The Karnataka High Court has ruled that if mortgaging property allotted under Ashraya scheme to Co-operative Bank is not its alienation, then Co-operative Bank is also entitled to enforce the mortgage and sell the property in case of default of loan payment.

The Court was considering a Writ-Petition by a Cooperative Bank against State for objecting to sale of mortgaged property allotted under Ashraya scheme.

The single-bench of Justice M.I. Arun observed, "..an exception is created to the condition of non-alienation of the property for a period of 25 years wherein the allottee is permitted to raise a loan from a Co-operative Bank by mortgaging the site which is allotted to her, so that she can get the necessary money to construct a house. The law does not expressly prohibit the mortgagee from enforcing the mortgage, selling the mortgaged property and recover its loan within the said stipulated period. Once, law permits mortgage of the property for the loan borrowed, the mortgagee cannot be left without any remedy. As the law expressly permit mortgage of the property, it has to be held that irrespective of the prohibition being there for nonalienation of the land allotted, the mortgagee is entitled to sell the property while enforcing the mortgage."

The Petitioner was represented by Advocate Rakshith Kumar while the Respondent was represented by AGA Harish A.S.

The Respondent No.5 raised a loan from the petitioner which is a Co-operative Bank and as a security for the loan, apart from other things, mortgaged the property which was granted in her favour. The conditions of the grant as well as Rule 9 of the Rules permitted the mortgage. Thereafter, respondent No.5 committed default in repayment of the loan. Petitioner - Bank, to recover the loan, sought to enforce the mortgage by bringing the property mortgaged for sale.

The Petitioner has contended that though there is a restriction not to alienate the property for a period of 25 years, a mortgage to a Co-operative Bank is not considered as an alienation and consequently, when there is a default in repayment of the loan, the Bank is entitled to enforce the mortgage and it is contended that the impugned endorsement issued by respondent No.4 is liable to be set aside

It was the State's contention that the grant is subject to a restriction which prohibits alienation of the property granted for a period of 25 years. An exception is created wherein permission is granted to an allottee to raise a loan by mortgaging the property so as to facilitate the allottee to develop the land or construct a building thereon, but the land is allotted for the purposes of the allottee and it cannot be sold in favour of the third person by the mortgagee till the expiry of the said 25 years and in the instant case, the allotment was done on 30.01.2010 and 25 years has not lapsed.

The Court was of the view that when an exception is created to the condition of non-alienation of the property for a period of 25 years wherein the allottee is permitted to raise a loan from a Co-operative Bank by mortgaging the site which is allotted to her, so that she can get the necessary money to construct a house, the mortgagee cannot be left without any remedy.

It thus held that the mortgagee is entitled to sell the property while enforcing the mortgage irrespective of the prohibition being there for nonalienation of the land allotted.

The petition was accordingly allowed.

Cause Title: South Canara District Central Co-operative Bank Ltd. vs. The State of Karnataka

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Sheetal Joon