Bank Vs. Estate Officer & Manager, A.P.I.I.C. Ltd. & Ors  Insc
890 (30 August 2007)
Sinha & Markandey Katju
O R D
E R WITH
CIVIL APPEAL NOS. 7833-37 OF 2004 On or about 19.03.1969, United Auto Tractor
Ltd. (for short, 'the Company') filed an application before the State
Government for allotment of 100 acres of land in the industrial area for
setting up an industrial unit for the purpose of manufacture of agricultural
tractors and implements. The Government of Andhra Pradesh pursuant to or in
furtherance thereof made allotment of 51 acres of land in the Industrial
Development Area, Nacharam, Andhra Pradesh to the Company for the
aforementioned purpose in terms of an order dated 18.07.1972. On 03.08.1972, an
agreement was entered into by and between the Government of Andhra Pradesh and
the Company in relation thereto; some of the terms and conditions whereof are
as under :
Only on the completion and full payment of the entire consideration amount, the
sale deed shall be executed and registered in the name of the company.
xxx 8(a) Without prejudice to the rights of the State Bank of India or any
other financing agency approved by the Government as first mortgagees,
Government have a second charge on the land, buildings, plant and machinery
which shall be converted into a first charge when the obligation of the
financing agencies are liquidated.
the Financing Institutions were to advance more than 60% of the value of the
land, building, machinery and structure, prior agreement of the Government will
The company shall bear, pay and discharge all existing and further amounts,
duties, imposing and out-going of whatsoever rates, taxes imposed or charged
upon the premises or upon the occupier in respect thereof from the date of
*** *** (s) Till such time as the ownership of the property is transferred to
the Company in the manner mentioned above the property shall continue to remain
the property of the Government.
The Government shall have right to resume the land, if the Company do not use
the land for the purpose for which it was allotted within the period specified
above, the period to be reckoned from the date of which the company was placed
in possession of the land.
case the Company shall become bankrupt or proceedings of insolvency or for
winding up are filed by or against the Company the sale shall forthwith stand
determined and the Government shall be entitled to re-enter the premises or any
part thereof in the name of the whole, without prejudice to the rights of the
Government to seek any available remedy against the company for recovery of the
All payments due to the Government under this agreement shall carry interest at
8 =%. All payments made/instalments paid after the due dates carry penal
interest at 12% per annum."
terms of clause 2 of the said agreement the Company indisputably had made
initial payment of 50% of the total cost of the allotted land.
said date, the Government of Andhra Pradesh also issued a letter to the
Company, permitting it to mortgage the said 51 acres of land to any scheduled
bank to obtain financial assistance to the project, which the Company sought to
establish, stating :
the circumstances stated in your letter second cited, you are hereby permitted
to mortgage the 51 acres of land allotted in the Ncharam Industrial Development
area to any Scheduled Bank to obtain financial assistance to your project.
agreement executed by you is returned herewith duly signed."
on or on the basis of the said purported sanction, the Company mortgaged the
said land in favour of Appellant Bank, pursuant whereto and in furtherance
whereof moneys were advanced to it on the said security from time to time.
Indisputably, the Government of Andhra Pradesh transferred all the industrial
estates and development areas to M/s Andhra Pradesh Industrial Infrastructure
Ltd. (for short, 'A.P.I.I.C') with effect from 01.01.1974. Accounts Officer of
A.P.I.I.C. informed the Director of Industries that amount of incentive to the
extent of Rs.78,860/- sanctioned to the borrower had been adjusted against a
sum of Rs.91,840/- against the balance cost of the land sold to borrower on
outright sale basis.
allotted land allegedly was being utilised by the borrower for the purpose for
which the same was allotted. It is stated that the borrower paid the entire
cost of the land to the Government on or about 31.07.1980 being a sum of Rs.
2,03,304/-, which was acknowledged by A.P.I.I.C. After, a long time, however,
A.P.I.I.C. purported to have cancelled the allotment of 25 acres out of 51
acres of land allotted to the Company. The balance 26 acres of land was
designated as Plot No.A-27/1, which is the disputed property in this case.
filed O.A. No. 425 of 1995 against the Company and the guarantor for recovery
of a sum of Rs.2,57,10,393/- before the Debt Recovery Tribunal, Bangalore. In the said application, the Bank
intended to enforce its charge on the property which had been created.
said application was allowed by an order dated 18.10.1996, whereafter a
recovery certificate was issued on 01.07.1997.
notice for sale of the entire 51 acres of land by public auction was proposed
to be held by the Recovery Officer on 08.03.1998. An objection thereto was made
by A.P.I.I.C. on or about 21.03.1998, stating that it had no objection for sale
of 26 acres of land. A writ petition was thereafter filed before the High Court
questioning the validity of the said proposed auction before the Andhra Pradesh
High Court by A.P.I.I.C., inter alia, praying for the following reliefs :
Sale of 26-00 acres of land which is
allowed to be retained by the 3rd Respondent company would secure more than the
decreetal amount passed in O.A. No. 425 of 1996 and therefore, inclusion of
25-00 acres of land i.e., plot no. A-27/2 belonging to the IInd Petitioner
Corporation in the proposed sale by the 1st Respondent herein by way of public
auction is unwarranted, arbitrary, and opposed to the principles of Natural
pendency of the said writ petition, A.P.I.I.C. resumed possession of 25 acres
of land and decided to hold auction in respect thereof only, which was
questioned by the appellant-Bank by filing a writ petition before the Andhra
Pradesh High Court, which was marked as W.P. No. 24060 of 1998. By an order
dated 12.08.1998, the claim petition filed by A.P.I.I.C. before the Debt
Recovery Tribunal was dismissed. A.P.I.I.C. being aggrieved by and dissatisfied
therewith filed a writ petition before the Andhra Pradesh High Court on or
proclamation for the entire 51 acres of land proposing to sell the said land by
public auction was issued by the Recovery Officer on or about 10.12.1998. Yet again
a writ petition was filed by A.P.I.I.C. and the operation of the said for
holding auction was stayed.
about 24.08.1998, one Nacharam Industries Association also filed a writ
petition questioning the auction in respect of 25 acres of land.
Company also filed a writ petition, which was marked as Writ Petition No. 25056
of 1998 questioning the auction-cum-sale notice dated 06.08.1998 held by APIIC.
No stay, however, was granted therein. During pendency of the aforementioned
writ petition, APIIC issued a show cause notice dated 18.12.1998 upon the
Company directing it to show cause as to why the allotment of balance 26 acres
of land should not be cancelled on the following grounds that :
had failed to set up an industry much less the proposed industry for which the
land was allotted, except constructing some structures on Plot No.A.27/1; and
the Company had failed to pay the balance cost of the land, property tax and
maintenance charges etc. amounting to a sum of Rs.27,19,366/-.
cause, however, was shown by the Company. It had merely been asking for time
for submitting the explanation. On or about 14.07.1999, allotment in favour of
the Company in respect of the balance 26 acres of land was also cancelled, the
agreement dated 03.08.1972 was determined and the amount already paid by the
Company was forfeited. The Company was directed to surrender the vacant
possession of the land.
noticed hereinbefore, the grounds of cancellation of allotment inter alia were
outstanding amount as payable in accordance with the terms and conditions of
the agreement had not been paid; and
land was not utilised for the purposes for which it was allotted.
filed a writ petition questioning the said order dated 14.07.1999 before the
Andhra Pradesh High Court, which was marked as Writ Petition No. 17443 if 1999.
Division Bench of the High Court took up for considerations all the writ
petitions as well as contempt proceeding initiated for the alleged violation
and disobedience of the order dated 22.05.1998 passed in W.P. No. 14174 of 1998
being C.C. No. 2065 of 1998.
High Court by reason of the impugned judgment, inter alia, held :
Company having obtained the allotment of land failed to utilise the same for industrial
The Company had taken APIIC as well as the Syndicate Bank for a ride.
The Syndicate Bank did not initiate any coercive steps against the Managing
Director and Directors for realisation of the amounts.
The most singular and remarkable feature was the non performance of the Company
and its abstentious silence.
This, however, was not to certify that the Syndicate Bank acted diligently in
the matter and in advancing huge financial assistance to the Company on the
strength of a letter of no objection purported to have been issued by the
Director of Industries. What was surprising was that Syndicate Bank equated
that letter to that of a title deed and accordingly advanced monies without
taking proper care and caution.
by its proceedings dated 17.08.1993 cancelled the allotment of land to an
extent of 25 acres of land. The said order remained unquestioned.
The Estate Officer under the Public Premises Act could not have filed an
affidavit for and on behalf of APIIC stating that the sale of 26 acres of land
could be permitted.
A reading of all the covenants clearly reveals that the Government merely
granted permission by putting the Company in possession of the land. The
ownership always remained with the Government until the recovery. No sale deed
was executed by the Government in favour of the Company.
Admittedly, no such sale deed was executed by the Government in favour of the
regard to the interpretation of clause 8 of the agreement, the High Court while
opining that there was absolutely no dispute whatsoever that the Appellant-Bank
advanced more than 60% of the value of the land, building, machinery and
structures in favour of the Company posed a question which, according to it,
fell for its consideration, namely, as to whether the Company as well the
Syndicate Bank obtained prior consent of the government in the matter as was
required under clause 8(b) of the agreement. The High Court having opined that
no prior consent of the Government was taken by the Appellant-Bank before
advancing more than 60% of the value of the land came to the conclusion that
the letter dated 03.08.1972 of the Director of Industries could not be treated
as a document of title enabling the Company to create a charge against the
properties belonging to APIIC. It was held that there was nothing on record to
show that the said letter had been issued by the Director of Industries with
the prior approval of the government. It was observed :
is nothing on record suggesting that the so- called no objection of the
Director of Industries binds the Government. There is nothing on record to show
that the said letter has been issued by the Director of Industries with the
prior approval of the Government. The agreement requires prior consent of the
Government expressing no objection if the financing agencies were to advance
more than 60% of the value of the land. The said letter by no stretch of
imagination could be characterized and treated as a prior agreement of the
Government enabling the Syndicate Bank to advance more than 60% of the value of
the land. The actual mortgage deed executed by way of deposit of title deeds is
not made available for the perusal of the Court by the Syndicate Bank."
aforementioned premise the High Court held that the order of cancellation of
allotment of 25 acres of land dated 17.08.1993, having not been challenged, the
same became final. It was also held that as a clear and categorical finding had
been arrived at by APIIC in its order dated 14.07.1999 that the Company had
failed to utilise the land for the purpose for which the same had been
allotted, the order of cancellation of allotment was also valid in law, stating
Company failed to submit any explanation to the show cause notice and after
providing innumerable opportunities, the APIIC passed final order dated
14.7.1999 canceling the allotment of remaining extent of land also. The first
order dated 17.8.1993 canceling the allotment of Ac.25-00 of land remained
order dated 14.7.1999 canceling the allotment of remaining extent of Ac.26-00
of land, in our considered opinion, is not vitiated for any reason whatsoever.
There is a clear and categorical finding in the said order that the Company
failed to utilize the land for the purpose for which it was allotted. The APIIC
was well within its limits to cancel the remaining extent of fund"
regard to the question as to whether the recovery certificate dated 30.12.1996
issued by the Debt Recovery Tribunal to recover the amount by sale of mortgaged
property, it was held that despite the fact that in the recovery certificate
the schedule of the properties attached and sold was shown to be nil, stating :
it as it may, the finding, recorded by the DRT as against the APIIC, in no
manner, effects the title since the lands in question remained under the
ownership of the APIIC as there is no transfer of title as such in favour of
the company. Admittedly, no sale deed has been executed by the APIIC in favour
of the company."
further held :
the circumstances, we hold that the proclamation of sale notice dated 21.1.1998
issued by the Recovery Officer proposing to auction the lands belonging to the
APIIC is ultra vires. Such a proclamation has been issued without putting the
APIIC on any proper notice."
regard to the purported concession made by APIIC in regard to 26 acres of land,
it was opined that the same had been made inadvertently by the APIIC as it did
not have a copy of the recovery certificate. It was observed that in any view
of the matter, the consent on the part of the parties did not confer any
jurisdiction on the authorities concerned, stating :
is well settled that the consent of the parties does not by itself confer any
jurisdiction upon the authorities.
such consent can take away the jurisdiction if otherwise conferred under the
provisions of the Act. It is not open to the parties to confer, by their
agreement, jurisdiction on a court, which it does not possess"
further held that the letter of the Director dated 03.08.1972 cannot be said to
be in terms of clause 8(b) of the agreement and, thus, the appellant cannot be
allowed to say that the land had been completely utilised for industrial
purposes, in absence of any such assertion and proof furnished by the Company
itself. It was also opined :
That the letter dated 3.8.1972 purported to have been issued by the Director of
Industries, by no stretch of imagination, could be characterized as a document
of title so as to enable the Company to mortgage these same by way of deposit
of title deeds in order to secure financial assistance from the Syndicate Bank.
The Director of Industries cannot be equated to that of the Government and it
is the only government, which could have agreed to the company raising money on
letters voluntarily issued by an individual officer of the Government, in no
manner, bind the Government unless it is clearly pleaded and established that
the Director of Industries has been authorised and delegated with the power to
accord permission to the company raising money on the property;
the Syndicate Bank admittedly advanced more than 60% of the value of the land
but without prior agreement of the Government as is required in terms of clause
8(b) of the agreement. Therefore, the APIIC, being the successor in interest of
the Government, is not bound by the advances so made by the Syndicate Bank.
Therefore, the Syndicate Bank cannot have the first charge over the property in
that there is no specific agreement as such by the Syndicate Bank agreeing to
pay the government on behalf of the company so much of the amount advanced as
loan to the company will remain due on the promissory note executed by the
absence of any specific agreement, the APIIC is not bound to accept the demand
draft for a sum of Rs.3,366.35 paise purporting to be due from the company
towards the land cost and the same has been rightly rejected by the APIIC;
that the order of cancellation of allotment of land dated 17.8.1993, which
remained unchallenged, has not only become final, but also does not suffer from
any legal infirmities requiring any interference;
that the order dated 14.7.1999 cancelling the allotment of remaining extent of
Ac.26-00 of land which is challenged by the Syndicate Bank in W.P. No.17443 of
1999, is not vitiated for any reason whatsoever. It is a composite order passed
by the APIIC canceling the allotment of land both on the ground of failure to
pay the balance sale consideration by the Company and also on the ground that
the Company failed to utilize the land for the purpose for which it has been
allotted to it.
orders of cancellation of allotment of land have duly taken into account the admissions
made by the Company that it has failed to utilize the land for the purpose for
which it has been allotted to it.
company has admitted that it was in red and could not establish any industrial
unit for the purpose of manufacture of agricultural tractors for which purpose
the land has been allotted to it;
the order dated 12.8.1998 passed by the Recovery Officer rejecting the claim
petition of the APIIC is vitiated. The Recovery Officer could not have
proceeded with the sale of the land belonging to the APIIC in the absence of
any specific authorization and permission by the Presiding Officer of DRT. In
the schedule of the recovery certificate, there is no mention of the details of
the lands in question enabling the Recovery Officer to proceed against the same
for recovery and realization of the decreetal amount; and
the sale notifications issued by the APIIC do not suffer from any legal
Nanda, learned counsel appearing on behalf of the Appellant-Bank, would submit
High Court committed a factual error insofar as it proceeded on the basis that
the mortgage was created merely by deposit of consent letter, whereas in fact
the same was created by deposit of allotment letter, original counter part of
the agreement dated 03.08.1972 and letter dated 03.08.1972.
The High Court erred in so far as it failed to notice that the order of the
Debt Recovery Tribunal dated 18.10.1996 became final as the same had not been
challenged by any party to the lis.
APIIC having categorically made a statement before the Recovery Officer that 26
acres of land should be allowed to be retained by United Auto, which was more
than sufficient to recover the bank dues and, thus, it was estopped and
precluded from cancelling the letter of allotment in relation to the said land.
Allotment letter dated 18.07.1972, agreement dated 03.08.1972 as also the
consent letter dated 03.08.1972 being documents of title within the meaning of
Section 58(f) of the Transfer of Property Act, the High Court committed a
mistake in opining otherwise.
Consent letter dated 03.08.1972, which is in conformity with clause 8(b)of the
agreement dated 03.08.1972 was misconstrued by the High Court, inasmuch as by
reason thereof, the State agreed that the allottee may raise loan mortgaging
the lands agreed to be sold as well as the buildings constructed thereupon.
Clause 8(b) supersedes other clauses to the contrary in the agreement, which
provides for prior agreement of government before creating charge/mortgage only
if more than 60% of the value of the land was to be advanced and a consent
letter of the government was to be issued therefor.
Clause 8(b) having provided that the charge of the financial institution would
be the first charge and that the government having provided that the second
charge, the obligation of the financial institution was required to be
liquidated at the first instance.
It is borne out from the records that the entire cost of the land being Rs.4,93,680/-
stood paid. In any event the value of the entire land having been adjusted for
25 acres of land which had been cancelled, the APIIC did not make it clear as
to on what basis further cost of the land towards 26 acres was being made.
APIIC was not only estopped and precluded from raising the aforementioned
contentions and its order would be wholly inequitable if the bank is left with
no remedy when it had acted on the basis of its consent.
The schedule of the recovery certificate having been shown nil, the Recovery
Officer could not have determined as to which properties were to be attached or
sold; the finding of the High Court is clearly contrary to the provisions of
Section 19(20), 19(22) and Section 25 of the Recovery of Debts due to the Banks
and Financial Institutions Act, 1993 and in that view of the matter the High
Court committed an error in holding that the auction of land by the Recovery
Officer was ultra vires as the mortgaged property was not specified in the
x) If the
consent made by the Manager (Law) did not bind APIIC, it is difficult to
conceive as to how the writ petitions which were filed by the said parties
could be entertained.
The finding of the High Court that the letter dated 03.08.1972 issued by the Director
of Industries was not binding on the government and APIIC was wholly without
any basis as all the orders of the government had been communicated only
through the letters issued by the Director of Industries.
The purported finding of the High Court that the Company had failed to utilise
the land for the purpose of allotment is clearly erroneous as there is nothing
to show that the conditions precedent therefor existed and in any event, clause
8(b) of the agreement dated 03.08.1972 would override clauses 13, 15 and 16
thereof, in terms whereof interest of the bank would prevail over that of
The High Court should not have entertained the writ petition filed by the APIIC
as it did not prefer any appeal against the order of the Debt Recovery
learned Solicitor General and Mr. A.K. Ganguli, learned Senior Counsel,
appearing on behalf of the State and APIIC, on the other hand, would submit :
agreement dated 03.08.1972 being not registered, no title was conferred on the
Company, pursuant whereto or in furtherance whereof the Company had not derived
any assignable title.
is not a case where a mortgage could be created by reason of deposit of title
deed as contemplated under Section 58 of the Transfer of Property Act.
Mere deposit of allotment letter or the agreement dated 03.08.1972, thus, did
not create any charge in favour of the Bank. The letter dated 03.08.1972 issued
by the Director of Industries being not a document of title, the judgment of
the High Court cannot be assailed.
Appellant-Bank having not questioned the orders of cancellation of allotment
dated 17.08.1993 and 14.07.1993 respectively, it must be held to have waived
its right, if any, to question the same. The sale proceeds in terms of the
judgment and order dated 22.02.1977, therefore, should be directed to be paid
principal question which arises for consideration is as to whether in absence
of any execution and registration of deed of sale by the Government of Andhra
Pradesh or by A.P.I.I.C. in favour of the Company, any interest in the land has
been and could be created. Our attention has been drawn by the learned counsel
for Appellant to a large number of decisions of different High Courts to show
that for the purpose of creating mortgage by depositing title deeds in terms of
Section 58 of the Transfer of Property Act, it is not necessary that the
mortgagor would have forfeit complete title over the property. Even if the
mortgagor derives some interest which can be subject-matter of mortgage, a
mortgage by deposit of title deeds can be created. It is not in dispute that
whereas a deposit of title deeds by itself does not require a document in
writing, but in the in event a mortgage is created thereby, it will require registration.
It is furthermore not in dispute that complete title over a property can be
acquired by a vendee only when a deed of sale is executed and registered by the
vendor in terms of Section 54 of the Transfer of Property Act. In this case, it
has not been disputed that apart from the letter of allotment, an agreement
coupled with the letter dated 03.08.1972, no deed of sale was executed or
registered by the Government of Andhra Pradesh or by A.P.I.I.C. in favour of
would appear from the following, we are of the opinion that the issues raised
herein are of some importance and as any decision thereupon would have serious
impact on similar transaction in future, it should be heard by a larger bench.
may, however, make some general observations.
58 of the Transfer of Property reads as under :
58 "Mortgage", "mortgagor", "mortgagee",
"mortgage-money" and "mortgage-deed" defined
mortgage is the transfer of an interest in specific immoveable 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 engagement which may
give rise to a pecuniary liability.
transferor is called a mortgagor, the transferee a mortgagee; the principal
money and interest of which payment is secured for the time being are called
the mortgage-money, and the instrument (if any) by which the transfer is
effected is called a mortgage-deed.
Simple mortgage.-Where, without delivering possession of the mortgaged
property, the mortgagor binds himself personally to pay the mortgage-money, and
agrees, expressly or impliedly, that, in the event of his failing to pay
according to his contract, the mortgagee shall have a right to cause the
mortgaged property to be sold and the proceeds of sale to be applied, so far as
may be necessary, in payment of the mortgage-money, the transaction is called a
simple mortgage and the mortgagee a simple mortgagee.
Mortgage by conditional sale.-Where, the mortgagor ostensibly sells the
mortgaged property- on condition that on default of payment of the mortgage-
money on a certain date the sale shall become absolute, or on condition that on
such payment being made the sale shall become void, or on condition that on
such payment being made the buyer shall transfer the property to the seller,
the transaction is called a mortgage by conditional sale and the mortgagee a
mortgagee by conditional sale:
that no such transaction shall be deemed to be a mortgage, unless the condition
is embodied in the document which effects or purports to effect the sale.
mortgage.-Where the mortgagor delivers possession or expressly or by
implication binds himself to deliver possession of the mortgaged property to
the mortgagee, and authorizes him to retain such possession until payment of
the mortgage-money, and to receive the rents and profits accruing from the
property or any part of such rents and profits and to appropriate the same in
lieu of interest, or in payment of the mortgage-money, or partly in lieu of
interest or partly in payment of the mortgage-money, the transaction is called
an usufructuary mortgage and the mortgagee an usufructuary mortgagee.
English mortgage.-Where the mortgagor binds himself to repay the mortgage-money
on a certain date, and transfers the mortgaged property absolutely to the
mortgagee, but subject to a proviso that he will re- transfer it to the
mortgagor upon payment of the mortgage-money as agreed, the transaction is called
an English mortgage.
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 immoveable property, with intent to create a security thereon, the
transaction is called a mortgage by deposit of title-deeds.
Anomalous mortgage.-A mortgage which is not a simple mortgage, a mortgage by
conditional sale, an usufructuary mortgage, an English mortgage or a mortgage
by deposit of title-deeds within the meaning of this section is called an
requisites of an equitable mortgage are :
deposit of title deeds; and
intention that the deeds shall be security for the debt.
existence of the first and third ingredients of the said requisites is not in
dispute. The territorial restrictions contained in the said provision also does
not stand as a bar in creating such a mortgage. The principal question, which,
therefore, requires consideration is as to whether for satisfying the
requirements of Section 58(f) of the Transfer of Property Act, it was necessary
to deposit documents showing complete title or good title and whether all the
documents of title to the property were required to be deposited. A' fortiori
the question which would arise for consideration is as to whether in all such
cases, the property should have been acquired by reason of a registered
case will have to be considered on its own facts. A jurisprudential title to a
property may not be a title of an owner. A title which is subordinate to an
owner and which need not be created by reason of a registered deed of
conveyance may at times create title. The title which is created in a person
may be a limited one, although conferment of full title may be governed upon fulfilment
of certain conditions. Whether all such conditions have been fulfilled or not
would essentially be a question of fact in each case. In this case a right
appears to have been conferred on the allottee by issuance of a valid letter of
allotment coupled with possession as also licence to make construction and run
a factory thereon, together with a right to take advances from banks and
financial institutions; subject, of course, to its fulfilment of condition may
confer a title upon it in terms of Section 58(f) of the Transfer of Property
Act, but the question would be whether such a right is assignable.
Transfer of Property Act, a large number of cases have been noticed where even
a patta of land has been considered to be a document of title depending of
course on the circumstances under which it had been given.
if insistence on the original document of title is laid, it may give rise to
the conclusion that once the document of title is lost, no mortgage of deposit
of title deed can be created at all.
however, one thing to say that a person cannot convey any title, which he
himself does not possess; but it is another thing to say that no mortgage can
be created unless he obtains a title by reason of a registered conveyance.
Pillai and Others v. M.S.M. Kasiviswanathan Chettiar and Others [AIR 1974
Madras 16], a Division Bench of the High Court reversed the decision of the
Trial Judge, holding that the said document did not constitute a valid mortgage
by deposit of title, stating :
The only question, in these circumstances, is whether, by depositing Exs. A.23
to A.26 a valid equitable mortgage was created in favour of the plaintiff.
58 of the Transfer of Property Act inter alia provides that where a person in
any of the towns mentioned therein 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. It
would be seen from this provision that three essentials are required for an
equitable mortgage, namely,
of title deeds and
intention that the delivery should be security for the debt. In the instant
case, the first and third essentials are satisfied. The only question is
whether Exs. A.23 to A. 26 are documents of title within the meaning of S. 58.
The trial Court, relying upon the decisions of the Rangoon High Court in
V.E.R.M.A.R. Chettiar firm v. Ma Joo Teen, AIR 1933 Rang 299 held that the said
documents were not documents of title and that, therefore, no valid equitable
mortgage was created.
clearly of the opinion that this conclusion cannot be sustained. The expression
'documents of title' occurring in Section 58 has been the subject of
consideration in some decisions. The law in regard to equitable mortgage is
precisely the same in England as it is in India"
In Indian law, deposit of patta has been held to constitute a valid equitable
mortgage, though patta is not in itself a deed of title, but is only an
evidence of title.
Court has consistently taken the view that the main object of tender of patta
is merely to give information of the land revenue payable and the details of
the property and that the exact weight to be given to the patta would depend
upon the circumstances of the case. In Dohganna v. Jammanna, AIR 1931 Mad 613
it is pointed out that in case of pattas in respect of a land in Zamindari, if
the land be at the disposal of the landlord at the time of granting the patta,
prima facie such patta would not be mere bill of rent but something more and
that if it is not so it would not create any rights in the pattadar in
derogation of the rights of a person who would be entitled to the land subject
to the proper and regular payment of rent. The question directly arose before a
Bench of this Court in Official Assignee v. Basudevadoss, AIR 1925 Mad 723, as
to whether a deposit of patta is enough to constitute an equitable mortgage.
The Bench answered the question in the affirmative. Srinivasa Aiyangar, J. who
delivered the leading judgment in that case, has pointed out that the answer to
the question as to whether the pattas in respect of a land is a document which
would be sufficient, by being deposited, to evidence the intention required for
an equitable mortgage would vary according to the conditions of the country and
the consciousness on the part of the members of the community and that though a
patta is not a document of title still a deposit of the same with intent to
create an equitable mortgage would create an equitable mortgage."
M.M.T.C. Limited v. S. Mohamed Gani and Another [AIR 2002 Madras 378], a
learned Single Judge opined :
plaintiff has sought for a mortgage decree specifically alleging that the first
defendant in respect of the advances made by the plaintiff to his business has
offered the immovable property of his wife viz., the second defendant herein as
security and has created an equitable mortgage. Both the counsel have made
elaborate submissions in that regard. Hence, a question would arise whether an
equitable mortgage by deposit of title deeds was created. What is mortgage by
deposit of title deed is defined under Section 58(f) of the Transfer of
Property Act, as follows :
a person in many 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 immoveable property, with intent
to create a security thereon, the transaction is called a mortgage by deposit
of title deeds.' It is called in English law an equitable mortgage. Lord Cairns
defined the same as 'It is 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.' In order to prove the
existence of an equitable mortgage, the following requisites are necessary :--
deposit of title deeds, and
intention that the deeds shall be security for the debt.
debt may be an existing debt or a future debt. Insofar as the deposit of title
deeds is concerned, physical delivery of document is not the only mode of
deposit and even the constructive delivery has been held sufficient. It is
sufficient if the deeds deposited bona fide relate to the property or are any
material evidence of title and are shown to have been deposited with an
intention to create a security thereon.
essence of the whole transaction of euitable mortgage by deposit of title deeds
is the intention that the title deeds shall be the security for the debt.
Whether the said requisite intention is available in a given case is a question
of fact and has to be ascertained after considering the oral, documentary and
circumstantial evidence. It is true the mere fact of deposit does not raise the
presumption that such an intention existed. Such an intention cannot be
presumed from the possession since the mere possession of the deeds is not
enough without evidence as to the manner in which the possession originated so
that an agreement may be inferred. Even the mere possession of the deeds by the
creditor coupled with the existence of a debt need not necessarily lead to the
presumption of a mortgage. The mere fact that the documents were coming from
the custody of the plaintiff is not by itself sufficient to prove an ntent to
create a security. But in a given case unless and until the defendants
satisfactorily explain how the documents came to the plaintff's custody, the
said fact would be significant and have a great bearing."
Gopal Majumdar v. United Industrial Bank Ltd. and Others [AIR 1981 Calcutta
404], a Division Bench of the Calcutta High Court held that possessory title
itself can be a subject-matter of mortgage, opining :
at the time when the disputed transaction was entered into the mortgagor Eagle
Plywood Industries Private Limited had entered into lawful possession of the Behala
property on the basis of an agreement for sale dated July 18, 1950. Such possessory
title could very well in law be furnished as security for the mortgage. On this
point we are in respectful agreement with the view taken by M.M. Dutt and R.K.
Sharma, JJ. in the case of Usha Rice Mills Company Limited v. United Bank of
India (1978) 82 Cal WN 92, since the view taken by their Lordships is based on
notice that that a Division Bench of this Court in Bank of India v. Abhay D. Narottam
and Others [(2005) 11 SCC 520], did not think it fit to consider the
correctness thereof having regard to the provisions contained in Section 125 of
the Companies Act, 1956.
decisions of this Court in this connection may also be noticed.
Venkataramiah v. Commissioner of Income Tax Hyderabad [1965 (3) SCR 567], while
considering the provisions of Section 12B of the Indian Income Tax Act, 1922,
this Court repelled a contention that a possessary title in terms of Section
53-A of the Transfer of Property Act would not subserve the requirements of an
effective conveyance of the capital assets, as delivery of possession of
immovable property cannot by itself be treated as equivalent to conveyance of
the immovable property.
in terms of Section 12B of the Income Tax Act, title must pass by any of the
modes mentioned therein, namely, sale, exchange or transfer. It did not
contemplate any other mode of transfer.
K.J. Nathan v. S.V. Maruty Reddy and Others [1964 (6) SCR 727], this Court held
The foregoing discussion may be summarized thus:
the Transfer of Property Act a mortgage by deposit of title deeds is one of the
forms of mortgages whereunder there is a transfer of interest in specific
immovable property for the purpose of securing payment of money advanced or to
be advanced by way of loan.
such a mortgage of property takes effect against a mortgage deed subsequently
executed and registered in respect of the same property. The three requisites
for such a mortgage are,
of title deed; and
intention that the deeds shall be security for the debt.
there is an intention that the deeds shall be security for the debt is a
question of fact in each case. The said fact will have to be decided just like
any other fact on presumptions and on oral, documentary or circumstantial
evidence. There is no presumption of law that the mere deposit of title deed s
constitutes a mortgage, for no such presumption has been laid down either in
the Evidence Act or in the Transfer of Property Act. But a court may presume
under Section 114 of the Evidence Act that under certain circumstances a loan
and a deposit of title deeds constitute a mortgage.
that is really an inference as to the existence of one fact from the existence
of some other fact or facts. Nor the fact that at the time the title deeds were
deposited there was an intention to execute a mortgage deed in itself
negatives, or is inconsistent with, the intention to create a mortgage by deposit
of title deeds to be in force till the mortgage deed was executed. The
decisions of English courts making a distinction between the debt preceding the
deposit and that following it can at best be only a guide; but the said
distinction itself cannot be considered to be a rule of law for application
under all circumstances. Physical delivery of documents by the debtor to the
creditor is not the only mode of deposit.
may be a constructive deposit. A court will have to ascertain in each case
whether in substance there is a delivery of title deeds by the debtor to the
creditor. If the creditor was already in possession of the titledeeds, it would
be hypertechnical to insist upon the formality of the creditor delivering the
title deeds to the debtor and the debtor redelivering them to the creditor.
What would be necessary in those circumstances is whether the parties agreed to
treat the documents in the possession of the creditor or his agent as delivery
to him for the purpose of the transaction."
which arose therein was that what would be the extent of subject-matter of
mortgage; the entire property forming the subject-matter of mortgage or a part
cannot be any doubt whatsoever that in absence of a registered deed of sale, the
title to the land does not pass, but then what would not be conveyed is the
title of the estate and not the allotment and possession itself.
would, therefore, appear that there is no clear authority on the question as to
whether in absence of any title deed in terms whereof the mortgagee obtained
title by reason of a registered deed can be a subject- matter of mortgage.
Section 58 of the Transfer of Property Act does not speak of mortgage of an
owner's interest. If any interest in property can be created by reason of a
transaction or otherwise which does not require registration, in our opinion,
it may not be necessary to have a full title before such a mortgage is created
by deposit of title deeds. A person may acquire title to a property irrespective
of the nature thereof by several modes e.g. a lease of land which does not
partition of a joint family property by way of family settlement, which does
not require registration.
case of this nature where valuable right is created which may or may not confer
an assignable right, the question requires clear determination having regard to
the equitable principle in mind, and would have far reaching consequences, as a
large number of banks and financial institution advance a huge amount only on
the basis of allotment letters. If such allotment letters are to be totally
ignored, the same may deter the banks in making advances which would in effect
and substance create a state of instability.
from the said question, the effect of an admission by an authorized
representative of the State having regard to the rules of executive business or
otherwise vis-`-vis the Appellant-Bank also requires consideration.
therefore, are of the opinion that keeping in view the importance of the
questions raised at the Bar, as noticed hereinbefore, and in the context of the
factual matrix involved in the matter, the questions require consideration by a
larger bench so that an authoritative pronouncement can be made thereupon.
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