Absence Of Registered Notice Of Pendency Does Not Render Lis Pendens Inapplicable: SC On Maharashtra Amendment To Section 52 TP Act

The Court clarified that while it may preclude a party from claiming the benefit of the doctrine as a matter of right, it does not grant a third party an absolute right to assert its inapplicability. The Bench had to determine whether the absence of any registration of the notice of pendency in accordance with Section 52 of the Transfer of Property Act, 1882 (TPA) as amended by the State of Maharashtra renders the lis pendens inapplicable.

The Bench of Justice J.B. Pardiwala and Justice Manoj Misra explained, “Although, the said provision is for the benefit of the third-party, yet such subsequent purchasers cannot as a matter of absolute right claim any title to such property solely on the ground of want of any notice of pendency being registered. To hold otherwise would undermine the object and purpose of the doctrine of lis pendens which is based on the principle of equity, good conscience, and public policy and discourage any thwarting or frustration of rights of the parties so litigating by unscrupulous and unanticipated transactions.”

Senior Advocates Mukul Rohatgi, Neeraj Kishan Kaul and Raju Ramachandran represented the Petitioner, while Senior Advocates A.M. Singhvi, Parag Tripathi, Nikhil Nayar, Devadatt Kamat, Kapil Sibal and Chander Uday Singh appeared for the Respondent.

The Original Borrower (Respondent) availed a Lease Rental Discounting (LRD) credit facility from the Union Bank of India (Bank), secured by a simple mortgage over a parcel of land. After defaulting on loan repayments, the Borrower’s LRD Term Loan Account was classified as a Non-Performing Asset (NPA), prompting the Bank to initiate proceedings under the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest (SARFAESI) Act, 2002.

Aggrieved by the Bank’s actions, the Borrower filed a Securitization Application under Section 17 of the SARFAESI Act before the Debt Recovery Tribunal (DRT). Meanwhile, the Bank proceeded to auction the Secured Asset, with Celir LLP (Petitioner) emerging as the highest bidder. Realizing that the asset was about to be sold, the Borrower filed an Interlocutory Application seeking to redeem the mortgage by paying the total outstanding amount against the LRD Term Loan.

The Subsequent Transferee/Third Party Purchaser submitted that when it tendered the entire consideration for the Secured Asset, there was admittedly neither any lis pendens in respect of the property registered as per due diligence conducted nor had the Petitioner acquired any rights to the said property. He submitted that as per the State amendment to Section 52 of the TPA lis pendens will not apply if a notice is not registered. He submitted that the consequence of this omission in registration would be that lis pendens will not apply.

The Supreme Court noted that the Subsequent Transferee had canvassed that it was a bona-fide third party purchaser of the Secured Asset since it was neither arrayed as a party to proceedings in the Main Appeals nor issued a notice of the said proceedings either by the Petitioner or by the Bank. The Bench in the Main Appeals had confirmed the sale in favour of the Petitioner and brought the auction proceedings to its logical conclusion by directing the issuance of the sale certificate

“The Borrower pursuant to the aforesaid order of the High Court redeemed the mortgage and transferred the said property to the Subsequent Transferee herein on the very same day by executing the aforesaid Assignment Agreement…Thus, admittedly, when the mortgage was redeemed and the Secured Asset was transferred to the Subsequent Transferee by way of the Assignment Agreement, Special Leave Petition challenging the exercise of such right of redemption was already filed and pending before this Court,” the Court noted.

The Court referred to its decision in M/s Siddamsetty Infra Projects Pvt. Ltd. v. Katta Sujatha Reddy, wherein the Apex Court held that doctrine of lis pendens kicks in the moment a proceeding is instituted/filed irrespective of whether such filing is still defective or notice is yet to be issued by the Court.

Relying on the same, the Bench held, “Since, in the present case the Special Leave Petitions were already instituted and pending before the date of execution of the Assignment Agreement for the transfer of the Secured Asset in favour of the Subsequent Transferee, the said Assignment Agreement and the transfer thereto is beyond a shadow of doubt hit by lis pendens.”

Explaining the additional requirement of registration of notice of pendency, the Bench stated that it was for the benefit of the party claiming any right in such subject-matter property and also for the benefit of any third-party interested in such subject-matter property by enabling the former to claim the benefit of lis pendens as an absolute right after having duly taken steps towards ensuring that the public is well-aware of the impeding litigation in respect of such property by registering a notice of pendency and to enable the latter to ascertain the veracity of title of such property by exercise of its due diligence.

Consequently, the Court held that “in the absence of a registered notice of pendency in terms of the amended Section 52 of TPA the said provision will not be rendered ipso-facto inapplicable, at best it would preclude the party seeking benefit of this doctrine to claim it as a matter of right, but by no stretch would it mean that the third-party conversely would be able to as matter of absolute right claim inapplicability of this doctrine. It would be the discretion of the courts to see keeping in mind the peculiar facts of the case to ascertain whether such doctrine ought to be applied or not.”

Cause Title: Celir LLP v. Sumati Prasad Bafna & Ors. (Neutral Citation: 2024 INSC 978)

Appearance:

Petitioner: Senior Advocates Mukul Rohatgi, Neeraj Kishan Kaul and Raju Ramachandran; Advocates Shyel Trehan, Gaurav Y., Krushi Barfiwala, Divyanshu Gupta, Shivalika Rudrabatla, Apoorva Singh, Ira Mahajan, Keshav Sehgal and Sachindra Karn; AOR Pranav Sarthi and O. P. Gaggar

Respondent: Senior Advocates A.M. Singhvi, Parag Tripathi, Nikhil Nayar, Devadatt Kamat, Kapil Sibal and Chander Uday Singh; Advocates Avishkar Singhvi, Shreeyash Uday Lalit, Sanam Tripathi, Sugandha Batra, Priyansha Sharma, Arushi Mishra, Shreyash Choudhary, Runjhun Garg, Himanshu Vats, Angad Pahal, Lavam Tyagi, Sumeet Lal, Sidhant Kapoor, Masoom Shah, D. Girish Kumar, Jay Nirupam, Pranav Giri, Ekansh Sisodia, A.M. Harsavardhini, Sumedha Ray Sarkar, Rupali Francesca Samuel and Palak Rawat; AOR Ishaan George and Shubhranshu Padhi

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