Case BriefsHigh Courts

Delhi High Court: Suresh Kumar Kait, J., addressed an appeal under Section 37(2)(b) of the Arbitration and Conciliation Act, 1996 against the interim order passed by Arbitrator was preferred.

Factual Background

Vide the Interim order, an application filed by the appellant under the provisions of Section 17 of the Arbitration and Conciliation Act, 1996 to restrain respondent 9 (Zee Entertainment Enterprises Ltd) from going ahead with its Scheme of Arrangement with Sony Pictures Networks India Pvt. Limited and Bangla Entertainment Private Limited was rejected.

An appeal was instituted based upon four agreements executed between the appellant and respondents 1,3,4 and 5 along with respondent 2 as co-borrower for the loan amount of Rs 726,00,000.

As per the Loan Agreement, it was obligatory upon the Borrowing Respondents to create security in favour of appellant/lender to its satisfaction and in complete contradiction and defiance of terms of Loan Agreement, the borrowing respondents failed to create adequate security.

Analysis and Decision

As per Clause 20 of the Declaration and Acknowledgment, on return of the title deed, the mortgage stood released and appellant issued a “No objection for release of the title deeds” to respondents 1 to 8 in respect of the title deeds of the property situated in Hyderabad over the original title deeds in terms of Declaration and Acknowledgement for a consideration of Rs 225 crores.

Thus, the declaration and acknowledgement got terminated and respondent 9 had no further or other obligation towards the appellant.

Therefore, respondent 9, who was not a party or signatory to the loan agreements, is not bound by the terms of the loan agreement.

Bench stated that the involvement of respondent 9 as obligator was only to the extent that it was a mortgagor of its Hyderabad property which was offered by the borrowers as security cover.

Once, upon receipt of Rs. 225 crores by appellant in terms of NOC dated 01.06.2020, title deeds of property of respondent no.9 have been released, the mortgage does not subsist anymore.

In view of the above facts and circumstances, High Court opined that there was no illegality and perversity in the impugned order. [Indiabulls Housing Finance Ltd. v. GNEX Projects (P) Ltd., 2022 SCC OnLine Del 753, decided on 14-3-2022]

Advocates before the Court:

For the Appellant:

Mr. Vineet Malhotra, Ms. Sonali Jaitley Bakhshi, Mr. Jaiyesh Bakhshi, Ms. Rini Badoni, Ms. Sanjana Bakshi, Mr. Chirag Sharma, Mr. Daman Popli, Mr. Siddharth Dey, Mr.Amreen Qureshi & Mr. Vishal Gohri, Advocates

For the Respondents:

Mr. Arvind Nayar, Senior Advocate with Ms. Ritwika Nanda, Ms. Petal Chandhok & Ms. Akshita Salampuria, Advocates for all respondents 1 to 17 (except respondent No. 9)

Mr. Parag P. Tripathi, Senior Advocate with Ms. Ritwika Nanda, Ms. Petal Chandhok, Ms. Akshita Salampuria & Ms. Mishika Bajpai, Advocates for respondent No. 9.

Experts CornerShardul Amarchand Mangaldas


The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) was enacted with the objective to enable banks and financial institutions to realise long-term assets, to improve recovery of debts and reduce non-performing assets by taking possession and selling such assets, in the manner and as per the procedure as provided therein and read with the Security Interest (Enforcement) Rules, 2002 (Rules).


The SARFAESI read with the Rules, meticulously sets out the step-by-step procedure which is to be adhered to by the banks/financial institutions i.e. the secured creditors, for taking possession and ultimately effecting the transfer of a non-performing asset. Non-adherence to any single procedural step or even non-compliance of a time period stipulated therein by the secured creditor, has lead to a plethora of litigation.


A third-party purchaser, being interested in acquiring the secured asset must primarily ensure that the secured creditor has taken all the necessary steps and checked all the boxes as spelt out under the SARFAESI read with the Rules, prior to acquisition of the secured asset.


Sale on “As is where is basis”

The sale of secured assets under SARFAESI in most cases takes place on “as is where is basis” which means that the purchaser would be acquiring the asset with all its existing rights, obligations and liabilities. Auction notices which are issued by the secured creditors usually state that “the property is free from all encumbrances known to the secured creditor” and thereby shifting the onus onto the purchaser to make its own independent enquiry. However, the Bombay High Court, Nagpur Bench, in its recent judgment dated 18-2-2021 in Medineutrina (P) Ltd. v. District Industries Centre[1] held that, when a property is sold on “as is where is basis”, though it would be upon the purchaser to make reasonable enquiries about the encumbrances affecting the property, the mere mention of “as is where is basis” or any such phrase should not absolve the secured creditor of its obligation to make proper enquiries about other dues/encumbrances affecting the property, to obtain information about which the secured creditor has the means and which information should be disclosed in the auction notice so that the purchaser can make a conscious decision and not raise a plea of not having been informed. Insofar as encumbrances on account of statutory/government/municipal/ revenue dues are concerned, the responsibility of obtaining the details thereof is of the secured creditor. In spite of the aforesaid directions laid down in the judgment, the Court further held that an encumbrance affecting the secured asset, prior to the issuance of the auction notice, would be the liability of the purchaser in order to obtain a clear and marketable title to the property having purchased the same on “as is where is basis”.


Even though the aforesaid judgment directs secured creditors to make a disclosure of statutory encumbrances in the auction notice, it is still to be seen if the directions laid down therein will become a reality and will protect a third-party purchaser who is acquiring the secured asset on “as is where is basis”. It is prudent for the purchaser to make its own independent enquiry with respect to outstanding dues and encumbrances affecting the property, so as to factor in such cost as such additional cost will not form part of the consideration payable to the secured creditor for acquisition of the asset. As per Section 31-B of SARFAESI [as amended by the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016], any debt due to a secured creditor by sale of assets over which security interest is created, shall take priority over any debt due to the Central Government, State Government or local authority. Accordingly, any other dues/encumbrances affecting the property, will have to be cleared in addition to the consideration payable to the secured creditor so as to enable the purchaser to obtain a clear and marketable title to the secured asset.


Borrowers right to foreclose and redeem the mortgage

As per Section 60 of the Transfer of Property Act, 1882, the mortgagor/borrower has a right to redeem the mortgage on payment of the entire mortgage money to the secured creditor. It has been the contention of borrowers that the right of redemption only stands extinguished on the date of registration of the sale certificate in favour of the purchaser. This point on redemption has been analysed by the Supreme Court of India in its judgment dated 20-8-2019 in Shakeena v. Bank of India[2] wherein it was held that the borrower has a right of redemption only before the time the mortgage is foreclosed or the estate is sold. It was further held that issuance of a sale certificate as per Rule 9(7) of the Rules is a complete and absolute sale for the purpose of SARFAESI and the sale certificate need not be registered, as Section 17(2)(xii) of the Registration Act, 1908 provides that a sale certificate issued by a Civil or Revenue Officer in respect of property sold in a public auction does not require registration. Accordingly, the right to redemption stands obliterated from the date of issuance of the sale certificate as registration of the sale certificate is not mandatory.


Borrowers right to prevent transfer of secured assets

In addition to what is stated hereinabove and as per the amended Section 13(8) of the SARFAESI which has come into force with effect from 1-9-2016,  which amended section states that, where the amount of dues of the secured creditor together with all costs, charges and expenses incurred by the secured creditor are tendered by the borrower to the secured creditor prior to the date of publication of notice for public auction or inviting quotations or tender from public or private treaty for transfer of the secured asset, the secured asset shall not be transferred by the secured creditor. The Supreme Court of India in its judgment dated 10-2-2014 in Mathew Varghese v. M. Amritha Kumar[3] held that by virtue of the provisions of Section 13(8) of the SARFAESI, any sale or transfer of a secured asset cannot take place without duly informing the borrower of the time and date of such sale or transfer in order to enable the borrower to tender the dues of the secured creditor and any such sale or transfer effected without complying with the said statutory requirement would be a constitutional violation and nullify the ultimate sale.



In light of what is stated hereinabove, acquisition of a secured asset under SARFAESI requires the purchaser to do thorough due diligence to ensure there are no outstanding dues and encumbrances affecting the property and to ensure strict compliance of the procedure along with the time periods as stipulated in SARFAESI read with the Rules. The thorough due diligence will enable the purchaser to obtain a clear and marketable title to the secured asset which is free from all encumbrances and by carrying out such due diligence, the purchaser will ultimately be saved from knocking on the doors of the court to enforce its right to the secured asset.


† Partner, Shardul Amarchand Mangaldas

†† Associate, Shardul Amarchand Mangaldas.

[1] 2021 SCC OnLine Bom 222.

[2] 2019 SCC OnLine SC 1059.

[3] (2014) 5 SCC 610.

Case BriefsHigh Courts

Sikkim High Court: If a father keeps his self-acquired property for the purpose of mortgage, can his sons interfere in the same? Bhaskar Raj Pradhan, J. answered in the negative and stated that the sons did not have a right to stop the father in dealing with his self-acquired property in the manner he chose to.


Petitioners in the instant matter were the adult sons of respondent 4 who was proceeded against before the Tribunal having stood as guarantor for the loan taken by respondent 2 from respondent 1.

Respondent 4 had mortgaged the landed property in dispute to respondent 1 as a guarantor. Respondent 3 wife of respondent 2 was also a guarantor. Respondent 1 was the Certificate Debtor 2 and respondent 4 was Certificate Debtor 3.

With this Court, a declaration was sought that the property involved in the auction sale shall not be sold in auction to realize the dues of respondent 1. Further, it was added that a declaration that the other landed properties of respondent 2 first be proceeded against to realize the dues of respondent 1 and a direction that the loan shall be realized from respondent 3 from her employer duly adjusting the considerable amount towards recovery loan.

Petitioners stated that the property was originally acquired by the father of respondent 4 and he got his property from his father on partition, hence the same was an ancestral property of the petitioners.

Further, it was stated that the petitioners, as well as the respondent, were Hindus governed by Mitakshara School of Hindu Law and that by virtue of their birth, they became owners of the property along with respondent 4 as coparceners.


Whether the property was an ancestral property of the petitioners or if they had any enforceable right on the property mortgaged by respondent 4 in favour of respondent 1 as a guarantor?

According to Hindu Law by Sir Dinshaw Fardunji Mulla 23rd Edition “all property inherited by a male Hindu from his father, father’s father or father’s father father, is ancestral property.”

Supreme Court reiterated in Shyam Narayan Prasad v. Krishna Prasad, (2018) 7 SCC 646, “A property of a Hindu male devolves on his death.”

A 3-Judge Bench of the Supreme Court in C.N. Arunachala Mudaliar v. C.A. Muruganatha Mudaliar, AIR 1953 SC 495, held that

“father of a Joint Hindu Family governed by Mitakshara law has full and uncontrolled powers of disposition over his self-acquired immovable property and his male issue could not interfere with these rights in any way. The Supreme Court while examining the question as to what kind of interest a son would take in the self- acquired property of his father which he receives by gift or testamentary bequest from him, it was held that Mitakshara father has absolute right of disposition over his self-acquired property to which no exception can be taken by his male descendants. It was held that it was not possible to hold that such property bequeathed or gifted to a son must necessarily rank as ancestral property.

 “…a property gifted by a father to his son could not become ancestral property in the hands of the donee simply by reason of the fact that the donee got it from his father or ancestor.”

 In the instant case, it was evident that respondent 4 did not get the disputed property as his share on the partition as claimed by petitioners. The property was acquired on transfer by his father who had originally acquired it.

The above facts make the property self-acquired of late Hari Prasad Sharma and thereafter, of respondent 4 consequently not ancestral property of petitioners.

Hence, respondent 4 has the right to deal and dispose of the property as he desires.

Section 58 (a) of the Transfer of Property Act, 1882 states that a mortgage is the transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability.

Concluding the matter, Bench held that petitioners, sons of respondent 4 could not have any right to stop him in dealing with his self-acquired property in the manner he chose. Mortgage on the property does not create rights in favour of respondent 1.

In view of the above petition was dismissed. [Umesh Prasad Sharma v. Allahabad Bank, 2021 SCC OnLine Sikk 149, decided on 30-9-2021]

Advocates before the Court:

Mr A. Moulik, Senior Advocate with Ms K. D. Bhutia, Advocate for the petitioners.

Mr Sudesh Joshi, Advocate for Respondent 1,

Mr Pratap Khati, Advocate for Respondents 2 & 3.

None appears for respondents 4 and 5.

Case BriefsSupreme Court

Supreme Court: The Division Bench of S. Abdul Nazeer and Krishna Murari, JJ., addressed a pertinent issue of whether the rent act would come to the aid of a “tenant in sufferance”.

Instant appeals were directed against the Orders passed by the Chief Metropolitan Magistrate, Esplanade, Mumbai rejecting the application filed by the appellant for restraining HDFC Bank, the first respondent from taking possession of the property in the appellant’s possession.

Financial Facility of Rs 5,50,00,000 was granted by HDFC Bank Limited to respondents 2 and 3 (the borrowers). Borrowers had mortgaged a property (Secured Asset) in favour of the Bank with an intention to secure the said credit facility.

Later, the Borrowers accounts were declared at non-performing assets, the Bank issued a notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 to the Borrowers.

Appellant submitted that he is the tenant of the Secured Asset and has been paying rent regularly to his landlord since inception of his tenancy.

Appellant approached the Magistrate seeking protection of his possession of the Secured Asset as the Magistrate was ceased with the petition under Section 14 of SARFAESI Act filed by the respondent 1 – Bank. Though the magistrate had dismissed the registered tenancy placed on record by the appellant.

Analysis, Law and Decision

Bench noted that the appellant’s case was that he is a tenant of the Secured Asset and has paid the rent in advance.

However, in the detailed representation sent in response to the notice issued under Section 13(2) of the SARFAESI Act, the Borrowers did not claim that any tenant was staying at the Secured Asset.

The appellant provided a rent receipt claiming tenancy after the date of creation of mortgage.

Procedural mechanism for taking possession of the Secured Asset was provided under Section 14 of the SARFAESI Act.

Section 17 of the SARFAESI Act provides for the right of appeal to any person including the borrower to approach Debt Recovery Tribunal (DRT). Section 17 has been amended by Act No. 44 of 2016 providing for challenging the measures to recover secured debts. Under the Amendment, possession can be restored to the borrower or such other aggrieved person.

 In the Supreme Court decision of Harshad Govardhan Sondagar v. International Asset Reconstruction Co. Ltd., (2014) 6 SCC 1, it was held that the right of appeal is available to the tenant claiming under the borrower.

In Kanaiyalal Lalchand Sachdev v. State of Maharashtra, (2011) 2 SCC 782, this Court has held that DRT can not only set aside the action of the secured creditor but even restore the status quo ante.

Court stated that in view of the appeal being in pendency from 2016, this Court proposes to examine the case on merits without directing the appellant to avail the alternative remedy.

A Three­ Judge Bench of this Court in Bajarang Shyamsunder Agarwal v. Central Bank of India, (2019) 9 SCC 94, after considering almost all decisions of this Court, in relation to the right of a tenant in possession of the secured asset, has held that if a valid tenancy under law is in existence even prior to the creation of the mortgage, such tenant’s possession cannot be disturbed by the secured creditor by taking possession of the property. If a tenancy under law comes into existence after the creation of a mortgage but prior to issuance of a notice under Section 13(2) of the SARFAESI Act, it has to satisfy the conditions of Section 65­A of the Transfer of Property Act, 1882. If a tenant claims that he is entitled to possession of a Secured Asset for a term of more than a year, it has to be supported by the execution of a registered instrument. In the said decision of this Court, it was clarified that in the absence of a registered instrument, if the tenant only relies upon an unregistered instrument or an oral agreement accompanied by delivery of possession, the tenant is not entitled to possession of the secured asset for more than the period prescribed under the provisions of the Transfer of Property Act.

While noting the above discussion, Bench held that,

“…Rent Act would not come to the aid of a “tenant­-in-­sufferance” vis­à­vis SARFAESI Act due to the operation of Section 13(2) read with Section 13(13) of the SARFAESI Act.”

In the present matter, there was doubt as to the bona fide of the tenant, as there was no good or sufficient evidence to establish the tenancy of the appellant.

The pleading of tenancy was not supported by any registered document, and adding to this, the appellant himself stated that he was a “tenant-in-sufferance”, therefore, he is not entitled to any protection of the Rent Act.

Another point expressed by the Court, was that even if the tenancy had been claimed to be renewed in terms of Section 13(13) of the SARFAESI Act, the Borrower would be required to seek the consent of the secured creditor for transfer of the Secured Asset by way of sale, lease or otherwise, after issuance of the notice under Section 13(2) of the SARFAESI Act and, admittedly, no such consent has been sought by the Borrower.

In view of the above, appeal were dismissed. [Hemraj Ratnakar Salian v. HDFC Bank Limited, 2021 SCC OnLine SC 611, decided on 17-08-2021]

Case BriefsSupreme Court

Supreme Court: The bench of Hemant Gupta and AS Bopanna, JJ has held that in order to determine whether a document is that of a mortgage or a conditional sale, the intention of the parties has to be seen when the document is executed

The proviso to Section 58(c) of the Transfer of Property Act, states that,

“provided that no such transaction shall be deemed to be a mortgage, unless the condition is embodied in the document which effects or purports to effect the sale”

As held in Pandit Chunchun Jha v. Sheikh Ebadat Ali, AIR 1954 SC 345, a transaction which takes the outward form of a sale but in essence the documents are of a mortgage, though it is couched in the form of a sale.

“… it is impossible to compare one case with another. Each case must be decided on its own facts and circumstances. The document has to read as a whole and if any word is ambiguous, then to find out the intention of the parties when such document was executed.”

The Court was hearing the case where a sum of Rs.3,000/- was taken as a loan from the defendant for household expenses. The same was to be returned and the defendant was bound to retransfer the land. If the amount was not paid within the stipulated period, the conditional sale deed was to be taken as a permanent one.

A reading of the document showed that the document was executed for the reason that the plaintiff has borrowed a sum of Rs.3,000/- for his household expenses and the defendant is bound to retransfer the land if the amount is paid within one year. The advance of loan and return thereof are part of the same document which creates a relationship of debtor and creditor. Thus, it was held that the deed would be covered by proviso in Section 58(c) of the Act.

Further, on the question of in the absence of any positive evidence of any improvement and the cost incurred, the defendants were entitled to recover anything more than the mortgage amount, the Court explained that Section 63 of the Act contemplates that any accession by the mortgagee, during the continuance of the mortgage, the mortgagor shall on redemption be entitled to such accession in the absence of a contract to the contrary.

Under Section 63(a) of the Act, the liability of mortgagor to pay for improvement will arise if the mortgagee had to incur the costs to preserve the property from destruction or deterioration or was necessary to prevent the security from becoming insufficient or being made in compliance with the lawful order of any public servant or public authority.

However, none of the eventualities arose in the present case compelling the mortgagor to pay for the improvements if any carried out by the mortgagee.

The Court, further, stated that

“A mortgagee spends such money as is necessary for the preservation of the mortgaged property for destruction, forfeiture or sale; for supporting the mortgagor’s title to the property; for making his own title thereto good against the mortgagor; and when the mortgaged property is a renewable lease-hold, for the renewal of the lease, such expenditure incurred by the mortgagee can be added to the cost of improvements in the principal amount due.”

However, in the absence of any positive evidence of any improvement and the cost incurred, the defendants are not entitled to recover anything more than the mortgage amount.

In the case at hand, since the possession was given to the mortgagee, he has enjoyed usufruct from the mortgage property which compensates not only of the user of the land but also improvements made by him. The improvements were to enjoy the usufruct of the property mortgaged.

[Bhimrao Ramchandra Khalate v. Nana Dinkar Yadav, 2021 SCC OnLine SC 582, decided on 13.08.2021]

*Judgment by: Justice Hemant Gupta

Know Thy Judge| Justice Hemant Gupta

OP. ED.SCC Journal Section Archives

The following question of seminal importance was referred to a three-Judge Bench of the Supreme Court in Syndicate Bank v. APIIC, (2021) 3 SCC 736 : (SCC p. 738, para 1)


Whether a property can be equitably mortgaged by depositing documents which may not be title deeds or registered document of title.”


The Supreme Court did not feel inclined to decide this question since it could decide the case on a narrower issue, and the mortgage of the allotment letter in the facts of that case was enforced on the principle of estoppel.


Had the Supreme Court gone into the above said question it would have found support in Hill Properties Ltd. v. Union Bank of India1, wherein the right of ownership of a flat was purchased by R-5 therein by becoming a shareholder of the housing company which was providing the flat, to the extent of the value of the flat. The share certificate by virtue of which R-5 was allotted the flat was pledged with the Bank to create a mortgage, in the absence of any registered conveyance of the flat in question : facts which are almost identical to the facts of Syndicate Bank case. In Hill Properties case it was held that what the said share certificate, which is the equivalent of an allotment letter, creates a “species of property” or “species of interest” which can validly be mortgaged by deposit of such document with the Bank. The Supreme Court in Hill Properties case followed Himmatlal Shah2, in holding that this “species of property” or “species of interest” in the flat, is freely transferable/alienable i.e. can be sold, gifted, bequeathed, inherited, mortgaged, etc. It was held that this “species of property” includes both an independent right over the flat itself, and an undivided interest over the common areas and facilities (see paras 12, 13, 15 and 16 of Hill Properties).



*The article has been published with kind permission of SCC Online cited as (2021) 3 SCC J-25

M.A. (Cantab). Associate Editor, Supreme Court Cases. Formerly Visiting Professor of Law at Dr RML National Law University, Lucknow from 2011-2016. The author taught Property Law I and Property Law II full time at RML National Law School for five academic years. The author is grateful to all his students of all the batches at RML National Law School for having provoked the inquiries that have led to this paper and to the forthcoming papers on the issues delineated in this paper. The author is deeply grateful to Prof. Balraj Chauhan, the Creator of many law schools, for his vision and foresight in having given the author full freedom to teach Property Law, to enable students to acquire a working practical understanding of this complex and extremely important area of law.


1(2014) 1 SCC 635 : (2014) 1 SCC (Civ) 513

2(1975) 2 SCC 105

3 This legal position obtains currently in India and England as well : mortgages can be created in equity.

4 Even though the forms in which a conditional sale mortgage as defined in Section 58(c) TPA and an English mortgage as defined in Section 58(e) TPA are supposed to be created appear to suggest the pre-TPA formula of absolute conveyance of the legal title with right of reconveyance to create these mortgages, the so called absolute conveyance in both sub-sections is only ostensible in nature, and if the stipulated conditions are strictly satisfied, the mortgagor never parts with the absolute title in mortgages created under Section 58(c) or Section 58(e) TPA.

5(2021) 3 SCC 736

Case BriefsHigh Courts

Delhi High Court: Rajnish Bhatnagar, J., upheld the trial court decision in view of no evidence placed on record.

Petitioner is a registered valuer, running his sole proprietorship firm. Raj Kumar Karanwal, Lance Healthcare (P) Ltd., who met Y.P. Singh, Chartered Accountant wherein they discussed the matter of loan to Raj Kumar Karanwal from some banks. In the month of March, 2013 Raj Kumar Karanwal, Y.P. Singh and S.K. Verma discussed the matter of loan in the office of Raj Kumar Karanwal who informed them about his various CC Limits and deposits of his various properties title deeds with the banks.

Allegations against the petitioner were that the property of Karanwal’s were assessed by Ashugosh Nirmal, Satguru Valuers even before the actual application by Karanwal’s was moved to Corporation Bank. Petitioner claimed that he had prepared the valuation report on the asking of Corporation Bank, but according to the record, the said report was never deposited.

Further, it was stated that the petitioner, who is stated to be one of the empanelled valuer of the Corporation Bank is that he prepared inflated valuation reports in regard to the properties offered for mortgage by the borrowers. When the respondent got the same properties valued from the independent valuers, there was a huge difference between the valuation given by the petitioner and those independent valuers.

CBI investigation revealed that the petitioner was one of the bank empanelled valuer and he alongwith other co-accused persons was a part of a conspiracy to get sanctioned and disbursed CorpVyapar OD Limit Loan amounting to Rs 27 Crores to Lancer Healthcare (P) Ltd. and the petitioner alongwith other co-accused was a member of a larger conspiracy where the forged and fabricated documents were prepared of the firms/companies by inflating/exaggerating the financial records, tailor made to ensure sanction of desired loan of Rs 27 Crores. He further argued that the petitioner who was the empanelled valuer submitted false, inflated/exaggerated valuation reports to facilitate loan to the borrower co-accused.

Analysis, Law and Decision

It is a well-settled law that at the stage of framing of charge, the court has power to shift and weigh the evidence for the limited purpose of finding out whether or not a prima-facie case against accused has been made out.

Further, the Bench added that when the material placed before the court discloses great suspicion against the accused which has not been properly explained, the court will be justified in framing charge.

It is not obligatory for the judge at that stage of the trial to consider in any detail and weigh in a sensitive balance whether the facts, if proved, would be incompatible with the innocence of the accused or not. 

Standard Test before recording a finding regarding the guilt

Standard of test and judgment which is to be finally applied before recording a finding regarding the guilt or otherwise of the accused is not exactly to be applied at this stage of deciding the matter under Section 227 or under Section 228 of the Code. But at the initial stage, if there is a strong suspicion which leads the court to think that there is ground for presuming that the accused has committed an offence, then it is not open to the court to say that there is no sufficient ground for proceeding against the accused.

Whether there is a strong suspicion which may lead to the court to think that there is ground for presuming that the accused committed an offence.

Bench stated that the observations made by the trial court against the petitioner in the impugned order were all a matter of evidence which cannot be decided unless and until the evidence is led in the present case.

Therefore, in Court’s opinion the trial court’s decision is upheld. [Ashughosh Kumar Nirmal v. CBI, 2021 SCC OnLine Del 410, decided on 05-02-2021]

Advocates for the parties:

For the Petitioner: Geeta Luthra, Senior Advocate with Amit Singh Rathore, Varun Deewan, Reena Rathore, Advocates.

For the Respondent: Anupam S Sharma, SPP for CBI with Prakarsh Airan and Harpreet Kalsi, Advocates.

Case BriefsSupreme Court

Supreme Court: The bench of AM Khanwilkar and Dinesh Maheshwari, JJ has restored the NCLT order wherein it was held that the lenders of Jaiprakash Associates Limited (JAL) were not the financial creditors of the corporate debtor Jaypee Infratech Limited (JIL) and that the transactions in question were to defraud the lenders of the corporate debtor JIL. The Court held,

“such lenders of JAL, on the strength of the mortgages in question, may fall in the category of secured creditors, but such mortgages being neither towards any loan, facility or advance to the corporate debtor nor towards protecting any facility or security of the corporate debtor, it cannot be said that the corporate debtor owes them any ‘financial debt’ within the meaning of Section 5(8) of the Code; and hence, such lenders of JAL do not fall in the category of the ‘financial creditors’ of the corporate debtor JIL.”

The Court was hearing the case relating to JAL, a public listed company with more than 5 lakh individual shareholders, which was facing insolvency proceedings under the Insolvency and Bankruptcy Code, 2016. In the year 2003, JAL was awarded the rights for construction of an expressway from Noida to Agra. A concession agreement was entered into with the Yamuna Expressway Industrial Development Authority. Coming on the heels of this project, JIL was set up as a special purpose vehicle. Finance was obtained from a consortium of banks against the partial mortgage of land acquired and a pledge of 51% of the shareholding held by JAL. The banks in question instituted a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 before the NCLT, seeking initiation of Corporate Insolvency Resolution Process (CIRP) against JIL, while alleging that JIL had committed a default in repayment of its dues to the tune of Rs. 526.11 crore.

NCLT in it’s order held,

“the transactions in question were to defraud the lenders of the corporate debtor JIL, as 858 acres of unencumbered land owned by the corporate debtor to secure the debt of the related party JAL was mortgaged in the midst of the corporate debtor’s immense financial crunch, while continuing with default towards the home buyers and financial creditors and after it had been declared as Non Performing Asset, in utter disregard to fiduciary duties and duty of care to the creditors; and further that the mortgage of land was created without any counter guarantee from the related party and with no other consideration being paid to the corporate debtor.”

While interpreting Section 43 of the Code, the Supreme Court noticed that the transfers in question could be considered outside the purview of sub-section (2) of Section 43 of the Code only if it could be shown that same were made in the ‘ordinary course of business or financial affairs’ of the corporate debtor JIL and the transferees. It, however, further explained that even when furnishing a security may be one of normal business practices, it would become a part of ‘ordinary course of business’ of a particular corporate entity only if it falls in place as part of ‘the undistinguished common flow of business done’; and is not arising out of ‘any special or particular situation’.

“It is difficult to even surmise that the business of JIL, of ensuring execution of the works assigned to its holding company and for execution of housing/building projects, in its ordinary course, had inflated itself to the extent of routinely mortgaging its assets and/or inventories to secure the debts of its holding company. It had also not been the ordinary course of financial affairs of JIL that it would create encumbrances over its properties to secure the debts of its holding company.”

Holding that the NCLAT had not been right in interfering with the well-considered and justified order passed by NCLT, the Supreme Court said,

“the transactions in question are hit by Section 43 of the Code and the Adjudicating Authority, having rightly held so, had been justified in issuing necessary directions in terms of Section 44 of the Code.”

The Court, hence, concluded:

“1) The impugned order dated 01.08.2019 as passed by NCLAT in the batch of appeals is reversed and is set aside.

2) The appeals preferred before NCLAT against the order dated 16.05.2018, as passed by NCLT on the application filed by IRP, are dismissed; and consequently, the order dated 16.05.2018 so passed by NCLT is upheld in regard to the findings that the transactions in question are preferential within 171 the meaning of Section 43 of the Code. The directions by NCLT for avoidance of such transactions are also upheld accordingly.

3) The appeals preferred before NCLAT against the orders passed by NCLT dated 09.05.2018 and 15.05.2018 on the applications filed by the lender banks are also dismissed and the respective orders passed by NCLT are restored with the findings that the applicants are not the financial creditors of the corporate debtor Jaypee Infratech Limited.”

[Anuj Jain v. Axis Bank Ltd., 2020 SCC OnLine SC 237, decided on 26.02.2020]

Legislation UpdatesStatutes/Bills/Ordinances

President grants assent to the National Capital Territory of Delhi (Recognition of Property Rights of Residents in Unauthorised Colonies) Act, 2019.

It is an Act to provide special provisions for the National Capital Territory of Delhi for recognising the property rights of resident in unauthorised colonies by securing the rights of ownership or transfer or mortgage in favour of the residents of such colonies who are possessing properties on the basis of Power of Attorney, Agreement to Sale, Will, possession letter or any other documents including documents evidencing payment of consideration and for the matters connected therewith or incidental thereto.

It is expedient to have a law to recognise and confer rights of ownership or transfer or mortgage to the residents of unauthorised colonies as one time special measure.

** Please read the Act here: The National Capital Territory of Delhi (Recognition of Property Rights of Residents in Unauthorised Colonies) Act, 2019

Ministry of Law and Justice

[Notification dt. 12-12-2019]

Case BriefsTribunals/Commissions/Regulatory Bodies

Appellate Tribunal for SAFEMA, FEMA, PMLA, NDPS and PBPT Act: Justice Manmohan Singh (Chairman) allowed an appeal filed by a consortium of banks and set aside an order by the Adjudicating Authority which had attached properties of appellant herein (PMT Machines) mortgaged with the banks on the ground that the mortgaged properties were acquired much before the date of the alleged offence and the charge of properties are also much prior to the date of alleged offence committed.

The case of the appellants was that PMT Machines Limited was undergoing a corporate insolvency resolution process (CIRP). Meanwhile, by order of the Directorate of Enforcement (ED), its properties were attached under PMLA. The appellant banks were providing PMT Machines with financial facilities and PMT created charge and rights in favour of the banks. Banks (the creditors), in the instant appeal filed through the Resolution Professional of PMT Machines, were pressing for relief to enable them to maximise the value of assets and recover their debts.

Shri Rajshekhar Rao, on behalf of the appellants, contended that the allegations of money laundering in the complaint pertained to period after charge/mortgage was created. It was also submitted that the assets were acquired by PMT Machines much before the commission of the alleged offence. In addition to this, ED did include Banks as a Respondent in the proceedings before the Adjudicating Authority as required by Section 8(1) of the Prevention of Money Laundering Act, 2002. Due to such attachment, the CIRP was getting delayed and thus the objective of the Insolvency and Bankruptcy Code, 2016 was being defeated. 

Shri Nitesh Rana, on behalf of the respondents, argued that though the banks were entitled to recover the amount, they should approach the Special Court by filing the petition under Section 8(8) of PMLA.

The Appellate Tribunal accepted the contention that the mortgaged properties were acquired much before the date of the alleged offence and the charge of properties are also much prior to the date of the alleged offence committed. The Tribunal looked into the object of both the legislations (PMLA and IBC) and also relied on Delhi High Court Judgment in Directorate of Enforcement v. Axis Bank, 2019 SCC OnLine Del 7854, and opined that if a bonafide third party claimant had acquired interest in the property which is being subjected to attachment at a time anterior to the commission of the criminal activity, the product whereof is suspected as proceeds of crime, the acquisition of such interest in property by the third party cannot conceivably be on account of intent to defeat this law.

Similarly, when a secured creditor being a bonafide third party claimant initiates actions in accordance with law for enforcement of such interest prior to the order of attachment under PMLA, the initiation of the latter action unwittingly having the effect of frustrating the former since both actions are in accord with law, in order to co-exist and be in harmony with each other, it would be appropriate that the PMLA attachment, though remaining valid and operative, takes a back-seat allowing the secured creditor bonafide third-party claimant to enforce its claim by disposal of the subject property, the remainder of its value, if any, thereafter to be made available for purposes of PMLA. The tribunal ordered in favour of the banks and specifically mentioned that ED is not precluded to attach other private properties and assets of the accused. [PMT Machines Ltd. v. Directorate of Enforcement, Delhi, 2019 SCC OnLine ATPMLA 43, decided on 16-09-2019]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): A 2-Member Bench of Justice S.J. Mukhopadhaya (Chairperson) and Justice Bansi Lal Bhat, Member (Judicial), set aside the order of National Company Law Tribunal (Allahabad), whereby it had cancelled the mortgage of 858 acres of land worth around Rs 5900 crores made by Jaypee Infratech Ltd. (Corporate Debtor) to secure debt of Jaiprakash Associates Ltd.

Notably, Jaiprakash Associates is the holding company of JIL, which is currently under the insolvency process. The Resolution Professional of JIL filed an application before NCLT for cancelling the mortgage deeds made by the Promoters and Directors of JIL in the years 2016 and 2017 by way of which the above transaction was entered into. It was alleged that there were fraudulent and wrongful transactions within the meaning of Section 66 of the Insolvency and Bankruptcy Code, 2016. By the impugned order, NCLT allowed the said application. Aggrieved, the Banks/Financial Institutions– the creditors in whose favour the mortgage deeds were made– filed the present appeal.

The stand of the Resolution Professional was that although the mortgage of land by a company to its related party may not be forbidden under law, yet it becomes questionable if it has been done in complete disregard to the interest of creditors and stakeholders of such company (in this case, such company being JIL).

The Appellate Tribunal perused Section 66 (fraudulent trading or wrongful trading) and noted that from a bare perusal of section, it is clear that if during the Corporate Insolvency Resolution Process or Liquidation Process, it is found that any business of the Corporate Debtor has been carried on with intent to defraud its creditors or for any fraudulent purpose, the Adjudicating Authority is empowered to pass appropriate order under Section 67.

In the present case, however, the Appellate Tribunal found that the mortgages were made by JIL in the ordinary course of its business. It was observed: 

The ‘Corporate Debtor’ being one of the group company, like a guarantor, executed mortgage deed(s) in favour of the Appellants- ‘Banks and Financial Institutions’. We have seen that none of the transactions were ‘preferential transaction’ or ‘undervalued transaction’. It has not been alleged that the transactions, in question, were made to defraud the creditors in terms of Section 49 so allegation has been made that such transactions amount to ‘extortionate credit’ as defined under Section 50. Therefore, the Adjudicating Authority in the absence of any such finding is not empowered to pass an order under Section 51. Further, as we have held that the transactions were made in the ordinary course of business in absence of any contrary evidence to show that they were made to defraud the creditors of the ‘Corporate Debtor’ or for any fraudulent purpose, on mere allegation made by the ‘Resolution Professional’, it was not open to the Adjudicating Authority to hold that mortgage deeds, in question, were made by way of transactions which come within the meaning of ‘fraudulent trading’ or ‘wrongful trading’ under Section 66.

For the aforesaid reasons, the impugned order dated 16-05-2018 passed by NCLT, Allahabad insofar it relates to the appellants herein was set aside. The appellants were held entitled to exercise their rights under IBC. The appeals were accordingly disposed of. [Axis Bank Ltd. v. Resolution Professional for Jaypee Infratech Ltd., 2019 SCC OnLine NCLAT 435, decided on 01-08-2019]

Case BriefsHigh Courts

Kerala High Court: P. Somarajan, J. allowed the second appeal in a matter related to the redemption of mortgage, against the order of dismissal by the trial court and the first appellate court.

In the present case, the dispute centred around the nature of an ‘Ottikuzhikanam Deed’ (deed) that was executed by the original owner of the property in favour of his nephew and niece. But according to the appellants, it was a mortgage whereas respondents asserted it as a lease arrangement. The trial court referred the matter to the Land Tribunal under Section 125 of the Kerala Land Reforms Act, 1963 (the Act). The Land Tribunal held that the deed was a lease arrangement and passed an order, granting fixity of tenure in favour of respondents. Both the trial court and the first appellate court accepted this finding of the Tribunal and held that ‘Ottikuzhikanam Deed’ was a lease deed and the relief of redemption of the mortgage was rejected concurrently. As a result, a second appeal was filed.

The Court noted that definition given to the expression ‘Ottikuzhikanam’ under Section 2 (39A) of the Act excluded a mortgage within the meaning of Transfer of Property Act. It observed that “A mere clause enabling the beneficiary under a deed to enjoy the property and to make improvements therein included as part of normal terms and conditions, would not bring the matter within the sweep of ‘Ottikuzhikanam’ as defined under Section 2(39A) of the Act, but it must be the essential term of the contract and for that essential term and purpose, the contract must be entered into, otherwise, it cannot be brought under the purview of ‘Ottikuzhikanam’, a lease as defined under Section 2(39A) of the Act.” Reliance was placed on the decision in Velayudhan Vivekanandan v. Ayyappan Sadasivan, 1975 KLT 1, where a document which is styled as ‘Ottikuzhikanam’ appended to the judgment found to be a mortgage and not a lease. 

The Court found, “The mortgage amount involved in the instant case comes to Rs 5,000 in the year 1962 and the property mortgaged comes to only 1 Acre 2 cents which is another indication of nature of Ext.A4 as a mortgage rather than a lease.” Thus, the decree and judgment of the trial court and the first appellate court was set aside, and order was passed for a decree of redemption of mortgage on payment of amount of Rs 5000 with interest at 12 per cent per annum from the date of suit till the date of judgment and thereafter at 6 per cent per annum to the principal sum of Rs 5000 and also the cost of defendants in the first appeal and in the second appeal, together with the improvements over the property which could be ascertained at the time of passing of the final decree.[C. Vijaya Thulasi v. D. Sudarsanan, 2019 SCC OnLine Ker 1411, decided on 02-04-2019]

Case BriefsHigh Courts

Delhi High Court: A Division Bench comprising of Sanjiv Khanna and Chander Shekhar, JJ. allowed a writ petition filed challenging the order of the Debt Recovery Appellate Tribunal, and remanded the matter back to be heard on merits.

The petitioner filed an application under Section 17(1) of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest  Act, 2002 questioning the initiation of action by the respondent bank under Section 13(4). The petitioner had bought the land concerned, the original owner of which was one Vipin Chopra. Subsequently, the petitioner executed a registered sale deed of the said land, in the name of her husband. The respondent bank claimed that the said Vipin Chopra had mortgaged the land with State Bank of Bikaner and Jaipur, and the right over the same was transferred to the respondent bank. The Debt Recovery Tribunal held that the respondent bank had a right over the land and not the petitioner. The petitioner preferred an appeal before the Debt Recovery Appellate Tribunal which rejected the appeal in limine holding that the petitioner had no locus to proceed with the matter as she was no more the owner of the land in question and her husband who was a necessary party was not impleaded. Aggrieved thus, the petitioner filed the present petition.

The High Court observed that the petitioner was not properly guided and informed that her husband should have been impleaded as a party. Moreover, the petitioner being a power of attorney holder, who had executed the sale deed, had interest in contending the proceedings. She was also residing in the property. The Court felt that the petitioner and her husband should not be denied a hearing on merits on account of technical lapse and failure to understand the impact and legal effect of executing the sale deed. The petitioner was misguided and did not have benefit of proper legal advice. Accordingly, the order impugned was set aside and the matter was remanded back to the Appellate Tribunal for hearing in merits. [Devender Kaur v. Punjab and Sind Bank,2018 SCC OnLine Del 10441, dated 02-08-2018]

Case BriefsSupreme Court

Supreme Court: While hearing the matter relating to mortgagor’s right of redemption by appellant, the bench comprising of Navin Sinha and Ranjan Gogoi JJ. held that where the mortgaged property has already been put to auction sale and sale certificate has been issued, there remains no property mortgaged to be redeemed and hence, the mortgagor cannot claim the right to redemption of the mortgaged property by the virtue of section 60 of the Transfer of property Act 1882.

The mortgagor had contended that the mortgagor has a right of redemption even after sale has taken place. On the other hand, it was contended by the defendant that the sale in its favour stood concluded, sale certified issued along with possession delivered, long before the suit for redemption was filed, hence, the right of redemption stood extinguished. Rejecting the mortgagor’s contention, the Court held that the mortgagor has a right of redemption even after sale has taken place pursuant to the final decree, but before the confirmation of sale. [Allokam Peddabbayya v. Allahabad Bank, 2017 SCC OnLine SC 671, decided on 19.06.2017]

Case BriefsHigh Courts

High Court of Bombay: In a case where the petitioners were charged against unanticipated dues on a property by the Sales Tax authorities long after they had purchased the property, the division bench of B. P. Colabawalla and S.C. Dharmadhikari, JJ., held that even though the property was bought on an “as is where is basis” by the petitioners, they, having no knowledge (either actual or constructive) of the dues of the sales tax authorities before they purchased the said property, the sale tax authorities cannot recover their dues from the petitioners by enforcing their charge against the said property.

The petitioners purchased the said property pursuant to a sale conducted by the Nationalized Banks under the provisions of the SARFAESI Act, 2002. Petitioners contented that the Sales Tax Authorities cannot enforce their alleged charge on the said property purchased by the Petitioners as the alleged Sales Tax dues of the Defaulter Company were never disclosed to the Petitioners, and if at all the Sales Tax have any charge, it would have to be recovered from the sale proceeds which lie in the hands of the secured creditors i.e. the banks who had sold the mortgaged property. The Respondents submitted that once the sales tax dues were in arrears and they were always payable, then it is a charge on the properties of the dealer or any other person within the meaning of Section 38C of Bombay Sales Tax Act, 1969. This would enable the Sales Tax Department to go after the properties of the Defaulter Company and recover the sales tax dues. It was submitted that the sale being on ‘as is where is basis’ position, the Petitioners ought to have made their own inquiry to ascertain whether there were any encumbrances on the said property. Not having done so, the petitioners cannot contend that the claim of the Sales Tax Authorities cannot be enforced against the said property. Relying upon the Section 100 of the Transfer of Property Act,1882, which states that a ‘charge’ may not be enforced against a transferee if she/he has had no notice of the same, unless by law, the requirement of such notice has been waived, the Court rejected the aforesaid contention of the Respondents.

The Court noticed that the petitioner had merely purchased the said property which originally belonging to the Defaulter Company and which was mortgaged with the Respondents. Since, the Defaulter Company did not pay its dues to the Respondents, they, exercising their rights under the provisions of the SARFAESI Act, sought to enforce their security interest and sell the secured asset (the said property) to the Petitioners. Hence, the Court observed that the Petitioners can by no stretch of the imagination be termed as a successor of the business of the Defaulter Company to enable the Sales Tax Authorities to recover their dues from the Petitioners by enforcing their alleged charge against the said property purchased by the Petitioners under the provisions of the SARFAESI Act. However, it was clarified that its order and direction does not mean that the Sales Tax Authorities cannot proceed against the Defaulter Company.  [Sonoma Management Partners Pvt. Ltd. v. Bank of Maharashtra, 2016 SCC OnLine Bom 9649, decided on 22.11.2016 ]