SARFAESI Enforcement and Unregistered Tripartite Agreements: Section 26D, Central Registry Compliance, and Homebuyer Rights

Overview

When a homebuyer books an under-construction flat, a bank disburses a home loan, and all three parties — buyer, builder, and bank — execute a tripartite agreement, the arrangement appears commercially sound. The bank's money flows to the builder, the buyer holds an agreement for sale, and everyone expects the project to complete. But when instalments stop and the bank reaches for Chapter III of the SARFAESI Act, 2002 to enforce its security, a legally significant question emerges: does the bank actually have an enforceable right — and has it met every statutory condition to exercise it?

This article works through that question methodically. It examines whether a tripartite agreement creates a "security interest" within the meaning of Section 2(1)(zf); whether Section 26D bars enforcement unless that interest has been registered with the Central Registry (CERSAI); what position an innocent third-party purchaser occupies; how competing claims between a homebuyer's bank and a builder's project lender are resolved; and how the legal landscape differs between Maharashtra and Gujarat. Practical guidance is offered to buyers, purchasers, borrowers, and lenders at every stage.

Part I — The Statutory Framework

The Definition of "Security Interest"

Section 2(1)(zf) of the SARFAESI Act, 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". Sub-clause (i) extends this to cover any mortgage, charge, hypothecation, assignment, or any right, title or interest of any kind on a tangible asset retained by the secured creditor as an owner, 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".

Two features of this language deserve careful attention:

• The phrase "any other contract" is not restricted to instruments of mortgage; it encompasses any contract that secures credit extended to enable a borrower to acquire an asset — precisely the function a home loan for an under-construction flat performs.
• Despite this width, the opening words still demand an interest "upon property" that is "created in favour of" the secured creditor. The definition expands the category of instruments capable of creating a security interest; it does not conjure property into existence where none yet exists, and it does not stipulate who must have created the interest or whose property it encumbers.

That second observation is anchored in Section 54 of the Transfer of Property Act, 1882, which 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 possesses a contractual right to demand a conveyance; title — and ordinarily possession — remains with the builder. Whatever interest a bank derives from such a buyer is therefore an interest in that contractual right, supplemented by whatever the builder separately undertakes in the tripartite agreement — not, absent something more, a mortgage over the builder's underlying title.

Chapter IV-A and the Central Registry Regime

Chapter IV-A was inserted by the same 2016 Amendment Act and brought into force with effect from 24th 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) confers on the registered creditor priority over any subsequently created security interest on the property, and makes any subsequent transfer by way of sale, lease, assignment, or licence subject to the registered claim (with a proviso for ordinary course transactions).
• Section 26D then imposes the operative condition:

"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 grants the registered secured creditor priority over all other debts and revenues, including taxes.

Before 24th January 2020, failure to file with the Central Registry carried consequences, but forfeiture of the right to enforce was not among them. Section 26D fundamentally altered that position. It does not extinguish the underlying debt; it does not void an unregistered security interest. Its operation is directed squarely at the remedy: until registration is achieved, Chapter III is closed to the creditor.

Regulatory Instructions on Under-Construction Property

The Central Government, by a Gazette Notification dated 22 January 2016, mandated the filing on the CERSAI portal of particulars of creation, modification, or satisfaction of security interest in any 'under construction' residential or commercial property or part thereof "by an agreement or instrument other than mortgage". The Reserve Bank of India first communicated this requirement to regulated entities through circular RBI/2018-19/96 dated 27th December 2018, addressed to all scheduled commercial banks, co-operative banks, NBFCs, and All India Financial Institutions. That circular recorded that registration in this category had become operational on the CERSAI portal from 8th June 2017 (paragraph 3), and directed lenders to complete filing for subsisting transactions by 31st March 2019 and to register current transactions on an ongoing basis (paragraph 4).

The 2018 circular was withdrawn on 28th November 2025, when the Reserve Bank consolidated its regulatory instructions into function-wise Master Directions. The consolidation was conducted on an "as-is" basis, and the CERSAI instruction now appears, in identical terms, across 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, applicable by paragraph 3 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 — the category is paragraph 50(4)
• Paragraph 24(4) of the Directions for Rural Co-operative Banks

Important: The obligation to register never rested solely on the circular. Its foundation is Section 26B of the Act and the Central Government's notification of 2016. The circular and the Master Directions serve as directions to regulated entities to comply with that statutory obligation. Practitioners should cite the 2018 circular for its historical record — particularly the date of 8th June 2017 from which this category became registrable — and should cite the applicable Master Direction for the current instruction.

These documents represent the most legally significant evidence in tripartite agreement disputes. They comprehensively refute the bank-side argument that the registration regime was never intended to capture tripartite arrangements over under-construction property. The regime was designed precisely for that arrangement. A dedicated category has existed on the CERSAI portal since June 2017, and the Reserve Bank has directed every class of lender — first in 2018 and again in the 2025 Master Directions — to use it.

Part II — Does a Tripartite Agreement Create a Security Interest?

The Supreme Court's Baseline Position

The Supreme Court's established position on agreements for sale forms 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 a deposited agreement for sale. The Court rejected the claim, observing at paragraph 9 that "without a transfer of interest there is no question of there being a mortgage", and at 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 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.

High Court Decisions After the 2016 Amendment

Banks have successfully countered this position by invoking the amended definition, and two Division Benches have upheld their claims.

In Vishwanath M. Pai v. Corporation Bank, W.P. Nos. 12007 and 12008 of 2018, decided on 11th 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 purchased the same property from the landowners in 2010 with a loan from a different bank. The DRT at Bangalore had held that no security interest was created; the DRAT at Chennai reversed that finding. The High Court declined to interfere. It rejected the argument that a charge could not exist over property not yet 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 directed that "the remedy open to the petitioners is to take appropriate proceedings against the respondents 2 & 3" — i.e., the borrower and the builder (paragraph 10).