Bank Can’t Exercise Right Of Lien To Secure Liabilities Of Mortgager By Retaining Documents Deposited With Intention To Secure Transaction: Kerala HC

The Kerala High Court reiterated that the Bank cannot exercise right of lien to secure any other liabilities of the mortgagor by retaining the documents of the mortgagor or guarantor, which are deposited with an intention to secure a particular loan transaction.

The Court was dealing with a Writ Petition preferred by a public limited company seeking for a direction to return the original Sale Deed of Koothattukulam Sub Registrar’s Office (SRO).

A Single Bench of Justice Harisankar V. Menon observed, “I also take note of the judgment rendered by a Division Bench of the Madras High Court (Madurai Bench) in M.Shanti v. Bank of Baroda (W.P.(MD) No.12613 of 2016 dated 09.08.2017), wherein considering an almost similar dispute with the Bank, it is held as under: Hence this Court is of the firm view that the respondent bank cannot exercise right of lien to secure any other liabilities of the mortgagor by retaining the documents of the mortgagor or guarantor, which are deposited with an intention to secure a particular loan transaction. Lien is primarily considered as a right to retain security. It is doubtful, whether in exercise of such right to retain the title deeds the mortgagee can bring the property for sale for recovery of some debt which is due from the mortgagor, in connection with a different transaction, which is not covered by the mortgage.”

Advocate Thushara James appeared on behalf of the Petitioner while Advocate Mohan Jacob George (Standing Counsel) appeared on behalf of the Respondents.

Facts of the Case -

The Petitioner company entered into a Limited Liability Partnership Agreement (LLP) with Seguro - INKEL Consortium LLP and the said LLP had obtained some credit facility from the Respondent Bank for Rs. 24 crores. The Petitioner stood as guarantor, executing a corporate guarantee with the Bank, mortgaging the properties covered by the Sale Deed. The Bank filed an Application before the Debts Recovery Tribunal (DRT) against the LLP and the Petitioner since the LLP committed default in repayment.

The Petitioner remitted the entire amount demanded and obtained a clearance from the Bank. Meanwhile, the LLP availed credit facilities independently from the Bank and the Bank instituted an Application before the DRT. The DRT directed the Petitioner to furnish security failing which the property would be attached. Since the Order was issued ex-parte, the Petitioner filed an Application to set aside the ex-parte along with a separate Application to recall the attachment Order. Both the Applications were allowed. Hence, the Writ Petition was filed before the High Court.

The High Court in the above regard, said, “In the result, I am of the opinion that the petitioner is justified in seeking for return of the document in question. I also record the submission made by Dr.Thushara James, the learned counsel for the petitioner that the petitioner will not encumber/alienate the property covered by the document in question till final disposal of O.A.No.149 of 2021 by the DRT.”

The Court noted that, if at all the Petitioner is entitled for return of the document, the Petitioner has to move before the DRT and no direction can be issued to the Bank in that regard. It added that, the Petitioner can file an Application seeking the return of the documents before the DRT, in which event the DRT is to consider the same and order return of the document taking into account the principles laid down by the Court.

Accordingly, the High Court disposed of the Petition and issued necessary directions.

Cause Title- M/s. INKEL Ltd. v. The Federal Bank Limited & Ors. (Neutral Citation: 2024:KER:89300)

Appearance:

Petitioner: Advocates M.S. Amal Dharsan, Thushara James, and Noel Jacob.

Respondents: Advocate Mohan Jacob George

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