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, 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 offer 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 looking for 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 validating the sale carried out 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, through 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 issued a letter of approval of the quote 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, respondent No. 5 requested 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 issued a letter directing respondent No. 3 to advise participant No. 5 to get re-allotment in the name of the petitioners.
Respondent No. 5 consequently asked for participant No. 4 to complete the procedures for upgrading the records in favor of the petitioners, but the participants have yet to attend to the petitioners' complaints, triggering them irreversible loss and injury, as they are not able to utilize the residential or commercial property.
Respondents competed that although they permitted the State Bank of India to create a mortgage on the residential or commercial property, no specific consent was approved 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 due to the fact that no No Objection Certificate (NOC) was released by the concerned authorities before the public auction, was meritless.
The Court concluded that as soon as the participants permitted the creation of a mortgage on the subject plot, this approval implicitly encompassed 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 stressed that the inherent right of the mortgagee to auction the residential or commercial property to recuperate the loan was not negated by the absence of a particular NOC for the sale, as the NOC for developing the mortgage was considered sufficient.
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 discovered that the objections raised relating to the lack of the NOC were baseless.
Based on the above observations, the Court permitted the writ petition, directing participants 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 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 deserves to foreclose (bar the mortgagor from redemption) or sell the residential or commercial property when the mortgage-money becomes due.

The mortgagee can file a suit to recover 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 repayment.

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

In a usufructuary mortgage, the mortgagee deserves to maintain belongings and gather rents/profits till 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 restores the lease, it will be held as part of the mortgage security.

The mortgagee can invest cash 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 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 provision supplies that upon supplying affordable notification relating to the specified time and area, the mortgagor has the privilege to redeem the mortgage by paying the impressive mortgage amount and: Require the mortgagee to provide the mortgage-deed and the mortgaged residential or commercial property and files in his belongings 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 individual at his own expense by the mortgagee at the mortgagor's desire or get an acknowledgement registered by the mortgagee extinguishing his right over the residential or commercial property.

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

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

In the absence of a legal contract, when numerous mortgages are executed in favor of the very same mortgagee, the mortgagor deserves to redeem several of these mortgage deeds simultaneously or any one deed independently upon payment of the exceptional dues for the particular 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 money is paid.
Where the mortgagee is authorized to pay himself from such rents and earnings 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 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 offered.

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 improvements when they redeem the residential or commercial property. This entitlement exists unless there is a specific contract mentioning otherwise.
If the mortgagee makes needed improvements to maintain the residential or commercial property from damage or wear and tear, to preserve the residential or commercial property's value as security, or in compliance with a legal order from a government authority, the mortgagor is generally responsible 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 in presence, and the mortgagee renews the lease throughout the mortgage duration, the mortgagor can receive the benefits of that lease renewal, unless there is a particular provision in the mortgage agreement that specifies otherwise.

That the interest which the mortgagor professes to move to the mortgagee subsists, which the mortgagor has power to transfer the very same.
That the mortgagor will safeguard, or, if the mortgagee be in ownership 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 possession of the mortgaged residential or commercial property, pay all public charges accruing due in respect of the residential or commercial property.