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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 u/s 58(f), a mortgage could be created by
deposit of title deeds with regard to Immovable 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: The 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 Immovable 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, ILR (1903) Cal 556 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 In Re: The Indian Stamp Act, 1899, 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 In Re: The Indian Stamp Act, 1899, 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.
That the properties hereby charged shall be and remain as continuing security for the balance from time to time due to the mortgagees.
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.
That the mortgagors shall at all times during the continuance of the security hereby created...............
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.
That all moneys received under any insurance or any part of the property hereby mortgaged;
That the mortgagors hereby undertake...
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 In Re: The Indian Stamp Act, 1899, . 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.