2025 (3) TMI 852 - HC - IBC

Mortgage holder wins exclusive first charge declaration after defendants created unauthorized subsequent mortgages without written consent

J.C. Flowers Asset Reconstruction Private Limited Versus Piramal Capital And Housing Finance Limited (Erstwhile Dewan Housing Finance Corporation Limited) & Ors.

J.C. Flowers Asset Reconstruction Private Limited Versus Piramal Capital And Housing Finance Limited (Erstwhile Dewan Housing Finance Corporation Limited) ... 1. ISSUES PRESENTED and CONSIDEREDThe Court considered the following core legal issues:- Whether the Impugned Mortgages executed by Defendant Nos. 2 and 3 in favor of Defendant No. 1 are void or voidable due to their creation in violation of the Plaintiff's prior mortgage.- Whether the Plaintiff is entitled to interim relief under Section 31 of the Specific Relief Act, 1963, to prevent the Defendants from acting on the Impugned Mortgages.- Whether the Plaintiff's rights as the first charge holder would be prejudiced if the Impugned Mortgages are allowed to stand.- The jurisdiction of the High Court versus the National Company Law Tribunal (NCLT) in determining the validity and priority of the Impugned Mortgages.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of the Impugned Mortgages- Relevant Legal Framework and Precedents: The Transfer of Property Act, 1882, particularly Section 48, and the Specific Relief Act, 1963, were central to the analysis. The precedent set in Bikram Chatterji and Ors. v/s Union of India and Ors. was considered, which emphasized that a mortgage created in violation of the terms of a prior mortgage is not valid.- Court's Interpretation and Reasoning: The Court noted that the Plaintiff's mortgage explicitly required prior written consent for any subsequent mortgages. The Impugned Mortgages were executed before the issuance of a conditional No Objection Certificate (NOC) by the Plaintiff, rendering them in violation of the Plaintiff's mortgage terms.- Key Evidence and Findings: The Impugned Mortgages were executed on July 30, 2018, while the Plaintiff's conditional NOC was issued on July 31, 2018. The Defendants' argument that the Plaintiff's mortgage allowed for subsequent charges was rejected as it contradicted the explicit terms of the Plaintiff's mortgage.- Application of Law to Facts: The Court applied the principles from the precedent and the legal framework to determine that the Impugned Mortgages were voidable at the Plaintiff's instance due to their creation in violation of the Plaintiff's mortgage terms.- Treatment of Competing Arguments: The Defendants' argument that the Impugned Mortgages were merely subservient to the Plaintiff's mortgage was rejected. The Court emphasized that the Plaintiff's mortgage terms were clear in prohibiting any subsequent mortgages without consent.- Conclusions: The Court concluded that the Impugned Mortgages were prima facie voidable due to their creation in violation of the Plaintiff's mortgage.Issue 2: Entitlement to Interim Relief- Relevant Legal Framework and Precedents: Section 31 of the Specific Relief Act, 1963, which allows for the cancellation of void or voidable instruments, was central to this issue. The Court also considered the principles laid out in Deccan Paper Mills Company Limited vs. Regency Mahavir Properties.- Court's Interpretation and Reasoning: The Court found that the Plaintiff had a reasonable apprehension of serious injury if the Impugned Mortgages were allowed to stand, as they could affect the Plaintiff's rights under the SARFAESI Act and the Insolvency and Bankruptcy Code (IBC).- Key Evidence and Findings: The Plaintiff demonstrated that the Impugned Mortgages falsely asserted that the properties were free from prior charges, which could prejudice the Plaintiff's enforcement rights.- Application of Law to Facts: The Court applied the protective jurisdiction under Section 31 of the Specific Relief Act to grant interim relief, preventing the Defendants from acting on the Impugned Mortgages without the Plaintiff's consent.- Treatment of Competing Arguments: The Defendants' contention that the Plaintiff's rights would not be prejudiced was rejected. The Court emphasized the potential impact on the Plaintiff's rights under the SARFAESI Act and IBC.- Conclusions: The Court granted interim relief to the Plaintiff, restraining the Defendants from acting on the Impugned Mortgages without the Plaintiff's consent.Issue 3: Jurisdiction of the High Court vs. NCLT- Relevant Legal Framework and Precedents: The jurisdictional provisions under Section 60(5) of the IBC were considered, alongside the general jurisdiction of the High Court.- Court's Interpretation and Reasoning: The Court held that the issue of the validity and legality of the Impugned Mortgages fell within its jurisdiction, as it concerned the enforceability of the mortgages rather than the priority of claims under insolvency proceedings.- Key Evidence and Findings: The Plaintiff filed the suit before any insolvency proceedings were initiated against Defendant Nos. 2 and 3, establishing the High Court's jurisdiction.- Application of Law to Facts: The Court distinguished between issues of priority, which fall under the NCLT's jurisdiction, and issues of validity, which are within the High Court's purview.- Treatment of Competing Arguments: The Defendants' argument that the NCLT had exclusive jurisdiction was rejected, as the present suit concerned the legality of the mortgages, not their priority in insolvency proceedings.- Conclusions: The Court affirmed its jurisdiction to adjudicate the validity and legality of the Impugned Mortgages.3. SIGNIFICANT HOLDINGS- The Court held that the Impugned Mortgages were prima facie voidable at the Plaintiff's instance due to their creation in violation of the Plaintiff's mortgage terms.- The Court granted interim relief to the Plaintiff, restraining the Defendants from acting on or relying upon the Impugned Mortgages without the Plaintiff's consent.- The Court affirmed its jurisdiction over the issue of the validity and legality of the Impugned Mortgages, distinguishing it from issues of priority that fall under the NCLT's jurisdiction.- The Court emphasized that the Plaintiff's rights as the first charge holder would be prejudiced if the Impugned Mortgages were allowed to stand, warranting the grant of interim relief.