Can Bank Recover the balance due even after selling of your mortgage property?

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                                                          Shubham Budhiraja[1]




Not when bank have delayed in auction and due to such delay, market value has reduced which result in balance due.

Example, Suppose you have taken a bank loan of R.S 1 Crore by mortgage your immovable property worth R.S. 1.2 Crore & you have made a default in repayment in year 2019 and through legal action, bank attached the property in year 2019 to recover its dues. The bank instead of auction the property in year 2019/2020 has waited a long which led to reduction of its market value to R.S. 80 LAKH at time of auction. The court held that the bank cannot now recover balance 20LAKH because downgrade of value was due to delay caused by bank. The bank is duty bound to take actions to maximize the value of assets 


Pushpa builders v. Vaish Cooperative Bank, Delhi High Court, September 2021

Company took a loan from bank which led to default and recovery suit filed and preliminary decree passed in nature of compromise under Order 23 R3 but later company made default in installment and bank filed execution petition. The Bank being a decree holder gets the property as attachment through execution but it keeps applying to downgrade its value which led to outstanding dues. The Bank could have sold it but it was attempting to downgrade its value which led to dues and now bank is asking for those dues by filling recovery suit. The HC held that such act on part of decree holder was not sustainable and bank cannot recover such outstanding dues which are created due to its own act because had it sold the property earlier, it would have recovered the entire debt but it rather chooses to downgrade the value. Thus, final decree of recovery dues deem satisfy and sale deed to submit to auction purchaser. It does not make sense now to direct auction purchaser to pay outstanding due because it was bank due to which value of property was downgrade.

 

(I)            Business entities take loans, no doubt, at commercial rates of interest, in order to conduct their business activities. The Banks thrive on the business of lending. If the Banks have to survive, then borrowers must exist and not mere borrowers but productive borrowers. 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

(II)            The non-payment of loans is, of course, not to 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.

(III)             Just like in IBC, Similar balancing of interests of the stake holders would be imperative and there is an obligation on the banks and financial institutions to maximize the value of the assets which have been furnished to them as security by the borrowers while they attempt to minimize their own losses

(IV)      It is also incumbent on all Receivers of immovable property/security to maintain them in good condition and not to allow the property to waste. The creditor cannot later on claim that the property under its custody had become dilapidated and therefore, cannot command the market value. The creditor would be responsible for the loss of such value and such practices that lead to distress sales below par have to be completed rooted out not just discourage.

[1] Company Secretary, LLB Final Semester DU, Bcom(H), Shubhambudhiraja02@gmail.com


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