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2016 Supreme(Bom) 1328
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
V.M. KANADE & SWAPNA S. JOSHI, JJ.
Pratap G. Somaiya S/o Goverdhandas – Appellant
Versus
Rajesh Thakker S/o Prabhudas Thakker – Respondent
APPEAL (L) NOS. 162, 245 OF 2016 IN CHAMBER SUMMONS NO. 1990 OF 2007 IN CHAMBER SUMMONS NO. 212 OF 2007 IN EXECUTION APPLICATION (L) NO. 57 OF 2007 IN AWARD DATED 4TH APRIL, 1997 ALONGWITH NOTICE OF MOTION (L) NO. 1285 OF 2016 IN APPEAL (L) NO. 162 OF 2016
Decided On : 06-10-2016
Dr. Milind Sathe, Senior Counsel, Mr. Rompal Singh Kohli for the Appellant in APP (L) No. 162 of 2016 and for Respondent No. 1 in APP (L) No. 245 of 2016.
Mr. Y.S. Jahagirdar, Senior Counsel, Mr. Vikram Chavan, Vikram Chavan for the Appellant in APP (L) No. 245 of 2016.
Mr. Venkatesh Dhond, Senior Counsel, Mr. Ashish Kamat, Mr. Shakib Dhorajiwalla, Mr. Harsh Magia, Mr. Anjala Parveen, Vidhi Partners for Respondent No. 2 in APP (L) No. 245 of 2016 and for Respondent No. 5 in APP (L) No. 162 of 2016.
The main legal point established in the judgment is the fraudulent actions of the borrowers in relying on a backdated arbitration award and Consent Terms to prevent the bank from taking possession under the SARFAESI Act.
Headnote:
FRAUD - Mortgage Dispute - SARFAESI Act - Section 13(2), Section 13(4) - The judgment discusses the fraudulent actions of the borrowers in relying on a backdated arbitration award to protract the proceedings under the SARFAESI Act and prevent the bank from taking possession. The court dismisses the appeals and confirms the order of the learned Single Judge, with the rider that the Court Receiver shall hand over possession of the mortgaged properties only after an order is passed by the Chief Metropolitan Magistrate. The court also grants liberty to the Respondent/ARCIL to take out appropriate proceedings before the appropriate forum, if they are so advised.
Fact of the Case:
The Central Bank of India granted credit facilities to several borrowers and created equitable mortgages. The borrowers filed a Writ Petition challenging the constitutional validity of the SARFAESI Act and the measures taken by the Bank. The Bank initiated proceedings under the SARFAESI Act and took physical possession of the mortgaged properties. The borrowers filed an Execution Application seeking execution of a purported Award dated 04/04/1997 after a period of eight years. The Court Receiver was appointed, and Consent Terms were filed by the parties. The Respondent/ARCIL alleged fraud and fabrication in obtaining the Award and Consent Terms.
Finding of the Court:
The court found that the borrowers had relied on a backdated arbitration award and Consent Terms to protract the proceedings under the SARFAESI Act and prevent the bank from taking possession. The court dismissed the appeals and confirmed the order of the learned Single Judge, with the rider that the Court Receiver shall hand over possession of the mortgaged properties only after an order is passed by the Chief Metropolitan Magistrate. The court also granted liberty to the Respondent/ARCIL to take out appropriate proceedings before the appropriate forum, if they are so advised.
Issues: The issues involved fraudulent actions by the borrowers in relying on a backdated arbitration award and Consent Terms to prevent the bank from taking possession under the SARFAESI Act.
Ratio Decidendi: The court held that the borrowers' actions were fraudulent and dismissed the appeals, confirming the order of the learned Single Judge. The Court Receiver was directed to hand over possession of the mortgaged properties only after an order was passed by the Chief Metropolitan Magistrate. The court also granted liberty to the Respondent/ARCIL to take out appropriate proceedings before the appropriate forum, if they are so advised.
Final Decision: The appeals were dismissed, and the order of the learned Single Judge was confirmed. The Court Receiver was directed to hand over possession of the mortgaged properties only after an order was passed by the Chief Metropolitan Magistrate. The court also granted liberty to the Respondent/ARCIL to take out appropriate proceedings before the appropriate forum, if they are so advised.
V.M. KANADE, J.
1. Heard Dr. Milind Sathe, learned Senior Counsel appearing on behalf of the Appellant in Appeal (L) No. 162 of 2016, Mr. Y.S. Jahagirdar, learned Senior Counsel appearing on behalf of the Appellant in Appeal (L) No. 245 of 2016 and Mr. Venkatesh Dhond, learned Senior Counsel appearing on behalf of Respondent No. 5 in Appeal (L) No. 162 of 2016 and for Respondent No. 2 in Appeal (L) No. 245 of 2016.
2. Appellants are aggrieved by the order passed by the learned Single Judge dated 21/03/2016, by which the learned Single Judge was pleased to direct the Court Receiver who was appointed in respect of the mortgaged properties to hand over the same to the Respondent – Asset Reconstruction Company (India) Limited [For short “ARCIL”]. The learned Single Judge has imposed costs of Rs. 10 lakhs and issued contempt notice against the Appellants herein. Since the order challenged in both these Appeals is common, we propose to give a common judgment in both these Appeals.
FACTS:
3. Brief facts which are necessary for understanding the controversy and issues raised in these Appeals are mentioned herein-below:
4. Central Bank of India, which is a Nationalized Bank, granted credit facilities to the following borrowers:
(1) M/s. Prabhudas Hirji & Co. (Respondent No. 3)
(2) Prabhu Hira International & Industrial Ltd.
(3) M/s. Satyajit Traders
(4) Prabhu Hira Ice & Cold Storage Ltd (Respondent No. 4)
(5) Prabhu Hira Travels Ltd.
5. An equitable mortgage was created by deposit of title deeds by Respondent No. 3 on 27/09/1997 in respect of the following properties viz. (i) Office premises Flat No. 89, 8th Floor, Mittal Chambers, Nariman Point Mumbai 400021 and (ii) Godwon premises Basement No. 9, Mittal Chambers, Nariman Point, Mumbai 400021 to secure loans given to Prabhudas Hirji & Co., Prabhu Hira International & Ind. Ltd. & Satyajit Traders.
6. Similarly, on 01/01/1998 an equitable mortgage was created by deposit of title deeds by Respondent No. 4 in respect of properties situated at Plot Nos. 10 and 11 near MAFCO Market, APMC Yard, Sanpada, Vashi Navi Mumbai to secure the loans granted to Prabhu Hira Ice & Cold Storage Ltd.
7. The said equitable mortgages were extended from time to time. Sometime in the year 2003 all these five accounts were declared as Nonperforming Asset (“NPA”) as per the guidelines of Reserve Bank of India.
8. On 07/03/2003, Central Bank issued notice under Section 13(2) of the SARFAESI Act calling upon the Respondents to repay the outstanding amount of Rs. 8,28,22,035.32 with further interest within 60 days of receipt of the notice.
9. Since the Respondents failed to repay the outstanding amount, on 14/05/2003 Central Bank took measures under Section 13(4) of the SARFAESI Act and took physical possession of the office premises situated at 89, Mittal Chambers, Nariman Point, Bombay (“office premises”) mortgaged by Respondent No. 3.
10. Respondents filed Writ Petition No. 1368 of 2003 challenging the constitutional validity of the SARFAESI Act and the measures taken by the Bank. This Writ Petition was filed on 13/06/2003. Petition was disposed of by Judgment and Order dated 17/06/2003, directing Central Bank to restore physical possession of the office premises but it was permitted to retain symbolic possession of the premises. Respondents were restrained from creating third party rights and/or interest in the office premises.
11. Central Bank of India filed five Original Applications in DRTII between October 2003 and January, 2004. Apex Court in Mardia Chemicals Ltd. vs. Union of India, AIR 2004 SC 2371 upheld the constitutional validity of the SARFAESI Act. In view of this Judgment of the Apex Court, Writ Petition No. 1368 of 2003 filed by the Respondents was disposed of and the liberty was granted to the Respondents to approach DRT.
12. According to the Appellants, an Award was passed by consent by the Arbitrator who was appointed by the Appellants on 04/04/1997. We will make a reference to the gist of the Award
