Sale of property under mortgage invalid when prior encumbrances are ignored, highlighting the need for equitable operations in financial transactions.

1 By order dated 28.12.1998 (Ext. P8), the Joint Registrar of Cooperative Societies, Kottayam (third respondent herein) had overruled the objections of the petitioner in the matter of confirmation of sale of a landed property, admeasuring 2 acres and 98 cents of land with a building in Sy. No. 341/4 of Thalapalam Village. This was purported to be in exercise of powers under S.21(3) of the Kerala State Cooperative Agricultural Development Banks Act, 1984 (Act 20 of 1984) (hereinafter referred to as Act 20 of 1984). The application was at the instance of the first respondent The Meenachil Cooperative Agricultural and Rural Development Bank Ltd. The objector was the petitioner -- Kerala State Financial Enterprises Ltd., represented by its Branch Manager, who had a claim that the property had been already mortgaged to them prior to the encumbrance created in favour of the first respondent -- Bank. 4th Respondent was the owner of the properties, at the time when the properties had been mortgaged in favour of the petitioner, in the year 1994, by deposit of title deeds, as security in respect of Kuri transactions. Original Petition has been filed inter alia challenging the above order.

2 Respondents 4 and 5 had been subscribers to two Kuries in Chitty No.2/94 and had been assigned chittal Nos. 30 and 25 respectively. When the Kuries got prized, as required for the release of the prize amount, an equitable mortgage in respect of the property concerned had been created on 4.7.1994 and the title deeds in respect of the above land had been deposited with the petitioner-company. This is no where disputed.

3 There was default in the future remittances. The dues were quantified as Rs. 4,00,030/- as on 14.2.1997. Being a notified establishment, under S.71 of the Revenue Recovery Act, a requisition had been made to the District Collector, Kottayam for initiating action for recovering the amounts due from the said respondents. The petitioner refers to the certificates issued by the District Collector dated 22.2.1997 and 24.2.1997. A demand notice prior to attachment had been duly issued on 12.3.1997 by the Special Deputy Tahsildar (RR), Ernakulam, and properties were attached on 27.1.1998.

4 It is stated that while these steps were in progress, a public notice had come to the knowledge of the petitioner, published by the first respondent -- Bank. The 4th respondent was therein shown as a defaulter and the sale notification included properties as aforementioned, as to be sold on 11.2.1998. It is further submitted that in spite of objections, the sale proceedings were carried on and since there were no bidders forthcoming, the first respondent -- Bank themselves had purchased the properties in auction. Such action under the provisions of Act 20 of 1984 required confirmation by the notified authority. Objections were filed before the Joint Registrar, in the above context, by the Kerala State Financial Enterprises. However, he was not prepared to see eye to eye with the claims of the petitioner. The order passed was to the following effect:
"Whereas no application with deposit has been made under sub-s.(1) of S.21 of the said Act and whereas the Sale Officer has duly applied to make an order confirming the sale, in exercise of powers confirmed to me under sub-s.(3) of S.21 of the said Act. I am inclined to confirm the sale of property of 2 acres and 98 cents in Survey 341/4 (Re-Sy. 238/3) of Thalapalam Village which was sold in public auction by the Sale Officer, Meenachil Cooperative Agricultural and Rural Development Bank, Pala on 11.2.1998, and the sale shall become absolute and the property shall be deemed to have vested in the purchasers, viz. the Meenachil Cooperative Agricultural Development Bank Ltd. No. K.197, Pala from the date and time of sale".
Want of deposit of the amounts specified in the proclamation of sale was thus pointed out as a reason for not acting upon the objections.

5 In the present Original Petition, the above order is chall