By SR Agarwal, Advocate
Accommodation Times News Services
Whenever loans are granted by the banks and housing finance companies, hereinafter referred to as the financialinstitutions, the flats and the apartments are mortgaged to them, mostly, by way of equitable mortgage and in a very few cases by registered mortgage because of the facts and circumstances of those cases.
The borrowers, who avail of such loans, have to execute the loan documents for creating the security in favour of the financial institutions and the formats of these loan documents are more or less on the similar pattern, containing various terms and conditions and other obligations to be discharged by the borrowers. Such terms and conditions, inter-alia, provide, that the borrower shall not transfer, assign, alienate, merge, amalgamate, exchange his right, title and interest in the said mortgaged property or deal with the same in any manner whatsoever, so long the security stands with the financial institutions, without the prior written permission of the lending financial institutions. In addition to these loan documents to be executed by the borrowers, mortgage NOCs are obtained from the housingco-operative societies, as these being the legal owners of the properties, by the financial institutions, wherein thehousing societies, inter-alia, undertake not to permit the owner/borrower of the flat/apartment to sell, transfer, assign, exchange or alienate his right, title and interest therein in any manner whatsoever, without the prior writtenpermission of the financial institutions, to whom such NOCs are issued.
In cases of loans for the purchase of the flats in resale and subsequent sales, it is, usually, found that the buildings are quite old and they go for redevelopment by way of reconstruction of the properties. Such redevelopment of theproperties is quite attractive to the builders, particularly, when it pertains to the properties declared as ‘slumproperties’ because of the enhanced FSI to the extent of 4. Sometimes societies also enter into agreements with the builders for the redevelopment of the old properties on the compliance of the formalities prescribed for this purpose. Such formalities include individual agreements between the existing owners of the flats/apartments with the builders and a common agreement by the society and the builders for the redevelopment of the property. When such documentation takes place, the terms and conditions and the obligations signed by the borrowers with the societiesto the financial institutions, who have advanced loans for the purchase of the individual flats/ apartments demand that the individual owners and the society should obtain prior written permission from the lending financialinstitutions before handing over the property to the builders for demolition and redevelopment, so that the lending financial institutions may take steps to secure their interest by obtaining a substituted security or in any other manner, including the repayment of the outstanding dues; but it seldom happens and the documentation is completed, properties are handed over to the builders and demolished and the lending financial institutions are not at all aware of these developments as a result of the collusion between the office bearers and a few members of thesocieties and the builders.
Recently it happened in the case known as Gulmohar CHS Ltd., at Goregaon (West), Mumbai, wherein the building was declared as ‘slum property’ and redevelopment of the same was handed over to the builders, who razed it to the ground. One of the flats in the existing building was mortgaged to the Bank of India and the borrower was in default. The Bank of India invited the bids for the auction of the mortgaged flat and in consideration of the highest bid, to give the symbolic possession of the same. When the bidders came to know of the reality, they backed out. Now this loan is on the books of the Bank of India as a non-performing asset, but without the existence of secured asset to enable the bank to proceed as per the provisions of SARFAESI Act. Thus the Bank has been left with no alternative, except to proceed against the defaulter, and the guarantors, if any, before the DRT or the Ordinary Civil Court, as the case may be, which will be a long drawn process..
The question arises when a nexus among the members of the societies, the builders and others to get the benefit of much higher FSI is well-known and such cases are happening every now and then, what precautions are being taken by the financial institutions to safeguard their security. In some cases, it has been observed that the offices of such lending institutions are at a distance of a stone’s throw and buildings are being demolished for redevelopment and these institutions are totally indifferent or mute spectator inasmuch as that they do not initiate any legal action to stop such destruction of their secured assets by obtaining suitable orders from the court of competent jurisdiction. If such timely action is initiated by the financial institutions, a message will spread and all the parties involved will come around and settle with the lending financial institutions to safeguard their interest either by way of a substituted security or repayment of their outstanding dues to enable them to avoid such hurdles to fulfill their designs. This objective may be achieved if a mechanism is developed or established by the financial institutions to conduct the inspection of their secured assets, particularly in resale cases, at least once in a year to ascertain the existence and status of the property and such a vigilance on their part will go a long way in the prevention of flouting the terms and conditions and the obligations by the borrowers and the societies.