HILL PROPERTIES LTD.versusUNION BANK OF INDIA AND OTHERS

                      [2013] 10 S.C.R. 89


                  HILL PROPERTIES LTD.                                A
                             v.
           UNION BANK OF INDIA AND OTHERS
              (Civil Appeal No. 7939 of 2013)
                    SEPTEMBER 11, 2013
                                                                      B
      [K.S. RADHAKRISHNAN AND A.K. SIKRI, JJ.]

       Transfer of Property - Multi-storeyed flats - Flats
 purchased by members of Cooperative Society or
 shareholders of Company - Right, title, interest over such flat      C
 - Nature of - Held: It is a species of property, whether that
 right has been accrued under the provisions of the Articles
 of Association of a Company or through the bye-laws of a
 Cooperative Society- It cannot be said that flat owners cannot
 sell, let, hypothecate or mortgage their flat for availing of loan   D
 without permission of the builder, Society or the Company -
 The right of transfer of land is incidental to the right of
 ownership and such a right can be curtailed or taken away only
 by reason of a Statute - The Articles of Association of a
 Company have no force of a Statute and consequently on               E
 facts, right of Respondent No.5 to mortgage could not have
 been restricted by the Articles of Association - Neither the
  Companies Act nor any other statute make any provision
 prohibiting the transfer of species of interest to third parties
 or to avail of loan for the flat owners' benefit - A legal bar on    F
 the saleability or transferability of such a species of interest
 will create chaos and confusion - The right or interest to
 occupy any such flat is a species of property and hence has
 a stamp of transferability and consequently no error with the
 warrant of attachment issued by the ORT on the flat in
                                                                      G
·question.

     The Appellant-company claims to be the owner of the
flat in question. Respondent No.5 is a shareholder of
appellant-Company holding one "A" equity share. The
                                89
    90      SUPREME COURT REPORTS            [2013] 10 S.C.R.


A   flat was allotted to· Respondent No.5 which was holding
    the Share Certificate. Respondent No.5, being an
    associate of Respondent-: no.2, created an equitable
    mortgage to secure dues of Respondent No.2 to
    Respondent no.1-bank by depositing the Share
B   Certificate. Respondent no.1- Bank filed suit for recovery
    of the dues and also for enforcement of the security. The
    Debt Recovery Tribunal (ORT) passed an order of
    attachment in respect of the flat in question.

      The question arose as to whether the property
C which was mortgaged to the Bank and the right of
  Respondent No.5 upon it could be attached and sold in
  execution of a decree.

       On behalf of the appellant, it was submitted that
D Respondent No.5 was only a shareholder of appellant-
  Company and hence only permitted to use and occupy
  one of the flats owned by the Company and all the rights,
  title and interest in respect of the flat in question
  exclusively vested in the Company; and that Respondent
E No.5 being a shareholder, was bound by the provisions
  of Articles of Association of the appellant-Company and
  could not have mortgaged the suit flat without the
  permission of appellant-Company.

         Dismissing the appeals, the Court
F
       HELD: 1.1. The right, title, interest over a flat
  conveyed is a species of property, whether that right has
  been accrued under the provisions of the Articles of
  Association of a Company or through the bye-laws of a
G Cooperative Society. The people in this country,
  especially in urban cities and towns are now accustomed
  to flat culture, especially due to paucity of land. Multi-
  storeyed flats are being constructed and sold by
  Companies registered under the Companies Act as well
H as the Cooperative Societies registered under the
 HILL PROPERTIES LTD. v. UNION BANK OF INDlA              91

Registration of Cooperative Societies Act, etc. Flats are       A
being purchased by people by either becoming members
of the Cooperative Society or shareholders of the
Company and the flat owners have an independent right
as well as the collective right over the flat complex. Flat
owners' right to dispose of its flat is also well recognized,   B
and one can sell, donate, leave by will or let out or
hypothecate his right. These rights are even statutorily
recognized by many State Legislatures by enacting
Apartment Ownership Acts. Such a legislation exists in
the State of Maharashtra as well. [Para 10] [96-E-H]            C
     1.2. Most of the flat owners purchase the flat by
availing of loan from various banking institutions by
mortgaging their rights over the purchased flat. By
purchasing the flat, the purchaser, over and above his
species of right over the flat, will also have undivided D
interest in the common areas and facilities, in the
percentage as prescribed. Flat owners will also have the
right to use the common areas and facilities in
accordance with the purpose for which they are
 intended. It is too late in the day to contend that flat E
owners cannot sell, let, hypothecate or mortgage their flat
for availing of loan without permission of the builder,
Society or the Company. So far as a builder is concerned,
the flat owner should pay the price of the flat. So far as
the Society or Company in which the flat owner is a F
member, he is bound by the laws or Articles of
Association of the Compa11y, but the species of his right
over the flat is exclusively that of his. That right is always
transferable and heritable. Of course, they will have
charge over the flat if any amount is due to them upon G
the flat. [Para 11] [97 -A-D]

     1.3. The right of transfer of land indisputably is
incidental to the right of ownership and such a right can
be curtailed or taken away only by reason of a Statute.
The Articles of Association of a Company have no force          H
    92      SUPREME COURT REPORTS            [2013} 10 S.C.R.


A   of a Statute and the right of Respondent No.5 to
    mortgage could not have been restricted by the Articles
    of Association. [Para 13] [98-B-C]
         1.4. Neither the Companies Act nor any other statute
    make any provision prohibiting the transfer of species of
8
    interest to third parties or to avail of loan for the flat
    owners' benefit. A legal bar on the saleability or
    transferability of such a species of interest will create
    chaos and confusion. The right or interest to occupy any
    such flat is a species of property and hence has a stamp
C   of transferability and consequently there is no error with
    the warrant of attachment issued by the ORT on the flat
    in question .. [Para 14] [98-D-E]
        Ramesh Himatlal shah Vs. Harsukh Jadhavji Joshi
D   (1975) 2 SCC 105: 1975 (0) Suppl. SCR 270 and DLF Qutub
    Enclave Complex Educational Charitable Trus Vs. State of
    Haryana (2003) 5 sec 622: 2003 (2) SCR 1 - relied on.

        Banch F. Guzdar, Bombay Vs. Commissioner of Income
    Tax, Bombay (1955) 1 SCR 876; Vodafone International
E   Holdings B. V. Vs. Union of India & Anr. (2012) 6 SCC 613:
    2012 (1) SCR 573 - cited.
                          Case Law Reference:
         (1955) 1 SCR 876            cited          Para 7
F
         2012 (1) SCR 573            cited          Para 7
         1975 (0) Suppl. SCR 270     relied on      Para 7
         2003 (2) SCR 1              relied on      Para 13
G
        CIVIL APPELLATE JURISDICTION : Civil Appeal No.
    7939 of 2013.

        From the Judgment and Order dated 20.03.2012 of the
    High Court of Bombay in AL No. 185 of 2012.
H
 HILL PROPERTIES LTD. v. UNION BANK OF INDIA                   93


    Shyam Divan, Pratap Venugopal, Avishka Singhvi, Deepa             A
Mani (for K.J. John & Co.) for the Appellant.

   U.U. Lalit, Sushmita Banerjee, Rabin Mazumdar, Shiv
Kumar Suri for the Respondents.

     The Judgment of the Court was delivered by                       B

     K.S, RADHAKRISHNAN, J. 1. Leave granted.

     2. We are in this case concerned with the saleability of
Flat No.23, Building No.2, Hill Park Estate, A.G. Bell Road,          c
Malabar Hill, Mumbai - 400 006, which is under attachment in
the execution proceedings before the Debt Recovery Tribunal
(ORT), Mumbai.

      3. Union Bank of India, Respondent No.1 herein, had
advanced some financial assistance to the second respondent           D
sometimes in the year 1992. Respondent Nos.3 and 4 stood
as personal guarantors for repayment of the dues of
Respondent No.2. Respondent No.5, being an associate
company of Respondent No.2, mortgaged the aforementioned
flat in favour of the Union Bank of India to secure repayment of      E
the dues of Respondent No.2. For realization of the payment
of the amount, proceedings were initiated under the
Securitization Act before the ORT, Mumbai, and the flat in
question was attached under the warrant of attachment on 23rd
August, 2005.                                                         F

      4. The Hill Properties Ltd., Appellant herein, preferred Suit
 No.1627 of 2007 before the High Court of Judicature at
Bombay (Ordinary Original Jurisdiction), to release the flat in
question from attachment. Notice of Motion was taken out for
injunction restraining the Bank and others from taking any steps      G
in furtherance of warrant of attachment or transferring the suit
property to third parties. Learned Single Judge rejected the
Appellant's Notice of Motion seeking to release the flat from
attachment by its order dated 25th January, 2012, giving liberty      H
    94      SUPREME COURT REPORTS                [2013] 10 S.C.R.


A to the Appellant to make its offer to purchase the suit flat at a
  price determined by the Valuer or the price determined by the
  Auditor of the Company, whichever is higher. Aggrieved by the
  order, the Appellant preferred Appeal (L) No.185 of 2012
  before the Division Bench of the Bombay High Court
B contending that Respondent No.5, being only a shareholder of
  the Company, has only a right to occupy the flat and has no right
  to mortgage the same to the Bank without permission of the
  Company. Further, it was pointed out that Respondent No.5 is
  only holding "A" equity share (bearing Share Certificate No.45)
c in the Appellant Company. By virtue of Articles of Association
  of the Company, Respondent No.5 was only permitted to use
  and occupy the flat owned by the Appellant Company and,
  therefore, the same is not liable to be attached and sold.

       5. The Application was resisted by Respondent No.9
D contending that the right to occupy the suit flat is the valuable
  right and value in the share of the Company is nothing but the
  value of the flat and the same could be transferred for
  consideration. The flat was, therefore, rightly mortgaged to the
  Bank and the learned Single Judge was justified in rejecting
E the claim of the Appellant.

         6. The Division Bench of the Bombay High Court found no
    illegality in the order passed by the learned Single Judge and
    dismissed the Appeal, so also the Notice of Motion. Various
F   safeguards incorporated by the learned Single Judge were
    reiterated. Aggrieved of the said order, this appeal has been
    preferred.

         7. Shri Shyam Divan, learned senior counsel appearing for
  the Appellant, submitted that Respondent No.5 is only a
G shareholder of the Appellant Company and hence only
  permitted to use and occupy one of the flats owned by the
  Company and all the rights, title and interest in respect of the
  flat in question exclusively vest in the Company. Learned senior
  counsel submitted that Respondent No.5 could not have
H
 HILL PROPERTIES LTD. v. UNION BANK OF !NOIA                   95
          [K.S. RADHAKRISHNAN, J.]
mortgaged the suit flat without the permission of the Company        A
which is in violation of the provisions of the Articles of
Association of the Company. Learned senior counsel referred
to the Articles of Association of the Company and submitted
that Respondent No.5 being a shareholder, is bound by the
provisions of Articles of Association of the Company. Learned        B
senior counsel placed reliance on the judgments of this Court
in Bacha F. Guzdar, Bombay Vs. Commissioner of Income
Tax, Bombay, (1955) 1 SCR 876, and Vodafone International
Holdings B. V. Vs. Union of India & Anr., (2012) 6 SCC 613,
Learned senior counsel also submitted that the ratio laid down       c
by this Court in Ramesh Himatlal Shah Vs. Harsukh Jadhavji
Joshi, (1975) 2 sec 105, is not applicable to the case on
hand, since in that case this Court was dealing with the interest
of a member in an immovable property of a Cooperative
Society governed by the provisions of the Maharashtra
                                                                     0
Cooperative Societies Act, 1960, which is inapplicable in the
case of right of a shareholder in a limited liability company
registered under the Indian Companies Act, 1956.

      8. Shri U.U. Lalit, learned senior counsel appearing for the
Respondents, on the other hand, submitted that the principle         E
laid down in Ramesh Himatlal Shah's case (supra), will clearly
apply to the facts of this case. Learned senior counsel
submitted that the question as to whether the flat belongs to a
member of a Cooperative Society or a shareholder of a
Company makes no difference, since the right, title and interest     F
and the right to occupy is the species of property, which has
the stamp of transferability. Learned senior counsel submitted
that in the absence of any clear and unambiguous legal
provisions to the contrary, such species of rights can always
be transferred and there is no illegality in mortgaging the          G
property to the Bank, as security for the loan transaction.
Learned senior counsel submitted that the High Court has
rightly rejected the suit as well as the Notice of Motion and the
same calls for no interference by this Court.
                                                                     H
    96       SUPREME COURT REPORTS                 [2013] 10 S.C.R.


A DISCUSSION

       9. The Appellant claims to be the owner of the property
  known as Flat No.23, Building No.2, Hill Park Estate, A.G. Bell
  Road, Malabar Hill, Mumbai - 400 006. Respondent No.5 is
  the shareholder of the Appellant Company holding one "A"
8
  equity share. Flat No.23 was allotted to Respondent No.5 who
  was holding the Share Certificate No.45. Respondent No.5
  created an equitable mortgage to secure dues of Respondent
  No.2 to the Union Bank of India by depositing Share Certificate
  No.45. Union Bank of India filed Suit No.1079 of 1993 for
C recovery of the dues and also for enforcement of the security.
  The suit was later transferred to the ORT, Mumbai, and was
  numbered as OA No.245 of 2001. The DRT, Mumbai, later
  passed an order of attachment in respect of the flat in question.
  The question arose as to whether the property which was
D mortgaged to the Bank and the right of Respondent No.5 upon
  it could be attached and sold in execution of a decree.

          10. We are of the view that the right, title, interest over a
    flat conveyed is a species of property, whether that right has
E   been accrued under the provisions of the Articles of
    Association of a Company or through the bye-laws of a
    Cooperative Society. The people in this country, especially in
    urban cities and towns are now accustomed to flat culture,
    especially due to paucity of land. Multi-storeyed flats are being
F   constructed and sold by Companies registered under the
    Companies Act as well as the Cooperative Societies registered
    under the Registration of Cooperative Societies Act, etc. Flats
    are being purchased by people by either becoming members
    of the Cooperative Society or shareholders of the Company
    and the flat owners have an independent right as well as the
G   collective right over the flat complex. Flat owners' right to
    dispose of its flat is also well recognized, and one can sell,
    donate, leave by will or let out or hypothecate his right. These
    rights are even statutorily recognized by many State
    Legislatures by enacting Apartment Ownership Acts. Such a
H   legislation exists in the State of Maharashtra as well.
 HILL PROPERTIES LTD. v. UNION BANK OF INDIA                    97
          [K.S. RADHAKRISHNAN, J.]

     11. Most of the flat owners purchase the flat by availing of     A
loan from various banking institutions by mortgaging their rights
over the purchased flat. ay purchasing the flat, the purchaser,
over and above his species of right over the flat, will also have
undivided interest in the common areas and facilities, in the
percentage as prescribed. Flat owners will also have the right        B
to use the common areas and facilities in accordance with the
purpose for which they are intended. It is too late in the day to
contend that flat owners cannot sell, let, hypothecate or
mortgage their flat for availing of loan without permission of the
builder, Society or the Company. So far as a builder is               c
concerned, the flat owner should pay the price of the flat. So
far as the Society or Company in which the flat owner is a
member, he is bound by the laws or Articles of Association of
the Company, but the species of his right over the flat is
exclusively that of his. That right is always transferable and
                                                                      0
heritable. Of course, they will have charge over the flat if any
amount is due to them upon the flat.

    12. In Ramesh Himatlal Shah's case (supra), this Court
has clearly delineated the legal principle which is as follows :-
                                                                      E
     "20. Multi-storeyed ownership flats on cooperative basis
    in cities and big towns have come to stay because of dire
    necessity and are in the process of rapid expansion for
    manifold reasons. Some of these are: ever growing needs
    of an urban community necessitating its accommodation             F
    in proximity to cities and towns, lack of availability of land
    in urban areas, rise in price of building material,
    restrictions under various rent legislations, disincentive
    generated by tax laws and other laws for embarking upon
    housing construction on individual basis, security of             G
    possession depending upo,r fulfilment of the conditions of
    membership of a society which are none too irksome. In
    absence of clear and unambiguous legal provisions to the
    contrary, it will not be in public interest nor in the interest
    of commerce to impose a ban on saleability of these flats
                                                                      H
    98       SUPREME COURT REPORTS                 [2013] 10 S.C.R.


A        by a tortuous process of reasoning. The prohibition, if
         intended by the legislature, must be in express terms. We
         have failed to find one."

        13. Reference may also be made to another judgment of
8 this Court in DLF Qutub Enclave Complex Educational
  Charitable Trust Vs. State of Haryana, (2003) 5 SCC 622,
  wherein this Court held that the right of transfer of land
  indisputably is incidental to the right of ownership and such a
  right can be curtailed or taken away only by reason of a Statute.
C In our view, the Articles of Association of a Company have no
  force of a Statute and that the right of Respondent No.5 to
  mortgage could not have been restricted by the Articles of
  Association.

        14. We find that neither the Companies Act nor any other··
D statute make any provision prohibiting the transfer of species
  of interest to third parties or to avail of loan for the flat owners'
  benefit. A legal bar on the saleability or transferability of such
  a species of interest, in our view, will create chaos and
  confusion. The right or interest to occupy any such flat is a
E species of property and hence has a stamp of transferability
  and consequently we find no error with the warrant of attachment
  issued by the ORT on the flat in question.

         15. We may reiterate that the appellant will certainly have
F   the right of pre-emption, but not at any value lesser than the
    market value of the suit flat at the time of the sale. Various
    directions already given by the High Court, therefore, will stand.

        16. The appeal is, therefore, dismissed and the amount,
  if any, deposited by the Appellant be refunded to him. There
G will, however, be no order as to costs.

    8.8.8.                                       Appeal dismissed.