Full Judgment Text
IN THE HIGH COURT OF DELHI AT NEW DELHI
W.P.(C) 4538/2005 & CM Appls 3256/2005, 3872/05, 5625/05
Reserved on: August 17, 2010
Decision on : September 7, 2010
KUNTH SECURITIES PVT. LTD. ..... Petitioner
Through: Mr. Sudhir Nandrajog, Senior Advocate
with Mr. Vinay Gupta, Mr. K.K. Mishra and
Mr. Mahender Singh, Advocates
versus
PUNJAB & SIND BANK LTD. & ORS ..... Respondents
Through: Mr. Rajinder Wali, Advocate for R-1.
Mr. Amit Sibal, Mr. Vinay Tripathi, Advocates
for R-2.
Mr. Arvind Nayar and
Ms. Divya Jain, Advocates for R-3.
CORAM: JUSTICE S. MURALIDHAR
1. Whether Reporters of local papers may be
allowed to see the judgment? No
2. To be referred to the Reporter or not? Yes
3. Whether the judgment should be reported in Digest? Yes
JUDGMENT
07.09.2010
1. The Petitioner, Kunth Securities Private Limited (KSPL), through its
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Director Mr. R.K. Gupta, filed this petition on 19 February 2005
against the Respondent Punjab & Sind Bank („Bank‟) seeking two
reliefs. The first is for a writ of mandamus to the Respondent to issue
„No Objection Certificate‟ („NOC‟) releasing one-fourth portions of the
property at 7-A, Rajpur Road, Delhi („property in question‟) under the
lien of the Bank on the Petitioner depositing three equivalent sums of
` 1,62,50,000/- each respectively and for a writ of mandamus to the
Bank “to instantly and immediately direct the owners of the subject
property to execute the sale deed” in respect of the property in question
Writ Petition (Civil) No. 4538 of 2005 Page 1 of 37
at 7-A, Rajpur Road, Delhi admeasuring 4200 sq.yds in favour of the
Petitioner on their being provided with the copies of all the four NOCs
as may procured by the Petitioner and to abide by the orders passed by
this Court in Writ Petition (Civil) No. 6088 of 2003. The third prayer is
for a mandamus to the Bank to receive and appropriate “an amount to be
so deposited by the Petitioner in a specific period of time” as part
consideration for the sale of the property in question; and upon receiving
the entire sale consideration of ` 6.50 crores, to hand over the original
deed of the title in respect of the property in question so deposited by the
owners with the Bank with an intent to create an equitable mortgage,
free from its charge of the Bank in all respects.
Background facts
2. The narration of facts set out in the petition are that the property in
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question admeasuring 8800 sq.yards was purchased on 19 January
1956 from Mr. Inder Narain Seth in the joint names of Mr. Ramesh
Chand Jain, Mr. Sudesh Chand Jain, Mr. Umesh Chand Jain, Mr.
Subhash Chand Jain and Mr. Prabhash Chand Jain for a total sale
consideration of ` 1 lakh. At that point of time Mr. Ramesh Chand Jain
was 19 years old and the remaining four were minors under the
guardianship of their father late Mr. P.S. Jain son of Late Mr. Jayanti
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Prasad Jain. On 22 March 1957, a deed of partition was executed
between Mr. P.S. Jain, Smt. Illaichi Devi wife of Mr. P.S. Jain, Mr.
Ramesh Chand Jain, aged about 20 years and four other minor sons of
Mr. P.S. Jain. It is stated that the partition deed provided that the
movable properties mentioned in the First Schedule thereto were the
Writ Petition (Civil) No. 4538 of 2005 Page 2 of 37
joint properties of the said family, part of which was ancestral and part
acquired through earnings of the individual members including that of
the Hindu Undivided Family („HUF‟) thrown into common stock. The
Petitioner claims that the property in question had been equally
partitioned in terms of the aforementioned deed of partition among the
brothers. In the site plan attached to the First Schedule, the respective
shares of all the five brothers had been earmarked and reflected in
different colours.
3. Upon the expiry of Mr. P.S. Jain in November 1965, his share in the
property went to the share of his wife Smt. Illaichi Devi. The said
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position continued till 31 August 1976. On 3 September 1976, all the
owners are stated to have jointly mortgaged the property in question in
favour of the Bank in lieu of a term loan of ` 10 lakhs. The petition
proceeds to narrate how a default was committed in the repayment of
loan which resulted in the Bank initiating the proceedings for recovery.
It is stated that the owners preferred not to contest these proceedings but
to suffer a consent decree and undertook to repay the decretal amount in
equal instalments. The Respondent No. 1 Bank instituted execution
proceedings against the firms, companies (of which the borrowers were
partners or directors) for recovery of the decretal amount.
4. Civil Suit No. 707 of 1983 was filed by the Bank in this Court for
recovery of ` 20,57,658.33 representing the amount of principal due
together with interest and other charges. A compromise was entered
between the parties and a decree was passed in terms of the compromise.
Writ Petition (Civil) No. 4538 of 2005 Page 3 of 37
After paying the instalments of ` 25,000/- per month for some time,
defaults were again committed by the Judgment Debtors („JDs‟).
Subsequently, the Bank filed an Execution Petition No. 128 of 1994 in
this Court. It is stated that the JDs could not honour their commitments
to repay the balance amount in instalments. Meanwhile, the execution
petition was transferred to the Debt Recovery Tribunal („DRT‟), New
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Delhi on 13 December 1995 in terms of the Recovery of Debts due to
Banks & Financial Institutions Act, 1993 („DRT Act‟).
5. It is stated that while the execution proceedings were pending, the
Recovery Officer of the DRT, New Delhi issued a proclamation of sale
in respect of the property in question and fixed the date for auction as
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17 December 1998. The reserve price of the property was initially kept
at ` 1 crore, which was subsequently enhanced to ` 6.50 crores. It is
stated that objections were preferred by the Certificate Debtors („CDs‟)
against the order of proclamation of sale in R.C. No. 5/98 under Part III
of Appendix „B‟ of the DRT Act. The Petitioner states that “meanwhile
flats were constructed and sold out to various prospective buyers on the
vacant half portion within the knowledge of the banks.” The Bank had
not included the portion of the flats in the proposed auction. It is stated
that despite the above assurance the property in question was put to
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public auction on 17 December 1998. However, no prospective
purchaser turned up to bid on the date of auction and resultantly the
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auction had to be abandoned. Thereafter on 26 April 1999 at the
instance of the Decree Holder („DH‟) Bank, the Recovery Officer of the
DRT, New Delhi issued attachment order as regards the movable assets
Writ Petition (Civil) No. 4538 of 2005 Page 4 of 37
of Mr. R.C. Jain located in the property in question. It is stated that
under the garb of attaching the said movable properties, the Bank
officials ransacked the house and on strong exception having been taken
by the borrowers in the matter, the DRT, New Delhi withdrew the
Recovery Certificate.
6. An FIR and a charge sheet was also filed at the instance of the Bank
against the borrowers at Police Station Civil Lines, Delhi. The Bank,
aggrieved by the withdrawal of the Recovery Certificate as aforesaid,
preferred an appeal before the Debt Recovery Appellate Tribunal
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(„DRAT‟), Mumbai. During the course of arguments on 17 February
2000 before the DRAT, its Chairman was informed by learned counsel
appearing for the CDs that the auction sale did not fetch any prospective
purchaser at the reserved price fixed. It was brought to the notice of the
Chairman that the property can be sold by private negotiations. While
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disposing of the said appeal on 17 December 2000, the Chairman,
DRAT ordered as under:
“In view of this statement, I think that Recovery officer
can very well exercise powers conferred by Rule 66 of
Procedure for recovery of Tax Rules which are required to
be followed for recovery of dues under recovery certificate
issued by the Presiding Officer. As such, instead of
deciding this appeal on merits, I direct the Certificate
Debtors to make application before Presiding Officer,
Debts Recovery Tribunal, Delhi seeking permission to sell
property by mentioned in Rule 66 (1) and for that purpose
order of the Presiding Officer withdrawing recovery
certificate is set aside.
Writ Petition (Civil) No. 4538 of 2005 Page 5 of 37
Recovery Officer shall grant such certificate to the
Certificate Debtors on the terms and conditions as stated
above namely amount recovered by sale shall be deposited
with Debts Recovery Tribunal to the extent of dues of the
certificated creditor Bank. The Recovery Officer shall act
under directions, control, superintendence and supervision
of the Presiding Officer in this behalf. The Recovery
Officer shall grant permission as stated above within
period of two weeks from the date of receipt of this order
by him, and private sale by the certificated debtors shall be
completed within four weeks.”
The appeal was disposed of by the DRAT without expressing any
opinion on merits.
7. The writ petition then states that in the Execution Petition No. 126 of
1994 pending in this Court, the question of the property in question had
cropped up and in the said proceedings, this Court had “equally
permitted sale of the property” in the sum of ` 6.5 crores. Enclosed with
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the petition are copies of the orders dated 24 November 1999 passed by
the learned Single Judge of this Court in the Execution Petition No. 126
of 1994 recording the statement of learned counsel for the JD that there
is a purchaser for property No. 7-A, Rajpur Road, Delhi who is willing
to purchase it for 6 crores and 20 lakhs and that in order to
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demonstrate his bonafides, he is willing to deposit ` 10 lakhs. The JD
was asked to contact the DH Bank. This was reiterated by this Court on
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25 January 2000. On 9 August 2000, the Court was informed that the
Bank was agreeable for the private sale by the JD of half of the
mortgaged property for ` 6.75 crores subject to deposit of ` 20 lakhs in
Writ Petition (Civil) No. 4538 of 2005 Page 6 of 37
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advance in the Court. The JD was asked to seek instructions. On 20
September 2000, the Court was informed that the DH is agreeable to sale
of half of the property for ` 6.50 crores subject to deposit of ` 20 lakhs
by the JD.
8. It is stated in the petition that meanwhile Mr. R.C. Jain, one of the
JDs, had been pursuing the matter with the Respondent Bank for one
time settlement (OTS) in accordance with the guidelines issued by the
Reserve Bank of India („RBI‟) in relation to non-performing asset
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(NPA) accounts. In response to a communication dated 17 December
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2000, the Bank wrote to the legal advisor of the CDs on 26 February
2001 providing a list of 176 accounts. The Bank offered to settle all the
cases as a compact and package OTS calling upon the CDs to pay
` 11,24,99,000/-. The CDs are stated to have submitted their acceptance
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of such proposal on 5 March 2001. On 19 March 2001, the CDs wrote
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to the Bank seeking its response and sent a reminder on 22 March
2001.
9. It is stated that “with great difficulty, the owners were in a position to
make the Petitioner agreeable to purchase the said property”
admeasuring 4200 sq. yards “along with all and whatever constructions
had been raised thereon for a sum of ` 6.50 crores as consideration for
purchase on mutually agreed terms and conditions. This is how that the
Petitioner is stated to have entered the picture.
10. It is stated that one of the borrowers Mr. Prabhash Chand Jain filed
Writ Petition (Civil) No. 4538 of 2005 Page 7 of 37
an application before the DRT, New Delhi under Section 22 of the DRT
Act read with Rule 18 of the Rules framed thereunder bringing on record
the fact of the compromise having been entered into by the borrower
group and the Bank. According to the Petitioner, there being a necessity
„for something concrete to be brought in writing‟, an agreement was
entered into between Mr. R.K. Jain, one of the borrowers and the
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Petitioner on 20 February 2002.
11. It is interesting that in the said agreement, a copy of which is
annexed as Annexure P-14 to the present writ petition, the Party of the
Second Part Mr. R.K. Jain had revealed to the Petitioner (Party of the
First Part) that the property in question was under the mortgage, charge
and lien of the Bank in respect of few credit facilities availed by the
“group of the Party of the Second Part”; the Bank was desirous of
bringing the property to sale for realisation of its decretal/settlement
amounts; Mr. R.K. Jain was equally desirous to liquidate the property
and to reduce the liability of their group to the extent of the total sale
realisation out of the sale proceeds; that a compromise had been arrived
at between the Bank and the group of Mr. R.K. Jain (i.e. the borrower
group) whereby the group was to pay a sum of ` 11,24,99,000/-; that the
High Court of Delhi as well as the DRAT, Mumbai had consented and
allowed sale of the aforesaid property at 7-A, Rajpur Road, Delhi by
mutual negotiations as it was apprehended that public auction may not
yield any prospective customer; that pursuant to the negotiations and
deliberations, the „deal‟ was „struck‟ in the sum of ` 6.5 crores with the
Petitioner having already deposited a sum of ` 10 lakhs with the Bank
Writ Petition (Civil) No. 4538 of 2005 Page 8 of 37
on this count; that an application had been filed under Section 22 of the
DRT Act before the DRT and that in the said application it had been
mentioned that the Party of the Second Part i.e. Mr. R.K. Jain and his
other family members were “practically in possession of more than 80%
of the property and 20% or so is under the use and occupation of a co-
mortgagor Mr. Subhash Chand and his family” and that the parties had
discussed the matter pertaining to the handing over of the possession. It
was set down in the agreement that it shall “not in any way effect
adversely or prejudicially the rights, interests and security of the
mortgage Bank i.e. the Punjab & Sind Bank”, that it is the responsibility
of the Bank to have its possession conveyed to it by the Party of the
Second Part as and when it so desires on the date of execution of the
transfer deed or even earlier provided the handing over of the possession
is with the consent of the Bank. It was further provided that the
Petitioner would not insist on any condition precedent in the
implementation of the sale deed regarding handing over of the peaceful
and vacant possession of the property in question, under occupation of
the Party of the Second Part. By virtue of the agreement, “the role of the
mortgagee Bank is extinguished in respect of the liability of the bank to
hand over vacant and peaceful possession to the purchaser as per mutual
agreed terms and conditions. However, it shall be obligatory on the part
of the mortgagee Bank to get the possession of the remaining portion
which is with Mr. Subhash Jain and his family members.”
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12. On 26 February 2002 the Presiding Officer, DRT, Delhi passed an
order on the said application filed by Mr. Prabhash Jain seeking private
Writ Petition (Civil) No. 4538 of 2005 Page 9 of 37
sale of the property in terms of the order passed by the DRAT, Mumbai.
However, in the said order, it was directed as under:
“However, the private sale shall be done before the
Recovery Officer in accordance with Rule 66 (1) of the
Income Tax Rules CDs may produce a buyer before the
Recovery Officer and the bid may be accepted by the
Recovery Officer in accordance with rules and also
keeping in mind the orders passed by the Hon‟ble DRAT,
Mumbai. The property is in possession of CDs/co-
mortgagers, Recovery Officer shall appoint a receiver to
take possession of the property from the CDs/occupants so
that vacant possession of the property is handed over to
the proposed buyer. After bid is accepted Recovery
Officer shall issue sale certificate expeditiously in
accordance with law.”
13. The matter then went to the Recovery Officer at the instance of the
Bank which had appointed Mr. Amit Dhall, Advocate as Court Receiver
to take possession of the subject property. The Court Receiver was
directed to get the vacant possession after giving notices to the present
occupants of the building. The Court Receiver was also directed to take
assistance of police from the concerned police station. The CDs were
directed to produce the prospective buyer for the subject property before
the Recovery Officer so as to finalise the sale in terms of the orders of
the DRAT, Mumbai and the DRT, Delhi. The Court Receiver addressed
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a letter dated 13 March 2002 to the occupants of the subject property
asking them to vacate the premises.
14. Aggrieved by the above order, the borrowers preferred an appeal
under Section 30 of the DRT Act before the DRT, Delhi which heard
Writ Petition (Civil) No. 4538 of 2005 Page 10 of 37
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arguments on 19 March 2002. The appeal was dismissed as pre-mature.
The borrowers, Mr. R.K. Jain and others, filed Writ Petition (Civil) No.
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2049 of 2002 in this Court. By an order dated 1 April 2002 the Division
Bench of this Court noted that the Petitioners therein could invoke the
alternative remedy by way of an appeal and accordingly dismissed the
petition. They then preferred an appeal before the DRAT, New Delhi. It
is stated that in the meanwhile the borrowers entered into a mutual
settlement and the Bank also conceded to extend the time for the
execution and implementation of the compromise entered into between
them. On the above basis, Suit No. 654 of 2002 filed by Mr. Siddharth
Jain in this Court stood withdrawn.
15. The Petition proceeds to state that in the meanwhile the Petitioner
had entered into an agreement with M/s. Futuristic Properties (Pvt.)
Limited („FPPL‟) in terms of which the Petitioner with the help of FPPL
submitted a plan to the Municipal Corporation of Delhi („MCD‟). After
carrying out the necessary demolition of the existing structures, it raised
new constructions on the property in question admeasuring 4200 sq.
yards. The Petitioner states that a copy of this agreement was delivered
to the Bank. The Petitioner further states that although it was pursuing
the matter with the Bank no concrete step was taken by the Bank to
execute and implement the contract i.e. “on receipt of Rs. 6.5 crores to
transfer the property” to the Petitioner. The Petitioner does not dispute
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that apart from depositing a sum of 10 lakhs with the Bank on 1
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February 2002 which was kept in „No Lien Account‟, no further
payment was made.
Writ Petition (Civil) No. 4538 of 2005 Page 11 of 37
16. The Petitioner then filed Writ Petition (Civil) No. 6088 of 2003
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which was disposed of by this Court by an order dated 22 September
2003 with the following directions:
“Respondents 2 to 5 shall take necessary steps for
execution of the sale deed in favour of the Petitioner on or
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before 31 December 2003. The Petitioner shall deposit
the full amount of Rs. 6.5 crores with Respondent No. 1
Bank prior to the execution of the sale deed.
Simultaneously on deposit of the amount, Respondent No.
1 Bank will give a no objection and no lien certificate in
respect of the portion being sold to the Petitioner along
with copies of earlier title documents. Respondent No. 1
bank will also ensure production of prior title documents
before Sub-Registrar which may be required for
registration of sale deed in question.
Insofar as the prayer for sanction of plan is concerned,
learned counsel for the Petitioner does not press this relief
at this stage since occasion has not arisen as yet for the
Corporation to consider the plans of the Petitioner.
The writ petition is disposed of with the aforesaid
direction.”
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17. On 5 December 2003, the Petitioner KSPL wrote a letter to the
Bank stating inter alia as under:
“In this connection we have considered all aspects of payment
and we propose to make payment as under:
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a) Down payment of Rs.100 lacs by 31 December 2003
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b) Balance payment by 31 March, 2004
Writ Petition (Civil) No. 4538 of 2005 Page 12 of 37
We hope you will be kind enough to accept the aforesaid
payment terms and we request you to kindly convey your
consent to Honourable Delhi High Court on next date of
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hearing which is scheduled on 15 December 2003.”
18. The Petitioner moved an application being CM No. 13237 of 2003 in
the disposed of petition being Writ Petition (Civil) No. 6088 of 2003
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which was heard on 15 December 2003 in which the following order
was passed:
“Learned counsel for the Petitioner and Respondent No. 1
states that it is agreed between the parties that the
Petitioner would deposit a sum of Rs. 1 crore on or before
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31 December 2003 and the balance amount on or before
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31 March 2004. However, this is subject to the condition
that in case the Petitioner fails to make the full payment of
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the balance amount on or before 31 March 2004, the
amount of Rs. 1 crores deposited by the Petitioner would
stand forfeited. This is an arrangement arrived at between
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the parties subsequent to the order dated 22 September
2003.
In view of the aforesaid, the directions for payment in
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pursuance to the order dated 22 September 2003 stand
modified as aforesaid on the consent of the parties.
The application stands disposed of.
Dasti to learned counsel for the parties.”
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19. On 31 December 2003, the Petitioner wrote to the Bank enclosing
three cheques - one for 40 lakhs and two for 25 lakhs each, all dated
` `
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31 December 2003 and requested the bank “to adjust and appropriate
this amount of ` 1 crore towards part liquidation of the OTS amount of
Writ Petition (Civil) No. 4538 of 2005 Page 13 of 37
PS Jain Group and subsequent payment also be adjusted accordingly.”
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The Petitioner also wrote to the Bank on 30 December 2003 requesting
to encash the FDR for a sum of ` 10 lakhs towards part payment for
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purchase of the property in question. On 13 March 2004, the lawyers
for the Respondent Bank wrote to the borrowers referring to the terms of
settlement entered into with the borrowers and stating that in the event
of any delay or default whatsoever in adhering to any of the terms and
conditions “all such rebates, concessions as provided by our client shall
be deemed to be withdrawn forthwith and our client shall be entitled to
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proceed to recover all amounts due to it.” On the same date, i.e. 13
March 2004, a separate letter was addressed to the Petitioner KSPL
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referring to the earlier letter dated 13 October 2003 addressed by the
Petitioner assuring that they will deposit with the Bank 65 lakhs
`
towards „Biana‟ within a period of fifteen days and balance 90% within
six month from the date of „Biana‟. The Petitioner was informed that it
was agreed to extend the payment/adjustment of the compromise amount
arrived at “with the members of R.C. Jain/P.S. Jain Group which also
comprises of the co-owners of the said property” and the time had been
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extended till 31 March 2004 and, therefore, the entire sale
consideration of 6.50 crores in respect of half share of the subject
`
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property should be deposited prior to 31 March 2004.
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20. On 24 March 2004, the letter was written by the Petitioner KSPL to
the Bank and to the borrowers alleging that silence was being
maintained by the Bank in providing to the Petitioner with „various
documents‟, in the absence of which “it is impossible to have the
Writ Petition (Civil) No. 4538 of 2005 Page 14 of 37
documentation completed.” The Bank and the borrowers were called
upon to furnish copies of the original title deeds, family partition
deed/family settlements, house tax, water, electricity clearance of the
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subject property and so on. On 31 March 2004, one of the original
borrowers wrote to the Bank inter alia stating that the Petitioner KSPL
had “already submitted a scheme for balance payment of ` 5.5 crores
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within next six months.” On 31 March 2004, the Petitioner again wrote
to the Bank stating that the date originally fixed for making payment be
extended by another six months. As an alternate arrangement, it was
stated that the Bank may divide the total sum of ` 6.5 crores into four
parts by giving NOC for each one-fourth part upon payment of the
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instalments of that part. Reminders were sent on 8 April 2004 and 24
April 2004.
21. In the disposed Writ Petition (Civil) 6088 of 2003, an application
CM No. 6763 of 2004 was filed by the Petitioner seeking further
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extension of time up to 30 June 2004 for depositing the balance sum.
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On 31 May 2004, this Court passed an order recording the learned
counsel for the Respondent No. 1 Bank having no objection to the same.
It was further observed by this Court that for the future in the case the
Bank had no objection for extension of time, “the same can be directly
done without approaching this Court since it is a question of mutual
arrangement between the parties.”
22. The Petitioner had preferred yet another petition being Writ Petition
Writ Petition (Civil) No. 4538 of 2005 Page 15 of 37
(Civil) No. 7242 of 2004 in this Court seeking a mandamus to the
Respondents, particularly, Respondent No. 1 Bank to execute the sale
deed in respect of the subject property in favour of the Petitioner upon
depositing the entire mutually agreed sale consideration of ` 6.5 crores.
The Petitioner then filed an application being CM No. 6300 of 2004
seeking permission to withdraw the said petition in view of the
subsequent developments. This application was allowed. It is stated that
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on 27 May 2004, the Bank conveyed its NOC in respect of the sub-
divided property at 7-A, Rajpur Road, Delhi in respect of which the
original borrowers had deposited a sum of ` 1,62,50,000/-. The Petitioner
stated that on the date of filing of the present writ petition, it had
deposited a sum of ` 3,12,50,000/- with the Bank and yet the remaining
NOCs were not issued.
23. It is stated that the Petitioner was surprised to come across public
notices issued by the Bank in local newspapers stating the subject
property in question remained mortgaged/charged with Bank and any
one dealing with the said property in any manner shall do so at his/her
own risk and cost. In the circumstances, the present writ petition was
filed.
Proceedings before this Court
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24. When the writ petition first came up for hearing on 14 March 2005,
while directing notice to issue, this Court passed the following interim
order:
“CM No. 3256/2005
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Issue notice, returnable on 25 April 2005.
Writ Petition (Civil) No. 4538 of 2005 Page 16 of 37
It has been pointed out that the Petitioner/M/s. Kunth
Securities (P) Limited has deposited 50% of the amount
which the Bank had undertaken to receive in full and final
settlement of the dues of its borrower. This has been
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noticed by the recovery officer in the order dated 11
January 2005 placed as annexure P-45 to this petition.
Learned counsel for the Petitioner has submitted that the
recovery officer has appointed a Receiver of the property
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vide order dated 1 March 2005 who has been directed to
take symbolic possession. Copy of this order has been
handed over in Court and has been taken on record. It is,
therefore, directed that pending further adjudication, thee
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shall be stay of the order dated 1 March 2005.
The Petitioner shall deposit the balance amount as
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undertaken before 31 March 2005 with the Respondent
Bank.
Copy of this order be given dasti to learned counsel for the
parties.”
25. An application being CM No. 11377 of 2005 was filed seeking
impleadment of Mr. Ravi Kumar as Respondent No. 2 and M/s.
Futuristic Properties Limited as Respondent No. 3 in the writ petition.
Mr. Ravi Kumar stated that he had obtained a judgment and decree dated
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28 October 1986 against Mr. Umesh Chand Jain, one of the co-owners
of the immovable properties bearing Nos. 7-A and 7-B, Rajpur Road,
Delhi from the Supreme Court of Hong Kong in the amount of US$
909,675 plus interest until satisfaction of the decree. Pursuant to the said
decree, the Execution Petition No. 2 of 1987 was filed in this Court by
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Mr. Ravi Kumar and 1/4 share of the 32 flats situated at 7, Rajpur
Writ Petition (Civil) No. 4538 of 2005 Page 17 of 37
Road, Delhi were attached. Objections had been filed under Order XXI
Rule 58 CPC by M/s. United Estates in the said execution petition
claiming to be the owner of the property at 7-A, 7-B, Rajpur Road,
Delhi. These objections were dismissed and it was held that Mr. Umesh
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Chand Jain had 1/4 share in the property at 7-A, 7-B, Rajpur Road,
Delhi. Accordingly, the order issuing the warrants of attachment in
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respect of 1/4 share in respect of the said property was confirmed. In its
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order dated 7 September 2003 this Court categorically ruled in favour
of Mr. Ravi Kumar as under:
“I have carefully considered the entire documents on
record, statement of the objectors 1 and 2 and heard the
learned counsels appearing for the parties at length. On a
careful consideration of the entire documents on records
and submissions at the bar by the learned counsel,
conclusion is irresistible that the Judgment Debtor has
a share in the HUF property 7-A and 7 B, Rajpur
Road, Delhi and the factum of having taken the loan by
the Judgment Debtor has been clearly admitted by
him . In these circumstances, the executing court has to
confirm the ex parte order of the learned Single Judge
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dated 12 January 1987 and 20 February 1987, sic I
order accordingly.
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List this matter before the Registrar of this Court on 13
September 1993 for taking appropriate steps for the sale of
the share of the Judgment Debtor for the satisfaction of the
decree passed by the Supreme Court of Hong Kong in
favour of the Decree Holder. The execution petition is
allowed with costs.” (emphasis supplied)
26. M/s United Estates filed an appeal being EFA (OS) No. 8 of 1993
Writ Petition (Civil) No. 4538 of 2005 Page 18 of 37
against the dismissal of its objections. The Division Bench of this Court
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on 18 January 1994 directed that: “Attachment will continue till the
decision of the appeal. No part of the property in dispute shall be sold,
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alienated or encumbered till further order.” This was reiterated on 9
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December 2004 and 26 April 2005. On 8 November 2005, a detailed
order was passed by the Division Bench noting all the orders passed till
that date.
27. What is significant is that M/s. United Estates was represented
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throughout by Mr. J.C. Gupta, learned counsel. On 27 September 2005
statement was made by Mr. Sanjay Gupta that Mr. J.C. Gupta was
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unwell and the matter was adjourned to 18 October 2005. On 18
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October 2005 again, the matter was adjourned to 20 October 2005. On
that date, in order to show his bona fide, Mr. Gupta stated that he will
have the undertaking of the appellant recorded on the next date of
hearing; that the Appellant will deposit a sum of 50 lakhs within two
`
weeks and a sum of ` 1 crore will be deposited within eight weeks
thereafter. He further stated that after the undertaking given by him to
th
this Court on 17 March 2005, no one had been inducted in the 16 flats.
28. An application being CM No. 15201 of 2005 was filed by Mr. Ashok
Kumar Aggarwal and his counsel was asked by the Division Bench
about the date from which the persons mentioned had come to occupy
the flats in the property in question and how much amount had been
received from all such persons to whom he had sold the flats. A
contempt petition was filed by Mr. Ravi Kumar in the said proceedings
Writ Petition (Civil) No. 4538 of 2005 Page 19 of 37
th th
in which notice was issued on 16 March 2005. Again on 17 March
2005 Mr. J.C. Gupta, learned counsel appeared for M/s. United Estates
and the following order was passed by the Division Bench:
“ Cont Cas (C) 235/2005
Mr. Gupta is present. He undertakes that no person shall
be permitted to occupy the building flats constructed at
7B, Rajpur Road, Delhi. On the other hand, counsel for the
Petitioner has contended that despite stay, the Respondent
had alienated and sold the property 7A, Rajpur Road,
th
Delhi in which the Petitioner had 1/4 share.
Reply be filed within four days. Rejoinder, if any, be filed
within two weeks thereafter.
th
Renotify on 26 April 2005.
Interim order to continue.”
th
29. It appears that on 11 April 2005, despite the above restraint order
Mr. Raj Kumar Jain, son of Late Mr. R.C. Jain executed a general power
of attorney („GPA‟) in favour of Mr. Vijit Lal Mathur, son of Late Mr.
B.B.J. Mathur, Director of the Petitioner KSPL, a copy of which is
enclosed at page 517 of the paper book. It recorded that Mr. Raj Kumar
Jain is the owner of property No. 7-A, Rajpur Road, Delhi; the Petitioner
th
had entered into a collaboration agreement on 6 October 2003 with
FPPL “who has now constructed residential units on the said property
after getting the building plan sanctioned and now both the companies
intend to sell the units constructed in the said property” and therefore the
Executant was appointed as the GPA to inter alia “enter into any
agreement for sale of the said property or any part thereof with any
person (s) on any terms ..…” Mr. Ravi Kumar placed on record a
Writ Petition (Civil) No. 4538 of 2005 Page 20 of 37
th
Cancellation Deed dated 4 June 2005 whereby the earlier GPA created
by Mr. Raj Kumar Jain in favour of the Petitioner KSPL stood cancelled
after noting that the subject property at 7-A, Rajpur Road, Delhi is
mortgaged with the Bank.
th
30. A learned Single Judge of this Court, by a detailed order dated 15
December 2006, allowed the CM Nos. 11377 of 2005 & 8861 of 2006 in
this writ petition and directed the impleadment of Mr. Ravi Kumar and
FPPL as Respondents. After noticing some of the facts, the learned
Single Judge concluded:
“If both the applicants are claiming rights in the said
property, then the determination of the rights of the
Petitioner against Respondent in respect of the same
property will not be conclusive unless the rights of the
applicant are also determined in respect of the said
property. In case, these two applicants are not impleaded
as parties to the writ petition, adjudication of the disputes
between the Petitioner and the Respondent Bank will not
be conclusive. Adjudication of disputes between the
Petitioner and the Respondent Bank in absence of these
applicants will not negate their rights and consequently in
case these applicants are not impleaded as parties, they
shall be entitled to file separate proceedings leading to
multiplicity of proceedings and in the absence of
applicants, the orders passed by this Court between the
Petitioner and the Respondent will not be conclusive and
in the circumstances, I have no doubt in holding that the
applicants are necessary parties to the present proceedings
in the facts and circumstances.”
Writ Petition (Civil) No. 4538 of 2005 Page 21 of 37
Submissions of Counsel
31. This Court has heard the submissions of Mr. Sudhir Nandrajog,
learned Senior counsel appearing for the Petitioner (KSPL), Mr.
Rajinder Wali, learned counsel for the Respondent No. 1 (Bank), Mr.
Amit Sibal, learned counsel for Respondent No. 2 (Mr. Ravi Kumar) and
Mr. Arvind Nayar, learned counsel for the Respondent No. 3 (FPPL)
respectively.
32. Mr. Sudhir Nandrajog, learned Senior counsel submitted that the
Petitioner had acted bona fide and should not suffer for any default
committed by the original borrowers. At every stage, the Petitioner
approached this Court with an application seeking extension of time in
making the payment and the Bank had also conveyed its consent to the
th
extent of extension of time up to 30 June 2004. He pointed out that
th
NOC had been granted in respect of one-fourth share on 27 May 2004.
nd
Further amounts were paid by the Petitioner and till 2 March 2005, as
against a sum of ` 6.5 crores, a sum of ` 3,12,50,000/- had already been
paid. Therefore, this was not the case where the Petitioner was unwilling
th
to make the payment. He referred to an order dated 11 January 2005
recorded by the Recovery Officer of the DRT, Delhi where learned
counsel for the Bank made a statement that “C.H. Bank has received
50% of the total compromised amount and rest of the amount is payable
st
by 31 March 2005.” Without waiting for the above deadline, the Bank
proceeded to issue a public notice stating that the subject property in
question remains mortgaged/charged with the Bank and any one dealing
with the said property in any manner shall do so at his/her own risk and
cost. In such circumstances, the Petitioner was constrained to file the
Writ Petition (Civil) No. 4538 of 2005 Page 22 of 37
present writ petition. Mr. Nandrajog pointed out that pursuant to the
th
order dated 14 March 2005 passed by this Court the balance sum of
st
50% was deposited before 31 March 2005 with the Bank, as recorded
th
in the order dated 18 May 2005. He submitted that accordingly ` 6.5
crores had been paid to the Bank which sum was accepted by it without
prejudice to its rights and contentions. He submitted that as far as the
Bank is concerned, the entire payment was made. There was a delay of
st
about three months from the deadline of 31 March 2005 as agreed to by
the Bank itself before the Recovery Officer, DRT. Therefore there was
no legal impediment in the title deeds being released and the further
steps being taken. He reiterated that he was not pressing the relief of
requiring the Bank to execute a sale deed in favour of the Petitioner as
that was really a relief of specific performance. He submitted that the
Petitioner would compensate for any delay in making the payment by
paying interest at a rate as may be determined by this Court.
33. Mr. Amit Sibal, learned counsel appearing for the Respondent No. 2
Mr. Ravi Kumar referred to the detailed proceedings in the execution
petition and to the fact that Mr. J.C. Gupta, learned counsel himself
appeared for M/s. United Estates which was the Appellant in EFA (OS)
8 of 1993 in which the interim order was passed. The same Mr. J.C.
Gupta had filed the present writ petition on behalf of KSPL. Mr. Sibal
stated that not a word has been uttered anywhere in the present petition
about the decree passed in favour of Mr. Ravi Kumar; the execution
th
petition filed by him; about the order of this Court dated 7 September
confirming the attachment of the property in question and the Execution
Writ Petition (Civil) No. 4538 of 2005 Page 23 of 37
th
Appeal filed by M/s. United Estates against the order dated 7
September 2003. Even while those proceedings were pending the
th
present writ petition was filed on 19 February 2005 without impleading
Mr. Ravi Kumar as party. Ex parte orders were obtained permitting the
Petitioner to deposit the balance sale consideration with the Bank thus
presenting the court with a fait accompli . A separate prayer in the writ
petition seeking execution of the sale deed in favour of the Petitioner
was in the teeth of the interim orders of attachment passed by this Court
in the execution petition from time to time. It was not brought to the
notice of this Court that there was an attachment of the one-fourth share
of the property at 7-A, Rajpur Road, Delhi. He submitted that the present
writ petition ought to be dismissed for deliberate concealment of
material facts.
34. Mr. Sibal pointed out that KSPL is an alter ego of Mr. R.C. Jain, one
of the original borrowers. He referred to the documents obtained from
the Registrar of Companies („ROC‟) to demonstrate how all these
persons, who are Directors of the Petitioner residing in the same address
as the property in question, at no point in time disclosed the inter se
relationship between the Petitioner and those original borrowers.
Relying on the observations of the Supreme Court in Delhi
Development Authority v. Skipper Construction (1996) 4 SCC 622 he
submitted that in the instant case, the corporate veil had to be lifted to
appreciate the huge fraud played on the Court and the Bank. He
submitted that the genesis of the present petition was the agreement
entered into by the original borrowers, the Bank and the Petitioner. The
Writ Petition (Civil) No. 4538 of 2005 Page 24 of 37
Petitioner knew about the execution proceedings and was fully aware of
the attachment order. Although the Petitioner by itself may not have
been a party, M/s. United Estates which was again an alter ego of the
original borrowers, was a party to those proceedings. Both the present
Petitioner and M/s. United Estates had engaged the same lawyer.
35. Mr. Sibal further submitted that there was no public law element in
this petition and there was no violation of any constitutional or other
right of the Petitioner. He submitted that the petition was an abuse of the
process of law. He also referred to decision of the Supreme Court in
Orissa Agro Industries Corporation v. Bharti Industries (2005) 12
SCC 725 and World Tel Inc. v. Union of India (2001) 10 SCC 513. He
pointed out that KSPL was not allowed impleadment in the execution
proceedings.
36. Appearing for the Bank, Mr. Rajinder Wali learned counsel drew
attention to Rule 2 read with Rule 16 of the Second Schedule of the
Income Tax Act, Rules („IT Rules‟). He submitted that even according
to the Petitioner, the value of the subject property in early 2005 was
` 12.22 crores for the extent of 400 sq. yards. The present value of the
property in question would be over 100 crores. The Bank never agreed
`
st
to extend the time for the Petitioner to make payment till 31 March
2005. The counsel who made such submission to the Recovery Officer,
DRT had no authority to do so. The terms of the OTS whereby the
original borrowers had to pay ` 11.24 crores was never complied with.
Writ Petition (Civil) No. 4538 of 2005 Page 25 of 37
There was no question of permitting the Petitioner to take advantage of
its own wrong. He prayed that this petition should be dismissed. Counsel
for the FPPL stated that they had nothing to add.
37. In reply to the above submissions, Mr. Nandrajog reiterated that the
Petitioner was not pressing prayer (b) which was for a direction to the
owners of the property to execute the sale deed. He referred to the sale
proclamation issued initially by DRAT in RC No. 5 of 1998 in which it
was mentioned in clause (iv) that “The sale shall be subject to the
judgment and orders of the Hon‟ble High Court of Delhi in EFA (OS)
No. 8 of 1993”. According to him, this implied that there was in fact an
attachment of the said property and therefore, there was no suppression
of any fact. Inasmuch as the Petitioner had enclosed the said
proclamation with the present petition, there was no suppression of facts
in the Petition either. While not denying that the Petitioner was
„connected with the original borrowers, Mr. Nandrajog contended that
for the default committed by the original borrowers, the Petitioner could
not be denied its right to the property in question so long as the entire
agreed sale consideration had been paid to the Bank pursuant to the
order of this Court. There was no attempt by the Petitioner to overreach
the Court. The extension of time sought for making payment was
consistent with the RBI guidelines regarding OTS. Mr. Nandrajog relied
upon the judgment of the Supreme Court in Gujarat State Financial
Corporation v. M/s. Lotus Hotel Private Limited (1983) 3 SCC 379
and Sardar Associates v. Punjab & Sind Bank (2009) 7 SCC 257 to
urge that in such circumstances the remedy under Article 226 of the
Writ Petition (Civil) No. 4538 of 2005 Page 26 of 37
Constitution was available.
Maintainability of the writ petition
38. First, this Court would like to deal with the issue of maintainability
of the writ petition. There can be no manner of doubt that the relief
sought by the Petitioner in prayer (b) is a mandamus to the original
borrowers to execute a sale deed in favour of the Petitioner in relation to
the property in question. Mr. Nandrajog understandably gave up prayer
(b) since obviously such a relief could not be sought in a petition under
Article 226 of the Constitution. He nevertheless persisted with the
prayers (a) and (c) which was not only in the nature of the mandamus to
the Respondent No. 1 Bank to release NOC in favour of the Petitioner
upon making payment of instalments but the consequential relief of
“execution of the transfer deed/sale deed” either by the Petitioner ought
to be got executed in favour of the Petitioner by the Respondent No. 1
Bank. In the considered view of this Court, the prayer alone does not
involve any public law element at all. It is plain that this is the so called
equitable mortgage created in favour of the Bank by the original
borrowers for the loan borrowed by them of which a settlement had been
entered with the Bank. The proclamation of sale was published pursuant
to the order passed by the Recovery Officer of the DRAT. By the time
the proclamation of sale was published in December 1998, there was
already an attachment of the said property in an execution petition
before this Court. The original borrowers were fully aware of the
attachment of this property. The dispute raised by the Petitioner KSPL
claiming to be the subsequent purchaser is of a civil nature. There was
Writ Petition (Civil) No. 4538 of 2005 Page 27 of 37
absolutely no public law element in the matter. The present case is
different from Sardar Associates v. Punjab & Sind Bank where it was
held that the legal right arising out of an OTS could be sought to be
enforced. The question that arises for consideration in the present case is
not about the right of the original borrowers to enforce the OTS.
Admittedly, the Petitioner does not claim to be the original borrower.
Further, in Sardar Associates, there was no question of suppression of
facts by the Petitioners therein of any previous execution proceedings.
39. The reliance by the Petitioner on the decision in Gujarat State
Financial Corporation v M/s. Lotus Hotels Pvt. Limited is also
misplaced. Unlike the facts of that case, in the present case there was no
promise held out to the Petitioner that the property in question would be
transferred to it even if it did not pay the sale consideration within the
time stipulated. Admittedly, the sale consideration was paid beyond the
stipulated or agreed date. According to the learned counsel for the Bank,
th
the counsel who made a statement before the Recovery Officer on 11
January 2005 on its behalf to the effect that the time for making payment
st
was extended up to 31 March 2005 was a proxy counsel and had no
authority whatsoever to make such a statement.
40. This Court is of the view that the present petition does not involve
any public law element. Also, the Petitioner has not been able to show
how there has been any violation of any fundamental or constitutional
right. For all of the above reasons, this Court holds that the present
Writ Petition (Civil) No. 4538 of 2005 Page 28 of 37
petition is not maintainable under Article 226 of the Constitution.
Suppression of material facts and role of the Advocate
41. The more serious issue concerns suppression of material facts by the
Petitioner. Nowhere in the petition, is there any mention of the execution
petition to which a reference was made in the proclamation notice issued
by the Recovery Officer which is at Annexure P-4 of the petition. It is
only in reply to the submissions made by learned counsel for the
Respondent No. 2 regarding such concealment of fact that the Petitioner
sought to deny it by referring to condition (iv) of the proclamation notice
which stated that the sale is subject to the judgment and orders of the
High Court in EFA (OS) No. 8 of 1993. There is no mention of the fact
that Respondent No. 2 Mr. Ravi Kumar obtained an attachment of the
th
1/4 share of the property in question at 7A, Rajpur Road, Delhi; that the
execution petition filed by the DH Mr. Ravi Kumar was allowed by this
th
Court on 7 September 1993; that the said order was challenged before a
Division Bench of this Court by M/s. United Estates or that the Division
th
Bench had by an order dated 18 January 1994 restrained the appellant
from alienating or creating any third party interests in the property in
question. Clearly, the proclamation notice issued by the DRT, which was
perhaps not aware of the above orders and proceedings, was in the teeth
the said order of attachment of the property in question.
42. What is also of concern is that it is the same Advocate (Mr. J.C.
Gupta) who appeared for M/s. United Estates (the Respondent in the
execution petition), and in which petition an interim order was passed,
Writ Petition (Civil) No. 4538 of 2005 Page 29 of 37
who drafted and filed the present writ petition as M/s. J.C. Gupta & Co.
Mr. J.C. Gupta filed the execution appeal for M/s. Untied Estates and
appeared for it when the interim order was passed by the Division
Bench. Considering that the present writ petition concerns the same
property in question which stood attached in the execution proceedings
where the Advocate for the party in the execution petition (and the
appellant in the execution appeal) was none other than the Advocate for
the Petitioner herein, it was inexcusable for the said Advocate to have
not disclosed the complete facts. Moreover, by the time the present writ
th
petition was filed on 19 February 2005, the proceedings in execution
appeal of M/s. United Estates were progressing before the Division
Bench of this Court. The same Advocate appeared throughout before the
Division Bench, and the interim order of attachment was continued in
his presence. A statement was made time and again either by him or his
proxy counsel assuring the court that no third party interest would be
created in respect of the property in question.
43. This Court is constrained to observe that the legitimacy of the legal
system depends not only on the litigants speaking the truth before courts,
but on Advocates ensuring that the complete facts within their
knowledge about other legal proceedings concerning the same subject
matter should not be withheld from the court. While clients for various
reasons may not disclose to their Advocate the complete facts within
their knowledge, and may face legal consequences for speaking
falsehood before the court or for wilful suppression of material facts, the
responsibility that an Advocate owes to the Court as an officer of the
Writ Petition (Civil) No. 4538 of 2005 Page 30 of 37
Court is much greater. The following observations of the Supreme Court
in D.P. Chadha v. Triyugi Narain Mishra (2001) 2 SCC 221 , are
relevant in this regard (@ SCC p. 237):
“24. It has been a saying as old as the profession itself that
the court and counsel are two wheels of the chariot of
justice. In adversarial system it will be more appropriate to
say while the Judge holds the reigns, the two opponent
counsel are the wheels of the chariot. While the direction
of the movement is controlled by the Judge holding the
reigns, the movement itself is facilitated by the wheels
without which the chariot of justice may not move and
may even collapse. Mutual confidence in the discharge of
duties and cordial relations between Bench and Bar
smoothen the movement of chariot. As a responsible
officer of the court, as they are called - and rightly, the
counsel have an overall obligation of assisting the courts
in a just and proper manner in the just and proper
administration of justice. Zeal and enthusiasm are the
traits of success in profession but over-zealousness and
misguided enthusiasm have no place in the personality of
a professional.
25. An advocate while discharging duty to his client, has a
right to do everything fearlessly and boldly that would
advance the cause of his client. After all he has been
engaged by his client to secure justice for him. A counsel
need not make a concession merely because it would
please the Judge. Yet a counsel, in his zeal to earn success
for a client, need not step over the well defined limits or
propriety, repute and justness. Independence and
fearlessness are not licences of liberty to do anything in
the court and to earn success to a client whatever be the
cost and whatever be the sacrifice of professional norms.
Writ Petition (Civil) No. 4538 of 2005 Page 31 of 37
26. A lawyer must not hesitate in telling the court the
correct position of law when it is undisputed and admits of
no exception. A view of the law settled by the ruling of a
superior court or a binding precedent even if it does not
serve the cause of his client, must be brought to the notice
of court unhesitatingly. This obligation of a counsel flows
from the confidence reposed by the court in the counsel
appearing for any of the two sides. A counsel, being an
officer of court, shall apprise the Judge with the correct
position of law whether for or against either party.
27. Mr. Justice Crampton, an Irish Judge, said in R v.
O'Connell , 7 Irish Law Reports, at page 313:
“The advocate is a representative but not a delegate. He
gives to his client the benefit of his learning, his talents
and his judgment: but all through he never forgets what he
owes to himself and to others. He will not knowingly
misstate the law, he will not wilfully misstate the facts,
though it be to gain the ease for his client. He will ever
bear in mind that if he be an advocate of an individual and
retained and remunerated often inadequately, for valuable
services, yet he has a prior and perpetual retainer on behalf
of truth and justice and there is no Crown or other license
which in any case or for any party or purpose can
discharge him from that primary and paramount
retainer.””
44. There could be a situation where the client does not disclose to the
Advocate the complete facts of the other legal proceeding in which the
said Advocate is not engaged. Also, there could be facts disclosed by the
client which are covered by the privilege of „professional
communication‟ recognised under Section 126 of the Evidence Act,
1872. However, the present case offers no such excuse to the Advocate
for the Petitioner. He was himself the Advocate for M/s. United Estates
in the execution appeal and even if the Petitioner was not a party and
therefore could claim ignorance of those proceedings (which also is
Writ Petition (Civil) No. 4538 of 2005 Page 32 of 37
doubtful, as will be explained hereafter), the Advocate owed a duty to
the Court to inform it of the full particulars of the execution proceedings
concerning the property in question and the orders passed therein from
time to time.
45. The inescapable conclusion is that it is a brazen case of suppression
of material facts, which led the Court into passing an interim order in
th
favour of the Petitioner. The said interim order passed on 14 March
2005 directing the Petitioner to deposit the balance amount may never
have been passed had the Advocate for the Petitioner informed the Court
even at that stage that there was an attachment order passed by this
Court in relation to the same property in the execution proceedings. The
fait accompli that the Petitioner seeks to present to this Court by
complying with such interim order creates non equity in its favour.
These are further reasons for the dismissal of the writ petition.
Petitioner an alter ego of the original borrowers
46. An important aspect of the matter is that the Petitioner is nothing but
an alter ego of the original borrowers. The Respondent No. 2 has placed
th
before the Court Form No. 32 dated 7 March 1996, a certified copy of
which has been obtained from the Registrar of Companies („ROC‟)
pertaining to the Petitioner. The first Form No. 32 indicates inter alia
Mr. Vijit Lal Mathur as one of the Directors of the company along with
th
one Mr. Sudarshan Kumar Gupta. The next Form No. 32 dated 30 May
2001 shows Mr. Ramesh Chand Jain, son of Late Mr. P.S. Jain resident
of 7A, Rajpur Road, Delhi who was appointed as an Additional Director.
Writ Petition (Civil) No. 4538 of 2005 Page 33 of 37
Likewise Mr. Raj Kumar Jain, son of Mr. Ramesh Chand Jain resident
of the same address as the property in question was also appointed as an
st
Additional Director with effect from 31 March 2001. Mr. C.K. Jain and
Mr. Arvind Jain are shown to have resigned as Directors with effect
from the same dates. Two Additional Directors Mr. Raj Kumar Jain and
Mr. Ramesh Chand Jain were themselves the original borrowers who
had a share in the subject property at 7A, Rajpur Road, Delhi. Mr. R.K.
Gupta was appointed as an Additional Director of the Petitioner
th rd
company on 24 November 2001. On 3 December 2001, Mr. R.K. Jain
th
resigned as Director and on 27 November 2001, Mr. R.C. Jain ceased
to be the Director of the Petitioner.
47. These facts were either not disclosed to the Bank or were
deliberately overlooked to favour the Petitioner. It points to a possible
fraud being committed by the Petitioner and the original borrowers
either by themselves or in connivance with certain Bank officials. This
calls for further investigation. Be that as it may, these facts are sufficient
to show that the original borrowers constituted the Petitioner and sought
to purchase the very property that belonged to all of them through a
private sale for an amount far less than the market value and which
amount too they did not pay till more than three years thereafter. They
knew that through that process they were defeating the attachment
orders passed by this Court in execution proceedings. In the
circumstances, the plea that the Petitioner was not a party to the
execution proceedings and was therefore unaware of the orders passed
therein is simply not believable.
Writ Petition (Civil) No. 4538 of 2005 Page 34 of 37
48. In similar circumstances in Delhi Development Authority v. Skipper
Construction Co. (P) Limited, the Supreme Court observed in para 28 as
under (@ SCC p. 639):
“The concept of corporate entity was evolved to encourage
and promote trade and commerce but not to commit
illegalities or to defraud. Where, therefore, the corporate
character is employed for the purpose of committing
illegality or for defrauding others, the Court would ignore
the corporate character and will look at the reality behind
the corporate veil so as to enable it to pass appropriate
orders to do justice between the parties concerned. The
fact that Tejwant Singh and members of his family have
created several corporate bodies does not prevent this
Court from treating all of them as one entity belonging to
and controlled by Tejwant Singh and family if is found
that these corporate bodies are merely cloaks behind
which lurks Tejwant Singh and/or members of his family
and that the device of incorporation was really a ploy
adopted for committing illegalities and/or to defraud
people.”
49. In the present case, there can be no manner of doubt that the original
borrowers have sought to defraud the Respondent Bank by getting it to
enter into a private sale of a valuable property mortgaged to the Bank by
reconstituting themselves into a corporate entity. This is a case where
the Petitioner, a corporate entity, was brought into the picture by the
original borrowers for defrauding the Bank.
th
Agreement dated 20 February 2002 void ab initio
th
50. The agreement dated 20 February 2002 by which the property was
agreed to be sold was an agreement void ab initio. The said agreement
Writ Petition (Civil) No. 4538 of 2005 Page 35 of 37
th
was in the teeth of orders passed by this Court on 20 February 1987
rd
and 3 March 1987 in the execution petition whereby warrants were
issued for attachment of one-fourth share of the Judgment Debtor in the
properties at 7-A and 7-B, Rajpur Road, Delhi. The further order passed
th
on 7 September 1993 by this Court, which is extracted hereinbefore,
makes it abundantly clear that one-fourth share of the property of the
Judgment Debtor situated at 7A, Rajpur Road, Delhi stood attached.
This was the subject matter of the execution appeal in which a restraint
order was passed and continued till date.
51. Rule 16 of the Schedule II of the Income Tax Rules clearly states
that where an attachment has been made, the defaulter or his
representative-in-interest shall not be competent to mortgage, charge,
lease or otherwise deal with any property belonging to him except with
the permission of the Tax Recovery Officer and that “any private
transfer or delivery of the property attached or of any interest therein or
any payment to the defaulter of any debt……” shall be void as against
all claims enforceable under the attachment. The proclamation notice
clearly refers to the Second Schedule of the Income Tax Rules.
Therefore, the private sale permitted to be undertaken by the Bank is
contrary to Rule 16 of Second Schedule of the Income Tax Rules.
No equities in favour of the Petitioner
52.This is a matter where no leniency ought to be shown to the
Petitioner which apart from suppressing material facts, has also
overreached the execution petition and sought to defeat the attachment
Writ Petition (Civil) No. 4538 of 2005 Page 36 of 37
by persuading the Bank to part with the valuable property in the teeth of
the attachment order. The mere fact that the Petitioner has paid a sum of
` 6.5 crores through the above method creates no equity in its favour for
grant of any of the reliefs sought. The OTS amount owed to the Bank by
the original borrowers, who reconstituted themselves as the Petitioner,
not having been liquidated, there is no case made out for any
consequential order.
53. The writ petition is accordingly dismissed with costs of ` 1 lakh
which shall be paid by the Petitioner in equal halves of 50,000/- each
`
to Respondents 1 and 2 within a period of four weeks from today. The
pending applications also stand dismissed. The interim order is vacated.
S. MURALIDHAR, J.
SEPTEMBER 7, 2010
rk
Writ Petition (Civil) No. 4538 of 2005 Page 37 of 37
W.P.(C) 4538/2005 & CM Appls 3256/2005, 3872/05, 5625/05
Reserved on: August 17, 2010
Decision on : September 7, 2010
KUNTH SECURITIES PVT. LTD. ..... Petitioner
Through: Mr. Sudhir Nandrajog, Senior Advocate
with Mr. Vinay Gupta, Mr. K.K. Mishra and
Mr. Mahender Singh, Advocates
versus
PUNJAB & SIND BANK LTD. & ORS ..... Respondents
Through: Mr. Rajinder Wali, Advocate for R-1.
Mr. Amit Sibal, Mr. Vinay Tripathi, Advocates
for R-2.
Mr. Arvind Nayar and
Ms. Divya Jain, Advocates for R-3.
CORAM: JUSTICE S. MURALIDHAR
1. Whether Reporters of local papers may be
allowed to see the judgment? No
2. To be referred to the Reporter or not? Yes
3. Whether the judgment should be reported in Digest? Yes
JUDGMENT
07.09.2010
1. The Petitioner, Kunth Securities Private Limited (KSPL), through its
th
Director Mr. R.K. Gupta, filed this petition on 19 February 2005
against the Respondent Punjab & Sind Bank („Bank‟) seeking two
reliefs. The first is for a writ of mandamus to the Respondent to issue
„No Objection Certificate‟ („NOC‟) releasing one-fourth portions of the
property at 7-A, Rajpur Road, Delhi („property in question‟) under the
lien of the Bank on the Petitioner depositing three equivalent sums of
` 1,62,50,000/- each respectively and for a writ of mandamus to the
Bank “to instantly and immediately direct the owners of the subject
property to execute the sale deed” in respect of the property in question
Writ Petition (Civil) No. 4538 of 2005 Page 1 of 37
at 7-A, Rajpur Road, Delhi admeasuring 4200 sq.yds in favour of the
Petitioner on their being provided with the copies of all the four NOCs
as may procured by the Petitioner and to abide by the orders passed by
this Court in Writ Petition (Civil) No. 6088 of 2003. The third prayer is
for a mandamus to the Bank to receive and appropriate “an amount to be
so deposited by the Petitioner in a specific period of time” as part
consideration for the sale of the property in question; and upon receiving
the entire sale consideration of ` 6.50 crores, to hand over the original
deed of the title in respect of the property in question so deposited by the
owners with the Bank with an intent to create an equitable mortgage,
free from its charge of the Bank in all respects.
Background facts
2. The narration of facts set out in the petition are that the property in
th
question admeasuring 8800 sq.yards was purchased on 19 January
1956 from Mr. Inder Narain Seth in the joint names of Mr. Ramesh
Chand Jain, Mr. Sudesh Chand Jain, Mr. Umesh Chand Jain, Mr.
Subhash Chand Jain and Mr. Prabhash Chand Jain for a total sale
consideration of ` 1 lakh. At that point of time Mr. Ramesh Chand Jain
was 19 years old and the remaining four were minors under the
guardianship of their father late Mr. P.S. Jain son of Late Mr. Jayanti
nd
Prasad Jain. On 22 March 1957, a deed of partition was executed
between Mr. P.S. Jain, Smt. Illaichi Devi wife of Mr. P.S. Jain, Mr.
Ramesh Chand Jain, aged about 20 years and four other minor sons of
Mr. P.S. Jain. It is stated that the partition deed provided that the
movable properties mentioned in the First Schedule thereto were the
Writ Petition (Civil) No. 4538 of 2005 Page 2 of 37
joint properties of the said family, part of which was ancestral and part
acquired through earnings of the individual members including that of
the Hindu Undivided Family („HUF‟) thrown into common stock. The
Petitioner claims that the property in question had been equally
partitioned in terms of the aforementioned deed of partition among the
brothers. In the site plan attached to the First Schedule, the respective
shares of all the five brothers had been earmarked and reflected in
different colours.
3. Upon the expiry of Mr. P.S. Jain in November 1965, his share in the
property went to the share of his wife Smt. Illaichi Devi. The said
st rd
position continued till 31 August 1976. On 3 September 1976, all the
owners are stated to have jointly mortgaged the property in question in
favour of the Bank in lieu of a term loan of ` 10 lakhs. The petition
proceeds to narrate how a default was committed in the repayment of
loan which resulted in the Bank initiating the proceedings for recovery.
It is stated that the owners preferred not to contest these proceedings but
to suffer a consent decree and undertook to repay the decretal amount in
equal instalments. The Respondent No. 1 Bank instituted execution
proceedings against the firms, companies (of which the borrowers were
partners or directors) for recovery of the decretal amount.
4. Civil Suit No. 707 of 1983 was filed by the Bank in this Court for
recovery of ` 20,57,658.33 representing the amount of principal due
together with interest and other charges. A compromise was entered
between the parties and a decree was passed in terms of the compromise.
Writ Petition (Civil) No. 4538 of 2005 Page 3 of 37
After paying the instalments of ` 25,000/- per month for some time,
defaults were again committed by the Judgment Debtors („JDs‟).
Subsequently, the Bank filed an Execution Petition No. 128 of 1994 in
this Court. It is stated that the JDs could not honour their commitments
to repay the balance amount in instalments. Meanwhile, the execution
petition was transferred to the Debt Recovery Tribunal („DRT‟), New
th
Delhi on 13 December 1995 in terms of the Recovery of Debts due to
Banks & Financial Institutions Act, 1993 („DRT Act‟).
5. It is stated that while the execution proceedings were pending, the
Recovery Officer of the DRT, New Delhi issued a proclamation of sale
in respect of the property in question and fixed the date for auction as
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17 December 1998. The reserve price of the property was initially kept
at ` 1 crore, which was subsequently enhanced to ` 6.50 crores. It is
stated that objections were preferred by the Certificate Debtors („CDs‟)
against the order of proclamation of sale in R.C. No. 5/98 under Part III
of Appendix „B‟ of the DRT Act. The Petitioner states that “meanwhile
flats were constructed and sold out to various prospective buyers on the
vacant half portion within the knowledge of the banks.” The Bank had
not included the portion of the flats in the proposed auction. It is stated
that despite the above assurance the property in question was put to
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public auction on 17 December 1998. However, no prospective
purchaser turned up to bid on the date of auction and resultantly the
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auction had to be abandoned. Thereafter on 26 April 1999 at the
instance of the Decree Holder („DH‟) Bank, the Recovery Officer of the
DRT, New Delhi issued attachment order as regards the movable assets
Writ Petition (Civil) No. 4538 of 2005 Page 4 of 37
of Mr. R.C. Jain located in the property in question. It is stated that
under the garb of attaching the said movable properties, the Bank
officials ransacked the house and on strong exception having been taken
by the borrowers in the matter, the DRT, New Delhi withdrew the
Recovery Certificate.
6. An FIR and a charge sheet was also filed at the instance of the Bank
against the borrowers at Police Station Civil Lines, Delhi. The Bank,
aggrieved by the withdrawal of the Recovery Certificate as aforesaid,
preferred an appeal before the Debt Recovery Appellate Tribunal
th
(„DRAT‟), Mumbai. During the course of arguments on 17 February
2000 before the DRAT, its Chairman was informed by learned counsel
appearing for the CDs that the auction sale did not fetch any prospective
purchaser at the reserved price fixed. It was brought to the notice of the
Chairman that the property can be sold by private negotiations. While
th
disposing of the said appeal on 17 December 2000, the Chairman,
DRAT ordered as under:
“In view of this statement, I think that Recovery officer
can very well exercise powers conferred by Rule 66 of
Procedure for recovery of Tax Rules which are required to
be followed for recovery of dues under recovery certificate
issued by the Presiding Officer. As such, instead of
deciding this appeal on merits, I direct the Certificate
Debtors to make application before Presiding Officer,
Debts Recovery Tribunal, Delhi seeking permission to sell
property by mentioned in Rule 66 (1) and for that purpose
order of the Presiding Officer withdrawing recovery
certificate is set aside.
Writ Petition (Civil) No. 4538 of 2005 Page 5 of 37
Recovery Officer shall grant such certificate to the
Certificate Debtors on the terms and conditions as stated
above namely amount recovered by sale shall be deposited
with Debts Recovery Tribunal to the extent of dues of the
certificated creditor Bank. The Recovery Officer shall act
under directions, control, superintendence and supervision
of the Presiding Officer in this behalf. The Recovery
Officer shall grant permission as stated above within
period of two weeks from the date of receipt of this order
by him, and private sale by the certificated debtors shall be
completed within four weeks.”
The appeal was disposed of by the DRAT without expressing any
opinion on merits.
7. The writ petition then states that in the Execution Petition No. 126 of
1994 pending in this Court, the question of the property in question had
cropped up and in the said proceedings, this Court had “equally
permitted sale of the property” in the sum of ` 6.5 crores. Enclosed with
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the petition are copies of the orders dated 24 November 1999 passed by
the learned Single Judge of this Court in the Execution Petition No. 126
of 1994 recording the statement of learned counsel for the JD that there
is a purchaser for property No. 7-A, Rajpur Road, Delhi who is willing
to purchase it for 6 crores and 20 lakhs and that in order to
`
demonstrate his bonafides, he is willing to deposit ` 10 lakhs. The JD
was asked to contact the DH Bank. This was reiterated by this Court on
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25 January 2000. On 9 August 2000, the Court was informed that the
Bank was agreeable for the private sale by the JD of half of the
mortgaged property for ` 6.75 crores subject to deposit of ` 20 lakhs in
Writ Petition (Civil) No. 4538 of 2005 Page 6 of 37
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advance in the Court. The JD was asked to seek instructions. On 20
September 2000, the Court was informed that the DH is agreeable to sale
of half of the property for ` 6.50 crores subject to deposit of ` 20 lakhs
by the JD.
8. It is stated in the petition that meanwhile Mr. R.C. Jain, one of the
JDs, had been pursuing the matter with the Respondent Bank for one
time settlement (OTS) in accordance with the guidelines issued by the
Reserve Bank of India („RBI‟) in relation to non-performing asset
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(NPA) accounts. In response to a communication dated 17 December
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2000, the Bank wrote to the legal advisor of the CDs on 26 February
2001 providing a list of 176 accounts. The Bank offered to settle all the
cases as a compact and package OTS calling upon the CDs to pay
` 11,24,99,000/-. The CDs are stated to have submitted their acceptance
th th
of such proposal on 5 March 2001. On 19 March 2001, the CDs wrote
nd
to the Bank seeking its response and sent a reminder on 22 March
2001.
9. It is stated that “with great difficulty, the owners were in a position to
make the Petitioner agreeable to purchase the said property”
admeasuring 4200 sq. yards “along with all and whatever constructions
had been raised thereon for a sum of ` 6.50 crores as consideration for
purchase on mutually agreed terms and conditions. This is how that the
Petitioner is stated to have entered the picture.
10. It is stated that one of the borrowers Mr. Prabhash Chand Jain filed
Writ Petition (Civil) No. 4538 of 2005 Page 7 of 37
an application before the DRT, New Delhi under Section 22 of the DRT
Act read with Rule 18 of the Rules framed thereunder bringing on record
the fact of the compromise having been entered into by the borrower
group and the Bank. According to the Petitioner, there being a necessity
„for something concrete to be brought in writing‟, an agreement was
entered into between Mr. R.K. Jain, one of the borrowers and the
th
Petitioner on 20 February 2002.
11. It is interesting that in the said agreement, a copy of which is
annexed as Annexure P-14 to the present writ petition, the Party of the
Second Part Mr. R.K. Jain had revealed to the Petitioner (Party of the
First Part) that the property in question was under the mortgage, charge
and lien of the Bank in respect of few credit facilities availed by the
“group of the Party of the Second Part”; the Bank was desirous of
bringing the property to sale for realisation of its decretal/settlement
amounts; Mr. R.K. Jain was equally desirous to liquidate the property
and to reduce the liability of their group to the extent of the total sale
realisation out of the sale proceeds; that a compromise had been arrived
at between the Bank and the group of Mr. R.K. Jain (i.e. the borrower
group) whereby the group was to pay a sum of ` 11,24,99,000/-; that the
High Court of Delhi as well as the DRAT, Mumbai had consented and
allowed sale of the aforesaid property at 7-A, Rajpur Road, Delhi by
mutual negotiations as it was apprehended that public auction may not
yield any prospective customer; that pursuant to the negotiations and
deliberations, the „deal‟ was „struck‟ in the sum of ` 6.5 crores with the
Petitioner having already deposited a sum of ` 10 lakhs with the Bank
Writ Petition (Civil) No. 4538 of 2005 Page 8 of 37
on this count; that an application had been filed under Section 22 of the
DRT Act before the DRT and that in the said application it had been
mentioned that the Party of the Second Part i.e. Mr. R.K. Jain and his
other family members were “practically in possession of more than 80%
of the property and 20% or so is under the use and occupation of a co-
mortgagor Mr. Subhash Chand and his family” and that the parties had
discussed the matter pertaining to the handing over of the possession. It
was set down in the agreement that it shall “not in any way effect
adversely or prejudicially the rights, interests and security of the
mortgage Bank i.e. the Punjab & Sind Bank”, that it is the responsibility
of the Bank to have its possession conveyed to it by the Party of the
Second Part as and when it so desires on the date of execution of the
transfer deed or even earlier provided the handing over of the possession
is with the consent of the Bank. It was further provided that the
Petitioner would not insist on any condition precedent in the
implementation of the sale deed regarding handing over of the peaceful
and vacant possession of the property in question, under occupation of
the Party of the Second Part. By virtue of the agreement, “the role of the
mortgagee Bank is extinguished in respect of the liability of the bank to
hand over vacant and peaceful possession to the purchaser as per mutual
agreed terms and conditions. However, it shall be obligatory on the part
of the mortgagee Bank to get the possession of the remaining portion
which is with Mr. Subhash Jain and his family members.”
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12. On 26 February 2002 the Presiding Officer, DRT, Delhi passed an
order on the said application filed by Mr. Prabhash Jain seeking private
Writ Petition (Civil) No. 4538 of 2005 Page 9 of 37
sale of the property in terms of the order passed by the DRAT, Mumbai.
However, in the said order, it was directed as under:
“However, the private sale shall be done before the
Recovery Officer in accordance with Rule 66 (1) of the
Income Tax Rules CDs may produce a buyer before the
Recovery Officer and the bid may be accepted by the
Recovery Officer in accordance with rules and also
keeping in mind the orders passed by the Hon‟ble DRAT,
Mumbai. The property is in possession of CDs/co-
mortgagers, Recovery Officer shall appoint a receiver to
take possession of the property from the CDs/occupants so
that vacant possession of the property is handed over to
the proposed buyer. After bid is accepted Recovery
Officer shall issue sale certificate expeditiously in
accordance with law.”
13. The matter then went to the Recovery Officer at the instance of the
Bank which had appointed Mr. Amit Dhall, Advocate as Court Receiver
to take possession of the subject property. The Court Receiver was
directed to get the vacant possession after giving notices to the present
occupants of the building. The Court Receiver was also directed to take
assistance of police from the concerned police station. The CDs were
directed to produce the prospective buyer for the subject property before
the Recovery Officer so as to finalise the sale in terms of the orders of
the DRAT, Mumbai and the DRT, Delhi. The Court Receiver addressed
th
a letter dated 13 March 2002 to the occupants of the subject property
asking them to vacate the premises.
14. Aggrieved by the above order, the borrowers preferred an appeal
under Section 30 of the DRT Act before the DRT, Delhi which heard
Writ Petition (Civil) No. 4538 of 2005 Page 10 of 37
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arguments on 19 March 2002. The appeal was dismissed as pre-mature.
The borrowers, Mr. R.K. Jain and others, filed Writ Petition (Civil) No.
st
2049 of 2002 in this Court. By an order dated 1 April 2002 the Division
Bench of this Court noted that the Petitioners therein could invoke the
alternative remedy by way of an appeal and accordingly dismissed the
petition. They then preferred an appeal before the DRAT, New Delhi. It
is stated that in the meanwhile the borrowers entered into a mutual
settlement and the Bank also conceded to extend the time for the
execution and implementation of the compromise entered into between
them. On the above basis, Suit No. 654 of 2002 filed by Mr. Siddharth
Jain in this Court stood withdrawn.
15. The Petition proceeds to state that in the meanwhile the Petitioner
had entered into an agreement with M/s. Futuristic Properties (Pvt.)
Limited („FPPL‟) in terms of which the Petitioner with the help of FPPL
submitted a plan to the Municipal Corporation of Delhi („MCD‟). After
carrying out the necessary demolition of the existing structures, it raised
new constructions on the property in question admeasuring 4200 sq.
yards. The Petitioner states that a copy of this agreement was delivered
to the Bank. The Petitioner further states that although it was pursuing
the matter with the Bank no concrete step was taken by the Bank to
execute and implement the contract i.e. “on receipt of Rs. 6.5 crores to
transfer the property” to the Petitioner. The Petitioner does not dispute
st
that apart from depositing a sum of 10 lakhs with the Bank on 1
`
February 2002 which was kept in „No Lien Account‟, no further
payment was made.
Writ Petition (Civil) No. 4538 of 2005 Page 11 of 37
16. The Petitioner then filed Writ Petition (Civil) No. 6088 of 2003
nd
which was disposed of by this Court by an order dated 22 September
2003 with the following directions:
“Respondents 2 to 5 shall take necessary steps for
execution of the sale deed in favour of the Petitioner on or
st
before 31 December 2003. The Petitioner shall deposit
the full amount of Rs. 6.5 crores with Respondent No. 1
Bank prior to the execution of the sale deed.
Simultaneously on deposit of the amount, Respondent No.
1 Bank will give a no objection and no lien certificate in
respect of the portion being sold to the Petitioner along
with copies of earlier title documents. Respondent No. 1
bank will also ensure production of prior title documents
before Sub-Registrar which may be required for
registration of sale deed in question.
Insofar as the prayer for sanction of plan is concerned,
learned counsel for the Petitioner does not press this relief
at this stage since occasion has not arisen as yet for the
Corporation to consider the plans of the Petitioner.
The writ petition is disposed of with the aforesaid
direction.”
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17. On 5 December 2003, the Petitioner KSPL wrote a letter to the
Bank stating inter alia as under:
“In this connection we have considered all aspects of payment
and we propose to make payment as under:
st
a) Down payment of Rs.100 lacs by 31 December 2003
st
b) Balance payment by 31 March, 2004
Writ Petition (Civil) No. 4538 of 2005 Page 12 of 37
We hope you will be kind enough to accept the aforesaid
payment terms and we request you to kindly convey your
consent to Honourable Delhi High Court on next date of
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hearing which is scheduled on 15 December 2003.”
18. The Petitioner moved an application being CM No. 13237 of 2003 in
the disposed of petition being Writ Petition (Civil) No. 6088 of 2003
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which was heard on 15 December 2003 in which the following order
was passed:
“Learned counsel for the Petitioner and Respondent No. 1
states that it is agreed between the parties that the
Petitioner would deposit a sum of Rs. 1 crore on or before
st
31 December 2003 and the balance amount on or before
st
31 March 2004. However, this is subject to the condition
that in case the Petitioner fails to make the full payment of
st
the balance amount on or before 31 March 2004, the
amount of Rs. 1 crores deposited by the Petitioner would
stand forfeited. This is an arrangement arrived at between
nd
the parties subsequent to the order dated 22 September
2003.
In view of the aforesaid, the directions for payment in
nd
pursuance to the order dated 22 September 2003 stand
modified as aforesaid on the consent of the parties.
The application stands disposed of.
Dasti to learned counsel for the parties.”
st
19. On 31 December 2003, the Petitioner wrote to the Bank enclosing
three cheques - one for 40 lakhs and two for 25 lakhs each, all dated
` `
st
31 December 2003 and requested the bank “to adjust and appropriate
this amount of ` 1 crore towards part liquidation of the OTS amount of
Writ Petition (Civil) No. 4538 of 2005 Page 13 of 37
PS Jain Group and subsequent payment also be adjusted accordingly.”
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The Petitioner also wrote to the Bank on 30 December 2003 requesting
to encash the FDR for a sum of ` 10 lakhs towards part payment for
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purchase of the property in question. On 13 March 2004, the lawyers
for the Respondent Bank wrote to the borrowers referring to the terms of
settlement entered into with the borrowers and stating that in the event
of any delay or default whatsoever in adhering to any of the terms and
conditions “all such rebates, concessions as provided by our client shall
be deemed to be withdrawn forthwith and our client shall be entitled to
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proceed to recover all amounts due to it.” On the same date, i.e. 13
March 2004, a separate letter was addressed to the Petitioner KSPL
th
referring to the earlier letter dated 13 October 2003 addressed by the
Petitioner assuring that they will deposit with the Bank 65 lakhs
`
towards „Biana‟ within a period of fifteen days and balance 90% within
six month from the date of „Biana‟. The Petitioner was informed that it
was agreed to extend the payment/adjustment of the compromise amount
arrived at “with the members of R.C. Jain/P.S. Jain Group which also
comprises of the co-owners of the said property” and the time had been
st
extended till 31 March 2004 and, therefore, the entire sale
consideration of 6.50 crores in respect of half share of the subject
`
st
property should be deposited prior to 31 March 2004.
th
20. On 24 March 2004, the letter was written by the Petitioner KSPL to
the Bank and to the borrowers alleging that silence was being
maintained by the Bank in providing to the Petitioner with „various
documents‟, in the absence of which “it is impossible to have the
Writ Petition (Civil) No. 4538 of 2005 Page 14 of 37
documentation completed.” The Bank and the borrowers were called
upon to furnish copies of the original title deeds, family partition
deed/family settlements, house tax, water, electricity clearance of the
st
subject property and so on. On 31 March 2004, one of the original
borrowers wrote to the Bank inter alia stating that the Petitioner KSPL
had “already submitted a scheme for balance payment of ` 5.5 crores
st
within next six months.” On 31 March 2004, the Petitioner again wrote
to the Bank stating that the date originally fixed for making payment be
extended by another six months. As an alternate arrangement, it was
stated that the Bank may divide the total sum of ` 6.5 crores into four
parts by giving NOC for each one-fourth part upon payment of the
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instalments of that part. Reminders were sent on 8 April 2004 and 24
April 2004.
21. In the disposed Writ Petition (Civil) 6088 of 2003, an application
CM No. 6763 of 2004 was filed by the Petitioner seeking further
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extension of time up to 30 June 2004 for depositing the balance sum.
st
On 31 May 2004, this Court passed an order recording the learned
counsel for the Respondent No. 1 Bank having no objection to the same.
It was further observed by this Court that for the future in the case the
Bank had no objection for extension of time, “the same can be directly
done without approaching this Court since it is a question of mutual
arrangement between the parties.”
22. The Petitioner had preferred yet another petition being Writ Petition
Writ Petition (Civil) No. 4538 of 2005 Page 15 of 37
(Civil) No. 7242 of 2004 in this Court seeking a mandamus to the
Respondents, particularly, Respondent No. 1 Bank to execute the sale
deed in respect of the subject property in favour of the Petitioner upon
depositing the entire mutually agreed sale consideration of ` 6.5 crores.
The Petitioner then filed an application being CM No. 6300 of 2004
seeking permission to withdraw the said petition in view of the
subsequent developments. This application was allowed. It is stated that
th
on 27 May 2004, the Bank conveyed its NOC in respect of the sub-
divided property at 7-A, Rajpur Road, Delhi in respect of which the
original borrowers had deposited a sum of ` 1,62,50,000/-. The Petitioner
stated that on the date of filing of the present writ petition, it had
deposited a sum of ` 3,12,50,000/- with the Bank and yet the remaining
NOCs were not issued.
23. It is stated that the Petitioner was surprised to come across public
notices issued by the Bank in local newspapers stating the subject
property in question remained mortgaged/charged with Bank and any
one dealing with the said property in any manner shall do so at his/her
own risk and cost. In the circumstances, the present writ petition was
filed.
Proceedings before this Court
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24. When the writ petition first came up for hearing on 14 March 2005,
while directing notice to issue, this Court passed the following interim
order:
“CM No. 3256/2005
th
Issue notice, returnable on 25 April 2005.
Writ Petition (Civil) No. 4538 of 2005 Page 16 of 37
It has been pointed out that the Petitioner/M/s. Kunth
Securities (P) Limited has deposited 50% of the amount
which the Bank had undertaken to receive in full and final
settlement of the dues of its borrower. This has been
th
noticed by the recovery officer in the order dated 11
January 2005 placed as annexure P-45 to this petition.
Learned counsel for the Petitioner has submitted that the
recovery officer has appointed a Receiver of the property
st
vide order dated 1 March 2005 who has been directed to
take symbolic possession. Copy of this order has been
handed over in Court and has been taken on record. It is,
therefore, directed that pending further adjudication, thee
st
shall be stay of the order dated 1 March 2005.
The Petitioner shall deposit the balance amount as
st
undertaken before 31 March 2005 with the Respondent
Bank.
Copy of this order be given dasti to learned counsel for the
parties.”
25. An application being CM No. 11377 of 2005 was filed seeking
impleadment of Mr. Ravi Kumar as Respondent No. 2 and M/s.
Futuristic Properties Limited as Respondent No. 3 in the writ petition.
Mr. Ravi Kumar stated that he had obtained a judgment and decree dated
th
28 October 1986 against Mr. Umesh Chand Jain, one of the co-owners
of the immovable properties bearing Nos. 7-A and 7-B, Rajpur Road,
Delhi from the Supreme Court of Hong Kong in the amount of US$
909,675 plus interest until satisfaction of the decree. Pursuant to the said
decree, the Execution Petition No. 2 of 1987 was filed in this Court by
th
Mr. Ravi Kumar and 1/4 share of the 32 flats situated at 7, Rajpur
Writ Petition (Civil) No. 4538 of 2005 Page 17 of 37
Road, Delhi were attached. Objections had been filed under Order XXI
Rule 58 CPC by M/s. United Estates in the said execution petition
claiming to be the owner of the property at 7-A, 7-B, Rajpur Road,
Delhi. These objections were dismissed and it was held that Mr. Umesh
th
Chand Jain had 1/4 share in the property at 7-A, 7-B, Rajpur Road,
Delhi. Accordingly, the order issuing the warrants of attachment in
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respect of 1/4 share in respect of the said property was confirmed. In its
th
order dated 7 September 2003 this Court categorically ruled in favour
of Mr. Ravi Kumar as under:
“I have carefully considered the entire documents on
record, statement of the objectors 1 and 2 and heard the
learned counsels appearing for the parties at length. On a
careful consideration of the entire documents on records
and submissions at the bar by the learned counsel,
conclusion is irresistible that the Judgment Debtor has
a share in the HUF property 7-A and 7 B, Rajpur
Road, Delhi and the factum of having taken the loan by
the Judgment Debtor has been clearly admitted by
him . In these circumstances, the executing court has to
confirm the ex parte order of the learned Single Judge
th th
dated 12 January 1987 and 20 February 1987, sic I
order accordingly.
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List this matter before the Registrar of this Court on 13
September 1993 for taking appropriate steps for the sale of
the share of the Judgment Debtor for the satisfaction of the
decree passed by the Supreme Court of Hong Kong in
favour of the Decree Holder. The execution petition is
allowed with costs.” (emphasis supplied)
26. M/s United Estates filed an appeal being EFA (OS) No. 8 of 1993
Writ Petition (Civil) No. 4538 of 2005 Page 18 of 37
against the dismissal of its objections. The Division Bench of this Court
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on 18 January 1994 directed that: “Attachment will continue till the
decision of the appeal. No part of the property in dispute shall be sold,
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alienated or encumbered till further order.” This was reiterated on 9
th th
December 2004 and 26 April 2005. On 8 November 2005, a detailed
order was passed by the Division Bench noting all the orders passed till
that date.
27. What is significant is that M/s. United Estates was represented
th
throughout by Mr. J.C. Gupta, learned counsel. On 27 September 2005
statement was made by Mr. Sanjay Gupta that Mr. J.C. Gupta was
th th
unwell and the matter was adjourned to 18 October 2005. On 18
th
October 2005 again, the matter was adjourned to 20 October 2005. On
that date, in order to show his bona fide, Mr. Gupta stated that he will
have the undertaking of the appellant recorded on the next date of
hearing; that the Appellant will deposit a sum of 50 lakhs within two
`
weeks and a sum of ` 1 crore will be deposited within eight weeks
thereafter. He further stated that after the undertaking given by him to
th
this Court on 17 March 2005, no one had been inducted in the 16 flats.
28. An application being CM No. 15201 of 2005 was filed by Mr. Ashok
Kumar Aggarwal and his counsel was asked by the Division Bench
about the date from which the persons mentioned had come to occupy
the flats in the property in question and how much amount had been
received from all such persons to whom he had sold the flats. A
contempt petition was filed by Mr. Ravi Kumar in the said proceedings
Writ Petition (Civil) No. 4538 of 2005 Page 19 of 37
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in which notice was issued on 16 March 2005. Again on 17 March
2005 Mr. J.C. Gupta, learned counsel appeared for M/s. United Estates
and the following order was passed by the Division Bench:
“ Cont Cas (C) 235/2005
Mr. Gupta is present. He undertakes that no person shall
be permitted to occupy the building flats constructed at
7B, Rajpur Road, Delhi. On the other hand, counsel for the
Petitioner has contended that despite stay, the Respondent
had alienated and sold the property 7A, Rajpur Road,
th
Delhi in which the Petitioner had 1/4 share.
Reply be filed within four days. Rejoinder, if any, be filed
within two weeks thereafter.
th
Renotify on 26 April 2005.
Interim order to continue.”
th
29. It appears that on 11 April 2005, despite the above restraint order
Mr. Raj Kumar Jain, son of Late Mr. R.C. Jain executed a general power
of attorney („GPA‟) in favour of Mr. Vijit Lal Mathur, son of Late Mr.
B.B.J. Mathur, Director of the Petitioner KSPL, a copy of which is
enclosed at page 517 of the paper book. It recorded that Mr. Raj Kumar
Jain is the owner of property No. 7-A, Rajpur Road, Delhi; the Petitioner
th
had entered into a collaboration agreement on 6 October 2003 with
FPPL “who has now constructed residential units on the said property
after getting the building plan sanctioned and now both the companies
intend to sell the units constructed in the said property” and therefore the
Executant was appointed as the GPA to inter alia “enter into any
agreement for sale of the said property or any part thereof with any
person (s) on any terms ..…” Mr. Ravi Kumar placed on record a
Writ Petition (Civil) No. 4538 of 2005 Page 20 of 37
th
Cancellation Deed dated 4 June 2005 whereby the earlier GPA created
by Mr. Raj Kumar Jain in favour of the Petitioner KSPL stood cancelled
after noting that the subject property at 7-A, Rajpur Road, Delhi is
mortgaged with the Bank.
th
30. A learned Single Judge of this Court, by a detailed order dated 15
December 2006, allowed the CM Nos. 11377 of 2005 & 8861 of 2006 in
this writ petition and directed the impleadment of Mr. Ravi Kumar and
FPPL as Respondents. After noticing some of the facts, the learned
Single Judge concluded:
“If both the applicants are claiming rights in the said
property, then the determination of the rights of the
Petitioner against Respondent in respect of the same
property will not be conclusive unless the rights of the
applicant are also determined in respect of the said
property. In case, these two applicants are not impleaded
as parties to the writ petition, adjudication of the disputes
between the Petitioner and the Respondent Bank will not
be conclusive. Adjudication of disputes between the
Petitioner and the Respondent Bank in absence of these
applicants will not negate their rights and consequently in
case these applicants are not impleaded as parties, they
shall be entitled to file separate proceedings leading to
multiplicity of proceedings and in the absence of
applicants, the orders passed by this Court between the
Petitioner and the Respondent will not be conclusive and
in the circumstances, I have no doubt in holding that the
applicants are necessary parties to the present proceedings
in the facts and circumstances.”
Writ Petition (Civil) No. 4538 of 2005 Page 21 of 37
Submissions of Counsel
31. This Court has heard the submissions of Mr. Sudhir Nandrajog,
learned Senior counsel appearing for the Petitioner (KSPL), Mr.
Rajinder Wali, learned counsel for the Respondent No. 1 (Bank), Mr.
Amit Sibal, learned counsel for Respondent No. 2 (Mr. Ravi Kumar) and
Mr. Arvind Nayar, learned counsel for the Respondent No. 3 (FPPL)
respectively.
32. Mr. Sudhir Nandrajog, learned Senior counsel submitted that the
Petitioner had acted bona fide and should not suffer for any default
committed by the original borrowers. At every stage, the Petitioner
approached this Court with an application seeking extension of time in
making the payment and the Bank had also conveyed its consent to the
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extent of extension of time up to 30 June 2004. He pointed out that
th
NOC had been granted in respect of one-fourth share on 27 May 2004.
nd
Further amounts were paid by the Petitioner and till 2 March 2005, as
against a sum of ` 6.5 crores, a sum of ` 3,12,50,000/- had already been
paid. Therefore, this was not the case where the Petitioner was unwilling
th
to make the payment. He referred to an order dated 11 January 2005
recorded by the Recovery Officer of the DRT, Delhi where learned
counsel for the Bank made a statement that “C.H. Bank has received
50% of the total compromised amount and rest of the amount is payable
st
by 31 March 2005.” Without waiting for the above deadline, the Bank
proceeded to issue a public notice stating that the subject property in
question remains mortgaged/charged with the Bank and any one dealing
with the said property in any manner shall do so at his/her own risk and
cost. In such circumstances, the Petitioner was constrained to file the
Writ Petition (Civil) No. 4538 of 2005 Page 22 of 37
present writ petition. Mr. Nandrajog pointed out that pursuant to the
th
order dated 14 March 2005 passed by this Court the balance sum of
st
50% was deposited before 31 March 2005 with the Bank, as recorded
th
in the order dated 18 May 2005. He submitted that accordingly ` 6.5
crores had been paid to the Bank which sum was accepted by it without
prejudice to its rights and contentions. He submitted that as far as the
Bank is concerned, the entire payment was made. There was a delay of
st
about three months from the deadline of 31 March 2005 as agreed to by
the Bank itself before the Recovery Officer, DRT. Therefore there was
no legal impediment in the title deeds being released and the further
steps being taken. He reiterated that he was not pressing the relief of
requiring the Bank to execute a sale deed in favour of the Petitioner as
that was really a relief of specific performance. He submitted that the
Petitioner would compensate for any delay in making the payment by
paying interest at a rate as may be determined by this Court.
33. Mr. Amit Sibal, learned counsel appearing for the Respondent No. 2
Mr. Ravi Kumar referred to the detailed proceedings in the execution
petition and to the fact that Mr. J.C. Gupta, learned counsel himself
appeared for M/s. United Estates which was the Appellant in EFA (OS)
8 of 1993 in which the interim order was passed. The same Mr. J.C.
Gupta had filed the present writ petition on behalf of KSPL. Mr. Sibal
stated that not a word has been uttered anywhere in the present petition
about the decree passed in favour of Mr. Ravi Kumar; the execution
th
petition filed by him; about the order of this Court dated 7 September
confirming the attachment of the property in question and the Execution
Writ Petition (Civil) No. 4538 of 2005 Page 23 of 37
th
Appeal filed by M/s. United Estates against the order dated 7
September 2003. Even while those proceedings were pending the
th
present writ petition was filed on 19 February 2005 without impleading
Mr. Ravi Kumar as party. Ex parte orders were obtained permitting the
Petitioner to deposit the balance sale consideration with the Bank thus
presenting the court with a fait accompli . A separate prayer in the writ
petition seeking execution of the sale deed in favour of the Petitioner
was in the teeth of the interim orders of attachment passed by this Court
in the execution petition from time to time. It was not brought to the
notice of this Court that there was an attachment of the one-fourth share
of the property at 7-A, Rajpur Road, Delhi. He submitted that the present
writ petition ought to be dismissed for deliberate concealment of
material facts.
34. Mr. Sibal pointed out that KSPL is an alter ego of Mr. R.C. Jain, one
of the original borrowers. He referred to the documents obtained from
the Registrar of Companies („ROC‟) to demonstrate how all these
persons, who are Directors of the Petitioner residing in the same address
as the property in question, at no point in time disclosed the inter se
relationship between the Petitioner and those original borrowers.
Relying on the observations of the Supreme Court in Delhi
Development Authority v. Skipper Construction (1996) 4 SCC 622 he
submitted that in the instant case, the corporate veil had to be lifted to
appreciate the huge fraud played on the Court and the Bank. He
submitted that the genesis of the present petition was the agreement
entered into by the original borrowers, the Bank and the Petitioner. The
Writ Petition (Civil) No. 4538 of 2005 Page 24 of 37
Petitioner knew about the execution proceedings and was fully aware of
the attachment order. Although the Petitioner by itself may not have
been a party, M/s. United Estates which was again an alter ego of the
original borrowers, was a party to those proceedings. Both the present
Petitioner and M/s. United Estates had engaged the same lawyer.
35. Mr. Sibal further submitted that there was no public law element in
this petition and there was no violation of any constitutional or other
right of the Petitioner. He submitted that the petition was an abuse of the
process of law. He also referred to decision of the Supreme Court in
Orissa Agro Industries Corporation v. Bharti Industries (2005) 12
SCC 725 and World Tel Inc. v. Union of India (2001) 10 SCC 513. He
pointed out that KSPL was not allowed impleadment in the execution
proceedings.
36. Appearing for the Bank, Mr. Rajinder Wali learned counsel drew
attention to Rule 2 read with Rule 16 of the Second Schedule of the
Income Tax Act, Rules („IT Rules‟). He submitted that even according
to the Petitioner, the value of the subject property in early 2005 was
` 12.22 crores for the extent of 400 sq. yards. The present value of the
property in question would be over 100 crores. The Bank never agreed
`
st
to extend the time for the Petitioner to make payment till 31 March
2005. The counsel who made such submission to the Recovery Officer,
DRT had no authority to do so. The terms of the OTS whereby the
original borrowers had to pay ` 11.24 crores was never complied with.
Writ Petition (Civil) No. 4538 of 2005 Page 25 of 37
There was no question of permitting the Petitioner to take advantage of
its own wrong. He prayed that this petition should be dismissed. Counsel
for the FPPL stated that they had nothing to add.
37. In reply to the above submissions, Mr. Nandrajog reiterated that the
Petitioner was not pressing prayer (b) which was for a direction to the
owners of the property to execute the sale deed. He referred to the sale
proclamation issued initially by DRAT in RC No. 5 of 1998 in which it
was mentioned in clause (iv) that “The sale shall be subject to the
judgment and orders of the Hon‟ble High Court of Delhi in EFA (OS)
No. 8 of 1993”. According to him, this implied that there was in fact an
attachment of the said property and therefore, there was no suppression
of any fact. Inasmuch as the Petitioner had enclosed the said
proclamation with the present petition, there was no suppression of facts
in the Petition either. While not denying that the Petitioner was
„connected with the original borrowers, Mr. Nandrajog contended that
for the default committed by the original borrowers, the Petitioner could
not be denied its right to the property in question so long as the entire
agreed sale consideration had been paid to the Bank pursuant to the
order of this Court. There was no attempt by the Petitioner to overreach
the Court. The extension of time sought for making payment was
consistent with the RBI guidelines regarding OTS. Mr. Nandrajog relied
upon the judgment of the Supreme Court in Gujarat State Financial
Corporation v. M/s. Lotus Hotel Private Limited (1983) 3 SCC 379
and Sardar Associates v. Punjab & Sind Bank (2009) 7 SCC 257 to
urge that in such circumstances the remedy under Article 226 of the
Writ Petition (Civil) No. 4538 of 2005 Page 26 of 37
Constitution was available.
Maintainability of the writ petition
38. First, this Court would like to deal with the issue of maintainability
of the writ petition. There can be no manner of doubt that the relief
sought by the Petitioner in prayer (b) is a mandamus to the original
borrowers to execute a sale deed in favour of the Petitioner in relation to
the property in question. Mr. Nandrajog understandably gave up prayer
(b) since obviously such a relief could not be sought in a petition under
Article 226 of the Constitution. He nevertheless persisted with the
prayers (a) and (c) which was not only in the nature of the mandamus to
the Respondent No. 1 Bank to release NOC in favour of the Petitioner
upon making payment of instalments but the consequential relief of
“execution of the transfer deed/sale deed” either by the Petitioner ought
to be got executed in favour of the Petitioner by the Respondent No. 1
Bank. In the considered view of this Court, the prayer alone does not
involve any public law element at all. It is plain that this is the so called
equitable mortgage created in favour of the Bank by the original
borrowers for the loan borrowed by them of which a settlement had been
entered with the Bank. The proclamation of sale was published pursuant
to the order passed by the Recovery Officer of the DRAT. By the time
the proclamation of sale was published in December 1998, there was
already an attachment of the said property in an execution petition
before this Court. The original borrowers were fully aware of the
attachment of this property. The dispute raised by the Petitioner KSPL
claiming to be the subsequent purchaser is of a civil nature. There was
Writ Petition (Civil) No. 4538 of 2005 Page 27 of 37
absolutely no public law element in the matter. The present case is
different from Sardar Associates v. Punjab & Sind Bank where it was
held that the legal right arising out of an OTS could be sought to be
enforced. The question that arises for consideration in the present case is
not about the right of the original borrowers to enforce the OTS.
Admittedly, the Petitioner does not claim to be the original borrower.
Further, in Sardar Associates, there was no question of suppression of
facts by the Petitioners therein of any previous execution proceedings.
39. The reliance by the Petitioner on the decision in Gujarat State
Financial Corporation v M/s. Lotus Hotels Pvt. Limited is also
misplaced. Unlike the facts of that case, in the present case there was no
promise held out to the Petitioner that the property in question would be
transferred to it even if it did not pay the sale consideration within the
time stipulated. Admittedly, the sale consideration was paid beyond the
stipulated or agreed date. According to the learned counsel for the Bank,
th
the counsel who made a statement before the Recovery Officer on 11
January 2005 on its behalf to the effect that the time for making payment
st
was extended up to 31 March 2005 was a proxy counsel and had no
authority whatsoever to make such a statement.
40. This Court is of the view that the present petition does not involve
any public law element. Also, the Petitioner has not been able to show
how there has been any violation of any fundamental or constitutional
right. For all of the above reasons, this Court holds that the present
Writ Petition (Civil) No. 4538 of 2005 Page 28 of 37
petition is not maintainable under Article 226 of the Constitution.
Suppression of material facts and role of the Advocate
41. The more serious issue concerns suppression of material facts by the
Petitioner. Nowhere in the petition, is there any mention of the execution
petition to which a reference was made in the proclamation notice issued
by the Recovery Officer which is at Annexure P-4 of the petition. It is
only in reply to the submissions made by learned counsel for the
Respondent No. 2 regarding such concealment of fact that the Petitioner
sought to deny it by referring to condition (iv) of the proclamation notice
which stated that the sale is subject to the judgment and orders of the
High Court in EFA (OS) No. 8 of 1993. There is no mention of the fact
that Respondent No. 2 Mr. Ravi Kumar obtained an attachment of the
th
1/4 share of the property in question at 7A, Rajpur Road, Delhi; that the
execution petition filed by the DH Mr. Ravi Kumar was allowed by this
th
Court on 7 September 1993; that the said order was challenged before a
Division Bench of this Court by M/s. United Estates or that the Division
th
Bench had by an order dated 18 January 1994 restrained the appellant
from alienating or creating any third party interests in the property in
question. Clearly, the proclamation notice issued by the DRT, which was
perhaps not aware of the above orders and proceedings, was in the teeth
the said order of attachment of the property in question.
42. What is also of concern is that it is the same Advocate (Mr. J.C.
Gupta) who appeared for M/s. United Estates (the Respondent in the
execution petition), and in which petition an interim order was passed,
Writ Petition (Civil) No. 4538 of 2005 Page 29 of 37
who drafted and filed the present writ petition as M/s. J.C. Gupta & Co.
Mr. J.C. Gupta filed the execution appeal for M/s. Untied Estates and
appeared for it when the interim order was passed by the Division
Bench. Considering that the present writ petition concerns the same
property in question which stood attached in the execution proceedings
where the Advocate for the party in the execution petition (and the
appellant in the execution appeal) was none other than the Advocate for
the Petitioner herein, it was inexcusable for the said Advocate to have
not disclosed the complete facts. Moreover, by the time the present writ
th
petition was filed on 19 February 2005, the proceedings in execution
appeal of M/s. United Estates were progressing before the Division
Bench of this Court. The same Advocate appeared throughout before the
Division Bench, and the interim order of attachment was continued in
his presence. A statement was made time and again either by him or his
proxy counsel assuring the court that no third party interest would be
created in respect of the property in question.
43. This Court is constrained to observe that the legitimacy of the legal
system depends not only on the litigants speaking the truth before courts,
but on Advocates ensuring that the complete facts within their
knowledge about other legal proceedings concerning the same subject
matter should not be withheld from the court. While clients for various
reasons may not disclose to their Advocate the complete facts within
their knowledge, and may face legal consequences for speaking
falsehood before the court or for wilful suppression of material facts, the
responsibility that an Advocate owes to the Court as an officer of the
Writ Petition (Civil) No. 4538 of 2005 Page 30 of 37
Court is much greater. The following observations of the Supreme Court
in D.P. Chadha v. Triyugi Narain Mishra (2001) 2 SCC 221 , are
relevant in this regard (@ SCC p. 237):
“24. It has been a saying as old as the profession itself that
the court and counsel are two wheels of the chariot of
justice. In adversarial system it will be more appropriate to
say while the Judge holds the reigns, the two opponent
counsel are the wheels of the chariot. While the direction
of the movement is controlled by the Judge holding the
reigns, the movement itself is facilitated by the wheels
without which the chariot of justice may not move and
may even collapse. Mutual confidence in the discharge of
duties and cordial relations between Bench and Bar
smoothen the movement of chariot. As a responsible
officer of the court, as they are called - and rightly, the
counsel have an overall obligation of assisting the courts
in a just and proper manner in the just and proper
administration of justice. Zeal and enthusiasm are the
traits of success in profession but over-zealousness and
misguided enthusiasm have no place in the personality of
a professional.
25. An advocate while discharging duty to his client, has a
right to do everything fearlessly and boldly that would
advance the cause of his client. After all he has been
engaged by his client to secure justice for him. A counsel
need not make a concession merely because it would
please the Judge. Yet a counsel, in his zeal to earn success
for a client, need not step over the well defined limits or
propriety, repute and justness. Independence and
fearlessness are not licences of liberty to do anything in
the court and to earn success to a client whatever be the
cost and whatever be the sacrifice of professional norms.
Writ Petition (Civil) No. 4538 of 2005 Page 31 of 37
26. A lawyer must not hesitate in telling the court the
correct position of law when it is undisputed and admits of
no exception. A view of the law settled by the ruling of a
superior court or a binding precedent even if it does not
serve the cause of his client, must be brought to the notice
of court unhesitatingly. This obligation of a counsel flows
from the confidence reposed by the court in the counsel
appearing for any of the two sides. A counsel, being an
officer of court, shall apprise the Judge with the correct
position of law whether for or against either party.
27. Mr. Justice Crampton, an Irish Judge, said in R v.
O'Connell , 7 Irish Law Reports, at page 313:
“The advocate is a representative but not a delegate. He
gives to his client the benefit of his learning, his talents
and his judgment: but all through he never forgets what he
owes to himself and to others. He will not knowingly
misstate the law, he will not wilfully misstate the facts,
though it be to gain the ease for his client. He will ever
bear in mind that if he be an advocate of an individual and
retained and remunerated often inadequately, for valuable
services, yet he has a prior and perpetual retainer on behalf
of truth and justice and there is no Crown or other license
which in any case or for any party or purpose can
discharge him from that primary and paramount
retainer.””
44. There could be a situation where the client does not disclose to the
Advocate the complete facts of the other legal proceeding in which the
said Advocate is not engaged. Also, there could be facts disclosed by the
client which are covered by the privilege of „professional
communication‟ recognised under Section 126 of the Evidence Act,
1872. However, the present case offers no such excuse to the Advocate
for the Petitioner. He was himself the Advocate for M/s. United Estates
in the execution appeal and even if the Petitioner was not a party and
therefore could claim ignorance of those proceedings (which also is
Writ Petition (Civil) No. 4538 of 2005 Page 32 of 37
doubtful, as will be explained hereafter), the Advocate owed a duty to
the Court to inform it of the full particulars of the execution proceedings
concerning the property in question and the orders passed therein from
time to time.
45. The inescapable conclusion is that it is a brazen case of suppression
of material facts, which led the Court into passing an interim order in
th
favour of the Petitioner. The said interim order passed on 14 March
2005 directing the Petitioner to deposit the balance amount may never
have been passed had the Advocate for the Petitioner informed the Court
even at that stage that there was an attachment order passed by this
Court in relation to the same property in the execution proceedings. The
fait accompli that the Petitioner seeks to present to this Court by
complying with such interim order creates non equity in its favour.
These are further reasons for the dismissal of the writ petition.
Petitioner an alter ego of the original borrowers
46. An important aspect of the matter is that the Petitioner is nothing but
an alter ego of the original borrowers. The Respondent No. 2 has placed
th
before the Court Form No. 32 dated 7 March 1996, a certified copy of
which has been obtained from the Registrar of Companies („ROC‟)
pertaining to the Petitioner. The first Form No. 32 indicates inter alia
Mr. Vijit Lal Mathur as one of the Directors of the company along with
th
one Mr. Sudarshan Kumar Gupta. The next Form No. 32 dated 30 May
2001 shows Mr. Ramesh Chand Jain, son of Late Mr. P.S. Jain resident
of 7A, Rajpur Road, Delhi who was appointed as an Additional Director.
Writ Petition (Civil) No. 4538 of 2005 Page 33 of 37
Likewise Mr. Raj Kumar Jain, son of Mr. Ramesh Chand Jain resident
of the same address as the property in question was also appointed as an
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Additional Director with effect from 31 March 2001. Mr. C.K. Jain and
Mr. Arvind Jain are shown to have resigned as Directors with effect
from the same dates. Two Additional Directors Mr. Raj Kumar Jain and
Mr. Ramesh Chand Jain were themselves the original borrowers who
had a share in the subject property at 7A, Rajpur Road, Delhi. Mr. R.K.
Gupta was appointed as an Additional Director of the Petitioner
th rd
company on 24 November 2001. On 3 December 2001, Mr. R.K. Jain
th
resigned as Director and on 27 November 2001, Mr. R.C. Jain ceased
to be the Director of the Petitioner.
47. These facts were either not disclosed to the Bank or were
deliberately overlooked to favour the Petitioner. It points to a possible
fraud being committed by the Petitioner and the original borrowers
either by themselves or in connivance with certain Bank officials. This
calls for further investigation. Be that as it may, these facts are sufficient
to show that the original borrowers constituted the Petitioner and sought
to purchase the very property that belonged to all of them through a
private sale for an amount far less than the market value and which
amount too they did not pay till more than three years thereafter. They
knew that through that process they were defeating the attachment
orders passed by this Court in execution proceedings. In the
circumstances, the plea that the Petitioner was not a party to the
execution proceedings and was therefore unaware of the orders passed
therein is simply not believable.
Writ Petition (Civil) No. 4538 of 2005 Page 34 of 37
48. In similar circumstances in Delhi Development Authority v. Skipper
Construction Co. (P) Limited, the Supreme Court observed in para 28 as
under (@ SCC p. 639):
“The concept of corporate entity was evolved to encourage
and promote trade and commerce but not to commit
illegalities or to defraud. Where, therefore, the corporate
character is employed for the purpose of committing
illegality or for defrauding others, the Court would ignore
the corporate character and will look at the reality behind
the corporate veil so as to enable it to pass appropriate
orders to do justice between the parties concerned. The
fact that Tejwant Singh and members of his family have
created several corporate bodies does not prevent this
Court from treating all of them as one entity belonging to
and controlled by Tejwant Singh and family if is found
that these corporate bodies are merely cloaks behind
which lurks Tejwant Singh and/or members of his family
and that the device of incorporation was really a ploy
adopted for committing illegalities and/or to defraud
people.”
49. In the present case, there can be no manner of doubt that the original
borrowers have sought to defraud the Respondent Bank by getting it to
enter into a private sale of a valuable property mortgaged to the Bank by
reconstituting themselves into a corporate entity. This is a case where
the Petitioner, a corporate entity, was brought into the picture by the
original borrowers for defrauding the Bank.
th
Agreement dated 20 February 2002 void ab initio
th
50. The agreement dated 20 February 2002 by which the property was
agreed to be sold was an agreement void ab initio. The said agreement
Writ Petition (Civil) No. 4538 of 2005 Page 35 of 37
th
was in the teeth of orders passed by this Court on 20 February 1987
rd
and 3 March 1987 in the execution petition whereby warrants were
issued for attachment of one-fourth share of the Judgment Debtor in the
properties at 7-A and 7-B, Rajpur Road, Delhi. The further order passed
th
on 7 September 1993 by this Court, which is extracted hereinbefore,
makes it abundantly clear that one-fourth share of the property of the
Judgment Debtor situated at 7A, Rajpur Road, Delhi stood attached.
This was the subject matter of the execution appeal in which a restraint
order was passed and continued till date.
51. Rule 16 of the Schedule II of the Income Tax Rules clearly states
that where an attachment has been made, the defaulter or his
representative-in-interest shall not be competent to mortgage, charge,
lease or otherwise deal with any property belonging to him except with
the permission of the Tax Recovery Officer and that “any private
transfer or delivery of the property attached or of any interest therein or
any payment to the defaulter of any debt……” shall be void as against
all claims enforceable under the attachment. The proclamation notice
clearly refers to the Second Schedule of the Income Tax Rules.
Therefore, the private sale permitted to be undertaken by the Bank is
contrary to Rule 16 of Second Schedule of the Income Tax Rules.
No equities in favour of the Petitioner
52.This is a matter where no leniency ought to be shown to the
Petitioner which apart from suppressing material facts, has also
overreached the execution petition and sought to defeat the attachment
Writ Petition (Civil) No. 4538 of 2005 Page 36 of 37
by persuading the Bank to part with the valuable property in the teeth of
the attachment order. The mere fact that the Petitioner has paid a sum of
` 6.5 crores through the above method creates no equity in its favour for
grant of any of the reliefs sought. The OTS amount owed to the Bank by
the original borrowers, who reconstituted themselves as the Petitioner,
not having been liquidated, there is no case made out for any
consequential order.
53. The writ petition is accordingly dismissed with costs of ` 1 lakh
which shall be paid by the Petitioner in equal halves of 50,000/- each
`
to Respondents 1 and 2 within a period of four weeks from today. The
pending applications also stand dismissed. The interim order is vacated.
S. MURALIDHAR, J.
SEPTEMBER 7, 2010
rk
Writ Petition (Civil) No. 4538 of 2005 Page 37 of 37