The Ahmednagar District Central Cooperative Bank Limited vs BANK OF INDIA on 11 May 2026

ORDER

(Pronounced on 11.05.2026)

1. This appeal is directed against the order dated 18.08.2023, passed by the learned Recovery Officer-II, Debts Recovery Tribunal (DRT), Aurangabad, whereby the Objection Petition of the appellant was partly allowed in Recovery Proceeding (R.P.) No.82/2020.

2. The facts giving rise to the present appeal, in brief, are that the appellant is a third party/secured creditor. The appellant is the District Central Cooperative Bank Ltd., doing the business of banking under the provisions of Banking Regulation Act. Respondent No.3 is a Cooperative Sugar Factory and member of the appellant bank and had availed various loan facilities on various heads and had secured the entire movable and immovable assets, including plant, machineries, lands, buildings and structures standing on the lands by registered Mortgage Deeds dated 30.05.2011 and 27.11.2013, creating first charge on the entire assets as mentioned in the Schedule of security documents. Respondent No.1 is a certificate holder and unsecured creditor, who had filed O.A. No.198/2015 against respondent No.3 for recovery and obtained Recovery Certificate.

3. It is further averred that the claim of respondent No.1 bank is unsecured and not supported by any security document. The respondent No.1 bank has obtained the Recovery Certificate (RC) by misleading whereas having knowledge that the appellant bank was having first charge on the secured assets of respondent No.3. Even the claim of respondent No.1 is not registered with the CERSAI. The appellant being secured creditor has also initiated recovery proceedings under the provisions of SARFAESI Act, 2002

by issuing demand notice to the borrower/society on 19.09.2013 and on non-compliance of the demand notice, the action under Section 13(4) was also taken. The order dated 19.09.2016 was obtained from the District Magistrate, Ahmednagar under Section 14 of the SARFAESI Act. The Tahsildar, Rahuri had also given physical possession of the secured assets by drawing necessary panchanama on 24.04.2017 to the appellant. The appellant bank is having right to recover its legal dues on priority than the unsecured creditor. The respondent No.1 bank cannot claim preference or priority over the appellant secured creditor. The appellant filed Objection Petition under Rule 11 of the Income Tax Certificate Rules before respondent No.2, but ignoring all legal points, the impugned order dated 18.08.2023 was passed in R.P. No.82/2020 and Objection Petition (Exh-43) was partly allowed.

4. According to the appellant, the impugned order dated 18.08.2023 is misconceived, illegal, arbitrary, contrary to documentary evidence and law laid down by the Hon’ble Supreme

Court and the Hon’ble High Courts. The Recovery Officer-2 (RO-

2) has failed to decide the issue as per prevailing law and on this count alone, the impugned order to the extent of directing the appellant to sell the secured assets within two months, failing which the subject properties will be sold under RDB Act and second schedule of Income Tax Act, 1961, is liable to be set aside. It is further submitted that the RO-2 has exceeded its jurisdiction by passing the impugned order as the appellant is having valid and legal right to recover its dues on priority. The RO-2 has failed to consider that the charge in favour of appellant was much prior to the issuance of Recovery Certificate. The attachment order issued by RO-2 itself is illegal without authority and proper enquiry. The CH bank being second charge holder will be entitled for the money which remains after full satisfaction of the dues of first charge holder. In fact, the objection was filed for setting aside the attachment orders dated 06.09.2022 and 29.09.2022 and exclusion of secured assets from recovery proceedings, but nothing was considered and orders have been issued directing appellant to sell the properties within two months, failing which the properties would be sold under the provisions of RDB Act. The CH bank has not placed on record any documentary evidence to show that the charge of the CH was registered with CERSAI and respondent No.1 bank cannot be termed as secured creditor. Thus, according to the appellant, the impugned order is illegal and the same is liable to be set aside and prayed to allow the appeal.

5. The respondent No.1 CH bank filed affidavit-in-reply dated 21.01.2025 (Exhibit-9), alleging therein that the appellant is a third party (Objection Petitioner) in R.P. No.82/2020 filed by respondent bank. The recovery proceedings filed by the appellant under SARFAESI Act, etc. are not within the knowledge of the answering respondent. The allegations of the appellant about suppression of facts of the proceedings filed by the appellant and obtaining the Recovery Certificate are not true. The Objection Petition has been filed by the appellant before the Recovery Officer, DRT and order passed by the RO-2 on 18.08.2023 is proper and after hearing both the parties. The RO-2 has directed the appellant to sell the mortgaged property within a period of two months from the date of passing of order and the sale proceeds will be distributed/adjusted as per the priority of the charges among the parties. However, the appellant has not obeyed the orders of the RO-2 and proceeded to file the present appeal, which is not within limitation. The properties are in possession of the RO and the appellant has approached this Tribunal after attachment of the properties. The respondent No.1 bank denied all other allegations of the appellant and dismissal of the same was prayed for.

6. I have heard the learned counsel for the parties and gone through the impugned order and material on record thoroughly and carefully.

7. Before proceeding further, it is necessary to make reference of the operative part of the impugned order dated 18.08.2023, which is as under:

“A. Objection Petition bearing Exhibit No.43 in R.P. no.82/2020 is partly allowed and disposed of. B. The objection petitioner is given two-month time as a first opportunity being a secured creditor for sale of the mortgaged properties for recovery of the dues, failing which the subject properties will be sold under the RDB Act and second schedule of Income Tax Act, 1961 and sale proceeds will be distributed/adjusted as per priority of charges among the parties. C. No order as to costs.”

8. The appellant is aggrieved with Clause (B) of the operative part of the impugned order dated 18.08.2023, as while passing this order, the RO-2 has exceeded his jurisdiction as the appellant is a secured creditor and respondent No.1 bank is unsecured creditor and the RO could not have directed the appellant to sell the mortgaged property within two months failing to which the subject properties would be sold under RDB Act and second schedule of the Income Tax Act, 1961.

9. The respondent No.1 bank has not challenged the findings with regard to Clause (A) of the operative part of the impugned order dated 18.08.2023 and therefore, it is established that the properties were mortgaged with the appellant bank and the appellant is a secured creditor and it has a prior or superior right over respondent No.1 bank. This very fact finds support with Section 26-E of the SARFAESI Act, 2002 as well as judgment of the Hon’ble Supreme Court of India in Civil Appeal No.1919 of 2010, decided on 06.03.2020 in the matter of M/s Connectwell Industries Pvt. Ltd. Vs. Union of India & Ors., judgment of the Hon’ble High Court of Madras delivered on 01.09.2022 in W.A. Nos.1512 of 2021 (State Bank of India Vs. The Tax Recovery Officer & Ors.) and other connected matters and the judgment of the Full Bench of the Hon’ble High Court of Bombay in the matter of Jalgaon Janta Sahakari Bank Ltd and another Vs. Joint Commissioner of Sales Tax Nodal 9, Mumbai and another, reported in 2022(5) Mh.L.J.691.

10. The appellant has admitted in appeal that the appellant bank had already taken physical possession of the secured asset on 24.04.2017 in view of order dated 19.09.2016 passed by the District Magistrate, Ahmednagar. The appellant being secured creditor initiated recovery proceedings under the provisions of the SARFAESI Act, 2002 by issuing demand notice to the borrower/society (respondent No.3) on 19.09.2013 in view of the fact that the secured assets were mortgaged with the appellant bank vide registered Mortgage Deeds dated 30.05.2011 and 27.11.2013. The appellant, after taking possession of the secured asset on 24.04.2017, has not proceeded further for recovery of the loan amount. On the other side, respondent No.1 bank admittedly has obtained Recovery Certificate (R.C.) in Original Application No.198/2015 against respondent No.3 – borrower for recovery and the recovery proceedings were started before the learned (RO-2). When the present secured asset was attached by orders of RO-2 dated 06.09.2022 and 29.09.2022 and during recovery proceeding,

the present appellant filed Objection Petition (Exh-43) in R.P. 82/2020. The learned RO has observed that the Objection Petitioner (present appellant) has initiated recovery proceeding long time by issuing demand notice dated 29.09.2013 under Section 13(2) of the SARFAESI Act and physical possession of the mortgage properties has been taken in the year 2017, but till date they have not recovered their dues, which is a public money even after lapse of approximately ten years. No doubt, the Objection Petitioner (present appellant) being secured creditor is having first right over the subject properties and its claims are over and above the Certificate Holder (CH) bank. Since the appellant bank was not taking further steps for recovery of the amount despite the fact that the physical possession of the secured assets was taken in the year 2017, the learned RO gave two months’ time to the present appellant being secured creditor to sell the mortgaged properties for recovery of the dues, failing to which the said properties would be sold under the RDB Act and second schedule of Income Tax Act,

1961 and the sale proceeds would be distributed/adjusted as per charges of the parties. The observations of the learned RO are based on record that the appellant has taken physical possession of the entire mortgaged properties in 2017, but it has not proceeded further for recovery of public funds and more so, it is causing more damage to the borrower. Since two months’ time is given by the learned RO appears to be not sufficient as the process for sale of the mortgaged properties requires reasonable time. Hence, the Clause (B) of the impugned order dated 18.08.2023 deserves to be modified and the present appeal is liable to be dismissed.

11. In the result, I pass the following order:

ORDER

(A) With the modification in Operative “B” Part of the impugned order, the present Appeal No.2 of 2024 is hereby dismissed with no order as to costs.

(B) The appellant is directed to proceed further to sell the secured assets already in their possession at the earliest, preferably within six months from today. (C) It is hereby held that the first right is of the appellant to adjust the entire loan amount and if surplus remains from out of the sale proceeds, the same shall be shared with respondent No.1 bank. (D) On conclusion of the sale proceedings by the appellant pertaining to the secured assets, the attachment orders dated 06.09.2022 and 29.09.2022 passed by the learned RO shall stand cancelled. (E) In case the present appellant fails to proceed further with the secured assets within above stipulated period, then thereafter, the learned RO shall take necessary steps for sale of the secured assets/subject properties under the provisions of the Recovery of Debts and Bankruptcy Act, 1993 and second schedule of the Income Tax Act, 1961 and the sale proceeds will be distributed/adjusted giving priority to the charge of the appellant and if surplus from out of sale proceeds remains, the same shall be shared by respondent No.1 bank. (F) The pending Interlocutory Applications, if any stand disposed of accordingly. (G) Copy of this order be sent to the Recovery Officer-II, Debts Recovery Tribunal, Aurangabad (H) This order be uploaded on website and free copy of this order be supplied to the parties, at their request. (I) Appeal file be consigned to the record room.

(Dr. J.R. Chauhan),

PRESIDING OFFICER,

DEBTS RECOVERY TRIBUNAL, AURANGABAD

Aurangabad

Date : 11.05.2026