Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2007 Supreme(Online)(SC) 229

SUPREME COURT
, J
Appellant Bank – Appellant
Versus
Government of Andhra Pradesh – Respondent
O.A. No. 425 of 1995 | W.P. No. 24060 of 1998 | Writ Petition No. 25056 of 1998 | Writ Petition No. 17443 of 1999

Advocates:
For the Appellants/Petitioners: Mr. Rajiv Nanda
For the Respondents: Solicitor General, Mr. A. K. Ganguli

Without an executed sale deed, an allotee cannot confer valid title to the mortgaged property, and failure to adhere to contractual conditions invalidates mortgage claims by financial institutions.

Headnote:(A) Transfer of Property Act, 1882 - Section 58 - Agreement related to land allotment - Land was allotted but ownership remained with the Government until the sale deed was executed; no title conferred upon the Company due to absence of registered deed - Mortgage by deposit of title deeds not valid without title. (Paras 16, 17, 24, 44)

(B) Cancellation of allotment - Company failed to utilize the allotted land for intended industrial purpose - Grounds for cancellation included non-payment of dues and failure to commence operations. (Paras 13, 18, 21)

(C) Rights of Bank - Appellant Bank advanced funds without necessary consent from the Government as per agreement conditions, therefore it had no first charge over the property. (Paras 17, 21)

(D) Legal consequences - The absence of an executed sale deed limits the ability to create a charge over the property, as unchallenged cancellation orders became final. (Paras 16, 18, 19)

Facts of the case:
The Company applied for land for industrial purposes and was allotted 51 acres, but ultimately failed to utilize it as agreed and faced cancellation of the allotment. Appellant Bank sought recovery through auctioning mortgaged properties.

Findings of Court:
High Court affirms the cancellation of land allotment due to non-utilization for industrial purposes and invalidated the Bank's claims due to lack of valid title.

Issues: The main issues included the validity of the mortgage created, the authority of the correspondence permitting the mortgage, and the binding nature of the agreements between the parties.

Ratio Decidendi: The court held that without the execution and registration of a deed of sale, no interest in the land could be created in favor of the Company. The agreement allowed for mortgage only with prior consent from the Government, which was not obtained.

Result: The judgment upheld the cancellation of allotment and nullified the Bank's claims regarding the mortgage of property.

1. On or about 19.03.1969, United Auto Tractor Ltd. (for short, 'the Company') filed an application before the State Government for allotment of 100 acres of land in the industrial area for setting up an industrial unit for the purpose of manufacture of agricultural tractors and implements. The Government of Andhra Pradesh pursuant to or in furtherance thereof made allotment of 51 acres of land in the Industrial Development Area, Nacharam, Andhra Pradesh to the Company for the aforementioned purpose in terms of an order dated 18.07.1972. On 03.08.1972, an agreement was entered into by and between the Government of Andhra Pradesh and the Company in relation thereto; some of the terms and conditions whereof are as under :
"6. Only on the completion and full payment of the entire consideration amount, the sale deed shall be executed and registered in the name of the company.
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8(a) Without prejudice to the rights of the State Bank of India or any other financing agency approved by the Government as first mortgagees, Government have a second charge on the land, buildings, plant and machinery which shall be converted into a first charge when the obligation of the financing agencies are liquidated.
8(b) If the Financing Institutions were to advance more than 60% of the value of the land, building, machinery and structure, prior agreement of the Government will be required.
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13. The company shall bear, pay and discharge all existing and further amounts, duties, imposing and outgoing of whatsoever rates, taxes imposed or charged upon the premises or upon the occupier in respect thereof from the date of taking possession.
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(s) Till such time as the ownership of the property is transferred to the Company in the manner mentioned above the property shall continue to remain the property of the Government.
16. The Government shall have right to resume the land, if the Company do not use the land for the purpose for which it was allotted within the period specified above, the period to be reckoned from the date of which the company was placed in possession of the land.
17. In case the Company shall become bankrupt or proceedings of insolvency or for winding up are filed by or against the Company the sale shall forthwith stand determined and the Government shall be entitled to reenter the premises or any part thereof in the name of the whole, without prejudice to the rights of the Government to seek any available remedy against the company for recovery of the loss.
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21. All payments due to the Government under this agreement shall carry interest at 8 =%. All payments made/instalments paid after the due dates carry penal interest at 12% per annum."

2. In terms of clause 2 of the said agreement the Company indisputably had made initial payment of 50% of the total cost of the allotted land.

3. On the said date, the Government of Andhra Pradesh also issued a letter to the Company, permitting it to mortgage the said 51 acres of land to any scheduled bank to obtain financial assistance to the project, which the Company sought to establish, stating :
"In the circumstances stated in your letter second cited, you are hereby permitted to mortgage the 51 acres of land allotted in the Ncharam Industrial Development area to any Scheduled Bank to obtain financial assistance to your project.
The agreement executed by you is returned herewith duly signed."

4. Relying on or on the basis of the said purported sanction, the Company mortgaged the said land in favour of Appellant Bank, pursuant whereto and in furtherance whereof moneys were advanced to it on the said security from time to time. Indisputably, the Government of Andhra Pradesh transferred all the industrial estates and development areas to M/s Andhra Pradesh Industrial Infrastructure Ltd. (for short, 'APIIC') with effect from 01.01.1974. Accounts Officer of APIIC informed the Director of Industries that amount of incentive to the extent of Rs. 78,860/- san

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2007 Supreme(Online)(SC) 229

SUPREME COURT, JAppellant Bank – AppellantVersusGovernment of Andhra Pradesh – RespondentO.A. No. 425 of 1995 | W.P. No. 24060 of 1998 | Writ Petition No. 25056 of 1998 | Writ Petition No. 17443 of 1999

Without an executed sale deed, an allotee cannot confer valid title to the mortgaged property, and failure to adhere to contractual conditions invalidates mortgage claims by financial institutions.

Cases Referred (1)

SUPREME COURT
, J
Appellant Bank – Appellant
Versus
Government of Andhra Pradesh – Respondent
O.A. No. 425 of 1995 | W.P. No. 24060 of 1998 | Writ Petition No. 25056 of 1998 | Writ Petition No. 17443 of 1999