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 installments 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 offer the mortgage residential or commercial property in a public auction if the customer 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 instant writ petition looking for a writ of mandamus directing participants 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 participants No. 2 to 4. The petitioners likewise sought a re-allotment letter confirming the sale performed 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 arrangements of the Act, offered residential or 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 provided a letter of acceptance 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 handed 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 provided a letter directing participant No. 3 to instruct respondent No. 5 to get re-allotment in the name of the petitioners. Respondent No. 5 consequently asked for participant No. 4 to complete the formalities for updating the records in favor of the petitioners, but the respondents have yet to attend to 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 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 participants' contention, which argued that the sale of the residential or commercial property was flawed because no No Objection Certificate (NOC) was issued by the worried authorities before the general public auction, was meritless. The Court concluded that when the participants permitted the development of a mortgage on the subject plot, this consent implicitly encompassed the right of the loan provider to offer the residential or commercial property through a public auction in case of the borrower's default. The Court stressed that the intrinsic 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 producing the mortgage was considered enough. The Court kept in mind that the respondents did not raise any other objections concerning the sale, such as accusations of illegality or collusion in the auction process. As such, the Court found that the objections raised concerning the absence of the NOC were unwarranted. Based upon the above observations, the Court permitted 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 worried authorities. Additionally, the Court bought 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 has the right to 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 fit 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 simple 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 consent is needed for sale.

In a usufructuary mortgage, the mortgagee has the right to maintain possession and collect rents/profits till the mortgage is totally repaid.

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 leased, and the mortgagee renews the lease, it will be held as part of the mortgage security.

The mortgagee can invest cash to avoid the residential or commercial property from damage or loss and recuperate the quantity from the mortgagor.

If the residential or commercial property is insured and is damaged, the mortgagee is entitled to claim the insurance coverage 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 affordable notice regarding the specified time and place, the mortgagor has the privilege to redeem the mortgage by paying the impressive mortgage quantity 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 possession of the mortgaged residential or commercial property from the mortgagee. To get the residential or commercial property re-transferred to him or a third person at his own cost 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.

According to 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 3rd celebration as per the mortgagor's preference. If the mortgagor has fulfilled his obligation by paying the mortgage amount, it is required for the mortgagee to abide by this request.

The mortgagor, exercising their right to redemption, can, at their own expense, demand to examine and get copies or extracts of the files referring to the mortgaged residential or commercial property and the mortgage deed held by the mortgagee, upon effectively repaying the costs incurred by the mortgagee on their behalf, at any reasonable time.

In the absence of a legal contract, when several mortgages are performed in favor of the exact same mortgagee, the mortgagor has the right to redeem several of these mortgage deeds at the same time or any one deed separately upon payment of the exceptional fees for the specific mortgage(s).

Where the mortgagee is licensed to pay himself the mortgage-money from the leas and profits of the residential or commercial property when such money is paid. Where the mortgagee is licensed to pay himself from such leas and revenues 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 ended and the mortgagor pays or tenders to the mortgagee the mortgage-money or the balance thereof or deposits it in Court as hereinafter provided.

The mortgagor is entitled to the mortgaged residential or commercial property accession upon redemption, if any, during 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 claim 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 privilege exists unless there is a specific agreement specifying otherwise. If the mortgagee makes required improvements to maintain the residential or commercial property from damage or degeneration, to preserve 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 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 throughout the mortgage period, the mortgagor deserves to receive the benefits of that lease renewal, unless there is a particular arrangement in the mortgage contract that states otherwise.

That the interest which the mortgagor professes to transfer to the mortgagee subsists, and that the mortgagor has power to transfer the same. That the mortgagor will safeguard, 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 accumulating due in respect of the residential or commercial property.