The original defendant No. 1 had availed a loan of Rs. 10 lakh on for the purposes of purchase of a truck with Bore-Well Rig, Machine, Screw Compressor, Drilling Rig, etc. The original defendant No.1 – the borrower hypothecated the said machinery and its accessories with the plaintiff Bank. At the same time, the defendants No. 2 to 6 i.e., present respondents No. 2 to 6 agreed to stand as continuing guarantors for the original defendant No. 1 in repayment of the loan amount as agreed between the appellant Bank and the defendant No. 1. They agreed to mortgage their respective immovable property. They accordingly delivered their title-deeds. Thus, equitable mortgage by depositing the title-deed was created by these respondents.
All the defendants attended the Himayatnagar branch of appellant Bank and deposited the title-deeds of their respective immovable properties, as detailed in the plaint. They had agreed by executing affidavits regarding the confirmation of the mortgage by deposit of title-deeds and had further agreed that the revival of the loan, if any by the borrower i.e. defendant No. 1 shall bind the mortgagor.
The Appellant Bank filed a suit for recovery of an amount of Rs. 27,76,137/- and for preliminary decree for sale of the mortgaged property for recovery of the said amount was decreed against the borrower-original defendant No. 1, but was dismissed against the guarantors i.e., defendants No. 2 to 6. Hence, the appeal was filed against the guarantors.
The Hon’ble Court noted the difference between “the agreement to mortgage” and “mortgage by deposit of title-deeds”. The mortgage by deposit of title-deeds is defined by section 58(f) of the Transfer of Property Act, 1882.
It is undisputed that the city of Hyderabad is a notified city where the delivery of the title-deeds of immovable property can be made with the intention to create a security thereon.
It is a settled position of law that the mortgage by deposit of title deeds requires no registration. However, if any document is executed, which would show that the mortgagee has, under the said document, mortgaged the property by deposit of title-deeds, then only the registration of the said document is required. However, the contemporaneous document fortifying the “intention to create the security” is neither an agreement to mortgage or a mortgage. The deposit of title-deeds itself with intention in the mind of the person that the said title-deeds are being deposited with intention to create a security thereon, is sufficient to culminate the transaction into a mortgage by deposit of title-deeds. This mortgage by deposit of title-deeds is sometimes called as equitable mortgage, as was prevalent in England. However, the ingredients of the equitable mortgage and the mortgage as defined u/s. 58(f) of the Transfer of Property Act are not identical.
The documents on record, coupled with the affidavits as admitted by the defendant and positively proved by the relevant witness of the plaintiff would show that the title-deeds were deposited with the plaintiff Bank, with an intention to create the security thereon.
The title-deeds of the respective respondents were admittedly put in the custody of the appellant Bank at that time. None of the relevant respondents at any time asked for return of those title-deeds, nor complained of keeping the same in the custody of the Bank.
The documents on record would show that the respondents No. 2 to 6 had intention to create the security for the repayment of the loan availed by the principal borrower. Therefore, they showed their readiness to deposit the title-deeds by various agreements and affidavits and also by placing all the title verification certificate by the Advocates, etc. and ultimately, they deposited the titledeeds with the appellant Bank at Hyderabad branch.
The above facts is sufficient to hold that the respondents No. 2 to 6 stood as guarantors and created mortgage of their property for repayment of the loan advanced to the principal borrower by depositing their title-deeds.
