The Bombay High Court declared the February 2019 sale of a house constructed by the Darode-Jog group in Pune to be "invalid and legally unsustainable" since it harmed the rights of the mortgage holder and ordered the housing regulator to repay the Rs.1.66 crore accrued from the transaction. IDBI Trusteeship Services, REED 2021 Bom 06213, which claimed the first charge on the property as a secured creditor, was favoured in the verdict, which was reserved on 12 March 2021 and proclaimed on 25 June 2021 by Justices S.J. Kathawalla and Vinay Joshi.
The trusteeship, located in Mumbai, had given the developer Rs.120 crore and filed a petition asking for the auction to be postponed since it owned the mortgage on the property. The judgement establishes that when a developer fails to transfer ownership of a property, a secured creditor has priority over the state government, which auctioned it to recover purchasers' dues. The Maharashtra Real Estate Regulatory Authority (MahaRERA) has instructed the Pune Collector to auction the property in order to recover dues owing to six homeowners of Darode-Padmanabh Jog's Phase-I project in Haveli, Pune. Despite the fact that the IDBI Trusteeship had protested the sale, the auction went forward. Following the auction, Gyaneshwar Kaddu and others received a sale certificate. Darode-Jog Homes issued secured, redeemable, optionally convertible debentures for a total of Rs 120 crore, according to IDBI Trusteeship. In February 2016, the two parties executed a supplemental mortgage deed for the property. In February 2018, MahaRERA issued reimbursement orders to six Padmanabh Phase I house purchasers. However, when the developer did not refund the funds, the housing authority issued the recovery warrant in April. The IDBI Trusteeship claimed it informed the Pune Collector about the mortgage on the day of the auction, 21 February 2021, and requested that the sale be postponed. The petitioner, on the other hand, claimed that the auction was held without a hearing. According to the court, while Section 169 of the MLRC states that the state government's claims have precedence over all others, it also distinguishes between arrears of income owed on account of land and amounts that are not arrears of land revenue. The court stated that the petitioner sent a legal notice on the developer in June 2018 after the developer failed to redeem the debentures on schedule and that the unpaid dues have risen to Rs.450 crore since then, as the petitioner alleged. The court agreed with the petitioner's argument that the auctioned property was road-facing, but the other mortgaged properties were contiguous pieces of land, and therefore they would fetch higher commercial value if they all were sold together as one lot. The court stated that the Collector should have considered the IDBI Trusteeship's representation before finishing the auction. It claimed that the public notice for the auction was given only two days before the auction, rather than the required 30 days. The utter haste with which the auction was held and the sale was concluded within two days of the same being announced publicly, and that too despite a serious objection being taken by the petitioner at the time of the auction, leaves much to be desired, and smacks of arbitrariness and colourable exercise of power,” the court said.
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