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

" There is an intrinsic right in the mortgagee to, on the failure of liquidation of the pertinent installations by the customer, hence, 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 borrower 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 filed an instant writ petition seeking a writ of mandamus directing respondents No. 3 and 4 to release 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 likewise sought a re-allotment letter confirming the sale performed 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 arrangements of the Act, sold 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 cost 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 released 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 participants. On 14th August 2020, respondent No. 2 provided a letter directing respondent No. 3 to instruct participant No. 5 to use for re-allotment in the name of the petitioners. Respondent No. 5 subsequently requested respondent No. 4 to complete the rules for updating the records in favor of the petitioners, but the respondents have yet to address the petitioners' complaints, triggering them irreparable loss and injury, as they are not able to use the residential or commercial property. Respondents competed that although they permitted the State Bank of India to develop a mortgage on the residential or commercial property, no particular authorization was granted for the sale of the residential or commercial property through public auction, and therefore, the sale is not legitimate 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 since no No Objection Certificate (NOC) was issued by the concerned authorities before the general public auction, was meritless. The Court concluded that when the respondents permitted the production of a mortgage on the subject plot, this authorization implicitly reached the right of the loan provider to sell the residential or commercial property through a public auction in case of the customer's default. The Court highlighted that the intrinsic right of the mortgagee to auction the residential or commercial property to recover the loan was not negated by the absence of a particular NOC for the sale, as the NOC for creating the mortgage was considered adequate. The Court noted that the participants did not raise any other objections concerning 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 on the above observations, the Court enabled the writ petition, directing participants No. 3 and 4 to release the NOC and move the residential or commercial property to the petitioners' name in the records of the concerned authorities. Additionally, the Court bought the issuance of the re-allotment letter confirming 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 deserves to foreclose (bar the mortgagor from redemption) or sell the residential or commercial property when the mortgage-money ends up being due.

The mortgagee can file a suit to recuperate the mortgage-money if: The mortgagor personally consented to 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 an easy 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 has the right to retain possession and collect rents/profits up until the mortgage is completely 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 cash to avoid the residential or commercial property from damage or loss and recover the quantity from the mortgagor.

If the residential or commercial property is insured and is damaged, the mortgagee is entitled to claim 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 arrangement provides that upon offering reasonable notification concerning the defined time and area, the mortgagor has the privilege to redeem the mortgage by paying the exceptional mortgage quantity and: Require the mortgagee to deliver the mortgage-deed and the mortgaged residential or commercial property and documents in his ownership 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 expense 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.

According to this area, the mortgagor possesses the right to request the transfer of both the mortgage deed and the mortgaged residential or commercial property to a 3rd celebration as per the mortgagor's preference. If the mortgagor has satisfied his commitment by paying the mortgage quantity, it is required for the mortgagee to comply with this demand.

The mortgagor, exercising their right to redemption, can, at their own expense, demand to check 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 successfully repaying the expenses incurred by the mortgagee on their behalf, at any affordable time.

In the lack of a legal contract, when multiple mortgages are performed in favor of the exact same mortgagee, the mortgagor has the right to redeem one or more of these mortgage deeds simultaneously or any one deed independently upon payment of the impressive fees for the particular mortgage(s).

Where the mortgagee is licensed to pay himself the mortgage-money from the leas and earnings of the residential or commercial property when such money is paid. Where the mortgagee is authorized to pay himself from such leas and or arty part thereof a part only of the mortgage-money, when the term (if any), recommended for the payment of the mortgage-money has actually ended 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 belongings 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 particular agreement specifying otherwise. If the mortgagee makes required improvements to preserve the residential or commercial property from damage or degeneration, to keep the residential or commercial property's value as security, or in compliance with a legal order from a federal government authority, the mortgagor is usually accountable for paying the expense of those improvements.

If a mortgaged residential or commercial property remains in the possession of the mortgagee and has a lease out there, and the mortgagee renews the lease throughout the mortgage duration, the mortgagor has the right to get the advantages of that lease renewal, unless there is a specific 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 exact same. That the mortgagor will protect, or, if the mortgagee be in possession of the mortgaged residential or commercial property, enable him to defend, the mortgagor's title thereto. That the mortgagor will, so long as the mortgagee is not in ownership of the mortgaged residential or commercial property, pay all public charges accruing due in respect of the residential or commercial property.