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State of U.P. v. United Bank of India

Civil Appeal · Neutral citation not assigned (Civil Appeal No. 5254 of 2010)Decided 26 Nov 2015
Civil Appeal No. 5254 of 2010
Justice M.Y. Eqbal · Justice C. Nagappan

Background

A newspaper company held a lease of government-owned (Nazul) land at 19 Clive Road, Allahabad, and mortgaged it to a bank as security for a loan. The bank obtained a mortgage decree through a settlement in Calcutta without the State of Uttar Pradesh being a party, then sought to have the land converted to freehold. The High Court directed the State to convert the land and quashed the State's notice seeking to resume the property.

Decision Breakdown

The Supreme Court held that the mortgage was void from the start, because the lease required the State's prior written permission before any mortgage and no such permission was shown. It also held that a mortgage decree obtained behind the back of the State, which was the owner, could not be enforced against the State. The bank had no right or interest in the property that would allow conversion to freehold. The doctrine of legitimate expectation could not help the bank, because the bank had no valid legal relationship with the State and the State had never promised it anything. The State's appeal was allowed and the High Court judgment was set aside, while the other connected appeals were dismissed.

Lesson Learnt

A lender taking government land as security must check that the borrower had the legal right to mortgage it, and a court order obtained without the real owner being a party may not bind that owner. Government leases often restrict transfers, and a lender cannot rely on a court decree to get around those conditions.

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

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