Shaik Mastanamma vs Kadiyala Gopalaiah

Bhaskar Rao, J.—The plaintiff in O.S. No. 64 of 1992 on the file of the subordinate Judge''s Court, Nellore, preferred this revision questioning the order dated 25-3-1992 ordering that a simple money suit only is maintainable and therefore to register the suit filed by the plaintiff accordingly.

The averments in the said suit were that the defendant borrowed Rs. 15,000/ - on 16-5-1991, Rs. 15,000/- on 20-5-1991 and another sum of Rs. 50,000/- on 16-12-1991 from the plaintiff for his necessities and executed three pronotes. The plaintiff while leading the sum of Rs. 50,000/- on 16-12-1991 insisted for security and the defendant delivered the titled deeds relating to the suit schedule property to the plaintiff with the intention of creating security for repayment of the total amount due under the promissory notes. As the defendant failed to repay the amounts as agreed, the suit is filed for directing the defendant to deposit the amount due and if the defendant fails to deposit, to pass a final decree in favour of the plaintiff to bring the plaint schedule properties to sale to recover the entire amount with interest and costs. The plaint was returned by the Court as not maintainable in the absence of a written contract as to the intention to create security by deposit of the title deeds. The plaintiff represented the same stating that Section 58(f) of the Transfer of Property Act contemplates that mere delivery of title deeds creates security for the debt. The Court ultimately passed on order on 25-3-1992 stating that since there is no contract in writing to show that the title deeds were handed over with an intent to create security, a simple money suit alone is maintainable and directed the office to register the suit accordingly. The same is questioned in this revision.

Learned Counsel for the petitioner contends that the Court below erred in holding even before registration of the plaint, that the suit for decree for the sale of the mortgaged property for recovery of the amount due to him, is not maintainable and the same is maintainable only as a simple suit for recovery of money. He further contends that even in the absence of a written document or memorandum, mere delivery of title deeds amounts to creating security. Counsel for the respondent, on the other hand, contends that written memorandum is essential showing the intent to create security thereon and in the absence of such written document, the transaction is not called a mortgage by deposit of title deeds.

Section 58(f) of the Transfer of Property Act reads as follows:

(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 immovable property, with intent to create a security thereon, the transaction is called a mortgage by deposit of title-deeds.

Dealing with the same controversy, the Supreme Court in United Bank of India Ltd. Vs. Lekharam Sonaram and Co. and Others, held as under:

When the debtor deposits with the creditor title deeds 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 u/s 59 as in other classes of mortgage. It is essential to bear 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 property with an intention that these documents shall constitute a security which will enable the creditor ultimately to recover the money which he has lent.

In K.J. Nathan Vs. S.V. Maruty Reddy and Others, the Supreme Court observed as follows:

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. Such a mortgage of property takes effect against a mortgage deed and subsequently executed and registered in respect of the same property. The three requisites for such a mortgage are, (i) deed, (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 debtis 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. Though there is no presumption of law that the mere deposit of title-deeds constitutes a mortgage, a Court may presume u/s 114 of the Evidence Act that under certain circumstances a loan and a deposit of title-deeds constitute a mortgage.

It is clear from the above that when the debtor deposits with the creditor title deeds of his property with an intent to create a security, the law implies a contract between the parties to create a mortgage. In the decision (1) supra, the Supreme Court further observed that where the parties enter into contract under written contract, the terms of the contract will prevail. But, in the latter decision, the Supreme Court also made it clear that whether there is an intention that the deeds shall be security for the debt, is a question of fact in each case and that will have to be decided just like any other fact on presumptions and on oral, documentary or circumstantial evidence. Therefore, the Court below ought not have refused to register the suit on the basis of mortgage by deposit of title-deeds, as the claim or objection that there was no intention to create security while delivering the title-deeds shall have to be adjudicated after the parties lead evidence and on the oral, documentary or circumstantial evidence. The Court below was not justified in rejecting the suit and it was too early to consider the aspect of intent to create security, even before the suit is registered. Accordingly, the order under revision is set aside and the Lower Court is directed to register the suit filed by the plaintiff. It will be open for the defendant to raise all necessary pleas in defence and based on pleadings, it will be open for the Court to frame an issue in that regard, if necessary, as to whether there was intention to create security by deposit of title-deeds, or not. Revision petition is allowed. No costs.