SC refers mortgage creation case to larger bench

New Delhi, Sept 2 (UNI) The Supreme Court has referred to a larger bench the issue whether mortgage can be created only by depositing registered titled deeds and whether financial institutions and banks should extend huge loans only on the basis of allotment letters.

A bench comprising Justice S B Sinha and Justice Markandey Katju in their judgement noted, "In a case of this nature where valuable right 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.'' ''If such allotment letters are to be totally ignored the same may deter the banks in making advance payments which would in effect and substance create a state of instability,'' the bench added.

''We, therefore, are of the opinion that keeping in view the importance of the question raised at the bar as noticed herein before and in the context of the factual matrix involved in the matter, the questions require consideration by a larger bench so that an authoritative pronouncement can be made there upon." United Auto Tractors Limited had applied for allotment of hundred acres of land from Andhra Pradesh Government in the industrial area for manufacture of tractors and agricultural implement. The government alloted 51 acres of land to the company.

The company obtained a loan of Rs 2,5710393 from Syndicate Bank on the basis of the allotment letter and letter granting permission to the company to take loans against the land.

The Andhra Pradesh Industrial Infrastructure Corporation Ltd (APIIC) cancelled the allotment of the land on the ground that the company has failed to set up the factory for which the land was alloted.

During the court proceedings, APIIC permitted the Syndicate Bank to auction 26 acres of land for recovery of its dues. The Supreme Court concluded by observing "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 full title before such a mortgage is created by deposit of titled deeds. A person may acquire title to a property irrespective of the nature thereof by several modes, for example: i) a lease of land which does not require registration. ii) by partition of a joined family property by way of family settlement, which does not require registration. It would therefore appear that there is no clear authority on the question as to whether in absence of any titled deeds in terms where of the mortgagee obtained title by reason of a registered deed can be a subject matter of mortgage.

Section 58 of the transfer of property act does not speak of mortgage of an owner's interest." UNI