CEAT LIMITED vs BANK OF BARODA on 4 March 2024

O R D E R

Dated: 04.03.2024

1. By way of the present Appeal, the Appellant has prayed to quash and set aside the order dated 26.08.2016 passed by Ld. Recovery Officer, DRT-I, Mumbai; pass an order for impleadment of Appellant as a necessary party to the recovery proceedings; quash and set aside the order dated 23.02.2016 passed by Ld. Recovery Officer in respect of the property i.e. Flat No.601, Adishwar Apartments, 34, Feroze Shah Road, New Delhi (“the property in question”) and other reliefs.

2. Brief facts of the case are that the Respondent No.1 herein filed OA No.179/2002 against the Respondent No.2 which was allowed by this Tribunal vide order dated 06.05.2005 and directed for issuance of the Recovery Certificate. Thereafter, the Recovery Proceeding in R.P. No.140/2005 commenced.

3. It is also stated that the Appellant had extended financial facilities to Respondent No.2 of Rs.1 crore, which as of 01.10.1999 admittedly stood at Rs.1,00,90,899/- which Respondent No.2 failed to pay to the Appellant. In view of the failure of the Respondent No.2 to pay the said dues, the parties had signed and executed an Agreement dated 04.10.1999. By virtue of the said Agreement, it was agreed by the Respondent No.2 to permit part of its said property i.e. property in question to be used and occupied by the Appellant on a sharing basis from date of execution of the said Agreement. It was also agreed between the parties that in the event of failure on the part of the Respondent No.2 to make payment of the outstanding dues on or before 31.10.2002, the Respondent No.2 shall permit the Appellant to use and occupy entire portion of the said property on a tenancy basis on payment of a monthly rent of Rs.10,000/- or any further increase or decrease thereof, as may be agreed by and between the parties. Pursuant to the said Agreement, the Appellant was inducted into the said property and continued to use and occupy the same on a tenancy basis since 1999. The Appellant conducted various renovation works in the said property from time to time and has spent lakhs of rupees over the years under the said lease granted by the Respondent No.2. The Appellant is also paying society maintenance and other charges in respect of the said property.

4. It is also stated that the Appellant also served letters/reminders/notices upon the Respondent No.2 for repayment of its huge outstanding dues which has not been repaid till date.

5. It is also stated that the Respondent No.2 Company is in liquidation and the Hon’ble Kolkata High Court has passed an order dated 06.10.2015 for winding up and appointment of Official Liquidator (OL) therefore, the OL is also a necessary party thus, the Recovery Proceedings requires to be amended before proceeding further, in view of the order passed by Hon’ble High Court of Kolkata. However, the Ld. Recovery Officer has failed to follow the procedure duly envisaged by law and passed an order directing Respondent No.1 to take actual physical possession of the property in question.

6. It is stated that by order dated 23.02.2016, the Ld. Recovery Officer directed DRT Receiver to take physical possession of the property in question on 23.08.2016. The Appellant was shocked and surprised when the Appellant received a copy of Notice dated 12.07.2016 on or around 18.07.2016 from the DRT Receiver to take possession of the property in question. The Appellant immediately preferred a Misc. Application being (Exb No.238) before the Ld. Recovery Officer and also filed an affidavit dated 22.08.2016 to prove that the Appellant is a tenant in respect of the property in question however, the Ld. Recovery Officer failed to notice the important issues raised by the Appellant and passed the impugned order dated 26.08.2016. Hence, the present Appeal.

7. On the other hand, the Respondent No.1 objected to the present Appeal and stated that the present Appeal is not maintainable and misconceived and bad in law. He drawn my attention to the sub-rule 3 of Rule 1 of the Second Schedule of Income Tax Act, which reads as under: “The Claimant or objector must adduce evidence to show that (a) (in the case of immovable property) at the date of service of the notice issued under this schedule to pay the arrears, or (b) (in the case of movable property) at the date of the attachment, he had some interest in, or was possessed of, the property in question” (emphasis supplied)

8. A plain reading of sub-rule 3 of Rule 11 of 2nd Schedule to the Income Tax Act, 1961 shows that if a person demonstrates an interest or establishes that he is in possession of the property attached, the Recovery Officer has to recognize said interest or possession and pass such suitable orders as are warranted.

9. He also drawn my attention to sub-rule 5 of the Rule 11 wherein it is provided that: “Where, upon the said investigation, the Tax Recovery Officer is satisfied that, for the reason stated in the claim or objection, such property was not, at the said date, in the possession of the defaulter or of some person in trust for him or in the occupancy of a tenant or other person paying rent to him, or that, being in the possession of the defaulter at the said date, it was so in his possession, not on his own account or as his own property, but on account of or in trust for some other person, or partly on his own account and partly on account of some other person, the Tax Recovery Officer shall make an order releasing the property, wholly or to such extent as he thinks fit, from attachment or sale” (emphasis added)

10. Therefore, he submitted that the Appellant claim for objection is designedly or unnecessarily delayed as demand notice was served about 5 years before the Application filed by the Appellant and attachment warrant notice was also served and after 5 years they have made Application in 10.08.2016 it is after passage of long period of time to obstruct the proceeding of the recovery and therefore the Appeal should be dismissed on ground delay itself.

11. He also stated that the Lease Agreement of tenure of 25 years which is not registered under Section 49 of the Registration Act read with Section 10 of the Transfer of Property Act and therefore, the alleged lease agreement is not enforceable in law and the same cannot be considered as valid documents, whereas the property in question was declared as valid mortgage by this Tribunal in favour of the Respondent No.1.

12. He also submitted that the Appellant earlier also filed Application before this Tribunal for stay of sale and the same was withdrawn by the Appellant who was the Intervener therein. The Appellant produced the same documents and no new facts were brought in the present Appeal.

13. He further contended that the mortgage was created by the Respondent No.2 herein in favour of the Respondent No.1 Bank in the year 2001 much prior to tenancy. The Respondent No.2 herein have not obtained any permission from the Respondent No.1 Bank to create tenancy in favour of the Appellant. He also submitted that the Appellant has not furnished any proof of alleged facility extended to the Respondent No.2.

14. Ld. Counsel for the Respondent No.1 has also submitted that DRT Receiver visited the property in question at New Delhi for taking possession of the property in question as per order dated 22.02.2016 including the order of Police Protection. The DRT Receiver has prepared Panchnama with regard to the formal possession of the property in question. One Mr. P. K. Tondan whose name plate was displayed on the premises alongwith name of Appellant who were Intervener before this Tribunal restraining Ld. Recovery Officer for proceeding with auction sale however, the said application was dismissed. It is submitted that as per panchnama prepared by DRT Receiver at the site for taking possession, one Arvind Kumar Advocate for Appellant was present as he was called by servant Anil Kumar. He submitted that one Mr. Anil Kumar who has opened the door of the property in question and DRT Receiver explained the purpose of the visit and requested to vacate the subject flat. However, the said Anil Kumar informed the DRT Receiver that he is servant of the occupant of the said flat and he will contact his Advocate over telephone. The said Anil Kumar had contacted their Advocate Mr. Arvind Kumar Advocate who has come to the suit flat and stated that the property in question has been leased out by the Respondent No.2 Company for their guest house. The DRT Receiver requested the said Advocate to produce

documents with regard thereto which he has failed to produce any documents with regard to lease agreement. The said Advocate agreed to give formal possession to DRT Receiver and allow to fix the board of DRT Receiver on the outer door on the property in question. The said Advocate further stated that he will approach/file necessary application before appropriate forum for adjudication of their right however, he has refused to hand over the physical possession of the property in question to DRT Receiver. The DRT Receiver has produced the order for forcible possession passed by Ld. Recovery Officer to the said Advocate but he has not complied with the said order. The DRT Receiver however has taken formal possession of the suit premises by affixing possession board on entrance of the property in question.

15. Therefore, he submitted that order of Ld. Recovery Officer dated 26.08.2016 be confirmed and Appellant be directed to hand over peaceful and vacant possession of the property in question to the DRT Receiver.

16. Considered the submissions of both sides and perused the records. The only issues emerge in the present Appeal is that: Whether the Agreement dated 04.10.1999 is valid or not?

(i) In the present matter, the Appellant is claiming its tenancy right on the basis of Agreement dated 04.10.1999 entered between the CFL Capital Financial Services Ltd. (Respondent No.2) and CEAT Limited (Appellant herein) and stated that the same is prior to the mortgage to the bank in the year 2001.

(ii) By virtue of the said agreement dated 04.10.1999, it was agreed between the parties that on the event of failure of the

Respondent No.2 to make payment of the outstanding dues on or before 31.10.2002, the Respondent No.2 shall permit the Appellant to use and occupy the full portion of the property in question on a tenancy basis for a period of 25 years.

(iii) The Ld. Recovery Officer vide order dated 26.08.2016 has rejected the tenancy claim of the Appellant on the property in question after considering the Clause 7 of the Agreement dated 04.10.1999 which provided that: “CFSL has proposed that it would offer CEAT a portion of the office space admeasuring 500 square feet for its staff, from this date, as and when it requires. However, CEAT shall not be able to avail the entire office space as CFSL continues to operate its office from the said premises. However, CFSL has proposed that in the event of its failure to make the payment of the above outstanding dues within three years from now i.e. on or before October 31, 2002, CFSL shall handover the said premises to CEAT to avail and utilize the same on a tenancy basis on a monthly rent of Rs.10,000/- till such time CEAT would like to continue this arrangement” (emphasis supplied)

(iv) It is important to note here that the said Agreement was executed by CEAT Financial Services Ltd. (CFSL), however, the Letter dated 31.10.2002 is issued by CFL Capital Financial Services Limited. It appears that the name of the company was changed from CFSL to CFL Capital Financial Services Ltd. Therefore, when a company change its name while the contract is in effect, the parties are required to modify the terms to identify the change in name. In the present case, the Appellant has nothing placed on record to show that any modification in the agreement was done in this regard.

(v) Further, the contents of the Agreement dated 04.10.1999, seems like an Undertaking, it is not provided any proper and necessary clause/paras of lease agreement such as total amount of the rent; when the tenant should pay the installment; how the tenant should pay; purpose of tenancy; conditions for illegal activity; conditions for violation of applicable local zoning ordinances. It is also not clear from the said Agreement that who signed the Agreement, the details of the Directors/Authorized Signatory is not provided in the said Agreement.

(vi) Besides this, the said Agreement is not a registered Agreement as provided under Section 17 of the Indian Registration Act, 1908, (as applicable in Maharashtra) which provides that: “Section 17 Documents of which registration is compulsory.

1) The following documents shall be registered, if the property to which they relate is situate in a district in which, and if they have been executed on or after the date on which, Act No. XVI of 1864, or the Indian Registration Act, 1866, or the Indian Registration Act, 1871, or the Indian Registration Act, 1877, or this Act came or comes into force, namely:-- (a) instruments of gift of immovable property; (b) other non-testamentary instruments which purport or operate to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, of the value of one hundred rupees and upwards, to or in immovable property;

(c) non-testamentary instruments which acknowledge the receipt or payment of any consideration on account of the creation, declaration, assignment, limitation or extinction of any such right, title or interest; and (d) leases of immovable property from year to year, or for any term exceeding one year, or reserving a yearly rent; (e) non-testamentary instruments transferring or assigning any decree or order of a Court or any award when such decree or order or award purports or operates to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, of the value of one hundred rupees and upwards, to or in immovable property:] Provided that the[State Government] may, by order published in the [Official Gazette], exempt from the operation of this sub-section any lease executed in any district, or part of a district, the terms granted by which do not exceed five years and the annual rents reserved by which do not exceed fifty rupees. (emphasis provided, bold by undersigned)

(vii) Thus, as per Section 17(1)(d) of the Indian Registration Act, every agreement for lease of immovable property from year to year, or for any term exceeding one year, are required to be registered mandatorily. In the present case, the Appellant is claiming tenancy on the basis of an alleged Agreement 04.10.1999, which is an unregistered document. On the other side, the Respondent No.1 claiming its charge on the basis of mortgage created by the Respondent No.2 in the year 2001. Therefore, the said mortgage shall prevail upon the unregistered Agreement.

(viii) The Hon’ble Supreme Court in Bajarang Shyamsunder Agarwal Vs. Central Bank of India, reported in (2019) 9 SCC 94, has clarified that in the absence of a registered instrument, if the tenant only relies upon an unregistered instrument or an oral agreement accompanied by delivery of possession, the tenant is not entitled to possession of the secured asset for more than the period prescribed under the provisions of the Transfer of Property Act. The relevant of the order of Hon’ble Supreme Court is reproduced herein below: “25. In our view, the objective of SARFAESI Act, coupled with the T.P. Act and the Rent Act are required to be reconciled herein in the following manner:

a) If a valid tenancy under law is in existence even prior to the creation of the mortgage, the tenant’s possession cannot be disturbed by the secured creditor by taking possession of the property. The lease has to be determined in accordance with Section 111 of the TP Act for determination of leases. As the existence of a prior existing lease inevitably affects the risk undertaken by the bank while providing the loan, it is expected of Banks/Creditors to have conducted a standard due diligence in this regard. Where the bank has proceeded to accept such a property as mortgage, it will be presumed that it has consented to the risk that comes as a consequence of the existing tenancy. In such a situation, the rights of a rightful tenant cannot be compromised under the SARFAESI Act proceedings.

b) If a tenancy under law comes into existence after the creation of a mortgage, but prior to the issuance of notice under Section 13(2) of the SARFAESI Act, it has to satisfy the conditions of Section 65A of the T.P. Act.

c) In any case, if any of the tenants claim that he is entitled to possession of a secured asset for a term of more than a year, it has to be supported by the execution of a registered instrument. In the absence of a registered instrument, if the tenant relies on an unregistered instrument or an oral agreement accompanied by delivery of possession, the tenant is not entitled to possession of the secured asset for more than the period prescribed under Section 107 of the T.P. Act.” (emphasis provided, bold by undersigned)

(ix) In the present case, the Appellant to prove the tenancy, has produced the documents before the Ld. Recovery Officer of this Tribunal viz. xerox copies of the Maintenance Bills pertaining to the year 2015-16 and Account Details of Adishwar Apartment Owners Residents Association for the period of 01.04.2005 to 31.07.2016 as well as Letter dated 31.10.2002, 19.02.2009 issued by Respondent No.2 to the Appellant.

(x) It is pertinent to mention here that the Appellant herein in para 10(g) of Misc. Application (Exb.238) filed before Ld. Recovery Officer, has admitted that the Appellant and Respondent No.2 had a long standing business relations and a running account of credits and debits, till 2009. Therefore, it can be assumed that the mortgage created by the Respondent No.2 is also in the knowledge of the Appellant however, no steps have been taken by Appellant for protection of alleged tenancy since 2002 till 2016, it is only when the Ld. Recovery Officer initiated steps for recovery of dues of Respondent No.1 from the mortgaged property in question and appointed Court Receiver, the Appellant filed the Application before the Ld. Recovery Officer, which shows that the Appellant is trying to frustrate the recovery of the Respondent Bank.

17. Therefore, in view of the above discussions, I find no illegality in the order passed by the Ld. Recovery Officer. Hence, the present Appeal is hereby dismissed.

Copy of this order be sent to the Ld. Recovery Officer of this Tribunal for intimation. File be closed and consigned to record room. (Dr. Rekha G. Dhakar) Presiding Officer DRT-I, Mumbai Place: Mumbai Dated: 04.03.2024