In a recent ruling, the Bombay High Court clarified that a mortgage executed in violation of a lease covenant does not automatically become void if the lease deed itself provides specific consequences for such breaches. The court emphasized that enforcement of such covenants lies with the lessor and must be pursued accordingly.
The Division Bench of Justices A.S. Chandurkar and M.M. Sathaye was hearing a writ petition filed by the Maharashtra Industrial Development Corporation (MIDC) challenging the decision of the Debts Recovery Appellate Tribunal (DRAT), which upheld the validity of a mortgage created by M/s. Benelon Industries (BI) in favour of Union Bank of India (UBI), despite the lack of prior consent from MIDC.
“The action of BI of creating a mortgage of the leased plot in favour of UBI was without the prior consent of the Chief Executive Officer of the MIDC and thus in violation of Clause 2(t) of the lease deed. Though MIDC sought to invoke its right under Clause 4 of the lease deed by issuing a show cause notice, it did not take any further steps in that regard. Since the consequence of a breach of any covenant of the lease deed has been provided, the creation of the mortgage in breach thereof cannot be treated to be void,” the court stated.
The dispute revolves around Plot No. D-9 in the Marol MIDC area, which was allotted to Benelon Industries by MIDC in 1979 under a 95-year lease agreement. BI had initially obtained financial aid from the Maharashtra State Financial Corporation (MSFC), which later issued a No Dues Certificate. Subsequently, BI sought further assistance from UBI and attempted to mortgage the plot. However, this mortgage was created without prior written consent from MIDC, as required under the lease terms.
MIDC claimed that UBI granted financial assistance without waiting for a formal no-objection certificate. After default in loan repayment, UBI initiated recovery proceedings through the Debts Recovery Tribunal (DRT). A recovery certificate was issued, and the property was auctioned in favour of Kalindi Properties Private Limited (KPPL). MIDC filed multiple applications, including a miscellaneous appeal before DRAT, seeking to declare the mortgage and subsequent transactions void.
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DRAT, however, rejected MIDC's contention. It held that although the mortgage violated lease terms, it was not void as the lease deed provided a specific remedy — re-entry — which MIDC failed to enforce. KPPL, the auction purchaser, was held to have rightfully acquired the property, having paid full consideration.
MIDC argued that the mortgage should be considered void ab initio, relying on the Supreme Court’s precedent in State of Uttar Pradesh vs. United Bank of India (2015). The High Court, however, distinguished the present case by noting that the U.P. case involved Nazul land and statutory restrictions, while in the present case, the lease deed itself had a mechanism for addressing violations.
“The DRAT has rightly found that the creation of the mortgage by BI was without the prior permission of the MIDC and it was open for the MIDC to exercise its right of re-entry due to breach of a covenant which it failed to enforce,” the bench held.
MIDC also contested the DRAT’s order regarding subletting charges imposed on KPPL. While MIDC claimed these were justified under the MIDC Land Disposal Regulations, 1975, and relevant circulars, the court noted the absence of a clear legal basis for such charges beyond the auction date of October 10, 2008. It upheld the DRAT’s direction that subletting charges be paid from August 18, 2007 (the date of MIDC’s inspection revealing unauthorized use), to the date of auction.
KPPL submitted that it had fulfilled all payment obligations, including differential premiums and incidental charges, as directed by earlier court orders. Despite this, MIDC had not executed the lease deed in its favour or delivered vacant possession.
The court observed that MIDC failed to pursue its legal remedies in a timely manner and could not now invalidate transactions based on its own inaction. As such, it dismissed the writ petition and upheld the DRAT’s order in full.
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“The creation of the mortgage, while in breach of lease conditions, does not render the mortgage void where the lease provides for a remedy and such remedy is not pursued,” concluded the court.
Case Title: Maharashtra Industrial Development Corporation v. Union Bank of India
Case No.: Writ Petition No. 1930 of 2011
Date of Judgment: May 26, 2025
Counsel for Petitioner: Sahil Mahajan with Saurabh S. Godbole
Counsel for Respondent/State: A. I. Patel with S. P. Kamble
