UCO Bank vs State Of Kerala

T.R. Ravi, J.

The petitioner is a Nationalised Bank. Respondents 3 and 4 who were later removed from the party array, availed a loan of Rs.1,30,00,000/- from the petitioner Bank. Loan was sanctioned as per Ext.P1 dated 2.2.2016. An equitable mortgage was created on the same day as evident from Ext.P2 letter of deposit of title deeds. Default was committed in the payment of the loan amount. The account was classified as an NPA on 31.1.2018. The 3rd respondent filed W.P.(C)No.11274 of 2018 before this Court which was disposed of by Ext.P3 judgment directing the petitioner therein to pay the overdue amount in 10 equal monthly instalments, along with the regular instalments and with a further direction to the Bank to regularise the loan account, if the overdue amounts are paid as directed. The directions in the said judgments were also not complied with by the borrowers. The petitioner Bank proceeded with SARFAESI proceedings. Notice dated 4.6.2018 under Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act for short) was issued to respondents 3 and 4. The petitioner filed M.C. No.440 of 2018 before the Additional Chief Judicial Magistrate Court, Ernakulam for taking possession. The Advocate Commissioner appointed in the said proceedings took physical possession and handed over possession to the Bank, based on which M.C. No.440/2018 was closed on 30.11.2019. The 4th respondent thereupon filed I.A.No.1956/2019 in S.A.No.339/2019 before the Debt Recovery Tribunal, Ernakulam, which was dismissed by Ext.P5 order dated 21.11.2019. The property was put in auction. The encumbrance certificate dated 21.6.2022 taken prior to the sale is produced as Ext.P6. Ext.P6 shows that the 1st Additional Munsiff Court, Ernakulam had by order dated 29.11.2019 in I.A.No.4556 of 2019 in O.S.No.888 of 2019 filed by the 5th respondent ordered attachment of the property.

The petitioner Bank issued sale notice dated 24.5.2022 fixing the date of sale as 27.6.2022. Two bidders submitted tenders and remitted the earnest money deposit. Respondents 6 and 7 purchased the property in the auction and remitted part consideration. The auction purchasers informed that the balance amount will be paid after the entry regarding attachment is effaced. On 28.6.2022, the petitioner addressed the 2nd respondent for effacing the entry which is regarding an attachment effected on 29.11.2019, much after the mortgage dated 2.6.2016. Ext.P8 is the letter. Since no action was forthcoming, the petitioner has approached this Court praying for a direction to the 2nd respondent to consider Ext.P8 representation and efface entry No.2 regarding the order of attachment dated 29.11.2019 from the Books of Registry maintained at SRO, Tripunithura.

The 5th respondent has filed a counter affidavit. It is stated that the 5th respondent had initiated O.S.No.888/2019 against the borrowers for recovery of money. It is stated that the property had been put in possession of the 5th respondent as 'nerpanayam' and the 5th respondent was permitted to reside without payment of any rent. It is stated that an amount of Rs.5,50,000/- was received by the 3rd respondent for the said arrangement without interest. It is submitted that it was while the 5th respondent was residing in the building that he and his family were evicted based on orders of the Chief Judicial Magistrate Court, Ernakulam. It is seen that the order of attachment is immediately after the order Ext.P5 issued by the Debt Recovery Tribunal. A Division Bench of this Court in Secretary, Keechery Service Co-operative Bank Ltd. v. Sajitha Nizar & Ors. [2020 (5) KHC 231] has held that after the creation of the mortgage of the property, subsequent attachment created in respect of the property will be free of encumbrance and it can be mutated in favour of the auction purchaser. In Federal Bank Ltd. State of Kerala & Ors. [2016 (5) KHC 4504], this Court has held that in view of Section 13 of the SARFAESI Act, 2002, the saleable interest is lost and any sale deed executed in violation of the statutory mandate is illegal and therefore unenforceable. In Sree Gokulam Chit and Finance Co. Pvt. Ltc. v. Emil and Eric Hospitality Services & Ors. [2021 (6) KHC 411], this Court held that the right of redemption of mortgagor comes to an end on the date of publication of notice to public auction.

The counsel for the 5th respondent submitted that admittedly, the auction purchaser has not remitted the balance consideration. The time fixed for payment of the balance consideration is over and if the sale is not complete, it is submitted that the auction proceedings would be invalid and it is hence submitted that the right of redemption will revive, till a sale certificate is issued. Reliance is placed on the judgment in Axis Bank v. Hilal Ahmed Bhat & Anr. [2022 (4) KHC 508(DB)].

Reference is made to paragraph 20 of the judgment. A reading of the judgment would show that this Court had not taken a different view than what has been expressed by the Division Bench of this Court in Keechery (supra). The Court was only emphasising the authority of the Civil Court to effect an attachment and distinguishing it from the bar to create any lien, charge or liability on the property on the part of the borrower. In the case on hand, the person who is putting forward such a contention is not the borrower, but a person who claims to have been put in possession of the property on the basis of an arrangement termed as “nerpanayam”. The 5th respondent has only a money claim over respondents 3 and 4 and have absolutely no claim which can override the equitable mortgage in favour of the petitioner Bank.

The counsel for the petitioner in reply referred to another judgment of the Division bench of this Court in South Indian Bank Ltd. v. K.P.Ramchandran & Anr. [2017 (2) KHC 998] to submit that the mere deposit of title deeds creates the equitable mortgage and the attachment which has been effected subsequent to that cannot survive.

In Madan v. Sub Registrar, Kollam reported in [2014 (1) KLT 406] this Court held that attachments effected subsequent to the mortgage created in favour of the bank do not affect the title and ownership of the petitioner over the subject property. Such attachments have no impact on the sale conducted by the Recovery Officer and the same ceases to have any effect or fall to the ground the moment the sale is confirmed in favour of the petitioner.

In view of the decision in Madan (supra) and in view of the observations made above, there can be no justification for the 2nd respondent to refuse to efface entry No.2 regarding order of attachment effected by the First Additional Munsiff Court, Ernakulam from Ext.P6 encumbrance certificate and from the Books of Registry maintained by the SRO, Tripunithura. There shall hence be a direction to the 2nd respondent to efface entry No.2 regarding order of attachment effected by the First Additional Munsiff Court, Ernakulam from Ext.P6 encumbrance certificate and from the Books of Registry maintained by the said respondent and issue an encumbrance certificate without such entries regarding attachment. Necessary orders shall be issued within three weeks from the date of receipt of a copy of this judgment. The petitioner shall produce a copy of this judgment along with a copy of the writ petition before the 2nd respondent for compliance.

The writ petition is disposed of as above.