Syndicate Bank v. Modern Tile And Clay Works

The Judgment of the Court was delivered by

Janaki Amma, J.:— The Syndicate Bank, the plaintiff in O.S No. 142 of 1969 of the Subordinate Judge's Court, Kozhikode, is the appellant. Shorn of the unnecessary particulars detailed in the plaint, the case of the appellant is as follows;

2. Respondents 2 to 4 are the partners of the first defendant-firm, Modren Tile & Clay Works, having its business premises in Nallalam amsom and desom Kozhikode Taluk. The firm had accommodation facilities with the Canara Industrial and Banking Syndicate Ltd., which subsequently changed its name into ‘Syndicate Bank Ltd.’, (hereinafter to be referred to as the Bank) on the security of three equitable mortgages of the years 1949, 1958 and 1959. In 1962, the transactions were closed after receipt of Rs. 2,50,000/-. For the balance amount due and for sums thereafter to be advanced a simple mortgage was executed by defendants 1 to 4 in respect of the properties described in the A schedule to the plaint in favour of the Bank. The limit of accommodation was fixed at Rs. 2,00,000/-. The simple mortgage was after reserving an existing first mortgage in favour of the Kerala Financial Corporation for Rs. 7,00,000/-. On the same day the respondents hypothecated the stock in trade. Five Insurance policies on the life of the 2nd respondent were also endorsed in favour of the Bank as security. The arrangement was to clear off the loan by making half yearly instalments of Rs. 20,000/-. A reduction of interest at ½ per cent from the rate fixed for the loan was also provided for prompt payment of the instalments. There was a settlement of account on 28-1-1963, when a demand promissory note for Rs. 1,80,000/- was executed by way of additional security. On 29-6-1966, respondents 2 to 4 as partners of the 1st respondent firm borrowed Rs. 30,000/- from the Bank on executing a promissory note, agreeing to pay interest at 10 per cent per annum. As security for the repayment of the loan respondents 2 to 4 deposited by way of equitable mortgage with the plaintiff Bank at Calicut, the registration copy of the title deed in respect of the properties described in the B schedule to the plaint with the relative encumbrance certificates and an affidavit in stamp Paper explaining the loss of the original title deed. The Bank subsequently surrendered the five insurance policies and appropriated the amount towards the loan. As there was default to pay the balance, the suit was filed for realisation of the amounts due under the two mortgages under S. 67-A of the Transfer of Property Act. The appellant-Bank relied on some acknowledgements to save the bar of limitation. The appellant claimed sale of the A schedule items after reserving the mortgage in favour of the Financial Corporation and also for payment of the surplus sale proceeds of the B schedule properties towards the payment of the balance due under the first loan account. Defendants 5 to 7 were impleaded subsequently, in view of the statement in the written statement of defendants 1 to 4 that the items in the B schedule stood set apart to those persons in a partition effected between them and defendants 1 to 4. Though defendants 1 to 4 appeared through counsel the written statement was filed only by defendants 1 to 3. They confessed judgment in respect of the amount due under the simple mortgage dated 12-2-1962. They also admitted the negotiations for the loan of Rs. 30,000/- on the security of the B schedule properties, but contended that the registration copy of the document and the promissory note were taken by the Bank from the residence of the defendants and not from the plaintiff's branch at Calicut. Since the deposit was from a place outside the Calicut Municipality, no valid mortgage by deposit of title deeds could have been made. They also contended that a handing over of a registration copy of a document was insufficient for creating a mortgage by deposit of title deeds. The liability of the B schedule properties as security for the amounts due was disputed on the above grounds.

3. Defendants 5 to 7 admitted that the B schedule properties have been set apart to their share in the partition effected in their family, with liability to pay Rs. 20,000/- to the Bank. They disputed their liability for any amount in excess of Rs. 20,000/-.

4. The suit came up for trial on 23-10-1973. The defendants were absent as also the counsel for defendants 5 to 7. The counsel for defendants 1 to 4 reported ‘no instructions’. The suit was decreed on the evidence tendered by the plaintiff. Defendants 1 to 4 filed I.A No. 2772 of 1973 to set aside the ex parte decree. The petition was allowed on 28-1-1974. When the suit came up for trial on 11-3-1974, the defendants were again absent and the suit was decreed. I.A No. 961 of 1974 was filed by the advocate for defendants 1 to 4 with an affidavit by an agent of the 2nd defendant. The court set aside the decree against the 2nd defendant alone Defendants 1, 3 and 4 and defendants 5 to 7 thereafter filed separate petitions to set aside the exparte decree after condoning delay. These petitions were dismissed. The Court observed that since defendants 1, 3 and 4 were parties to I.A No. 961 of 1974, their remedy was to move for review of the order in that petition. It appears that the prayer in I.A No. 2017 of 1974 was to set aside the ex parte decree passed against them on 23-10-1973. Since this decree had already been set aside as per the order on I.A No. 2772 of 1973, the court dismissed I.A No. 2017 of 1974 on that ground. There was no prayer to set aside the ex parte decree dated 11-3-1974. Availing of the observation, in the order in I.A No. 2017 of 1974, defendants 1, 3 and 4 moved for a review of the order in I.A No. 961 of 1974 and the same was allowed. Defendants 5 to 7 also filed I.A No. 2323 of 1974 to review the order in I.A No. 2017 of 1974. That petition was dismissed. They then filed I.A No. 3153 of 1974 to set aside the ex parte decree dated 11-3-1974 with a petition to condone delay. Since delay was not condoned, the petition was dismissed. C.M.A No. 167 of 1974 filed by defendants 5 to 7 was dismissed by this Court. Thereafter the suit came up for trial. The trial court upheld the contention of defendants 1 to 3 that no valid mortgage had been created over the properties in the B schedule to the plaint. The Court did not accept the contention of the plaintiff that there was already an ex parte decree against defendants 5 to 7. The Court decreed the suit so far as it related to the amounts charged on the properties in the A schedule. No charge was given over the B schedule properties, but a personal decree was given for the amount due under the transaction dated 29-6-1966 limiting the liability of defendants 5 to 7 to Rs. 20,000/-. (The mention of Ext. A2 and Ext. A3 in the decretal portion of the judgment really stands for Ext. A3 and Ext. A4 respectively). It is the latter portion of the decree that is the subject-matter of the appeal.

5. The trial court in coming to the conclusion that there was no equitable mortgage created over the properties in the B schedule held that the Ext. A4, the promissory note for Rs. 30,000/- was executed from the residence of defendants 2 to 4 at Cheruvannur and Ext. A6, the affidavit was signed from Cheruvannur and therefore those documents and Ext. A5 the copy of the title deed should be held to have been delivered to Pw. 1 the Manager of the Calicut branch of the Bank from Cheruvannur, a place outside the Municipal limits of Calicut. Under S. 58(f) of the Transfer of Property Act a mortgage by deposit of title deed can be created only in the places mentioned therein, namely Culcatta, Madras and Bombay and any other town which the State Government concerned may by notification the Official Gazette specify in that behalf. Cheruvannur being a place not notified by the State under S. 58(f) it was held that the delivery of title deeds did not amount to creation of a mortgage. The appellant would however contend that the delivery of documents of title was effected not from Cheruvannur but at the Bank's office at Calicut. The probabilities are in support of the above case. In the first place it is unlikely that the Manager of the Bank would go over to the house of defendants 2 to 4 to take delivery of the documents of title in a transaction which took place at the instance of defendants 2 to 4, Since it was defendants 2 to 4 who were in need of cash, they alone would have approached the Bank with an offer to create an equitable mortgage of their properties. It is not made out that there was any need for Pw. 1 to go over to Cheruvannur to take delivery of the documents. It is admitted by Pw. 2 the second defendant that there was no special intimacy between Pw. 1 and the executants of the promissory note. It follows that he would not have gone to Cheruvannur to oblige the debtors and take delivery of the documents of title. It is also significant that neither Dw. 1, nor Dw. 2 speaks to the effect that either Pw. 1 or any other officer of the Bank went to Cheruvannur to take delivery of the documents. What they stated is only that the promissory note was executed and the affidavit was signed from Cheruvannur. It does not follow from this that the delivery of documents took place from Cheruvannur. Therefore, there is no reason for not acting upon the evidence of Pw. 1 when he stated that the document of title and the promissory note were delivered at the Bank's office at Calicut.

6. At the time of hearing a doubt was expreseed by the learned counsel for the respondent as to the existence of a notification declaring Calicut as a town within the purview of S. 58(f). It is however noted that Calicut has been declared as a town coming within the purview of the said provision, under notification of the Government of Madras No. 513 Home, 10th May 1937 (Gazette Part I p. 982). The notification is available for reference in Local Rules and Orders, Madras State Vol. I.

7. Once it is made out that the deposit of title deeds was effected within a town coming under the purview of S. 58(f) the mortgagee need not further establish that the properties secured are situated within the limits of that town because S. 58(f) mentions only the place of deposit and does not refer to the location of the properties of which the title deeds are deposited. Therefore, the fact that the title deeds in the present case relate to properties outside Calicut will not affect the binding nature of the mortgage.

8. The stand taken by the contesting respondents however is that the deposit in this case being of a copy of a kanom deed and not of the original kanom deed there has not been a deposit of title deeds and therefore no equitable mortgage is created. The question to be considered is whether a registration copy of a kanom deed is a document of title for purposes of an equitable mortgage. By “documents of title” we mean the legal instruments which prove the right of a person in a particular property. Evidence supplied by documents may in some cases be conclusive while in other cases it may be insufficient in proving the title or the right claimed. When a person who is acclaimed and recognised by law as the owner of property transfers his rights by an instrument which satisfies all the requirements of law, the instrument of transfer is a title deed in respect of the property so far as the transferee is concerned. The document may amount to conclusive proof of such transfer. On the other hand a document may be of such a kind that it tends to prove such transfer of right but is not conclusive of a transfer of ownership. Thus a receipt for payment of revenue may not be conclusive proof of the ownership of the person in whose name it is issued even though the liability to pay revenue is on the owner. This is because in practice revenue is received by the concerned authorities from a person even without an enquiry whether he is the owner of the property. A revenue receipt is therefore insufficient evidence to prove title to property and is therefore not by itself a document of title.

9. When a property owned by Government is transferred to an individual and a patta is issued to him, the patta so issued may be a document of title. That does not mean that a patta issued to an owner is always a document of title as is seen from what follow: A who is the owner of a property, transfers it to B by a deed of transfer. The transferee may move the revenue authorities for a change of registry in the revenue records and a patta may be issued to him. The patta in such cases is only a document showing the person who is liable to pay the revenue of the property. It is only an evidence of title, the document of title being the deed of transfer that A issued to B. The right of a person who lends money on the deposit of the patta may get defeated if another claims security over the same land by proving that the deed of transfer had been deposited with him by way of equitable mortgage. A parity of reasoning applies in the case of a copy of deed of transfer. A copy of a deed of transfer is not ordinarily a document of title for the purposes of an equitable mortgage. It is only evidence of title. It is the original deed of transfer that is the document of title. This is because the rules for the issue of copies permit the obtaining of copies by an owner even while he is in possession of the original document of title. To hold that a copy of a deed of transfer is also a document of title for purposes of S. 58(f) of the Transfer of Property Act would amount to giving facilities to the owner to misuse the provision. He may get an advance from one person by delivering the original document of title and then use the copy of the document for getting an advance from some other person who may not be aware of the earlier equitable mortgage. It should be the policy of law to see that such contingencies are avoided at the same, time there may be cases where the original document is lost and there are no chances of that document being made use of for any purpose. In the absence of the original deed of transfer the next best evidence of the owner's title to the property is a certified copy of that document. A certified copy in such cases may with sufficient safeguards be received as a document of title. The essential prerequisite for the use of a certified copy as a document of title is the loss of the original deed. Unless and until it is made out that the original is lost, a certified copy of a document cannot be considered to be a document of title for the purpose of S. 58(f) of the Transfer of Property Act.

10. Decisions on equitable mortgages where documents other than the original deed of transfer are deposited by way of security have to be appreciated in the light of the above principles. In Jit Singh Sabedar v. Punjab and Sind Bank AIR. 1935 Lah. 640, the original award which formed the document of title having been filed in Court and a decree obtained, was not available for the purpose of deposit by way of equitable mortgage. It was held that an equitable mortgage created by deposit of a copy of the award was valid. In Punjab and Sind Bank v. Firm Ganesh Das, AIR. 1935 Lah. 721, deposit of a copy of a jamabandi was held to be insufficient to constitute an equitable mortgage because a jamabandi was nothing more than Government record prepared for the purpose of collection of revenue. Such a document may be presumptive evidence of title but not a document of title. It was also held that in the absence of proof that the original document of title was lost, no equitable mortgage could be created by deposit of a copy of the title deed. In (Firm) Jowala Das v. Thakar Das, AIR. 1936 Lah. 251, a distinction was made between documents creating title and documents evidencing title and it was held that an equitable mortgage could be validly created only by deposit of documents of the former character. Deposit of a copy of the jamabandi was held to be insufficient for creating a mortgage. See also Jivan Das v. Peoples Bank, AIR. 1937 Lah. 926. In Mrs. Stewart v. Bank of Upper India, 34 IC. 937, it was held that “title deeds include copies of deeds where the originals are not forth-coming”. A similar view was taken in Surendra Mohan v. Mohendranath, AIR. 1932 Cal. 590, also.

11. In the instant case Ext. A5 the affidavit produced by defendants 2 to 4 clearly makes out that the original documents of title were not available. It was on the above representation that the copy of the kanom deed was accepted by the Bank. There is no case for the contesting respondents that they or anybody else are in possession of the original documents. Therefore the case that the equitable mortgage is had for failure to deposit the original title deeds cannot be accepted.

12. The appellant claimed in the plaint for a decree for the full amount due on the equitable mortgage charged on the property in the B schedule to the plaint. The trial court limited the liability of defendants 5 to 7 to Rs. 20,000/-. The appellant's learned counsel challenged the finding pointing out that a decree ex parte had already been passed against defendants 5 to 7 for the full amount and it was therefore wrong on the part of the Court to have put a limit to their liability. This appears to be correct in the light of the details of the ex parte decree already mentioned. Even otherwise since the equitable mortgage has been found to be valid and binding the appellant is entitled to recover the full amount thereof by sale of the properties charged. However it is not made out how the appellant would be entitled to appropriate the surplus if any obtained by sale of the B schedule property towards the amount comprised in prayer A. Allowing such a claim would confer on defendants 5 to 7 a cause of action to recover such surplus amounts from defendants I to 4 by way of reimbursement and thus would affect the latter also. Hence the right of the appellant to appropriate the surplus amount has to be decided, independent of the ex parte decree passed against defendants 5 to 7. Since the appellant has not placed sufficient materials in support of the claim, a decree for recovery of the amount due under the simple mortgage as per prayer A from the surplus of the sale proceeds of the B schedule properties cannot be allowed. In the result, we allow the appeal. The appellant, Bank, is entitled to recover the whole amount under the equitable mortgage by sale of the properties in the B schedule. The appellant will be entitled to get costs from the contesting respondents and the properties mortgaged.

13. Allowed.