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Punjab & Sind Bank v. Punjab Breeders Ltd. & Another

Civil Appeal · Neutral citation not assigned (Civil Appeal No. 3197 of 2016)Decided 29 Mar 2016
Civil Appeal No. 3197 of 2016
Justice Kurian Joseph · Justice Rohinton Fali Nariman

Background

The bank offered the borrower (first respondent) a One Time Settlement of its dues for Rs. 542 lakhs, on condition that the mortgaged property not be sold for three years, and that if sold within that period, the bank would get 50% of the increase in the property's fair market value. The borrower paid the full settlement amount after entering into an agreement to sell half the mortgaged property to a third party, but the bank refused to release the mortgage, claiming it was entitled to 50% of the fair market value because a third-party interest had been created. The High Court directed the bank to accept the settlement payment and release the property, and the bank appealed to the Supreme Court.

Decision Breakdown

The Supreme Court held that the OTS terms restricted only the actual "sale" of the mortgaged property within three years, not merely the creation of a third-party interest such as an agreement to sell. Since the three-year lock-in period had already expired (on 01.03.2015) without an actual sale having taken place, the bank had suffered no loss and had no legal basis to claim a share of the increased fair market value. Finding no error in the High Court's view, the Court dismissed the bank's appeal and directed it to release the title deed and hand over possession of the mortgaged property to the borrower within two weeks, with no order as to costs.

Lesson Learnt

In settlement agreements with banks, the precise wording of restrictive conditions matters: a clause restricting "sale" within a lock-in period does not automatically extend to an agreement to sell or other third-party arrangements, and a bank cannot claim recompense for a loss it has not actually suffered.

Official source (sci.gov.in)View Judgment (PDF)

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