Jafred Netto & Jobin V. James v State of Kerala & The Idukki District Co-operative Bank Ltd & The Authorized Officer & Sebastian

**C.R.** IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU FRIDAY, THE 27TH DAY OF JULY 2018 / 5TH SRAVANA, 1940 WP(C).No. 2848 of 2018 ## PETITIONERS 1 JAFRED NETTO AGED 39, S/O. M N NELSON, THAYYIL HOUSE, ARAKULAM P.O, IDUKKI - 685 591. ## 2 JOBIN V JAMES AGED 33, S/O. JAMES, VATHALLUR HOUSE, CHELACHODU P.O, IDUKKI - 685 606. BY ADV.SRI.G.SREEKUMAR (CHELUR) RESPONDENTS: 1. THE STATE OF KERALA REP. BY THE SECRETARY TO THE GOVERNMENT, GENERAL DEPARTMENT OF CO-OPERATION, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM - 695 001. 2. THE IDUKKI DISTRICT CO OPERATIVE BANK LTD, REP. BY ITS BRANCH MANAGER KANJAR BRANCH, KANJAR P.O, IDUKKI - 685 606. 3. THE AUTHORISED OFFICER IDUKKI DISTRICT CO OPERATIVE BANK, HEAD OFFICE, IDUKKI P.O, IDUKKI - 685 606. ## 4. SEBASTIAN AGED 61, S/O. PAIKADA MATHAI, MOOLAMATTOM KARA, ARAKUNNAM P.O, IDUKKI DISTRICT - 685 606. R BY GOVERNMENT PLEADER SRI MATHEW GEORGE VADAKKAN R BY SRI.P.C.SASIDHARAN, SC, IDUKKI DISTRICT CO.OPERATIVE BANK THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 27-07-2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WP(C).No. 2848 of 2018 (E) APPENDIX PETITIONER'S EXHIBITS EXHIBIT P1 A TRUE COPY OF THE SALE DEED IN THE NAME OF THE PETITIONER BEARING NO.391 OF 2017 DATED 4.4.2017 OF THE ARAKULAM S R O. - EXHIBIT P2 A TRUE COPY OF THE LOCATION MAP PROVIDED TO THE PROPERTY COVERED BY EXT P1 BY THE VILLAGE OFFICER, ARAKULAM DATED NIL. - EXHIBIT P3 A TRUE COPY OF THE POSSESSION CERTIFICATE ISSUED BY THE ARAKULAM VILLAGE OFFICER DATED 27.7.2017. - EXHIBIT P4 A TRUE COPY OF THE TAX RECEIPT IN THE NAME OF THE PETITIONER ISSUED BY THE ARAKULAM VILLAGE OFFICER DATED 5.6.2017. - EXHIBIT P5 A TRUE COPY OF THE ENCUMBRANCE CERTIFICATE ISSUED TO THE PETITIONER DATED 3.6.2017. - EXHIBIT P6 A TRUE COPY OF THE DOCUMENT IN THE NAME OF THE SECOND PETITIONER BEARING NO 523 OF 2017 DATED 30.6.2017 OF THE ARAKULAM S R O. - EXHIBIT P7 A TRUE COPY OF THE COMMUNICATION BY THE ARAKULAM PANCHAYATH DATED 29.7.2017. - EXHIBIT P8 A TRUE COPY OF THE POSSESSION CERTIFICATE ISSUED BY THE ARAKULAM VILLAGE OFFICE DATED 18.7.2017. - EXHIBIT P9 A TRUE COPY OF THE LOCATION SKETCH ISSUED BY THE VILLAGE OFFICE ARAKULAM VILLAGE OFFICE DATED 18.7.2017. - EXHIBIT P10 A TRUE COPY OF THE TAX RECEIPT ISSUED BY THE ARAKULAM VILLAGE OFFICER DATED 17.7.2017. - EXHIBIT P11 A TRUE COPY OF THE BUILDING PERMIT ISSUED BY THE ARAKULAM PANCHAYATH DATED 27.10.2017. - EXHIBIT P12 A TRUE COPY OF THE COMMUNICATION OF THE SECOND RESPONDENT DATED 22.11.2017. - EXHIBIT P13 A TRUE COPY OF THE POSSESSION NOTICE ISSUED BY THE THIRD RESPONDENT DATED 1.1.2018. CSS/ ## **C.R.** ## DAMA SESHADRI NAIDU, J. ================================ W.P.(C). No.2848 of 2018 ================================ Dated:27[th ] July 2018 ## JUDGMENT Sebastian, the 4th respondent, in 2012, availed himself of a cash credit facility for 15 lakh rupees. He mortgaged one acre of his property then as security. Now, the entire debt stands at about 18 lakh rupees. After invoking Section 13 (4) of the SARFAESI Act, on 11.01.2018, the respondent Co-operative Bank took symbolic possession of the secured asset. 2. Pending the recovery proceedings, Jafred Netto and Jobin V. James, the petitioners, purchased 15 cents out of one acre—the secured asset—from Sebastian. They bought that extent as two items through two sale deeds, dated 4.4.2017 and 30.6.2017. After purchasing the property, the petitioners represented to the respondent bank that if at all it brought the secured asset to sale, it must exclude the extent the petitioners purchased. The WPC No.2848 of 2018 2 respondent bank rejected that request. 3. Aggrieved, the petitioners filed this writ petition. The petitioners' counsel strenuously contends that Rule 8(5) of the Security Interest (Enforcement) Rules (“the Rules”) is similar to Order XXI Rule 64 of the Code of Civil Procedure. According to him, the rule mandates that the bank should sell only that portion of property enough to discharge the debt. And nothing more. For this, he relies on Ambati Narasayya v Subba Rao[1] , Mariyappa (Dead) by Lrs. v Siddappa[2] and Swastik Agency v State Bank of India[3] . 4. On the other hand, the Bank’s Standing Counsel submits that Section 35(3) of the Co-operative Societies Act imposes no embargo on the sale of the secured property. He has also submitted that it is the bank's prerogative to consider which part of the property it should sell—whole or part—to realise the debt. 5. To elaborate, the Standing Counsel has submitted that the judgments the petitioner’s counsel relied on do not affect the issue here. He has also submitted that all those judgments deal > 1 AIR 1990 SC 119 > 2 (2005) 10 SCC 235 > 3 AIR 2009 Orissa 147 WPC No.2848 of 2018 3 with the sale under CPC, rather than under the SARFAESI Act. 6. Heard Sri Sreekumar G. Chelur, the learned counsel for the petitioner, Sri Mathew George Vadakkan, the learned Government Pleader, and Sri P. C. Sasidharan, the learned Standing Counsel for respondents 2 and 3, besides perusing the records. 7. Indeed, Sub Sections 2 and 3 of Section 35 of Co-operative Societies Act declare: (2) No person shall transfer any property which is subject to a charge under sub-section (1) except with the previous permission in writing of the society which holds the charge. (3) Notwithstanding anything contained in any law for the time being in force, any transfer of property made in contravention of the provisions of sub-section (2) shall be void. 8. Even under common law, once a property is under distraint, a purchaser cannot get a clear title. The title the purchaser gets comes burdened with all the liabilities attached to that property. Let us consider Rule 8(5) of the Rules, which enables the Bank to sell the whole or a part of the secured asset; it reads: - “ Before effecting sale of the immovable property referred to in sub-rule (1) of rule 9, the authorised officer shall WPC No.2848 of 2018 4 obtain valuation of the property from an approved valuer and in consultation with the secured creditor, fix the reserve price of the property and may sell the whole or any part of such immovable secured asset by any of the following methods:- (a) by obtaining quotations from the persons dealing with similar secured assets or otherwise interested in buying the such assets; or (b) by inviting tenders from the public; (c) by holding public auction; or (d) by private treaty.” (italics supplied) 9. We may, as well, examine Order XXI, Rule 64 of the CPC. It reads thus: “Order XXI Rule 64: Power to order property attached to be sold and proceeds to be paid to persons entitled.—Any court executing a decree may order that any property attached by it and liable to sale, or such portion thereof as may seem necessary to satisfy the decree, shall be sold, and that the proceeds of such sale, or a sufficient portion thereof, shall be paid to the party entitled under the decree to receive the same.” Tabulated, the provisions may reveal how far they are in : pari materia Rule 64 of Order 21 of Rule 8 of the Security Interest (Enforcement) CPC Rules The Executing Court may the authorised officer. . . order that any property may sell the whole or any attached by it and liable part of such immovable WPC No.2848 of 2018 5 ||to sale, or such portion<br>thereof as may seem<br>necessary to satisfy the<br>decree, shall be sold.|secured asset.<br>by any of these methods:-<br>The authorised officer can<br>sell the property<br>(a) by getting quotations<br>from the persons dealing<br>with similar secured assets<br>or from those interested in<br>buying the assets; or<br>(b) by inviting tenders from<br>the public;<br>(c) by holding public<br>auction; or<br>(d) by private treaty.|| |---|---|---|---| 10. Apparently, Rule 8 of the Rules is less rigorous than Rule 64 of Order 21 of CPC. Under Rule 8, the secured asset can be sold even by private treaty—a luxury unavailable under CPC. 11. On many an occasion, Order XXI Rule 64, a provision almost analogous to Rule 8(5), faced intense judicial scrutiny. The Supreme Court in Ambati Narasayya has held that in all execution proceedings, the court has first to decide whether it is necessary to bring the entire attached property to sale or a part of it, as may seem appropriate to satisfy the decree. Ambati Narasayya also mandates that if the property is large and the decree to be satisfied is small, the court must bring only a WPC No.2848 of 2018 6 portion of the property, the proceeds of which would fulfill the decree holder’s claim. It is immaterial whether the property is one, or several. This caution to be exercised is no discretion but “an obligation imposed on the court.” So any sale not in conformity with this requirement would be illegal and without jurisdiction. 12. The same proposition stood re-iterated in Mariyappa. As the petitioners’ counsel pointed out, Swastik Agency, too, has applied the same ratio, even under the SARFAESI Act. But the case before me has a catch. As rightly contended by the respondent's counsel, the purchasers of mortgaged property have no substantial right, much less locus, to question the Bank’s recovery proceedings. 13. Section 35 (2) of the Kerala Co-operative Societies Act declares that “no person shall transfer any property which is subject to a charge under sub-section (1) except with the previous permission in writing of the society which holds the charge.” And sub-section (3) declares all such transfers void. A transaction rendered void, the legal fiction compels us to conclude as if the WPC No.2848 of 2018 7 sale had never taken place. The sale never taking place, the putative purchasers do not exist in the eye of law. 14. That said, I may also observe on the converse, too. Courts give every opportunity to the debtor to save his or her property. That is why, even after the sale, the mortgager gets an opportunity, within a time frame, to redeem the property. Thus, after purchasing the property, those purchasers may—I stress may —step into the shoes of the debtor and may raise objections available for the debtor. Thus, there is a semblance of justification in the petitioner's representing to the respondent bank that it should consider selling a part of the property rather than the whole. 15. Eventually, what controls the situation is Rule 8(5) which confers the discretion on the bank. Indeed, through judicial interpretation, the courts have held that this discretion is not unguided. So the bottom line is that the creditor, while realizing its debts through an invidious sale, can inflict only minimal damage on the property holder and ensure that it realises its dues equitably. WPC No.2848 of 2018 8 16. Under these circumstances, I hold that if the respondent bank brings the mortgaged property to sale, it will consider selling a part of the property excluding what has been purchased by the petitioners. For any reason to be recorded, the Bank feels it cannot realise the entire debt without bringing the whole property for sale, it may as well do so. But to serve the interest of justice, before it publishes a sale notice, as the petitioners’ counsel insisted, the Bank will hear the petitioners and then proceed further. With these observations, I dispose of this writ petition. Sd/- DAMA SESHADRI NAIDU JUDGE css/