Once loan is repaid, bank cannot withhold title deed merely because mortgagor transferred property: Kerala High Court

The Kerala High Court recently held that when a person (mortgagor) repays the mortgage money, the bank cannot withhold his security documents, merely because he transferred his property to another person during the subsistence of the mortgage [Vinu Madhavan v State Bank of India & Anr.]..Justice Shaji P Chaly said that the act of a bank in withholding security documents is illegal and arbitrary as its sole purpose of securing loans is completed by the repayment of the mortgage money by the mortgagor. Whether or not he transferred the mortgaged property to another person during the mortgage period is immaterial in this context, the single-judge held. “It is clear that merely because the property was transferred by the petitioner during the subsistence of the mortgage, however the interest of the Bank is protected by closing the loan account, the Bank is not entitled to withhold the security documents on the ground that the petitioner has transferred the property during the subsistence of the mortgage. Further, the Bank is not entitled to adjudicate an issue with respect to the fraud allegedly committed; .. This is because the mortgage was created solely for the purpose of securing the loans, which was paid off by the petitioner,” the Court said..The Court further said that if at all the bank suffers any loss because the mortgagor transferred the property, it is up to a court of law to adjudicate the same, not the bank. "The unilateral action of the bank withholding the security document is an illegal and arbitrary action. Therefore, if at all the bank suffered any loss consequent to the transfer of the property made by the petitioner, it has to be adjudicated by a competent court of law and not by the bank,” the court further said..The Court was considering a petition filed by a person who availed housing loans from the State Bank of India (SBI) seeking a direction to the bank to release his security documents including his title deeds, back to him.The petitioner had availed the said housing loan in 2015 for a total amount of ₹16 lakhs from SBI by mortgaging the original title deeds of his property. The petitioner closed the mortgage on April 7, 2022. However, even though the petitioner requested to release the security documents including title deed of his property, SBI did not take any action.This prompted the petitioner to approach the court..It was contended on behalf of SBI 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.The petitioner has concealed the existence of the mortgage before it and thus, it is entitled to proceed against the petitioner, the SBI further contended..In its judgment, the Court carefully examined various provisions of the Transfer of Property Act, 1882 that were relevant to the case a.It noted that the petitioner had already repaid the money back to the bank.Thereafter, considering the fact that the petitioner had repaid the full loan amount to SBI, the Court opined that the bank is not entitled to detain the title documents and other security documents submitted by the petitioner before Bank. "This is because the mortgage was created solely for the purpose of securing the loans, which was paid off by the petitioner," the Court explained.The Court proceeded to allow the petition and directed SBI to to release the title documents and other security documents furnished by the petitioner for the loan..The petitioner was represented by advocates R Muraleekrishnan, NS Nowshad, TM Reshmy, Sithara S and Binu KB.The respondent bank was represented by advocate M Jithesh Menon (Standing Council for State Bank of India)..[Read Judgment]