DRAT upheld the precedence of prior mortgages, protected the rights of pre-mortgage purchasers, and permitted recovery actions against post-mortgage transactions.
The Debts Recovery Appellate Tribunal (DRAT), Deli Bench headed by Justice Brijesh Sethi (Chairperson) addressed a set of two appeals and held that a mortgage created prior to subsequent transactions retains precedence under Section 48 of the Transfer of Property Act, and mere participation by secured creditors in sale proceedings does not constitute relinquishment of security unless explicitly stated while recognizing pre-mortgage purchasers' rights over mortgaged properties and allowing recovery actions against portions acquired post-mortgage.
The Debts Recovery Appellate Tribunal (DRAT) dealt with appeals challenging the orders dated June 18, 2019, and January 6, 2020, issued by the Debts Recovery Tribunal-I (DRT), Delhi. The DRT had allowed the respondent bank to proceed against the mortgaged property, rejecting subsequent review applications on the grounds of no apparent error in its earlier order. The review applications primarily questioned the validity of the bank’s mortgage and its precedence over sale deeds executed in favour of the appellants. The DRT recognized the superior rights of an applicant who had purchased the basement of the property before the creation of the mortgage, quashing SARFAESI proceedings against this portion. Conversely, applications by other appellants, whose purchases occurred post-mortgage, were dismissed.
The DRAT upheld the DRT’s findings, affirming that the rights of the mortgagee bank, established before the appellants’ acquisitions, took precedence. It emphasized the significance of thorough due diligence by financial institutions before accepting properties as collateral. The Tribunal also acknowledged established legal principles favouring prior charges over subsequent equities, referencing pivotal judgments such as ICICI Bank Limited v. SIDCO Leather Limited and Others, REEDLAW 2006 SC 04001, which underscored the precedence of earlier charges under Section 48 of the Transfer of Property Act. Similar principles were echoed in various high court decisions, reinforcing that earlier rights prevailed when equities were equal.
In a specific claim by appellant Mr. Saurav Mohindru, who deposited ₹20 lakhs as part of a proposed settlement, the DRAT clarified that the deposit, being subject to the outcome of the Securitization Application, did not create redemption rights in his favour. As no settlement materialized, the Tribunal ordered a refund of the amount without interest, citing the absence of directions to keep the deposit in an interest-bearing account. The Tribunal found no irregularities in the orders of the DRT, dismissing all appeals except to the extent of recognizing the basement owner’s rights. The bank was permitted to proceed with its recovery actions against the remaining portions of the mortgaged property.
The DRAT's decision reinforced the principle that mortgages created before subsequent transactions retain precedence while ensuring that purchasers with pre-existing rights are protected. By quashing the SARFAESI actions against the basement and allowing recovery against other portions, the Tribunal struck a balance between the interests of the bank and rightful owners, providing clarity on the interplay between mortgages and subsequent transactions.
Mr. Sanjeev Bhandari along with Ms. Reena Jain Malhotra, Advocates represented the Appellant in both the appeals.
Ms. Rama Arora, Advocate appeared for Respondent No. 1.
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