SPECIAL ASSIGNMENT OF CRITICAL THINKING ESSAY (SACE)

Attendance Back Examination (1st Stage), April-2021

SUBJECT :- Transfer of Property Act

SEMESTER :- IV

NAME :- Lucky Tandon

BATCH :- XIV
I.D no. :- 14/2014/1032
Roll no. :- 75

HIDAYATULLAH NATIONAL LAW UNIVERSITY, RAIPUR (C.G.)

Question 1. ‘Mortgage by deposit of title deeds is the easiest mode of mortgage’.
Elucidate with the help of judicial pronouncements.

Answer: According to the Transfer of Property Act 1882 Section58(a) “A

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.1”

“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.”2

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

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 mortgagee money. The instrument by which the
transfer is effected is called a mortgage-deed.

The property is not actually transferred but a deed is formed with respect to such
property where the mortgagee has the right to cause the mortgaged property to be sold
(the word caused is important here as the mortgagee cannot by himself sell the
property but has to go through court proceedings regarding the same and cause it to be
sold.) and the proceeds, so far as may be necessary be utilized in repayment of the
mortgage money. This transaction is called a simple mortgage.All mortgages other
than a mortgage by deposit of title deeds are to be effected by a registered instrument

1
Transfer of Property Act 1882 Section58(a).

2
Ibid.

3
Ibid.
signed by a mortgagor and attested by at least two witnesses. In order to create a valid
mortgage by title deed there must be actual delivery of title of the immovable property
by the mortgagor to the mortgagee intending to create a security therefrom. Thus if
and individual is in debt and he deposits his title deeds of his immovable property
then by the fact of depositing the title deeds a mortgage is formed.

In the case of Collector of Tiruchirapalli v. Trinity Bank Ltd.4 it was held that in
order to prove that there was the existence of an equitable mortgage following points
must be proven

1. There must be a debt.

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

3. Delivery must be in the towns(states) 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.

Equitable mortgage at a contrast with Registered mortgages.

Difference in process. -The process of reaching an agreement is one of the

fundamental contrasts between the two. In an equitable mortgage the mortgagor has to
procure stamp papers . In the case of a registered mortgage,the mortgagor needs to
visit the registrars office in order to register the mortgage.

Stamp costs. - Stamp duty is one of the major distinctions between the two forms of
mortgages. Stamp duty on an equitable mortgage is low, amounting to roughly 0.1 to
0.2 percent of the total loan amount. Stamp duty might be as low as 0% in some cases.
Stamp duty on a registered property, on the other hand, might be approximately 5% of
the total loan amount thus Equitable mortgage are financially viable as compared to
registered mortgage.

4
AIR 1962 Mad 59.
Free from registration.- An equitable mortgage can be formed without any written
contract and by merely depositing title deed. Whereas other forms of mortgage
require registration under Section 17 of the registrations Act.

Private -The information regarding such a mortgage is kept confidential between the
lender and the borrower. So the reputation of the borrower is not affected.

It is important to note that a Mortgage deed can be formed without any written
contract and by merely depositing title deed5.The only criterion is to establish the
parties' intent, i.e. that the title deeds deposited were meant to be used as security for
the debt. Depositing title deeds with a creditor creates a presumption of an equitable
mortgage, and the debtor bears the burden of proving otherwise.6 Mortgage deeds
have often been made through title deposits in order to secure general balance which
is due on a bank account or to secure any overdraft account whether dealing with
current or future financial debt have been upheld in courts. “Equitable mortgages by
deposit of title deeds were accepted in India as equivalent to the simple mortgages
after the P. C. decision in Varden Seth Sam v. Luckpathy Rayjee Lallah 7, and the
law regarding the same has now got embodied in S. 58(f) T. P. Act.”

In the case of Shaw v. Foster, Lord Cairns stated that “It is well established rule of
equity that a deposit of document of title without more, without writing, without
words of mouth, will create in Equity a charge upon the property referred to.

An Equitable mortgage can be created by orally and requires no registration

therefore it is comparatively easier to get a loan by way of equitable mortgage than
through other kinds of mortgages. Equitable mortgages are created usually where
there is urgent and dire need of finances as they can be readily formed through
oral transactions and by submitting the tile of an immovable property as a security
to pay back the debt. “An equitable deposit may, both according to the English and
Indian Law, be made without any writing and if made in writing it does not require
5
K. Bhavanaravana v. S. Venkataratnam, AIR 1971 AP 359 (361)

6
Burgess v. Moxon, (1856) 2 Jur. (N.S.) 1059; Ex-parte Mountfort, (1808) 14 Ves. 606.

7
9 Moo Ind App 303
registration. But if the deposit is accompanied by a memorandum stating the
circumstances under which the deposit is made, it cannot be contradicted by oral
evidence.”8 A document merely stating particulars of past transactions that have
happened between parties however, are not subject to registration. In case of joint
ownership of a property which is a subject of an equitable mortgage, the consent
of all the owners is crucial to create a valid mortgage. The mortgagee is to exercise
caution and due care while providing loan to any mortgagor, if in case the
mortgagor creates subsequent mortgages on the same property then it would be
considered the fault of such subsequent mortgagee to have not made sure whether
the title of the property has previously been given for securing mortgage money, in
such a case the fault would be of the subsequent mortgagee as he had not utilized
care and caution.

Conclusion.

In conclusion it can be stated that Equitable mortgage loans have several

advantages. The stamp duty and other fees are relatively cheap, making it more
convenient and cost-effective than a registered mortgage. The stamp tax on an
equitable mortgage in several Indian states is as little as 0.1 percent of the entire
loan amount, making it the preferred option for certain house buyers

It is important to note that a Mortgage deed can be formed without any written
contract and by merely depositing title deed9.The only criterion is to establish the
parties' intent, i.e. that the title deeds deposited were meant to be used as security for
the debt. Depositing title deeds with a creditor creates a presumption of an equitable
mortgage, and the debtor bears the burden of proving otherwise. 10 Mortgage deeds
have often been made through title deposits in order to secure general balance which
is due on a bank account or to secure any overdraft account whether dealing with
current or future financial debt have been upheld in courts. “Equitable mortgages by
deposit of title deeds were accepted in India as equivalent to the simple mortgages

8
Veerammal And Anr. vs Kr. L. Lakshmanan Chettiar AIR 1960 Mad 529

9
K. Bhavanaravana v. S. Venkataratnam, AIR 1971 AP 359 (361)

10
Burgess v. Moxon, (1856) 2 Jur. (N.S.) 1059; Ex-parte Mountfort, (1808) 14 Ves. 606.
after the P. C. decision in Varden Seth Sam v. Luckpathy Rayjee Lallah 11, and the
law regarding the same has now got embodied in S. 58(f) T. P. Act.”

An Equitable mortgage can be created by orally and requires no registration

therefore it is comparatively easier to get a loan by way of equitable mortgage than
through other kinds of mortgages. Equitable mortgages are created usually where
there is urgent and dire need of finances as they can be readily formed through
oral transactions and by submitting the tile of an immovable property as a security
to pay back the debt.

11
9 Moo Ind App 303