MORTGAGE AND MORTGAGE BY DEPOSIT OF TITLE DEEDS
DOCUMENTS OF MORTGAGE BY DEPOSIT OF TITLE DEEDS ARE NOW
BEING PRESENTED FOR REGISTRATION.BEFORE REGISTRATION PLEASE READ THE DOCUMENT
CAREFULLY.IF THE DOCUMENT MERLY CONTAINS
THE BARGAIN BETWEEN THE PARTIES WITH REGARD TO THE DEPOSIT OF TITLE
DEEDS THEN IT IS ONLY A MORTGAGE BY DEPOSIT OF TITLE DEEDS.IF IT CONTAINS
RECITALS ,WHICH BY THEIR OWN FORCE, CREATES A MORTGAGE(LEGAL MORTGAGE ) IN
FAVOUR OF THE MORTGAGEE,THEN IT HAS TO BE STAMPED AS A MORTGAGE(PANAYADHARAM)
Chief Controlling Revenue ... vs Jawahar
Mills Ltd., Salem on 11 February, 1966
Equivalent citations: AIR 1967 Mad 1
Bench: M Anantanarayanan, O.C.J.,
Venkatadri, Ramakrishnan
JUDGMENT M. Anantanarayanan, Offg. C.J.
(1) On the 29th October 1957,
a document, which purports to be a memorandum of mortgage by deposit of title
deeds, came into existence as between the Jawahar Mills Ltd., Salem and the
Indian Overseas Bank Ltd. The document, was presented for registration on
30-10-1957, and it bore stamps under Art. 6 of Sch I of the Indian Stamp Act.
The question referred to us for decision is, whether this is an agreement
relating to the deposit of title deeds, pawn or pledge, falling under Art.
6(2)(a) of Sch I, or is a mortgage deed falling under Art. 40(b) of the same
Schedule of the Indian Stamp Act.
(2) Before proceeding to the
details of the recitals in this document, which has two schedules of properties
attached, namely, schedule A and Schedule B, it may be useful to briefly refer
to certain relevant provision of the Indian Stamp Act, 1899, the Indian
Registration Act and the Transfer of Property Act. Section 2(17) of the Stamp
Act is an inclusive definition of a deed of mortgage, and, by its terms
"includes every instrument whereby, for the purpose of securing money
advanced, or to be advanced, by way of loan, or an existing or future debt, or
the performance of an engagement, one person transfers, or creates to, or in
favour of, another a right over or in respect of specified property".
Article 6 of Sch. I is
entitled "agreement relating to the deposit of title deeds, pawn or
pledge" and 6(2)(a) would be the relevant category, if the agreement in
the present instance dated 29-10-1957, is not to be construed as one falling
under Art. 40(b) of Sch. I, Article 40(b) of Sch. I relates to a mortgage deed,
not being an agreement relating to deposit of title deeds, pawn or
pledge(Art.6), when possession is not given or agreed to be given by the
mortgagor. Section 17 of the Registration Act sets forth the categories of
documents in respect of which registration is compulsory. Section 58 of the
Transfer of Property Act deals with kinds of mortgages recognised by law, and
under Section 58(f), a mortgage could be created by deposit of title deeds with
regard to immoveable property, in specified towns, it is not in dispute that
Salem Town has been notified, as a town in which such a transaction could
validly take place.
Under Section 8 of the
Transfer of Property Act, and the relevance of this will be later apparent,
where the property transferred is machinery attached to the earth, the moveable
parts thereof will also be included within the scope of the transfer as an
essential incident. Under S. 70 of the same Act, if, after the date of
mortgage, any accession is made to the mortgaged property, the mortgagee will
ordinarily be entitled to it, in the absence of a contract to the contrary.
(3) The question whether a
particular document should be construed as a mortgage falling within Art. 40 of
the Schedule I, of is merely an agreement or memorandum of the terms of a
mortgage created by deposit of title deeds falling under Art. 6(2)(a), came up
before a Special Bench of the Bombay High Court in In re, Indian Stamp Act,
1899, . In other words, the precise question which new concerns us arose for
determination on the facts of that case. Delivering to the judgment of the
Bench, Chagla C. J. referred to the definition of mortgage deed in S. 2(17),
that we have set forth earlier. He then pointed out that the Stamp Act, per se,
made no distinction between a legal and an equitable mortgage. But the
legislature made a special provision in Art. 6, which relates to that class of
documents which should be interpreted as an agreement or memorandum of mortgage
by the deposit of title deeds, and not a deed of mortgage in its own right. The
principle of differentiation between the two categories was expressed by the
Bench in the following words:
"In other words, if the
document merely contains the bargain between the parties with regard to the
deposit of title deeds, then although it creates an interest in immoveable
property and although it is a mortgage deed, still by reason of the provisions
of Art. 6 the duty payable is less than the duty which would have been payable
if it had been a mortgage deed in the larger sense of the term. It is clear
that what was intended by Art. 6 was a document which should merely contain the
bargain between the parties with regard to the deposit of title deeds, and, may
be, conditions subsidiary or ancillary to the deposit of title deeds. But if we
have a document which contains all the provisions which one would normally find
in a mortgage deed, then the mere fact that the document also contains the
bargain with regard to the deposit of title deeds would not make it an
agreement for the deposit of title deeds".
We may now turn to certain
other decisions which have a bearing on the main argument, by virtue of the
operations of S. 92, of the Indian Evidence Act. In Pranjivandas Jagjivandas
Mehta v. Can Ma Phee, ILR 43 Cal 895: (AIR 1916 PC 115) the Judicial Committee
were concerned with the precise implication of a mortgage created by the
delivery of title deeds of property. Obviously, the charge could be created by
such a delivery simpliciter, with nothing else agreed upon between the parties,
or reduced to writing; in such a case, it is a presumption of law that the
scope of the security is the scope of the documents of title. Where, however,
the titles are handed over accompanied by a bargain, the terms of that bargain
govern the rights of parties with regard to the scope of the security. If the
terms are reduced to writing, that Memorandum, and that alone "must
determine what is the scope and extent of the security".
The dicta of Lord Cairns in
the leading case of Shaw v. Foster, (1872) LR 5 HL 321 were cited to the effect
that a bare deposit of the documents of title, without more, will, in equity,
create a charge on the property referred to, but that where there is an actual
written charge, the terms alone will govern the scope of the security.
In Subramanian v. Lutchman,
ILR 50 Cal 338: (AIR 1923 PC 50) the Privy Council reiterated that such an
agreement must be registered to prove a mortgage, and that where the terms are
thus to be found in a registered document "oral proof of the mortgage is
inadmissible". In the language of Couch, C. J. in another case "the
reason is that the writing is tacitly considered by the parties themselves as
the only repository and the appropriate evidence of their agreement".
In Ashgar Raza Khan v.
Mohammad Mehta Hussain Khan, (1903) ILR 30 Cal 556 (PC) the Judicial Committee
had before them deeds of mortgage and of sale and a certificate of sale of
shares in a Zamindari. In the absence of words of exception or reservation, the
documents were held to convey both the interests in the house on the land and
in the profits or rents derived from them.
In Berumull Sowcar v. Velu
Gramany, AIR 1942 Mad 369 Patanjali Sastri J, observed that where a person
erected a superstructure on the site of which he was a tenant, and subsequently
purchased the site from the landlord, the deposit of title deeds, though
relating only to the land, would clearly cover the house, and create an
equitable mortgage of the entire property of both site and superstructure.
(4) We can now proceed to
follow the argument of learned counsel for the Jawahar Mills Ltd., Salem, Sri
V. K. Thiruvenkatachari. His argument is that the principle of differentiation
is not correctly stated in the Special Bench decision in (SB) the passage from
which was set forth by us earlier. The law permits a mortgage by the deposit of
title deeds under S. 58(f) of the Transfer of Property Act, and this we have
already seen. Such a mortgage could be created, as observed by the Judicial
Committee either by a bare deposit, or by a deposit accompanied by the terms of
a bargain, or by a deposit with an agreement or memorandum of the terms, in
writing, which must be necessarily registered, to be admissible in evidence.
Where such a memorandum exists, no parole evidence is admissible on the terms
of the bargain, because of the inhibiting force of S. 92 of the Indian Evidence
Act. This necessarily implies that the parties, in their own interest, should
reduce all the terms to the writing of the agreement, including even minute
particulars. For this reasons, the dicta in (SB) to the effect that the
document should merely contain the bargain between the parties and perhaps
conditions ancillary to the deposit, but no other terms, may not be the
statement of the correct position at law.
According to learned
counsel, since the parties are perfectly free to reduce every term of the
bargain into writing, and should indeed do so if they want to prove any terms
whatever, the dichotomy apparent n the Bombay decision may not be valid. Where
the document purports to recite the terms of a mortgage by deposit of title
deeds, however extensive, and minute it may be, it falls under Art. 6 of Sch.
I, and not under Art. 40. The linked argument is that the mere fact that the
documents of title handed over related only to the actual lands, as in Sch. B
in the present case, will not prove either that the scope of the security could
not validly include the factory buildings on the lands and the machinery installed
therein (Sch. A), or that the wider scope of Sch. A would imply that the
document is a deed of mortgage falling under Art. 40.
(5) We have carefully
considered this line of reasoning, and, in our view, it cannot avail the
respondent(the Jawahar Mills Ltd.), on the very strong facts of the present
case. The document, in the present case, appears to us, beyond controversy, to
be a document of a mortgage of properties in its own right, and not at all
merely a memorandum of the terms of a bargain accompanying a mortgage by
deposit of title deeds. Surely, one vital differentiating factor would be, the
legal effect of the document, if we supposed that the title deeds were not
actually deposited, or that some other title deeds not relevant to these properties
had been deposited. It is here that we must refer to the explicit recitals of
the present document, creating mortgage rights in favour of mortgagee by its
own terms of disposition, though the deposit of title deeds is referred to at
the outset. The following passages, in our view, are conclusive on this vital
aspect.
"1. That the properties
hereby charged shall be and remain as continuing security for the balance from
time to time due to the mortgagees.
2. That the mortgagors do
hereby declare and assure that the properties described in Sch. A hereto belong
absolutely to them and that no other person has any manner of right, title or
interest..... and that there is no encumbrance or charge.
3. That the mortgagors shall
at all times during the continuance of the security hereby
created...............
4. If the mortgagors neglect
or refuse to effect insurance as agreed upon it shall be lawful for but not
obligatory upon the mortgagees to pay such premia and to keep the mortgaged
properties so insured, and the expenses and costs incurred by the mortgagees
for such prupose shall be charged to........ shall be secured upon the
mortgaged properties.
5. That all moneys received
under any insurance or any part of the property hereby mortgaged;
6. That the mortgagors
hereby undertake...
7. Accelerating clause to
the effect that 'on default of payment of any such quarterly interest the
entire amount due under the mortgagee hereby created shall become due and
immediately payable".
(6) We have no doubt
whatever that these recital sin the document create, buy their own force, a
mortgage in favour of the Indian Overseas Bank Ltd., in respect of all the
properties of Sch. A and B, quite apart room the deposit of title deeds under
Sch. B. On the present facts, we are further not able to accept the argument of
learned counsel(Sri Thiruvenkatachari) based upon S. 8 of the Transfer of
Property Act. Even if we concede that the properties referred to in Sch.
B(lands) which details the deeds of title deposited must be held in include the
factory building thereon erected prior to the mortgage, it is extremely
difficult to see how any presumption can be drawn would include the electrical
machinery, transformers, switch gear, generating sets etc., minutely
particularised in Sch. A.
There is absolutely nothing
to show that these are not separable machines, and it is noteworthy that even
future acquisitions are, under the document, to be included in the security.
Thus, this is a far stronger case for the interpretation of the document as a
document of mortgage in its own right, than the case discussed in . Nor is
learned counsel for the respondent able to explain, or account for, the
specific words of the document creating a security in favour of the mortgagee,
as upon the document itself, and quite apart from a deposit of title deeds, or
the terms of the bargain of such a deposit. We must, therefore, unhesitatingly
answer the reference to the effect that the document is a deed falling under
Art. 40(b) of Sch. I of the Indian Stamp Act. Parties will bear their own
costs.
