M/S.Canfin Homes Ltd vs The Sub Registrar

Murali Purushothaman, J

The petitioner, a Housing Finance company, has filed this writ petition for a direction to the Sub Registrar, to efface the entry of Ext. P5 Sale deed effected subsequent to Ext.P1 mortgage from the encumbrance certificate.

The 2nd respondent and her husband Mr. Justin Paul Rajan (now deceased), availed credit facilities from the petitioner bank by mortgaging the property covered by Ext.P1 sale deed admeasuring 1.82 Ares in Re-Survey No.143/12/2/3/2 of Kizhakkambalam Village along with building bearing No. II/345C. The equitable mortgage by deposit of title deed was created by the borrowers on 12.11.2011. Since the borrowers defaulted payment of installments, the petitioner initiated proceedings under the SARFAESI Act. Symbolic possession of the secured asset was taken on 31.12.2013 and when the petitioner approached the Chief Judicial Magistrate Court, Ernakulam seeking physical possession of the secured asset, the borrowers cleared the overdue and the account became performing. However, the borrowers further defaulted payments in the loan account and the petitioner again initiated proceedings under the SARFAESI Act and physical possession of the property was taken as per the orders of the Chief Judicial Magistrate Court, Ernakulam in CMP No.700/2019. Though the secured asset was put to sale, there were no bidders.

3.When the petitioner obtained Ext. P6 Encumbrance Certificate for the property, it was noticed that the property had been sold on 24.07.2014 by Mr. Justin Paul Rajan to respondents 3 and 4 as per Ext. P5 sale deed. The sale was conducted behind the petitioner's back, suppressing the fact that the property was mortgaged to the petitioner. According to the petitioner, in view of the priority of mortgagee rights the petitioner holds over the property, without discharging the mortgage debt due to the petitioner, respondents 3 and 4 cannot claim ownership over the property. It is contended that the execution of Ext. P5 Sale Deed is not binding upon the petitioner. However, since the execution of Ext. P5 Sale Deed is reflected in Ext. P6 encumbrance certificate, the prospective buyers are hesitant to purchase the property. It is therefore contended that, unless and until the said entry is effaced, the petitioner won't be able to effectively sell the property through e-auction invoking the provisions under the SARFAESI Act. Accordingly, a declaration is sought that the execution of Ext. P5 sale deed is not binding upon the petitioner in view of the priority of mortgagee rights the petitioner holds over the secured asset and will not operate against the SARFAESI proceedings initiated by the petitioner against the secured asset, and for direction to the 1st respondent to efface the entry of Ext. P5 sale deed effected subsequent to Ext. P1 mortgage, from Ext. P6 encumbrance certificate.

A counter affidavit is filed by the 2nd respondent wherein it is stated that her husband had availed the loan and he passed away while the loan was pending, and prior to his demise, he executed the alleged deed in favour of respondents 3 and 4 to escape his financial liability with certain third parties and since their whereabouts are not available, it is not possible for her to trace them and to settle the dispute with the Bank. It is stated that there has been no actual transfer of title and ownership of the mortgaged property to respondents 3 and 4 and therefore, even if the document is registered, the Bank should have accepted her offer for settlement and executed the deed of the property in her favour.

Heard Sri. C. Ajith Kumar, the learned counsel for the petitioner, Sri. John Joseph, the learned counsel for the 2nd  respondent and the learned Government Pleader. Though notice was served to respondents 3 and 4, there is no appearance for them.

The learned counsel for the petitioner submits that the right of the borrowers to redeem the mortgage has been extinguished under Section 13(8) of the SARFAESI Act. It is contended that the sale deed executed after the mortgage cannot survive in preference to the equitable mortgage created by the borrowers in favour of the petitioner as early as on 12.11.2011 vide Ext. P1. The learned counsel for the petitioner relied on the decisions of this Court in Travancore Devaswom Board v. Deputy Examiner, Local Fund Audit and Others [2020 (3) KHC 129], State Bank of India & Others v. State of Kerala & Others [2019 (4) KLT 521], Housing Finance Corporation and another v. Sub Registrar Officer & Others [2011 KHC 851] and Madhan S. v. Sub Registrar, Kollam and Others [2014 (1) KHC 249: 2014 (1) KLT 406: ILR 2014 (1) Ker.586: 2014 (1) KLJ 483: AIR 2014 Ker.54] and contends that the attachment/sale effected subsequent to the creation of equitable mortgage will not affect the right of the Bank to sell the mortgaged property and the attachments have to be effaced from the encumbrance register.

7.From the documents produced before this Court, it is evident that the sale effected in favour of respondents 3 and 4 vide Ext. P5 in respect of the mortgaged property is subsequent to the creation of equitable mortgage by the borrowers in favour of the petitioner. It is trite law that the mortgagor is disabled from further encumbering the properties without the junction of the mortgagee. In Kerala State Financial Enterprises Ltd. v. Meenachil Cooperative Agricultural and Rural Development Bank Ltd. [2004 (3) KLT 369], this Court held that a mortgagor is disabled from further encumbering the properties in any case without the junction of the mortgagee and that a liability is automatically attached to the property and it is a burden imposed upon the land and the interest in the land, by the owner of the land. The sale effected in favour of respondents 3 and 4 on 24.07.2014 vide Ext. P5 cannot therefore survive in preference to the mortgage created by the borrowers as early as on 12.11.2011. It is so declared.

In Madhan's case (supra), this Court directed the Sub Registrar to efface the attachments effected subsequent to the mortgage from the relevant records for the reason that those attachments would remain as a permanent taboo prejudicially affecting the marketability and title to the property, even though they ceased to have any legal efficacy. In the light of the dictum laid down by this Court in the above decisions, the entry of Ext. P5 sale deed in Ext.P6 Encumbrance certificate is liable to be effaced. Accordingly, there will be a direction to the 1st respondent to efface the entry of Ext. P5 sale deed from Ext.P6 Encumbrance certificate.

The writ petition is disposed of.