NCLAT (2025.05.30) in Dr. Vichitra Narayan Pathak Vs. Suraksha Realty Ltd. & Anr. [(2025) ibclaw.in 420 NCLAT, Company Appeal (AT) (Insolvency) No. 1017, 1018, 1060, 1061,1085, 1096, 1309 & 1310 of 2024] held that;
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 Section 59 as in other forms of 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 Section 17 of the Registration Act, 1908, as a non-testamentary instrument creating an interest in immovable property,
Whereas in India under the Act, 1882, more particularly under Section 58 sub-section (f) a statutory recognition has been given to the mode of creation of mortgage by deposit of title deeds. Such a mortgage by deposit of title deeds is for all purposes a ‘legal mortgage’ and not an equitable mort- gage
The banks, normally, maintain register of securities called Equitable Mortgage Register; wherein the entry of title deeds is taken in the form of memorandum signed by the Branch Manager alone, as a person accepting delivery of the documents as security. These formalities are done to establish three essential requisites of equitable mortgage, viz. (1) debit, (2) deposit of title deed and (iii) the intention that deed shall operate as security for the present or future debt.
But if the parties choose to reduce the contract to writing, this implication of law 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.
Excerpts of the Order;
# 34. Judgment of the Hon’ble Supreme Court in “Rachpal Mahraj vs. Bhagwandas Daruka and Others- 1950 SCC 195” has been relied by Arrow Engineering Ltd. In the above case, the Hon’ble Supreme Court had occasion to consider Section 58(f) and Section 59 of the Transfer of Property Act, 1882. In paragraph 5 of the judgment, the Hon’ble Supreme Court held that 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 Section 59 as in other forms of mortgage. Paragraph 5 of the judgment is as follows:-
“5. A mortgage by deposit of title deeds is a form of mortgage recognised by Section 58(f) of the Transfer of Property Act, 1882 which provides that it may be effected in certain towns (including Calcutta) by a person “delivering to his creditor or his agent documents of title to immovable property with intent to create a security thereon”. 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 Section 59 as in other forms 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 Section 17 of the Registration Act, 1908, as a 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 Obla Sundarachariar v. Narayanna Ayyar [Obla Sundarachariar v. Narayanna Ayyar, (1930-31) 58 IA 68 : 1931 SCC OnLine PC 2] or, it may be delivered at a later date and nevertheless be registrable, as in Sir Hari Sankar Paul v. Kedar Nath Saha [Sir Hari Sankar Paul v. Kedar Nath Saha, (1938-39) 66 IA 184 : 1939 SCC OnLine PC 25]”.
# 35. It was further held in paragraph 6 of the judgment that the crucial question is did the parties intend to reduce their bargain regarding the deposit of the title deeds to the form of a document. It was further held that if the bargain has been reduced in writing, the document requires registration. In paragraph 6 of the judgment, following has been held:-
“6. The crucial question is: did the parties intend to reduce their bargain regarding the deposit of the 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 law from the deposit itself with the requisite intention, and the document, being merely evidential does not require registration.”
# 36. In the case before the Hon’ble Supreme Court, the document had only recorded transaction in which case party did not intent to reduce the bargain to writing, hence, it was held that agreement did not require registration and could have been admitted in evidence to prove the creation of charge. When we apply the above ratio of the above judgment in the facts of the present case, it is clear that following two conclusions are irresistible:
(i) Corporate Debtor did not intend to create mortgage on the assets by deposit of title. Corporate Debtor only intended to keep the title deeds with escrow agent which was clear by the letter dated 26.12.2009.
(ii) The document contained the bargain. Both the parties reduced the bargain into writing i.e. MoU dated 26.12.2009, for creating any charge on the assets on the strength of the MoU, the said MoU requires restriction under Section 17 of the Registration Act, 1908.
# 37. Counsel for the Suraksha Realty Limited has placed reliance on “Cosmos Co. Operative Bank Ltd. vs. Central Bank of India and Others- 2025 SCC OnLine SC 352” where the Hon’ble Supreme Court held that mortgage by deposit of title deeds is accepted as mortgage under the Transfer of Property Act, 1882. In the above case before the Hon’ble Supreme Court, original borrower while availing the loan facility from the Central Bank of India had deposited the sale deed and another unregistered agreement to sell. In the above context, the Hon’ble Supreme Court had occasion to consider the provisions of the Transfer of Property Act, 1882. In paragraphs 48 and 49, the Hon’ble Supreme Court held:-
“48. At this stage we must also address ourselves on one another important aspect where the High Court grossly erred whilst passing the impugned judgment and order. As discussed in the foregoing paragraphs of this judgment, the original borrower whilst availing the loan facility from the respondent no. 1 and appellant, had deposited with them two unregistered agreement to sale, and another unregistered agreement to sale along with the share certificate of ownership, respectively. Although both of the aforesaid transactions seek to create mortgage by deposit of documents or title, yet there lies a very fine but pertinent distinction between the two transactions. In respect of the loan advanced by the respondent no. 1 bank, only two unregistered agreements to sale were deposited which as discussed earlier do not purport any title as held in Suraj Lamps (supra) while with the appellant bank herein apart from one unregistered agreement to sale the share certificate of ownership had also been deposited which has the effect of conveyance of title.
49. Under the English Law, whether the documents so deposited actually purport or transfer any title is immaterial for the purpose of creating an ‘equitable mortgage’ as long as the intention to do so is clearly discernible. The position in India however is quite different. This is because under the English Law, a mortgage created by deposit of title or documents is not construed as a legal mortgage and is only treated as an equitable mortgage. Whereas in India under the Act, 1882, more particularly under Section 58 sub-section (f) a statutory recognition has been given to the mode of creation of mortgage by deposit of title deeds. Such a mortgage by deposit of title deeds is for all purposes a ‘legal mortgage’ and not an equitable mort- gage.…………….”
# 38. In paragraph 51, the Hon’ble Supreme Court has noticed the requisite for valid mortgage. Paragraph 51 is as follows:-
“51. Deposit of title deeds is one of the many forms of mortgages whereunder there is a transfer of interest in specific immovable property for the purpose of securing payment of money advanced or to be advanced by way of loan. The three requisites for a valid mortgage are, (i) debt; (ii) deposit of title deed; and (iii) an intention that the deed shall operate as security for the debt. In other words, when the debtor deposits with the creditor title deeds of his property with an intent to create a security, the law implies a contract between the parties to create a mortgage and no registered instrument is required under Section 59 of the Act, 1882 as in other classes of mortgage. It is essential to bear in mind that the essence of a mortgage by deposit of title deeds is the actual handing over by a borrower to the lender of documents of title to immovable property with the intention that those documents shall constitute a security which will enable the creditor ultimately to recover the money which he has lent. Whether there is an intention that the deed shall be security for the debt is a question of fact to be decided in each case on its own merits. The said fact will have to be decided just like any other fact based on legal presumptions, oral, documentary and/or circumstantial evidence. Normally, title deeds are delivered to the bank along with a covering letter indicating therein an intention of delivering title deed i.e. to create security for the present or future liability. In turn, bank gives a letter to the person delivering title deeds indicating acceptance of the documents and/or title deeds by way of security either for the outstanding dues or for the loan to be advanced. The banks, normally, maintain register of securities called Equitable Mortgage Register; wherein the entry of title deeds is taken in the form of memorandum signed by the Branch Manager alone, as a person accepting delivery of the documents as security. These formalities are done to establish three essential requisites of equitable mortgage, viz. (1) debit, (2) deposit of title deed and (iii) the intention that deed shall operate as security for the present or future debt. But if the parties choose to reduce the contract to writing, this implication of law 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.”
# 39. There can be no quarrel to the proposition laid down by the Hon’ble Supreme Court in the above case. The question to be considered is as to whether essential ingredients requisite as noticed above are fulfilled in the present case or not. We have already noticed that the deposit of title deeds by the debtor was not with intent to create a mortgage rights in the Corporate Debtor assets rather than the title documents were deposited with the escrow agent to keep with escrow agent till the obligation under MoU is fulfilled. The transaction when look into all attended circumstances and intent of the parties clearly indicate that there was no intent for creating mortgage.
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