The Debt Recovery Appellate Tribunal (DRAT) in Chennai has made a significant ruling in a dispute between two banks, Punjab & Sind Bank (PSB) and Catholic Syrian Bank (CSB), over a property mortgaged by M/s. Supreme Chemiplast Pipings Pvt. Ltd. The tribunal upheld the priority of CSB’s mortgage, created in 1994 with the original title deeds, and set aside a sale conducted by PSB under the SARFAESI Act.
The dispute arose when PSB initiated SARFAESI proceedings in 2007 and sold the property to T.N. Rajakumar, despite CSB’s prior mortgage. CSB had attached and sold the same property to S. Ramakrishnan through DRT proceedings, leading to conflicting claims. The core issue before the DRAT was the validity and priority of the two mortgages. PSB and Rajakumar argued that the SARFAESI sale was legally concluded, while CSB contended that its mortgage was the first and only valid one.
The DRAT, chaired by Justice G. Chandrasekharan, observed that an equitable mortgage by deposit of title deeds requires the original documents. The tribunal found that CSB’s mortgage was validly created with the original sale deed, while PSB’s mortgage was created using only a copy of the title deed, which was obtained through misrepresentation. The mortgagor had falsely affirmed that the copy was the original, and PSB had been forewarned about potential fraud but proceeded with the loan anyway.
As a result, the SARFAESI action initiated by PSB on the basis of this defective mortgage was held to be illegal. The DRAT dismissed the appeals filed by PSB and Rajakumar, upholding the sale conducted by CSB in favor of S. Ramakrishnan. This ruling highlights the importance of ensuring the validity and priority of mortgages, particularly in cases where multiple banks have extended loans to the same borrower. It also emphasizes the need for banks to exercise due diligence and verify the authenticity of title deeds before creating a mortgage. The decision is a significant victory for CSB and S. Ramakrishnan, and it provides clarity on the legal principles governing mortgage priority and SARFAESI proceedings.