In a significant judgment, the Bombay High Court clarified the legal implications of breaching a lease deed by creating a mortgage without the lessor's consent. The court emphasized that such a breach does not automatically render the mortgage void if the lease deed specifies consequences for such violations.
The case revolved around a plot in the Marol Maharashtra Industrial Development Corporation (MIDC) area, initially allotted to M/s. Benelon Industries (BI) by the Maharashtra Industrial Development Corporation (MIDC). BI had previously obtained financial assistance from the Maharashtra State Financial Corporation (MSFC) and was issued a No Dues Certificate upon clearing its dues. Subsequently, BI sought further financial assistance from Union Bank of India (UBI) and approached MIDC for permission to create a mortgage on the leased plot. However, MIDC did not grant the No Objection Certificate (NOC), and BI proceeded to create the mortgage without the required consent.
MIDC discovered unauthorized use of the plot by third parties and issued a show-cause notice to BI, citing violations of the lease deed. Despite this, BI continued its operations, leading to the Debt Recovery Tribunal (DRT) issuing an order for the sale of the plot due to BI's default. MIDC contested the proceedings, arguing that the mortgage was invalid due to the breach of the lease deed's terms.
The Bombay High Court, in its analysis, referred to Clause 2(t) of the lease deed, which prohibited the creation of a mortgage without the lessor's prior consent. The court noted that while MIDC had issued a show-cause notice to BI for the breach, it did not take further action to enforce the consequences outlined in Clause 4 of the lease deed. The court observed that the lease deed specified the consequences of breaching its covenants, and since MIDC did not exercise its rights under Clause 4, the mortgage could not be deemed automatically void.
The judgment underscores the importance of adhering to the terms of a lease deed and the necessity for lessors to actively enforce the stipulated consequences in case of breaches. It also highlights the legal principle that a breach of contract does not automatically annul the contract unless the contract itself provides for such a consequence and the aggrieved party takes appropriate action to enforce it.
This ruling has significant implications for both lessors and lessees, emphasizing the need for clear terms in lease agreements and the importance of obtaining necessary consents before undertaking actions like creating mortgages. It also serves as a reminder to lessors to vigilantly monitor compliance with lease terms and to take prompt action in case of violations to protect their interests.
In conclusion, the Bombay High Court's decision reinforces the principle that the breach of a lease deed's terms does not automatically render related actions void unless the lease deed explicitly provides for such a consequence and the lessor takes steps to enforce it. This judgment contributes to the clarity and predictability of legal outcomes in property law, particularly concerning lease agreements and the creation of mortgages.
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