21 March 2024 Property Law >> Personal Law  

A recent court case involved a borrower who defaulted on a loan of Rs. 3,26,258.78 obtained from the Orissa State Financial Corporation (OSFC) in 1997. The loan was secured by a mortgaged property. Despite multiple opportunities to settle the dues through one-time settlement (OTS) schemes, the borrower failed to make the payments.

The OSFC eventually sold the property at a public auction for Rs. 13,20,000 to recover the outstanding amount, which had ballooned to Rs. 10,91,673.07 by 2002 due to unpaid installments and interest.

The borrower challenged the sale in court. While the court acknowledged the borrower's right to fair treatment, it also recognized the OSFC's right to recover its dues. The key takeaway for the borrower is the option granted by the court.

The Option to Regain the Property:

The court offered the borrower a chance to reclaim the lost property. However, this option comes at a significant cost:

• The borrower must pay the entire sale consideration of Rs. 13,20,000.
• This amount needs to be paid to the new owner, Tusar Ranjan Mishra, who purchased the property at the auction.
• Additionally, interest will be levied on the sale consideration at a rate of 18% compounded annually from January 1, 2007, until the date of payment.

Calculating the Interest:

The court judgement doesn't provide the final interest amount. However, it includes the formula for calculating the compounded interest:

Future Value (FV) = Principal (P) x (1 + Interest Rate (R))^Number of Years (N)

Using this formula with the provided details:

• Principal (P) = Rs. 13,20,000
• Interest Rate (R) = 18% (as a decimal: 0.18)
• Number of Years (N) = (2024 - 2007) + (5/12) = 17.42 years

Calculating the FV will give the total amount (including principal and interest) that the borrower must pay to reclaim the property.

Important Dates and Deadlines:

The window to exercise this option is short. The borrower has until July 31, 2024 (as mentioned in the document), to make the complete payment, including the principal and the hefty compounded interest.

If the payment is not made by the deadline, the OSFC will be entitled to take legal action to enforce the sale and evict the current owner to give possession to Mr. Mishra.

Conclusion:

This case highlights the importance of honoring loan agreements and the consequences of default. While the court offered some leniency, the borrower faces a significant financial burden to regain the lost property.

  STATE FINANCIAL CORPORATIONS ACT, 1951