Bookmark
PDF
Share
CaseIQ

Sirish Kumar Bros, B... v. The Official Assigne...

Madras High Court

Nov 30, 1999

Judgment

Subsequent
References

CaseIQ

Important Paras

Please sign up to view Important Paras.

Smart Summary (Beta)

Summary of Opinion by A. Subbulakshmy, J.

Factual and Procedural Background

The appellant filed Claim No. 203 of 1994 in Insolvency Petition No. 14 of 1993 alleging that the insolvents P. Savithri and P. Neeraja (partners of M/s. Shree Krishna Prasad & Co. and M/s. Padma Priya Trading Co.) were indebted to the claimant in a total sum of Rs. 3,62,309.80. The claimed breakdown included Rs. 2,00,000 as principal (actually described as "amount paid under the promissory notes"), Rs. 1,32,509.80 as interest and Rs. 29,800 as commission, shown by 13 promissory notes (dates ranging from 19.6.90 to 20.1.92).

The appellant relied on a memorandum of deposit of title deeds/equitable mortgage dated 15.6.90 said to have been created for Rs. 1,98,000 as security for amounts owing. The appellant contended that no amount had been received on the promissory notes and therefore the equitable mortgage entitled the claimant to security over specified properties.

The Official Assignee rejected the claim, holding there was no subsisting debt due to the claimant in favour of the claimant at the time of execution of the memorandum of deposit of title deeds. The claimant filed Application No. 348 of 1996 in I.P. No. 14 of 1993 to set aside the Official Assignee's order dated 26.7.96. The learned Single Judge dismissed that application. The present Original Side Appeal is directed against the Single Judge's order in Application No. 348 of 1996.

Relevant factual points emphasized in the opinion include: (a) the equitable mortgage/memorandum was dated 15.6.90; (b) the 13 promissory notes were executed after that date (between 19.6.90 and 20.1.92); (c) the promissory notes were in favour of 13 different persons; and (d) the claimant relied on affidavits from those 13 persons stating they advanced money and had no objection to the amount being credited to the mortgagee.

Legal Issues Presented

Whether the claimant/appellant can be treated as an equitable mortgagee (i.e., has the right to enforce the memorandum of deposit of title deeds executed on 15.6.90) and is entitled to the claim made by him.
Whether the memorandum of deposit of title deeds amounted to a valid mortgage under Section 58(f) of the Transfer of Property Act — specifically, whether the delivery of the documents of title was made to a "creditor or his agent" and whether the requirement as to place of delivery (towns enumerated in Section 58(f)) is satisfied.
Whether the claimant was a creditor or an agent of the creditors at the time of the deposit of title deeds (i.e., whether the claimant had locus to enforce the alleged equitable mortgage or to recover amounts advanced by third parties).

Arguments of the Parties

Appellant's Arguments

The appellant asserted that an equitable mortgage (memorandum of deposit of title deeds) dated 15.6.90 was created in its favour for Rs. 1,98,000 as security for advances to be made and/or made to Mrs. P. Savithri.
The appellant contended that the promissory notes (totaling the sums claimed) were secured by that equitable mortgage and that no amounts had been received on those notes; therefore the appellant was entitled to claim security over the properties.
The appellant claimed to be the agent of the financiers (i.e., acted on behalf of the lenders) — a contention relied upon to establish the appellant's right to enforce the mortgage.
The appellant relied on affidavits of the 13 persons who advanced amounts under the promissory notes; those affidavits stated that they advanced money and had no objection to the amounts being credited in the account of the mortgagee.

Respondent / Official Assignee's Arguments

The Official Assignee held that there was no subsisting debt due to the claimant as on the date of execution of the memorandum of deposit of title deeds.
Counsel for the respondent submitted that no valid equitable mortgage had been created because one of the conditions in Section 58(f) of the Transfer of Property Act is that delivery of the documents of title must have been made to a "creditor or his agent" and that the memorandum did not specify the place of delivery (as required for towns like Madras under Section 58(f)). The Official Assignee found the memorandum silent on the place of delivery and noted registration took place at Kunrathur (outside the city of Madras).
The Official Assignee therefore maintained the claim could not be sustained as an equitable mortgage enforceable by the claimant.

Table of Precedents Cited

No legal precedents (case law) were cited in the provided opinion.

Court's Reasoning and Analysis

The court proceeded by examining the documentary record and the legal requirements for a mortgage by deposit of title deeds under Section 58(f) of the Transfer of Property Act. The analysis involved the following steps, presented in the order found in the opinion:

Examination of the memorandum of deposit of title deeds: the memorandum recited that Mrs. P. Savithri had deposited documents of title with a finance broker/depositee with intent to create an equitable mortgage securing repayment of amounts owing to financiers under loans and promissory notes not exceeding Rs. 1,98,000. The properties were described by location.
Chronology: the equitable mortgage deed/memorandum is dated 15.6.90, while the 13 promissory notes relied on by the claimant were executed subsequent to that date (between 19.6.90 and 20.1.92). At the date of the memorandum there was, according to the court's scrutiny, no borrowing as evidenced by those notes.
Status of the claimant: the memorandum did not identify the claimant as a creditor, nor did it state that the claimant was an agent of the financiers. The promissory notes were executed in favour of 13 different persons who actually received the advances.
Sufficiency of affidavits: the claimant relied on affidavits from the 13 persons who had lent the amounts under the promissory notes stating they had no objection to the amounts being credited to the mortgagee. The court held that these affidavits did not establish that the claimant was the creditor or the agent of the creditors, nor did they evidence any assignment or transfer of the lenders' rights to the claimant.
Legal requirement under Section 58(f): the court noted that one essential condition of a mortgage by deposit of title deeds is delivery of documents of title to a creditor or his agent. The court emphasized that delivery must be to a person who is legally a creditor or is acting as the creditor's agent at the time of delivery.
Place-of-delivery issue: the Official Assignee had found that the memorandum did not specify the place of delivery and that registration occurred at Kunrathur (outside Madras), which would raise issues under Section 58(f) (which refers to delivery in specified towns). The Single Judge reversed that finding on the facts, reasoning that both parties resided within the Madras city limits and therefore delivery could be presumed to have taken place within Madras. The Single Judge therefore held that the place-of-delivery requirement under Section 58(f) was satisfied.
Central conclusion on enforceability: despite the Single Judge's view on place of delivery, the court found that the more fundamental defect was that the claimant was neither a creditor nor an agent of the creditors at the time the documents were deposited. Because delivery must be to a creditor or his agent, the deposit to the claimant — who lacked such status — did not constitute a mortgage as defined by Section 58(f). Consequently, the memorandum could not clothe the claimant with the right to enforce the mortgage in respect of moneys later lent by other persons.

The court therefore focused on the claimant's legal status at the time of deposit (creditor or agent) rather than resolving solely the place-of-delivery objection; absence of documentary proof of assignment, agency, or transfer of the lenders' rights was determinative.

Holding and Implications

Holding: The Court held that the appellant is not entitled to enforce the claimed equitable mortgage and is not entitled to the claim; accordingly, the Original Side Appeal is dismissed. The court agreed with the finding of the learned Single Judge. The judgment ordered no costs.

Implications:

Direct effect on the parties: the appellant's claim to enforce the memorandum of deposit of title deeds as an equitable mortgagee fails because the appellant was neither a creditor nor an agent of the creditors at the time of deposit; the appellant therefore has no locus standi to recover the amounts under the asserted mortgage.
Procedure and evidence: the opinion underscores the necessity of documentary proof (assignment, agency agreement, or other authorization) when a party seeks to enforce a security instrument on behalf of third-party lenders; affidavits that do not establish agency or transfer of rights are insufficient.
Precedential scope: the opinion does not purport to set a new broader legal principle beyond its application to the facts; the decision turns on the absence of documentary proof that the claimant was creditor or agent, and on statutory requirements in Section 58(f) of the Transfer of Property Act. No new case law precedents were cited in the opinion.

Show all summary ...

A. Subbulakshmy, J.

1. The appellant filed a Claim No. 203 of 1994 in I.P No. 14 of 1993 alleging that the insolvent P. Savithri & P. Neeraja, partners of M/s. Shree Krishna Prasad & Co. and M/s. Padma Priya Trading Co. on the date of order of adjudication viz. 25.2.93 were indebted for a sum of Rs. 3,62,309.80 further Rs. 2,00,000 was towards principal, Rs. 1,32,509.80 towards interest and Rs. 29,800 towards commission as shown by the amount on 13 promissory notes as mentioned herein:—

Principal Interest Commission 1. Promissory Note dated 19.6.90 20,000 13,252 2,980 2. Promissory Note dated 19.6.90 11,000 7,288 1,639 3. Promissory Note dated 19.6.90 20,000 13,251 2,980 4. Promissory Note dated 19.6.90 11,000 7,288 1,639 5. Promissory Note dated 19.6.90 15,000 9.938.25 2,235 6. Promissory Note dated 19.6.90 20,000 13,251 2,980 7. Promissory Note dated 18.6.90 25,000 16,563.70 3,725 8. Promissory Note dated 19.6.90 10,000 6,625.50 1,490 9. Promissory Note dated 15.4.91 20,000 13,251 2,980 10. Promissory Note dated 2.10.91 15,000 9,938.25 2,235 11. Promissory Note dated 2.10.91 11,000 7,288 1,639 12. Promissory Note dated 3.10.91 12,000 7,950.60 1,788 13. Promissory Note dated 20.1.92 10,000 6,625.50 1,490

According to the appellant equitable mortgage deed dated 15.6.90 for Rs. 1,98,000 was created for that amount and the actual amount paid under the abovesaid pronotes was Rs. 2,00,000. No amount was received due on the abovesaid pronotes. Since the equitable mortgage has been created as security for the due amount, the petitioner is entitled to claim security over the properties under the equitable mortgage.

2. The Official Assignee who heard the claim petition rejected it holding that there was no subsisting debt due from the insolvent in favour of the claimant as on the date of execution of memorandum of deposit of title deeds.

3. The claimant filed Application No. 348 of 1996 in I.P No. 14 of 1993 to set aside the order of the Official Assignee dated 26.7.96

4. The learned Single Judge dismissed that application.

5. The original side appeal is directed as against the order of the learned Single Judge in Application No. 348 of 1996.

6. In this appeal, the appellant contends that they are the agents of the financiers.

7. Point for consideration is whether the claimant/appellant can claim to be the equitable mortgage and whether he is entitled to the claim made by him.

8. In I.P No. 14 of 1993, Savithri and Neeraja were adjudicated as insolvents and their properties were ordered to be vested with the official assignee. The appellant preferred claim that mortgage by deposit of title deeds was created in his favour on 15.6.90 by Savithri one of the insolvents along with the memorandum of deposit of title deeds. Much reliance is placed upon by the claimant on the memorandum of deposit of title deeds dated 15.6.90 and the claimant/appellant contends that the appellant is an equitable mortgages and is entitled to derive the benefits on the equitable mortgage. In the memorandum of deposit of title deeds, it is recited that the borrower P. Savithri has already deposited the documents and title relating to her property listed thereunder with the finance broker/depositee with intent to create an equitable mortgage in favour of the finance broker/depositee over the property to which the documents relate to for the purpose of securing repayment to the depositees/financiers of all the amounts owing to the financiers under advance made and to be made to Mrs. P. Savithri by the depositee's/financiers by way of loan under different promissory notes not exceeding Rs. 1,98,000. The properties described thereunder are the lands situate in Noombal Mathura Pallikuppam Village, Saidapet Taluk, Chingleput District. The claimant contends that the insovents P. Savithri and Neeraja partners of M/s. Shree Krishna Prasad & Co. and M/s. Padma Priya Trading Co. on the date of order of adjudication i.e, on 25.2.93 were indebted in a sum of Rs. 3,62,309.80 being Rs. 2,00,000 towards interest and Rs. 29,800.00 towards commission and had executed equitable mortgage deed dated 15.6.90 for Rs. 1,98,000 and as no amount has been received from them, the appellant is entitled to claim that amount. It is significant to note that the equitable mortgage deed was executed by the insolvent on 15.6.90 in favour of the claimant firm. All the promissory notes are dated from 19.6.90 to 20.12.92 only subsequent to the memorandum of agreement for deposit of title deeds, these promissory notes were executed, on the dates of the memorandum of agreement for deposit of title deeds, there was no borrowing.

9. On a perusal of the memorandum of agreement for deposit of title deeds, it is seen that the deposit of title deeds was created for the purpose of repayment to depositees/financiers of the loans to be made to Mrs. P. Savithri by the depositees/financiers. The 13 promissory notes were executed in favour different persons and nowhere in the memorandum of agreement for deposit of title deeds, it is stated that the claimant is a creditor. It is also not stated that the claimant is the agent of the creditor memorandum of agreement for deposit of title deeds does not empower the claimant to enforce the mortgage for reason of the claims on the 13 promissory notes executed by the insolvent in favour of 13 different persons. The claimants are described only as finance brokers. The insolvents have executed 13 promissory notes in favour of 13 persons and received the amounts mentioned thereunder. The promissory notes recite that for consideration received, the promissory notes were executed by the insolvents. The execution of the promissory notes in favour of different persons does not confer any right on the claimant to proceed against the insolvents for recovery of that amount. The claimant also bases, his claim on the affidavits of 13 persons who lent the amount to the insolvents under the promissory notes. In the affidavits, they have stated that they advanced amounts to the insolvents and they have no objection for that amount being credited in the account of the mortgagee. Nothing is mentioned in the affidavits that the claimant/appellant acted as their agent or that the deposit of title deeds was made in their favour by the insolvents with the appellant acting as their agent. By merely filing of affidavit of persons who had advanced the amounts, the claimant is not entitled to contend that he is the equitable mortgagee. The affidavits filed by the promissees have nothing to do with the claim of the claimant. Simply because in the affidavit, the persons who advanced money had stated that the claimant is the mortgagee. It is not sufficient to establish the claim of the claimant and that will not establish that the claimant is the creditor or the agent of the creditor. Even in the memorandum of agreement for deposit of title deeds, it is only stated that the memorandum is executed for the amount owing to the financiers under advance made and to be made to Mrs. P. Savithri by the depositees/financiers by way of loan under different promissory notes. In the memorandum of agreement for deposit of title, deeds, nowhere the claimant is described as agent of the financiers. Absolutely, there is no proof that the claimant acted act as agent nor is the claimant the creditor.

10. In the absence of any documentary proof that the claimant was the creditor or agent of the creditor at the time the equitable mortgage was created, it is very difficult to sustain the case of the claimant with regard to his claim. For the advances made by 13 different persons under various pro notes, the claimant cannot become the creditor merely on the memorandum of agreement for deposit of title deeds. There must be some basis for the claim to base his claim either as a creditor or agent of the creditor and the mere affidavit of persons who have advanced the amounts will not enable the claimant to make the claim. The claimant was neither lender nor agent. He never acted as the agent of the creditor also. The memorandum of agreement for deposit of title deeds is silent as to whether he is the creditor or an agent. No document is filed with regard to the status of the claimant as creditor or agent. The claimant is neither a creditor nor an agent. There is no document authorising the appellant to receive or recovery the amount and the amount is not transferred or assigned in favour of the claimant. Unless the amount is transferred or assigned, the claimant does not get the right to recover the same. So, the claimant has no locus standi to file the claim petition.

11. Counsel for the respondent submitted that no valid equitable mortgage has been created, Sec. 58(f) of the Transfer of Property Act deals with mortgage by deposit of title deeds. It reads as follows:—

“Where a person in any of the following towns namely the towns of Calcutta, Madras and Bombay, and in any other town which the State Government concerned may, by notification in the Official Gazette specify in this behalf delivers to a creditor or his agent, documents of title to immovable property, with intend to create a security thereon, the transaction is called a Mortgage by deposit of title deeds.”

To attract the ingredients of Section 58(f) of the Transfer of Property Act, the delivery of documents of title to the immovable property to a creditor or his agent should have taken place in any of the towns viz., Calcutta, madras and Bombay and any other town which the State Government may specify in the Official Gazette. The Official Assignee has found that in the memorandum of agreement for deposit of title deeds nothing is mentioned about the place where the delivery of documents had taken place. The memorandum of agreement for deposit of title deeds was registered in the office of the Sub-Registrar at Kunrathur which is situate outside the City of Madras. The Official Assignee further found that the place where the delivery of document took place is also not specifically mentioned in the memorandum of agreement for deposit of title deeds and so no valid equitable mortgage has been created. The learned single Judge reversed the finding of the Official Assignee in that aspect and has found that both the parties to the memorandum of agreement for deposit of title deeds were residing in the city limit and so, the delivery of the document must have been effected only either at the place of the depositor or at the place of the depositees and so, the delivery of document had to be presumed to have taken place within the city limit of Madras and mere non mentioning of the place in the memorandum of agreement for deposit of title deeds is not of any significance. Accordingly, he found that the requirement of Sec. 58 (f) of the Transfer of Property Act regarding the place of delivery of the documents is satisfied and reversed the finding of the Official Assignee. Both the parties were residents of Madras. So, the delivery of documents could have been effected within the city limits of Madras. Of course, there is no mention in the memorandum of agreement for deposit as title deeds with regard to the place where the delivery of documents had taken place and as the parties are residents of Madras, it can be taken that delivery of document was effected within the city of Madras for creating equitable mortgage.

12. We have already given our finding above that the claimant is neither a creditor nor an agent of the creditor. One of the essential conditions under Sec. 58(f) of the Transfer of Property Act is that there must be delivery of documents of title relating to immovable property with intent to create equitable mortgage was security thereon to the creditor or his agent. So, the delivery of documents must be to a creditor or his agent. The claimant was neither a creditor nor was he the agent of the financiers at the time of the delivery of the documents of title. Since the appellant is neither a creditor nor was he the agent of the creditors at the time of the deposit of the title deeds by the insolvements, such deposit will not amount to mortgage as defined under section 58(f) of the Transfer of Property Act. Even though there is memorandum of agreement for deposit of title deeds, that will not clothe the claimant with the right to enforce the mortgage for recovery of moneys subsequently lent by others to the insolvent.

13. For the foregoing reasons, we are of the view that the appellant is not entitled to enforce his claim. We agree with the finding of the learned single Judge. In the result, the Original Side Appeal is dismissed. No costs.