H.G. Nanjappa vs M.F.C. Industries (P) Ltd.

This revision petition fled by the defendant is directed against the order made by the District Judge of Nilgiris at Uthagamandalam that the memo

of deposit of title deeds in the instant case did not require registration and was, therefore, admissible in evidence.

The question arises in the following way : The plaintiff brought a suit against the defendant-present petitioner claiming a sum of, Rs. 22,168, on

the basis of a promissory note executed by the defendant on 22-4-1980. This amount, according to the plaintiff, was the price of fertilizers

supplied to the defendant by the plaintiff-company. The promissory note makes the amount of Rs. 20.062-29 p. payable with interest at 1.50 per

cent per annum. On 1-7-1980, the defendant deposited title deeds in respect of his property, according to the plaintiff, with intent to create an

equitable mortgage of the property covered by the title deed for repayment of the moneys due under the promote dated 22-4-1980. The plaint

alleges that the letter dated 1-7-1980 creating equitable mortgage and the memorandum accompanying the deposit of title deeds together with the

title deeds dated 24-11-1 %6 and 9-12-1966 and the encumbrance certificate are also filed.

The memorandum in dispute reads as follows -

Equitable mortgage (Memorandum accompanying a deposit of deeds.)

I. H. G. Nanjappa, son of Hanuma Gowder, Hindu, resident of Yellanahalli, Ketti village, the Nilgiris, in consideration of the sum of Rs. 20,062-29

np. (Rs. Twenty thousand and sixty two and np twenty nine) advanced to me by Messrs. Mysore Fertilizer Co., Commercial Road, Ootacamund,

on a promissory note, which I do hereby acknowledge, have this 1st day of July 1980 at Coimbatore, deposited with the said Messrs. Mysore

Fertilisers Co., the deeds and documents set out in the list hereto, as security for the repayment of the said sum of Rs. 20,062.29 np. with interest

thereon at 18 percent per annum from the date hereof till full payment.

As witness my hand this I st day of July, 1980.

Sd/-

Mortgagor.

List of deeds deposited-

Registered sale-deed dated 24-11-1966 executed by M. Ajja Gowder and Kala Gowder in favour of H. C. Nanjappa (Document No. 1355

of 1966).

Registered sale deed dated 9-12-1966 executed by N. R. Purushothama Naidu in favour of H. G. Nanjappa (Document No. 1430 of 1966).

Nil encumbrance certificate in respect of properties from I- 1- 1968 to 13-2-1980 issued by the Sub Registrar, Coonoor.

(Mortgagor)""-

Apart from the money decree claimed by the plaintiff, the plaintiff also claimed a decree declaring that the amount is due under the mortgage

deed dated 1-7-1980, and directing the defendant to deposit the said sum into Court on or before a date to be fixed by the Court and on failure to

make such deposit, the plaintiff asked for a direction for the sale of the properties which are the subject matter of the equitable mortgage.

The defendant in the written statement denied that there was any consideration for the promissory note. He has further pleaded that since there

is no consideration for the promissory note, the deposit alleged also has no consideration and is not enforceable. He further took the plea fiat the

memorandum alleged is not admissible in law and is bad for want of registration and the suit laid as one on a mortgage is not sustainable in law.

Parties went to trial and when the evidence of the plaintiff was being recorded and the plaintiff wanted the memorandum to be marked as an

exhibit, an objection was taken on the ground that the memorandum required registration. The order of the teamed District Judge shows that the

matter was exhaustively argued before him. The learned Judge posed the question whether the parties intended to reduce their bargain regarding

the deposit of the title deeds to the form of a document and pointed out that if that was the intention, the document would require registration and if

on the other hand, its proper construction and the surrounding circumstances lead to the conclusion that the parties did not intend to do so, then

there being no express bargain the contract to create the mortgage arises by implication of the law from the deposit itself and in sucb a case, the

document being merely evidential did not require registration. The learned Judge relying on the decision of the Supreme Court in United Bank of

India Ltd. Vs. Lekharam Sonaram and Co. and Others, ; K. Bhavana-rayana v. S. Venkataratnam, , Sunil Kumar Singh Vs. Life Insurance

Corporation of India, and L.A.N.N. Alagappan Vs. P.S. Kalayanasundaram Iyer (Died) and Others, , took the view that the deposit of title deeds

made by referring to the promissory note already executed earlier"" did not., in his opinion, make the memorandum the sole document evidencing

the terms of the bargain. He took the view that the memorandum only confirmed the execution of the promissory note and ""the memorandum and

the promissory note could not, therefore, be considered as integral parts of one transaction, but on the other hand. the deposit was made more

than two months after the execution of the promissory note"". Thus, holding that the memorandum did not require registration the objection raised

by the defendant was overruled and the memorandum was directed to be marked as an exhibit. The defendant has now filed this revision.

The learned counsel appearing on behalf of the defendant has contended that the documents in question contain all the essentials for creating an

equitable mortgage and that the document itself operates to create interest in immovable property. It is pointed out that the plaintiff is relying only

on the documents in question and there is no other evidence to show that an equitable mortgage was created. My attention has been particularly

drawn to the description of the, document as ''equitable mortgae (Memorandum accompanying a deposit of deeds)"" and a reference is made to

paragraph 4 of the plaint in which the plaintiff has positively alleged that ""the defendant herein also executed a mortgage deed in favour of the

plaintiffs company on 1-7-1980 and deposited his title deeds at Combater with the plaintiffs Regional Office, with intent to create an equitable

mortgage on the property covered by the title deeds for repayment of the moneys due under the pronote dated 22-4-1980 in respect of fertilizers

supplied to him."" It is, therefore, argued that the document dated 1-7-1980 has been referred to by the plaintiff himself as a mortgage deed

executed in favour of the plaintiffs company. Therefore, according to the learned counsel for the defendant, the document required registration and

in the absence of registration, it could not be admitted in evidence. Reliance has been placed on certain decisions to which I shall refer later.

On the other hand, the plaintiffs contention is that the document in question was merely intended to be evidence of the fact that the defendant has

deposited the title deeds and merely because the mortgagor has stated that the deeds and documents are deposited with the plaintiff as security for

the repayment of the loan and if in law such a document cannot be construed as creating any interest in the property which was the subject-matter

of the equitable mortgage, then notwithstanding the description of the document or the reference to the title deeds being deposited as security for

the repayment of the loan with interest thereon, it could not be held to be inadmissible for want of registration.

The learned counsel has mainly relied on three decisions of the Supreme Court in support of the proposition that the document in question did

not require registration. The three decisions are Rachpal Mahraj Vs. Bhagwandas Daruka and Others, ; United Bank of India Ltd. Vs. Lekharam

Sonaram and Co. and Others, and Deb Dutta Seal Vs. Ramanlal Phumra and Others, . Retiance was also placed on the decision of the Calcutta

High Court in Sunil Kumar Singh Vs. Life Insurance Corporation of India, and a Division Bench decision of this Court in, L.A.N.N. Alagappan

Vs. P.S. Kalayanasundaram Iyer (Died) and Others, .

Under S. 17 of the Registration Act, by Cl. (b) thereof, non-testamentary instruments which purport or operate to create, declare, assign, limit

or extinguish. whether in. present or in future, any right, title or interest, whether vested or contingent of the value of one hundred rupees and

upwards, to or in immovable property are compulsorily required to be registered. Under S. 49 of the Registration Act, no document which is

required by S. 17 to be registered can be received as indene of any transaction affecting such property or conferring any power unless it has been

registered. Unless, therefore, the document dated 1-7 1980 can be construed as an instrument which creates any right in any immovable property,

the document will not require registration. On the other hand, if the document has the effect of creating a right in immovable property, in the sense,

that it amounts to effect the mortgage of the property in respect of which the title deeds are deposited, it will be under S. 17 of the Registration

Act.

10(a). Under S. 58(a) of the Transfer of Property Act, a mortgage is the transfer of an interest in specific immovabity- property for the purpose

compulsorily register able of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt or th-1

predominance of an engagement which may give rise to a pecuniary liability.

10(b). In so far as the present case is concerned, if there is a mortgage, that mortgage will amount to a transfer of an interest in the immovable

property in respect of which the title deeds have been deposited with the plaintiff for securing the payment of the money in respect of which the

promissory note is said to have been executed by -,the defendant. What is a mortgage by deposit, of title deeds is provided for in S. 58(f). This

provision reads as follows-

..........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 of

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

Thus, if there is a debt and if title deeds are deposited by the debtor with an intention that the title deeds shall be security for the debt, then by

the mere fact of deposit of those title deeds, a mortgage comes into being. However, sometimes, a deposit is accompanied by a memorandum in

writing and even though physical delivery of the documents of title is suffice the question arises as to whether a memorandum which accompanies

the. deposit of title deeds requires registration. In such a case, the essential question which fails for consideration is whether the memorandum by

itself constitutes bargain between the parties or whether it constitutes evidence of the contract between the parties.

In AIR 1931 36 (Privy Council) their Lordships of the Privy Council observed that ''no such memorandum can be within the section (S. 17 of

the Registration Act) unless on its face it embodies such terms and is signed and delivered at such time and place and in such circumstances as to

lead legitimately to the conclusion that so far as the deposit is concerned, it constitutes the agreement between the parties.

As far back as in 1873, such a question came to be considered by the Calcutta High Court in Kedarnath Dutt v. Shamlal Khetry, (1873) 2k

Suth WR 150. In that case, one Shankarlal had advanced Rs. 1,200 to the borrower who deposited the title deeds and executed the promissory

note for the amount. On the promissory note he made the following, endorsement- ''For the repayment of the loan of Rs. 1,200 and the interest

due thereon of the within note of hand, I hereby deposit with Shamial Khetry, as a collateral security by way of equitable mortgage title, deeds of

my property"". Sir Richard Couch hold that such a memorandum was not i he indumenta by which the equitable mortgage was created, nor was it

the evidence of the contract, and, therefore, it did not come under S. 17 of the Registration Act, and the equitable mortgage was created by the

agreement which was evidenced by the loan and the deposit of title deeds. It has to be noted that the view taken by Sir Richard Couch was that

notwithstanding -the fact that the endorsement specifically referred to the deposit of title deeds, it was a collateral security by way of equitable

mortgage.

A similar question fell for consideration before the Supreme Court in Deb Dutta Seal Vs. Ramanlal Phumra and Others, . The test which was

laid down by the Supreme Court was that in order to require registrant the document must contain all the essentials of the transaction and one

essential is that the tide deeds must be deposited by virtue of the instrument or acknowledge an earlier deposit of tide deeds and say further that

the tide deeds shaft be held as security on the said mortgage. The relevant letter in the case before the Supreme Court read as follows-

I write to record that I delivered to and deposited with you this day my title deeds relating to the premises No. 36 Pudupakur Road Calcutta,

solely, belonging to me with intent to create security for my liability for the moneys payable, under the three hundies dated this day for the sum of

Rs. 80,000 '' drawn by me in your favour and I have undertaken to execute legal mortgage at my costs whenever called upon by you to do so. I

further assure you that the said premises No. 35 is free from all encumbrances and the same absolutely belongs to me.

Construing this letter in the light of the surrounding circumstances the Supreme Court took the view that it was merely record of a past transaction

and did not intend to create any mortgage. Undoubtedly, in that case there was an additional circumstance in favour of the plaintiff that the

defendant had undertaken to execute a legal mortgage. The Supreme Court further pointed out in that case that it was not correct to-say that even

if a document on the face of it and properly interpreted in the light of the circumstances does not'' disclose the creation of a mortgage, or even if the

document itself is not an operative instrument and is merely evidential, it requires registration.

In Deb Dutta Seal Vs. Ramanlal Phumra and Others, , the Supreme Court referred to the earlier decision in United Bank of India Ltd. Vs.

Lekharam Sonaram and Co. and Others, . In United Bank of India case, the document read as follows-

This is to place on record that I have this day deposited with you at your head office at Clivel SL, Calcutta, the under noted documents of title

relating to my properties, viz., Giridh Malho properties as described in the title deeds with intent to create an equitable mortgage upon all my rights,

title and interest in the said properties to secure the repayment on demand of all moneys now owing or which shall at any time hereafter be owing

from me I do hereby put on record that the properties mentioned below are free from all encumbrances.

The aforesaid document was held by the Supreme Court as recording a transaction which had already been concluded and under it, rights and

liabilities had already been agreed upon.

A similar view had already been taken earlier by the Supreme Court in Rachpal Mahraj Vs. Bhagwandas Daruka and Others, . After referring

to the provisions of S. 58(f), Transfer of Property Act, the Supreme Court in paragraph 4 of that decision observed as follows-

That is to say, when the debtor deposits with the creditor the title deeds of his property with intent to create a security, the law implies a contract

between the parties to create a mortgage, and no registered instrument is required under S. 59 as in other form of mortgage. But if the parties

choose to reduce the contract to writing, the implication is excluded by their express bargain, and the document will be the sole evidence of its

terms. In such a case, the deposit and the document both form integral parts of the transaction and are essential ingredients in the creation of the

mortgage. As the deposit alone is not intended to create the charge and the document, which constitutes the bargain regarding the security, is also

necessary and operates to create the charge in conjunction with the deposit, it requires registration under S. 17, Registration Act, 1908 as non-

testamentary instrument creating -an interest in immovable property, where the value of such property is one hundred rupees and upwards. The

time factor is not decisive. The document may be handed over to the creditor along with the title deeds and yet may not be registrable as in AIR

1931 36 (Privy Council) .

The Supreme Court further observed-

The crucial question is : Did the parties intend to reduce their bargain regarding the deposit of title deeds to the form of a document? If so, the

document requires registration. If, on the other hand, its proper construction and the surrounding circumstances lead to the conclusion that the

parties did not intend to do so, then there being no express bargain, the contract to create the mortgage arises by implication of the Jaw from the

deposit itself with the requisite intention, and the document, being merely evidential does not require registration.

The question, therefore, which must be posed in a case like the present one is, did the parties intend to reduce their bargain regarding the

deposit of title deeds to the form of a document ? It has to be pointed out that the defendant has admitted that the title deeds were deposited. It is

he who has executed the memorandum and the memorandum merely states that he has deposited with the said company ""the deeds and

documents set out in the list hereto as security It is not the case of the defendant that there was an agreement between the parties that the mortgage

was to take effect only on the execution of this memorandum. The memorandum clearly and plainly appears to me to be something in the nature of

a forwarding letter or acknowledging the fact that the defendant has deposited the said deeds of title as security which is obvious, because,

according to the plaintiff, there is admittedly a promissory note which has been executed much earlier and a sum of money was due on the basis of

the said promissory note. The mere statement that a deposit is made by way of security for the repayment of the loan cannot be read as a contract

which is arrived at by the document itself. The document, therefore, cannot be read as recording an agreement between the parties, namely, the

agreement to create a mortgage by deposit of title &eds.. It is at best an evidence of the fact that the title deeds have been deposited with the

plaintiff.

It is undoubtedly true that in United Bank of India Ltd. Vs. Lekharam Sonaram and Co. and Others, which is relied upon by the learned

counsel for the defendant, the Supreme Court has pointed out that if the parties choose to reduce the contract to writing, the implication that when

a debtor deposits with the creditor title deeds of his property with an intent to create a security, there is a contract between the patties to create a

mortgage is excluded by their express bargain and the document will be the sole evidence of its terms. The Supreme Court pointed out that in such

a case the deposit and the document both form integral parts of the transaction and are essential ingredients in the creation of the mortgage.

However, it must be pointed out that on the facts of that case, the Supreme Court held that since the letter in question did not mention details of

title deeds which were to be deposited with the Bank and neither mentioned what was the principal amount borrowed or to be borrowed nor it

referred to rate of interest for the loan, the letter was not intended to be an integral part of the transaction between the parties and did not by itself

operate to create an interest in the immovable properties, and, therefore, it did not require registration. What is important is that the Supreme Court

quoted with approval the rule laid down by Sir Richard Couch in Kedarnath''s case 1873 20 Suth WR 150. There is nothing on the facts of the

present case to show that the memorandum accompanying the title deeds was intended to be a contract of mortgage reduced in writing by the

parties which meant also the plaintiff. The memorandum cannot be so read 9s meaning that the plaintiff and defendant had agreed to reduce the

transaction of mortgage to writing. The memorandum which is signed, by the defendant cannot be construed as an integral part of the transaction of

mortgage or intended to create an interest in the subject-matter of the mortgage.

In Bhavanarayan-a v. Venkitaratnam, AIR 1971 Andh Pra 359, the Division Bench of the Andhra Pradesh High Court reiterated the rule that

though a mortgage by deposit of title deeds can be created by mere deposit of title deeds without any written contract between the parties, but

once the bargain or contract is reduced to writing, it must be registered. The Andhra Pradesh High Court was merely giving effect to the ratio of

the decision in United Bank of India Ltd. Vs. Lekharam Sonaram and Co. and Others, . The finding rebred by the High Court that the document in

question in that case by its language showed that the creation of mortgage was not a part and dissociated from the document and that the letter did

not show that it was merely evidential of something which either had already been done earlier or to be done in future, must be read as being

reached on the facts of that case. As a matter of fact, the question whether a document in question was agreed by the parties as a part of the

arrangement to create a mortgage by deposit of title deeds has to be decided on the facts of each case. Though the principles are well established,

their application will depend on the facts as found. The Andhra Pradesh case does not, therefore, lay down any new principle but applied the well-

established principle to the parts in that case.

There are decisions of this Court to which a reference may become necessary. The latest decision is L.A.N.N. Alagappan Vs. P.S.

Kalayanasundaram Iyer (Died) and Others, , in which a Division Bench of this Court has reiterated the principles referred to by me earlier. After

referring to several decisions, the Division Bench ob served as follows in paragraph 9 : -

............ One telling principle which has emerged from the ratio of the decisions, however, is that if there is evidence, either extrovert or introvert,

which would compel a Court to hold that under a single bargain the borrowing and the deposit of title deeds were effected and that the intention is

made clear and public only in such a contemporaneous transaction, then a memor4ndum evidencing such a bargain needs registration. It may. Be

that the memorandum contains a recital as to the quantum of the amount borrowed. That would not make the memorandum any the less a non-

registrable one, provided it is an independent transaction and not the sole bargain to evidence the deposit of title deeds. The only important feature

on which the Court should pay its concentrated attention is that the deposit of title deeds should have taken place earlier than the time of the writing

of the memorandum. If such a dissociation in point of time is apparent from the memorandum itself, or if it could be discovered from the totality of

the facts and appreciation of the surrounding circumstances, then the plaintiff can successfully pilot his case on the foot of an equitable mortgage

and obtain a mortgage decree. If, however, the Court is not satisfied about the earlier deposit of title deeds, but if the memorandum projected is

the only piece of evidence whereby the equitable mortgage is created, then notwithstanding the nicety of expressions used therein, the Court has to

hold that such a memorandum is not admissible in evidence for want of registration.

The learned counsel for the defendant has heavily relied on this decision. The present case does not fall in the first part of the observations

reproduced earlier because the liability in respect of which the mortgage by deposit of title deeds has been made is not contemporaneous with the

mortgage itself. The liability which was sought to be secured by the mortgage in question was already existing on the date on which the

memorandum was written, namely, 1-7-1980. However, though the Division Bench observed that there has to be a dissociation in point of time in

order to separate the memorandum from the actual deposit of title deeds, it may not be necessary in all cases. It will depend on the manner in

which the memorandum is worded and there may be a case like the instant one in which notwithstanding that the deposit of title deeds is made

contemporaneously with the memorandum, if the memorandum was n6t intended to create the mortgage and was merely intetid6d to. convey to

the defendant like, a forwarding letter that the necessary title deeds are deposited with the plaintiff as security for the liability, the mere mention of

such liability Would not make the document a registrable one. The present case, in my view, does not fall within the ratio of the latter part of the

observations in L.A.N.N. Alagappan Vs. P.S. Kalayanasundaram Iyer (Died) and Others, .

Another Division Bench of this Court in Modem Housing Construction v. Alagappa Textiles, (1972) 2 Mad U 319, laid down the test as

follows-

The real test to find out whether a memorandum recording handing over title deeds requires registration or not is to ascertain whether the

memorandum represents the bargain between the parties

With this test there can never be any dispute. Thus the only question which has to be decided on the facts of each case is as to whether this test is

satisfied. The documents in question in that case were Exs. P-3 and P7, the material parts of which read as follows-

Ex. P-3: Besides 1, Dr. R. M. Alagappa Chettiar hand over to, you my title deeds relating to the guest house by way of further security in respect

of the aforesaid liability.

Exs. P-7 and P-42 : I hereby agree that the title deed of the guest house property already deposited with the company will remain with them as

collateral security for the above promissory note until it is fully discharged."" It was on the language of the aforesaid document that the learned

Judges of the Division Bench felt that the memoranda, Exs. P-7 and P-42, required registration. This decision must be treated as one on facts of

that case.

In Indersain Vs. Mohammed Raza Gowher and Another, the Division Bench took the view that in the case of an equitable mortgage, if the

document had been deposited before the execution of the writing reciting it, that is, if the documents had been handed over to the creditor as

security for the loan and the writing or letter merely recoded a past transaction there would be no need for registration of the letter for a valid

equitable mortgage. The Division Bench also observed that where, however, there was no past transaction of actual deposit of title deeds before

the execution of the letter relied on, and the letter is the only evidence of the mortgage and the only document by which the mortgage was created,

the letter has to be registered and if it is not registered, it cannot be admitted in evidence to prove a valid equitable mortgage by deposit of title

deeds. The crucial fact to be noted in the view taken by the Division Bench, therefore, is that if the document in question was the only document by

which a mortgage was created, it will require registration. Once again, whether a particular document by itself creates a mortgage or not has to be

decided on the term of the document itself.

On a careful scrutiny of the document and in the light of the authorities referred to above, there does not appear to be any infirmity in the view

taken by the learned Judge, when he held that the, memorandum in question does not require registration. In the view which I have taken, it is not

necessary for me to deal with the contentions raised at the threshold by the learned counsel for the plaintiff that the present is not the appropriate

occasion to exercise provisional jurisdiction on the facts of the present case.

In the view which I have taken, the revision petition is dismissed. Defendant to pay the costs of the plaintiff - costs Rs. 250/-.

Petition dismissed.