Full Judgment Text
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CASE NO.:
Appeal (civil) 7824-7828 of 2004
PETITIONER:
Syndicate Bank
RESPONDENT:
Estate Officer & Manager, A.P.I.I.C. Ltd. & Ors
DATE OF JUDGMENT: 30/08/2007
BENCH:
S.B. Sinha & Markandey Katju
JUDGMENT:
JUDGMENT
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 :
"6. 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 xxx 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.
8(b) If 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 be required.
xxx xxx xxx
13. 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 taking possession.
*
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(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.
16. 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.
17. In 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 loss.
xxx xxx xxx
21. 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."
In 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.
On the 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 :
"In 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.
The agreement executed by you is returned
herewith duly signed."
Relying 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.
The 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
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this case.
Appellant-Bank 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.
The said application was allowed by an order dated 18.10.1996,
whereafter a recovery certificate was issued on 01.07.1997.
A 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 :
"(g) 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 Justice."
During 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 about 01.09.1998.
A sale 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.
On or about 24.08.1998, one Nacharam Industries Association also
filed a writ petition questioning the auction in respect of 25 acres of land.
The 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 : (a) it 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 (b) 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/-.
No 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.
As noticed hereinbefore, the grounds of cancellation of allotment inter
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alia were : (i) the outstanding amount as payable in accordance with the
terms and conditions of the agreement had not been paid; and (ii) the land
was not utilised for the purposes for which it was allotted.
Appellant 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.
A 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.
The High Court by reason of the impugned judgment, inter alia, held :
i) The Company having obtained the allotment of land failed to utilise
the same for industrial purposes.
ii) The Company had taken APIIC as well as the Syndicate Bank for a
ride.
iii) The Syndicate Bank did not initiate any coercive steps against the
Managing Director and Directors for realisation of the amounts.
iv) The most singular and remarkable feature was the non performance of
the Company and its abstentious silence.
v) 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.
vi) APIIC 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.
vii) 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.
viii) 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.
ix) Admittedly, no such sale deed was executed by the Government in
favour of the Company.
In 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 :
"\005There 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
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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."
In the 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 :
"\005The 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 unchallenged.
This 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\005"
In 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 :
"Be 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."
It was further held :
"In 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."
In 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 :
"It is well settled that the consent of the parties does
not by itself confer any jurisdiction upon the authorities.
Nor such consent can take away the jurisdiction if
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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\005"
It was 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 :
"(a) 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 the property.
Such 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;
(b) that 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 question;
(c) 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 Company.
In 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;
(d) 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;
(e) 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.
The 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.
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The 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;
(f) that 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
(g) that the sale notifications issued by the APIIC do
not suffer from any legal infirmities."
Mr. Rajiv Nanda, learned counsel appearing on behalf of the
Appellant-Bank, would submit :
i) The 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.
ii) 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.
iii) 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.
iv) 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.
v) 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.
vi) 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.
vii) 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.
viii) 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.
ix) 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
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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 recovery certificate.
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.
xi) 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.
xii) 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 APIIC.
xiii) 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 Tribunal.
The 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 :
i) The 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.
ii) It 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.
iii) 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.
iv) 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 to APIIC.
The 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
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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 the Company.
As 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.
We may, however, make some general observations.
Section 58 of the Transfer of Property reads as under :
"Section 58 \026 "Mortgage", "mortgagor", "mortgagee",
"mortgage-money" and "mortgage-deed" defined
(a) A 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.
The 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.
(b) 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.
(c) 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:
Provided 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.
(d) Usufructuary 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.
(e) 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
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mortgage-money as agreed, the transaction is called an
English mortgage.
(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.
(g) 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 anomalous mortgage."
The requisites of an equitable mortgage are : (i) a debt; (ii) a deposit
of title deeds; and (iii) an intention that the deeds shall be security for the
debt. The 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 document.
Each 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.
In Mulla’s 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.
Moreover, 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.
It is, 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.
In Angu 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 :
"13. The only question, in these circumstances, is
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whether, by depositing Exs. A.23 to A.26 a valid
equitable mortgage was created in favour of the plaintiff.
Section 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, (1) a debt, (2) deposit of
title deeds and (3) the 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.
We are 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\005"
It was further noticed :
"15. 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.
This 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."
In M.M.T.C. Limited v. S. Mohamed Gani and Another [AIR 2002
Madras 378], a learned Single Judge opined :
"The plaintiff has sought for a mortgage decree
specifically alleging that the first defendant in respect of
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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 :
’Where 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 :--(1) a debt; (2) a
deposit of title deeds, and (3) an intention that the deeds
shall be security for the debt. The 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.
The 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."
In Amulya 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 :
"\005Therefore, 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
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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 high authorities."
We may 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.
Some decisions of this Court in this connection may also be noticed.
In Alapati 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.
However, 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.
In K.J. Nathan v. S.V. Maruty Reddy and Others [1964 (6) SCR 727],
this Court held :
"10. The foregoing discussion may be summarized thus:
Under 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.
Therefore, 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, ( i ) debt, ( ii ) deposit
of title deed; and ( iii ) an intention that the deeds shall be
security for the debt. Whether 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.
But 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.
There may be a constructive deposit. A court will have to
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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."
The question 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 thereof.
There 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.
It 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 require registration; (ii) by
partition of a joint family property by way of family settlement, which
does not require registration.
In a 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.
Apart 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.
We, 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.