Once a Mortgage is Permitted, Auction Sale Needs No Further NOC: Punjab & Haryana High Court

A Bank’s Right to Sell a Mortgaged Property in Case of Default is Inherent -  In a crucial ruling Punjab and Haryana High Court directed the Haryana Shehri Vikas Pradhikaran (HSVP) to issue a No Objection Certificate (NOC) and transfer ownership of an auctioned property, rejecting the contention that the auction was illegal due to the lack of prior NOC from the authorities. The Court held that once a mortgage is permitted, the right to auction the property in case of default is automatic, and no further NOC is required.

Justice Sureshwar Thakur and Justice Vikas Suri, delivering the verdict in CWP-24301-2021 (O&M) – Sunil Kumar & Others v. State of Haryana & Others, made it clear that "when a financial institution is granted permission to create a mortgage over a property, it inherently includes the right to sell the mortgaged property through public auction in case of default. The lack of a separate NOC for the sale is meaningless, as the right to auction is a necessary sequel to the original permission to mortgage."

The petitioners, Sunil Kumar and others, had approached the High Court after purchasing Plot No. 1591-B, Sector 23-23A, Gurugram through a public auction conducted by the State Bank of India (SBI) under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002. Despite paying the full amount and obtaining possession, the authorities refused to recognize the sale and transfer the property, citing the absence of prior NOC for the auction.

"A Mortgage is Not an Empty Right, it Carries the Power of Sale" – Court Rejects HSVP’s Objections

The petitioners successfully bid for the property at an auction conducted by SBI, paying a total price of ₹2,28,37,425, along with ₹1,72,575 towards TDS. The sale certificate was issued, and possession was handed over on October 12, 2021, by the District Magistrate, Gurugram.

When the petitioners approached HSVP for the issuance of NOC and re-allotment of the property in their name, the authorities refused, arguing that SBI had failed to obtain prior permission for the auction.

The state authorities contended that "though the bank had been allowed to mortgage the property, it did not have explicit permission to sell it through an auction. Without an NOC from HSVP, the auction process was invalid, and the property transfer could not be completed."

The petitioners countered this argument, stating that "once a financial institution is permitted to mortgage a property, the right to auction it in case of default is automatic. Requiring an additional NOC for sale would render the mortgage ineffective and obstruct financial institutions from recovering their dues."

The High Court, agreeing with the petitioners, ruled that "when the respondents permitted SBI to create a mortgage over the property, they inherently permitted the bank to sell the mortgaged property in case of default. The argument that a separate NOC for the sale was required is illogical and contrary to legal principles."

"The Purpose of Mortgage is to Secure Debt Recovery, Not to Create Legal Obstacles" – High Court on the Role of SARFAESI Act

The Court emphasized that the SARFAESI Act grants banks the authority to seize and sell mortgaged properties without court intervention. It observed that "a mortgage is a security interest, and the fundamental principle of security interest is that the lender must have a mechanism to recover its dues if the borrower defaults. Requiring a separate NOC for sale contradicts this principle."

The judgment made it clear that HSVP had no legal grounds to challenge the sale process, as there was no evidence of procedural lapses, irregularities, or collusion in the auction. The Court noted that "if there were allegations of procedural flaws or corruption in the auction process, the respondents could have raised objections on those grounds. However, the only argument presented was the absence of an NOC, which has no legal standing."

The High Court observed that a mortgage, by its very nature, grants the mortgagee the right to sell the property if the borrower defaults. It ruled that "if HSVP had concerns about the sale, they should have raised them when the mortgage was created, not after the property was auctioned. Once the mortgage was permitted, the bank’s right to auction the property became inherent."

Final Verdict – "Authorities Have No Right to Obstruct a Legally Conducted Auction Sale"

Allowing the petition, the High Court directed HSVP to immediately issue an NOC and process the transfer of the property in favor of the petitioners.

The Court ordered, "In aftermath, there is merit in the instant petition, and the same is allowed. Respondents No. 3 and 4 are directed to issue a No Objection Certificate and to subsequently transfer Plot No. 1591-B, Sector 23-23A, Gurugram, in the name of the petitioners."

The ruling ensured that the three-year legal struggle of the petitioners came to an end, securing their rightful ownership of the property.

"Obstructing the Rightful Owners of an Auctioned Property is Unjustified" – High Court Sends Strong Message on Mortgage Sales

This judgment has far-reaching implications for mortgage transactions and bank auctions. By rejecting the notion that an additional NOC is required for selling a mortgaged property, the Punjab & Haryana High Court has reinforced the rights of financial institutions to recover dues efficiently.

The Court sent a clear message that authorities cannot interfere in legally conducted bank auctions under the pretext of requiring additional permissions. It declared that "requiring an NOC for sale after allowing a mortgage would render the SARFAESI Act meaningless and prevent banks from fulfilling their role as secured creditors."

This ruling ensures that banks can recover debts without unnecessary bureaucratic interference, and auction buyers can obtain clear and marketable titles without prolonged litigation. By removing artificial obstacles to mortgage sales, the High Court has reinforced the legal sanctity of financial transactions under the SARFAESI Act.

Date of decision: 07/03/2025