The Federal Bank Ltd. v Trinity Latex and Others

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE V.G.ARUN** **MONDAY, THE 18[TH] DAY OF DECEMBER 2023 / 27TH AGRAHAYANA,** ## **1945** **CRP NO. 119 OF 2022** **AGAINST THE ORDER/JUDGMENT IN OS 2/2019 OF SUB COURT,** ## **PALA** ## **REVISION PETITIONER/S:** 1 THE FEDERAL BANK LTD. FEDERAL TOWERS, ALUVA, ERNAKULAM, PIN-683101, REPRESENTED BY ITS CHAIRMAN. 2 MANAGER ASSET RECOVERY BRANCH, FEDERAL BANK LTD, ZONAL OFFICE, THEKKUMKAL BUILDINGS, T B ROAD, KOTTAYAM-686001. 3 MANAGER FEDERAL BANK LTD, KANJIRAPPALLY BRANCH, SAMANWAYA COMPLEX, THAMPALACKADU ROAD, KANJIRAPPALY, PIN-686506. BY ADVS. MOHAN JACOB GEORGE P.V.PARVATHY (P-41) REENA THOMAS NIGI GEORGE ## **RESPONDENT/S:** 1 TRINITY LATEX 160/9 KULAKATTUVAYALIL, PAZHAVANGADY PANCHAYATH, EDAMON, CHETHACKAL VILLAGE, RANNI TALUK, REPRESENTED BY ITS MANAGING PARTNER, E C MATHEW, AGED 70 YEARS, S/O CHERIAN KUNJU, ELENGICKAL MADAM, CHOTTI, PARATHODU VILLAGE, KANJIRAPPALLY TALUK, PIN-686512. 2 SHEELA MATHEW AGED 63 YEARS W/O E C MATHEW, ELANJIKAL MADATHIL HOUSE, CHOTTI KARA, PARATHODU VILLAGE, KANJIRAPPALLY VILLAGE PIN-686512. 3 K V KURAKOSE AGED 73 YEARS S/O KURIAKOSE VARKEY, KULAKKATTU VAYALIL HOUSE, CRP No.119 of 2022 -2- EDAMON P O, PAZHAVANGADI KARA, CHETHAKKAL VILLAGE, OIN-689677. BY ADVS. C.MURALIKRISHNAN (PAYYANUR) AKSHAY R THIS CIVIL REVISION PETITION HAVING BEEN FINALLY HEARD ON 04.12.2023, THE COURT ON 18.12.2023 DELIVERED THE FOLLOWING: CRP No.119 of 2022 -3- ## **ORDER** Dated this the 18[th] day of December, 2023 The revision petitioners are the defendants in O.S.No.2 of 2019 pending on the files of the Sub Court, Pala. The suit is filed by the respondents, seeking to realise an amount Rs.52,98,750/- at the rate of 12% interest on the principal amount of Rs.33,75,000/-, from the defendants and their assets. The averments in the plaint are to the following effect; A Company by name Kuttiyanickal Rubbers Private Limited, availed a loan from the Federal Bank Limited/first defendant. The Company having defaulted repayment of the loan amount, the Bank initiated recovery measures under the SARFAESI Act and brought the secured asset to sale. In the sale so conducted, the plaintiffs made the highest offer and the bank agreed to sell the CRP No.119 of 2022 -4- property to the plaintiffs for Rs.135 lakhs. Thereupon, the plaintiffs remitted Rs.33,75,000/-, being 25% of the total sale consideration. Later, the plaintiffs came to know that there are several other liabilities over the property. While so, the bank issued notice to the plaintiffs demanding balance sale consideration and also informing that, in the event of failure, the amount deposited by the plaintiffs will be forfeited. The plaintiffs did not pay the balance sale consideration on the premise that the bank should first clear all liabilities attached to the property. Rejecting the plaintiffs' demand, the bank forfeited the amount already remitted towards sale consideration. Contending that the forfeiture being illegal, the suit was filed seeking realisation of the forfeited amount with interest. The revision petitioners filed CRP No.119 of 2022 -5- written statement in the suit contending, among other things, that the suit is not maintainable in view of the bar under Section 34 of the SARFAESI Act. By the impugned order, the court below rejected the contention and held the suit to be maintainable. Hence, this revision petition. 2. Adv.Mohan Jacob George, learned Counsel for the revision petitioners contended that the trial court had grossly erred in holding the suit to be maintainable. It is submitted that, in _**Agarwal Tracom Private Limited v Punjab National Bank and Others [(2018) 1 SCC 626]**_ , the Apex Court has held the Debts Recovery Tribunal to be the proper forum for challenging the forfeiture of auction purchaser's deposit money by the secured creditor. Contrary to this legal position, the court below went on to hold that a suit challenging forfeiture of deposit money by CRP No.119 of 2022 -6- the auction purchaser is maintainable, since sale of the secured asset is not a measure falling under Section 13(4) and cannot therefore be the subject matter of challenge in an application under Section 17. While holding so, the court below omitted to note Rule 9(5) of the Security Interest Rules which provides for such forfeiture and the power vested with the Debts Recovery Tribunal under Section 17(2), to consider whether any of the measures in sub-section (4) of Section 13 taken by the secured creditor for enforcement of security are in accordance with the provisions of the Act and the Rules made thereunder. 3. Adv.C.Murali Krishnan, learned Counsel for the respondents contended that, even if it is accepted for the sake of argument that sale of the secured asset would amount to a measure under Section 13(4) and forfeiture of security deposit can be challenged before the Debts Recovery Tribunal, the suit is maintainable since the CRP No.119 of 2022 -7- plaintiffs have alleged fraud on the part of the bank and its officials, in having suppressed the liabilities over the property brought to sale. In support of this contention, reference is made to paragraph 51 of _**Mardia Chemicals v. Union of India [(2004) 4 SCC 311]**_ , wherein the Apex Court has opined that even in cases falling under Section 13(4), the jurisdiction of the civil court can be invoked to a limited extent, if the action of the secured creditor is alleged to be fraudulent. 4. In reply, learned Counsel for the revision petitioners contended that mere allegation of fraud without material particulars will not enable the plaintiffs to escape from the bar of Section 34. In support of this argument, reliance is placed on the decision in _**Electrosteel Castings Limited v. U.V. Asset Reconstruction Company Limited and Others [(2022)**_ CRP No.119 of 2022 -8- ## _**2 SCC 573].**_ 5. A perusal of the impugned order shows that the learned Sub Judge had held the suit to be maintainable on the reasoning that sale of the secured asset being an act done after taking possession of the property, it is not a measure taken under Section 13(4). The court below also held that, under Section 17, the Debts Recovery Tribunal is empowered to consider only whether any of the measures referred to in sub-section (4) of Section 13 are in accordance with the provisions of the Act and Rules. A dispute based on an agreement for sale entered into between the secured creditor and the third person cannot therefore be the subject matter of challenge under Section 17. 6. This Court need not belabour much on the question whether forfeiture of auction purchaser's deposit money is a measure falling under Section 13(4) in view of the categoric CRP No.119 of 2022 -9- findings in _**Agarwal Tracom Private Limited**_ _(supra)._ Therein, the Apex Court has held that the proper forum for challenging the forfeiture of deposit money of auction purchaser by the secured creditor is the Debts Recovery Tribunal. For arriving at such conclusion, the court referred to Rule 9 (5) of the Security Interest Rules and Section 17 of the Act. Being contextually relevant, paragraphs 25 to 30 of the judgment are extracted hereunder; _“25. So far as this case is concerned, sub-rule (5) of Rule 9 is relevant. It provides that, if the auction-purchaser commits any default in payment of sale consideration within the time specified, the deposit made by the auction-purchaser shall be “forfeited” to the secured creditor and the auctioned property shall be resold and the defaulting purchaser shall “forfeit” all claims to the property or its part of the sum for which it may be sold subsequently._ _26. Reading of the aforementioned sections and the rules and, in particular, Section 17(2) and Rule 9(5) would clearly go to_ CRP No.119 of 2022 -10- _show that an action of secured creditor in forfeiting the deposit made by the auctionpurchaser is a part of the measures taken by the secured creditor under Section 13(4)._ _27.The reason is that Section 17(2) empowers the Tribunal to examine all the issues arising out of the measures taken under Section 13(4) including the measures taken by the secured creditor under Rules 8 and 9 for disposal of the secured assets of the borrower. The expression “provisions of this Act and the Rules made thereunder” occurring in subsections (2), (3), (4) and (7) of Section 17 clearly suggests that it includes the action taken under Section 13(4) as also includes therein the action taken under Rules 8 and 9 which deal with the completion of sale of the secured assets. In other words, the measures taken under Section 13(4) would not be completed unless the entire procedure laid down in Rules 8 and 9 for sale of secured assets is fully complied with by the secured creditor. It is for this reason, the Tribunal has been empowered by Sections 17(2), (3) and (4) to examine all the steps taken by the secured creditor with a view to find out as to whether the sale of secured assets was made in conformity with the requirements contained in Section 13(4) read with the Rules or not?_ CRP No.119 of 2022 -11- _28. We also notice that Rule 9(5) confers express power on the secured creditor to forfeit the deposit made by the auctionpurchaser in case the auction-purchaser commits any default in paying instalment of sale money to the secured creditor. Such action taken by the secured creditor is, in our opinion, a part of the measures specified in Section 13(4) and, therefore, it is regarded as a measure taken under Section 13(4) read with Rule 9(5). In our view, the measures taken under Section 13(4) commence with any of the action taken in clauses (a) to (d) and end with measures specified in Rule 9._ _29. In our view, therefore, the expression “any of the measures referred to in Section 13(4) taken by secured creditor or his authorised officer” in Section 17(1) would include all actions taken by the secured creditor under the Rules which relate to the measures specified in Section 13(4)._ _30. The auction-purchaser (appellant herein) is one such person, who is aggrieved by the action of the secured creditor in forfeiting their money. The appellant, therefore, falls within the expression “any person” as specified under Section 17(1) and hence is entitled to challenge the action of the secured creditor (PNB) before the DRT by_ CRP No.119 of 2022 -12- _filing an application under Section 17(1) of the SARFAESI Act.”_ 7. The respondents have a contention that the suit is even otherwise maintainable, in view of the allegation of fraud raised against the Bank. It is not in dispute that the allegation of fraud was for the first time raised in the additional pleadings submitted by the plaintiffs and accepted pursuant to this Court's direction in O.P.(C) No.45 of 2021. Even in the additional pleadings, the allegation regarding fraud is that the defendants knew that the sales tax liability upon the property far exceeded its market value and the officers of the Bank had brought the property to sale in order to cover of that negligence and inaction in the matter of loan sanctioned to the original borrower and as such, there is fraud on the defendants' side by suppression of material facts. This allegation is answered by pointing out that the property was CRP No.119 of 2022 -13- brought to sale in 'as is where is' condition and communication issued by the plaintiffs itself would show that they were aware of the liability. I am not venturing to decide the correctness or otherwise of the contention regarding suppression of material fact and allegation of fraud. Since at this stage, all this Court need to consider is whether the allegations on record are sufficient to get over the bar of Section 34, so as to maintain the suit. As held in _**Electrosteel Castings Limited,** (supra),_ mere allegation of fraud without material particulars as required in terms of Order VI Rule 4 CPC will not entail in the suit being maintainable. Here also, except raising the allegation of fraud, no attempt was made to substantiate the allegation by providing material particulars. The contention as to maintainability of the suit, based on the allegation of fraud, is therefore repelled. Based CRP No.119 of 2022 -14- on the above discussion, the finding in the impugned order regarding maintainability of the suit is found to be unsustainable. Consequently, the civil revision petition is allowed and the impugned order is set aside. The learned Sub Judge shall decide the suit based on the findings in this order. In the event of the petitioner approaching the Debts Recovery Tribunal under Section 17 of the SARFAESI Act, the period during which the civil suit was pending shall be excluded while computing the period of limitation. Sd/- **V.G.ARUN JUDGE** Scl/