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CASE NO.: Appeal (civil)  7824-7828 of 2004

PETITIONER: Syndicate Bank

RESPONDENT: Estate Officer & Manager, A.P.I.I.C. Ltd. & Ors

DATE OF JUDGMENT: 30/08/2007

BENCH: S.B. Sinha & Markandey Katju

JUDGMENT: JUDGMENT O R D E R

WITH CIVIL APPEAL NOS. 7833-37 OF 2004

       On or about 19.03.1969,  United Auto Tractor Ltd. (for short, ’the  Company’) filed an application before the State Government for allotment of  100 acres of land in the industrial area for setting up an industrial unit for the  purpose of manufacture of agricultural tractors and implements. The  Government of Andhra Pradesh pursuant to or in furtherance thereof made   allotment of 51 acres of land in the Industrial Development Area, Nacharam,  Andhra Pradesh to the Company for the aforementioned purpose in terms of  an order dated 18.07.1972.  On 03.08.1972, an agreement was entered into  by and between the Government of Andhra Pradesh and the Company in  relation thereto;  some of the terms and conditions whereof are as under :

"6.     Only on the completion  and full payment of the          entire consideration amount, the sale deed shall be          executed and registered in the name of the          company.

               xxx                     xxx                     xxx

8(a)    Without prejudice to the rights of the State Bank of          India or any other financing agency approved by          the Government as first mortgagees, Government          have a second charge on the land, buildings, plant          and machinery which shall be converted into a first          charge when the obligation of the financing          agencies are liquidated.

8(b)    If the Financing Institutions were to advance more          than 60% of the value of the land, building,          machinery and structure, prior agreement of the          Government will be required.

               xxx                     xxx                     xxx

13.     The company shall bear, pay and discharge all          existing and further amounts, duties, imposing and          out-going of whatsoever rates, taxes imposed or          charged upon the premises or upon the occupier in          respect thereof from the date of taking possession.                  ***                     ***                             ***

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(s)     Till such time as the ownership of the property is          transferred to the Company in the manner          mentioned above the property shall continue to          remain the property of the Government.

16.     The Government shall  have right to resume the          land, if the Company do not use the land for the          purpose for which it was allotted within the period          specified above, the period to be reckoned from          the date of which the company was placed in          possession of the land.

17.     In case the Company shall become bankrupt or          proceedings of insolvency or for winding up are          filed by or against the Company the sale shall          forthwith stand determined and the Government          shall be entitled to re-enter the premises or any          part thereof in the name of the whole, without          prejudice to the rights of the Government to seek          any available remedy against the company for          recovery of the loss.

               xxx                     xxx                     xxx

21.     All payments due to the Government under this          agreement shall carry interest at 8 =%.  All          payments made/instalments paid after the due          dates carry penal interest at 12% per annum."

       In terms of clause 2 of the said agreement the Company indisputably  had made initial payment of 50% of the total cost of the allotted land.

       On  the said date, the Government of Andhra Pradesh also issued a  letter to the Company, permitting it to mortgage the said 51 acres of land to  any scheduled bank to obtain financial assistance to the project,  which the  Company sought to establish,  stating :

       "In the circumstances stated in your letter second   cited, you are hereby permitted to mortgage the 51 acres  of land allotted in the Ncharam Industrial Development  area to any Scheduled Bank to obtain financial assistance  to your project.

       The agreement executed by you is returned  herewith duly signed."           

         Relying on or on the basis of the said purported sanction,  the  Company mortgaged the said land in favour of Appellant Bank, pursuant  whereto and in furtherance whereof  moneys were advanced to it on the said  security from time to time.  Indisputably, the Government of Andhra  Pradesh transferred all the industrial estates and development areas to M/s  Andhra Pradesh Industrial Infrastructure Ltd. (for short, ’A.P.I.I.C’) with  effect from 01.01.1974.  Accounts Officer of A.P.I.I.C. informed the  Director of Industries that amount of incentive to the extent of Rs.78,860/-  sanctioned to the borrower had been adjusted against a sum of Rs.91,840/-  against the balance cost of the land sold to borrower on outright sale basis.   

       The allotted land allegedly was being utilised by the borrower for the  purpose for which the same was allotted.  It is stated that the borrower paid  the entire cost of the land to the Government on or about 31.07.1980 being a  sum of Rs. 2,03,304/-, which was acknowledged by A.P.I.I.C.  After, a long  time,  however, A.P.I.I.C. purported to have cancelled the allotment of 25  acres out of 51 acres of land allotted to the Company.  The balance 26 acres  of land was designated as Plot No.A-27/1, which is the disputed property in

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this case.

       Appellant-Bank filed O.A. No. 425 of 1995 against the Company and  the guarantor for recovery of a sum of Rs.2,57,10,393/- before the Debt  Recovery Tribunal, Bangalore.  In the said application, the Bank intended to  enforce its charge on the property which had been created.

       The said  application was allowed by an order dated 18.10.1996,  whereafter a recovery certificate was issued on 01.07.1997.

       A notice for sale of the entire 51 acres of land by public auction was  proposed to be held by the Recovery Officer on 08.03.1998.  An objection  thereto was made by A.P.I.I.C. on or about 21.03.1998, stating that it had no  objection for sale of 26 acres of land.  A writ petition was thereafter filed  before the High Court questioning the validity of the said proposed auction  before the Andhra Pradesh High Court by A.P.I.I.C., inter alia, praying for  the following reliefs :

       "(g)    Sale of 26-00 acres of land which is allowed  to be retained by the  3rd Respondent company would  secure more than the decreetal amount passed in O.A.  No. 425 of 1996 and therefore, inclusion of 25-00 acres  of land i.e., plot no. A-27/2 belonging to the IInd  Petitioner Corporation in the proposed sale by the 1st  Respondent herein by way of public auction is  unwarranted, arbitrary, and opposed to the principles of  Natural Justice."

         During pendency of the said writ petition, A.P.I.I.C. resumed  possession of 25 acres of land and decided to hold auction in respect thereof  only, which was questioned by the appellant-Bank by filing a writ petition  before the Andhra Pradesh High Court, which was marked as W.P. No.  24060 of 1998.  By an order dated 12.08.1998, the claim petition filed by  A.P.I.I.C. before the Debt Recovery Tribunal was dismissed.  A.P.I.I.C.  being aggrieved by and dissatisfied therewith filed a writ petition before the  Andhra Pradesh High Court on or about 01.09.1998.   

       A sale proclamation for the entire 51 acres of land proposing to sell  the said land by public auction was issued by the Recovery Officer on or  about 10.12.1998.  Yet again a writ petition was filed by A.P.I.I.C. and the  operation of the said for holding auction was stayed.

       On or about 24.08.1998, one Nacharam Industries Association also  filed a writ petition questioning the auction in respect of 25 acres of land.   The Company also filed a writ petition, which was marked as Writ Petition   No. 25056 of 1998 questioning the auction-cum-sale notice dated  06.08.1998 held by APIIC.  No stay, however, was granted therein.  During  pendency of the aforementioned writ petition, APIIC issued a show cause  notice dated 18.12.1998 upon the Company directing it to show cause as to  why the allotment of balance 26 acres of land should not be cancelled on the  following grounds that : (a) it had failed to set up an industry much less the  proposed industry for which the land was allotted, except constructing some  structures on Plot No.A.27/1; and (b) the Company had failed to pay the  balance cost of the land, property tax and maintenance charges etc.  amounting to a sum of  Rs.27,19,366/-.  

       No cause, however, was shown by the Company.  It  had merely been  asking for time for submitting the explanation.  On or about 14.07.1999,   allotment in favour of the Company in respect of the balance 26 acres of  land was also cancelled, the agreement dated 03.08.1972 was determined  and the amount already paid by the Company was forfeited. The Company  was directed to surrender the vacant possession of the land.   

       As noticed hereinbefore, the grounds of cancellation of allotment inter

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alia were : (i) the outstanding amount as payable in accordance with the  terms and conditions of the agreement had not been paid; and (ii) the land  was not utilised for the purposes for which it was allotted.

       Appellant filed a writ petition questioning the said order dated  14.07.1999 before the Andhra Pradesh High Court, which was marked as  Writ Petition No. 17443 if 1999.

       A Division Bench of the High Court took up for considerations all the  writ petitions as well as contempt proceeding initiated for the alleged  violation and disobedience of the order dated 22.05.1998 passed in W.P. No.  14174 of 1998 being C.C. No. 2065 of 1998.   

       The High Court by reason of the impugned judgment, inter alia, held :

i)      The Company having obtained the allotment of land failed to utilise  the same for industrial purposes. ii)     The Company had taken APIIC as well as the Syndicate Bank for a  ride. iii)    The Syndicate Bank did not initiate any coercive steps against the  Managing Director and Directors for realisation of the amounts.                  iv)     The most singular and remarkable feature was the non performance of  the Company and its abstentious silence. v)      This, however, was not to certify that the Syndicate Bank acted  diligently in the matter and in advancing huge financial assistance to the  Company on the strength of a letter of no objection purported to have been  issued by the Director of Industries.  What was surprising was that Syndicate  Bank equated that letter to that of a title deed and accordingly advanced  monies without taking proper care and caution. vi)     APIIC by its proceedings dated 17.08.1993 cancelled the allotment of  land to an extent of 25 acres of land.  The said order remained unquestioned. vii)    The Estate Officer under the Public Premises Act could not have filed  an affidavit for and on behalf of APIIC stating that the sale of 26 acres of  land could be permitted. viii)   A reading of all the covenants clearly reveals that the Government  merely granted permission by putting the Company in possession of the  land.  The ownership always remained with the Government until the  recovery.  No sale deed was executed by the Government in favour of the  Company. ix)     Admittedly, no such sale deed was executed by the Government in  favour of the Company.  

       In regard to the interpretation of clause 8 of the agreement, the High  Court while opining  that there was absolutely no dispute whatsoever that  the Appellant-Bank advanced more than 60% of the value of the land,  building, machinery and structures in favour of the Company posed a  question which, according to it, fell for its consideration, namely, as to  whether the Company as well the Syndicate Bank obtained prior consent of  the government in the matter as was required under clause 8(b) of the  agreement.  The High Court having opined that no prior consent of the  Government was taken by the Appellant-Bank before advancing more than  60% of the value of the land came to the conclusion that the letter dated  03.08.1972 of the Director of Industries could not be treated as a document  of title enabling the Company to create a charge against the properties  belonging to APIIC.  It was held that there was nothing on record to show  that the said letter had been issued by the Director of Industries with the  prior approval of the government.  It was observed :

"\005There is nothing on record suggesting that the so- called no objection of the Director of Industries binds the  Government.  There is nothing on record to show that the  said letter has been issued by the Director of Industries  with the prior approval of the Government.  The  agreement requires prior consent of the Government  expressing no objection if the financing agencies were to

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advance more than 60% of the value of the land.  The  said letter by no stretch of imagination could be  characterized and treated as a prior agreement of the  Government enabling the Syndicate Bank to advance  more than 60% of the value of the land.  The actual  mortgage deed executed by way of deposit of title deeds  is not made available for the perusal of the Court by the  Syndicate Bank."                  In the aforementioned premise the High Court held that the order of  cancellation of allotment of 25 acres of land dated 17.08.1993,  having not  been challenged, the same became final.  It was also held that as a clear and  categorical finding had been arrived at by APIIC in its order dated  14.07.1999 that the Company had failed to utilise the land for the purpose  for  which  the same had been allotted, the order of cancellation of allotment  was also valid in law, stating :

"\005The Company failed to submit any explanation to the  show cause notice and after providing innumerable  opportunities, the APIIC passed final order dated  14.7.1999 canceling the allotment of remaining extent of  land also.  The first order dated 17.8.1993 canceling the  allotment of Ac.25-00 of land remained unchallenged.   This order dated 14.7.1999 canceling the allotment of  remaining extent of Ac.26-00 of land, in our considered  opinion, is not vitiated for any reason whatsoever.  There  is a clear and categorical finding in the said order that the  Company failed to utilize the land for the purpose for  which it was allotted.  The APIIC was well within its  limits to cancel the remaining extent of fund\005"

                In regard to the question as to whether the recovery certificate dated  30.12.1996 issued by the Debt Recovery Tribunal to recover the amount by  sale of mortgaged property, it was held that despite the fact that in the  recovery certificate the schedule of the properties  attached and sold was  shown to be nil, stating :

       "Be it as it may, the finding, recorded by the DRT  as against the APIIC, in no manner, effects the title since  the lands in question remained under the ownership of  the APIIC as there is no transfer of title as such in favour  of the company.  Admittedly, no sale deed has been  executed by the APIIC in favour of the company."

       It was further held :

       "In the circumstances, we hold that the  proclamation of sale notice dated 21.1.1998 issued by the  Recovery Officer proposing to auction the lands  belonging to the APIIC is ultra vires.  Such a  proclamation has been issued without putting the APIIC  on any proper notice."

       In regard to the purported concession made by APIIC in regard to 26  acres of land, it was opined that the same had been made inadvertently by  the APIIC as it did not have a copy of the recovery certificate.  It was  observed that in any view of the matter, the consent on the part of the parties  did not confer any jurisdiction on the authorities concerned, stating  :

       "It is well settled that the consent of the parties does  not by itself confer any jurisdiction upon the authorities.   Nor such consent can take away the jurisdiction if

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otherwise conferred under the provisions of the Act.  It is  not open to the parties to confer, by their agreement,  jurisdiction on a court, which it does not possess\005"                  It was further held that the letter of the Director dated 03.08.1972  cannot be said to be in terms of clause 8(b) of the agreement and, thus, the  appellant cannot be allowed to say that the land had been completely utilised  for industrial purposes, in  absence of any such assertion and proof furnished  by the Company itself.  It was also opined :

"(a)    That the letter dated 3.8.1972 purported to have  been issued by the Director of Industries, by no  stretch of imagination, could be characterized as a  document of title so as to enable the Company to  mortgage these same by way of deposit of title  deeds in order to secure financial assistance from  the Syndicate Bank.  The Director of Industries  cannot be equated to that of the Government and it  is the only government, which could have agreed  to the company raising money on the property.   Such letters voluntarily issued by an individual  officer of the Government, in no manner, bind the  Government unless it is clearly pleaded and  established that the Director of Industries has been  authorised and delegated with the power to accord  permission to the company raising money on the  property; (b)     that the Syndicate Bank admittedly advanced more  than 60% of the value of the land but without prior  agreement of the Government as is required in  terms of clause 8(b) of the agreement.  Therefore,  the APIIC, being the successor in interest of the  Government, is not bound by the advances so  made by the Syndicate Bank.  Therefore, the  Syndicate Bank cannot have the first charge over  the property in question; (c)     that there is no specific agreement as such by the  Syndicate Bank agreeing to pay the government on  behalf of the company so much of the amount  advanced as loan to the company will remain due  on the promissory note executed by the Company.   In the absence of any specific agreement, the  APIIC is not bound to accept the demand draft for  a sum of Rs.3,366.35 paise purporting to be due  from the company towards the land cost and the  same has been rightly rejected by the APIIC; (d)     that the order of cancellation of allotment of land  dated 17.8.1993, which remained unchallenged,  has not only become final, but also does not suffer  from any legal infirmities requiring any  interference; (e)     that the order dated 14.7.1999 cancelling the  allotment of remaining extent of Ac.26-00 of land  which is challenged by the Syndicate Bank in W.P.  No.17443 of 1999, is not vitiated for any reason  whatsoever.  It is a composite order passed by the  APIIC canceling the allotment of land both on the  ground of failure to pay the balance sale  consideration by the Company and also on the  ground that the Company failed to utilize the land  for the purpose for which it has been allotted to it.   The orders of cancellation of allotment of land  have duly taken into account the admissions made  by the Company that it has failed to utilize the land  for the purpose for which it has been allotted to it.  

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The company has admitted that it was in red and  could not establish any industrial unit for the  purpose of manufacture of agricultural tractors for  which purpose the land has been allotted to it; (f)     that the order dated 12.8.1998 passed by the  Recovery Officer rejecting the claim petition of the  APIIC is vitiated.  The Recovery Officer could not  have proceeded with the sale of the land belonging  to the APIIC in the absence of any specific  authorization and permission by the Presiding  Officer of DRT.  In the schedule of the recovery  certificate, there is no mention of the details of the  lands in question enabling the Recovery Officer to  proceed against the same for recovery and  realization of the decreetal amount; and (g)     that the sale notifications issued by the APIIC do  not suffer from any legal infirmities."

       Mr. Rajiv Nanda, learned counsel appearing on behalf of the  Appellant-Bank, would submit :

i)      The High Court committed a factual error insofar as it proceeded on  the basis that the mortgage was created merely by deposit of consent letter,  whereas in fact the same  was created by deposit of allotment letter, original  counter part of the agreement dated 03.08.1972 and letter dated 03.08.1972.  ii)     The High Court erred in so far as it failed to notice that the order of  the Debt Recovery Tribunal dated 18.10.1996 became final as the same had  not been challenged by any party to the lis.  

iii)    APIIC having categorically made a statement before the Recovery  Officer that 26 acres of land should be allowed to be retained by United  Auto, which was more than sufficient to recover the bank dues and, thus, it  was estopped and precluded from cancelling the letter of allotment in  relation to the said land.

iv)     Allotment letter dated 18.07.1972, agreement dated 03.08.1972 as  also the consent letter dated 03.08.1972  being documents of title within the  meaning of Section 58(f) of the Transfer of Property Act, the High Court  committed a mistake in opining otherwise.

v)      Consent letter dated 03.08.1972, which is in conformity with clause  8(b)of the agreement dated 03.08.1972 was  misconstrued by the High  Court, inasmuch as by reason thereof, the State agreed that the allottee may  raise loan mortgaging the lands agreed to be sold as well as the buildings  constructed thereupon.   vi)     Clause 8(b) supersedes other clauses to the contrary in the agreement,  which provides for prior agreement of government before creating  charge/mortgage only if more than 60% of the value of the land was to be  advanced and a consent letter of the government was to be issued therefor.   

vii)    Clause 8(b) having provided that the charge of the financial institution  would be the first charge and that the government having provided that the  second charge, the obligation of the financial institution was required to be  liquidated at the first instance.    viii)   It is borne out from the records that the entire cost of the land being  Rs.4,93,680/- stood paid.  In any event the value of the entire land  having  been adjusted  for 25 acres of land which  had been cancelled, the APIIC did  not make it clear as to on what basis further cost of the land towards 26 acres  was being made.  APIIC was not only estopped and precluded from raising  the aforementioned contentions  and its order would be wholly inequitable if  the bank is left with no remedy when it had acted on the basis of its consent.

ix)     The schedule of the recovery certificate having been shown nil, the  Recovery Officer could not have determined as to which properties were to   be attached or sold;  the finding of the High Court is clearly contrary to the

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provisions of Section 19(20), 19(22) and Section 25 of the Recovery of  Debts due to the Banks and Financial Institutions Act, 1993 and in that view  of the matter the High Court committed an error in holding that the auction  of land  by the Recovery Officer was ultra vires as the mortgaged property  was not specified in the recovery certificate.

x)      If the consent made by the Manager (Law) did not bind APIIC, it is  difficult to conceive as to how the writ petitions which were filed by the said  parties could be  entertained.

xi)     The finding of the High Court that the letter dated 03.08.1972 issued  by the Director of Industries was not binding on the government and APIIC  was wholly without any basis as all the orders of the government had been  communicated only through the letters issued by the Director of Industries.

xii)    The purported finding of the High Court that the Company had failed  to utilise the land for the purpose of allotment is clearly erroneous as  there  is nothing to show that the conditions precedent therefor existed and in any  event, clause 8(b) of the agreement dated 03.08.1972 would override clauses  13, 15 and 16 thereof, in terms whereof interest of the bank would prevail  over that of APIIC.

xiii)   The High Court should not have entertained the writ petition filed by  the APIIC as  it did not prefer any appeal  against the order of the Debt  Recovery Tribunal.           The learned Solicitor General and Mr. A.K. Ganguli, learned Senior  Counsel, appearing on behalf of the State and APIIC, on the other hand,  would submit :  

i)      The agreement dated 03.08.1972 being not registered, no title was  conferred on the Company, pursuant whereto or in furtherance whereof the  Company had  not derived any assignable title.   

ii)     It is not a case where a mortgage could be created by reason of deposit  of title deed as contemplated under Section 58 of the Transfer of Property  Act.   iii)    Mere deposit of allotment letter or the agreement dated 03.08.1972,  thus, did not create any charge in favour of the Bank.  The letter dated  03.08.1972 issued by the Director of Industries being not a document of title,  the judgment of the High Court cannot be assailed.

iv)     Appellant-Bank having not questioned the orders of cancellation of  allotment dated 17.08.1993 and 14.07.1993 respectively, it must be held to  have waived its right, if any, to question the same.  The sale proceeds in  terms of the judgment and order dated  22.02.1977, therefore, should be  directed to be paid to APIIC.   

       The principal question which arises for consideration is as to whether  in absence of any execution and registration of deed of sale by the  Government of Andhra Pradesh or by A.P.I.I.C. in favour of the Company,  any interest in the land has been and could be created.  Our attention has  been drawn by the learned counsel for Appellant to a large number of  decisions of different High Courts to show that for the purpose of creating  mortgage by depositing title deeds in terms of Section 58 of the Transfer of  Property Act, it is not necessary that the mortgagor would have forfeit  complete title over the property.   Even if the mortgagor derives some  interest which can be subject-matter of mortgage, a mortgage by deposit of  title deeds can be created.  It is not in dispute that whereas a deposit of title  deeds by itself does not require a document in writing, but in the in event a  mortgage is created thereby, it will require registration.  It is furthermore not  in dispute that  complete title over a property can be acquired by a vendee  only when a deed of sale is executed and registered by the vendor in terms of  Section 54 of the Transfer of Property Act.  In this case, it has not been  disputed that apart from the letter of allotment, an agreement coupled with

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the letter dated 03.08.1972, no deed of sale was executed or registered by the  Government of Andhra Pradesh or by A.P.I.I.C.  in favour of the Company.    

       As would appear from the following, we are of the opinion that the  issues raised herein are of some importance and as any decision thereupon  would have serious impact  on similar transaction in future, it should be  heard by a larger bench.

       We may, however, make some general  observations.  

       Section 58 of the Transfer of Property reads as under :

"Section 58 \026 "Mortgage", "mortgagor", "mortgagee",  "mortgage-money" and "mortgage-deed" defined   (a) A mortgage is the transfer of an interest in specific  immoveable 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 a  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.  (c) Mortgage by conditional sale.-Where, the mortgagor  ostensibly sells the mortgaged property-  on condition that on default of payment of the mortgage- money on a certain date the sale shall become absolute,  or  on condition that on such payment being made the sale  shall become void, or  on condition that on such payment being made the buyer  shall transfer the property to the seller,  the transaction is called a mortgage by conditional sale  and the mortgagee a mortgagee by conditional sale:  Provided that no such transaction shall be deemed to be a  mortgage, unless the condition is embodied in the  document which effects or purports to effect the sale. (d) Usufructuary mortgage.-Where the mortgagor  delivers possession or expressly or by implication binds  himself to deliver possession of the mortgaged property  to the mortgagee, and authorizes him to retain such  possession until payment of the mortgage-money, and to  receive the rents and profits accruing from the property  or any part of such rents and profits and to appropriate  the same in lieu of interest, or in payment of the  mortgage-money, or partly in lieu of interest or partly in  payment of the mortgage-money, the transaction is called  an usufructuary mortgage and the mortgagee an  usufructuary mortgagee.  (e) English mortgage.-Where the mortgagor binds  himself to repay the mortgage-money on a certain date,  and transfers the mortgaged property absolutely to the  mortgagee, but subject to a proviso that he will re- transfer it to the mortgagor upon payment of the

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mortgage-money as agreed, the transaction is called an  English mortgage.  (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.  (g) Anomalous mortgage.-A mortgage which is not a  simple mortgage, a mortgage by conditional sale, an  usufructuary mortgage, an English mortgage or a  mortgage by deposit of title-deeds within the meaning of  this section is called an anomalous mortgage."                  The requisites of  an  equitable mortgage are : (i) a debt; (ii) a deposit  of title deeds; and (iii) an intention that the deeds shall be security for the  debt.   The existence of the first and third ingredients of the said requisites is  not in dispute.  The territorial restrictions contained in the said provision   also does not stand as a bar in creating such a mortgage.  The principal  question, which, therefore, requires consideration is as to whether for  satisfying the requirements of Section 58(f) of the Transfer of Property Act,  it was necessary to deposit documents showing complete title or good title  and whether all the documents of title to the property were required to be  deposited.  A’ fortiori the question which would arise for consideration is as  to whether in all such cases, the property should have been acquired by  reason of a registered document.   

       Each case will have to be considered on its own facts.  A  jurisprudential title to a property may not be a title of an owner.  A title  which is subordinate to an owner and which need not be created by reason of  a registered deed of conveyance may at times create title.  The title  which is  created in a person may be a limited one, although conferment of full title  may be governed upon fulfilment of certain conditions.  Whether all such  conditions have been fulfilled or not  would essentially be a question of fact  in each case.  In this case a right appears to have been conferred on the  allottee by  issuance of a valid letter of allotment coupled with possession as  also licence to make construction and run a factory thereon, together with a  right to take advances from banks and financial institutions; subject, of  course,   to its fulfilment of condition may confer a title upon  it in terms of  Section 58(f) of the Transfer of Property Act,  but the question would be  whether such a right is assignable.   

       In Mulla’s Transfer of Property Act, a large number of cases have  been noticed where even a patta of land has been considered to be a  document of title depending of course on the circumstances under which it  had been  given.   

       Moreover, if insistence on the original document of title is laid,  it  may give rise to the conclusion that once the document of title is lost, no  mortgage of deposit of title deed can be created at all.

       It is, however, one thing to say that a person cannot convey any title,  which he himself does not possess; but it is another thing to say that no  mortgage can be created unless he obtains a title by reason of a registered  conveyance.

       In Angu Pillai and Others v. M.S.M. Kasiviswanathan Chettiar and  Others [AIR 1974 Madras 16], a Division Bench of the High Court reversed  the decision of the Trial Judge, holding that the said document did not  constitute a valid mortgage by deposit of title, stating :

       "13. The only question, in these circumstances, is

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whether, by depositing Exs. A.23 to A.26 a valid  equitable mortgage was created in favour of the plaintiff.  Section 58 of the Transfer of Property Act inter alia  provides that where a person in any of the towns  mentioned therein delivers to a creditor or his 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. It would be seen from  this provision that three essentials are required for an  equitable mortgage, namely, (1) a debt, (2) deposit of  title deeds and (3) the intention that the delivery should  be security for the debt. In the instant case, the first and  third essentials are satisfied. The only question is whether  Exs. A.23 to A. 26 are documents of title within the  meaning of S. 58. The trial Court, relying upon the  decisions of the Rangoon High Court in V.E.R.M.A.R.  Chettiar firm v. Ma Joo Teen, AIR 1933 Rang 299 held  that the said documents were not documents of title and  that, therefore, no valid equitable mortgage was created.  We are clearly of the opinion that this conclusion cannot  be sustained. The expression ’documents of title’  occurring in Section 58 has been the subject of  consideration in some decisions. The law in regard to  equitable mortgage is precisely the same in England as it  is in India\005"  

       It was further noticed :         "15. In Indian law, deposit of patta has been held  to constitute a valid equitable mortgage, though patta is  not in itself a deed of title, but is only an evidence of title.  This Court has consistently taken the view that the main  object of tender of patta is merely to give information of  the land revenue payable and the details of the property  and that the exact weight to be given to the patta would  depend upon the circumstances of the case. In Dohganna  v. Jammanna, AIR 1931 Mad 613 it is pointed out that in  case of pattas in respect of a land in Zamindari, if the  land be at the disposal of the landlord at the time of  granting the patta, prima facie such patta would not be  mere bill of rent but something more and that if it is not  so it would not create any rights in the pattadar in  derogation of the rights of a person who would be  entitled to the land subject to the proper and regular  payment of rent. The question directly arose before a  Bench of this Court in Official Assignee v.  Basudevadoss, AIR 1925 Mad 723, as to whether a  deposit of patta is enough to constitute an equitable  mortgage. The Bench answered the question in the  affirmative. Srinivasa Aiyangar, J. who delivered the  leading judgment in that case, has pointed out that the  answer to the question as to whether the pattas in respect  of a land is a document which would be sufficient, by  being deposited, to evidence the intention required for an  equitable mortgage would vary according to the  conditions of the country and the consciousness on the  part of the members of the community and that though a  patta is not a document of title still a deposit of the same  with intent to create an equitable mortgage would create  an equitable mortgage."

       In M.M.T.C. Limited v. S. Mohamed Gani and Another [AIR 2002  Madras 378], a learned Single Judge opined :

"The plaintiff has sought for a mortgage decree  specifically alleging that the first defendant in respect of

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the advances made by the plaintiff to his business has  offered the immovable property of his wife viz., the  second defendant herein as security and has created an  equitable mortgage.  Both the counsel have made  elaborate submissions in that regard.  Hence, a question  would arise whether an equitable mortgage by deposit of  title deeds was created.  What is mortgage by deposit of  title deed is defined under Section 58(f) of the Transfer  of Property Act, as follows : ’Where a person in many 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.’ It is called in English law an equitable mortgage.  Lord  Cairns defined the same as ’It is well established rule of  equity that a deposit of a document of title without more,  without writing, without word of mouth, will create  Equity a charge upon the property referred to.’  In order  to prove the existence of an equitable mortgage, the  following requisites are necessary :--(1) a debt; (2) a  deposit of title deeds, and (3) an intention that the deeds  shall be security for the debt.  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 euitable  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 ntent to create a  security.  But in a given case unless and until the  defendants satisfactorily explain how the documents  came to the plaintff’s custody, the said fact would be  significant and have a great bearing."

       In Amulya Gopal Majumdar v. United Industrial Bank Ltd. and  Others [AIR 1981 Calcutta 404], a Division Bench of the Calcutta High  Court held that possessory  title itself can be a subject-matter of mortgage,  opining : "\005Therefore, at the time when the disputed transaction  was entered into the mortgagor Eagle Plywood Industries  Private Limited had entered into lawful possession of the  Behala property on the basis of an agreement for sale  dated July 18, 1950. Such possessory title could very

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well in law be furnished as security for the mortgage. On  this point we are in respectful agreement with the view  taken by M.M. Dutt and R.K. Sharma, JJ. in the case of  Usha Rice Mills Company Limited v. United Bank of  India (1978) 82 Cal WN 92, since the view taken by their  Lordships is based on high authorities."

       We may notice that that a Division Bench of this Court in Bank of  India  v. Abhay D. Narottam and Others  [(2005) 11 SCC 520], did not think  it fit to consider the correctness thereof having regard to the provisions  contained in Section 125 of the Companies Act, 1956.

       Some decisions of this Court in this connection may also be noticed.

       In Alapati Venkataramiah v. Commissioner of Income Tax Hyderabad  [1965 (3) SCR 567], while considering the provisions of Section 12B of the  Indian Income Tax Act, 1922, this Court repelled a contention that a  possessary title in terms of Section 53-A of the Transfer of Property Act  would not subserve the requirements of an effective conveyance of the  capital assets, as delivery of possession of immovable property cannot by  itself be treated as equivalent to conveyance of the immovable property.   

       However, in terms of Section 12B of the Income Tax Act, title must  pass by any of the modes mentioned therein, namely, sale, exchange or  transfer.  It did not contemplate any other mode of transfer.

       In K.J. Nathan v. S.V. Maruty Reddy and Others [1964 (6) SCR 727],  this Court held :  "10. 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 deed; 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 deed s  constitutes a mortgage, for no such presumption has been  laid down either in the Evidence Act or in the Transfer of  Property Act. But a court may presume under Section  114 of the Evidence Act that under certain circumstances  a loan and a deposit of title deeds constitute a mortgage.  But that is really an inference as to the existence of one  fact from the existence of some other fact or facts. Nor  the fact that at the time the title deeds were deposited  there was an intention to execute a mortgage deed in  itself negatives, or is inconsistent with, the intention to  create a mortgage by deposit of title deeds to be in force  till the mortgage deed was executed. The decisions of  English courts making a distinction between the debt  preceding the deposit and that following it can at best be  only a guide; but the said distinction itself cannot be  considered to be a rule of law for application under all  circumstances. 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

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ascertain in each case whether in substance there is a  delivery of title deeds by the debtor to the creditor. If the  creditor was already in possession of the titledeeds, it  would be hypertechnical to insist upon the formality of  the creditor delivering the title deeds to the debtor and  the debtor redelivering 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."  

       The question which arose therein was that what would be the extent of  subject-matter of mortgage; the entire property forming the subject-matter  of mortgage or a part thereof.           There cannot be any doubt whatsoever that in absence of a registered  deed of sale, the title to the land does not pass, but then what would not be  conveyed is the title of the estate and not the allotment and possession  itself.           It would, therefore, appear that there is no clear authority on the  question as to whether in absence of any title deed in terms whereof the  mortgagee obtained title by reason of a registered deed can be a subject- matter of mortgage.  Section 58 of the Transfer of Property Act does not  speak of mortgage of an owner’s interest.  If any interest in property can be  created by reason of a transaction or otherwise which does not require  registration, in our opinion, it may not be necessary to have a full title  before such a mortgage is created by deposit of title deeds.  A person may  acquire title to a property irrespective of the nature thereof by several  modes e.g. a lease of land which does not require registration; (ii) by  partition of a joint family property by way of family settlement, which  does not require registration.         In a case of this nature where valuable right is created which may or  may not confer an assignable right, the question requires clear  determination having regard to the equitable principle in mind,  and  would  have far reaching consequences, as a large number of banks and financial  institution advance a huge amount only on the basis of allotment letters.  If  such allotment letters are to be totally ignored, the same may deter the  banks in making advances which would in effect and substance create  a  state of instability.         Apart from the said question, the effect of an admission by an  authorized representative of the State having regard to the rules of  executive business or otherwise vis-‘-vis the Appellant-Bank also requires  consideration.         We, therefore, are of the opinion that keeping in view the importance  of the questions raised at the Bar, as noticed hereinbefore, and in the  context of the factual matrix involved in the matter, the questions require  consideration by a larger bench so that an authoritative pronouncement can  be made thereupon.