Allahabad High Court
Smt. Farhat Anas Thru Shaikh Mushtaque ... vs Debts Recovery Appellate Tribunal And ... on 27 February, 2015
Equivalent citations: 2015 AIR CC 2571 (ALL), (2015) 152 ALLINDCAS 861 (ALL), 2015 (4) ALL LJ 761, (2015) 3 CIVILCOURTC 515, (2015) 128 REVDEC 81, (2015) 4 ICC 207, (2015) 3 ADJ 48 (ALL), (2015) 110 ALL LR 64, (2015) 3 ALL RENTCAS 102, (2015) 2 BANKCAS 536
Author: Sudhir Agarwal
Bench: Sudhir Agarwal
HIGH COURT OF JUDICATURE AT ALLAHABAD AFR Reserved on 14.07.2014 Delivered on 27.02.2015 Court No. - 34 Case :- WRIT - C No. - 20573 of 2009 Petitioner :- Smt. Farhat Anas Thru Shaikh Mushtaque Ahmad Respondent :- Debts Recovery Appellate Tribunal And Others Counsel for Petitioner :- U.K. Saxena,I.A.Siiddiqui,M.A.Qadeer Counsel for Respondent :- K.M. Asthana, Iqbal Ahmad, SC, Siddharth Hon'ble Sudhir Agarwal,J.
1. This writ petition under Article 226 of the Constitution has arisen from the order dated 31.03.2009 passed by Debts Recovery Appellate Tribunal, Allahabad (hereinafter referred to as the "DRAT") in Appeal No. R-962 of 2008, filed by Canara Bank (hereinafter referred to as the "Bank"), the respondent no. 3, whereby allowing appeal it has set aside the order dated 10.03.2008 passed by Debts Recovery Tribunal (hereinafter referred to as the "DRT") in Original Appeal No. 10 of 2005 and has restored Recovery Officer's order dated 08.09.2005 passed in D.R.C. No. 323 of 2001.
2. The facts, in brief, giving rise to the dispute in present writ petition are as under.
3. (Late) Khushal Chandra Khanna purchased Plot No. D-3, Guruteg Bahadur Nagar Kareilly, Allahabad (hereinafter referred to as the "disputed premises") on Hire Purchase Agreement from U.P. Awas Evam Vikas Parishad (hereinafter referred to as the "UP AEVP") vide agreement dated 05.07.1977. The petitioner, Smt. Farhat Anas, wife of Sri Mohd. Anas, claimed to be the owner of aforesaid plot. She executed a registered power of attorney dated 21.09.2005 in favour of Mr. Shaikh Mushtaque Ahmad, son of Late Saeed Ahmad, for necessary litigation against Recovery Officer's order dated 08.09.2005 in respect to aforesaid property.
4. The agreement provides that Hire Purchaser shall hold disputed premises as tenant for Hire Purchased year, which is a fixed term of four years commencing from November, 1976 and would end on the last date of the month of October, 1980. The Hire Purchaser was to pay half yearly installment of Rs. 2313/-, besides other amount. Thereafter the stipulation (2) (s) and (t) and stipulations (3) and (4), provide as under:
"(2)(s) The owner hereby agrees that the hire purchaser making all payments, due from him in accordance with these presents and performing and observing all the conditions herein contained shall peacefully hold and enjoy as a hire-purchase the said property during the said term except for any lawful interruption or disturbance by the owner or any person lawfully claiming under it.
(t) The hire purchaser of the said plot of land hereby agrees to erect and complete and construction of the house on the plot of land within 5 years of the date of allotment failing which the land shall be liable to be resumed by the Parishad. The hire purchaser shall get the plan of the house approved by the competent authority before commencing the construction.
(3) The owner hereby agrees to transfer the said property to the hire purchase by executing conveyance deed with him in the prescribed form after the expiry of the hire purchase period provided that he has paid all the dues of the owner and of public bodies, if any, prior to such execution. The hire purchaser thereafter ceases to be a hire purchaser and become the owner of property subject to the provisions of the conveyance deed to be executed as provided in para 5.
(4) The conveyance deed shall be executed normally by the owner after the expiry of the hire purchaser period, nevertheless, if the hire purchaser applied for terminating the agreement earlier and vesting in him ownership of the property and if the hire purchaser makes full payment as calculated by the owner (whose decision shall be final and binding) the owner shall execute the conveyance deed."
5. Sri Khushal Chandra Khanna was proprietor of M/s Formac. He got a cash credit hypothecation limit sanctioned by the then Lakshmi Commercial Bank (now Canara Bank) for Rs. 2 lacs and against that he executed a security document wherein he deposited Hire Purchase Agreement dated 05.07.1977 for creating equitable mortgage of four mortgaged plots. He also got a lease deed executed with UPAEVP in respect to aforesaid plot on 08.09.1981. He sought permission to transfer the aforesaid plot to petitioner which was granted by UPAEVP vide letter dated 20.03.1986. Thereafter a sale deed was executed between petitioner and Sri Khushal Chandra Khanna in respect of aforesaid plot on 09.04.1986. The petitioner claimed that her ownership right came into existence pursuant to sale deed dated 09.04.1986 executed by Sri Khushal Chandra Khanna in favour of petitioner.
6. Sri Khanna then committed default in payment of dues of Bank, who instituted Original Suit No. 183 of 1989 in the Court of Civil Judge (Senior Division), Allahabad for realization of Rs. 18,19,777.93 alongwith future and pendente lite interest. The suit was transferred to DRT, Jabalpur, after enforcement of Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as the "Act, 1993") and thereafter it was further transferred to DRT, Allahabad, where it was registered as TA No. 135 of 2000. In the aforesaid suit or TA No. 135 of 2000, petitioner was not a party at all. It was allowed by Tribunal vide order dated 30.05.2001 and recovery certificate was issued against respondents no. 5 and 6, the legal heirs of Sri Khushal Chandra Khanna, who had demised in the meantime. Respondents no. 5 and 6 filed application on 28.02.2002 seeking recall of recovery certificate dated 30.05.2001. Thereafter they preferred appeal before DRAT, which was also rejected vide order dated 29.08.2002. Respondents no. 5 and 6 came to this Court in Writ Petition No. 7633 of 2003, which was dismissed vide order dated 24.04.2007 on the ground of alternative remedy to file appeal under Section 30 of Act, 1993. The Recovery Officer, in the meantime, sold flat No. 19, Block No. 12, Alkapuri, Hastings Road, Allahabad, by auction, for a sum of Rs. 7,45,000/-, which was the residence of (Late) Khushal Chandra Khanna. The amount realized was deposited against the loan amount. Then it proceeded against the disputed premises, whereupon petitioner filed objection under Rule 11(1), Schedule II of Income Tax Act, 1961 (hereinafter referred to as the "Act, 1961") on 12.01.2004 stating that the land in dispute was settled with petitioner, who is the original owner thereof and hence it cannot be sold for satisfaction of dues under recovery from (Late) Khushal Chandra Khanna or his legal heirs. The above objection was rejected by respondent no. 2, i.e., the Recovery Officer vide order dated 08.09.2005, whereagainst the petitioner preferred Appeal No. 10 of 2005 before DRT, Allahabad under Section 30(1) of Act, 1993. The aforesaid appeal was allowed vide judgment dated 10.03.2008. Thereagainst Bank preferred Appeal No. 962 of 2008 before DRAT, which has been allowed by means of impugned judgment dated 31.03.2009. The order passed by DRT has been quashed and the order of Recovery Officer has been restored. The DRAT has held that disputed property was mortgaged by (Late) Sri Khushal Chandra Khanna with the Bank and, therefore, any subsequent transfer would not absolve it from the charge already created in favour of Bank.
7. It is contended that (Late) Khushal Chandra Khanna himself did not possess any alienable right in respect of disputed premises, which was owned by UP AEVP and in that view of the matter he could not have created any charge over the said property and the DRAT in taking a view that there was no restriction in creation of a mortgage, has committed a manifest error of law in appreciating the status and capacity of (Late) Khushal Chandra Khanna vis a vis property in dispute.
8. Per contra, learned counsel appearing for Bank contended that since the original lease deed executed between (Late) Khushal Chandra Khanna and UP AEVP was deposited with Bank, it resulted in creation of equitable mortgage and charge of the Bank over property in dispute. Once mortgage was created, it will always remain a mortgage and the disputed property could not have been transferred to a third party without first clearing the charge of Bank and, therefore, all subsequent transfers made by (Late) Khushal Chandra Khanna in favour of petitioner were of no consequence in law.
9. The rival submissions, in my view, have given rise to the following questions:
(I) Whether (Late) Khushal Chandra Khanna could have created any mortgage in respect of property in dispute without the consent of UP AEVP, the owner of disputed property?
(II) Whether an equitable mortgage at all, was created by (Late) Khushal Chandra Khanna in favour of Bank in respect of property in dispute?
10. The aforesaid questions can be answered after considering the authority and status of (Late) Khushal Chandra Khanna in respect of property in dispute and this will also give rise to an incidental question, as to what status (Late) Khushal Chandra Khanna enjoyed in respect of disputed property under lease deed dated 08.09.1981.
11. The facts disclosed in the writ petition and as referred hereinabove shows that (Late) Sri Khushal Chandra Khanna, who had entered into a Hire Purchase Agreement with UPAEVP on 05.07.1977 continued to enjoy status of tenant for a period of four years from November, 1976 to October, 1980 during which period he was to pay half yearly installment of Rs. 2313/-, i.e., consideration of plot alloted to him by UPAEVP. The only right he possessed was to enjoy uninterrupted and undisturbed possession of said property subject to fulfillment of his obligations. The hire purchaser, i.e., (Late) Sri Khushal Chandra Khanna was also under an obligation to raise construction of a house within five years from the date of allotment, failing which the land was liable for resumption by UPAEVP. Throughout this period UPAEVP continued to be the owner of land. After expiry of hire purchase period and subject to payment of all dues by hire purchaser, i.e., (Late) Sri Khushal Chandra Khanna to the owner, i.e., UPAEVP, it was agreed by owner, i.e., UPAEVP that the property shall be transferred to hire purchaser by executing a conveyance deed. On execution of said deed the hire purchaser shall become the owner of property and would cease to be a hire purchaser.
12. The sanction of cash credit benefit upto the limit of Rs. 2 lacs to M/s Formac, a proprietorship firm of (Late) Sri Khushal Chandra Khanna on 14.04.1980 is also not disputed but it cannot be doubted that at this stage nothing was offered by the borrower, i.e., the firm or its proprietor, i.e., (Late) Sri Khushal Chandra Khanna, as security to the Bank.
13. The next noticeable incident is the execution of lease deed dated 08.09.1981 by UP AEVP in favour of (Late) Sri Khushal Chandra Khanna. I find that in some parts of pleading and in the order of DRT also this document has been referred to as the sale deed dated 08.09.1981 but during course of argument, learned counsel for the parties could not dispute that it is not a sale deed in terms of Section 54 of Transfer of Property Act, 1882 (hereinafter referred to as the "Act, 1882") but a deed of lease covered by the term "lease" as defined under Section 105 of Act, 1882. The lease was for a term of 30 years with a right of renewal to two more periods of 30 years each on payment of rent mentioned in the said deed. It is a duly registered document in the office of Sub-Registrar, Allahabad and a copy thereof is on record as Annexure-3 to the writ petition. One of the condition stipulated in lease deed, reads as under:
"The lessee shall not be entitled without the permission previous consent in writing of that U.P. Avas Evam Vikas Parishad to make any sub-division of the said demised premises or to transfer or assign it in parts through the whole plot, as laid out and leased by the lessor may be assigned or transferred and also that the lessee shall have no right to sub-let the whole or any portion of the demised premises, without the previous consent in writing of the said U.P. Avas Evam Vikas Parishad. And also that the lessee/his/her/ assignee, transferee will not transfer his/her rights under this demise even with the permission of the U.P. Avas Evam Vikas Parishad or the Avas Ayukt as the case may be until he/she has paid all the arrears of rent due from her/him to the lessor on the date of such assignments or transfer under these presence, and that if the lessee, his/her assignee or transferee shall also be equally liable for all the arrears of rent and premium due from his/her to the Lessor on the date of such assignment or transfer and also that the Lessee will from time to time and at all times during the said term repair and keep the buildings erected as aforesaid in good and substantial repair and conditions both externally and internally and also the Lessee will not any time carry on or permit to be carried on upon the said premises any trade or business whatsoever or use the same or permit the same to be used for any religious purpose or any purpose other than private resilence and will not do or suffer to be done on the demised premises or any part, thereof, any act or thing which may be grow to be a nuisance, image annoyance any inconvenience to the lessor or the owners, or occupies of other premises in the neighbour hood AND PROVIDED FURTHER that the Lessee will peaceably surrenic and yield up to the said demises premises with the said building in such good and substantial repair on the expiration or sooner determination of the said term up to the lessor who may on expiry of the term either take the buildings upon a valuation or the lessee will have the right to remove it and will so often as the said premises shall by assignments or by death or any operation of law otherwise, Howsoever, become assigned inherited or transferred during the pendence of the term hereby granted within one calender month from the date of such assignments inheritance or transfer intimate to the U.P. Avas Evam Vikas Parishad setting forth names and description of the parties to every such assignments and the particulars and effects thereof together with every assignments and every probate of a will or letters of administration decree order certificate of other document effecting or evidencing such assignment inheritance or transfer and documents as aforesaid accompanying the said notice shall remain for seven days at least at the office of the U.P. Avas Evam Vikas Parishad, Lucknow and also that it shall be lawful for the lessor and his agents during the said term at all reasonable times of the day to enter into and upon the said demised premises and the building to be erected thereon as aforesaid and to inspect and view the conditions thereof and if any defect or want to respiration shall be on any such inspection found and discovered of give to the lessee or leave upon the said premises notice in writing to make good and restore the same and that the lessee will within three calendar months next after such notice well and sufficiently make good and restore the same accordingly provided always and it is hereby declared that if the said yearly rent hereby reserve or any part thereof shall at any time be in arrears and unpaid for the space of one calendar month next after any of the said days wherein the same shall have become due whether the same shall have been lawfully demanded or not or if there shall be any breach or non-observance by the lessee, if any of the Covenants, hereinbefore contained on his/he/her part to be observed and performed then and in any such case it shall be lawful for the less or notwithstanding Wavier or any previous cause or right of reentry to enter into the upon the said demised premises and the building so to be erected as aforesaid or any part thereof in the name of the whole and thereupon the same shall remain to the use of and be vested in the lessor."
14. It thus cannot be doubted that (Late) Sri Khushal Chandra Khanna only had the limited lease rights over disputed property under the deed dated 08.09.1981 and the ownership thereof continued to be vested with UP AEVP. Here it would be necessary to understand the meaning of term "lease" and the capacity of the persons who holds only lease rights.
15. The term "lease" has been defined in Section 105 of Transfer of Property Act, 1882 (hereinafter referred to as the "Act, 1882"). It reads as under:
"105. Lease defined.- A lease of immovable property is a transfer of a right to enjoy such property, made for a certain time, express of implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms."
16. Broadly the definition of "lease" shows that the relationship of lessor and lessee is one of contract. If an agreement vests in the lessee a right of possession for certain time, it operates as a conveyance or transfer, and it is a lease. The essential elements of a lease are:
(i) the parties;
(ii) the subject matter; or immovable property
(iii) the demise, or partial transfer;
(iv) the term, or the period;
(v) the consideration, or rent
17. Hire Purchase Agreement by itself does not amount to a sale of property. An agreement of hire purchase cannot be said to be a sale deed. As per the Hire Purchase Agreement (Late) Sri Khushal Chandra Khanna was only a tenant and, therefore, at the best a lessee vis-a-vis the land in question. With the execution of lease deed by UPAEVP on 08.09.1981, again (Late) Sri Khushal Chandra Khanna was given lease of land for 30 years only. He was not conferred with the right of ownership over the land. The UP AEVP continued to be its owner. In the lease deed dated 08.09.1981 it is admitted position that there was a stipulation restraining the lessee from making any transfer of property without previous permission of UP AEVP.
18. It is also not disputed by learned counsel for the parties that a transferor cannot assign or transfer to create a better interest, right or title over property in question then what he himself possess in respect thereto. It is admitted that whatever transaction took place between the Bank and (Late) Sri Khushal Chandra Khanna, to the UP AEVP, i.e., the owner of property, was neither ever informed nor taken into confidence, nor any permission or consent thereof was obtained by any of the parties.
19. What has been pleaded by the Bank is that the mortgage was created in favour of Bank on 25.03.1982. The kind of mortgage created, the manner in which it was created and the terms and conditions thereof, it appears, were never allowed to be examined by both the Tribunals since the document, if any, executed between parties in this regard has not been placed either before DRT or DRAT at any stage. When inquired from learned counsel for the Bank, he refers to para 4 of the counter affidavit filed before this Court and stated that an equitable mortgage was created on 25.03.1982 by (Late) Sri Khushal Chandra Khanna in favour of Bank by depositing title deed dated 08.09.1981. Whether any agreement was executed on that date between parties or it was a simple act of deposit of deed dated 08.09.1981 with the Bank has not been examined by any of the Tribunals though, in my view, it was an important aspect to be seen. It is also to be seen as to what is the concept of 'mortgage' and 'equitable mortgage' and whether in the case in hand a mortgage or equitable mortgage, as the case may be, was actually created. Why I say so would become apparent when this Court will go through the concept of "mortgage" and "equitable mortgage".
20. Section 58 of Act, 1882 defines "mortgage" and seven types of mortgage have been defined. For the purpose of present case I would refer to the definition of "mortgage", "simple mortgage" and "mortgage by deposit of title deeds" as contained in Section 58 (a), (b) and (f), which read as under:
"58. "Mortgage", "mortgagor", "mortgagee", "mortgage-money" and "mortgage-deed" defined.--
(a) A mortgage is the transfer of an interest in specific immovable 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 s 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.
........
(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."
21. A mortgage, therefore, is a transfer of an interest in specific immoveable property as security for the repayment of a debt but such interest itself is immoveable property. The distinction between a "mortgage" and a "sale" is apparent from the fact that in Section 58 in order to create "mortgage" their should be a transfer of interest in specific immoveable property while under Section 54 in order to constitute "sale" it should be transfer of ownership.
22. It has been held that a mortgage being a transfer of interest in immoveable property, such interest is capable of transfer by way of assignment, mortgage etc. and it is heritable. Ordinarily, it cannot be disputed that lease rights can be transferred by holder of such right to third party, provided the agreement between owner or the lessor and lessee, does not provide a condition otherwise. In the present case the owner was UP AEVP. It is not disputed. The only right (Late) Sri Khushal Chandra Khanna possessed in property in dispute under the deed dated 08.09.1981 was the lease rights to hold and enjoy property for 30 years on payment of agreed rent, with a further right of renewal for two equal terms but in respect to further transfer etc. his rights were not unrestricted. The terms and conditions of agreement provided a permission and prior consent of the owner/lessor, i.e., UP AEVP for any transfer, assignment etc. by the lessee.
23. Unless this is determined, whether (Late) Sri Khushal Chandra Khanna was capable of transferring his lease rights to Bank without any sanction or permission of UP AEVP, it would be difficult to hold that any mortgage could have been created by Sri Khanna in respect of property in dispute.
24. The concept of equitable mortgage was imported from English Law but now it cannot be doubted that for the purpose of law of mortgage in India, after it has been coded under Act, 1882, the Court cannot travel beyond statutory provisions, as held in Kidar Lall Seal and another Vs. Hari Lall Seal, AIR 1952 SC 47. Therefore, in order to hold that there was a "mortgage" by Sri Khanna in favour of Bank, the Tribunals were bound to examine first whether he (Sri Khanna) had any transferable interest in the immoveable property and had actually transferred such interest or not.
25. A lease holder cannot be said to be a holder of title of property, i.e., the ownership. It cannot be doubted that the term title may have different connotations in different context. In respect to immoveable property, generally, it is understood in terms of ownership. In common parlance the term "title" and "ownership" are used interchangeably but for the purpose of present case I am not intending to read the two terms interchangeably for the reason that in law the term "title" may represent the status of the person vis-a-vis the subject and that status can also be termed as a "title". A title may be absolute, may be restricted, may be derivative etc. A lease holder has the title of a lessee and his title, i.e., the capacity vis-a-vis immoveable property, is subservient to the owner's title, who has absolute right and privilege in respect of property, he owns.
26. Now coming to the concept of "mortgage by deposit of title deed", here again the question would arise as to what is the concept of "title deed", whether it talks of the deed showing absolute right over property in dispute, i.e., ownership, or will include such documents which confers limited rights. In other words, whether the documents conferring limited rights may be termed as "title deed of limited rights".
27. The statute has used the term "deposit of title deeds". In earlier cases it has been held that what is delivered must be a document of title. If the document deposited show no kind of title in the subject, no mortgage is created. Here the term "title deed" as such has not been defined or explained in the statute. It was, therefore, necessary for the Tribunal to first examine, what is the concept of "title", and, whether the document of lease dated 08.09.1981 could be construed to be a "title deed" in respect to property in dispute. That has not been done in the case in hand.
28. The term "equitable mortgage" which has been used by learned counsel for the Bank, it may be important to notice that the same has not been used in Act, 1882. The Privy Council in Vardan Seth Vs. Luckpathy, (1864) 9 MIA 307 accepted equitable mortgages or mortgages by deposit of title deeds as equivalent to simple mortgages.
29. In The Himalaya Bank Limited in Liquidation Vs. F.W. Quarry and another, 1885 (XVII) ILR 252 (All) the term "equitable mortgage" though not defined, but it is said that in English cases the possession of title deed raises a prima facie presumption that the same is held as security for an advance, so as to give the holder an equitable mortgage and that such a mortgage can be created without even a word passing. In short an existing debt or a contemporaneous advance, plus a deposit of document of title, is evidence of the creation of an equitable mortgage.
30. In Imperial Bank of India Vs. U. Rai Gyaw Thu, AIR 1923 PC 211 it was held that an equitable mortgage effect a transfer of interest in property and for the purposes of priority, stood on the same footing as a mortgage by deed.
31. In English Law the mortgage by deposit of title deeds was commonly called as "equitable mortgage". It was considered to be a well established rule of equity that mere deposit of document of title without writing or without word of mouth would create an equity, a charge upon the property referred to. However, in the statute, in India, the legislature has not recognized any distinction between equitable mortgage or legal mortgage. Though the term equitable mortgage has invariably been used commonly in Courts but the fact is that under Section 58 of Act, 1882 the term "equitable mortgage" has not been used. The kind of mortgage recognised is "mortgage by deposit of title deeds".
32. In my view, the basic concept of mortgage, however, would remain the same. A mortgage by deposit of title deeds would also include the concept of transfer of an interest in property.
33. In order to constitute mortgage by deposit of title deeds under Section 58(f), the pre-requisites are:
(I) debt;
(II) a deposit of title deeds; and, (III) an intention that the deeds shall be security for the debt.
34. So far as existence of debt is concerned, I need not go into this question and proceed on the basis that this condition was satisfied between the Bank and Sri Khanna when the alleged mortgage was created on 25.03.1982.
35. The second requisite is deposit of title deeds. It will require first of all to understand the meaning of the term "title deed" and, whether the deed dated 08.09.1981 creating a lease in favour of (Late) Sri Khushal Chandra Khanna with certain restrictions and conditions, would satisfy the requirement of title deed, has to be examined. If we construe the term "title deed" so as to include within its ambit a deed of restricted title which is short of ownership, it may satisfy the second requirement of Section 58(f) but then one has to read within itself that the transferrer or mortgagor would not be able to "transfer an interest" better and superior than what he himself has qua the specific immoveable property. If we find that under the deed dated 08.09.1981 the lessee, i.e., (Late) Sri Khushal Chandra Khanna did possess an interest of enjoying the specific immoveable property for certain period of length on payment of rent but did not possess any right to transfer such interest without satisfying the condition of previous consent or permission of owner, then the meaning would be that (Late) Sri Khushal Chandra Khanna was not having a transferable interest and if that be so, there could not have been any valid transfer of interest since that capacity was lacking in (Late) Sri Khushal Chandra Khanna. An unauthorized transfer cannot result in valid assumption of any right by the transferee.
36. The DRAT while observing that condition of permission and previous consent of owner was in respect to transfer of assignment of property and not for creation of mortgage, has completely misdirected itself and failed to appreciate that the concept of mortgage itself carry the document of transfer, i.e., "transfer of an interest in specific immoveable property". On account of this misconstruction and misunderstanding of the concept of mortgage, it has observed that the said restriction was not applicable for creation of equitable mortgage. Apparenlty the DRAT has committed a patent illegality in observing that creation of equitable mortgage does not include within itself an element of transfer. In doing so, DRAT has failed to keep in mind the definition of mortgage under Section 58(a) of Act, 1882. The creation of mortgage by deposit of title is a way of creation of mortgage but the basis concept of mortgage remain intact, i.e., the transfer of interest in the specific immoveable property.
37. The next aspect in order to attract a mortgage by deposit of title deeds is the intention that the deeds shall be security for debt. Here this Court finds that cash credit limit facility was extended to the firm in 1980. What transpired on 25.03.1982, is not known. On that day whether there was a simple deposit of alleged title deed or there was an intention between parties that the said act would be to create a security against existing and/or future debt, cannot be ascertained properly unless either the document, if any, executed between the parties is on record or the facts are otherwise examined by collecting evidence.
38. In Rachpal Mahraj Vs. Bhagwandas Daruka, AIR 1950 SC 272, the Court said:
"...when a debtor deposits with the creditor title deeds of his property with intent to create a security, the law implies a contract between the parties to create a mortgage..."
39. In United Bank of India Vs. Lekharam Sonaram and Company and others, AIR 1965 SC 1591 the Court said:
"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."
40. In M.M.T.C. Limited Vs. Mohamed Gani and another, AIR 2002 Madras 378, the Court has quoted Lord Cairns in the following words:
"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 equitable 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 intent to create a security. But in a given case unless and until the defendants satisfactorily explain how the documents came to the plaintiff's custody, the said fact would be significant and have a great bearing." (emphasis added)
41. Thereafter having discussed several authorities on the subject in para 21 the Court said:
"21. 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-deeds; 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-deeds constitutes a mortgage, for no such presumption has been laid down either in the Evidence Act or in the Transfer of property Act." (emphasis added)
42. In United Bank of India Vs. Lekharam Sonaram and Company (supra) and Veeramachineni Gangadhara Rao vs. The Andhra Bank Ltd. (supra) the Court has said that if an agreement alongwith deposit of title deeds is also executed, in order to create a mortgage showing that parties have chosen to reduce the contract in writing, the implication of law of creation of mortgage by mere deposit of title deeds will stand excluded by their express bargain and the document will be the sole evidence of such terms and conditions settled between the parties. The deposit of documents and such agreement both shall form integral part of transaction and essential ingredients of the mortgage. Such document which constitute the bargain regarding security would require registration under Section 17 of Act, 1908 and if a document of this character is not registered it cannot be used an evidence at all and the transaction itself cannot be proved by oral evidence.
43. In the present case it has been said that the lease deed dated 08.09.1981 was with the Bank but whether the same were deposited on 25.03.1982 as security for any debt has not been stated anywhere. In the absence of anything this Court may proceed to assume that it was for the purpose of security of debt but then another question would arise, whether any agreement was executed between Sri Khanna and the Bank for creating mortgage. This question would be relevant for the reason that borrower was not Sri Khanna himself but a firm, M/s Formac.
44. In law, a firm if registered, is a legal entity which may sue or may be sued. In a proprietorship firm the liability of proprietor in respect of deposit of the firm is co-extensive but since the transaction has taken place at a time when the debt was in a running account, what actually transpired necessitating the aforesaid transaction, ought to have been examined. It will also give rise to another incidental question, whether the document of agreement was executed on that date or not for the reason that if a document of agreement was also executed on that date, the deposit of title deed and that document both will have to be examined together and cannot be separated. In view of the law laid down in United Bank of India Vs. Lekharam Sonaram and Company (supra) in Veeramachineni Gangadhara Rao vs. The Andhra Bank Ltd. and Ors. AIR 1971 SC 1613. Hence the Court said, if the deposit and execution of a document both are simultaneous, in such case both will form integral parts of the transaction and are essential ingredients in creation of mortgage.
45. To my mind the issue has not been examined properly by the DRAT and the matter require remand.
46. At this stage, learned counsel for the Bank contended that in any case the Bank had a "charge" over property in dispute and it will render all subsequent transactions subject to such "charge". I proceed to consider this aspect also. As already said a "mortgage" is the transfer of an interest in specific immovable property. The only right possessed by lessee on 25.03.1982 in respect to land in dispute was "enjoyment for a particular period". The right of transfer was restricted, i.e., without owners consent it could not have been transferred. He (Sri Khanna) had interest, therefore, in the property in dispute, only for such enjoyment and nothing more than that. The property as such was not transferable under the terms of lease deed without previous consent of owner. The DRAT has considered as if mortgage by deposit of title deed does not amount to any transfer whatsoever. This aspect I have already discussed and shown as apparently fallacious and illegal. It is not the case of Bank that there is any transfer of limited interest in disputed property in favour of Bank by Sri Khanna. The alternative argument, advanced is that it may be treated a "charge" but admittedly the term "charge" is different and distinct from the term "transfer of an interest".
47. In "mortgage", some rights are transferred to "mortgagee" and some remains vested in mortgagor. In a "charge", no right in rem is created but the right is something more than a personal obligation; for it is a jus ad rem, i.e., a right to payment out of property specified. A "charge" is only good against a subsequent transferee for value, with notice or a volunteer, with or without notice.
48. The term "charges" has been defined in section 100 of Act, 1882. It reads as under:
"100. Charges.--Where immovable property of one person is by the act of parties or operation of law made security for the payment of money to another, and the transaction does not amount to a mortgage, the latter person is said to have a charge on the property; and all the provisions hereinbefore contained which apply to a simple mortgage shall, so far as may be, apply to such charge.
Nothing in this section applies to the charge of a trustee on the trust-property for expenses properly incurred in the execution of his trust, and, save as otherwise expressly provided by any law for the time being in force, no charge shall be enforced against any property in the hands of a person to whom such property has been transferred for consideration and without notice of the charge."
49. A perusal of aforesaid definition makes it clear that in a "charge" there is no transfer of an interest of property but the creation of right of payment out of property specified.
50. In J.K. (Bombay) Private Ltd. Vs. New Kaiser-I-Hind Spinning and Weaving Co. Ltd., AIR 1970 SC 1041 the Court pointed out distinction between "charge" and "mortgage" and said:
"While in the case of a charge, there is no transfer of interest of property or any interest therein, but only the creation of a right of payment out of the specified property, a mortgage effectuates transfer of property or an interest therein. No particular form of words is necessary to create a charge and all that is necessary is that there must be a clear intention to make a property security for payment of money in presenti."
51. In Raja Sri Sri Shiva Prasad Singh Vs. Beni Madhab Chowdhury, AIR 1922 Pat 529 the Court said:
"The broad distinction between a mortgage and a charge is this that whereas a charge only gives a right to payment out of a particular fund or particular property without transferring that fund or property, a mortgage is in essence a transfer of an interest in specific immovable property. A mortgage is a jus in rem, a charge, a just ad rem and the practical distinction is that a mortgage is good against subsequent transferees and a charge is only good against subsequent transferees with notice."
52. In Dattatreya Shanker Mote and Ors. vs. Anand Chintaman Datar and Ors., 1974(S) SCC 799 the Court laid down the following propositions:
"(i) A compromise decree is an act of parties withing Section 100. It is not the result of a decision of a court, but is an acceptance by the court, of something to which the parties have agreed.
(ii) A charge does not amount to a mortgage. In every mortgage there is a charge, but every charge is not a mortgage. The declaration is Section 100 that the provisions applicable to a simple mortgage apply as far as may be to a charge does not have the effect of changing the nature of the charge to one of an interest in property.
(iii) The expression 'transfer of property' is Section 100 connotes a transfer of the whole property and not a mere interest in, or over, the property, such as mortgage.
(iv) The expression 'property in the hands of a person...' in Section 100 also does not cover a mortgage. It is confined to a case where the person has sufficient control over the property, so as to enable that person to do whatever he can do with the property as far as the nature of the subject matter would admit.
(v)That proviso to Section 100 does not apply to a mortgage. Since a charge is not a 'transfer of an interest', the charge-holder gets no security as against the subsequent mortgagee, unless the subsequent mortgagee had notice of the existence of the prior charge. In this particular case, the finding was that the respondent had no notice of the charge. Hence, the charge could not have priority over the subsequent mortgage without notice. On this ground, the appeal was dismissed." (emphasis added)
53. In Vasantha Vs. Chandran, AIR 2002 Mad 214 it has been said that no charge can be created if the immoveable property is not owned by the person from whom payment of money is due.
54. In Matlub Hasan and others Vs. Mt. Kalawati and others, AIR 1933 All 934 this Court said that line of demarcation between a simple mortgage and a charge is very thin and sometimes even indistinguishable, but there is no doubt that legislature has contemplated a clear distinction between the two. There may be a variety of reasons for a transaction being only a charge and not a mortgage. It further said that when the intention of parties is to create a liability in perpetuity, not capable of being redeemed absolutely at any time, the transaction cannot possibly be a mortgage.
55. In Ramasami Iyengar vs. M.V. Kuppusami Iyer and Ors., AIR 1921 Mad 514 the Court said that a document which gives immoveable property as security for satisfaction of debt when transferee retains interest in property it merely constitutes a charge on the property not a mortgage.
56. Learned counsel for the Bank when called upon to show, how it can be said that the Bank had a "charge" over property in dispute, he could not substantiate anything to show that any charge was created. He then reverted back and said that as per the stand taken by Bank it was an "equitable mortgage" created by deposits of title deeds.
57. The argument that there was an equitable mortgage created by deposit of title deeds has already been examined above.
58. On the part of petitioner it was also argued that she is a bona fide purchaser having proceeded in the matter with due diligence. The Registration Department issued a certificate that there was no entry to show any charge over the property in dispute. If any mortgage was created, its registration was necessary but for mortgage by deposit of title deeds, the registration is not compulsory. In the Registration Act, 1908 (hereinafter referred to as the "Act, 1908") an amendment was made by adding a proviso to Section 48 by amending Act 21 of 1929 to give effect to such mortgages. The delivery of documents of title alone is sufficient to create equitable mortgage.
59. When registration would be necessary has also been examined in K.J. Nathan Vs. S.V. Maruty Reddy and others, AIR 1965 SC 430. It is said that though such a mortgage is often described as an equitable mortgage, there is an essential distinction between an equitable mortgage as understood in English law and the mortgage by deposit of title deeds recognized under the Act, 1882 in India. Under Act, 1882 a mortgage by deposit of title deeds is one of the modes of creating a legal mortgage whereunder there will be transfer of interest in the property mortgaged to the mortgagee. Though in English Law an equitable mortgage can be created either by actual deposit of title deeds in which case parol evidence is admissible to show the meaning of the deposit and the extent of the security created, or if there be no deposit of title-deeds, then by a memorandum in writing, purporting to create a security for money advanced. In English Law in either case it does not operate as an actual conveyance though it is enforceable in equity. The distinction in Act, 1882 stands further explained by proviso added to Section 48 of Act, 1908 by amending Act 21 of 1929 which says, "Provided that a mortgage by deposit of title deeds as defined in Section 58 of the Transfer of Property Act, 1882, shall take effect against any mortgage-deed subsequently executed and registered which relates to the same property."
60. In the present case due to lack of material and specific pleading as also the lack of inquiry by DRAT, it cannot be said, whether this exposition of law will be attracted in the case in hand or not. Hence I am of the view that after remand, DRAT would examine all these relevant aspects of the matter instead of proceeding in a slip shod manner, as it has done.
61. Since DRAT itself is a last Court of fact and can examine all relevant aspects of the matter, I am not remanding the matter to DRT but in my view, it would be sufficient, if the matter is remanded to DRAT to look into various aspects, as discussed above, and, thereafter pass appropriate order.
62. In the result, the writ petition succeeds and is allowed. The judgment and order 31.03.2009 passed by DRAT is hereby set aside and the matter is remanded to DRAT to consider the matter afresh and pass appropriate order in accordance with law, expeditiously.
63. The parties shall bear their own costs.
Order Date :-27.02.2015 AK