Delhi High Court
Madan Lal Sobti vs Rajasthan State Industrial ... on 7 November, 2006
Equivalent citations: I(2007)BC364, (2007)145PLR43, AIR 2007 (NOC) 638 (DEL.)
Author: Sanjay Kishan Kaul
Bench: Sanjay Kishan Kaul
JUDGMENT Sanjay Kishan Kaul, J.
1. The petitioner filed a suit for permanent and mandatory injunctions before the Civil Judge seeking a restraint order against the respondent, namely, Rajasthan State Industrial Development and Investment Corporation Limited from dealing with the suit property being Flat No. BB/3-C, DDA Flats, Munirka, New Delhi in any manner. The petitioner claimed to be the owner of the property. In the year 1996, the respondent Corporation sanctioned additional term loan of Rs. 64 lakhs to one M/s. EON Polymers Ltd. (hereinafter to be referred to as, the borrower), which was disbursed to the borrower on 15.11.1996. The respondent Corporation had a first mortgage over the borrowers immovable and movable properties apart from the personal guarantee of the promoters. The petitioner filed the suit aggrieved by a letter / order dated 01.11.2003 issued to the petitioner by the respondent Corporation under Section 29 of the State Financial Corporation Act, 1951 (hereinafter to be referred to as, the SFC Act). In terms of the said notice / order, the suit property was sought to be attached on the ground that the petitioner had mortgaged the said property with the respondent Corporation as collateral security.
2. It is important to note that the petitioner does not dispute his signatures on the documents and, in fact, states that the contract of mortgage was got signed by the petitioner on 10.03.1997 by misrepresenting and concealing material facts. The mortgage was created much after the date of sanction and disbursement of the loan in favor of the borrower without any further facility being advanced at that stage. The mortgage was, thus, alleged to be null and void for lack of consideration. The plaint alleged that the consideration to a contract can be passed only once and, thus, the additional guarantee cannot be legally claimed and enforced in law unless fresh consideration is given, which was not so in the present case. There was absence of any reciprocal promise. A further plea was raised that the mortgage was not a registered document and could not create rights and interests in favor of the respondent Corporation.
3. The petitioner along with the suit filed an application for interim relief under Order 39 Rules 1 & 2 of the Code of Civil Procedure, 1908 (hereinafter to be referred to as, the said Code). The application was dismissed by the trial court by an order dated 13.02.2004. The petitioner thereafter filed an appeal, which was dismissed by the impugned order dated 05.07.2004. The petitioner now seeks to challenge the said order by the present proceedings under Article 227 of the Constitution of India (hereinafter to be referred to as, the Constitution).
4. It is trite to say that this Court does not exercise jurisdiction under Article 227 of the Constitution as an appellate court. In Mohd. Yunus v. Mohd Mustaqim and Ors. , it has been observed that mere wrong decision without anything more is not enough to attract the jurisdiction of the High Courts under Article 227 of the Constitution of India, which jurisdiction is limited to seeing that an inferior Court or Tribunal functions within the limits of its authority and not to correct an error apparent on the face of the record much less an error of law. It is, thus, a patent or jurisdictional error, which is liable to be corrected.
5. It may be further noticed that the matter in controversy relates to only an interim order in respect of which the petitioner has already had two rounds of litigation and two adverse orders against him. The appellate court considered the pleas of the petitioner and noticed that undisputedly the original title documents were deposited with the respondent Corporation. Since it was a mortgage by deposit of title documents, the same did not require registration.
6. The legal position was enunciated by the appellate court by holding that the deposit of original documents constitute a security for recovery of money by the creditor and in view of the provisions of Section 59 of the Transfer of Property Act, 1882 (hereinafter to be referred to as, the T.P. Act) would not require registration. However, if the parties chose to reduce the contract into writing, the implication of law is that the document will be the sole evidence of its terms and such a document would require registration under Section 17 of the Registration Act, 1908 being a non-testamentary instrument creating an interest in the immovable property. Thus, in such a case, if the document is not registered, it cannot be used in evidence at all. In the given facts of the case, it was found that the document in question dated 10.03.1997 was a memorandum of entry for creation of equitable mortgage. It was only a memorandum about the transaction having taken place on that date and records that the petitioner had delivered and deposited the title deeds with the respondent Corporation with the intent to create security by way of equitable mortgage. It was held that this document was only a memorandum and not a contract to create mortgage as the mortgage had already been created by deposit of title deeds. This document was not in isolation, but there was another letter of the even date addressed by the petitioner to the respondent Corporation confirming having deposited the title deeds of the property in question for the term loan of Rs. 64 lakhs to the borrower. The respondent Corporation even filed communications between the parties to show how the document was understood by both the parties.
7. Learned Counsel for the petitioner once again sought to re-agitate the issue by referring to the provisions of the T.P. Act. Section 58 of the T.P. Act defines mortgage and enlists the different kinds of mortgages. Clause (f) of Section 58 of the T.P. Act defines a mortgage by deposit of title documents as under:
58. Mortgage, mortgagor, mortgagee, mortgage-money and mortgage-deed defines.
(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.
8. Section 59 of the T.P. Act requires that a mortgage can be created only by a registered instrument, but the exception carved out is of a mortgage by deposit of title documents. Section 59 reads as under:
59. Mortgage when to be by assurance. When 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.
9. There can be no doubt, in my considered view, about the legal proposition as enunciated by the appellate court. A mere deposit of title documents to secure a mortgage does not require registration. If, however, it is a mortgage deed or a composite document, then the same would require registration, which is not the position in respect of the document dated 10.03.1997 coupled with the letter of the even date which shows that the documents of title were deposited by the petitioner with the respondent Corporation followed by the memorandum of deposit of such title documents. Such a document would not require registration.
10. The second plea advanced by learned Counsel for the petitioner is based on the lack of any consideration for execution of this mortgage. Learned Counsel referred to the provisions of Section 127 of the Indian Contract Act, 1872 (hereinafter to be referred to as, the Contract Act), which reads as under:
127. Consideration for guarantee. Anything done, or any promise made, for the benefit of the principal debtor, may be a sufficient consideration to the surety for giving the guarantee.
Illustrations
(a) B requests A to sell and deliver to him goods on credit. A agrees to do so, provided C will guarantee the payment of the price of the goods. C promises to guarantee the payment in consideration of As promise to deliver the goods. This is a sufficient consideration for Cs promise.
(b) A sells and delivers goods to B. C afterwards requests A to forbear to sue. B for the debt for a year, and promises that, if he does so, C will pay for them in default of payment by B. A agrees to forbear as requested. This is a sufficient consideration for Cs promise.
(c) A sells and delivers goods to B.A afterwards, without consideration, agrees to pay for them in default of B. The agreement is void.
11. Learned Counsel submits that the present case would be covered by illustration (c) and, thus, the agreement would be void as the mortgage is after disbursement of the loan. Thus, only if additional loan was given at the stage of the mortgage being created, the same would be valid. Learned Counsel, however, does not dispute that forbearance to sue is an exception to the aforesaid since in that case a valid guarantee would be taken. This plea arises out of a letter dated 27.01.1997 placed on record, which is a recovery memo issued to the borrower. This letter shows the default in payment of dues after the additional loan was advanced on 15.11.1996. It may be noticed that the borrower entity was already availing of considerable loan facility and the loan agreement dated 19.06.1996 followed by the disbursement of loan on 15.11.1996 of Rs. 64 lakhs was by measure of an additional loan.
12. In my considered view, it is obvious that after issuance of the letter dated 27.01.1997 and failure of the borrower to clear the dues, the mortgage came into being on 10.03.1997 within a month and half thereafter. It is obviously a case of creation of mortgage arising from forbearance to sue and, thus, cannot be said to be without consideration.
13. Learned Counsel for the petitioner referred to a number of judgments to advance his case. In Ram Narain v. Lt. Col. Hari Singh and Anr. , it was held that a contract of guarantee executed afterwards without any consideration is void as the word done in Section 127 is not indicative of the inference that past benefit to the principal debtor can be good consideration. It was observed as under:
8. According to Section 126 of the Indian Contract Act, A 'contract of guarantee' is a contract to perform the promise or discharge the liability, of a third person in case of his default. Guarantee is, therefore, in the nature of 'a collateral engagement to answer for the debt, default or mis-carriage of another as distinguished from an original and direct engagement for the parties own act. (Chitty on Contracts, Vol. II, 22nd (1961) Edition). On the question of consideration necessary to support an engagement of guarantee the relevant section of the Indian Contract Act is 127, which reads as follows:
Anything done, or any promise made, for the benefit of the principal debtor, may be a sufficient consideration to the surety for giving the guarantee.
For the validity of a contract of guarantee, it is adequate consideration if anything is done or any promise made for the benefit of the principal debtor. The nature of the things done which constitutes such consideration can be gleaned from some decided cases to which reference has been made by the learned Counsel for the parties.
(9) In Nanak Ram v. Mehin Lal 2nd 1 All 487 where N. advanced money to K. on a bond hypothecating K.'s property, and mentioning M. as surety for any balance that might remain due after realization of K.'s property, M. being no party to K.'s bond but having signed a separate surety-bond two days subsequent to the advance of the money, it was held that the subsequent surety bond was void for want of consideration under Section 127 of the Indian Contract Act.
...
(14) A reference to illustration (c) of Section 127 of the Indian Contract Act may be made. It reads:
A. sells and delivers goods to B. C. afterwards without consideration, agrees to pay for them in default of B. The agreement is void.
From this illustration, I feel fortified in my conclusion that anything done or any promise made for the benefit of the principal debtor must be contemporaneous to the surety's contract of guarantee in order to constitute consideration therefore. A contract of guarantee executed afterwards without any consideration is void.
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18. In Paulo Varghese and Ors. v. Ittipe Abraham and Ors. A.I.R. 1952 Travancore, Cochin 202, it was again observed as under:
Even if this document is genuine, the plaintiff would not have surmounted all the obstacles before he can get a decree against the legal representatives of Itty Iype. As already stated, the averment in the plaint does not even indicate that there was any consideration for the promise alleged to have been given by Itty Iype subsequent to the incurring of the liability by the principal debtor. There is no suggestion of any benefit which the creditor was prepared to confer on the principal debtor at the request of the surety. The debt was already contracted and subsequently the alleged surety is stated to have come forward and said that he would be responsible for the discharge of the debt. The creditor did not suffer any detriment at the instance of the surety. This is an obvious instance of a promise, which is not supported by consideration and for that reason cannot be enforced in a Court of Law.
19. A Division Bench of the Madras High Court in Union of India v. Bank of India and Ors. 51 (1981) Company Cases 494 held that in transactions of guarantee, the creditor should have done or agreed to do something in consideration of the surety giving the guarantee. If the execution of this surety bond is simultaneous with the original borrowing, then the original lending by the creditor will itself form sufficient consideration for the surety of bond, but where the surety bond comes into existence after the original borrowing, the creditor must prove if he wants to proceed against the surety or guarantor, that in consideration of the contract of surety or guarantee, he did something or refrained from doing something.
20. The observations in Halsburys Laws of England, Volume 20, 4th edition, para 115 (at p. 58) were cited with approval to the following effect:
The consideration for the surety's promise does not move from the principal debtor, but from the creditor. It need not directly benefit the surety, although it may do so, and it may consist wholly of some advantage given to or conferred on the principal debtor by the creditor at the surety's request. Thus, the surety's promise often stipulates for a supply of goods or an advance of money to the principal debtor, or that the principal debtor should be taken into the creditor's service or employment.
21. Learned Counsel also referred to the judgment in Syros Shipping Co SA v. Elaghill Trading Co (1981) 3 All ER 189 to advance the plea that there has to be an independent cause of action and a party cannot sue on a naked promise to pay. Thus, equitable estoppel cannot be used as a sword, but only as a shield. The necessity of consideration is an essential part of the cause of action and, thus, the doctrine of consideration is too firmly fixed to be overthrown by a side-wind. Such doctrine of consideration was held to remain a cardinal necessity of the formation of a contract, although not of its modification or discharge.
22. All the aforesaid judgments, as is obvious, are on the principle of the requirement of consideration. There is no quarrel with the proposition of law, but as held above, the consideration is the forbearance to sue itself and, thus, it cannot be said that the subsequent execution of security by the petitioner is without consideration.
23. The petitioner also referred to judgment of the Division Bench of this Court in Ishwar Dass Malhotra v. Dhanwant Singh and Ors. , which discussed the law relating to registration in respect of creation of mortgage. This would be a question of fact dependent on the nature of document. The judgment in M. Subramannian and Anr. v. M.L.R.M. Lutchman and Ors. AIR 1923 PC 50 was cited with approval where it had been held that if the memorandum was of such a nature that it could be treated as the contract for the mortgage which the parties considered to be the only repository and appropriate evidence of their agreement, it would be the instrument by which equitable mortgage was creased and would come within Section 17 of the Registration Act. Similarly, the Supreme Court in Rachpal Mahraj v. Bhagwandas Daruka and Ors. had observed as under:
...When the debtor deposits with the creditor the title deeds of his property with the intent to create a security, the law implies a contract between the parties to create a mortgage, and no registered instrument is required under Section 59 as in other forms of mortgage. But if the parties choose to reduce the contract to writing, the implication is excluded by their express bargain, and the document will be the sole evidence of its terms. In such a case, the deposit and the document both form integral parts of the transaction and are essential ingredients in the creating of the mortgage. As the deposit alone is not intended to create the charge and the document, which constitutes the bargain regarding the security, is also necessary and operates to create the charge in conjunction with the deposit, it requires registration under Section 17, Registration Act, 1908, as a non-testamentary instrument creating an interest in immovable property, where the value of such property is one hundred rupees and upwards. The time factor is not decisive. The document may be handed over to the creditor along with the title deeds and yet may not be registerable, ....
24. In Sundarachariar v. Narayana Ayyar , it was held that since the document in question recorded particulars of the documents delivered as security in pursuance to an agreement and did not state what were the terms of the agreement nor did it indicate the nature of the matter for which the deeds were deposited as security, they did not require registration.
25. In Hari Shankar v. Kedar Nath , it was held that where the parties professing to create a mortgage by deposit of title deeds contemporaneously enter into a contractual agreement, in writing, which is made an integral part of the transaction and is itself an operative instrument and not merely evidential, such a document must under the statute be registered.
26. The legal position has been elucidated in the aforesaid judgments. In each case, the document in question has been considered and analysed and a conclusion arrived at on the issue of registration one way or the other on the consideration of the document. In the present csae, the document has been construed as being only evidence of deposit of the title documents and, thus, would not require registration.
27. It is apparent that the petitioner having mortgaged the property to secure forbearance to sue against the borrower is trying to defeat the rights of the respondent Corporation conferred under the statute being the SFC Act and this cannot be permissible.
28. In the end, it must be observed that the observations made by the courts below and by this Court are naturally only prima facie in nature since the matter in issue relates to the decision on interlocutory applications and will not influence the decision in the main suit.
29. The petition and the application are accordingly dismissed as being without any merit.CM No. 10684/2004
Dismissed.