cpc

s. c. new judgement regarding the mutation of loan of bank enterd in the revenue records

Advocate

Please anybody told me about the Supreme Courts new judgement regarding the Mutation of Bank Loan or Mortgage of Aggriculture Land with some body without doing/registraing the Mortgage Deed the charge of the bank or such person is entered in revenue records be entered or not
 
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Lawyer

 


 


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            Highlight in this judgment

              

                  2007 INDLAW SC 861

                  [SUPREME COURT OF INDIA]


                        Syndicate Bank

                        v

                        Estate Officer and Manager, A.P.I.I.C. Limited and

Others


 




                  30 Aug 2007


                  BENCH

                  S. B. Sinha & Markandeya Katju


                  COMPARATIVE CITATIONS

                  2007 AIR(SC) 3169, 2007 (8) SCC 361, 2007 (4) CHN 66, 2007 (2)

                  DRTC 537, 2007 INDLAW SC 861


                  CASES REFERRED TO

                  M. M. T. C. Limited v S. Mohamed Gani and Another, Defendants

                  2001 Indlaw MAD 745

                  Alapati Venkataramiah v Commissioner of Income Tax Hyderabad

                  1965 Indlaw SC 124

                  K. J. Nathan v S. V. Maruty Reddy and Others 1964 Indlaw SC

423

                  Bank of India v. Abhay D. Narottam and Others [2005 (11) SCC

                  520]

                  Amulya Gopal Majumdar v. United Industrial Bank Ltd. and

                  Others [1981 AIR(Cal) 404]

                  Angu Pillai and Others v. M.S.M. Kasiviswanathan Chettiar and

                  Others [1974 AIR(Mad) 16]

                  Official Assignee v. Basudevadoss [1925 AIR(Mad) 723]


                  ACTS REFERRED

                  Transfer Of Property Act, 1882[s. 53-A, s. 54, s. 58(f)]

                  Recovery of Debts due to the Banks and Financial Institutions

                  Act, 1993[s. 19(20), s. 19(22), s. 25]

                  Companies Act, 1956[s. 125]

                  Indian Income Tax Act, 1922[s. 12B]

                  Income-tax Act, 1961[s. 12B]

                  Indian Evidence Act, 1872[s. 114]




                  CASE NO

                  Appeal (Civil) 7824-7828 of 2004 With Civil Appeal Nos.

                  7833-37 of 2004




                  EDITOR'S NOTE

                  Allotment of land - Government of Andhra Pradesh 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 - Cancellation of allotment -

                  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? - Held, 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 - Questions require consideration by a

                  larger bench - Order accordingly.




                        KEYWORDS

                        Natural Justice, Immovable Property, Equitable Mortgage,

                        Tribunal, Auction, Financial Institution, Debt Recovery

                        Tribunal, Usufructuary Mortgage, Documents Of Title,

                        Simple Mortgage, Jurisdiction, Companies Act, 1956,

                        PRACTICE & PROCEDURE, Income Tax Act, 1961, Transfer Of

                        Property Act, 1882, BANKING & FINANCE, Borrower,

                        Promissory Note, Agent, Indian Evidence Act, 1872, State

                        Bank Of India, Without Prejudice, LAND & PROPERTY, Joint

                        Family, Family Settlement, Delivery Of Possession,

                        Recovery Officer, Indian Income Tax Act, 1922, Title

                        Deeds, Contempt Proceeding, Immoveable Property,

                        Mortgaged Property, So Far As May Be, Mode Of Transfer,

                        Official Gazette, Mortgagee, Mortgagor, Rents And

                        Profits, Proclamation Of Sale, Penal Interest, Official

                        Assignee, Matter referred to Larger Bench, Mortgage By

                        Conditional Sale, Mortgagee By Conditional Sale, Money

                        Advanced Or To Be Advanced, Performance Of An

                        Engagement, Specific Immoveable Property, English

                        Mortgage, Mortgage By Deposit Of Title Deeds, Industrial

                        Estates, Intention To Create a Security, Territorial

                        Restrictions, Recovery of Debts due to the Banks and

                        Financial Institutions Act, 1993




                  .JUDGMENT TEXT


                  The Order of the Court was as follows :


                  1. 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.


                  *** *** ***


                  (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 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 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 :


                  "There 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 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 :


                  "The 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" *


                  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 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" *


                  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. 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 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 therefore 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 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 - "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 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  1974 AIR(Mad) 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 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,  1933 AIR(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" *


                  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,  1931

                  AIR(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,  1925 AIR(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  2001

                  Indlaw MAD 745, a learned Single Judge opined :


                  "The plaintiff has sought for a mortgage decree specifically

                  alleging that the first defendant in respect of 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  1981 AIR(Cal) 404, a Division Bench of the Calcutta

                  High Court held that possessory title itself can be a

                  subject-matter of mortgage, opining :


                  "Therefore, 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 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 Indlaw SC 124, 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 Indlaw SC

                  423, 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 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.




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Advocate

No, it is not

 
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Lawyer

The larger bench has not yet decided the reference. Do you have any other judgment.

 
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