City and Industrial Development Corporation of Maharashtra State Ltd., (For short: CIODCO), besides being the Development Authority, has been constructing the apartments and allotting the same to the intending purchasers and, similarly, Maharashtra Housing And Development Authority, (For short: MHADA) with the main objective of providing affordable housing to the public. CIDCO initially issues an allotment letter on payment of EMD and the Agreement for Sale is executed after the payment of the full and final sale consideration with the miscellaneous charges and it grants permission to the allottee to mortgage the apartment to any of the 44 financial institutions, as per the names mentioned therein. Though MHADA is also a wholly owned company of the State Government, it, initially, issues only provisional Offer letter and on the payment of the balance sale consideration and other requirements, it issues the final allotment letter. The Banks, both in public sector and private sector, and the housing finance companies (For short Financial Institutions) have been advancing loans to such allottees for making the payment of the sale consideration etc. to CIDCO or MHADA, as the case may be, to acquire such apartments against the deposit of the allotment letters and the permission to mortgage issued by such bodies. The question arises whether legally enforceable equitable mortgage is created by simply depositing the allotment letter and letter permitting mortgage.
This issue arose in the case of an industrial plot allotted by the Government of Andhra Pradesh with the Industrial Development Area, at NACHARAM (A.P), subsequently, vest with Andhra Pradesh Industrial Infrastructure Corporation ( For short: APIIC), to a Company named United Auto Tractor Ltd., to set up an industrial unit by way of an Order dated 18.7.1972, followed by an unregistered agreement dated 3.8.1972 entered into between the State Government and the said Company, inter-alia, providing that only on the completion and full payment of the entire consideration amount, sale deed shall be executed and registered in the name of the company and till such time, the ownership of the property shall continue to remain with the Government. On the said day, the said Government, through the Director of the Industries, issued a letter to the Company permitting the mortgage of the said land to any scheduled Bank to obtain financial assistance. Accordingly, the said Company availed of a loan from the Syndicate Bank by mortgaging the said land by depositing the said allotment letter-cum-agreement (unregistered) and the permission to mortgage as an equitable mortgage. Since the said Company could not keep up its commitment, the Syndicate Bank filed a Petition in the year 1995 before the Debt Recovery Tribunal, Bangalore, for the recovery of more than Rs.2.5 crores and the Bank intended to enforce it charge on the property. The petition was allowed by the DRT and a Recovery Certificate was issued on 1.7.1997. It resulted into multiplicity of litigation and the Division Bench of Andhra Pradesh High Court took up all the writ petitions for consideration and after hearing all the parties, it held that Syndicate Bank did not act diligently in advancing huge financial assistance to the Company on the strength of a letter of no-objection purported to have been issued by the Director of Industries and it was surprising that Syndicate Bank equated that letter to that of a title deed and, accordingly, advanced monies without taking proper care and caution as the Government merely granted permission by putting the Company in possession of the land and the property always remained with the Government. No sale deed was executed by the Government in favour of the Company and the Company had taken APIIC, as well as the Syndicate Bank, for a ride. In the circumstances the Hon’able High Court held the Proclamation of Sale Notice dated 21.1.1998 issued by the Recovery Officer as ultra virus. It further held that the Letter dated 3.8.1972 by no stretch of imagination could be characterized as a document of title so as to enable the Company to mortgage the same by deposit of title deeds in order to secure financial assistance from the Syndicate Bank.
Aggrieved by the said judgment of Andhra Pradesh High Court, the Syndicate Bank went to the Supreme Court of India by way of various appeals, mainly, being Civil Appeal No.7824 of 2004 (Supreme Court - Daily Orders Syndicate Bank vs Estate Officer And Manager ... on 20 February, 2019 https://indiankanoon.org/doc/85953436/). The matter was listed before Hon’able Mr. Justice S.B. Sinha and Hon’able Mr. Justice Markandey Katju on 30.8.2007. It was pleaded on behalf of Syndicate Bank that a valid equitable mortgage was created by deposit of the allotment/Agreement dated 3.8.72 with the permission letter of the same date from the Director of Industries for the mortgage in favour of the financial institutions and these documents were the documents of title within the meaning of section 58 (f) of the Transfer of Property Act. The learned Solicitor General and Senior Counsel Shri A.K.Ganguli, appearing on behalf of State Government and APIIC, submitted that the Agreement dated 3.8.72 being not registered, no title was conferred on the Company and pursuant whereto, the company had not derived any assignable title. The letter dated 3.8.72 issued by the Director of Industries was not being a document of title, the judgment of the High Court could not be assailed. The main question which arose for consideration of the Hon’able Supreme Court was whether for satisfying the requirements of the said Section 58 (f), it was necessary to deposit documents showing complete or good title and whether all the documents of title to the property w2ere required to be deposited. A ‘fortion’ the question which would arise for consideration is as to whether in all such cases, the property should have been acquired by reason of a registered document.
After weighing various arguments and the case laws cited on behalf of both the parties, the Hon’able Supreme court in this case, reported as CDJ-2007-SC-948 on 30.8.2007 observed that Section 58 of the Transfer of Property Act does not speak of mortgage of an owner’s interest. If any interest in property can be created by reason of a transaction or otherwise which does not require registration, in our opinion, it may not be necessary to have a full title before such a mortgage is created by deposit of title deeds. In a case of this nature where valuable rights is created which may or may not confer an assignable right, the question requires clear determination having regard to the equitable principle in mind and would have far reaching consequences, as a large number of banks and financial institutions advance a huge amount only on the basis of allotment letters. Keeping in view the importance of the questions raised at the Bar, the question require the consideration by a larger bench so that an authoritative pronouncement can be made there upon”.
It is a well known fact that the apartments constructed by the government bodies or the builders in the present day context cannot be acquired without availing of the financial assistance from the financial institutions, who would require security for the same by way of mortgage of the property to be purchased from the amount so advanced. The question arises why the government bodies such as CIDCO or MAHADA cannot just have a fresh look to its terms and conditions inasmuch as CIDCO permits mortgage of the apartment but it contains a rider reading as
“it may please be noted that no lien of whatever nature will be created on the above apartment allotted to you unless you pay in full the sale price and other miscellaneous charges and execute agreement for sale with CIDCO. It is necessary for you to inform your employer/bank/financial institution, as the case may be, to inform to the corporation (CIDCO) the details of the housing loan sanctioned and released so as to enable us to take a note therein in our records.”
On the one hand permission to mortgage is granted and details are sought to take a note in the records, but on the other hand it refuses for the creation of any lien or the charge against the apartment. Is it not contradictory in itself. MAHADA goes a step further inasmuch as it issues only a provisional offer letter and the allotment letter is issued only on the payment of full sale consideration and the compliance of the other requirements. It is disputable that such a provisional offer letter will create any valuable right in the allottee, leaving aside the question of assigning of such a right yet to be determined by larger bench of the Hon’able Supreme Court of India. It would be appropriate that when the matter comes up for determination before the larger bench, the judgment of the Hon’able Supreme Court in the case of H.L.Joshi v/s. R.H.Shah reported as AIR-1975-SC-1470 wherein it has been held that the occupancy rights in a flat in a cooperative housing society are heritable transferable and attachable in an auction sale is brought to its notice.
Be that as it may, till the authoritative pronouncement of the larger bench of the Hon’able Supreme Court of India is available it would be advisable for the financial institutions to advance housing loans against the allotment letters issued by such government bodies on the basis of a collateral security of equal amount to their satisfaction as a stop-gap arrangement, till the sale deed in case of the apartment allotted by such government bodies is executed. Because if the judgment of the larger bench is not on expected lines, all such finance will become clean loans out the purview of SARFAECI Act and the legal action in default cases will add more weight on the existing over-burdened judicial system. Hence, it would be prudent for the financial institution to err on safer side.
IN THE SUPREME COURT OF INDIACIVIL APPELLATE JURISDICTIONCIVIL APPEAL NOS.7824-7828 OF 2004 SYNDICATE BANK VERSUS ESTATE OFFICER AND MANAGER (RECOVERIES) & ORS RESPONDENT(S)
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