Breach of prior mortgage covenant can render later mortgage prima facie voidable and justify interim protection.

A subsequent mortgage executed in breach of an earlier mortgage's express no-encumbrance covenant, and before the required consent or no-objection was issued, was treated as prima facie voidable at the instance of the prior mortgagee. The Court held that Section 31 of the Specific Relief Act, 1963 supported interim protection because continued reliance on the impugned mortgages could seriously prejudice the prior mortgagee's enforcement rights. It also held that Section 60(5) of the Insolvency and Bankruptcy Code, 2016 did not oust jurisdiction where the dispute concerned the legality of the mortgages themselves, rather than only inter se priority in insolvency.

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Issues: (i) Whether the mortgages created in favour of the later lender were contrary to the earlier mortgage and therefore prima facie voidable at the instance of the prior mortgagee. (ii) Whether the applicant established a case for interim relief, including restraint against reliance on the later mortgages and deposit of the mortgage deeds. (iii) Whether the presence of insolvency proceedings or Section 60(5) of the Insolvency and Bankruptcy Code, 2016 ousted this Court's jurisdiction to grant the reliefs sought.

Issue (i): Whether the mortgages created in favour of the later lender were contrary to the earlier mortgage and therefore prima facie voidable at the instance of the prior mortgagee.

Analysis: The earlier mortgage contained express covenants prohibiting creation of any further encumbrance without prior written consent, and the terms requiring consent were read together with the clauses preserving the first charge and priority of the mortgagee. The later mortgages were executed before the conditional no-objection certificate was issued, and the record showed that the later lender had already sanctioned finance on the same day the no-objection request was made. On that basis, the subsequent mortgages were found to have been created in breach of the earlier mortgage, and the rule of priority under Section 48 of the Transfer of Property Act, 1882 did not assist the later lender because that provision presupposes a valid later transfer. The breach also supported the view that the later mortgages could not be treated as valid against the prior mortgagee and were, at the least, prima facie voidable at the instance of the applicant.

Conclusion: The later mortgages were held to be in breach of the earlier mortgage and prima facie voidable against the applicant.

Issue (ii): Whether the applicant established a case for interim relief, including restraint against reliance on the later mortgages and deposit of the mortgage deeds.

Analysis: The Court held that the applicant had shown the necessary ingredients for relief under Section 31 of the Specific Relief Act, 1963, namely that the instruments were void or voidable and that their continued existence created a reasonable apprehension of serious injury. The later mortgages were recorded as asserting that the properties were free from prior charges, which reinforced the apprehension that they might be used to defeat the applicant's exclusive first charge in SARFAESI and insolvency proceedings. The Court also accepted that the applicant's contractual and statutory enforcement rights could be materially prejudiced if the later mortgages were allowed to remain operative. The prayer for protective interim relief was therefore justified.

Conclusion: Interim protection was granted in favour of the applicant, including deposit of the impugned mortgage deeds and restraint on reliance upon them without consent.

Issue (iii): Whether the presence of insolvency proceedings or Section 60(5) of the Insolvency and Bankruptcy Code, 2016 ousted this Court's jurisdiction to grant the reliefs sought.

Analysis: The Court held that the controversy in the suit concerned the legality and enforceability of the impugned mortgages themselves, not merely the inter se priority of secured claims in insolvency. In the absence of pending insolvency proceedings against the relevant parties, Section 60(5) of the Insolvency and Bankruptcy Code, 2016 did not displace the Court's jurisdiction to adjudicate the validity of the mortgages or to grant interim relief in aid of the suit. Questions of priority in insolvency were distinguished from the antecedent issue whether the impugned mortgages were legally effective at all.

Conclusion: The Court retained jurisdiction to grant the requested reliefs and rejected the objection based on Section 60(5) of the Insolvency and Bankruptcy Code, 2016.

Final Conclusion: The applicant succeeded in obtaining interim protection because the impugned mortgages were treated as having been created in breach of the earlier mortgage and were not permitted to be acted upon pending trial.

Ratio Decidendi: A subsequent mortgage created in breach of an earlier mortgage's express no-encumbrance covenant and before the required consent or no-objection is issued is prima facie voidable at the instance of the prior mortgagee, and such a challenge can attract protective relief under Section 31 of the Specific Relief Act, 1963 without being displaced by insolvency jurisdiction where the dispute is about the legality of the mortgage itself.

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