2007 (8) TMI 449 - SC - Companies Law

Whether in absence of any execution and registration of deed of sale by the Government of Andhra Pradesh or by APIIC in favour of the Company, any interest in the land has been and could be created? Whether the Company as well the Syndicate Bank obtained prior consent of the Government in the matter as was required under clause 8(b) of the agreement? Held that - Questions require consideration by a Larger Bench so that an authoritative pronouncement can be made thereupon - no clear authority on the question as to whether in absence of any title deed in terms whereof 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. 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 a full title before such a mortgage is created by deposit of title deeds. A person may acquire title to a property irrespective of the nature thereof by several modes, e.g., a lease of land which does not require registration; (ii) by partition of a joint family property by way of family settlement, which does not require registration. 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 institution 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 advances which would in effect and substance create a state of instability.

Summary

Issues Involved:
1. Allotment and Utilization of Land
2. Mortgage and Financial Assistance
3. Cancellation of Allotment
4. Debt Recovery Tribunal Proceedings
5. Validity of Auction and Sale Notices
6. Legal Interpretation of Agreement Clauses

Issue-wise Detailed Analysis:

1. Allotment and Utilization of Land:
The Company filed an application for land allotment to set up an industrial unit. The Government of Andhra Pradesh allotted 51 acres of land, and an agreement was executed on 3-8-1972. Key terms included the execution of the sale deed upon full payment, a second charge in favor of the Government, and the requirement for the Company to utilize the land for the specified purpose. The Company made an initial payment of 50% of the total cost and was permitted to mortgage the land to obtain financial assistance. However, the Company failed to utilize the land for industrial purposes, leading to the cancellation of 25 acres of the allotment.

2. Mortgage and Financial Assistance:
The Company mortgaged the allotted land to the appellant bank, which advanced money based on the security. The Government later transferred the industrial estates to APIIC. The Company paid the entire cost of the land by 31-7-1980, but APIIC canceled the allotment of 25 acres. The remaining 26 acres became the disputed property. The High Court held that the mortgage created by the deposit of title deeds was not valid, as no sale deed was executed by the Government, and the letter from the Director of Industries did not constitute a document of title.

3. Cancellation of Allotment:
APIIC canceled the allotment of the remaining 26 acres on 14-7-1999, citing non-utilization of the land for industrial purposes and non-payment of dues. The Company did not provide a satisfactory explanation to the show-cause notice. The High Court upheld the cancellation, noting that the Company failed to utilize the land for the intended purpose and did not pay the outstanding amount.

4. Debt Recovery Tribunal Proceedings:
The appellant bank filed an application before the Debt Recovery Tribunal (DRT) to recover a sum of Rs. 2,57,10,393 from the Company. The DRT allowed the application, and a recovery certificate was issued. However, the High Court held that the recovery certificate did not affect the title of the land, as no sale deed was executed in favor of the Company. The High Court also noted that the Recovery Officer's sale proclamation was ultra vires, as it was issued without proper notice to APIIC.

5. Validity of Auction and Sale Notices:
APIIC objected to the proposed auction of the entire 51 acres of land. During the pendency of writ petitions, APIIC resumed possession of 25 acres and issued a show-cause notice for the remaining 26 acres. The High Court held that the sale notices issued by APIIC did not suffer from legal infirmities and that the Recovery Officer's proclamation of sale was invalid.

6. Legal Interpretation of Agreement Clauses:
The High Court interpreted clause 8 of the agreement, which required prior consent of the Government for advancing more than 60% of the value of the land. The High Court concluded that the letter from the Director of Industries did not constitute prior consent and that the Government's ownership of the land remained until the execution of a sale deed. The High Court also noted that the appellant bank did not act diligently and that the Company's failure to utilize the land justified the cancellation of the allotment.

Conclusion:
The Supreme Court recognized the importance of the issues raised and the potential impact on similar transactions in the future. The Court decided that the matter should be heard by a Larger Bench for an authoritative pronouncement, particularly on whether a mortgage can be created without a registered deed of sale and the implications of allotment letters as documents of title. The Court also highlighted the need to consider the equitable principles involved and the potential consequences for banks and financial institutions.