gemini

1. Background

We understand that the Bank is considering providing housing loans to allottees of residential
units in the "Greenwood Mansion" project, Sector-28, Pratap Nagar, Sanganer, Jaipur, being
implemented by the Rajasthan Housing Board (RHB).

A key challenge identified is that the specific residential unit is not yet identified for each
applicant at the time of the first installment payment. However, RHB has agreed to execute a
tripartite agreement with the Bank and the Borrower, outlining the terms and conditions of
allotment, including the delivery of final property documents/sale deed to the Bank upon
receipt of the final installment.

The Bank seeks guidance on how to proceed with these applications, particularly regarding
the creation and validity of security interest when the unit is not yet identified.

2. Legal Framework

The creation and enforcement of security interests in India are primarily governed by the
following laws:

 Transfer of Property Act, 1882 (TPA): Deals with mortgages and charges on
immovable property.
 Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 (SARFAESI Act): Empowers banks and financial
institutions to enforce security interests without court intervention.
 Indian Contract Act, 1872: Governs general contractual principles, including
agreements.
 Registration Act, 1908: Mandates registration of certain documents affecting
immovable property.
 Real Estate (Regulation and Development) Act, 2016 (RERA): Regulates real
estate projects and protects allottee interests.
 Rajasthan Housing Board Act, 1970 and Disposal of Property Regulations, 1970:
Govern the operations and allotment procedures of RHB.

3. Analysis of Security Creation on Unidentified Units

3.1. Nature of Allotment by RHB:

The Rajasthan Housing Board typically allots properties through various schemes. The
allotment letter itself, while not a conveyance deed, signifies an interest in the property.
RHB's "Disposal of Property Regulations, 1970" and other procedures govern these
allotments. These often involve installment payments and a Hire Purchase Tenancy
Agreement (HPTA) or similar arrangements, with the final conveyance deed/sale deed being
executed upon full payment.

3.2. Creation of Security Interest over Future Property:

Indian law generally permits the creation of security interests over future property, provided
that the intention to create such a charge is clear and the property, when it comes into
existence or is identified, can be precisely ascertained. In the context of housing projects, a
charge can be created over an allottee's interest in an under-construction property.

3.3. Role and Validity of Tripartite Agreement:

A tripartite agreement (between the Allottee, RHB, and the Bank) is a crucial instrument in
this scenario. Its primary purpose is to:

 Acknowledge the Bank's financial interest: RHB acknowledges that the loan is
being extended to the allottee for the specific purpose of purchasing the unit within
their project.
 Establish a direct contractual relationship: It creates a direct nexus between the
Bank and RHB, allowing the Bank to have certain rights and remedies concerning the
property, even before the final conveyance.
 Regulate payment flow: It can stipulate that loan disbursements are made directly to
RHB.
 Commitment to transfer title deeds: Crucially, RHB undertakes to deliver the final
property documents/sale deed directly to the Bank upon full payment by the allottee,
thereby creating a clear path for the Bank to perfect its security.
 Provide consent for charge: RHB grants its consent for the creation of a
charge/mortgage on the allottee's interest in the property in favour of the Bank.
 Address contingencies: It can address scenarios like default by the allottee,
cancellation of allotment, or transfer of allotment.

Validity of Security based on Tripartite Agreement (before unit identification):

While a traditional mortgage on a specifically identified immovable property requires

registration under the Registration Act, 1908, the security created at this stage would be an
equitable charge/hypothecation over the allottee's right, title, and interest in the as-yet-
unidentified unit and the underlying allotment. This is recognized under Indian law.

The tripartite agreement, though not a mortgage deed itself at this stage, will serve as:

 Evidence of intent to create security: It clearly demonstrates the allottee's intention

to create a charge over their future interest in the property and RHB's
acknowledgement and consent to this.
 Basis for future mortgage: It lays the groundwork for the execution of a formal
registered mortgage deed once the unit is identified, possession is taken, and the sale
deed is executed in the allottee's favor.
 Pari Passu/First Charge understanding: The agreement should clearly establish the
Bank's first charge/lien on the allottee's rights under the allotment and eventually on
the specific unit.

3.4. Identifying the Unit and Perfecting Security:

Upon payment of the first installment, RHB will disclose the specific residential unit to the
allottee. At this point, the property becomes identifiable. While the tripartite agreement
establishes an equitable charge, for robust security and enforceability under SARFAESI, the
Bank must take steps to perfect its security.

Perfection of Security:

 Registration of Allotment Documents: While the initial allotment letter may not be
mandatorily registrable, any formal "agreement for sale" or "hire purchase tenancy
agreement" executed by RHB with the allottee after unit identification, especially if it
involves payment of more than 10% of the property cost (as per RERA principles,
though RERA's direct applicability to RHB as a government body needs to be
confirmed, good practices suggest adherence), should ideally be registered. This will
provide public notice of the allottee's interest.
 Formal Mortgage Deed: Once the specific unit is allotted, possession is handed over
(or construction is substantially complete as per the loan terms), and the final sale
deed is executed by RHB in favor of the allottee, the Bank MUST ensure a registered
mortgage deed is executed by the allottee in its favor. This is the strongest form of
security on immovable property and is essential for enforcement under SARFAESI.
The tripartite agreement should contain a clear undertaking from the allottee to
execute such a mortgage deed.
 Registration with Central Registry (CERSAI): It is mandatory for banks to register
all security interests created on immovable property (mortgage, charge,
hypothecation) with the Central Registry of Securitization Asset Reconstruction and
Security Interest of India (CERSAI). This provides a central database of charges and
helps prevent fraudulent multiple financing. The equitable charge created through the
tripartite agreement should also be registered with CERSAI as soon as the unit is
identified.

4. Recommendations and Way Forward

To mitigate risks and ensure valid and enforceable security, we recommend the following:

4.1. Draft a Comprehensive Tripartite Agreement:

The Tripartite Agreement should be meticulously drafted and include, but not be limited to,
the following clauses:

 Parties and their roles: Clearly define Allottee, RHB, and the Bank.
 Project and Property Details: Full details of the Greenwood Mansion project.
Although the specific unit is not identified initially, the agreement should clearly state
that the loan pertains to a unit to be allotted in this specific project. Once identified, an
addendum or specific reference to the unit number should be incorporated.
 Acknowledgement of Loan: RHB acknowledges the loan being granted by the Bank
to the Allottee for the unit.
 Undertaking by RHB:
o To specifically identify the unit to the allottee after the first installment.
o To keep the Bank informed of all communications with the allottee regarding
the unit, including notices of default, cancellation, etc.
o To directly deliver all original property documents, including the allotment
letter, payment receipts, and eventually the original registered sale
deed/conveyance deed, to the Bank upon their execution/issuance.
 o To confirm that the property is free from encumbrances (except as disclosed
by RHB) and that RHB has a clear and marketable title to the land.
o Not to create any further charge or encumbrance on the unit in favour of any
other party without the Bank's prior written consent.
o To grant consent for the creation of a charge/mortgage in favor of the Bank
over the allottee's interest in the property.
 Undertaking by Allottee:
o To pay installments to RHB as per the allotment terms.
o To pay EMIs to the Bank as per the loan agreement.
o To create a first charge/mortgage on their right, title, and interest in the unit
(once identified) in favour of the Bank.
o To execute all necessary documents, including a formal registered mortgage
deed, once the sale deed is executed by RHB in their favor.
o Not to sell, transfer, assign, or create any further encumbrance on the unit
without the Bank's prior written consent.
o To ensure compliance with all RHB rules and regulations.
 Bank's Rights and Remedies:
o Right to inspect the property during construction (with RHB's cooperation).
o Right to receive all property documents directly from RHB.
o Right to step in and make payments to RHB on behalf of the allottee in case of
default, to prevent cancellation of allotment.
o Clauses for enforcement of security interest under SARFAESI Act, post-
registration of mortgage.
 Dispute Resolution: Clear mechanism for resolving disputes between the parties.
 Registration Clause: Acknowledge that the tripartite agreement itself may not be
registrable as a mortgage deed, but it serves as a legally binding contract and forms
the basis for a future registered mortgage.
 Governing Law and Jurisdiction: Indian law and courts in Jaipur, Rajasthan.

4.2. Due Diligence by the Bank:

Even though the unit is not identified, the Bank should conduct preliminary due diligence on
the project and RHB:

 RHB's Title to the Land: Obtain confirmation from RHB regarding their clear and
marketable title to the land on which the Greenwood Mansion project is being
developed. This can involve reviewing relevant land records and approvals.
 Project Approvals: Verify that the project "Greenwood Mansion" has all necessary
approvals from relevant authorities (RERA registration, building plan approvals,
environmental clearances, etc.). The RERA registration number RAJ/P/2023/2411 for
RHB Greenwood Mansion, Sector-28, Pratap Nagar, Jaipur, is available.
 RHB's Standard Allotment Terms: Review the standard allotment letter, hire
purchase tenancy agreement, or other relevant documents that RHB uses for its
allottees to understand the rights and obligations of the allottee and RHB.
 Financial Standing of RHB: Though a government body, a general understanding of
RHB's financial health can provide added comfort.

4.3. Post-Identification Steps:

  Legal Search Report: Once the specific unit is identified, a thorough legal search
report must be carried out on that specific unit to confirm clear title and absence of
any prior encumbrances. This report should trace the title for at least 30 years.
 Valuation: Obtain a fresh valuation report for the identified unit.
 Execution and Registration of Mortgage Deed: This is paramount. As soon as the
sale deed/conveyance deed is executed by RHB in favor of the allottee, the Bank must
ensure that a formal registered mortgage deed is executed by the allottee in its favor.
This mortgage deed will create a perfected security interest on the specific immovable
property.
 CERSAI Registration: Immediately register the mortgage/charge with CERSAI
upon creation.

5. Conclusion

While the initial phase presents a challenge due to the unidentified unit, the proposed
tripartite agreement, if comprehensively drafted and diligently followed up with the
subsequent steps of identification and formal mortgage registration, can provide a legally
valid and enforceable security interest for the Bank.

The tripartite agreement will establish an equitable charge on the allottee's present and future
interest in the property. However, the true perfection and robust enforceability of the security,
particularly under the SARFAESI Act, will only materialize upon the execution and
registration of a formal mortgage deed on the specifically identified unit after the sale deed is
conveyed to the allottee, coupled with timely CERSAI registration.

The Bank should consider the risks associated with the interim period (before unit
identification and formal mortgage) and ensure robust contractual provisions in the tripartite
agreement to safeguard its interests

Legal Opinion on Security Creation for Greenwood Mansion Housing

Loans

Key Challenges Identified

1. Unidentified Units: Residential units are not allocated until the 1st
installment is paid, preventing a legal title search.
2. Security Uncertainty: Without a specific unit, traditional mortgage
creation (via registered sale deed) is not immediately feasible.

Recommended Action Plan

1. Tripartite Agreement (TPA) Structure

 Enforceability: Ensure the TPA explicitly binds Rajasthan Housing Board
(RHB) to:
 Allocate a specific unit to the borrower after the 1st installment.
 Hand over the original sale deed/property documents directly to the
bank upon full payment.
 Prohibit RHB from creating third-party claims on the unit once allocated.
 Critical Clauses to Include:
 Escrow Mechanism: RHB must deposit sale deeds with the bank upon
execution, bypassing the borrower.
 Default Remedies: Allow the bank to claim refunds from RHB or take
possession of the unit if the borrower defaults.
 First Charge: Legally assert the bank’s priority over other creditors via a
registered agreement.

2. Interim Security Measures

 Personal Guarantees: Secure guarantees from borrowers until the unit
is identified.
 RHB Undertaking: Obtain a written commitment from RHB confirming:
 Clear title to the project land.
 No existing liens/encumbrances on allocated units.
 Compliance with RERA (if applicable).

3. Post-Allocation Steps
 Immediate Legal Search: Conduct a title search within 7 days of unit
allocation to verify ownership and encumbrances.
 Mortgage Registration: Register the mortgage under the Transfer of
Property Act, 1882, once the sale deed is issued.

Risk Mitigation Strategies

 RERA Compliance: Confirm RHB has registered the project under RERA
to ensure transparency and buyer protections.
 Escrow Account for Installments: Route borrower payments through
an escrow account monitored by the bank to prevent fund diversion.
 Insurance: Require borrowers to insure the property, with the bank as
the beneficiary.

Legal Validity Assessment

 The TPA will be valid if:
 It is stamped and registered per the Indian Registration Act, 1908.
 RHB has lawful authority to allot units (verify via project approvals).
 Precedent Support: Indian courts uphold TPAs as valid security
instruments if they clearly define roles and obligations (ICICI Bank v.
SIDCO, 2016).
 Next Steps for the Bank
1. Finalize the TPA draft with RHB and ensure registration.
2. Issue conditional loan sanctions tied to TPA execution.
3. Monitor RHB’s unit allocation process post-1st installment.
By adopting this framework, the bank can secure its interests while
facilitating retail loan growth for the Greenwood Mansion project. Consult
a property law expert to review the TPA draft for state-specific
compliance.

The presumption that land allotted by the Rajasthan Housing Board (RHB)
is clear, marketable, and absolute cannot be taken for granted without
verification, as established by judicial precedents and statutory provisions.

Legal Position on Allotment by Rajasthan Housing Board

 No Automatic Presumption of Clear Title:
The Rajasthan High Court in Nathu v. State of Rajasthan (2017)
highlighted that allotment by RHB does not necessarily guarantee that the
land is free from encumbrances or is marketable in absolute terms. The
case involved cancellation of allotments where land was allotted for
residential use despite being reserved for commercial purposes in the
Master Plan. The Court held that such allotments could be illegal and void,
and the State Government had the authority to cancel them even after
possession and construction, emphasizing that allotment alone does not
confer absolute title or marketability