SBI Colluded With Builder To Sham Mortgage Facility, Rules HC

SBI Colluded With Builder To Sham Mortgage Facility, Rules HC

SBI Colluded With Builder To Sham Mortgage Facility, Rules HC
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The Bombay High Court (HC) has come to the rescue of buyers who had invested in a commercial project at Kandivali. While delivering its order, the HC also snubbed the project lender of colluding with the builder to create a sham mortgage facility.

What was the case?

In 2009, 300 buyers booked shops at Kamala Industrial Park at Kandivali. The builder, Metallica Industries, promised to give possession of the commercial units by 2013. In total, buyers had paid Rs 65 crore to the builder while Rs 12 crore remained to be paid. As it would later turn out, it was found that the builder forged commencement certificate (CC) to build seven floors while it was granted permission to build four floors only.

In 2012, however, the lender to the project State Bank of India (SBI) moved the National Company Law Tribunal (NCLT) to declare Metallica insolvent and acquire the land to recover its Rs 40 crore loan. Challenging the SBI move, several buyers, who are still waiting to get possession of their units, moved the court to seek relief.

What did the HC say?

After going through the documents, the court found out that the state lender granted the loan despite the developer not fulfilling as many as 27 conditions spelled in the loan sanction letter. The bank was also found of sanctioning the loan on an expired lease--the 30-year lease on the land given to the builder by the Maharashtra Industrial Development Corporation (MIDC) expired in 2006.

The bank, however, attested the “forged” CC as valid, the HC observed.

“It appears, prima facie, that SBI was also involved in the creation of a sham mortgage facility...The actions constitute not mere negligence, but a fraudulent endeavour to create charge upon a land by Metallica Industries in collusion with the SBI,” the HC said in its order.

While terming the mortgage “invalid”, the HC also said the NCLT lacks jurisdiction to hear the bank’s plea. 

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