1. The petitioners in these cases are calling in question orders dated 26-03-2022, 06-07-2023 and 21-07-2023 passed by the XXXI Additional Chief Metropolitan Magistrate, Bengaluru in Criminal Miscellaneous No.5700 of 2021. In these petitions since the issue and orders challenged arise out of a solitary petition in Criminal Miscellaneous No.5700 of 2021, they are taken up together and considered by this common order. The petitioners in both these petitions are either borrowers, guarantors, mortgagors or sureties in respect of financial assistance obtained by the 2nd respondent-M/s Electrex (India) Limited.

2. The facts in brief germane are as follows:-

On 21-11-1983 the Karnataka Industrial Areas Development Board (hereinafter referred to as ‘the Board’ for short) executes a lease cum-sale agreement in favour of the 2nd respondent. After the Board grants permission to the 2nd respondent to mortgage the property and obtain a loan from the Karnataka State Financial Corporation (hereinafter referred to as ‘the Corporation’ for short), on 17-10-1988, the 2nd respondent mortgages the property and obtains finance from the Corporation. After execution of mortgage with the Corporation, the Board executes a registered sale deed in favour of the 2nd respondent. The 2nd respondent later on 20-11-1996 obtains loan from the Industrial Finance Corporation of India (hereinafter referred to as ‘the Bank’ for short) by mortgaging an extent of 2012 sq.mts. of land out of one hectare and 2012 sq.mts. in industrial plot that it had been allotted to by the Board.

3. The 2nd respondent defaults in making repayments to the Bank and the Bank initiates proceedings for recovery of amounts in O.A.No.61 of 2000 before the Debts Recovery Tribunal (‘the Tribunal’ for short). The Tribunal in terms of its order dated 05-12-2006 issued recovery certificate for a sum of `45,63,67,694/-. The original application filed before the Tribunal by the Bank was concerning an extent of 2012 sq.mts. only as it is the subject matter of mortgage in plot No.21-D1 in Sy.No.34 of Industrial Area, Nallakadirenahally, Yeshwantpur Hobli, Bangalore North Taluk. The Bank after obtaining recovery certificate assigned, sold and transferred the credit facility in favour of the 1st respondent - M/s International Asset Reconstruction Company Limited (‘the Company’ for short) by executing a deed of assignment on 04-02-2008. Here comes the 1st respondent/Company into the picture.

4. The Company after acquiring rights from the original lender becomes the secured creditor under Section 2 (zd) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (‘the Act’ for short). Based upon the deed of assignment, the Company issues a demand notice under Section 13(2) of the Act on 22-02-2013. The said demand notice spoke about Assignment Deed and the property being assigned to the Company. The demand notice described the property as Plot No.21-D measuring one hectare and 2012 sq.mts. But, the assignment was only for 2012 sq.mts. and not the other one hectare. A possession notice comes to be issued under Section 13(4) of the Act for the entire extent of the property i.e., one hectare and 2012 sq.mts. The possession notice is said to have been published in Kannada and English newspapers.

5. When things stood thus, the 2nd respondent in terms of its Board resolution dated 02-03-2020 authorized its CEO to sell the western portion of the property being an industrial plot in Plot No.21-D-1 measuring 56,000/- sq.ft. pursuant to which the 2nd respondent executes a registered agreement of sale in favour of M/s Bindu Properties. Thereafter a supplemental agreement is entered into in favour of M/s Bindu Properties. The petitioners come into the picture at this juncture. They are bona fide purchasers from the hands of the 2nd respondent and they have developed the property with the financial assistance from different financing institutions. At this juncture, the Company files an application before the learned Magistrate under Section 14 of the Act in Criminal Miscellaneous No.5700 of 2021. The application claims that the original lender Bank has assigned credit facility to it in terms of an Assignment Deed dated 04-02-2008 and, therefore, it has become the secured creditor.

6. The concerned Court has passed several orders one on 26-03-2022, the other on 06-07-2023 and the third one on 21-07- 2023 directing the Company to take possession of the property. It is then, the Company comes to the spot where the petitioners are running the industry and began to lock the premises on the score that it is seizing the property pursuant to Court order. The petitioners claim to have come to know about the said act of the Company only at the time of taking possession of the property. It is then, both these petitions spring as the petitioners are the purchasers from the hands of the original borrower and claim to be bona fide purchasers from the original borrower. The issue does not concern transaction between the petitioners and the original borrower but it is between the Company and the assignor.

7. Heard Sri K.N. Phanindra, learned senior counsel appearing for the petitioners and Sri K.Suman, learned senior counsel appearing for respondent No.1.

8. The learned senior counsel Sri K.N. Phanindra representing the petitioners would vehemently contend that the Company comes into existence on 04-02-2008 on the strength of a particular Assignment Deed. The Assignment Deed is unequivocal. It is for 2012 sq.mts. The learned Magistrate has issued orders under Section 14 of the Act in favour of the Company to the extent of one hectare and 2012 sq.mts. One hectare is not the property assigned to the assignee by the assignor. Therefore, 2012 sq.mts. is open for the Company to take over and not one hectare. It is the case of the petitioners that they are in possession of the property which come within one hectare of land and cannot be ousted from the property as it is not assigned to the Company. Unless the assignment deed itself indicates a change, it would not be open to the Company to take possession of the property in which the petitioners are in possession. Above all, he would place a document on record to contend that the original lender, the Bank has negotiated with the original borrower for a One Time Settlement (‘OTS’) and the entire loan is cleared by the original borrower. Therefore, nothing would survive for the Company to take over possession at this juncture.

9. Per-contra, the learned senior counsel Sri K. Suman representing the Company would vehemently contend that the notice issued under sub-section (2) of Section 13 of the Act is for one hectare and 2012 sq.mts. The Assignment Deed may have been different but consortium of Bank has lent the amount and the other Banks have authorized the Bank to assign other portion of the property also to the Company. It is based upon the said authorization the Company now wants to move forward to take possession of the property. He would submit that no fault can be found with the action in seeking possession from the hands of the learned Magistrate for total one hectare and 2012 sq.mts. He would contend that the Company is not aware of the fact that the original lender-Bank has negotiated with the original borrower for an OTS and the original borrower has cleared the amount.

10. I have given my anxious consideration to the submissions made by the respective learned senior counsel and have perused the material on record.

11. The afore-narrated facts are not in dispute and as such they would not require any reiteration. A recovery certificate is issued by the Tribunal when it allows O.A.No.61 of 2000 on 05-12-2006 against the original borrower. The lender was the Bank. The Bank then executes an Assignment Deed in favour of the Company. It would suffice if the story is commenced from this point for a resolution in the lis. The recovery certificate issued by the Tribunal was concerning two properties – Schedule A and Schedule B. The schedule indicates that the plot is 21-D1 in Sy.No.34 of the address indicated therein measuring 2012 sq.mts. Recovery certificate is also issued by the Tribunal on 5-12-2006. The schedule in the recovery certificate is as follows:

“SCHEDULE – B (MORTGAGED IMMOVABLE PROPERTY)

All that piece and parcel of industrial land with buildings, structures, fittings and fixtures thereon bearing Plot No. 21- D1, in Survey No.34, industrial Area, Nallakadirenahally, Yeshwantpur Hobli, Bangalore North Taluk, Bangalore District, totally measuring an extent of 2012 sq.mts. and bounded on:”

The Bank in possession of the recovery certificate sells and assigns the credit facility to an Asset Reconstruction Company, the 1st respondent. It is then the Company comes into the picture on the strength of the Assignment Deed. The Assignment Deed is entered into on 04-02-2008. The schedule in the Assignment Deed reads as follows:

“SCHEDULE-B

LIST OF MOVEABLE AND IMMOVABLE PROPERTIES CHARGED IN FAVOUR OF ASSIGNOR

Here again the assignment is of the same address to the extent of 2012 sq.mts.

12. The Company then issues a notice under sub-section (2) of Section 13 of the Act. This notice goes beyond the assignment. The schedule appended to the notice reads as follows:

“Annexure “B” Description of Movable and Immovable Properties Movable Properties

The stock of Raw materials, stock and book debts. Semi finished goods, finished goods of electric power tools and the plant and machineries lying at factory premises 21-D1, Peenya Industrial Area, 2nd Phase, Bangalore – 560 058.

Immovable Property

All that piece and parcel of industrial land with buildings, structures, fittings, and fixtures, thereon bearing Plot No. 21-D in Sy. No. 34, Peenya Industrial Area, Nallakadarnahalli, Yeshwanthpur, Hobli, Bangalore North Taluk, Bangalore District totally measuring an extent of one hectare and 2012 sq.mts. and bounded on the

East by - KIADB Road

West by - Private Land

North by - Plot No.20(20 feet wide proposed village Road)

South by - Plot No.21-D1”

That the assignment was for Plot No.21-D1. Here it is indicated that the plot is 21-D measuring one hectare and 2012 sq.mts. It is contrary to the documents for the reason that what was assigned to the Company was only 2012 sq.mts. Therefore, the notice was contrary to the Assignment Deed. Based upon this, a possession notice is also issued invoking Section 13(4) of the Act in favour of the original borrower. The petitioners were not in the picture at this juncture. The Company of the original borrower resolves to sell the property to the petitioners in both these petitions and executes an agreement to sell and delivers possession of the property. It is then the petitioners come into the picture of the property of the borrower and have put up their industrial sheds and running industries. When things stood thus, the Company invokes Section 14 of the Act and files a petition before the learned Magistrate in Criminal Miscellaneous No.5700 of 2021. In the entire petition what is indicated is that it has been assigned one hectare and 2012 sq.mts. in terms of an Assignment Deed dated 04-02-2008. The paragraphs which depict one hectare and 2012 sq.mts. in the Criminal Miscellaneous petition read as follows:

“…. …. ….

7. As a security towards the above facilities the respondent had created a joint mortgage by deposit of title deeds on 29.12.1996 in favour of the original lender pertaining to its immovable properties situate at Plot no. 21-D1, in survey no. 34, Peenya industrial area, Bengaluru, Karnataka. Admeasuring 1 hectare and 2012 Sq. mtrs. and morefully described in the schedule-B written hereunder and referred to as schedule, with intent to create a security thereon. The first defendant created the mortgage by deposit of title deeds by depositing the title deeds with IFCI Limited for and on behalf of all the Secured Creditors.

…. …. ….

9. As a security towards the above facilities the Respondent had created a joint mortgage by deposit of title deeds on 20.11.1996 in favour of the original lender pertaining to its immovable properties situate at Plot no. 21-D1, in survey no. 34, Peenya industrial area, Bengaluru, Karnataka. Admeasuring 1 hectare and 2012 Sq. mtrs. And more fully described in the schedule - B written hereunder and referred to as Schedule, with intent to create a security thereon. The first defendant created the mortgage by deposit of title deeds by depositing the title deeds with the applicant. The copy of the Memorandum of Entry is produced herewith as Annexure-P.

10. It is submitted that, the respondent after availing above facilities failed to abide with the terms and conditions of the facility and hence the original lender after giving sufficient opportunity to the Respondent, terminated the above facilities and initiated recovery proceedings before the DRT, Bengaluru in O.A. No. 61/2000. The tribunal vide its order dated 05/12/2006 has allowed the petition directing the respondent and its directors and guarantors to pay the claim amount along with interest. The copy of the order dated 05/12/2006 is produced herewith as Annexure - Q.

11. The Petitioner Company submits that, it is during this period upon the mutual discussion, and negotiation between the Petitioner Company and IFCI Limited (Original Lender), had assigned sold, transferred, and released the above said credit facility of the Respondents to the Petitioner vide deed of assignment dated 04/02/2008. In pursuance of the said assignment of the financial asset, the Petitioner Company had acquired all rights, titles and interests of original lender and became the secured creditor under Section 2(zd) of the SARFAESI Act. The copy of the Assignment Deed dated 04/02/2008 is produced herewith as Annexure-R.

…. …. ….

13. It is further submitted that, the aforementioned Secured Creditors in the meeting of the joint lenders have authorized the petitioner company to initiate proceedings under the SARFAESI act, as the lead bank and hence the present petition is filed by this Applicant on 26/08/2011. The copy of the minutes of the meeting dated 26/08/2011 is attached herewith as Annexure - T.

…. …. ….”

The strength on which the Company prefers the Application under Section 14 of the Act is the Assignment Deed dated 4-02-2008. The schedule to the Assignment Deed is quoted supra. Schedule to the Application before the learned Magistrate is as follows:

“Schedule – B

All that piece and parcel of the Industrial land with buildings, structures, fittings and fixtures, thereon bearing plot no. 21- D in Sy. no. 34, Peenya Industrial area, Nallakadarnahalli, Yeshwanthpur Hobli, Bengaluru North taluk, Bengaluru district totally measuring an extent of one hectare and 2012 Sq. meters and bounded on the:

East by - KIADB Road

West by - Private Land

North by - Plot No.20(20 feet wide proposed village Road)

South by - Plot No.21-D1”

They are completely divergent. The survey number is changed and the extent is also changed. The assignment was for Plot No.21-D1 in Sl.No.34 measuring 2012 sq.mts. The possession order taken is for Plot No.21-D – one hectare and 2012 sq.mts. It is an admitted fact that the assignment has not been made in favour of the Company for one hectare but only for 2012 sq.mts. If the assignee is acting on the strength of the Assignment Deed it could not have gone beyond the Assignment Deed itself and sought to secure possession of the entire property of one hectare and 2012 sq.mts. Section 2(zd) of the Act defines a secured creditor.

13. An Asset Reconstruction Company whether acting as a Company or managing a Trust is also said to be a secured creditor. Section 5 deals acquisition of rights or interest in financial assets. Section 5 of the Act reads as follows:

“5. Acquisition of rights or interest in financial assets.—(1) Notwithstanding anything contained in any agreement or any other law for the time being in force, any asset reconstruction company may acquire financial assets of any bank or financial institution,—

(a) by issuing a debenture or bond or any other security in the nature of debenture, for consideration agreed upon between such company and the bank or financial institution, incorporating therein such terms and conditions as may be agreed upon between them; or

(b) by entering into an agreement with such bank or institution for the transfer of such financial assets to such company on such terms and conditions as may be agreed upon between them.

(1-A) Any document executed by any bank or financial institution under sub-section (1) in favour of the asset reconstruction company acquiring financial assets for the purposes of asset reconstruction or securitisation shall be exempted from stamp duty in accordance with the provisions of Section 8-F of the Indian Stamp Act, 1899 (2 of 1899):

Provided that the provisions of this sub-section shall not apply where the acquisition of the financial assets by the asset reconstruction company is for the purposes other than asset reconstruction or securitisation.

(2) If the bank or financial institution is a lender in relation to any financial assets acquired under sub-section

(1) by the asset reconstruction company, such asset reconstruction company shall, on such acquisition, be deemed to be the lender and all the rights of such bank or financial institution shall vest in such company in relation to such financial assets.

(2-A) If the bank or financial institution is holding any right, title or interest upon any tangible asset or intangible asset to secure payment of any unpaid portion of the purchase price of such asset or an obligation incurred or credit otherwise provided to enable the borrower to acquire the tangible asset or assignment or licence of intangible asset, such right, title or interest shall vest in the asset reconstruction company on acquisition of such assets under sub-section (1).

(3) Unless otherwise expressly provided by this Act, all contracts, deeds, bonds, agreements, powers of attorney, grants of legal representation, permissions, approvals, consents or no-objections under any law or otherwise and other instruments of whatever nature which relate to the said financial asset and which are subsisting or having effect immediately before the acquisition of financial asset under sub-section (1) and to which the concerned bank or financial institution is a party or which are in favour of such bank or financial institution shall, after the acquisition of the financial assets, be of as full force and effect against or in favour of the asset reconstruction company, as the case may be, and may be enforced or acted upon as fully and effectually as if, in the place of the said bank or financial institution, asset reconstruction company, as the case may be, had been a party thereto or as if they had been issued in favour of asset reconstruction company, as the case may be.

(4) If, on the date of acquisition of financial asset under sub-section (1), any suit, appeal or other proceeding of whatever nature relating to the said financial asset is pending by or against the bank or financial institution, save as provided in the third proviso to sub-section (1) of Section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) the same shall not abate, or be discontinued or be, in any way, prejudicially affected by reason of the acquisition of financial asset by the asset reconstruction company, as the case may be, but the suit, appeal or other proceeding may be continued, prosecuted and enforced by or against the asset reconstruction company, as the case may be.

(5) On acquisition of financial assets under sub-section (1), the asset reconstruction company, may with the consent of the originator, file an application before the Debts Recovery Tribunal or the Appellate Tribunal or any court or other Authority for the purpose of substitution of its name in any pending suit, appeal or other proceedings and on receipt of such application, such Debts Recovery Tribunal or the Appellate Tribunal or court or Authority shall pass orders for the substitution of the asset reconstruction company] in such pending suit, appeal or other proceedings.”

The Section permits an asset reconstruction Company to take over financial assets of any Bank or financial institution by way of execution of certain deeds. Sub-section (4) makes the Company which takes over to come into the shoes of the secured creditor. Sub-section (5) permits the Company to file an application before the Debts Recovery Tribunal or any other Court in its name in a pending proceeding or initiate a separate proceeding. Therefore, the existence of asset reconstruction company is statutorily recognized. The function of the asset reconstruction company is found in Section 10. It reads as follows:

“10. Other functions of asset reconstruction company.—(1) Any asset reconstruction company registered under Section 3 may—

(a) act as an agent for any bank or financial institution for the purpose of recovering their dues from the borrower on payment of such fees or charges as may be mutually agreed upon between the parties;

(b) act as a manager referred to in clause (c) of sub- section (4) of Section 13 on such fee as may be mutually agreed upon between the parties;

(c) act as receiver if appointed by any court or tribunal:

Provided that no asset reconstruction company shall act as a manager if acting as such gives rise to any pecuniary liability.

(2) Save as otherwise provided in sub-section (1), no asset reconstruction company which has been granted a certificate of registration under sub-section (4) of Section 3, shall commence or carry on, without prior approval of the Reserve Bank, any business other than that of securitisation or asset reconstruction:

Provided that a asset reconstruction company which is carrying on, on or before the commencement of this Act, any business other than the business of securitisation or asset reconstruction or business referred to in sub-section (1), shall cease to carry on any such business within one year from the date of commencement of this Act.

Explanation.—For the purposes of this section, asset reconstruction company does not include its subsidiary.”

Therefore, enforcement of security interest as obtaining under Section 13 of the Act can be at the hands of an assignee. In the case at hand the Bank, the assignor and the Company, the assignee and the agreement between the two for transfer of rights is the Assignment Deed. The Assignment Deed by the assignor to the assignee nowhere mentions one hectare and 2012 sq.mts. It only mentions 2012 sq.mts. It is this act of the respondent/Company that merited entertainment of the petitions as it was calling in question an order of the learned Magistrate which directs taking possession of one hectare and 2012 sq.mts. In the normal circumstances the petition of the kind would not be entertainable. As there is apparent statutory aberration by the assignee which is statutorily recognized the petition has merited entertainment.

14. The contention of the learned senior counsel for the respondent that other Banks have authorized the assignee to take over the other one hectare also and, therefore, the Company has acted according to such authorization would place the Company neither here nor there, as the birth of the Company is in terms of an Assignment Deed from the original lender. If such assignment had been made in terms of law by other Banks in favour of the Company, it would have been a circumstance altogether different. But, that is not the issue in the case at hand. It is an admitted fact that the assignment is only in terms of a deed dated 4-02-2008 quoted supra. It speaks only of 2012 sq.mts.

15. Yet another glaring circumstance is that during the pendency of the petition before the learned Magistrate, the original lender IFCI creates another Assignment Deed in favour of another reconstruction company – Phoenix ARC Limited and Phoenix ARC Limited enters into a OTC with the original borrower on 04-04-2022 and it appears that the original borrower has cleared entire dues with Phoenix ARC Limited. This would be an added circumstance against the Company, which the Company will have to now take note of and take proceedings further. The petitioners are entitled to succeed as the order of the learned Magistrate which brings one hectare and 2012 sq.mts. is completely contrary to the Assignment Deed. Therefore, reserving liberty to the Company to act in accordance with law, bearing in mind the observations made in the course of the order, the order of the learned Magistrate insofar as it permits possession of one hectare and 2012 sq.mts. is required to be annulled while permitting 2012 sq.mts. to be taken possession of in terms of the Assignment Deed.

16. For the aforesaid reasons, I pass the following:

O R D E R

(i) Writ Petitions are allowed in part.

(ii) The orders dated 26-03-2022, 06-07-2023 and 21.07.2023 passed by the XXXI Additional Chief Metropolitan Magistrate, Bengaluru in Criminal Miscellaneous No.5700 of 2021 are set aside, insofar as they concern granting of possession of one hectare and 2012 sq.mts. in Sy.No.34 of plot No.21-D, Peenya Industrial Area, Nallakadaranahalli, Yeshwantapur Hobli, Bangalore North Taluk and is restricted to 2012 sq.mts. in terms of the Assignment Deed 04-02-2008.

(iii) The 1st respondent/Company is at liberty to act in accordance with law, to take possession of one hectare as well, bearing in mind the observations made in the course of the order.

(iv) All other contentions of both parties remain open.