Sanjeev Tewatia (Advocate) 22 January 2009
PALNITKAR V.V. (Lawyer) 23 January 2009
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2007 INDLAW SC 861
[SUPREME COURT OF INDIA]
Syndicate Bank
v
Estate Officer and Manager, A.P.I.I.C. Limited and
Others
30 Aug 2007
BENCH
S. B. Sinha & Markandeya Katju
COMPARATIVE CITATIONS
2007 AIR(SC) 3169, 2007 (8) SCC 361, 2007 (4) CHN 66, 2007 (2)
DRTC 537, 2007 INDLAW SC 861
CASES REFERRED TO
M. M. T. C. Limited v S. Mohamed Gani and Another, Defendants
2001 Indlaw MAD 745
Alapati Venkataramiah v Commissioner of Income Tax Hyderabad
1965 Indlaw SC 124
K. J. Nathan v S. V. Maruty Reddy and Others 1964 Indlaw SC
423
Bank of India v. Abhay D. Narottam and Others [2005 (11) SCC
520]
Amulya Gopal Majumdar v. United Industrial Bank Ltd. and
Others [1981 AIR(Cal) 404]
Angu Pillai and Others v. M.S.M. Kasiviswanathan Chettiar and
Others [1974 AIR(Mad) 16]
Official Assignee v. Basudevadoss [1925 AIR(Mad) 723]
ACTS REFERRED
Transfer Of Property Act, 1882[s. 53-A, s. 54, s. 58(f)]
Recovery of Debts due to the Banks and Financial Institutions
Act, 1993[s. 19(20), s. 19(22), s. 25]
Companies Act, 1956[s. 125]
Indian Income Tax Act, 1922[s. 12B]
Income-tax Act, 1961[s. 12B]
Indian Evidence Act, 1872[s. 114]
CASE NO
Appeal (Civil) 7824-7828 of 2004 With Civil Appeal Nos.
7833-37 of 2004
EDITOR'S NOTE
Allotment of land - Government of Andhra Pradesh issued a
letter to the Company, permitting it to mortgage the said 51
acres of land to any scheduled bank to obtain financial
assistance to the project - Cancellation of allotment -
Whether in absence of any execution and registration of deed
of sale by the Government of Andhra Pradesh or by A.P.I.I.C.
in favour of the Company, any interest in the land has been
and could be created? - Held, in a case of this nature where
valuable right is created which may or may not confer an
assignable right, the question requires clear determination
having regard to the equitable principle in mind, and would
have far reaching consequences, as a large number of banks and
financial institution advance a huge amount only on the basis
of allotment letters - Questions require consideration by a
larger bench - Order accordingly.
KEYWORDS
Natural Justice, Immovable Property, Equitable Mortgage,
Tribunal, Auction, Financial Institution, Debt Recovery
Tribunal, Usufructuary Mortgage, Documents Of Title,
Simple Mortgage, Jurisdiction, Companies Act, 1956,
PRACTICE & PROCEDURE, Income Tax Act, 1961, Transfer Of
Property Act, 1882, BANKING & FINANCE, Borrower,
Promissory Note, Agent, Indian Evidence Act, 1872, State
Bank Of India, Without Prejudice, LAND & PROPERTY, Joint
Family, Family Settlement, Delivery Of Possession,
Recovery Officer, Indian Income Tax Act, 1922, Title
Deeds, Contempt Proceeding, Immoveable Property,
Mortgaged Property, So Far As May Be, Mode Of Transfer,
Official Gazette, Mortgagee, Mortgagor, Rents And
Profits, Proclamation Of Sale, Penal Interest, Official
Assignee, Matter referred to Larger Bench, Mortgage By
Conditional Sale, Mortgagee By Conditional Sale, Money
Advanced Or To Be Advanced, Performance Of An
Engagement, Specific Immoveable Property, English
Mortgage, Mortgage By Deposit Of Title Deeds, Industrial
Estates, Intention To Create a Security, Territorial
Restrictions, Recovery of Debts due to the Banks and
Financial Institutions Act, 1993
.JUDGMENT TEXT
The Order of the Court was as follows :
1. On or about 19.03.1969, United Auto Tractor Ltd. (for
short, 'the Company') filed an application before the State
Government for allotment of 100 acres of land in the
industrial area for setting up an industrial unit for the
purpose of manufacture of agricultural tractors and
implements. The Government of Andhra Pradesh pursuant to or in
furtherance thereof made allotment of 51 acres of land in the
Industrial Development Area, Nacharam, Andhra Pradesh to the
Company for the aforementioned purpose in terms of an order
dated 18.07.1972. On 03.08.1972, an agreement was entered into
by and between the Government of Andhra Pradesh and the
Company in relation thereto; some of the terms and conditions
whereof are as under :
"6. Only on the completion and full payment of the entire
consideration amount, the sale deed shall be executed and
registered in the name of the company.
xxx xxx xxx
8(a) Without prejudice to the rights of the State Bank of
India or any other financing agency approved by the Government
as first mortgagees, Government have a second charge on the
land, buildings, plant and machinery which shall be converted
into a first charge when the obligation of the financing
agencies are liquidated.
8(b) If the Financing Institutions were to advance more than
60% of the value of the land, building, machinery and
structure, prior agreement of the Government will be required.
xxx xxx xxx
13. The company shall bear, pay and discharge all existing and
further amounts, duties, imposing and out-going of whatsoever
rates, taxes imposed or charged upon the premises or upon the
occupier in respect thereof from the date of taking
possession.
*** *** ***
(s) Till such time as the ownership of the property is
transferred to the Company in the manner mentioned above the
property shall continue to remain the property of the
Government.
16. The Government shall have right to resume the land, if the
Company do not use the land for the purpose for which it was
allotted within the period specified above, the period to be
reckoned from the date of which the company was placed in
possession of the land.
17. In case the Company shall become bankrupt or proceedings
of insolvency or for winding up are filed by or against the
Company the sale shall forthwith stand determined and the
Government shall be entitled to re-enter the premises or any
part thereof in the name of the whole, without prejudice to
the rights of the Government to seek any available remedy
against the company for recovery of the loss.
xxx xxx xxx
21. All payments due to the Government under this agreement
shall carry interest at 8 =%. All payments made/instalments
paid after the due dates carry penal interest at 12% per
annum." *
In terms of clause 2 of the said agreement the Company
indisputably had made initial payment of 50% of the total cost
of the allotted land.
On the said date, the Government of Andhra Pradesh also issued
a letter to the Company, permitting it to mortgage the said 51
acres of land to any scheduled bank to obtain financial
assistance to the project, which the Company sought to
establish, stating :
"In the circumstances stated in your letter second cited, you
are hereby permitted to mortgage the 51 acres of land allotted
in the Ncharam Industrial Development area to any Scheduled
Bank to obtain financial assistance to your project.
The agreement executed by you is returned herewith duly
signed." *
Relying on or on the basis of the said purported sanction, the
Company mortgaged the said land in favour of Appellant Bank,
pursuant whereto and in furtherance whereof moneys were
advanced to it on the said security from time to time.
Indisputably, the Government of Andhra Pradesh transferred all
the industrial estates and development areas to M/s Andhra
Pradesh Industrial Infrastructure Ltd. (for short,
'A.P.I.I.C') with effect from 01.01.1974. Accounts Officer of
A.P.I.I.C. informed the Director of Industries that amount of
incentive to the extent of Rs.78, 860/- sanctioned to the
borrower had been adjusted against a sum of Rs.91, 840/-
against the balance cost of the land sold to borrower on
outright sale basis.
The allotted land allegedly was being utilised by the borrower
for the purpose for which the same was allotted. It is stated
that the borrower paid the entire cost of the land to the
Government on or about 31.07.1980 being a sum of Rs. 2, 03,
304/-, which was acknowledged by A.P.I.I.C. After, a long
time, however, A.P.I.I.C. purported to have cancelled the
allotment of 25 acres out of 51 acres of land allotted to the
Company. The balance 26 acres of land was designated as Plot
No.A-27/1, which is the disputed property in this case.
Appellant-Bank filed O.A. No. 425 of 1995 against the Company
and the guarantor for recovery of a sum of Rs.2, 57, 10, 393/-
before the Debt Recovery Tribunal, Bangalore. In the said
application, the Bank intended to enforce its charge on the
property which had been created.
The said application was allowed by an order dated 18.10.1996,
whereafter a recovery certificate was issued on 01.07.1997.
A notice for sale of the entire 51 acres of land by public
auction was proposed to be held by the Recovery Officer on
08.03.1998. An objection thereto was made by A.P.I.I.C. on or
about 21.03.1998, stating that it had no objection for sale of
26 acres of land. A writ petition was thereafter filed before
the High Court questioning the validity of the said proposed
auction before the Andhra Pradesh High Court by A.P.I.I.C.,
inter alia, praying for the following reliefs :
"(g) Sale of 26-00 acres of land which is allowed to be
retained by the 3rd Respondent company would secure more than
the decreetal amount passed in O.A. No. 425 of 1996 and
therefore, inclusion of 25-00 acres of land i.e., plot no.
A-27/2 belonging to the IInd Petitioner Corporation in the
proposed sale by the 1st Respondent herein by way of public
auction is unwarranted, arbitrary, and opposed to the
principles of Natural Justice." *
During pendency of the said writ petition, A.P.I.I.C. resumed
possession of 25 acres of land and decided to hold auction in
respect thereof only, which was questioned by the
appellant-Bank by filing a writ petition before the Andhra
Pradesh High Court, which was marked as W.P. No. 24060 of
1998. By an order dated 12.08.1998, the claim petition filed
by A.P.I.I.C. before the Debt Recovery Tribunal was dismissed.
A.P.I.I.C. being aggrieved by and dissatisfied therewith filed
a writ petition before the Andhra Pradesh High Court on or
about 01.09.1998.
A sale proclamation for the entire 51 acres of land proposing
to sell the said land by public auction was issued by the
Recovery Officer on or about 10.12.1998. Yet again a writ
petition was filed by A.P.I.I.C. and the operation of the said
for holding auction was stayed.
On or about 24.08.1998, one Nacharam Industries Association
also filed a writ petition questioning the auction in respect
of 25 acres of land. The Company also filed a writ petition,
which was marked as Writ Petition No. 25056 of 1998
questioning the auction-cum-sale notice dated 06.08.1998 held
by APIIC. No stay, however, was granted therein. During
pendency of the aforementioned writ petition, APIIC issued a
show cause notice dated 18.12.1998 upon the Company directing
it to show cause as to why the allotment of balance 26 acres
of land should not be cancelled on the following grounds that
: (a) it had failed to set up an industry much less the
proposed industry for which the land was allotted, except
constructing some structures on Plot No.A.27/1; and (b) the
Company had failed to pay the balance cost of the land,
property tax and maintenance charges etc. amounting to a sum
of Rs.27, 19, 366/-.
No cause, however, was shown by the Company. It had merely
been asking for time for submitting the explanation. On or
about 14.07.1999, allotment in favour of the Company in
respect of the balance 26 acres of land was also cancelled,
the agreement dated 03.08.1972 was determined and the amount
already paid by the Company was forfeited. The Company was
directed to surrender the vacant possession of the land.
As noticed hereinbefore, the grounds of cancellation of
allotment inter alia were : (i) the outstanding amount as
payable in accordance with the terms and conditions of the
agreement had not been paid; and (ii) the land was not
utilised for the purposes for which it was allotted.
Appellant filed a writ petition questioning the said order
dated 14.07.1999 before the Andhra Pradesh High Court, which
was marked as Writ Petition No. 17443 if 1999.
A Division Bench of the High Court took up for considerations
all the writ petitions as well as contempt proceeding
initiated for the alleged violation and disobedience of the
order dated 22.05.1998 passed in W.P. No. 14174 of 1998 being
C.C. No. 2065 of 1998.
The High Court by reason of the impugned judgment, inter alia,
held :
i) The Company having obtained the allotment of land failed to
utilise the same for industrial purposes.
ii) The Company had taken APIIC as well as the Syndicate Bank
for a ride.
iii) The Syndicate Bank did not initiate any coercive steps
against the Managing Director and Directors for realisation of
the amounts.
iv) The most singular and remarkable feature was the non
performance of the Company and its abstentious silence.
v) This, however, was not to certify that the Syndicate Bank
acted diligently in the matter and in advancing huge financial
assistance to the Company on the strength of a letter of no
objection purported to have been issued by the Director of
Industries. What was surprising was that Syndicate Bank
equated that letter to that of a title deed and accordingly
advanced monies without taking proper care and caution.
vi) APIIC by its proceedings dated 17.08.1993 cancelled the
allotment of land to an extent of 25 acres of land. The said
order remained unquestioned.
vii) The Estate Officer under the Public Premises Act could
not have filed an affidavit for and on behalf of APIIC stating
that the sale of 26 acres of land could be permitted.
viii) A reading of all the covenants clearly reveals that the
Government merely granted permission by putting the Company in
possession of the land. The ownership always remained with the
Government until the recovery. No sale deed was executed by
the Government in favour of the Company.
ix) Admittedly, no such sale deed was executed by the
Government in favour of the Company.
In regard to the interpretation of clause 8 of the agreement,
the High Court while opining that there was absolutely no
dispute whatsoever that the Appellant-Bank advanced more than
60% of the value of the land, building, machinery and
structures in favour of the Company posed a question which,
according to it, fell for its consideration, namely, as to
whether the Company as well the Syndicate Bank obtained prior
consent of the government in the matter as was required under
clause 8(b) of the agreement. The High Court having opined
that no prior consent of the Government was taken by the
Appellant-Bank before advancing more than 60% of the value of
the land came to the conclusion that the letter dated
03.08.1972 of the Director of Industries could not be treated
as a document of title enabling the Company to create a charge
against the properties belonging to APIIC. It was held that
there was nothing on record to show that the said letter had
been issued by the Director of Industries with the prior
approval of the government. It was observed :
"There is nothing on record suggesting that the so- called no
objection of the Director of Industries binds the Government.
There is nothing on record to show that the said letter has
been issued by the Director of Industries with the prior
approval of the Government. The agreement requires prior
consent of the Government expressing no objection if the
financing agencies were to advance more than 60% of the value
of the land. The said letter by no stretch of imagination
could be characterized and treated as a prior agreement of the
Government enabling the Syndicate Bank to advance more than
60% of the value of the land. The actual mortgage deed
executed by way of deposit of title deeds is not made
available for the perusal of the Court by the Syndicate Bank."
*
In the aforementioned premise the High Court held that the
order of cancellation of allotment of 25 acres of land dated
17.08.1993, having not been challenged, the same became final.
It was also held that as a clear and categorical finding had
been arrived at by APIIC in its order dated 14.07.1999 that
the Company had failed to utilise the land for the purpose for
which the same had been allotted, the order of cancellation of
allotment was also valid in law, stating :
"The Company failed to submit any explanation to the show
cause notice and after providing innumerable opportunities,
the APIIC passed final order dated 14.7.1999 canceling the
allotment of remaining extent of land also. The first order
dated 17.8.1993 canceling the allotment of Ac.25-00 of land
remained unchallenged. This order dated 14.7.1999 canceling
the allotment of remaining extent of Ac.26-00 of land, in our
considered opinion, is not vitiated for any reason whatsoever.
There is a clear and categorical finding in the said order
that the Company failed to utilize the land for the purpose
for which it was allotted. The APIIC was well within its
limits to cancel the remaining extent of fund" *
In regard to the question as to whether the recovery
certificate dated 30.12.1996 issued by the Debt Recovery
Tribunal to recover the amount by sale of mortgaged property,
it was held that despite the fact that in the recovery
certificate the schedule of the properties attached and sold
was shown to be nil, stating :
"Be it as it may, the finding, recorded by the DRT as against
the APIIC, in no manner, effects the title since the lands in
question remained under the ownership of the APIIC as there is
no transfer of title as such in favour of the company.
Admittedly, no sale deed has been executed by the APIIC in
favour of the company." *
It was further held :
"In the circumstances, we hold that the proclamation of sale
notice dated 21.1.1998 issued by the Recovery Officer
proposing to auction the lands belonging to the APIIC is ultra
vires. Such a proclamation has been issued without putting the
APIIC on any proper notice." *
In regard to the purported concession made by APIIC in regard
to 26 acres of land, it was opined that the same had been made
inadvertently by the APIIC as it did not have a copy of the
recovery certificate. It was observed that in any view of the
matter, the consent on the part of the parties did not confer
any jurisdiction on the authorities concerned, stating :
"It is well settled that the consent of the parties does not
by itself confer any jurisdiction upon the authorities. Nor
such consent can take away the jurisdiction if otherwise
conferred under the provisions of the Act. It is not open to
the parties to confer, by their agreement, jurisdiction on a
court, which it does not possess" *
It was further held that the letter of the Director dated
03.08.1972 cannot be said to be in terms of clause 8(b) of the
agreement and, thus, the appellant cannot be allowed to say
that the land had been completely utilised for industrial
purposes, in absence of any such assertion and proof furnished
by the Company itself. It was also opined :
"(a) That the letter dated 3.8.1972 purported to have been
issued by the Director of Industries, by no stretch of
imagination, could be characterized as a document of title so
as to enable the Company to mortgage these same by way of
deposit of title deeds in order to secure financial assistance
from the Syndicate Bank. The Director of Industries cannot be
equated to that of the Government and it is the only
government, which could have agreed to the company raising
money on the property. Such letters voluntarily issued by an
individual officer of the Government, in no manner, bind the
Government unless it is clearly pleaded and established that
the Director of Industries has been authorised and delegated
with the power to accord permission to the company raising
money on the property;
(b) that the Syndicate Bank admittedly advanced more than 60%
of the value of the land but without prior agreement of the
Government as is required in terms of clause 8(b) of the
agreement. Therefore, the APIIC, being the successor in
interest of the Government, is not bound by the advances so
made by the Syndicate Bank. Therefore, the Syndicate Bank
cannot have the first charge over the property in question;
(c) that there is no specific agreement as such by the
Syndicate Bank agreeing to pay the government on behalf of the
company so much of the amount advanced as loan to the company
will remain due on the promissory note executed by the
Company. In the absence of any specific agreement, the APIIC
is not bound to accept the demand draft for a sum of Rs.3,
366.35 paise purporting to be due from the company towards the
land cost and the same has been rightly rejected by the APIIC;
(d) that the order of cancellation of allotment of land dated
17.8.1993, which remained unchallenged, has not only become
final, but also does not suffer from any legal infirmities
requiring any interference;
(e) that the order dated 14.7.1999 cancelling the allotment of
remaining extent of Ac.26-00 of land which is challenged by
the Syndicate Bank in W.P. No.17443 of 1999, is not vitiated
for any reason whatsoever. It is a composite order passed by
the APIIC canceling the allotment of land both on the ground
of failure to pay the balance sale consideration by the
Company and also on the ground that the Company failed to
utilize the land for the purpose for which it has been
allotted to it. The orders of cancellation of allotment of
land have duly taken into account the admissions made by the
Company that it has failed to utilize the land for the purpose
for which it has been allotted to it. The company has admitted
that it was in red and could not establish any industrial unit
for the purpose of manufacture of agricultural tractors for
which purpose the land has been allotted to it;
(f) that the order dated 12.8.1998 passed by the Recovery
Officer rejecting the claim petition of the APIIC is vitiated.
The Recovery Officer could not have proceeded with the sale of
the land belonging to the APIIC in the absence of any specific
authorization and permission by the Presiding Officer of DRT.
In the schedule of the recovery certificate, there is no
mention of the details of the lands in question enabling the
Recovery Officer to proceed against the same for recovery and
realization of the decreetal amount; and
(g) that the sale notifications issued by the APIIC do not
suffer from any legal infirmities." *
Mr. Rajiv Nanda, learned counsel appearing on behalf of the
Appellant-Bank, would submit :
i) The High Court committed a factual error insofar as it
proceeded on the basis that the mortgage was created merely by
deposit of consent letter, whereas in fact the same was
created by deposit of allotment letter, original counter part
of the agreement dated 03.08.1972 and letter dated 03.08.1972.
ii) The High Court erred in so far as it failed to notice that
the order of the Debt Recovery Tribunal dated 18.10.1996
became final as the same had not been challenged by any party
to the lis.
iii) APIIC having categorically made a statement before the
Recovery Officer that 26 acres of land should be allowed to be
retained by United Auto, which was more than sufficient to
recover the bank dues and, thus, it was estopped and precluded
from cancelling the letter of allotment in relation to the
said land.
iv) Allotment letter dated 18.07.1972, agreement dated
03.08.1972 as also the consent letter dated 03.08.1972 being
documents of title within the meaning of Section 58(f) of the
Transfer of Property Act, the High Court committed a mistake
in opining otherwise.
v) Consent letter dated 03.08.1972, which is in conformity
with clause 8(b)of the agreement dated 03.08.1972 was
misconstrued by the High Court, inasmuch as by reason thereof,
the State agreed that the allottee may raise loan mortgaging
the lands agreed to be sold as well as the buildings
constructed thereupon.
vi) Clause 8(b) supersedes other clauses to the contrary in
the agreement, which provides for prior agreement of
government before creating charge/mortgage only if more than
60% of the value of the land was to be advanced and a consent
letter of the government was to be issued therefor.
vii) Clause 8(b) having provided that the charge of the
financial institution would be the first charge and that the
government having provided that the second charge, the
obligation of the financial institution was required to be
liquidated at the first instance.
viii) It is borne out from the records that the entire cost of
the land being Rs.4, 93, 680/- stood paid. In any event the
value of the entire land having been adjusted for 25 acres of
land which had been cancelled, the APIIC did not make it clear
as to on what basis further cost of the land towards 26 acres
was being made. APIIC was not only estopped and precluded from
raising the aforementioned contentions and its order would be
wholly inequitable if the bank is left with no remedy when it
had acted on the basis of its consent.
ix) The schedule of the recovery certificate having been shown
nil, the Recovery Officer could not have determined as to
which properties were to be attached or sold; the finding of
the High Court is clearly contrary to the provisions of
Section 19(20), 19(22) and Section 25 of the Recovery of Debts
due to the Banks and Financial Institutions Act, 1993 and in
that view of the matter the High Court committed an error in
holding that the auction of land by the Recovery Officer was
ultra vires as the mortgaged property was not specified in the
recovery certificate.
x) If the consent made by the Manager (Law) did not bind
APIIC, it is difficult to conceive as to how the writ
petitions which were filed by the said parties could be
entertained.
xi) The finding of the High Court that the letter dated
03.08.1972 issued by the Director of Industries was not
binding on the government and APIIC was wholly without any
basis as all the orders of the government had been
communicated only through the letters issued by the Director
of Industries.
xii) The purported finding of the High Court that the Company
had failed to utilise the land for the purpose of allotment is
clearly erroneous as there is nothing to show that the
conditions precedent therefore existed and in any event,
clause 8(b) of the agreement dated 03.08.1972 would override
clauses 13, 15 and 16 thereof, in terms whereof interest of
the bank would prevail over that of APIIC.
xiii) The High Court should not have entertained the writ
petition filed by the APIIC as it did not prefer any appeal
against the order of the Debt Recovery Tribunal.
The learned Solicitor General and Mr. A.K. Ganguli, learned
Senior Counsel, appearing on behalf of the State and APIIC, on
the other hand, would submit :
i) The agreement dated 03.08.1972 being not registered, no
title was conferred on the Company, pursuant whereto or in
furtherance whereof the Company had not derived any assignable
title.
ii) It is not a case where a mortgage could be created by
reason of deposit of title deed as contemplated under Section
58 of the Transfer of Property Act.
iii) Mere deposit of allotment letter or the agreement dated
03.08.1972, thus, did not create any charge in favour of the
Bank. The letter dated 03.08.1972 issued by the Director of
Industries being not a document of title, the judgment of the
High Court cannot be assailed.
iv) Appellant-Bank having not questioned the orders of
cancellation of allotment dated 17.08.1993 and 14.07.1993
respectively, it must be held to have waived its right, if
any, to question the same. The sale proceeds in terms of the
judgment and order dated 22.02.1977, therefore, should be
directed to be paid to APIIC.
The principal question which arises for consideration is as to
whether in absence of any execution and registration of deed
of sale by the Government of Andhra Pradesh or by A.P.I.I.C.
in favour of the Company, any interest in the land has been
and could be created. Our attention has been drawn by the
learned counsel for Appellant to a large number of decisions
of different High Courts to show that for the purpose of
creating mortgage by depositing title deeds in terms of
Section 58 of the Transfer of Property Act, it is not
necessary that the mortgagor would have forfeit complete title
over the property. Even if the mortgagor derives some interest
which can be subject-matter of mortgage, a mortgage by deposit
of title deeds can be created. It is not in dispute that
whereas a deposit of title deeds by itself does not require a
document in writing, but in the in event a mortgage is created
thereby, it will require registration. It is furthermore not
in dispute that complete title over a property can be acquired
by a vendee only when a deed of sale is executed and
registered by the vendor in terms of Section 54 of the
Transfer of Property Act. In this case, it has not been
disputed that apart from the letter of allotment, an agreement
coupled with the letter dated 03.08.1972, no deed of sale was
executed or registered by the Government of Andhra Pradesh or
by A.P.I.I.C. in favour of the Company.
As would appear from the following, we are of the opinion that
the issues raised herein are of some importance and as any
decision thereupon would have serious impact on similar
transaction in future, it should be heard by a larger bench.
We may, however, make some general observations. Section 58 of
the Transfer of Property reads as under :
"Section 58 - "Mortgage", "mortgagor", "mortgagee",
"mortgage-money" and "mortgage-deed" defined (a) A mortgage is
the transfer of an interest in specific immoveable property
for the purpose of securing the payment of money advanced or
to be advanced by way of loan, an existing or future debt, or
the performance of an engagement which may give rise to a
pecuniary liability. The transferor is called a mortgagor, the
transferee a mortgagee; the principal money and interest of
which payment is secured for the time being are called the
mortgage-money, and the instrument (if any) by which the
transfer is effected is called a mortgage-deed. (b) Simple
mortgage.-Where, without delivering possession of the
mortgaged property, the mortgagor binds himself personally to
pay the mortgage-money, and agrees, expressly or impliedly,
that, in the event of his failing to pay according to his
contract, the mortgagee shall have a right to cause the
mortgaged property to be sold and the proceeds of sale to be
applied, so far as may be necessary, in payment of the
mortgage-money, the transaction is called a simple mortgage
and the mortgagee a simple mortgagee.
(c) Mortgage by conditional sale.-Where, the mortgagor
ostensibly sells the mortgaged property- on condition that on
default of payment of the mortgage- money on a certain date
the sale shall become absolute, or on condition that on such
payment being made the sale shall become void, or on condition
that on such payment being made the buyer shall transfer the
property to the seller, the transaction is called a mortgage
by conditional sale and the mortgagee a mortgagee by
conditional sale: Provided that no such transaction shall be
deemed to be a mortgage, unless the condition is embodied in
the document which effects or purports to effect the sale.
(d) Usufructuary mortgage.-Where the mortgagor delivers
possession or expressly or by implication binds himself to
deliver possession of the mortgaged property to the mortgagee,
and authorizes him to retain such possession until payment of
the mortgage-money, and to receive the rents and profits
accruing from the property or any part of such rents and
profits and to appropriate the same in lieu of interest, or in
payment of the mortgage-money, or partly in lieu of interest
or partly in payment of the mortgage-money, the transaction is
called an usufructuary mortgage and the mortgagee an
usufructuary mortgagee.
(e) English mortgage.-Where the mortgagor binds himself to
repay the mortgage-money on a certain date, and transfers the
mortgaged property absolutely to the mortgagee, but subject to
a proviso that he will re- transfer it to the mortgagor upon
payment of the mortgage-money as agreed, the transaction is
called an English mortgage.
(f) 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 immoveable property, with intent to
create a security thereon, the transaction is called a
mortgage by deposit of title-deeds.
(g) Anomalous mortgage.-A mortgage which is not a simple
mortgage, a mortgage by conditional sale, an usufructuary
mortgage, an English mortgage or a mortgage by deposit of
title-deeds within the meaning of this section is called an
anomalous mortgage." *
The requisites of an equitable mortgage are : (i) a debt; (ii)
a deposit of title deeds; and (iii) an intention that the
deeds shall be security for the debt. The existence of the
first and third ingredients of the said requisites is not in
dispute. The territorial restrictions contained in the said
provision also does not stand as a bar in creating such a
mortgage. The principal question, which, therefore, requires
consideration is as to whether for satisfying the requirements
of Section 58(f) of the Transfer of Property Act, it was
necessary to deposit documents showing complete title or good
title and whether all the documents of title to the property
were required to be deposited. A' fortiori the question which
would arise for consideration is as to whether in all such
cases, the property should have been acquired by reason of a
registered document.
Each case will have to be considered on its own facts. A
jurisprudential title to a property may not be a title of an
owner. A title which is subordinate to an owner and which need
not be created by reason of a registered deed of conveyance
may at times create title. The title which is created in a
person may be a limited one, although conferment of full title
may be governed upon fulfilment of certain conditions. Whether
all such conditions have been fulfilled or not would
essentially be a question of fact in each case. In this case a
right appears to have been conferred on the allottee by
issuance of a valid letter of allotment coupled with
possession as also licence to make construction and run a
factory thereon, together with a right to take advances from
banks and financial institutions; subject, of course, to its
fulfilment of condition may confer a title upon it in terms of
Section 58(f) of the Transfer of Property Act, but the
question would be whether such a right is assignable.
In Mulla's Transfer of Property Act, a large number of cases
have been noticed where even a patta of land has been
considered to be a document of title depending of course on
the circumstances under which it had been given.
Moreover, if insistence on the original document of title is
laid, it may give rise to the conclusion that once the
document of title is lost, no mortgage of deposit of title
deed can be created at all.
It is, however, one thing to say that a person cannot convey
any title, which he himself does not possess; but it is
another thing to say that no mortgage can be created unless he
obtains a title by reason of a registered conveyance.
In Angu Pillai and Others v. M.S.M. Kasiviswanathan Chettiar
and Others 1974 AIR(Mad) 16, a Division Bench of the High
Court reversed the decision of the Trial Judge, holding that
the said document did not constitute a valid mortgage by
deposit of title, stating :
"13. The only question, in these circumstances, is whether, by
depositing Exs. A.23 to A.26 a valid equitable mortgage was
created in favour of the plaintiff. Section 58 of the Transfer
of Property Act inter alia provides that where a person in any
of the towns mentioned therein 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. It would be seen from this
provision that three essentials are required for an equitable
mortgage, namely, (1) a debt, (2) deposit of title deeds and
(3) the intention that the delivery should be security for the
debt. In the instant case, the first and third essentials are
satisfied. The only question is whether Exs. A.23 to A. 26 are
documents of title within the meaning of S. 58. The trial
Court, relying upon the decisions of the Rangoon High Court in
V.E.R.M.A.R. Chettiar firm v. Ma Joo Teen, 1933 AIR(Rang) 299
held that the said documents were not documents of title and
that, therefore, no valid equitable mortgage was created. We
are clearly of the opinion that this conclusion cannot be
sustained. The expression 'documents of title' occurring in
Section 58 has been the subject of consideration in some
decisions. The law in regard to equitable mortgage is
precisely the same in England as it is in India" *
It was further noticed :
"15. In Indian law, deposit of patta has been held to
constitute a valid equitable mortgage, though patta is not in
itself a deed of title, but is only an evidence of title. This
Court has consistently taken the view that the main object of
tender of patta is merely to give information of the land
revenue payable and the details of the property and that the
exact weight to be given to the patta would depend upon the
circumstances of the case. In Dohganna v. Jammanna, 1931
AIR(Mad) 613 it is pointed out that in case of pattas in
respect of a land in Zamindari, if the land be at the disposal
of the landlord at the time of granting the patta, prima facie
such patta would not be mere bill of rent but something more
and that if it is not so it would not create any rights in the
pattadar in derogation of the rights of a person who would be
entitled to the land subject to the proper and regular payment
of rent. The question directly arose before a Bench of this
Court in Official Assignee v. Basudevadoss, 1925 AIR(Mad)
723, as to whether a deposit of patta is enough to constitute
an equitable mortgage. The Bench answered the question in the
affirmative. Srinivasa Aiyangar, J. who delivered the leading
judgment in that case, has pointed out that the answer to the
question as to whether the pattas in respect of a land is a
document which would be sufficient, by being deposited, to
evidence the intention required for an equitable mortgage
would vary according to the conditions of the country and the
consciousness on the part of the members of the community and
that though a patta is not a document of title still a deposit
of the same with intent to create an equitable mortgage would
create an equitable mortgage." *
In M.M.T.C. Limited v. S. Mohamed Gani and Another 2001
Indlaw MAD 745, a learned Single Judge opined :
"The plaintiff has sought for a mortgage decree specifically
alleging that the first defendant in respect of the advances
made by the plaintiff to his business has offered the
immovable property of his wife viz., the second defendant
herein as security and has created an equitable mortgage. Both
the counsel have made elaborate submissions in that regard.
Hence, a question would arise whether an equitable mortgage by
deposit of title deeds was created. What is mortgage by
deposit of title deed is defined under Section 58(f) of the
Transfer of Property Act, as follows :
'Where a person in many 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 immoveable
property, with intent to create a security thereon, the
transaction is called a mortgage by deposit of title deeds.'
It is called in English law an equitable mortgage. Lord Cairns
defined the same as 'It is well established rule of equity
that a deposit of a document of title without more, without
writing, without word of mouth, will create Equity a charge
upon the property referred to.' In order to prove the
existence of an equitable mortgage, the following requisites
are necessary :--(1) a debt; (2) a deposit of title deeds, and
(3) an intention that the deeds shall be security for the
debt. The debt may be an existing debt or a future debt.
Insofar as the deposit of title deeds is concerned, physical
delivery of document is not the only mode of deposit and even
the constructive delivery has been held sufficient. It is
sufficient if the deeds deposited bona fide relate to the
property or are any material evidence of title and are shown
to have been deposited with an intention to create a security
thereon. The essence of the whole transaction of euitable
mortgage by deposit of title deeds is the intention that the
title deeds shall be the security for the debt. Whether the
said requisite intention is available in a given case is a
question of fact and has to be ascertained after considering
the oral, documentary and circumstantial evidence. It is true
the mere fact of deposit does not raise the presumption that
such an intention existed. Such an intention cannot be
presumed from the possession since the mere possession of the
deeds is not enough without evidence as to the manner in which
the possession originated so that an agreement may be
inferred. Even the mere possession of the deeds by the
creditor coupled with the existence of a debt need not
necessarily lead to the presumption of a mortgage. The mere
fact that the documents were coming from the custody of the
plaintiff is not by itself sufficient to prove an ntent to
create a security. But in a given case unless and until the
defendants satisfactorily explain how the documents came to
the plaintff's custody, the said fact would be significant and
have a great bearing." *
In Amulya Gopal Majumdar v. United Industrial Bank Ltd. and
Others 1981 AIR(Cal) 404, a Division Bench of the Calcutta
High Court held that possessory title itself can be a
subject-matter of mortgage, opining :
"Therefore, at the time when the disputed transaction was
entered into the mortgagor Eagle Plywood Industries Private
Limited had entered into lawful possession of the Behala
property on the basis of an agreement for sale dated July 18,
1950. Such possessory title could very well in law be
furnished as security for the mortgage. On this point we are
in respectful agreement with the view taken by M.M. Dutt and
R.K. Sharma, JJ. in the case of Usha Rice Mills Company
Limited v. United Bank of India (1978) 82 Cal WN 92, since the
view taken by their Lordships is based on high authorities." *
We may notice that that a Division Bench of this Court in Bank
of India v. Abhay D. Narottam and Others 2005 (11) SCC 520,
did not think it fit to consider the correctness thereof
having regard to the provisions contained in Section 125 of
the Companies Act, 1956.
Some decisions of this Court in this connection may also be
noticed.
In Alapati Venkataramiah v. Commissioner of Income Tax
Hyderabad 1965 Indlaw SC 124, while considering the
provisions of Section 12B of the Indian Income Tax Act, 1922,
this Court repelled a contention that a possessary title in
terms of Section 53-A of the Transfer of Property Act would
not subserve the requirements of an effective conveyance of
the capital assets, as delivery of possession of immovable
property cannot by itself be treated as equivalent to
conveyance of the immovable property.
However, in terms of Section 12B of the Income Tax Act, title
must pass by any of the modes mentioned therein, namely, sale,
exchange or transfer. It did not contemplate any other mode of
transfer.
In K.J. Nathan v. S.V. Maruty Reddy and Others 1964 Indlaw SC
423, this Court held :
"10. The foregoing discussion may be summarized thus: Under
the Transfer of Property Act a mortgage by deposit of title
deeds is one of the 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. Therefore, such a mortgage of
property takes effect against a mortgage deed subsequently
executed and registered in respect of the same property. The
three requisites for such a mortgage are, ( i ) debt, ( ii )
deposit of title deed; and ( iii ) an intention that the deeds
shall be security for the debt. Whether there is an intention
that the deeds shall be security for the debt is a question of
fact in each case. The said fact will have to be decided just
like any other fact on presumptions and on oral, documentary
or circumstantial evidence. There is no presumption of law
that the mere deposit of title deed s constitutes a mortgage,
for no such presumption has been laid down either in the
Evidence Act or in the Transfer of Property Act. But a court
may presume under Section 114 of the Evidence Act that under
certain circumstances a loan and a deposit of title deeds
constitute a mortgage. But that is really an inference as to
the existence of one fact from the existence of some other
fact or facts. Nor the fact that at the time the title deeds
were deposited there was an intention to execute a mortgage
deed in itself negatives, or is inconsistent with, the
intention to create a mortgage by deposit of title deeds to be
in force till the mortgage deed was executed. The decisions of
English courts making a distinction between the debt preceding
the deposit and that following it can at best be only a guide;
but the said distinction itself cannot be considered to be a
rule of law for application under all circumstances. Physical
delivery of documents by the debtor to the creditor is not the
only mode of deposit. There may be a constructive deposit. A
court will have to ascertain in each case whether in substance
there is a delivery of title deeds by the debtor to the
creditor. If the creditor was already in possession of the
titledeeds, it would be hypertechnical to insist upon the
formality of the creditor delivering the title deeds to the
debtor and the debtor redelivering them to the creditor. What
would be necessary in those circumstances is whether the
parties agreed to treat the documents in the possession of the
creditor or his agent as delivery to him for the purpose of
the transaction." *
The question which arose therein was that what would be the
extent of subject-matter of mortgage; the entire property
forming the subject-matter of mortgage or a part thereof.
There cannot be any doubt whatsoever that in absence of a
registered deed of sale, the title to the land does not pass,
but then what would not be conveyed is the title of the estate
and not the allotment and possession itself.
It would, therefore, appear that there is no clear authority
on the question as to whether in absence of any title deed in
terms whereof the mortgagee obtained title by reason of a
registered deed can be a subject- matter of mortgage. Section
58 of the Transfer of Property Act does not speak of mortgage
of an owner's interest. If any interest in property can be
created by reason of a transaction or otherwise which does not
require registration, in our opinion, it may not be necessary
to have a full title before such a mortgage is created by
deposit of title deeds. A person may acquire title to a
property irrespective of the nature thereof by several modes
e.g. a lease of land which does not require registration; (ii)
by partition of a joint family property by way of family
settlement, which does not require registration.
In a case of this nature where valuable right is created which
may or may not confer an assignable right, the question
requires clear determination having regard to the equitable
principle in mind, and would have far reaching consequences,
as a large number of banks and financial institution advance a
huge amount only on the basis of allotment letters. If such
allotment letters are to be totally ignored, the same may
deter the banks in making advances which would in effect and
substance create a state of instability.
Apart from the said question, the effect of an admission by an
authorized representative of the State having regard to the
rules of executive business or otherwise vis-'-vis the
Appellant-Bank also requires consideration. #
We, therefore, are of the opinion that keeping in view the
importance of the questions raised at the Bar, as noticed
hereinbefore, and in the context of the factual matrix
involved in the matter, the questions require consideration by
a larger bench so that an authoritative pronouncement can be
made thereupon.
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Sanjeev Tewatia (Advocate) 23 January 2009
No, it is not
PALNITKAR V.V. (Lawyer) 26 January 2009
The larger bench has not yet decided the reference. Do you have any other judgment.
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