Negligence in securing original title deeds can result in loss of priority for mortgage claims, emphasizing the need for due diligence by lenders.

JUDGMENT :

RAJESH S. PATIL, J.

1. The petitioner seeks to challenge the judgment and order dated 6^th November 2019 passed by the Debts Recovery Appellate Tribunal (for short ‘DRAT’), which has quashed and set aside the judgment and order passed by the Debts Recovery Tribunal (for short DRT) dated 9^th January 2012.

FACTS

2. The petitioner – Asset Reconstruction Company (India) Limited (for short ‘ARCL’) claims to be the securitisation and reconstruction company under the Companies Act 1956, and also a financial institution under Section 2(h) (ia) of the Recovery of Debts and Bankruptcy Act 1993 (for short ‘RDDB Act’). ARCL claims to have power to recover dues from the borrower pursuant to Assignment Deed executed by the State Bank of India (for short ‘SBI’), dated 30^th March 2005. It is further case of ARCL that the erstwhile assignor, SBI had granted various credit facilities to the borrower M/s. Aggarwal Silk & Synthetics Pvt. Ltd., to which Mr. Rameshchandra Aggarwal and Ms.Shashi Aggarwal executed a personal guarantee. Mr. Rameshchandra Aggarwal mortgaged his immovable property being land admeasuring Survey No. 44, Hissa No. 5/1, land admeasuring 31 gunthas and Survey No.44, Hissa No. 10/1, land admeasuring 6 ½ gunthas, total land admeasuring 37 ½ gunthas situated at Village Valiv, Taluka Vasai, District Palghar (hereinafter referred to as ‘the suit property’) in favour of the then assignor, SBI.

3. According to the ARCL since the borrower company failed to pay the loan amount, they on 12^th April 2006 filed the Original Application No. 131 of 2006 before the DRT, Mumbai to recover a sum of Rs.2,12,55,129/- from the borrower company and its guarantors.

4. Subsequently, on 21^st April 2006, the respondent no.1 - Punjab National Bank (for short ‘PNB’) granted various credit facilities to the borrower M/s. Atex Worldwide. It appears that these facilities were secured by way of a mortgage by deposit of title deeds created by Mr. Rameshchandra Aggarwal in favour of PNB.

5. In the meanwhile, on 5^th March 2007 the DRT, Mumbai passed an order issuing a recovery certificate against borrower M/s. Aggarwal Silk & Synthetics Pvt. Ltd., in favour of the ARCL for a sum of Rs.1,73,92,129/- in O. A. No.131/2006. Thereafter, PNB filed Original Application No. 29 of 2007 before the DRT, Mumbai, seeking recovery of Rs.6,20,74,490/- against M/s.Atex Worldwide and the guarantors, thereby seeking enforcement of the mortgage over the suit property.

6. The DRT on 6^th November 2008 passed an order in the O.A. No. 29 of 2007 mentioning therein that the PNB has charge over the suit property.

7. According to the ARCL, on 10^th March 2009, they became aware that the PNB was seeking to attach the suit property. ARCL hence on 13^th July 2009 filed Miscellaneous Application No. 31 of 2010 under Section 19(25) of the RDDB Act, thereby seeking a modification to the order passed on 6^th November 2008 by the DRT to the extent that the PNB had charge over the suit property.

8. The DRT on 9^th January 2012 allowed the ARCL’s Miscellaneous Application No. 31 of 2010, and held that the mortgage which was created in favour of the erstwhile assignor SBI was valid and prior in time to the mortgage created in favour of PNB and the declaration of mortgage in favour of the PNB as cancelled.

9. Being aggrieved by the order passed by the DRT, the PNB filed Miscellaneous Appeal No. 229 of 2012 before the DRAT. Thereafter, the DRAT heard both the parties and by its judgment and order dated 6^th November 2019, set aside the order dated 9^th January 2012 passed by the DRT, and held that the erstwhile assignor SBI, was negligent at the time of creation of mortgage by not insisting on the original title deeds, as a result, the mortgage in favour of the ARCL was cancelled.

10. Being aggrieved with the judgment and order dated 6^th November 2019 passed by the DRAT, the ARCL being the assignee of SBI has filed the present writ petition.

11. On behalf of the petitioner Mr. Viraj Parikh appeared and mad