IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE KURIAN JOSEPH & THE HONOURABLE MR. JUSTICE P.BHAVADASAN FRIDAY, THE 22ND JANUARY 2010 / 2ND MAGHA 1931 AS.No. 74 of 1995(C) -------------------------------- OS.290/1984 of I ADDL.SUB COURT,TRIVANDRUM .................... APPELLANT(S): ----------------------- ALLAHABAD BANK, BRANCH AT M.G.ROAD, TRIVANDRUM REP.BY ITS MANAGER. BY ADVS.MR.MPR.NAIR MR.DEVAN RAMACHANDRAN RESPONDENT(S): DEFENDANT -------------------------- 1. LEY BROS. PAZHAVANGADI, TRIVANDRUM A PROPRIETORY CONCERN OF 2ND DEFENDANT. 2. G.P.A. STANLEY, POPRIETOR, LEY BROS. PAZHAVANGADI, TRIVANDRUM, T.C. 28/ 1618, VALIAVILAKOM, VANCHIYOORR, TRIVANDRUM. 3. MRS. PADMA JASMINE, T.C. 26/1362, CHETTIKULANGARA, TRIVANDRUM. 4. MRS. VIJAYA JASMINE, RESIDING AT T.C. 26/1362, CHETTIKULANGARA, TRIVANDRUM. R1 TO 4 BY ADV. MR.B.JAYASURYA THIS APPEAL SUITS HAVING BEEN FINALLY HEARD ON 18/01/2010, THE COURT ON 22/01/2010 DELIVERED THE FOLLOWING: tss KURIAN JOSEPH & P.BHAVADASAN, JJ. ------------------------------------------------------ AS No.74 of 1995 ------------------------------------------------------ Dated 22nd January 2010 Judgment Bhavadasan, J. In this appeal filed by the plaintiff Bank, a very short question arises for consideration. The issue turns upon the question whether Exts.A7 and A8 documents create equitable mortgage or they are only documents, evidencing deposit of title deeds made earlier. If it is found that by Exts.A7 and A8, an equitable mortgage is created, then, necessarily, those documents will have to be registered. It is admitted case that Exts.A7 and A8 are not registered documents. Therefore, in case it is found that an equitable mortgage is created by those documents, then, the Judgment and decree of the Court below are only to be upheld. 2. The first defendant is a proprietary concern of the second defendant. The said concern availed a cash credit facility of Rs.1 lakh, which was later enhanced to AS NO.74 OF 1995 2 Rs.1,50,000/-, after executing necessary documents like letter of hypothecation, hypothecating all the stock-in-trade of the first defendant. Defendants 3 and 4 stood as guarantors and they are said to have created an equitable mortgage over the plaint schedule properties. Since the amount was not paid, the suit was laid. 3. The defendants resisted the suit on several grounds, which are not very relevant except one of them in the present context. The defendants contended that there was no valid mortgage. The Court below raised necessary issues for consideration and found that money was due to the plaintiff from the defendants. But, holding that there was no valid equitable mortgage created in favour of the bank, the Court below declined a mortgage decree to the bank. It is the said portion of the decree, that is assailed in this appeal. 4. S.58(f) of the Transfer of Property Act deals with creation of equitable mortgage. The said provision reads as follows : AS NO.74 OF 1995 3 “58(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 immoveable property, with intent to create a security thereon, the transaction is called a mortgage by deposit of title-deeds.” For the creation of an equitable mortgage, three conditions are required, i.e., (1) There should be a deed, (2) Deposit of title deeds and (3) An intention that the deed should be a security for the debt. It is not necessary that the mortgage should be created by a registered document. The very act of deposit of title deeds with the intention to provide the property as a security is sufficient to constitute equitable mortgage. Quite often, what is found is that later, a memorandum of deposit of title deed is taken by the mortgagee, which only evidences creation of an earlier equitable mortgage by deposit of title deeds. The law is well settled that in such cases, memorandum of deposit of AS NO.74 OF 1995 4 title deeds which evidences the creation of an earlier equitable mortgage need not be registered. But, if, on the other hand, the terms of the transaction are reduced into writing and it is by the said document that the mortgage is created, then, for a valid mortgage, the document has to be registered. The relevant portion of S.17 of the Registration Act, 1908 reads as follows : “17. Documents of which registration is compulsory : (1) The following documents shall be registered, if the property to which they relate is situate in a district in which and if they have been executed on or after the date on which, Act,No.XVI of 1864 or the Indian Registration Act, 1866 or the Indian Registration Act, 1871 or the Indian Registration Act, 1877 or this Act came or comes into force, namely :- (a) instruments of gift of immovable property ; (b) other non-testamentary instruments which purport or operate to create, declare assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent of the value of one hundred rupees and upwards to or in immovable property ;” (Rest omitted as unnecessary) AS NO.74 OF 1995 5 The provision relevant in the present context is S.17(1)(b). 5. The plaintiff has produced two documents, namely, Exts.A7 and A8. According to the plaintiff, no equitable mortgage is created by those two documents and they are only agreements for creation of a mortgage by deposit of title deeds. According to the plaintiff, since the creation of mortgage by deposition of title deeds is independent and distinct of Exts.A7 and A8, the view taken by the Court below that the mortgage is bad for non-registration cannot be sustained. 6. The lower Court has considered the terms and conditions incorporated in Exts.A7 and A8 and has come to the conclusion that in fact, mortgage is created by the said documents. The learned counsel for the appellant pointed out that the Court below was wrong in holding so and Exts.A7 and A8 are at best only agreements to create a mortgage. The issue, therefore turns upon the terms of Exts.A7 and A8. Ext.A7 is dated 22.02.1977. It was executed at a point of time, when the cash credit facility AS NO.74 OF 1995 6 was Rs.1 lakh. 7. Before going into the facts of the case, the law on the point may be considered. As already stated, it is not necessary that the equitable mortgage by deposit of title deeds is created only by a registered deed. Going by S.58 (f) of the Transfer of Property Act, the very act of deposit of title deeds with the intention to furnish security for a debt is sufficient to create a mortgage. In the decision reported in United Bank of India v. Lekharam and Company (AIR 1965 SC 1591), it was held as follows : “7. A mortgage by deposit of title deeds is a form of mortgage recognised by S.58(f) of the Transfer of Property Act which provides that it may be effected in certain towns (including Calcutta) where a person “delivers to a creditor or his agent documents of title to immovable property with intent to create a security thereon”. In other words, when the debtor deposits with the creditor title deeds of his property with an intent to create a security, the law implies a contract between the parties to create a mortgage and no registered instrument is required under S.59 as in other classes of mortgage. It is essential to bear in mind that the essence of a AS NO.74 OF 1995 7 mortgage by deposit of title deeds is the actual handing over by a borrower to the lender of documents of title to immovable property with the intention that those documents shall constitute a security which will enable the creditor ultimately to recover the money which he has lent. But, if the parties choose to reduce the contract to writing, this implication of law 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. It follows that in such a case, the document which constitutes the bargain regarding security requires registration under S.17 of the Indian Registration Act, 1908, as a non- testamentary instrument creating an interest in immoveable property, where the value of such property is one hundred rupees and upwards. If a document of this character is not registered, it cannot be used in the evidence at all and the transaction itself cannot be proved by oral evidence either.” (emphasis supplied) In the decision reported in Joseph v. Michael (2000 (1) KLT 857), it was held as follows : “Mortgage by deposit of title deeds is created under S.58(f) of the Transfer of Property Act. AS NO.74 OF 1995 8 According to that Section, such a mortgage comes into effect, where a person in any of the notified towns delivers to a creditor or his agent documents of title to immovable property with intent to create a security thereon. Execution of any memorandum evidencing the deposit is not essential for creation of such a mortgage ; but very often some writing is obtained in that regard in the form of a memorandum or letter so that it will be a record which would evidence the transaction. But, then the time and date when such writing is prepared assumes importance. If the parties execute such memorandum intending to reduce the transaction to writing and it is done contemporaneously, it will require registration in so far as it declares the creation of the mortgage. However, the position would be different if the execution of the memorandum is not contemporaneous and it only confirms the fact of deposit ex-post facto. Surrounding circumstances can be looked into to see whether the execution was contemporaneous or whether it was done after the mortgage had come into effect with the deposit accompanied by the intention to create a mortgage. If the memorandum as such does not evidence creation of the mortgage and only reveals what happened earlier, it does not require registration. What is decisive of the question is the time factor and not the date. There is no bar AS NO.74 OF 1995 9 in the execution of a memorandum evidencing the mortgage on the same day and the memorandum will not require registration provided it was executed after the deposit albeit on the same day.” (emphasis supplied) In the decision reported in Veeramachineni Ganghadhara Rao v. Andhra Bank Ltd (AIR 1971 SC 1613), it was held as follows : “From the recitals of Ext.A6, it is seen that the memorandum in question was intended to 'put on record' the terms already agreed upon. That being the case, the document cannot be considered as a contract entered into between the parties. If the parties intended that it should embody the contract between them, it would have been necessary to register the same under Section 17 of the Registration Act, 1908. As observed by this Court in Rachpal Maharaj v. Bhagwandas, 1950 SCR 548 = (AIR 1950 SC 272) that 'when a debtor deposits with the creditor 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 forms of mortgage. But if the parties choose to reduce the contract to writing, the implication is excluded by their express bargain and AS NO.74 OF 1995 10 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 of the Indian Registration Act, 1908, as a non- testamentary instrument, creating an interest in immovable property, where the value of such property is one hundred rupees and upwards'. Therefore, the crucial question is : Did the parties intend to reduce their bargain regarding the deposit of the title deeds to the form of a document ? If so, the document requires registration. If on the other hand, it is 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. .......................................................................... 19. Exhibit A6 is not registered. If that document is considered as a contract of mortgage between the Bank and the depositors, the same having not been AS NO.74 OF 1995 11 registered, it is inadmissible in evidence. If on the other hand, that document is considered as a mere memorandum evidencing the deposit of title deeds in pursuance of an earlier contract, then the correctness of the recitals therein can be gone into without being inhibited by Sections 91 and 92 of the Evidence Act. Whichever view is taken, the plaintiff's case must fail. On an overall consideration of the evidence and the probabilities of the case, we are satisfied that Exts.A7 and A8 were not deposited with the Bank to secure the debts due from defendant No.1 to the Bank.” (emphasis supplied) In the decision reported in Virdhachalam v. Chaldean Syrian Bank Limited (1960 KLT 442), it was held as follows :- “When the 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 S.59 as in other forms 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 AS NO.74 OF 1995 12 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 S.17, Registration Act, 1908, as a non-testamentary instrument creating an interest in immovable property, where the value of such property is one hundred rupees and upwards. The time factor is no decisive. The document may be handed over to the creditor along with the title- deeds and yet may not be registrable. Or, it may be delivered at a later date and nevertheless be registrable. The crucial question is : Did the parties intend to reduce their bargain regarding the deposit of the 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, form the deposit itself with the requisite intention and the document, being merely evidential does not require registration.” In the decision reported in George v. Bank of India (2001 (1) KLT 303), it was held as follows : AS NO.74 OF 1995 13 “8. The next question is whether Ext.A13 requires registration. A reading of Ext.A13 clearly shows that it is only record of an event which has already taken place and Ext.A13 does not create a mortgage. Hence, according to us, it does not require registration.” It can be seen from the above decisions that the issue really turns upon the question whether the terms of the transaction have been reduced into writing by the parties or whether such a document creates a mortgage. If, as a matter of fact, it is found that Ext.A7 document purports to create an equitable mortgage, then, obviously, it will have to be registered. 8. It is true that Ext.A7 says that the executors agreed to deposit the title deeds. But, it has to be noticed that the document also says about the terms and conditions regarding the loan transaction. It specifies the loan amount, the identity of properties to be mortgaged, the details of the documents and so also the extent of property. It is therefore, clear that it evidences bargain AS NO.74 OF 1995 14 between the parties. Coming to Ext.A8, which is the supplemental deed, intended to extend security to the enhanced amount, it refers to Ext.A7 as the principal document. Ext.A8 incorporates all the terms and conditions contained in Ext.A7. There can be no manner of doubt that by Exts.A7 and A8, an equitable mortgage is created by deposit of title deeds and if that be so, they are mandatorily registrable. It is difficult to accept the contention raised by the appellant that Ext.A7 only evidences an agreement to mortgage. No doubt, an agreement to create a mortgage is not compulsorily registrable, but if by the document, a mortgage is created, then, registration is mandatory. One must remember that Exts.A7 and A8 state all the terms and conditions and also all the particulars required for the purpose. It is also significant to notice that it was pursuant to Ext.A7 that the title deeds were later deposited and no subsequent memorandum of deposit of title deeds has been drawn up. Under such circumstances, the claim that Ext.A7 is only an AS NO.74 OF 1995 15 agreement to mortgage, cannot be accepted. The Court below was, therefore, perfectly justified in coming to the conclusion that since Exts.A7 and A8 are not registered documents, they are not valid documents. Therefore, there is no merit in this appeal and it is liable to be dismissed. We do so, confirming the judgment and decree of the Court below. KURIAN JOSEPH, JUDGE P.BHAVADASAN, JUDGE sta AS NO.74 OF 1995 16 KURIAN JOSEPH & P.BHAVADASAN,JJ. ======================= AS NO.74 OF 1995 ======================= JUDGMENT DATED 22ND JANUARY 2010 ========================= AS NO.74 OF 1995 17