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When Loan Has Been Repaid, Bank Can't Withhold Title Documents Merely Because Borrower Transferred Mortgaged Property : Kerala High Court

Sheryl Sebastian
19 March 2023 5:51 AM GMT
When Loan Has Been Repaid, Bank Cant Withhold Title Documents Merely Because Borrower Transferred Mortgaged Property : Kerala High Court

The Kerala High Court on Friday held that a bank could not retain the security documents related to a mortgaged property if the loan amount has been paid in full by the borrower, merely because during term of the mortgage, it was alienated to a third party by the borrower.

A single bench of Justice Shaji P Chaly held that :

“merely because the property was transferred by the petitioner during the subsistence of the mortgage, however the interest of the Bank is protected by closing the loan account, the Bank is not entitled to withhold the security documents on the ground that the petitioner has transferred the property during the subsistence of the mortgage.”

In the matter at hand, the petitioner had availed a housing loan from the State Bank of India which was later closed by the petitioner. However, when the petitioner asked the bank to release the security documents, including title deed of his property, the bank refused to do so. The bank informed the petitioner that his account was classified as fraud due to the alienation of his property without the permission of the Bank and hence legal action was being taken against him. The petitioner had approached the court challenging the action of the bank.

The contention of the Bank was that that during the subsistence of the mortgage, the petitioner alienated a part of his property in favour of his wife. Later, by concealing the mortgage in favour SBI, a part of the property was also mortgaged to Kanayannur Taluk Co- operative Agriculture and Rural Development Bank and two more loans were availed by the petitioner.

The court perused Sections 58 (Mortgage, mortgagor, mortgagee, mortgage-money and mortgage-deed defined) ,60-A (Obligation to transfer to third party instead of re-transference to mortgagor.) 83 (Power to deposit in Court money due on mortgage) and 91 (Persons who may sue for redemption.) of the transfer of property Act, 1882 to conclude that the bank was not entitled to retain the title deed of the petitioner, on account of alienation, when the loan had already been repaid to the bank.

Holding the action of the bank to be illegal, the court observed that:

“the Bank is not entitled to adjudicate an issue with respect to the fraud allegedly committed; and merely because the Bank initiates any action, the Bank is not entitled to detain the title documents and other security documents submitted by the petitioner before Bank. This is because the mortgage was created solely for the purpose of securing the loans, which was paid off by the petitioner. Therefore, if at all the bank suffered any loss consequent to the transfer of the property made by the petitioner, it has to be adjudicated by a competent court of law and not by the bank. Therefore, the unilateral action of the bank withholding the security document is an illegal and arbitrary action.”

The court directed the bank to release the security documents furnished by the petitioner on account of the loan.

Counsel for the Petitioner: Advocates R Muraleekrishnan, V S Nowshad, T M Reshmy, Sithara S, Binu K B

Counsel for the Respondent: Adv. M.Jithesh Menon (Standing Counsel for SBI)

Case Title: Vinu Madhavan V State Bank Of India

Citation: 2023 LiveLaw (Ker) 138

Click here to read/download judgment

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