This article is written by Surya Prabhat Pali from National Law University and Judicial Academy, Assam (NLUJAA) and the article is edited by Khushi Sharma (Trainee Associate, Blog iPleaders).
Mortgage was a well-established mode for taking a loan since ancient times. In the Roman legal system, it was known as fiducia cum creditore, in which the property was transferred from the debtor to his creditor. Similarly, in ancient Hindu law, the word Adhi was used to denote pledge of movable property or mortgage of immovable property. However, it was only in the Transfer of Property Act, 1882(hereinafter referred to as “the Act”) that this mode was codified in India under Section 58 and the Judiciary since then had constructively and more actively tackled this concept. Under the said Section, a Mortgage is further classified into different kinds and this is based on the “nature of interest” which is transferred to secure the loan. The classifications include simple mortgage, usufructuary mortgage, conditional mortgage, English mortgage, mortgage by deposit of title deeds and anomalous mortgages. The article at hand will be specifically dealing with ‘Mortgage by deposit of title-deeds’ which is provided for under Section 58(f) of the Act and understand the Judiciary’s approach on this kind mortgage by examining the various case laws and the stances taken by the Courts.
The concept of Mortgage by deposit of title deeds is unique and seemingly simple as compared to the other kinds. Here, the debtor just delivers to the creditor the documents i.e., the title-deeds of immovable property with intent to create a security thereon. There isn’t any other legal procedure required such as a mortgage-deed and is based on equity, hence also known as an equitable mortgage. In this case, a legal charge is created over the title-deeds deposited, therefore the nature of interest transferred here is the right to take away the mortgagor’s property if he does not pay back the money borrowed.
This article will study how the Judiciary has approached this concept i.e., the way in which it dealt with its fundamentals as laid down under Section 58(f) of the Act by starting from the origin of the doctrine to its existing position in contemporary law.
Historical aspect and earlu view of the courts
It is widely accepted that Lord Thurlow in Russel v. Russel had first laid down the doctrine of an equitable mortgage by the deposit of title deeds. Before this decision, a party with whom deeds were deposited was only entitled to hold the title deeds so as to enforce payment by embarrassing the debtor but did not allow for any charge upon the estate. This was in a way the contention of the opposing party. The facts of the case are as such, A pledges his leasehold property with B. A afterwards becomes bankrupt. As a result, B files for the sale of the pledged estate but this is opposed, contending that there cannot be any charge on the property without any writing. This being brought before the Court, the jury finds that the property has been deposited as security and on consideration of equity, the Lordships ordered for the sale of the estate and for B to be paid his money. This, hence, laid the foundation for a mortgage by deposit of title deeds.
This was further dealt with in Featherstone v. Fenwick and Hartford v. Carpenter. Lord Thurlow held that this kind of mortgage allows to put into effect the lien i.e., allowing the security deposited to be effectuated. It is of the opinion that the courts did nothing but stretch the concept of mortgage further in order to meet the commercial necessities of the time and solidify the intention of the mortgagor and mortgagee. Soon, this concept became an accepted and integral part of mortgages with refinements made from time to time. As it was seen in Shaw v. Foster, Lord Cairns while stating the creation of charge due to equity, also stresses on the importance of an accompanied (if any) written document in order to ascertain the nature of the charge.
India has essentially followed the English view on this concept, just like with many other. With the Privy Council judgment in 1864 considered mortgage by deposit of title deeds to be equivalent to simple mortgages and this is still the case as recognised by the Transfer of Property Act, 1882 under Section 96.
The judicial approach on the terms “document of title” and “title deeds”
This section intends to study how the meaning of these terms evolved overtime with the help of the Judiciary.
In India till 1933, any deeds or documents related to the property deposited bona fide would be considered as evidence of title and it was not necessary that all the deeds should be deposited. In Miss Elizabeth May Toomey v. Bhupendra Nath Bose, the learned Judge remarks “There is no technical rule that in an equitable mortgage all the title deeds should be deposited. It is merely a matter of intention.” This was further affirmed in Surendramohan Ray Chaudhuri v. Mahendranath Banerji while also adding that if the only document submitted shows no title of the mortgagor while the same is in existence then it cannot be said that a mortgage by deposit of title deeds is created as this goes against the whole essence of equity that this concept is based on, while also allowing for a wide scope of fraud. It is also not necessary for the documents showing the title of the mortgagor to necessarily show connection to the original title-holder which he/she acquired from. This case also considered Probate to be a substantial document showing title.
While all these cases did stress on the title of the mortgagor, it was wide in the sense that any kind of title of the mortgagor could be provided for security. A classic example of such could be seen in Roberts v. Croft case, where the mortgagor made several equitable mortgages with deposit of various title deeds that were evidence to his title, all were held to be valid mortgages but that the first mortgagee had priority over others and the others had a duty to look into the validity. This was accepted in India and seemed as a natural consequence for the requirement of only part deposit of title deeds. This however creates a lot of problems as the person can take multiple loans by giving security of only one property.
It was in 1933 that a landmark shift took place in this regard. V.E.R.M.A.R. Chettyar Firm vs. Ma Joo Teen and Ors. is one of the most important cases that dealt with this question, what did the terms “documents of title” and “title-deeds” denote? In this case, the Learned Judge, Chief Justice Page felt that in order to find the answer, one must go back to history and understand the origin of this kind of mortgage. Here, he examines the Russel v. Russel case and identifies the ground for which the deposit of title-deeds is made to obtain a loan, in order to secure the repayment of the money. With this reasoning, the learned Judge answers the question that the terms “documents of title” and “title-deeds” denote such a document or documents as show a prima facie or apparent title to the property in the depositor. Further adding that the documents must not only relate to the mortgagor’s title but must disclose any apparent title in the mortgagor to the property.
The judicial approach on “deposit” and “delivers”
“Where a person in any of the following towns…. delivers to a creditor…”
While deposit is the end, delivery is the means to achieve that end. Delivery is the process by which the deposit is done. This delivery of documents can be either physical delivery or constructive delivery. To understand the reason for the allowance of a constructive delivery, one must bear in mind the whole reason for the existence of mortgage by deposit of title deeds, its creation to meet convenience and practicality of the commercial zones.
The doctrine of constructive delivery was first laid down in Whitbread, Ex Parte when the issue was contended that the deeds which were first delivered as security for 1000 euros, the same deeds that were already with the creditor were used to take a subsequent loan of 100 euros. The contention was that there existed no delivery in the subsequent loan. The learned Judge here did not focus on the mere form of the delivery but the express intention of the parties to consider those deeds as security for the 100 euros advanced. This broadened the scope of the term delivery under Section 58. This principle was further widened in K.J Nathan v. S.V. Maruthy Reddy and Ors., in which they were of the opinion that constructive delivery can be applied whenever the creditor is already in possession of the title deeds and it is something the Court must consider. The rationale behind this judgment is that the whole reason mortgage of deposit by title deeds was propounded is for convenience and therefore if the formality of physical delivery of documents is strictly abided to, then the delivery and redelivery of the documents back and forth from creditor to debtor
It is to be noted that delivery and deposit constitutes the “act” and the importance of this can be stated in the words of CJ Page, “Bearing in mind that, in determining whether or not a transaction amounts to a mortgage by deposit of title-deeds, the Court has regard rather to the acts than to the words of the parties, and pays more attention to what they do than what they say” This could be seen in the case In re Beetham Ex Parte Broderick, where A has made a written statement that the reversionary property that he would get would be put as security, however A’s brother attains the property and with the oral consent of A, assigns it as security. There was no deposit of the title deeds or was there any printed source. Hence, the Queen’s Bench held it to be an invalid equitable mortgage saying that nothing was done about the position of the deeds. The judgment here may have taken a completely different course if there was a delivery of the said documents.
One other aspect to keep in mind is where the delivery of the documents of title deed takes place. Section 58(f) sets restrictions on the areas of its applicability, they are the towns of Calcutta, Madras, Bombay and any other town that the State Government may notify in the Official Gazette.
When these places are mentioned, it does not refer to the place of the documents of title but the areas in which the delivery can be made. It was seen in Surajmull Shroff vs. Gopeeram Bhotica and Ors., the deposit of title deeds was not considered to be mortgage by deposit of title deeds as the delivery of these deeds took place outside Calcutta.
However, with constructive delivery also being recognised, the creditor may be in possession of the deeds and be outside the notified towns but when he/she arrives at one of the notified towns, then the debtor may convey the intention to create a mortgage by deposit of title deeds and that would be considered valid.
The existing legal position of mortgage by deposit of title deeds
When one surveys the vast array of contemporary cases on this concept, one can see the majority of cases dealing with contentions regarding areas in which the delivery of documents took place, registrations, bankruptcy cases and so on. The case laws as recently as that of August 2018, are still essential in align with the judgment given in Russel v. Russel in 1783. For example, in Motwani Builders and Ors. vs. Registrar, Karnataka Appellate Tribunal and Ors., the learned Judge has reaffirmed that the essence of the transaction is to make the title deeds, security for the debt in question, therefore in the event of default, the mortgagee may take possession of the property, this is essentially the effectuality of lien that Lord Thurlow has spoken about.
The most important case of the recent time has been the State of Haryana and Ors. vs. Navir Singh and Ors., which is the Special Leave Petition that has been repeatedly referred to by the contemporary judgments. This case sought to answer whether a charge created by a mortgage by the deposit of title deeds can be entered into the revenue records. The Respondents of the case resisted saying that there must be a form of registration or stamp duty for such an entry to take place and had cited Section 17(1)(c) of the Indian Registration Act, 1908, which called for the compulsory registration of the instrument of deposit of title-deed. However, the Court here says that an “instrument” is not required in the first place for a mortgage by deposit of title deeds. In the case in hand, the original deeds have just been deposited with the bank and therefore the charge of mortgage can be entered into the revenue record and for that, instrument of mortgage is not necessary. Also, Mortgage by deposit of title deeds does not require registration. But the Court also stressed that in case the creditor and debtor reduce the contract into writing and this document would form an integral part of the transaction, then the same shall trigger Section 17 of the Indian Registration Act, 1908. This has presently done a great deal of help in clarifying the confusion regarding the requirement of registration in mortgage by deposit of title deeds. The cases following such as Hari Shankar Singh vs. State of U.P. and Ors remarked that no registration was required and termed the arguments of the counsel for the petitioner in this respect is misconceived, when they put forward the contention of registration.
The stance regarding the delivery of documents of title also remains the same. It was seen in Shwetha Gupta vs. Narasimha Murthy and Ors., the Trial Court observed that there was no mortgage because of the non-registration of the mortgage. In the appeal it was contended that a registration was not required because it was a mortgage by deposit of title deeds. But the appeal was dismissed, on the grounds that there was no sufficient evidence that the delivery of the documents took place in one of the notified towns as required by Section 58(f). The majority of the present cases, it has been seen, had its parties as Banks. They mainly dealt with the bankruptcy of one of the parties which allowed the banks to claim the title deeds deposited by the mortgage by deposit of title deeds, as it was seen in Regional Office, Syndicate Bank, Jaipur vs. The Joint Director Directorate of Enforcement, Jaipur.
With regards to the intention, the case Syndicate Bank vs. Estate Officer and Manager, A.P.I.I.C. Ltd. and Ors. reaffirms that intention cannot be presumed from the mere possession of title deeds without the evidence on how the possession existed with the creditor in the first also added that even if there existed debt coupled with the possession, a mortgage cannot be presumed till the intention of those documents deposited was for that specific debt. This is now the settled law, however when the doctrine of equitable mortgage by deposit of title deeds was propounded in the 1700s, a lot of conflict took place in the English courts.
It can be seen that the Judiciary had done a great deal in the construction of mortgage by deposit of title deeds. Since the concept was first propounded, a lot of refinements have been made by the Courts in order to tackle the complex cases that have come before it. As simple as the concept may sound, judgments have still laid down specific criteria in order to avoid ambiguity and confusion as it was seen with the terms of “documents of title” or “title deeds”. The concept however has not seen drastic changes by the Judiciary as it is after all based upon the principle of equity leaving not much scope for much alteration. It still remains to be the time-efficient and practical way to mortgage one’s property. While the reason for such has been cited multiple times in this paper i.e., providing for the needs of the mercantile class, the researcher is of the opinion that this doctrine would have much wider implications if the territorial restrictions are done away with. The Judiciary cannot do much about, as it was seen in many cases, the Court has strictly abided by the legislative pronouncement of restricting the delivery and has done rightly so, it is up to the Legislature to bring forward such change. The rationale behind such opinion is that almost all of India is bustling with commercial activity and with the pronouncements given by various judgments, a strict procedure and clear interpretation, as we presently achieved, the fear of frauds taking place can be and are allayed. This doctrine then would prove to be a strong catalyst.
- Featherstone v. Fenwick
- Hari Shankar Singh v. State of U.P. and Ors
- Hartford v. Carpenter
- In re Beetham Ex Parte Broderick
- K.J Nathan v. S.V. Maruthy Reddy and Ors
- Miss Elizabeth May Toomey v. Bhupendra Nath Bose
- Motwani Builders and Ors. vs. Registrar, Karnataka Appellate Tribunal and Ors.
- Muramlal v. Dev Karan
- Roberts v. Croft
- Russel v. Russel
- Shaw v. Foster
- Shwetha Gupta v. Narasimha Murthy and Ors.
- State of Haryana and Ors. v. Navir Singh and Ors
- Surajmull Shroff v. Gopeeram Bhotica and Ors.
- Surendramohan Ray Chaudhuri v. Mahendranath Banerji
- Syndicate Bank v. Estate Officer and Manager, A.P.I.I.C. Ltd. and Ors.
- Regional Office, Syndicate Bank, Jaipur v. The Joint Director Directorate of Enforcement, Jaipur
- Varden Seth v. Luckpathy
- V.E.R.M.A.R. Chettyar Firm vs. Ma Joo Teen and Ors.
- Whitbread, Ex Parte
SINHA R.K., THE TRANSFER OF PROPERTY ACT (Central Law Agency, 15th ed.2014).
MULLA D.F., THE TRANSFER OF PROPERTY ACT (Dr. Poonam Pradhan Saxena, 11th ed. 2013)
BARBER, ROSS, “‘FIDUCIA’ AND ‘HYPOTHEC.’” Irish Jurist, SUMMER (1978)
ROLLINSON W. D., ENGLISH DOCTRINE OF EQUITABLE MORTGAGES BY DEPOSIT OF TITLE DEEDS OR OTHER MUNIMENTS OF TITLE, 6 Notre Dame L. Rev. 341
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