When an Unregistered Equitable Mortgage Deed Is Invalid

Extracts of section 58(f) and 59 of the Transfer of Property Act, 1882, and section 49 of the Registration Act, 1908 are reproduced below for ready reference.

58(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.

59. Mortgage when to be by assurance.—Where the principal money secured is one hundred rupees or upwards, a mortgage, OTHER THAN A MORTGAGE BY DEPOSIT OF TITLE DEEDS, can be effected ONLY BY A REGISTERED INSTRUMENT signed by the mortgagor and attested by at least two witnesses.

Where the principal money secured is less than one hundred rupees, a mortgage may be effected either by a registered instrument signed and attested as aforesaid or (except in the case of a simple mortgage) by delivery of the property.

49.Effect of non-registration of documents required to be registered. —No document required by section 17 or by any provision of the Transfer of Property Act, 1882 (4 of 1882), to be registered shall—  

(a) AFFECT ANY IMMOVABLE PROPERTY comprised therein, or  

(b) confer any power to adopt, or

(c) BE RECEIVED AS EVIDENCE OF ANY TRANSACTION AFFECTING SUCH PROPERTY or conferring such power,

unless it has been registered: (capitals mine)

As aforesaid, Section 59 of the Transfer of Property Act, 1882 provides that a mortgage, other than a mortgage by deposit of title deeds, can be effected only by a registered instrument. However, under following circumstances even a mortgage by deposit of title deeds can be effected only by a registered instrument. A three-judge bench of hon’ble Supreme Court in United Bank Of India Ltd. vs Lekharam Sonaram And Co. And Ors. {AIR 1965 SC 1591; 1965 (0) BLJR 480; Decided on 1/2/1965} observed and held as follows.

“7. A mortgage by deposit of title deeds is a form of mortgage recognised by Section 58(f) of the Transfer of Property Act which provides that it may be effected in certain towns (including Calcutta) where a person "delivers to a  creditor or his agent documents of title to immovable property with intent to create a security thereon." In other words, when the debtor deposits with the creditor title deeds of his property with an intent to create a security, the law implies a contract between the parties to create a mortgage and no registered instrument is required under Section 59 as in other classes of mortgage. It is essential to bear in mind that the essence of a mortgage by deposit of title deeds is the actual handing over by a borrower to the lender of documents of title to immovable property with the intention that those documents shall constitute a security which will enable the creditor ultimately to recover the money which he has lent. But if the parties choose to reduce the contract to writing, this implication of law is excluded by their express bargain, and the document will be the sole evidence of its terms. In such a case the deposit and the document both form integral parts of the transaction and are essential ingredients in the creation of the mortgage. It follows that in such a case the document which constitutes the bargain regarding security requires registration under Section 17 of the Indian Registration Act, 1908, as a non-testamentary instrument creating an interest in immovable property, where the value of such property is one hundred rupees and upwards. If a document of this character is not registered it cannot be used in the evidence at all and the transaction itself cannot be proved by oral evidence either. In the case of Kedarnath Dutt v. Shamloll Khettry, 11 Ben. L.R. (O.C.J.) 405 Couch C.J. stated as follows :

"The rule with regard to writings is that oral proof cannot be substituted for the written evidence of any contract which the parties have put into writing. And the reason is that the writing is tacitly considered by the parties themselves as the only repository and the appropriate evidence of their agreement. If this memorandum was of such a nature that it could be treated as the contract for the mortgage and what the parties considered to be the only repository and appropriate evidence of their agreement, it would be the instrument by which the equitable mortgage was created, and would come within Section 17 of the Registration Act. "

8. In a later case, in Pranjivandas Mehta v. Chan Ma Phee, (1916) L.R. 43 I.A. 122 the Judicial Committee observed as follows:

"The law upon this subject is beyond any doubt: (i) Where titles are handed over with nothing said except that they are to be security, the law supposes that the scope of the security is the scope of the title. (2) Where,  however, titles are handed over accompanied by a bargain, that bargain must rule. (3) Lastly, when the bargain is a written bargain, it, and it alone, must determine what is the scope and extent of security.

In the words of Lord Cairns in the leading case of Shaw v. Foster, (1872) L.R. 5 H.L. 321, 339, 340 ' although it is a well established rule of equity that a deposit of a document of title without more, without writing, or without word of mouth, will create in equity a charge upon the property referred to, I apprehend that that general rule will not apply where you have a deposit accompanied by an actual written charge. In that case you must refer to the terms of the written document, and any implication that might be raised, supposing there were no document, is put out of the case and reduced to silence by the document by which alone you must be governed." (emphasis supplied)

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