Sardar Nanak Singh vs Alchemist Asset Reconstruction Company (India) Ltd.

Ranjit Singh, J

The issue involved in the present appeal is whether the mortgage by deposit of title deed would be enough to secure the creditor and it be utilized when the loan goes non-productive. Incidental issue connected with this is whether this title deed could be utilized for subsequent loans, to enhance the limits etc.

The background in which the above issue arises for consideration may be noticed here in brief Central Bank of India had filed an OA in the year 1997 for recovery of Rs. 1,21,85,258.75 from Defendant No. 1 to 4 jointly and severally and against Defendant No. 7 to 9 (appellants 3 to 5) to the extent the estate they had inherited from Late Sardar Ajit Singh. The amount was purportedly due as on 21.3.1997 with pendente lite and future interest @ 20.75% p.a. with quarterly rests against defendants 1 to 4 jointly and severally and against defendants 7 to 9 (appellants 3 to 5) to the extent they had inherited the estate from late Sardar Ajit Singh. As averred in the O.A., M/s Guru Nanak Enterprises, respondent No. 2, a sole proprietorship concern of Mr. Sukhvinder Singh Sahani, respondent No. 3, had availed certain credit facilities and/or loans from the respondent bank. Defendants 7, 8 and 9 who are presently appellants 3, 4 and 5 were impleaded as legal hears of late Ajit Singh who was one of the partners of the partnership firm named M/s Ajit Brothers along with appellants 1 and 2. M/s Ajit Brothers had mortgaged plot No. A-8/2, Wazirpur Industrial Area, New Delhi, measuring 475 sq. yds. through its partner Sardar Ajit Singh, Sardar Nanak Singh (both deceased) and Sardar Harbhajan Singh by way of equitable mortgage on 21.2.1985. It is alleged that except for internal documents written by the branch manager there was no supporting documents in this regard. It is averred that none of the partners executed any personal guarantee in favour of the bank. It is further alleged that this document purportedly written on 21.2.1985 does not bear the signature of late Ajit Singh, late Nanak Singh or Harbhajan Singh in any capacity whatsoever. It is written in the document that Ajit Singh, Nanak Singh and Harbhajan Singh partners of M/s Ajeet Brothers had called upon the Tilak Nagar branch of the bank on 21.2.1985 and deposited the purported lease deed of Wazirpur property by way of equitable mortgage against the loan granted to M/s Guru Nanak Enterprises.

The O.A. filed by the bank came up for hearing on 1.4.1997. Summons were issued to defendants/appellants. On the request of the respondent bank, a Local Commissioner was appointed for preparing an inventory of hypothecated raw material, semi-finished and finished goods, stock-in-trade etc. Defendants, including the appellants herein, filed written statement raising an objection that no document or mortgage deed had been signed by them. Matter went to trial, Respondent bank filed affidavit by way of evidence. Defendants/appellants 3 to 5 filed their affidavit by way of evidence specifically denying the creation of any alleged mortgaged. It was further pleaded that Ajit Singh was undergoing medical treatment at Tirath Ram Shah Hospital where he was statedly admitted on 1.2.1985 and was discharge on 27.2.1985.

The defendants including the present appellants prayed for cross-examination of bank's witness. One of the bank witness, namely, R. K. Sharma had by then expired. His evidence was substituted by the affidavit of one Mr. Neeraj Chawla. It is alleged that in the meantime the bank initiated measures under the provisions of the SARFAESI Act. The bank was directed to maintain status quo. The prayer of the appellants to cross-examine the bank's witness was declined on 29.7.2008 against which an appeal was preferred before this Appellate Tribunal. On 26.10.2009, Mr. Nanak Singh passed away and his LRs were brought on record. The legal heirs of Nanak Singh filed a joint written statement all 23.8.2010 denying the creation of any equitable mortgage. Ultimately, after permitting the parties to file written submissions, the Tribunal has passed the impugned order dated 5.4.2011 holding that the appellants, including LRs of defendant No. 5, liable for the payment of the amount Rs. 1,21,85,258.75 along with interest @15.75% p.a. simple from the date of filing of the O.A. till its realization. Alleging that the Tribunal had passed the impugned judgement ignoring and negating the arguments of the appellants herein in regard to the creation of equitable mortgage, the appellants have preferred. this appeal.

The stand of the bank in the O.A. is simple and straightforward. It is alleged that borrower/defendant No. 1 is a proprietorship concern engaged in the business of fabrication and export of readymade garments, Defendant Ms. Daljit Kaur Sahni and Mr. Sangat Singh Anand, defendants 3 and 4, stood surety and guaranteed the repayment of the outstanding dues of the applicant concern. M/s Ajit Brothers had offered an equitable mortgage of its property A-8/2, Wazirpur Industrial Area, New Delhi, measuring 475 sq. yds, through its partner Mr. Ajit Singh (since deceased) along with defendants 5 and 6 as collateral security. Defendant firm had availed various credit facilities from the bank and defendant Ajit Singh had called on the bank on 2.2.1985 and deposited the title deed to create an equitable mortgage of the said property as collateral security. It is further alleged that on the request of the defendant firm the account was transferred to Parliament Street branch, New Delhi from Tilak Nagar branch. On 12.9.1990, the defendant firm requested the bank for Packing Credit facility of Rs. 25 lacs and/or against export incentive for Rs. 2 lacs and undertook to get equitable mortgage of the property bearing No. H-24 situate at Shivaji Park, Village Madipur, Delhi, a plot measuring 168 sq. yds., belonging to defendant Ms. Daljit Kaur Sahani to secure repayment. The defendant firm had again approached the bank for enhancement of credit facilities which was sanctioned on 9.11.1990. The facility was granted and was availed by the defendant firm against the hypothecation of raw material, stock in trade, documents of title of goods, accepted documents and personal guarantee of Mr. Didar Singh (since deceased) and of defendant No. 3 as well. This enhanced limit was also secured by collateral security of property located at Shivaji Park belonging to Ms. Daljit Kaur Sahani and the property situated at Wazirpur Industrial area, i.e., property No. A-8/2, by way of equitable mortgage. Accordingly it is alleged that the bank was well within its power to seek recovery of this loan so secured in this manner and submission that no mortgage was created in favour of the bank is totally misconceived and misplaced and against the facts as pleaded on record. It may be noticed that the debt in question has since been assigned to Alchemist Asset Reconstruction Company (India) Ltd., respondent No. 1.

The finding returned by the Tribunal to hold that the appellant/respondents are liable to pay this amount is accordingly challenged through the present appeal.

I have heard the counsel for the parties in detail. Counsel appearing for the appellant has raised a number of pleas to challenge the finding returned by the Tribunal below. The whole emphasis of the counsel for the appellant has been on a document written on 21.2.1985 where the title deed of the property at Wazirpur Industrial Area and was allegedly deposited with the bank to create an equitable mortgage to secure the loan which the defendant firm had availed from the bank. The counsel for the appellants would submits that this document does not contain signatures of any of the partners of the partnership firm M/s Ajit Brothers and as such is a document created by the bank, which cannot bind the appellants herein. The plea, of course, is that this does not lead to creation of any equitable mortgage as alleged by the bank.

Incidentally, another argument connected with the same is raised by the counsel for the appellant to say that this document dated 21.2.1985 is hit by section 21 of the Indian Evidence Act. It is also pleaded that this document cannot be used for any purpose as it is not a registered document. Plea further is that this document was revoked by some of the guarantors. The counsel has further pleaded that there is variance in the terms of the debt which could not have been done without the concurrence of the parties concerned. The counsel would also urge that the deed of mortgage could not have created without the permission of the Lt. Governor as is the condition stipulated in the title deed and this mistake of fact would render the entire mortgage to be bad in law. Counsel has also raised a plea of limitation besides pleading that the evidence which has been led by the bank, was beyond the pleadings.

Counsel for the bank, however, would dispute all these contentions and would urge that mere deposit of title deed would be enough for creating an equitable mortgage and this is so very well recognized by the law. He has disputed all the other contentions raised on behalf of the appellants.

I am not impressed with the submission made by the learned counsel for the appellants that the document dated 21.2.1985 is hit by section 21 of the Indian Evidence Act. Section 21 of the Evidence Act relates to proof of admissions against persons making them, and by or on behalf of them. This section makes the admission relevant which may be proved as against the person who makes them. How the document dated 21.2.1985 would be hit by section 21 of the Evidence Act is beyond my comprehension. The plea of the counsel for the appellant appears to be that this is an admission made by the bank and so it cannot be proved against the appellants. Firstly, the document in question can never be treated as admission. It recites that three persons came to the bank and deposited the title deed. How this document can be taken as an admission against the bank or for that matter against anyone. The submission of the counsel is that it is not signed by any of the persons who are alleged to have deposited this title deed. Obviously, then it cannot be an admission on their part. In my view, there is no weight in the argument advanced by the counsel and the plea that this document would be hit by section 21 of the Evidence Act is perhaps totally out of context having no merit.

In this context only the counsel for the appellant very vehemently argued that the equitable mortgage could not have been created in the manner it has been done and this again would not bind the appellants legally or otherwise in any manner. In this regard, the counsel has placed before me some judgements which may need a notice.

Section 58(f) of the Transfer of Property Act regulates the mortgage by deposit of title deeds. This section provides, "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 immovable property. with intent to create a security thereon, the transaction is called a mortgage by deposit of title-deeds. Based on this, the counsel would urge that there was no intend to create a security and mere deposit of title deed in the absence of any thing to create mortgage cannot bind the appellants.

No doubt, as per the definition, the essential requisites of the mortgage by deposit of title deed are (1) debt, (2) deposit of title deed and (3) an intention to create a security thereon, for the security of the debt. Undoubtedly, the title deed is found deposited with the bank. How this came into the possession of the bank if intention was not to deposit it as equitably mortgage is something which the appellant had to explain. The counsel for the appellant did make a laborious attempt to Show that the deed was not deposited by the partners of the firm. But he, in my view, had remained unsuccessful in his attempt. The counsel for the bank has rightly pointed out to the contradictory stands taken in this regard in the written statements wherein at one stage it was stated that the title deed of the property was taken by defendant No. 2 who was their nephew for securing a loan for them. Subsequently, however, the appellants made an attempt to change this stand by bringing another version that the same was either taken away or stolen. This changed statement was filed by LRs. The counsel for the bank has referred to a letter dated 11.5.1993 written by M/s Guru Nanak Enterprises for sanction of an ad hoc limit. In this letter, it is clearly mentioned that property A-8/2, Wazirpur Industrial Area worth Rs. 48 lacs is already available with the bank as collateral security apart from another property at Shivaji Park. The Central Bank had informed M/s Guru Nanak Enterprises through their letter dated 20.8.1993 about the sanctioning of the facilities mentioned therein. The prayer for release of Wazirpur property was also dealt with in this letter and it is clearly mentioned that Wazirpur property would be released only after E/M formalities in respect of Rohini property is completed in all respect and till such time Wazirpur property would continue as collateral security. The counsel for the bank would also refer to another communication dated 31.5.1994 initiated by M/s Guru Nanak Enterprises where it is recorded that the property at A-8/2 Wazirpur Industrial Area is in the name of M/s Ajit Brothers, a partnership firm. It is stated that the partnership between three brothers is having some family problem and M/s Guru Nanak Enterprises wanted to replace the said property by offering Rohini property. It is then recorded that due to the demise of the father of the proprietor in whose name the Rohini property stood, the same could not be mortgaged. From this, counsel for the bank would urge that the same property was offered as equitably mortgage. If the appellants or the partnership firm was tricked in any manner to offer this property as equitable mortgage by M/s Guru Nanak Enterprises, they obviously could not have waited for all these years. The appellants have till date made no complaint in this regard. Their initial stand was that their nephew look it for getting loan for them.

Reference here can also be made to the stand which the appellants took before the Tribunal below in the initial written statement filed. It is averred that late Ajeet Singh and respondent No. 5 and 6 are maternal uncle of the respondent No. 2. The respondent No. 2 under the pretext of getting to late Ajeet Singh and the respondent Nos. 5 and 6 a loan facility for themselves took away the perpetual lease. subsequent Change can very well be notice from the averments that the deed was taken away or stolen. The present stand is only a stand of convenience and so cannot be accepted.

The counsel for the appellant has strongly relied on the judgement in the case United Bank of India vs. Lekharam Sonaram & Co. & Ors., AIR 1965 sc 1591 in support of his submission. In this case, the Court has clearly observed that a mortgage by deposit of tilted deed is a form of mortgage recognised by section 58(f) of the Transfer of Property Act, which provides that it may be effected in certain towns where a person delivers to a creditor or his agent document of title to immovable property with intent to create a security thereon. The Court has also observed that, in other words, when the debtor deposits with the creditor the title deed of his property with an intent to create a security, the law implies a contract between the parties to create a mortgage and no registered instrument is required under Section 59 as in other classes of mortgage. The Court has further held "It is essential to beer in mind that the essence of a mortgage by deposit of title deeds is the actual handing over by a borrower to the lender of documents of title to immovable properly with the intention that those documents shall constitute a security which enable the creditor ultimately to recover the money which he has lent. But if the parties choose to reduce the contract to writing, this implication of law is excluded by their express bargain, and the document will be the sole evidence of its terms." There is enough evidence available on record that the title deed was deposited with the bank. No action in any manner has been taken by any of the persons who were the owners of the property against the relative who took away the title deed of the property if he had taken it without consent. Efforts to get this title deed back was only by offering an alternative property as security, which also did not happen as it was in the name of the father of the proprietor of M/s Guru Nanak Enterprises, as has been notice above. The clear intention to offer this property as an equitable mortgage can thus be made out from the record and evidence, I am not prepared to accept the line of submission made by the counsel for the appellant that this title deed has not been offered as equitable mortgage by the appellants to M/s Ajit Brothers, a partnership concerned. Accordingly, I would reject this submission.

The next plea advanced by the counsel for the appellants is that the surety even if accepted to have been offered by the appellants was for a limited amount and purpose and that it was so offered by M/s Ajit Brothers for a loan of Rs. 5.75 lacs. It is urged that thereafter M/s Ajit Brothers never had consented to enhance the liabilities in any manner or to extend the period of guarantee. In this context only. The appellants rely on section 133 of the Indian Contract Act, which provides for discharge of surety by variance in the terms of the contract. Counsel would accordingly contend that since the surety even if it was so offered by Ajit Brothers, was varied without the consent of the appellant, they would stand discharged due to subsequent variance.

This argument may sound a bit attractive but is not in tune with law and the facts emerging find the evidence placed on record. In earlier part of the judgement, a reference is made to this property being offered as security for the subsequent loan as well. There is no action taken either by the appellants or by M/s Ajit Brothers ever to make a complaint that this surety should be withdrawn. In fact, the debtor M/s Guru Nanak Enterprises had made an attempt to offer an alternative property and release this Wazirpur property. In letter dated 11.5.1993, M/s Guru Nanak Enterprises had clearly mentioned that property A-8/2 Wazirpur Industrial Area, New Delhi which is worth Rs. 48 lacs, is already available with the bank apart from property at H-24, Shivaji Park, Punjabi Bagh, New Delhi. Once the title deed of this property was in possession of the bank and for this ad hoc limit the same was offered as collateral security, the appellants cannot now urge that there was variance in the terms of the security to avoid then liability. The bank had clearly informed M/s Guru Nanak Enterprises that Wazirpur property would be released only after E/M formalities in respect of the Rohini property are complete and till that was done the Wazirpur property would continue as collateral security. When M/s Guru Nanak Enterprises made an attempt to replace the said property by offering Rohini property, they themselves informed the bank that the same could not be mortgaged as there was some problem in this regard. It is thus clear that this very property was offered as equitable mortgage for the sanction of ad hoc limit in the year 1993 and no allowance is available or can be granted to the appellant on this ground as pleaded. Counsel for the respondent bank has referred to a letter dated 9.11.1990 where this Wazirpur property is referred to as collateral security and this was to continue. Counsel would then refer to another letter dated 29.4.1993 initiated by M/s Guru Nanak Enterprises wherein it was written that M/s Guru Nanak Enterprises had already lodged with the bank collateral security like H-24, Shivaji Park, Punjabi Bagh, New Delhi and A-8/2, Wazirpur Industrial Area, New Delhi of value Rs. 48 lacs. In this context only, reference is made to a letter dated 11.5.1993 initiated by M/s Guru Nanak Enterprises where again this fact is reiterated that Wazirpur industrial Area property worth Rs. 48 lacs is already lodged with the bank as collateral security. Reference is made to another letter dated 20.8.1993 issued by the bank where the request of M/s Guru Nanak Enterprises about the release of Wazirpur property is commented upon to say that the said property will be released after E/M formalities in respect of Rohini property are completed in all respect. Even on 31.5.1994, M/s Guru Nanak Enterprises had written to the bank thanking the bank for letter dated 30.5.1994 allowing temporary Packing Credit of Rs. 10 lacs, In this letter also M/s Guru Nanak Enterprises has clearly stated that the property at A-8/2 Wazirpur Industrial Area is in the name of Ajit Brothers, a partnership firm, and clue to some dispute between the brothers they wanted to replace the said property and offer Rohini property. This, however, could not be done due to demise of the person on whose name the Rohini property stood and thus could not be mortgaged. It is clearly written in this letter that the bank is already holding equitable mortgage of Punjabi bagh and Wazirpur properties and hence equitable mortgage should not be a problem. On this basis, I find no substance in the submission made by the counsel for the appellants that this property was not offered as equitable mortgage for the subsequent enhancement of limits etc. or that variance, if any, would lead to cancellation of the security.

Reference can be made to the view of the Hon'ble Supreme Court in Sita Ram Gupta Vs Punjab National Bank & Ors., 2008 (IV) ICC 151. In this case, the court has held that the guarantor would not be entitle to the protection under Section 130 of the Contract Act even when he had cancelled the guarantee before the loan amount was actually paid. In the case of Bank of Baroda Vs Official Liquidator & Ors., 1990 ISJ (Banking) 406, the Hon'ble Madhya Pradesh High Court has held that even when the fresh guarantee is offered the earlier guarantee does not cease to operate upon a fresh guarantee having been taken from remaining directions. This is to be only treated as additional guarantee.

Next submission made by the counsel for the appellant is that there was a mistake of fact and this property as such could not have been mortgaged at all. This is so stated on the basis of a condition contained in the lease deed where it is provided that this property could not be sold or otherwise mortgaged without the permission of the Lt. Governor. In my view, the counsel has tried to take, advantage of this clause which may not be legally available to the appellants. The counsel for the bank has in this regard placed before me a judgment of the Delhi High Court in the case of Kuldip Singh Suri vs Surinder Singh Kalra, 1999 RLR 20, where this issue to an extent has been dealt with. While dealing with the restrictive clause contained in the lease deed as is contained in the instant case, the Court has observed that it is a matter of common knowledge that all subleases executed by the President of India such restrictive clauses have been incorporated. The Court has also observed that due to such restriction the power-of-attorney-sales in thousands have been affected. As per the Hon'ble Court, if such transactions are held to be illegal then in that eventuality thousands of such transaction by the same token would have to be declared as illegal. This would cause colossal loss-and misery to the vendees. Though both the vendors and the vendees are in pari delicto, the vendors would be making capital out of their breach by getting back their properties which over the years have appreciated astronomically. Court this has held that it would be wholly inequitable to declare such agreements being vocative of perpetual sub leases. Such all argument was repelled by observing that public policy is not immutable concept. It must change with the march of time. While dealing with the argument that such transaction would be void as no prior permission for entering such transaction was taken from DDA is held to be devoid of force.

Counsel has also relied on the vase of Vinod Singh vs. Smt. Phutori Devi (Since Deceased) through her Lrs., 2006 (87) DRJ 567. In this case also, the Court has dealt with such a restrictive clause contained in the lease deed, which bars the sale of lease hold land without the prior permission of lessor. In this case also the court has repelled such a contention relying upon the view expressed in Kuldip Singh suri's case (supra), This submission accordingly, in my view, has no substance and is advanced as an after-thought and so deserves to be rejected.

I am equally not impressed with the argument that this. Contract between the parties was void as the parties were under mistake of fact. In view of the reasons as noticed above, this is not a case where any mistake of fact can be pressed into service to get out of the rigours of the liability, which the appellant had consciously undertaken, Submission that this transaction would be hit by section 23 of the Indian Contract Act as the object was unlawful is equally devoid of merit and so would not be impress me in any manner. Section 23 of the Contract Act provides that the consideration or object of the agreement is lawful unless it is forbidden by law or is of such a nature that, if permitted, it would defeat the provisions of any law or is fraudulent or involves or implies, injury to the person or property of another, or the Court regards it as immoral, or opposed to public policy. In my view, none of the consideration mentioned or the object referred to in the section would arise in the present case. How the deposit of title deed to create an equitable mortgage is forbidden by law is not understood at all. I am also not able to appreciate how it would defeat the provision of law or transaction being fraudulent. Such thing cannot also be opposed to public policy. In my view, this submission appears to have been put forth just for the sake of raising a submission without any application of mind.

Counsel for the appellant has also made an attempt to seek support from the provisions of section 91 of the Evidence Act. According to the counsel, no evidence in regard to contract, or of a grant, or of any other disposition of property, have been reduced to the form of a document, and in all cases in which any matter is required by law to be reduced to the form of document, shall be given in proof of the terms of such contract, grant or other disposition of property, or of such matter, except the document itself. Once the mortgage is held to be valid by sheer deposit of title deeds, then this question in regard to the terms of contract cannot be said to have been reduced into writing. I have already repelled the contention of the appellants that there was no intention to deposit this title deed for creating equitable mortgage, In this case, there was no separate terms entered into between the parties in regard to this mortgage which could give raise to any consideration of manner of proving the said mortgage.

The plea raised by the counsel that the case was barred by limitation is also, in my view, misconceived. As per the counsel, the mortgage was created on 21.2.1985 and this suit was filed on 21.3.1997 which is even after the expiry of 12 years, In my view, the counsel for the appellant is ignoring the subsequent events which took place in the year 1993. The same very property was offered by M/s Guru Nanak Enterprises as equitable mortgage, Limitation in this case thus would not run as fresh cause had arisen when the same property was again offered by way of an equitable mortgage. Accordingly, there is no substance in the plea raised by the counsel for the appellant. The title having been validly deposited with the bank, it led to the creation of mortgage of the property to secure the loan taken by M/s Guru Nanak Enterprises. The different stands taken by the appellant at different stages would show they have not approached the Tribunal with clean hands. They have somehow made an attempt to wriggle out of the liability which they consciously undertook. Counsel for the respondent is justified in stating that even after having given this security, the appellants never made any attempt to withdraw the same. The appellants have also not been able to establish as to how the title deed of this property had reached the bank. if their case is that the same was not offered or deposited by them as a collateral security. The person who has offered this property as collateral security has continued to maintain so for years without any finger being raised by the appellants.

In view of the detailed discussion above, I do not find any substance in any of the pleas raised by the appellants and so would dismiss this appeal.

Parties to bear their own cost.

Copy of this order be furnished to the parties as per law,