Report No. 70
54.71. Case law as to local extent.-
The Privy Council case1 was one which arose in Madras for land situated outside that city. The Privy Council pointed out that no local law existed forbidding the creation of a lien by the contract and deposit of deeds as it existed in that case. By the general law of the place where the contract was made, that is, the English law, the deposit of title deeds as a security would create a lien on lands.
In the case decided in the Punjab, two eminent judges of the Chief Court Rattigan and Rossignol2-specifically held that in those parts of British India where the Act was not in force, a valid mortgage can be created by deposit of title deeds. The house of which the mortgage was made in that case was situated in Kasumpati, Simla by a deposit of title deeds. Kasumpati is a suburb of Simla with a population of less than 1000 even in 1977. The mortgage was held to be valid.
The Court had no doubt that in those parts of British India where the Transfer of Property Act, 1882, was not in force, "a perfectly valid mortgage can be created by deposit of title deeds". In so deciding, the court not only relied on the Privy Council decision of 1864 to which we have already referred, but also to a judgment of the Allahabad High Court3 and a Bombay case.4 The Chief Court of Punjab also referred to Ghose's Law of Mortgage in India, 4th Edn., p. 151. On the question whether the mortgage was merely on equitable one in its effect, the Chief Court approved the following passage in Shepherd and Brown5:-
"A mortgage by deposit of deeds is a complete act and not an executory agreement and therefore section 48 of the Registration Act which gives priority to registered instruments as against oral agreements not followed by delivery of possession of the property concerned, does not apply. The mortgage by deposit of title deeds prevails against the subsequent transferee who takes under a registered instrument."
1. Varden Seth v. Lachpathy, (1864) 9 MIA 303 (321).
2. Stewart v. Bank of Upper India, 1916 Punjab Record Civil No. 31, pp. 83, 88, 89.
3. Himalaya Bank Co. v. Quarry, 1895 ILR 17 All 252 (269).
4. Maneckji v. Rustomji, 1889 ILR 14 Born 269.
5. Shephard and Brown Commentary on the Transfer of Property, (7th Edn.), p. 255.
54.72. Delhi.- In regard to the locality of Delhi, it is now well-settled that an equitable mortgage can be created.1
1. AIR 1937 Lah 819; AIR 1944 PC 22.
54.73. The principle of English law that a deposit of title deeds as a security for a loan would create a lien on the lands has been applied in India1 as in conformity was justice, equity and good conscience.
1. AIR 1960 Mad 529 (531).
AIR 1939 Rang 321(322).
54.74. Need for amendment.-
It is thus clear that in the areas where the Act does not extend, a mortgage by deposit of title deeds is fully recognized irrespective of the locality. The place to which the Punjab case related Kasumpati, Simla-does not appear to have been a highly commercialized or urban locality. In this position, we do not think that there is any justification for limiting the application of this clause to specified areas.
It is true speaking theoretically and in the abstract, that the Act recognises such mortgages as a matter of convenience, in order that the mercantile community may be enabled to borrow money without the delay caused by the formalities of registration and it is also true that since registration is dispensed with for the validity of a mortgage by deposit of title deeds, subsequent mortgagees may not come to know of the earlier mortgage by deposit of title deeds. However, these considerations cannot be conclusive, and in any case, in the numerous places where the clause has been already applied, the extension of the clause has raised no serious practical difficulties.
54.75. Anomaly.-
From the fact that in areas to which the Act does not now extend, this procedure is even now regarded as applicable, it would appear that the present position creates an anomaly. Outside the territorial extent of the Act, this mode of creation of mortgage is permissible without notification by the State Government and, irrespective of the nature of the locality, while within the territorial extent of the Act, such a notification is required, barring the cities already mentioned in the section.
This certainly is an anomaly. It may be that in the 19th century, it was assumed that equitable mortgages were not common elsewhere outside the Presidency towns; in th6 areas outside the operation of the Act. This position, to some extent, found reflection in the limited scope given to equitable mortgages before 1929. It may be noted that section 59, before 1929, contained a saving in the third paragraph as follows:
"Nothing in this section shall be deemed to render invalid, mortgages made in the towns of Calcutta, Madras, Bombay, Karachi and Rangoon, by delivery to a creditor or his agent of all documents of title to immovable property, with intent to create a security thereon."
54.76. Recommendation as to section 58(f).-
This negative and very limited provision was given a positive shape and a wider ambit in the amendment of 1929, whereby section 58(f) was introduced. Conditions have progressed very fast since then, and the very large number of towns notified by State Governments1 itself shows the increase in urbanisation and commercial activity. In this situation, it appears to us that it will not be long before the need for extending section 58(f) to numerous other towns will arise.
In order that this economic progress may be reflected in the law the better course, in our opinion, would be to extend section 58(f) to all the territories to which the Act extends, with a power to the State Government to exclude certain areas from the scope of this clause, if it considers it fit to do so. We recommend that clause (f) should be revised on these lines.
1. Para. 54.70, supra.
54.77. Section 58(f)-Other points for discussion.-
We have so far disposed of the major question concerning mortgage by deposit of title deeds. It is now time to refer to certain points of detail relevant to the subject. The main points of detail which arise in connection with a mortgage by deposit of title deeds, seem to be the following:-
(a) Whether there is an intention to create a security;
(b) What is the meaning of "documents of title;
(c) Whether there is an effective delivery for the purposes of the section;
(d) The territorial aspect;
(e) What is the scope of the property covered by the security;
(f) If there is a written memorandum accompanying the deposit, whether registration is necessary;
(g) The remedies available to the equitable mortgagee.
54.78. Intention to create a security.-
The most important elements of a mortgage by deposit of title deeds, as in the case of any other mortgage, is the intention to create a security. This has been described more than once as the essence of the transaction.1-2 There must, further, be a link between the deposit and the loan, although it is not necessary that the loan must accompany the transaction.
The intention to create a security is a question of fact, and not of law,3 and the intention can be established by written documents, or written and oral evidence, or oral evidence only; but the intention must exist. Ordinarily, the intention is to be gathered from the parties conduct and statements, from previous history or from the memorandum accompanying the deposit. It is to be noted that an equitable mortgage as known to English law, could be created either by actual deposit or by memorandum in writing intended to create a security for money advanced.
Of course, that did not operate as an actual assignment, but was enforceable in equity. Under the Act, however, what is required is deposit of title deeds with the intention of creating a security. Once this is done, there is no question of legal and equitable transfer. The transaction creates a mortgage for the purpose of the law, like any other form of mortgage.
1. AIR 1970 Mad 367.
2. AIR 1963 Mad 223.
3. AIR 1974 Cal 319.
54.79. Documents of title.-
The documents deposited must be documents of title. What is, and what is not, a document of title, is a matter of construction. It is well established1 that a deposit of some of the title deeds relating to a property may be enough to create a valid mortgage over the entire property, if that was the intention. The only essentials are that there must exist a debt and deposit and an intention that the deeds shall be security for the debt.2
The deposit with the mortgagee of copies of jamabandi and plans does not, however, constitute a valid equitable mortgage, because they are not "documents of title."3
The general rule is that the scope of an equitable mortgage does not extend beyond the scope of the title deeds.4
As between the mortgagor and the mortgagee, it is not necessary that the documents should disclose a good title in the person creating the disposition.5
There may even be a missing link.6 Where A deposited all the title deeds of a property except that under which he had obtained the property, and subsequently deposited this last deed with another person, it was held that the prior depositary had a valid title against the latter.7
1. AIR 1938 Mad 865.
2. AIR 1936 Lah 251.
3. AIR 1938 Lah 255.
4. AIR 1943 Sind 36.
5. (a) AIR 1939 Rang 185; (b)AIR 1960 Mad 529 (531).
6. AIR 1932 Cal 589.
7. Roberts v. Croft, (1857) 53 ER 343 (346): 24 Beav 223.
54.80. Delivery of documents.-
There must be a delivery to the creditor of the documents of title. Otherwise, there can be no equitable mortgage. As an exception is made in the case of mortgage by deposit of title deeds from the general rule which requires a registered instrument in dealing with immovable property, the law insists upon delivery of the title deeds. This is required not merely for providing tangible evidence of the transfer, but also for the purpose of putting any person intending to deal with the property on notice of the transfer.
In an English case,1 A and B were in possession of title deeds for a purpose unconnected with any loan, and A merely orally communicated to B a request to hold the title deeds as trustee for a creditor of A. It was held that the creditor did not thereby become an equitable mortgagee. The very principle of part performance on which equitable mortgage rests was held to have no application to the case.
In Daw v. Terrel,(1863) 55 ER 351 (352): 3 NR 285: 33 Beav 218, the facts were peculiar. X was entitled to three properties. The title deeds of one property were deposited with A as security for a loan. Then X borrowed from B, and deposited the title deeds of the other two properties at the same time, giving a direction to A to deliver the title deeds of the first property to B when his mortgage was satisfied.
It was held that an equitable mortgage was created in favour of B on all the three properties. Where the title deeds are already with the creditor for a purpose unconnected with any loan, and the debtor writes to the creditor that he may retain the deeds as security for the loan, a delivery must be deemed to have been made and an equitable mortgage is therefore created by such deposit.2
Delivery of possession of the title deeds need not be actual physical delivery. Constructive delivery of possession is sufficient to create a valid equitable mortgage.3 If the creditor is already in possession of the title deed, it would be hypertechnical to insist upon the formality of delivery back to debtor and then again to creditor.
1. Beetham (in re:); Broderik (Ex parte:), (1886) 56 LJQB 353: 18 QBD 380.
2. 1964 Ker LJ 748 (751); Fenwick v. Potts, (1856) 44 ER 385 (490): 8 De GM&G 506: (1871) 16 Suth DR 203 (205).
3. AIR 1965 SC 430 (436).
54.81. Again, what is delivered must be a document of title. If the documents deposited show no kind of title in the depositor, no mortgage is created1. Where A deposits with B title deeds of Blackacre, assuring B that they are the title deeds of Whiteacre, but in reality they do not relate to Whiteacre, this would not create an equitable mortgage on Whiteacre.2
1. 1961 Ker LT 434 (443).
AIR 1932 Cal 589 (593) (Deposit of probate and redemption certificate relating to the property standing in the name of grandfather of the mortgagor held sufficient).
2. Jones v. Williams, (1857) 53 ER 274 (277, 278): 5 WR (Eng) 775.
