Banking Law Case: Harisundar Shrestha vs. Ushadevi Naulakha, NKP (2062), No. 5.
Case: Appeal against Injunction Order
Plaintiff/Applicant: Rastriya Banijya Bank, Central Office and Main Branch Office
Defendant/Respondent: Ushadevi Naulakha (Respondent/Writ Petitioner)
Decision Number: 7547
This case concerns whether a bank could auction a borrower’s property that had never actually been pledged as collateral for the loan, when a separate, sufficient mortgaged property already existed.
Facts of the Case:
M/S V.R. Export & Import House had a loan from Rastriya Banijya Bank. To secure the loan, Ushadevi Naulakha mortgaged her Kathmandu property, Kitta No. 195, measuring 0-12-0. The mortgage was still valid and had not been released.
The firm repaid only part of the loan and failed to pay the remaining amount. The bank then published a notice to auction the mortgaged property to recover the outstanding loan.
However, the auction notice also included three properties in Biratnagar, Kitta Nos. 26, 225, and 212, belonging to Naulakha. She claimed that these properties had never been mortgaged for the firm’s loan.
Naulakha therefore filed a petition seeking an injunction against the auction of the Biratnagar properties, arguing that the bank had no right to auction property that was not given as security for the loan.
Legal Issues:
- Whether the bank could auction property that was not mortgaged as security for the loan.
- Whether the bank must first recover the loan from the mortgaged property before taking action against other assets of the borrower or guarantor.
- Whether the Appellate Court, Patan, was correct in issuing the injunction.
Different Courts’ Decision:
Appellate Court Patan:
The Appellate Court, Patan, held that the bank must first recover the loan from the mortgaged property and can proceed against other property only if necessary. Since the Biratnagar land was not mortgaged for the loan, the Court issued an injunction against its auction.
Supreme Court:
The Supreme Court held that under Section 47(a) of the Commercial Bank Act, 2031, a bank must first recover its loan from the property actually pledged as security. It can proceed against the borrower’s other property only if the pledged property is insufficient to recover the loan.
The Court found that the Biratnagar land was not included in the mortgage for the loan in question. There was also no evidence that the bank had first tried to recover the loan from the property that was actually mortgaged.
Therefore, the Court held that the bank’s attempt to auction the Biratnagar land was unlawful. The Appellate Court’s decision to issue the injunction was upheld, and the bank’s appeal was dismissed.
Principle Established:
- A bank must first recover the loan from the property actually mortgaged as security.
- A bank cannot lawfully auction property that was not mortgaged for the loan.
- The bank can proceed against the borrower’s other property only after the mortgaged property is insufficient to recover the loan.
