State Bank of India v Sood

State Bank of India v Sood [1997]

Equity – Property – Overreaching – Repossession – Trust – Beneficial Interest – Mortgage – Law of Property Act 1925

Facts

In this case, the first and second defendants were the legally registered proprietors of the family home, which the third to seventh defendants had lived in. The first and second defendants held this property on trust for themselves, as well as the other defendants as beneficial tenants in common. The first and second defendants mortgaged the home to guarantee any present and future debts for their company, known as Sobel Textiles Ltd. However, the Soods defaulted on these mortgage payments. This meant that the complainants, State Bank of India, started proceedings to seek the repossession of the property for failed payments.

Issues

The third to seventh defendants claimed that they had a beneficial interest in the property, which would override the State Bank of India. The case concerned section 27(2) of the Law of Property Act 1925. The issue was whether these defendants had a beneficial interest in the property and if it was overreached, even though the money had not been paid under conveyance.

Decision/Outcome

It was held that the beneficial interests of the defendants had been overreached. This meant that the rights they had under the trust of the property attached to the proceeds of the sale.  It was stated that section 27(2) of the Law of Property Act 1925 would only apply where the transferring of the property would give rise to capital. There would only be an obligation to make a payment to two of the trustees if there was capital.