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

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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.

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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

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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.

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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.”

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).

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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.

The debt “can be both, an existing debt, or a future debt.3 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.4 The delivery can
either be physical (actual deposition) or constructive (evident from the conduct of the parties).5

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. 6 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. 7 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.8

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

DIFFERENT TYPES OF MORTGAGES

In India mortgages are “categorized as six types.

1. Simple Mortgage:

3 M.M.T.C. Limited v. Mohamed Gani, AIR 2002 Mad 378 (393).

4 The Motor and General Finance Ltd. v. Durga Builders Pvt. Ltd., AIR 2003 NOC 309 (Del).
5 Supra note 1.

6 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)

7 Burgess v. Moxon, (1856) 2 Jur. (N.S.) 1059; Ex-parte Mountfort, (1808) 14 Ves. 606.

8 Casberd v. A.G., (1819) 6 Price 411; Maugham v. Ridley, (1863) 8 LT 309.

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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. 9

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

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

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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).10 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. 11 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.12

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.13 The essential question to be considered is whether the parties really intended that the
document alone should constitute the evidence of the transaction. 14

In Ishwar Das Malhotra v. Dhanwant Singh15, 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).”

This view has been confirmed by the Supreme Court in State of Haryana v. Narvir Singh,16
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.”

10 Rachpal Mahraj v. Bhagwan Daruka AIR 1950 SC 272.

11 United Bank of India Ltd. v. Lekharam Sonaram, AIR 1965 SC 1591.
12 Sec. 49, The Indian Registration Act, 1908.

13 R.V. Subba Rao v. L.L. Chowdary AIR 1977 AP 123 (127).

14 Rajamma v. Mahant AIR 1973 Mys 310.

15 AIR 1985 Del 83.

16 (2014) 1 SCC 105.

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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. 17 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.

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.” 18

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 mortgage.

17 Schedule 1-B Art. 6(a), The Indian Stamp Act, 1899 (as applicable in Uttarakhand).
18 Schedule 1-B, Art 6, Explanation, The Indian Stamp Act, 1899 (as applicable in Uttarakhand).

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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. 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. 19

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 thereon. 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.

19 Obla Sundarachariar v. Narayana Ayyer, AIR 1931 PC 36.

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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 Khetry20. 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.

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 property 21.

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. 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 evidence of the
mortgage and the only document by which the mortgage was created, the letter has to be

20 (1873) 2k Suth WR 150

21 D. D. Seal v. R. L Phumra , AIR 1970 SC 659.

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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. 22 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
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.” 23

CASE ANALYSIS

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

23 Alagappan v. Kalyansundara Iyer, AIR 1977 Mad 238.

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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.24

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,
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.”25

24 State of Haryana and Ors. vs. Navir Singh and Anr. Vs. State of Punjab and Ors. vs. Pagro Foods Ltd. and
Ors.
25 Section 58(f), TP Act, 1882

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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…”26

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
integral part of the transaction and same shall require registration Under Section 17 of
the Registration Act.27

26 Section 59, TP Act, 1882

27 CIVIL APPEAL NO.9030 OF 2013

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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.

CASE 2

Name: Urmila Devi and Ors. vs. Debts Recovery Appellate Tribunal, Allahabad and Ors. 28

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
exparte, 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 partners which was subsequently transferred to the Debts Recovery Tribunal
Allahabad and was numbered as Transfer Application No. 408 of 2000.”29

28 AIR2013All11
29 Dena Bank vs. Bhikhabhai Prabhudas Parekh & Co. & Ors. MANU/SC/0317/2000

15
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
SubDivisional 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.30
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. 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

30
Padrauna Rajkrishna Sugar Works Ltd. and Ors. vs. Land Reforms Commissioner, U.P. and Ors.
MANU/SC/0377/1969

16
 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, 2012.31

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 mortgage 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 Application as he was party in objections
which had been filed by Bank before Commissioner under Section 285I of Rules and had sold

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

17
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.32

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)

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
33
good title in the depositor--Fact of intention that the deeds would be security for the debt,
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 of 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 deposit of title deeds
with the Plaintiff Bank. The Defendant No. 2 guaranteed payment of the sum that might be due

32 The Bank of Bihar vs. The State of Bihar and Ors. MANU/SC/0007/1971
33 Angu Pillai and Ors. v. M.S.M. Kasiviswanathan Chettiar A.I.R. 1924 Mad. 16

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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. 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. 34

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.

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. 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

34 (1977)ILR 2Cal385

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documents of title had been deposited by the Defendant No. 1 with the intention to create an
equitable mortgage.35

CASE 4

Name: Allokam Peddabbayya and Ors. vs. Allahabad Bank and Ors.36

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 final decree for foreclosure in suit filed

35 (1977)ILR 2Cal385

36 2017 (124) ALR 200

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by the Bank, and the consequent sale certificate issued in favour of Defendant No. 2. Hence,
the present appeal.37

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 redeemed. The right to redemption could not be claimed
in the abstract.38

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

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

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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 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. 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-
loanintimation-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-
amemorandum-of-mortgage-by-deposit-of-title-deeds
• https://www.manupatrafast.com/pers/Personalized.aspx

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