Sri Narvir singh’s  appeal before the SC brought forth a very interesting and debatable second legal issue of great public importance “regarding the location of property for creating a mortgage by deposit of title deeds under sec. 58(f)” read with sec. 59  of the Transfer of Property Act, 1882.

horn of unnecessary details, facts giving rise to the present appeal are that Sri Narvir Singh and Rajinder Kaur deposited their original title-deeds to the lands with the Punjab National Bank as security for the loan obtained by the borrower, M/s. Ultra Tech Private Company.

It is not in dispute that this transaction had taken place in a town notified under Section 58(f) of the Transfer of Property Act.

The Bank obtained order from the P & H High Court for mutation of the above transaction in revenue records when Tahsildar, Panchkula kept silent despite objection from the respondent 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 on the strength of letter dated 29th March, 2007 of the Finance Commissioner and Principal Secretary to Government.

The relevant part of the letter reads as under                      

It is clarified that instrument of deposit of title- deed/equitable mortgage is compulsorily registrable under Section 17(1)(c) of the Indian Registration Act, 1908. Registration fee is payable under Article 1(1)(b) in the table of Registration Fees vide Notification dated 6th November, 2006. Article 6 of the schedule I-A of the Indian Stamp Act, 1899 provides for rate of Stamp Duty (SD) chargeable on deposit of title-deeds/equitable mortgage.

xxx xxx xxx“ According to the respondents, in the absence of registration as aforesaid and payment of registration fee and stamp duty, the prayer for mutation cannot be allowed.

The High Court came to the following opinion

“We are of the view that an equitable mortgage is created by deposit of title-deeds and not through any written instrument. Simple pledge of the title-deeds to the bank as Security creates an equitable mortgage, therefore, there is never an instrument of deposit of title-deed/equitable mortgage. The petitioner simply went to the bank and handed over the title-deeds of their respective properties. This act was enough to create a mortgage as envisaged under Section 58(f) of the Transfer of Property Act. Quite often a memorandum is drawn up regarding the handing over of the title-deeds but this memorandum is simply a written record of the pledge. The memorandum itself is not an instrument of mortgage………..”

Challenging the High Court order, the State of Haryana preferred this appeal that mutation is not possible as this transaction requires registration under the Registration Act, 1908 on the basis of the letter circulated by Government.

Prior to sending back the records to the Punjab & High Court to give a decision on the main issue, reiterated and reaffirmed two legal principles connected with the two above provisions of the Act.

Regarding the first issue of registration of the above mortgage by deposit of title deeds in the above circumstances, Lord Justices Chandramauli K. Prasad and Kurian Joseph declared that ‘in view of s. 59 of the TP Act every mortgage, other than mortgage by deposit of title deeds, when the debt secured by mortgage is 100 or more (but not so in case of simple mortgage) can be entered into only by a ‘registered instrument’ read with The Registration Act’.

Their Lordships also affirmed that “if terms and conditions of the mortgage creating the debt is incorporated in separate document accompanied by deposit of title deeds as security for the debt, then it shall take effect only on registration.

Explaining it in different language, “if the mortgagor simply delivers the title deeds to the mortgage with intention to create security for the debt, the terms and conditions of the transaction already being settled then no registered instrument is necessary” was reiterated by  following the earlier principles established in United Bank of India v. L . Sonaram and others.

In United Bank of India, Supreme Court held:

 “A mortgage by deposit of title deeds is a form of mortgage recognised by Section 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 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 classes of mortgage. It is essential to bear in mind that the essence of a 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 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. 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.’

Lord Justices Chandramauli K. Prasad and Kurian Joseph also declared that “the relevant letter of the Finance Commissioner of State of Haryana 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. But in that case 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.

It was also observed by Lord Justices Chandramauli K. Prasad and Kurian Joseph that “Nothing has been brought on record to show existence of any instrument which has created or extinguished any right or liability. In the case in hand, the original deeds have just been deposited with the bank. In the face of it, we are of opinion 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. Mortgage by deposit of title-deeds further does not require registration. Hence, the question of payment of registration fee and stamp duty does not arise. By way of abundant caution and at the cost of repetition we may, however, observe that 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.”

In the result, on this issue the State of Haryana lost.

So far good, but the matter did not end there.

Again the appellants pointed out that the properties mortgaged to the bank were actually located in the village Matab Garh in Ludhiana Dist., in Allomajra, Fatehgarh Sahib District and in Sadhugarh, Sirhind District, not notified by the Government, while the main transaction with the bank took place in a notified area under Section 58(f) of the TP Act by referring to the notification issued on May 26, 2003 of the Government of Punjab.

Thereby the appellants want to show that ‘on the basis of location of properties on whose security, naturally, loan can be obtained, this mortgage requires registration as in the argument of appellant ‘both transaction and properties shall be located in a town or city notified by the government’ since those are the ‘twin requirement of the Act’ but whereas ‘in this case the properties are not located in towns not notified’.  

Lord Justices observed that this really was a novel and very attractive point and remitted the matter to Punjab and Haryana High Court for decision by declaring that ‘this aspect of the matter has not been considered by the High Court and as the same goes to the root of the matter.’  

IN his conclusive remarks, the author says that ‘a mortgage under the above circumstances is valid’ for the following reasons.

Since the main purpose of any mortgage under sec. 58(f) or (a) to (g) of Sec. 58 is to obtain a loan by mortgagor on giving security to the mortgagee, it suffices that ‘the main loan transaction took place in the town or city notified by appropriate Government to comply with Sec.58 (f) and 59 of the TP Act’.

The mortgagor may be permanent resident at a particular place notified, but he may have properties at different places, not notified.

It is humble opinion of the author that the obtaining the loan is the primary purpose of any mortgage, therefore the town or city etc. where the loan was obtained was notified shall be sufficient to make the mortgage effective though the properties are situated at a different place.

In almost all the cases, mortgagee who lends money naturally verifies the title deeds as it is his interest before giving the loan making physical verification of the properties located at different places, therefore it is sufficient compliance with the provisions of the Act when properties are located at different town, not notified but the loan transaction took place in a place notified.  

Therefore it makes no difference at all where the properties are located.

The author expects that the High Court decision is in line with his comments.

But we may have to wait for authoritative decision from the Supreme Court since the Punjab High Court decision on this issue may not be the end of the controversy.

BY C.S.RAGHU RAMAN