Heard both sides.
2. Application No.1638 of 2009 is filed by the plaintiff seeking for grant of stay of all further proceedings pursuant to the notice dated 10.4.2008 issued under section 13(2) of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short SARFAESI Act) by the 5th respondent/5th defendant.
3. The applicant is the plaintiff. The applicant filed the Suit for the grant of a declaration, declaring that the proceedings of the 5th defendant under the SARFAESI Act as null and void and not binding on the plaintiff. A further relief of permanent injunction restraining the defendants from in any way causing any further encumbrance on the suit property was also sought for. A further prayer for a mandatory injunction directing the fourth defendant bank to hand over all records pertaining to the suit property was also sought for.
4 This Court by an order dated 17.4.2009 granted an interim order on condition that the applicant/ plaintiff should deposit a sum of Rs.10 Lakhs to the credit of the proceedings initiated by the 5th respondent bank within two weeks from the said date. It is now claimed that the said condition has been complied with.
5 Aggrieved by the interim order, the fourth and fifth respondents/defendants had taken out an Application No.3073 of 2008 seeking for vacating the interim order.
6 These two applications were heard together. Mr.AR.L.Sundaresan, learned senior counsel for the applicant/ plaintiff submitted that the applicant is an old lady and an illiterate person and her signatures were obtained fraudulently. She had no opportunity or cooperation to have any knowledge about the loan transaction. The applicant had executed guarantee agreement on 4.10.2006 as a collateral security in the nature of equitable mortgage, which was executed by her on 5.10.2006 and it is a fraudulent transaction. It is stated that the second defendant was introduced to her through a common friend and he used to visit the plaintiff's house and pretended as if he was a good person and gained the confidence of the plaintiff. The second defendant was also admittedly offered to take care of her, discharge her in the loan amount and retrieve the title deeds pertaining to the suit property. Under the pretext of clearing the mortgage loan as requested by the plaintiff, she had extended all cooperations to the defendants 2 and 3 and affixed her signatures in various papers partially filled up and in some unfilled printed documents. It is only when the fourth and fifth respondents attempted to take the possession of the property invoking the provisions of the SARFAESI Act by a notice dated 10.4.2008, she realised her fallacy and also the dupe played by the defendants. Under such circumstances, the present Suit was filed and injunction was obtained.
7. Countering these arguments, the learned counsel for the fourth and fifth respondents/State Bank of India contended that this Court has no jurisdiction to entertain the Civil Suit in respect of any proceedings in which either the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal empowers to determine such acts. Strong reliance was placed upon
Section 34 of the SARFAESI Act, where the Civil Court's jurisdiction has been ousted. It is also stated that the outstanding loan amount had exceeded more than Rs.62,07,550/- together with interest. Therefore, asking the plaintiff to deposit a sum of Rs.10 Lakhs will only be a fraction of their claim.
8. The petitioner also produced documents to show that the plaintiff was well aware of the loan transactions. In fact, the Passport photograph of the plaintiff was affixed in the Guarantor column and the photo contained her signature when it was presented to the Bank. It is also stated that the plaintiff,who came to the bank had signed the guarantee agreement. The bank also produced a letter dated 5.10.2006 signed by the plaintiff vouchsafing/confirming that she had deposited with the bank on 4.10.2006 the title deeds of the property and the said inland letter was signed by her and it was received by the bank through post in the normal course. The learned counsel appearing for the bank also produced Board Resolution of the first defendant company, by which the plaintiff was made as a Director of the Company. A certified copy of the Form 32 was also produced to show that the plaintiff was a Director of the Company. Therefore, it was argued that the allegation that the plaintiff was ignorant of the loan transaction was contrary to facts.
9. In support of his contention that this Court has no jurisdiction to entertain a suit, Mr.AR.L.Sundaresan, learned senior counsel appearing for the plaintiff placed reliance upon the Division Bench judgment of this Court in S.V.Subramaniam vs. Cypress Semiconductor Technology India Private Ltd., rep.by its Director, Bangaloare and others reported in (2008) 2 MLJ 169, wherein a Division Bench of this court has held that a suit for declaration, that the order passed by the Debt Recovery Tribunal, that the same order was obtained by fraud is maintainable and
Section 17 of the Recovery of Debts due to Banks and Financial Institutions Act cannot oust the civil court's jurisdiction.
10. The learned counsel also referred to the decision of the Single Judge of this Court in Cypress Semiconductor Technology India Private Ltd., rep.by its Director K.Vishwanath, Bangaloare reported in (2008) 2 MLJ 307, which order was confirmed by the Division Bench.
11 Per contra, Mr.M.L.Ganesh, learned counsel for the Bank referred to the judgment of this Court in Bank of India, rep.by its Branch Manager vs.N.Natarajan and another reported in 2007 (4) CTC 360 to contend that once a notice is issued under
section 13(2) of the SARFAESI Act, no Civil suit will lie.
12. He also placed reliance upon the judgment of the Full Bench of this Court in M/s.Lakshmi Shankar Mills (P) Ltd., and others vs. The Authorised officer/Chief Manager, Indian Bank and others reported in 2008 (2) CTC 529. The Full Bench has held that the proceedings under section 17 of the Securitisation Act are in lieu of Civil suit which remedy is ordinarily available but for the bar under
section 34 of the SARFAESI Act.
13. The Supreme Court in its latest ruling in Authorised Officer, Indian Overseas Bank & another vs. M/s.Ashok Saw Mill reported in JT 2009 (9) SC 491 dealt with the scope of the powers vested on the Debt Recovery Tribunal. The Supreme Court held that in a given case, the Debt Recovery Tribunal can set aside a sale and restore the position of status quo ante. It is relevant to extract paras 23 and 24 of the judgment which read as follows:
"23. The intention of the legislature is, therefore, cleqar that while the Banks and Financial Institutions have been vested with stringent powers for recovery of their dues, safeguards have also been provided for rectifying any error or wrongful use of such powers by vesting the DRT with authority after conducting an adjudication into the matter to declare any such action invalid and also to restore possession even though possession may have been made over to the transferee. The consequences of the authority vested in DRT under Sub-Section (3) of Section
17 necessarily implies that the DRT is entitled to question the action taken by the secured creditor and the transactions entered into by virtue of
Section 13(4) of the Act. The Legislature by including Sub-Section (3) in Section
17 has gone to the extent of vesting the DRT with authority to even set aside a transaction including sale and to restore possession to the borrower in appropriate cases. Resultantly, the submissions advanced by Mr.Gopalan and Mr.Altaf Ahmed that the DRT has no jurisdiction to deal with a post 13(4) situation, cannot be accepted. The dichotomy in the views expressed by the Bombay High Court and the Madras High Court has, in fact, been resolved to some extent in the Mardia Chemicals Ltd.'s case (supra) itself and also by virtue of the amendments effected to
Sections 13 and
17 of the principal Act. The liberty given by the learned Single Judge to the appellants to resist S.A.No.104 of 2007 on all aspects was duly upheld by the Division Bench of the High Court and there is no reason for this Court to interfere with the same.
24. We are unable to agree with or accept the submissions made on behalf of the appellants that the DRT had no jurisdiction to interfere with the actiont aken by the secured creditor after the stage contemplated under
Section 13(4) of the Act. On the other hand, the law is otherwise and it contemplates that the action taken by a secured creditor in terms of
Section 13(4) is open to scrutiny and cannot only be set aside but even the status quo ante can be restored by the DRT."
14. It is no doubt true that in case of fraud, the plaintiff can bring an action before this court by questioning the proceedings under the SARFAESI Act and such a suit is maintainable. But, at this stage, this Court is not considering the validity of the suit laid before this Court.
15. The allegation of the plaintiff was that she was made to sign some documents and the documents unaware of its contents have been fabricated. For the purpose of maintaining an interim order in the nature of an injunction, this Court will have to consider whether there was any prima facie case for maintaining such application. Though in the application, the plaintiff had feigned ignorance about the loan transaction, the respondent bank was able to show by sufficient materials that the plaintiff was a Director of the first respondent Company and that Form 32 Declaration was also filed before the Registrar of Companies. She had also signed the bank documents along with her photographs. The fact that the second and third defendants were not strangers was admitted. They are known to the plaintiff. The fact that by a separate inland letter, she had confirmed the security interest furnished to the bank. In the presence of these materials produced by the bank, the plaintiff's mere assertion alone remains in the pleadings and that cannot be accepted as true at this stage, unless it is supported by strong evidence.
16. Under these circumstances, this Court is not convinced that the plaintiff has made out a prima facie case for not suspending the order of injunction. On the contrary, in view of the stand taken by the bank that an active participation of the plaintiff was there in creating a security interest in favour of the bank and that due to the default, the plaintiff is also equally liable as a guarantor and since her property was also given as security interest, it is open to the bank to proceed with the action initiated under
section 13 of the SARFAESI Act.
17. It must also be noted that whether the security interest was fraudulently obtained can also be gone into by the plaintiff by moving the Debt Recovery Tribunal under
section 17 (2) of the Recovery of Debts due to Banks and Financial Institutions Act, 1993. In such proceedings whether there was fraudulent transactions were there can be considered by the Debt Recovery Tribunal as pointed by the latest ruling of the Supreme Court in the Indian Overseas Bank's case (cited supra). It is not known as to why the plaintiff has moved this Court. It may be with a view to obtain an interim order so as to stall further proceedings initiated by the bank. It is not a case where the bank's proceedings were initiated without there being any security interest at the hands of the bank.
18. Under the circumstances, application in A.No.1638 of 2009 granting an interim injunction will stand dismissed. Application in A.No.3073 of 2009 for vacating the interim order stands allowed. The parties will bear their own costs.
19. It is open to the bank to encash the amount if already deposited by the plaintiff to the credit of the securitisation proceedings initiated by the bank and there is no further impeding for them to proceed with the proceedings initiated under
section 13 of the SARFAESI Act.
ajr