DRAT Kolkata: Mortgage Cannot Survive If Underlying Sale Deed Is Declared Void; SARFAESI Action Set Aside

March 18, 2026 : The Debts Recovery Appellate Tribunal (DRAT), Kolkata has held that a mortgage created on the basis of a sale deed that is subsequently declared null and void cannot be enforced, and any SARFAESI action founded on such mortgage is legally unsustainable.

In Mirza Sardar Baig vs. Indian Overseas Bank & Ors., the Appellate Tribunal, presided over by Chairperson Justice Anil Kumar Srivastava, allowed the appeal and quashed the possession notice issued by the bank under Section 13(4) of the SARFAESI Act.

Background

The dispute arose over a residential property originally owned by late Shameem Begum. After her death in 2015, the property devolved upon her husband, four sons, and five daughters. All legal heirs jointly executed a registered sale deed dated 29.01.2018 in favour of the appellant, Mirza Sardar Baig, for ₹97.92 lakh.

However, prior to this transaction, one of the legal heirs, Mohammad Chand, who held only a one-tenth share, had executed a sale deed in 2016 in favour of Akula Amma Rao. On the strength of that deed, the borrower created an equitable mortgage in favour of Indian Overseas Bank.

The appellant challenged this earlier transaction as fraudulent, contending that a single co-owner could not convey full title or create a valid mortgage over the entire property.

Civil Court Decree and SARFAESI Action

A civil suit was filed seeking declaration that the 2016 sale deed was null and void. The bank, though impleaded as a party, failed to appear, resulting in an ex parte decree declaring the said deed invalid. The decree attained finality as it was never challenged.

Despite this, the bank proceeded under the SARFAESI Act and issued a possession notice dated 09.05.2018, treating the property as a secured asset. The appellant’s securitisation application was dismissed by DRT-II, Hyderabad, on the ground that issues of title and fraud could not be adjudicated in SARFAESI proceedings.

Findings of the Appellate Tribunal

Setting aside the DRT’s order, the Appellate Tribunal held that the civil court decree was binding on all parties, including the bank, and had conclusively invalidated the very foundation of the mortgage.

Relying on the record, the Tribunal observed that once the sale deed dated 20.10.2016 was declared null and void, the mortgage created on its basis ceased to exist in law.

The Tribunal categorically held that:

• No rights could flow to the bank from a void document;
• The mortgage, being derivative of the invalid sale deed, could not survive;
• SARFAESI action could not be sustained in the absence of a valid secured interest.

It further noted that all legal heirs, including Mohammad Chand himself, had executed the subsequent sale deed in favour of the appellant. With the earlier deed already nullified, the appellant’s title became legally valid and enforceable.

Observations on Fraud and Bank Conduct

The Tribunal also took note of the fact that the bank itself had lodged an FIR alleging fraud in the earlier transaction, which further undermined its claim over the secured asset.

Additionally, the bank’s failure to contest the civil suit meant that the decree attained finality and could not be collaterally challenged in SARFAESI proceedings.

Final Order

Allowing the appeal, the DRAT:

• Set aside the DRT Hyderabad order dated 18.09.2024;
• Allowed the securitisation application;
• Quashed the possession notice dated 09.05.2018 issued under Section 13(4) of the SARFAESI Act.

However, the Tribunal clarified that the bank would remain at liberty to recover its dues through other remedies available under law.