Featured image for Supreme Court Judgment dated 30-10-2017 in case of petitioner name State Bank of India vs Metta Chandra Sekhar Rao & Ors
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Supreme Court Upholds Mortgage Validity in SBI Auction Dispute

The Supreme Court of India, in a significant ruling, upheld the validity of a mortgage in the case of State Bank of India & Anr. vs. Metta Chandra Sekhar Rao & Ors., addressing issues of mortgage enforcement and auction proceedings under the Transfer of Property Act, 1882. The judgment reversed the High Court’s decision, which had set aside the auction and sale proceedings due to an alleged defect in the mortgage.

Background of the Case

The dispute arose when the State Bank of India (SBI) auctioned a property mortgaged by the respondent, Metta Chandra Sekhar Rao, to recover a loan. The respondent challenged the auction, arguing that the mortgage was invalid because it lacked proper registration. The High Court of Judicature at Hyderabad ruled in favor of the respondent, setting aside the sale certificate issued to the auction purchaser.

The case eventually reached the Supreme Court, where SBI sought to uphold the mortgage and the validity of the auction sale.

Legal Issues Raised

  • Whether a mortgage created by deposit of title deeds is valid without separate registration.
  • Whether an auction sale based on an allegedly defective mortgage can be set aside.
  • Whether a waiver of rights under the Transfer of Property Act by the mortgagor requires registration to be enforceable.
  • The impact of setting aside an auction on an innocent third-party purchaser.

Petitioner’s Arguments (State Bank of India)

The petitioners, represented by senior counsel, argued:

  • The mortgage was created by deposit of title deeds, which is a recognized method under Section 58(f) of the Transfer of Property Act and does not require separate registration.
  • The mortgagor had voluntarily waived certain rights through a letter dated May 28, 2011, and the auction sale was conducted in compliance with all legal requirements.
  • The mortgage was acted upon by both parties, and the respondent had benefited from the loan based on the secured property.
  • The High Court erred in setting aside the sale proceedings at a belated stage when the mortgage had already been executed and relied upon.

Respondent’s Arguments (Metta Chandra Sekhar Rao & Ors.)

The respondents contended:

  • The letter waiving rights under Sections 61, 65A, and 67A of the Transfer of Property Act constituted a contract and should have been registered.
  • Since the mortgage was invalid due to lack of registration, the subsequent sale proceedings were also unlawful.
  • The High Court correctly applied the precedent set in Veeramachineni Gangadhara Rao v. The Andhra Bank Ltd. (1971), where a similar waiver document was deemed unenforceable due to non-registration.

Supreme Court’s Observations

The Supreme Court reviewed the facts and legal principles involved, making the following key observations:

  • The mortgage was executed and acted upon by both parties, and the respondent benefited from the loan.
  • The High Court’s decision to declare the mortgage invalid was incorrect, as the issue was never raised in earlier proceedings.
  • The auction purchaser was an innocent third party who had already paid the sale price, taken possession, and invested in repairs of the property.
  • The High Court overlooked the fact that part of the mortgaged property had already been sold, and those transactions had attained finality.

In its judgment, the Supreme Court stated:

“The issue with regard to validity of the mortgage on the strength of which the loan was sanctioned and obtained was not raised at any point of time in any of the earlier proceedings. The High Court, in our considered view, ought not to have gone into the said question at such a belated stage.”

Final Judgment

The Supreme Court set aside the High Court’s ruling and upheld the validity of the auction sale. The key directions were:

  • The auction sale of the property was legally conducted and could not be annulled.
  • The mortgage was valid, as it was created by deposit of title deeds under Section 58(f) of the Transfer of Property Act.
  • The waiver document executed by the respondent did not require registration.
  • The auction purchaser’s rights must be protected as an innocent third party.

Conclusion

This ruling provides clarity on the enforcement of mortgages created by deposit of title deeds and reinforces the importance of upholding valid transactions. It protects the rights of auction purchasers and ensures that borrowers cannot challenge mortgage validity at a belated stage to evade repayment obligations. The judgment sets a precedent for future cases involving similar disputes under the Transfer of Property Act.

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Download Judgment: State Bank of India vs Metta Chandra Sekhar Supreme Court of India Judgment Dated 30-10-2017.pdf

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