Sub-Registrar guidance value ought to be considered while valuing property for lending purposes: Karnataka High Court

The guidance value determined by the Sub-Registrar ought to be taken into consideration while valuing the property for lending purposes, the Karnataka High Court has observed in a recent judgement. Justice Suraj Govindaraj said this while allowing the petition filed by a woman who intended to start her own business.

The petitioner Parwati, a resident of Kannur in Vijayapura district, had sought financial assistance from Karnataka State Financial Corporation (KSFC) and offered mortgaging of around 10 acres of land. The petitioner claimed that the guidance value of the property is around Rs 4.73 crore, at the rate of Rs 900 per square metre for residential purposes and Rs 1,200 per square metre for commercial purposes. However, the KSFC claimed that as per its methodology, the valuation is only Rs 40.8 lakh and the loan will be given on that determination.

Challenging this response, the petitioner contended that if the Sub-Registrar, who is an officer entrusted with the responsibility of determining market value, has already certified the value of the property at a particular rate, the same value ought to be accepted by other state instrumentalities. It is submitted that there cannot be multiple or conflicting valuations for the same property depending on the authority concerned.

On the other hand, the KSFC argued that the valuation adopted by it is strictly in accordance with the KSFC Lending Policy, 2020, which governs the way secured assets are to be valued for purposes of sanctioning loans. The valuation determined by the Sub-Registrar is primarily for the purpose of registration of documents and collection of stamp duty, and such guideline value cannot be automatically adopted for the purpose of lending decisions made by financial institutions, it was further submitted.

The court said that the guidance value determined by the Sub-Registrar is not confined to registration matters alone. “The same value is also taken into consideration in various other statutory contexts. For instance, under Section 50C of the Income-tax Act, 1961, the value adopted by the stamp valuation authority is treated as the deemed sale consideration for the purpose of computation of capital gains,” the court said.

The court further said that when two different authorities of the state adopt mutually inconsistent valuation standards for the same property, the citizen is left to bear the burden of such inconsistency. “While KSFC may retain the discretion to undertake appropriate due diligence and risk assessment in determining the quantum of loan to be sanctioned, such determination cannot proceed on a valuation methodology that is wholly inconsistent with the statutory guidance value recognised by the State itself,” Justice Suraj Govindaraj said.