MORTGAGE BY DEPOSIT OF TITLE DEED

By

Name of the Student: Sai Suvedhya R.

Roll No.: 2018LLB076

Subject: Transfer of Property

Semester: 4th

Name of the Program: 5 year (B.A., LL.B.)

Name of the Faculty Member : Mr. P. Jogi Naidu, Assistant Professor

Date of Submission: 12/10/2020

DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

NYAYAPRASTHA “, SABBAVARAM,
VISAKHAPATNAM – 531035, ANDHRA PRADESH

1
ACKNOWLEDGEMENT:

The ultimate result of this project required a lot of supervision and guidance from many
people and I am really privileged to have got this all along the completion of my research
work. Whatever I have done is only due to such guidance and I would like to thank them for
the same.

I thank my respected Transfer of Property professor – Mr. P. Jogi Naidu Sir, for giving me a
chance to do this research paper and for his consistent support and guidance which helped me
to complete it on time.

2
TABLE OF CONTENTS

• Synopsis -----------------------------------------------------------------------------------------04
• Introduction -------------------------------------------------------------------------------------05
• Different Types of Mortgages ----------------------------------------------------------------06
• Registration Of A Memorandum Of Mortgage For Deposit Of Title Deed ------------10
• Case Analysis -----------------------------------------------------------------------------------13
• Conclusion --------------------------------------------------------------------------------------21
• Bibliography ------------------------------------------------------------------------------------22

3
SYNOPSIS

Abstract

Loan or mortgage by deposit of title deeds is not a new phenomenon. “People have been
taking loans by depositing their title deeds with the lender, the purpose of which is to create a
security for the lender against default in re-payment. However, a mortgage by deposit of title
deeds is different from an ordinary mortgage or loan with a bank. In an equitable mortgage,
the lender has no legal right to take possession of the mortgaged property or to claim any
security in rents and profits accruing from that property.

Objective

To understand the process of mortgage by deposit of title deed.

Research Question

• Whether mortgage by deposit of title deed is a viable option or not?

Research Methodology

The research will be doctrinal type of research by referring to various articles, books, journals
and some online resources. The nature of the study is descriptive, explanatory, analytical and
comparative.

• Primary sources - The primary sources for the study are:

• The Transfer of Property Act, 1882

• Secondary sources - The secondary sources include various Journals, Research Papers
and Internet Resources.

Scope

This project aims to understand the laws related to mortgage of property and deposit of title
deed in the Indian Context.

4
INTRODUCTION

Loan or mortgage by deposit of title deeds is not a new phenomenon. “People have been
taking loans by depositing their title deeds with the lender, the purpose of which is to create a
security for the lender against default in re-payment. However, a mortgage by deposit of title
deeds is different from an ordinary mortgage or loan with a bank. In an equitable mortgage,
the lender has no legal right to take possession of the mortgaged property or to claim any
security in rents and profits accruing from that property.”1

“In English Law, such a mortgage is referred to as an Equitable Mortgage. Lord Cains
defined it as

it is a well-established rule of equity that a deposit of a document of title without more,

without writing, without word of mouth, will create Equity a charge upon the property
referred to.

Thus, a mortgage by deposit of title deeds can be made by the debtor by depositing his title
deeds with the creditor as security for any advance made to him or for any future advances,
without a single piece of paper being written or signed.” 2

In India, such a mortgage comes under Section 58(f) of the Transfer of Property Act, 1882
(TP Act), which states that:

“(f) Mortgage by deposit of title-deeds-Where a person in any of the following towns,

namely, the towns of Calcutta, Madras, and Bombay, and in any other town which the State
Government concerned may, by notification in the Official Gazette, specify in this behalf,
delivers to a creditor or his agent documents of title to immovable property, with intent to
create a security thereon, the transaction is called a mortgage by deposit of title-deeds.” 3

In order to “prove the existence of an equitable mortgage, the following conditions must be
met:

1. There must be a debt;

2. Delivery must be by a debtor or his agent;

1
Collector of Tiruchirapalli v. Trinity Bank Ltd. AIR 1962 Mad 59.
2
Darashaw J. Vakil, Commentaries on the Transfer of Property Act, P. 928 (3rd Edn., 2009).
3
Sec. 58(f), The Transfer of Property Act, 1882.

5
3. Delivery must be in the towns mentioned in the Act;

4. Delivery must be to a creditor or his agent;

5. Delivery must be of documents of title to immovable property; and

6. Delivery must be with intent to create a security thereon.” 4

The debt “can be both, an existing debt, or a future debt.”5 In the “event a huge amount of
money has been advanced as a loan, and the debtor has deposited the title deeds with the
creditor, then such a transaction will be prima facie evidence of an equitable mortgage.”6 The
delivery can either “be physical (actual deposition) or constructive (evident from the conduct
of the parties).”7

It is pertinent “to note that an equitable mortgage can be created by mere deposit of title
deeds without any written contract between the parties.”8 The only requirement “is to prove
the intention of the parties i.e. that it was intended that the title deeds deposited are security
for the debt. Depositing title deeds with the creditor raises the presumption of an equitable
mortgage, and the burden to rebut such a presumption is upon the debtor.”9 To prove the
existence of an equitable mortgage, it is sufficient to show that the title-deeds were deposited
with the intention of being a security.10

Section 59 of the TP Act specifically excludes mortgages by deposit of title deeds when
talking about the types of mortgages that need registration.11 However, the judicial precedents
uphold a different view.

DIFFERENT TYPES OF MORTGAGES

In India mortgages are “categorized as six types.

1. Simple Mortgage:

4
Supra note 1.
5
M.M.T.C. Limited v. Mohamed Gani, AIR 2002 Mad 378 (393).
6
The Motor and General Finance Ltd. v. Durga Builders Pvt. Ltd., AIR 2003 NOC 309 (Del).
7
Supra note 1.
8
K. Bhavanaravana v. S. Venkataratnam, AIR 1971 AP 359 (361) (DB); C.C. Rev. Authority v. P.S. Private
Ltd., AIR 1968 Mad 223 (224)
9
Burgess v. Moxon, (1856) 2 Jur. (N.S.) 1059; Ex-parte Mountfort, (1808) 14 Ves. 606.
10
Casberd v. A.G., (1819) 6 Price 411; Maugham v. Ridley, (1863) 8 LT 309.
11
Sec. 59, The Transfer of Property Act, 1882.

6
In this type of mortgage, the mortgagor without delivering possession of the property binds
himself to pay the mortgage money and agrees that in the event he fails to pay the money the
mortgaged property can be sold and proceeds of the sale can be applied for repayment of the
loan.

2. Mortgage by Conditional Sale:

In this type of mortgage the mortgagor ostensibly sells the mortgaged property on a condition
that on default of payment of the mortgage money on a particular date the sale shall become
final or on the condition that on the payment being made the sale shall become void and the
buyer shall transfer the property to the seller.”12

3. Usufructuary Mortgage:

In this the mortgagor delivers possession or binds himself to deliver possession of the
mortgaged property and authorizes him to receive the rents and profits that accrue from such
property till repayment of the loan.

4. English Mortgage:

In this “case the mortgagor binds himself to repay the mortgage loan on a fixed date and
transfers the mortgage property to the mortgagee subject to the term that mortgagee shall
retransfer the property upon payment of the loan amount.

5. Mortgage by Deposit of Title Deeds:

In this case the mortgagor delivers the original deeds of his property as a security against the
loan. In the event the mortgagor fails to repay the loan, the mortgagee sells the property.

6. Anomalous Mortgage:

A mortgage which is not a simple mortgage, a mortgage by conditional sale, a usufructuary

mortgage, an English mortgage or a mortgage by deposit of the title deeds within the meaning
of Section 58 of the Transfer of Property Act is called an anomalous mortgage”13

12
http://theindianlawyer.in/content/mortgages#:~:text=A%20Mortgage%20is%20the%20transfer,are%20categor
ized%20as%20six%20types.
13
www.mortgages.tpact.in

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(a) Registration of Memorandum

If the parties choose to reduce the contract to writing in the form of a document, then the
document becomes the sole evidence of the terms of the agreement. “Such a document has to
be registered as per Sec. 17 of the Indian Registration Act, 1908 (Registration
Act).”14 Section 17(b) of the Registration Act “mandates the registration of any document
which creates any right in an immovable property worth equal to or more than hundred
rupees. Furthermore, if such a document is not registered it cannot be used at evidence at all
and the transaction could not be proven by oral evidence either.”15 In case such a “document
is not registered, then as per Section 49 of the Registration Act, the document cannot affect
any immovable property contained in the agreement and it cannot be used as evidence of a
transaction affecting the immovable property.”16

A mortgage “by deposit of title deeds may be effected orally, but when the parties reduce it to
writing, and the writing itself constitutes a contract of mortgage, which essentially creates the
mortgage, then the memorandum has to be registered, notwithstanding Section 59 of the TP
Act.”17 The essential question to be considered is whether the parties really intended that the
document alone should constitute the evidence of the transaction.18

In Ishwar Das Malhotra v. Dhanwant Singh19, The Delhi High Court took the view that-
“Where the memorandum contained the terms of the contract, mentioned the amount of loan,
rate of interest and details of the property in respect of which equitable mortgage was stated
to have been already created, it required registration and was, therefore, inadmissible(in
evidence).” 20

This view has been confirmed by the Supreme Court in State of Haryana v. Narvir
Singh,21 wherein the Supreme Court has held that

“In a mortgage by deposit of title deeds……where the memorandum recorded in writing

creates rights, liabilities or extinguishes those, the same requires registration.” 22

14
Rachpal Mahraj v. Bhagwan Daruka AIR 1950 SC 272.
15
United Bank of India Ltd. v. Lekharam Sonaram, AIR 1965 SC 1591.
16
Sec. 49, The Indian Registration Act, 1908.
17
R.V. Subba Rao v. L.L. Chowdary AIR 1977 AP 123 (127).
18
Rajamma v. Mahant AIR 1973 Mys 310.
19
AIR 1985 Del 83.
20
AIR 1985 Del 83.
21
(2014) 1 SCC 105.
22
(2014) 1 SCC 105.

8
Therefore, notwithstanding the exclusion of mortgage by deposit of title deeds in Section 59
of the TP Act, the jurisprudence on the subject requires memorandums to be registered, if
they contain the terms and conditions of the mortgage.

(b) Stamp Duty in Uttarakhand

The fact the all agreements or memorandums which manifest the intention of the parties to
create an equitable mortgage require registration, the next logical question is the stamp duty
payable at on such documents.

The Indian Stamp Act, 1899 (“Act”) as applicable in Uttarakhand governs “the stamp duty
payable on a mortgage by deposit of title deeds. Art. 6 of Schedule 1-B of the Act says that
the duty in cases of a loan or a debt that is repayable on demand or more than three months
from the date of the agreement is twenty rupees for every thousand rupees of the debt.”23 In
cases “where the loan or the debt is not repayable after three months from the date of
agreement, then the duty payable is half of the duty in the earlier situation, i.e., ten rupees per
thousand rupees of the debt.”24

The Explanation of this Article specifically states that “any letter, note or memorandum or
writing, relating to the deposit of title deeds, whether written or made before, or at the time
of, or after, the deposit of title deeds is effected, and whether it is in respect of the first loan
or any subsequent loan, such loan, such letter, note, memorandum or writing shall, in the
absence of any separate agreement relating to the deposit of title deeds, be deemed to be an
instrument evidencing an agreement relating to the deposit of title deeds.”25

In simpler terms, what the explanation says is that when such an agreement is reduced to
writing, it will be deemed to be an agreement governing the deposit of title deeds and such a
written agreement is not enforceable unless duly stamped.

Notification “5-160/11-2004-500(20)/2000 dated 24 May, 2005 issued by the Uttar Pradesh

government (applicable in Uttarakhand) (Notification) limits the maximum stamp duty
payable to ten thousand rupees. The Notification addresses the issue of people avoiding the
payment of stamp duty by depositing title deeds with the lender and simply signing a
declaration deed stating that the title deeds have been deposited for the purpose of a

23
Schedule 1-B Art. 6(a), The Indian Stamp Act, 1899 (as applicable in Uttarakhand).
24
Schedule 1-B Art. 6(b), The Indian Stamp Act, 1899 (as applicable in Uttarakhand).
25
Schedule 1-B, Art 6, Explanation, The Indian Stamp Act, 1899 (as applicable in Uttarakhand).

9
mortgage. The stamp duty payable on a declaration deed was merely one hundred rupees.
Therefore the Notification categorically states that documents with respect to mortgage by
deposit of title deeds have to be stamped according to the Notification and cannot be
registered only as declaration deeds.” 26

Thus, the current jurisprudence and the view of the authorities, at least in Uttarakhand, tends
to lean in favour of registering a memorandum which creates the mortgage by deposit of title
deeds.

REGISTRATION OF A MEMORANDUM OF MORTGAGE FOR DEPOSIT OF

TITLE DEED

Mortgage is a transfer of an interest in a specific immovable property for the purpose of

securing the payment of money “advanced or to be advanced by way of loan, an existing or
future debt or the performance of an agreement, which may give rise to a pecuniary liability.

The person borrowing and transferring his interest in an immovable property to the lender is
the mortgagor. The lender is the mortgagee and the funds lent against which the property is
used as security is the mortgage money. The instrument by which the transfer is effected is
called a mortgage-deed.

All mortgages other than a mortgage by deposit of title deeds can be effected by a registered
instrument signed by a mortgagor and attested by at least two witnesses.

Where a person in any of the following towns, namely, the towns of Calcutta, Madras and
Bombay and in any other town which the State Government concerned may by notification in
the Official Gazette, specify in this behalf, delivers to a creditor or his agent documents of
title to immovable property, with intent to create a security thereon, the transaction is called a
mortgage by deposit of title deeds.”27

To create a valid mortgage by deposit of title deeds, there must be a delivery of the title deeds
relating to the immovable property by the debtor to a creditor or his agent with the intention
of creating a security thereon27. “Thus, if there is a debt and if title deeds are deposited by the
debtor with an intention that the title deeds shall be security for the debt, then by the mere
fact of deposit of those title deeds, a mortgage comes into being.

26
http://eregistration.uk.gov.in/e_val/Login.aspx
27
Obla Sundarachariar v. Narayana Ayyer, AIR 1931 PC 36.

10
A mortgage by deposit of title deed does not require registration. Sometimes, a memorandum
accompanies the deposit of title deeds. This paper examines the circumstances under which a
memorandum accompanying the deposit of title deeds requires registration.

As far back as in 1873, this question came to be considered by the Calcutta High Court
in Kedarnath Dutt v. Shamlal Khetry28. In that case the court held that a memorandum is not
the indumenta by which the equitable mortgage is created, nor is it the evidence of the
contract, and, therefore, it does not come under Section 17 of the Registration Act. However,
if the memorandum is such that it could be treated as a contract for the mortgage it would be
the instrument by which the mortgage was created and would come within Section 17 of the
Registration Act.

No memorandum can be within Section 17 of the Registration Act unless on its face it
embodies such terms and is signed and delivered at such time and place and in such
circumstances as to lead legitimately to the conclusion that so far as the deposit is concerned,
it constitutes the agreement between the parties.”28

When a debtor deposits with the creditor the title deeds of his property with intent to create a
security, “the law implies a contract between the parties to create a mortgage, and no
registered instrument is required under Section 59 as in other form of mortgage. But if the
parties choose to reduce the contract to writing, the implication is excluded by their express
bargain, and the document will be the sole evidence of its terms. In such a case, the deposit
and the document both form integral parts of the transaction and are essential ingredients in
the creation of the mortgage. As the deposit alone is not intended to create the charge and the
document, which constitutes the bargain regarding the security, is also necessary and operates
to create the charge in conjunction with the deposit, it requires registration under Section 17,
Registration Act, 1908 as non-testamentary instrument creating an interest in immovable
property29.

If the document is deposited before the execution of the writing reciting it, that is, if the
documents had been handed over to the creditor as security for the loan and the writing or
letter merely recoded a past transaction there would be no need for registration of the letter
for a valid equitable mortgage.”29 However, where there was no past transaction of actual
deposit of title deeds before the execution of the letter relied on, and the letter is the only

28
(1873) 2k Suth WR 150
29
D. D. Seal v. R. L Phumra , AIR 1970 SC 659.

11
evidence of the mortgage and the only document by which the mortgage was created, the
letter has to be registered and if it is not registered, it cannot be admitted in evidence to prove
a valid equitable mortgage by deposit of title deeds.

In order “to require registration, the document must contain all the essentials of the
transaction and one essential is that the tide deeds must be deposited by virtue of the
instrument or acknowledge an earlier deposit of title deeds and further the title deeds shall be
held as security on the said mortgage.

Though a mortgage by deposit of title deeds can be created by a mere deposit of title deeds
without any written contract between the parties, but once the bargain or contract is reduced
to writing, it must be registered.

One telling principle which has emerged from the ratio of the decisions, however, is that if
there is evidence, either extrovert or introvert, which would compel a Court to hold that under
a single bargain the borrowing and the deposit of title deeds were effected and that the
intention is made clear and public only in such a contemporaneous transaction, then a
memorandum evidencing such a bargain needs registration.”30 It may be that the
memorandum contains a recital as to the quantum of the amount borrowed.

That would not make the memorandum any the less a non-registrable one, provided it is an
independent transaction and not the sole bargain to evidence the deposit of title deeds. “The
only important feature on which the Court should pay its concentrated attention is that the
deposit of title deeds should have taken place earlier than the time of the writing of the
memorandum.

If such a dissociation in point of time is apparent from the memorandum itself, or if it could
be discovered from the totality of the facts and appreciation of the surrounding
circumstances, then the plaintiff can successfully pilot his case on the foot of an equitable
mortgage and obtain a mortgage decree.

If, however, the Court is not satisfied about the earlier deposit of title deeds, but if the
memorandum projected is the only piece of evidence whereby the equitable mortgage is

30
Bhavanarayana v. Venkitaratnam, AIR 1971 Andh Pra 359.

12
created, then notwithstanding the nicety of expressions used therein, the Court has to hold
that such a memorandum is not admissible in evidence for want of registration.”31

CASE ANALYSIS

CASE 1

Name: State of Haryana and Ors. vs. Navir Singh and Anr. Vs. State of Punjab and Ors. vs. Pagro
Foods Ltd. and Ors.27

Before: Supreme Court of India

Date of Judgment: October 7, 2013

Facts:

The facts in both the cases being similar, these cases were heard jointly by the Court.

Punjab National Bank “(PNB) sanctioned a term loan and working capital facility to
UltraTech Private (UT). Pursuant to this, original title-deeds in respect certain immovable
properties belonging to Narvir Singh and Rajinder Kaur were deposited with the Bank by the
borrower as ‘mortgage by deposit of title-deeds’. A request for mutation on the basis of
mortgage effected was made by the Bank which was resisted by the Respondent on the
ground that no entry can be made as the instrument of deposit of title-deeds is compulsorily
registrable Under Section 17(1)(c) of the Registration Act.”32

Issue:

Whether creation of mortgage by way of deposit of title deeds would require compulsory
registration under Section 58(f) of the Transfer of Property Act?

Relevant Provisions:

Section 58(f) of the Transfer of Property Act, 1882–

“Mortgage by deposit of title-deeds- Where a person in any of the following towns, namely,
the towns of Calcutta, Madras, and Bombay, and in any other town which the State
Government concerned may, by notification in the Official Gazette, specify in this behalf,
31
Alagappan v. Kalyansundara Iyer, AIR 1977 Mad 238.
32
State of Haryana and Ors. vs. Navir Singh and Anr. Vs. State of Punjab and Ors. vs. Pagro Foods Ltd. and
Ors.

13
delivers to a creditor or his agent documents of title to immovable property, with intent to
create a security thereon, the transaction is called a mortgage by deposit of title-deeds.”33

Section 59 of Transfer of Property Act, 1882

“Mortgage when to be by assurance –Where the principal money secured is one hundred
rupees or upwards, a mortgage other than a mortgage by deposit of title deeds can be
effected only by a registered instrument signed by the mortgagor and attested by at least two
witnesses…”34

Letter dated 29th March, 2007 of the Finance Commissioner inter alia makes “instrument of
deposit of title-deeds compulsorily registrable under Section 17(1) (c) of the Registration
Act.”

Held:

1. Mortgage by “way of deposit of title deeds to the creditor with the intent to create a
security thereon can be effected by the debtor and no instrument is required to be
drawn for this purpose.

2. The parties may choose to draw a memorandum showing deposit of the title-deeds. In
such a case also registration will not be required. However, in a case where
memorandum recorded in writing creates right, liability or extinguishes them, the
registration would be required to that effect.

3. The letter of the Finance Commissioner would apply in cases where the instrument of
deposit of title-deeds incorporates terms and conditions in addition to what flow from
the mortgage by deposit of title-deeds. However, in such a situation, there has to be an
instrument which is an integral part of the transaction regarding the mortgage by
deposit of title-deeds. A document merely recording a transaction which is already
concluded and which does not create any rights and liabilities does not require
registration.

4. When the borrower and the creditor choose to reduce the contract in writing and if
such a document is the sole evidence of terms between them, the document shall form

33
Section 58(f), TP Act, 1882
34
Section 59, TP Act, 1882

14
 integral part of the transaction and same shall require registration Under Section 17 of
the Registration Act.”35

Laying down the above points, the Apex Court in this case noted that there was nothing to
show existence of any instrument which has created or extinguished any right or liability.
Only, the original deeds have been deposited with the bank. Thus, the Supreme Court
concluded that the charge of mortgage can be entered into revenue record in respect of
mortgage by deposit of title-deeds and for that, instrument of mortgage is not necessary.30

CASE 2

Name: Urmila Devi and Ors. vs. Debts Recovery Appellate Tribunal, Allahabad and Ors. 36

Court: High Court of Allahabad

Bench: Hon. Dilip Gupta, J.

Facts:

1. “This petition seeks the quashing of the order dated 16th March, 2001 passed by the Debts
Recovery Tribunal, Allahabad in Transfer Application No. 408 of 2000 by which the
application filed by the Allahabad Bank for recovery of Rs. 35, 56, 192.46/- was decreed ex-
parte, the order dated 5th January, 2010 by which the application filed by the petitioners for
recall of the order dated 16th March, 2001 was rejected by the Debts Recovery Tribunal,
Allahabad and the order dated 17th July, 2012 passed by the Debts Recovery Appellate
Tribunal, Allahabad by which the appeal filed by the petitioners for setting aside the order
dated 5th January, 2010 passed by the Debts Recovery Tribunal, Allahabad was dismissed. It
transpires from the records of the writ petition that M/s. N.C. Carpet Company, a partnership
firm with Saroj Sekhari, Rajat Sekhari, Vijay Kumar Sekhari and Rajendra Kumar Sekhari as
partners, was sanctioned limit facilities by the respondent-Allahabad Bank and to secure the
interest of the Bank, Vijay Kumar Sekhari mortgaged properties by deposit of title deeds of
Plot No. 235-Ka and Plot No. 3085. On account of the default in payment of the money, the
respondent-Bank filed Original Suit No. 272 of 1991 for recovery of a sum of Rs. 35, 56,
192.46/- with interest from M/s. N.C. Carpet Company and the partners32 which was

35
CIVIL APPEAL NO.9030 OF 2013
36
AIR2013All11

15
subsequently transferred to the Debts Recovery Tribunal Allahabad and was numbered as
Transfer Application No. 408 of 2000.”37

2. “It is further transpires from the records that as sales tax dues of Rs. 3, 82, 000/- were not
paid by M/s. N.C. Carpet Company, a recovery certificate was issued by the Trade Tax
Department for recovery of the dues as arrears of land revenue and consequently Plot No.
235-Ka was put to auction and the sale in favour of the highest bidder Bankey Lal Gupta was
confirmed on 29th January, 1996. A sale certificate was thereafter issued by the Sub-
Divisional Officer on 5th February, 1996 under Rule 285-M of the U.P. Zamindari Abolition
& Land Reforms Rules, 1952 (hereinafter referred to as the 'Zamindari Abolition Rules'). All
this was done during the pendency of the aforesaid Transfer Application filed by the Bank
before the Debts Recovery Tribunal.

3. The respondent-Bank filed objections before the Additional District Magistrate, but since
the sale had been confirmed, the Additional District Magistrate, rejected the objections by the
order dated 31st January, 1996. The Bank then filed objections under Rule 285-I of the
Zamindari Abolition Rules before the Commissioner, Varanasi Division Varanasi, who after
hearing the auction purchasers, rejected the objections filed by the Bank on 28th November,
2000 for the reason that the Bank33 was not the defaulter and the Bank should wait for the
decision of the Transfer Application it had filed before the Debts Recovery Tribunal.”38

4. “Transfer Application No. 408 of 2000 was ultimately decreed ex-parte by the Debts
Recovery Tribunal against M/s. N.C. Carpet Company and its partners on 16th March, 2001
for recovery of Rs. 35, 56, 192.46/- and the defendants were also directed to pay pendente lite
and future interest @ 15.5% with quarterly rest on the amount till it was paid. It was also
observed that the applicant-Bank could recover the Bank dues from the defendants after sale
of the property mortgaged and hypothecated with the Bank. The Recovery Officer of the
Debts Recovery Tribunal, Allahabad, accordingly, published a notice in the newspaper on
2nd December, 2002 for sale of the properties mentioned in the notice through public auction
to be held on 11th December, 2002.

5. It also transpires from the records of the writ petition that Bankey Lal Gupta in whose
favour the sale certificate had been issued on 5th February, 1996, sold the aforesaid Plot No.

37
Dena Bank vs. Bhikhabhai Prabhudas Parekh & Co. & Ors. MANU/SC/0317/2000
38
Padrauna Rajkrishna Sugar Works Ltd. and Ors. vs. Land Reforms Commissioner, U.P. and Ors.
MANU/SC/0377/1969

16
235-Ka to the petitioners by means of the registered sale deed dated 27th March, 2002 and
the petitioners have stated in paragraph-13 of the writ petition that they came to know for the
first time about the loan advanced by the Bank to M/s. N.C. Carpet Company through the
newspaper publication dated 2nd December, 2002 and after making enquiries, filed the
application before the Debts Recovery Tribunal, Allahabad for recalling its order dated 16th
March, 2001 by which it had issued the recovery certificate in favour of the Allahabad Bank
for sale of the properties mortgaged with the Bank which included Plot No. 235-Ka. This
application filed by the petitioners was registered as Miscellaneous Application No. 160 of
2002. The Debts Recovery Tribunal, Allahabad by the order dated 5th January, 2010 rejected
this application and the appeal filed by the petitioners before the Debts Recovery Appellate
Tribunal, Allahabad was also dismissed by the order dated 17th July, 2012.”39

Issues:

Whether the right of the State Government to realise the arrears of trade tax will take
precedence over the right of the Bank to proceed against the property of the borrowers
mortgaged in favour of the Bank by deposit of title deed?

Reasonings:

Mortgage “was defined in Section 58(a) of Act as transfer of an interest in specific

immoveable property for purpose of securing payment of money advanced or to be advanced
by way of loan - Further whether mortgage was with possession or simple mortgage, interest
in property ensures to mortgagee so that any subsequent mortgage or sale always preserves
rights of mortgagee whether subsequent dealings in property were with or without notice -
Obvious reason for it was that in mortgage34 there was always an equity of redemption vested
in owner so that subsequent mortgagees or transferees would have, if they were not careful
and cautious in examining title before entering into transaction, only interest which owner
had at time of transaction - Hence if Petitioner's Company and its partners had mortgaged
property to Bank by deposit of title deeds and subsequently they were sold to other person
then only equity of redemption was sold - It was also clear from sale certificate which stated
that only such rights as were possessed by Plaintiff's Company and its partners were being
transferred - Hence it was not for Bank, in Transfer Application, to have impleaded
Petitioners as opposite parties - Auction purchaser was aware of pendency of Transfer

39
Collector of Aurangabad and Anr. vs. Central Bank of India and Anr. MANU/SC/0003/1967

17
Application as he was party in objections which had been filed by Bank before Commissioner
under Section 285I of Rules and had sold property to Petitioners - Bank had impleaded
Petitioners Company and its partners, who had taken loan from Bank and it could not be said
that Petitioners were necessary party in Transfer Application.”40

Judgement:

Thus there was no merit in Petition - Petition dismissed. Bank shall prima facie recover
amount from immovable property of defaulter which is mortgaged and hypothecated with
Bank.

CASE 3

Name: Usha Rice Mill Company Ltd. vs. United Bank of India (UOI)41

Court: Calcutta High Court

Bench: M.M. Dutt and Ramkrishna Sharma, JJ.

Facts:

Mortgage - Agreement for sale of immovable property--Entire consideration money paid and
possession of property made over to purchaser but no sale deed executed, whether purchaser
gets by possession any title to the property which can be mortgaged, whether possession of
purchaser is in the assumed character of the owner—“Mortgage by deposit of title deeds,
whether it is sufficient if the deeds are material evidence of title even if they may not show
good title in the depositor--Fact of intention that the deeds would be security for the debt,” 42
how to be decided--Transfer of Property Act 1882 (IV of 1882), Section 54.

“On April 1, 1945 the Defendant No. 1 entered into an agreement for sale with one Sm. Usha
Rani Ghosh in respect of37 a plot of land with all structures, plants, tools, machinery thereon.
The Defendant No. 1 paid the entire consideration money and the possession of the property
was made over to it but no sale deed was executed. In December 1945 Comilla Banking
Corporation Ltd., which subsequently amalgamated with the Plaintiff Bank, allowed the
Defendant No. 1 cash credit overdraft facilities up to a limit of Rs. 2,00,000. As security for
the said overdraft facility the Defendant No. 1 mortgaged the said land and buildings by

40
The Bank of Bihar vs. The State of Bihar and Ors. MANU/SC/0007/1971
41
82CWN92
42
Angu Pillai and Ors. v. M.S.M. Kasiviswanathan Chettiar A.I.R. 1924 Mad. 16

18
deposit of title deeds with the Plaintiff Bank. The Defendant No. 2 guaranteed payment of the
sum that might be due by the Defendant No. 1 up to the limit of Rs. 2,00,000. On June 3,
1955 the amount of the overdraft with interest thereon came to Rs. 1,93,465-4-3. As the
Defendants had failed to pay the said sum the Plaintiff Bank instituted a suit against the
Defendants. The trial Court passed a mortgage decree in respect of the said property and
further directed that if the sale proceeds would fall short of the decretal amount, the Plaintiff
would get a personal decree for the balance when the same would be applied for.38 The
liability of the Defendant No. 2 in such personal decree was limited to Rs. 2,00,000. Against
the said decree the Defendants preferred appeal to the High Court wherein they contended
that (1) inasmuch as no sale deed had been executed in respect of the said property the
Defendant No. 1 had no title therein and the alleged mortgage had no legal existence, (2)
there was no mortgage because the title deeds were not deposited with the intention of
creating a security.”43

Issues:

Whether or not by virtue of its possession the Defendant No. 1 had acquired a transferable
interest in the disputed property?

Judgement:

“Although the agreement for sale did not create any interest in the property agreed to be sold,
the possession of the Defendant No. 1 of the disputed property had conferred on it an interest
therein or possessory title which was valid against all except the true owner.

Where a purchaser paid the full consideration money and obtained delivery of possession of
the property agreed to be sold, he entered into the possession in the assumed character of the
owner thereof even though no formal deed of sale had been executed before such delivery of
possession.”44

“In order to create a mortgage by deposit of documents of title it was not necessary that the
documents should show good title in the depositor; it was sufficient if the documents were
material evidence of title and had been deposited with the intention of creating a charge.

43
(1977)ILR 2Cal385
44
(1977)ILR 2Cal385

19
The question whether there was in fact an intention that the deeds would be security for the
debt would have to be decided like any other fact on oral, documentary or circumstantial
evidence. On the evidence and circumstances of the case the conclusion was irresistible that
the documents of title had been deposited by the Defendant No. 1 with the intention to create
an equitable mortgage.”45

CASE 4

Name: Allokam Peddabbayya and Ors. vs. Allahabad Bank and Ors.46

Court: Supreme Court of India

Bench: Ranjan Gogoi and Navin Sinha, JJ.

Fact:

Defendant Nos. 3 and 4 created an equitable mortgage of their property for a loan in favour of
the Bank/Defendant No. 1, by deposit of title deeds. The Bank instituted suit for recovery of
the loan by sale of the mortgaged property. The property was auction sold. Sale certificate
was issued to Defendant No. 2/auction purchaser and he was put in possession.

The “Plaintiffs were stated to have purchased the mortgaged property by different sale deeds.
Asserting possession, they preferred suit, seeking permanent injunction restraining Defendant
Nos. 2 to 4 only from interfering with their peaceful possession. The suit and the appeal
against the same were dismissed. Execution Appeal preferred by the Plaintiffs was also
dismissed. The Plaintiffs thereafter preferred suit for redemption of mortgage Under Order
XXXIV Rule 1 of the Code of Civil Procedure, 1908, now impleading the Bank as Defendant
also. The Suit was decreed, but reversed in appeal by the Defendant No. 2 holding that
consequent to the auction sale and issuance of sale certificate along with possession
delivered, Defendant Nos. 3 and 4 were no more the owners of the property, and there stood
no debt to be redeemed on the date of filing of the suit. The Plaintiffs were thus not
purchasers of the equity of redemption, dismissing the suit. The High Court in second appeal
held that the right to redemption in the Plaintiffs, by stepping into the shoes of the Mortgagor
Under Section 59A of the Transfer of Property Act, 1882 stood extinguished in view of the

45
(1977)ILR 2Cal385
46
2017 (124) ALR 200

20
final decree for foreclosure in suit filed by the Bank, and the consequent sale certificate
issued in favour of Defendant No. 2. Hence, the present appeal.”47

Judgement:

Held, while dismissing the appeal:

(i) “The right to enforce a claim for equity of redemption is a statutory right under the Act. It
necessarily presupposes the existence of a mortgage. The right to redeem can stand
extinguished either by the act of the parties or by operation of the law in the form of a Decree
of the Court under the proviso to Section 60 of the Act41. The Appellants being purchasers of
the equity of redemption could have or claim no better rights Under Section 91, than what
their predecessor-in-interest had Under Section 60 of the Act.

(ii) No challenge was laid out in suit, either to the auction sale or to set aside the sale
certificate issued to Defendant No. 2. The reliance upon Order XXXIV Rule 1 of Code was
completely misconceived as under Rule 8 the right to redemption survived only till
confirmation of the sale and not thereafter. The suit was instituted only after issuance of the
sale certificate and the question for redemption had become irrelevant. The issues regarding
maintainability of a second suit for redemption or clog on the equity of redemption were not
relevant.

(iii) The Plaintiffs lost the right to sue for redemption of the mortgaged property by virtue of
the proviso to Section 60 of the Act, no sooner that the mortgaged property was put to auction
sale in a suit for foreclosure and sale certificate was issued in favour of Defendant No. 2.
There remained no property mortgaged to be redeemed42. The right to redemption could not
be claimed in the abstract.”48

CONCLUSION

The real test to find out “whether a memorandum recording handing over title deeds requires
registration or not is to ascertain whether the memorandum represents the bargain between
the parties. The question, therefore, which must be posed is, did the parties intend to reduce
their bargain regarding the deposit of title deeds to the form of a document? If so, the
document requires registration. If, on the other hand, its proper construction and the

47
Nagubai Ammal and Ors. v. B. Shama Rao and Ors. MANU/SC/0089/1956 : AIR 1956 SC 593
48
Mangru Mahto v. Shri Tahkur Taraknathji MANU/SC/0277/1967 : (1967) 3 SCR 125

21
surrounding circumstances lead to the conclusion that the parties did not intend to do so, then
there being no express bargain, the contract to create the mortgage arises by implication of
the law from the deposit itself with the requisite intention, and the document, being merely
evidential does not require registration.

A mere statement that the deposit is made by way of security for the repayment of the loan
cannot be read as a contract which is arrived at by the document itself. The document,
therefore, cannot be read as recording an agreement between the parties. It is at best evidence
of the fact that the title deeds have been deposited with the plaintiff”49. The question whether
a document in question was agreed by the parties as a part of the arrangement to create a
mortgage by deposit of title deeds has to be decided on the facts of each case.

BIBLIOGRAPHY

• https://www.linkedin.com/pulse/mortgage-deposit-title-deeds-register-ajar-rab
• https://www.indiainfoline.com/article/research-articles-personal-finance/home-loan-
intimation-of-mortgage-by-way-of-deposit-of-title-deed-114052800351_1.html
• https://www.bajajfinserv.in/mortgage-loan-types
• https://www.fullertonindia.com/knowledge-center/types-mortgage-loans-india.aspx
• https://www.mondaq.com/india/financial-services/16866/registration-of-a-
memorandum-of-mortgage-by-deposit-of-title-deeds
• https://www.manupatrafast.com/pers/Personalized.aspx

49
https://www.mondaq.com/india/financial-services/16866/registration-of-a-memorandum-of-mortgage-by-
deposit-of-title-deeds

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