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

" There is a fundamental right in the mortgagee to, on the failure of liquidation of the pertinent installations 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 sell the mortgage residential or commercial property in a public auction if the debtor stops working to pay the stated 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 respondents No. 3 and 4 to provide 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 validating the sale conducted by participant 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, via 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 released a letter of acceptance of the bid dated 06.02.2020. After the payment was made, respondent No. 5 issued a sale certificate in favor of the petitioners for the residential or commercial property, and ownership was turned over by the District Magistrate of Gurugram on 12th October 2021. On 06th July 2020, participant No. 5 asked for participant 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, participant No. 2 released a letter directing participant No. 3 to advise participant No. 5 to get re-allotment in the name of the petitioners. Respondent No. 5 subsequently asked for respondent No. 4 to finish the rules for upgrading the records in favor of the petitioners, but the respondents have yet to deal with the petitioners' complaints, causing them permanent loss and injury, as they are not able to use the residential or commercial property. Respondents contended that although they permitted the State Bank of India to create a mortgage on the residential or commercial property, no specific permission was given for the sale of the residential or commercial property through public auction, and for that reason, the sale is not legitimate without an NOC.

What were the Court's Observations?

The Court observed that the respondents' contention, which argued that the sale of the residential or commercial property was flawed since no No Objection Certificate (NOC) was released by the worried authorities before the public auction, was meritless. The Court concluded that once the respondents allowed the production of a mortgage on the subject plot, this consent implicitly extended to the right of the loaning institution to sell the residential or commercial property through a public auction in case of the debtor's default. The Court stressed that the fundamental right of the mortgagee to auction the residential or commercial property to recover the loan was not negated by the absence of a specific NOC for the sale, as the NOC for producing the mortgage was considered enough. The Court kept in mind that the respondents did not raise any other objections worrying the sale, such as accusations of illegality or collusion in the auction procedure. As such, the Court discovered that the objections raised regarding the lack of the NOC were unwarranted. Based on the above observations, the Court permitted 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 purchased the issuance of the re-allotment letter validating the sale by respondent 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 offer the residential or commercial property when the mortgage-money ends up being due.

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

In English mortgages and where clearly agreed in the mortgage deed, the mortgagee can offer 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 keep belongings and gather rents/ until the mortgage is totally paid back.

If any enhancements 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 renews the lease, it will be held as part of the mortgage security.

The mortgagee can spend money to avoid the residential or commercial property from damage or loss and recover the amount from the mortgagor.

If the residential or commercial property is guaranteed and is damaged, the mortgagee is entitled to declare the insurance coverage money as security.

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

Right of Mortgagor to Redeem (Section 60): This arrangement supplies that upon providing sensible notice relating to the specified time and location, the mortgagor has the privilege to redeem the mortgage by paying the outstanding mortgage amount and: Require the mortgagee to deliver the mortgage-deed and the mortgaged residential or commercial property and files 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 individual at his own cost by the mortgagee at the mortgagor's desire or get a recognition signed up by the mortgagee extinguishing his right over the residential or commercial property.

Based on this section, the mortgagor has the right to ask for the transfer of both the mortgage deed and the mortgaged residential or commercial property to a third party 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 comply with this demand.

The mortgagor, exercising their right to redemption, can, at their own expense, request to examine and get copies or extracts of the documents relating to the mortgaged residential or commercial property and the mortgage deed held by the mortgagee, upon successfully reimbursing the expenditures sustained by the mortgagee on their behalf, at any reasonable time.

In the absence of a contractual arrangement, when multiple mortgages are carried out in favor of the same mortgagee, the mortgagor has the right to redeem several of these mortgage deeds concurrently or any one deed individually upon payment of the impressive dues for the particular mortgage(s).

Where the mortgagee is authorized to pay himself the mortgage-money from the rents and earnings of the residential or commercial property when such money is paid. Where the mortgagee is authorized to pay himself from such rents and revenues or arty part thereof a part just of the mortgage-money, when the term (if any), recommended for the payment of the mortgage-money has expired and the mortgagor pays or tenders to the mortgagee the mortgage-money or the balance thereof or deposits 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 continuance when in ownership of the mortgagee if an agreement for the contrary does not exist. The mortgagee has no right to declare 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 particular contract mentioning otherwise. If the mortgagee makes required enhancements to maintain the residential or commercial property from damage or degeneration, to maintain the residential or commercial property's worth as security, or in compliance with a lawful order from a government authority, the mortgagor is typically responsible for paying the expense of those enhancements.
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If a mortgaged residential or commercial property is in the possession of the mortgagee and has a lease around, and the mortgagee renews the lease during the mortgage period, the mortgagor can receive the advantages of that lease renewal, unless there is a particular provision in the mortgage contract that specifies otherwise.

That the interest which the mortgagor professes to move to the mortgagee subsists, which the mortgagor has power to move the very same. That the mortgagor will protect, or, if the mortgagee remain in ownership 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.