SARFAESI Enforcement on Unregistered Tripartite Agreements: Section 26D and Homebuyer Rights

Summary: A tripartite agreement between a homebuyer, developer and financing bank may create a security interest over an under-construction flat even where the buyer holds only an agreement for sale. However, the existence of security and its enforceability are distinct questions. This article examines Section 2(1)(zf) of the SARFAESI Act alongside Sections 26B to 26E, particularly the requirement under Section 26D for registration with the Central Registry before exercising Chapter III enforcement rights. It analyses decisions including Vishwanath M. Pai, Apurba Dev Sarma, Cosmos Co-operative Bank, Jalgaon Janta Sahakari Bank and Central Bank of India v. Prabha Jain, distinguishing contractual security, equitable interests, notice, priority and third-party title disputes. It also discusses RBI instructions concerning registration of security over under-construction property, the competing claims of project lenders and home-loan financiers, protections under MOFA and RERA, and differences in the Maharashtra and Gujarat legal positions. The author argues that banks holding unregistered tripartite security face a statutory obstacle to SARFAESI enforcement, even if their contractual rights otherwise survive. Practical guidance is provided for purchasers, borrowers and lenders regarding CERSAI searches, Section 17 applications, documentary evidence and appropriate recovery remedies.

The Tripartite Agreement and the Empty Register: Can a Bank Invoke SARFAESI Over a property That Exists Only on an Agreement for Sale?

Brief

A family books a flat in a project that is still a hole in the ground. A bank sanctions a home loan, and the builder, the buyer and the bank sign a tripartite agreement under which the loan money goes straight to the builder. Nothing else happens. No sale deed is executed, no mortgage deed is signed, and nothing is filed with the Central Registry. A few years later the instalments stop. The bank issues a notice under Section 13(2) of the SARFAESI Act and then moves to take possession — sometimes of a flat which the builder, in the meantime, has sold by a registered sale deed to a stranger who paid full value and who has his own home loan from a different bank.

This article examines that situation from every side. It asks whether a tripartite agreement creates a “security interest” at all; whether the bank can enforce it under Chapter III of the Act when it was never registered with the Central Registry; what happens when a third party has bought the flat; and what happens when the builder had also mortgaged the project to its own lender. It sets out the Supreme Court’s position, the view taken in Maharashtra and the position in Gujarat, and closes with what borrowers, purchasers and banks should actually do.

Introduction

Most of the writing on tripartite agreements asks one question — does the agreement create a security interest? — and answers it by reading the definition in Section 2(1)(zf). That question has, to a large extent, been answered, and it has been answered in favour of the banks. Two High Courts have held, on facts that are almost identical to the ones described above, that the definition of “security interest” in Section 2(1)(zf) is broad enough to cover the bank’s rights under a tripartite agreement over a flat that was not yet in existence.

But a security interest can exist and still not be enforceable under the SARFAESI Act. Since 24^th January 2020, Section 26D has made registration with the Central Registry a condition for the exercise of any right of enforcement under Chapter III. And a security interest can exist and still not bind a third party who bought the property without notice of it. These two questions — enforceability and priority — are where the real contest lies today. Neither of the two High Court decisions that banks usually cite had to deal with the first of them, because in both cases the enforcement steps were taken years before Section 26D came into force; and the second arose in circumstances very different from those of a purchaser who searched the register and found nothing.

The author’s own starting point is the same as that of most practitioners on the bank side: the definition is wide, and on its words the bank has a security interest. The argument of this article is that the definition is only the first gate. There are two more, and a bank that has not registered its interest will usually find the second one closed.

Part I — The statutory framework

Begin with the definition. Section 2(1)(zf), as substituted by the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016, defines “security interest” to mean “right, title or interest of any kind, upon property created in favour of any secured creditor”, and goes on to include, in sub-clause (i), any mortgage, charge, hypothecation, assignment or any right, title or interest of any kind on tangible asset, retained by the secured creditor as an owner of the property, given on hire or financial lease or conditional sale “or under any other contract which secures the obligation to pay any unpaid portion of the purchase price of the asset or an obligation incurred or credit provided to enable the borrower to acquire the tangible asset”. Sub-clause (ii) makes similar provision for intangible assets.

Two features of this language deserve attention. First, the words “any other contract” are not confined to mortgages; they reach any contract which secures credit provided to enable the borrower to acquire the asset — which is exactly what a home loan for an under-construction flat is. Secondly, and this is the point that is usually missed, the opening words still require an interest “upon property” which is “created in favour of” the secured creditor. The definition widens the kinds of instrument that can create a security interest. It does not create property where none exists, and it does not tell us who must have created the interest or whose property it burdens.

That second point matters because of what an agreement for sale is. Section 54 of the Transfer of Property Act, 1882 provides that a contract for the sale of immovable property does not, of itself, create any interest in or charge on such property. A buyer who holds only an agreement for sale has a contractual right to call for a conveyance; the title, and usually the possession, remain with the builder. Whatever the bank acquires from such a buyer, it acquires an interest in that contractual right and in whatever the builder has separately agreed to give the bank under the tripartite agreement — not, without more, a mortgage of the builder’s title.

Next comes Chapter IV-A, inserted by the same 2016 Amendment Act. The Central Government brought the provisions of the Amendment Act inserting Chapter IV-A into force with effect from 24^th January 2020. Section 26B permits any creditor, including a secured creditor, to file particulars of the creation, modification or satisfaction of a security interest with the Central Registry. Section 26C(1) provides that such registration “shall be deemed to constitute a public notice from the date and time of filing”. Section 26C(2) gives the registered creditor priority over any subsequent security interest created upon the property, and makes any subsequent transfer by way of sale, lease, assignment or licence subject to its claim; a proviso excludes transactions carried on by the borrower in the ordinary course of business.

Then Section 26D, which is the provision on which these cases now turn: “Notwithstanding anything contained in any other law for the time being in force, from the date of commencement of the provisions of this Chapter, no secured creditor shall be entitled to exercise the rights of enforcement of securities under Chapter III unless the security interest created in its favour by the borrower has been registered with the Central Registry.” Section 26E then gives the secured creditor priority over all other debts and revenues, including taxes, “after the registration of security interest”.

Before 2020, a failure to file particulars with the Central Registry had consequences, but loss of the right to enforce was not one of them. Section 26D changed that. It does not extinguish the debt, and it does not say that an unregistered security interest is void. It operates on the remedy: until the interest is registered, Chapter III is closed to the creditor.

Finally, the regulator’s own instructions. The Central Government, by a Gazette Notification dated 22 January 2016, required the filing on the CERSAI portal of, among other things, particulars of creation, modification or satisfaction of security interest in any ‘under construction’ residential or commercial property or a part thereof “by an agreement or instrument other than mortgage”. The Reserve Bank first communicated this to lenders by its circular RBI/2018-19/96 dated 27^th December 2018, addressed to all scheduled commercial banks, co-operative banks, NBFCs and All India Financial Institutions. That circular recorded that registration of this category on the CERSAI portal had commenced on 8^th June 2017 (paragraph 3), and directed lenders to complete the filing of charges for subsisting transactions by 31^st March 2019 and to file current transactions on an ongoing basis (paragraph 4).

The 2018 circular has since been withdrawn. It is one of the circulars repealed on 28^th November 2025, when the Reserve Bank consolidated its regulatory instructions into function-wise Master Directions for each class of regulated entity. That withdrawal does not help the banks. The press release announcing the exercise stated that the instructions were consolidated on an “as-is” basis, and the CERSAI instruction now appears, in the same words, in each of the relevant Master Directions: paragraphs 74 to 77 of the Reserve Bank of India (Commercial Banks – Credit Risk Management) Directions, 2025 (the ‘under construction’ category is paragraph 76(4), and paragraph 77 advises a bank “to file the charges relating to all current transactions with CERSAI on an ongoing basis”); paragraphs 25 to 28 of the Reserve Bank of India (Non-Banking Financial Companies – Credit Risk Management) Directions, 2025, which by paragraph 3 apply to housing finance companies registered with the Reserve Bank (the category is paragraph 27(4)); paragraphs 48 to 51 of the corresponding Directions for Urban Co-operative Banks (paragraph 50(4)); and paragraph 24(4) of the Directions for Rural Co-operative Banks. In any event, the obligation never rested on the circular alone. Its source is Section 26B of the Act and the Central Government’s notification of 2016; the circular and the Master Directions only tell lenders to comply. A practitioner citing the 2018 circular today should cite it for its historical record — in particular for the date of 8 June 2017 from which this category became registrable — and should cite the applicable Master Direction for the present instruction.

These instructions are, in the author’s view, the most important documents in these cases, and they are almost never produced. They answer in advance the argument most often made on behalf of banks — that a tripartite agreement over an under-construction flat is a special kind of arrangement which the registration regime was never designed to capture. The regime was designed to capture precisely that arrangement, the CERSAI portal has had a category for it since June 2017, and the Reserve Bank has told every class of lender, first in 2018 and again in its 2025 Master Directions, to use it.

Part II — Does a tripartite agreement create a security interest?

The Supreme Court’s settled position on agreements for sale is the starting point. In Bank of India v. Abhay D. Narottam, (2005) 11 SCC 520, a bank claimed a charge over a flat on the strength of an agreement for sale deposited with it. The Court rejected the claim, observing (paragraph 9) that “without a transfer of interest there is no question of there being a mortgage”, and (paragraph 11) that a contract for sale “does not of itself create any interest in or charge over such property”, so that there was no question of the bank having any charge over such non-existent interest. Suraj Lamp & Industries (P) Ltd. v. State of Haryana, (2012) 1 SCC 656, restated the same principle for agreements of sale generally.

Banks answer this with the 2016 definition, and they have been successful. In Vishwanath M. Pai v. Corporation Bank, W.P. Nos. 12007 and 12008 of 2018, decided on 11^th April 2019 by a Division Bench of the Madras High Court (Vijaya K. Tahilramani, CJ. and M. Duraiswamy, J.), the borrower had taken a housing loan in 2006 to buy an undivided share of land and a flat in a project yet to be built, and had deposited the sale agreement, construction agreement and tripartite agreement with the bank. The writ petitioners bought the same property from the landowners in 2010 with a loan from another bank. The DRT at Bangalore held that no security interest had been created; the DRAT at Chennai reversed. The High Court refused to interfere. It rejected the argument that a charge could never have been created because the property was not in existence, relying on Section 2(1)(zf) (paragraph 5); held that a mortgage had arisen by deposit of title documents with intent to create security (paragraph 8); distinguished Suraj Lamp; and held that “the remedy open to the petitioners is to take appropriate proceedings against the respondents 2 & 3” — that is, against the borrower and the builder (paragraph 10).

The Gauhati High Court went the same way in Shri Apurba Dev Sarma v. The District Magistrate, Kamrup (Metro) and Others, WP(C) No. 920 of 2025, decided on 3 April 2025 by a Division Bench (Vijay Bishnoi, CJ. and N. Unni Krishnan Nair, J.). The facts are a near-perfect illustration of the problem. The borrowers had a registered agreement for sale with the builder dated 28^th June 2015; a tripartite agreement between the borrower, the builder and HDFC Bank followed on 20 August 2015, under which the loan was to be secured by a first and exclusive mortgage over the flat and the builder undertook to refund the bank on default or cancellation. The loan became a non-performing asset, a Section 13(2) notice was issued on 5^th December 2017 and a possession notice was published on 11^th March 2018. The builder thereafter sold the flat by a registered sale deed of 2022 to a purchaser, who sold it on in 2023 to the petitioner. The petitioner relied on Section 54 of the Transfer of Property Act, Suraj Lamp, Abhay D. Narottam and the Supreme Court’s then very recent decision in Cosmos Co-operative Bank. The Court traced the amendment of the definition, held that it “is widened and it also includes any other contract” (paragraph 28), found that “a security interest was created in favour of the HDFC Bank” (paragraph 30), agreed with the Madras High Court that “a security interest can be created on a property which was not in existence” (paragraph 31), and relegated the purchaser to the Debts Recovery Tribunal under Section 17, holding that the words “any person” in that section were wide enough to include him (paragraphs 33 to 35, relying on United Bank of India v. Satyawati Tondon, (2010) 8 SCC 110).

On the first question, then, the present position is reasonably clear. Two Division Benches have held that a tripartite agreement over an under-construction flat creates a security interest within Section 2(1)(zf), and no High Court decision taking the contrary view after the 2016 amendment has come to the author’s notice. Practitioners acting for homebuyers who build their whole case on Section 54 and Suraj Lamp are fighting the battle that has already been lost.

But notice what neither decision decided. In Vishwanath M. Pai, the possession notice was of 2011. In Apurba Dev Sarma, the Section 13(2) notice was of 2017 and the possession notice of 2018. In both cases every enforcement step had been taken before 24^th January 2020, when Section 26D came into force, and neither judgment refers to the Central Registry at all. Neither decision is therefore authority on whether a bank may, today, enforce an unregistered tripartite security under Chapter III. And neither involved a purchaser who could say that he had no notice of the bank’s interest: in Apurba Dev Sarma, the possession notice had been published years before the builder’s sale, a point the bank pressed on the question of constructive notice.

The Supreme Court’s decision in Cosmos Co-operative Bank Ltd. v. Central Bank of India and Others, 2025 INSC 243, decided on 4^th February 2025 (J.B. Pardiwala and R. Mahadevan, JJ.), arising from the Bombay High Court, supplies the conceptual bridge between the two lines of authority, and it is worth reading closely. The borrowers had deposited unregistered agreements for sale of a flat with Central Bank in 1989 and, years later, deposited the share certificate with Cosmos Bank. The Court reaffirmed that “a contract of sale i.e. an agreement of sale does not itself create any interest in or charge on any property” (paragraph 20) and held the observations in Abhay D. Narottam directly applicable (paragraphs 21 and 22). It nonetheless held that the deposit of the agreement, made so as to offer the flat as security, “would tantamount to an equitable mortgage” (paragraph 42). It then explained the nature of that right: an equitable mortgage operates in personam; it is distinct from a mortgage by deposit of title deeds under Section 58(f), which in India is a legal mortgage (paragraphs 43, 49 to 52); and what Central Bank held was “only an equitable mortgage, though prior in time” (paragraph 52). Because Central Bank had not obtained all the title documents and had not brought its interest to the notice of the later lender, its equitable charge was “liable to be postponed” to Cosmos Bank under Section 78 of the Transfer of Property Act (paragraphs 44 to 47 and 67). The Court also noticed Section 100 of the Transfer of Property Act, under which a charge is not enforceable against a transferee for consideration without notice (paragraphs 55 and 56), and directed that copies of the judgment be circulated through the High Courts to all the Debts Recovery Tribunals and Appellate Tribunals (paragraph 69).

Put Cosmos beside Apurba Dev Sarma and the analysis becomes clearer. The bank under a tripartite agreement does have a security interest — the Gauhati and Madras decisions are consistent with Cosmos on that. But the security interest it has, in the ordinary case where only an agreement for sale exists, is an equitable interest which binds the parties and those who take with notice. Its strength against everyone else depends on notice. And since 2020, Parliament has provided a single statutory mechanism for giving that notice: registration under Chapter IV-A, which Section 26C(1) deems to be public notice.

Part III — The Central Registry: the condition that the banks have not met

Now take the case where the bank has not registered. Section 26D is not drafted as a priority rule; it is drafted as a bar. It begins with a non obstante clause, it applies “from the date of commencement of the provisions of this Chapter”, and it says that “no secured creditor shall be entitled to exercise the rights of enforcement of securities under Chapter III” unless the security interest has been registered. It makes no exception for any class of security interest.

The leading authority is from Maharashtra. In Jalgaon Janta Sahakari Bank Ltd. and Another v. Joint Commissioner of Sales Tax, Nodal 9, Mumbai and Another, Writ Petition No. 2935 of 2018 with connected matters, decided on 30^th August 2022 by a Full Bench of the Bombay High Court (Dipankar Datta, CJ., M.S. Karnik and N.J. Jamadar, JJ.), the question was the priority of secured creditors over State tax dues. In answering the reference the Full Bench held that, unless the security interest is registered with the Central Registry, the secured creditor can neither enforce it under Chapter III nor claim priority under Section 26E; that a secured creditor which cannot claim priority under Section 26E for want of registration cannot fall back on Section 31B of the Recovery of Debts and Bankruptcy Act, 1993; and that Chapter IV-A operates prospectively from 24^th January 2020. In doing so it overruled the contrary observations in two earlier Division Bench decisions — paragraph 21 of ASREC (India) Ltd. and paragraph 35 of State Bank of India v. State of Maharashtra — which had treated registration as immaterial to priority.

Jalgaon Janta was a contest between a bank and the State, not between a bank and a homebuyer. But its reasoning on Section 26D is general, and it is a Full Bench. In Maharashtra it binds the Debts Recovery Tribunals and every Division Bench. A bank in Mumbai or Pune that has not registered a tripartite security with the Central Registry cannot, on that reasoning, take measures under Section 13(4) or seek assistance under Section 14 in respect of it.

The argument now being advanced on behalf of banks is that registration is unnecessary where the loan was sanctioned on the basis of a tripartite agreement, because the security interest in such a case is of a special kind. There are, in the author’s view, four answers to it, and each is textual.

The first is that Section 26D contains no such exception. It applies to “the security interest created in its favour by the borrower”. If the bank’s case is that it holds a security interest within Section 2(1)(zf), it holds one to which Section 26D applies. The bank cannot say that the tripartite agreement creates a security interest for the purpose of Section 13 and something less than a security interest for the purpose of Section 26D.

The second is that the bank cannot escape Section 26D by saying that the interest was created by the builder rather than the borrower. If that is the bank’s case, the builder is the person who “created” the security, which makes the builder a “borrower” within Section 2(1)(f) — a person who has created a mortgage as security for the financial assistance — with the consequence that the Section 13(2) notice should have been addressed to the builder as well. A bank which has proceeded only against the homebuyer cannot have it both ways.

The third is the regulatory record: the Central Government’s notification of 22^nd January 2016, the Reserve Bank’s circular of 27^th December 2018 and, since that circular’s withdrawal, the 2025 Master Directions which carry the same instruction forward. The category of “under construction” property secured “by an agreement or instrument other than mortgage” is the tripartite agreement described in regulatory language. It has been registrable since 8^th June 2017. A bank that says the registration regime does not fit its tripartite securities is contradicting its own regulator.

The fourth is the purpose of the provision. The mischief Chapter IV-A addresses is the invisibility of security interests to persons who deal with the property afterwards. An unregistered tripartite security is the most invisible security there is: no mortgage deed, no entry in the record of rights, often no registered instrument of any kind in the bank’s favour. If Section 26D does not apply to it, it applies to almost nothing.

Two finer points follow and are worth pleading. The first concerns timing. Section 26D speaks of the time at which the right of enforcement is exercised, not the time at which the security was created, and it asks whether the interest “has been registered”. On its words, therefore, a security interest created before 24^th January 2020 is not exempt merely because of its date; what matters is whether it stood registered when the bank exercised its rights after that date. This is consistent with Jalgaon Janta’s holding that Chapter IV-A is prospective — the prospective operation lies in the fact that enforcement steps already completed before 24^th January 2020 are not undone, not in any exemption for old securities enforced afresh.

The second concerns late registration. A bank confronted with a Section 26D objection will often file particulars with the Central Registry during the pendency of the securitisation application and then argue that the defect has been cured. Whether a registration made after the Section 13(4) measures can retrospectively validate measures taken when the bar was operating is, as far as the author has been able to find, not settled by any reported decision. The bar operates on the exercise of the right, and a measure taken while the bar was in force was taken without entitlement. In any event, Section 26C(2) gives priority only from the date and time of filing. A late filing therefore cannot defeat the rights of a person who bought or took a mortgage of the property before the filing was made.

It must also be kept in view what Section 26D does not do. It does not extinguish the debt, and it does not affect the bank’s right to an Original Application before the Debts Recovery Tribunal under Section 19 of the 1993 Act or to a civil suit. A homebuyer who succeeds on Section 26D gets relief from SARFAESI measures; he does not get a discharge. And a bank which has lost its priority by not registering will find, after Jalgaon Janta, that Section 31B of the 1993 Act does not restore it.

Part IV — When a third party has bought the flat

The situation that most often reaches a Debts Recovery Tribunal is not the defaulting borrower’s but the stranger’s. The builder, finding that the original buyer has stopped paying or has disappeared, cancels the allotment or simply ignores it and sells the same flat by a registered sale deed to someone else. Or the original buyer, holding only an agreement for sale, assigns his rights to a third party. The new purchaser pays full value, often with a home loan from his own bank, takes possession, and then receives a Section 13(2) notice addressed to someone he has never met, or a Section 14 order directing that he be dispossessed.

The law here has two strands, and they pull in different directions.

The first strand favours the bank. A person who buys property already subject to a mortgage takes it subject to the mortgage, whatever he paid; his remedy lies against his vendor. That was the result in Vishwanath M. Pai, where the purchasers from the landowners were told to proceed against the builder and the original buyer, and in Apurba Dev Sarma. Maharashtra has applied the same principle. In Mukesh Kothari v. State Bank of India and Others, Writ Petition No. 9804 of 2014, decided on 10^th March 2017 by a Division Bench of the Bombay High Court (R.M. Borde and A.S. Gadkari, JJ.), reported in 2017 (5) ALL MR 163, the petitioner had bought a flat in Andheri, with a housing loan from another bank, from a vendor who had earlier created an equitable mortgage in favour of State Bank of India and who had been restrained by the DRT from transferring it. The Court held that the petitioner “prima facie does not have entitlement to question the validity of the Equitable mortgage” (paragraph 9), that the sale would not have any effect on the bank’s prior claim (paragraph 13), and that the bank was entitled to proceed under Section 13(4), leaving the petitioner to pursue his vendor (paragraph 19).

The second strand favours the purchaser, and it is the one that tripartite cases engage. An equitable charge arising from the deposit of an agreement for sale is, on the Supreme Court’s analysis in Cosmos, a right in personam, which yields to a later transferee who took without notice. Section 100 of the Transfer of Property Act says in terms that, save as otherwise expressly provided by law, no charge shall be enforced against any property in the hands of a person to whom it has been transferred for consideration and without notice of the charge. And the only statutory form of notice that the SARFAESI Act provides for such interests is registration with the Central Registry, which Section 26C(1) deems to be public notice and which Section 26C(2) makes the foundation of priority over subsequent transfers.

The two strands are reconciled by asking a factual question: did the purchaser have notice of the bank’s interest when he bought? Mukesh Kothari was a case of a registered equitable mortgage of a completed flat, with a DRT injunction in force at the time of sale. Apurba Dev Sarma was a case where the bank’s possession notice had been published four years before the builder sold. Vishwanath M. Pai concerned a transaction of 2010, before the Central Registry had been operationalised for this category of security. A purchaser who buys today a flat over which the bank has filed nothing with the Central Registry, which carries no possession notice and no recorded encumbrance, and in respect of which the only document in the bank’s favour is an unregistered tripartite agreement to which he was not a party, stands in an entirely different position — and none of these decisions holds that he must lose.

Two procedural consequences follow for such a purchaser. First, he plainly has standing. The words “any person” in Section 17(1) are wide enough to include a third party aggrieved by measures under Section 13(4) or Section 14, as Satyawati Tondon and, more directly, Apurba Dev Sarma hold; and the Supreme Court in Harshad Govardhan Sondagar v. International Assets Reconstruction Co. Ltd., (2014) 6 SCC 1, recognised that persons in lawful possession who are not borrowers may resist dispossession under Section 14. Secondly, to the extent that his case depends on a declaration of title or on the validity of competing instruments, the Debts Recovery Tribunal may not be the forum that can finally decide it. In Central Bank of India v. Prabha Jain, 2025 INSC 95, decided on 9^th January 2025 (J.B. Pardiwala and R. Mahadevan, JJ.), the Supreme Court observed that “the SARFAESI Act has not been enacted for providing a mechanism for adjudicating upon the validity of documents” (paragraph 18) and held that a suit by a person who was neither a borrower nor claiming through one was not barred by Section 34. A purchaser facing an unregistered tripartite security should therefore think about both forums: Section 17 for the measures, and, where title is genuinely in issue, a civil suit.

At the interim stage, Tribunals generally treat a third party who is neither borrower, guarantor nor mortgagor with some caution, and conditional orders requiring a deposit are not uncommon. The purchaser who can produce a CERSAI search report taken at the time of purchase showing no registered interest, an encumbrance certificate, the Index-II extract and evidence of payment of the full consideration through banking channels is in a far stronger position to resist such conditions than one who simply asserts that he is bona fide.

Part V — When there are two lenders: the builder’s project loan

A different and more serious collision arises when the builder has also borrowed. A builder who mortgages the project land and the unsold inventory to its own lender, and then sells flats to buyers who take home loans under tripartite agreements, has created two sets of secured creditors claiming the same flats. The same can happen in the other direction: the builder signs tripartite agreements with homebuyers’ banks and later mortgages the project, including flats already agreed to be sold, to a project lender.

In Maharashtra the homebuyer has long had a statutory shield. Section 9 of the Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act, 1963 provides that no promoter shall, after he executes an agreement to sell any flat, mortgage or create a charge on the flat or the land without the previous consent of the persons who take or agree to take the flats, and that if any such mortgage or charge is created without such previous consent after the agreement referred to in Section 4 is registered, it shall not affect the right and interest of such persons. By Section 1A, however, MOFA does not apply (save for certain provisions) to real estate projects to which the Real Estate (Regulation and Development) Act, 2016 applies.

For those projects, and for every RERA project in Gujarat, the corresponding protection is Section 11(4)(h) of RERA. It obliges the promoter, after he executes an agreement for sale for any apartment, plot or building, not to mortgage or create a charge on it, and provides that if any such mortgage or charge is created, then notwithstanding anything contained in any other law for the time being in force, it shall not affect the right and interest of the allottee who has taken or agreed to take it. Section 89 of RERA gives that Act overriding effect. The non obstante clause in Section 11(4)(h) is directed at “any other law”, which includes the SARFAESI Act, and the provision is engaged by the agreement for sale alone — no sale deed is required.

The Supreme Court in Madhav Prasad Aggarwal v. Axis Bank Ltd., (2019) 7 SCC 158, decided on 1^st July 2019, considered suits by flat purchasers in a Mumbai project whose builder had mortgaged the project to a bank after receiving their money. The purchasers sought, among other reliefs, a declaration that the bank had no valid lien, charge or mortgage over their flats, and specific performance. The Division Bench of the Bombay High Court had rejected the plaints as barred by Section 34. The Supreme Court set that aside on the ground that a plaint cannot be rejected in part, restored the suits, and left all questions, including the bar under Section 34, open to be decided on merits (paragraphs 14 to 16). The decision does not settle the substantive priority question, but it confirms that a homebuyer’s challenge to a builder’s later mortgage can be prosecuted in a civil court.

The priority between the homebuyer’s bank and the builder’s lender, where both claim the same flat, will turn on the same three questions as before, asked in sequence. Which security came first? Which was registered with the Central Registry, and when — because Section 26C(2) makes the earlier registration prevail over subsequent interests? And does Section 11(4)(h) of RERA, or Section 9 of MOFA, protect the allottee — and through the allottee, the allottee’s financier — against the builder’s lender? A homebuyer’s bank which has registered its tripartite security promptly will usually be well placed. One which has not may find itself postponed, on the principle applied in Cosmos, to a project lender who registered first and had no notice.

Part VI — The position in Maharashtra and Gujarat compared

The Maharashtra position may be summarised as follows. On the effect of non-registration, the Full Bench in Jalgaon Janta is binding: registration with the Central Registry is a condition for enforcement under Chapter III and for priority under Section 26E, and Chapter IV-A operates from 24^th January 2020. On third-party purchasers of mortgaged property, Mukesh Kothari holds that a purchaser who buys after the bank’s mortgage, and in that case in breach of an injunction, cannot question the mortgage and must look to his vendor. On flat purchasers versus a builder’s lender, MOFA Section 9 and RERA Section 11(4)(h) both apply according to the nature of the project, and Madhav Prasad Aggarwal keeps the civil court open. The Supreme Court’s decision in Cosmos, which corrected a judgment of the Bombay High Court, now governs the character of a security created by deposit of an agreement for sale. The author has not found a reported decision of the Bombay High Court applying Section 26D specifically to a tripartite security.

In Gujarat, the author has not found a reported decision of the Gujarat High Court deciding whether a bank may enforce an unregistered tripartite security under Chapter III after 24 January 2020. The Gujarat High Court’s recent decisions on priority — for example Madhaviben Jitendrabhai Rupareliya v. State of Gujarat, 2024:GUJHC:1031 — affirm that a secured creditor’s charge prevails over State dues, but the reported discussion turns on the general scheme of the Act rather than on registration under Chapter IV-A. Until the High Court decides the point, the Debts Recovery Tribunals at Ahmedabad will be guided by the text of Section 26D, by the reasoning of the Bombay Full Bench (which is persuasive though not binding in Gujarat), by the Gauhati and Madras decisions on the definition, and by Cosmos on the character of the security.

Gujarat practice also has a feature that sharpens the notice question. Agreements for sale of flats — the banakhat — are frequently registered in Gujarat. A registered banakhat gives constructive notice, through Section 3 of the Transfer of Property Act, of the buyer’s agreement with the builder. It does not, however, give notice of the bank’s tripartite security unless the tripartite agreement itself is registered, which is rare. A subsequent purchaser who searches the Index-II record will therefore usually find the original buyer’s banakhat (if it was registered) but nothing about the bank. That makes the Central Registry the only place where the bank’s interest could have been discovered, and makes the bank’s failure to register correspondingly decisive.

Part VII — The defaulting borrower himself

It remains to consider the borrower who signed the tripartite agreement and then defaulted, and who now resists the bank’s measures. His position is the weakest of the three. He signed the agreement; he cannot say he lacked notice of it; and the definition, on the authorities, covers it. His arguments are confined to Section 26D (which is available to him as much as to anyone, because the bar is on the creditor’s entitlement, not on any particular objector’s standing) and to the ordinary procedural defences under Section 13.

There is, however, a practical point which borrowers and their advisers routinely overlook, and which also limits what the bank can actually achieve. Where no sale deed has been executed, the borrower has only a contractual right against the builder. Section 13(4)(a) empowers the bank to take possession of “the secured assets of the borrower” and to transfer them by lease, assignment or sale. What the bank can sell is what the borrower had: the benefit of the agreement for sale, together with whatever the builder has undertaken to the bank under the tripartite agreement. The auction purchaser does not acquire the builder’s title merely by buying at a SARFAESI sale; he acquires a right to call upon the builder for a conveyance. Most tripartite agreements also contain a clause obliging the builder to refund the bank on cancellation or default. In many cases the bank’s more effective remedy is to enforce that clause against the builder, and the borrower’s most effective response to a Section 13(2) notice is to point the bank towards it.

What is to be done

For a homebuyer or third-party purchaser served with SARFAESI measures over a flat that was the subject of a tripartite agreement, the first step is to establish the dates: the date of the agreement for sale, of the tripartite agreement, of disbursement, of the Section 13(2) notice, of the Section 13(4) possession notice and any Section 14 order, of the purchaser’s own sale deed, and — most important — the date, if any, on which the bank filed particulars with the Central Registry. A CERSAI search should be taken immediately against the property and against the original borrower, and preserved with its time-stamp. If the purchaser took a CERSAI search before buying, that report is the best evidence of absence of notice he will ever have.

The securitisation application should then be filed within forty-five days of the measure complained of, and should plead the grounds in order of strength: Section 26D first, with a specific call on the bank to produce the Security Interest ID and the date and time of filing; then Section 26C and Section 100 of the Transfer of Property Act on absence of notice; then RERA Section 11(4)(h), or MOFA Section 9 in Maharashtra where it applies; and only then the argument under Section 54 and Suraj Lamp. The Master Direction applicable to the lender — for a bank, paragraph 76(4) of the Commercial Banks (Credit Risk Management) Directions, 2025; for a housing finance company, paragraph 27(4) of the NBFC (Credit Risk Management) Directions, 2025 — should be annexed, together with the withdrawn circular of 27 December 2018 for the date from which the category became registrable. Where title is genuinely in dispute, particularly in a builder’s-lender case, a civil suit should be considered alongside the application, in the light of Prabha Jain and Madhav Prasad Aggarwal. At the interim stage, a purchaser should come with documents — sale deed, Index-II, encumbrance certificate, CERSAI report, payment trail and his own lender’s sanction — rather than with assertions, because those documents are what persuade a Tribunal to grant protection without onerous conditions.

For a bank, the remedy lies in its own back office. Every tripartite security should be filed with the Central Registry under the “under construction” category as soon as the first disbursement is made, as the Reserve Bank has advised since 2018 and continues to advise in its 2025 Master Directions. When the sale deed is executed, the bank should insist on the deposit of the registered sale deed and create a proper mortgage, and should modify the Central Registry filing accordingly. Where filing has been missed, it should be done at once, and the bank should be candid with the Tribunal about the date: an argument that registration is unnecessary for tripartite securities runs against the text of Section 26D, the Full Bench in Jalgaon Janta and the regulator’s own Master Directions. And before invoking SARFAESI at all, a bank holding only a tripartite security should consider whether an Original Application, or a claim against the builder on its refund undertaking, is not the surer course.

For a borrower who has defaulted, the honest advice is that the definitional defence is weak after Vishwanath M. Pai and Apurba Dev Sarma, and that his real arguments lie in Section 26D and in the builder’s obligations under the tripartite agreement. Where the builder has obstructed completion or possession, that obstruction is also a matter for the RERA authority, and a complaint there may achieve more than resistance before the Tribunal.

Closing

The tripartite agreement was designed for an economy in which homes are bought before they are built. It works well while instalments are paid and the builder delivers. When either fails, it exposes a gap between what the parties intended and what the law of property allows: the bank intended a mortgage, but the borrower had only a contract; the builder retained the title and sometimes sold it again; and nobody told the outside world. The 2016 amendment to the definition closed part of that gap by recognising the bank’s interest as a security interest. Chapter IV-A closed the rest, but only for banks that use it. After 24 January 2020, the question in these cases is no longer simply whether the bank has a security interest. It is whether the bank registered it — and in a surprising number of files, the honest answer is that it did not.

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About the Author & Disclaimer: Mihirkumar V. Patel is an independent Advocate practising before the Gujarat High Court, DRT, DRAT and City Civil Court, specialising in tax, commercial, banking, RERA, arbitration and recovery disputes. Email: [email protected]. Views expressed are personal and do not constitute legal advice. Readers should verify applicable laws and judicial precedents before relying on this article.