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Friday, February 11, 2022

Whether the property of the borrower can be released by paying highest bid amount without paying entire due of loan amount under sec.13[8] of SARFAESI Act? - No Unless and until the borrower was ready to deposit/pay the entire amount payable together with all costs and expenses with the secured creditor, the borrower cannot be discharged from the entire liability outstanding. Therefore, as such no order could have been passed either by the DRT and/or by the Division Bench of the High Court to discharge the borrower from the entire liability outstanding and to discharge the mortgaged property and handover the possession along with original title deeds to the borrower. As such the learned Single Judge rightly set aside the orders passed by the DRT as well as by the DRAT considering Section 13(8) of the SARFAESI Act.


Whether the property of the borrower can be released by  paying highest bid amount without paying entire due of loan amount under sec.13[8] of SARFAESI Act? - No

Unless and until the borrower was ready to deposit/pay the entire

amount payable together with all costs and expenses with

the secured creditor, the borrower cannot be discharged

from the entire liability outstanding. Therefore, as such no

order could have been passed either by the DRT and/or by

the Division Bench of the High Court to discharge the

borrower   from   the   entire   liability   outstanding   and   to

discharge   the   mortgaged   property   and   handover   the

possession along with original title deeds to the borrower.

As such the learned Single Judge rightly set aside the

orders   passed   by   the   DRT   as   well   as   by   the   DRAT

considering   Section   13(8)   of   the   SARFAESI   Act.

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.363 OF 2022

Bank of Baroda             ..Appellant (S)

VERSUS

M/s Karwa Trading Company & Anr.                  ..Respondent (S)

J U D G M E N T 

M. R. Shah, J.

1. Feeling   aggrieved   and   dissatisfied   with   the   impugned

judgment   and   order   dated   20.09.2017   passed   by   the

Division   Bench   of   the   High   Court   of   Judicature   for

Rajasthan Bench at Jaipur in D.B. Special Appeal Writ

No.349 of 2017, by which the Division Bench of the High

Court has allowed the said intra­court appeal and has

quashed   and   set   aside   the   judgment   and   order   dated

12.01.2017 passed by the learned Single Judge and has

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directed   that   if   the   respondent   ­   borrower   deposits   a

further sum of Rs.17 lakhs to the bank, the bank shall

release the property and handover possession along with

the   title   deeds   of   the   residential/housing   property   in

question to the borrower and by which the Division Bench

of   the   High   Court   has   further   directed   that   the   SA

No.9/2014 filed by the borrower before the learned Debt

Recovery Tribunal (DRT) is restored to its original number

to  be heard on  merits,  the appellant  herein  ­ Bank of

Baroda   –   financial   institution   –   secured   creditor   has

preferred the present appeal. 

2. The facts leading to the present appeal in nutshell are as

under: ­

2.1 That the appellant herein – bank granted term loan of

Rs.100 lakhs and cash credit limit of Rs.95 lakhs to the

respondent   –   borrower   (hereinafter   referred   to   as   the

borrower) against the security of two mortgaged properties

namely (i) industrial plot situated at Chittor Road, Bundi

measuring   500   Sq.Mtrs.   and   (ii)   a   residential/housing

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property   situated   at   1­Ja­27,   Vikas   Nagar,   Bundi

measuring 198 Sq.Mtrs. That the borrower failed to repay

the   term   loan   as   per   the   terms   and   conditions   of   the

agreement. The account of the borrower became NPA on

31.10.2012.   A   notice   under   Section   13(2)   of   the

Securitisation and Reconstruction of Financial Assets and

Enforcement   of   Security   Interest   Act,   2002   (hereinafter

referred to as the SARFAESI Act, 2002) dated 07.01.2013

was   served   upon   the   borrower   demanding   a   sum   of

Rs.1,85,37,218.80/­ The bank took symbolic possession of

the immovable property/residential house and also issued

a notice under Section 13(4) of the SARFAESI Act, 2002 on

22.08.2013. An application was moved under Section 14 of

the SARFAESI Act, 2002 which came to be allowed on

08.11.2013 and with the police assistance the bank took

possession of the residential house, which was one of the

mortgaged properties of the borrower, on 25.11.2013.

2.2 That thereafter the bank issued a sale notice by public

auction of the residential property dated 16.12.2013. The

reserve price fixed was Rs.48.65 lakhs for sale of the said

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secured asset in terms of the procedure prescribed under

Rule   8   read   with   Rule   9   of   the   Security   Interest

(Enforcement) Rules, 2002. The date of auction notified

was 20.01.2014. The borrower challenged the auction of

the   bank   by   filing   Securitisation   Application   (SA)

No.09/2014 under Section 17 of the SARFAESI Act, 2002

before the DRT, Jaipur. An interim order was passed by

the   DRT   that   if   the   borrower   deposits   Rs.20   lakhs   on

20.01.2014 by 12.00 noon, the bank shall accept the bids

but not finalize the bids/confirm the sale of the secured

asset and if the borrower commits default in payment of

balance   amount   of   Rs.28.65   lakhs,   the   restraint   order

shall stand vacated automatically. The DRT also observed

that if the borrower deposits Rs.48.65 lakhs with the bank

on   or   before   27.01.2014,   the   bank   shall   deliver   the

possession of the secured asset along with the original title

deeds of the property in question. It is not in dispute that

the borrower deposited Rs.48.65 lakhs with the bank.

2.3 That the aforesaid interim order passed by the DRT came

to be challenged by the bank in appeal before the DRAT

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(Debt   Recovery   Appellate   Tribunal).   It  was  the   case   on

behalf of the appellant ­ bank that in public auction the

bank had received bids up to Rs.71 lakhs and the amount

of debt due against the borrower at that point of time was

above Rs.2 crores and if at all the borrower is interested or

keen to redeem the mortgaged property, he could do so by

discharging the entire liability and not by making payment

of Rs.48.65 lakhs, as ordered by the DRT. It was also the

case on behalf of the appellant – bank that order passed by

the DRT dated 17.01.2014 was in violation of Section 13(8)

of the SARFAESI Act, 2002. However, it was submitted on

behalf   of   the   bank   that   the   bank   may   not   find   any

difficulty in releasing the subject property provided the

borrower is ready to pay a sum of Rs.71 lakhs which is the

highest bid available with the bank. It was submitted that

even this amount would not ultimately go to discharge the

entire liability outstanding against the borrower but still if

the borrower deposits Rs.71 lakhs, the bank may not find

difficulty to release the subject property in question. 

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2.4 The DRAT dismissed the appeal by observing that as the

reserve   price   was   Rs.48.65   lakhs   which   the   borrower

deposited and the bank had received the bids ranging from

Rs. 61.50 lakhs to Rs.71 lakhs and the alleged bidders

failed to deposit the earnest money and when the borrower

is ready to purchase the said property for Rs.71 lakhs no

fault can be found with the order passed by DRT. The

order passed by the DRAT dismissing the appeal preferred

by the bank was the subject matter of challenge before the

learned Single Judge. The learned Single Judge set aside

both the orders of DRT and DRAT vide its judgment and

order dated 12.01.2017 primarily for the reason that the

said orders were in contravention of Section 13(8) of the

SARFAESI Act, 2002. The judgment and order passed by

the   learned   Single   Judge   was   challenged   before   the

Division Bench of the High Court by the borrower by way

of present intra­court appeal. By the impugned judgment

and   order,   the   Division   Bench   of   the   High   Court   has

allowed the said appeal and has quashed and set aside the

judgment and order passed by the learned Single Judge

and has directed the bank to release the secured property

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(residential house) on the borrower depositing a further

sum   of   Rs.17   lakhs   to   the   bank   and   handover   the

possession along with the title deeds to the borrower. 

          

2.5 Feeling   aggrieved   and   dissatisfied   with   the   impugned

judgment and order passed by the Division Bench of the

High   Court,   the   bank   –   financial   institution   –   secured

creditor preferred the present appeal.  

3. Ms. Praveena Gautam learned counsel appearing on behalf

of the appellant – bank has vehemently submitted that in

the facts and circumstances of the case the Division Bench

of the High Court has committed a grave error in directing

the   bank   to   release   the   property   and   handover   the

possession   along   with   the   title   deeds   of   the

residential/housing property in question to the borrower

on making a further payment of Rs.17 lakhs only.

3.1 It is vehemently submitted by learned counsel appearing

on behalf of the appellant – bank that even as observed by

the Division Bench of the High Court the borrower did not

come forward to redeem the property but to release the

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property in favour of the purchaser on payment of the

reserve price of the mortgaged property in terms of the

auction notice. It is submitted that therefore when the

dues were of Rs. 1,85,37,218.80/­ at the time when the

notice   dated   07.01.2013   under   Section   13(2)   of   the

SARFAESI   Act,   2002   was   issued   and   served   upon   the

borrower, on payment of a sum of Rs.71 lakhs only the

borrower cannot be discharged from his liability to pay the

entire dues. 

3.2 It is further submitted by learned counsel appearing on

behalf of the appellant – bank that what was understood

and agreed by the bank was that on payment of Rs.71

lakhs which was the highest bid received, the borrower

may be handed over the possession. It is submitted that

however, it was specifically made clear that on payment of

Rs.71   lakhs   the   said   amount   would   not   ultimately

discharge   the   entire   liability   outstanding   against   the

borrower.   It   is   submitted   that   aforesaid   has   been

misinterpreted and/or misconstrued by the Division Bench

of the High Court and it is understood that on deposit of

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Rs.71   lakhs   the   bank   agreed   that   the   borrower   be

discharged   from   his   entire   liability   outstanding   against

him. 

3.3 It is further submitted that the Division Bench of the High

Court has also not property appreciated that the offer of

Rs.71   lakhs   in   the   auction   was   received   in   the   year

2013/2014 and thereafter the valuation has increased. It

is submitted that even the outstanding dues have also

gone   up   which   was   Rs. 1,85,37,218.80/­   as   on

07.01.2013.   It   is   submitted   that   therefore   the   Division

Bench of the High Court has materially erred in treating

and/or  considering  Rs.71   lakhs  as   sale/purchase  price

and/or   the   value   of   the   residential   property.   It   is

submitted that therefore when the Division Bench of the

High Court passed the judgment and order if the property

could have been auctioned it would have fetched much

more   price   than   Rs.71   lakhs.   It   is   submitted   that   on

deposit   of   Rs.71   lakhs   only   the   borrower   cannot   be

discharged from his entire liability. It is submitted that the

impugned   judgment   and   order   passed   by   the   Division

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Bench of the High Court is just contrary to Sub­section (8)

of Section 13 of the SARFAESI Act, 2002. It is submitted

that as per Sub­section (8) of Section 13 of the SARFAESI

Act, 2002 only on deposit/payment of entire payment of

dues   of   the   secured   creditor   together   with   all   costs,

charges and expenses incurred by secured creditor to the

secured creditor, at any time before the date of publication

of notice for public auction or inviting quotations or tender

from public, the secured asset shall not be sold by the

secured creditor. It is submitted that in the present case

the amount due was much more than Rs.71 lakhs. It is

submitted   that   therefore   the   impugned   judgment   and

order passed  by the  Division  Bench  of  the  High  Court

directing to release the secured property just on payment

of a total sum of Rs.65.65 lakhs is just contrary to Subsection (8) of Section 13 of the SARFAESI Act, 2002. 

3.4 It is further submitted by learned counsel appearing on

behalf   of   the   appellant   –   bank   that   when   the   subject

property was mortgaged to the bank in the housing loan

account borrowed by the borrower and without satisfying

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the entire outstanding dues the mortgaged property cannot

be discharged. 

3.5 It is further submitted by learned counsel appearing on

behalf of the appellant – bank that the Division Bench of

the High Court has failed to appreciate the reserve price of

Rs.48.65 lakhs was based on the valuation carried out by

the valuer of the bank and the process of the auction of

the subject property was through public auction in which

an actual market price could have been fetched. There

could not have been any directions for redemption of the

secured   subject   property   on   making   payment   of   the

reserve price or having paid the average of the two highest

bid to the borrowers unless the entire dues including the

costs and expenses are paid.     

3.6 It is further submitted by learned counsel appearing on

behalf of the appellant – bank that the Division Bench of

the High Court has not properly appreciated the fact that

the initial order passed by the DRT which was the subject

matter before the DRAT challenged by the bank by which

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the DRT directed to release/handover the possession of the

mortgaged property to the borrower on deposit of Rs.48.65

lakhs which was the reserve price, was an interim order.

Therefore, the Division Bench of the High Court ought not

to have passed the final order discharging the borrower

from his entire liability just on payment of Rs.65.65 lakhs.

3.7 Making the above submissions it is prayed to allow the

present appeal.     

4. The present appeal is vehemently opposed by Mrs. Christi

Jain   learned   counsel   appearing   on   behalf   of   the

respondents – borrowers. 

4.1 It is vehemently submitted by learned counsel appearing

on behalf of the borrower that as the highest bid received

by the bank in the public auction was Rs.71  lakhs which

the borrower agreed to deposit/pay and even earlier the

borrower deposited a sum of Rs.48.65 lakhs as per the

order   passed   by   the   DRT   dated   17.01.2014,   thereafter

when the Division Bench of the High Court has directed

the bank to release the residential property on deposit of a

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further sum of Rs.17 lakhs (total making it Rs.65.65 lakhs)

and thereafter has directed to handover the original title

deeds to the borrower, the impugned judgment and order

passed by the High Court is equitable order which does

not warrant any interference by this Court in exercise of

powers conferred under Article 136 of the Constitution of

India. 

4.2 It is submitted that even the learned counsel appearing on

behalf of the appellant – bank agreed that on payment of a

total sum of Rs.65.65 lakhs the property in question may

be  released.  It  is   submitted  that   therefore  the  Division

Bench of the High Court has not committed any error

which warrants interference of this Court in exercise of

powers conferred under Article 136 of the Constitution of

India. 

5. We have heard the learned counsel appearing on behalf of

the respective parties at length. 

6. At   the   outset,   it   is   required   to   be   noted   that   by   the

impugned judgment and order the Division Bench of the

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High Court has directed the bank – secured creditor to

release the secured property and handover the possession

along with original title deeds of the residential/housing

property in question to the borrower on payment of a total

sum of Rs.65.65 lakhs. Thus, by the impugned judgment

and   order   the   Division   Bench   of   the   High   Court   has

released   the   secured   property/mortgaged   property   on

payment of a total sum of Rs.65.65 lakhs against the total

dues   which   as   such   as   on   07.01.2013   was

Rs.1,85,37,218.80/­. 

6.1  From the impugned judgment and order passed by the

High Court it appears that the Division Bench of the High

Court has treated and/or considered the market value of

the mortgaged property at Rs.71 lakhs. The DRT when

initially granted the interim relief in favour of the borrower

which was the subject matter before the DRAT and the

learned Single Judge and thereafter before the Division

Bench   of   the   High   Court,   directed   to   handover   the

possession of the mortgaged property to the borrower on

payment   of   Rs.48.65   lakhs   which   was   the   reserve

price/base price. The possession was taken over by the

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bank under the provisions of the SARFAESI Act and after

following the proceedings as required under Section 13 of

the   SARFAESI  Act,   the  mortgaged   property   was  put   to

auction   and   at   that   stage   the   borrower   preferred   an

appeal/application before the DRT under Section 17 of the

SARFAESI Act and as such the said appeal can be said to

be   technically   pending   as   the   order   dated   17.01.2014

passed   by   the   DRT   was   an   interim   order.   When   the

auction proceedings were initiated under Section 13 of the

SARFAESI Act and after the bank took over the possession

under Section 14 of the SARFAESI Act as per Sub­section

(8) of Section 13 of the SARFAESI Act the secured asset

shall   not   be   sold   and/or   transferred   by   the   secured

creditor, where the amount dues of the secured creditor

together with all costs, charges and expenses incurred by

him is tendered by the borrower or debtor to the secured

creditor at any time before the date of publication of notice

for public auction or inviting quotations or tender from

public   or   private   treaty   for   transfer   by   way   of   lease

assignment or sale of the secured assets. In the present

case   though   as   on   07.01.2013   the   dues   were   Rs.

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Rs.1,85,37,218.80/­ and without the secured property was

sold in a public auction the Division Bench of the High

Court has directed to release the mortgaged property and

handover the possession along with original title deeds to

the borrower on the borrower depositing/paying a total

sum of Rs.65.65 lakhs only. At this stage, it is required to

be noted that Rs.65.65 lakhs was not the amount realized

by selling the mortgaged property in a public auction. It

was only a highest bid received and before any further

auction proceedings were conducted, the DRT passed an

interim order directing to handover the possession and

handover the original title deeds on payment of Rs.48.65

lakhs which was the base price, which was the subject

matter   before   the   DRAT   and   before   the   learned   Single

Judge. Therefore, the borrower did not deposit and was not

ready to deposit the entire amount of dues with secured

creditor with all costs, charges and expenses incurred by

the secured creditor. Therefore, it was open for the secured

creditor to sell the mortgaged property which was put as a

security and realize the amount by selling it in a public

auction. At this stage, it is required to be noted that even

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as per the Division Bench of the High Court the borrower

made an offer to deposit/pay Rs.71 lakhs as a purchaser

and   not   by   way   of   redeeming   the   mortgaged   property.

Therefore, the impugned judgment and order passed by

the Division Bench of the High Court directing to release

the mortgaged property/secured property and to handover

the possession as well as the original title deeds to the

borrower on payment of a total sum of Rs.65.65 lakhs only

is   contrary   to   Sub­section   (8)   of   Section   13   of   the

SARFAESI Act.      

7. Even otherwise on making the payment i.e. Rs.65.65 lakhs

against   the   total   dues   Rs.1,85,37,218.80/­   as   on

07.01.2013   the   entire   liability   outstanding   against   the

borrower cannot be said to have been discharged. Even if

the mortgaged property would have been sold in a public

auction say for an amount of Rs.71 lakhs and the bank

has realized Rs.71 lakhs by selling the mortgaged property,

in that case also the liability of the borrower to pay the

balance   amount   would   still   continue.   By   selling   the

mortgaged   property/secured   property   it   cannot   be   said

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that the borrower is discharged from the entire liability

outstanding against him. The liability of the borrower with

respect  to the balance  outstanding dues would still  be

continued. Therefore, the Division Bench of the High Court

has   erred   in   directing   to   release   the   mortgaged

property/secured property and to handover the possession

along   with   the   original   title   deeds   to   the   borrower   on

payment of a total sum of Rs.65.65 lakhs only. 

7. 1  At the cost of repetition it is observed that as such the

bank had already initiated the proceedings under Section

13 of the SARFAESI Act and even the possession of the

mortgaged property was taken over by the bank under

Section   14   of   the   SARFAESI   Act   and   thereafter   the

mortgaged property was put to sale by a public auction

and at that stage the borrower wanted to stall the auction

proceedings and restrain the secured creditor/bank from

selling the property. In such a situation the bank/secured

creditor   can   be   restrained   from   selling   the   mortgaged

property/secured   property   where   the   borrower   deposits

entire   dues   that   was   Rs.1,85,37,218.80/­   as   on

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07.01.2013 with the secured creditor. Therefore, the DRT

in   its   order   dated   17.01.2014   which   as   such   was   an

interim relief order pending the appeal under Section 17 of

the SARFAESI Act was not justified in directing to release

the mortgaged property and handover the possession along

with the original title deeds to the borrower on payment of

Rs.48.65 lakhs only which was the base price/ reserve

price, which the Division Bench of the High Court has

increased to Rs.65.65 lakhs on the ground that the highest

bid received was Rs.71 lakhs (which was not materialized

as the highest bidder did not come forward). Unless and

until the borrower was ready to deposit/pay the entire

amount payable together with all costs and expenses with

the secured creditor, the borrower cannot be discharged

from the entire liability outstanding. Therefore, as such no

order could have been passed either by the DRT and/or by

the Division Bench of the High Court to discharge the

borrower   from   the   entire   liability   outstanding   and   to

discharge   the   mortgaged   property   and   handover   the

possession along with original title deeds to the borrower.

As such the learned Single Judge rightly set aside the

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orders   passed   by   the   DRT   as   well   as   by   the   DRAT

considering   Section   13(8)   of   the   SARFAESI   Act.   The

learned Single Judge was right in setting aside the order

passed by the DRT confirmed by the DRAT. The Division

Bench of the High Court has erred in interfering with the

order passed by the learned Single Judge and has erred in

directing   to   release   the   mortgaged   property/secured

property   and   handover   the   possession   along   with   the

original title deeds to the borrower on payment of a total

sum of Rs.65.65 lakhs only. 

7.2  However, at the same time the order dated 17.01.2014

passed   by   the   DRT   was   an   interim   relief   order   in   SA

No.9/2014 and therefore even if the interim relief order is

set aside by this Court the appeal/application will have to

be decided and disposed of on merits and on whatever

grounds which may be available to the borrower. However,

at   the   same   time   the   bank   cannot   be   restrained   from

selling   the   mortgaged   property   by   holding   the   public

auction   and   realise   the   amount   and   recover   the

outstanding dues, unless the borrower deposits/pays the

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entire   amount   due   and   payable   along   with   the   costs

incurred by the secured creditor as per Section 13(f) of the

SARFAESI Act.                 

8. In view of the above and for the reasons stated above the

present   appeal   succeeds.   The   impugned   judgment   and

order dated 20.09.2017 passed by the Division Bench of

the High Court in DBSAW No.349/2017 is hereby quashed

and set aside and the order passed by the learned Single

Judge quashing and setting aside the order passed by the

DRT dated 17.01.2014 confirmed by the DRAT is hereby

restored.           

           It will be open for the appellant – bank to proceed

further   with   the   auction   proceedings   of   the   mortgaged

property in auction i.e. residential house by inviting the

bids afresh and whatever the amount is already paid by

the borrower, may be in pursuance to the interim relief

order passed by the DRT and/or the impugned judgment

and order passed by the Division Bench of the High Court,

the same may be adjusted against the dues/total liability

of   the   borrower.   At   the   same   time   DRT   to   decide   and

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dispose  of  SA  No.09/2014  filed  by the  borrower  under

Section 17 of the SARFAESI Act in accordance with law

and on its own merits and on the whatever grounds which

may be available to the borrower. It is also observed and

directed that in case pursuance to the orders passed by

the DRT and the Division Bench of the High Court if the

borrower is put into possession, considering the fact that

the mortgaged property is a residential property, till the

auction is finalized and the mortgaged property is sold in a

public auction, the possession of the borrower may not be

disturbed. However, it is directed that on public auction

being finalized and the mortgaged property is sold by the

bank   the   borrower   has   to   handover   the   peaceful   and

vacant possession of the property to the bank and/or the

auction purchaser. However, in the meantime the original

title deeds of the mortgaged property be retained by the

bank. In the meantime, and till the borrower remains in

possession of the mortgaged property as per the present

order and till the mortgaged property is sold in a public

auction, the borrower shall not transfer and/or alienate

the   mortgaged   property   in   any   manner   whatsoever

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including the possession. The present appeal is allowed

with   the   above   further   observations   and   directions

accordingly. In the facts and circumstances of the case

there shall be no order as to costs. 

…………………………………J.

                  (M. R. SHAH)

…………………………………J.

 (SANJIV KHANNA)

New Delhi, 

February, 10th 2022.

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