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CASE NO.:

Appeal (civil) 7824-7828 of 2004

PETITIONER:

Syndicate Bank

RESPONDENT:

Estate Officer & Manager, A.P.I.I.C. Ltd. & Ors

DATE OF JUDGMENT: 30/08/2007

BENCH:

S.B. Sinha & Markandey Katju

JUDGMENT:

JUDGMENT

O R D E R

WITH

CIVIL APPEAL NOS. 7833-37 OF 2004

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.

*** *** ***

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(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

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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

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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 :

"\005There 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

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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 :

"\005The 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\005"

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

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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\005"

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.

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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

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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 therefor 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

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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 \026 "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

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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 [AIR 1974 Madras 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

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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, AIR 1933 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\005"

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, AIR 1931 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, AIR 1925 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 [AIR 2002

Madras 378], a learned Single Judge opined :

"The plaintiff has sought for a mortgage decree

specifically alleging that the first defendant in respect of

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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 [AIR 1981 Calcutta 404], a Division Bench of the Calcutta High

Court held that possessory title itself can be a subject-matter of mortgage,

opining :

"\005Therefore, 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

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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 (3) SCR 567], 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 (6) SCR 727],

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

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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.