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<!DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd"> <html xmlns="http://www.w3.org/1999/xhtml"> <head> </head> <body> <div style="font-family:Verdana, Geneva, sans-serif; font-size:12px; text-align:justify"> <table width="800" border="0" style="border:1px solid #ccc;padding:5px;" align="center" cellpadding="6" cellspacing="0"> <tr> <td align="left" valign="top"> High Court of Bombay Transaction which is recorded in defiance of prohibitory order shall have to be branded as illegal, if not void MANU/MH/0391/2017 - (10 Mar 2017) </td> </tr> <tr> <td align="left" valign="top">Mr. Mukesh Kothari v. State Bank of India and Ors.</td> </tr> <tr> <td align="left" valign="top" style="background-color:#FDEDCE">In facts of present case, Petitioner is objecting to decision rendered by Debts Recovery Appellate Tribunal. Petitioner is purchaser of flat. The flat was purchased by Petitioner from Respondent No. 2 through a sale-deed dated 18th November, 2006 for a sale consideration of Rs. 22.00 Lacs. According to Petitioner, Sale Agreement was duly registered on 18th November, 2006. Property has been purchased by Petitioner by obtaining housing loan from Respondent No. 3 – Allahabad Bank, in whose favour Petitioner is stated to have created equitable mortgage in respect of said flat. Petitioner claims that Respondent No. 1 – State Bank of India has taken steps under Section 13(4) of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, and issued a possession notice on 12th April, 2007 on the Petitioner. Petitioner claims that he is neither a Borrower nor a Guarantor in respect of the loan availed by Respondent No. 2 from Respondent No. 1 – Bank.

Contentions raised by Petitioner for resisting the proposed action under Section 13(4) of SARFAESI Act at instance of Respondent No.1 was that the Equitable mortgage created by Respondent No. 2 in favour of Respondent No. 1 – Bank is not a legal, valid and that Respondent No. 1 – Bank has no right to proceed against property in possession of Petitioner under the SARFAESI Act. Petitioner prays for declaration of the possession notice dated 12th April, 2007 as null and void; Further, contends that, Petitioner is bonafide purchaser for value, without notice of Equitable Mortgage allegedly created in favour of Respondent No. 1 – Bank.

Respondent No. 1 – Bank presented proceedings before the Debts Recovery Tribunal Karnataka at Bangalore under provisions of Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and order of injunction restraining Respondent No. 2 from transferring, alienating or dealing with disputed property has been issued on 16th April, 2001 and said order of injunction is subsisting. Respondent No. 2 was aware of issuance of order of injunction and in breach of restraining order he has entered into sale transaction with Petitioner. Respondent No. 2 has not come forward to deny creation of Equitable mortgage concerning the disputed property with Respondent No. 1 – Bank.

The transaction of mortgage entered into between Respondent No. 1 – Bank and Respondent No. 2 is disputable by parties to transaction and since Respondent No. 2 has preferred not to question transaction, it would be a matter of serious doubt as to whether Petitioner who has purchased property during operation of prohibitory order of injunction issued against Respondent No. 2 is entitled to question the same. Petitioner prima facie does not have entitlement to question validity of Equitable mortgage created in favour of Respondent no. 1 – Bank by Respondent No. 2 especially when Respondent No. 2 who is a party to transaction has preferred not to question the
same and accepted it.

Alienation made by Respondent No. 1 – Bank in favour of Petitioner in defiance of restraint order passed by Debts Recovery Tribunal Karnataka at Bangalore has to be treated as having not taken place at all for its purposes. In light of decision in case of Surjit Singh and others V/s Harbans Singh and others and in case of Keshrimal Jivji Shah and another V/s Bank of Maharashtra and others, transaction which is recorded in defiance of prohibitory order shall have to be branded as illegal, if not void. In matter of Ghanshyam Sardam V/s Shashikant Jha, Director, M/s. J. K. Jute Mills Company Limited and Others, Supreme Court has considered the question of effect of transfer or alienation in violation of prohibitory order and has observed that, “legal consequences of what has been done in breach of or in violation of the order of stay or injunction can be undone and the parties could be put back to the same position as they stood immediately prior to such order of stay or injunction.”

As has been recorded in aforesaid judgment as well as in matter of Keshrimal Shah that the transaction may bind parties but such transaction may not override entitlement or right of any other party in whose favour prohibitory order came to be issued. Transaction of sale entered into between Respondent No. 2 and Petitioner during operation of the prohibitory order may bind the parties but the said transaction will not have any effect on prior claim of Respondent No. 1 – Bank as against Respondent No. 2 on the basis of creation of a prior
mortgage in favour of Respondent No. 1 – Bank by Respondent No. 2.

The illegal transaction entered into between Respondent No. 2 and Petitioner will not bind or affect entitlement of Respondent No. 1 – Bank. Parties to transaction more particularly Respondent No. 2 shall be deemed to have accepted the same since he had not questioned the transaction. Petitioner who is purchaser of property during operation of prohibitory order of injunction is not entitled to question transaction when Respondent No. 2 who is the author of said mortgage transaction does not dispute the same and moreover in circumstance, when the subsequent transaction of sale between Petitioner and Respondent No. 2 is illegal.

Since, Respondent No. 2 who has created equitable mortgage has not questioned the same, transaction which is otherwise validly entered into cannot be nullified on technical plea raised by Petitioner who himself is staking claim on basis of an illegal transaction. There are three requirements of Mortgage Deed by deposit of Title Deed (i) Debt, (ii) Deposit of Title Deeds; and (iii) an intention that the Deeds shall be the security for the debt [K. J. Nathan V/s S.V.Maruthi Rao]. All ingredients of the valid mortgage transaction do find place in instant matter.

There is a valid mortgage in favour of Respondent No. 1 – Bank created by Respondent No. 2 and that such transaction is not at all been questioned by Respondent No. 2 – creator of mortgage and as such Respondent No. 1 – Bank has entitlement to proceed under Section
13 (4) of SARFAESI Act. Transaction entered into by Petitioner with Respondent No. 2 being illegal one, cannot be recognised and Petitioner does not have any right to question the measures taken by Respondent No. 1 Bank under the SARFAESI Act. It would be open for Petitioner to proceed against Respondent No. 2 for redressal of his grievance.</td> </tr> <tr> <td align="left" valign="top" >Relevant : Surjit Singh and others V/s Harbans Singh and others and Keshrimal Jivji Shah and another V/s Bank of Maharashtra and others; Ghanshyam Sarda V/s Shashikant Jha, Director, M/s. J. K. Jute Mills Company Limited and Others; K. J. Nathan V/s S.V.Maruthi Rao</td> </tr> <tr> <td align="left" valign="top" >Tags : Deed, Transaction, Validity</td> </tr> <tr> <td align="left" valign="top">&nbsp;</td> </tr> <tr>  <td align="left" valign="top">Source : newsroom.manupatra.com</td> </tr> <tr> <td align="left" valign="top">&nbsp;</td> </tr> <tr> <td align="left" valign="top">Regards</td> </tr> <tr> <td align="left" valign="top">Team Manupatra</td> </tr> <tr> <td align="left" valign="top">&nbsp;</td> </tr> </table> </div> </body> </html>