Karnataka High Court Applies Doctrine Of Substituted Security, Orders Compensation Deposit Until Adjudication Of Rights; Mortgage Security To Be Acquired.

The Karnataka High Court on 16th March, 2023 has said that a mortgagee (secured creditor/Bank) gets rights over the compensation amount to be disbursed when the property which is mortgaged with it is acquired by the state government, as per Section 73 of the Transfer of Property Act. This was in the case of M/s D C B Bank Limited v. The Assistant Commissioner (WRIT PETITION NO. 18206 OF 2022) and this was presided over by a single bench of JUSTICE KRISHNA S DIXIT.


The Bank who is the petitioner is grieving before the Writ Court against non-consideration of its representation it has requested the 2nd Respondent – SLAO to deposit the compensation amount to the loan account of 3rd Respondent – borrower, toward repayment that was secured by the mortgage of the property in acquisition. Learned counsel for the Petitioner vehemently argues that mortgage is one of the five traditional modes of transfer recognized by the provisions of the Transfer of Property Act, 1882 and therefore, his client has a vested interest in the subject property, which entitles it to the payment of compensation for its appropriation to loan account of the borrower. She expresses anguish against the 2nd Respondent in not considering her client’s Representation in terms of Sections 64 & 73 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013. After service of notice, the Respondent Nos. 1 & 2 are represented by the learned AGA and the 3rd Respondent – borrower who happens to be the mortgager, has chosen to remain unrepresented despite service of notice; however, that will not deter the Court from adjudging the cause brought before it, in accordance with law. Learned AGA contends that the Petitioner can approach the Civil Court for the redressal of its grievance since disputable fact matrix emanates from the case papers, writ remedy not being much suitable.


The bench held “This having not been done, there is justiciable right availing to the Petitioner to seek appropriate writ for its enforcement. In matters like this, driving the mortgagee to the ordinary Civil Court would only amount to the Writ Court shirking its responsibility to do justice in plain cases of the kind.”

Allowing the petition the bench clarified that “Till the Reference is decided, the compensation amount shall be kept in the interest earning scheme of some Nationalised Bank as a short time deposit of one year and that, the compensation shall follow its outcome.”


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