HOTEL MIDTOWN vs PUNJAB NATIONAL BANK on 18 February 2023

1. 1. **Punjab National Bank,** Regd. & Head Office at:- Plot No.4, Sector 10, Dwarka, New Delhi - 110607. Branch Office at: Circle Sastra, Ground Floor, Vadodara Stock Exchange Building, Sayajigunj, Vadodara – 390020.

2. 2. **Mr. Abdulrehman Abdulkarim Safri,** **Proprietor of M/s. A. R. Enterprises,** Office at – C 207, Time Square Building, Nr. Petrol Pump, Fatehgunj, Vadodara – Gujarat. And also at: 901, Pavanveer Flats, Opp. Vikram Baugh Post Office, Pratapganj, Vadodara, Gujarat. Sakar-I, 11^th Floor, Near Gandhidham Railway Station, Ashram Road, Ahmedabad.

**...Respondents****Appearance:**

Ld. Senior Counsel Mr. S. N. Soparkar assisted by Mr. N. R. Parikh, Ld. Counsel for the Appellant Mr. V. N. Sevak, Ld. Counsel for the Respondent - Bank. None present for Respondent No.2.

2Appeal No.01/2023**JUDGMENT**

1. 1. The present appeal is directed against the order dated 22/12/2022 passed by Ld. Recovery Officer, DRT-II, Ahmedabad ("Ld. RO" for short) on objections filed by the present Appellant vide IA No.277/2022 for attachment of the property in question and consequential attachment warrant issued by Ld. RO.

2. 2. The case of the Appellant, as pleaded, may be summarized thus:-

1. 2.1 The Appellant is a third party bona fide purchaser of the immovable property bearing City Survey No.30 of Sadhnanagar Co-Operative Society, B-2, Fatehgunj, admeasuring plot of 2000 sq. feet and having a constructed area of 3000 sq. feet which consists of ground and four floors (hereinafter referred to as "the property in question" for short). The Appellant is a partnership firm running a hotel at the given address under the name and style of "Hotel Midtown" in Vadodara.

2. 2.2 The Appellant intended to purchase the property in question and hence he approached Respondent No.2 and obtained information with respect to the ownership, title and possession of the property. At that time, Respondent No.2 did not disclose the fact regarding existence of mortgage over the said property in favour of the Respondent-Bank. In order to verify the title of the property, the Appellant approached advocate to obtain Title Clearance Certificate. Thereupon, advocate of the Appellant published notice on 26/04/2015 in two local newspapers before issuance of Title Clearance Certificate. The said advocate also caused search with respect to the subject property from the O/o. Sub-Registrar, Vadodara for a period of 30 years. In the search, it was revealed that two registered mortgage deeds dated 17/02/2014 and 20/06/2014 were executed by Respondent No.2 qua the said property. The Appellant therefore obtained mortgage documents from Respondent No.1. From the registered memorandum of deposit of title deeds dated 17/02/2014, the Appellant came to know that Respondent No.2 had availed a term loan of Rs.2 Crores from the Respondent-Bank by depositing title deeds of the subject property for equitable mortgage. The Appellant further came to know from the memorandum of extension of equitable mortgage dated 20/06/2014 that the Respondent-Bank had granted additional facilities of term loan of Rs.1.20 Crores to Respondent No.2, out of which an amount of Rs.42 Lacs was disbursed and covered by the securities. Thus, the said two mortgage documents reveal that an aggregate term of Rs.2.42 Crores was availed by Respondent No.2 from Respondent No.1-Bank by equitable mortgage.

2.3 The Appellant deposited in all Rs.1,65,00,000/- with the Respondent-Bank in Term Loan Account No.3405002100020771 being the outstanding in the said account of Respondent No.2. The Appellant paid remaining amount of sale consideration to Respondent No.2 as per details given in the memo of appeal. Respondent No.2 executed registered Sale Deed in favour of the present Appellant for the said property on 09/10/2015. As such, the Appellant acquired ownership, title and possession of the said property and commenced its hotel business in the said property.

2.4 Thereafter, the Appellant demanded the original title deeds of mortgage deposited by Respondent No.2 with the Respondent-Bank. However, the same were not returned by the Respondent-Bank to the Appellant. Therefore, the Appellant issued a legal notice to the Respondent-Bank through its advocate on 12/03/2020.

2.5 The Respondent-Bank filed OA 111/2021 before this Tribunal against Respondent No.2 for recovery of Rs.1,93,55,476.12 in respect of three loans availed by Respondent No.2 in the year 2016 for purchasing three cars. Though the account of Respondent No.2 was declared as NPA long back, the Respondent-Bank initiated the present proceedings only after the legal notice was served by the Appellant to the Bank for release of title deeds of the subject property.

2.6 The Respondent-Bank issued notice dated 08/04/2019 u/s 13(2) of the SARFAESI Act to Respondent No.2 for recovery of an amount of Rs.48,52,412.02. The said notice was not served to the present Appellant.

2.7 On enquiry with the Respondent-Bank, the Appellant was informed that Respondent No.2 has deposited a substantial amount against the aforesaid outstanding of Rs.48,52,412.02. As per the statement issued by the Respondent-Bank, there is an outstanding of Rs.7,31,241/- in the Cash Credit Account No.3405001C00140872.

2.8 The Appellant has offered that Respondent No.2, in collusion with the Respondent-Bank, played a serious fraud upon the Appellant and thereby the Appellant was not provided with the original title documents though the Appellant had paid the outstanding amount of Rs.1,65,00,000/- in Term Loan Account No.3405002100020771 for which "No Overdue Certificate" was issued in the year 2015.

2.9 Since the Bank did not release the title deeds despite OTS being agreed between Bank and Respondent No.2, the Appellant herein preferred SCA No.5707/2021 on 15/03/2021 before the Hon'ble High Court of Gujarat challenging the proceedings initiated by the Respondent-Bank under SARFAESI Act and also prayed for release of title deeds in respect of the said property. The said petition was withdrawn by the present Appellant and the same was disposed of by the Hon'ble High Court vide order dated 21/09/2021 permitting the Appellant to file appropriate proceedings u/s 17 of the SARFAESI Act. Accordingly, the Appellant preferred SA No.277/2022 on 31/01/2022 before this Tribunal, which is pending for adjudication.

2.10 Though the Term Loan of three cars was granted by Respondent-Bank to Respondent No.2 in the year 2016, i.e., after execution of the Sale Deed in favour of the Appellant, the Respondent-Bank has failed to exercise due care and caution has slept over its rights for years and therefore the Respondent is not entitled to attach the said property, which is legally owned and possessed by the present Appellant.

3. Respondent No.1-Bank filed its affidavit-in-reply vide Exh.R/7 and denied the averments and statements made by the Appellant in the memo of appeal. It has further contended that Respondent No.2 has obtained various loans from Respondent No.1-Bank and put the property in question in mortgage by way of registered mortgage in the year 2014. The Appellant was well aware about all the facts of the registered mortgage created in 2014 and despite such knowledge, the Appellant purchased the property in the year 2015. The said transaction is a fraudulent transfer under the provisions of the Transfer of

Property Act, 1882 (hereinafter referred to as "the TP Act" for short). As such, Respondent No.1-Bank urged to dismiss the present appeal.

1. 4. Ld. Counsel for the Appellant relied on the following judgments in support of his submissions:-

- ➤ Variavan Saraswathi and Anr. Vs. Eachampi Thevi and Ors., (1993) Supp (2) SCC 201

- ➤ Shivadev Singhi and Anr. Vs. Sucha Singh & Anr., (2000) 4 SCC 236)

- ➤ L. K. Trust Vs. EDC Limited and Ors., (2011) 6 SCC 780

- ➤ Tax Recovery Officer II, Sadar, Nagpur Vs. Gangadhar Vishwanath Ranade, (1998) 6 SCC 658

- ➤ Allokam Peddabbayya and Ors. Vs. Allahabad Bank & Ors., (2017) 8 SCC 272

2. 5. Ld. Counsel for the Respondent-Bank relied on the judgment of **Prestige Lights Ltd. Vs. State Bank of India, (2007) 8 SCC 449.**

3. 6. Ld. Senior Counsel for the Appellant submitted that the Appellant is a bona fide purchaser of the property in question. He further submitted that Respondent No.2, in collusion with the Respondent No.1-Bank, played a serious fraud upon the Appellant. Though the Appellant had paid the outstanding amount of Rs.1,65,00,000/- in Term Loan Account No.3405002100020771, the Respondent-Bank tried to enforce proceedings under the

SARFAESI Act against the Appellant's property. The Appellant purchased the property in question from Respondent No.2 by a registered Sale Deed dated 09/10/2015. Consequent upon the same, mutation entry No.163 is also made on 29/10/2015 in the Property Card issued by City Survey Office, Vadodara. The said Sale Deed in favour of the Appellant has not been challenged or disputed before any court of law. The Appellant is an absolute owner and occupier of the property in question since 09/10/2015. The Respondent-Bank never contacted the Appellant for recovery of any amount or debt. However, when Respondent No.2's loans with the Respondent-Bank were declared NPA and when the Appellant served a legal notice seeking release of the Title Deeds, the Respondent-Bank has filed the Original Application before his Tribunal in order to hide its illegality and collusion with Respondent No.2. The Term Loan of three cars was granted by the Respondent-Bank to Respondent No.2 in the year 2016 after Sale Deed was executed in favour of the Appellant.

1. 7. Ld. Senior Counsel for the Appellant further submitted that the purchaser of a mortgage property has the right to redeem the same. The purchaser steps into the shoes of his predecessors-in-title and therefore has the same rights which his predecessors had in title before the purchase. In the present case, the Respondent-Bank has not impleaded the present Appellant as party in the present proceedings of Original Application though it was aware that the property in question has been sold by Respondent No.2 to the Appellant herein. The Appellant having purchased the property and come in possession of the property, was necessarily to be impleaded as party to the original proceedings. In support of his contentions, he placed reliance on the judgment of the Hon'ble Supreme Court of India in **Allokam Peddabbayya's Case (Supra)**. Ld. Senior Counsel further submitted that the Appellant is still ready and willing to redeem mortgaged property in question by making payment of the debt due to the Respondent-Bank in Loan Account No. 3405001C00140872. In order to fortify the contentions, the Appellant has filed purshis dated 14/02/2022 stating therein as under:-

*"2. The appellant being a bonafide purchaser, with value of the mortgaged immovable property in ready and willing to redeem the said mortgage by making payment of the debt due of the said mortgage in Loan Account No.3405001C00140872. To the best of knowledge of the Appellant the outstanding amount of the said Term Loan is Rs.7,39,241/-. A Demand Draft of Rs.8,00,000/- drawn on HDFC Bank, Reopur Baroda in favour of 'Punjab National Bank Loan Account No.3405001C00140872 A R Enterprise' is enclosed herewith this pursis. In case of deficit in the said Term Loan Account the Appellant are ready and willing to deposit the same."*

8. Ld. Counsel for the Appellant submitted that observation made by Ld. RO in the impugned order dated 22/12/2022 **"the property in question is mortgaged with the CH Bank and the CD has fraudulently transferred"** is totally misconceived. He further submitted that sale by a mortgagor is always permissible under law and it is never regarded as a fraud. In support of his submissions, he relied on the following observations made by the Hon'ble Supreme Court of India in the case of **Variavan Saraswathi's Case (Supra):-**

*"6. Since the transfer in a mortgage is, only, of interest and not of the entire right and title, as takes place in sale, the mortgagor and the mortgagee can transfer or assign their interest. A mortgagor may assign or transfer the equity of redemption or may even create second mortgage....."*

1. 9. Relying on the aforesaid observations of the Hon'ble Supreme Court of India, Ld. Senior Counsel urged that Ld. RO has gravely erred in holding that sale of the property in question by Respondent No.2 to the Appellant, in the present case, is a fraudulent transfer and hence, the impugned order is required to be quashed and set aside.

2. 10. Ld. Senior Counsel for the Appellant also submitted that upon sale or transfer of the property in question by Respondent No.2 in favour of the Appellant, the Appellant derives right of redemption of the mortgaged property. He further submitted that the right of redemption is invaluable in the sense that it cannot be denied to the mortgagor. It is a settled legal position that a mortgage is intended merely to afford security to the lender. Therefore, he requested to direct the Respondent-Bank to accept the payment of the aforesaid outstanding amount in the Term Loan Account of Respondent No.2 and to further direct the Bank to release the property from mortgage.

1. 11. Per contra, Ld. Counsel for the Respondent-Bank submitted that the transaction of sale between the Appellant and Respondent No.2 qua the mortgaged property is a fraudulent transfer as defined in Section 53 of the Transfer of Property Act and therefore it is voidable at the option of the creditor. He further submitted that the Appellant has purchased the property with open eyes and knowing fully well that the property is under the charge of mortgage and all original Title Deeds of the said property are lying in custody of the Respondent-Bank. He further submitted that neither the borrower, i.e., Respondent No.2 nor the TPO, i.e., Appellant herein has ever obtained permission of the Respondent-Bank before entering into the alleged transaction of sale of the mortgaged property. The said transaction has taken place behind the back of the Respondent-Bank and therefore Ld. RO has rightly observed it to be a fraudulent transfer in the impugned order.

2. 12. Ld. Counsel for the Respondent-Bank further submitted that the Respondent-Bank has filed OA No.111/2021 against Respondent Nos.2 and others for recovery of an amount of Rs.1,93,55,476.12 with further interest and the same has been allowed by this Tribunal vide judgment and order dated 18/09/2020. As such, the offer

/ proposal of the present Appellant to pay Rs.8 Lacs against the dues of the Bank for release of the mortgaged property cannot be accepted. Therefore, he urged to dismiss the present appeal.

1. 13. Considering the aforesaid submissions of rival parties, it would be worthwhile to refer to Section 58(a) of the TP Act, which reads as under:- *"58(a). A mortgage is the transfer of an interest in specific immoveable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability. The transferor is called a mortgagor, the transferee a mortgagee; the principal money and interest of which payment is secured for the time being are called the mortgage-money, and the instrument (if any) by which the transfer is effected is called a mortgage-deed."*

1. 14. Looking to the aforesaid provision of law, it becomes clear that in a mortgage, the lender becomes the owner of the mortgage property until the loan is repaid or other mortgage obligation fulfilled in full. The phrase "**for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future date**" connotes that the mortgage subsists not only for the loan transaction entered into at the time of granting one loan, but it also extends to the transactions of advancing other loans in future. In that view of the matter, the contention raised by Ld. Senior Counsel for the Appellant that the Respondent-Bank has no right to recover dues of the car loans provided to Respondent No.2 in the year 2016, i.e., after alleged sale of the property in question by the Respondent No.2 to the present Appellant cannot be countenanced. Moreover, Section 58(a) of the TP Act clearly provides that a mortgage is the transfer of an interest in the specific immovable property and not conveyance of title. Therefore, when Respondent No.2 created mortgage in favour of the Respondent-Bank by deposit of original Title Deeds of the property with the Respondent-Bank, Respondent No.2 does not cease to be the owner of the property. He (Respondent No.2) still holds title to the property. As stated hereinabove, the fundamental right of redemption of the mortgaged property is vested in the mortgagor until payment of the entire dues of the creditor. In the present case, it is an admitted position that the mortgage created by Respondent No.2 over the property in question on 17/02/2014 by way of registered memorandum of deposit of Title Deeds and on 20/06/2014 by way of extension of equitable mortgage by deposit of tile deeds has not come to be extinguished till date. It means that the mortgage so created by Respondent No.2 in favour of the Respondent-Bank is still surviving. Therefore, the right of CH Bank to proceed against the mortgaged property in question for recovery of its outstanding amount of Rs.1,93,55,476.12 cannot be denied.

15. It is also a settled legal position that mortgagor is required to obtain prior permission of the lender before alienating or transferring the property in any manner in favour of a third party. In the present case, admittedly Respondent No.2 has not obtained any such permission from the Respondent-Bank for sale of the mortgaged property to the present Appellant. In this context, it is pertinent to refer to the provision of Section 53 of the TP Act, which read as under:- *"53. Fraudulent transfer.—*

*(1) Every transfer of immovable property made with intent to defeat or delay the creditors of the transferor shall be voidable at the option of any creditor so defeated or delayed. Nothing in this sub-section shall impair the rights of a transferee in good faith and for consideration. Nothing in this sub-section shall affect any law for the time being in force relating to insolvency. A suit instituted by a creditor (which term includes a decree-holder whether he has or has not applied for execution of his decree) to avoid a transfer on the ground that it has been made with intent to defeat or delay the creditors of the transferor shall be instituted on behalf of, or for the benefit of, all the creditors.*

16. In view of the aforesaid provisions, it becomes clear that the alleged transaction of sale of the mortgaged property by Respondent No.2 in favour of the present Appellant, without knowledge and consent of the Respondent-Bank, is made with an intent to defeat or delay the recovery of dues of the Respondent-Bank and hence it can be considered as a fraudulent transfer. I am therefore of the opinion that Ld. RO has rightly observed the sale transaction as fraudulent one in the impugned order.

1. 17. In light of the aforesaid factual and legal position, I am of the opinion that the present Appeal has no merit and no interference by this Tribunal with the impugned order is required. In the result, the present appeal is dismissed with no order as to cost.

2. 18. All pending interim applications, if any, stand disposed of.

3. 19. Registry is directed to provide copy of this Judgment free of cost to all the parties.

File be consigned to record.

Pronounced in open Court on 18^th day of February, 2023.

(Laxman Madnani) Presiding Officer DRT-II, Ahmedabad

\*pathey\*