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The Karnataka High Court has clarified that banks can sell mortgaged property in case of loan defaults, even if the state has granted land with non-alienation clauses. The court annulled a July 2023 endorsement preventing South Canara District Central Cooperative Bank Ltd. from enforcing its mortgage on land allotted under the Ashraya Yojana. While the state can penalize beneficiaries who misuse grants, it cannot hinder banks from reclaiming defaulted loans, thereby supporting housing initiatives for the economically disadvantaged.
The Karnataka High Court has ruled that when the state government allows mortgaging of granted land for home construction loans, banks cannot be barred from selling the property in the event of loan defaults, even in light of non-alienation clauses. This ruling annulled an endorsement dated July 18, 2023, which had been issued to South Canara District Central Cooperative Bank Ltd. Advertisement
The endorsement prevented the bank from enforcing the mortgage through a property sale due to a 25-year alienation restriction associated with the land grant. The court emphasized that while the state has the authority to take action against allottees who misuse their allotments-potentially blacklisting them from future benefits-it cannot obstruct banks from enforcing their mortgages.
This case arose from Poornima, who received a plot of land under the Ashraya Yojana and subsequently mortgaged it for a bank loan, but defaulted on her payments. The court referenced Rule 9, which allows for such mortgages and acknowledged the scheme's objective of providing housing for economically disadvantaged groups.
In conclusion, this ruling reinforces the legal framework supporting financial institutions' rights while balancing the state's role in land distribution. By ensuring that banks can recover their loans through property sales, the court not only protects lenders but also maintains the integrity of housing programs designed to assist vulnerable populations. This decision underscores the importance of accountability and responsibility in loan agreements, ultimately fostering a more reliable and equitable housing market.
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