S. 58(f) TPA | Production Of Title Deeds As Security Towards Debt Amounts To Creation Of 'Equitable Mortgage' : Supreme Court

The Supreme Court on Thursday (Aug. 29) held that the production of title deeds of the property as a security towards the debt amounts to the creation of a 'mortgage by deposit of title deeds' under Section 58 (f) of the Transfer of Property Act, 1882 (“TPA”).

It was a case where the respondent/defendant had taken a loan from the Appellant and submitted a title deed of the property towards the loan amount it had taken from the Appellant. An agreement was entered between the Respondent and the Appellant that the Respondent would execute a sale deed in favor of the Appellant when the necessity arises for the Appellant. However, no sale deed was executed by the respondent in Appellant's favor.

Thus, an original civil suit was brought by the Appellant before the Single Judge of the Madras High Court seeking a preliminary mortgage decree of the scheduled property against the respondent, and the sale of the mortgaged property.

In essence, the Appellant pleaded that the title deeds of the property so produced by the respondent for the security towards the debt amount create an equitable mortgage by depositing the title deeds entitling the Appellant to sell the mortgaged property to recover the loan amount.

Whereas, the Respondent pleaded that the production of the title deeds of the property towards the debt amount would not amount to the creation of a mortgage under Section 58(f) of TPA because the agreement doesn't stipulate the creation of a mortgage. According to the Respondent, the title deeds were produced so that the sale deed could be executed in the Appellant's favor on its demand.

The High Court's Single Judge decided in favor of the Appellant by holding that the respondent-defendant had agreed to “create equitable mortgage by depositing the title deeds. However, upon an intra-court appeal preferred by the respondent, the Division Bench overturned the Single Bench decision and held that the Appellant had failed to prove that there was a mortgage executed by the Respondent.

Following this, the appeal was preferred before the Supreme Court against the High Court's Division Bench order.

Setting aside the Division Bench decision, the bench comprising Justices Hima Kohli and Ahsanuddin Amanullah observed that the Single Judge findings cannot be interfered with because “the Single Judge had appreciated the bundle of facts in the correct perspective, that is, the respondent had, by way of the Agreement, created a mortgage by deposit of title deeds.”

“The Division Bench fell in error in concluding that the plaint averments are self-contradictory, vague and does not make out a clear case of mortgage.”, the judgment authored by Justice Amanullah added.

Also, the Court clarified that the agreement so entered between the Appellant and Respondent regarding the creation of the equitable mortgage by deposit of title deeds need not require Registration under the Registration Act because the agreement only recorded the event occurred between the parties and does not extinguish/create rights or liabilities.

In this regard, the Court drew reference to a case of State of Haryana v Narvir Singh, (2014) 1 SCC 105 where it was held that “a document merely recording a transaction which is already concluded and which does not create any rights and liabilities does not require registration.”

“We are of the opinion that the Single Judge has appreciated the law correctly as far as the Agreement is concerned to hold it to be a mortgage in view of Section 58(f) of the Act. We have read and re-read the Agreement. We have also minutely considered the exposition of law made in Narvir Singh (supra). We are of the opinion that the Agreement only records what has happened and does not create/extinguish rights/liabilities”, the court held.

Accordingly, the appeal was allowed thereby restoring the High Court's single-judge judgment. However, a slight modification was made regarding the reduction in the rate of interest which has been claimed by and allowed to the appellant.

“Interest at the rate of 36% p.a. is on the excessive side and we pare down the same to 12% p.a. in the interest of justice. Hence, simple interest will run only @ 12% p.a. from 24.06.2000 till the date of realisation.”, the Court held.

Appearance:

For Petitioner(s) Mr. Narendra Kumar, Adv. Mr. V. Balaji, Adv. Mr. Atul Sharma, Adv. Mr. Asaithambi MSM, Adv. Mr. R. Mohan, Adv. Mr. A. Krishna Kumar, Adv. Mr. C. Kannan, Adv. Mr. Rakesh K. Sharma, AOR

For Respondent(s) Mr. V Prabhakar, Sr. Adv. Mr. S. Rajappa, AOR Ms. Jyoti Singh, Adv. Mr. R Gowrishankar, Adv. Mr. N J Ramchandar, Adv. Ms. Jyoti Parasher, Adv.* Mr. Rakesh Ranjan, Adv.*

Case Title: A. B. GOVARDHAN VERSUS P. RAGOTHAMAN, CIVIL APPEAL NOS. 9975-9976 OF 2024

Citation : 2024 LiveLaw (SC) 626

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