b) to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant.

(4) Nothing contained in this rule shall affect the power of the Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) to direct the production of any document, or the examination of any witness, to enable him to dispose of the appeal, or for any other substantial cause including the enhancement of the assessment or penalty (whether on his own motion or on the request of the Assessing Officer) under clause (a) of sub-section (1) of section 251 or the imposition of penalty under section 271.

8. Ld. Counsel for the appellant further submitted that the Recovery Officer has issued the order on 29.10.2002 and the property has been purchased by the appellant in the year 1997, therefore, the appellant has right to get the property in his possession. Since the property has been purchased prior to the passing of attachment order by the Recovery Officer on 29.10.2002, therefore, the appellant is the owner of the property in question without paying charge by way of redemption. In this regard, the Ld. Counsel for the appellant has relied upon the paragraph Nos. 29, 30, 31, 32 and 33 of the judgment passed by the Hon'ble Allahabad High Court in Special Appeal No. 165 of 2002 in the matter of Kamal Kishore Dheer Vs. Debts Recovery Appellate Tribunal and others decided on 16.05.2022. The relevant paragraph Nos. 29, 30, 31, 32 and 33 of the said judgment are being reproduced herein below:- "29. The principle embodied in Section 48 of the TP Act is succinctly stated in Nagalinga Nadar v. K. Mehrunisa Begum, 1979 SCC OnLine Mad 146, where it was held:

"17. There is yet another objection raised by the learned counsel for the first respondent, according to whom, no question of bona fide purchase by the appellant without notice would arise at all, in view of S. 48 of the Transfer of Property Act. It is his contention that the question of bona fide purchase or other acquisition of title without notice are confined to cases, which have all been provided for under the Transfer of Property Act under Ss. 39, 41, 43, 53, 53-A and 100 and inasmuch as S. 48 is not one of them, the appellant cannot claim that he is a bona fide purchaser from the second respondent without notice. S. 48 of the Transfer of Property Act runs thus:

"Where a person purports to create by transfer at different times rights in or over the same immovable property and such rights cannot all exist or be exercised to their full extent together, each later created right shall; in the absence of a special contract or reservation binding the earlier transferees; be subject to the rights previously created:"

It is not in dispute that the mortgage had been earlier created by the second respondent in favour of the first respondent on 17th January, 1966 and the sale had later been effected by the 27 SPLA No. 165 of 2022 second respondent in favour of the appellant on 10th January,

1973. It is also seen that the first respondent's rights as mortgagee over the property and the rights of the appellant as a purchaser of the property free from encumbrance cannot coexist or be exercised to their full extent together and there is no special contract or binding reservation. It would therefore follow that the sale in favour of the appellant is subject to the mortgage in favour of the first respondent. In this connection, the learned counsel for the first respondent invited our attention to the decision in *Arunachala Asari v. Sivan Perumal Asari*, AIR 1970 Mad 226. Though the question that arose therein was with reference to the question of priority with reference to S. 48 of the Transfer of Property Act and Ss. 47 and 49 of the Indian Registration Act, Ramamurthy, J. dealt with the true scope of S. 48 of the Transfer of Property Act. At page 533, the learned Judge observed thus:

"S. 48 of the Transfer of Property Act is founded upon the equally important principle that no man can convey a better title than what he has. If a person had already effected a transfer, he cannot derogate from his grant and deal with the property free from the rights created under the earlier transaction. His prior title as absolute and free owner is curtailed or diminished by rights already created under the earlier transaction. S. 48 of the Transfer of Property Act is absolute in its terms and does not contain any protection or reservation in favour of a subsequent transferee who has no knowledge of the prior transfer. Knowledge or no knowledge, a subsequent transferee cannot claim any priority as against an earlier transferee. Whenever the Legislature desires to protect the rights of a transferee in good faith for consideration, specific provision to that effect 28 SPLA No. 165 of 2022 is made—Vide for instance, S. 27 of the Specific Relief Act, 1877 and Ss. 38 to 41 of the Transfer of Property Act, In all other cases, the well settled rule that a man cannot derogate from his grant will have to be applied."

(emphasis by Court)

30. Thus, the view of the learned Single Judge that Section 48 of the TP Act would lead to the result that no right can be created in favour of the petitioner-appellant does not accord with the law. The prior transfer that is a mortgage in favour of the bank can certainly coexist with a transfer of mortgagor's estate or interest in favour of the petitioner-appellant by the judgment-debtor. It is just that the petitioner-appellant will hold it subject to the mortgagee's interest to secure repayment of his debt. That has been ensured in the present case by the petitioner-appellant under orders of the Tribunal since set at naught by the Appellate Tribunal and the learned Single Judge. The Tribunal, in our view, was right in saying that it is always open to the mortgagor or a purchaser of the charged property, to redeem the property by paying off the creditor. The Tribunal has rightly remarked that the right of redemption of mortgage is a statutory right, which can only be extinguished in one of the ways mentioned in paragraph 2 of Section 60 of the TP Act.

31. There is another reason why the learned Single Judge would have thought that Section 48 of the TP Act would hinder creation of any right in favour of the petitioner-appellant. This is because he 29 SPLA No. 165 of 2022 considered the transfer to the petitioner-appellant during the subsistence of the bank's mortgage a second charge without discharging the first charge. What was transferred to the petitioner-appellant was not at all any kind of a mortgagee's interest or created a further charge on the property already mortgaged with the Bank. It was, in fact, transfer of the larger estate of the mortgagor, which cannot be called a charge on the property. Therefore also, in our opinion, the view taken by the learned Single Judge and the Appellate Tribunal does not commend to us. In the opinion of this Court, the law entitles the petitioner-appellant to exercise his right that he has purchased from the judgment-debtor, that is the right to redeem the mortgaged property to the same extent and the manner in which the judgment-debtor could have done.

32. However, while setting aside the auction sale, the interest of the auction purchaser also have to be protected, keeping in view the spirit of Rule 60 of the Rules framed under the Second Schedule of the 1961 Act, and also, in order to adjust equities. This the Court proposes to do by awarding an appropriate rate and term of interest to the auction purchaser payable by the petitioner-appellant.

33. In the result, this appeal succeeds and is allowed. The impugned order passed by the learned Single Judge is set aside. The writ petition stands allowed. The order dated 19.09.2013 passed by the Appellate Tribunal is hereby quashed and the order dated 30 SPLA No. 165 of 2022 08.03.2013 passed by the Tribunal setting aside the auction sale dated 13.10.2009 is restored with the modification that the auction purchaser-respondent no.4 shall be entitled to refund of the purchase price deposited by him with the Recovery Officer from the petitioner appellant together with compound interest at the rate of 7.5% per annum from the date it was deposited by the auction purchaser with the Recovery Officer till deposit in these terms is made by the petitioner-appellant with the Recovery Officer."

9. Ld. Counsel for the appellant further submitted that this order has been passed by the Hon'ble High Court in connected lot of the property and order was given by the Hon'ble High Court to redeem the property. It is further submitted that the appellant is ready to redeem the property and also ready to pay the interest on the discretion of this Tribunal. It is further submitted that when the Advocate Commissioner was appointed for taking physical possession of the property in question, it was duty of the Recovery Officer to as to who is in possession of the property in question. Further, submitted that the objection submitted by the appellant before the Recovery Officer has not been considered properly. Accordingly, the order dated 11.01.2024 passed by the Recovery Officer may be set aside and the appeal may be allowed to redeem the property in question.

10. On the contrary, the Ld. Counsel for the respondent Bank submitted that there is no dispute that the property in question has been mortgaged with the respondent Bank in the year 1982 and onwards and once the property has been mortgaged with the Bank, the mortgagor/borrower cannot transfer, alienate or otherwise dispose off the property during the pendency of mortgage because once the mortgage has been created, the property in question shall automatically be treated to be attached with the Bank and the Bank has full power over the property. It is submitted that Harish Kumar Dadlani, legal heir of the deceased borrower Bhagwan Das Dadlani inherited the property from the mortgagor who sold the same to Dinesh Kumar Awasthi and Dinesh Kumar Awasthi subsequently sold the same to the father of the appellant. It is submitted that if the property has been sold during the mortgage and without permission of the Bank such sale would be null and void. It is further submitted that in the year 2002, the proclamation of attachment and sale of the secured asset had been fixed and the same should have been in the knowledge of the appellant if he was in possession of the property in question and the same property has been further attached and sale proclamation has been issued in the year 2009 but the appellant did not approach this Tribunal or Recovery Officer. It is further submitted that the judgment of the Hon'ble High Court on which the reliance has been placed by the appellant has been challenged before the Hon'ble Supreme Court of India by way of SLP. It is further submitted that the sale deed filed with the Bank while creating the mortgage has never been canceled by any competent authority, therefore, without cancellation of the earlier sale deed, the new sale deed cannot be executed. It is further submitted that the Recovery Officer has already executed sale deed in favour of the auction purchaser in the year 2013 and it is still in existence and the respondent Bank has handed over the original sale deed to the auction purchaser namely Ramu Jaiswal. Since the sale has attained finality, therefore, the appellant has no locus to challenge the order of the Recovery Officer at this stage as the appellant is neither borrower nor guarantor. Request is made that the appeal may be dismissed.

12. Ld. Counsel for the auction purchaser has adopted the arguments advanced on behalf of the respondent Bank and submitted that the auction purchaser is a bonafide purchaser who has purchased the property from the auction sale conducted by the Recovery Officer and the auction purchaser has timely deposited the entire sale price and sale deed has also been executed in their favour and requested that the appeal filed by the appellant-third party may be dismissed as he is subsequent purchaser of the mortgaged property.

11. In rebuttal, Ld. Counsel for the appellant submitted that in SLP, there is no stay against the order of the Hon'ble High Court and the appellant is ready to deposit proportionate amount against the property in question.

10. Considered the rival submissions advanced on behalf of the Ld. Counsels for the parties and perused the records.

11. On perusal of records, it appears that M/s Durga Mata Brick Field through its proprietor Bhagwan Das Dadlani had obtained loan from the respondent-Central Bank of India in the year 1986 and to secure the said loan, mortgagor Bhagwan Das Dadlani had created equitable mortgage by deposit of title deeds of the property in question on 12.09.1986 and the said equitable mortgage was extended by mortgagor on 14.10.1989. Since the borrower-Bhagwan Das Dadlani and his firm failed to repay the loan, therefore, the respondent Bank filed Original Suit before the Civil Judge, Kanpur which was transferred to DRT, Jabalpur and on establishment of DRT, Allahabad the said Original Suit was transferred to DRT, Allahabad which was registered as TA No. 580/2000. The said TA No. 580 of 2000 was decided by this Tribunal on merits and ex-parte against the borrowers/guarantors and recovery certificate being DRC No. 215 of 2002 was issued and was sent to the Recovery Officer for its execution.

12. Further, from perusal of records, it appears that the Recovery Officer had attached the property on 29.10.2002 against which none had raised any objection. Thereafter, the Recovery Officer has issued the proclamation of sale for selling the entire mortgaged property including the property in question. The auction purchaser Shri Ramu Jaiswal purchased the property in question in the auction sale held on 13.10.2009. The said sale was confirmed on 10.10.2013 and sale certificate was issued on the same day which was registered on 06.12.2013. Against the Proclamation of Sale before the Recovery Officer, the appellant did not raise any objection accordingly, it has attained the finality.

13. On perusal of records, it appears that against the attachment order dated 18.10.2023 passed by the Recovery Officer in DRC No. 215 of 2002, the present appellant has filed objection on 29.11.2023, which was rejected by the Recovery Officer vide order dated 11.01.2024 holding that it is established legal position that neither mortgagor nor his legal heir(s) or any person claiming to derive any interest over the mortgage property can transfer any interest in the mortgaged property during subsistence of the mortgage and the sale of the subject properties by Shri Harish Kumar Dadlani (legal heir of the mortgagor) does not have any legal validity and is null and void ab initio because Harish Kumar Dadlani (legal heir of the mortgagor) was not capable of transferring/ selling/conveying any interest in the mortgaged property, any subsequent sale of the subject property also does not have any legal validity and is null and void. Against the order dated 11.01.2024, passed by the Recovery Officer, the present appeal has been filed by the appellant.

15. With regard to present controversy, this is to be seen that there is no dispute that the property in question has been mortgaged with the respondent Bank in the year 1982 and onwards and once the property has been mortgaged with the Bank, the mortgagor/ borrower cannot transfer, alienate or otherwise dispose off the property during the pendency of mortgage because once the mortgage has been created, the property in question shall automatically be treated to be attached with the Bank and the Bank has full power over the property.

16. On perusal of records, it appears that after death of borrower/mortgagor Bhagwan Das Dadlani his son Harish Kumar Dadlani, legal heir of the deceased borrower/mortgagor inherited the property who sold the same to Dinesh Kumar Awasthi and Dinesh Kumar Awasthi subsequently sold the same to the father of the appellant during the mortgage and without permission of the Bank which is not as per law.

17. In this regard, this is also to be seen that in the year 2002, the proclamation of attachment and sale of the secured asset had been fixed which should have been in the knowledge of the appellant if he was in 9DRT, ALLAHABADAppeal 01 of 2024 |J|

possession of the property in question. Further, the said property has been attached and sale proclamation has been issued in the year 2009 but the appellant did not approach this Tribunal or Recovery Officer. Moreover, the judgment of the Hon'ble High Court on which the reliance has been placed by the appellant has been challenged before the Hon'ble Supreme Court of India by way of SLP. Furthermore, the sale deed filed with the Bank while creating the mortgage has never been cancelled by any competent authority. Therefore, without cancellation of the earlier sale deed, the new sale deed could not have been executed. The Recovery Officer has already executed sale deed in favour of the auction purchaser in the year 2013 and the said sale deed is still in existence and the respondent Bank has handed over the original sale deed to the auction purchaser namely Ramu Jaiswal. Since the sale has attained finality, therefore, the appellant has no locus to challenge the order of the Recovery Officer at this stage.

18. I respectfully bow down the order/judgment relied upon by the appellant but as the facts and circumstances of that case was different therefore, in the present matter, the same is not applicable.

19. In view of above, since the property in question was mortgaged with the respondent Bank prior to sale by the legal heir of the deceased mortgagor borrower, therefore, the prior charge is with the respondent Bank and during the mortgage whatever actions have been taken by the legal heir(s) or any other authority is not legal in the eye of law as provided in section 31 (B) of the RDB Act, 1993 that the priority of the secured credit shall be first. Since the appellant has purchased the property from Harish Kumar Dadlani, the legal heir of deceased borrower/mortgagor namely Bhagwandas during the mortgage without any permission of the respondent Bank. Therefore, the sale is illegal in the eye of law. Section 31 B of the Recovery of Debts and Bankruptcy Act, 1993 provides as under:- *"Notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to realize secured debts due and payable to them by sale of assets over which security interest is created, shall have priority and shall be paid in priority over all other debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or local authority."*

20. In view of above, since the property in question was already mortgaged with the respondent Bank prior to sale by the legal heir of the deceased borrower/guarantor without any permission from the Bank, therefore, the prior charge is with the respondent Bank and during the mortgage whatever actions have been taken by the borrower/guarantor/mortgagor or by their legal heirs or any other authority is illegal in the eye of law accordingly, the appeal filed by the appellant is liable to be dismissed.

10DRT, ALLAHABADAppeal 01 of 2024 [J]**Order**

The appeal filed by the appellant is dismissed with no orders as to costs.

It is made clear that order passed in this appeal shall not prejudice to any order of Hon'ble Higher Court in any manner.

Pending IAs/orders, if any, stands disposed off/vacated.

Copy of this order be supplied to the parties as per Rules.

Judgment signed, sealed, dated and pronounced in the open court on this 20^th Day of February, 2024.

Dictated & Corrected by me.

[R. M. Kushawaha]

Presiding Officer

Debts Recovery Tribunal, Allahabad

[R. M. Kushawaha]

Presiding Officer

Debts Recovery Tribunal, Allahabad

VK