A valid mortgage must be executed to create enforceable security interest; mere intention is insufficient, particularly against bona fide purchasers.

ORDER

1. This appeal is filed under Section 18 of the SARFAESI Act against the order passed by Learned Presiding Officer, DRT-I, Bangalore, passed in SA No.10/2021 dated 30.6.2021.

2. As per the order of this Tribunal dated 22.4.2024, M/s Kotak Mahindra Bank Ltd. was impleaded as Appellant No.2 to prosecute the Appeal on behalf of Appellant No.1 viz., M/s PNB Housing Finance Ltd., as the loan account of Respondents 2 and 3 has been assigned to Appellant No.2 vide Assignment Deed dated 4.3.2023.

3. The aforesaid SA 10/2021 was filed by the first respondent, challenging the order passed by Learned CJM, Bangalore in Crl.Misc.No.331/2019 on 13.8.2019 in a proceedings initiated under Section 14 of the SARFAESI Act. After contest, this application was allowed. Against the order allowing the SA, this appeal is filed.

4. Learned Counsel for appellant submitted that first respondent is the 3^rd party purchaser from the 4^th respondent. Fourth respondent is a Property developer, who develops flats for sale. Respondents 2 and 3 approached the appellant for purchase of flats from the 4^th respondent. When the flats were under construction, 4^threspondent issued ‘No Objection Certificate’ on 15.9.2016 for creating mortgage by deposit of title deed. Since respondents 2 and 3 had not taken any positive steps for completion of sale, property was sold by the 4^th respondent. Appellant financial institution had advanced loan to respondents 2 and 3. For recovery of said loan, proceedings under SARFAESI Act was initiated. Even though no sale deed was executed and no mortgage was created, even without executing mortgage deed, appellant is entitled to proceed against the property. In respect of that proposition, Learned Counsel for appellant pressed into service the judgment rendered in re Syndicate Bank Vs. Estate Officer and Manager (Recoveries), Andhra Pradesh Industrial Infrastructure Corporation Limited and others reported in (2021) 3 SCC 736.

5. It is the further submission of Learned Counsel for appellant that it is not necessary that mortgage should be executed for creating security interest on a property. He referred to Section 2(zf) of SARFAESI Act with regard to meaning of the word ‘security interest’, which reads as follows:

"security interest" means right, title or interest of any kind, other than those specified in section 31, upon property created in favour of any secured creditor and includes- [Substituted by Act No. 44 of 2016.]

(i)any mortgage, charge, hypothecation, assignment or any right, title or interest of any kind, on tangible asset, retained by the secured creditor as an owner of the property, given on hire or financial lease or conditional sale or under any other contract which secures the obligation to pay any unpaid portion of the purchase price of the asset or an obligation incurred or credit provided to enable the borrower to acquire the tangible asset; or

(ii)such right, title or interest in any intangible asset or assignment or licence of such intangible asset which secures the obligation to pay any unpaid portion of the purchase price of the intangible asset or the obligation incurred or any credit provided to enable the borrower to acquire the intangible asset or licence of intangible asset;]”

It is submitted that mere intention of the parties to create security interest is enough.

6. In the case before hand, loan proceedings refer about the security interest to be created by R2 and R3. They have offered their property, as security interest for the loan. It is reflected in the disbursement letter dated 20.9.2016. Notice issued under Section 13(2) dated 21