Defaulters cannot claim a share in the mortgaged property that bank has acquired, used and sold: SC
Bank defaulters have no right to make any claim for share on the sale proceeds or rent earned by the lender, ruled the Supreme Court. Kollam-based PK Thampi Raj took a loan of Rs15,000 from State Bank of Travancore (SBT) on 4 July 1981 by creating an equitable mortgage by deposit of title deeds in respect of 1.800 sq. links (one link= 0.66 feet) in Survey No.1073 of 2001 of Vanchiyoor village in Thiruvananthapuram district. However, he defaulted on repayment. In 1983, the Bank filed suit for recovery of Rs19,500 together with an interest at 13.5% per annum. On 25 August 1994, the suit was decreed and the property was put to auction by the Bank. However, since nobody came forward, the Bank itself bought the property and obtained a sale certificate from the Court on 22 February 1994.
In 2007, the Bank, by inviting tenders, sold the property for Rs10.10 lakh. At this time, Thampi Raj and his wife R Sobhana approached the Bank with a request to return the excess amount, which the Bank secured by way of sale of the property. They also sought for payment of rent that the Bank earned by letting out the property for during 8 July 1996 to May 2006. It was quantified at Rs1.41 lakh. The Bank denied sharing the sale proceeds as well as rental income.
The couple then approached Kerala HC seeking a mandamus to the Bank to return the excess sale amount in respect of the property along with the rent collected. In its counter affidavit, the Bank said, it became absolute owner of the property after obtaining a sale certificate on 22 February 1994. The Bank relied upon Section 65 of the Code of Civil Procedure to plead that it had perfected its right, title, interest and possession over the property covered by the sale certificate. The Bank also pleaded that the Writ Petitioners did not have any right over the property, which was purchased by it in the auction conducted by Court.
On 28 February 2012, the single Judge of HC dismissed the petition by holding that Thampi Raj and his wife, have no right in the property after the title had passed on to the Bank in 1994 and they cannot have any claim in respect of the rent received for the property or the proceeds of the sale conducted by the Bank.
The couple, aggrieved by the judgement, filed a writ before a Division Bench. During the pendency of the appeal, Thampi Raj died and the children of the couple were impleaded as appellants. The Division Bench took note of the fact that the Sobhana was paralyzed because of meningitis, one daughter was mentally retarded and another son was a psychiatric patient. The Bench on 15 June 2012, ordered the Managing Director of State Bank of Travancore to consider sharing of a substantial amount of profit accrued to the Bank by way of sale of the property with the respondents. The Bank refused to share the proceeds.
Again, on 19 July 2012, the Division Bench asked Board of Directors of SBT to consider directions given by the Court by its earlier order on 15 July 2012. The Board of SBT in its meeting on 10 September 2012 decided that the respondents are not entitled for any payment from the proceeds of the sale of the property. Allowing the writ petition, on 25 September 2012, the Division Bench of Justice CN Ramachandran Nair and Justice PS Gopinathan of the Kerala HC directed State Bank of Travancore to refund within two weeks, Rs6.5 lakh to R Sobhana and her children from the profit earned from the sale of their mortgaged property. The Bank then approached the apex court.
Senior Advocate RP Bhatt appearing on behalf of SBT submitted that the High Court erred in allowing the writ appeal after recording a finding that the Bank did not indulge in any illegality. According to him, the High Court ought not to have made adverse remarks against the Bank in the matter of its business transactions. He also submitted that the entire transaction could not have been dubbed as unfair. In any event, according to the Bank counsel, R Sobhana and her children cannot assert any legal right to claim a share in the proceeds of sale of the property by the Bank.
Advocate Renjith B Marar, appearing for Sobhana submitted that the family is not only in financial distress but also suffering from serious illness. He also submitted that though the family is not claiming any legal right over the property, but are entitled for some payment by taking into account the fact that they took a loan of Rs15,000 and their property was sold by the Bank for Rs10 lakh.
After hearing both the sides, the apex court Bench said, "It is clear from the facts narrated above that the Bank has not indulged in any illegality either in purchasing the property in the auction conducted by the Court in 1992 or in the sale of the property in the year 2007. The respondents have no right in claiming any share in the proceeds of the sale of the property after the Bank became the owner of the property in 1992," a Bench of Justices Anil R Dave and L Nageswara Rao said in a recent judgement
While expunging comments made by the Division Bench of Kerala High Court against SBT, the apex court said, the comments are 'unwarranted and deserve to be expunged'. "The High Court erred in directing payment of Rs6.5 lakhs to the respondents towards their share in the proceeds of sale of property by the Bank in 2007."
However, the SC was of the opinion that in the peculiar facts of the case the respondents are entitled to some relief. "They (the family) have availed a loan of Rs15,000 and due to the non-payment of the loan they have lost a property which was sold by the Bank for Rs10 lakh in 2007. It is clear from the record that the family is suffering from acute illness apart from severe financial distress. Taking into account the extreme adversity which the family is facing, we are of the opinion that the respondents are entitled for a payment of Rs5 lakh as ex-gratia," the Bench said while disposing off the appeal.