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Mortgage by deposit of title deed does not require registration - Supreme Court

This extremely important and sensitive matter appears to keep coming up for judgment before the Hon'ble Supreme Court, the latest being STATE OF HARYANA & OTHERS VERSUS NAVIR SINGH AND ANOTHER.

In the above mentioned matter, one M/s. Ultra Tech Private, a company incorporated under the Companies Act, was sanctioned a term loan of Rs. 425 lakhs and working capital facility of Rs.99 lakhs by the Punjab National Bank (hereinafter referred to as the Bank). As agreed by the Bank, original title-deeds in respect of 19 Marlas of land belonging to Narvir Singh and 31 Marlas of land owned by Rajinder Kaur were deposited with the Bank by the borrower. In this way mortgage by deposit of title-deeds took place. 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 wrote to the Tahsildar, Panchkula for mutation on the basis of mortgage effected by deposit of the title-deeds. When nothing was done, the land owner filed writ petition before the High Court inter alia praying for mutation on the basis of mortgage aforesaid.

The respondents resisted mutation inter alia on the ground 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 and for that, they relied on a letter dated 29th March, 2007 of the Finance Commissioner and Principal Secretary to Government, the relevant portion whereof reads as under:

“xxx xxx xxx

2. It is clarified that the 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 Notification dated 06th 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 Hon'ble High Court upon directing the State bodies to affect the mutation, they took the matter to the Supreme Court.

The Hon'ble Supreme Court upon hearing all parties opined that in view of rival submissions, the question which falls for consideration is whether ‘charge’ of mortgage can be entered in the revenue record in respect of a mortgage effected by deposit of title-deeds without its registration and payment of registration fee and stamp duty. Mortgage by deposit of title-deeds is sanctioned by law under Section 58(f) of the Transfer of Property Act in specified towns, same reads as follows:

"58. “Mortgage”, “mortgagor”, “mortgagee”, “mortgage-money” and “mortgage-deed”
defined.—

(a) xxx xxx xxx

(e) xxx xxx xxx

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

Mortgage inter alia means transfer of interest in the specific immovable property for the purpose of securing the money advanced by way of loan. Section 17(1)(c) of the Registration Act provides that a non- testamentary instrument which acknowledges the receipt or payment of any consideration on account of the creation, declaration, assignment, limitation or extension of any such right, title or interest, requires compulsory registration. 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. In the face of it, in our opinion, when the debtor deposits with the creditor title-deeds of the property for the purpose of security, it becomes 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. The essence of mortgage by deposit of title-deeds is handing over by a borrower to the creditor title-deeds of immovable property with the intention that those documents shall constitute security, enabling the creditor to recover the money lent. After the deposit of the title-deeds the creditor and borrower may record the transaction in a memorandum but such a memorandum would not be an instrument of mortgage. A memorandum reducing other terms and conditions with regard to the deposit in the form of a document, however, shall require registration under Section 17(1)c) of the Registration Act, but in a case in which such a document does not incorporate any term and condition, it is merely evidential and does not require registration.


In support of the above opinion, the court considered to previous judgments in the case of Rachpal v. Bhagwandas, AIR 37 1950 SC 272

And in the end the Hon'ble Judges opined "..........Bearing in mind the principles aforesaid, we proceed to consider the facts of the present case. It is relevant here to state that letter dated 29th March, 2007 of the Finance Commissioner inter alia makes “instrument of deposit of title-deeds compulsorily registrable under Section 17(1)(c) of the Registration Act.” In such contingency registration fee and stamp duty would be leviable. But the question is whether mortgage by deposit of title-deeds is required to be done by an instrument at all. In our opinion, it may be effected in specified town by the debtor delivering to his creditor documents of title to immovable property with the intent to create a security thereon. No instrument is required to be drawn for this purpose. However, the parties may choose to have a memorandum prepared only showing deposit of the title-deeds. In such a case also registration is not required. But in a case in which the memorandum recorded in writing creates right, liability or extinguishes those, same requires registration. In our opinion, the letter of the Finance Commissioner 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. 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. From conspectus of what we have observed above, we do not find any error in the judgment of the High Court.

Comment:
While other judgments already exist and have been observed earlier on this blog, I have included this judgment here as (a) This issue seems to be coming back to the courts like the proverbial bad penny and is hoped that this judgment stated in very simple terms would bring some closure (b) It does drive through two basic points (i) Deposit of title deed alone is enough to create mortgage and may be accompanied by a memorandum which only and strictly records the said deposit and nothing else. (ii) Any further particular included in the said document would make it a written contract and would have to be compulsorily registered.
Therefore wherever the "intent to create a security thereon" as laid down in Section 58(f) of the Transfer of property Act is clear with the borrower having signed various agreements etc., this judgment should settle the arguments sometime brought on by the borrowers that they had not deposited the title deeds with the intention of creating a mortgage. 

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