L.I.C Housing Finance Ltd. v. Housing Development Finance Corpn. Ltd. & Ors.

J.M Malik, Chairperson:— Mr. Chetan Kumar Chona along with his wife Mrs. Mohini Bala Chona and their sons Mr. Paras Chona and Mr. Eneet Chona, respondents 2, 3 and 4 herein, took housing loan from the 1st respondent Housing Development Finance Corporation Limited (for short ‘the HDFC’) in the sum of Rs. 6.50 lacs and again in the sum of Rs. 1.50 lacs on 30.7.2001 and 8.2.2002 respectively. They created equitable mortgage of their property on 30.7.2001

2. Thereafter, the said respondents also took loan from the L.I.C Housing Finance Ltd. (for short ‘LIC’) and created equitable mortgage of the same property on 1.10.2002

3. The learned DRT vide its order dated 24.1.2007 directed that the HDFC may proceed further with the auction but the sale consideration should be deposited in no-lien account. However, the property could not be auctioned. LIC also could not bring any buyer for the purchase of the said property to safeguard its interest. On 18.6.2007, Mr. Rajiv Setia and Mr. Rohit Gakhar, respondents 5 and 6 approached the HDFC for purchasing the property in question for a sum of Rs. 20 lakh. Mr. Chetan Kumar Chona was intimated by the sale notice dated 30.8.2006 that the HDFC would proceed to sell the property in question by adopting the method mentioned under Rule 8(5) of the Security Interest (Enforcement) Rules, 2002 including sale by private treaty. The offer made by Mr. Rajiv Setia and Mr. Rohit Gakhar was accepted as it was much above the reserve price fixed at Rs. 14.60 lacs. The amount was deposited by respondents 5 and 6.

4. Before me the dispute is between the appellant LIC and the 1 st respondent HDFC. The central issue revolves around the question as to who has got the preponderance or as to whether the sale proceeds of the property in question should be divided equally between the two secured creditors.

5. The learned Counsel for the appellant vehemently argued that LIC is entitled to get a share of the sale proceeds of the above said private sale. He contended that the finding given by the learned trial Court that HDFC has the first charge over the property has got no relevance. In order to buttress his argument, the learned Counsel for the appellant has cited Section. 13(9) of the SRFAESI Act, which is reproduced as follows:

“In the case of financing of a financial asset by more than one secured creditors or joint financing of a financial asset by secured creditors, no secured creditor shall be entitled to exercise any or all of the rights conferred on him under or pursuant to Sub-section (4) unless exercise of such right is agreed upon by the secured creditors representing not less than three-fourth in value of the amount outstanding as on a record date and such action shall be binding on all the secured creditors:

Provided…”

6. The Counsel for the appellant has cited two authorities in order to bring his point home. The first authority is reported in B.S.T & P.S.P Workers Union (C.I.T.U), Palakkad v. Government of India, AIR 2010 (NOC) 1061 (Ker). This is Note of Cases and Note (C) runs as follows:

“(C) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (54 of 2002), Section 13(9)—Distribution of arrears—Consortium of Banks advancing amounts to company in liquidation—Amounts realized by sale proportionately adjusted against dues of all members of Consortium—Held, that all members of Consortium are proportionately liable to deposit arrears of dues as provided under Section 13(9).”

7. The second authority cited is Shivanand Gaurishakar Baswanti v. Laxmi Vishnu Textile Mills, IV (2008) BC 578 (SC) : VI (2008) SLT 605 = Civil Appeal No. 4324 of 2008 arising out of Special Leave Petition (Civil) No. 12629/2007 decided by the Hon'ble Apex Court on 11.7.2008

8. To my mind the facts of the said cases do not dovetail with the facts of the present case. Section 13(9) of the SRFAESI Act is not applicable to the facts of this case. In this case there was no agreement between the secured creditors for joint financing of a financial asset. This is not a case of a consortium of Banks or financial institutions advancing an amount to a company in liquidation.

9. It must be borne in mind that there was no contract between the appellant and the 1st respondent. There was no agreement for holding pari passu charges between these parties. This was also not a case of second mortgage. The present case is not covered under Section 28 of the Transfer of Property Act. Rather, the present case is covered under Section 48 of the Transfer of Property Act. Section 48 of the Transfer of Property Act runs as follows:

“48. Priority of rights created by transfer—

Where a person purports to create by transfer at different times rights in or over the same immovable property, and such rights cannot all exist or be exercised to their full extent together, each later created right shall in the absence of a special contract or reservation binding the earlier transferees, be subject tos the rights previously created.”

This section reproduces the well-established equitable maxim qui prior est tempore potior est jure and lays down that the transferor cannot prejudice the rights of the transferee by any subsequent dealing with the property. In other words, if there are successive transfers of the same property, the later transfer is subject to the prior transfer. It follows that in the case of two successive mortgages, the later or puisne mortgage is subject to the prior mortgage. In the case reported in Sh. Ishar Dass Malhotra v. Dhanwant Singh, 26 (1984) DLT 377 (DB) : AIR 1985 Delhi 83 (DB)., Their Lordships, HM J Dalip K. Kapur and HMJ D.P Wadhwa were pleased to hold:

“8….It will thus be seen that a mortgage by deposit of title deeds is like any other mortgage and there is a transfer of interest in the property mortgaged to the mortgagee. The question, therefore, of the subsequent purchaser having bought the property subject to a mortgage by deposit of title deeds bona fide, with or without notice, is of no relevance. The subsequent purchaser cannot avoid the mortgage by leading evidence to show that he made all reasonable inquiries to find out if the property was subject to a mortgage by deposit of title deeds or not. Section 48 of the Transfer of Property Act does not admit of any such exception. According to this section, when a person purports to create, by transfer at different times, rights in or over the same immovable property, and such rights cannot at all exist or be exercised to their full extent together, each later created right shall in the absence of a special contract or reservation binding the earlier transferees, be subject to the rights previously created. Further, proviso to Section 48 of the Registration Act enacts that a mortgage by deposit of title deeds shall take effect as against any mortgage deed subsequently executed and registered relating to the same property. Thus, a subsequent sale cannot have priority over a mortgage by deposit of title deeds created before the sale. In my view, therefore, the Trial Court fell in an error in holding that Harjeet Singh Dhanjal the subsequent purchaser of the mortgaged property; was not liable on the ground that he took all reasonable care and acted in good faith.”

10. In Mohan Lal v. Anandbai, (1971) 1 SCC 813 : AIR 1971 SC 2177, it was held in Para 13:

“13…….. Both those courts also lost sight of the fact that, on the record, the appellant was shown to be the only creditor of Bhiwa; there were no other creditors. As a creditor, he could not be defrauded, because his loans were secured by the mortgage deeds dated 23rd March, 1949 and 26th June, 1949. A gift by Bhiwa in respect of properties already mortgaged could not in any way defeat or delay the mortgagee's right, because the donee under the gift deed could only take the properties subject to the mortgages. The transfer by the deed of gift could not in any way affect the mortgagee's rights under the mortgages.”

11. In The State v. Rajah Ram Varu, AIR 1966 AP 233 (DB), it was held in. Para 20:

“20. Thus, the foregoing discussion makes it clear that where a specific charge is created on immovable property, an equitable charge or a floating charge if any created cannot have priority. Even if there be any other specific charge created on the same property, the specific charge which is the first in point of time taken priority over the second. In a case where buildings are constructed or machinery is fixed to the earth for its beneficial use after mortgaging the land, the buildings and the machinery or plant would constitute immovable property as an accession to the land, and form part of mortgagee's security. So that, the mortgagee can claim security not merely in respect of the land mortgaged but also the buildings and the machinery fixed to the earth subsequently.”

12. It is thus clear that the prior mortgagee will always get preponderance over the subsequent mortgagees. Therefore, the dues of the HDFC whose right over the property is prior to that of LIC are to be satisfied. If there is some residue amount that amount be transferred to LIC, the appellant herein, to adjust the amount towards its loan.

13. In the appeal the appellant has called into question the auction sale, but no argument in this regard was advanced before me. I have perused the impugned order in this respect. There appears to be no infirmity or illegality in the said order. Moreover, till the last date of hearing the appellant was not able to produce any better buyer. The borrowers also failed to produce any better buyer. Consequently, the above said auction appears to be flawless. The appeal except the above said modification has no merits and, therefore, the same is hereby dismissed.

14. Copies of this order be furnished to the parties as per law and another copy, along with lower Court records, be sent to the learned DRT.

Appeal dismissed.