(Civil Appeal Nos. 9975-9976 of 2024)

Parties : Appellant: A.B. Govardhan / Respondent: P. Ragothaman

 Advocates on Record  : Mr. Narendra Kumar Counsel for the Appellant

Mr. V. Prabhakar Counsel for the Respondent

Hon’ble Judges/Bench : Ms. Justice Hima Kohli & Mr. Justice Ahsanuddin Amanullah

ISSUE

The Supreme Court of India was tasked with the following legal issues which needed clarity.

• Whether the mere deposit of title deeds by the Respondent without creating a formal mortgage deed constitutes an equitable mortgage under the Indian Law?
• An intent to create security interest in addition with deposit of the title deeds is sufficient for equitable mortgage?

RULE

Section 58(f) of the Transfer of Property Act, 1882 

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 immovable property, with intent to create a security thereon, the transaction is called a mortgage by deposit of title-deeds”.

Brief Facts

The case of A.B. Govardhan vs. Ragothaman deals with the significant legal issues with respect to the creation of an equitable mortgage and emphasising the validity of the mortgage agreement. The Appellant granted a loan to the Respondent on the security of his properties. Upon the failure to pay the stamp duty by the Respondent there was an agreement between the parties which created two registered mortgages each at the interest rate of 36% p.a. and four promissory notes. However, upon the default of payment due under the four promissory notes the Appellant demanded the repayment of the amount due from the Respondent. The Respondent produced a title document of his property as security towards debt under the four promissory notes. The Single Judge Bench ruled in the favour of the Appellant holding that the Respondent had agreed to create an equitable mortgage by depositing the title deeds.

The aggrieved Respondent filed an appeal seeking condonation of delay from the Division Bench which subjected to payment of Rs. 1000 from the Appellant and reversed the First order of the Single Judge Bench  which stating that the Appellant had failed to prove that there was a mortgage executed by the Respondent which lead to appeal before the Supreme Court.

ANALYSIS

Section 58(a) of the Transfer of Property Act (ToPA) defines Mortgage as the transfer of an interest in specific immoveable property for the purpose of securing the payment of money 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 is called a “mortgagee,” the principal money and interest of which payment is secured are called the  “mortgage-money” and the instrument if any by which the transfer is effected is called a “mortgage-deed.”

Mortgagor- The person who borrows the money or creates a mortgage.

Mortgagee- The person who lends the money or the person in whose favour the mortgage is created.

Mortgage-Money- The principal loan amount secured by the mortgage.

Mortgage-Deed- The legal document which formalises the mortgage agreement.

Equitable Mortgage- It is a type of mortgage where the borrower provides the lender with a security interest in the form of property, not through a formal deed but by depositing the title deeds of the property. This creates a lien over the property in favour of the lender, securing the loan without the need for a registered legal mortgage.

Title Deeds- They are the legal documents that act as an evidence of a person’s ownership of the property. It verifies the legal right of the owner to sell, transfer or use the property. Depositing title deeds with a lender can create an “equitable mortgage,” giving the lender security over the property until the debt is repaid.

While analysing the case Supreme Court observed that the Respondent, by way of agreement created a mortgage by depositing the title deeds and there was no redemption of this mortgage which was decided by the Single Judge Bench.

However, the Division Bench ex-parte proceeded with the final hearing of the appeal and accepted what was averred by the Respondent that he (respondent) had not voluntarily signed the agreement but in coercion and under threat but no evidence was provided in the support of this plea. The Supreme Court is of the view that the fact pleaded requires oral or documentary evidence to support the same and mere statements and averments by the parties will take a case nowhere.

In the case of Kumar Gogoi v Ashutosh Agnihotri, 2011 the term “evidence” is used colloquially in different senses:

• As equivalent to relevant
• As equivalent to proof
• As equivalent to material

On the basis of which courts come to a conclusion about the existence and non-existence of disputed facts.

The Supreme Court held that the Respondent did sign the agreement with his own hand, hence the burden to prove that the sign was done under coercion and threat was on the Respondent.

In the case of Syndicate Bank v. Estate Officer & Manager, APIIC Ltd., 2007 The Court held that the requisites of an equitable mortgage are: a debt, a deposit of title deeds and an intention that the deeds shall be security for the debt. This judgement answers the legal issues raised in the current case.

The Supreme Court while addressing the first legal issue in the present case upholds the order given by the Single Judge Bench that the Agreement stating that the Respondent has accepted the deposit of title deeds creating a security against the loan to be an equitable mortgage as per the Section 58(f) of the ToPA. However, the Court also held that an agreement only acts as an evidence and does not create or extinguish rights or liabilities. Hence, it does not require registration.

However, the second legal issue with respect to the intention to create a security interest remains a question of fact in each case which was decided by the judgement given by the Supreme Court in the case of K.J. Nathan v. S.V. Maruty Reddy AIR 1965 

The Court in the case of State of Haryana v Narvir Singh, 2014 relied upon  certain sections of the Transfer of Property Act that the deposit of title deeds of the property by the debtor with the creditor for the purpose of creating a security becomes a mortgage as per Section 58(f) of the Transfer of Property Act and no registered instrument is required under Section 59 with respect to other classes of mortgage. However, it was held that a document merely recording a transaction which has already been concluded and which does not create any rights and liabilities do not require any registration.

CONCLUSION

In conclusion of the case of A.B. Govardhan vs. Ragothaman in its verdict held that a mortgage by deposit of the title deeds does not require registration or a formal mortgage deed by relying on the Section 58(f) of the ToPA and the relevant judgements (supra) dealing with similar facts and legal issues by restoring the order of the Single Judge Bench with few amendments in the rate of interest reducing it to 12% from 36%  setting aside both the impugned orders of the Single Judge Bench and of the Division Bench and quite evidently the Division Bench did not rely on the Section 58(f) of the ToPA.

However, the intent to create a security interest in addition to the deposit of title deeds is to be decided as per case to case basis depending on the facts and circumstances of the case.

The Court also allowed the appeal and imposed costs of Rs. 1,20,000 (One Lakh Twenty Thousand) on the appellant for the wastage of the precious judicial time of the High Court and delaying the matter.

This judgement acts as a reminder of the significance of equitable principles in the mortgage law and court’s responsibility to curb the misuse of legal processes for delaying tactics.

REFERENCES

1. Facts Pleaded Require Evidence to Substantiate; Mere Statements or Bald Averments Takes A Case Nowhere : SC, https://www.verdictum.in/
2. Supreme Court Reinforces Equitable Mortgage Principles through a deposit of title deed. https://caseguru.in/