K.B. Bhasi v. UCO Bank & K.B. Thankappan and Chitty Company v. UCO Bank (W.P.C Nos. 16310/06 N & 14736/07)

## IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE K.M.JOSEPH TUESDAY, THE 11TH MARCH 2008 / 21ST PHALGUNA 1929 WP(C).No. 16310 of 2006(N) ----------------------------------------------- PETITIONER: ------------------ K.B. BHASI, S/O. BALAN, AGED 49 YEARS, KARUMATH HOUSE, OLLUKKARA P.O., MANNUTHY, THRISSUR. BY ADV. SRI.V.R.KESAVA KAIMAL SRI.N.M.MADHU RESPONDENTS: ----------------------- 1. UCO BANK, SWARAJ ROUND, THRISSUR, REPRESENTED BY ITS BRANCH MANAGER. 2. K.B. THANKAPPAN, S/O. BALAN, KARUMATH HOUSE, OLLUKKARA P.O., MANNUTHY,THRISSUR. R1 BY ADV. SRI.P.B.SAHASRANAMAN SRI.K.JAGADEESH SRI.T.S.HARIKUMAR THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 11/03/2008, ALONG WITH WPC NO. 14736 OF 2007, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ## **APPENDIX IN W.P.(C). NO.16310 OF 2006 N** ## PETITIONER'S EXHIBITS: EXT.P1 TRUE COPY OF THE LAWYER NOTICE DATED 10.3.2006. EXT.P2 TRUE COPY OF THE REPLY NOTICE DATED 31.3.2006. EXT.P3TRUE COPY OF THE NOTICE DATED 20.4.2006 ISSUED BY THE FIRST RESPONDENT. EXT.P4TRUE COPY OF THE REPLY NOTICE DATED 18.5.2006 ISSUED BY THE PETITIONER. EXT.P5TRUE COPY OF LETTER DATED 26.5.2006 ISSUED BY THE FIRST RESPONDENT. EXT.P6 PHOTO COPY OF THE POSSESSION NOTICE DATED 15.11.2006 ISSUED BY THE FIRST RESPONDENT TO THE PETITIONER. EXT.P7PHOTO COPY OF THE LETTER DATED 9.4.2007 ISSUED BY THE PETITIONER TO THE FIRST RESPONDENT. EXT.P8PHOTO COPY OF THE ENCUMBRANCE CERTIFICATE DATED 27.6.2007 ISSUED BY THE SRO, OLLUKKARA. ## RESPONDENTS' EXHIBITS: EXT.R1(A) TRUE COPY OF THE NOTICE ISSUED BY THE BANK TO THE SECOND RESPONDENT DATD 20.4.2006. // TRUE COPY// PS TO JUDGE ## **K. M. JOSEPH, J.** ## **--------------------------------------** ## **W.P.C. NOS. 16310/06 N & 14736/07 D -------------------------------------Dated this the 11th March, 2008** ## **JUDGMENT** Since common questions arise in these two Writ Petitions, they are disposed of by a common Judgment. 2. The brother of the petitioner in W.P.(C). No.16310/06 who is the second respondent in the Writ petition, by name Shri K.B. Thankappan, is alleged to have taken a loan from the first respondent Bank. According to petitioner, the loan was secured by a mortgage by way of deposit of title deeds. Petitioner is alleged to have stood as surety for the said loan. He has mortgaged his properties towards the said loan. Proceedings were commenced by the Bank under the Provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, the Act) and that has brought the Guarantor to this Court with the writ _**WPC. 16310/06 & 14736/07**_ _**2**_ petition. Petitioner challenges Exts.P3 and P6, seeks dropping of proceedings against him and to proceed initially against the mortgaged properties of second respondent, and also prays that he be declared discharged. 3. Petitioner in the other Writ Petition, namely W.P.(C). No.14736/07 claims to be a Chitty Company. According to it, Shri K.B. Thankappan was a subscriber and in connection with the same, according to it, Shri K.B. Thankappan has mortgaged the properties to it. It is their case that the earliest of the said transactions was of the year 1996. W.P.(C) No.14736/07 is filed with the following prayers: _"i) Declare that Sections 13 and 35 of the Securitization and Reconstruction of Financial Assets And Enforcement of Security Interest Act, 2002 is unconstitutional, illegal and void._ _ii) Issue a writ of certiorari quashing the originals of Ext.P13._ _**WPC. 16310/06 & 14736/07**_ _**3**_ _iii) Declare that the 1st and 2nd respondents have no right to proceed against the property described as Nos. 1 and 2 in Ext.P13."_ 4. Ext.P13 which is challenged is a possession notice under Rule 6(2) of the Securitization and Reconstruction of Financial Assets And Enforcement of Security Interest Rules (for short, the Rules). Counter Affidavits have been filed which have been replied to. 5. I heard Shri N.M. Madhu, learned counsel appearing for the petitioner in W.P.(C). No.16310/06, Shri Jijo Paul, learned counsel appearing on behalf of the petitioner in W.P.(C). No.14736/07, besides the learned counsel appearing for the respondent Bank in both the cases and also the learned standing counsel appearing on behalf of the Union of India. 6. Shri N.M. Madhu, appearing on behalf of the petitioner in W.P.(C). No. 16310/06 would contend that the petitioner was working as a Salesman in a vegetable shop. The second _**WPC. 16310/06 & 14736/07**_ _**4**_ respondent, his brother decided to start a jewelery shop. He was persuaded by his brother to create a mortgage over his property to secure a loan availed from the first respondent. It was in such circumstances, believing the words of his brother, that the mortgage came to be created in the Bank. According to him, the facts which are present in that case would unerringly go to show that by the conduct and omission by the Bank, the petitioner guarantor stands discharged under the provisions of the Indian Contract Act, 1872. He would point out that when the Writ Petition was admitted and an interim order came to be passed by which the Bank was directed to proceed against the property of the second respondent, the Bank did not comply with the interim order. When notice was issued under Section 13(2) of the Act to him, he filed his objection. There was no decision on the same intimated. He pointed out that the second respondent was possessed of sufficient assets, both movables in the jewelery shop and immovable property, and the Bank was requested to _**WPC. 16310/06 & 14736/07**_ _**5**_ proceed against the same. This reasonable request of the petitioner, however, came to be met surprisingly by the Bank with inaction, complains the counsel for petitioner. The result, he points out, is that despite the order of this Court, the second respondent has managed to dispose of the immovable property as also the hypothecated property. This action or inaction on the part of the Bank, according to the petitioner, would show that the liability of the petitioner as guarantor was extinguished under the provisions of the Indian Contract Act. Learned counsel also drew my attention to the pleadings in the Counter Affidavit to contend that the action of the bank is such that it extinguished the liability of the petitioner in law. He, therefore, prays that the action initiated against his property may not be proceeded with. 7. Per contra, learned counsel for the Bank would contend that it may not be correct to say that the Bank has not taken any action pursuant to the interim order of this Court. He points out the circumstances obtained including the fact that in the other _**WPC. 16310/06 & 14736/07**_ _**6**_ Writ Petition filed by the Chitty Company, there was an interim order. He would also submit that these are all matters which could be brought to the notice of the Tribunal constituted under the Act. He points out Section 17 of the Act to contend that it is open to the petitioner to approach the Tribunal against the proceedings and being factual issues, it is open to the Tribunal to consider these matters and the scope of the statutory powers available to the Tribunal would constitute an efficacious remedy for the petitioner, than the one available under Article 226 of the Constitution of India which is a remedy by way of judicial review. 8. Shri Jijo Paul, learned counsel appearing for the petitioner in W.P.(C). No.14736/07 would contend that the mortgage which has been created in favour of the petitioner is of the year 1996. He would take me to the pleadings to contend that as they stand, it can be fairly taken that the mortgage which is created in favour of the respondent Bank, if it can be said to be legally valid, must be treated as a puisne mortgage. As far as _**WPC. 16310/06 & 14736/07**_ _**7**_ Section 13 is concerned, Shri Jijo Paul would contend that the validity of the same is not open to question, having regard to the clear findings of the Apex Court. He would contend that, however, in view of the provisions of Section 35 of the Act, even though the rights of a prior mortgagee may not be affected in general law, in view of the provisions contained in Section 35 of the Act, there is a cloud over the title of the prior mortgagee to proceed under the provisions obtaining in general law, namely the provisions of the Transfer of Property Act. The further contention he would address is this: He would contend that the borrower, namely Shri K.B. Thankappan had created an equitable mortgage in favour of the petitioner Company by way of deposit of the original documents. In such circumstances, the very mortgage which is allegedly created in favour of the respondent Bank by the borrower is suspect in law and such a mortgage cannot be countenanced in law. In this regard, he relied on the decision in Syndicate Bank v. Modern Tile And Clay Works (1980 KLT 550) and subsequent case law in this _**WPC. 16310/06 & 14736/07**_ _**8**_ context. He would point out that the pleadings in the case would unambiguously show that here is a case where the respondent Bank could not be said to have taken all the necessary steps before it decided to accept the certified copies of the documents, the originals of which were already in the possession of the petitioner under a mortgage for the purpose of creation of a valid subsequent mortgage. He would suggest that none of the circumstances were present in the instant case so as to justify creation of a mortgage in favour of the respondent Bank as is alleged by it. Shri P.B. Sahasranaman, on the other hand, would point out that these are all factual matters and this Court under Article 226 may not go into the question. He also attempted to justify the conduct of the Bank with reference to the pleadings both in the Writ Petition and in the Counter Affidavit. Regarding the contention based on Section 35 of the Act, learned counsel would submit that the apprehension of the petitioner that despite the availability of prior mortgage, those rights may be frustrated under the Act, is totally misplaced. _**WPC. 16310/06 & 14736/07**_ _**9**_ According to him, a perusal of Section 13 in conjunction with Section 17 will show that what is intended is only action under the Act, notwithstanding the provisions contained in Section 69 of the Transfer of Property Act. According to him, if there is prior mortgage, the prior mortgagee will even if action is taken under the Act, remain unaffected. He further points out that in law, proceeding on the basis that the petitioner is a prior mortgagee, it could not be said that the action by the Bank in enforcing the mortgage in its favour could be said to have affected the right of the petitioner. He relied on the decision in E.F.A. No. 5/84. He would further submit that this is also a case where, it is open to the petitioner to ventilate his grievances by filing a petition under Section 17 of the Act as is provided under it. 9. Learned counsel appearing for the Union of India would submit that as far as the matter relating to validity of Sections 13 and 35 of the Act which are called in question by the petitioner is concerned, the matter may not be treated as _**WPC. 16310/06 & 14736/07**_ _**10**_ res integra, in view of the decision in Mardia Chemicals v. Union of India (2004 (2) KLT 273 (SC)). Learned counsel for the Union of India and also the Bank would submit that in case the action is fraudulent, it is not as if the civil court cannot be approached. 10. I would think that in both the Writ Petitions, the petitioners are to be relegated to the pursuit of the remedy available to them under Section 17 of the Act or to approach such other Forum as is available in law. As far as the challenge to Section 35 is concerned, I would think that as of now, there is no need for the petitioner to call in question Section 35 even assuming for a moment that Section 35 has the effect which the learned counsel for the petitioner canvasses. The stage has not come when its rights which it claims in the Writ Petition as a prior mortgagee, is sought to be got over by resort to Section 35. It is settled law that the Court will not pronounce on the validity of a statutory provision unless a right is infringed. In such circumstances, I feel that the validity of Section 35 of the Act _**WPC. 16310/06 & 14736/07 11**_ need not be pronounced by me at this stage and I leave it open. The Writ Petitions are disposed of making it clear that I have not pronounced on the merits of the matter and I leave it to the petitioners to work out their remedy under Section 17 of the Act or such Forum as is available in law. **K. M. JOSEPH, JUDGE** ## **kbk.**