1. Loan recovery proceedings under the Recovery of Debts Act and SARFAESI Act involving mortgaged properties, including land obtained via exchange and a subsequent agreement to sell. (Para 2 , 3 , 5 , 6 , 7 , 8 , 11 , 12 )
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2017 Supreme(SC) 443
SUPREME COURT OF INDIA
Arun Mishra, S. Abdul Nazeer, JJ.
Maharaji Educational Trust - Appellant
Vs.
Housing & Urban Development Corporation Ltd. & Ors. - Respondents
Civil Appeal Nos. ……. of 2017 (Arising out of SLP [C] Nos. 9068-70 of 2017) With C.A. No. …… of 2017 (@ SLP (C) No. 5425 of 2017)
Decided On : 08-05-2017
IMPORTANT POINTS
Approbation and reprobation at the same time is not permissible.
Sale of entire mortgaged property is not necessary. Only that part of the property should be sold which is enough to satisfy the amount to be realised.
When a matter is finally heard and reserved by the Supreme Court for orders, courts below should await the result before passing any order. Concerned Recovery Officer dissociated from the proceedings.
Any part of mortgaged property cannot be exchanged. Such exchange cannot be said to be accession.
Headnote:(a) Administration of justice – Approbation and reprobation – Appellant consenting before arbitral tribunal not to sell property no. 6 – Trying to convey before Supreme Court that property no. 6 be sold first – No permissible. (Para 23)
(b) Transfer of Property Act, 1882 – Section 63 and 70 – 64 acres of land mortgaged to HUDCO by appellant – 21 acres exchanged with third party – Appellant entering into agreement of sale with SGS Constructions – Arbitral tribunal staying sale – Held, HUDCO not bound by interim order of arbitral tribunal – Has first charge on the property – Would be entitled to sell 43 acres of land. (Para 23)
(c) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 – Section 13(2) – Realisation of dues – Only that part of the property should be sold which is enough to satisfy the amount to be realised – Sale of entire mortgaged property is not necessary. (Para 25)
(2006) 3 SCC 49 – Relied upon
(d) Administration of justice – Judicial propriety – Matter pending before Supreme Court – Finally heard an reserved for orders on 31 3 2017– The same submissions as argued before Supreme Court argued before Recovery Officer – Recovery Officer passing orders on 24.4.2017 – Improper – Should have waited for decision of Supreme Court – DRT directed to dissociate the Recovery Officer from the proceedings. (Para 26)
(e) Transfer of Property Act, 1882 – Section 63 and 70 – 64 acres of land mortgaged to HUDCO – Out of that appellant exchanging 21 acres with Avas Parishad – Cannot be said to be accession – Entire property being encumbered by mortgage to HUDCO no part of it could be transferred by appellant to Avas Board as unencumbered – Exchange not permissible. (Para 29, 38)
1867-69 Vol. 2 ILR 69; (1902) ILR 29 Cal. 803; (1906) ILR 30 Bom 250; AIR 1965 Mad 185; (1933) ILR 11 Rang 322; AIR 1984 All 209; AIR 1931 All. 277; AIR 1963 Pat. 412; 146 IC 674 – Referred
(f) Transfer of Property Act, 1882 – Section 54 – Question of law whether unregistered agreement for sale creates a charge on the property – Left open. (Para 41)
(2012) 1 SCC 656; (2012) 4 SCC 148; 128 (2006) Delhi Law Times 407 (DB) – Referred
Facts of the case:
This case involves consideration of section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and sections 63 and 70 of the Transfer of Property Act, 1882.
Finding of the Court:
The appellant has to repay the loan taken from HUDCO failing which HUDCO will be entitled to sale the mortgaged property.
Result: Appeal disposed of
Legal Category Hierarchy
- banking and finance
- property law
- practice and procedure
Table of Contents
2. Dispute over whether exchanged land constitutes an accession to mortgaged property under Section 70, TP Act, and the right to marshalling under Section 56, TP Act. (Para 13 , 14 , 15 , 16 , 17 )
3. The court identified the borrower as a willful defaulter and determined that exchanged land does not qualify as an accession as the original property's identity was lost. (Para 20 , 21 , 22 , 23 , 24 , 26 , 27 , 28 , 29 , 30 , 31 , 32 , 33 , 34 , 35 , 36 , 37 , 38 , 39 , 40 , 41 )
4. Land obtained through exchange is not an accession under Section 70 of the Transfer of Property Act because the original mortgaged property is replaced, not augmented. (Para 29 , 31 , 38 )
5. Borrower ordered to settle repayment; failing which, lender may sell initially mortgaged properties, excluding exchanged land unless the agreement-holder's claim is disallowed by an arbitrator. (Para 42 )
6. What constitutes an accession to mortgaged property under Section 70 of the Transfer of Property Act?
Accession is an addition to existing property by natural growth or human labor, where the original security remains intact and a new right is acquired. This includes improvements like buildings, land formed by alluvion, or the acquisition of freehold rights over previously leasehold property. (Para 27 , 28 , 32 , 33 , 36 , 37 , 38 )
7. Does land obtained through an exchange deed constitute an accession to the original mortgaged property?
No. In an exchange, the identity of the original mortgaged property is lost. Because the property is replaced rather than augmented by an addition to the existing substance, it does not satisfy the legal requirements of accession under Section 70 of the Transfer of Property Act. (Para 29 , 31 , 38 )
8. How are the rights of a mortgagee and an agreement-holder reconciled regarding unencumbered property?
While a mortgagee holds the first charge over mortgaged properties, they cannot claim a first right to sell property that was unencumbered at the time a valid agreement to sell was entered into, as such property does not automatically become part of the mortgage security. (Para 39 )
JUDGMENT :
Arun Mishra, J.
1. Leave granted.
2. The appeals arise out of common order dated 1.2.2017 passed by the Division Bench of the High Court of Delhi at New Delhi in writ petition and two Letters Patent Appeals (LPAs) arising out of the proceedings before the Debt Recovery Tribunal, New Delhi (for short “DRT”). Maharaji Educational Trust (hereinafter referred to as “the Educational Trust”) had taken a loan of approximately Rs. 75 crores from Housing & Urban Development Corporation Ltd. (for short ‘HUDCO’) and mortgaged properties Nos.1 to 6. The Trust is running several medical colleges, dental college and 700 bedded hospitals. Besides 3000 students are said to be getting education with 700 staff members. The Trust is running several other colleges. It is alleged that its worth is more than Rs.12,000 crores. Proceedings were initiated in 2002 by HUDCO for recovery against the Trust under the Recovery of Debts due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as “the Act of 1993”). Though the land was under mortgage with HUDCO, the Trust had exchanged 21 acres of the mortgaged property out of property No.6 with U.P. Avas Evam Vikas Parishad (hereinafter referred to as “the Avas Parishad”). The exchange deed was executed on 4.5.2007. There was a dispute between the parties whether 21 acres of land which has been obtained in exchange from Avas Parishad is to be treated as mortgaged property or not. The application for recovery of loan filed by HUDCO was allowed by the DRT-II on 3.6.2008.
3. An agreement to sell had been entered into by the Educational Trust in favour of M/s. SGS Construction and Development (P) Ltd. (for short ‘SGS Constructions’) qua item No.6 of the property comprising 63.45 acres which also included 21 acres of the property obtained in exchange from Avas Parishad. The agreement was entered into for a consideration of Rs.154 crores out of which a sum of Rs.9.01 crores was admittedly paid upfront which was deposited by Trust with HUDCO. It was entered into to obtain money to wipe off dues of HUDCO. With respect to specific performance of the agreement arbitration is pending between Educational Trust and SGS Constructions, interim injunction had been passed by the arbitrator with the consent of Educational Trust not to sell the property comprised in item No.6 which is the subject matter of arbitration during its pendency. The order has attained finality. The arbitral tribunal had passed order on 15.1.2011. The Trust and its Chairman submitted an undertaking not to make any alienation for the disputed land which was subject matter of arbitration. Accordingly, status quo was ordered by the arbitrator which order is continuing to operate, is not disputed at the Bar.
4. The DRAT, in appeal vide order dated 6.10.2010 had directed the Educational Trust to pay Rs.50 crores per month to HUDCO till recovery in toto. The DRAT noted in its order that borrower wanted to settle the matter with HUDCO. In spite of taking time they did not do so. It was also noted that the borrower had no intention to apply for one time settlement at Rs.240 crores. Borrower wanted to pay Rs.240 crores whereas HUDCO was claiming Rs.250 crores. However contrary to that proposal was moved for one time settlement of Rs.75.07 crores. It was noted that the borrower had no intention for applying OTS at Rs.240 crores. Authorities were misled. It was also observed by DRAT that the action of borrower borders contempt of court due to lack of direct evidence. Action under the Contempt of Courts Act or section 340 Cr.P.C. had not been initiated. It was observed that the borrower required no sympathy at all and the entire scene was created to take a few dates. Accordingly, the order was passed to pay Rs.50 crores per month till full realization. Thereafter, in case of default, immovable property be sold and HUDCO may be permitted to bring a better purchaser. The order of DRAT has not been complied with by the Educational Trust.
5. Th
