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IN THE HIGH COURT OF BOMBAY
G.S.Patel, Neela Gokhale, JJ.
Jaylon Impex Pvt Ltd - Appellant
Versus
Punjab National Bank - Respondent
Writ Petition (L) No. 2855 of 2023
Decided On : 11-07-2023
MORTGAGE - REDEVELOPMENT OF PROPERTY - Mumbai Municipal Corporation Act, 1888, Sec. 353B - The court discussed the legal implications of mortgage rights during property redevelopment, emphasizing the need to balance the interests of the mortgagee (PNB) and the mortgagors (Petitioners). The court highlighted that while a fresh mortgage deed was not necessary, the existing mortgage would continue to apply to the newly developed property, ensuring the bank's security was not compromised. The court's decision was influenced by the need for redevelopment due to the dilapidated state of the property, as mandated by municipal regulations.
Fact of the Case:
The Petitioners owned a flat mortgaged to Punjab National Bank (PNB) as security for a loan. The building required redevelopment due to its dilapidated condition, but PNB was apprehensive about losing its security during the process. The Petitioners sought PNB's consent for redevelopment, which PNB initially denied, citing concerns over its mortgage rights.
Finding of the Court:
The court found that while PNB's concerns were valid, it was in the bank's interest to allow redevelopment, as it would ultimately enhance the value of its security. The court determined that the existing mortgage would continue to apply to the new flat post-redevelopment, thus protecting PNB's interests.
Issues: The primary issue was whether PNB could be compelled to issue a no objection certificate for the redevelopment of the mortgaged property, and how to ensure that PNB's mortgage rights were preserved during the redevelopment process.
Ratio Decidendi: The court held that a fresh mortgage deed was unnecessary as the existing mortgage would automatically extend to the newly developed property. The court emphasized the importance of balancing the competing equities of the parties involved, ensuring that PNB's rights were not diluted while allowing for necessary redevelopment.
Final Decision: The court disposed of the petition by allowing the redevelopment to proceed, confirming that PNB's mortgage would continue to apply to the new flat, and directed that all payments related to the redevelopment be made directly to PNB. No formal no objection certificate was required from PNB, as its interests were adequately protected.
JUDGMENT/ORDER
G.S.PATEL, J. - Admit.
2. The 1st Respondent is the Punjab National Bank ("PNB"). The 2nd Respondent is a cooperative society, and the 3rd Respondent is a developer.
3. To put the controversy into a summarized context, there is no dispute that a residential flat in the Society belongs to Petitioners Nos 2 to 4 and is validly mortgaged to the PNB as security for the repayment of a loan PNB gave Petitioner No.1. The Society's building and structure is dilapidated and requires redevelopment or reconstruction. The Petitioners have asked the PNB to consent to the redevelopment. The PNB apprehends that its security will be lost, even if transitorily, while the redevelopment is going on. It maintains that without an entirely fresh set of documentation such a permission is not contemplated in law. It also expresses the apprehension that it would be impossible to create a fresh mortgage of a redeveloped residential unit that is yet to be brought into existence. Nobody has any quarrel about the statement regarding the condition of the building or that it requires redevelopment. Nobody questions the debt to the bank or the mortgage in favour of the bank. The only question is how to balance the competing equities so that the interests of all are adequately protected.
4. We noted some of these aspects in our previous order of 28/6/2023 which reads thus:-
2. Mr Varanasi, learned Advocate for the Punjab National Bank, expresses an apprehension that if this redevelopment is permitted, then the specified property which is the subject matter of the mortgage deed will cease to exist in the course of that redevelopment. This is likely to create several complications for the bank in recovery as the very subject of the mortgage deed will no longer exist at least for a temporary period. He further submits that the Punjab National Bank to give a blanket no objection to such a redevelopment proposal. The Punjab National Bank is answerable to the Reserve Bank of India and requires to report on recovery proceedings. There are governing master circulars and policies in place as well. 3. In our view, we cannot compel the No Objection Certificate from the Punjab National Bank. At the same time, we see that there is a requirement for redevelopment of lthe building itself and that there are others who are unconnected with the Petitioner and the Punjab National Bank, i.e., other society members who might be adversely affected.
4. Mr Varanasi seeks time to put in a short Affidavit in Reply. We will permit that. The Affidavit in Reply is to be filed and served by Monday, 3/7/2023. We will take up the petition for disposal on merits on 5/7/2023."
5. The Affidavit in Reply is now on record. While it opposes the relief sought in the Petition, it fairly points out that draft consent terms were in fact exchanged as were discussed between the parties.
6. For completeness of record, a compact statement of facts will suffice. In 2010, PNB extended credit facilities to the 1st Petitioner for Rs.24.00 crores and this was secured by equitable mortgage of flat No. 9 on the second floor of the 2nd Respondent Society at Khar (West) Mumbai, 400 022. By 2018, the 1st Petitioner's account was declared a Non Performing Asset ("NPA"). PNB initiated recovery proceedings.
7. In August 2020, the Society received a notice from the Municipal Corporation of Greater Mumbai under Sec. 353B of the Mumbai Municipal Corporation Act, 1888 stating that the building had become old, dilapidated, dangerous and unfit for h
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