CHAPTER PH

MORTGAGE BY DEPOSIT
OF TITLE DEEDS
 CHAPTER VII

MORTGAGE BY DEPOSIT OF TITLE DEEDS

The law relating to mortgage by deposit of title deeds in India is

derived from the English Law of Equitable Mortgage. It is, therefore,
relevant to trace the concept of Equitable Mortgage in English Law.

Equitable Mortgage in English Law

Equitable mortgage is a lien upon real estate of such a character that

it is recognised in equity as a security for the payment of money and it is
treated as a mortgage. A mortgage of a merely equitable estate or interest
is also so called. Such a mortgage may exist by a deposit with the lender of
money of the title - deeds to an estate. They must have been deposited as
a present, bona fide security. No particular formality is necessary in order
to make a valid mortgage between the parties thereto. If the transaction
resolves itself into a security, whatever may be its form, in equity it is
mortgage1.

The term "equitable estate" means a right or interest in land, which

not having the properties of a legal estate, but being merely a right of which
courts of equity will take notice, requires the aid of such court to make it
available.

1 Bouvier’s Law Dictionary, 8th Edition, 1914, Vol 1, p.1056

 226

Where a borrower gives to a lender, as security, the title deeds of his

property, without any document of charge, or the deeds with a
memorandum of deposit, or even a memorandum of charge without the
deeds, it is an equitable mortgage. An equitable mortgage does not vest a
legal estatein the lender, as does a legal mortgage, but in the memorandum
which usually accompanies the deposit of deeds, the borrower, as a rule,
promises to grant a legal mortgage when requested to do so2.

Lord Cairns says in Shaw v Foster3 4:

"It is a well - established rule of equity that a deposit of document of

title without anything more, without writing, without word of mouth, will
create in equity a charge upon the property referred to".

In England what is called an equitable mortgage is created by the

debtor depositing his title - deeds with the creditor as security for the debt.

This kind of mortgage is the creation of the court of equity in

England. In Chettiar Firm v Ma Joo TeanA, Chief Justice Page traces
the origin of this type of mortgage in English Law. Citing Russel v Russel5
and Edge v Worthington6, he points out that the handing over of the "title

2 Thomson’s Dictionary of Banking by F.B. Ryder and D.B. Jenkins, 12th

Edition, 1974, p.250
3 (1872) 5 H.L. 321 (340)

4 11 Rangoon 239

5 (1783) 1 Bro. C.C. 269

6 1786, 1 Cox 211

 227

deeds" was supposed to denote part performance of a contract to execute

a mortgage, and the court of chancery began to treat the handing over of
the "title deeds" as enforceable obligation under the principle that the
parties must be deemed to have done what they intended to do. Chief
Justice Page says "In England an agreement relating to an interest in land
could validly be effected by a written instrument in the form prescribed
under the Statute of Frauds, and by applying to the transaction the doctrine
of part performance, it was held that an equitable mortgage could be
created even by parol agreement if it was accompanied by deposit of title
deeds: the deposit being treated as a sufficient part performance of the
agreement to exclude the operation of the statute".

The practice became popular particularly with banks and other

commercial concerns, because, as pointed out by Lord Abinger in Keys v
Williams,1 "in commercial transactions, it may be frequently necessary to
raise money on a sudden, before an opportunity can be availed of
investigating the title deeds and preparing the mortgage". In English Law,
such a transaction is called an equitable mortgage.

Equity looks on that as done which ought to be done, and therefore

if A agrees that, in consideration of money advanced, he will execute a legal
mortgage in favour of B, an equitable mortgage is created in favour of B,
and he can enforce the execution of a legal mortgage by suing in equity for
specific performance8. Such a contract does not have this effect unless the

7
(1838), 3 Y & C. (Ex) 55 at 60
8 Tebb v Hodge (1869) LR 5 CP 73
 228

money has been actually advanced, for a contract to make a loan, whether
executed as a deed or not, can never be specifically enforced by either
party9. The only remedy is the recovery of damages.

It has been held, since the case of Russel v Russel10, that an

equitable mortgage is created by the delivery to the lender of the title deeds
relating to the borrower’s land, provided that it is intended to treat the land
as security. The right to create this kind of equitable mortgage is saved by
section 13 of the Law of Property Act, 1925. An actual deposit, though
essential, is not in itself sufficient. The depositee must go further, and prove
by parol or by written evidence that the deposit was intended to be by way
of security11, for the mere deposit by a customer of his deeds with the bank
will not, for instance, constitute the bank an equitable mortgagee of an
overdraft.

The essential element in mortgage by deposit of title deeds,

unsupported by any written evidence such as is provided by the ordinary
memorandum of deposit, is intention to give security; without the intention,
of course, no such mortgage is created.

The equitable mortgagee in English Law is necessarily in a less

favourable position than the legal mortgagee. A legal mortgage has
preference over an equitable mortgage.

9 Sichel v Mosenthal (1862) 30 Beav 371

10 (1783) 1 Bro.C.C. 269

u Thames Guaranty Ltd v Campbell [1985] QB 210
 229

In practice the deposit of documents is generally accompanied by a

memorandum under seal. Where there is a memorandum of charge, this
will usually contain an agreement to execute a legal mortgage, and it may
contain a power of attorney to execute such a mortgage. An equitable
mortgagee by deposit is entitled to call for a legal mortgage, even in the
absence of express agreement, unless the right is excluded12. Where there
is no memorandum in writing, the charge created by the deposit is prima
facie unenforceable, but its validity has long been recognised on the ground
that the deposit of deeds implies an agreement to make a mortgage and also
operates a part performance.

Where the memorandum accompanies a deposit of title deeds it

should refer to the deposit and state that the deposit was made to the
intent that the property should be equitably charged with the repayment
of the moneys advanced.

An equitable mortgage in English Law is a contract which creates a

charge on the property but does not convey any legal estate or interest to
the creditor.

Notwithstanding that it is inferior as a security interest, banks have

been still taking equitable security. It is frequently regarded as simpler to
create than legal security and is deemed appropriate as a short term
measure. An agreement to create a legal mortgage will be enough to

12
Parker v Housefield (1834) 2 My & K 419 at 421
 230

constitute an equitable mortgage as long as the agreement is itself

enforceable. To be enforceable it is necessary to have a note or
memorandum in writing evidencing the agreement.

In practice the bank would require written agreement with its

customer so that there is no doubt about why the bank holds the deeds or
about exactly what is secured. This agreement will usually include an
undertaking on the part of the customer to execute a legal charge if called
upon to do so.

As at present, an equitable mortgage may be created in English Law

in the following ways :

Informal Mortgage of a Legal Interest

To create a legal mortgage under Sec 85 and Sec 86, a deed is needed
under Sec 52 of the Law of Property Act 1925. If the mortgage is not by
deed, equity will still enforce it if it is specifically enforceable as an
agreement to create a legal mortgage. Such a mortgage is an equitable
mortgage. For there to be a specifically enforceable agreement, first, the
agreement must satisfy the requirement of Sec 40 of the Law of Property
Act, 1925 (i.e. it must be evidenced in writing or supported by a sufficient
act of part performance) if it was made before 27 September 1989. If the
agreement is made on or after 27 September 1989, it must satisfy Sec 2 of
the Law of Property (Miscellaneous Provision) Act 1989 (i.e. the agreement
must itself be in writing and signed by both the mortgagor and mortgagee
incorporating all the terms expressly agreed by them).
 231

Secondly, the money must have been advanced if the agreement is to

be specifically enforceable13. This is because the remedy of damages at
common law is regarded as adequate should there be a breach of contract.

Equitable Mortgage of a Legal Estate by Deposit of Title - deeds

Prior to 27 September 1989, deposit of title deeds or land certificates

by the mortgagor with the mortgagee was regarded as a sufficient act of
part performance of an agreement to create a legal mortgage14. So an
equitable mortgage could be created by an oral agreement coupled with a
deposit of documents of title. Since 27 September 1989 as a result of Sec 2
of the Law of Property (Miscellaneous Provisions) Act, 1989 which
supersedes Sec 40 of the Law of Property Act, 1925, an oral agreement
together with the deposit of title deeds can no longer create an equitable
mortgage15.

Mortgage by Deposit of Title - deeds in India

It is no doubt true that Sec 58 (f) of the Transfer of Property Act,

1882 relating to deposit of title deeds is derived from the English Law of
equitable mortgage. But, in construing this provision, courts are not bound
by the principles of equity as laid down in the English decisions on the
matter. English Courts have worked out the concept of an equitable
mortgage by regarding it as a mortgage that has not been perfected, an

13 Sichel v Mosenthal (1862) 30 Beav 371

14 Swiss Bank Corpn v Lloyds Bank Ltd [1982] AC 584

15
United Bank of Kuwait pic v Sahib and others (1994) The Times, July 7
 232

executory assurance which Courts of Equity will, as between parties, treat

as an actual assurance. But, so far as the law in India is concerned, the
matter is governed by statute which must be construed according to its
tenor and context.

The term "equitable mortgage" is not appropriate in India for the law
of India knows nothing of the distinction between legal and equitable
estates16. But equitable mortgages by deposit of title deeds were accepted
in India as equivalent to the simple mortgages after the Privy Council
decision in Varden Seth Ram v Luckpathy Rayjee LallahF and the
law regarding the same has now got embodied in Sec 58 (f) of the Transfer
’i

of Property Act, 1882.

After passing of the Transfer of Property Act, 1882, a mortgage by

deposit of title deeds stands on the same footing as other mortgages. Sec 58
(f) of the Transfer of Property Act, 1882 was inserted by the Amending Act
20 of 1929.

Sec 58 (f) of the Transfer of Property Act, 1882 provides as follows :

"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 may, by notification
in the Official Gazette, specify in this behalf, delivers to a creditor or his

16 Webb v Macpherson (1904) 31 Cal 57, 30 IA 238, 245

17
(1862) 9 MIA 303
 233

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".

Thus, under the Transfer of Property Act, 1882 a mortgage by deposit

of title deeds is one of the forms of mortgage 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. Such a
mortgage of property takes effect against a mortgage deed subsequently
executed and registered in respect of the same property.

Sec 58 (f) of the Transfer of Property Act, 1882 restricts the operation
of the provisions of the equitable mortgage (for the sake of convenience, this
is so called by the researcher) to certain centres of commerce. This has been
done as a matter of convenience to the mercantile community to enable
them to borrow money without the delay of investigation of title and the
publicity of registration. Such mortgages are however at variance with the
policy of publicity of transfer underlying the Transfer of Property Act, 1882
and the Indian Registration Act, 1908. The Privy Council in Imperial
Bank of India v U Rai Gyaw Thu18 held that although there was no
formal conveyance, an equitable mortgage effected a transfer of an interest
in property and for purposes of priority stood on the same footing as
mortgage by deed. A proviso to this effect has been added to Sec 48 of the
Indian Registration Act, 1908 by the Amending Act 21 of 1929.

18
AIR 1923 PC 211
 234

The Supreme Court in K.J. Nathan v S.V. Maruthi Rao and

others19 laid down that the essential requisites of a mortgage by deposit

of title deeds are i) debt, ii) deposit of title deeds, and iii) an intention that
the deeds shall be security for the debt. Under the Transfer of Property Act
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.

Territorial restriction referred to in Sec 58 (f) has reference only to

the delivery of the documents of title and not to the situation of the
property mortgaged. Once the mortgage is created in a notified town, the
registration of memorandum can be either at the town where the equitable
mortgage is created or in the office of the Sub - Registrar within whose
jurisdiction, the mortgaged property is situated. As long as the
memorandum merely confirms an equitable mortgage already created in a
notified town, the registration of the memorandum even outside the notified
towns will be valid20.

Debt

The debt may be an existing debt or future debt. The use of the word
"debt" as one of the requisites of a mortgage by deposit of title deeds does
not preclude such a mortgage being created to secure future advances or
contingent pecuniary liabilities. Sec 58 (f) merely prescribes one of the

19 AIR 1965 SC 430

20 State Bank of Mysore v M/s. SM Essence Distilleries Pvt Ltd & others AIR
1993 Kant 359, 365
 235

modes of creating a mortgage by deposit of title deeds21. Deposit of title

deeds with banks to secure an overdraft account - which involves both
existing and future advances - are common; and have been upheld as falling
within the Sec 58 (f)22; and also a mortgage to secure a general balance
due on an account. The word "Creditor" in Sec 58 (f) can include a person
having a future or contingent claim23.

Deposit of Documents of Title

An equitable mortgage on an immovable property can be created by

a written deed. The deed would provide that the mortgagor has deposited
the title - deeds of his property with the mortgagee - bank in a notified
town with intent to create a security thereon on the advance made by the
bank. Such a deed, however, attracts stamp duty as on a mortgage under
the Indian Stamp Act and is required to be registered under the
Registration Act. Even if the document is not in a legal form but it purports
to reduce the transaction in writing and is signed by the mortgagor, it will
attract stamp duty and registration, and without proper stamp on it and
without it being registered, it cannot be admitted in evidence in any
proceeding24.

21 Rosy George v State Bank of India and others AIR 1993 Kerala 184 at 188

22 United Bank of India v M/s. Lekharam Sonaram & Co AIR 1965 SC 1591

23 Roderiques v Ramaswami Chettiar (1917) 32 MU 257

24
Indian Bank Ltd v A.Sheshagiri Rao & Sons AIR 1971 AP 287
 236

Many banks have, therefore, adopted a practice of recording the

transaction, not on a paper to be signed by the mortgagor, but in a special
register kept by the bank. The mortgagor goes to the bank (which should
be in a notified town specified by the State Government in its Official
Gazette for the purpose of creating mortgage by deposit of title deeds) with
the title deeds and deposits them with a bank officer stating orally that he
is doing so with intent to create a security thereon. The bank officer writes
down in the special register that on that day the mortgagor so deposited the
title - deeds. The writing in the register is not signed by the mortgagor (so
as not to attract the provision of the Registration Act). This procedure is
sometimes called "Memorandum of Entry" or "Recording of Oral Assent" or
"Equitable Mortgage Register" or "Title - deeds Narration Register". Such
writing does not itself lay down the rights and obligations of the mortgagor
and mortgagee; it merely records the facts of the deposit of title - deeds by
the mortgagor. This equitable mortgage register is admissible in a court of
law as prima facie evidence of the transaction. Some States like
Maharashtra, Gujarat and Uttar Pradesh have imposed stamp duty on
recording of equitable mortgage and therefore the recording of
memorandum of entry by the banks in such States attracts stamp duty. In
other States, there is no stamp duty on recording of memorandum of entry
or recording of oral assent.

According to Section 48 of the Indian Registration Act, 1908 a

mortgage by deposit of title deeds gets priority over any mortgage
subsequently executed or registered relating to the same property.
 237

In Sulochana and others v Pandyan Bank Ltd and another25

decided by the Madras High Court, the facts were that the bank filed a suit
against a borrower for recovery of advances granted to him allegedly
against equitable mortgage of certain immovable properties. He contended
that the documents relating to the properties were not handed to the bank
under equitable mortgage, but were produced to the bank to satisfy the
bank that he was solvent. He also contended that the documents were given
to the bank’s branch at Kumbakonam which was not notified as one of the
towns under Sec 58 (f) of the Transfer of Property Act, 1882, and hence no
valid mortgage was created. Another contention was that the promissory
note given for the advances was executed not only by him but also by his
minor daughter, that the note was therefore invalid, that no rights could
arise against him. The trial court decreed the suit. The Madras High Court
dismissed the borrower’s appeal.

On the basis of the evidence it was held in this case that the
documents were not delivered by the debtor to the bank merely to prove his
solvency but were handed for creating a mortgage. The decision affirms the
proposition that to create a mortgage by deposit of title deeds, it is not
necessary that the deeds should be delivered to the creditor by the debtor
himself at a town notified under Section 58 (f) of the Transfer of Property
Act, 1882. The deeds can be delivered by the debtor to an agent of his or of
the creditor at some other place to be forwarded by post or otherwise to the

25
AIR 1975 Madras 70
 238

creditor at a notified town. It was also held that the debtor was liable on a
promissory note executed by him jointly with his minor daughter; the non -
enforceability of the note against his minor daughter did not absolve him
of his liability on the note.

In K.J.Nathan v S.V.Maruthi Rao26, the creditor was functioning

from Madras but the documents were received by their representative at
Kumbakonam and thereafter the deeds were sent by registered post to the
creditor at Madras. The question for consideration was. whether that created
a valid mortgage. The Supreme Court held that there was a legally valid
mortgage by deposit of title deeds and the receipt by the agent of the
creditor at Kumbakonam did not alter the legal position in any way. The
Supreme Court pointed out that the person who received the documents at
Kumbakonam might be treated as the agent of the creditor or as the agent
of the debtor; but that will not make any difference to the validity of the
mortgage. The Supreme Court in this case further relied on certain
discussion of the debtor subsequent to the receipt of the documents by the
creditor at Madras. This is only to fortify the opinion that even by sending
the documents by registered post a legally valid mortgage by deposit of title
- deeds could be created. In this case, Subba Rao J (as he then was) made
the following observations on constructive deposit of title - deeds

"Physical delivery of documents by the debtor to the creditor is not

the only mode of deposit. There may be a constructive deposit. A court will
have to ascertain in each case whether in substance there is a delivery of

26
AIR 1965 SC 430
 239

title - deeds by the debtor to the creditor. If the creditor was already in
possession of the title - deeds, it would be hypertechnical to insist upon the
creditor delivering the title - deeds to the debtor and the debtor re -
delivering 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".

Documents of Title

It is necessary to distinguish between documents creating title and

documents evidencing title. It is only the documents of the former category
which can create an equitable mortgage. So in no circumstances can the
deposit of a mere certified copy of Jamabandi entry constitute an equitable
mortgage. As to receipts and certified copies of mutations, to make such
documents admissible for that purpose, it would be necessary that there
should be clear evidence that no better document of title is available and in
the case of receipt, it should also be established beyond doubt that the
receipt produced definitely relates to the property to be charged.

When the documents deposited along with the memorandum of

deposit, though not complete in themselves for holding the title, were
undoubted documents relating to the property, and prima facie showing title
to the same, they constitute "documents of title" within the meaning of
section 58 (f). In Angu Pillai v M.S.M. Kasiviswanathan21, it was held
by the Madras High Court that the agreement by which the seller agreed

27
AIR 1974 Madras 16
 240

to convey title, the hundi executed by the purchaser for payment of the
price of the property, and a tax receipt were documents of title within the
meaning of Sec 58 (f) of the Transfer of Property Act and that their deposit
by the purchaser with intent to create a security on the property created a
mortgage.

In Goodwin v Waghom26, the land offered as security had been

paid for and taken possession by the purchaser but the conveyance has not
been executed when the purchaser deposited with the lender the contract
to purchase the land, with intent to create a security on the property. Pepys
J.stated : "... so the agreement for purchase is the best evidence of title until
the contract is completed, and the title deeds are handed over; and in this
case there was a deposit of that which was the best evidence".

In Amulya Gopal Majumdar v United Industrial Bank LtdP,

an equitable mortgage was made by deposit of an agreement of sale under
which the mortgagor entered into possession. Sale in favour of the
mortgagor was completed shortly thereafter and the mortgagor continued
to overdraw from the mortgagee - bank. The Calcutta High Court held that
the mortgage is rendered perfect on and from the date mortgagor acquired
title to the property by way of sale in his favour. It was observed that in
order to create a valid equitable mortgage, it is not necessary that the
whole or even the material part of the documents of title to the property
should be deposited nor that the documents deposited should show a

28 (1835) 41 RR 208

29 AIR 1981 Calcutta 404

 241

complete or good title; it is sufficient if the deeds deposited bona fide relate
to the property or are material evidence of title or are shown to have been
deposited with the intention of creating a security thereof.

Acceptance of Certified Copies of Documents

In Kanigilla Prakasa Rao v Nanduri Ramakrishna Rao30, the

mortgagor mortgaged the property in favour of the bank and deposited the
partnership agreement, encumbrance certificate and registration extract of
sale deed and a letter informing the bank that the original sale deed was
lost. However the bank failed to enquire the contractor who was alleged to
have lost the original sale deed. Subsequently the mortgagor created an
equitable mortgage in respect of the same property in favour of the plaintiff
and delivered him the original sale deed of property. The plaintiff was made
aware of the subsisting prior mortgage.

The Andhra.Pradesh High Court held that no equities arose in favour

of the plaintiff, merely because the original deed was delivered to him.
Since the bank had honestly believed that the original sale deed was lost,
it cannot be said that the mortgage in favour of the bank was not valid
merely because the bank failed to enquire the contractor. The court
observed that "if the original title - deeds are lost, we do not see why the
owner of the property should not be in a position to create an equitable
mortgage. The mortgagee in such case has only to be vigilant in accepting
such representation made to him and should make the necessary enquiries
before agreeing to advance the monies on the basis of registration extracts

30
AIR 1982 AP 272
 242

of documents of title or copies of the documents. That seems to be the

underlying principle behind section 78 of the Transfer of Property Act which
provides that if the conduct of the prior mortgagee amounts to gross neglect,
the mortgage in his favour will be postponed to the subsequent mortgagee".
The court held that in this case the absence of enquiry by the bank from the
contractor to whom original documents were given does not constitute gross
neglect on the part of the bank as they acted bona fide.

In C.Assiamma v State Bank of Mysore31, the mortgagor

deposited a registration copy of the title deed, tax receipts and a certificate
issued by the President of the Panchayat in proof of his title to the property
as one of the donees with a view to creating an equitable mortgage of the
property with the bank. The mortgagor did not have the original title deed,
since by that deed the donor had gifted his properties to others as well.
Objection was taken that it was not sufficient to create an equitable
mortgage. Rejecting the objection, the Kerala High Court held that a valid
mortgage was created. Morever, it could not be said that only in those cases
where the original title deed is lost, a registration copy could be filed to
create a mortgage.

In Syndicate Bank v Modem Tile & Clay Works22, the Kerala

High Court held that the essential prerequisite for the use of a certified
copy as a document of title is the loss of the original deed. Unless and until

31 AIR 1990 Kerala 157

32
[1980] Kerala LT 550
 243

it is made out that the original is lost, a certified copy of a document cannot
be considered to be document of title for the purpose of Section 58 (f) of the
Transfer of Property Act.

Memorandum of Deposit and Registration

Under Section 58 (f) of the Transfer of Property Act, 1882, no

memorandum need accompany a deposit in order to create an equitable
mortgage, though such a memorandum is not prohibited. In practice, banks
obtain a memorandum from the mortgagors in the form of simple letter
after deposit of title deeds. This memorandum contains recitals of the past
transaction of having deposited the documents of title with the bank with
intent to create a security thereon. This memorandum is treated as a
confirmation by the mortgagor in having deposited the title deeds. This
memorandum helps the bank to proclaim to the world about how the
documents came into its possession and why the bank holds the deeds or
about what is exactly secured.

While equitable mortgage is very convenient and inexpensive,

difficulty arises when the delivery of title deeds is accompanied by a letter
or memorandum in writing. The question then arises whether the terms of
the mortgage are contained in the memorandum or letter. If this
memorandum is treated as a contract of mortgage, then it must be
registered.
 244

It was held by the Kerala High Court in Hubert Pyoli v SK

Sivadasan33 that in case a document was executed for the purpose of

creating mortgage under Section 58 (f) of the Transfer of Property Act,

1882, no doubt it requires registration. Similarly, when the memorandum
or letter was executed on the date of the deposit or delivery of the title
deeds, that needs registration. And after the delivery of the title deeds, if
any letter or memorandum was executed endorsing the earlier deposit of
title which already created a mortgage, the letter needs no registration.

A mortgage by deposit of title deeds does not require any writing and
being an oral transaction it is not affected by the Law of Registration. It is
submitted that if this writing is the contract of mortgage so that it creates
the mortgage it must be registered and oral evidence to contradict it is not
admissible. But registration is not necessary if the mortgage is complete
without the writing and the writing is merely a statement that the
mortgage has been effected, or a statement of facts from which the contract
of mortgage can be inferred.

An equitable mortgage is accepted by the lending banks mainly for

the reason that it saves considerable amount of stamp duty which a
registrable mortgage deed attracts. This purpose is defeated if the
memorandum of deposit of title deeds requires registration. Further, if a
mortgage instrument that requires registration is not registered, then the
mortgage is ineffectual.

33
AIR 1998 Kerala 344
 245

United Bank of India Ltd v Lekharam Sonaram & Co and

others34 is the leading case decided by the Supreme Court on registration
of memorandum of title deeds.

The plaintiff bank claimed a mortgage decree alleging that the

defendants had created in its favour a mortgage of their properties by
deposit of the relative title deeds as security for certain advances made by
the bank. The following three letters were produced in evidence

Latter dated 9 August 1945 from Lekharam to the bank :

"I hereby authorise my son, Mr.Babulal Ram, to deposit with you on

my behalf at your Calcutta office the following title deeds with a view to
create an equitable mortgage on the said properties to make your advances
in the accounts of Messrs. Lekharam Sonaram & Co., Giridih, better
secured. I hereby further declare that I am sole owner of the Giridih
property as per schedule below and am legal joint heir with my sons dealing
in the name of Messrs. Lekharan Sonaram & Co of the Malho property as
described in the schedule below. I hereby further declare that both the
properties described in the schedule are free from all encumbrances and
nobody else has any claim, right or title to the properties. And I hereby
declare that the deposit will give you a valid legal title over my said
properties as mortgagee until all the obligations of Messrs. Lekharam
Sonaram & Co with your Giridih branch are duly satisfied.

Particulars of properties
sd / Lekharam".

34
AIR 1965 SC 1591
 246

Letter dated 10 August 1945 from Sonaram to the bank :

"We hereby authorise Mr.B.L. Gupta, my younger brother, to deliver

you the title deeds for depositing and negotiate with you further in this
respect. We hope you will do the needful and oblige us.

Your Mr. Basak had been to our office and assured us to allow us an
extra overdraft against our mica stock, for another Rs.40000/-. We have
already had the facility of a lakh for which we thank you but still, it is
insufficient for the volume of our business......

sd /- Lekharam Sonaram & Co

Sonaram, Partner".

Letter dated 11 August 1945 from Babulal Ram to the bank :

"This is to place on record that I have this day deposited with you at
your Head Office at Clive Street, Calcutta, the undernoted documents of
title relating to my properties, viz., Giridih and Malho properties as
described in the title deeds with intent to create an equitable mortgage
upon all my rights, title and interest in the said properties to secure the
repayment on demand of all the monies now owing or which shall at any
time hereafter be owing from me or from Messrs. Lekharam Sonaram & Co.
either singly or jointly or otherwise to Bengal Central Bank Ltd., whether
on balance of account or by discount or otherwise in respect in any manner
whatsoever and including interest with monthly rests, commissions and
 247

other banking charges and any law costs incurred in connection with the
account. I do hereby put on record that the properties mentioned below are

free from all encumbrances".

The defendants contested the suit on the ground that the title deeds
were not deposited with a view to creating an equitable mortgage and that
the letter dated 9 August from Lekharam required registration under
Section 17 of the Indian Registration Act, 1908 and in the absence of
registration, the bank was not entitled to a mortgage decree.

The Supreme Court gave judgment in favour of the bank. While

delivering the judgment, the Supreme Court observed that the essence of
a mortgage by deposit of title deeds is the actual handing over by the
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 the 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 documents both
form integral parts of the transaction and are the 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
the 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.
 248

The Supreme Court held that the letters in question did not require
registration. The court pointed out that Lekharam’s letter did not mention
the amount of the loan, the rate of interest and the details of the title deeds
deposited, and did not, therefore, form an integral part of the transaction.
Sonaram’s letter also did not contain the material particulars of the loan.
The letter of Babulal Ram was only evidential in that it recorded a past
transaction under which rights and liabilities had been agreed upon.

In Obla Sundarachariar v Narayana Ayyarr\ the plaintiff

verbally agreed at Madras to make a further advance to the defendants,

making Rs.60000/- in all, upon the deposit of certain documents of title. The
defendant's agent signed and handed to the plaintiff a memorandum stating

"As agreed upon in person I have delivered to you the

undermentioned documents as security".

a list of documents following, also a promissory note for Rs. 60000/-. After
examination of the documents the agreed amount was handed over to the
plaintiff. It was held by the judicial committee that the memorandum was
not a document which required registration, even if the agreed advance was
conditional upon it being given; and that there being no written agreement,
the memorandum as well as oral evidence, was admissible in evidence to
prove the intent to create a security by deposit of the documents named.

35
AIR 1931 PC 36
 249

It was pointed out by the Supreme Court in Rachpal Maharaj v

Bhagwandas Daruka36 that the question whether a memorandum of

deposit of title deeds is compulsorily registrable under Section 17 of the
Indian Registration Act, 1908, depends on whether the parties intended to
reduce their bargain regarding the deposit to the form of a document. If so,
the document required registration. If, on the other hand, its proper
construction and surrounding circumstances lead to the conclusion that the
parties did not intend to do so, there being no express bargain, the
documents being merely evidential did not require registration. In that case,
accounts were taken relating to the appellant’s dealings with the
respondents on a certain date and the appellant gave certain title deeds to
the respondents for being held as security for the amounts then found due
and which may become due, and on the same day the appellant gave a
memorandum to the respondents in the form of a letter addressed to the
respondents which stated as follows :

"We write to put on record that to secure payment of money already

due to you from us on account of business transactions between yourselves
and ourselves and the money that may hereafter become due on account of
such transactions we have this day deposited with you the following title
deeds in Calcutta at your place of business at No.7 Samba Mullick Lane,
relating to our properties at Samastipur with intent to create an equitable
mortgage on the said properties to secure all moneys including interest that
may be found due and payable by us to you on account of the said
transactions".

36
AIR 1950 SC 272
 250

It was held by the Supreme Court in that case that the parties did
not intend to create a charge by the execution of the document, but merely
to record a transaction which had already been concluded and under which
the rights and liabilities had already been created and the document did not
require registration.

In Deb Dutt Seal v Raman Lai Phumra37, the main question

before the Supreme Court was whether a letter, worded as under, from the
mortgagor to the mortgagee required registration under the Indian
Registration Act:

"Calcutta, the 17th December 1951

Girdhari Lai Phurma, Esq.,
56, Burtolla St,
Calcutta

Dear Sir,
Re : 35, Puddo Pukur Road

I write to record that I delivered to and deposited with you this day
at N0.56, Burtolla Street, Calcutta, my title deeds relating to the premises
No.35, Puddo Pukur Road, Calcutta, solely belonging to me with intent to
create security for my liability for the moneys payable under the three
hundies dated this day for the sum of Rs.80000/- (Rupees eighty thousand
only) drawn by me in your favour and I have undertaken to execute a legal
mortgage at my cost whenever called upon by you to do so. I further assure
you that the said premises No.35, Puddo Pukur Road, is free from all
encumbrances and the same absolutely belongs to me.
Yours faithfully,
Sd/- D.D. Seal"

37
AIR 1970 SC 659
 251

By a majority judgment, the Supreme Court held that the letter did
not require registration since it recorded a past transaction. What is
registrable under the Indian Registration Act is a document and not a
transaction.

In H.G.Nanjappa v M.F.C. Industries P. Ltd38 decided by the

Madras High Court, the memorandum accompanying the deposit of title
deeds read:

"I, N, in consideration of the sum of Rs.20000 odd advanced to me by

the respondent on a promissory note which I do hereby acknowledge have
this day deposited with the respondents the deeds and documents set out
in the list hereto as security for the payment of the said sum of Rs.20000
odd with interest thereon at 18% per annum from the date hereof till full
payment".

It was contended by the reversioner that this created a mortgage and,

since it was not registered, it was bad. On the other hand, the respondent
contended that the document in question was merely intended to be
evidence of the fact that the petitioner had deposited the title deeds, and
merely because the mortgagor had stated that the deeds and documents
were deposited with the respondent as security for the repayment of the
loan, then notwithstanding the description of the document or reference to
the title deeds being deposited as security for the repayment of the loan
with interest thereon, it could not be held to be inadmissible for want of
registration.

38
AIR 1987 Madras 108
 252

Holding that the memorandum did not require registration,

Chandurkar CJ said :

"Thus, if there is a debt and if title deeds are deposited by the debtor
with an intention that the title deeds shall be security for the debt, then by
the mere fact of deposit of those title deeds, a mortgage comes into being.
However, sometimes, a deposit is accompanied by a memorandum in
writing and eventhough physical delivery of documents of title is sufficient,
the question arises as to whether a memorandum which accompanies the
deposit of title deeds requires registration. In such a case, the essential
question which falls for consideration is whether the memorandum by itself
constitutes bargain between the parties or whether it constitutes evidence
of the contract between the parties".

In terms of Section 59 of the Transfer of Property Act, 1882, where

the principal money secured is Rs.100 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.
While, thus, this section exempts a mortgage by deposit of title deeds,
Section 17 (1) (b) of the Indian Registration Act, 1908, requires registration
of a non - testamentary instrument which purports or operates to create or
declare any right, title or interest of the value of Rs.100 and upwards to or
in immovable property situated in a district covered by the Act. Non -
registration of such an instrument renders the mortgage invalid. Where a
mortgage is effected by deposit of title deeds, but some letter or document
(such as memorandum of deposit of title deeds) is also obtained by the
mortgagee, a question that may arise is whether the letter or document
 253

should be registered under Section 17 (1) (b) of the Indian Registration Act,
1908. The answer would depend upon the nature and contents of the letter
or document.

The Kerala High Court in Joseph v Michael39 held that the

memorandum is not compulsorily registrable in the absence of any evidence
to show that it was executed simultaneously or prior to the deposit of title -
deeds.

Intention to Create Mortgage

There should be proof of intention to create a mortgage by deposit of

title deeds. Mere proof of deposit does not by itself raise a presumption that
such an intention existed40. Even so in such case, the defendant must
explain, if they deny the mortgage, how the documents came into the
possession of the plaintiff41.

Though there is no presumption of law that the mere deposit of title

deeds constitutes a mortgage, a court may presume under Section 114 of the
Evidence Act, 1872 that under certain circumstances a loan and a deposit
of title deeds constitute a mortgage42.

39 AIR 2000 Kerala 240

40 Saradindu v Amiya Kumar AIR 1977 Calcutta 343

41 Manoj Kumar v Nabadurp AIR 1978 Cal 111

42
K.J. Nathan v S.V.Maruthi Rao AIR 1965 SC 430
 254

In Chief Controlling Rev. Authority v Pioneer Spinners Pvt

Ltd43, the Madras High Court held that a mortgage by deposit of title
deeds cannot be looked upon as a mere oral transaction as the act of deposit
is an essential part of it. In fact, the intention to create security is inferred
in such cases from mere deposit of title - deeds coupled with the loan
without more, without writing, without word of mouth - oral proof cannot
be substituted for written evidence of any agreement put into writing. All
that is required is the intention of the lender to hold the title deeds as
security and of the borrower to leave them as security with the lender.

The intention that the title deeds shall be security for the debt is the
essence of the mortgage by deposit of title deeds. In Heng Moh v Lint Saw
Yean44, one partner of the oil mill had mortgaged the mill, and the other
partner, who was the managing partner, discharged the mortgage and took
delivery of the title deeds from the mortgagee. The Privy Council held that
no equitable mortgage was created in favour of the managing partner
merely because he took charge of the title deeds in the absence of an intent
to create a security. He took charge of the title deeds merely as manager
and chief of the partnership business, and the transaction was to be treated
as an advance from one partner to another to be paid off out of the profits.

43 AIR 1968 Madras 222 (FB)

44
AIR 1923 PC 87
 255

If an additional amount is advanced to the mortgagor on the

understanding that the mortgagee will be entitled to retain the documents
as security for the additional amount also, the agreement is treated as a
constructive delivery of the title deeds to the creditor, as security for further
advances45.

In order to determine the intention of the parties, the court must look
into the terms embodied in the writing, the time, the place and
circumstances under which it was signed and delivered by the debtor to the
creditor. One of the circumstances may be that the writing accompanied the
deposit of title deeds and was contemporaneous with advance of the money.
Another circumstance may be that the parties had done something which
indicated that they had always treated this writing to be a part of the
transaction of the mortgage. All these and many more of such circumstances
will enter into the judicial consideration for arriving at a conclusion in
respect of the parties. Any one of these circumstances may not, by itself, be
the decisive factor but the cumulative effect of all or some of these factors
may be so in a particular case. The recitals in the memorandum themselves
are the first thing to be considered in determining the intention of the
parties. Sometimes a single word or sentence used by the debtor in the
memorandum may turn the scale one way or the other.

45
Ishwar Das v Dhanang Singh AIR 1985 Delhi 83
 256

Status of Mortgage by Deposit of Title Deeds

Section 96 of the Transfer of Property Act, 1882 provides as follows:

"The provisions hereinbefore contained which apply to a simple

mortgage shall, so far as may be, apply to a mortgage by deposit of title -
deeds".

This section was inserted into the Transfer of Property Act, 1882 by
the Amending Act 20 of 1929.

A mortgage by deposit of title - deeds has been put on the same

footing as a mortgage by deed by section 58 of the Transfer of Property Act,
1882 as explained in the Privy Council decision in Imperial Bank ofIndia
v U Rai Gyaw Thu46. The right transferred by such mortgage is the same
right that is transferred by a simple mortgage, that is the remedy of the
mortgagee by deposit of title deeds is by suit for sale.

Section 96 of the Transfer of Property Act provides that such of the

provisions contained in sections 59 to 95 which apply to simple mortgages
shall, "so far as may be", apply to a mortgage by deposit of title - deeds. The
words ‘so far as may be’ indicate that the said provisions shall apply to a
mortgage by deposit of title - deeds, only if those provisions can be made
applicable to a mortgage by deposit of title deeds. Thus, Section 59 of the
Transfer of Property Act requires that a simple mortgage, where the money
secured is rupees one hundred or upwards, must be effected only by a

46
AIR 1923 PC 211
 257

registered instrument signed by the mortgagor and attested by at least two

witnesses. That provision expressly excludes a mortgage by deposit of title
deeds from its operation and cannot apply to a mortgage by deposit of title -
deeds. Again Section 60 of the Transfer of Property Act entitles a mortgagor
on redemption to require the mortgagee to deliver to the mortgagor the
mortgage deed, and to have an acknowledgement in writing that any right
in derogation of his interest transferred to the mortgagee has been
extinguished. This provision does not apply to mortgage by deposit of title -
deeds, as no deed is necessary to be executed in the case of such mortgages.

By the combined operation of Sections 96 and 58 (b), mortgage by

deposit of title deeds must be held to be a mortgage, whereby the mortgagor
binds himself personally to pay the mortgage money47.

Thus, mortgage by deposit of title - deeds is a legal mortgage. Though

mortgage by deposit of title deeds does not require a deed statutorily, it is
put on the same footing as a mortgage by deed.

47 Nityanand Ghose v Rajpur Chaya Bani Cinema Ltd AIR 1953 Cal 208 and
Rosy George v State Bank of India AIR 1993 Kerala 184