Any equitable mortgage created in favour of Bank after execution of Gift Deed, cannot be a valid mortgage: DRAT Dismisses Appeal of UCO Bank [Read Order]

In a recent case, the Kolkata Bench of the Debt Recovery Appellate Tribunal (DRAT) dismissed the appeal of UCO Bank, holding that any equitable mortgage created in favour of the Bank after execution of Gift Deed cannot be a valid mortgage.

UCO Bank, the Appellant filed appeal for recovery of Rs.7,42,27,221.00 against the Defendants No. 1 to 3 and to bring the mortgaged properties of the O.A. for sale and appropriate the proceeds towards the certificate debt. The Respondents No. 2 and 3 availed credit facilities from the Appellant Bank against execution of various documents and creation of mortgage in the year 2006 while the mortgage created by Respondents No. 1 to 3 in favour of Respondent No. 7, State Bank of India, was in the year 2010, hence the charge over the secured assets accrued in favour of the Appellant Bank and not upon the Respondent No. 7, State Bank of India.

Per contra, Counsel for Respondent No. 7, State Bank of India, would submit that there is no dispute that the mortgage was created in favour of Appellant Bank in the year 2006. But prior to 2006, in the year 2004, Respondent No. 2 had executed the deeds in favour of the Defendant No. 3. The said deeds, executed in the year 2004, were deposited with the Respondent No. 7, State Bank of India, in the year 2010, as security. Hence, Respondent No. 7, State Bank of India has prior mortgage rights over the O.A. schedule properties.

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The only contention raised by the Counsel for Appellant Bank, UCO Bank, would be that the mortgage was created in favour of the Appellant Bank in the year 2006 which is much prior to the alleged mortgage created in favour of Respondent No. 7, State Bank of India, in the year 2010. It is further submitted that all the three ingredients for creation of equitable mortgage could not be fulfilled by the Respondents. As there is an earlier mortgage created in favour of the Appellant, Appellant has a prior charge over the secured assets.

Per contra, Counsel for Respondent No. 7, State Bank of India, would submit that Defendants No. 2 and 3 have executed two sets of documents one is of 2004 and the other is of 2006. In the documents of 2004 wherein gift deed was executed by them which was not revoked till the date of creation of mortgage. Accordingly, when there was a gift deed executed by them, they had no right, title or interest over the secured assets and could not execute equitable mortgage in the year 2006 in favour of the Appellant.

DRT recorded a finding that the Appellant Bank is a subsequent mortgagee of the O.A. schedule property. Accordingly, passed the impugned judgment holding that Respondent No. 7, State Bank of India, has prior mortgage right over the O.A. schedule property.

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The bench of Justice Anil Kumar Srivastava (Chairperson) held that a gift deed was executed by Sri Gundluri Srinivas in favour of Smt. G. Bharati Devi on 9.9.2004 which was with respect to the O.A. schedule property. This gift deed is not under challenge or was not revoked till 2006 or 2010 when the alleged equitable mortgage was created in favour of the Appellant as well as Respondent No. 7, State Bank of India, respectively.

When the Gift Deed was executed in the year 2004 which was not revoked, then on the date of execution of the Gift Deed all the right, title and interest is transferred in favour of the Donee. Accordingly, any subsequent transfer by creation of any security interest by the Donor is against law. Admittedly, an equitable mortgage was created in favour of the Appellant in the year 2006 although no doubt equitable mortgage in favour of Respondent No. 7 was created in the year 2010 when the donor or the mortgagor had no right, title or interest over the secured assets in the year 2006 then any equitable mortgage created in favour of the Appellant Bank could not held to be a valid mortgage.

The bench upheld the impugned judgment and dismissed the appeal..

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