M/s. S.R.M. Steels P. Ltd. vs Arcil on 15 January 2026

**JUDGMENT**

1. 1. This Appeal is preferred by the Appellants against the order dated 06/03/2009 passed by Ld. Recovery Officer-I, DRT-II, Ahmedabad ("Ld. RO" for short) in Recovery Proceedings No.2055 in Original Application No.123/2001.

2. 2. The brief facts of the present Appeal, as averred by the Appellant, are that Appellant No.1 is a Private Limited company and Appellant No.2 is a Director of the said Company. Appellant No.1 Company acquired and became owner of Plot No.454-68-P, Survey No.68-P, Ruvapari Road, Vadva, Bhavnagar (hereinafter referred to "as the property in question") and the said property was converted from residential property to industrial property and plant and machinery were installed therein. In the year 1996, Appellant No.2, as a Director of Appellant No.1 Company, had personally delivered the original documents of title of the property in question to one Shri Ajay Vadilal Mehta, who is an Advocate practicing at Bhavnagar, with clear instructions to take necessary and appropriate action before State Government Revenue Authorities for reconversion of the land in question into residential land. Shri Ajay V. Mehta is C.D. No.10 in Recovery Proceedings No.2055 of OA No.123/2001. The Appellant herein were betrayed by said Ajay V, Mehta who, taking undue advantage of his physical possession of the original documents of title to the property in question, deposited the said original documents with SBI Bhavnagar as a security for the loans advanced by SBI to Meera Ship Breaking Company Private Ltd. the loans and advances made by SBI to the said Meera Ship Breaking Company Pvt Ltd. It is significant to note that with a view to securing its interests against their dues of old dues of Rs.3.52 crores and the new facilities of Rs.2.12 crores, the SBI, Bhavnagar, had also created a so-called memorandum of entry purported to have been executed on 17/7/2000 between the SBI, Bhavnagar and the said Shri Ajay Vadilal Mehta. It is noteworthy that the said memorandum of entry does not bear the signature of the said Shri Ajay Vadilal Mehta. In other words, the aforesaid facts will go to show beyond any doubt that all the three parties viz. (i) Meera Ship Breaking Company Pvt Ltd., acting through its authorized signatory Shri Ajay Vadilal Mehta, (ii) Shri Ajay Vadilal Mehta and (iii) the SBI, Bhavnagar, had played a fraud on the Appellant no.1 company herein by creating an equitable mortgage in respect of the PLOT NO.45-68-P, Survey No.68-P, Ruvapari Road, Vadva, Bhavnagar, by unauthorisedly depositing the original document of title to the said property with the SBI, without any authority or resolution whatsoever from the Appellant no.1 herein.

1. 3. In consequence of the said Meera Ship Breaking Company Pvt Ltd., not meeting its repayment obligations to the SBI, Bhavnagar to the tune of Rs.5,01,67,955.80 as on 01/01/2001 inspite of the bank's legal notice dated 19/02/2001, the SBI, Bhavnagar, had filed an application being OA No.123 of 2001 on 12/03/2001 before the Learned Debts Recovery Tribunal, Ahmedabad, under Section 19 of the RDDBF, 1993 against the aforesaid Meera Ship Breaking Company Pvt Ltd., and 13 others including the aforesaid Shri Ahay Vadilal Mehta, being Respondent No.10, as a guarantor, praying inter alia for the recovery of Rs.5,35,75,233.80. In the said OA, it has been specifically pleaded by the SBI, Bhavnagar, that the bank has a first and exclusive mortgage on the properties including the PLOT NO.45-68-P, Survey No.68-P, Ruvapari Road, Vadva, Bhavnagar in respect of which the Memorandum of Entry had been drawn up by the bank on 17/07/2000. As a matter of fact, the Appellants herein were not the parties to the said OA and therefore they were not at all aware of the aforesaid proceedings till recently on 28/09/2008. Even the aforesaid Shri Ajay Vadilal Mehta had deliberately and wantonly kept the aforesaid said fact from the personal knowledge of the Appellants no.1 and 2 herein.

1. 4. In the aforesaid OA proceedings, the Hon'ble Presiding Officer, DRT, Ahmedabad, was, by an order dated 27/02/2004, pleased to allow the said OA Nos. 123 of 2001 declaring inter alia that the SBI, Bhavnagar is entitled to recover from the respondents jointly or severally a sum of Rs.5,35,75,233.80 together with costs and further interest @ 12% p.a. and that the respondents shall settle the claim of the SBI within one month failing which the Bank might proceed to sell inter alia the mortgaged properties of the respondents and adjust the sale proceeds towards the amount due. This apart, the issuance of Recovery Certificate was also directed. The Appellants herein were not aware of the aforesaid development also till recently on 28/09/2008.

2. 5. In pursuance of the aforesaid order dt. 27/02/2004 in OA No.123 of 2001, a Recovery Certificate under Section 19(22) of the RDBFI 1993 came to be issued in favour of the SBI, Bhavnagar. It further appears that after the initiation of the present Recovery Proceedings being RP No.2055 in OA No.123 of 2001 before your Honour, the Certificate Holder viz. SBI Bhavnagar had transferred the above account to the Asset Reconstruction Company of India Ltd., (ARCIL) for Rs.91 lakhs and they have already received the full amount.

Thus, pending the issuance of Demand Notices to the Certificate Debtors, the ARCIL appears to have made a CMA No.3 of 2005 before the Learned Presiding Officer and consequently a new Recovery Certificate dated 26/07/2005 came to be issued by the Learned Presiding Officer, substituting therein the name of ARCIL in place of SBI, Bhavnagar. In the said Recovery Certificate dated 26/07/2005 it has been inter alia ordered that in default of such payment by the defendants, the amount due shall be recoverable inter alia by sale of mortgaged immovable properties as described in the said new Recovery Certificate. It further appears that demand notices were subsequently issued to all the CDs.

6. After a long lapse of time, in pursuance of an application filed by the Certificate Holder viz. ARCIL, the Learned Recovery Officer by order dated 6.1.2006 was pleased to direct the issuance of order of attachment in Form No.ITCP 16 for immovable properties. It appears that the said order of attachment was served on all the CDs including the CD No.10 viz. Shri Ajay Vadilal Mehta, in respect of the immovable property being PLOT NO.45-68-P, Survey No.68-P, Ruvapari Road, Vadva, Bhavnagar, belonging to the Appellant No.1 Company. It further appears that on 12/12/2007 all the CDs including the said Shri Ajay Vadilal Mehta were directed that they shall not part with the possession of the concerned properties in any manner without specific permission of this Tribunal. Yet, the said Shri Ajay Vadilal Mehta did not bother to inform the Appellants herein. In the meanwhile, your Honour vide order dt.4.9.2008 was pleased to allow an application of the CH bank filed for settling the terms of sale proclamation and directed the issuance of the notice in this behalf in respect of immovable property as described in the recovery certificate and adjourned the matter to 01/10/2008. It further appears that the aforesaid Notice dt.04/09/2008 issued in Form No.ITCP 17 was served on all the CDs including the aforesaid Shri Ajay Vadilal Mehta. Even after this, the said Shri Ajay Mehta does not bother to keep the Appellants herein informed of the aforesaid development.

1. 7. Incidentally when the Appellant no.2 herein had to visit Bhavnagar on 28/09/2008 in connection with certain social obligations, he came to be informed by his well-wishers about the dubious role being played by the said Shri Ajay Mehta in the matter of the aforesaid immoveable property and that the sale of the said property by DRT, Ahmedabad, is scheduled for 01/10/2008. Immediately on hearing this, the Appellant no.2 has tried his level best to contact both telephonically and personally the said Shri Ajay Vadilal Mehta to ascertain as to what has been happening in all these years with regard to the PLOT NO.45-68-P, Survey No.68-P, Ruvapari Road, Vadva, Bhavnagar; but the said Shri Ajay Vadilal Mehta evaded to even answer the telephonic calls. In these circumstances, the Appellant herein has deputed his representative to rushed to DRT, Ahmedabad the very next day on Monday the 29.9.2008 who thereafter applied for certified copies of the relevant documents pertaining to this case including all the orders passed by the Learned Presenting Officer in OA and your Honour in RP No.2055. only on the close and minute perusal of the certified copies of the various documents from the Registry of this Hon'ble Tribunal on 29/09/2008 that the Appellant no.2 herein came to know for the first time about all the aforesaid events more particularly the fraud played on the Appellants herein by the said Shri Ajay Vadilal Mehta in collusion with the SBI, Bhavnagar and also the said Meera Ship Breaking Company Pvt Ltd., and the unauthorized deposit of title deeds with the SBI Bhavnagar, with respect to PLOT NO.45-68-P, Survey No.68-P, Ruvapari Road, Vadva, Bhavnagar, which belongs solely to the Appellant no.1 herein. Immediately on the very day, the Appellant no.2 herein has sought legal advice as to the future course of action to be taken in the matter. It was advised that it is extremely expedient and necessary at this crucial stage and in order to avoid any further damage to the immovable property in question, the Appellants herein should first approach the Learned Recovery Officer, DRT-II, Ahmedabad, with an application under Rules 11 and 87 of the Second Schedule of the Income Tax Act, 1961, inasmuch as the settlement of sale terms is due to take place on 01/10/2008 in R.P. No.2055 and obtain stay of further proceedings.

1. 8. Accordingly, immediately thereafter, the Appellants herein have submitted an application before the Learned Recovery Officer. DRT-II, Ahmedabad, under Rules 11 and 87 of the Second Schedule of the Income Tax Act, 1961, praying for (i) ordering of an investigation into the objections raised in the said application and hold to be valid and genuine the said objections made on the ground that the immovable property being PLOT NO.45-68-P, Survey No.68-P, Ruvapari Road, Vadva, Bhavnagar, belonging to the Appellant no.1 herein, is not liable to any attachment or sale in pursuance of the Recovery Certificate dated 26/07/2005 issued by the learned Presiding Officer in R.P.No.2005 in OA No.123 of 2001, (ii) pass appropriate order/s under Rule 11(4) of Second Schedule to the Income Tax Act, 1961, releasing from attachment and the proposed sale the immovable property being PLOT NO.45-68-P, Survey No.68-P, Ruvapari Road, Vadva, Bhavnagar and (iii) review and recall the interim order dt.06/01/2006 passed in R.P.No.2055 in so far it seeks to attach the immovable property being PLOT

NO.45-68-P, Survey No.68-P. Ruvapari Road, Vadva, Bhavnagar, the consequent Notice issued in Form No.ITCP.16, interim order dt.04/09/2008 passed in R.P.No.2055 in so far it seeks to attach the immoveable property being PLOT NO.45-68-P, Survey No.68-P, Ruvapari Road, Vadva, Bhavnagar and (iv) consequent Notice dt.04/9/2008 issued in Form No.ITCP 17.

1. 9. Immediately after the filing of the aforesaid third-party objection application, the appellants herein have also filed an application being CMA No.17 of 2008 in RP No.2055 before this Hon'ble Tribunal and in the said CMA proceedings, the notice has been issued and now the matter is kept for final hearing on 09/04/2009.

2. 10. In the aforesaid third-party objection proceedings, the Respondent No.2 herein has filed its reply and in response to which the appellants have also filed their detailed rejoinder. The aforesaid third-party objection application came to be taken up for final hearing on 19.2.2009 and after hearing the learned advocates for the parties (including the learned advocate for the appellants herein) the Learned Recovery Officer was pleased to reserve for orders on the said third party objection applicant to be pronounced on or about 06/03/2009, on which date the objection of Appellant was rejected and sale proclamation notice was issued by the impugned order, against which this application has been preferred by the Appellant.

3. 11. Respondent No.1-ARCIL has filed its reply vide Ex.R/6 to the present Appeal and has denied the statements and averments made by the Appellant. It has further contended that the property in question is duly mortgaged in favour of SBI and the said mortgage has already been upheld by this Tribunal vide judgment dated 27/02/2004 in

O.A.No.123/2001 and accordingly, Respondent No.1 is entitled to proceed further qua the said property. If at all the Appellants have any grievances, they have to challenge the judgment passed by this Tribunal on 27/02/2004 in O.A.No.123/2001 before Hon'ble DRAT, Mumbai, but under no circumstances they can be permitted to agitate their grievances before Ld.RO. Ld. RO cannot go beyond the Recovery Certificate and as to execute the Recovery Certificate as it is. Therefore, no illegality can be said to have been committed by Ld. RO. This Tribunal has already upheld the mortgage of the property in question and the Appellants are now barred from raising any challenge to such mortgage. The Appellants have created a false and concocted story with ulterior motive and mala fide to delay recovery of certified dues. The Appellants are in collusion with Certificate Debtors with Recovery Proceedings No.2055 and have filed the present Appeal to achieve their willful design. The Appellants have not come before this Tribunal with clean hands and hence, they are not entitled to grant any relief. As such, the present Appeal deserves to be dismissed.

1. 12. I have heard Ld. Counsels for both the parties and perused the documents placed on record. Ld. Counsel for the Appellants have filed their Written Submissions vide Ex.A/20, whereas Ld. Counsel for the Respondent No.1- ARCIL filed his Written Submissions vide Ex.R/19. Both the parties have relied on certain judgment in support of their respective case will shall be referred at an appropriate stage in the judgment. Firstly, it is required to be noted that the Appellants have not joined C.D.No.10- Shree Ajay Vadilal Mehta in the present Appeal. Though the Appellants have alleged that said Shree Ajay Vadilal Mehta have committed breach of trust with the Appellants and he has fraudulently deposited original title deeds of properties in dispute with SBI, the Appellants have not produced anything on record to show that they have taken any action against the C.D.No.10 Shree Ajay Vadilal Mehta for alleged breach of trust or fraud. This itself is sufficient to prove the Appellants and C.D.No.10 are in collusion with each other to frustrate recovery of certified dues. It further becomes clear that the property in question was validly mortgage in favour of State Bank of India on 17/07/2000 by deposit of original title deeds and such original title deeds of the property in question are in power, possession and custody of Respondent No.1, thus, all the requirements of Section 58(f) of Transfer of Property Act have been complied with. At this stage it would also be pertinent to refer to a Resolution dated 03.06.1999 passed by Appellant No.1 Company, which is filed by Respondent No.1 along with Purshis Ex.R/7. The said Resolution is reproduced herein below:

**"SRM Steel Pvt Ltd**

*New Bunder Road, Bhavnagar-364005*

*MFRS, OF M.S. & S.S. INGOTS*

*FAX-91-278-420959*

*PHONE-91-278-411565*

*3rd June, 1999*

*CERTIFIED TRUE COPY OF EXTRACT OF THE RESOLUTION PASSED IN THE MEETING OF THE BOARD OF DIRECTOR OF THE COMPANY HELD ON 02/04/1999 AT THE REGISTERED OFFICE OF THE COMPANY AT 3.30 P.M. WHERE IS Meera Ship Breaking Company Pvt.Ltd. requested State Bank of India Diwanpara Road Branch, Bhavnagar to grant credit facility for their business activity and offered the land of Plot No. 48 to 68p. of R.G.No. 60p, situated at Nr. Excel Industries, Bhavnagar belonging to our Company.*

*AND WHERE AS the said Bank has agreed to consider the request of Meera Shipbreaking Company Pvt.Ltd., it is*

requested to deposit title Deeds of the said property in the said Bank and to stand as Guarantor.

AND WHERE AS considering our relation with the said Borrower Company who has offered to pay Guarantee Fee Rs. 25,000=00 per year to our Company as consideration for furnishing Guarantee and creating charge By way of equitable over companies above referred property by way of Equitable mortgage.

IT IS THEREFORE HEREBY RESOLVED that the company will furnish the Guarantee to State Bank of India, Diwanpara Branch, Bhavnagar for the Purpose of advances of granted/to be granted and deposit the title Deeds, of the companies immovable property mentioned as above, by way of equitable mortgage to secure the said advances, and any one Director of the company is hereby authorised to execute, guarantee Deed and other required documents as also to deposit title deed by way of equitable mortgage with the said Bank for the purpose of advances Granted/ to be granted to Meera Shipbreaking Company Pvt.Ltd. And Commonseal of the companybe affixed in presence of any one other Director/officer of the company.

For SRM Steel Pvt.Ltd.

Sd/-

Director"

1. 13. From the above Resolution passed in the meeting of Board of Directors of Appellant No.1 Company it becomes clear that there was an intention of Appellant No.1 Company to stand as guarantor for the credit facility granted by State Bank of India to Meera Ship Breaking Company Private Limited and to deposit the title deeds of the Company's immovable property in question, with an intention to create equitable mortgage in favour of the State Bank of India, Bhavnagar.

14. In light of the aforesaid facts and documentary evidence on record in the case on hand, it would be proper to refer to the judgment of the Hon'ble Apex Court in the case of **K.J. Nathan V/s. S.V. Maruty Reddy and Others, AIR 1965 SC 430** wherein it has been held as under:

*"Under the Transfer of the Property Act, a mortgage by deposit of title deeds is one of the forms of mortgages whereunder there is a transfer of interest in specific immovable property for the purpose of securing payment of money advanced or to be advanced by way of loan. Therefore, such a mortgage of property takes effect against a mortgage deed subsequently executed and registered in respect of the same property under Section 58(f) of the Transfer of Property Act. The three requisites of a mortgage by deposit of title deeds are, (i) debt, (ii) deposit of title deeds, and (iii) an intention that the deeds shall be security for the debt. Whether there is an intention that the deeds shall be security for the debt is a question of fact in each case."*

15. In light of the aforesaid legal position and in view of the provisions of Section 58(f) of the Transfer of Property Act, the contention raised by Ld. Counsel for the Applicants that no valid mortgage exists in favour of Respondent FI is not tenable.

16. It is further required to be noted that Ld. RO had passed an order for attachment of mortgaged properties on 06/01/2006 and the same was duly executed and no objections were filed by the Appellants. The Appellants have filed their objections at belated stage i.e., in October, 2008, which clearly shows that the intention of the Appellants is to frustrate recovery of certified dues. On perusal of the impugned order dated 06/03/2009 passed by Ld. RO has considered all the objections filed by TPO vide Ex.T/29 and Ex.D/30 in Recovery Proceedings No.2055 in O.A.No.123/2001. Ld. RO has rightly observed in the impugned order that the question of mortgage cannot be decided by him since, he is required only to execute the Recovery Certificate issued by this Tribunal.

1. 17. Accordingly, this Tribunal does not find any illegality, irregularity or manifest error in the findings of Ld. Recovery Officer that submission of the Appellant with regard to ownership of the subject property in this case, was a subject where the Ld. RO had not right to give any findings. Ld. RO was supposed to execute the Recovery Certificate and as an executing entity he was not authorized to go beyond the Recovery Certificate and the judgment passed in concerned OA.

2. 18. Therefore, this Tribunal finds that the Appellant has failed to prove his case in the present Appeal and the Appeal deserves to be dismissed without any order as to cost.

**Order**

This Appeal is hereby dismissed without any order as to cost. Let a copy of this order along with file of concerned RP. be sent back to Ld. RO for finalizing the proceedings in accordance with law.

Let the file be consigned to record.

Pronounced in open Tribunal on this 15^th day of January 2026 at Ahmedabad.

**(Pankaj Kumar Upadhyay)** **Presiding Officer** **DRT-II, Ahmedabad**

Saloni