Tri partite agreement and enforcement of security aspects

'Tri-Party Agreement'- A tri-party agreement is a business agreement between three separate parties.

In mortgage industry, a contract involving the buyer, the primary lender plus a construction lender is called Tri-Party agreement. This type of contract is commonly used to secure bridge loans or if the project is under construction and builder wants payments in installments on the basis of construction agreement.

Tri-party agreements extend credit for construction to the buyer from the construction provider.

The primary lender disburses the sanctioned loans basis on the stages of construction and assumes full liability for the loan upon completion of the construction.

When a buyer purchases an under construction property from a property developer and avail a loan from the lenders (banks), the buyer, lender and builder are required to sign an agreement. This is often referred as Tri-Party Agreement also known as Tripartite Agreement.

This is one important piece of documents along with the other primary title documents such as sale agreement/allotment letter/ payment receipts. Tri -party agreement gives following rights to the parties-

1. For Builder - Builder as a seller confirms the sale of a particular property at certain price and the receipt of the consideration.
2. For Buyer- This agreement confirms the right of purchase at certain value, payment terms and the period of completion of project.
3. For Lender- This agreement is more important for the lender as if any terms/conditions are missed out. The lender must include following terms in TPA i.e

1. Right to lender to secure the disbursement.
2. The buyer cannot stop EMI in any case, even if construction has stopped Irrespective of the stage of construction of the Project and irrespective of the date of handing over the possession of the residential apartment to the Borrower by the Builder the Borrower shall be liable to pay to Bank/lender regularly each month the EMIs as laid down in the Loan Agreement to be signed by and between Bank and the Borrower.
3. No possession without registration of apartment Builder shall not hand over the actual and physical possession of the said flat/residential apartment to the Borrower before execution and registration of the said deed and the original registered sale deed shall be submitted to Bank directly by the Builder to be kept by Bank towards security for the said loan.
4. In case of default by borrower- buyer, right of cancellation of flat by builder and pay back /refund the disbursement amount with interest to the lender.

Legal position of enforcement of security created by TPA- Although while disbursing the loan lender is not having final document of title of property (proposed for purchase and under construction) and if borrower-buyer defaults in payment of PEMI of disbursed loan amount, a lender can enforce the security through civil court or SARFAESI. Following 2 judgements are supporting to the lender in case if borrower defaults.

DELHI HIGH COURT

Dilip Kumar Saha vs Punjab National Bank & Ors. on 27 September, 2011
Author: Sanjay Kishan Kaul
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of decision : 27.09.2011
+ WP (C) No.4186 of 2011
DILIP KUMAR SAHA ...PETITIONER
Through: Mr. Ashok Kumar Tiwari, Advocate
with Petitioner in person.

Versus

PUNJAB NATIONAL BANK & ORS. ...RESPONDENTS
Through: Mr. Vipin Jai, Advocate for
Respondents 1 to 4.

1. The petitioner, who was a Private Secretary in the Ministry of Finance, filed an application dated 23.12.2003 for seeking a term loan from the respondent-Bank to the tune of `13,41,000.00 for the purchase of flat No.39-C, Second Floor, Pocket-I, Rohini, Delhi- 110085. The loan was sanctioned and the petitioner executed various documents including the agreement for housing loan dated 11.2.2004 in terms whereof the petitioner was required to pay monthly installments of `11,950.00 in 216 monthly installments. The petitioner also executed a letter of authority of the even date authorizing the respondent Bank to debit the sum of the monthly installments from his bank account.

2. The petitioner defaulted in paying monthly installments which fact was admitted by the petitioner in its letter dated 23.11.2005 seeking indulgence. The bank responded by calling upon the petitioner to adhere to the financial discipline but despite various reminders the account was not regularized. It may be noticed that as per the agreement between the parties, the petitioner was required to deposit the original Conveyance deed with the respondent-Bank as and when it was executed by the DDA in favour of the petitioner. The petitioner put up a story that the original Conveyance Deed had got misplaced and thus sent a certified copy of that document vide letter dated 4.1.2006 in furtherance of the intention of creating a equitable mortgage. Since the original document was not being submitted, the respondent Bank lodged a criminal complaint with the Crime Branch on 14.2.2006. It is the say of the respondent-Bank that during the course of investigation it transpired that the petitioner had even tried to create a mortgage with some other bank which matter is under investigation. The petitioner had also availed of a personal loan with the Punjab National Bank.

3. The respondent-Bank faced with the defaulting account position declared the same as a NPA and decided to proceed against the secured asset under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as the „SARFAESI Act‟) as per a notice under Section 13(2) of the SARFAESI Act dated 10.2.2006. There were even subsequent notices addressed including to the guarantors, one of whom happened to be a Joint Secretary in the Ministry concerned. The guarantor also wrote a letter to the Crime Branch requesting for appropriate action against the petitioner for not handing over the original Conveyance Deed to the respondent-Bank as per conditions of sanction and also as per the Tri-Partite Agreement (for short „TPA‟) executed between the petitioner, the respondent-Bank and the DDA. The petitioner after objecting to the notice filed an appeal under Section 17 of the SARFAESI Act, being SA No.22/2006. The parties were given opportunity to lead evidence and this SA was dismissed with costs vide order dated 13.9.2007.

4. It is relevant to note that the plea advanced by the petitioner before the DRT was that a mortgage was never created. The respondent- Bank by citing various judgements established that there was intention to create an equitable mortgage and, in fact, the petitioner falsely withheld the original documents after having received the same and set up a false story of the document having been lost. Not only that, the petitioner sought to set up a case that he would have to pay interest only for a period of one (1) year. So much for the honesty of the petitioner!

5. The order of the DRT dated 13.9.2007 has at length dealt with the issue of the validity of the mortgage and has examined this aspect even from another perspective, i.e., even in the absence of the original Conveyance Deed, the property in question is a secured asset against which the respondent-Bank can proceed taking into consideration the definition of a Secured Asset, Secured Creditor, Secured Debt and Secured Interest as contained in the SARFAESI Act.

6. The order of the DRT was assailed by the appellant before the DRAT in Appeal No.169/2009 where, once again, the principal plea sought to be advanced, as noticed in the impugned order, was of the lack of any proper mortgage having been created arising from non-deposit of the original Conveyance Deed. This aspect again finds discussion in the impugned order with various judgements being referred to on the issue of creation of a valid mortgage. The appeal was dismissed vide impugned order dated 1.2.2011 of the DRAT.

7. It may be noticed that the property in question was auctioned, the auction purchaser has paid the whole amount and the property stands transferred to the auction purchaser though the original Conveyance Deed continued to remain in possession of the petitioner.

8. Before us learned counsel for the petitioner conceded that he is not seeking to challenge the validity of the mortgage but that the respondent-Bank did not act in accordance with law while seeking to enforce its "security interest". In this behalf it was firstly urged that the account was never declared NPA prior to the issuance of notice under Section 13(2) of the SARFAESI Act. We, however, find from the notice dated 10.2.2006 that there is a clear averment that the account of the petitioner was declared a NPA as per the Reserve Bank of India guidelines. It was next urged that the reason for the account to be declared a NPA has not been given. We find that reference has been made to repeated failures of the petitioner to pay the dues. The call notice issued by the counsel for the respondent-Bank dated 20.10.2005 has, in fact, been referred to in the notice under Section 13 (2) of the SARFAESI Act dated 10.2.2006. Linked to this aspect, a plea was raised that the petitioner deposited an amount of `30,000.00 on 30.12.2005, and therefore the account could be declared a NPA only if for three (3) months no payment had been made. The fact remains that the petitioner chose to deposit ad hoc amounts without adhering to the financial discipline of paying the installments due as per the agreement and there were continuous outstandings in the account.

9. Learned counsel for the petitioner also sought to make out a grievance about the mode and manner in which the auction was carried out and the property was sold to the auction purchaser. A grievance was also made to the effect that his representation under Section 13 (3A) of the SARFAESI Act was not disposed of. Suffice it to say that not only are these without any merit but the petitioner did not even choose to raise any such pleas in the forums below nor have they been discussed in the impugned order. We are examining the legality and the validity of the orders passed by the DRT and the DRAT under Article 226 of the Constitution of India and not as an appellate authority. This is not a second appeal. An order must be perverse or causing grave injustice for this Court to exercise its extraordinary jurisdiction. The facts of the case show that it is the petitioner who has led the respondent-Bank up the garden path by procuring the original Conveyance Deed from the DDA and not having it deposited with the respondent-Bank contrary to the TPA executed between the parties. He initially sought to take advantage of this fact by claiming that there was no mortgage created since the original document was still in his possession. This plea has been repelled by both the forums below not only on the aspect of creation of mortgage but for the fact that the respondent- Bank had a "security interest" in the property so as to invoke the provisions of the SARFAESI Act.

10. The petitioner is stated to be no more in Government service as he has been removed from service in 2007, an action which is stated to be under challenge in an appeal filed by him. Suffice it to say that such a conduct is not expected of a person who served with the Government of India.

11. We find the writ petition without any merit and hence is dismissed with costs of `20,000.00 to the respondent- Bank to be paid within fifteen (15) days.

12. We may notice at the end that the original title documents relating to the property in question have been deposited in this Court as per our directions, the same be released to the respondent-Bank to be handed over to the auction purchaser.

SANJAY KISHAN KAUL, J.
CASE NO 2- DELHI HIGH COURT
Sandeep Kumar vs Housing Development Finance ... on 25 August, 2015
IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of decision: August 25, 2015
RFA(OS) 50/2015
SANDEEP KUMAR ..... Appellant
Represented by: Mr.N.S.Dalal and Mr.Devesh
Pratap Singh, Advocates.

Versus

HOUSING DEVELOPMENT FINANCE
CORPORATION LIMITED & ANR ..... Respondents
Represented by: Mr.Ajay Saroya, Advocate for
Respondent No.1.

1. Aggrieved by the order dated March, 11, 2015 dismissing the leave to defend application under Order XXXVII Rule 3 (5) CPC filed by the appellant Sandeep Kumar in the suit being CS(OS) No.2502/2012 filed by respondent No.1 Housing Development Finance Corporation Ltd. (in short 'HDFC Ltd.') under Order XXXVII CPC, Sandeep Kumar prefers the present appeal.

2. In the suit HDFC Ltd. pleaded that while it is engaged in the business of granting loans, especially housing loans, Sandeep Kumar and defendant No.2 M/s Golf Course Sahkari Awas Samiti Limited (in short 'M/s Golf Course') jointly approached to avail the housing loan for Sandeep Kumar for purchase of Flat No.3022, Second Floor, Shivkala Charms, Plot No.7, Sector PI-II, Greater Noida, Uttar Pradesh (in short 'the flat') in the apartments bythe name of 'Shiv Kala Charms' being constructed by M/s Golf Course. According to HDFC Ltd. Sandeep Kumar had represented to HDFC Ltd. that he had satisfied about the integrity and capability of M/s Golf Course to complete the project on time and thus a Tripartite Agreement was entered between HDFC Ltd., Sandeep Kumar and M/s Golf Course pursuant whereafter a loan agreement was entered into between HDFC Ltd. and Sandeep Kumar.

3. M/s Golf Course vide their letter dated March 10, 2011 also marked lien of HDFC Ltd. on the flat. Based on the representation of Sandeep Kumar, duly consented and acknowledged by M/s Golf Course, HDFC Ltd. sanctioned a sum of `22 lakhs as loan to Sandeep Kumar for the flat. Out of the total amount of `22 lakhs a sum of `20,35,000/- was disbursed to Sandeep Kumar and a cheque dated March 15, 2011 drawn on HDFC Bank, Surya Kiran Building was issued in favour of M/s Golf Course. The said disbursement in favour of M/s Golf Course was authorised by Sandeep Kumar. Sandeep Kumar also executed a Promissory Note dated March 15, 2011 for the sanctioned sum of `22 lakhs in favour of HDFC Ltd. besides an Indemnity Bond on March 25, 2011. Vide the Indemnity Bond Sandeep Kumar agreed to complete the disbursal under the loan on account of Sandeep Kumar to M/s Golf Course.

4. As per the Tripartite Agreement the loan was payable by Sandeep Kumar by way of equated monthly instalments (EMI) or Pre-equated instalments (PEMI) irrespective of the stage of construction of the project and the date of handing over the possession of the flat. Under the Tripartite Agreement Sandeep Kuamr further agreed to secure HDFC Ltd. by mortgaging the flat to it and M/s Golf Course agreed and confirmed themortgage created by Sandeep Kumar. M/s Golf Course also undertook not to create any third party rights or security interest whatsoever on the flat without prior written consent of HDFC Ltd. As per the Tripartite Agreement it was also agreed that in case of default in payment of loan to HDFC Ltd. by Sandeep Kumar, any amount payable by M/s Golf Course to Sandeep Kumar on account of cancellation of allotment of flat shall be paid directly to HDFC Ltd. by M/s Golf Course. However, the same shall not absolve Sandeep Kumar from his liability to pay the residual amount outstanding under the loan agreement.

5. It is the case of HDFC Ltd. in the plaint that the last payment made by Sandeep Kumar towards repayment of loan was dated October 05, 2011 and thereafter no amount was paid except that just before the filing of the suit a further a sum of `38,606/- was paid. The outstanding dues not having been repaid HDFC Ltd. sent a loan recall notice dated March 06, 2012 recalling the loan and demanding its outstanding amount as on the date of notice however, Sandeep Kumar failed to pay the sum. When HDFC Ltd. sent a demand notice to M/s Golf Course on April 27, 2012 to refund the amount owed by Sandeep Kumar directly to it even M/s Golf Course failed to refund the amount to be adjusted against the loan account of Sandeep Kumar. Thus according to HDFC Ltd. the principal amount of `20,10,678/- coupled with EMI, additional interest and incidental charges, amounting to `20,36,857/- was due. On the strength of the Loan Agreement, Promissory Note and Indemnity Bond the suit under Order XXXVII CPC was filed by HDFC Ltd.

6. In the leave to defend application filed by Sandeep Kumar it was pleaded that in terms of the Tripartite Agreement, loan amount was paid by HDFC Ltd. directly to M/s Golf Course towards payment of flat purchasedby Sandeep Kumar. Later Sandeep Kumar came to know about serious dispute of M/s Golf Course with Noida Authority and that a serious fraud was going on in the society. Thus Sandeep Kumar surrendered his allotment which was accepted by M/s Golf Course vide its letter dated March 20, 2012.

7. It is case of Sandeep Kumar that M/s Golf Course having accepted its liability to return the loan amount, he had no liability to pay to HDFC Ltd. Since as per the Tripartite Agreement dated March 10, 2011 it was agreed that in case of default in repayment of loan to HDFC Ltd. by Sandeep Kumar, on account of cancellation of allotment of flat or for any other reason whatsoever loan amount shall be refunded directly to HDFC Ltd. by M/s Golf Course, thus HDFC Ltd. is disentitled to reclaim the loan from Sandeep Kumar. It was pleaded that there is no default of any nature on account of Sandeep Kumar and the liability, if any, is of M/s Golf Course. It was further pleaded that this Court had no jurisdiction to try the case as the subject matter of the property was in Noida.

8. The learned Single Judge vide the impugned order noted that the controversy in the suit centres around clauses 10 and 11 of the Tripartite Agreement and a conjoint reading of the clauses of the Agreement would show that it was at the request of Sandeep Kumar that HDFC Ltd. granted a loan of `22 lakhs. There was an unconditional undertaking given by Sandeep Kumar that there would be no repayment default for any reason whatsoever including any issue between Sandeep Kumar and M/s Golf Course. Irrespective of the stage of construction, Sandeep Kumar was liable to pay HDFC Ltd. regularly the EMIs as laid down in the loan agreement. Thus Sandeep Kumar was solely responsible to repay the amount. Even asper the House Loan Agreement executed exclusively between HDFC Ltd. and Sandeep Kumar it was the liability of Sandeep Kumar to repay the loan in 240 months of EMI of `20,868/-. Though observing that this was the case where M/s Golf Course appears to have duped Sandeep Kumar and disappeared after taking money from the investors, learned Single Judge came to the conclusion that no case for grant of leave to defend was made out as no triable issue is made out and thus dismissed the leave to appeal application and decreed the suit.

9. Before this Court the learned counsel for Sandeep Kumar urges that HDFC Ltd. itself contends in the reply to leave to defend application that Sandeep Kumar was duped by M/s Golf Course which fact has found favour even with the learned Single Judge, thus leave to defend ought to have been granted to him and the suit proceeded on merit. The liability, if any, is of M/s Golf Course and not of Sandeep Kumar and thus triable issues having been raised, leave to defend ought to have been granted by the learned Single Judge.

10. We have heard learned counsel for the parties.

11. Legal position as to the grant of leave to defend in a suit under Order XXXVII CPC was laid down by the Supreme Court in the decision reported as 1976 (4) SCC 687M/s Mechelec Engineers & Manufacturers vs.M/s Basic Equipment Corporation, as under:

8.In Smt. Kiranmoyee Dassi and Anr. v. Dr. J. Chatterjee49 C.W.N. 246 , Das. J., after a comprehensive review of authorities on the subject, stated the principles applicable to cases covered by order 17 C.P.C. in the form of the following propositions (at p. 253):

(a) If the Defendant satisfies the Court that he has a good defence to the claim on its merits the plaintiff is not entitled to leave to sign judgment and the Defendant is entitled to unconditional leave to defend.

(b) If the Defendant raises a triable issue indicating that he has a fair or bona fide or reasonable defence although not a positively good defence the plaintiff is not entitled to sign judgment and the Defendant is entitled to unconditional leave to defend.

(c) If the Defendant discloses such facts as may be deemed sufficient to entitle him to defend, that is to say, although the affidavit does not positively and immediately make it clear that he has a defence, yet, shows such a state of facts as leads to the inference that at the trial of the action he may be able to establish a defence to the plaintiff's claim the Plaintiff is not entitled to judgment and the Defendant is entitled to leave to defend but in such a case the Court may in its discretion impose conditions as to the time or mode of trial but not as to payment into Court or furnishing security.

(d) If the Defendant has no defence or the defence set up is illusory or sham or practically moonshine then ordinarily the Plaintiff is entitled to leave to sign judgment and the Defendant is not entitled to leave to defend.

(e) If the Defendant has no defence or the defence is illusory or sham or practically moonshine then although ordinarily the Plaintiff is entitled to leave to sign judgment, the Court may protect the Plaintiff by only allowing the defence to proceed if the amount claimed is paid into Court or otherwise secured and give leave to the Defendant on such condition, and thereby show mercy to the Defendant by enabling him to try to prove a defence.

12. Before proceeding further it would be appropriate to note the terms of the Tripartite Agreement. The relevant clauses are reproduced as under:

"3. The housing loan advanced to the borrower by HDFC shall be repayable by the borrower by way of Equated Monthly Instalments (EMI). The date of commencement of EMI shall be the first day of the month following the month in which the disbursement of the loan will have been completed and consequently the due date of payment of first EMI shall in such a case be the last day of the said following month. Till the commencement of EMI the borrower shall pay Pre-EMI, which is the simple interest on the loan amount disbursed calculated at the rate of interest as mentioned in the respective loan agreement of the Borrower.

4. That irrespective of the stage of construction of the Project and irrespective of the date of handing over the possession of the residential apartment to the Borrower by the Builder the Borrower shall be liable to pay to HDFC regularly each month the EMIs as laid down in the Loan Agreement to be signed by and between HDFC and the Borrower. The Borrower shall execute an indemnity and such other documents as may be required by HDFC in favour of HDFC in this regard.

5. The Borrower shall ensure to pay to the Builder his own contribution in full i,e the cost of the flat minus the loan amount being disbursed by HDFC before availing of the disbursement from HDFC.

8. That if the Borrower fails to pay the balance amount representing the difference between the loan sanctioned by HDFC and the actual purchase price of the flat/residentialapartment, or in the event of death of the Borrower or in the event of cancellation of the residential apartment for any reason whatsoever the entire amount advanced by HDFC will be refunded by the Builder to HDFC forthwith. The Borrower hereby subrogates all his rights for refund with respect to the said residential apartment in favour of HDFC.

9. Further if the Borrower commits a breach of any of the terms and conditions of this Tripartite Agreement it shall be treated as an event of default under the Agreement for Sale/Allotment cum Agreement for sale or any such agreement or document signed by and between the Borrower and the Builder for the sale of the said residential apartment.

That in the event of occurrence of default under the Loan Agreement which would result in the cancellation of the Allotment as a consequence thereof and/or for any reason whatsoever if the allotment is cancelled, any amount payable to the Borrower on account of such cancellation shall be directly paid to HDFC. However it is further agreed between the Parties that such payment made by the Builder directly to HDFC shall not absolve the Borrower from his liability to pay the residual amount, if any, from the outstanding under the Loan Agreement.

That the Borrower agrees that it unconditionally and irrevocable subrogates its right to receive any amount payable by the Builder to the Borrower in the event of cancellation in favour of HDFC and that the act of payment by the Builder to HDFC under this clause shall amount to a valid discharge of the Builder of its obligation to pay the Borrower such cancellation amount.

Further that the parties agree that the Builder shall in no circumstances forfeit any amount over and above the amount equivalent to the Borrowers contribution towards the purchase consideration paid to the Builder. Borrower's contribution for the purpose of this clause shall mean and include the difference between the total cost of the residential apartment and the Loan amount as mentioned above.

10. Further, the Builder, in the in the event of default of repayment as mentioned in clause 2 and 3 here in above, shall on intimation by HDFC cancel the allotment of the residential apartment in favour of the borrower and refund all monies to HDFC directly under intimation to the borrower for appropriation and adjustment by HDFC against all monies due to it from the Borrower as mentioned above.

11. The Builder also confirms and undertakes that it shall submit to HDFC all documents for the Project as requested by HDFC and shall keep HDFC informed of the progress of the project and shall obtain a clearance from HDFC before handing over possession of the respective apartment to the borrower."

13. Further as per the Indemnity Bond executed by Sandeep Kumar he agreed to indemnify HDFC Ltd. at all times for all/any loss that may be a direct or remote consequence of and/or arising out of any dispute between the Indemnifier and the Builder subsequent to HDFC Ltd.'s disbursing the entire loan amount to the Builder at the request and under the written instruction of the Indemnifier.

14. Even if M/s Golf Course was to return the money directly to HDFC Ltd. and M/s Golf Course having not done so, the same does not absolve Sandeep Kumar of his liability. In the light of the clauses noted above and the indemnity bond, it is evident that Sandeep Kumar took upon himself the responsibility of indemnifying HDFC Ltd. and now he cannot revert back tosay that it was the responsibility of M/s Golf Course to repay and thus HDFC Ltd. should recover the said amount from M/s Golf Course. This is an issue inter se Sandeep Kumar and M/s Golf Course for which HDFC Ltd. has no concern.

15. Regarding the issue raised in the leave to defend application that no cause of action took place at Delhi it may be noted that Sandeep Kumar a defendant in the suit is a resident of Delhi, thus this Court has territorial jurisdiction to entertain the suit.

16. No triable issue having been raised, the learned Single Judge committed no error in declining to grant the leave to defend.

17. Appeal is dismissed.

CM No.9071/2015 (Stay) Application is dismissed as infructuous.

(MUKTA GUPTA)
JUDGE

(PRADEEP NANDRAJOG)
JUDGE