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Co-operative banks and sarfaesi act.

(Querist) 21 March 2012 This query is : Resolved 
Whether Co-operative Banks are well within the purview of Bank as defined under BR Act ? Whether Co-operative bank can exercise their rights as secured creditor to enforce security without adopting measures of court and exercising their rights under Securitization & Reconstruction of Financial Institution and Enforcement of Security Interest Act, 2002 (in short SARFAESI Act) ? Is there any authority / settled law in above regard ? please guide.
Guest (Expert) 21 March 2012
Irrespective of whether a bank is cooperative, private or public, every bank is regulated by the same banking laws.
ajay sethi (Expert) 21 March 2012
notification dated 28.1.2003 issued by the Central Government whereby the Co-operative Banks were brought within the purview of the SARFAESI Act
ajay sethi (Expert) 21 March 2012
The

challenge to the validity of the notification dated 28.1.2003 issued by the Central Government bringing the Co-operative Banks within the purview of the SARFAESI Act is pending for consideration before the Supreme Court in M/s Khaja Industries vs. State of Maharashtra & Anr. in Special Leave to Appeal (Civil) No(s). 17573 of 2007 and analogous cases,
ajay sethi (Expert) 21 March 2012
IN THE HIGH COURT OF DELHI AT NEW DELHI
SUBJECT : SUIT FOR DECLARATION
Judgment Reserved on: 24th February, 2011
Judgment Pronounced on: 28th February, 2011
CS(OS) No. 2305/2010
SUSHMA SURI & ANR. ..…Plaintiffs
- versus -
MAHAMEDHA URBAN
COOPERATIVE BANK LTD. & ORS .....Defendants

Advocates who appeared in this case:
For the Plaintiff: Mr. Pradeep K. Bakshi and Mr. Rajat
Navet, Advs.
For the Defendant: Mr. Gautam Awasthi and Mr. Achal
Sirohi, Advs. for D-1 Bank.
Mr. P.S.Bindra, Adv. for D-2.
Mr. Rabin Majumder with
Mr. K.Lingaraja, Adv. for D-3 and 4.
CORAM:-
HON’BLE MR JUSTICE V.K. JAIN
V.K. JAIN, J
IA No. 17596/2010 (O.7 R.11 CPC filed by defendant No.1 for dismissal of
suit)
1. This is a suit for declaration and injunction. Defendant No.2 – Shakuntla
Rani Raizada was the owner of property No.E-9, Kalindi Colony, New
Delhi. Vide sale deed executed on 27.2.2009, she sold the first and second
floor of the aforesaid property to defendant No.3 – Smt. Sarita Gupta. In the
first week of April, 2009, defendant No.3 who is the proprietor of defendant
No.4 – Rashtriya Import Export Inc. approached defendant No.1 –
Mahamedha Urban Co-opeative Bank Ltd. which is a cooperative bank, for grant of cheque and draft purchasing limits of Rs.2 crores and mortgaged the
first and second floor of property No.E-9, Kalindi Colony, New Delhi, with
the bank as collateral security, by deposit of title deeds. She also executed
various loan documents in favour of defendant No.1. She, however, failed
to pay the dues of the bank and a sum of Rs.1,03,45,000/- is stated to be due
from her to the bank as on 30.6.2010.
2. IA 17596/2010 has been filed by defendant No.1 under Order 7 Rule 11
of CPC seeking rejection of the plaint/dismissal of the suit in view of the
provisions contained in Section 34 of SARFEASI Act on the ground that
civil court has no jurisdiction to entertain the present suit.
3. The application has been opposed by the plaintiffs and they have alleged
that defendant No.1 in connivance with other defendants is guilty of
committing fraud on the plaintiffs. They have claimed that the issue of
fraud can be adjudicated only by a civil court and not by Debt Recovery
Tribunal.
4. In the present suit, the plaintiffs are seeking a declaration that the
mortgage/charge created by defendant No.3 in favour of defendant No.1
bank with respect to the second floor of property No.E-9, Kalindi Colony,
New Delhi, is illegal, fraudulent and void ab initio. They are also seeking
declaration that defendant No.1’s notice dated 22.10.2010 purporting to take
possession of the aforesaid portion of the building is illegal and void ab
initio. They have also sought injunction restraining defendant No.1 from
taking any action with respect to the aforesaid portion of the suit property.
5. Defendant No.2 - Shakuntla Rani Raizada filed a civil suit being CS(OS)
No.1004/2009 against defendant No.3 – Sarita Gupta and one Mr. Sunil
Bhat for cancellation of the sale deed dated 27.2.2009 and for a declaration
that the sale deed executed by her was void and illegal. Defendant No.1 was
not made a party to the suit. In that suit, a compromise application being IA
8494/2009 was filed by the parties to that suit whereby they agreed to get the
sale deed dated 27.2.2009 cancelled and also agreed that defendant No.3
would have no right, title or interest in the first and second floor of the above
referred building. The suit was decreed in terms of the compromise between
the parties to the suit. The plaintiffs claim to have purchased the second
floor of property No.E-9, Kalindi Colony, from defendant No.2 Shakuntla
Rani Raizada vide sale deed dated 7.5.2010. 6. Since defendant No.3 had defaulted in repayment of the dues of the bank,
action was initiated against her under the provisions of Securitization and
Reconstruction of Financial Assets and Enforcement of Security Interest
Act, 2002 (hereinafter referred as “SARFEASI Act”). A notice dated
31.7.2010 under Section 13(2) of the Act was issued by the bank to
defendant No.4. Since defendant No.3 who is the proprietor of defendant
No.4 failed to make payment even after notice, the bank initiated measures
under Section 13(4) of the Act and took symbolic possession of the
mortgaged property vide notice dated 22.10.2010 and notice of symbolic
possession was also published in newspapers.
7. The term ‘bank’ has been defined in Section 2(1) (c) of the Act, which
reads as under:-
2.(1)(c) “bank” means -
(i) a banking company; or
(ii) a corresponding new bank; or
(iii) the State Bank of India; or
(iv) a subsidiary bank; or
(v) such other bank which the Central Government may, by notification,
specify for the purposes of this Act.
It would thus be seen that Central Government may notify any bank
even if it is not a banking company, a corresponding new bank, State Bank
of India or a subsidiary bank.
8. Vide S.O. 105(E), dated 28th January, 2003, published in the Gazette of
India, Extra., Pt. II, Sec. 3(ii), dated 28th January, 2003, Central
Government has specified cooperative banks as defined in clause (cci) of
Section 5 of Banking Regulations Act, 1949 as bank within the meaning of
Section 2(1)(c) of SARFEASI Act. This notification finds reference in the
decision of Supreme Court in Greater Bombay Coop Bank Ltd. V. United
Yarn Tex (P) Ltd and others, (2007) 6 SCC 236. Admittedly, defendant
No.1 is a cooperative bank. In view of the abovereferred notification,
defendant No.1 is also a bank for the purpose of SARFEASI Act.
Hetalkumar (Querist) 21 March 2012
As the matter is still subjudice with the Hon'ble Supreme Court under the tag of M/s. Khaja Industries V/s. UOI and have not yet decided. Thank you to both of you for your esteemed support. But I heard about one Mr. Bharat Gandhi from Maharshtra Bar, who had availed stay against the proceedings under SARFAESI Act restraining recovery action of Co-operative Bank under SARFAESI Act. I have also heard that Gujarat High Court had recently pronounce the applicability of SARFAESI Act to the Co-operative Banks. Whether it is in your knowledge ? please share the same. Thanking you.


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