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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 borrower, thus, 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 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 immediate 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 looked for a re-allotment letter validating 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, 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 issued a letter of approval of the bid dated 06.02.2020. After the payment was made, participant No. 5 issued a sale certificate in favor of the petitioners for the residential or commercial property, and possession was handed over by the District Magistrate of Gurugram on 12th October 2021. On 06th July 2020, participant 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, participant No. 2 issued a letter directing respondent No. 3 to instruct respondent No. 5 to obtain re-allotment in the name of the petitioners. Respondent No. 5 subsequently requested participant No. 4 to complete the formalities for upgrading the records in favor of the petitioners, but the participants have yet to deal with the petitioners' complaints, causing them irreversible loss and injury, as they are not able to use the residential or commercial property. Respondents contended that although they allowed the State Bank of India to create a mortgage on the residential or commercial property, no particular approval 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 issued by the worried authorities before the public auction, was meritless. The Court concluded that once the respondents permitted the development of a mortgage on the subject plot, this permission 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 emphasized that the fundamental right of the mortgagee to auction the residential or commercial property to recover the loan was not negated by the lack of a particular NOC for the sale, as the NOC for producing the mortgage was thought about sufficient. The Court kept in mind that the respondents did not raise any other objections concerning the sale, such as allegations of illegality or collusion in the auction process. As such, the Court discovered that the objections raised regarding the absence of the NOC were baseless. Based on the above observations, the Court allowed the writ petition, directing respondents No. 3 and 4 to issue the NOC and transfer the residential or commercial property to the petitioners' name in the records of the concerned authorities. Additionally, the Court ordered the issuance of the re-allotment letter confirming the sale by participant No. 5 on behalf of the State Bank of India.

What are the Rights of Mortgagee under 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 file a match to recover the mortgage-money if: The mortgagor personally agreed to repay. 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 offer the residential or commercial property without court intervention. In other cases, court approval is needed for sale.

In a usufructuary mortgage, the mortgagee can maintain belongings and gather rents/profits up until the mortgage is totally 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.
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If the mortgaged residential or commercial property is leased, and the mortgagee renews 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 guaranteed and is harmed, 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 offers that upon providing sensible notification concerning the defined time and place, the mortgagor has the entitlement to redeem the mortgage by paying the outstanding mortgage amount and: Require the mortgagee to provide the mortgage-deed and the mortgaged residential or commercial property and files in his possession or under his power. Recover the ownership 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 cost by the mortgagee at the mortgagor's desire or get an acknowledgement signed up by the mortgagee extinguishing his right over the residential or commercial property.

As per this area, the mortgagor possesses the right to ask for the transfer of both the mortgage deed and the mortgaged residential or commercial property to a third party as per the mortgagor's choice. If the mortgagor has fulfilled his obligation 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 cost, demand 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 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 separately upon payment of the outstanding charges for the particular mortgage(s).

Where the mortgagee is authorized to pay himself the mortgage-money from the leas and earnings 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 just 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, during 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 declare the accession when redeemed by the mortgagor.

If a residential or commercial property is mortgaged, and the mortgagee makes improvements to the residential or commercial property while holding it as security, the mortgagor has a right to those improvements when they redeem the residential or commercial property. This entitlement exists unless there is a specific agreement specifying otherwise. If the mortgagee makes required enhancements to maintain the residential or commercial property from damage or wear and tear, to maintain the residential or commercial property's value as security, or in compliance with a legal order from a government authority, the mortgagor is generally accountable for paying the expense of those improvements.

If a mortgaged residential or commercial property is in the belongings of the mortgagee and has a lease out there, and the mortgagee restores the lease during the mortgage duration, the mortgagor can get the advantages of that lease renewal, unless there is a specific arrangement in the mortgage agreement that specifies otherwise.

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