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By selling the mortgaged property, borrower may not be discharged from entire liability against him


The Supreme Court bench comprising Justices M. R. Shah and Sanjiv Khanna was recently hearing a case and held that the order passed by the Division Bench of the High Court directing to release the mortgaged property/secured property and to handover the possession, as well as the original title deeds to the borrower on payment of a total sum of Rs.65.65 lakhs only, against the total dues Rs.1,85,37,218.80/ was contrary to Sub-section (8) of Section 13 of the SARFAESI Act.


It is required to be noted that by the impugned judgment and order the Division Bench of the High Court had directed the bank–secured creditor to release the secured property and handover the possession along with original title deeds of the residential/housing property in question to the borrower on payment of a total sum of Rs.65.65 lakhs. Thus, by the impugned judgment and order the Division Bench of the High Court had released the secured property/mortgaged property on payment of a total sum of Rs.65.65 lakhs against the total dues which were such as on 07.01.2013 was Rs.1,85,37,218.80/.


The Bench noted, that from the impugned judgment and order passed by the High Court, it appears that the Division Bench of the High Court has treated and/or considered the market value of the mortgaged property at Rs.71 lakhs. The DRT when initially granted the interim relief in favour of the borrower which was the subject matter before the DRAT and the learned Single Judge and thereafter before the Division Bench of the High Court, directed to handover the possession of the mortgaged property to the borrower on payment of Rs.48.65 lakhs which was the reserve price/base price. The possession was taken over by the bank under the provisions of the SARFAESI Act and after following the procedure as required under Section 13 of the SARFAESI Act, the mortgaged property was put to auction and at that stage, the borrower preferred an appeal/application before the DRT under Section 17 of the SARFAESI Act and as such the said appeal can be said to be technically pending as the order dated 17.01.2014 passed by the DRT was an interim order.


When the auction proceedings were initiated under Section 13 of the SARFAESI Act and after the bank took over the possession under Section 14 of the SARFAESI Act as per Sub-section (8) of Section 13 of the SARFAESI Act the secured asset shall not be sold and/or transferred by the secured creditor, where the amount dues of the secured creditor together with all costs, charges and expenses incurred by him is tendered by the borrower or debtor 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.


In the present case though as on 07.01.2013, the dues were Rs. Rs.1,85,37,218.80/- and without the secured property was sold in a public auction the Division Bench of the High Court has directed to release the mortgaged property and handover the possession along with original title deeds to the borrower on the borrower depositing/paying a total sum of Rs.65.65 lakhs only. At this stage, it is required to be noted that Rs.65.65 lakhs were not the amount realized by selling the mortgaged property in a public auction. It was only the highest bid received and before any further auction proceedings were conducted, the DRT passed an interim order directing to handover the possession and handover the original title deeds on payment of Rs.48.65 lakhs which was the base price, which was the subject matter before the DRAT and before the learned Single Judge.


"Therefore, the impugned judgment and order passed by the Division Bench of the High Court directed to release the mortgaged property/secured property and to handover, the possession, as well as the original title deeds to the borrower on payment of a total sum of Rs.65.65 lakhs only, is contrary to Subsection (8) of Section 13 of the SARFAESI Act", the Supreme Court noted.


The Bench observed, "Even otherwise on making the payment i.e. Rs.65.65 lakhs against the total dues Rs.1,85,37,218.80/as on 07.01.2013 the entire liability outstanding against the borrower cannot be said to have been discharged."


Even if the mortgaged property would have been sold in a public auction say for an amount of Rs.71 lakhs and the bank has realized Rs.71 lakhs by selling the mortgaged property, in that case also the liability of the borrower to pay the balance amount would still continue. By selling the mortgaged property/secured property it cannot be said that the borrower is discharged from the entire liability outstanding against him. The liability of the borrower with respect to the balance outstanding dues would still be continued. Therefore, the Division Bench of the High Court has erred in directing to release the mortgaged property/secured property and to hand over the possession along with the original title deeds to the borrower on payment of a total sum of Rs.65.65 lakhs only.


Unless and until the borrower was ready to deposit/pay the entire amount payable together with all costs and expenses with the secured creditor, the borrower cannot be discharged from the entire liability outstanding. Therefore, as such, no order could have been passed either by the DRT and/or by the Division Bench of the High Court to discharge the borrower from the entire liability outstanding and to discharge the mortgaged property and hand over the possession along with the original title deeds to the borrower. As such the learned Single Judge rightly set aside the orders passed by the DRT as well as by the DRAT considering Section 13(8) of the SARFAESI Act. The learned Single Judge was right in setting aside the order passed by the DRT confirmed by the DRAT. The Division Bench of the High Court has erred in interfering with the order passed by the learned Single Judge and has erred in directing to release the mortgaged property/secured property and handover the possession along with the original title deeds to the borrower on payment of a total sum of Rs.65.65 lakhs only.


However, at the same time, the order dated 17.01.2014 passed by the DRT was an interim relief order in SA No.9/2014 and therefore even if the interim relief order was set aside by the Supreme Court the appeal/application will have to be decided and disposed of on merits and on whatever grounds which may be available to the borrower. However, at the same time, the bank cannot be restrained from selling the mortgaged property by holding the public auction and realise the amount and recovering the outstanding dues, unless the borrower deposits/pay the entire amount due and payable along with the costs incurred by the secured creditor as per Section 13(f) of the SARFAESI Act.


In view of the above and for the reasons stated above the present appeal succeeded.


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