Searching Case Laws & Precedent on Legal Query!
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Scanned Judgements…!
The creation of a security interest by deposit of title deeds, even if unregistered, can be valid but may have limited enforceability compared to registered mortgages. Such equitable mortgages are recognized but may require additional proof for enforcement ["Au Small Finance Bank Mr. Dinesh Pandey vs Smt Ramdevi Rajpoot - Madhya Pradesh"], ["Juvalamukhi V. v. District Magistrate-Cum-District Collector Coimbatore and Others - Madras"].
Analysis and Conclusion:
References:- ["Potluri Lakshmi Rajeswari VS Punjab National Bank - Andhra Pradesh"]- ["Au Small Finance Bank Mr. Dinesh Pandey vs Smt Ramdevi Rajpoot - Madhya Pradesh"]- ["Assets Reconstruction Company (India) Ltd. VS Union of India - Bombay"]- ["Shivam Trading Co. VS Allahabad Bank - Calcutta (2015)"]- ["GIREESH BABU vs CITY UNION BANK LIMITED - Debt Recovery Appellate Tribunal"]- ["Juvalamukhi V. v. District Magistrate-Cum-District Collector Coimbatore and Others - Madras"]- ["Nantu Maity VS Allahabad Bank, rep. by its Authorised Officer/Chief Manager - Dishonour Of Cheque"]- ["MOHANAN vs THE REPCO HOME FINANCE LIMITED - Kerala"]
In the complex world of banking and property law, one common question arises: What is the validity of a secured interest of a bank when there is an unregistered mortgage in favour of the bank? This issue often surfaces with mortgages created by deposit of title deeds, particularly under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). Banks rely on these arrangements for loan security, but unregistered status raises concerns about enforceability, especially against third parties.
This blog post analyzes the legal framework, judicial interpretations, and practical implications. While unregistered mortgages may hold between parties, registration often proves crucial for broader protection. Note: This is general information, not specific legal advice. Consult a qualified lawyer for your situation.
The SARFAESI Act expands the definition of security interest to include mortgages by deposit of title deeds, even without registration. Under Section 2(zf), a security interest means any right, title or interest in any property created in favour of any secured creditor, with the expansive phrase 'of any kind whatsoever'Shivam Trading Co. VS Allahabad Bank - Calcutta (2015). Similarly, Section 2(zb) defines a security agreement to explicitly include such mortgages.
Historically, the Transfer of Property Act, 1882 (TPA) exempts mortgages by deposit of title deeds in Presidency towns like Kolkata from registration requirements Shivam Trading Co. VS Allahabad Bank - Calcutta (2015). However, the Registration Act, 1908, mandates registration for mortgages to bind third parties under Section 50, prioritizing registered documents.
Key Implication: An unregistered mortgage by deposit of title deeds can create a valid security interest under SARFAESI for the bank, but lacks priority against subsequent claimants without registration.
Indian courts have consistently nuanced the validity of unregistered mortgages:
Section 50 of the Registration Act establishes that registered mortgages prevail over unregistered ones, enhancing priority Himalaya Bank Limited VS Simla Bank Limited - 1885 0 Supreme(All) 62.
Recent cases reinforce this. For instance, courts have upheld equitable mortgages without formal deeds if intent and conduct indicate security creation. In one matter, an equitable mortgage can be established without the need for a formal registered deed - The actions and intentions of the mortgagor may bind others in determining title to property Geetaben Nareshbhai Shah vs Mashreq Bank Ltd. - 2024 Supreme(Online)(DRAT) 257. The court dismissed claims of invalidity, confirming the bank's rights under SARFAESI Geetaben Nareshbhai Shah vs Mashreq Bank Ltd. - 2024 Supreme(Online)(DRAT) 258.
Unregistered mortgages are typically valid between the bank and borrower but may falter against third parties, such as bona fide purchasers or in execution proceedings. Courts prioritize registered interests, as seen in V.G. Rao v. Andhra Bank (AIR 1971 SC 1613).
In a tenancy dispute, a secured creditor could not evict a pre-existing tenant using force under SARFAESI, as it is not open to the secured creditor to summarily evict a pre-existing tenant... particularly when such tenancy was known to the secured creditor before advancement of loan Dena Bank VS Shri Sihor Nagarik Sahakari Bank Limited - 2008 Supreme(Guj) 79. This highlights limits on enforcement without clear priority.
Despite TPA/Registration Act hurdles, SARFAESI's broad definitions validate unregistered deposit-of-title-deeds mortgages as security interests. A Supreme Court ruling clarifies: under the 2002 Act, 'mortgage by deposit of title deeds does not require registration', enabling enforcement Shivam Trading Co. VS Allahabad Bank - Calcutta (2015).
Equitable mortgages fare similarly. In a dispute over a residential bungalow, the court held a valid equitable mortgage existed despite no formal deed, based on correspondence and intent Geetaben Nareshbhai Shah vs Mashreq Bank Ltd. - 2024 Supreme(Online)(DRAT) 257. Another case affirmed priority of an equitable mortgage created before a property sale, dismissing the buyer's challenge Suprava Nayak VS HDFC Bank Ltd. - 2020 Supreme(Ori) 177.
Auction purchasers can challenge under Section 17 if no valid security exists, as sale certificate loses significance in case mortgage itself is not valid Uttar Pradesh State Industrial Development Corpn. Ltd. VS Oriental Bank of Commerce.
These cases show courts scrutinize creation and perfection of security.
Unregistered mortgages, particularly by deposit of title deeds, generally remain valid between the bank and borrower and qualify as security interests under SARFAESI due to its inclusive definitions Shivam Trading Co. VS Allahabad Bank - Calcutta (2015). However, they may lack enforceability against third parties without registration, risking subordination to later claims Dhanpal Singh VS Budh Singh - 1913 0 Supreme(All) 53Himalaya Bank Limited VS Simla Bank Limited - 1885 0 Supreme(All) 62.
Recommendations for Banks and Lenders:- Always register mortgages for robust protection.- Document intent clearly for equitable mortgages.- Be cautious of pre-existing tenancies or liens Dena Bank VS Shri Sihor Nagarik Sahakari Bank Limited - 2008 Supreme(Guj) 79.- Verify title deeds to avoid fraud challenges Pranjivan Purushottam Zaveri VS Dena Bank Through Authorized Officer and/or Assistant - 2011 Supreme(Guj) 265.
In summary, while an unregistered mortgage supports a bank's secured interest internally, proactive registration safeguards against external threats. Stay informed on evolving case law to mitigate risks.
References:Shivam Trading Co. VS Allahabad Bank - Calcutta (2015)Dhanpal Singh VS Budh Singh - 1913 0 Supreme(All) 53Himalaya Bank Limited VS Simla Bank Limited - 1885 0 Supreme(All) 62Dena Bank VS Shri Sihor Nagarik Sahakari Bank Limited - 2008 Supreme(Guj) 79Geetaben Nareshbhai Shah vs Mashreq Bank Ltd. - 2024 Supreme(Online)(DRAT) 257Geetaben Nareshbhai Shah vs Mashreq Bank Ltd. - 2024 Supreme(Online)(DRAT) 258Suprava Nayak VS HDFC Bank Ltd. - 2020 Supreme(Ori) 177Govindhji Jewat & Co. VS Rukmani Mills Ltd. - 2020 Supreme(Mad) 2096Uttar Pradesh State Industrial Development Corpn. Ltd. VS Oriental Bank of CommercePranjivan Purushottam Zaveri VS Dena Bank Through Authorized Officer and/or Assistant - 2011 Supreme(Guj) 265
Last Updated: October 2023 | For queries, contact our legal experts.
#UnregisteredMortgage, #SARFAESIAct, #BankSecurity
Hence, if any of the appellants claim that they are entitled to possession of a secured asset for any term exceeding one year from the date of the lease made in his favour, he has to produce proof of execution of a registered instrument in his favour by the lessor. ... that he is not entitled to the possession of the secured asset for more than a year from the date of the instrument or from the date of delivery of possession in his favour by the landlord. ... It is submitted that the unregiste....
Hence, the DRT is not permitted to examine the validity of the earlier sale deed, whereafter the mortgage was executed in favour of the Bank. 12. ... agreement” means an agreement, instrument or any other document or arrangement under which security interest is created in favour of the secured creditor including the creation of mortgage by deposit of title deeds with the secured creditor;" "[(zf) “security interest....
It is also not in dispute that the original borrower had created mortgage of secured premises in favour of the respondent bank (consortium) while the petitioner has been or was permitted by the original borrower to occupy the mortgage premises. ... To summarize, SCB would argue that it is a bonafide licensee for value, without notice of the mortgage, and its right to use and occupy the Secured Asset would override any other interest in the ....
by creating “security interest” in favour of Respondent No. l and that Gautam Shopping Centre is the property on which such security interest is created and is thus the “secured asset”. ... Union Bank of India, AIR 2007 Kerala 114, a Division Bench of the Kerala High Court was considering a case wherein, the mortgage was created by the borrower in favour of the Bank with the declaration that “we hereby agree and undertake not to mortgage#HL....
If a valid tenancy under law is in existence even prior to the creation of the mortgage, the tenant's possession cannot be disturbed by the secured creditor by taking possession of the property. The lease has to be determined in accordance with Section 111 of the TP Act for determination of leases. ... In the absence of a registered instrument, if the tenant relies on an unregistered instrument or an oral agreement accompanied by delivery of possession, the tenant is not entitled to possession of the secured asset for mo....
From the facts narrated above, the admitted position is that there was an unregistered lease deed dated 30.11.2013 in favour of the appellant in respect of the mortgaged property and there was also a demand notice issued under Section 13(2) of SARFAESI Act dated 24.10.2014. ... Therefore, I am not inclined to get into the validity of the lease deed under Section 65A of Transfer of Property Act. 12. ... various Rent Control Acts to allow a Bank to evict a tenant from the tenanted premise, which has become a secu....
The mortgage by deposit of title deeds in favour of the bank was created till a mortgage deed was executed. However, Nimesh Shah failed to execute a mortgage deed concerning the immovable properties including the bungalow. Nevertheless, there was an equitable mortgage created in favour of the bank. ... residential bungalow and that he has no objection to the creation of an equitable mortgage in favour of the #HL_ST....
The mortgage by deposit of title deeds in favour of the bank was created till a mortgage deed was executed. However, Nimesh Shah failed to execute a mortgage deed concerning the immovable properties including the bungalow. Nevertheless, there was an equitable mortgage created in favour of the bank. ... residential bungalow and that he has no objection to the creation of an equitable mortgage in favour of the #HL_ST....
in his favour. ... The respondents 3 and 4 stood guarantee for the loan availed by one Vignesh Alloys Private Ltd. from the second respondent - Canara Bank on mortgage of the properties in question belonging to the fourth respondent. ... Hence, if any of the appellants claim that they are entitled to possession of a secured asset for any term exceeding one year from the date of the lease made in his favour, he has to produce proof of execution of a registered instrument in his favour b....
Hence, under the 2002 Act as an arrangement under which security interest can be created in favour of the secured creditor, including the creation of mortgage by deposit of title deeds with the secured creditor, mortgage by deposit of title deed does not require registration. ... "Security interest" means right, title and interest "of any kind whatsoever" upon the property created in favour of the secured creditor.....
A simple point involves in the present case is whether a valid equitable mortgage of the secured asset was created in favour of the bank prior to execution of sale deed by the O.P. No. 5 in favour of the petitioner?
8. It is seen that the property was attached in the execution proceedings long after the creation of mortgage. Hence, the bank as a secured creditor has got indefeasible right to proceed against the mortgaged properties and the attachment will be subject to the mortgage in favour of the bank.
2 to 4 in favour of Bank of India is perfectly valid and on the basis of such mortgage, the Bank of India received security interest/saleable interest in the said plot. Admittedly, the said judgment and order is not challenged by any of the parties, therefore, it has attained finality and the said plot has been declared as mortgaged property. Thus, according to learned senior counsel for Petitioner, the mortgage created by Respondent Nos. It is urged that the said issue has already decided in Original Application (OA) No.2036 of 2001 in Debts Recovery Tribunal, Chennai agai....
(v) Whether applicant is not entitled to recover amount as claimed from the defendants? (iv) Whether it is a valid mortgage of the property in favour of the applicant Bank? (iv) Whether it is a valid mortgage of the property in favour of the applicant Bank? (v) Whether applicant is not entitled to recover amount as claimed from the defendants?
This case of the petitioners cannot be just brushed aside easily and it would also not be in the larger interest of justice to say that the petitioners cannot challenge the validity and legality of the mortgage. For this reason, we passed an order on 18.3.2011 saying that the Bank may produce the documents to suggest that the borrowers have created secured interest in the property in question. If there is no valid security interest created in favour of the bank, then there is no valid mortgage, and if there is no valid mortgage, then the petitioners, who are the purchasers of the p....
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