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.
Updated 19 March 2026
This case summary remains legally accurate. State Bank of India v Sood [1997] Ch 276 is still good law and continues to be cited as authority for the proposition that overreaching under s.27(2) of the Law of Property Act 1925 can occur even where no capital monies are raised (for example, where a mortgage secures future or contingent liabilities rather than an immediate capital payment). The Court of Appeal held that overreaching is not conditional on the payment of capital money to two trustees; rather, the requirement to pay capital money to two trustees only arises when capital money is in fact generated. This principle has been considered in subsequent academic commentary and case law, including the Law Commission’s work on land registration and co-ownership, but the decision itself has not been overruled or materially limited. Students should note that the interaction between overreaching and the rights of beneficiaries in occupation remains a debated area of law, and the Law Commission has previously consulted on potential reforms in this area, though no legislative changes directly reversing or modifying the Sood principle have been enacted as of the date of this review.
