2026 Supreme(Online)(DRAT) 306

DEBT RECOVERY APPELLATE TRIBUNAL
G. Chandrasekharan, Chairperson
Authorised Officer, Axis Bank Limited – Appellant
Versus
H. Ramkumar – Respondent
R.A (SA): 159/2018 (SA No.134/2017 on the file of DRT -2, Chennai)

In the absence of producing the power of attorney deed, a mortgage by deposit of title deeds executed by an agent cannot be considered validly created, especially when the transaction lacks prudence as the secured loan far exceeds the debt to be settled.

Headnote:(A) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 13(4) - Possession Notice - Challenge to - Securitisation Application allowed by DRT on grounds of invalid mortgage - Appeal by Bank before DRAT - The mortgage by deposit of title deeds, registered on 27.08.2013, was executed by the fifth respondent as the power of attorney holder of the first respondent - The first respondent denied executing any power of attorney in favour of the fifth respondent - The bank failed to produce the power of attorney deed - In the absence of its production, a valid mortgage cannot be established.

(B) Registration Act, 1908 - Sections 32, 33, 34 - Registration by Power of Attorney Holder - Reliance placed by Bank on case Amar Nath Vs. Gian Chand and Another, 2022 SCC OnLine SC 102, that production of original power of attorney is not mandatory - Held, facts of that case are distinguishable as not even a copy of the power of attorney was produced in the present case - The decision does not apply.

(C) Prudent Person Test - The loan amount to be settled was Rs.60 Lakhs, but the property was allegedly offered as collateral security for a loan of Rs.10 Crores - Held, no sane person with reasonable prudence would offer property as security for a loan of Rs.10 Crores to settle a loan of Rs.60 Lakhs - This raises serious doubts about the validity of the transaction. (Para 18)

Facts of the case:
The Authorised Officer of a Bank appealed against the order of the DRT which allowed a Securitisation Application filed by the first respondent, setting aside a Possession Notice dated 15.05.2017. The Bank claimed that the first, fifth, and sixth respondents offered their property as collateral security for credit facilities availed by the second respondent company by creating an equitable mortgage on 24.08.2013, registered on 27.08.2013. The first respondent contended that he never executed a power of attorney in favour of his father (the fifth respondent) to create the mortgage, that his signatures were obtained on documents of a different nature under the pretext of taking over a smaller loan from another bank, and that no valid mortgage existed.

Findings of Court:
The Tribunal found that the Bank failed to produce the power of attorney deed on the basis of which the fifth respondent claimed to have executed the mortgage document on behalf of the first respondent. The 1st respondent had disputed his signatures in the earlier documents of 24.08.2013, and the mortgage document of 27.08.2013 was signed only by the 5th respondent as a power agent. The principle from the Amar Nath case (2022 SCC OnLine SC 102) was not applicable as the power of attorney itself was not produced, and there was serious doubt about whether the respondents acted with reasonable prudence in offering a property worth Rs.10 Crores as security for a debt of Rs.60 Lakhs. The order of the DRT was sustained. (Paras 19 to 21)

Issues: The main issues were whether a valid mortgage by deposit of title deeds was created when the power of attorney was not produced, and whether it was prudent for the respondents to offer their property as security for a loan far exceeding the amount they sought to refinance.

Ratio Decidendi: A valid mortgage by deposit of title deeds cannot be established in the absence of producing the power of attorney deed on the basis of which a party claims to have executed the mortgage as a representative of another. Further, the transaction's prudence is a key factor in assessing its validity, as no reasonable person would offer substantial property to secure a disproportionately large loan to settle a smaller debt.

Result: The appeal was dismissed, and the order of the DRT was affirmed. Both parties were directed to bear their own costs. (Paras 22, 23)

Table of Content
1. factual background of mortgage and loan dispute. (Para 1 , 6 , 7 , 8 , 9 , 10 , 11 , 12 , 13 , 14 , 15 , 16 , 17 , 18)
2. parties' arguments on validity of mortgage and power of attorney. (Para 2 , 3 , 4)
3. court's analysis finds no valid mortgage without produced power of attorney. (Para 5 , 19 , 20 , 21)
4. appeal dismissed; drt order affirmed. (Para 22)

O R D E R

1. This Appeal is filed challenging the order of Learned Presiding Officer, DRT-II, Chennai, in SA 134/2017 dated 03.09.2018.

1.1 SA 134/2017 was filed by 1^st Respondent herein challenging the Possession Notice dated 15.05.2017. After the contest, the SA was allowed with exemplary costs of Rs.25,000/- imposed on the Appellant Bank. Aggrieved by the said order, this Appeal is filed by the Bank.

2. Learned Counsel for Appellant Bank submitted that the Learned Presiding Officer, DRT-II, Chennai, allowed the SA and aside the Possession Notice dated 15.05.2017, on the following grounds:

i. Security interest was created in respect of the property in which the Respondent Nos. 5 and 6 have only a limited interest. This is against the terms of the Will;

ii. They can raise loan with Banks only for the purpose of business or construction of building. Loan cannot be taken for a different purpose.

iii. The mortgage by Deposit of Title Deeds was executed by Respondent No.5 in his individual capacity and as a power agent of Respondent No.1; however, the Tribunal below found that when the Respondent No.1 disputed the execution of the power of attorney, the claim of execution of mortgage by Deposit of Title Deeds by a Power of Attorney deed, cannot be accepted, more so, when the Power of Attorney is not produced before the Tribunal; and iv. The liability was taken over by the Appellant Bank from M/s. SBI, Palani Branch.

2.1 Learned Counsel for Appellant Bank further submitted that as per the Will dated 22.09.1993, the Respondent Nos. 5 and 6 have been given life interest in respect of the mortgaged property. However, a limited power was given to Respondent No.5 to avail loan and create mortgage for any construction and for development of the business/Schedule property. An absolute interest was given to 1^st Respondent. When a person having an absolute interest over the property along with a person having limited interest of enjoyment over the property, had joined together and execute the loan documents, it is legally permissible. Therefore, the findings of the Learned Presiding Officer in this regard in not correct.

2.2 The Memorandum of Deposit of Title Deeds was executed on 27.08.2013 by Respondents 1, 5 and 6, wherein the Respondent No. 5 has clearly stated that he is executing the document in his individual capacity and as a power agent of Respondent No.1. Respondent No.6 has also joined in the execution of said document. There is a specific mention in the document that Respondent No.5 namely Shri Hariharan executed the document for himself and as power agent for his son Mr. Ramkumar, the Respondent No.1. Prior to the execution of the Memorandum of Agreement Evidencing Deposit of Title Deeds on 27.08.2013, the Respondent Nos.1, 5 and 6, had executed the acknowledgement of the receipt of sanction letter dated 24.06.2013. They had executed the Deed of Guarantee dated 24.08.2013, in their individual capacity. Respondent Nos.1, 5 and 6 had also executed the Memorandum of Entry on 24.08.2013, as mortgagors, confirming that the property was offered as collateral security for due repayment to the Bank. All these documents clearly exhibit that the documents were produced for creation of mortgage by deposit of title deeds. Besides these documents, the Respondent Nos.1, 5 and 6 have also executed Declaration cum Confirmation Deed dated 24.08.2013. They also executed Record of Mortgage by Deposit of Title Deeds dated 26.08.2013 with intent to create security thereof in favour of Appellant Bank.

2.3 Learned Counsel for Appellant Bank would contend that, till 2012, there was no mandat

Click Here to Read the rest of this document