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State Bank of Travancore & Ors. v. R. Sobhana & Ors.

Civil Appeal · Neutral citation not assigned (Civil Appeal No. 8625 of 2016)Decided 2 Sept 2016
Civil Appeal No. 8625 of 2016
Justice Anil R. Dave · Justice L. Nageswara Rao

Background

A couple had taken a loan of Rs. 15,000 from the State Bank of Travancore in 1981, secured by a mortgage of their property. When they defaulted, the Bank sued, obtained a decree, and itself purchased the mortgaged property at a court auction in 1994 after no other bidder came forward. In 2007 the Bank resold the property for over Rs. 10 lakh, after which the borrower's family asked the Bank to share the surplus sale proceeds and accumulated rent with them. The Kerala High Court's Division Bench, moved by the family's severe illnesses and financial distress, directed the Bank to pay Rs. 6.5 lakh to the family, and the Bank appealed to the Supreme Court.

Decision Breakdown

The Supreme Court held that the Bank had not committed any illegality in either the 1994 auction-purchase or the 2007 resale, and that once the Bank became absolute owner of the property in 1994, the former borrowers had no continuing legal right to a share of the resale proceeds. It therefore found the High Court's adverse remarks against the Bank's conduct unwarranted and ordered them expunged, and set aside the direction to pay Rs. 6.5 lakh as a matter of legal right. However, taking into account the extreme hardship faced by the family (serious illness and financial distress) and the gap between the Rs. 15,000 loan and the Rs. 10 lakh sale price, the Court exercised its equitable "complete justice" power to direct the Bank to pay Rs. 5 lakh to the respondents as an ex-gratia payment within eight weeks, distinct from any legal entitlement.

Lesson Learnt

A bank acting lawfully in recovering and reselling mortgaged security generally owes the defaulting borrower nothing beyond what the law provides, but the Supreme Court can still order a humane, one-off ex-gratia payment on compassionate grounds without that amounting to a legal precedent of a borrower's "right" to sale proceeds.

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

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