If Banks have to survive, borrowers must exist and not mere borrowers but productive borrowers: Del HC on whether borrowers have protection against arbitrary disposal of properties mortgaged to banks at low prices? [In-depth Report]

Delhi High Court: Asha Menon, J., expressed that,

The Banks seek collaterals and security to prevent losses to themselves. It is, but reasonable, to expect the Banks such as the respondent, to also respect the right of the borrowers to maximize their profits from the sale of collaterals/securities by the banks.

In the instant matter, the petitioner had secured a loan of Rs 20 lakhs from the respondent against the mortgage of a plot. Since the petitioner defaulted in the repayment of the loan, a suit was filed by the respondent along with the sale of the mortgaged property in case of non-payment.

Petitioner claims that the interest upon the decretal amount was simple and subject to RBI Guidelines. In 1994, the petitioner went into liquidation and defaulted in making payments. This resulted in a final decree being passed on 20-08-1996 directing the sale of the mortgaged property.

Petitioners grievance was two fold: One was that the respondent had wrongly calculated the interest liability of the petitioner by taking a compound rate and thus exceeding 18% which was the upper limit fixed by the RBI.

Secondly, despite the respondent’s valuer fixing the valuation of the property at more than Rs 24 crores, when the property was to be put for auction, it reduced the reserve price to Rs 16,00,00,000/- from Rs 18,13,00,000/- and thereafter, during Covid-19 pandemic times when real estate prices were depressed, chose to seek court directions to reduce the price further to Rs 13,75,00,000/-.

Analysis, Law and Decision

With respect to the grievance of the petitioner that the value of the property had been arbitrarily depressed causing immense loss to the petitioner, Bench stated that

Though it cannot be overlooked that the petitioner is singularly responsible for the amount repayable to the respondent increasing exponentially over decades, by not adhering to its undertakings for making payments on time, even when the respondent has been open to some accommodation, the petitioner cannot be so penalized that it should be made to suffer grave prejudice on account of any arbitrary action taken by the respondent.

Court added that, while it does make business sense for the respondent to minimize its losses, the said objective cannot authorize the respondent or any other similarly placed institutional decree holders, to force penury on its erstwhile customer.

On query by this Court, the respondent’s counsel submitted that by 30-09-2020, the loan which was originally for a sum of Rs 20 lakhs, taken on 4-11-1987, had become Rs 15,12,36,049.45 and further submitted that Rs 13,75,00,000/- which was the consideration for the mortgaged property would still leave a balance of about Rs 2 crores as due and payable on the loan, which the respondent would be recovering from the petitioner against other assets.

In view of the above background, the question for consideration was: Whether borrowers would have no protection against arbitrary disposal of the properties mortgaged to banks and financial institutions at low prices?

Bench emphasised that, while the attempt of the banks and financial institutions such as the respondent to minimize their losses makes good business sense, there cannot be a free run for them at the cost of the borrowers who have mortgaged to them or furnished valuable property as security to assure repayment, which are worth multiple times the value of the loan.

Non-Payment of loans 

Court expressed that non-payment of loan cannot be countenanced but where the Banks seek to sell the immovable properties that are provided as security including through mortgage, it is incumbent on them to be earnest in their efforts so that the valuable security is not disposed of to the prejudice of the borrower.

It was noted that the value of the property in the year 2018 as assessed by the respondent’s valuer far exceeded the outstanding amount.

Adding to the analysis, Court pointed that though when the respondent had come into the possession of the mortgaged property on 13-04-2018, and as on 18-05-2018, the property was worth more than Rs 24 crores, while it remained in the hands of the respondent, the value of the same property had plummeted by about half. It may be that in the Covid-19 pandemic period, the Real Estate sector has seen some diminished activities, but it cannot be overlooked, that it was in the year 2019 itself, that the respondent had sought to revise downwards the value of the mortgaged property from Rs 24,16,78,125/-, to Rs 18,13,00,000/- to Rs 16 crores and thereafter to Rs 13,75,00,000/-.

In the present case, the prime commercial property originally worth more than Rs 24 crores has been purportedly sold for almost half the price with no one responsible. This kind of situation has to be avoided for which the Executing Court will have to maintain a vigilant eye on the auction proceedings.

Lastly, the High Court opted the option of directing the Executing Court to record a satisfaction of the Preliminary Decree dated 21-02-1992 and the Final Decree dated 20-08-1996 while issuing the Sale Certificate to the auction purchaser recording that no further dues against this loan remain outstanding and payable by the petitioner to the respondent.

Therefore, the parties have been directed to appear before the Executing Court on 6-09-2021. [Pushpa Builder Ltd. v. Vaish Cooperative Adarsh Bank Ltd.,  2021 SCC OnLine Del 4256, decided on 2-09-2021]

Advocates before the Court:

For the Petitioner: Anant Aggarwal, Advocate

For the Respondent: Surender Chauhan, Advocate with Sunil Jain, DGM and Sunil Dogra, Manager (Legal)

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