Bank has right over mortgaged land: HC

NT Correspondent

Bengaluru: When a mortgaged land is acquired by the authorities, the mortgagee is entitled to the compensation that is paid for it, the High Court of Karnataka has said.

Citing the ‘Doctrine of Substituted Security’ that is incorporated into the Transfer of Property Act, the HC in a recent judgment said, “The mortgagee is, for the purpose of his security, entitled in lieu of only to the mortgaged property, to anything that is substituted for it. If, by a process of law or by a compelling situation sanctioned by law, the security given to a creditor for the repayment of debt is changed into something other than a property, the mortgagee gets rights over the substituted security namely, the changed one ie, the compensation or the like.”

Justice Krishna S Dixit heard the petition filed by DCB Bank Limited against the Special Land Acquisition Officer (SLAO) of the Tumakuru-Chitradurga-Davangere new direct Railway line project and Channakeshava Reddy, a resident of Chitradurga and a debtor to the bank. Reddy had mortgaged his land to the bank for a loan. The same land was acquired for the Railway project.

The Bank gave a representation to the SLAO under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act to deposit the compensation amount to the loan account of Reddy toward repayment of the loan he had secured by mortgaging the property.

When the SLAO did not consider the representation, the Bank approached the HC. The HC said that when the mortgaged property has been acquired, the amended provisions of Section 73 of the Transfer of Property Act becomes evocable.

Sub section 2 of Section 73 says, “Where the mortgaged property or any part thereof or any interest is acquired under the Land Acquisition Act, 1894, or any other enactment or the time being in force governing the compulsory acquisition of immovable property, the mortgagee shall be entitled to claim payment of mortgage money, in whole, or in part, out of the amount due to mortgagor as compensation.”

Considering this the HC said that since the I Additional District Judge of every district is designated as the Authority for the adjudication of such disputes, “the SLAO ought to have referred the matter to the said Judge for adjudication. This having not been done, there is justiciable right availing to the Petitioner (Bank) to seek appropriate writ for its enforcement.” Directing the SLAO to make the reference to the said Court, the HC ordered that “the Court after notice to all the stakeholders shall adjudge the claim of PetitionerBank, within an outer limit of one year.”

The Court also directed that the “compensation amount shall be kept in the interest earning scheme of some Nationalised Bank as a short time deposit of one year and that, the compensation shall follow its outcome.”