Full Judgment Text
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
NOTICE OF MOTION NO.7 OF 2017
IN
SUIT NO.8 OF 2017
Padma Ashok Bhatt ...Plaintiff/Applicant
vs.
M/s.Orbit Corporation Ltd. & Ors. ...Defendants
WITH
NOTICE OF MOTION NO. 1206 OF 2017
IN
SUIT NO.8 OF 2017
Axis Bank Limited ...Applicant/Defendant No.15
In the matter
Padma Ashok Bhatt ...Plaintiff
vs.
M/s.Orbit Corporation Ltd. & Ors. ...Defendants
WITH
NOTICE OF MOTION (L) NO.30 OF 2017
IN
COMMERCIAL SUIT NO.192 OF 2017
Om Project Consultants and Engineers Limited ... Plaintiff/Applicant
Versus
M/s. Orbit Corporation Ltd. and Anr. … Defendants
WITH
NOTICE OF MOTION NO. 323 OF 2017 (NOB)
IN
COMMERCIAL SUIT NO.192 OF 2017
Axis Bank Limited ...Applicant/Defendant No.2
In the matter between
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Om Project Consultants and Engineers Limited ... Plaintiff
Versus
M/s. Orbit Corporation Ltd. and Anr. … Defendants
WITH
NOTICE OF MOTION NO.199 OF 2017
IN
SUIT NO.62 OF 2017
Madhav Prasad Aggarwal & Anr. ... Plaintiffs/Applicants
Versus
M/s. Orbit Corporation Ltd. and Anr. … Defendants
WITH
NOTICE OF MOTION NO. 1208 OF 2017 (NOB)
IN
SUIT NO.62 OF 2017
Axis Bank Ltd. ...Applicant/Defendant No.2.
In the matter between
Madhav Prasad Aggarwal & Anr. ... Plaintiffs
Versus
M/s. Orbit Corporation Ltd. and Anr. … Defendants
WITH
NOTICE 0F MOTION NO. 207 OF 2017
IN
SUIT NO.60 OF 2017
Manisha Saraf ... Plaintiff/Applicant
Versus
M/s. Orbit Corporation Ltd. and Anr. … Defendants
WITH
NOTICE 0F MOTION NO. 1207 OF 2017
IN
SUIT NO.60 OF 2017
Axis Bank Ltd. ...Applicant/Defendant No.2.
In the matter between
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Manisha Saraf ... Plaintiff
Versus
M/s. Orbit Corporation Ltd. and Anr. … Defendants
WITH
NOTICE OF MOTION (L) NO. 349 OF 2017
IN
COMMERCIAL SUIT NO. 450 OF 2017
Niraj Dilip Jiwrajka ... Plaintiff/Applicant
Versus
M/s. Orbit Corporation Ltd. and Anr. … Defendants
WITH
NOTICE OF MOTION NO. 377 OF 2017 (NOB)
IN
COMMERCIAL SUIT NO. 450 OF 2017
Axis Bank Limited ...Applicant/Defendant No.3
In the matter between
Niraj Dilip Jiwrajka ... Plaintiff
Versus
M/s. Orbit Corporation Ltd. and Ors. … Defendants
Mr.Satyan N. Vaishnawa a/w. Ms.Nupur Mukherjee and Ms.Kirtika Kothari
i/b. N.N. Vaishnawa & Co. for Plaintiff in S/8/2017.
Mr.S. Pathak i/b. S. Pathak & Co., for the Plaintiff/s in S/60/2017 &
62/2017 and for Defendant Nos. 6 & 12 in S/8/2017.
Ms.Ankita Singhania a/w. Mr.Ashutosh Khaitan and Mr.Adhish Sharma I/b.
M/s.Khaitan and Khaitan, for Plaintiffs in COMS/192/2017.
Mr.Sarosh Bharucha, a/w. Mr.Maneck Mulla and Mr.Danesh Mehta i/b. M.
Mulla Associates, for Plaintiff in COMSL/327/2017 (COMS/450/2017) and
for Defendant No.14 in S/8/2017.
Ms.Rajani Iyer, Senior Advocate with Mr.Karl Tamboly a/w.
Mr.Bhalchandra R. Palav and Mr.Bhavik Lalan i/b. Cyril Amarchand
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Mangaldas, for Defendant No.15 in S/8/2017, and for Defendant No.2 in
S/60/2017, S/62/2017 and COMS/192/2017.
Ms.Kausar Banatwala I/b. Mr.Tushar Goradia for Defendant No.9 in
S/8/2017.
Mr.Pradeep Havnur a/w. Mr.Datta Mane and Mr.Pradish Suvarna for
Defendant No.8 in S/8/2017.
Mr.M.R. Mandawgade, OSD, from the office of Court Receiver present in
person.
CORAM : S.C. GUPTE, J.
26 JULY 2017
ORAL JUDGMENT :
Heard learned Counsel for the parties.
2 These two notices of motion (Notices of Motion Nos.1206 of
2017 and 1207 of 2017) have been taken out in two different suits. There
are three companion notices of motion (Notices of Motion Nos.323 of 2017,
1208 of 2017 and 377 of 2017), taken out in three other suits, which are not
on board, but which involve the same controversy. These latter motions are
mentioned, taken on board and called out by consent, and heard together
with the two former motions.
3 All five suits seek specific performance of agreements for sale of
flats, respectively, entered into between the Plaintiffs and M/s.Orbit
Corporation Ltd. ('Orbit'), who is a developer in respect of certain property,
in which these flats are situated. M/s.Axis Bank Ltd. ('Axis Bank') have been
arraigned as a party Defendant in all five suits purportedly on the ground
that there is a collusive mortgage between Orbit and Axis Bank by which
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they have sought to defeat the Plaintiffs’ rights. Various reliefs have been
sought in these suits not only against Orbit but also against Axis Bank.
These five notices of motion have been taken out by Axis Bank purportedly
on the footing that the suits, insofar as Axis Bank is concerned, are barred by
the provisions of Section 34 of the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002 (for short
“SARFAESI Act”).
4 The case of Axis Bank, in a nutshell, is that it has initiated
proceedings under Sections 13(2) and 13(4) of the SARFAESI Act and
taken symbolic possession of the building in which these flats, which are the
subject matter of these five suits, are situated. It is the case of Axis Bank that
insofar as the suits against it are concerned, the questions raised in the suits
qua it can be determined by the Debts Recovery Tribunal ('DRT') under
Section 17 of the SARFAESI Act, if the Plaintiffs were to apply under that
section, being aggrieved by any of the measures taken by Axis Bank under
subsection (4) of Section 13 of the SARFAESI Act. It is submitted that,
accordingly, under the provisions of Section 34 of the SARFAESI Act, the
present suits are barred and the plaints are liable to be rejected as against
Axis Bank under Rule 11(d) of Order 7 of the Code of Civil Procedure, 1908
(“Code”)
5 Before we consider the application of Axis Bank, the facts of the
suits alleged by the respective Plaintiffs may be briefly noted :
SUIT NO. 8 OF 2017
6 This suit is filed by the Plaintiff inter alia praying for a decree
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for specific performance of her agreement for sale inter alia by completing
construction of the two flats purchased by her in the project known as “Orbit
Haven” described in the suit, in accordance with the agreement for sale
executed by Orbit (Defendant No.1) in her favour, and handing over
possession of the flats to her. She claims in the suit that as much as Orbit,
Axis Bank (arraigned as Defendant No.15 in her suit) be directed to comply
with all obligations under Maharashtra Ownership of Flats Act (for short
“MOFA”) which are set out in prayer clause (a) of her suit. The suit
agreement for sale is said to be reflected in the letter of confirmation of
booking of the flat dated 16 April 2009 read with email dated 21 January
2015, under which she has agreed to purchase and acquire the two flats at a
total consideration of Rs.12.45 crores. It is the case of the Plaintiff that she
has paid from time to time various sums towards this purchase aggregating
to about Rs.9.23 crores, the receipt of which has been duly acknowledged by
Orbit. Some other purchasers of flats in the suit building have also been
arraigned as defendants in this suit. Among these, some appear to have
purchased flats vide registered agreements for sale, whilst others having
agreed to do so under similar allotment letters. It is the grievance of the
Plaintiff that in spite of various reminders on her part, Orbit has not entered
into and registered any agreement for sale as required under the provisions
of MOFA. It is submitted that the Plaintiff and these other flat purchasers
have in all paid more than Rs.200 crores to Orbit from time to time towards
purchase of their respective flats in the suit building. The suit building,
originally to be comprised of thirtytwo floors, has been under construction.
After all flats in the building were booked (the bookings being of the years
2009, 2010 and 2011 and even later), the Axis Bank claims to have
advanced a loan to Orbit around the year 2013 on the security of the suit
building. The grievance of the Plaintiff is that this loan is a fraudulent and
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collusive act as between Orbit and Axis Bank. In particular, it is stated that
Axis Bank have failed to carry out any due diligence, while granting this
loan to Orbit purportedly on the security of the suit building. It is submitted
that had any due diligence search been taken, the records of Orbit would
have revealed receipt of substantial money from various purchasers, who
had booked flats in the suit building. Besides want of due diligence search, it
is submitted by the Plaintiff that there was not even a public notice issued by
Axis Bank before advancing this loan. It is submitted that Axis Bank very
well knew that the building to be constructed by Orbit was for sale of flats to
members of public, attracting provisions of MOFA, which inter alia require
the building to be conveyed free of any encumbrance to the body of flat
purchasers. Based on these averments, a twofold case is made out by the
Plaintiff against Axis Bank. Firstly, it is submitted that the mortgage was a
fraudulent and collusive act as between Orbit and Axis Bank and is not,
accordingly, binding on the Plaintiff and other flat purchasers, who, at any
rate, have a prior charge over the suit property, that is to say, individual
flats forming part of the suit property, under the provisions of MOFA.
Secondly, the Plaintiff's case against Axis Bank is that in the alternative, as a
transferee under the mortgage in respect of the suit building, Axis Bank has
assumed the character of a 'promoter' as defined under MOFA and is
accordingly bound and liable as much as Orbit to perform all the obligations
of 'promoter' under MOFA, which inter alia include delivery of possession of
the respective premises free from all encumbrances to the purchasers
including the Plaintiff after completing the sale building.
COMMERCIAL SUIT NO. 192 OF 2017
7 The Plaintiff in this suit also claims to be an agreement
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purchaser in respect of a duplex flat admeasuring about 7344 sq.ft. in the
suit building. The agreement is said to be contained in various
communications of Orbit annexed as Exhibits 1 to A5 to the plaint and a
Memorandum of Understanding entered into between Orbit and the
Plaintiff. The Plaintiff claims to have paid a sum of Rs.29,02,79,000/ from
out of the total consideration of Rs.30,00,000/ for purchase of the suit flat.
The grievance of the Plaintiff is similar to the Plaintiff in Suit No.8 of 2017
referred to above. The case against Axis Bank is also on the same lines. In
particular, it is submitted by this Plaintiff that certain employees of Axis
Bank were hand in glove with the representatives of Orbit and the subject
loan was granted by Axis Bank to Orbit for illegal and unlawful gains and
without any proper scrutiny or title search or due diligence. The relief
claimed against Axis Bank in this suit requires Axis Bank to confirm the sale
of the suit flat to the Plaintiff with delivery of possession of the flat within a
specific timeline and for a declaration that the Plaintiff has a first charge on
the flat. Besides, the Plaintiff seeks various interlocutory reliefs against both
Orbit and Axis Bank in aid of the main reliefs.
SUIT NO. 62 OF 2017
8 The Plaintiff is an agreement purchaser in respect of a duplex
flat in the suit building admeasuring 7608 sq.ft. saleable area for a sum of
Rs.38,25,00,000/. The Plaintiff claims to have paid an aggregate sum of
Rs.26,77,50,000/ to Orbit under this agreement, contained originally in a
letter of allotment and followed by a Memorandum of Understanding
executed between the parties. One of the grievances of the Plaintiff in this
suit against Axis Bank is that it had as a charge holder in respect of the suit
building granted its NOC for sale of the suit flat to the Plaintiff and could
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not afterwards back out from its commitment as was proposed to be done
under a letter addressed by it to the Plaintiff (letter dated 4 October 2016).
SUIT NO. 60 OF 2017
9 The Plaintiff in this suit is an agreement purchaser of a duplex
flat in the suit building of a saleable area of 7555 sq.ft. for an aggregate
consideration of Rs.24,00,00,000/. The agreement is contained in a
Memorandum of Understanding dated 28 September 2009 entered into
between Orbit and the Plaintiff. The Plaintiff claims to have paid an
aggregate sum of Rs.14,65,00,000/ to Orbit under this agreement. It is the
case of the Plaintiff that the loan was advanced by Axis Bank to Orbit with
knowledge of the Plaintiff's right to the suit flat. The relief sought against
Axis Bank is that it should be directed to confirm the sale of the suit flat to
the Plaintiff.
COMMERCIAL SUIT NO. 450 OF 2017
10 The Plaintiff in this suit claims specific performance of an
th
agreement for sale in respect of two flats comprising of the entire 30 and
st
31 floors of the suit building admeasuring saleable area of 11,643 sq.ft. for
a total consideration of Rs.28,60,00,000/. The agreement is said to be
contained in a letter of allotment dated 3 March 2010 issued by Orbit. The
Plaintiff claims to have paid this entire consideration to Orbit. The Plaintiff's
case against Axis Bank is that Orbit already having sold the suit flat to the
Plaintiff, no right could have been created in favour of Axis Bank as
mortgagee or otherwise. It is prayed by the Plaintiff that along with Orbit,
Axis Bank be also directed to jointly and severally comply with all
obligations under MOFA including execution and registration of the
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agreement for sale, completion of the project, and delivery of the suit flat to
the Plaintiff.
11 We have to consider the application for rejection of plaint under
Order 7 Rule 11(d) filed by Axis Bank in these five suits in the light of the
facts recounted above. Various issues arise in connection with this
application. The first, of course, is whether or not a plaint can be rejected as
against one particular Defendant, whilst maintaining the same against
others, under Order 7 Rule 11 of the Code. Ms.Iyer, learned Senior Counsel
appearing for Axis Bank, relies on a Division Bench judgment of our court in
the case of M.V. “Sea Success I” vs. Liverpool and London Steamship
1
Protection and Indemnity Association Ltd. Relying on this judgment,
learned Counsel submits that there is no legal bar under Order 7 Rule 11 in
rejecting the plaint only against some of the Defendants. The Division Bench
of our court noted various precedents in this behalf, including some
judgments of the Supreme Court where plaint was rejected against one or
other of the Defendants, and held that there was no such bar. In view of the
clear exposition of law by the Division Bench in m.v. Sea Success , it cannot
be gainsaid that a plaint in an appropriate case can be rejected under Order
7 Rule 11 of the Code against some of the Defendants. The argument of
learned Counsel for the Plaintiff in Suit No.450/2017 that the judgment of
M.V. Sea Success is in the context of rejection of plaint under Order 7 Rule
11(a) and not under Order 7 Rule 11(d), really has no substance. It is true
that the plaint was rejected in M.V. Sea Success on the basis that it did not
disclose any cause of action against the particular defendant and therefore,
liable to be rejected under Order 7 Rule 11(a). There is no reason, however,
why that principle should not be applied to a case where the suit appears
from the statements in the plaint to be barred by any law against a
1
AIR 2002 BOMBAY 151
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particular defendant or defendants. There is nothing either in principle or in
authority to suggest that the two cases, namely, a case under Order 7 Rule
11(a) and one under Order 7 Rule 11(d), differ in this respect. On the other
hand, some of the authorities referred to by our Division Bench in M.V. Sea
Success are cases where the plaint was rejected against some or other of the
defendants on the ground of a legal bar, that is to say, under Order 7 Rule
11(d).
12 Granted that as a matter of principle, a plaint can be rejected
against some of the defendants, it is important to consider in what
circumstances it can be so rejected. Whether under Order 7 Rule 11(a) or
under Order 7 Rule 11(d), nondisclosure of cause of action or legal bar, as
the case may be, must be in respect of the plaint or the suit as a whole. If the
plaint as a whole and read in the light of all its averments does not disclose
any cause of action against a particular defendant, it may well be rejected
under Order 7 Rule 11(a). So also, if the suit as a whole appears from the
statements in the plaint to be barred by any law against any particular
defendant, the plaint may be rejected. In either of these cases, the rejection
must be of the whole of the plaint or the suit, as the case may be. There is
no manner of doubt that the plaint cannot be rejected partially on the
ground that that part does not disclose any cause of action or that part of
the suit is barred by law against any defendant. In other words, it is not
permissible to split the cause of action brought before the court by a plaintiff
and based on such splitting, reject the plaint partially.
13 Keeping this principle in mind, let us now consider the merits of
the arguments of Ms.Iyer concerning the bar under Section 34 of the
SARFAESI Act, which prohibits civil courts from entertaining any suit or
proceeding in respect of any matter which the debt recovery tribunal or
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appellate tribunal constituted under the SARFAESI Act is empowered by or
under that act to determine and also from granting an injunction in respect
of any action taken or to be taken in pursuance of any power conferred by or
under that Act or under the Recovery of Debts due to Banks and Financial
Institutions Act, 1993. The question, therefore, which we have to consider
here, in the light of what is discussed above, is, whether the DRT is
empowered to determine the subject matter of the suit as a whole as against
Axis Bank. The answer is clearly in the negative. Ms.Iyer argues that the
Plaintiff’s prayer for a declaration that there is no legally enforcible charge
or mortgage in favour of Axis Bank in respect of the suit building is a matter,
which can be determined by the DRT. Indeed it can be. But then, the
alternative prayer that Axis Bank be jointly and severally ordered along with
Orbit to comply with all its obligations under MOFA on the footing that by
virtue of transfer of property created in its favour by Orbit, it is in the
position of a promoter visavis the flat purchasers, is clearly out of bounds
for the DRT. The DRT cannot be said to be competent to determine a prayer
such as this or direct, on the basis of such determination, specific
performance of a contract for sale of property. If it cannot, there is no
question of rejecting that part of the claim against Axis Bank under Order 7
Rule 11(d)
14 Madras High Court in the case of Arasa Kumar vs.
2
Nallammal has explained the law in the following words :
“30. Section 9, C.P.C. and bar of jurisdiction created under
relevant Sections in respect of the Cooperative Societies Act,
Arbitration and Conciliation Act, 1996 and also Section 29 of the
Recovery of Debts due to Banks and Financial Institutions Act,
1993 and under Rule 40 of the Income Tax (Certificate
2
II (2005) BC 127
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Proceedings) Rules, 1962 and also the bar under the Tamil Nadu
Hindu Religious and Charitable Endowments Act, 1959 were all
considered by this Court and the Apex Court as referred supra
and now, it is manifestly clear that the power under Section 34
of the Securitisation and Reconstruction of Financial Assets and
Enforcement of security Interest Act is not absolute and the
same is subject to certain restrictions, they are:
(1) that the parties, who filed the suit, must be party to the
liabilities created in favour of the secured creditor, (2) the
disputes between the parties could be resolved under the
provisions of the Act itself, (3) that if the claim made by the
parties is outside the jurisdiction of the Debts Recovery Tribunal
or the appellate tribunal or any action taken or to be taken
under this Act and also under the Recovery of Debt due to Banks
and Financial Institutions Act, 1993 and the dispute raised by
the parties cannot be adjudicated by any of the tribunal or
authority, created under the act or under any other Act, the right
of the parties to approach the Civil Court for appropriate relief
cannot be deprived and taken away.”
I am in respectful agreement with the above statement of law by
Madras High court. If a claim made by the parties to the suit is outside the
jurisdiction of the DRT or the appellate tribunal and any disputes raised by
the parties in that behalf cannot be adjudicated by them, the right of the
parties to approach the civil court for appropriate relief in that behalf cannot
be said to be deprived or taken away.
15 Ms.Iyer argues that Section 17 of the SARFAESI Act gives right
to any person, that is to say, any person other than the borrower, to also
approach the DRT in an application under Section 17. Learned Counsel
relies on the judgment of the Supreme Court in the case of Jagdish Singh
3
vs. Heeralal in this behalf. No doubt, any person can approach the DRT
under Section 17 if he is aggrieved by any order under Section 13(4) of the
SARFAESI Act but the point to be considered still is, if any particular relief
claimed / to be claimed by such person can be granted by DRT. If not, there
3
(2014) 1 SCC 479
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is no question of relegating him to any application under Section 17. His
remedy before the civil court in respect of that relief is clearly not barred by
the provisions of Section 34 of the SARFAESI Act read with Section 17 of
that Act.
16 Besides, as held by the Supreme Court in the case of Mardia
4
Chemicals Ltd. vs. Union of India , there is a well known exception to the
bar of jurisdiction of the civil court in respect of an action of a secured
creditor under the SARFAESI Act. If the action of the secured creditor is
alleged to be fraudulent, it is certainly permissible to bring the matter before
the civil court. Ms.Iyer, however, refers to the judgment of a Division Bench
5
of our court in the case of State Bank of India vs. Jigishaben B. Sanghavi
and relying on this case, submits that the pleadings in such a case must
“clearly disclose” a fraud or irregularity on the basis of which the relief is
sought. No doubt, this is the requirement of law, for without such
requirement, it will be permissible for any person to approach the civil court
in a matter clearly covered by Section 34 read with Section 17 of the
SARFAESI Act by simply alleging fraud as a matter of form and without
indicating any substance for raising such plea. Noticing the facts of our case,
however, there are sufficient averments in the plaint, which suggest that
there is indeed a case to go to trial on fraud. As I have noted above, whilst
noticing the facts of Suit No.8/2017, Axis Bank appears to have advanced
this loan, for which the alleged security interest is created, much after the
project was initiated by Orbit. The bookings started sometime in 2009 if not
earlier and were made through the following years; nearly Rs.200 crores, as
per the estimate of the Plaintiff in Suit No.8/2017, were collected by Orbit
from flat purchasers. Practically, all flats proposed to be constructed in the
4 (2004) 4 SCC 311
5
2011(3) Bom.C.R. 187
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suit building were agreed to be sold either by registered agreements by
means of allotment letters with acknowledged receipts of substantial
amounts of monies towards such sales. In these facts, Axis Bank would have
had to go for due diligence and take inspection of various records, which the
promoter of a project covered under MOFA is expected to maintain under
the provisions of MOFA. Without doing this, it is the allegation of the
Plaintiff, Axis Bank went ahead and colluded through some of its employees
with Orbit and granted loan to it on the security of the suit building, which
clearly has an adverse effect on the rights of the flat purchasers. The
allegations concerning the lack of due diligence on the part of Axis Bank as
also want of a public notice before advancing such loan, in the peculiar
facts and circumstances of the case and read with the allegations of
collusion as between some of its officers and Orbit, clearly spell out a case
which ought to go to trial. It is not a case, where, by clever drafting, the
Plaintiff seeks to sustain the jurisdiction of a civil court by a simple and bald
allegation of fraud, which is merely in form and not in substance.
17 For all these reasons, there is no merit in the application for
rejection of plaint as against Axis Bank.
18 The notices of motion are all, accordingly, rejected. Costs to be
costs in the cause.
19 Ms.Iyer applies for stay of further proceedings in the suits for a
limited period. Axis Bank has not had any adinterim relief in this behalf till
date. After hearing them fully and this court having comprehensively
rejected their case for rejection of the plaint on the basis of such hearing,
there is no question of now granting any stay of proceedings. Anyway, there
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is a Section 9A issue, which is already framed in the matter based on the
selfsame averments of Axis Bank, which are discussed above, and with the
consent of Axis Bank. The court shall proceed with the hearing of that issue.
20 Notices of Motion Nos.7 of 2017, 199 of 2017 and 207 of 2017
and Notices of Motion (Lodging) Nos.30 of 2017 and 349 of 2017 are stood
over and adjourned to the hearing of the suits on the preliminary issue of
jurisdiction.
(S.C. GUPTE, J.)
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