State Bank of India (Stressed Assets Management Branch) v. Shytez Joseph and Others

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:** **THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE** **FRIDAY, THE 29TH DAY OF JULY 2016/7TH SRAVANA, 1938** **WP(C).No. 17422 of 2016 (C)** **----------------------------** ## **PETITIONER:** **----------** ## **STATE BANK OF INDIA,** **STRESSED ASSETS MANAGEMENT BRANCH, VANKARATH TOWERS, BYE PASS JUNCTION, PALARIVATTOM, KOCHI -682 024, REPRESENTED BY ITS CHIEF MANAGER.** ## **BY ADV. SRI.S.EASWARAN** **RESPONDENT(S):** **--------------** **1.SHYTEZ JOSEPH, S/O.KOROTH JOSEPH, RESIDING AT 2/287/B, AMBALLUR VILLAGE, AMBALLUR P.O., ERNAKULAM, PIN - 682 315.** **2.M/S.EMMANUEAL SAREES, T.C XXV/2131/1, NEHRU BAZAR, THRISSUR-682001, REPRESENTED BY ITS MANAGING PARTNER.** **3.SRI.T.O.SHAJU, S/O.LATE T.D.OUSEPH, RESIDING AT THEKKUMPURAM HOUSE, MANNAMPETTA, THRISSUR-680302.** **4.SRI.T.O.BYJU,S/O.LATE T.D.OUSEPH, RESIDING AT THEKKUMPURAM HOUSE, MANNAMPETTA, THRISSUR-680302.** **5.SRI.T.O.RAJU, S/O.LATE T.D.OUSEPH, RESIDING AT THEKKUMPURAM HOUSE, MANNAMPETTA, THRISSUR-680302.** **6.SRI.T.O.JIJU, S/O.LATE T.D.OUSEPH, RESIDING AT THEKKUMPURAM HOUSE, MANNAMPETTA, THRISSUR-680302.** **--2--** **--2--** **WP(C).No. 17422 of 2016 (C)** **---------------------------** ## **7.SMT.ANNIE OUSEPH,** **W/O.LATE T.D.OUSEPH, RESIDING AT THEKKUMPURAM HOUSE, MANNAMPETTA, THRISSUR-680302.** **8.M/S.EMMANUVAL SILKS, SAKTHAN NAGAR, OPP.HEAD POST OFFICE, THRISSUR, REPRESENTED BY ITS MANAGING PARTNER, PIN - 680 302.** **R1 BY ADV. SRI.K.N.CHANDRABABU R4 & R8 BY ADVS.SRI.SHAJI CHIRAYATH SMT.JIJI M. VARKEY SMT.SAVITHA GANAPATHIYATAN SRI.M.M.SHAJAHAN** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 10-06-2016 ALONG WITH WPC.17431/2016, THE COURT ON 29-07-2016 DELIVERED THE FOLLOWING:** **mbr/** ## **WP(C).No. 17422 of 2016 (C)** ## **----------------------------** ## **APPENDIX** ## **PETITIONER(S)' EXHIBITS:** ## **-----------------------** - **P1 : COPY OF THE ARRANGEMENT LETTE DATED 08/07/2011. P2 : COPY OF THE SALE DEED NO.994/10 DATED 14/05/2010 OF THE REGISTRY OFFICE, MULAMTHURUTHY.** - **P3 : COPY OF THE DOCUMENT NO.3013/14 DATED 14/10/2004 OF THE SUB REGISTRY OFFICE, MULAMTHURUTHY.** - **P4 : COPY OF THE LETTER DATED 09/07/2011 EXECUTED BY MANAGING PARTNER AND PARTNERS OF 2ND RESPONDENT.** - **P5 : COPY OF THE DEMAND NOTICE DATED 20/08/2015 ISSUED U/S 13 (2) OF SECURITIZATION ACT.** - **P6 : COPY OF THE POSSESSION NOTICE DATED 09/12/2015 ISSUED U/S 13 (4) OF THE SECURITIZATION ACT.** - **P7 : COPY OF THE ORDER PASSED BY CHIEF JUDICIAL MAGISTRATE COURT, ERNAKULAAM IN CRL.M.P 1055/2016.** - **P8 : COPY OF THE AWARD PASSED BY THE LOK ADALATH ON 09/04/2016.** - **P9 : COPY OF THE COMPROMISE SIGNED BETWEEN THE PARTIES IN O.S 395/2016.** - **P10 : COPY OF THE TAX RECEIPT NO. 5412738 DATED 19/04/2016.** ## **RESPONDENT(S)' EXHIBITS:** **-----------------------** **EXT.R4(A): TRUE COPY OF THE JUDGMENT IN RADHEY SHYAM & ANOTHER VS.CHHABI NATH & OTHERS (CIVIL APPEAL NO.2548 OF 2009 PASSED BY THE HON’BLE SUPREME COURT OF INDIA.** ## **//TRUE COPY//** **P.S. TO JUDGE** **mbr/** ## **A.M.SHAFFIQUE, J * * * * * * * * * * * *** W.P.C.Nos.17422 & 17431 of 2016 ---------------------------------------Dated this the 29[th] day of July 2016 ## **J U D G M E N T** Since common question arises for consideration, these writ petitions were heard and decided together 2. W.P.C.No.17422/2016 has been filed seeking to quash Ext.P8, an award passed by the Lok Adalat in a suit O.S.No.395/2016 by which a compromise settlement has been arrived at between parties to the suit thereby agreeing to declare document No.994/2010 of the Sub Registrar Office, Mulanthuruthi as null and void and for a declaration that Ext.P8 award and the compromise, Ext.P9 between the parties to the suit is not binding on the petitioner nor does it affect any of its actions initiated under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as 'the Act'). 3. WP(C) No.17431/2016 is also filed seeking almost similar reliefs with reference to an award passed by the Lok Adalat in O.S.No.396/2016 whereby the parties agreed that W.P.C.Nos.17422 & 17431 of 2016 2 Document No.995/2010 of the Sub Registrar office, Mulanthuruthi shall be declared as null and void. 4. The facts involved in the writ petitions would disclose that the petitioner Bank had extended various credit facilities to M/s.Emmanuel Silks, a partnership firm constituted by respondents 3 to 7. They have also constituted another partnership firm by name Immanuel Sarees. The credit facilities of the 8[th] respondent was enhanced. At the relevant time Emmanuel Sarees, the firm created at equitable mortgage by depositing the title deeds of Document No.994/2010 and 995/2010 as collateral security. The prior title deeds were also deposited with the Bank. Respondents 2 to 7 confirmed the creation of equitable mortgage. 5. The account of the 8[th] respondent became NonPerforming Asset (NPA). Petitioner Bank issued notice dated 20/08/2015 under Section 13(2) of the Act. There was no reply. Hence proceedings were taken under Section 13(4) of the Act by issuing notice dated 09/12/2015. Petitioner filed an application under Section 14 of the Act before the Chief Judicial Magistrate W.P.C.Nos.17422 & 17431 of 2016 3 Court, Ernakulam who passed an order dated 08/04/2016 appointing an Advocate Commissioner to take possession of the secured assets. The Advocate Commissioner could not take possession as the same was obstructed by the 1[st] respondent. The Advocate Commissioner made a further attempt to take possession of the property with the assistance of the Station House Officer, Mulanthuruthi, as per the directions issued by the Chief Judicial Magistrate and again the same was obstructed by the 1[st] respondent. In the meantime, petitioner was served with the copy of the proceedings of the Lok Adalat, which is an award passed on 09/04/2016 and a copy of the compromise signed between the parties in O.S.No.395/2016 and O.S.No.396/2016. The writ petitions are filed seeking the aforesaid reliefs inter alia contending that the award of the Lok Adalat in the aforesaid suits are not binding on the petitioner Bank. 5. The main contention urged by the petitioner is that the compromise proceedings initiated by the respondents are clearly vitiated by fraud which is liable to be interfered by this Court invoking the extraordinary jurisdiction under Article 226 of the W.P.C.Nos.17422 & 17431 of 2016 4 Constitution of India. It is contended that the property mortgaged as security for the loan was the sale deed executed by the 1[st] respondent in favour of respondents 3 to 7. 1[st] respondent in WP(C) No.17422/2016 is one Shytez Joseph and in WP(C) No. 17341/2016, it is one Sojan Joseph. The sale deed is executed after receiving the sale consideration. Therefore, the suit for cancellation of the sale deed does not arise. Suit is also filed beyond the period of limitation as the sale deed Nos.994/2010 and 995/2010 were executed on 14/05/2010. Further, it is contended that, as on the date of institution of the suits, respondents 3 to 7 had no right, title or interest in the property on account of the equitable mortgage created in favour of the petitioner by respondents 3 to 7 on 09/07/2011. It is submitted that, on creation of equitable mortgage of the properties, extensive credit facilities were sanctioned to M/s.Emmanuel Silks. It is submitted that the suits O.S.Nos.395/2016 and 396/2016 were collusive suits with an intention to nullify the mortgage created in favour of the petitioner Bank. It is further contended that the petitioner's right to enforce the valid mortgage created in W.P.C.Nos.17422 & 17431 of 2016 5 favour of the Bank should not be affected by Exts.P8 and P9 and is not binding on the petitioner nor would it affect the right of the petitioner to invoke the provisions of the Act read with Recovery of Debts due to Bank and Financial Institutions Act, 1995 (hereinafter referred to as 'the 1995 Act'). 6. Counter affidavit has been filed by the 1[st] respondent in W.P.C.No.17422/2016. 1[st] respondent contends that the writ petition is not maintainable in so far as the petitioner Bank seeks to set aside the decree of a Civil court. Further, it is contended that the 1[st] respondent is not a party to the transaction entered into between the petitioner Bank and respondents 2 to 8. It is contended that he obtained the property as per a settlement deed No.880/1999 of SRO, Mulanthuruthi. In the year 2010, he had taken a loan of Rs.18 lakhs from the 2[nd] respondent by giving collateral security of the above property, which transaction continued upto the year 2015. It was stated that the 4[th] respondent had obtained some signatures of the 1[st] respondent in various documents. According to him, he paid the entire loan. However, the title deeds were not released. Hence he filed a suit W.P.C.Nos.17422 & 17431 of 2016 6 O.S.No.395/2016 and sought for a decree for settlement of accounts and for other reliefs. 7. Defendants entered appearance and the matter was referred to the Lok Adalat under Section 89 of the Code of Civil Procedure. Disputes were settled before the Adalat. Terms of settlement were reduced into writing and accordingly an award was passed on 09/04/2016. The suit was compromised. In terms of the compromise, Document No.994/2010 of SRO Mulanthuruthi is declared as null and void. It is therefore contended that the equitable mortgage created by respondents 2 to 8 has no validity. It is further contended that the 1[st] respondent has not created any mortgage and the liability created by respondents 2 to 8 is not binding on the 1[st] respondent. 8. In WP(C) No. 17422/2016 also, the 1[st] respondent took similar contentions and according to him, his property was given as collateral security for taking a loan of Rs.12 lakhs by the 2[nd] respondent M/s.Emmanuel Sarees. 7 W.P.C.Nos.17422 & 17431 of 2016 9. Counter affidavit has been filed by the 4[th] respondent as the managing partner of the 8[th] respondent firm. It is contended that the writ petition is not maintainable as per the law laid down by the Apex court in **Radhey Shyam and Another v. Chhabi Nath & Others** _[Civil Appeal No.2548 of 2009]_ . It is further contended that no partnership firm exists in the name of the 2[nd] respondent in which respondents 3 to 7 are partners. It is evident from Ext.P1 that Exts.P6 demand notice, which is mandatory notice in terms of the Act had not been issued by the petitioner to the 2[nd] respondent. It is further contended that demand as per Ext.P6 is barred by limitation under Section 36 of the Act. He also denies creation of mortgage with reference to the property in question. It is contended that the petitioner had clandestinely obtained Exts.P2 and P3 documents when they took over a textile shop in the name of Mariya silks. Documents were concocted for unjust enrichment. 10. Heard the learned counsel for the petitioner and the learned counsel appearing for the respondents. W.P.C.Nos.17422 & 17431 of 2016 8 11. The 1[st] question to be considered is regarding the maintainability of the writ petitions. 12. Respondents contended that in view of the judgment in **Radheyshyam** (supra), these writ petitions are not maintainable. The question considered in the said case was whether the order of the Civil court was amenable to writ jurisdiction under Article 226 of the Constitution of India. To put it briefly, the facts of the said case was that an interim order of a Civil court in a pending suit was challenged by the defendant by filing a writ petition before the Allahabad High Court. The High Court vacated the interim order. The aggrieved person moved the Apex Court by filing a Special Leave Petition wherein the contention urged was that the writ petition under Article 226 was not maintainable against the order of the Civil court. While considering the above matter, reference was made to an earlier judgment of the Apex Court in **Surya Dev Rai v. Ram Chander Rai and others** _[(2003) 6 SCC 675]_ . A two Judge Bench did not follow the law laid down in **Surya Dev Rai** (supra) as the earlier judgment of the 9 Judge Bench in **Naresh Shridhar Mirajkar and Others v. State of** W.P.C.Nos.17422 & 17431 of 2016 9 **Maharashtra** _[AIR 1967 SC 1]_ was not considered wherein it was held that “Certiorari does not lie to quash the judgments of inferior courts of civil jurisdiction”. Hence the matter was referred to a three Judge Bench and the question to be decided was whether the view taken in **Surya Dev Rai** (supra) that a writ lies under Article 226 of the Constitution of India against the order of the Civil court and which has been doubted in the reference order, is the correct view. The Apex Court, after elaborately considering the matter, held that judicial orders of Civil courts are not amenable to writ jurisdiction under Article 226 of the Constitution of India and a writ of mandamus does not lie against a private person. Paragraph 25 is relevant which reads as under: _“25. Accordingly, we answer the question_ _referred as follows:_ _“(i) Judicial orders of civil court are not amenable to writ jurisdiction under Article 226 of the Constitution;_ _(ii) Jurisdiction under Article 227 is distinct from jurisdiction under Article 226._ W.P.C.Nos.17422 & 17431 of 2016 10 _Contrary view in_ _**Surya Dev Rai** is overrules.”_ 13. Further on facts, it is contended that there is no valid mortgage in so far as the document itself has been declared as void by an order of the Civil Court and therefore the remedy of the petitioner, if any, is to approach the Civil Court if there is an allegation of fraud in the decree being passed. 14. On the other hand, learned counsel appearing for the petitioner Bank placed reliance on the following judgments: i) **State of Punjab and another v. Jalour Singh and Others** _[(2008) 2 SCC 660]_ . This judgment is relied upon to emphasise the scope and effect of Lok Adalat as provided under the Legal Services Authorities Act, 1987. That was a case in which an appeal filed against an award of compensation was referred to the Lok Adalat organised by the High Court for settlement. An award was passed by the Lok Adalat, which was challenged by one of the parties, contending that it was passed without their consent. The application was rejected by the learned Single Judge on the ground that such objections were not W.P.C.Nos.17422 & 17431 of 2016 11 maintainable and it was held that challenge is to be made only in a petition under Article 227 of the Constitution of India. The petition was filed under Article 227 challenging the order of the Lok Adalat, which came to be dismissed on the ground of not being maintainable. Apex Court held that though an award made by the Lok Adalat in terms of the settlement arrived at between the parties became final and binding on the parties to the settlement and becomes executable as if it is a decree of Civil Court, If any party wants to challenge that award based on settlement, it can only be done by filing a petition under Article 226 of the Constitution of India. It was held that question of challenging such an order in the petition under Article 227 of the Constitution of India does not arise. Paragraphs 12 to 15 are relevant which reads as under: _“_ _**12.** It is true that where an award is made by_ _the Lok Adalat in terms of a settlement arrived at between the parties (which is duly signed by parties and annexed to the award of the Lok Adalat), it becomes final and binding on the parties to the settlement and becomes executable as if it is a_ W.P.C.Nos.17422 & 17431 of 2016 12 _decree of a civil court, and no appeal lies against it to any court. If any party wants to challenge such an award based on settlement, it can be done only by filing a petition under Article 226 and/or Article 227 of the Constitution, that too on very limited grounds. But where no compromise or settlement is signed by the parties and the order of the Lok Adalat does not refer to any settlement, but directs the respondent to either make payment if it agrees to the order, or approach the High Court for disposal of appeal on merits, if it does not agree, is not an award of the Lok Adalat. The question of challenging such an order in a petition under Article 227 does not arise. As already noticed, in such a situation, the High Court ought to have heard and disposed of the appeal on merits._ _**“13.** But the travails continued. In view of the order dated 11-9-2002 passed by the learned Single Judge holding that a petition under Article 227 has to be filed to challenge the order of the Lok Adalat, the appellants filed a petition under Article 227. But the_ W.P.C.Nos.17422 & 17431 of 2016 13 _said petition was dismissed by another Single Judge on the ground that the order of the Lok Adalat passed on 3-8-2001 had attained finality as the objections to it were dismissed on 11-9-2002 and a petition under Article 227 was not maintainable to challenge the order of the Lok Adalat. He failed to notice that the order dated 3-8-2001 was neither a decision nor had it attained finality. He also failed to notice that the objections to the order were not rejected by the High Court after consideration on merits. He also overlooked the fact that the learned Judge who decided the appellants’ application, had directed that the order of the Lok Adalat should be challenged by filing a petition under Article 227. Be that as it may._ _**14.** Thus we find that the Lok Adalat exercised a power/jurisdiction not vested in it. On the other hand, the High Court twice refused to exercise the jurisdiction vested in it, thereby denying justice and driving the appellants to this Court. In this process, a simple appeal by the legal heirs of the deceased for_ W.P.C.Nos.17422 & 17431 of 2016 14 _enhancement of compensation, has been tossed around and is pending for more than eight years, putting them to avoidable expense and harassment._ _**15.** We therefore allow this appeal and quash the order dated 3-8-2001 of the Lok Adalat as also set aside the orders dated 11-9-2002 and 26-2-2003 of the High Court. As a consequence, the High Court shall hear and dispose of FAO No. 1549 of 1999 which continues to be pending on its record, on merits in accordance with law. The High Court is requested to dispose of the appeal expeditiously. Parties to bear their respective costs.”_ ii) Judgment of a learned Single Judge of this Court in **Moni Mathai v. The Federal Bank Ltd.** _[O.P.No.12956/2002 decided on 22/01/2003]_ is relied upon. That was also a case where the learned Single Judge of this Court has considered the scope and effect of the jurisdiction of the Lok Adalat under the Legal Services Authorities Act, 1987. That was also a case where an original petition was filed challenging an award passed by the Lok Adalat. The learned Single Judge quashed the award as being W.P.C.Nos.17422 & 17431 of 2016 15 violation of the principles of natural justice and in violation of the statutory provisions. iii) Another judgment relied upon is the judgment of the Division Bench of Andhra Pradesh High Court in **Batchu Subba** **Lakshmi and Others v. Sannidhi Srinivasalu and Others** [W.P.No.10318 of 2009, decided on 08/12/2009]. That was also a case in which the Lok Adalat passed an award based on a compromise. Certain petitioners, who were not parties to the suit or to the award, filed a writ petition after five years, challenging the award. It is further held that _“no Certiorari clause“ in a statute does not bar the Constitutional Court from entertaining a petition for redressal of grievance and issue an appropriate order ex debito justitiae._ And that too, in instances where in the absence of parties to a lis, and in the absence of one of the parties to a lis, award of a Lok Adalat was obtained by impersonation or misrepresentation or fraud. Paragraphs 11 and 12 are relevant which reads as under: _“11. Dealing with the provisions of the Act especially Sections 19 and 20, their Lordships_ W.P.C.Nos.17422 & 17431 of 2016 16 ## _observed as under._ _It is evident from the said provisions that the Lok Adalats have no adjudicatory or judicial functions. Their functions relate purely to conciliation. A Lok Adalat determines a reference on the basis of a compromise or settlement between the parties at its instance, and puts its seal of confirmation by making an award in terms of the compromise or settlement. When the Lok Adalat is not able to arrive at a settlement or compromise, no award is made and the case record is returned to the court from which the reference was received, for disposal in accordance with law. No Lok Adalat has the power to “hear”parties to adjudicate cases as a court does. It discusses the subject-matter with the parties and persuades them to arrive at a just settlement. In their conciliatory role, the Lok Adalats are guided by the principles of justice, equity and fair play._ _**When the LSA Act refers to “determination” by the Lok Adalat and “award” by the Lok Adalat, the said Act does**_ W.P.C.Nos.17422 & 17431 of 2016 17 _**not contemplate nor require an adjudicatory judicial determination based on a compromise or settlement, arrived at by the parties, with guidance and assistance from the Lok Adalat. The “award” of the Lok Adalat does not mean any independent verdict or opinion arrived at by any decision making process. The making of the award is merely an administrative act of incorporating the terms of settlement or compromise agreed by parties in the presence of the Lok Adalat, in the form of an executable order under the signature and seal of the Lok Adalat.**_ _(emphasis supplied)_ _12. From the above judgments, it may be taken as well settled that the award of Lok Adalat is administrative act of incorporating the terms of compromise or settlement agreed by the parties in the presence of Lok Adalat and Lok Adalat does not sit in adjudication of the dispute. When an award is passed in terms of the settlement arrived between_ W.P.C.Nos.17422 & 17431 of 2016 18 _the parties, which is duly signed by the parties annexed to the award of Lok Adalat, it becomes binding on the parties to the settlement and becomes executable as if it is a decree of Civil Court. No appeal would lie against the award of Lok Adalat and if any party wants to challenge such an award, it can be by way of petition under Article 226 or 227 of Constitution. If there is no compromise or settlement between the parties before the Lok Adalat, it cannot pass any award nor such award can bind the parties. The challenge to the award of Lok Adalat under Article 226 of Constitution can be entertained on very limited grounds raised only by parties to the settlement/compromise before Lok Adalat and not by anybody else.”_ 15. Learned counsel for respondents also placed before me the certified copy of the decree passed in both these cases. The decree in O.S.No.395/2016 is extracted herein. W.P.C.Nos.17422 & 17431 of 2016 19 ## _**DECREE**_ _“That the suit is settled in Adalat. Compromise_ _filed. Award passed. Suit is closed as settled in Adalat as per Award._ _Given under my hand and seal of this court, this the 12[th] day of April 2016._ _Sd/-_ _**K.Ravisankar III Addl.Munsiff (In charge II Addl.Munsiff)”**_ The compromise submitted by the parties are in the following terms: ## _**“Compromise of Suit filed under Order 23 Rule 3 of the Code of Civil Procedure**_ _It is submitted that the parties to present litigation, agreed to settle their grievances more particularly described in these presents before the Lok Adalat dated 9[th] April 2016 and therefore it is most humbly prayed that both the Original Suit may be decreed in terms of the compromise as mentioned herewith;-_ W.P.C.Nos.17422 & 17431 of 2016 20 _1) to pass Decree of Settlement of Accounts between Plaintiff and Defendants, that Plaintiff paid back entire loan amount to Defendants and there is no amount whatsoever due to the Defendants._ _2) to pass Decree adjudging Document No.995 of 2010 on the files of Sub Registrar Office, Mulanthuruthy is null and void and cancelled._ _3) to pass Decree permanent prohibitory injunction restraining the Defendants or their men or agents or person under them interfering with the peaceful enjoyment and its possession of Plaintiff in Plaint Schedule Property having a total extent of 7.23 Ares in Old Survey No.138/3, and Re-Survey No.142/5, Block No.22 of Amballor in Kanayannoor Taluk together with all the other improvements situated thereon with all attached thereto, and same is more particularly described in Deed No.880 of 1999 of Sub Registrar Office, Mulanthuruthy._ _In the above circumstance it most respectfully prayed that, this Hon'ble Court may be pleased to pass a judgment and decree in accordance with_ W.P.C.Nos.17422 & 17431 of 2016 21 _terms of this compromise as engrossed in the preceding paragraphs in the interest of justice._ Dated this the 4[th] day of April, 2016. _(sd/-)_ _**SOJAN JOSEPH Plaintiff “**_ The award passed by the Lok Adalat reads as under: ## “ **AWARD** _The dispute between the parties having come up for determination at the Lok Adalat and the parties having settled the matter and filed a compounding application/compromise, the following award is passed in terms of the compromise:_ _Parties present. Compromise signed by both parties filed. Compromise recorded. Suit decreed in terms of the compromise. Compromise will form part of the decree._ (sd/-) W.P.C.Nos.17422 & 17431 of 2016 22 _It is further ordered that court fee paid on the plaint/Appeal memo be refunded to the plaintiffs/Appellants counsel on memo being filed before the Court of Institution concerned as per rules.”_ 16. The learned counsel for the petitioner also points out that the suits were filed on 10/03/2016, with reference to a cause of action on 27/08/2014. The matter was referred to the Adalat and settled on 12/04/2016. In the compromise deed dated 04/04/2016 wherein it is stated that the parties agreed to settle their grievances before the Lok Adalat dated 09/04/2016. It is pointed out that the aforesaid documents itself discloses a deliberate, fraudulent and collusive suits which cannot be binding on the petitioner Bank. It is stated that Section 13(3) of the Act prohibits any transfer of secured asset after notice being issued by the secured creditor under Section 13(2) of the Act. It is to prevent the Bank from taking proceedings under the Act and to defeat the secured creditor that this method had been adopted. It is contended that the award passed by the Lok Adalat cannot be W.P.C.Nos.17422 & 17431 of 2016 23 treated as a judgment of the Civil Court affecting the right of the Bank to challenge the same and the judgment of the **Radheyshyam** (supra) has no application in the present cases. 17. Before proceeding further, it would be useful to consider the scope and effect of the Act. The Apex Court had occasion to consider the constitutional validity of the Act in **Mardia Chemicals Ltd. v. Union of India** _[(2004) 4 SCC 311]_ . The three judge Bench of the Apex Court held in paragraphs 34 to 36 as under: _“_ _**34.** Some facts which need to be taken note of are that the banks and the financial institutions have heavily financed the petitioners and other industries. It is also a fact that a large sum of amount remains unrecovered. Normal process of recovery of debts through courts is lengthy and time taken is not suited for recovery of such dues. For financial assistance rendered to the industries by the financial institutions, financial liquidity is essential failing which there is a blockade of large sums of amounts creating circumstances which retard the economic_ W.P.C.Nos.17422 & 17431 of 2016 24 _progress followed by a large number of other consequential ill effects. Considering all these circumstances, the Recovery of Debts Due to Banks and Financial Institutions Act was enacted in 1993 but as the figures show it also did not bring the desired results. Though it is submitted on behalf of the petitioners that it so happened due to inaction on the part of the Governments in creating Debts Recovery Tribunals and appointing presiding officers, for a long time. Even after leaving that margin, it is to be noted that things in the spheres concerned are desired to move faster. In the present-day global economy it may be difficult to stick to old and conventional methods of financing and recovery of dues. Hence, in our view, it cannot be said that a step taken towards securitisation of the debts and to evolve means for faster recovery of NPAs was not called for or that it was superimposition of undesired law since one legislation was already operating in the field, namely, the Recovery of Debts Due to Banks and Financial Institutions Act. It is also to be_ W.P.C.Nos.17422 & 17431 of 2016 25 _noted that the idea has not erupted abruptly to resort to such a legislation. It appears that a thought was given to the problems and the Narasimham Committee was constituted which recommended for such a legislation keeping in view the changing times and economic situation whereafter yet another Expert Committee was constituted, then alone the impugned law was enacted. Liquidity of finances and flow of money is essential for any healthy and growth-oriented economy. But certainly, what must be kept in mind is that the law should not be in derogation of the rights which are guaranteed to the people under the Constitution. The procedure should also be fair, reasonable and valid, though it may vary looking to the different situations needed to be tackled and object sought to be achieved._ _**35.** As referred to above, the Narasimham Committee was constituted in 1991 relating to the financial system prevailing in the country. It considered wide-ranging issues relevant to the economy, banking and financing, etc. Under Chapter_ W.P.C.Nos.17422 & 17431 of 2016 26 _V of the Report under the heading “Capital Adequacy, Accounting Policies and other Related Matters”, it was opined that a proper system of income recognition and provisioning is fundamental to the preservation of the strength and stability of the banking system. It was also observed that the assets are required to be classified, it also takes note of the fact that Reserve Bank of India had classified the advances of a bank, one category of which was bad debts/doubtful debts. It then mentions that according to the international practice, an asset is treated as non-performing when the interest is overdue for at least two quarters. Income of interest is considered as such, only when it is received and not on the accrual basis. The Committee suggested that the same should be followed by the banks and financial institutions in India and an advance is to be shown as non-performing assets where the interest remains due for more than 180 days. It was further suggested that Reserve Bank of India should prescribe clear and objective definitions in respect of_ W.P.C.Nos.17422 & 17431 of 2016 27 _advances which may have to be treated as doubtful, standard or substandard, depending upon different situations. Apart from recommending the setting up of Special Tribunals to deal with the recovery of dues of the advances made by the banks, the Committee observed that impact of such steps would be felt by the banks only over a period of time, in the meanwhile, the Committee also suggested for reconstruction of assets saying:_ _“The Committee has looked at the mechanism employed under similar circumstances in certain other countries and recommends the setting up of, if necessary by special legislation, a separate institution by the Government of India to be known as ‘Assets Reconstruction Fund’ (ARF) with the express purpose of taking over such assets from banks and financial institutions and subsequently following up on the recovery of dues owed to them from the primary borrowers.”_ _While recommending for setting up of Special Tribunals, the Committee observed:_ W.P.C.Nos.17422 & 17431 of 2016 28 _“Banks and financial institutions at present face considerable difficulties in recovery of dues from the clients and enforcement of security charged to them due to the delay in the legal processes. A significant portion of the funds of banks and financial institutions is thus blocked in unproductive assets, the values of which keep deteriorating with the passage of time. Banks also incur substantial amounts of expenditure by way of legal charges which add to their overheads. The question of speeding up the process of recovery was examined in great detail by a Committee set up by the Government under the Chairmanship of the late Shri Tiwari. The Tiwari Committee recommended, inter alia, the setting up of Special Tribunals which could expedite the recovery process….”_ _The Committee also suggested some legislative measures to meet the situation._ _**36.** In its Second Report, the Narasimham Committee observed that NPAs in 1992 were uncomfortably high for most of the public sector_ W.P.C.Nos.17422 & 17431 of 2016 29 _banks. In Chapter VIII of the Second Report the Narasimham Committee deals about legal and legislative framework and observed:_ _“8.1. A legal framework that clearly defines the rights and liabilities of parties to contracts and provides for speedy resolution of disputes is a sine qua non for efficient trade and commerce, especially for financial intermediation. In our system, the evolution of the legal framework has not kept pace with changing commercial practice and with the financial sector reforms. As a result, the economy has not been able to reap the full benefits of the reforms process. As an illustration, we could look at the scheme of mortgage in the Transfer of Property Act, which is critical to the work of financial intermediaries….”_ _One of the measures recommended in the circumstances was to vest the financial institutions through special statutes, the power of sale of the assets without intervention of the court and for reconstruction of assets. It is thus to be seen that the_ W.P.C.Nos.17422 & 17431 of 2016 30 _question of non-recoverable or delayed recovery of debts advanced by the banks or financial institutions has been attracting attention and the matter was considered in depth by the Committees specially constituted consisting of the experts in the field. In the prevalent situation where the amounts of dues are huge and hope of early recovery is less, it cannot be said that a more effective legislation for the purpose was uncalled for or that it could not be resorted to. It is again to be noted that after the Report of the Narasimham Committee, yet another Committee was constituted headed by Mr Andhyarujina for bringing about the needed steps within the legal framework. We are therefore, unable to find much substance in the submission made on behalf of the petitioners that while the Recovery of Debts Due to Banks and Financial Institutions Act was in operation it was uncalled for to have yet another legislation for the recovery of the mounting dues. Considering the totality of circumstances and the financial climate world over, if it was thought as_ W.P.C.Nos.17422 & 17431 of 2016 31 _a matter of policy to have yet speedier legal method to recover the dues, such a policy decision cannot be faulted with nor is it a matter to be gone into by the courts to test the legitimacy of such a measure relating to financial policy.”_ 18. In **Pegasus Assets Reconstruction (P) Ltd. v. Haryana Concast Ltd.** _[(2016) 4 SCC 47],_ Apex Court was considering whether a company Court, directly or through an official liquidator can have any control in respect of sale of any secured asset by secured creditor in exercise of powers available to such creditors under the Act. It was held at paragraphs 19 to 23 as under: _**“19.** However, there are certain areas covered_ _by the Delhi High Court which need further elucidation and clarification. For that it will be relevant and necessary to first go through the ambit, scope and peculiarities of statutes like the State Financial Corporations Act, 1951 (for brevity “the SFC Act”) and the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for brevity “the RDB_ W.P.C.Nos.17422 & 17431 of 2016 32 _Act”) in contrast with the SARFAESI Act and some case laws which, in our view, are of special significance for better understanding of the issues._ _**20.** All the aforesaid Acts are Central legislations enacted for specific purposes. The SFC Act enables the State Governments to establish a financial corporation for a State on the lines of Central Industrial Finance Corporation set up under Act 15 of 1948 to provide medium and long-term credit to industrial undertakings, somewhat outside the normal lending activities of commercial banks. This Act, inter alia, vests special privileges in the State Financial Corporations in the matter of enforcement of its claims against borrowers, through sections such_ _as Sections 29, 30, 31 and 32. Coercive steps including sale of secured property is, vide Section 31 required to be taken by moving appropriate application before the District Judge concerned as per procedure prescribed under Section 32. Section 46-B does bestow overriding status on this Act over the then existing law but not over the Companies_ W.P.C.Nos.17422 & 17431 of 2016 33 _Act, 1956 which is a later law. Hence, in several judgments it has rightly been held that if the defaulter is a company under winding up, a State Financial Corporation can at best be a secured creditor who may opt to remain out of winding up but nonetheless it will be subject to orders passed in accordance with law under the Companies Act._ _**21.** The RDB Act is of 1993 i.e. later to the Companies Act. Its avowed object is to provide for the establishment of tribunals for expeditious adjudication and recovery of debts due to banks and financial institutions and for matters connected therewith or incidental thereto. This Act creates a special machinery for speedy recovery of dues of banks and financial institutions which, by an amendment of 2004 now includes a registered securitisation company or reconstruction company envisaged under the SARFAESI Act. Section 18 bars the jurisdiction of ordinary courts or authority in respect of matters falling within the jurisdiction of the Tribunal as specified in Section 17. An Appellate_ W.P.C.Nos.17422 & 17431 of 2016 34 _Tribunal is provided under Section 20. The power of the Tribunal extends to determining the debt due as well as its realisation. Section 34 confers overriding effect upon this Act over any other law in force._ _**22.** In contrast, the SARFAESI Act was enacted in 2002 to regulate securitisation and reconstruction of financial assets and enforcement of security interest and for matters connected therewith or incidental thereto. Inter alia, one of the main objects of this Act is to clothe the banks and financial institutions in India with power to take possession of securities and sell them. All its significant provisions have been noted in detail in Mardia Chemicals[6] in which vires of this Act were examined and upheld._ _**23.** A reading of Sections 9 and 13 of the SARFAESI Act leaves no manner of doubt that for enforcement of its security interest, a secured creditor has been not only vested with powers to do so without the intervention of the court or tribunal but detailed procedure has also been prescribed to take care of various eventualities such as when the borrower_ W.P.C.Nos.17422 & 17431 of 2016 35 _company is under liquidation for which proviso to sub-section (9) of Section 13 contains clear mandate keeping in view the provisions of Sections 529 and 529-A of the Companies Act, 1956. Since significant amendments were introduced in Section 529 while inserting Section 529-A through Amendment Act 35 of 1985, effective from 24-5-1985 and with the aid of a non obstante clause in sub-section (1) of Section 529-A workmen’s dues were given preference over other dues and made to stand pari passu with dues of the secured creditors, in case of apparent conflict, this Court through various judgments has upheld the proceedings under the RDB Act as it happens to be a later Act with overriding effect over other laws. The interest of the workmen in respect of dues payable to them as per Sections 529 and 529-A of the Companies Act has been protected by permitting, wherever necessary, association of the Official Liquidator with the proceedings before the Debts Recovery Tribunal under the RDB Act. In our considered judgment, the same view is required to_ W.P.C.Nos.17422 & 17431 of 2016 36 _be taken in context of the SARFAESI Act also, for the additional reason that Section 13 requires notice to the borrower at various stages which in the case of a company under winding up being a borrower would mean requirement of notice to the Official Liquidator. The Security Interest (Enforcement) Rules, 2002 (for brevity “the Rules”) framed under the provisions of the SARFAESI Act also require notice upon the borrower or his agent at different stages. For sale of immovable secured assets, as per Rule 8, the authorised officer can take possession by delivering a possession notice to the borrower and by affixing possession notice on the outer door or at some conspicuous place of the property. Before the sale also, the authorised officer is required to serve to the borrower a notice of 30 days. Thus, the Rules also ensure that the Official Liquidator is in knowledge of the proceedings under the SARFAESI Act in case the borrower happens to be a company under winding up. As a borrower, the Official Liquidator has ample opportunity to get the details of the workers’ dues as_ W.P.C.Nos.17422 & 17431 of 2016 37 _ascertained under the Companies Act, placed before the authorised officer and seek proper distribution of the amount realised from the sale of secured assets in accordance with various provisos under subsection (9) of Section 13 of the SARFAESI Act.”_ 19. Thus, it could be seen that the very purpose of legislation was to ensure that the NPAs are realized without intervention of a Court or Tribunal. Section 13(13) of the Act gains importance which reads as under: _“13(13): No borrower shall, after receipt of notice referred to in sub-section (2), transfer by way of sale, lease or otherwise (other than in the ordinary course of his business) any of his secured assets referred to in the notice, without prior written consent of the secured creditor.”_ 20. Further, Section 34 of the Act creates an embargo of jurisdiction of Civil courts in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under the Act to determine and further indicates that no injunction shall be granted by any Court or other authority in W.P.C.Nos.17422 & 17431 of 2016 38 respect of any action taken or to be taken in pursuance of any power conferred by or under the Act or under the 1993 Act. Section 34 reads as under: ## _“_ _**34. Civil court not to have jurisdiction** .-_ _No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993).”_ 21. Section 35 indicates that the provisions of the Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. 22. In **Vishal N. Kalsaria v. Bank of India** _[2016 (3) SCC 762]_ the Apex Court held that the expression “any other law for W.P.C.Nos.17422 & 17431 of 2016 39 the time being in force” as appearing in Section 35 of the SARFAESI Act cannot mean to extend to each and every law enacted by the Central and State Legislatures whereas it can only extent to the laws operating in the same field”. That was a case in which the question was whether the tenants entitled for protection under the Maharashtra Rent Control Act could be evicted by resorting to the provisions under the SARFAESI Act. It was held that a tenant cannot be arbitrarily evicted by using the provisions of the Act which would tantamount to stultify the statutory rights of protection given to the tenant. 23. In the suits filed as O.S.No.395/2016 and 396/2016, the Bank is not made a party. Therefore, any order passed in the said suit is not binding on the Bank. However, it has to be considered whether the decree passed by the Civil court pursuant to the settlement made before the Adalat can be declared to be void by this Court in a writ petition filed under Article 226 of the Constitution of India. There is no doubt about the proposition that judicial orders of the Civil Court are not amenable to writ jurisdiction under Article 226 of the Constitution of India. The W.P.C.Nos.17422 & 17431 of 2016 40 question is whether the decree which followed a judgment of the Civil Court based on a settlement arrived at between the parties before the Lok Adalat can be treated as a judicial order passed by the Civil Court. First of all, the judgment by another three Judge Bench in **Jalour Singh** (supra) while considering the scope and effect of an award passed by the Lok Adalat exercising power under Section 19 to 22 of the Legal Services Authorities Act, 1987 has held that such settlements can be challenged under Article 226 of the Constitution of India. Same is the view taken by the learned Single Judge of this Court in **Moni Mathai** (supra) and the Division Bench of the Andhra Pradesh High Court in **Batchu Subba Lakshmi** (supra). It would also be useful to refer to the provisions of the Legal Services Authorities Act, 1987. As per Section 19(5), the Lok Adalat has jurisdiction to determine and arrive at a compromise or settlement between the parties to a dispute in respect of any case pending before any Court for which the Lok Adalat is organised. So, primarily, the jurisdiction of the Lok Adalat is to arrive at a compromise or settlement between the parties to a dispute. Section 20 relates to cognizance of cases by W.P.C.Nos.17422 & 17431 of 2016 41 Lok Adalat. The Court shall refer the case to the Lok Adalat, if the parties agree or one of the parties makes an application before the Court and the Court is prima facie satisfied that there are chances of settlement and is an appropriate one to be taken cognizance by the Lok Adalat. This is a case where the plaintiff seeks to declare a registered sale deed as null and void. The pleadings in the suit are not before this Court and therefore I am unable to comment upon it. However, it is stated that the suit is filed seeking a declaration that the title deeds namely Document Nos.994/2010 and 995/2010 are null and void. As per Section 20 (4) of the Legal Services Authorities Act, the Lok Adalat, while determining any reference before it has to act with utmost expedition to arrive at a compromise or settlement between the parties and shall be guided by the principles of justice, equity, fair play and other legal principles. If the settlement could not be arrived at between the parties, the record of the case shall be returned back to the Court and thereafter the Court shall deal with the case from the stage it was reached before such reference under Section 20(1). Section 21 relates to the award of the Lok W.P.C.Nos.17422 & 17431 of 2016 42 ## Adalat. Section 21 reads as under: _“_ _**21. Award of Lok Adalat** .- (1) Every_ _award of the Lok Adalat shall be deemed to be a decree of a civil court or, as the cse may be, an order of any other court and where a compromise or settlement has been arrived at, by a Lok Adalat in a case referred to it under sub-section (1) of Section 20, the court-fee paid in such case shall be refunded in the manner provided under the Court Fees Act, 1870 (7 of 1870)._ _(2) Every award made by a Lok Adalat shall be final and binding on all the parties to the dispute, and no appeal shall lie to any court against the award.”_ 24. The award of Lok Adalat is deemed to be a decree of the Civil Court or an order of any other Court. The fact that the award of Lok Adalat is deemed to be a decree in terms of Section 21, or treated as an order of a Court, by itself indicates that it is not a decree. The deeming provision has been incorporated under the Statute only for the purpose of making the award final W.P.C.Nos.17422 & 17431 of 2016 43 which is evident from Section 21(2) which states that “every award shall be binding on all the parties to the dispute and no appeal shall lie to any Court against the award”. Therefore, the deeming provision to make it a decree is for the purpose of execution and for the purpose of refund of court fee. Two aspects require to be noticed in the present case. One is that in terms of Section 20(4), the Lok Adalat has to determine any reference before it guided by the principles of justice, equity, fair play and other legal principles. Here is an instance where a compromise petition has been filed between two parties to a lis agreeing that a registered sale is null and void. The question would be whether such a decree could be passed on the basis of compromise between the parties or whether by act of parties they can treat a registered document as null and void. According to me, no such compromise can be entered into by the parties to treat a registered document as null and void. It can be made only by a declaration of a Court after an adjudication of the dispute between the parties and on relevant considerations. Therefore, it is clear that the Lok Adalat has not acted in accordance with the W.P.C.Nos.17422 & 17431 of 2016 44 well settled legal principles which makes the award passed by the Lok Adalat in effective. Secondly, the decree is executable only if it is passed with jurisdiction. Here there is no decree declaring the document as null and void whereas the decree only states that the suit is closed in Adalat as per award. It is not a decree passed by the Civil court which is executed. Therefore, we are only faced with the award passed by the Lok Adalat wherein it is stated that the compromise is recorded and suit is decreed in terms of the compromise and compromise will form part of the decree. This award by itself is not a decree whereas it is deemed to be a decree for the purpose of execution. In other words, a fiction is created to treat an award passed by the Lok Adalat as a decree of a civil court. In the 9[th] Edition of the Principles of Statutory Interpretation by Justice G.P.Singh, Legal Fiction is interpreted as follows: _“The legislature is quite competent to create a legal fiction, in other words, to enact a deeming provision for the purpose of assuming existence of a fact which does not really exist provided the declaration of non-existent facts as existing does not_ W.P.C.Nos.17422 & 17431 of 2016 45 _offend the constitution. Although the word 'deemed' is usually used, a legal fiction may be enacted without using that word._ _In interpreting a provision creating a legal fiction, the Court is to ascertain for what purpose the fiction is created, and after ascertaining this, the Court is to assume all those facts and consequences which are incidental or inevitable corollaries to the giving effect to the fiction. But in so construing the fiction it is not to be extended beyond the purpose for which it is created, or beyond the language of the section by which it is created.”_ 25. In the case on hand also, the award passed by the Lok Adalat though not a decree, it is deemed to be a decree as per a fiction created as per Section 22 of the Legal Services Authorities Act. Since it has been made final, the remedy of any person aggrieved is only to invoke the jurisdiction of this Court under Article 226 of the Constitution of India. It is argued by the learned counsel for the respondents that a suit can be filed challenging W.P.C.Nos.17422 & 17431 of 2016 46 the award since there is allegation of fraud. Of course, there is no bar for filing a suit to set aside an award, but that does not mean that the petitioner cannot invoke the jurisdiction of this Court under Article 226 of the Constitution of India on the complaint that the Lok Adalat has passed the award illegally and without jurisdiction. 26. Now, coming to the facts of the present case, even assuming that an award is passed by the Adalat, which is treated to be a decree, still it will not affect the interest of the Bank in any manner. If the borrowers challenge the validity of the mortgage or the manner in which notice had been served, or there is allegation that there is absence of service of notice, their remedy is to approach the Tribunal challenging any of the measures taken under Section 13(4) of the Act. Here is an instance where the Chief Judicial Magistrate had already appointed an Advocate Commissioner to take possession of the premises. The said order is not under challenge by the persons in possession whereas they are preventing or objecting to the orders passed and not permitting the Advocate Commissioner to take possession based W.P.C.Nos.17422 & 17431 of 2016 47 on the aforesaid award. According to me, the award is not binding on the Bank and does not prevent the Advocate Commissioner to take possession of the premises. The Bank can ignore Exts.P8 and P9 and proceed further, in accordance with law. 27. In fact, if a registered sale deed is to be declared as null and void, a suit has to be filed under Section 31 of the Specific Relief Act and it is for the Court in its discretion adjudge and order whether the document is to be cancelled. It is settled law that such a decree in which a document is declared to be void is a decree in personum and though it binds the parties to the suit, it will not be binding to each and every person and no note of such a decree can be made in the Sub Registrar's register. Such document may give rise to various transactions and litigations. Therefore, unless the Court, in its discretion cancels a sale deed, a compromise settlement between the parties cannot be utilised to declare a document void. Further, the mortgagor has an obligation under Section 65 of the Transfer of Properties Act to defend the mortgagor's title. Section 65(b) reads as under: W.P.C.Nos.17422 & 17431 of 2016 48 ## _**65. Implied contracts by mortgagor -**_ _In the absence of a contract to the contrary, the mortgagor shall be deemed to contract with the mortgagee, -_ _(a) xxxx_ _(b) that the mortgagor will defend, or, if the mortgagee be in possession of the mortgaged property, enable him to defend, the_ ## _mortgagor's title thereto;_ _xxxx_ _**”**_ 28. It is therefore apparent in the present case that the mortgagor did not inform the Court or the Lok Adalat about the creation of equitable mortgage and did not defend their title which clearly amounts to violation of the above statutory provision. For that reason also, the compromise settlement is illegal and does not bind the petitioner Bank. In the result, these writ petitions are allowed. It is declared that the petitioner Bank is entitled to proceed against the secured asset under Sections 13 and 14 of the Act ignoring the award 49 W.P.C.Nos.17422 & 17431 of 2016 passed by the Lok Adalat in O.S.No.395/2016 and 396/2016 of the Munsiff Court. (sd/-) **(A.M.SHAFFIQUE, JUDGE)** jsr