Sunil Kumar & Ors. v. State of Haryana & Ors

" There is a fundamental right in the mortgagee to, on the failure of liquidation of the appropriate installments by the debtor, therefore, to subject the subject plot to sale through public auction."

Justice Sureshwar Thakur and Justice Vikas Suri

Source: Punjab & Haryana High Court

Why in News?

Recently, the bench of Justice Sureshwar Thakur and Justice Vikas Suri held that, the mortgagee has a right to offer the mortgage residential or commercial property in a public auction if the customer stops working to pay the stipulated instalments.

The Punjab & Haryana High Court observed this in the matter of Sunil Kumar & Ors. v. State of Haryana & Ors.

What was the Background of Sunil Kumar & Ors. v. State of Haryana & Ors. Case?

The petitioners submitted an instantaneous writ petition seeking a writ of mandamus directing participants No. 3 and 4 to issue a No Objection Certificate (NOC) and transfer Plot No. 1591-B, Sector 23-23A, Gurugram, to the petitioners in the records of respondents No. 2 to 4. The petitioners also sought a re-allotment letter the sale carried out by respondent No. 5 on behalf of the State Bank of India under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (the Act). Respondent No. 5, under the provisions of the Act, offered residential or commercial property No. 1591-BP, Sector 23-23A, Gurugram, by means of public auction for Rs. 2,28,37,425/- towards the residential or commercial property expense and Rs. 1,72,575/- towards TDS. The petitioners were provided a letter of acceptance of the bid dated 06.02.2020. After the payment was made, respondent No. 5 provided a sale certificate in favor of the petitioners for the residential or commercial property, and ownership was handed over by the District Magistrate of Gurugram on 12th October 2021. On 06th July 2020, respondent No. 5 requested respondent No. 2 for the issuance of the NOC for the transfer of the residential or commercial property in the records of the respondents. On 14th August 2020, respondent No. 2 provided a letter directing participant No. 3 to instruct participant No. 5 to get re-allotment in the name of the petitioners. Respondent No. 5 consequently requested participant No. 4 to finish the formalities for updating the records in favor of the petitioners, however the respondents have yet to attend to the petitioners' complaints, triggering them irreparable loss and injury, as they are not able to utilize the residential or commercial property. Respondents competed that although they allowed the State Bank of India to produce a mortgage on the residential or commercial property, no specific approval was granted for the sale of the residential or commercial property through public auction, and therefore, the sale is not valid without an NOC.

What were the Court's Observations?

The Court observed that the participants' contention, which argued that the sale of the residential or commercial property was flawed due to the fact that no No Objection Certificate (NOC) was provided by the worried authorities before the public auction, was meritless. The Court concluded that as soon as the participants permitted the development of a mortgage on the subject plot, this authorization implicitly extended to the right of the lending institution to offer the residential or commercial property through a public auction in case of the debtor's default. The Court stressed that the inherent right of the mortgagee to auction the residential or commercial property to recuperate the loan was not negated by the lack of a specific NOC for the sale, as the NOC for developing the mortgage was thought about enough. The Court kept in mind that the respondents did not raise any other objections worrying the sale, such as claims of illegality or collusion in the auction procedure. As such, the Court found that the objections raised relating to the lack of the NOC were baseless. Based upon the above observations, the Court allowed the writ petition, directing respondents No. 3 and 4 to release the NOC and transfer the residential or commercial property to the petitioners' name in the records of the worried authorities. Additionally, the Court ordered the issuance of the re-allotment letter validating the sale by participant No. 5 on behalf of the State Bank of India.

What are the Rights of Mortgagee under Transfer of Residential Or Commercial Property Act?

Right to Foreclosure or Sale (Section 67): The mortgagee can foreclose (bar the mortgagor from redemption) or sell the residential or commercial property when the mortgage-money ends up being due.

The mortgagee can submit a match to recover the mortgage-money if: The mortgagor personally accepted pay back. The mortgaged residential or commercial property is damaged without the mortgagee's fault. The mortgagee loses security due to the mortgagor's wrongful act. In a basic mortgage, the mortgagor defaults on payment.

In English mortgages and where explicitly agreed in the mortgage deed, the mortgagee can sell the residential or commercial property without court intervention. In other cases, court authorization is required for sale.

In a usufructuary mortgage, the mortgagee deserves to retain belongings and collect rents/profits till the mortgage is fully repaid.

If any improvements or additions are made to the mortgaged residential or commercial property, the mortgagee can treat them as part of the security.

If the mortgaged residential or commercial property is rented, and the mortgagee restores the lease, it will be held as part of the mortgage security.

The mortgagee can invest money to prevent the residential or commercial property from damage or loss and recuperate the amount from the mortgagor.

If the residential or commercial property is insured and is harmed, the mortgagee is entitled to declare the insurance cash as security.

What are the Rights of Mortgagor under Transfer of Residential Or Commercial Property Act?

Right of Mortgagor to Redeem (Section 60): This provision supplies that upon supplying reasonable notification concerning the specified time and location, the mortgagor has the entitlement to redeem the mortgage by paying the outstanding mortgage quantity and: Require the mortgagee to deliver the mortgage-deed and the mortgaged residential or commercial property and documents in his belongings or under his power. Recover the belongings of the mortgaged residential or commercial property from the mortgagee. To get the residential or commercial property re-transferred to him or a 3rd person at his own expense by the mortgagee at the mortgagor's desire or get a recognition registered by the mortgagee extinguishing his right over the residential or commercial property.

Based on this section, the mortgagor has the right to request the transfer of both the mortgage deed and the mortgaged residential or commercial property to a 3rd celebration according to the mortgagor's preference. If the mortgagor has actually satisfied his responsibility by paying the mortgage quantity, it is obligatory for the mortgagee to abide by this request.

The mortgagor, exercising their right to redemption, can, at their own expenditure, request to examine and obtain copies or extracts of the documents relating to the mortgaged residential or commercial property and the mortgage deed held by the mortgagee, upon effectively repaying the expenses sustained by the mortgagee on their behalf, at any affordable time.

In the absence of a legal arrangement, when numerous mortgages are carried out in favor of the exact same mortgagee, the mortgagor has the right to redeem several of these mortgage deeds concurrently or any one deed separately upon payment of the impressive charges for the specific mortgage(s).

Where the mortgagee is licensed to pay himself the mortgage-money from the leas and revenues of the residential or commercial property when such cash is paid. Where the mortgagee is licensed to pay himself from such rents and profits or arty part thereof a part only of the mortgage-money, when the term (if any), prescribed for the payment of the mortgage-money has actually expired and the mortgagor pays or tenders to the mortgagee the mortgage-money or the balance thereof or transfers it in Court as hereinafter supplied.

The mortgagor is entitled to the mortgaged residential or commercial property accession upon redemption, if any, throughout the mortgage's continuation when in ownership of the mortgagee if an agreement for the contrary does not exist. The mortgagee has no right to claim the accession when redeemed by the mortgagor.

If a residential or commercial property is mortgaged, and the mortgagee makes enhancements to the residential or commercial property while holding it as security, the mortgagor has a right to those enhancements when they redeem the residential or commercial property. This privilege exists unless there is a specific agreement specifying otherwise. If the mortgagee makes essential improvements to preserve the residential or commercial property from damage or wear and tear, to keep the residential or commercial property's worth as security, or in compliance with a lawful order from a federal government authority, the mortgagor is generally responsible for paying the cost of those improvements.

If a mortgaged residential or commercial property remains in the ownership of the mortgagee and has a lease in presence, and the mortgagee renews the lease during the mortgage period, the mortgagor deserves to get the benefits of that lease renewal, unless there is a particular provision in the mortgage contract that specifies otherwise.

That the interest which the mortgagor proclaims to move to the mortgagee subsists, and that the mortgagor has power to transfer the same. That the mortgagor will safeguard, or, if the mortgagee remain in possession of the mortgaged residential or commercial property, allow him to defend, the mortgagor's title thereto. That the mortgagor will, so long as the mortgagee is not in possession of the mortgaged residential or commercial property, pay all public charges accruing due in respect of the residential or commercial property.