M/S MOHAN BHANDAR vs. VIJAYA BANK

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 23RD DAY OF JULY, 2018 BEFORE THE HON’BLE MR.JUSTICE ARAVIND KUMAR WRIT PETITION NOs. 27975-77/2018 (GM-DRT) c/w W.P.NOS. 48475/2016 AND 37112-37117/2016 (GM-RES )

W.P.NOs.27975-77/2018

BETWEEN:

17TH MAIN, 15TH CROSS, SOUTH EAST CORNER NUMBER SARASWATHIPURAM TONACHIKOPPAL 2ND STAGE MYSORE-570023 REPRESENTED BY ITS PARTNER MR SANDEEP GOEL

17TH MAIN, 15TH CROSS, SOUTH EAST CORNER NUMBER SARASWATHIPURAM TONACHIKOPPAL 2ND STAGE MYSORE-570023 REPRESENTED BY ITS STORE IN CHARGE MANAGER MR H S SRIKANTH

17TH MAIN, 15TH CROSS,

SOUTH EAST CORNER NUMBER SARASWATHIPURAM TONACHIKOPPAL 2ND STAGE MYSORE-570023 REPRESENTED BY ITS

MANAGER PRAVEENA B R

... PETITIONERS

(BY SRI.S.S.NAGANAND, SR. COUNSEL FOR SRI. SRIRANGA S, ADVOCATE FOR JUST LAW ASSOCIATES)

AND:

BRANCH MANAGER

3 BENGALURU-560025. ... RESPONDENTS

(BY SRI.K. SHASHIKIRAN SHETTY, SR. COUNSEL FOR SRI. VIGNESH SHETTY, ADVOCATE FOR C/R1; SRI. BALARAM M.L, ADVOCATE FOR R2)

THESE WRIT PETITIONS ARE FILED UNDER ARTICLES 226 & 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE ORDER DATED 13.6.2018 VIDE ANNEX-C PASSED BY THE R-4 UNDER SEC. 25(aa) OF RECOVERY OF DEBTS AND BANKRUPTEY ACT, 1993, IN TRC NO. 339/2017 (DCP NO. 2933) IN O.A. 620/2001.

W.P. NO. 48475/2016

BETWEEN

MR M NAGARAJA AGED ABOUT 64 YEARS S/O LATE MAYIGOWDA ORIGINALLY RESIDENT OF NO 487, A & B BLOCK 11TH CROSS, CHITABANU ROAD, KUVEMPUNAGAR, MYSORE - 570023 CURRENTLY LODGED IN CENTRAL PRISON MYSORE; CONVICTED FOR OFFCENCE UNDER SECTION 138 OF THE NEGOTIABLE INSTRUMENTS ACT REPRESENTED BY HIS POWER ATTORNEY HOLDER & HIS DAUGHTER MRS JAYAPRIYA NAGARAJA AGED ABOUT 32 YEARS W/O MR M N BANDHI GOWDA RESIDING AT NO 487, A & B BLOCK 11TH CROSS,

4 CHITABANU ROAD KUVEMPU NAGAR MYSORE – 570023.

... PETITIONER

(BY SRI. BALARAM M.L, ADVOCATE)

AND:

VIJAY BANK A SCHEDULED COMMERCIAL BANK & NATIONALISED UNDER BANKING COMPANIES (ACQUISITION & TRANSFER OF UNDERTAKINGS) ACT 1980 HAVING ITS HEAD OFFICE AT 41/2 M G ROAD, BANGALORE - 560001 REPRESENTED BY ITS CHAIRMAN & MANAGING DIRECTOR & CONCERNED BRANCH OFFICE IS AT VIJAY BANK NEW SARASWATHIPURAM BRANCH NO 568, NEW KANTHARAJE URS ROAD KUVEMPU NAGAR MYSORE - 570023 REPRESENTED BY ITS MANAGER / AUTHORISED OFFIER

... RESPONDENT

(BY SRI.K. SHASHIKIRAN SHETTY, SR. COUNSEL FOR SRI. VIGNESH SHETTY, ADVOCATE)

THIS WRIT PETITION IS FILED UNDER ARTICLES 226 & 227 OF CONSTITUTION OF INDIA PRAYING TO QUASH ANNEX-A, NOTICE DTD.13.6.2016, ISSUED BY THE RESPONDENT.

W.P. NOS. 37112-117/2016

BETWEEN

17TH MAIN, 15TH CROSS,

SOUTH EAST CORNER NUMBER SARASWATHIPURAM

TONACHIKOPPAL 2ND STAGE

MYSORE - 570023

REPRESENTED BY ITS PROPRIETOR MR GIYZA AHAMMED T V

17TH MAIN, 15TH CROSS,

SOUTH EAST CORNER NUMBER SARASWATHIPURAM

TONACHIKOPPAL 2ND STAGE

MYSORE - 570023

REPRESENTED BY ITS PROPRIETOR DR RAJ KUMAR P WADHWA

... PETITIONERS

(BY SRI.S.S. NAGANANDA, SR. COUNSEL FOR SRI. SRIRANGA S, ADVOCATE FOR JUST LAW ASSOCIATES)

AND:

MYSORE DISTRICT

MYSORE -570 001.

... RESPONDENTS

(BY SRI.K .SHASHIKIRAN SHETTY, SR. COUNSEL FOR SRI. VIGNESH SHETTY, ADVOCATE FOR R1; SRI. H R SUNIL KUMAR, ADVOCATE FOR C/R2)

7 THESE WRIT PETITIONS ARE FILED UNDER ARTICLE 226 & 227 OF CONSTITUTION OF INDIA PRAYING TO QUASH THE ORDE DTD:21.3.2016 (ANENXURE-C) PASSED BY THE R-2.

THESE PETITIONS COMING ON FOR PRELIMINARY HEARING THIS DAY, THE COURT MADE THE FOLLOWING:

O R D E R

These petitions are taken up together and disposed of by a common order, since issues involved in these writ petitions would overlap each other while being adjudicated, apart from parties as well as subject property of these writ petitions are one and the same.

8 Bankruptcy Act, 1993 (for short ‘DRT Act’) in TRC No.339/2017 (DCP No.2933) in O.A.No.620/2001 and in alternate they have prayed for a direction to the fourth respondent to consider the review application preferred by them vide Annexure-F and pending consideration of the same to direct respondents 1 to 4 not to interfere with the possession of the secured asset-Saraswathipuram. Petitioners are also seeking for a declaration that petitioners leasehold rights over the schedule property are not regulated by and/or covered by Debt Recovery Tribunal Act, 1993 and for further direction to respondents 1 and 4 not to interfere with their possession of secure asset.

9 Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (for short ‘SARFAESI’ Act) whereunder first respondent- Bank has been permitted by District Magistrate to take physical possession of the secured asset- Saraswathipuram (i.e., portions) in occupation of the petitioners. They have also sought for quashing of notice dated 13.06.2016-Annexures-E to E-3 issued by first respondent – Vijaya Bank (hereinafter referred to as ‘Secured creditor’ or ‘Bank’) whereunder the Bank has intimated the petitioners that if possession of secured asset (portions of property in occupation of petitioners) is not handed over to Bank, it would take vacant possession of said property with the assistance of law enforcement officials as per Court order dated 21.03.2016.

10 Annexure-A issued by respondent-Bank calling upon the petitioner to handover possession of secured asset as indicated in the said notice; with a further direction to respondent-Bank to handover or return the original title deeds concerning mortgaged residential property, which is described in the impugned notice dated 13.06.2016-Annexure-A; and petitioner has also sought for a writ of mandamus to the respondent-Bank to make a fair and reasonable offer of One Time Settlement in the manner prescribed by Reserve Bank of India and to permit the petitioner to settle the liability by way of sale or conveyance of rights in the secured property, subject to mandates of mortgage etc.,

Petitioner in W.P.No.48475/2016–debtor had borrowed certain amounts from the respondent-Bank and said loan having been classified as a non performing asset, on 31.03.2000 respondent-Bank

11 initiated proceedings for recovery of the amounts due and two Original Applications came to be filed and an application under Section 19 of DRT Act being filed before the jurisdictional Debts Recovery Tribunal it resulted in recovery certificates being issued on 11.08.2004 and 31.11.2003 for a sum of `39 Crores. At the time of borrowing the amounts, debtor had secured said amounts by offering the immovable properties (3 numbers) as a security. Said three properties are; (i) Immovable property at Saraswathipuram – commercial complex; (ii) House property situated at Kuvempu Nagar; (iii) Honnur property – commercial;

12 as well as long thereafter there were four proposals for One Time Settlement, namely; (i) first OTS was on 04.11.2003 for a sum of `2,46,43,021/-; (ii) second OTS on 31.12.2004 for a sum of `2,05,05,000/-; (iii) third OTS on 09.08.2007 for a sum of `2.99 crores. (iv) fourth OTS on 24.12.2012 for a sum of `6.10 crores.

13 possession was obtained. This resulted in debtor filing a writ petition before this Court in W.P.No.4060/2007 challenging the same and said writ petition came to be disposed of by this Court vide order dated 09.08.2007 (Annexure-R-2 in W.P.No.48475/2016) in the light of memos having been filed by the debtor as well as secured creditor namely, respondent-Bank. Under the said memo debtor undertook to pay a total amount of `299 Lakhs to the Bank namely, 75 lakhs within a period of one (1) month from the date of order and balance `224 Lakhs within a period of 90 days. Since possession of secured asset had been taken by the Bank and it was agreed that possession is being handed over back to the debtor by the bank, said memos came to be placed on record and writ petition came to be disposed of.

14 hereinabove under the respective lease deeds, as already noticed hereinabove.

15 on 08.07.2016 directing respondents therein namely, Bank not to dispossess the petitioner from Schedule ‘A’ and ‘B’ properties for a period of eight (8) weeks and said order has been continued from time to time. It is thereafter respondent-Bank has approached the Recovery Officer-II of jurisdictional Debts Recovery Tribunal for an order being passed under Section 25(aa) of DRT Act and accordingly an order came to be passed on 13.06.2018 (Annexure-C in W.P.Nos.27975-77/2018) directing the tenants therein to handover vacant possession of the properties and pursuant to same, respondent-Bank has taken possession of the said properties from petitioners herein on 04.07.2018.

16 in W.P.No.48475/2016 and Sri.Shashikiran Shetty, learned Senior Counsel appearing on behalf of first respondent-Bank and Sri. H.R.Sunil Kumar, learned Advocate appearing for respondent No.2. Perused the records.

17 117/2016 and W.P.Nos.27975-977/2018 having complied with such direction neither the Deputy Commissioner nor the tribunal could have passed orders directing the petitioners to handover possession of the properties that too without notice to the petitioners.

18 117/2016, respondent- Bank could not have resorted to initiating proceedings under Section 25(aa) of DRT Act to overcome the interim order passed by this Court on 08.07.2016 and such an exercise having been undertaken by the Bank requires to be set aside by this Court. He would also further contend that both under the SARFAESI Act and DRT Act, the tenancy rights of petitioners (tenants) would get protected not only under the said Acts, but also under the Transfer of Property Act (for short TP Act) and as such he contends tenants cannot be evicted without due process of law namely, by determination of their lease and without initiating proceedings for their eviction, bank could not have taken possession of portions of the property, which was in occupation of petitioners without initiating appropriate proceedings for their eviction. He would also contend that application under Rule 87, Schedule-II of the Income Tax Act, 1961, seeking review of the order dated 13.06.2018 (passed by respondent–Bank under

19 Section 25(aa)) had been filed before the Recovery Officer, DRT-II, Bengaluru and said application has not been adjudicated and as such order passed under Section 25(aa) should not be given effect to as it would nullify the order passed by this Court on 08.07.2016 in W.P.Nos.37112-117/2016. On these grounds, he prays for allowing the writ petitions and quashing of impugned orders as sought for in the respective writ petitions, which are noted hereinabove. He has relied upon following judgments: (1) (2014) 6 SCC 1- HARSHAD GOVARDHAN SONDAGAR VS. INTERNATIONAL ASSETS RECONSTRUCTION COMPANY LIMITED AND OTHERS

(2) AIR 2008 KAR. 14- HUTCHISON ESSAR SOUTH LTD. VS. UNION BANK OF INDIA AND ANR.

(3) ILR 1985 KAR. 3700- M/S PATIL EXHIBITORS (P) LTD., VS. CORPORATION OF THE CITY OF BANGALORE.

(4) AIR 2011 KAR. 27- M/S NITCO ROADWAYS PRIVATE LTD., AND ORS. VS. PUNJAB NATIONAL BANK

(5) (2007) 8 SCC 449- PRESTIGE LIGHTS LTD. VS. STATE BANK OF INDIA

21 prays for proceedings initiated by the respondent- Bank both under SARFAESI Act and DRT Act being quashed and has sought for a writ of mandamus being issued to the respondent-Bank to make a fair and reasonable offer of One Time Settlement in the manner prescribed by the Reserve Bank of India. In support of his submissions he has relied upon the judgment of Hon’ble Apex Court in the case of M/S SARDAR ASSOCIATES & ORS vs PUNJAB & SIND BANK & ORS reported in (2009) 8 SCC 257.

22 being initiated by the secured creditor, they were required to be issued with a notice. He would draw the attention of the Court to Section 13(13) of SARFEASI Act to contend that a borrower would not be entitled to lease the secured asset without prior written consent of the secured creditor. He further submits that the respondent – Bank after following the due procedure prescribed under Section 13 of the SARFEASI Act had approached the District Magistrate under Section 14 for taking over physical possession of the secured asset as the petitioners/occupants were causing obstruction and after satisfying that the ingredients of Section 13 have been complied by the respondent – Bank, an order under Section 14(1) of the Act had been passed on 14.02.2007 and possession was taken on 27.02.2017. However, by virtue of order passed in W.P.No.4060/2007, the locked premises was opened, which was on the strength of the memo filed by the borrower offering one time settlement by paying

23 Rs.299 lakhs, which commitment was not kept up by the borrower. He would submit that on account of multiple litigations launched by the borrower and at his behest, by the occupants of the premises, the process of recovery of money due to the Bank has been stalled. Hence, he contends that there are no bonafides in the contentions raised by the petitioners. On these grounds, he seeks for rejection of the petition.

25 “The petitioner undertakes to pay a total amount of Rs.299 lakhs to the respondent – Bank in the following manner.

The memo filed by Mr. K. Chandranath Ariga, learned counsel appearing for respondent-1 would read as under:

“The respondent -Bank is agreeable for the undertaking given by petitioner to pay the amount of Rs.299 lakhs to the Bank in the manner stated in the memo subject to the following condition:

“In the event of petitioner failing to abide by the undertaking, the Bank is at liberty to proceed against the petitioner as per the Demand Notice issued under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Act, 2002 and that the petitioner shall not create any obstruction.”

Writ petition is disposed of in terms of both memos.”

Pursuant to same, possession was redelivered to the debtor by respondent-Bank.

27 be issued by petitioner’s daughter, which was also dishonoured ultimately resulting in the payor being convicted and in Criminal Appeal, the sentence imposed by the trial judge came to be confirmed. Petitioner was arrested and imprisoned during 2016. In fact, it was petitioner’s daughter, who paid a sum of `1.50 Crores towards discharge of loan, which came to be adjusted by the Bank towards outstanding loan amount. It is also to be noted at this juncture itself that possession of residential house at Kuvempu Nagar has already been taken by respondent–Bank and also auction came to be conducted and third party rights have also stepped in.

28 physical possession of property, which had been delivered by the Bank to the debtor pursuant to order passed in W.P.No.4060/2007. Said order have been challenged in W.P.Nos.37112-117/2016.

29 “As to whether secured creditor would be empowered and entitled to take possession of the secured asset by initiating proceedings simultaneously both under under the DRT Act and SARFAESI Act?”

In the instant case, undisputedly, the respondent – Bank had initiated proceedings under Section 13 of the SARFEASI Act and pursuant to same, an order under Section 14 of the SARFEASI Act was obtained from the District Magistrate and matter was proceeded accordingly. Subsequently, on obtaining recovery certificate in O.A.No.620/2001, same was sought to be executed in Execution Proceedings TRC No.339/2017 (DCP No.2933) by taking over physical possession of the secured asset and as such, had approached the Debt Recovery Tribunal – II, Bengaluru, who by order passed under Section 25(aa) of DRT Act ordered for taking physical possession of the secured asset namely, Saraswathipuram Commercial Complex which was also the subject matter of order dated 21.03.2016

30 passed by the District Magistrate, Mysuru District under Section 14 of the SARFEASI Act.

(i) Whether the banks or financial institutions having elected to seek their remedy in terms of the DRT Act, 1993 can still invoke the NPA Act, 2002 for realising the secured assets without withdrawing or abandoning the OA filed before DRT under the DRT Act.”

It came to be held by the Hon’ble Apex Court in TRANSCORE case referred to supra that Bank or financial institution can exercise its discretion as to cases in which it may apply for leave and in cases

31 which it may not apply for leave to withdraw on the ground that Section 19(1) is an enabling provision, which provision deal with myriad circumstances. It has been further held that DRT and SARFAESI Act provide for cumulative remedies to the secured creditors. By removing all fetters on the rights of the secured creditor, he is given right to choose one or more of the cumulative rights vide paragraphs 14 and 66. In that view of the matter, contentions raised by Sri.S.S.Naganand, learned Senior Counsel appearing for petitioners that when Bank had initiated proceedings under DRT Act it cannot initiate proceedings under SARFAESI Act, cannot be accepted and it stands rejected.

32 submission he has relied upon the following judgments of Hon’ble Apex Court: (i) (2014) 6 SCC 1: HARSHAD GOVARDHA SONDAGAR vs. INTERNATIONAL ASSETS RECONSTRUCTION COMPANY LIMITED AND OTHERS

(ii) AIR 2008 KAR.14: HUTCHISON ESSAR SOUTH LTD. vs. UNION BANK OF INDIA AND ANR

(iii) ILR 1985 Kar. 3700 (DB): M/S. PATIL EXHIBITORS (P) LTD. vs. CORPORATION OF THE CITY OF BANGALORE

(iv) AIR 2011 KAR. 27: M/S. NITCO ROADWAYS PRIVATE LTD. AND ORS vs. PUNJAB NATIONAL BANK

to contend that possession of bonafide tenants cannot be disturbed by a secured creditor invoking Section 14 of SARFAESI Act and same cannot be resorted by a secured creditor and respondent-Bank has to take recourse for initiating appropriate proceedings to recover physical possession and it is only the symbolic possession that secured creditor can take under Section 14 of the SARFAESI Act.

33 23. Hon’ble apex Court in the case of HARSHAD GOVARDHAN’s case referred to supra has held that Section 13(4) of the SARFAESI Act confers the secured creditor to take possession of secured asset and where, however, the lawful possession of secured asset is not with the borrower but with a lessee under a valid lease, then in such an event secured creditor cannot take possession of the secured asset until lawful possession of the lessee gets determined vide paragraphs 19 and 20. It is also further held that where after receipt of notice from Bank under Section 13(2) enters into possession of secured asset by lease or otherwise since borrower being prohibited to deal with the secured asset without express permission from the creditor and yet debtor were to lease or deal with the secured asset without prior written consent from the secured creditor, such transaction would not be binding on the secured creditor.

34 24. Hon’ble Apex Court has held that 13(2) of SARFAESI Act and provisions of Transfer of Property Act enable the borrower or the mortgagor to make a lease are inconsistent with each other and as such, it has been held that Section 13(13) of SARFAESI Act would override the provisions of Section 65A of Transfer of Property Act by virtue of Section 35 of the SARFAESI Act, inasmuch as, expression of any other law for the time being in force as found in Section 35 of the SARFAESI Act overrides other provisions of the other enactments. Hence, any lease of a secured asset made/created by a borrower/debtor after he receives the notice under sub-section (2) of Section 13 from the secured creditor, would not be a valid lease. It has been held by the Hon’ble Apex Court to the following effect: “21. When we read the different provisions of Section 13 of SARFAESI Act xxxxxx lessee gets determined. There is, however, no mention in sub- section (4) of Section 13 of the SARFAESI Act that a lease made by the borrower in favour of a lessee will stand determined on the secured

35 creditor deciding to take any of the measures mentioned in Section 13 of the said Act. Sub-section (13) of Section 13 of the SARFAESI Act, however, provides that after receipt of notice referred to in sub-section (2) of Section 13 of the SARFAESI Act, no borrower shall lease any of his secured assets referred to in the notice, without the prior written consent of the secured creditor. This provision is sub-section (13) of Section 13 of the SARFAESI Act and the provisions of the Transfer of Property Act enabling the borrower or the mortgagor to make a lease are inconsistent with each other. Hence, sub-section (13) of Section 13 of the SARFAESI Act will override the provisions of Section 65-A of the Transfer of Property Act by virtue of Section 35 of the SARFAESI Act, and a lease of a secured asset made by the borrower after he receives the notice under sub-section (2) of Section 13 from the secured creditor intending to enforce that secured asset will not be a valid lease.”

36 mortgage. It is further held that sub-section (13) of Section 13 of the SARFAESI Act will override the provisions of Section 65A of Transfer of Property Act by virtue of Section 35 of the SARFAESI Act and as such, where a lease of a secured asset made by the borrower after he receives the notice under sub- section (2) of section 13 from the secured creditor intending to enforce that secured asset will not be a valid lease.

37 Tribunal will not have the power to restore possession of the secured asset to the secured creditor. It has been held that there would be no remedy available under Section 17 to the lessee to protect such lawful possession created under a valid lease. In that view of the matter, Hon’ble Apex Court has held in its authoritative pronouncement that in such circumstances, writ petitions would be maintainable. Thus, there cannot be any straight jacket formula and it would depends on facts and circumstances of each case.

38 28. At the cost of repetition it requires to be noticed that equitable mortgage came to be created by debtor on 06.06.1998 by depositing the title deeds with the respondent-Bank of subject secured assets and petitioners were inducted as lessees on 28.05.2015, 01.03.2010 and 01.12.2016 respectively. This would clearly go to indicate or disclose that lease or tenancies have been created subsequent to creation of equitable mortgage and if it was the case of petitioners that lease have been created either with the express permission from the secured creditor or their tenancies have been created much prior to creation of equitable mortgage, then contention of Sri.S.S.Naganand, learned Senior Counsel would have been susceptible to acceptance. However, in the light of aforesaid factual position, it cannot be accepted and it requires to be rejected and accordingly, it is hereby rejected.

39 noticed is that present situation has been brought about by the debtor, which could have been avoided but for his non-compliance of his undertaking given before this Court and it is the debtor alone who is to be blamed for this situation by not only putting the first respondent-Bank in disadvantageous position having lured them to enter into lease and thereby dragging them into this unwarranted, uncalled for litigation. In fact, petitioner in W.P.No.48475/2016 is to be blamed for reasons more than one. At the first instance, when secured creditor took possession of the premises and was having possession of the premises way-back in the year 2007, induced the said Bank to redeliver possession of the premises by filing a memo of undertaking before this Court in W.P.No.4070/2007 undertaking thereunder to pay Rs.299 lakhs to respondent-Bank and based on said solemn undertaking given by the petitioner and accepting the same, this Court had directed the secured asset being released from the possession of

40 the secured creditor to debtor in 2007. It is thereafter he had inducted tenants into possession in question. However, he did not comply with the said undertaking. The reasons may be plenty, that would not be in the domain of this Court to examine as to whether reasons assigned by him is genuine or otherwise. The very fact that undertaking given by him before this Court having not been complied by the debtor would exhibit his lack of bonafides. As such this Court would not be inclined to consider the prayer of petitioner made in W.P.No.48475/2016 for quashing the notice dated 13.06.2016 issued by respondent-Bank particularly keeping in mind that secured creditor having already enforced the said notice and possession having been taken and successfully having conducted the auction. However, with regard to claim for grant of second prayer, same is being examined hereinbelow.

41 FINANCIAL SERVICES LTD. & ORS. disposed of on 08.08.2017 in W.P.No.35597-601/2017 & 35602- 35604/2017 (GM-RES) had examined the plea put forward by the tenants/lessees and secured creditor as to whether Section 14 of the SARFAESI Act would do away with the mandate of following the principles of natural justice. In other words, as to whether the tenants in occupation of the premises are required to be issued with the notice when proceedings is initiated by the secured creditor for obtaining physical possession of a secured asset. Co-ordinate Bench has noticed the judgments of the Hon’ble Apex Court in the case of HARSHAD GOVARDHA SONDAGAR vs. INTERNATIONAL ASSETS RECONSTRUCTION COMPANY LIMITED AND OTHERS reported in (2014) 6 SCC 1 and in the matter of VISHAL KALSARIA vs. BANK OF INDIA reported in (2016) 3 SCC 762 and it came to be held that Metropolitan Magistrate or the District Magistrate will have to issue notice and give an opportunity of hearing to the person claiming to

42 be the lessee as well as to the secured creditor as it would be inconsistence with the principles of natural justice. It is further held that if the Metropolitan Magistrate or District Magistrate if satisfied that lease created before the mortgage or such lease created is in accordance with the requirements of Section 65A of the Transfer of Property Act,1882 then lease has to be determined in accordance with Section 111 of the Transfer of Property Act, 1882 and in such circumstances, Metropolitan Magistrate or District Magistrate cannot pass an order for delivery of physical possession of secured asset, after taking note of principles laid down in HARSHAD GOVARDHAN’s referred to supra vide paragraph 21. Thus, it would emerge therefrom that where there is no dispute with regard to the fact that tenancy was created prior to mortgage or where tenancy is created subsequent to mortgage is not in accordance with the provisions of SARFAESI Act, then, in such circumstances, no notice is required to be issued. In

43 other words, bonafide tenants cannot be evicted. It is in this background, the facts on hand are required to be noticed.

44 undertaking, neither the secured creditor can be allowed to weep on the shoulder of his tenants nor the tenants can be heard to contend that they were required to be issued with the notice by the secured creditor or their alleged tenancy is protected under the prevailing tenancy laws or the provisions of the Transfer of Property Act. None of these grounds would be available to the tenants in the instant case, particularly, when it is an admitted fact that lease in their favour have been created subsequent to the mortgage and that too, without consent of the secured creditor. As could be seen from the records, secured creditor at all times, have made bonafide attempts to salvage the situation by agreeing and consenting for any offer that was coming in the way of settlement as its last straw and this is evident from the fact that secured creditor though had taken possession of the secured asset, yet, with the fond hope of settling the dispute and giving a quietus to all the pending litigations, agreed to hand over

45 possession of the premises which are now in occupation of the three petitioners which was at the behest of the debtor. In the instant case, the borrower has been not only protracting the proceedings but also ensuring that neither the litigation comes to an end nor the outstanding loan amount payable to Bank is cleared. In fact, it would be appropriate to note at this juncture that on four occasions, the OTS offer made has remained a myth or on paper without any fruitful result arising out of it. First OTS was on 04.11.2003 for `2,46,43,021/-, second on 3.12.2014 for `225 lakhs, third OTS on 09.08.2007 for `2.99 Crores (joint memo filed in WP 4060/2007) and fourth OTS on 24.12.2012 for `6.10 Crores and as observed herein above, there was no bonafide shown by the debtor namely, borrower in ensuring such OTS offered is taken to its logical end.

46 to be worked out to give a quietus to the entire dispute also keeping in mind the equities that will have to be worked out in the peculiar circumstances of the case and on suggestion being called by the Court to the learned Advocates to work out a settlement, resulted in learned Senior Counsel appearing for petitioners submitting that first petitioner (M/s.Mohan Bhandar) agreeing and willing to purchase the ground floor portion i.e., approximately, 7800 sq.ft. of Nageetha Complex, Saraswathipuram, Mysuru for `3 Crores free from all encumbrances and an affidavit in that regard to the said effect came to be filed on 17.07.2018. However, Bank – secured creditor in response to the same, has pleaded its inability to sell the property in bits i.e., floorwise, contending interalia that first petitioner intends to purchase the valuable piece of a portion of building and as such, none will come forward to purchase the remaining portions namely, first, second and third floors and the marketability of the

47 property will be denuded or reduced. It is also contended by respondent-Bank that if the ground floor is sold to first petitioner only and there is every chance of other buyers who may offer their bids to other floors would be quoting unreasonable and unfair value or in other words, they are likely to quote abysmally less value and in such circumstances, it would cause financial loss to the Bank or they would not be able to receive the actual market value. To the said effect, affidavit of the Deputy General Manager of first respondent – Bank is filed. Yet again, on the same day, one more affidavit came to be filed by the first petitioner stating thereunder that in the event of auction taking place floor-wise of the entire building, first petitioner would be willing to participate in the auction process to purchase the ground floor to an extent of 7800 sq.mtrs. and in the event of first petitioner (M/s.Mohan Bhandar) being unsuccessful, it would voluntarily handover vacant and peaceful possession of the portion of premises in its

48 occupation to the first respondent – Bank within two (2) months from the date of confirmation of sale and till then it may be permitted to be in occupation of premises and continue its business activity.

49 petitioner in W.P.No.48475/2006 having any right to stall any of the proceedings that is being initiated by the secured creditor to take the said proceedings to its logical end.

50 25(aa) of the Recovery of Debts and Bankruptcy Act, 1993 in TRC No.339/2017 (DCP No.2933) in O.A.No.620/2001 and order dated 21.03.2016 (Annexure-C in W.P.Nos.37112-37117/2016) passed by second respondent.

(ii) Respondent–Bank would be at liberty to sell the secured assets in accordance with law and shall in the first instance, make attempt to auction/sell the secured asset namely, property in question i.e., commercial building situated at Saraswathipuram, Mysuru by floor- wise and it would also be at liberty to simultaneously auction/sell said building as a whole.

(iii) In the event of respondent - Bank being able to realize from sale/auction proceeds, the extent of value certified under the Valuation Report dated 17.07.2018, it would be at liberty to issue sale certificate

51 to the successful bidder/purchaser accordingly as it deems fit.

(iv) In the event of first petitioner participating in the auction and being successful in the bid either in purchasing portion/s of the building/wholly, first petitioner shall quit, deliver and hand over vacant possession of the remaining portion of the property to the secured creditor – Bank within one month from the said date of auction except to the extent it had purchased.

(v) In the event of first petitioner not being successful in the auction despite offering its bid or does not intend to participate in the auction, first petitioner shall handover vacant possession of all those portions of building in its occupation/possession to the respondent – Bank within 60 days from the date of auction.

52 (vi) It is also made clear that only in the event of first petitioner filing an affidavit of undertaking within one week from today agreeing and undertaking thereunder to comply with the above stipulated conditions, respondent – Bank shall redeliver possession to the first petitioner and immediately on filing of such affidavit of undertaking by first petitioner. In the event of first petitioner failing to file such affidavit of undertaking, respondent – Bank would be at liberty to auction the property in the manner it so desires and in accordance with law.

(vii) It is also made clear that in the event of such affidavit not being filed within the time stipulated, respondent – Bank would be at liberty to proceed in accordance with law.

(viii) It is further made clear that in respect of other portions of the property in question and other

53 secured assets of which respondent - Bank has already taken possession, it would be at liberty to proceed to sell the same in accordance with law.

(ix) W.P.No.48475/2016 is hereby dismissed and in the event of petitioner making any fresh proposal for settlement by way of One Time Settlement, the respondent – Bank would be at liberty to consider the same in accordance with the extant Regulations issued by RBI and governing such One Time Settlement, notwithstanding the earlier order/communication issued to the petitioner rejecting the OTS proposals.

(x) Costs made easy.

SD/- JUDGE

sp/DR