1. Heard Mr Joseph Markos learned Senior Counsel, assisted by Mr Mathews K Uthuppachan learned Counsel for the petitioners, and Mr C Ajith Kumar learned Counsel for the respondent.

2. These two writ petitions have been filed by M/s Annam Steels Pvt Ltd, its Managing Director and other Directors impugning the orders passed by the Debts Recovery Appellate Tribunal at Chennai dated 31.07.2024 in R.A.(S.A.): 5/2024 whereby the said appeal has been dismissed with the following observations:

“10. As rightly pointed out by Advocate for Bank (s), judgement of Hon'ble High Court dated 04.12.2023, is complete answer to all grounds urged in this Appeal questioning the Order of DRT dated 08.06.2023 in SA 76/2023.

11. On a scrutiny of entire material, I have no hesitation in holding that objections raised on behalf of Appellants with regard to impugned Order dated 08.06.2023, are not at all tenable, and they have no legal stand, as said issue is already dissolved by Hon'ble High Court in Writ Petition filed by Appellants themselves.

12. In view of my foregoing discussion, it is held that, the Appeal is completely devoid of merits and liable to be dismissed.

13. In the result, Appeal in R.A (S.A): 5/2024 is dismissed with costs. All pending IAs, if any, stand closed.”

3. Before dealing with the merits of the writ petitions, it would be apt to take note of the proceedings initiated by the petitioners before this Court and the Debts Recovery Tribunal.

4. As of today, the total outstanding of the respondent Canara Bank in respect of the loans advanced to the petitioner is around Rs.251 crores. The detailed facts are not mentioned herein for the sake of brevity as the facts have been taken note of in the Order dated 08.06.2023 passed by the Debts Recovery Tribunal in S.A. No.76/2023 filed by the petitioners. However, it is relevant to take note of the order passed by the learned Single Judge in W.P.(C) No.24561/2022. Vide interim order dated 29.07.2022, the learned Single Judge directed the petitioners to deposit Rs.1 crore by 30.07.2022 and a further sum of Rs.6.90 crore by 10.08.2022. On an application filed by the respondent Bank for vacating the interim order, the learned Single Judge vide order dated 01.09.2022 vacated the interim order.

4.1 Aggrieved by the Order dated 01.09.2022, the petitioners filed W.A. No.1355/2022. The Division Bench vide order dated 06.09.2022 directed the parties to appear for Mediation on 14.09.2022. As the Mediation failed, the Division Bench proceeded to dispose of the Writ Appeal directing the writ petition itself to be disposed of on merits. The petitioners filed a Special Leave Petition, SLP No.20304/2022, before the Supreme Court against the Judgment passed by the Division Bench in W.A. No.1355/2022. However, the said Special Leave Petition came to be dismissed by the Supreme Court vide order dated 18.11.2022 with the observation that the learned Single Judge should decide the writ petition uninfluenced by the judgment of the Division Bench.

4.2 The learned Single Judge vide Judgment dated 04.01.2023 dismissed the writ petition with a direction to the Bank to return the amount deposited by the petitioners to them. Aggrieved by the said Judgment, the petitioners preferred W.A. No.26/2023, and the Bank also preferred W.A. No.128/2023. Vide Judgment dated 25.01.2023, the Division Bench allowed W.A. No.26/2023 and set aside the Judgment of the learned Single Judge and granted three weeks’ time to the petitioners to approach the Debts Recovery Tribunal under Section 17 of the SARFAESI Act 2002. The direction of the learned Single Judge to return Rs.7.90 crores deposited by the petitioners was also set aside. However, the request of the Bank for appropriation of the amount was not allowed and the same was ordered to be considered by the Debts Recovery Tribunal subject to the outcome of the challenge to the sale.

5. Mr Joseph Markos learned Senior Counsel has raised only one contention in this writ petition, i.e., Mr Yusuf Pangat, the Promotor of the 3rd respondent Company, had paid EMD without disclosing the fact that he was depositing the amount on behalf of the 3rd respondent Company. The 3rd respondent was incorporated subsequent to the payment of the EMD. Therefore, the confirmation of the sale in favour of the 3rd respondent Company is against the SARFAESI Act and the Rules made thereunder.

5.1 The said issue is squarely covered by the judgment of the Supreme Court in the case of Jai Narain Parasrampuria (Dead) v. Pushpa Devi Saraf (2006) 7 SCC 756 . Paragraphs 20 to 31 of the said judgment are extracted hereunder:

“20. At the time when the property was released from the charge held by State Bank of India, a notice in terms of Section 138 of the Companies Act was issued by Shri Mohan Lal Saraf. In the registers maintained by the Registrar of the Companies under Section 132 of the Companies Act, it was shown that a charge on the said property had been made in favour of State Bank of India.

21. Under the English Common Law, an unincorporated corporation could not have become an owner of the property. The law in India, however, is different.

22. Before we advert to the statutes operating in the field, in passing we may notice a wholly untenable submission of Shri Sudhir Chandra that an unregistered deed of sale only having been executed in favour of the Company by Sarafs, no title passed to the Company in view of Section 54 of the Transfer of Property Act. Section 54 of the Transfer of Property Act, defines sale and provides for a procedure as to how the same shall be made. It does not speak of conveyance of ownership. Section 54 of the Transfer of Property Act does not lay down a law as to whether in all situations an apparent state of affairs as contained in a deed of sale would be treated to be the real state of affairs. It does not bar a benami transaction. There is no embargo in getting a property registered in the name of one person; although the real beneficiary thereof would be another.

23. Sections 15(h) and 19(e) of the Specific Relief Act, 1963 read as under:

"15. Who may obtain specific performance. Except as otherwise provided by this Chapter, the specific performance of a contract may be obtained by-

* * *

(h) when the promoters of a company have, before its incorporation, entered into a contract for the purposes of the company, and such contract is warranted by the terms of the incorporation, the company: Provided that the company has accepted the contract and has communicated such acceptance to the other party to the contract.

* * *

19. Relief against parties and persons claiming under them by subsequent title. Except as otherwise provided by this Chapter, specific performance of a contract may be enforced against-

* * *

(e) when the promoters of a company have, before its incorporation entered into a contract for the purpose of the company and such contract is warranted by the terms of the incorporation, the company:

Provided that the company has accepted the contract and communicated such acceptance to the other party to the contract."

24. In terms of Section 15(h) of the Specific Relief Act, the promoters of a company before its incorporation could enter into a contract for the benefit of the company and such contract may be warranted by the terms of incorporation of the company. The said provision is subject to the proviso that the company should accept the said transaction. In the instant case, indisputably it was done. Section 19(e) of the Act provides for grant of a decree of specific performance of a contract against a company when the promoters of a company before incorporation entered into a contract for the purpose of the company and such contract is warranted by the terms of incorporation. The said provision applies herein.

25. In Weavers Mills Ltd. v. Balkis Ammal¹ the Madras High Court clearly held that Section 19(e) of the Specific Relief Act carves out an exception from the common law of England, stating: (AIR p. 470)

"While we accept the position that a promoter is neither an agent nor a trustee of the company under incorporation, we are inclined to think that in respect of transactions on behalf of it, he stands in a fiduciary position. For the plaintiff Company Sections 92 and 94 of the Indian Trusts Act, 1882, were relied upon. It seems to us that neither of these sections is of assistance to it. These sections, as we think, contemplate transactions as between persons in existence. In any case, it seems to us that no trust as defined by Section 3 of the Act is brought about by the purchases made by the promoters. The legal position of a promoter in relation to his acts, particularly purchase of immovable properties on behalf of the company under incorporation, is a peculiar one not capable of being brought into any established or recognised norms of the law as to its character as an agent or a trustee. But, at the same time, it is impossible, to our minds, to deny that he does stand in a certain fiduciary position in relation to the company under incorporation. When he does certain things for the benefit of it, as for instance, purchase of immovable properties, he is not at liberty to deny that benefit to the company when incorporated. We are prepared to hold that in such a case the benefit of the purchase will pass on to the company when incorporated."

26. The said decision has been followed by a Division Bench of the Andhra Pradesh High Court in Vali Pattabhirama Rao v. Sri Ramanuja Ginning & Rice Factory (P) Ltd.2 wherein it was held: (AIR pp. 184-85)

"Thus we hold that if the constitution of the partnership firm is changed into that of a company by registering it under Part 9 of present Act (Part 8 of previous Act), there shall be statutory vesting of title of all the property of the previous firm in the newly incorporated company without any need for a separate conveyance."

27. The Company upon incorporation has accepted the contract and communicated such acceptance to the other party. Besides that, purchase of the property was for the purpose of the Company. Submissions of Mr Sudhir Chandra that acquisition of a property for the benefit of the Company must find place in the articles of association of the Company, is wholly misplaced. What is meant by acceptance of the contract by the Company which is to be warranted by its incorporation, is that it is not ultra vires the purpose for which the Company had been incorporated. The distinction sought to be made by the learned counsel between Section 27 of the Specific Relief Act, 1877 and Section 19 of the 1963 Act is not of much significance. Under the 1877 Act, not only ratification and adoption of the contract was mandatory, such contract was to be warranted by the terms of the incorporation. The words "ratified and adopted" have been dropped from the main section and in Section 19 of the 1963 Act, a proviso has been added that the company has accepted the contract and communicated such acceptance to the other party of the contract. An express ratification of the contract, therefore, is no longer warranted. In view of the fact that the Company, in the suit filed against Verma, sought for a declaration that it was the owner of the property, the same, in our opinion, would amount to acceptance of the contract and communication thereof to the other party thereto.

28. Reliance placed by the learned Senior Counsel for the respondent on Shamsu Suhara Beevi v. G. Alex³ (SCC p. 76, para 11) is not apposite, wherein it was held:

“On equitable considerations court cannot ignore or overlook the provisions of the statute. Equity must yield to law."

In the said decision this Court was not concerned with the interpretation of Section 19(e) of the Specific Relief Act.

29. The Transfer of Property Act does not prohibit an oral transfer. The statute merely provides that if the value of the said property is more than Rs 100 a registered document is required to be executed. Section 5 of the Transfer of Property Act provides for transfer in favour of the company which was unincorporated. The effect of the Transfer of Property Act, therefore, postulates transfer in favour of the unincorporated company. It does not create any bar.

30. Our attention was drawn to a statement made by Appellant 1 before the trial court in cross-examination. He stated that Sarafs had informed him that the Company was the owner. He, however, volunteered that he himself as also the Company became owners. He probably gave the said answer having regard to the fact that an agreement for sale had been executed in his favour; and furthermore Manoj Kumar Poddar had been granted a lease and thus, he also became the owner thereof. His claim may not be correct in law, but by reason thereof, it cannot be said that the representation made by Sarafs that the Company was the owner of the property had been whittled down or the appellants were all along aware that Sarafs were the owners thereof.

31. The High Court, therefore, in our opinion committed a gross error in opining that the object and purport of the proceedings in OS No. 267 of 1980 was mainly for seeking foreclosure of the right of reconveyance of vendor, S.N. Verma.”

5.2 The EMD paid by the Promotor/Director, Sri Yousuf Pangat, has to be treated as valid payment inasmuch as the bid was subsequently made by the incorporated 3rd respondent Company after the payment of EMD. It is also not in dispute that the Promotor of the Company was authorized to enter into a contract, including bidding, prior to its incorporation. Therefore, I do not find much substance in the submission of the learned Senior Counsel. Hence, this issue is decided against the petitioners.

6. So far as the question of appropriation of the amount of Rs.7.90 crores deposited by the petitioners in pursuance of the interim order passed by this Court is concerned, the said issue is also covered against the petitioner in the case of Bank of Baroda v. Karwa Trading Company (2022) 5 SCC 168 . Paragraphs 15 to 17 of the said judgment are extracted hereunder:

“15. In view of the above and for the reasons stated above the present appeal succeeds. The impugned judgment and order dated 20-9-2017¹ passed by the Division Bench of the High Court in DBSAW No. 349 of 2017 is hereby quashed and set aside and the order2 passed by the learned Single Judge quashing and setting aside the order passed by DRT dated 17-1-2014 confirmed by DRAT is hereby restored.

16. It will be open for the appellant Bank to proceed further with the auction proceedings of the mortgaged property in auction i.e. residential house by inviting the bids afresh and whatever the amount is already paid by the borrower, may be in pursuance to the interim relief order passed by DRT and/or the impugned judgment and order passed by the Division Bench of the High Court, the same may be adjusted against the dues/total liability of the borrower. At the same time, DRT to decide and dispose of SA No. 9 of 2014 filed by the borrower under Section 17 of the SARFAESI Act in accordance with law and on its own merits and on the whatever grounds which may be available to the borrower.

17. It is also observed and directed that in case pursuant to the orders passed by DRT and the Division Bench of the High Court, if the borrower is put into possession, considering the fact that the mortgaged property is a residential property, till the auction is finalised and the mortgaged property is sold in a public auction, the possession of the borrower may not be disturbed. However, it is directed that on public auction being finalised and the mortgaged property is sold by the Bank the borrower has to hand over the peaceful and vacant possession of the property to the Bank and/or the auction-purchaser. However, in the meantime the original title deeds of the mortgaged property be retained by the Bank. In the meantime, and till the borrower remains in possession of the mortgaged property as per the present order and till the mortgaged property is sold in a public auction, the borrower shall not transfer and/or alienate the mortgaged property in any manner whatsoever including the possession.”

7. When there is an outstanding of Rs.251 Crores, the Bank cannot be directed to refund the amount received by them, though in terms of the interim order passed by this Court inasmuch as the writ petition was dismissed and against which the Writ Appeal was allowed directing the petitioners herein to approach the Debts Recovery Tribunal. However, the issue for a refund of Rs.7.90 crores was left open, and the said issue has been decided by the Debts Recovery Tribunal against them. This Court does not find that the Debts Recovery Tribunal or the Debts Recovery Appellate Tribunal has committed any error of law or jurisdiction, which requires this Court to interfere with the detailed findings recorded by the Debts Recovery Tribunal.

8. The writ petitions have no merit, which are hereby dismissed