Challenge on Sale Conducted by IOB Not Maintainable Based on Unregistered Sale Deed Which has No Legal Sanctity: DRAT

The Kolkata bench of the Debts Recovery Appellate Tribunal (DRAT) has held that the challenge on sale conducted by IOB is not valid as it was based on unregistered sale deed which has no legal sanctity.

M/s Mahishamardini Griha Nirman Private Limited, the appellant challenged the judgment and order dated 2nd July, 2019, passed by DRT-II, Hyderabad dismissing the Securitisation Application filed by the Appellants.

Against the judgment and order of the DRT Appellants preferred a Writ Petition was filed before the High Court for the State of Telangana at Hyderabad which was decided on 15th July, 2022 dismissing the writ petition as withdrawn with liberty to avail remedy under Section 18 of the SARFAESI Act (‘Act’). Thereafter, Appellant prerferred an appeal.

Respondents No. 3 and 4, namely, M/s. Bipasha Realtors Private Limited, are purchasers of the secured assets in the auction held on 15.11.2006 for a value of Rs.31.25 crores. Area was 14.20.4 acres. EMD of Rs.3.60 crore followed by Rs.2.40 crore was deposited on 13.12.2006 leaving a balance of Rs.25.25 crore. On 21.12.2006 Respondents No. 3 and 4 entered into an unregistered agreement of sale with the Appellants for sale of 25% of undivided share of total extent of land purchased by them for an amount of Rs.7,81,25,000.00.

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An amount of Rs.1.00 crore was paid by the Appellants. In the agreement of sale dated 21.12.2006 right was given to the Respondents No. 3 and 4 to raise advances from financial institution/Banks by creating mortgage over the entire extent of land. Balance amount was paid by the Appellant to Respondent No. 3 and 4 on 3.4.2007. Sale deed in favour of Respondents No. 3 and 4 with regard to auction sale dated 15.11.2026 was registered vide Sale Deed No. 9552 of 2007 dated 15.11.2006 but the Sale Deed by the Respondents No. 3 and 4 in favour of the Appellant was not executed.

An Arbitration Application, being No. 66 of 2009, was filed by the Appellants which was allowed on 30th April, 2010 appointing Mr. Justice N. Sanjeeva Reddy, as Arbitrator, which is pending. Respondents No. 3 and 4 have taken term loan of Rs.25.00 crore from Respondent No. 2 Bank, i.e. Indian Overseas Bank, on 21.12.2007. There was default in payment of the instalments. Proceedings under SARFAESI Act was initiated by the Bank. Sale Notice dated 18.9.2010 was challenged by filing W.P. 23898 of 2010 which was disposed of by the High Court with a direction to pay the dues in two equal monthly instalments.

M/s. MSN Laboratories Limited, is the Auction Purchaser who purchased the property under private treaty. Sale Certificate was issued in his favour on 17.3.2011. It is stated, that auction sale is in contravention to the orders passed by the Apex Court was dismissed by the High Court with liberty to the Appellant to approach the DRT. Thereafter Securitisation Application was filed.

It is alleged that the secured assets were more than Rs.50.00 crore while the Bank sold it at Rs.30.00 crore. Initially Bank proposed to sell the secured assets through public auction. Respondents No. 3 and 4 gave undertaking before the Arbitrator not to alienate the property; however, they sold it through private treaty. There is violation of Rules 8 (2), 8 (5), 8 (6) and 8 (7) of the Security Interest (Enforcement) Rules, 2002 (‘Rules’).

Respondents No. 1 and 2, Bank, as well as Respondent No. 5, Auction Purchaser, filed reply statement while no reply was filed by Respondents No. 3 and 4 before the DRT. It is stated that the dispute between the Appellant as well as Respondents No. 3 and 4 could not be dealt with in the proceedings under the SARFAESI Act. Appellant is neither a borrower nor a guarantor.

Appellant has no locus standi to challenge the Securitisation action initiated by the Bank. Initially, Sale Notice dated 17.9.2010 was issued with the reserve price of Rs.2812.98 lac but no bids were received. Respondents No. 3 and 4 failed to comply with the orders and pay the amount as per order of the Apex Court in SLP (C) No. 33800 of 2010 by 28th February, 2011.

Accordingly, with their consent, sale through private negotiations under Rule 8 (5) (d) of the Rules was conducted. Auction Purchaser deposited the amount and excess sale proceeds are transferred to Respondents No. 3 and 4. Sale Certificate was issued on 17.3.2011. Agreement of Sale in favour of the Appellant dated 21.12.2006 is an unregistered document. No rights could be conferred on the basis of that document in favour of the Appellant. Bank is not a party either to the agreement or to the arbitration proceedings. All the provisions of laws were followed by the Bank.

After hearing the Counsel for the parties, DRT arrived at a finding that the Appellant got executed an unregistered agreement for sale in his favour which does not confer any right. Further, Respondents No. 3 and 4 consented for sale of the secured assets by private treaty which is permissible under Rule 8 (5)(d) of the Rules. Arbitration proceedings are still pending. Accordingly dismissed the Securitisation Application.

The Appellant submitted that undisputedly an agreement for sale was executed by Respondents No. 3 and 4 in favour of the Appellant on 21.12.2006 which was an unregistered document. There was an arbitration clause in the agreement. Accordingly, as controversy arose, an application under Section 11 of the Arbitration Act was filed and an Arbitrator was appointed by the High Court.

It was stated that loan was taken by the Respondents No. 3 and 4 from Respondent No.2, Bank, on 21.12.2007 while the agreement for sale in favour of the Appellant but prior to it, i.e. 21.12.2006. Bank was duly informed about the agreement of sale executed in favour of the Appellant but the Sale Notice was issued by the Bank on 17.9.2010 which was challenged by filing the Writ Petition No. 23898 of 2010 before the High Court wherein the High Court vide order dated 27.10.2010 permitted the Appellant to make deposit of Rs.5.00 crore by 31.12.2010 and balance amount by monthly instalments by the end of April, 2011.

A Memorandum of Understanding was executed between Respondents No. 3 and 4 and Respondent No. 5, Auction Purchaser, on 31.12.2010. Sale was conducted through private treaty in favour of Respondent No. 5 and Sale Certificate was issued in his favour on 17.3.2011. W.P. 12102 of 2011 was filed by the Appellants which was dismissed by the High Court on 12th December, 2011. Against the judgment of the an appeal was filed before the Apex Court wherein liberty was granted to approach the DRT after rectifying the objections pointed out by the Registry of the DRT. Thereafter Securitization Application is filed.

It is submitted that impugned sale was conducted by private treaty which was challenged on the ground that there was collusion between the parties. Sale by private treaty was bad in view of the order passed by the Apex Court. It is further submitted that the private treaty cannot be resorted to unless there is a failure on the part of the Bank to sell in public auction.

It is further submitted that the loan was granted subsequent to the Agreement of Sale which was well within the knowledge of the Bank, hence the loan would always be subject to the Agreement of Sale. It is further submitted that the conditions imposed by the Apex Court in SLP (C) No. 33800 of 2010 were not complied. Accordingly, sale by private treaty was bad in law. It is further submitted that the sale was simply postponed.

Per contra, Counsel for Respondent as well as Auction Purchaser vehemently opposed the prayer and submitted that Appellant has no locus standi to prefer the Securitization Application under Section 17 of the Act. Section 17 (1)(g) as amended by Andhra Pradesh Amendment in Registration Act, mandates with effect from 1.4.1999 that registration of agreement for sale is compulsory. Accordingly, the sale does not confer any right upon the Appellant. Hence all the pleas taken by the Appellant could not be looked into rather the appeal is liable to be dismissed merely on the ground that Appellant having no locus standi.

The Appellant is challenging the action of the Bank on the basis of an Unregistered Agreement for Sale dated 21st December, 2006 which was executed between Respondents No. 3 and 4, i.e. M/s. Bipasha Realtors Private Limited and Appellant, M/s. Mahishamardini Griha Nirman Private Limited.

The Chairperson, Justice Anil Kumar Srivastav held that the appellant has no locus standi to put its claim or to challenge the sale conducted in favour of the Auction Purchaser.

As far as applicability of the Section 48 of the Transfer of Property Act is concerned, it is not applicable to the facts of the present case as the Appellant is challenging the action on the basis of an unregistered sale deed which has no legal sanctity in the eyes of law except for collateral purposes. It is also to be observed that no suit for specific performance is filed by the Appellants for specifically enforcing the unregistered agreement for sale.

The Tribunal dismissed the challenge against Banks action.

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