BTL 817 - Gift Deed – Subsequent Mortgage by Donor

 

The Banking Tutor’s Lessons

BTL 817                                                                   24-08-2025

Gift Deed – Subsequent Mortgage by Donor

In 2004, the property owner executed a gift deed for a property in favor of a donee. Later, in 2006, the original owner (the donor) created an equitable mortgage on the same property with UCO Bank to secure a loan. A separate, subsequent mortgage was also created in 2010 with another bank. When the loan went unpaid, UCO Bank initiated recovery proceedings. 

Debt Recovery Tribunal (DRT)ruled against UCO Bank. UCO Bank then filed an appeal with the DRAT in Kolkata. 

DRAT ruled that once the 2004 gift deed was executed and not revoked, all rights, title, and interest in the property were transferred to the donee. Therefore, the donor could not create a valid equitable mortgage in 2006, as they no longer had any legal ownership rights over the property. 

Legal principle explained by the ruling. 

This judgment is based on the principle that to create a valid equitable mortgage, the mortgagor must have the proper right, title, and interest over the property. The court emphasized two key points: 

Transfer of Title: The execution of a gift deed transfers ownership from the donor to the donee immediately, as long as the donee accepts it during the donor's lifetime. 

No Subsequent Rights: Any attempt by the donor to transfer or create a security interest in the property after the gift deed is void because they no longer possess any legal rights to the asset. 

Due Diligence: The ruling serves as a strong reminder for banks to conduct thorough due diligence before accepting property as collateral, especially in cases where title deeds may have been previously transferred. 

Gift Deed as Proof: While a gift deed can serve as a title document for a new owner to take out a mortgage, the DRAT confirmed that the original owner cannot use the property for the same purpose after giving it away. 

Risk of Fraud: The case highlights the risks associated with equitable mortgages, which are created by simply depositing title deeds and are more susceptible to fraud than registered mortgages. It underscores the importance of measures like the CERSAI registry to prevent fraudulent multiple lending. 

Suggestion: When we accept Gift Deed as main document to create mortgage, insist on the Original of Title Deed (in favour of Donor) to be deposited. Also go for Registration of Equitable Mortgage as this help others to know about  charges created on the property. 

(Ref: UCO Bank v. SSVG Engineering Projects Pvt. Ltd. and Ors.)

Sekhar Pariti

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