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TMI Blog2007 (8) TMI 449X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 18-7-1972. On 3-8-1972, 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. ****** 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 per cent of the value of the land, building, machinery and structure, prior agreement of the Government will be required. ****** 13.The company shall bear, pay and discharge all existing and further amounts, duties, imposing and outgoing of whatsoever rates, taxes imposed or charged upon the premises or upon the occupier in respect thereof from the date of taking possession. ****** (s)Till such time as the ownership of the property is tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and sold to borrower on outright sale basis. 5. 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 31-7-1980 being a sum of Rs. 2,03,304, which was acknowledged by APIIC. After, a long time, however, APIIC 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 this case. 6. 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. 7. The said application was allowed by an order dated 18-10-1996, whereafter a recovery certificate was issued on 1-7-1997. 8. A notice for sale of the entire 51 acres of land by public auction was proposed to be held by the Recovery Officer on 8-3-1998. An objection thereto was made by APIIC on or about 21-3-1998, stating that it had no objectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,366. 12. No cause, however, was shown by the Company. It had merely been asking for time for submitting the explanation. On or about 14-7-1999, allotment in favour of the Company in respect of the balance 26 acres of land was also cancelled, the agreement dated 3-8-1972 was determined and the amount already paid by the Company was forfeited. The Company was directed to surrender the vacant possession of the land. 13. As noticed hereinbefore, the grounds of cancellation of allotment, inter 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. 14. Appellant filed a writ petition questioning the said order dated 14-7-1999 before the Andhra Pradesh High Court, which was marked as Writ Petition No. 17443 of 1999. 15. 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 22-5-1998 passed in W.P. No. 14174 of 1998 being C.C. No. 2065 of 1998. 16. The High Court by reason of the impugned judgment, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 : ". . .There 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 advance more than 60 per cent 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 per cent 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 17-8-1993, having not been challe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arties does not by itself confer any jurisdiction upon the authorities. Nor such consent can take away the jurisdiction if 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.. . . ." It was further held that the letter of the Director dated 3-8-1972 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve 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." 20. 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 3-8-1972 and letter dated 3-8-1972. (ii)The High Court erred insofar 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 Unit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertificate. (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 3-8-1972 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 3-8-1972 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. 21. The learned Solicitor General and Mr. A.K. Ganguli, learned Senior Counsel, appearing on behalf of the State and APIIC, on the other hand, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. 24. We may, however, make some general observations. 25. Section 58 of the Transfer of Property Act reads as under : "'Mortgage', 'mortgagor', 'mortgagee', 'mortgage-money' and 'mortgage-deed' defined.- (a )A mortgage is the transfer of an interest is 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 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 hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." 26. 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. 27. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 section 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. . . ." (p. 20) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saction 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 equitable 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 questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of possession of immovable property cannot by itself be treated as equivalent to conveyance of the immovable property. 37. 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. 38. In K.J. Nathan v. S.V. Maruty Reddy [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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 42. 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. 43. Apart from the said question, the effect of an admission by an aut ..... X X X X Extracts X X X X X X X X Extracts X X X X
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