State Can Bring Its Entire Territory U/S 58(f) Of Transfer Of Property Act For Enabling Mortgage By Deposit Of Title-Deeds: Kerala High Court

The Kerala High Court recently observed that the provisions of Section 58(f) of the Transfer of Property Act, pertaining to Mortgage by deposit of title-deeds, do not prohibit the State government from bringing in the entire State territory within its ambit. 

Justice Devan Ramachandran ruled that the decision to bring in a particular territory or area within Section 58(f) is a policy and financial decision and the Government may take the considered opinion that the entire State requires to be notified as such to enable Banks and other Financial Institutions to enjoy the fiscal flexibility offered by Section 58(f):

"I cannot find from Section 58(f) of the TP Act any fetter or bridle on the right of the State Government concerned to issue a notification bringing in its territories into the fold of Section 58(f); and therefore, the argument that Government must justify such inclusion through specific orders or proceedings, can certainly be only seen to be far fetched. " 

Section 58(f) is produced below for clarity:

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.

The court was adjudicating upon a plea filed by a loan-borrower from South Indian Bank. The petitioner had delivered certain title documents as security for the said loan. His primary contention was that since the documents were delivered at Kanjirapilly, it cannot be construed to have created an equitable mortgage over the property in question because according to the original provisions of Section 58(f), such a deposit was permitted only in certain specified towns.

Advocate R Surendran appeared for the petitioner and contended that the notification issued by the Government extending every part of the  State territory within the purlieus of the said provision is improper because when 'any town' is brought within the umbra of the said provision, the government is required to explain why it was so done.

The Court noted that the original provision relating to equitable mortgage in Section 59 created an exception to the rule that a mortgage can be effected only through a registered document.

Through the 1929 amendment, for the first time, the concept of 'equitable mortgage' was expressly integrated into the Act and it was the Governor-General in Council who was vested with the unfettered power to decide the other areas to be brought within its ambit.

The Court referred to several decisions to conclude that the foremost purpose and intent behind the original Act was to create an opportunity for creditors and debtors to enter into financial transactions, without the burden of having to register the said arrangement.

Subsequently, when the scope of businesses expanded and when ease of doing commercial ventures required being freed from the fetters of territorial limitations, the governments began to consider the inclusion of more towns and areas.

"Therefore, irrefutable that what governs their minds in doing so is only the financial and commercial importance of such areas, which have to be offered the flexibility under the said provision." 

The Court opined that the State has evolved rapidly in the last many years in terms of size of businesses and of commercial and industrial activities. As such, the Court stated that the government was well within its rights as the policymaker to bring its entire territory within the purview of Section 58(f) of the TP Act, which it did in 2010.

The Bench further noted that even though the primary contentions raised by the petitioner are unsustainable in law, he has already filed applications before the jurisdictional Debts Recovery Tribunal, assailing the alleged mortgage on other grounds. Therefore, the Court left open all the other contentions raised and dismissed the petition.

Case Title: Pradeep Kumar P v State of Kerala & Ors.

Click Here To Read/Download The Order