1. Modus Operandi

Step 1: Original Mortgage
A borrows Rs 1 Cr from Bank A by depositing original Title Deed - Equitable Mortgage.

Step 2: Concealment
A takes a certified copy from Sub-Registrar stating "original lost" or makes forged colour Xerox as original.

Step 3: Second Mortgage
A goes to Bank B, says property is free, shows duplicate deed, gets another Rs 80 Lakh.

Step 4: Default
A defaults both. Both banks go to CERSAI and find double registration.

This was rampant before 2011 because there was no central registry. That is why CERSAI was created.

2. Legal Framework

A. Criminal Law - Now BNS

• Sec 318(4) BNS [420 IPC] - Cheating and dishonestly inducing delivery of property
• Sec 336, 337, 338 BNS [467,468,471 IPC] - Forgery of valuable security, forged documents as genuine
• Sec 61 BNS [120B IPC] - Criminal Conspiracy
• Sec 13(1)(d) Prevention of Corruption Act - If bank officer colluded

Punishment: Up to 7 years + life for forgery.

B. Civil / Banking Law

• Sec 48 Transfer of Property Act, 1882 - Doctrine of Priority: Qui prior est tempore potior est jure - who is first in time is first in law. First mortgage has priority.
• SARFAESI Act, Sec 20, 26B to 26E: CERSAI (Central Registry of Securitisation Asset Reconstruction and Security Interest) established to prevent double financing.

Sec 26-C: Registration with CERSAI shall be deemed to be public notice
Sec 26-E: Secured creditor who registers first in time shall have priority over subsequent creditor
Sec 26-D: No secured creditor can enforce security interest under SARFAESI unless registered with CERSAI.

If Bank A registers on 01-01-2024 and Bank B on 10-01-2024, Bank A gets entire sale proceeds first, even if Bank B's mortgage deed is earlier.

• RBI Master Circular on Frauds: Double financing is classified as Fraud and bank must report to RBI within 21 days and to CBI if > Rs 3 Cr.

3. Detailed Case Laws

CASE 1: Sikandrarao Double Financing Fraud (2024 - Practical Case)

In Sikandrarao Kotwali, UP, a person took loans from two different banks using same mortgaged agricultural land, then sold the land to third party. Bank manager filed FIR under fraud sections following court order.

Held: FIR under 420, 467, 468, 471 maintainable. Collector also cancels sale deed as void.

CASE 2: Priority Battle - Who Gets Money First?

Central Bank of India vs State of Kerala & Ors - Supreme Court on Legal vs Equitable Mortgage
Supreme Court disagreed with High Court that first bank who got unregistered agreement of sale as collateral has unqualified primacy.

Court held:

An unregistered agreement of sale alone cannot create valid legal mortgage under TPA, but at best may be equitable mortgage. Legal mortgage by deposit of title deed with registration under TPA prevails over equitable mortgage if CERSAI registration is prior.

This is the landmark on CERSAI Prior in Time = Prior in Right.

Bank of Baroda vs State of Maharashtra - Bombay High Court (2022)
Bombay HC held:

As per Sec 26E, Secured Creditor who has registered security interest with CERSAI shall have priority over claims of other creditors having subsequent security interest, including Government dues / Revenue attachment.

Bank who registered first got priority over Sales Tax department attachment filed later with CERSAI.

CASE 3: Forged Title Deeds - Criminal Conspiracy

Indian Bank, Osmanganj Branch vs Guarantors - Supreme Court (Quashing Case) - 2023
Borrowers created equitable mortgage using fake and forged title documents. CBI filed charge-sheet under Sec 120-B r/w 420, 409, 467, 468, 471 IPC and PC Act.

Supreme Court held that if main accused settles dues, criminal proceedings against guarantors (wives with no active role) who had no knowledge of forgery can be quashed under Sec 482 CrPC. But main borrower who forged remains liable.

Kerala High Court - Idukki District Co-operative Bank Rs 1 Lakh Forgery Case
Borrower and accomplice submitted forged title deeds for Rs 1 Lakh loan.

HC upheld conviction observing:

Criminal conspiracy can be proved through circumstantial evidence. Sequence of obtaining fake encumbrance certificate and same-day mortgage proves intent.

CASE 4: Bank Officer Negligence = Bank Liable

Osmundo Canlas vs Court of Appeals (Philippines SC but cited in India) / Indian Banks
Bank failed to properly verify identities of individuals who conducted mortgage transaction. As banking institution dealing with public funds, bank did not exercise required due diligence.

Indian principle: If bank does not check CERSAI before sanctioning, bank is negligent. Second bank loses priority and cannot claim innocent mortgagee.

CASE 5: Supreme Court on Settlement in Fraud

Supreme Court Quashes Criminal Proceedings in Loan Fraud Case Due to Settlement - IGPL and Clarion Travels Case
Loans obtained in 1998 without adequate security - CBI case.

SC held: When parties resolve entire dispute and bank dues settled via OTS, continuation of criminal proceedings is unjustifiable, especially for peripheral accused.

But this does NOT apply if fraud is large, involves public money and forgery of valuable security - then it is crime against society.

4. How Banks Prevent Double Financing Now?

Mandatory 5-point check as per RBI:

1. Search CERSAI before sanction
2. Search Sub-Registrar office (Encumbrance Certificate 13 years minimum)
3. Take original Title Deed, do legal scrutiny
4. Register mortgage with CERSAI within 30 days
5. Register with ROC if borrower is company (Charge filing)

Failure to register = Bank loses priority under Sec 26E, even if it is first lender.

5. What Happens to Borrower?

1. SARFAESI Action: Both banks can take symbolic possession, but sale proceeds distributed as per CERSAI priority.
2. Criminal Action: FIR under BNS 318(4), 336(3), 340 - Non-bailable.
3. Civil: Sale deed to third party is void under Sec 53 TPA - Fraudulent Transfer.
4. CIBIL Blacklist as Fraud - Wilful Defaulter tag.

If you are facing this situation:

• As Bank: Immediately file CERSAI, file Sec 13(2) SARFAESI notice, file fraud report to RBI (FMR), file FIR.
• As Buyer: If you bought property which was double mortgaged, you can file suit for cancellation under Sec 31 Specific Relief Act + file cheating case against seller.