Borrower can't redeem mortgage after auction sale: Karnataka HC

BENGALURU: A borrower who has failed to avail all the benefits offered by the bank cannot say that he is willing to pay the auction amount and compensate the auction purchaser of the mortgaged property after the sale certificate is issued.
The Karnataka HC has made this observation, while rejecting the petition filed by a rice mill owner from Tumakuru, TS Nataraj, and his two sons.
The petitioners had challenged the e-auction notice dated September 8, 2021, issued by their lender, SBI, to sell their property and sought the quashing of the sale certificate issued in favour of Shri Chamundi Aldehydes, the auction purchaser. They had sought for consequential direction to consider their case under the one-time settlement (OTS) scheme.
'Petitioners' property went under gavel for 4th time'
Dismissing their petition, Justice N Nagaprasanna has noted that the Supreme Court has clearly held that once the certificate of sale is registered, no mortgage exists in the eye of law and the right of the borrower to redeem the mortgage stands extinguished.
Dwelling further on the matter, the judge has pointed out that the petitioners' property went under the gavel for the fourth time on September 29, 2021. "Every time the petitioner had notice of the auction and did not come forward to pay the reserve price and clear the property from being auctioned. The defence of the bank is that opinions of two independent valuers were taken and sale notices were affixed at conspicuous places in the asset and paper publications were also made," the judge has said.
"Even then the petitioner did not protest or come forward with any offer to the bank for the clearance of the loan and, therefore, the property was auctioned. The fourth respondent (Shri Chamundi Aldehydes) emerged as the successful bidder on September 29, 2021 and the certificate of sale came to be issued on October 7, 2021. The same was registered before the sub-registrar and the fourth respondent was put in possession of the property. For close to four years, the petitioner was given opportunities to redeem the mortgage by paying the amount. An OTS was also offered to the petitioner but he did not avail it," the judge has further noted in his order.
In October 2005, TS Nataraj, the proprietor of Sree Mahadeva Rice Mill, Tumakuru, was granted a credit limit of Rs 2 crore and a term loan of Rs 30 lakh under the small-scale industry category by the State Bank of Mysore, which later merged with the SBI, to expand his business.
The title deed of the mill's property was mortgaged with the bank as a collateral security for grant of the said loan. After 2017-18, the mill owner suffered huge losses and the account was treated as a non-performing asset in December 2017.
In October 2020, an OTS of Rs 1.7 crore was offered but the mill owner claimed that he could not avail it due to the outbreak of Covid-19. The borrower's main grievance was that the reserve price of the property was grossly reduced from Rs 12.8 crore and sold ultimately at Rs 5.8 crore.