DRAT Upholds CSB’s Prior Charge, Sets Aside Punjab & Sind Bank’s SARFAESI Sale [Read Order]

The Debt Recovery Appellate Tribunal (DRAT), Chennai, has dismissed appeals filed by Punjab & Sind Bank (PSB) and an auction purchaser, upholding a prior mortgage held by Catholic Syrian Bank(CSB) and setting aside a SARFAESI sale conducted by Punjab & Sind Bank.

The dispute originated from competing claims over the same property by two banks, which had extended loans to M/s. Supreme Chemiplast Pipings Pvt. Ltd. The Catholic Syrian Bank (CSB) claimed its mortgage, created in 1994 with the original title deeds, was prior in time. Punjab & Sind Bank (PSB) later initiated SARFAESI proceedings in 2007 and sold the property to T.N. Rajakumar. Subsequently, CSB, through its DRT proceedings, attached and sold the same property to S. Ramakrishnan, leading to conflicting claims.

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The core issue before the DRAT was the validity and priority of the two mortgages. PSB and Rajakumar contended that the SARFAESI sale was legally concluded and that Rajakumar was a bonafide purchaser. CSB argued that its mortgage was the first and only valid one, created with original documents, whereas PSB’s mortgage was defective as it was based on copies of the title deeds obtained through misrepresentation.

JusticeG. Chandrasekharan, Chairperson of the Tribunal, 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. In contrast, it was established that PSB’s mortgage was created using only a copy of the title deed, and the mortgagor had falsely affirmed it was the original.

The Tribunal noted that PSB had even been forewarned about potential fraud but proceeded with the loan. Consequently, the SARFAESI action initiated by PSB on the basis of this defective mortgage was held to be illegal. The DRAT dismissed the appeals and upheld the sale conducted by the Catholic Syrian Bank in favour of S. Ramakrishnan.