Supreme Court Upholds Extinguishment of Redemption Right After Auction Sale: Allokam Peddabbayya vs. Allahabad Bank (2017)

Date of the Judgment: 19 June 2017

Citation: (2017) INSC 529

Judges: Ranjan Gogoi, J., Navin Sinha, J.

Can a purchaser of a mortgaged property claim the right to redeem it even after the property has been auctioned and a sale certificate issued to the auction purchaser? The Supreme Court of India recently addressed this question in a case concerning the redemption of a mortgage. The core issue was whether the right to redeem a mortgaged property is extinguished after a court-ordered auction sale and the issuance of a sale certificate, particularly when the party seeking redemption was not initially involved in the foreclosure proceedings. The judgment was delivered by a two-judge bench comprising Justice Ranjan Gogoi and Justice Navin Sinha, with the opinion authored by Justice Navin Sinha.

Case Background

The case revolves around a property in Gorantala village, Guntur, which was mortgaged to Allahabad Bank (Defendant No. 1) by Defendants No. 3 and 4 on 15 March 1979, for a loan of Rs. 10,000. The mortgage was created by depositing the title deeds of the property. Subsequently, the bank filed a suit for recovery of the loan by selling the mortgaged property. The property was auctioned on 5 September 1993, and Defendant No. 2 was the highest bidder at Rs. 50,000. A sale certificate was issued, and Defendant No. 2 was given possession on 2 July 1997.

Prior to the auction, the Plaintiffs claimed to have purchased the mortgaged property through different sale deeds dated 12 August 1985, 20 August 1985, and 30 September 1985. After the auction sale, the Plaintiffs filed a suit for permanent injunction against Defendants No. 2 to 4, seeking to protect their possession. However, this suit and the subsequent appeal were dismissed. An execution appeal filed by the Plaintiffs was also dismissed. Subsequently, the Plaintiffs filed a suit for redemption of the mortgage.

Timeline

Course of Proceedings

The Plaintiffs’ suit for redemption of mortgage (O.S. No. 96 of 1999) was initially decreed by the Principal Junior Civil Judge, Guntur. However, the decree was reversed in appeal (A.S. No. 65 of 2002) by the VIII Additional District Judge (FTC), Guntur, who ruled that the auction sale and issuance of the sale certificate extinguished the mortgage. The High Court dismissed the Plaintiffs’ second appeal, holding that their right to redemption was extinguished by the final decree for foreclosure and the sale certificate issued to the auction purchaser. The High Court held that the right to redemption in the Plaintiffs, by stepping into the shoes of the Mortgagor under Section 59A of the Transfer of Property Act, 1882, stood extinguished in view of the final decree for foreclosure in O.S. No.68 of 1987 filed by the Bank, Defendant No.1, and the consequent sale certificate issued in favour of the auction purchaser, Defendant No.2.

Legal Framework

The Supreme Court considered the following provisions of the Transfer of Property Act, 1882:

• Section 60 of the Transfer of Property Act, 1882: This section deals with the right of a mortgagor to redeem their property. It states that a mortgagor can redeem the property by paying the mortgage money at any time after the principal money has become due. However, this right can be extinguished by the act of the parties or by a decree of a court. The proviso to Section 60 of the Transfer of Property Act, 1882 states:
  
  “PROVIDED that the right conferred by this section has not been extinguished by the act of the parties or by decree of a court.”
• Section 91 of the Transfer of Property Act, 1882: This section specifies who can sue for redemption of a mortgaged property. Besides the mortgagor, any person who has an interest in the mortgaged property or the right to redeem it can also sue for redemption. Section 91 of the Transfer of Property Act, 1882 states:
  
  “Besides the mortgagor, any of the following persons may redeem, or institute a suit for redemption of, the mortgaged property, namely,-
  (a) any person (other than the mortgagee of the interest sought to be redeemed) who has any interest in, or charge upon, the property mortgaged or in or upon the right to redeem the same;”

The Court emphasized that the right to redeem is a statutory right under the Transfer of Property Act, 1882, and it presupposes the existence of a mortgage. The right to redeem can be extinguished either by the actions of the parties involved or by a court decree.

Arguments

Appellants’ (Plaintiffs’) Arguments:

• The Plaintiffs, as purchasers of the mortgaged property, had the right to redeem it. They stepped into the shoes of the original mortgagors and had the same rights.
• Since they purchased the property before the bank’s foreclosure suit, they should have been impleaded as defendants in that suit. The decree in the foreclosure suit was not binding on them because they were not a party to it.
• A mortgage remains a mortgage until it is redeemed. Under Section 91 of the Transfer of Property Act, 1882, anyone with an interest in the property can sue for redemption.
• The Plaintiffs’ right to redeem under Sections 60 and 91 of the Transfer of Property Act, 1882 remained until the expiry of the 30-year limitation period.
• The previous suit for permanent injunction did not bar the subsequent suit for redemption.

Respondents’ (Auction Purchaser and Bank) Arguments:

• The sale in favor of the auction purchaser was complete, with a sale certificate issued and possession delivered before the suit for redemption was filed. There was no mortgage to be redeemed at the time of the suit.
• The right of redemption was extinguished by the decree in the foreclosure suit and the subsequent sale certificate, as per the proviso to Section 60 of the Transfer of Property Act, 1882.
• Despite being aware of the mortgage and auction, the Plaintiffs did not take steps to redeem the mortgage or offer to deposit the money. They only sought a permanent injunction without impleading the bank or questioning the sale.
• The Plaintiffs’ sale deeds did not mention the existing mortgage, indicating a lack of good faith.
• Under Order XXXIV of the Code of Civil Procedure, the mortgagor can offer to pay before confirmation of sale. Since the sale was confirmed before the redemption suit, no right to redemption survived.

Submissions of Parties

Issues Framed by the Supreme Court

The Supreme Court considered the following issues:

1. Whether the right to redeem a mortgaged property is extinguished after an auction sale and issuance of a sale certificate, even if the purchaser of the equity of redemption was not a party to the foreclosure suit?
2. Whether the Plaintiffs, as purchasers of the equity of redemption, could claim a right to redeem the property even after the sale certificate was issued to the auction purchaser?

Treatment of the Issue by the Court

Authorities

The Court considered the following authorities:

The Court also considered the following legal provisions:

• Section 59A of the Transfer of Property Act, 1882
• Section 60 of the Transfer of Property Act, 1882
• Section 91 of the Transfer of Property Act, 1882
• Order XXXIV Rule 1 of the Code of Civil Procedure

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Court distinguished Nagubai Ammal & Ors. vs. B. Shama Rao & Ors. [AIR 1956 SC 593]* because the proviso to Section 60 of the Transfer of Property Act, 1882 was not considered in that case.
• The Court distinguished Mangru Mahto vs. Shri Tahkur Taraknathji [(1967) 3 SCR 125]* as it dealt with Order XXXIV, CPC and Section 52A of the Act regarding purchase pendente lite.
• The Court referred to Mhadagonda Ramgonda Patil & Ors. vs. Shripal Balwant Rainade & Ors. [AIR 1988 SC 1200]* to state that mortgagor has a right of redemption even after sale has taken place but before the confirmation of sale.
• The Court referred to Mademsetty Satyanarayana vs. G. Yelloji Rao [(1965) 2 SCR 221]* on the issue of waiver of right to redemption.
• The Court distinguished Shivdev Singh vs. Sucha Singh [(2000) 4 SCC 326]* as it was not relevant to the present context.
• The Court referred to Mrutunjay Pani & Anr. v. Narmada Bala Sasmal & Anr. [AIR 1961 SC 1353]* to state that the equity of redemption may be extinguished when a mortgagee purchases the equity of redemption.
• The Court referred to B. Arvind Kumar v. Government of India & Ors. [(2007) 5 SCC 745]* to state that the right of redemption can be extinguished by the act of parties or by decree of the court.
• The Court referred to Pawan Kumar v. Jagdeo [AIR 1947 Nagpur 210]* on the interpretation of Order XXXIV CPC.
• The Court referred to L.K. Trust vs. EDC Ltd. [(2011) 6 SCC 780]* to state that the right of redemption is available unless extinguished by act of parties or decree of court.
• The Court referred to Rukmini Amma & Ors. vs. Rajeswary [dead] through LRs. [(2013) 9 SCC 121]* to state that the court considered the delay in filing the suit for redemption.
• The Court referred to Embassy Hotels Pvt. Ltd. vs. Gajaraj & Co. & ors. [(2015) 14 SCC 316]* to state that once the sale is final, the mortgagor’s right of redemption is extinguished.
• The Court referred to Bhaiya Raghunath Singh & Others vs. Musammat Hansraj Kunwar & ors. [AIR 1934 PC 36]* on the maintainability of a second suit for redemption.
• The Court referred to P.K. Unni v. Nirmala Industries [1990 (2) SCC 378]* to state that the order of the executing court got confirmed and sale certificate obtained finality.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the legal principle that the right to redeem a mortgage is extinguished by a court decree, specifically the auction sale and issuance of a sale certificate. The Court emphasized that the Plaintiffs’ rights were no greater than those of the original mortgagors and that the Plaintiffs had not taken timely action to protect their interests. The Court also noted the Plaintiffs’ awareness of the mortgage at the time of purchase and their failure to challenge the auction sale or sale certificate.

Fact:Law Ratio

The Court’s reasoning was primarily based on the interpretation of legal provisions and precedents, with a lesser emphasis on the specific factual circumstances of the case. The Court emphasized the importance of the proviso to Section 60 of the Transfer of Property Act, 1882, which states that the right to redeem can be extinguished by a court decree. The Court also considered the Plaintiffs’ conduct, particularly their failure to take timely action to redeem the mortgage or challenge the auction sale.

Logical Reasoning

Judgment Analysis

The Supreme Court held that the Plaintiffs’ right to redeem the mortgaged property was extinguished by the auction sale and the issuance of the sale certificate to Defendant No. 2. The Court reasoned that the proviso to Section 60 of the Transfer of Property Act, 1882, clearly states that the right to redeem can be extinguished by a court decree. The Court emphasized that the Plaintiffs, as purchasers of the equity of redemption, could not have rights superior to those of the original mortgagors, whose right to redeem was extinguished by the sale. The Court also noted that the Plaintiffs were aware of the mortgage at the time of purchase and failed to take timely action to redeem the property or challenge the sale. The Court observed that:

“The Plaintiffs having interest in the mortgaged property through their predecessor-in-interest and in the right to redeem the same were competent to do so under Section 91 of the Act, but subject to the limitation under the proviso to Section 60. Their rights could not be any superior or separate from that of their predecessor-in-interest.”

The Court rejected the argument that the right to redeem exists until the expiry of the 30-year limitation period, stating that:

“If the right to redeem stood extinguished by operation of the law under the proviso to Section 60 of the Act prior to the period of limitation, it cannot be contended that the right could nonetheless be enforced anytime before the expiry of limitation of 30 years. If there remained no subsisting mortgage, it is difficult to fathom what was to be redeemed.”

The Court also highlighted that the Plaintiffs did not challenge the auction sale or the sale certificate in their suit for redemption. The Court stated that:

“No challenge was laidto the auction sale or the sale certificate in the suit for redemption. The same having been issued, the right to redeem stood extinguished by operation of law under the proviso to Section 60 of the Act.”

The Court’s decision was based on a strict interpretation of the law, emphasizing that the right to redeem is not absolute and can be extinguished by a court decree. The Court’s decision underscores the importance of timely action by parties who have an interest in mortgaged property and the finality of court-ordered sales.

Final Order

The Supreme Court dismissed the appeals. The Court upheld the decisions of the High Court and the VIII Additional District Judge (FTC), Guntur, confirming that the right to redeem the mortgage was extinguished by the auction sale and the issuance of the sale certificate.