High Court of Andhra Pradesh

M.K. Ramesh Kumar

v.

Asset Reconstruction company Ltd.

G.S. SINGHVI, CJ.

AND C.V. NAGARJUNA REDDY, J.

WRIT PETITION NO. 11891 OF 2007

September 28, 2007

Section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 read with section 70 of the Transfer of Property Act 1882 - Enforcement of security interests - Respondent ‘K’ created an equitable mortgage of property in question in favour of bank on 24-7-1979 by depositing sale deed as a security for credit facilities provided by respondent-bank to ‘IR’ Ltd. of which her husband was a director - On 28-1-1998 ‘K’ extended equitable mortgage for securing further credit facility in favour of ‘IR’ Ltd. - In 2002 ‘K’ sold property mortgaged to petitioner by representing that she had purchased land from government and that there was no encumbrance over it - On account of failure of ‘IR’ Ltd to repay amount due, respondent-bank issued notice under section 13(2) to ‘IR’ Ltd. as well as ‘K’ - Neither of them replied to notice nor paid dues - Thereafter respondent-bank issued possession notice and took possession of property in question - Petitioner filed an application before Tribunal for issue of a direction to respondent-bank to redeliver possession of property contending that he had purchased property in question by registered sale deed and mortgage deed executed by ‘K’ in favour of bank was not binding on him - Tribunal, however, dismissed said application - Petitioner filed instant petition for quashing impugned order by contending that respondent-bank could not dispose of property in question by invoking section 13(4) of 2002 Act, because ‘K’ did not deposit title deed for securing repayment of credit facilities extended to ‘IR’ Ltd. -Whether even though while executing deed dated 28-1-1998 for extension of equitable mortgage of plot, did not make a mention of conveyance deed dated 11-6-1996, title acquired by her in property would constitute accession within meaning of section 70 of 1882 Act, and respondent No. 1 could not be prevented from disposing of house property for realization of its dues by taking recourse to provisions of 2002 Act - Held, yes - Whether since ‘K’ frauduntely entered into sale transaction with petitioner by concealing fact that house property was already mortgaged with bank, only remedy available to petitioner was to sue ‘K’ for recovery of price with interest and damage, Held, yes

FACTS

The Government of Andhra Pradesh owned the plot in question. The same was leased out to ‘A’ and ‘B’ for a period of 30 years commencing from 3-6-1970. After the plot changed three hands, ‘C’ sold leasehold rights in favour of the respondent ‘K’ by registered deed dated 13-8-1975. ‘K’ created an equitable mortgage in favour of the bank on 24-7-1979 by depositing the sale deed as a security for the credit facilities provided by the Bank to ‘IR’ Ltd. On 28-1-1998, ‘K’ extended the equitable mortgage for securing further credit facilities in favour of ‘IR’, of which her husband was a Director. While doing so, she unequivocally stated that the property was in her sole occupation and there was neither any subsisting agreement for the sale of the property nor there was any prospect of any intending purchaser taking possession of it or part thereof. After four years of extending the term of equitable mortgage executed in favour of the Bank, ‘K’ sold the property, to the petitioner by registered sale deed dated 9-12-2002 by representing that she had purchased the land from the government vide registered conveyance deed dated 10-6-1996 and there was no encumbrance over it. On account of failure of the borrower to repay the amount due, the Bank filed an application under section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 for recovery of certain sum with future interest. During the pendency of the application, the Bank entered into assignment agreement dated 30-5-2005 with respondent No. 1, whereunder the latter became true and legal beneficial owner of all incidents of loan including the credit facilities extended to ‘IR’ Ltd. After sometime, respondent No. 1 issued notice to the ‘IR’ Ltd under section 13(2) of the securitisation and reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 requiring it to pay a sum. Similar notice was issued to ‘K’ on 2-2-2006. Neither of them replied to the notice nor paid the dues. This was followed by eviction notice to the petitioner and ‘K’. At that stage, the petitioner filed an application under section 17(1) of the 2002 Act for issue of a direction to respondent No. 1 to redeliver possession of the property by contending that he had purchased the house property by registered sale deed and the mortgage deed dated 28-1-1998 executed by ‘K’ in favour of the Bank was not binding on him. The application of the petitioner was dismissed by the Tribunal. The petitioner challenged the order of the Tribunal by filing an appeal under the 2002 Act, which was dismissed by the Appellate Tribunal. The Appellate Tribunal held that in terms of section 70 of the Transfer of Property Act, the accession made to the mortgage property after the date of mortgage will form part of the mortgage and, therefore, the sale made in favour of the appellant will be subject to the right of the Bank to recover its due in accordance with law. The petitioner in instant petition prayed for quashing impugned order by contending that the Tribunal and the Appellate Tribunal had not considered the points raised the application and appeal respectively including the one that respondent No. 1 could not dispose of the property in question by invoking section 13(4) of the 2002 Act because ‘K’ did not deposit the title deed for securing repayment of the credit facilities extended to ‘IR’ Ltd.

On writ petition:

HELD

Whatever tends to increase the value of the security either by addition made to the mortgaged property or by enlargement of the right in it, the same would constitute accession. Therefore, even though while executing deed dated 28-1-1998 for extension of equitable mortgage of plot, ‘K’ did not make a mention of conveyance deed dated 11-6-1996, title acquired by her in property would constitute accession within meaning of section 70 of 1882 Act, and respondent No. 1 could not be prevented from disposing of house property for realization of its dues by taking recourse to provisions of the 2002 Act. [Para 20]

A careful reading of the sale deed dated 28-1-1998 made it clear that while executing the same ‘K’ was conscious of the existing mortgage and, therefore, it was mentioned that she had deposited with the Bank on 24-7-1979 the document of title relating to the property with the intention to create an equitable mortgage by way of security for the amount due to the Bank. She then declared that the existing mortgage would stand extended and cover the enhanced aggregate limit of Rs.6,35,00,000 besides the said property being the security for all the liabilities and indebtedness. Therefore, even though no mention was made of the conveyance dated 11-6-1996 executed by the Government in her favour, the corporeal right acquired by her in the property by virtue of that deed would be deemed to have become part of the mortgage deed executed in favour of the Bank. [Para 26]

It appeared that ‘K’ fraudulently entered into sale transaction dated 9-12-2002 with the petitioner by concealing the fact that the house property was already mortgaged with the Bank. Therefore, the only remedy available to the petitioner was to sue ‘K’ for recovery of the price with interest and damages. {Para 27]

On the basis of the above discussion, it was clear that the petitioner had failed to make out a case for interference with the impugned order and writ petition was liable to be dismissed. Ordered accordingly. [Para 28]