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New Kenilworth Hotels (P) Ltd. v. Ashoka Industries Ltd. And Others
Factual and Procedural Background
Ashoka Industries Ltd. mortgaged a hotel property to the Orissa State Financial Corporation (O.S.F.C.). After the company defaulted, O.S.F.C. took over the asset under Section 29 of the State Financial Corporation Act and invited tenders for its sale. The appellant submitted a bid of Rs 3.18 crores on 2-11-1989, but the bid was never accepted because, by order dated 16-9-1991 in OJC No. 4047 of 1989, the High Court of Orissa allowed Ashoka Industries Ltd. an option to redeem the mortgage under Section 60 of the Transfer of Property Act, 1882 (TPA).
Claiming an interest as bidder and as a licensee in possession, the appellant filed OJC No. 5392 of 1994 seeking (a) recall of the 16-9-1991 judgment and (b) leave to be impleaded and heard. On 16-8-1994 the High Court dismissed that writ petition, holding the appellant was not a necessary party and upholding the mortgagor’s statutory right of redemption. The present appeal challenges that dismissal. The Supreme Court granted leave and heard the matter.
Legal Issues Presented
- Whether the appellant, as an unsuccessful bidder and current licensee, is a “necessary party” entitled to be impleaded and heard in the writ proceedings concerning the mortgagor’s right of redemption.
- Whether O.S.F.C.’s takeover and intended sale of the property under Section 29 of the State Financial Corporation Act extinguished or curtailed the mortgagor’s statutory right of redemption under Section 60 TPA.
- Whether the Supreme Court decision in Maganlal v. Jaiswal Industries, (1989) 4 SCC 344, confined to Section 31 of the State Financial Corporation Act, governs the present controversy involving Section 29.
Arguments of the Parties
Appellant's Arguments
- Invoking the proviso to Section 60 TPA, counsel contended that once O.S.F.C. exercised powers under Section 29 of the State Financial Corporation Act it acted “in derogation” of the mortgage, thereby eliminating the mortgagor’s right of redemption.
- The appellant, having submitted the highest bid on 2-11-1989, had an enforceable interest that required the High Court to hear it before recognising Ashoka Industries’ redemption right.
- As a licensee running the hotel under an interim arrangement with O.S.F.C., the appellant claimed an independent right to participate in the proceedings.
- The ratio of Maganlal v. Jaiswal Industries was said to be inapplicable because that judgment analysed only Section 31, not Section 29, of the State Financial Corporation Act.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Maganlal v. Jaiswal Industries, (1989) 4 SCC 344 | A mortgagor retains the right of redemption until sale is confirmed; merger of mortgage debt into decretal debt does not occur until then. | The Court quoted paragraphs 13–14 to reaffirm that even where sale proceedings are underway, the mortgagor’s statutory right of redemption under Section 60 TPA survives until confirmation, thereby supporting the High Court’s order. |
Court's Reasoning and Analysis
The Supreme Court found no “justifiable reason” to interfere with the High Court’s decision, giving the following reasons:
- Inchoate Interest of the Appellant: The appellant’s bid never matured into a concluded contract; therefore it possessed only an inchoate, expectant interest insufficient to override the mortgagor’s statutory rights.
- Section 29 Does Not Defeat Section 60: Although Section 29 allows the Financial Corporation to act “as owner” for purposes of sale, that legal fiction does not nullify the mortgagor’s redemption right preserved by Section 60 TPA.
- Applicability of Maganlal: The Court rejected the argument that Maganlal is confined to Section 31, noting that its discussion of Section 60 TPA is directly relevant and supports the continued existence of the mortgagor’s right until sale confirmation.
- Status as Licensee: Any licence granted to the appellant was an interim arrangement pending sale; a licensee’s possession does not confer the status of a necessary party in litigation between mortgagor and mortgagee.
- Necessary Party Test: Because the dispute centred on the statutory redemption right between mortgagor and mortgagee, the appellant’s presence was not indispensable for complete or effective adjudication.
Holding and Implications
APPEALS DISMISSED without costs.
Immediate Effect: The High Court’s refusal to recall its 1991 judgment stands; Ashoka Industries Ltd. may continue to pursue redemption in its pending suit. The appellant remains merely a licensee without entitlement to be impleaded.
Broader Implications: The ruling reaffirms that exercise of powers under Section 29 of the State Financial Corporation Act does not extinguish a mortgagor’s redemption right under Section 60 TPA; however, the decision follows established precedent and sets no new legal principle.
Order
1. Leave granted.
2. We have heard the learned counsel for the parties. We do not think that there is any justifiable reason for interference with the order of the High Court of Orissa. The appellant filed OJC No. 5392 of 1994 in the High Court seeking an order to recall the judgment rendered by the High Court in OJC No. 4047 of 1989 dated 16-9-1991 and also to direct impleading of the appellant as a party to the aforesaid writ petition and to hear it afresh in accordance with law. That writ petition was dismissed under the impugned order dated 16-8-1994 holding that the appellant is not a necessary party to the writ petition and the contesting respondent Ashoka Industries Ltd. has a statutory right of redemption under Section 60 of the Transfer of Property Act and that, therefore, the appellant cannot be heard to contend that Ashoka Industries Ltd. have no right of redemption under Section 60 of the Transfer of Property Act.
3. Shri P. Chidambaram, learned Senior Counsel for the appellant contended that under Section 29 of the State Financial Corporation Act, for short ‘the Act’, while taking over the property, the Corporation shall act in derogation of the right as a mortgagee under Section 60 of the T.P Act. Therefore, under the proviso to Section 60 when the O.S.F.C had entered into an agreement with the appellant, it had acted in derogation of the mortgage and, therefore, the mortgagor M/s Ashoka Industries had no right of redemption. Since the appellant had already offered its bid by tender on 2-11-1989 though its bid was not accepted pursuant to the order of the court, it has an interest in the bid. It was also contended that the appellant is a licensee to run the hotel entered into with O.S.F.C and as such it is a necessary party. Therefore, it had a right to be heard, before the High Court directing M/s Ashoka Industries Ltd. by order dated 16-9-1991 to work out the right under Section 60 of the T.P Act. Thirdly, it was contended that this Court in Maganlal v. Jaiswal Industries (1989) 4 SCC 344, had decided the question only under Section 31 of the Act. It did not deal with the effect of Section 29. Therefore, the ratio has no application. We find no force in any of the contentions. It is true that the appellant had offered bid by tender on 2-11-1989 offering to purchase the hotel constructed by Ashoka Industries Ltd. and taken over by O.S.F.C and had offered a sum of Rs 3.18 crores as the sale price. Admittedly, its offer had not become final by virtue of the order of the High Court. The High Court in the order dated 16-9-1991 had given option to Ashoka Industries Ltd. to exercise the right of redemption under Section 60 of the T.P Act. In furtherance thereof Ashoka Industries Ltd. had admittedly filed a suit and that suit is still pending. Since the appellant had only an inchoate right it does not get any higher right than of a mere offerer for its consideration before sale is effected. As seen, there is no sale which is materialised. Though under Section 29 the O.S.F.C acts as an owner in putting the property to sale, it does not act in derogation of the right of the O.S.F.C as a mortgagee and Ashoka Industries as mortgagor. This Court has considered in Maganlal case (1989) 4 SCC 344 the scope of the right under Section 60 and held in paragraphs 13 and 14 thus:
“It was further held that in a suit for redemption of a mortgage other than a mortgage by conditional sale or an anomalous mortgage, the mortgagor has a right of redemption even after the sale has taken place pursuant to the final decree, but before the confirmation of such sale. In view of these provisions the question of merger of mortgage debt in the decretal debt does not arise at all.
In this view of the matter we are of the opinion that in case the provisions of Order XXXIV, Rule 5 of the Code are held to be applicable to the facts of the instant case appropriate relief can be granted thereunder as the order of confirmation of the sale passed by the High Court in favour of the first purchaser has not become absolute due to the pendency of these appeals against that order nor has the right of redemption of Maganlal yet extinguished.”
4. It is also equally settled law that in the suit for redemption unless it is a conditional sale or anomalous mortgage so long as the sale is not confirmed, the debtor has a right to deposit the entire sale money including the sale expenses and poundage fee and the court is under the statutory duty to accept the payment and direct redemption of the mortgage. In the light of the above law, it is not open to the appellant to contend that under the proviso to Section 60 of the T.P Act, the Corporation has acted in derogation of its right as a mortgagee but acted as an owner under Section 29 of the Act. As stated earlier, the limited right given to the Corporation under Section 29 is to act as an owner to bring the properties of the defaulter to sale and not in derogation of the right under Section 60. The fiction of law under Section 29 does not have the effect of wiping out the statutory right of redemption under Section 60 of the T.P Act. Therefore, the right of the mortgagee still subsists and that thereby the mortgagor is entitled to exercise the right under Section 60 of the T.P Act.
5. Further contention that the appellant had become a licensee and, therefore, it has a right to be heard has no force. It is only an interim arrangement made pending sale of the property. Therefore, the licensee does not have any right other than that to be in possession as licensee pending the dispute between the mortgagor and the mortgagee, namely, the O.S.F.C and Ashoka Industries Ltd. Accordingly, we are of the view that the appellant is not a necessary party to be heard before the order was passed by the High Court on 16-9-1991 in the writ petition directing the Ashoka Industries Ltd. to exercise the right of redemption under Section 60.
6. The appeals are accordingly dismissed but without costs.
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