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

" There is a fundamental right in the mortgagee to, on the failure of liquidation of the appropriate installations by the debtor, 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 offer the mortgage residential or commercial property in a public auction if the debtor 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 filed 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 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, 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 cost and Rs. 1,72,575/- towards TDS. The petitioners were issued 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, respondent No. 5 asked for respondent 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, participant No. 2 issued 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 consequently requested participant No. 4 to finish the formalities for upgrading the records in favor of the petitioners, however the participants have yet to deal with the petitioners' grievances, causing them permanent loss and injury, as they are unable to utilize the residential or commercial property.
Respondents competed that although they allowed the State Bank of India to create a mortgage on the residential or commercial property, no specific permission was granted 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 since no No Objection Certificate (NOC) was provided by the concerned authorities before the public auction, was meritless.
The Court concluded that as soon as the participants allowed the creation of a mortgage on the subject plot, this approval implicitly reached the right of the loan provider 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 particular NOC for the sale, as the NOC for developing the mortgage was considered enough.
The Court noted 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 discovered that the objections raised relating to the absence of the NOC were unwarranted.
Based on the above observations, the Court enabled the writ petition, directing participants 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 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 deserves to foreclose (bar the mortgagor from redemption) or offer the residential or commercial property when the mortgage-money becomes due.

The mortgagee can submit a fit to recuperate the mortgage-money if:
The mortgagor personally concurred 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 concurred 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 can keep possession and collect rents/profits till 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 invest money 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 guaranteed 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 supplies that upon supplying affordable notice relating to the defined time and location, the mortgagor has the entitlement to redeem the mortgage by paying the exceptional mortgage amount and: Require the mortgagee to deliver the mortgage-deed and the mortgaged residential or commercial property and documents 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 third 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.

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 3rd party as per the mortgagor's choice.
If the mortgagor has actually satisfied his obligation 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 cost, request to inspect and obtain copies or extracts of the files relating to the mortgaged residential or commercial property and the mortgage deed held by the mortgagee, upon successfully reimbursing the expenditures incurred by the mortgagee on their behalf, at any affordable time.

In the absence of a contractual agreement, when several mortgages are performed in favor of the exact same mortgagee, the mortgagor has the right to redeem one or more of these mortgage deeds concurrently or any one deed individually upon payment of the exceptional charges for the particular mortgage(s).

Where the mortgagee is authorized to pay himself the mortgage-money from the leas and revenues of the residential or commercial property when such cash is paid.
Where the mortgagee is licensed to pay himself from such leas and earnings 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 deposits 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 continuation when in ownership of the mortgagee if a contract 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 entitlement exists unless there is a specific contract mentioning otherwise.
If the mortgagee makes needed enhancements to maintain the residential or commercial property from damage or deterioration, to maintain the residential or commercial property's value as security, or in compliance with a lawful order from a federal government authority, the mortgagor is usually accountable for paying the cost of those improvements.

If a mortgaged residential or commercial property remains in the belongings of the mortgagee and has a lease out there, and the mortgagee restores the lease during the mortgage period, the mortgagor has the right to receive the advantages of that lease renewal, unless there is a specific arrangement in the mortgage contract that mentions otherwise.

That the interest which the mortgagor proclaims to move to the mortgagee subsists, which the mortgagor has power to transfer the exact same.
That the mortgagor will safeguard, 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 belongings of the mortgaged residential or commercial property, pay all public charges accumulating due in respect of the residential or commercial property.