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“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….”, observed the Top Court on Thursday.

A Division bench of Justices MR Shah and Sanjiv Khanna made this observation while dealing with an appeal filed by Bank of Baroda against an order directing it to release the property and handover possession along with the title deeds of the residential/housing property in question to the borrower, if the borrower deposits a further sum of Rs.17 lakhs to the bank apart from the amount already deposited by them.

The bench noted that by the impugned order the bank was directed 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 has released the   secured property/mortgaged property on payment of a total sum of Rs.65.65 lakhs against the total dues which as such as on 07.01.2013 was Rs.1,85,37,218.80/­...”, the Court remarked.

The possession was taken over by the bank under the provisions of the SARFAESI Act and after following the proceedings 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.

Interim relief was granted by the DRT which was the subject matter before the DRAT and thereafter before the Division Bench which had directed the bank to handover the possession of the mortgaged property to the borrower on payment of the reserve price/base price.

When the auction proceedings are initiated under Section 13 of the SARFAESI Act and after the bank takes over the possession under Section 14 of the SARFAESI Act as per Section 13(8) 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, the Court noted.

In the present case though the Court found that there were dues of Rs. Rs.1,85,37,218.80/­ and without the secured property being sold in a public auction the Division Bench directed to release the mortgaged property on the borrower depositing a sum of Rs.65.65 lakhs only.

Moreover, the bench noted that Rs.65.65 lakhs was not the amount realized by selling the mortgaged property in a public auction.

“….the borrower did not deposit and was not ready to deposit the entire amount of dues with secured creditor with all costs, charges and expenses incurred by the secured creditor. Therefore, it was open for the secured creditor to sell the mortgaged property which was put as a security and realize the amount by selling it in a public auction….”, the bench found.

Holding that 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, the Court found that the High Court had erred in law.

Accordingly, while allowing the appeal the Court ordered that the bank could proceed further with   the auction proceedings of the mortgaged property in auction.

Cause Title: Bank of Baroda v M/s Karwa Trading Company & Anr.