Mortgage debts – Priority of charge recovery certificate in favour of bank cannot effect prior charge of mortgage : Transfer of Property Act – Section 48.

The Debt Recovery Appellate Tribunal vide order dated 23.03.2011 accepted the First Respondent’s Minerals and Metals Trading Corpn’s. (MMTC) plea that the mortgage inuring in its favour had to prevail over the PSB’s claim in execution of a money decree and directing that proceeds from the sale of a property by the Recovery Officer be used first to satisfy MMTC claim. The Punjab and Sind Bank aggrieved by the order approached the Hon’ble Court.

The Hon’ble High Court observed that if the mortgage exists, it will create a prior charge over the property, being prior in time vide section 48 of Transfer of Property Act, 1982 (the TP Act). In the instant case, prior mortgage was created by deposit of title deeds in favour of MTC) Subsequently, the mortgagor also obtained cash credit facilities from Bank and defaulted in payment. MMTC invoked arbitration clause and procured award in its favour. The Bank initiated recovery proceedings under The Recovery of Debts Due to banks and Financial Institutions Act, 1993 (the RDDBFI Act). The award of arbitrator was sought to be executed as decree of Civil Court. The fight was between the two lenders over the priority of claims.

The Court held that the non obstante clause in section 34 of the RDDBFI Act would not override the prior charge. The non obstante clause would operate only where there is a conflict. The applicable rules themselves envision a situation where the Recovery officer is confronted with a property that is already charged. If an earlier mortgage existed it would take prior claim by virtue of section 48 of the TP Act.

The fact that the mortgage debt must be enforced by sale through a separate civil suit does not obviate the mortgage itself. So far as the Debt Recovery Officer concerned, Rule 11 merely requires him to investigate if evidence of a prior charge on the property exists, and then proceed accordingly. His task is not to finally give effect to the mortgage debt, nor is to deny its existence in law. His determination is not final and is subject to a civil suit that may be filed in that regard.