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Maharaji Educational Trust v. SGS Construction & Dev. P. Ltd. & Ors.

Civil Appeal · Neutral citation not assigned (Civil Appeal No. 4494 of 2015)Decided 15 May 2015
Civil Appeal No. 4494 of 2015
Chief Justice H.L. Dattu · Justice S.A. Bobde · Justice Arun Mishra

Background

Maharaji Educational Trust had taken a large loan (outstanding around Rs. 433 crores) from HUDCO, mortgaging several parcels of land including a 63.45-acre plot. The Trust later exchanged 21 acres of that mortgaged land with the U.P. Avas Evam Vikas Parishad and separately entered into an unregistered agreement to sell part of the same land to a builder, SGS Construction & Dev. P. Ltd. When the Trust defaulted, HUDCO initiated recovery proceedings and action under the SARFAESI Act against the mortgaged property, and the builder objected, claiming rights under its agreement to sell. The Allahabad High Court (Lucknow Bench) had directed the Avas Evam Vikas Parishad to demarcate the land into mortgaged and unencumbered portions, prompting cross-appeals by the Trust, the Parishad, and HUDCO.

Decision Breakdown

The Supreme Court held that the builder's claim, based on an agreement to sell that required registration under the Registration Act and Transfer of Property Act, could not defeat the secured creditor's (HUDCO's) prior mortgage rights, and that the High Court erred in ordering demarcation of the land on that basis. The Court found that the question of registration/validity of the agreement was already pending before the High Court in a separate writ petition and declined to decide that issue itself, leaving it to the High Court. The Court allowed the appeals, set aside the High Court's judgment, and dismissed the builder's writ petition, imposing costs of Rs. 5 lakhs on the builder payable to the Supreme Court Legal Services Committee.

Lesson Learnt

An unregistered agreement to sell does not create an enforceable interest that can override a bank or financial institution's registered, prior-in-time mortgage over the same property: buyers should insist on timely registration and due diligence on existing encumbrances before relying on such agreements.

Official source (sci.gov.in)View Judgment (PDF)

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