Inside SC’s verdict on mortgage by deposit of title deeds & imposition of Rs. 1.2 Lakhs costs for legal misadventure

Supreme Court: In a set of two civil appeals against the decisions of the Madras High Court allowing the respondent’s appeal and quashing the Single Judge’s decision, and dismissing the present appellant’s appeal vide the second decision, the Division Bench of Hima Kohli and Ahsanuddin Amanullah, JJ. set aside both impugned orders and restored the Single Judge’s decision with a slight modification i.e., a reduction in the rate of interest which was claimed by and allowed to the appellant. The Court upheld the Single Judge’s decision, that, the respondent had, by way of the Agreement, created a mortgage by deposit of title deeds as security.

Factual Matrix

The respondent (original defendant) approached the present appellant (original plaintiff) in February, 1995 seeking a loan for his building material business. The appellant advanced a loan of Rs.10,00,000/- to the respondent on the security of his properties. Since the respondent could not pay Stamp Duty on the Mortgage Deed, it was agreed between the parties that the said sum would be split into two registered mortgages and the balance in four promissory notes. Accordingly, the respondent executed Mortgage Deed dated 16-03-1995 for Rs.1,00,000/- agreeing to repay the same together with interest at 36% per annum; Mortgage Deed dated 17-04-1995 for Rs.50,000/- agreeing to repay the same together with interest at 36% p.a.; and four promissory notes for the balance amount of Rs.8,50,000/-. Besides the two mortgages, the respondent borrowed the remaining Rs.8,50,000/- in four promissory notes on different dates. Since there was default in interest payment, the appellant demanded repayment of the amount due under the four promissory notes. The respondent thereupon, in various panchayats, promised to repay the amounts. Ultimately, in the panchayat dated 24-06-2000, the respondent produced a title document of his property as security towards debt under the four promissory notes, noted in the Agreement dated 24-06-2000 (‘Agreement’).

The Agreement mentioned that the respondent owed a total amount of Rs.11,00,000/- to the appellant and in settlement thereof, the respondent handed over the title deeds pertaining to the property evaluated at Rs. 9,00,000/-. The respondent agreed to register the Sale Deed as and when demanded. Further, for re-paying the balance sum of Rs.2,00,000/- it was agreed that the respondent would redeem the mortgaged property from the appellant and re-mortgage it elsewhere. Thereafter, the respondent neither executed a Sale Deed nor paid the balance of Rs.2,00,000/-, hence, the appellant filed the suit before the High Court.

The Single Judge held that the respondent had agreed to “create equitable mortgage by depositing the title deeds”. In an intra-court by the respondent, the Division Bench, in the first impugned decision condoned the delay of 176 days failed and held that the present appellant failed to prove that there was a mortgage executed by the respondent. The Division Bench, vide second impugned decision, dismissed the appellant’s petition to set aside the first impugned decision.

Analysis and Decision

The Court opined that the Single Judge appreciated the bundle of facts in the correct perspective, that, the respondent had, by way of the Agreement, created a mortgage by deposit of title deeds and that there was no redemption of this mortgage. The Court mentioned that the Division Bench wrongly concluded that- “the plaint averments are self-contradictory, vague and does not make out a clear case of a mortgage.” The Court also noted that the Agreement also stipulated that after redeeming the earlier/previous mortgages, the respondent would re-mortgage for the purpose of raising Rs.2,00,000/. Thereafter, the said sum of Rs.2,00,000/- would be paid to the appellant, however, the said condition was not followed through i.e., no Sale Deed was executed and registered, nor was the sum of Rs.2,00,000/- paid. The Court also noted that the appellant was not heard in the first appeal, and in the absence of the appellant, what was averred by the respondent in the appeal was accepted as correct by the Division Bench.

Referring to relevant provisions of the Transfer of Property Act, 1882 and several authorities on the subject, the Court noted that- 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 to secure payment of money advanced or to be advanced by way of loan; a mortgage by deposit of title deeds in terms of Section 58(f) of the Transfer of Property Act surely acknowledges the receipt and transfer of interest and, therefore, one may contend that its registration is compulsory. However, Section 59 of the Transfer of Property Act mandates that every mortgage other than a mortgage by deposit of title deeds can be effected only by a registered instrument….when the debtor deposits with the creditor title deeds of the property for the purpose of security, it becomes a mortgage in terms of Section 58(f) of the Transfer of Property Act and no registered instrument is required under Section 59 thereof as in other classes of mortgage; a document merely recording a transaction which is already concluded and which does not create any rights and liabilities does not require registration. Placing reliance on the same, the Court said that the Single Judge appreciated the law correctly, holding the Agreement to be a mortgage in view of Section 58(f) of the Act. The Court observed that the Agreement only records what has happened and does not create/extinguish rights/liabilities.

Further, the Court noted that in the second impugned order, the appellant had engaged a counsel only for the delay condonation and not to argue the main appeal. The Court said that the Division Bench dealt with it correctly and suffered from no legal infirmity. The Court added that in order to do justice, quashing of the first impugned order would necessarily mean that the effect of the second impugned order would get nullified, for all practical purposes, despite that the second impugned order was not faulty. However, for such a legal misadventure resulting in the wastage of precious judicial time of the High Court, which could have been better spent answering the call of justice raised by the teeming millions, the Court imposed costs of Rs.1,20,000/- on the appellant.