The Judgment of the Court was delivered by

L. Narasimha Reddy, J.:— In this appeal, the plaintiff in OS No. 59 of 1982 challenged the judgment and decree of the trial Court insofar as it has denied the relief of preliminary decree against the plaint schedule property on the strength of mortgage.

2. The plaint was filed with the following averments: The appellants are the wholesale merchants in textiles having their place of business at Vijayawada. They supply the goods to merchants in various parts of the State. The 1st respondent has been running a textile shop under the name and style of Munaga Brothers at Cuddapah. He purchased goods from the appellants from time to time on credit basis and there remained certain outstanding dues payable to the appellants. The amounts due to the individual appellants from the 1st respondent were calculated during 1978-1979 on various dates in the presence of the 1st defendant and he certified the correctness of the same. When the appellants insisted on the 1st respondent to pay the amounts, he came to Vijayawada on 10-6-1979 and created a mortgage in favour of the appellants covering the amounts due to them. He deposited the title deed dated 6-2-1963 in respect of the immovable property and also executed a letter in favour of the appellants, evidencing the factum of deposit of title deeds and also specifying the amounts covered by the mortgage.

3. It is the case of the appellants that subsequent to the mortgage created on 10-6-1979, the 1st respondent paid certain amounts to the appellants. However, since substantial amounts remained unpaid, they filed the suit for redemption of the mortgage and for a preliminary decree under Order XXXIV, Rule 1 of CPC for the amounts specified in the plaint.

4. The 1st respondent filed a written statement, which is rather evasive in nature. The averment in the plaint that the 1st respondent purchased the goods on credit basis from the appellants is not disputed. However, the correctness of the amounts specified in the plaint is disputed. As regards the mortgage, the 1st respondent flatly denied his very going to Vijayawada on 10-6-1979 and execution of the letter dated 10-6-1979. He has also denied the delivery of the documents of title to the appellants. According to him, there was no need for him to go to Vijayawada on 10-6- 1979.

5. It was the further case of the 1st respondent that on account of his bad financial position, he addressed letters dated 1-4-1979 to all the creditors including the appellants requesting them to agree for a scheme formulated by him to share the amounts from proceeds of his assets proportionate to the outstanding amounts. According to him, one of the creditors has filed IP No. 2 of 1980 to adjudge him (1st respondent and his partners) as insolvents. Another creditor filed OS No. 65 of 1979 and obtained a decree against the 1st respondent. When the said creditor was taking steps to bring the house of the 1st respondent to sale, the appellants, on coming to know the same, came to Cuddapah and took the letter creating a semblance of mortgage only to prevent the sale. According to the 1st respondent, the letter evidencing the mortgage was written by him to the dictation of the appellants in July, 1979, but was ante-dated to 10-6-1979, only with a view to avoid the sale in execution. There was neither a mortgage nor deposit of title deeds. Certain objections were also raised as to the joinder of cause of actions of various appellants in one suit, non-joinder of partners of Munaga Brothers, limitation, etc.

6. Since the 1st respondent has been adjudicated insolvent, an Official Receiver was appointed by the Court in those proceedings. As the property, which is under mortgage, was one of the listed items of assets of the 1st respondent, the Official Receiver was added as 2nd defendant through orders in IA No. 469 of 1985. He figures as respondent No. 2. He filed written statement stating that he is only a formal party and is not aware of the allegations in the plaint. He prayed the trial Court to deliver the suit schedule property to him for administering the estate along with other assets in the general body of creditors.

7. On the basis of the pleadings, the trial Court framed the following issues:—

“(i) Whether the plaintiffs are registered firms entitled to file the suit?

(ii) Whether the defendant has created a valid equitable mortgage by deposit of title deed on 10-6-1979 as alleged by the plaintiffs?

(iii) Whether the suit is bad for mis-joinder of causes of action?

(iv) Whether the suit is bad for non-joinder of other partners as parties to the suit?

(v) Whether the claim of the 4th plaintiff is true?

(vi) Whether the suit mortgage cannot be enforced against the present building as contended by the defendant?

(vii) Whether the suit is barred by limitation?

(viii) Whether the plaintiffs are entitled to claim compound interest?

(ix) Whether the suit amount is not correct?

(x) To what relief?”

8. On behalf of the appellants, PWs. 1 to 5 were examined and Exs. A1 to A62 were marked. On behalf of the respondents, DW 1 alone was examined. He filed documents Exs. B1 to B6. On the basis of oral and documentary evidence before it, the trial Court held that the suit amount is correct, the suit is not bad for non-joinder of other partners, the appellants were entitled to file the suit and the 1st respondent was liable to pay the amount. However, on the crucial issue as to the creation of valid equitable mortgage by deposit of title deed (issue No. 2), the trial Court held against the appellants. Therefore, only a decree for recovery of money and not the preliminary decree under Order XXXV was passed by the trial Court. The appellants challenge the findings of the trial Court and the consequential decree in that regard in this appeal.

9. Sri M.S.R Subrahmaniyam, learned Counsel for the appellants, submits that the finding of the trial Court on the issue relating to equitable mortgage was contrary to evidence and was not sustainable in law at all. According to him, the pleadings and evidence on record, were sufficient to establish that there existed a mortgage in favour of the appellants herein and the trial Court ought to have decreed the suit as prayed for.

10. Sri R.V Prasad, learned Counsel for the 1st respondent, on the other hand, submits that the finding of the trial Court that Ex. A13 is the document under which the mortgage is said to have been created and admittedly it was not registered. According to him, it is established that Ex. A13 is ante dated and under those circumstances, the finding of the trial Court cannot be assailed.

11. Sri V.L.N.G.K Murthy, learned Counsel, advanced arguments on behalf of the 2nd respondent. Though the 2nd respondent pleaded before the trial Court that it was only a formal party, extensive arguments were addressed by the learned Counsel in support of the findings of the trial Court.

12. The question that falls for consideration in this appeal is whether there existed a valid mortgage in favour of the appellants herein?

13. The fact that the appellants were doing wholesale business in textiles and that the 1st respondent purchased material from them on credit from time to time is not in dispute. It is also not in dispute that the 1st respondent was due to pay various amounts to the appellants as well as to several other traders from various parts of the country.

14. It was the case of the appellants that the 1st respondent came to Vijayawada on 10-6-1979, verified the various amounts that were due to the respective appellants and had offered to create equitable mortgage by delivering to them the title deed of the immovable property. According to them, on the same day, after delivering the title deed, the 1st respondent executed a letter (Ex. A13) with his own handwriting narrating the circumstances under which he had deposited the title deed. The document which is deposited with the appellants by creation of equitable mortgage is the registered sale deed dated 6-2-1963, marked as Ex. A12. It is the case of the appellants that the deposit of title deed (Ex. A12) itself constituted the equitable mortgage and the letter (Ex. A13) is only recites the factum of such a deposit. According to them, Ex. A13 by itself does not create any mortgage. If at all any thing, it only had evidenced the factum of deposit of title deed, which already took place by the time Ex. A13 came to be written. Inasmuch as, Ex. A13 did not create any mortgage, non-registration of the same was of no consequence.

15. The plea of the 1st respondent, on the other hand, was that he did not deposit the title deed (Ex. A12) at all. So far as Ex. A13 is concerned, it was his case that it was written by him to the dictation of the appellants only with a view to avoid the sale of the property in an execution. The place of writing of this letter is also disputed. While, Ex. A13 indicates that it was written at Vijayawada, it is the case of the 1st respondent that it was written by him at Cuddapah, when the appellants came to that place to protect their interest by preventing the sale of the suit property in Court proceedings. According to him, since the appellants were claiming the existence of mortgage on the basis of Ex. A13, it needed registration, and in the absence of the same, it was unenforceable.

16. For an equitable mortgage to come into existence, what all is needed is the deposit of title deeds by mortgagor with the mortgagee in the form of a security for repayment of the amounts borrowed or due by that time. Unlike other forms of mortgages, equitable mortgage does not involve in execution of any document and registration of the same. If Ex. A13 was to have been treated as document creating mortgage by itself, the contention of the learned Counsel for the respondents that it required registration deserves to be accepted. However, it is in this context that it has to be examined as to whether Ex. A13 by itself created any mortgage. It is a vernacular document written by DW 1 himself. Its true translation is filed into the Court. Since much turned upon this letter, it is felt necessary to extract the same:

“Letter dated 10-6-1979 executed by Munaga Subbarao, s/o Munaga Venkata Rangayya, resident of Cuddapah in Cuddapah District, now stated at Vijayawada, in favour of the Cloth shops in Vastralatha in Vijayawada i.e,

1. Durga Emporium 4. Sri Venkata Satyanarayana Textiles 2. Saroj Enterprises 5. Sri Laxmi Cloth Corporation. 3. Sri Rajyalaxmi Textiles 6. Sri Laxmi Cloth Stores.

We are carrying on cloth business at Cuddapah under the name and style Munaga Brothers and, for the said business, we are purchasing from the above shops and opened an account in the name of Munaga Brothers and debited to our account and after settling the accounts, the following amounts are due to you,

1. Rs. 44,335-10 ps to Durga Emporium as per the Verasikattu (Settlement) as on 2-3-1979.

2. Rs. 49,817/- to Saroj Enterprises as per the Verasikattu (Settlement) as on 12-4-1979.

3. Rs. 28,000/- to Sri Rajyalakshmi Textiles as per the Verasikattu (Settlement) as on 29-6-1978.

4. Rs. 8,000/- to Sri Venkata Satyanarayana Textiles as per the Verasikattu (Settlement) as on 8-2-1979.

5. Rs. 28,488-56 ps to Sri Laxmi Cloth Corporation as per Verasikattu (Settlement) as on 17-3-1979.

6. Rs. 30,149-36 ps to Sri Laxmi Cloth Stores as per Verasikattu (Settlement) as on 24-12-1978.

Though you have been asking us to clear the said debts, so far we did not pay the same. Monthly interest is being accrued to the said debt. In the circumstances, as you informed us that, unless (i) give some immovable property as security, you decided unanimously that you will take proceedings in a Court of law, today I had kept the title deed of my building in the Municipal Area of Cuddapah town in Cuddapah District with you as security for the debt. I have no objection for you to recover the debt either from the building or from me personally.

Sd/Munaga Subba Rao

Details of the document

Registered sale deed dated 6-2-1963, executed by sons of Markapurapu Subbaiah.

1. Subbanna and his sons

2. Peda Subbanna

3. China Subanna

4. Srinivasulu

5. Dwaraka Mohana Rao

6. Venkatarao, in favour of Munaga Subbarao, s/o Venkata Rangaiah.

Munaga Subbarao,

Dated 10-6-1979 Station: Vijayawada

Scribe: self

//true translation//”

17. The 1st paragraph of the letter speaks of the factum of purchase of goods by the 1st respondent from the appellants and the amounts due as on the dates specified therein. The 2nd paragraph is crucial. It speaks of the circumstances under which DW 1 (1st respondent) was required to offer security and how he kept the title deed of the building at Cuddapah with the appellants as security for the debt. From this, it is clear that this document by itself did not create any mortgage, but it only evidenced the factum of deposit of the title deed with the appellants as security for the debts. Therefore, Ex. A13 cannot be said to have created any mortgage in favour of the appellants.

18. The learned Counsel for the appellants relies upon the judgment of the Hon'ble Supreme Court in D.D Seal v. R.L Phumra, (1969) 3 SCC 821 : AIR 1970 SC 659. The Supreme Court was dealing with a document of similar nature and the question before it was the same as in this case. It is evident from the following:

“The only question is whether the parties intended to create a charge by the execution of Ex. 2 or was it merely a record of the transaction which had already been concluded and under which rights and liabilities had already been created. It seems to us that the document did not intend to create a charge by its execution.”

19. After referring to the judgments in Bachpal Mahraj v. Bhagwandas Daruka, AIR 1950 SC 272 and Hari Shankar Paul v. Kedar Nath Saha, AIR 1939 PC 167, their Lordships held:

“…we are of the view that the document does not require registration because it is not an “operative instrument”. It does not contain all the essentials of the transaction. What is registrable under the Indian Registration Act is a document and not a transaction.”

20. To the same effect is the judgment in United Bank of India v. Lekharam S.&Co., AIR 1965 SC 1591. The Hon'ble Supreme Court held that where the letter or document written subsequent to mortgage by deposit of title deeds does not form an integral part of the transaction, it does not require registration. Dealing with a document, which was similar to Ex. A13 herein, their Lordships held as under:

“It recites that he had deposited the title deeds with an intent to create an equitable mortgage ‘upon all my rights, title and interest in the said properties’. The language of Ex. 12 is identical in material respects with the language of the document construed by this Court in AIR 1950 SC 272 and is covered by the decision in that case.”

21. Accordingly, the judgment of the High Court, which held that the said document requires registration, was overruled and a decree for mortgage was ordered to be granted by the trial Court.

22. In H.G. Nanjappa v. M.F.C. Industries (P) Ltd., AIR 1987 Mad. 108, the Madras High Court took the view that the real question that needs to be answered in such a case is—

“………did the parties intend to reduce their bargain regarding the deposit of title deeds to the form of a document?”

23. After referring to the evidence, it was held:

“The memorandum clearly and plainly appears to me to be something in the nature of a forwarding letter or acknowledging the fact that the defendant has deposited the said deeds of title as security which is obvious, because, according to the plaintiff, there is admittedly a promissory note which has been executed much earlier and a sum of money was due on the basis of the said promissory note. The mere statement that a deposit is made by way of security for the repayment of the loan cannot be read as a contract, which is arrived at by the document itself. The document, therefore, cannot be read as recording an agreement between the parties, namely, the agreement to create a mortgage by deposit of title deeds. It is at best an evidence of the fact that the title deeds have been deposited with the plaintiff.”

and ultimately it was held that the document did not require registration.

24. The learned Counsel for the 1st respondent relied upon the judgment of the Hon'ble Supreme Court in V.G Rao v. Andhra bank, (1971) 3 SCC 134 : AIR 1970 SC 1613, and submitted that when parties creating security by deposit of title deeds intend to reduce their bargain regarding that deposit to the form of document, such document must be registered. There is absolutely no quarrel with this proposition. The question, however, is whether the document in question by itself created a mortgage or formed part of transaction or on the other hand, had only witnessed the factum of deposit of title deeds. In that case also, it was not sure as to whether the relevant document, Ex. A6, by itself created the mortgage. Since on the facts of the case, the plaintiff was to fail whether the document was to be treated as a contract of mortgage or otherwise, the relief was denied to the plaintiff. The proposition laid down in Rachpal Maharaj v. Bhagwandas, AIR 1950 SC 272 and Subramanian v. Lutchman, AIR 1923 PC 50, was reiterated therein.

25. Since we found that Ex. A13 has the effect of only evidencing deposit of Ex. A12, which has already taken place, we are of the view that it does not require registration.

26. The stand of the 1st respondent was somewhat peculiar. He flatly denied the factum of deposit of title deed-Ex. A12 with the appellants. It is a matter of record that Ex. A12 came to be filed by the appellants. The 1st respondent failed to explain as to how and under what circumstances the document came to be in the possession of the appellants. In his written statement, he categorically stated that he addressed letters to all the creditors indicating the Scheme under which he intends to clear the debts. The same is marked as Ex. A10. He has enclosed specimen copy of security along with the same, which is marked as Ex. A11. In Ex. A11, the 1st respondent proposed slashing of interest and wanted the facility of payment in instalments. The ultimate paragraph of Ex. A11 reads as under—

“In the event of failure by the 1st party in repaying the amounts as aforesaid, the 2nd party will be at liberty to recover the debt owing to them payable in one lumpsum by proceeding against the said property.”

27. This property is nothing but the one, the title deeds of which are handed over to the appellants. Therefore, it was not as if the transaction of mortgage was something which developed over-night; The 1st respondent wanted to play one creditor against the other and continue to enjoy the property leaving the debts unpaid. Therefore, viewed from any angle, the stand of the 1st respondent cannot be accepted.

28. The cumulative effect of the discussion is that the 1st respondent had deposited the title deed-Ex. A12 with the appellants and created equitable mortgage as a measure of security for the payment of the amounts due to them. Ex. A13 is only a letter evidencing the factum of such deposit, which has already taken place, and, as such, it does not require registration. Since there existed an equitable mortgage in favour of the appellants for the suit amounts, there shall be preliminary decree under Order XXXIV, Rule 1 of CPC as prayed for in the suit. The decree under appeal is accordingly modified and the suit shall stand decreed as prayed for. Inasmuch it is held that the property covered by Ex. A12 is under mortgage, the same shall not be available to be dealt with by the Official Liquidator. If there remains any portion of sale proceeds after satisfying the suit amounts, the same shall be made available to the 2nd respondent to serve the other liabilities.

29. The appeal is allowed to the extent indicated above.

30. The appellants shall be entitled to the costs.