MANU/GJ/0434/2011

Equivalent Citation: IV(2011)BC558, 2011GLH(3)632

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
Special Civil Application No. 4822 of 2010
Decided On: 25.04.2011
Appellants: Pranjivan Purushottam Zaveri and Anr.
Vs.
Respondent: Dena Bank through Authorized Officer and/or Assistant and 2 Ors.
Hon'ble Judges/Coram:
S.J. Mukhopadhaya and J.B. Pardiwala, JJ.
Counsels:
For Appellant/Petitioner/Plaintiff: R.D. Dave, Adv.
For Respondents/Defendant: S.S. Panesar, Adv. for Respondent 1, Dhaval N. Vakil, Adv. for
Respondents 2.2.1, 2.2.2 and V.C. Vaghela, Adv. for Respondent 3
Subject: Property
Acts/Rules/Orders:
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act,
2002 - Section 2, Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 - Section 13, Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002 - Section 13(1), Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 13
(4), Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest
Act, 2002 - Section 14, Securitisation and Reconstruction of Financial Assets and Enforcement
of Security Interest Act, 2002 - Section 17, Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002 - Section 17(2), Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 17
(3), Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest
Act, 2002 - Section 31; Code of Civil Procedure (CPC) - Order 7 Rule 11; Transfer of Property
Act, 1882 - Section 58, Transfer of Property Act, 1882 - Section 69, Transfer of Property Act,
1882 - Section 69A, Transfer of Property Act, 1882 - Section 78; Banks and Financial
Institutions Act, 1993 - Section 19; Constitution of India - Article 226, Constitution of India Article 227
Cases Referred:
Makboolhusen Razakmiya Maniyar and Anr. v. bank of Baroda and Ors. MANU/GJ/8273/2006 :
AIR 2006 Guj 244; Le Neve v. Le Neve (1747) Amb. 436 : 3 Atk. 646 1
Citing Reference:

Discussed

Mentioned

Case Note:
Banking - Locus Standi - Section 13 of Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002 - Whether Petitioners had no

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locus to challenge mortgage in favour of Respondent No. 1 - Bank by Respondent No.

2 and DRAT rightly concluded that issue of validity of mortgage could not be reopened
at behest of Petitioners, who were not parties to transaction of mortgage - Held, it
was evident that SARFAESI Act empowers to take possession of secured asset for
purpose of recovering secured debt - In present case crux of contention which
deserves consideration was that, if there was no valid and legal security interest
created by Respondent No. 2 in favour of Respondent No. 1-Bank, at time of creating
mortgage because of defective title being handed over to Bank, then, under such
circumstances, it would not be within powers of Bank as secured creditor to enforce
such security interest and proceed under Section 13 of SARFAESI Act - Court were not
able to understand as to why DRT as well as appellate Tribunal had not thought fit to
examine this issue more particularly when it was positive case of Petitioners herein
that Respondent No. 2 had committed fraud and had duped Bank by producing
defective title deeds and that too, to extent of producing forge share certificate said
to had been issued by society - This case of Petitioners could not be just brushed
aside easily and it would also not be in larger interest of justice to say that Petitioners
could not challenge validity and legality of mortgage - If there was no valid security
interest created in favour of bank, then there was no valid mortgage, and if there was
no valid mortgage, then Petitioners, who were purchasers of property, could
definitely say that bank could not had enforced such defective security interest - For
this reason, Court passed order saying that Bank may produce documents to suggest
that borrowers had created secured interest in property in question - Hence, petition
disposed of matter remanded back to be heard fresh
JUDGMENT
J.B. Pardiwala, J.
1. Petitioners - husband and wife have preferred this Petition under Articles 226 and 227 of the
Constitution of India praying for following reliefs:
(B) This Hon'ble Court may be pleased to issue writ of certiorari or any other
appropriate writ, order or direction, to quash and set aside the impugned judgment
and order of the Debts Recovery Appellate Tribunal at Mumbai dated 15.4.2010 at
Annexure-A passed in Appeal No. 291 of 2007, confirming the judgment and order
of Debts Recovery Tribunal-I, Ahmadabad dated 31.7.2007 passed in Appeal No.
25/2007 under the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 and this Hon'ble Court may be pleased
to allow the appeal of the Petitioners by quashing and setting aside the action
Respondent No. 1 taken under Section 13 of the Securitisation and Reconstruction
of Financial Assets and Enforcement of Security Interest Act, 2002 in respect of the
disputed Bungalow.
(C) This Hon'ble Court may be pleased to issue writ of mandamus or writ in the
nature of mandamus and / or any other appropriate writ, order or direction,
declaring that security interest is not legal and valid created in favour of
Respondent Bo.1 Bank by Respondent No. 2 in respect of the disputed property
being 13-A, Shyam Sattadhar Cooperative Housing Society Limited, Sola Road,
Bhuyangdev, Ahmadabad and further be pleased to declare that the Petitioners are
owners of the said property pursuant to the sale deed executed by Respondent No.
2 in favour of the Petitioners and entitled to the possession of the said Bungalow in
question.
(D) This Hon'ble Court may be pleased to issue writ of mandamus and / or any
other appropriate writ, order or direction, declaring that Respondent dispossessed
the Petitioners from disputed property and further be pleased to direct Respondent
No. 1 to restore the possession of the said disputed property to the Petitioners
forthwith.

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(E) Pending hearing and final disposal of this petition, this Hon'ble Court may be
pleased to restrain Respondent No. 1, its officers, servants and agents from
transferring, alienating, and / or, in any manner, disposing of the disputed property
being residential house 13-A, Shyam Sattadhar Cooperative Housing Society
Limited, Sola Road, Bhuyangdev, Ahmadabad and / or in alternative, if sale
certificate is issued and conveyance deed is executed by Respondent No. 1, then
execution, operation and implementation of such share certificates and conveyance
deed be stayed and the disputed property be restored back to the Petitioners.
2. Facts relevant for the purpose of deciding this petition can be summarised as under:
2.1 Petitioner No. 1 was working with Gujarat Agricultural University at Dantiwada
as a Scientist Class-I. As on today, he has his own independent profession and
engaged in the activity of research and development in seeds and marketing of the
improved seeds and knowledge. Petitioner No. 2 is the wife of Petitioner No. 1 and
she is assisting in the business of her husband.
2.2 Petitioners were in search of a residential premises. They read an advertisement
published in the newspaper by Respondent No. 2 through one broker for sale of
residential property namely 13-A, Shyam Sattadhar Cooperative Housing Society
Limited, Sola Road, Bhuyangdev, Ahmadabad. This advertisement was published in
Gujarat Samachar, a vernacular local newspaper, Ahmadabad edition on 10.9.2006.
2.3 Petitioners approached the broker through whom the advertisement was
published and the broker in turn gave physical inspection of the bungalow to the
Petitioners and also copy of title documents, including title clearance report
obtained by Respondent No. 2, copy of original share certificate, etc. Petitioners
ultimately settled the deal and bought the property in question for Rs. 17.51 lacs.
Respondent No. 2 executed sale deed in favour of the Petitioners dated 10.10.2006.
2.4 Petitioners wanted to avail loan facility from the Bank for the purpose of
purchasing the said property and therefore Respondent No. 2 handed over file
containing various documents, including title report of one Advocate named Vijay A.
Patel on 21.6.2006. Petitioners approached Bank of Maharashtra , Gandhinagar
Branch with a request to grant housing loan of the sum of Rs. 12 lacs, and an
application alongwith necessary documents was submitted. Bank of Maharashtra
through their panel Advocate one Shri Narendra H. Soni obtained title report in
respect of the said property.
2.5 On 22.11.2006, Bank of Maharashtra released a cheque of Rs. 12 lacs in favour
of Petitioners. The balance amount out of Rs. 17.51 lacs was paid by cheques from
the accounts of the Petitioners maintained with State Bank of India.
2.6 It appears that Respondent No. 2 also gave solemn declaration declaring that
the property in question is in her name and she is the sole owner of the property,
free of all encumbrances and there is no charge over the said property of any bank
or any financial institution. Respondent No. 2 also declared that she has not availed
of any loan facility whatsoever from any bank, government or semi-government
office or institution.
2.7 After execution of the sale deed, the possession of the property was handed
over to the Petitioners and they started residing in the premises after carrying out
necessary renovations.
2.7 One fine day, to the utter shock and dismay of the Petitioners, officers of
Respondent No. 1-Bank came down at the residential house of the Petitioners and
informed the Petitioners that the disputed property is under mortgage with Dena
Bank executed by Respondent No. 2. Petitioners were shocked upon hearing this as

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they have invested their entire savings of life in the said property, and over and
above they have also availed of loan facility of Rs. 12 lacs from Bank of
Maharashtra by creating equitable mortgage on the same disputed property.
2.8 The record reveals that the Petitioners immediately filed Special Civil Suit No.
330 of 2006 in the Court of Civil Judge (SD), Ahmadabad Rural seeking injunction
against the Respondents from dispossession. The Suit was contested by Respondent
No. 1-Bank on the ground that Civil Court has no jurisdiction against the action of
Respondent No. 1 - Bank under Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest, Act (54) 2002 (for short "the
SARFAESI Act"). The Civil Judge dismissed the Suit on the threshold by rejecting
the plaint under Order 7 Rule 11 of the Code of Civil Procedure Code.
2.9 Record further reveals that Respondent No. 1 - Bank filed Miscellaneous Civil
Application No. 187 of 2006 under Section 14 of the SARFAESI Act before the
learned Chief Metropolitan Magistrate, Ahmadabad seeking directions from the
Court to take physical possession of the disputed property and hand over the same
to Respondent No. 1-Bank. Petitioners were also joined as party Respondents in the
said Application and the Petitioners resisted the Application on various grounds
available. However, Chief Metropolitan Magistrate passed an order dated 22.3.2007
allowing the Application of the Respondent No. 1-Bank with direction to the
concerned police station to provide help for taking possession of the property.
2.10 On 25.3.2007 Respondent No. 1-Bank took over the possession of the property
from the Petitioners.
2.11 On 7.4.2007 Petitioners preferred Appeal No. 25 of 2007 before the Debts
Recovery Tribunal, Ahmadabad (for short "DRT") under Section 17 of the SARFAESI
Act and sought various reliefs. The Appeal before the DRT was substantially on the
following grounds:
(a) Respondent No. 2 played fraud not only with the Petitioners but with
Respondent No. 1 - Bank also, because the documents relating to the
title of the property produced by Respondent No. 2 before Respondent
No. 1-Bank while creating equitable mortgage are found to be bogus,
concocted and they are not original title deeds.
(b) Respondent No. 2 created multiple mortgages in respect of the
disputed property. Many lenders were duped by mortgaging the same
property.
(c) Petitioners are bonafide purchaser of the property for value without
notice of any right, title or interest in the disputed property by
Respondent No. 1 inasmuch as Petitioners approached Respondent No.
2 pursuant to the advertisement published by her through a broker and
after obtaining title clearance report issued by Respondent No. 2. Not
only that, but Bank of Maharashtra also obtained title clearance report
through their Advocate at the instance of the Petitioners at the time of
availing of the loan facility.
(d) It was brought to the notice of DRT that Section 13 of SARFAESI Act
could get attracted only if security interest is created in favour of the
secured creditors. Secured creditor has right to exercise powers under
Section 13 of the Act only if security interest is created on the property,
meaning thereby security interest must be created legally and validly as
per Section 58 of the Transfer of Property Act in case of equitable
mortgage by deposit of original title deeds.

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(e) it was brought to the notice of DRT that Respondent No. 1-Bank
created mortgage on forged documents namely share certificate and
forged letters of society. It was brought to the notice of the Tribunal
that the original share certificate issued by the society is with the
Petitioners and the forged and concocted share certificate was produced
before Respondent No. 1-Bank. This was supported by documentary
evidence produced by the Petitioners, including the affidavit of the
Chairman of the society, who clearly declared on oath that his
signatures have been forged and the documents are not issued by the
society.
It appears that all these grounds, which were urged before the DRT in Appeal No.
25 of 2007 did not weigh with the Tribunal and ultimately vide order dated
31.7.2007 passed by the Presiding officer, the Appeal was dismissed holding that
the Petitioners had purchased the disputed property knowing fully well that
Respondent No. 2 had defrauded many Banks, including Respondent No. 1.
2.12 Petitioners being aggrieved by the order passed by the DRT preferred Appeal
No. 291 of 2007 before Debts Recovery Appellate Tribunal, Mumbai (for short
"DRAT"). Before the DRAT, all the grounds, which were raised before the DRT were
reiterated. However, the Appeal was ordered to be dismissed solely on the ground
that the Petitioners had no locus to challenge the mortgage in favour of Respondent
No. 1 - Bank by Respondent No. 2. DRAT came to the conclusion that the issue of
validity of the mortgage cannot be reopened at the behest of the Petitioners, who
were not parties to the transaction of mortgage. The DRAT further held that the
Petitioners cannot adduce evidence to discredit the mortgage in favour of
Respondent No. 1-Bank.
2.13 Petitioners being aggrieved by the orders passed by DRT and DRAT are here
before this Court by way of the present petition.
3. We have heard learned Senior Counsel Mr. S.N. Soparkar appearing with Mr. R.D. Dave for
the Petitioners and Mr. S.S. Panesar for Respondent o.1- Dena Bank.
4. On 20.4.2010, this Court issued notice to the Respondents and further passed order that
during the pendency of the writ petition, Respondent bank may proceed with the auction sale of
the secured assets but will not confirm the sale without prior permission of the Court. It also
deserves to be noted that that Respondent No. 3 in this petition is the Surendranagar District
Cooperative Bank Limited. This Bank also claims that it had sanctioned loan in favour of
Respondent No. 2 and at the time of sanctioning of the loan, the disputed property was
mortgaged. Respondent No. 3-Bank has also filed its reply affidavit.
5. On 18.3.2011, this Court passed the following order:
Heard in part. Post the matter for further hearing on 22nd March 2011 at 2:30 p.m.
on the top of the list.
The Bank may produce the documents to suggest that the borrowers have created
secured interest in the property in question.
6. In response to the order passed by this Court on 18.3.2011, learned Advocate Mr. S.S.
Panesar appearing for Respondent No. 1-Bank made available the documents for our perusal to
suggest that Respondent No. 2 - original borrower has created security interest in the property
in question. We shall deal with this issue regarding the nature of documents, which we have
perused, at a later stage.
7. In the facts and circumstances of the case as narrated above, we are confronted with an
issue as to whether the Petitioners have locus to challenge the legality and validity of the

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mortgage in favour of Respondent No. 1-Bank created by Respondent No. 2 by playing fraud. In
this regard, the contentions on behalf of learned Counsel for the Petitioners are as under:
7.1 It is submitted that the Appellate Tribunal as well as the DRT ought to have
examined the legality and validity of creation of mortgage by Respondent No. 2 in
favour of Respondent No. 1-Bank inasmuch as the fact that there are serious
allegations leveled to the effect that the documents relating to the title of the
property, produced by Respondent No. 2 before Respondent No. 1 while creating
equitable mortgage are found to be bogus, concocted and are not original title
deeds. It is submitted that both the lower authorities have failed in discharging their
statutory duties by not adjudicating the dispute on this issue.
7.2 It is submitted that the appellate tribunal erred in dismissing the Appeal on the
ground that the Tribunal cannot go into legality and validity of the mortgage,
because DRT has already allowed Original Application No. 378 of 2001 in favour of
Respondent No. 1-Bank preferred against Respondent No. 2 by judgment and order
dated 15.2.2008. It is submitted that the Petitioners were not party to the said
Recovery Proceedings filed under Section 19 of Recovery of Debts Due to Banks and
Financial Institutions, Act, 1993. It was also submitted that the issue of legality and
validity of mortgage was not under challenge and was not the subject matter of
adjudication under these proceedings. It is further submitted that any decision
rendered by DRT in Original Application No. 378 of 2001 will not be resjudicata
while deciding specific issue about validity of the mortgage in favour of Respondent
No. 1-Bank based upon forged documents since specific dispute has been raised by
the Petitioners, supported by documentary evidence and affidavit of the chairman of
the society.
7.3 It is submitted that the Bank can proceed under Section 13 of the SARFAESI Act
only if security interest is created in favour of the secured creditor. It is submitted
that the secured creditor has right to exercise powers under Section 13 of the
SARFAESI Act only if security interest is created on the property, meaning thereby
security interest must be created legally and validly as per Section 58 of the
Transfer of Property Act in case of equitable mortgage by deposit of original title
deeds. It is further submitted that unless and until the original title deeds are
deposited, there is no creation of equitable mortgage over the property by deposit
of title deeds.
7.4 It is further submitted that Respondent No. 1-Bank created mortgage based on
forged documents namely share certificate and forged letters of society. Under such
circumstances, it cannot be said that there was valid and legal security interest
created upon the property so as to entitle the Bank to invoke the provisions of
Section 13 of the SARFAESI Act. It is vehemently submitted that the Petitioners
have been duped by Respondent No. 2. It is submitted that not only Petitioners
have been duped but even Respondent No. 1-Bank has been duped by Respondent
No. 2. Petitioners are bonafide purchasers of the property for value without notice.
8. Per contra it is submitted on behalf of Respondent No. 1-Bank as under:
8.1 Perusal of the two judgments would indicate that there is no error apparent on
the face of the record or any jurisdictional error committed by DRT and DRAT in
dismissing the Appeals preferred by the Petitioners. Therefore, this Court may not
grant any relief in view of the concurrent findings recorded by both the authorities
below. It is submitted that the Petitioners are not bonafide purchasers of the
property in question. It is submitted that the Petitioners have no locus standi to
impeach valid equitable mortgage created by Respondent No. 2 in favour of Bank
and which is duly approved by the DRT vide judgment and order dated 15.2.2008 in
OA 378 of 2001, which has attained finality.
8.2 It is submitted that Respondent No. 2 had executed an affidavit dated 6.9.1996

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in favour of Respondent No. 1-Bank declaring that she is the sole and absolute
owner and occupier of the bungalow and her title in the above property is clear,
marketable and free from all encumbrances and she also gave an undertaking to
the effect that she would not transfer, convey or part with the possession of the
said property during the subsistence of the equitable mortgage.
8.3 Learned Counsel for Respondent No. 1-Bank therefore prayed that the petition
deserves to be dismissed.
8.4 Learned Counsel for the Respondent No. 1-Bank has heavily relied upon the
judgment of this High Court in the matter of Makboolhusen Razakmiya Maniyar and
Anr. v. bank of Baroda and Ors., reported in MANU/GJ/8273/2006 : AIR 2006 Guj
244. Learned Counsel relied upon paragraph 7 of this judgment, which reads as
under:
7. ... The effect of the acceptance of this submission of the learned advocate will be
that the entire exercise undertaken by the Legislature of enacting this law and
putting it on the statue book will vanish. If this is allowed then every person, having
borrowed a loan from the Bank or any other financial institution, can get away by
transferring the property to some other persons, and that person who will be in
possession of the property will be arguing like the present Petitioners that they are
not the 'borrowers' and the financial institution is not the 'secured creditor' and,
therefore, no action can be taken in the matter and let the Petitioners and for that
reason all such persons be allowed to live happily. The argument of the learned
advocate for the Petitioners is not only unreasonable but against the morality.
However, it does not sound unreasonable to the learned advocate for the Petitioners
because he is under an obligation to be discharged in the open Court by arguing
that condition precedent for implementation of law is the relationship of 'borrower'
and the 'secured creditor' between the parties.
9. Having regard to the rival contentions of the respective parties and the record of the case, it
is apparent that the facts are quite eloquent. We are of the view that the point which has been
urged before us deserves consideration and the Petitioners cannot be non-suited only on the
ground that they have no legal right to challenge the legality and validity of the mortgage in
favour of Respondent No. 1-Bank by Respondent No. 2. Before we deal with the subject in
detail, it would be appropriate to understand as to what is 'security interest'.
10. 'security interest' is defined under Clause (zf) of Section 2 of the SARFAESI Act, which reads
as under:
'security interest' means right, title and interest of any kind whatsoever upon
property, created in favour of any secured creditor and includes any mortgage,
charge, hypothecation, assignment other than those specified in Section 31;
11. In the same manner it would also be expedient to understand as to what is 'secured asset'.
'secured asset' is defined under Clause (zc) of Section 2 of the SARFAESI Act, which reads as
under:
'secured asset' means the property on which security interest is created;
12. In the same manner it would also be expedient to understand as to what is 'secured debt'.
'secured debt' is defined under Clause (ze) of Section 2 of the SARFAESI Act, which reads as
under:
'secured debt' means a debt which is secured by any security interest;
13. It would also be expedient to refer to Section 58 Clause (f) of the Transfer of Property Act.
Clause (f) deals with mortgage by deposit of title deeds. The mortgage in the present case falls

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within Section 58 Clause (f) of the Transfer of Property Act. Section 58 Clause (f) is reproduced
hereinbelow:
(f) Mortgage by deposit of title-deeds. - Where a person in any of the following
towns, namely, the towns of Calcutta, Madras and Bombay, *** and in any other
town which the State Government concerned may, by notification in the Official
Gazette, specify in this behalf, delivers to a creditor or his agent documents of title
to immovable property, with intent to create a security thereon, the transaction is
called a mortgage by deposit of title-deeds.
14. This is called in English law an equitable mortgage. It is the well established rule of equity
that mere deposit of a document of title without writing or without word of mouth, will create in
equity a charge upon the property referred to. Requisites of a mortgage by deposit of title
deeds are as under:
(i) a debt,
15. We may quote the statement of the law as given in White and Tudor's Leading Cases in
Equity, Edn. 9, Vol.2 at 180 under the leading case of Le Neve v. Le Neve (1747) Amb. 436 : 3
Atk. 646 1. The statement is in these words:
But the Court will impute notice on the ground of fraud or gross and wilful
negligence showing that he wilfully shuts his eyes to facts, to a person with an
estate and not obtaining possession of title-deeds, if he omits all inquiries as to
them, or neglects to call for an abstract of title, and will hold him to have notice of
those circumstances, which, had he not neglected his duty, would have come to his
knowledge.
16. We may also refer to Section 78 of the Transfer of Property Act. Section 78 speaks about
postponement of prior mortgagee. It reads as under:
(1) Postponement of prior Mortgagee. - Where, through the fraud,
misrepresentation or gross neglect of a prior mortgagee, another person has been
induced to advance money on the security of the mortgaged property, the prior
mortgage shall be postponed to the subsequent mortgagee.
17. We may now go to Section 13(1) of the SARFAESI Act. Section 13 is in Chapter III of the
SDARFAESI Act. This chapter relates to enforcement of security interest. Section 13(1) reads as
under:
13. Enforcement of security interest. -(1) Notwithstanding anything contained in
Section 69 or Section 69A of the Transfer of Property Act, 1882 (4 of 1882), any
security interest crated in favour of any secured creditor may be enforced, without
the intervention of the court or tribunal, by such creditor in accordance with the
provisions of this Act.
18. Plain reading of Section 13(1) would suggest that the first requirement is - there must be a
security interest created in favour of any secured creditor. If there is a valid security interest
created in favour of any secured creditor, then Section 13 empowers enforcement of the same
without the intervention of the court or tribunal by the creditor in accordance with the
provisions of the SARFAESI Act.
19. In the same manner, we may also reproduce Section 13, Clause 4 (a) of the SARFAESI Act,
which reads as under:
(4) In case the borrower fails to discharge his liability in full within the period
specified in Sub-section(2), the secured creditor may take recourse to one or more
of the following measures to recover his secured debt, namely:

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(a) take possession of the secured assets of the borrower including the right to
transfer by way of lease, assignment or sale for releasing the secured asset:
20. Plain reading of Section 13 Clause 4(a) would also suggest that in the event if the borrower
fails to discharge the liability in full within the period specified in Sub-section (2), the secured
creditor may take recourse to one or more of the following measures to recover his secured
debt namely - take possession of the secured asset of the borrower.
21. It is evident that the SARFAESI Act empowers to take possession of the secured asset for
the purpose of recovering secured debt. In the present case the crux of the contention which
deserves consideration is that, if there is no valid and legal security interest created by
Respondent No. 2 in favour of Respondent No. 1-Bank, at the time of creating a mortgage
because of defective title being handed over to the Bank, then, under such circumstances, it
would not be within the powers of the Bank as a secured creditor to enforce such a security
interest and proceed under Section 13 of the SARFAESI Act. We are not able to understand as
to why the DRT as well as the appellate Tribunal has not thought fit to examine this issue more
particularly when it is the positive case of the Petitioners herein that Respondent No. 2 has
committed fraud and has duped the Bank by producing defective title deeds and that too, to the
extent of producing a forge share certificate said to have been issued by the society. This case
of the Petitioners cannot be just brushed aside easily and it would also not be in the larger
interest of justice to say that the Petitioners cannot challenge the validity and legality of the
mortgage. If there is no valid security interest created in favour of the bank, then there is no
valid mortgage, and if there is no valid mortgage, then the Petitioners, who are the purchasers
of the property, can definitely say that the bank could not have enforced such a defective
security interest.
22. For this reason, we passed an order on 18.3.2011 saying that the Bank may produce the
documents to suggest that the borrowers have created secured interest in the property in
question.
23. In response to this, learned Counsel for the Respondent No. 1-Bank produced the
documents to convince us that a valid security interest has been created. We took possession of
the documents and asked the registry to place them in the sealed cover. We would not like to
comment much on the documents because we want that the whole issue be reconsidered by
DRT by carefully perusing each and every document on which the bank proposes to rely upon to
make good their case that a valid equitable mortgage was created in their favour by
Respondent No. 2. All we would like to say at this stage is that even DRT in its order dated
31.7.2007 has observed:
It is true that multiple mortgages came to be created in respect of the disputed
property. In other words, many lenders were duped by mortgaging the same
property. As far as the lenders are concerned, they have to work out the remedy
either amicably or by litigation.
24. We are of the view that having come to this conclusion, it was not just and sufficient for
DRT and DRAT to say that - as documents have been executed and as title deeds have been
deposited, they by themselves constitute a valid equitable mortgage creating the security
interest in favour of the Respondent Bank. We cannot ignore other documentary evidence more
particularly the affidavit filed by Chairman of the society, wherein, he has said in so many
words that his signatures have been forged, and perhaps this would lead us to believe that the
so called share certificate, which has been relied upon by the Bank, is also a false document,
because it contains forge signature of the Chairman of the society, who has issued the share
certificate. There is no reason why the Chairman of the society to file a false affidavit. The
matter does not rests here. The case of the Petitioners and the Chairman of the society is
further fortified by Respondent No. 3, who also claims that they have created a security interest
as the same property has been mortgaged with them also by Respondent No. 2 and has availed
for the loan facility.
25. We also take notice of the fact that over and above Respondent No. 1-Bank, Respondent

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No. 2 obtained loan from Social Cooperative Bank Limited, LIC Housing Finance Limited,
Surendranagar District Cooperative Bank Limited and Indus Ind. Bank by creating equitable
mortgage on the same property by producing forge title deeds and share certificates. As against
this, shockingly, the Petitioners have also produced the share certificate in their possession,
which the Chairman of the society certifies it to be true and correct. The affidavit and the say of
the Chairman of the society has been completely brushed aside. We can understand that in a
given case, some flimsy case may be made out by persons like Petitioners to get out of the
wriggles of the fact. But that does not appear to be so in the present case considering the
material on record. It was therefore necessary for DRT and DRAT to look into this aspect
seriously and in detail.
26. One another contention canvassed on behalf of Respondent No1-Bank is that DRT and DRAT
are justified in saying that they cannot go into the legality and validity of the mortgage because
DRT has already allowed Original Application No. 378 of 2001 in favour of Respondent No. 1
filed against Respondent No. 2, by judgment and order dated 15.2.2008. We are afraid even
this contention cannot be accepted because the Petitioners were admittedly not party to the
said Recovery Proceedings filed under Section 19 of Recovery of Debts Due to Banks and
Financial Institutions, Act, 1993. Secondly, the issue of legality and validity of mortgage was
not under challenge and was not the subject matter of adjudication in the said proceedings.
Therefore, any decision of DRT in OA No. 378 of 2001 will operate as a bar to resjudicata while
deciding specific issue about the legality and validity of mortgage in favour of Respondent No.
1-Bank.
27. Under Sub-section (1) of Section 17 of the SARFAES Act, any person aggrieved by any of
the measures referred to in Sub-section (4) of Section 13 taken by the secured creditor can
prefer an Appeal (Application) to the DRT within 45 days from the date on which such measures
had been taken. In the present case there cannot be any dispute to the effect that the
Petitioners are aggrieved persons. They would definitely fall within the ambit of aggrieved
person. Under Sub-section (2) of Section 17, the tribunal is bound to consider whether any of
the measures referred to in Sub-section (4) of Section 13 taken by the secured creditor for
enforcement of security are in accordance with the provisions of this Act. Legality and validity of
a mortgage would be definitely one of the relevant considerations, if genuinely raised under
Section 17 of the SARFAESI Act.
28. Under Sub-section (3) of Section 17 of the SARFAESI Act, after examining the facts and
circumstances of the case and evidence produced by the parties, if the tribunal comes to the
conclusion that any of the measures referred to in Sub-section (4) of Section 13, taken by the
secured creditor are not in accordance with the provisions of this Act and the rules made
thereunder, and require restoration of the management of the secured assets to the aggrieved
person or restoration of possession of the secured assets to the aggrieved person, it may by
order, declare the recourse to any one or more measures referred to in-Sub-section (4) of
Section 13 taken by the secured assets as invalid and restore the possession of the secured
assets to the aggrieved person or restore the management of the secured assets to the
aggrieved person, as the case may be. The provisions of Section 17 must therefore receive such
consideration at the hands of the Court as to achieve its object, and in any event, not thwarted.
29. It is true that the Securitisation Act is enacted to provide a speedy and summary remedy
for recovery of thousands of crores which were due to the Banks and Financial Institutions, but
at the same time, if prima facie there appears to be a case of fraud, then, persons like the
present Petitioners also deserve some protection at the hands of the Court and it cannot be said
that by affording such protection in the given set of evidence, the very object of the Act is
defeated. Justice cannot be done by doing injustice with someone.
30. In light of the foregoing discussion, we summarize our findings as follows:
(i) In a given case, more particularly in light of the facts and circumstances of the
present case, it is within the powers of the DRT to adjudicate the issue of legality
and validity of a mortgage and the legality and validity of security interest created
in favour of the Bank.

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(ii) All such grounds, which rendered the action of the bank / financial institution
illegal, can be raised in the proceedings under Section 17 of the Securitisation Act
before the Debt Recovery Tribunal. It is for the Debt Recovery Tribunal to decide in
each case whether the action of the Bank / financial institution was in accordance
with the provisions of the said Act and legally sustainable. Legality and validity of
security interest created in the form of a mortgage on the ground and allegations of
fraud can definitely be looked into and must be looked into by Debt Recovery
Tribunal.
(iii) In this view of the matter, we are of the opinion that the ends of justice would
be served if we remit the entire matter to the Debts Recovery Tribunal to once
again look into the entire issue threadbare and give an independent finding in this
regard.
(iv) We therefore quash and set aside the order passed by Debts Recovery Tribunal,
Ahmadabad dated 31.7.2007 passed in Appeal No. 25 of 2007 and also the order
passed by Debts Recovery Appellate Tribunal dated 15.4.2010 in Appeal No. 291 of
2007 and remit the matter to the Debts Recovery Tribunal, Ahmadabad for fresh
consideration on this issue as regards the fraud which has been played upon by
Respondent No. 2 and the legality and validity of the security interest created in the
form of a mortgage of the disputed property.
(v) We direct that the Debts Recovery Tribunal shall issue notice to all respective
parties for fixing hearing within 15 days from the date of receipt of this order and
thereafter try to complete the hearing and decide the matter afresh within a period
of three months thereafter without being influenced in any manner by the earlier
orders passed in Appeal No. 25 of 2007 and Appeal No. 291 of 2007.
31. The petition is disposed of with the above directions with no order as to costs.

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