CANARA BANK vs Sri A Seshgiri Rao and Others on 26 June 2023

ORDER

The present Appeal has been filed u/s 30 of the Recovery of Debts and Bankruptcy Act 1993 to set aside the Order dated 22.02.2019 (Annexure A-1) passed by the Recovery Officer-2, Bangalore (R2) in DRC 408/2017 (Out of OA 384/2004) and to reject the claim of Respondent No.1 as contained in his claim statement (Annexure A-5). 1.1 The Appeal filed is within the period of limitation and jurisdiction of this Tribunal. Brief facts of the case:

2. The Order dated 22.02.2019 passed by the Recovery Officer, Respondent No.2 herein, in DRC No.408/2017 (DCP No.5636 in OA No.384/2004) dated 22.02.2019 u/s.25(a) of the Recovery of Debts and Bankruptcy Act, 1993, is impugned in the Appeal, ordering that the objection filed by Respondent No.1 before this authority is valid and claim of the Certificate Holder Bank for 3 (AoR 3 of 2019)

Recovery Certificate Schedule A property i.e., Residential House constructed on site measuring East to West 30 feet and North to South 50 feet described in the schedule to the Appeal was dismissed in accordance with the II-Schedule to Income-tax Act 1961 (Certified copy produced as Annexure A1).

2.1 Appellant filed OA No.384/2004 before the Debts Recovery Tribunal, Bangalore against Certificate Debtor No.3-A. Sheshagiri Rao (since deceased) and 3 others for recovery of a sum of Rs.1,96,60,515.00 along with interest @ 14.25% p.a. from the date of application till the date of realization. By order dated 02.04.2009, the Debts Recovery Tribunal allowed the OA against Defendant No.2, directing him to pay the sum of Rs.1,96,60,515.00 along with costs and interest @ 14.25% p.a. with monthly rest and the OA was dismissed against Defendant Nos.1, 3 and 4.

2.2 Aggrieved by the said order dated 02.04.2009, Appellant preferred an Appeal before the Hon’ble Debts Recovery Appellate Tribunal at Chennai in RA No.79/2009. The Hon’ble DRAT, Chennai, in RA 79/2009, in so far as Defendant Nos.1, 3 & 4, allowed the Appeal filed by Appellant, by order dated 14.07.2014. During the pendency of the Appeal, Defendant No.1 Sri Sheshagiri 4 (AoR 3 of 2019)

Rao died and his LRs were impleaded in his place. Copy of the Order dated 14.07.2014 passed by Hon’ble DRAT, Chennai is produced as Annexure A2. Thereafter, on a Memo dated 27.10.2014 (Annexure A3) filed by Appellant before the DRT, Bangalore, praying to issue Recovery Certificate as per the DRAT Order dated 14.07.2014, the amended Recovery Certificate in DRC No.5636 by order dated 26.11.2014 was issued (Annexure A4).

2.3 The schedule property is subject matter of OA 384/2004 filed by Canara Bank against Sri A. Sheshagiri Rao & 3 others for recovery and sale of the schedule property before the DRT, Bangalore and it was allowed by Order dated 14.07.2014 by Hon’ble DRAT, Chennai in RA No.79/2009 and Recovery Certificate issued as DRC No.5636.

2.4 In execution of Recovery Certificate, Demand Notice dated 28.09.2015 was issued to all the Certificate Debtors and the Demand Notice was also published in Newspaper “The Hindu” Bangalore Edition on 04.11.2015. Warrant of attachment of immovable property in Form No.16 was also completed and the Certificate amount claimed is Rs.13,24,44,504/- (Rupees thirteen crore twenty four lakh forty four thousand five hundred and four only) inclusive of interest up to 15.08.2015.

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2.5 When the proclamation was sought to be issued for sale of Schedule property, the appellant bank discovered that the schedule property was purchased by Respondent No.1 as per Court Sale dated 23.11.2009 in execution of Case No.1462/2009 in O.S.No.4419/2019. The Appellant Bank immediately reported this to the Recovery Officer, DRT, who issued Notice to Respondent No.1 stating that the schedule property is subject matter of OA 384/2004 and charged to Certificate Holder Bank and that any sale subsequent is subject to prior charge and pending OA proceedings before the Debts Recovery Tribunal, Bangalore. Copy of the Notice dated 14.02.2017 is produced as Annexure A5.

2.6 Respondent No.1 submitted Objection/Claim statement u/Rule (11) of II Schedule to the Income-tax Act 1961 r/w Ss.25 & 29 of the Recovery of Debts and Bankruptcy Act 1993 enclosing therewith a copy of Court Sale Deed dated 23.11.2009. Copy of the Objection and copy of Sale Deed dated 23.11.2009 are produced as Annexures A6 & A7 respectively. Respondent claimed that he is the absolute owner of the property having purchased under the Court executed Sale Deed dated 23.11.2009.

2.7 It is evident from the Sale Deed that the Respondent No.1 filed the suit against late A. Sheshagiri Rao, who is Defendant No.1

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in OA 384/2004 for specific performance of Sale Agreement dated 14.06.2004. Late A Sheshagiri Rao remained absent, hence an exparte decree was passed and the exparte decree was executed by Court in execution petition.

2.8 Appellant bank filed statement of objections to the claim statement filed by the Objector inter alia contending that the claim statement suffers from undue delay and latches, the mortgage in favour of the appellant bank was created in the year 2003 and the schedule property is subject matter of OA 384/2004, the original title deeds in the name of A. Sheshagiri Rao are in the custody of DRT, Bangalore and marked as exhibits in OA 384/2004. Further, the appellant stated that the alleged Sale Agreement and exparte decree is not only collusive, not enforceable in law but also subject to prior charge in favour of the Appellant Bank. The Hon’ble DRAT, Chennai held that the property is duly mortgaged to Appellant Bank and Recovery Certificate issued to realize the schedule property. Copy of Statement of Objection dated 09.10.2017 is produced as Annexure A8. Respondent No.1 filed written argument on 28.11.2017, copy produced as Annexure A9. A synopsis of Written Arguments of Appellant/Certificate Holder was also submitted on 15.12.2017, copy produced as Annexure A10.

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2.9 After the written arguments submitted by both sides, the Recovery Officer/Respondent No.2 herein posted the matter for orders on 28.02.2018, 14.03.2018 and 11.04.2018 and impugned order was passed on 22.02.2019.

2.10 The Appellant submits that the impugned order is perverse, without any authority and amounts to reverse the order passed by DRAT, Chennai and the Recovery Certificate issued by DRT, Bangalore; the schedule property duly mortgaged to Certificate Holder Bank as far as in the year 2003; the only reason given for holding that Respondent No.1 is rightful owner of the schedule property is as he has purchased in execution of Case No.1462/2009 in executing Decree obtained by him in OS No.4419/2007 filed against Late A Sheshagiri Rao.

2.11 The order totally suppressed the facts as evident from the sale deed itself that the suit was filed for specific performance based on Agreement dated 14.06.2004; suit was decided exparte followed by execution petition which is also not contested and hence the Court executed the sale deed infavour of the decree holder/Claimant. In any event, the alleged sale is subject to prior mortgage in favour Appellant. The alleged agreement dated 14.06.2004 is after the mortgage created in the year 2003 by 8 (AoR 3 of 2019)

deposit of original title deed of late A Sheshagiri Rao and subject matter of the pending OA 384/2004.

2.12 By not referring to the contents of the exparte decree, the Respondent No.2 has misused his power and only held that it is sale, which was executed through Court of Law and held to be valid. The Recovery Certificate involved huge public money and the Appellant cannot be deprived of the mortgage property by fraudulent claims. Hence, the present Appeal has been filed to set aside the impugned order dated 22.02.2019.

Reply/Objections Statement filed by Respondent No.1, in brief:

3. The Respondent No.1 is the claimant-Objector before the Recovery Officer, filed objections/claims under Rule (11) of II Schedule to the Income-tax Act 1961. The schedule property belong to the Respondent No.1/objector and cannot be sold. It has not arisen out of any contractual or legal obligation of Respondent No.1. It is only in respect of the alleged fraudulent and dishonest acts committed by late A Seshagiri Rao, the then Branch Manager of Appellant bank and it can be recovered only from such employee of the bank and the Respondent No.1 is not liable to pay the same.

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3.1 The Respondent No.1 purchased the property under the Court Sale Deed dated 23.11.2009 from the Learned XI Addl.City Civil and Sessions Judge of Bangalore through due process of law. It has not been challenged by the Bank or the LRs of late A Seshagiri Rao. The recovery proceedings initiated against the schedule property is barred by limitation and the Appeal is preferred by Certificate Holder Bank without any legal basis. The Objector has acquired lawful ownership through the process of law.

3.2 Aggrieved by the final order passed by the Learned Presiding Officer in OA 384/2004, the Appellant bank preferred appeal in RA No.79/2009 before the Debts Recovery Appellate Tribunal at Chennai and during the pendency of the Appeal, the aforesaid A.Seshagiri Rao expired. The legal representatives were not brought on record and the Certificate Holder bank failed to implead them. Hence, the said Appeal stood abated/dismissed against him. The Respondent No.1/Objector was not at all a Defendant or Respondent to such proceedings.

3.3 The aforesaid A Seshagiri Rao agreed to sell the schedule property unto the claimant/objector under the Agreement of Sale dated 14.06.2004 but failed to execute the sale deed; Respondent No.1 filed a suit for specific performance against him in OA

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No.4419/2007 on the file of XI Addl.City Civil and Sessions Judge of Bangalore; the same was decreed on 01.04.2009. However, as the said Seshagiri Rao failed to comply with the directions of the Court, Execution Proceedings (No.1462/2009) was instituted and in pursuance to the orders passed therein, the Sale Deed dated 23.11.2009 was executed and possession was delivered to the Respondent No.1. Thus, the claimant/objector has acquired lawful ownership through the process of law.

3.4 This Authority has no power or jurisdiction to set aside the Sale dated 23.11.2009 and to declare or decide the validity of the ownership derived by the 1st Respondent under the Sale Deed executed by the Civil Court. The objector herein is not a party to the OA proceedings before the Tribunal. The schedule property cannot be attached and sold as provided under II Schedule of the Income-tax Act 1961.

3.5 The Certificate Holder Bank unlawfully put forth the allegation after a lengthy period of about 20 years from the date of commission of the alleged fraudulent acts by late A Seshagiri Rao, who died on 10.05.2011. The attachment of the property is contrary to law, inconsistent with the procedure and the liability of late A .Seshagiri Rao is not binding upon the Respondent No.1.

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Therefore, the impugned order dated 22.02.2019 passed by the Recovery Officer-II may be upheld and confirmed and the Appeal may be dismissed.

Heard the Learned Counsel for both the parties and perused the records.

4. It is not dispute that the Appellant Bank’s claim over the subject property is based on the charge created by late A.Seshagiri Rao, [now represented by his Legal Heirs viz., Respondents 3 (a) &

(b) herein] in the year 2003 by deposit of title deeds of the Schedule property in favour of the appellant bank; the OA 384/2004 was filed on 16.07.2004 against the Defendants to recover the loan dues and to proceed against the subject property mortgaged by Sri A.Seshagiri Rao in favour of the Appellant bank. The same was upheld by the Order of Hon’ble Debts Recovery Appellate Tribunal, Chennai dated 14.07.2014 and the Recovery Certificate came to be issued to recover the legitimate dues of the Bank.

4.1 It is the case of Appellant bank that the alleged Agreement dated 14.06.2004 by late A.Seshagiri Rao is collusive, fraudulent and that the subsequent exparte decree and execution of Sale 12 (AoR 3 of 2019)

Deed in Execution Case No.1462/2009 is also collusive and in gross misuse of the judicial process as the original title document and other documents relating to Schedule ‘A’ property was in the possession of Appellant bank to secure the liability in the loan account. The said documents were marked as Exhibits in OA 384/2004 filed before the Debts Recovery Tribunal, Bangalore on 16.07.2004 (Original sale deed in favour of late A Seshagiri Rao executed by his Vendor Sri M. Manohar Kumar is marked as Ex.A30). Therefore, the charge created over the subject property in favour of the Appellant bank is prior to the execution of the alleged Sale Agreement dated 14.06.2004 and the Court Sale Deed dated 23.11.2009 in Execution Case No.1462/2009 in O.S.No.4419/2007 by the Court of XI Additional City Civil and Sessions Judge at Bangalore.

4.2 The Appellant bank further submits that, in execution of the Recovery Certificate, Demand Notice dated 28.09.2015 was issued to all the Certificate Debtors including the Respondent No.3 (LRs of A Sheshagiri Rao) herein and the Demand Notice was also published in the newspaper ‘The Hindu’ Bangalore edition on 04.11.2015. When the proclamation was sought to be issued for sale of Schedule property, the Bank discovered that the property 13 (AoR 3 of 2019)

was purchased by Respondent No.1 as per Court Sale dated 23.11.2009 as referred to above. Appellant bank immediately, reported this to the Recovery Officer, DRT, who issued a Notice to Respondent No.1 that the Schedule property is subject matter of OA 384/2004 and duly charged to the Certificate holder Bank and that the sale subsequent is subject to prior charge and pending OA proceedings before the DRT, Bangalore. The Respondent No.1 was called upon to show cause why schedule property should not be brought to sale in execution of Recovery Certificate No.5636 in OA No.384/2004. It is at this stage, the Respondent No.1 submitted objection/claim statement u/r (11) of II Schedule to the Income- tax Act 1961 r/w Sections 25 & 29 of the Recovery of Debts and Bankruptcy Act, 1993. The Respondent No.1 produced a copy of Court Sale Deed dated 23.11.2009 and claimed absolute ownership of the property.

5. The Respondent No.1/Objector relies upon the Agreement of Sale executed between him and the vendor-A.Seshagiri Rao on 14.06.2004 and the Court Sale Deed dated 23.11.2009 executed in Execution Case No.1462/2009 in O.S.No.4419/2007 by the Court of XI Additional City Civil and Sessions Judge at Bangalore.

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Further, the Respondent No.1/Objector claimed that the Court Sale Deed has not at all been challenged.

6. A perusal of the records clearly reveals that the Appellant Bank is not a party to the proceedings in O.S.No.4419/2007 and the said case is based on Agreement of Sale dated 14.06.2004 entered between the Respondent No.1/Objector and the late Seshagiri Rao [now represented by his LRs as Respondent Nos.3(a) and 3(b)]. It is also contended by Appellant Bank that the said A.Seshagiri Rao remained absent; an exparte decree was passed and even in the Execution petition, the said A.Seshagiri Rao remained absent.

7. The Respondent No.1/objector claims that he is not a Defendant in the OA proceedings. It is true that he is not a party to the OA proceedings but has purchased the property when a prior mortgage was subsisting over the schedule property in favour of Appellant bank by the same vendor-Seshagiri Rao. The Respondent No.1 also alleged that the late A Seshagiri Rao was fraudulent, dishonest and was the then Branch Manager of Appellant bank. That being the case, the Respondent No.1, before entering into the Agreement for Sale, ought to have exercised caution and enquired about the original title documents of the 15 (AoR 3 of 2019)

property and the prior encumbrances if any. No doubt, the Respondent No.1 has obtained a Decree and Sale Deed in a specific performance suit before the Civil Court through an Agreement of Sale. The fact of prior/subsisting mortgage over the schedule property in favour of Appellant bank had been suppressed before the Learned Civil Court and Sale Deed has been executed.

7.1 The Respondent No.1/objector having purchased the property subject to the subsisting mortgage and right of Appellant bank and by suppressing the fact of prior mortgage in favour of Appellant bank, the right of Respondent No.1, as a subsequently purchaser is subject to the prior charge held by Appellant bank over the schedule property. Therefore, the allegation that the Respondent No.1/objector is not a party to the proceedings; there is no contractual or legal obligation on his part and hence is not liable, is untenable and not based on any sound principle of law.

8. It is contended by Respondent No.1/objector that the legal representatives of the deceased A.Seshagiri Rao were not brought on record and hence, the said Appeal stood abated/dismissed against him. A perusal of the case records clearly reveals that the Legal heirs of the deceased A Seshagiri Rao have duly been 16 (AoR 3 of 2019)

impleaded parties to the OA proceedings and hence the allegation of the Respondent/Objector fails.

9. It is contended by the Respondent No.1/objector that this Tribunal has no power or jurisdiction to set aside the Sale Deed dated 23.11.2009 executed by the Civil Court. It is not in question that, whether the Court Sale Deed dated 23.11.2009 is to be set aside or not. The only question before this Tribunal is whether the Respondent No.1/objector has purchased the schedule property on the basis of an Agreement of Sale when a prior mortgage was subsisting in favour of Appellant Bank and his right over the said property. It is the settled position of Law that the priority charge holder viz., the Appellant Bank herein has the first charge over the property and the right of the subsequent purchaser viz., the Respondent No.1/objector is subject to the prior mortgage held by the Appellant Bank.

As discussed earlier, the fact of prior/subsisting mortgage over the schedule property has been suppressed by parties to the Agreement of Sale before the Learned Civil Court and the Sale Deed has been obtained.

10. On a perusal of records and the submissions made by both the parties, it is thus clear that the Decree and the consequent Court Sale Deed were obtained in O.S.No.4419/2007 by

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suppressing the mortgage which was created by the said A Seshagiri Rao in favour of the Appellant Bank as early as in the year 2003 itself by deposit of the original title deeds of the subject property and the same is the subject matter of proceedings in OA No.384/2004 and sequel to the Final Orders passed in OA 384/2004 Recovery Certificate has been issued and recovery proceedings have been initiated to recover the legitimate dues of the appellant bank. Evidently, the alleged agreement dated 14.06.2004 and the Court Sale Deed dated 23.11.2009 are subsequent to the creation of mortgage by the said late A.Seshagiri Rao as early as in the year 2003 itself and the mortgage created in favour of the Appellant bank is prior to the Agreement for Sale dated 14.06.2004.

11. It is to be noted that, any sale during the subsistence of mortgage in favour of the Bank/Appellant herein is subject to the prior charge held by Bank. Therefore, the Recovery Officer ought to have considered the priority of mortgage in favour of the Appellant bank instead of stating that the Objector has purchased the property in good faith and through the due process of law. It is to be noted that the mortgagor of the property has suppressed the material fact of mortgage created in favour of the Appellant Bank 18 (AoR 3 of 2019)

before the Civil Court, remained a mute spectator and thus the Court Sale Deed dated 23.11.2009 came to be issued.

12. Proceedings inter alia, the Respondent No.1/objector referred to various judgments and contended that the Executing Court has the power to decide the questions relating to right, title or interest in the property arising between the parties and argued that the Recovery Officer being an Executing Court has jurisdiction to decide the question of right, title or interest in the property.

13. The facts and circumstances of the case referred to by the Respondent No.1 are entirely different from the case on hand. In this case, there is no doubt that the Recovery Officer is executing the Recovery Certificate issued by this Tribunal. The records of the case reflects that the Tribunal and the Hon’ble Debts Recovery Appellate Tribunal have held that the first charge of the applicant bank is subsisting over the schedule property and the Recovery Officer, in terms of the Recovery Certificate issued to him, proceeds to recover the amount due thereunder. There is no doubt that the Recovery Officer has the right to proceed under the Recovery Certificate to recover the legitimate dues. However, there is a provision of Appeal envisaged under the Recovery of Debts & Bankruptcy Act 1993, as under:

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“30. Appeal against the order of Recovery Officer.-

(1) Notwithstanding anything contained in section 29, any person aggrieved by an order of the Recovery Officer made under this Act may, within thirty days from the date on which a copy of the order is issued to him, prefer an appeal to the Tribunal.

(2) On receipt of an appeal under sub-section(1), the Tribunal may, after giving an opportunity to the appellant to be heard, and after making such enquiry as it deems fit, confirm, modify or set aside the order made by the Recovery Officer in exercise of his powers under sections 25 to 28 (both inclusive)”

Therefore, the argument put forth by the Respondent No.1/objector in this regard is redundant and untenable.

14. In view of the above facts and circumstances, this Tribunal comes to the conclusion that the Appellant bank is entitled to proceed further against the subject property in accordance with the Law and the impugned Order dated 22.02.2019 passed by the Recovery Officer is set aside. The Respondent No.1 being the Agreement Holder for sale and having obtained the Sale Deed subsequently, may approach the appropriate Forum for redressal of his grievance, if any, for suitable remedy in the manner known to law.

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15. With this observation, the Appeal is allowed. The Interim Application pending in the Appeal, if any, stands disposed of with this Order. Ordered accordingly. (Dictated to Private Secretary, after its transcription and necessary corrections, Order is signed and passedby me on this 26th day of June 2023) Sd/-

PRESIDING OFFICER

DRT-2, BENGALURU

APPENDIX

LIST OF DOCUMENTS PRODUCED BY THE APPELLANT

Sl No. Particulars Annexure

Certified copy of the Order of Recovery Officer-2 dated 22.02.2019 A1

Copy of the Order of Hon’ble DRAT, Chennai dated 14.07.2014 A2

Copy of the Memo filed by Applicant bank dated 27.10.2014 A3

Copy of the Modified Recovery Certificate dated 26.11.2014 A4

Copy of letter dated 14.02.2017 addressed to Respondent No.1 A5

Copy of Claim Statement by Respondent No.1 A6

Copy of Court Sale Deed dated 23.11.2009 A7

Copy of Statement of objection by Certificate Holder A8

Copy of Written arguments of Claimant/objector A9

Copy of Synopsis of Written Argument by Certificate Holder A10

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SCHEDULE

Details of the mortgaged property/Schedule A to Recovery Certificate

All that piece and parcel of immovable property being eastern portion of Khaneshumari No.1 situated in Konnakunte Village, Uttarahalli Hobli, Bangalore South Taluk along with residential house constructed on site measuring East to West 30 feet and North to South 50 feet bounded on the: East by : Property of Karpal West by : Property of Sri Manohar Kumar and Praveen Kumar North by : Road South by : Private property Sd/-

PRESIDING OFFICER

DRT-2, BENGALURU