Bank Can't Refuse NOC For Release Of Mortgaged Property After Receiving Sale Consideration From Third Party: Gujarat High Court

"It is not open for the Bank to fasten indirect liability of the respondent No.2 – Vinayak Fabrics to the the respondent No.1 Bank in respect of loan advanced to M/s. Jay Ganesh Roadlines wherein respondent No.2 – Vinayak Fabrics is a guarantor. The respondent Bank is bound by the contractual agreement between the writ-applicant and the respondent Bank. It is not open for the Bank to assert that unless and until the total dues of the Bank which are due and payable by the alleged liability of M/s. Jay Ganesh Roadlines in favour of the respondent No.1 Bank are realized. The writ-applicant be denied the release of the title deed, no objection certificate/no due certificate with respect to the subject property," it observed.

Respondent No. 2 had availed financial assistance from Respondent No. 1 Bank and while availing assistance, Respondent No. 2 had mortgaged the property in question in favour of the Bank. Failure to repay the loan led the Bank to classify the account of Respondent No. 2 as a Non-Performing Asset.

Accordingly, the Bank proceeded to sell the mortgaged property to the Applicant for INR 2.5 crores with the consent of Respondent No. 2

The Bench noted that though the Bank had received the entire amount through Respondent No.2, the Bank refused to issue a certificate for releasing the charge over the property and did not hand over the title despite several reminders by the Applicant.

The Applicant primarily contested that the Bank had given no-objection for sale of the property vide a 2017 communication. Therefore, it was not open for the Respondent Bank to refrain from releasing the property.

Per contra, the Respondent Bank contested that it was not in a position to release the charge on the property as per banking norms. It submitted that all direct/indirect liability should be closed. In the instant case, Respondent No. 2 had given guarantee in another account which was also an NPA. Therefore, that liability was outstanding.

Justice Nanavati placed reliance on the law laid down by the High Court in SCA No. 13890 of 2017:

"To put it in other words, the deposit of title deeds,by which the mortgage was created by the writ-applicants, was for a specific purpose to cover an advance for a specific loan. When such is the situation, the borrower, having deposited the title deeds in order to secure a specific transaction, the Bank cannot take a stance that they could hold the title deeds for a balance due in a different loan amount, i.e. with respect of M/s. Radheshyam Fibres Private Limited, where the writ-applicant nos.2 and 3 may be guarantors. Further, the language of Section 171 of the Contract Act is explicit to the fact that the bankers are entitled to retain as a security for a 'general balance account'."

Justice Nanavati also observed that the aforesaid judgement was confirmed by the Division Bench of the High Court. Further reference was also made to Pravin Cotton Pvt. Ltd., vs. Branch Manager, Dena Bank, 2019 SCC OnLine Guj. 4201 to reach the same conclusion.

The High Court also perused the communication by Respondent No. 1 Bank to conclude that the entire amount had been deposited in favour of the Bank which was encashed, as well. Therefore, the Bank was bound by the contractual agreement between the Applicant and the Bank.

Accordingly, it was held that no subsisted liability could be said to be continued against the Applicant.

Case No.: C/SCA/18997/2019

Case Title: M/S MAHALAXMI TEXTILES A PROPRIETORSHIP FIRM THORUGH ITS PRORPRIETOR BHARTIBEN MAHESHBHAI CHEVLI v/s SYNDICATE BANK SURAT MAIN BRANCH

Citation: 2022 LiveLaw (Guj) 279

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