HC Punjab & Haryana (23.12.2021) in Pal Alloys & Metal India Pvt. Ltd. & Ors. Vs. Allahabad Bank & Ors. [CWP No.6402 of 2019 (O&M)] held that
we hold that the amended Section 13(8) of the SARFAESI Act merely prohibits a secured creditor from proceeding further with the transfer of the secured asset by way of lease, assignment or sale; a restriction on the right of the mortgagee to deal with the property is not exactly the same as the equity of redemption available to the mortgagor;
the payment of the amount mentioned in Section 13(8) of the SARFAESI Act ties the hands of the mortgagee (secured creditor) from exercising any of the powers conferred under the Act; that redemption comes later;
extinction of the right of redemption comes much later than the sale notice; and the right of redemption is not lost immediately upon the highest bid made by a purchaser in an auction being accepted.
We also hold that such a right would continue, till the execution of a conveyance i.e. issuance of sale certificate, in favour of the mortgagee.
Excerpts of the Order;
Points for consideration
From the pleadings and contentions of the parties, the following points arise for consideration:-
“(a) Till what time or date can the right of redemption of the mortgage be exercised by the mortgagors/borrowers in the light of the amendment to Section 13(8) of the SARFAESI Act?
(b) Whether the petitioners are entitled to any relief?
(c) If so, to what relief?”
POINT (a):
Under this point we shall consider upto which date a mortgagor/ borrower has the right to redeem the mortgage.
Is it upto the date of transfer of the asset (as is contended by the petitioners) or is it upto the date of publication of the sale notice as per the amended S.13(8) of the SARFAESI Act, (as is contended by the 1st respondent Bank)?
I The General law:
The right of a mortgagor to redeem a mortgage is provided in Section 60 of the Transfer of Property Act,1882. It states:
“60. Right of mortgagor to redeem:-
At any time after the principal money has become due, the mortgagor has a right, on payment or tender, at a proper time and place, of the mortgage-money, to require the mortgagee (a) to deliver to the mortgagor the mortgage-deed and all documents relating to the mortgaged property which are in the possession or power of the mortgagee, (b) where the mortgagee is in possession of the mortgaged property, to deliver possession thereof to the mortgagor, and (c) at the cost of the mortgagor either to re-transfer the mortgaged property to him or to such third person as he may direct, or to execute and (where the mortgage has been effected by a registered instrument) to have registered an acknowledgment in writing that any right in derogation of his interest transferred to the mortgagee has been extinguished:
PROVIDED that the right conferred by this section has not been extinguished by the act of the parties or by decree of a court.
xx xx xx xx xx”
In 1965, Murarilal v. Devkaran, a mortgage deed sought to be redeemed was executed on 19.03.1919 for Rs.6500/-. It stipulated that the mortgage should be repaid in 15 years. It further stipulated that if the payment was not made within 15 years, the mortgagee would become the owner of the property. In a suit for redemption, the mortgagor contended that his right to redeem was alive even though the stipulated period of 15 years had passed. The mortgagee took the stand that after the expiry of the period of 15 years, the property had become the absolute property of the mortgagee. Though the trial court dismissed the suit, the Rajasthan High Court allowed the appeal and held that the stipulation as to the mortgagor’s liability to repay the loan within 15 years did not bar the suit for redemption, because the said stipulation amounted to a clog on the equity of redemption and as such, could not affect the mortgagor’s right to redeem; that the transaction, in substance, was a mortgage and not a sale, and so his right to redeem was alive and could be enforced by the suit. On appeal, A Constitution Bench of the Supreme Court upheld the decision of the High Court and held that the equitable doctrine ensuring the mortgagors equity of redemption in spite of a clog on such equity by stipulation in the mortgage deed, applied. It declared that in dealing with mortgage transactions unfair, unjust or oppressive stipulations unreasonably restricting the mortgagor’s right to redeem, the Court would be justified in refusing to enforce such stipulations and that the paramount character of the equity of redemption requires recognition, subject to the general law of limitation prescribed in that behalf.
In 1977, Narandas Karsondas v. S.A. Kamtam, the Supreme Court held that the right of redemption is available to the mortgagor unless it has been extinguished by the ‘act of parties’; that combined effect of Sec.54 of the Transfer of Property Act and Sec.17 of the Registration Act is that a contract for sale in respect of immovable property of value more than rupees one hundred without registration cannot extinguish the equity of redemption; and in India, it is only on execution of the conveyance and registration of transfer of the mortgagor’s interest by registered instrument that the mortgagor’s right of redemption is extinguished. More importantly it was declared that conferment of power to sell without intervention of the Court in a mortgage deed will not deprive the mortgagor of his right of redemption. It held that the extinction of the right of redemption has to be subsequent to the deed conferring such power; and the right of redemption is not extinguished at the expiry of the period; that the equity of redemption is not extinguished by mere contract for sale; and the mortgagor’s right to redeem will survive until there has been completion of sale by the mortgagee by a registered deed.
In 2004, in the context of right conferred on a State Financial Corporation to sell assets of it’s borrower under Section 29 of the State Financial Corporations Act, the Supreme Court held in Gajraj Jain v. State of Bihar that the action of the State Financial Corporation in handing over the estates to the auction purchaser under a down payment of Rs.28.85 Lacs, did not prevent the borrower from exercising the right of redemption. It held:
“Under Sec.60 of the Transfer of Property Act, 1882, equity of redemption existed in favor of the Company. A mere agreement of sale of it’s assets cannot extinguish the equity of redemption, it is only on execution of conveyance that the mortgagor’s right of redemption will be extinguished.”
Thus even if the sale of secured assets is under a special statute like State Financial Corporations Act, there is no deviation from the general principle that the mortgagor’s right of redemption is not extinguished till the execution of conveyance.
The above principle was reiterated in 2011 in M/s L.K. Trust v. EDC Ltd., and others, and it was held that in India, there is no equity or right in property created in favor of the purchaser by the contract between the mortgagee and the proposed purchaser; only on execution of conveyance, ownership passes from one party to another; and that the mortgagor cannot be held to have lost the right of redemption just because the property was put to auction. It was also held that a mortgage being a security for the debt, the right of redemption continues although the mortgagor fails to pay the debt at the due date; and that any provision to prevent, evade or hamper redemption is void.
In 2017, the Supreme Court considered in Allokam Peddabbayya and another v. Allahabad Bank and others a case where property had been mortgaged in 1979 by it’s owners to the Bank. The Bank filed a suit for recovery of the loan in 1987, but prior thereto in 1985, the mortgaged property was sold in 1985 to the plaintiffs. In auction sale held by the Court the property was sold in 1993, sale certificate was also issued to him and he was put on possession in 1997. The Supreme Court reiterated that a mortgagor has a right of redemption even after sale has taken place pursuant to final decree but before confirmation of sale, but the plaintiffs therein lost the right to sue for redemption of the mortgaged property by virtue of the proviso to Sec.60, no sooner that the mortgaged property was put to auction sale in a suit for foreclosure and sale certificate was issued in favor of the auction purchaser. Thereafter there remained no property mortgaged to be redeemed. So the plaintiffs, who purchased the property from the mortgagor in private sale cannot sue for redemption.
II. The law relating to the availability of right of redemption after the unamended Sec.13(8) was enacted:
Now we shall consider whether the enactment of a provision like Sec.13(8) of the SARFAESI Act has made any change in this law? Section 13(8) of the SARFAESI Act as originally enacted stated as under:-
“Sec.13.
…
(8) If the dues of the secured creditor together with all costs, charges and expenses incurred by him are tendered to the secured creditor at any time before the date fixed for sale or transfer, the secured asset shall not be sold or transferred by the secured creditor, and no further step shall be taken by him for transfer or sale of that secured asset.”
Thus this provision seems to suggest that only if full payment of dues were paid by the date fixed for sale, the right of redemption might be lost. But that is not the what the Supreme Court held in Mathew Varghese v. M. Amritha Kumar and others.
In Mathew Varghese (Supra), after referring in para 38, pg.637 to the principle laid down in Narandas Karsondas (Supra) [that a mere conferment of power to sell without intervention of the Court in the mortgage deed itself will not deprive the mortgagor of his right to redemption, that the extinction of the right of redemption has to be subsequent to the deed conferring such power, that the right of redemption is not extinguished at the expiry of the period, that the equity of redemption is not extinguished by mere contract for sale and the mortgagor’s right to redeem will survive until there has been completion of sale by the mortgagee by a registered deed ], the Supreme Court held:
“ .. we fail to note any distinction to be drawn while applying the above said principles, even in respect of the sale of secured assets created by way of a secured interest in favor of the secured creditor under the provisions of the SARFAESI Act, read along with the relevant rules. We say so, in as much as, we find that even while setting out the principles in respect of redemption of a mortgage by applying Sec.60 of the TP Act, this Court has envisaged the situation where such mortgage deed provided for resorting to the sale of the mortgaged property without the intervention of the Court”
In para 39 at pg.638 it was emphasized again in the following terms:
“ … … We find no reason to state that the principles laid down with reference to Section 60 of the TP Act, which is general in nature in respect of all mortgages, can have no application in respect of a secured asset created in favor of a secured creditor, as all the above stated principles apply on all fours in respect of a transaction as between the debtor and secured creditor under the provisions of the SARFAESI Act.”
Therefore as per the decision in Mathew Varghese (supra), the right of redemption of the mortgagor/borrower is not extinguished until the sale certificate is issued and the sale is registered in favor of the auction purchaser even where the sale is held under the SARFAESI Act (as is the position as per Sec.60 of the Transfer of Property Act). It does not get extinguished on the date fixed for sale, i.e. the date of public auction/ e-auction (though Sec.13(8) says so).
The Supreme Court then went on to make a very important observation in para 41 at pg.639 as under:
“… we wish to state that the endeavor or the role of a secured creditor in such a situation while resorting to any sale for the realization of dues of a mortgaged asset, should be that the mortgagor is entitled for some lenience, if not more to be shown, to enable the borrower to tender the amounts due in order to ensure that the constitutional right to property is preserved, rather than it being deprived of.” (emphasis supplied)
III. The law relating to the availability of right of redemption after the amendment to Sec.13(8) was enacted in 2016 w.e.f. 1.9.2016: Vide Act 44 of 2016, the unamended Sec13 (8) was substituted by the amended Sec13 (8) as under:-
“ Sec.13
…
(8) Where the amount of dues of the secured creditor together with all costs, charges and expenses incurred by him is tendered to the secured creditor at any time before the date of publication of notice for public auction or inviting quotations or tender from public or private treaty for transfer by way of lease, assignment or sale of the secured assets,—
(i) the secured assets shall not be transferred by way of lease assignment or sale by the secured creditor; and
(ii) in case, any step has been taken by the secured creditor for transfer by way of lease or assignment or sale of the assets before tendering of such amount under this sub-section, no further step shall be taken by such secured creditor for transfer by way of lease or assignment or sale of such secured assets.”
It is the contention of the counsel for the petitioners that the law relating to redemption of mortgage was that such a right was incidental for the subsistence of mortgagor so long the mortgage itself subsists, that such a right cannot be extinguished except by the Act of parties or by the decree of Court, and a mortgage being security for the debt, the right of redemption continues although mortgagor failed to pay the debt at the due date, and in India it is only on execution of conveyance, the right of redemption gets extinguished. He contended that the amendment to Section 13(8) of the SARFAESI Act vide Act 44 of 2016 had no bearing on the right of redemption available to a mortgagor and the law in India continues to be the same.
He also placed on record the Report of the Joint Committee on the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill, 2016, on the basis of which 2016 Amendment of Section 13(8) of the SARFAESI Act was proposed and made; and the decision of the Telangana and Andhra Pradesh High Court in M/s Concern Readymix, rep. by its Proprietor v. Authorised Officer, Corporation Bank, Zonal Office and another.
Counsel for the respondents, however, refuted the said contentions and relied upon the decision of the Supreme Court in Shakeena and another v. Bank of India and others. They contended that prior to the amendment of Section 13(8) of the SARFAESI Act, the right of redemption could be exercised by the mortgagor at any time before the date fixed for sale or transfer, and after the amendment made in 2016 such right of redemption can be exercised before the date of publication of notice for public auction or inviting quotations or tender from public or private treaty for transfer. They disputed the contention of the counsel for the petitioners that the right of redemption of the mortgagor/borrower continues till the transfer of the secured asset is made by way of issuance of a sale certificate to the auction purchasers.
This being a very important issue requires consideration by this Court because in the instant case prior to the sale by the 1st respondent-Bank, the Writ Petition had been filed, and it is the contention of the petitioners that in view of the order dt. 12.04.2019 the sale itself has not been confirmed and sale certificate has not been issued, and so the petitioners’ right to redeem their residential house, which has been mortgaged to 1st respondent-Bank, survives.
It is interesting to note that para 24 of the Report of the Joint Committee referred to above deals with the proposed amendment to Section 13(8) of the SARFAESI Act and gives a heading “Provisions to stop secure creditor to lease or assignment or sale in the prescribed conditions – Amendment to Section 13(8) of the SARFAESI Act.”
Thus the amendment was proposed w.r.t. when to stop the secured creditor from selling/transferring the secured asset. The words ‘when to stop the exercise of right of redemption by the borrower/mortgagor’ were not used.
In the said Report, at pg.12, Clause 11(ii) of the Bill which proposed to amend Section 13(8) of the SARFAESI Act is noted. After extracting the existing Section 13(8) of the Act which stands as under:-
“If the dues of the secured creditor together with all costs, charges and expenses incurred by him are tendered to the secured creditor at any time before the date fixed for sale or transfer, the secured asset shall not be sold or transferred by the secured creditor, and no further step shall be taken by him for transfer or sale of that secured asset.”
the proposed modification to Section 13(8) is set out also at pg.12 as under:-
“(8) Where the amount of dues of the secured creditor together with all costs, charges and expenses incurred by him are tendered to the secured creditor at any time before the date fixed for lease, assignment or sale of the secured assets,-
(i) the secured assets shall not be leased, assigned or sold by the secured creditor; and
(ii) in case, any step has been taken by the secured creditor for lease or assignment or sale of the assets before tendering of such amount under this sub-section, no further step shall be taken by such secured creditor for lease or assignment or sale of such secured assets.”
Strangely, on the next page at page 13, the following is stated:-
“The Committee after examining the proposed amendment and the existing Rules in this regard decide to modify proposed Clause 11(ii) [section 13(8) of the principal Act] as under:
“(8) Where the amount of dues of the secured creditor together with all costs, charges and expenses incurred by him is tendered to the secured creditor at any time before the date of publication of notice for public auction or inviting quotations or tender from public or private treaty for transfer by way of lease, assignment or sale of the secured assets,-
(i) the secured assets shall not be transferred by way of lease, assignment or sale by the secured creditor; and
(ii) in case, any step has been taken by the secured creditor for transfer by way of lease or assignment or sale of the assets before tendering of such amount under this sub-section, no further step shall be taken by such secured creditor for transfer by way of lease or assignment or sale of such secured assets.”
Nothing is mentioned as to why the proposal indicated in Page-12 was changed on page-13 differently.
Admittedly, what is stated in page-13 was passed in the Lok Sabha and the Rajya Sabha and then it became the Act 44 of 2016 and came into effect on 01.09.2016.
But the important thing to note is that this Report does not indicate that the Committee had even considered Section 60 of the Transfer of Property Act, 1882, which provides the general law of right to redeem a mortgaged asset of a mortgager vis-a-vis the provisions of the SARFAESI Act.
It no where says that there was an intention to bring about a change with regard to the time before which a mortgagor can exercise his right to redeem the mortgage.
Even the heading of Para 24 of the Report which says “Provisions to stop secure creditor to lease or assignment or sale in the prescribed conditions – Amendment to Section 13(8) of the SARFAESI Act” seems to suggest that the focus of the Committee was on the date when the secured creditor’s right to lease or assignment or sale would stop.
In our considered opinion, it is clear that the legislature did not have any intention to deal with the right of mortgagor to redeem the mortgage when they amended Sec.13(8) or to modify it in any manner; and amendment cannot be said to have intended to modify the existing law which continued even when the un-amended Section 13(8) of the SARFAESI Act was in force. The amended Sec.13(8) was intended to only deal with the date when the secured creditor’s right to transfer the secured asset should stop and nothing more.
This aspect was also considered by a Division Bench of the Telangana and Andhra Pradesh High Court presided over by Justice V. Ramasubramanian ( as his Lordship then was) in M/s Concern Readymix, rep. By its Proprietor (Supra).
The Division Bench in M/s Concern Readymix, rep. By its Proprietor (Supra) observed that the first distinction between unamended Section 13(8) and amended Section 13(8) made through Act 44 of 2016 is that before amendment, the facility of repayment of the entire dues along with costs, charges and expenses, was available to the debtor at any time before the date fixed for the sale or transfer. But after the amendment, the facility is available upto the time before the date of publication of notice for public auction or inviting quotations or tender from public or private treaty. The second distinction was that the un-amended Section 13(8) did not provide for the contingency when the dues are tendered by the borrower before the date of completion of the sale or lease, but after the issue of notice. But the amended sub-section (8) takes care of the contingency where steps have already been taken by the secured creditor for the transfer of the secured asset, before the payment was made. The Division Bench held that except these two distinctions, there is no other distinction.
After referring to the corresponding amendments made under Rule 9 (1) of the Security Interest (Enforcement) Rules, 2002 w.e.f. 04.11.2016, the Division Bench in M/s Concern Readymix, rep. By its Proprietor (7 Supra) held:-
“13. What is important to note both from the amended and unamended provisions of Section 13(8) and Rule 9(1) is that both of them do not speak in express terms, about the equity of redemption available to the mortgagor. The amended Section 13(8) merely prohibits the secured creditor from proceeding further with the transfer of the secured assets by way of lease, assignment or sale. A restriction on the right of the mortgagee to deal with the property is not exactly the same as the equity of redemption available to the mortgagor. The payment of the amounts mentioned in Section 13(8) ties the hands of the mortgagee (secured creditor) from exercising any of the powers conferred under the Securitisation Act, 2002. Redemption comes later. But unfortunately, some Courts, on a wrong reading of the decision of the Supreme Court in Mathew Varghese v. M. Amritha Kumar, (2014) 5 SCC 610, have come to the conclusion as though Section 13 (8) speaks about the right of redemption. The danger of interpreting Section 13(8) as though it relates to the right of redemption, is that if payments are not made as per Section 13 (8), the right of redemption may get lost even before the sale is complete in all respects. But in law it is not. It may be seen from paragraphs-34 to 36 of the decision of the Supreme Court in Mathew Varghese that the Supreme Court took note of Section 60 of the Transfer of Property Act and the combined effect of Section 54 of the Transfer of Property Act and Section 17 of the Registration Act to come to the conclusion that the extinction of the right of redemption comes much later than the sale notice. Therefore, we should first understand that the right of redemption is not lost immediately upon the highest bid made by a purchaser in an auction being accepted.
14. Perhaps the Courts were tempted to think that Section 13 (8) speaks about redemption, only on account of what is found in Rule 3(5) of the Security Interest (Enforcement) Rules, 2002. Rule 3(5) inserted by way of amendment with effect from 04-11-2016 states that the demand notice issued under Section 13(2) should invite the attention of the borrower to the provisions of Section 13(8), in respect of the time available to the borrower to redeem the secured assets. Today, it may be convenient for one borrower to contend that the right of redemption will be lost immediately upon the issue of notice under Rule 9(1). But if it is held so, the same would tantamount to annulling the relevant provisions of the Transfer of Property Act, which do not stand expressly excluded, insofar as the question of redemption is concerned.” (emphasis supplied)
We have been informed that the decision in M/s Concern Readymix, rep. By its Proprietor (7 Supra) was challenged in the Supreme Court by the Corporation Bank, and vide order dt. 26.08.2019 in Diary No.28967 of 2019, the same was dismissed.
The view taken by the High Court for the State of Telangana and Andhra Pradesh in M/s Concern Ready Mix (Supra) commends itself to us and we accept and approve the same.
We shall now consider the judgment of Supreme Court in Shakeena and another (supra) cited by the counsel for 1st respondent. In that case, sale certificate had been issued in favour of the auction purchasers on 06.01.2006 and a Writ Petition was filed on 19.01.2006 challenging the auction and it was registered on 18.9.2007. The Court held that the appellants had failed to make a valid tender of amounts due or exercise their right of redemption in a manner known to law until the registration of the sale certificate on 18.09.2007 and that the right of redemption stood obliterated on 18.09.2007. The statement therein in para 29 that as per the amended provision stringent conditions have been stipulated that the tender of dues to the secured creditor shall be at any time before the date of publication of notice for public auction does not, in our opinion, lead to an expression of opinion by the Supreme Court that the law of redemption as per Section 60 of the Transfer of Property Act would not apply in view of amendment to Section 13 (8). We do not find any discussion in the decision in Shakeena and another (supra) about the decisions of the apex court dealing with the right of redemption under Sec.60 of the Transfer of Property Act,1872. So reliance on the said decision does not help the 1st respondent.
Keeping in mind (i) the Report of the Joint Committee on the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill, 2016 discussed above, (ii) the law laid down by the Supreme Court in Mathew Varghese (supra) and (iii) the decision in M/s Concern Readymix (supra) of the Telangana and Andhra Pradesh High Court, with which we respectfully agree, we hold that the amended Section 13(8) of the SARFAESI Act merely prohibits a secured creditor from proceeding further with the transfer of the secured asset by way of lease, assignment or sale; a restriction on the right of the mortgagee to deal with the property is not exactly the same as the equity of redemption available to the mortgagor; the payment of the amount mentioned in Section 13(8) of the SARFAESI Act ties the hands of the mortgagee (secured creditor) from exercising any of the powers conferred under the Act; that redemption comes later; extinction of the right of redemption comes much later than the sale notice; and the right of redemption is not lost immediately upon the highest bid made by a purchaser in an auction being accepted. We also hold that such a right would continue till the execution of a conveyance i.e. issuance of sale certificate in favour of the mortgagee. A similar view has been taken by this Bench in M/s Hoshiarpur Roller Flour Mill Private Limited and another v. Punjab National Bank.
It would, therefore, certainly be available to the petitioners herein before the issuance of sale certificate in favour of respondents No.2 and 3. Point (a) is answered accordingly in favor of the petitioners and against the respondents.
POINTS (b) and (c)
Now we shall consider the points (b) and (c) which are as under:
“(b) Whether the petitioners are entitled to any relief?
(c) If so, to what relief?”
We shall first deal with the objection raised by the 1st respondent-Bank about the maintainability of the Writ Petition itself.
No doubt, in the decision of the Supreme Court reported in Authorized Officer, State Bank of Travancore and another v. Mathew K.C., a view was taken that a Writ Petition ought not to be entertained since the SARFAESI Act is a complete Code by itself providing for expeditious recovery of dues arising out of loans granted by financial institutions, and the remedy of appeal is provided to the aggrieved person under Section 17 of the Act before the Debts Recovery Tribunal, followed by a right to appeal before the Appellate Tribunal under Section 18 of the Act. The said principle was also followed in Authorized Officer, Punjab National Bank v. M/s KUT Private Energy, decided by the Supreme Court on 04.05.2018.
The instant Writ Petition had been filed on 27.02.2019, and after grant of interim order on 12.04.2019, it has been pending till date, i.e. for more than 34 months. To relegate the petitioners to the remedy provided under Section 17 of the SARFAESI Act at this point of time, in our opinion, would not be appropriate and would be a travesty of justice. It is also not in dispute that at this point of time there are no Presiding Officers posted in the Debts Recovery Tribunal at Chandigarh and it is not known when the said Presiding Officers would be appointed and will start functioning. Also, an important issue relating to the time upto which the right of redemption can be exercised by a mortgagor/borrower in spite of amendment made to Section 13(8) of the SARFAESI Act has been raised by the petitioners in this Writ Petition. Therefore, this plea of the respondents that the Writ Petition should be dismissed as not maintainable, is rejected.
According to the notice dt.23.11.2017 issued by the 1st respondent-Bank to the petitioners, a sum of Rs.2,62,98,047.72 was due as on 22.11.2017 by the petitioners in the loan account of the first petitioner.
In July 2018, petitioners had paid Rs.30 Lacs to the 1st respondent-Bank. Thereafter, two demand drafts of Rs.25 Lacs each dt.25.02.2019 were also handed over to the counsel for the 1st respondent-Bank during the course of hearing in CWP No.565 of 2019.
Thus, by the date of filing of CWP No.6402 of 2019 on 27.02.2019, the petitioners had paid Rs.80 Lacs.
The petitioners had informed the Tehsildar, Faridabad on 14.02.2019, at the time of taking possession of their residential house that they would pay the whole amount of dues within 90 days. They had also filed an affidavit in CWP No.565 of 2019 that they would deposit a further sum of Rs.70 Lacs within one month from 15.02.2019 i.e. by 15.3.2019.
Though a demand draft for the said amount of Rs.70 Lacs appears to have been taken on 15.04.2019 (copy is filed as Annexure-A.4 in CM No.3368-CWP of 2020), there was delay of 1 month as undertaken by them before this Court on 15.02.2019 and so the 1st respondent did not accept it. But the intention of the petitioners to clear the loan dues of the 1st respondent-Bank is evident.
On 29.03.2019, the petitioners deposited Rs.1.75 Crore (AnnexureP.10) in the no lien account of one Mr. Shirish Goel and requested the 1st respondent Bank on 29.3.2019 for settlement of their loan account and hand over possession of their residential property vide email dt. 29.03.2019 (Annexure-P.9). According to the counsel for petitioners, they had to do this because the 1st respondent-Bank refused to open a no lien account for deposit of the said amount. Even on 12.4.2019, through email a similar request was made by the 2nd petitioner to the 1st respondent Bank.
To the email dt.29.03.2019 of the 2nd petitioner, two letters bearing the same date 29.03.2019 were sent by the 1 st respondent-Bank – one letter mentioning about the dues in the loan account of the 1 st petitioner and also 2 other loan accounts without reference to the email dt.29.03.2019 of the petitioners, and another letter referring to the email dt.29.03.2019 of the petitioners but merely mentioning about the dues of the 1st petitioner of Rs.2,28,81,882.00 and informing about receiving a bid for Rs.3,12,00,000/- in the public auction held on 28.03.2019. The latter letter made no reference to the proposal of the petitioners regarding the deposit of Rs.1.75 Crore on 29.03.2019 in the no lien account of Mr. Shirish Goel and what objection it had to receive the same.
It is now contended by the counsel for the 1st respondent-Bank that deposit in the account of Mr. Shirish Goel is not a valid tender to the 1st respondent-Bank of the said amount and the petitioners should have enclosed a mandate of the said person to settle the loan dues of the 1st petitioner with the amount so deposited. But the silence of the 1st respondent in regard to the said deposit totally is un-understandable. It should have told the petitioners of this, and awaited their further action.
If its dues as per the letter dt.29.03.2019 for the 1st petitioner’s loan was only Rs.2,28,81,882.00 and petitioners had already paid Rs.80 Lacs and were offering Rs.1.7 Crore for settlement, the total amount being offered was more than Rs.2.5 Crore, much more than the loan due, and the 1st respondent could have accepted it.
Since there was no response by the 1st respondent-Bank, petitioners contend that the said amount was taken out of the account of Mr. Shirish Goel on 24.04.2019 as the said deposit was not earning any interest.
But the 1st respondent points out to this withdrawal of amount of Rs.1.7 Crore as a ground to deny any relief to the petitioners. According to it this was done two days after the instant WP was heard on 22.4.2019 and the interim order granted on 12.4.2019 was directed to continue.
We find no force in the above contention of the counsel for 1st respondent. When the 1st respondent Bank maintains a stoic silence and gives no response to the said deposit of Rs.1.7 Crore and the request of the petitioners to settle the loan from 29.03.2019 till 22.04.2019, since the whole purpose of making the deposit was rendered futile, no exception can be taken to the withdrawal of the said amount.
The counsel for the 1st respondent-Bank contends that even on 29.01.2020, the petitioners acted as if such deposit was subsisting and available for adjustment and refers to the order dt.29.01.2020 to buttress this argument and contends that the petitioners misled the Court by their conduct.
The said order dt.29.01.2020 records “Learned counsel for the petitioners submits that a sum of Rs.1.7 Crore was deposited with respondent-Bank.” Thus, the order only indicates that such deposit had been made in the past by the petitioners and there is nothing to show that the petitioners misled the Court saying that such a deposit is still available with the 1st respondent-Bank.
Another fact that was highlighted by the counsel for the petitioners was that this Writ Petition had been adjourned to 22.04.2019 to be heard along with CWP No.565 of 2019, but the petitioners’ counsel filed CM No.5896-CWP of 2019 on 12.04.2019, took a mentioning slip, got it listed and obtained orders on 12.04.2019 by the Division Bench of this Court that the sale, whose confirmation was scheduled for that day, shall not be confirmed. According to the counsel for the 1st respondent-Bank, the said application had not been served on him, and this conduct of the petitioners also disentitles them to any relief.
The non service of the CM 5896 of 2019 on counsel for the 1st respondent Bank was disputed by counsel for petitioners.
Copy of the CM No.5896-CWP of 2019 filed in the Court indicates that copy was served on one Balwinder Singh, c/o Sri I.P. Singh, counsel for the 1st respondent on 12.4.2019 itself. According to counsel for petitioners the said Balwinder Singh is the Clerk of Sri I.P. Singh.
We therefore do not accept the plea of the 1st respondent that the CM No.5896-CWP of 2019 was moved without his knowledge and behind his back the interim order was obtained on 12.4.2019.
The reason why the application CM.No.5896-CWP of 2019 was moved on 12.4.2019 by petitioners was that the auction sale in favour of the respondents No.2 and 3, conducted after filing of this Writ Petition, was to be confirmed on that very day i.e., 12.04.2019 and a specific plea was raised therein that the right of redemption of the petitioners had been exercised even at the time of taking physical possession on 14.2.2019 of their residential house much before the sale notice was issued on 22.02.2019, and it can still exercise it.
It is not in dispute that the short summer break of 10 days was to commence the next day i.e. from 13.04.2019 and there was every possibility of the right of redemption getting extinguished by issuance of certificate of sale in the interregnum period.
Since the file of the case would have been before the Court on 12.04.2019, and the Court would have noticed that the 1st respondent-Bank was already represented by a counsel Sri I.P. Singh and he had taken notice previously on 18.3.2019 and copy of CM No.5896-CWP of 2019 was also served on 12.4.2019 on his Clerk, and since Sri I.P. Singh, counsel for the 1st respondent was not present, the Bench issued notice of the application on 12.4.2019 and then proceeded to pass the order directing the 1st respondent not to confirm the sale, to protect the rights of the petitioners and to ensure that the Writ Petition does not become infructuous when the Court next takes up the matter on 22.04.2019.
In any event, admittedly, till today the said order dt.12.04.2019 has been in vogue, and has not been vacated.
Therefore, we do not see much force in this contention.
Likewise the failure of the petitioners to deposit the entire dues at a prior point of time either within 90 days of the filing of the affidavit on 15.02.2019 or before 15.04.2019 also cannot extinguish their right of redemption because as held in M/s L.K. Trust (Supra) there is no equity or right in property created in favor of the purchaser by the contract between the mortgagee – 1st respondent Bank and the proposed purchasers-respondents 2 and 3; only on execution of conveyance, ownership passes from one party to another; the petitioners/mortgagors cannot be held to have lost their right of redemption just because the property was put to auction; and a mortgage being a security for the debt, the right of redemption continues although the mortgagors fail to pay the debt at the due date.
The counsel for the petitioners contended that since the sale certificate has not been issued to the respondents No.2 and 3 till date, the petitioners are willing to clear the entire dues of the 1st respondent-Bank within a reasonable time and exercise their right of redemption which is still subsisting.
The decision in Shakeena – (supra) relied on by the 1st respondent-Bank is distinguishable because (a) in that case, unlike in the instant case, it was observed in para 28 that the borrower took no steps whatsoever to pay the outstanding dues to the respondent-Bank by way of a valid tender after filing of the Writ Petition, and (b) also because the Writ Petition itself was filed on 19.01.2006 in Shakeena after the sale certificate was issued on 06.01.2006, and as per the settled law, once such sale certificate was issued, the right of redemption was lost.
In contrast, Rs.50 Lacs was paid by the petitioners to the 1st respondent-Bank on 22.02.2019 in addition to Rs.30 Lacs paid in July 2018, and a demand draft of Rs.70 Lacs was taken on 15.04.2019 for payment, but since it was being offered one month late, and not within one month from the date of the undertaking given on 15.02.2019 in CWP No.565 of 2019, it was not received by the 1st respondent-Bank. This conduct indicates that the petitioners were always keen to settle their dues and had made substantial payment and took steps to make more payment.
Also it was the petitioners’ contention that they had arranged Rs.1.7 Crore to be deposited in a no lien account in the name of Mr. Shirish Goel since the Bank had refused to open a no lien account at their instance and had informed the Bank of the same on 29.03.2019 along with a request for settlement by email dt.29.03.2019, but the Bank chose to remain silent on that offer and now a technical plea of it not being a valid tender is sought to be raised by the Bank.
Had the Bank responded positively to the email dt.29.03.2019 and insisted on receiving the said payment immediately, and the petitioners had obliged, no third party interest would have been created because by then the respondents No.2 and 3 had not deposited 75% of the balance consideration out of Rs.3,12,00,000/- quoted by them. But if the petitioners had not obliged and made the payment of Rs.1.7 Crore to clear their loan dues after the Bank had insisted on such payment, then nothing prevented the Bank from proceeding to accept the bid of respondents No.2 and 3 and confirming the sale. In the latter case, this Court would not have shown any indulgence to the petitioners.
It is true that the auction purchasers had deposited by 01.06.2019 the bid amount of Rs.3,12,00,000/-, but they have been clearly informed by the 1st respondent-Bank through letter dt.29.03.2019 that the sale in their favour is subject to the outcome of the Writ Petition. So they cannot claim any prejudice.
The counsel for the auction purchasers- respondents 2 and 3 contended that that no one shall suffer by an act of the Court and cited the decision in South Eastern Coalfields Ltd. v. State of M.P. and others While we agree that such is the principle, the same cannot apply in the facts in the circumstances of the case and the respondents 2 and 3 cannot contend that entertaining the Writ Petition or granting the interim order on 12.04.2019 are mistakes committed by this Court, and merely because they had deposited Rs.3.12 Crore, they suffered some prejudice which puts them on a higher pedestal.
In our opinion, interests of justice will be served if they are compensated by refund of the amount deposited by them with the 1st respondent with a reasonable rate of interest. We remind ourselves of the pertinent observation of the Supreme Court in Mathew Varghese (6 Supra) in para 41 at pg.639 as under:
“… we wish to state that the endeavor or the role of a secured creditor in such a situation while resorting to any sale for the realization of dues of a mortgaged asset, should be that the mortgagor is entitled for some lenience, if not more to be shown, to enable the borrower to tender the amounts due in order to ensure that the constitutional right to property is preserved, rather than it being deprived of.” (emphasis supplied)
In the instant case since the right of redemption of the petitioners has not got extinguished till date because of non-confirmation of sale and non-issuance of sale certificate to the respondents 2 and 3, and since the petitioners have made substantial payments amounting to Rs.80 Lacs out of the total dues of Rs.2,28,81,882.00 as on 29.03.2019, and have shown a bona fide intention to pay the rest of the dues within a short time, we are inclined to grant relief in the Writ Petition to the petitioners subject to what is mentioned below.
Accordingly, Points-(b) and (c) are answered as under:-
(i) The Writ Petition is allowed;
(ii) Subject to the petitioners paying the entire balance outstanding dues with applicable interest to the 1 st respondent-Bank within four weeks from today, the 1st respondent-Bank shall close the loan account of the petitioners and restore possession of their residential property to them; No costs.
(iii) If not, this Writ Petition shall stand dismissed with costs of Rs.25,000/- without reference to this Court;
(iv) In the event the petitioners comply with Clause (ii) above, the amount deposited by the respondents No.2 and 3 with the 1st respondent-Bank be refunded to them with interest rate @7% per annum from the respective dates of deposit till date of refund; and such refund shall be made within one week of the petitioners’ complying with Clause (ii) above.
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