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This is a triangular legal dispute as they are three parties—the mortgagor, the bank and the subsequent purchaser. Shaji signed himself as a guarantor for a loan of 2 lakhs availed by his friend from Lord Krishna bank in 1994. Eventually, the bank merged with the HDFC bank, and the default on payment made the bank to proceed legally against the guarantor for the recoverable amount to the tune of Rs. 17 .75 lakhs including 20.75% interest with quarterly rests.
The legal tussle, in this case, arose considering the extent of application of Rule 68B of the Second Schedule of the Income Tax Act, 1961 and section 29 of the RDDBFA. The Court observed that section 29 of the act provides that the procedure provided in the second and third schedule of the Income Tax Act should apply as far as possible. In accordance with the said rules of the Income Tax Act, it is imperative to complete the sale process within three years from the end of financial year in which the order related to the dues under the Income Tax Act became final or conclusive. The Court said that the three years be reckoned from the date of issuance of recovery certificate by the Debt Recovery Tribunal.
The Division Bench of the High Court comprising Chief Justice Hrishikesh Roy and Justice A K Jayasankaran Nambiar demarcated the illegal sale of the bank. The Court said that the sale proclamation was on 28.02.2013 and the sale was made on 24.02.2014, which was more than eight years after the issuance of recovery certificate. No exceptional circumstance exists to justify the illegal sale made by the bank under Rule 68B of the RDDBFA.
The legal counsel appearing for the bank contended that the time limit under the said rule would be attracted only in cases where the property is attached, whereas there was no attachment of the property and it was an equitable mortgage made by depositing the title deeds. Thus, the said rule did not apply as the words drafted read as “for the recovery of which the immovable property has been attached”. The court rejected this interpretation holding that there was no necessity to attach the property in the first place when the creditor himself has the title deeds relating to the security given by the guarantor. The court cited the words “shall, as far as possible, apply with necessary modifications as if the said provisions and the rules referred to the amount of debt due under this Act instead of to the Income Tax Act” in section 29 of the RDDBFA explains that the words ‘for the recovery of which the immovable property has been attached" in Rule 68B are completely not relevant.
As per Rule 60 of the Recovery Rules, the court ordered the auction-purchaser to pay a penalty of five per cent of the purchase money which is Rs.1,89,000/- to the mortgagor. The purchaser was entitled to the refund of the purchase money along with interest applicable to a savings account, and the penalty from the bank in the event of petitioner paying the same and the bank would be able to add the said amount to the due amount payable by the mortgagor.
The guarantor resisted handing over his residential property, which he gave as the security for the loan, to the bank. The property measuring 18 cents was put for an auction sale of Rs. 37 lakhs in 2014. The guarantor along with other anti-Sarfaesi activists protested the acquisition and subsequent sale of the property by the bank for about 600 days. This showed the measures of the bank as harsh and rigid.
The guarantor approached the High Court of Kerala seeking to settle the legal dispute. The court, while accepting the petition, cited the words of Justice Krishna Iyer—dharma of the situation could not be turned on the negative plea of alternative remedy. The court observed the delay on the part of the guarantor, and he did not exhaust the appellate remedy available under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFA). However, since the petitioner is hitched with the deprivation of his constitutional right to property under Article 300-A of the Indian Constitution, the court accepted to hear the petition on a condition that the guarantors would have to hand over the property to a village officer, and the village officer put the property under lock and seal.
The state government could not assist any further as the argument put by the learned counsel was not convincing. The Attorney argued that the order of the court, in the event of implementation, would be detrimental to the interests of the principal debtor and the guarantors. However, the court rejected this argument by stating that the non-execution of court’s warrant due to adamant resistance by the locals.
Between the right of the mortgagor to redeem the mortgage and the right of the bank to recover the debt, the court held the property be redeemed if the mortgagor makes the payment estimated as payable as on March 31, 2009, the date on which limitation period for auction sale terminated. The outstanding amount was Rs. 43,51,562.85, which had to be paid along with the penalty to the auction purchaser for recovering his original title deeds. Nevertheless, the bank is entitled to obtain a fresh recovery certificate based on the final order passed in the original application before the DRT on June 10, 2005.
The court said that the contempt petition on the acts of the mortgagor causing obstruction to justice would not stand condoned, rather it would be dealt with separately.
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