Kerala High Court rules bank cannot withhold title deed if mortgagor transfers property after prepaying loan

Kerala High Court rules bank cannot withhold title deed if mortgagor transfers property after prepaying loan

Directs the State Bank of India to release the security documents furnished by the petitioner

The Kerala High Court has held that when a person (mortgagor) repays the loan amount, the bank cannot withhold his security documents, merely because he transferred the property to a person during the subsistence of the mortgage.

In the Vinu Madhavan vs State Bank of India & Anr case, Justice Shaji P Chaly said that the act of a bank in withholding the security documents was illegal and arbitrary, as the mortgagor had completed the repayment.

The single-judge bench held, “It is clear that merely because the property was transferred by the petitioner during the subsistence of the mortgage, the bank is not entitled to withhold the security documents. The bank is not entitled to adjudicate an issue with respect to the fraud allegedly committed.”

The court added that if the bank suffered any loss because the mortgagor transferred the property, it was up to a competent court to adjudicate it. The bank could not have any say in it.

In 2015, the petitioner availed a housing loan for a total amount of Rs.16 lakhs from the State Bank of India (SBI) by mortgaging the original title deeds of his property. In 2022, he closed the mortgage.

However, when he requested SBI to release the security documents, including the title deed of his property, the bank refused. This prompted him to approach the court. He sought direction from the court to the bank to release his security documents.

SBI submitted that during the subsistence of the mortgage, a portion of the property was alienated by the petitioner in favour of his wife and was mortgaged to other banks creating two loans. Thereby, he concealed the existence of the mortgage. Hence the bank was entitled to proceed against the petitioner.

While examining the provisions under the Transfer of Property Act, 1882 , the court noted that the petitioner had already repaid the loan amount to the bank. Therefore, the bank was not entitled to detain the title documents and other security documents submitted by the petitioner.

The court explained, "This is because the mortgage was created solely for the purpose of securing the loan, which was paid off by the petitioner.”

The bench allowed the petition and directed SBI to release the title documents and other security documents furnished by the petitioner for the loan amount.

The petitioner was represented by advocates R Muraleekrishnan, NS Nowshad, TM Reshmy, Sithara S, and Binu KB.

Advocate M Jithesh Menon, the standing counsel for the State Bank of India, advised the bank.