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 property in a public auction if the borrower fails 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 instant writ petition seeking a writ of mandamus directing respondents No. 3 and 4 to issue 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 conducted 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 provisions of the Act, sold property No. 1591-BP, Sector 23-23A, Gurugram, via public auction for Rs. 2,28,37,425/- towards the 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 property, and possession was handed over by the District Magistrate of Gurugram on 12th October 2021. 
• On 06th July 2020, respondent No. 5 requested respondent No. 2 for the issuance of the NOC for the transfer of the property in the records of the respondents. On 14th August 2020, respondent No. 2 issued a letter directing respondent No. 3 to instruct respondent No. 5 to apply for re-allotment in the name of the petitioners. 
• Respondent No. 5 subsequently requested respondent No. 4 to complete the formalities for updating the records in favor of the petitioners, but the respondents have yet to address the petitioners’ grievances, causing them irreparable loss and injury, as they are unable to use the property. 
• Respondents contended that although they permitted the State Bank of India to create a mortgage on the property, no specific permission was granted for the sale of the property through public auction, and therefore, the sale is not valid without an NOC. 

What were the Court’s Observations? 

• The Court observed that the respondents’ contention, which argued that the sale of the property was flawed because no No Objection Certificate (NOC) was issued by the concerned authorities before the public auction, was meritless. 
• The Court concluded that once the respondents permitted the creation of a mortgage on the subject plot, this permission implicitly extended to the right of the lending institution to sell the property through a public auction in case of the borrower’s default. 
• The Court emphasized that the inherent right of the mortgagee to auction the property to recover the loan was not negated by the lack of a specific NOC for the sale, as the NOC for creating the mortgage was considered sufficient. 
• The Court noted 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 found 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 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 respondent No. 5 on behalf of the State Bank of India. 

What are the Rights of Mortgagee under Transfer of Property Act? 

• Right to Foreclosure or Sale (Section 67): 
  • The mortgagee has the right to foreclose (bar the mortgagor from redemption) or sell the property when the mortgage-money becomes due.
• Right to Sue for Mortgage-Money (Section 68):  
  • The mortgagee can file a suit to recover the mortgage-money if: 
  • The mortgagor personally agreed to repay. 
  • The mortgaged property is destroyed without the mortgagee’s fault. 
  • The mortgagee loses security due to the mortgagor’s wrongful act. 
  • In a simple mortgage, the mortgagor defaults on repayment.
• Right to Sale of Property (Section 69 & 69A): 
  • In English mortgages and where explicitly agreed in the mortgage deed, the mortgagee can sell the property without court intervention. 
  • In other cases, court permission is required for sale. 
• Right to Possession (Usufructuary Mortgage – Section 67A): 
  • In a usufructuary mortgage, the mortgagee has the right to retain possession and collect rents/profits until the mortgage is fully repaid.
• Right to Accession (Section 70): 
  • If any improvements or additions are made to the mortgaged property, the mortgagee can treat them as part of the security.
• Right to Renewed Lease (Section 71): 
  • If the mortgaged property is leased, and the mortgagee renews the lease, it will be held as part of the mortgage security.
• Right to Spend for Preservation of Property (Section 72): 
  • The mortgagee can spend money to prevent the property from damage or loss and recover the amount from the mortgagor.
• Right to Insurance Money [Section 76(c)]: 
  • If the property is insured and is damaged, the mortgagee is entitled to claim the insurance money as security.

What are the Rights of Mortgagor under Transfer of Property Act? 

• Right of Mortgagor to Redeem (Section 60): This provision provides that upon providing reasonable notice regarding the specified time and location, the mortgagor has the entitlement to redeem the mortgage by paying the outstanding mortgage amount and: 
  • Require the mortgagee to deliver the mortgage-deed and the mortgaged property and documents in his possession or under his power. 
  • Recover the possession of the mortgaged property from the mortgagee. 
  • To get the property re-transferred to him or a third person at his own cost by the mortgagee at the mortgagor's desire or get an acknowledgement registered by the mortgagee extinguishing his right over the property. 
• Right to Transfer to the Third Party (Section 60A): 
  • As per this section, the mortgagor possesses the right to request the transfer of both the mortgage deed and the mortgaged property to a third party as per the mortgagor's preference. 
  • If the mortgagor has fulfilled his obligation by paying the mortgage amount, it is obligatory for the mortgagee to comply with this request. 
• Right to Inspection and Production of Documents (Section 60B): 
  • The mortgagor, exercising their right to redemption, can, at their own expense, request to inspect and obtain copies or extracts of the documents pertaining to the mortgaged property and the mortgage deed held by the mortgagee, upon successfully reimbursing the expenses incurred by the mortgagee on their behalf, at any reasonable time. 
• Right to Redeem Separately or Simultaneously (Section 61): 
  • In the absence of a contractual agreement, when multiple mortgages are executed in favor of the same mortgagee, the mortgagor has the right to redeem one or more of these mortgage deeds simultaneously or any one deed separately upon payment of the outstanding dues for the specific mortgage(s). 
• Right of Usufructuary Mortgagor to Recover Possession (Section 62): In a usufructuary mortgage, the mortgagor has a right to recover possession of the mortgage deed from the mortgagee: 
  • Where the mortgagee is authorized to pay himself the mortgage-money from the rents and profits of the property when such money is paid. 
  • Where the mortgagee is authorized to pay himself from such rents and profits or arty part thereof a part only of the mortgage-money, when the term (if any), prescribed for the payment of the mortgage-money has expired and the mortgagor pays or tenders to the mortgagee the mortgage-money or the balance thereof or deposits it in Court as hereinafter provided. 
• Accession to Mortgaged Property (Section 63): 
  • The mortgagor is entitled to the mortgaged property accession upon redemption, if any, during the mortgage's continuance when in possession 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. 
• Improvements to Mortgaged Property (Section 63A): 
  • If a property is mortgaged, and the mortgagee makes improvements to the property while holding it as security, the mortgagor has a right to those improvements when they redeem the property. This entitlement exists unless there is a specific contract stating otherwise. 
  • If the mortgagee makes necessary improvements to preserve the property from damage or deterioration, to maintain the property's value as security, or in compliance with a lawful order from a government authority, the mortgagor is generally responsible for paying the cost of those improvements. 
• Renewal of Mortgaged Lease (Section 64): 
  • If a mortgaged property is in the possession of the mortgagee and has a lease in existence, and the mortgagee renews the lease during the mortgage period, the mortgagor has the right to receive the benefits of that lease renewal, unless there is a specific provision in the mortgage contract that states otherwise. 
• Implied Contracts by Mortgagor (Section 65): In the absence of a contract to the contrary, the mortgagor shall be deemed to contract with the mortgagee: 
  • 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 defend, or, if the mortgagee be in possession of the mortgaged property, enable him to defend, the mortgagor’s title thereto. 
  • That the mortgagor will, so long as the mortgagee is not in possession of the mortgaged property, pay all public charges accruing due in respect of the property. 
• Mortgagor's Power to Lease (Section 65A): 
  • While in lawful possession of the property, the mortgagor has the right to make the lease, which shall be binding on the mortgagee unless otherwise stated in the mortgage. 
• Right in the Case of Waste (Section 66): 
  • Based on this provision, the mortgagor is generally not held responsible for any natural deterioration of the property.