w w w . L a w y e r S e r v i c e s . i n



Himala Hosiery Manufacturing, Dyeing and Printing Mills (P) Ltd. and Others V/S Oriental Bank of Commerce and Others.


Company & Directors' Information:- INDIA DYEING MILLS PRIVATE LIMITED [Active] CIN = U17121TZ1983PTC001368

Company & Directors' Information:- R D DYEING AND PRINTING MILLS PRIVATE LIMITED [Active] CIN = U17299GJ2003PTC042860

Company & Directors' Information:- J G HOSIERY PRIVATE LIMITED [Active] CIN = U18101TZ2001PTC009707

Company & Directors' Information:- B K DYEING AND PRINTING MILLS PRIVATE LIMITED [Active] CIN = U17200MH1980PTC022324

Company & Directors' Information:- K B DYEING MILLS PRIVATE LIMITED [Active] CIN = U18101MH2003PTC142492

Company & Directors' Information:- K D S HOSIERY PRIVATE LIMITED [Active] CIN = U18101PB2001FTC024327

Company & Directors' Information:- J M HOSIERY MILLS PRIVATE LIMITED [Active] CIN = U17299PB2000PTC023753

Company & Directors' Information:- ORIENTAL DYEING AND PRINTING MILLS PRIVATE LIMITED [Active] CIN = U22211GJ1988PTC010564

Company & Directors' Information:- R M H HOSIERY PRIVATE LIMITED [Active] CIN = U17125DL2007PTC167271

Company & Directors' Information:- P T M HOSIERY PVT LTD [Active] CIN = U52322WB1994PTC062394

Company & Directors' Information:- M G HOSIERY PRIVATE LIMITED [Active] CIN = U17124TZ2002PTC010195

Company & Directors' Information:- M R DYEING PRIVATE LIMITED [Active] CIN = U17120MH2005PTC150387

Company & Directors' Information:- J J HOSIERY MILLS PRIVATE LIMITED [Active] CIN = U45203WB2000PTC091570

Company & Directors' Information:- O K HOSIERY MILLS PVT LTD [Active] CIN = U99999DL1980PTC010979

Company & Directors' Information:- D D HOSIERY PVT LTD [Active] CIN = U18101WB1973PTC028694

Company & Directors' Information:- M. B. HOSIERY PRIVATE LIMITED [Active] CIN = U18101WB2008PTC125110

Company & Directors' Information:- R R HOSIERY PRIVATE LIMITED [Active] CIN = U18101MH1984PTC034394

Company & Directors' Information:- S P DYEING AND PRINTING MILLS PRIVATE LIMITED [Strike Off] CIN = U74300DL1998PTC096826

Company & Directors' Information:- R P L DYEING PRIVATE LIMITED [Strike Off] CIN = U17120MH1999PTC119345

Company & Directors' Information:- A A PRINTING PRIVATE LIMITED [Active] CIN = U22200WB2007PTC114737

Company & Directors' Information:- J J DYEING PRIVATE LIMITED [Active] CIN = U18109HR2016PTC064228

Company & Directors' Information:- A P DYEING PVT LTD [Strike Off] CIN = U51494WB1992PTC055135

Company & Directors' Information:- B M DYEING PVT LTD [Active] CIN = U17297WB1983PTC037003

Company & Directors' Information:- K K HOSIERY PRIVATE LIMITED [Active] CIN = U18204MH2014PTC251777

Company & Directors' Information:- B B HOSIERY PRIVATE LIMITED [Strike Off] CIN = U74999MH2015PTC267158

Company & Directors' Information:- H M DYEING LIMITED [Under Liquidation] CIN = U74899DL2005PLC139287

Company & Directors' Information:- M C S HOSIERY PRIVATE LIMITED [Strike Off] CIN = U51311WB2001PTC093781

Company & Directors' Information:- THE INDIA HOSIERY MILLS LTD [Strike Off] CIN = U17121WB1949PLC018383

Company & Directors' Information:- ORIENTAL DYEING PVT LTD [Strike Off] CIN = U99999PB1985PTC006525

Company & Directors' Information:- S P HOSIERY PVT LTD [Strike Off] CIN = U51311PB1985PTC006113

Company & Directors' Information:- ORIENTAL MILLS LIMITED [Dissolved] CIN = U99999MH1920PTC000722

    Appeal No. 270 of 2005 in O.A. No. 169 of 1998

    Decided On, 04 January 2011

    At, Debt Recovery Appellate Tribunal At Delhi

    By, THE HONORABLE JUSTICE: J.M. MALIK (CHAIRPERSON)

   



Judgment Text


1. The learned DRT vide his order dated 23.6.2004 issued a recovery certificate for a sum of Rs. 27,68,141/- against the Appellants/Defendants jointly and severally along with pendente lite and future interest @ 11% p.a. from the date of filing of this case on 18.5.1998. The learned Trial Court also awarded the costs of this case in favour of the Respondent Bank and against the Appellants. Aggrieved by that order the Appellants have filed the present appeal.

2. Adumbrated in brief the facts of this case are these. M/s. Himala Hosiery Manufacturing, Dyeing and Printing Mills (P) Ltd., Appellant No. 1 through Shri P.S. Uppal, Respondent No. 2 requested the then Punjab Cooperative Bank Limited in the year 1995 for the grant of term loan in the sum of Rs. 20 lacs. According to the Appellants various documents were executed for the same in the year 1995 in favour of the then Punjab Cooperative Bank Ltd. The Punjab Cooperative Bank Ltd. sanctioned term loan in the sum of Rs. 20 lacs against the hypothecation of hosiery goods and machines and it claimed to have got it secured by personal guarantees of Appellant Nos. 2 and 3 and Shri Naval Wadhera, Respondent No. 2. On 18.7.1995, a tripartite agreement was executed in favour of Punjab Cooperative Bank Ltd. which was collaterally secured by way of an equitable mortgage and immovable property bearing No. E-540, Greater Kailash-II, New Delhi. The said term loan was also secured by equitable mortgage of the factory of the Appellant No. 1 bearing No. 14/6 Milestone, Mathura Road, Faridabad.

3. Punjab Cooperative Bank got its charge registered on 18.7.1995 with the Registrar of Companies at Paryavaran Bhawan, CGO Complex, Lodhi Road, New Delhi and the Appellants got deposited the copy of the sale deed dated 15.2.1985 with Punjab Cooperative Bank Ltd. with the intention to create an equitable mortgage regarding the term loan of Rs. 20 lacs in respect of the property i.e. 1/10 portion of second floor (front portion of property bearing No. E-540, Greater Kailash-11, New Delhi). It was further claimed that the Appellants deposited the copies of two sale deeds dated 4.2.1995 and 14.2.1995 with Punjab Cooperative Bank Ltd. in respect of two plots situated at 14/6 Milestone, Mathura Road, Faridabad with the intention to create the equitable mortgage in favour of the Punjab Cooperative Bank Ltd.

4. Punjab Cooperative Bank amalgamated with the Oriental Bank of Commerce vide notification dated 4.9.1997.

5. Shivani Locks Private Ltd. Respondent No. 4 obtained permission from the Haryana Faridabad Corporation Ltd. (in Short MFC), the other mortgagee, and purchased the mortgaged land without seeking any permission from Oriental Bank of Commerce.

6. I have heard the Counsel for the parties. The first submission made by the learned Counsel for the Appellants was that the Appellants were not given an opportunity of being heard by the learned Trial Court and the principles of natural justice stood violated. The learned Counsel vehemently argued that rule of audi alteram partem stood violated and referred to an authority reported in Government of NCT of Delhi and Ors. v. Jai Bhagwan : 172 (2010) DLT 163 (DB), which hardly dovetails with the facts of this case.

7. For the following reasons, I see no merit in this argument. The case was filed on 18.5.1998. On 30.9.1998, Shri Ashok Kumar, Manager of Defendant/Appellant No. 1 appeared. He took time to file the written statement and the case was adjourned to 27.11.1998. On 27.11.1998, Shri S.C. Bhatia, Manager of Defendant No. 1 appeared. He sought another opportunity and the case was adjourned to 10.12.1998. On 10.12.1998, Mr. Sharvan Dev, Counsel for Defendant No. 1 appeared. He was directed to file the written statement within four weeks. Remaining two Defendants did not appear till then. The case was adjourned to 1.2.1999. On 1.2.1999, Mr. Sharvan Dev, Counsel for Defendant No. 1 appeared. He requested for a date for filing written statement. The Registrar noted that already three dates were given to him and in the interest of justice one more opportunity was granted for filing the written statement on 25.2.1999. On 25.2.1999, Mr. Sharvan Dev, Counsel filed Vakalatnama on behalf of all the three Defendants. He also filed written statement on behalf of all the Defendants. The case was adjourned to 1.4.1999. From 1.4.1999, the case was adjourned to 7.4.1999, 11.5.1999, 11.6.1999, 18.6.1999, 29.6.1999, 14.7.1999, 2.11.1999, 23.2.2000, 11.7.2000 and 1.11.2000. On all these dates no effective proceedings took place and none appeared for the Defendants as well.

8. On 1.11.2000, default notice was issued to Mr. Sharvan Dev and Mr. P.N. Bhardwaj, Counsel for Defendant Nos. 1 to 4 for 1.2.2001. On 1.2.2001, Mr. Ashutosh Bhardwaj, proxy Counsel for Defendant Nos. 1 to 3 appeared. Defendant No. 5 was already proceeded against ex parte. Fresh notice was issued to Respondent No. 4. The case was adjourned to 24.4.2001, 13.7.2001, 11.9.2001, 7.12.2001 and 24.1.2002. Application for substituted service for Defendant No. 4 was filed. None appeared for Defendant Nos. 1 to 3 and the case was adjourned to 21.2.2002. On 21.2.2002, Defendant Nos. 1 to 3 did not appear. The publication in 'Statesman' was effected. It was ordered that the same be put up before Hon'ble Presiding Officer on 21.3.2002. On 21.3.2002, none appeared for Defendant Nos. 1 to 3. Learned Presiding Officer was on leave, therefore, the case was adjourned to 10.5.2002. On 10.5.2002. Defendant No. 4 was proceeded against ex parte. The learned Trial Court ordered that affidavit in evidence along with original documents by the applicant Bank be filed within four weeks and affidavit in evidence by the contesting Defendants be filed on or before next date. The case was adjourned to 2.7.2002. On 10.5.2002, Mr. S. Babreta, proxy Counsel for Defendant Nos. l to 3 appeared. On 2.7.2002, Mr. V.K. Kaul, proxy Counsel for Defendants appeared. On the request made by the proxy Counsel for both the parties, the matter was adjourned for the same purpose on 19.8.2002. On 19.8.2002, Mr. Sapan Bebarta, proxy Counsel for Defendant Nos. 1 to 3 appeared. The applicant Bank filed two affidavits in evidence in support of its case but proxy Counsel for Defendant Nos. 1 to 3 undertook to file the same within two weeks which prayer was allowed. The case was adjourned to 17.9.2002. On 17.9.2002, Defendant Nos. 1 to 3 did not file their affidavits. Consequently, the case was put up before the Presiding Officer for 10.10.2002.

9. On, 10.10.2002, none appeared for Defendant Nos. 1 to 3 but learned Presiding Officer was on leave on that day. The matter was adjourned to 10.1.2003 for the purpose already fixed. On 10.1.2003, none appeared for Defendant Nos. 1 to 3 but the learned Trial Court had been transferred and the matter was put up before Court Master who adjourned the case to 9.4.2003. On 9.4.2003, the Presiding Office did not join and therefore the case was adjourned to 11.7.2003. New Presiding Office adjourned the case to 10.9.2003. Neither on 11.7.2003 nor on 10.9.2003 anybody appeared on behalf of the Defendants. However, the learned Trial Court gave last opportunity to Defendants to file their evidence by way of affidavits and documents with advance copy to the applicant Bank failing which their right was to be treated as closed for 16.12.2003. On 16.12.2003, none appeared for the Defendants. The Court ordered that written arguments be filed for 23.2.2004. From 23.2.2004, the case was adjourned to 19.5.2004. From 19.5.2004, it was adjourned to 23.6.2004.

10. On all these dates the Defendants did not appear. Vide impugned order dated 23.6.2003 the above said order was passed.

11. The facts of this case speak for themselves. The Appellants were given opportunity for four years to advance their evidence but they did not pay heed to the directions given by the Court. It is also noteworthy that the main Counsel for the Defendants usually did not appear before the Court and on most of the dates proxy Counsel used to appear on behalf of Shri Sharvan Dev and Shri P.M. Bhardwaj. From the very start the Appellants were not serious to the directions given by the learned Trial Court. They themselves did not adduce the evidence and they cannot be permitted to wriggle out of the liability fasten upon them. It was due to their negligence, inaction and passivity that they were proceeded against ex parte. The blame if any lies at the doors of the Appellants and no blame can be attributed either upon the Bank or the Court.

12. The next submission made by the Counsel for the Appellants was that the Appellants were made to sign blank papers and due to this the most important question of limitation arises which clearly goes to show that the case is barred by time. Secondly, there is contradiction as to whether loan was disbursed in April 1995 or July 1995. He explained that this contradiction appeared in the averment made by the Respondent Bank itself. In this context, he drew my attention towards para No. 7 of the written statement. The relevant extract in para No. 7 runs as follows:

7. That with reference to para 7 of the application it is submitted that the term loan was sanctioned in April 1995 by the Punjab Co-operative Bank Ltd. The Defendant No. 1 had applied for a term loan assistance amounting to Rs. 20 (Rupees twenty lacs) for completion of remaining construction of new unit in factory 'building, at 14/6, Mathura Road, Faridabad. It was specifically mentioned in the loan application that time is the essence of the contract, due to the reasons amongst others that machines had already left the German Port and the monsoons were imminent. The Punjab Co-operative Bank Ltd. had confirmed about the time being the essence of the disbursement of the loan assistance and due to this reason had obtained from the Defendant No. 5; the following cheques:

(1) Cheque No. 884051 dated 26.4.1995 for Rs. 1,24,000/-

(2) Cheque No. 884052 dated 26.4.1995 for Rs. 0,20,000/-

(3) Cheque No. 884053 dated 25.5.1995 for Rs. 1,24,000/-

(4) Cheque No. 884054 dated 25.5.1995 for Rs. 0,20,000/-

(5) Cheque No. 884055 dated 25.6.1995 for Rs. 1,24,000/-

(6) Cheque No. 884056 dated 25.6.1995 for Rs. 0,20,000/-

(7) Cheque No. 884057 dated 25.7.1995 for Rs. 1,24,000/-

(8) Cheque No. 884058 dated 25.7.1995 for Rs. 0,20,000/-

(9) Cheque No. 884059 dated 25.8.1995 for Rs. 1,24,000/-

(10) Cheque No. 884060 dated 25.8.1995 for Rs. 0,20,000/-

(11) Cheque No. 884061 dated 25.9.1995 for Rs. 1,24,000/-

(12) Cheque No. 884062 dated 25.9.1995 for Rs. 0,20,000/-

As the construction of the New Unit was in progress and the loan assistance requirement was very urgent, the above mentioned cheques towards repayment of the said urgent loan assistance were given by the Defendant No. 5 to the Punjab Co-operative Bank Ltd. in April 1995.

13. Counsel for the Appellants vehemently argued that the Respondent Bank itself admitted that the loan was sanctioned in April 1995, in its replication.

14. In the replication corresponding reply in para No. 7 runs as follows:

...That the contents of para No. 7 of the written statement admitting the averments stated in para No. 7 of the claim application need no further reply. The rest of the contents of para No. 7 are wrong, false and denied specifically except the particulars of 12 cheques. The said 12 cheques were taken by erstwhile PCB and these cheques were credited in the overdraft account No. H-8 of the Defendant No. 1 as per the instructions of the Defendant No. 1. These 12 cheques were not credited in the term loan account of the Defendant No. 1. The letter of applicant dated 9.5.2001 along with the details of cheques is filed as Annexure 'A'-1 and statement of account of overdraft account No. H-8 is filed as Annexure 'B'-l, with this replication. Rest of the contents of para No. 7 are also wrong, false and denied specifically. The contents of para No. 7 if the claim application are re-affirmed as true and correct.
15. On the other hand, Counsel for the Respondent Bank explained that it appears to be typographical mistake and as a matter of fact the documents were signed in July 1995.

16. I have myself perused the documents. I have seen the promissory note dated 18.7.1995 for a total sum of Rs. 20 lacs, which was signed by the Managing Director at two places and had written the date with his own handwriting. There is no inkling on the record that the date was inserted by somebody else, subsequently. The said document was proved as Exhibit AW-2/6 before the learned Trial Court. Same is the position of promissory note in the sum of Rs. 6 lacs dated 18.7.1995 which is signed by the Managing Director and the date also appears in his own handwriting. It is crystal clear that this document was executed and signed on 18.7.1995. The said document was proved on the record as Exhibit A W-2/7. Same is the position of document i.e. promissory note dated 19.7.1995 Exhibit AW-2/8 in the sum of Rs. 2.50 lacs and promissory note dated 22.7.1995 Exhibit A W-2/9 for a sum of Rs. 5,50,000/-. The dates at two places were put by the signatory himself. Likewise Exhibit AW-2/10 i.e. promissory note for Rs. 4 lacs was signed by the Managing Director and the date 20.8.1995 was put by the signatory himself. Same is the position with other promissory note dated 3.9.1995 proved as Exhibit 2/11 for Rs. 1 lac and other promissory note dated 10.9.1995 for Rs. 93,000/-proved on record as Exhibit AW-2/12 and promissory note dated 10.9.1995 for Rs. 20,00,000/- proved on record as Exhibit AW-2/13. All the dates were filled by the signatory himself.

17. Moreover, the law is very clear on blank documents. All these arguments have to be eschewed out of consideration in view of the authorities reported in United Bank of India v. Naresh Kumar and Ors. IV (1996) CLT 51 (SC) : AIR 1997 SC 3, Mrs. Margaret Lalita Samuel v. Indo Commercial Bank Ltd. : AIR 1979 SC 102 Para 15, Bihar State Electricity Board v. Green Rubber Industries : 1990 (1) S.C.C. 731, Central Bank of India, Bombay v. Sion Bakers and Confectioners Pvt. Ltd., Bombay and Ors. 2008(2) D.R.T.C. 572 (Bom) 50, Delhi High Court authority reported in Allied Equipment & Services and Ors. etc. v. DRT and Anr. I (2002) BC 537 : AIR 2002 Del. 201, Wandoor Jupiter Chits (P) Ltd. (in Liquidation) v. K.P. Mathew and Anr. : AIR 1980 Ker 190, Syndicate Bank v. R. Veeranna and Ors. : I (2003) BC 376 (SC) : AIR 2003 SC 2122 and Union of India and Anr. v. Delhi High Court Bar Association and Ors. AIR 2002 SCW 1347.

18. The next submission made by the learned Counsel for the Appellants was that full disbursement of loan was not granted by the Bank. In this connection he has invited my attention towards statement of accounts of term loan Exhibit AW-1.4 which goes to reveal that a sum of Rs. 13,93,000/- only was disbursed in favour of the Appellant.

19. I see no merit in this argument. No such allegation was made in the written statement. This appears to be an afterthought. The above said promissory notes and other documents including the statement of accounts clearly go to show that a sum of Rs. 20 lacs was disbursed in favour of the Appellant.

20. The learned Counsel for the Appellants pointed out that mere marking of a document is not enough, it should be proved in accordance with law and has cited authority reported in Sudhir Engineering Co. v. Nitco Roadways 1995 Rajdhani Law Reporter 286.

21. This agreement lacks conviction. The above cited authority was in respect of a civil case governed by the CPC. Section 22 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 makes it clear that the Tribunal shall not be bound by the procedure laid down by the Code of Civil Procedure but shall be guided by the principles of natural justice and subject to the other provisions of the above said Act and of any rules, the Tribunals shall have powers to regulate their own procedure. Moreover, Rule 12 of the Debts Recovery Tribunal (Procedure) Rules, 1993 lays down procedure for filing of reply and other documents by the parties. Rules 5, 6, 7 and 8 are very important. Consequently, the above said authority has got no application to the present case.

22. The next submission made by the Counsel for the Appellant was that overdraft limit of Rs. 2 lacs arrangement in H-8 between Bank and the Appellants is a contract independent of term loan of Rs. 20 lacs. It was submitted that overdraft account cannot be terminated unilaterally and the Bank has no right or lien to credit the 12 cheques in overdraft account which were admittedly received towards repayment instalment of Term Loan. Counsel for the Appellants has cited authorities reported in Alekha Sahoo v. Puri Urban Co-operative Bank Ltd. and Ors. : I (2005) BC 58 : AIR 2004 Orissa 142 (DB); Gurbax Rai and Ors. v. Punjab National Bank, New Delhi : AIR 1984 SC 1012; Indian Overseas Bank, Madras and Anr. v. Naranprasad Govindlal Patel, Ahmedabad : AIR 1980 Guj 158; Vijay Kumar v. Ms. Jullunder Body Builders, Delhi and Ors. : AIR 1981 Delhi 126; and R.K. Agencies Ltd. v. Central Bank of India : AIR 1992 Cal 193.

23. The above cited authorities have no application to the facts of this case. As per Section 171 of the Indian Contract Act, the Bank has general lien over all the securities pledged with it.

24. The most telling argument urged by both the Counsel for the Appellants and Counsel for Respondent No. 4 was that the mortgage by the Appellants by deposit of copies of sale deeds dated 4.2.1993 and 15.2.1993 in respect of property bearing No. 14/6 at Mewla Maharajpur, Faridabad in favour of Oriental Bank of Commerce does not stand proved. The Appellants had lodged a report with the police dated 19.5.1989 to the effect that their driver Dharamveer had run away with their Contessa Car No. DDC-9780 wherein their briefcase containing important documents and all their original registered documents were kept. The copy of the letter/ FIR was proved before the lower Court as Exhibit AW-2/22.

25. Counsel for the Respondent No. 4 submitted that the Appellants had also obtained loan from HFC besides taking loan from Punjab Cooperative Bank which was predecessor-in-interest of Oriental Bank of Commerce. The borrower by way of security, deposited original sale deeds dated 4.2.1993 and 15.2.1993 with HFC. The Appellant could not repay the loan taken from HFC and, therefore, it obtained permission from HFC to sell the land covered by the said sale deeds to Shivani Locks Pvt. Ltd., Respondent No. 4 vide letter dated 2.11.1999. Consequently the lands were sold by the two sale deeds each dated 4.11.1999 to Shivani Locks Pvt. Ltd. and the sale proceeds were directly paid to HFC.

26. It is also submitted that document Exhibited AW2/22 is dated 19.5.1989. Consequently, the two sale deeds dated 4.2.1993 and 15.2.1993 could not have existed on 19.5.1989 which is four years before the date of execution of the sale deeds. Consequently, the observations made by the Tribunal in this respect are baseless.

27. The attention of the Court was also invited towards the search report dated 24.6.1997 which was exhibited as Exhibit AW-2/23 which was prepared by Mr. Rakesh K. Associates, Chartered Accountants and addressed to Senior Manager, Oriental Bank of Commerce which goes to reveal that there was charge by way of mortgage in favour of HFC by the borrower in respect of plot of land situated at Mewla Maharajpur, Mathura Road, Faridabad. The Bank had knowledge prior to the year 1 997 that there was charge in favour of HFC. The Bank did not take any appropriate action against the borrower. Consequently, the Bank has got no charge at all. Again, the originals of the sale deeds dated 4.2.1993 and 15.2.1993 were with the Indian Overseas Bank but the learned Tribunal went on to direct that the originals be returned to the Appellants in the impugned order. It was submitted that Oriental Bank of Commerce should not be allowed to take advantage of his own negligence. Had it been vigilant enough, it would have safeguarded its interest and securities. It was submitted that mere deposit of copies of sale deeds does not create the equitable mortgage,

28. All these arguments have left no impression upon the Court. It is now well settled that deposit of the original title deed is not a condition precedent for execution of the equitable mortgage. It is now well settled that intention of the party is to be seen. Evidence regarding intention of the party can be culled out from the facts and surrounding circumstances of a particular case. Intention is the crux.

29. In C. Assiamma v. State Bank of Mysore and Ors. : AIR 1990 Ker 157, it was held:

We have not understood observation of the Division Bench to mean that only in case where the original title deed is lost that deposit of a registration copy can validly create an equitable mortgage. The Division Bench has referred to the rulings in Mrs. Jessie Moyle Stewart v. Bank of Upper India Ltd. Simla (1916) 34 Ind Cas 937 : AIR 1916 Lah. 39, in which it was held that 'title include copies, where the originals are not forthcoming' and also to Surendra Mohan Rai Choudhury v. Mohendra Nath Banerjee : AIR 1932 Cal 589, where a similar view was expressed. In the latter decision, a Division Bench of the Calcutta High Court made the following observations:

It is sufficient if the deeds deposited bona fide relating to the property are material evidence of title and are shown to have been deposited with the intention of creating a charge; see Exp. Wetherell (supra) (1805) 11 Ves 398, Lacon v. Alien (1856) 3 Drew 579, Robert v. Croft (1857) 24 Beav 223 and Re. Roche's Estate (1890) 25 LR Ir 58. As regards attested copies, there is no clear decision but it seems that an attested copy would not be enough unless, perhaps, there is proof of the original not being available: Re. Barrow, Ex parte Broadbent. (1834) 1 Mont & A.635.
It was further held that:

18. Supreme Court had occasion to consider the question of creation of equitable mortgage in K.J. Nathan v. S. V. Maruthi Rao : AIR 1965 SC 430. After referring to the observations in V.E.R.M.A.R. Chettiyar Firm v. MaJoo Teen. ILR 11 Rang 239 : AIR 1933 Rang 299, to the effect that what the terms 'documents of title' and 'title deeds' denote is that such a document or documents as show & prima facie or apparent title in the depositor or some interests therein, quoted with approval the following passage from the judgment (at p. 435 of AIR):

If the form of the documents of title that have been delivered to the creditor is such that from the deposit of such documents alone the Court would be entitled to conclude that the documents were deposited with the intention of creating a security for the repayment of the debt, prima facie a mortgage by deposit of title deeds would be proved; although, of course, such an inference would not be drawn if the weight of the evidence as a whole told against it.
A Full Bench of the Rangoon High Court considered the question in K.L.C.T. Chidambaram Chettiyar v. Aziz Meah AIR 1938 Rang 149. Justice Dunkley, who delivered the main judgment observed as follows:

In our opinion the correct statement of the law is that in order to create a valid mortgage by deposit of title deeds under Section 58(f), T.P. Act, it is not necessary that the whole, or even the most material of the documents of title to the property should be deposited, nor that the documents deposited should show a complete or good title in the deposition. It is sufficient if the deeds deposited bona fide relate to the property or are material evidence of title or are shown to have been deposited with the intention of creating a security thereon.
Roberts C.J. agreed with the main judgment and Mya Bu J. added as follows:

The documents enumerated in my learned brother's judgment, in my opinion, show prima facie or apparent title of the mortgagors to the land covered by those documents. The grant shows that the original owner of the property was the mortgagors' vendor. The certificate of transfer shows the factum of the transfer having taken place about 14 years before the alleged mortgage. Although it is not a valid document of conveyance, yet it is useful as showing that a transfer as a matter of fact had taken place. Then there were tax tickets or revenue receipts, which showed that during the years that elapsed between the transfer and the alleged mortgage the mortgagors were paying the revenue as persons who owned the land.... In these circumstances, in my opinion, the documents enumerated in my learned brother's judgment are sufficient to show that there was prima facie title in the mortgagors to the property mentioned in the documents.
19. In the instant case, registration copy of the title deed Ext. A19, tax receipts Exts. A21 and A21 (a) and the certificate issued by the President of Kumbala Panchayat Ext. A22 to the effect that door Nos. referred to therein are situated in Sy. Nos. 119/5 and 113/7 of Koipady Village clearly establish the title of the 2nd Defendant to the properties in Sy. Nos. 119/5 and 113/7 of Koipadi Village covered by Ext. A19. the intention of the Appellant to create an equitable mortgage in respect of those properties was confirmed by the 2nd Defendant in Ext. A17 in clear and unambiguous terms. In our view, this is sufficient to constitute an equitable mortgage by the 2nd Defendant in favour of the Bank in respect of right of 2nd Defendant in properties in schedule 'F' to Ext.A19.

30. In Jessie Moyle Stewart v. Bank of Upper India Ltd., Shimla AIR 1916 Lah 39 it was held that the mortgage can be created by deposit of a title deed when the originals are not forthcoming. See also views taken in Surendra Mohan Rai Choudhury v. Mohendra Nath Banerjee and Ors. : AIR 1932 Cal 589.

31. Now I turn to the question who has got the preponderance over the mortgaged property subsequent purchaser or first or even the second mortgagee? The present case is covered by Section 48 of the Transfer of Property Act which runs as follows:

48. Priority of rights created by transfer.-Where a person purports to create by transfer at different times rights in or over the same immovable property, and such rights cannot all exist or be exercised to their full extent together, each later created right shall in the absence of a special contract or reservation binding the earlier transferees, be subject to the rights previously created.
This section reproduces the well-established equitable maxim qui prior est tempore potior est jure and lays down that the transferor cannot prejudice the rights of the transferee by any subsequent dealing with the property. In other words, if there are successive transfers of the same property, the later transfer is subject to the prior transfer. It follows that in the case of two successive mortgages, or a mortgage and a sale the later or puisne mortgage or sale is subject to the prior mortgage. In the case reported in Sh. Ishar Dass Malhotra v. Dhanwant Singh and Ors. : AIR 1985 Delhi 83 (DB), Their Lordships, HMJ Dalip K. Kapur and HMJ D.P. Wadhwa were pleased to hold:

8. ...It will thus be seen that a mortgage by deposit of title deeds is like any other mortgage and there is a transfer of interest in the property mortgaged to the mortgagee. The question, therefore, of the subsequent purchaser having bought the property subject to a mortgage by deposit of title deeds bona fide, with or without notice, is of no relevance. The subsequent purchaser cannot avoid the mortgage by leading evidence to show that he made all reasonable inquiries to find out if the property was subject to a mortgage by deposit of title deeds or not Section 48 of the Transfer of Property Act does not admit of any such exception. According to this section, when a person purports to create, by transfer at different times, rights in or over the same immovable property, and such rights cannot all exist or be exercised to their full extent together, each later created right shall in the absence of a special contract or reservation binding the earlier transferees, be subject to the rights previously created. Further, proviso to Section 48 of the Registration Act enacts that a mortgage by deposit of title deeds shall take effect as against any mortgage deed subsequently executed and registered relating to the same property. Thus, a subsequent sale cannot have priority over a mortgage by deposit of title deeds created before the sale. In my view, therefore, the Trial Court fell in an error in holding that Harjeet Singh Dhanjal the subsequent purchaser of the mortgaged property; was not liable on the ground that he took all reasonable care and acted in good faith.
32. In Mohan Lal v. Anandbai : AIR 1971 S.C. 2177, it was held in Para 13:

13. ...Both those Courts also lost sight of the fact that, on the record, the Appellant was shown to be the only creditor of Bhiwa; there were no other creditors. As a creditor, he could not be defrauded, because his loans was secured by the mortgage deeds dated 23rd March, 1949 and 26th June, 1949. A gift by Bhiwa in respect of properties already mortgaged could not in any way defeat or delay the mortgagee's right, because the donee under the gift deed could only take the properties subject to the mortgages. The transfer by the deed of gift could not in any way affect the mortgagee's rights under the mortgages.
33. In The State v. Rajah Ram Varu : AIR 1966 AP 233 (DB), it was held in Para 20:

20. Thus, the foregoing discussion makes it clear that where a specific charge is created on immovable p

Please Login To View The Full Judgment!

roperty, an equitable charge or a floating charge if any, created cannot have priority. Even if there be any other specific charge created on the same property, the specific charge which is the first in point of time taken priority over the second. In a case where buildings are constructed or machinery is fixed to the earth for its beneficial use after mortgaging the land, the buildings and the machinery or plant would constitute immovable property as an accession to the land, and form pat of mortgagee's security. So that, the mortgagee can claim security not merely in respect of the land mortgaged but also the buildings and the machinery fixed to the earth subsequently. 34. In a recent authority reported in T. Vijendra Dass v. M. Subramanian 2007 RLR 585 (SC) it was held that sale to subsequent buyer during the pendency of the case was not valid. 35. In the instant case, there were two mortgages. The Respondent No. 4 should not have purchased the property till both the mortgages stood satisfied. After the satisfaction of the mortgage in favour of the MFC the second mortgage in favour of the Oriental Bank of Commerce has to be satisfied. Respondent No. 4 should have been vigilant. The second mortgage by Oriental Bank of Commerce has to be satisfied irrespective of the fact whether it was in the knowledge of Respondent No. 4 or not. Ever if he is a bona fide purchaser, the property in dispute is subject to the mortgage by the Oriental Bank of Commerce. It must be borne in mind that it does not lie in the mouth of the Appellant that he did not produce the said report Exhibit AW-2/23 before the Bank though now it is clear that his intention was mala fide but he is estopped from raising any objection in that regard. It is clear that the borrowers had played fraud with the Bank. The borrowers themselves submitted a report lodged with the police whereas the sale deeds were executed subsequently. This is not easy for the Bank to detect this flaw. It was caught in the fraud committed by the borrowers, though it was also wee bit negligent. Whatever the case may be the deposit of copies of sale deeds clearly goes to establish the creation of equitable mortgage. 36. The learned Counsel for the Appellants argued that mortgage by the deposit of title deeds when the contract is reduced to writing requires registration. He has cited an authority reported in United Bank of India Ltd. v. Messrs Lekhram Snaram and Co. and Ors. : AIR 1965 SC 1591. 37. The above said authority is not applicable to this case. There is no evidence that some documents were executed. The record reveals that copies of the sale deeds Exhibit AW-2/25 and Exhibit AW-2/26 were deposited with the Court. Consequently, the above said authority has no application to the present case. 38. However, it is made clear that Respondent No. 4 can still pay off the loan claimed by Oriental Bank of Commerce and become the absolute owner of the property in dispute. Otherwise, the property in dispute will have to be auctioned but there lies no impediment for the Respondent No. 4 to appear and bid for the property. The appeal has no force. The same is, therefore, dismissed with costs. 39. Copies of this order be furnished to the parties as per law and one copy be sent to the learned DRT forthwith.
O R