Land Mortgaged To Bank Can Be Sold In Case Of Default In Loan Repayment By Allotee: Karnataka High Court

The Karnataka High Court has held that once the state government allows land granted to be mortgaged to raise a loan for the construction of a house, in case of default of repayment of the loan, the bank cannot be restrained from selling the property to enforce the mortgage, citing the non-alienation clause in the grant.

A Single Judge M I Arun held thus while quashing an endorsement dated 18-07-2023 issued by the authorities to South Canara District Central Co-operative Bank Ltd, refusing to grant permission to enforce the mortgage by bringing the property mortgaged for sale. The endorsement was issued in light of the restriction in the grant that lands should not be alienated for a period of 25 years.

The bench said “If the State is of the opinion that the allottee has misused the allotment, it is at liberty to legislate the required laws to take action against the allottee or black list the allottee or his family and deny them future benefits, but they cannot deny permission to the Bank from enforcing the mortgage.”

It thus directed Respondent Nos.2 to 4 (Deputy Commissioner) to give necessary permission to the petitioner to sell the property concerned to enforce the mortgage.

The state government had granted a free site under the Ashraya scheme to one Poornima under the provisions of the Karnataka Land Grant Rules, 1969. She raised a loan from the bank, as a security for the loan, apart from other things, mortgaged the property which was granted in her favour. However, she defaulted in repayment of the loan, thus the bank sought to enforce the mortgage by bringing the property mortgaged for sale.

The court referred to Rule 9 and said, “The conditions of the grant as well as Rule 9 of the Rules permitted the mortgage.”

Court noted that the allotment under the ashraya scheme which is a free allotment is made in favour of poor persons so that they are given a place to construct a house and live.

It said that a restriction is imposed to the effect that they cannot alienate the property for a period of 25 years, otherwise, the allottee may indulge in speculative activities and the very purpose of allotment stands defeated.

However, an exception is created to the condition of non-alienation of the property for a period of 25 years wherein the allottee is permitted to raise a loan from a Co-operative Bank by mortgaging the site which is allotted to her, so that she can get the necessary money to construct a house.

Then the court said, “The law does not expressly prohibit the mortgagee from enforcing the mortgage, selling the mortgaged property and recovering its loan within the said stipulated period. Once, law permits the mortgage of the property for the loan borrowed, the mortgagee cannot be left without any remedy.”

Following this it held, “As the law expressly permits mortgage of the property, it has to be held that irrespective of the prohibition being there for nonalienation of the land allotted, the mortgagee is entitled to sell the property while enforcing the mortgage.”

Accordingly, it disposed of the petition.

Appearance: Advocate Rakshit Kumar for Petitioner.

AGA Harish A S for R.1 TO R.4.

Citation No: 2024 LiveLaw (Kar) 477

Case Title: South Canara District Central Cooperative Bank Ltd AND State of Karnataka & Others

Case No: WRIT PETITION NO.25040 OF 2023

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