Judgment:
1. This appeal arises out of a judgment dated 4th June, 2002 passed by Presiding Officer, D.R.T., Jabalpur (M.P.) in T.A. No. 362 of 1998, Bank of India v. Gautam Carbon Paper Manufacturing Company Pvt. Ltd., issuing recovery certificate for a sum of Rs. 41,56,412.09 and interest as per terms of the contract from 15th May, 1992 till the date of realization, declining to accept the plea of Bank for equitable mortgage.
2. Briefly stated the facts giving rise to this appeal as per memo of this appeal are that the appellant Bank of India filed a Civil Suit No.83/1992 against the defendant-respondents for recovery of a sum of Rs. 41,56,412.09 along with interest and costs before the Court of District Judge, Gwalior (M.P.). This suit was transferred to D.R.T., Jabalpur after the constitution of D.R.Ts. and there it was registered as T.A.No. 362/1998. The Bank had pleaded in the above suit that the respondent No. 1 Gautam Carbon Paper Manufacturing Company Pvt. Ltd. on its request was provided with financial assistance by way of term loan of Rs. 20 lacs and cash credit facility of Rs. 14 lacs along with bill purchase facility by the appellant Bank. It is said that the defendant Nos. 1, 2 and 3 (now deceased and substituted by their legal representatives) executed various security documents to secure the repayment of the loan and the defendant Nos. 2, 3,4 and 5 executed the guarantee for repayment of the credit facility in favour of the Bank.
The Board of Directors of the defendant company had passed a resolution to borrow the term loan and to avail the cash credit facility and the defendant Nos. 2 and 3 who were the directors executed security documents and acknowledgement of confirmation of debt and security for and on behalf of the defendant company. The appellant Bank granted ad hoc loan facility of Rs. 5 lacs on 8th October, 1988 and an additional amount of Rs. 3 lacs on 11th March, 1989 to meet out the urgent requirements of the defendant No. 1 before the sanction of credit facilities. The above ad hoc facility account was closed on 15th May, 1989 and balance of outstanding in that account was Rs. 7,94,455.68 which was transferred to the new terms loan account opened on the date of sanction of the regular term loan facility. According to the Bank, defendant Nos. 3 and 4 created equitable mortgage in favour of the Bank by depositing title-deeds and giving oral assent which was recorded in relevant register maintained by the Bank known as register of loan securities for granting of loan facilities in question. Defendants failed to maintain financial discipline with regard to the loan and credit facility, ultimately, after issuing notices for the repayment of the amount due, civil suit was filed before District Judge, Gwalior (M.P.) for a sum of Rs. 41,56,412.09. This suit was later on transferred to D.R.T., Jabalpur.
3. Above suit was contested by the defendants before D.R.T. Jabalpur admitting the term loan of Rs. 20 lacs and cash credit facility of Rs. 14 lacs. The defendants further pleaded that under the term loan and facility of bill purchase the amount of Rs. 14 lacs and 5 lacs were sanctioned but were actually not paid to them and the total amount in this connection paid to them was Rs. 8.91 lacs only withholding an amount of Rs. 10.09 lacs. They further pleaded that on account of shortage of fund the defendants were unable to run their factory resulting in loss of their business. The defendants had also denied execution of any document and giving of any assent for equitable mortgage and they contested the suit challenging the amount claimed by the Bank from them.
4. The learned D.R.T. after considering the documentary as well as evidence in the form of affidavits filed by the parties decreed the suit for recovery of a sum of Rs. 41,56,412.09. While pronouncing the above judgment learned D.R.T. did not accept the case of the appellant Bank that the equitable mortgage was created by the defendant Nos. 3 and 4 for availing of the aforesaid loan and cash credit facility in respect of immovable property, consequently, the D.R.T. declined to pass any order in respect of the immovable properties of the defendants.
5. Before this Tribunal learned Counsel for the appellant and learned Counsel for the respondents have been heard at length, the documents, original record along with impugned judgment have been perused carefully. The sole question which arises for decision in this appeal is whether by deposit of title-deeds and by oral assent alleged in this case any equitable mortgage is created in respect of amount due to the Bank? 6. Learned Counsel for the appellant has taken this Tribunal through para 21 of the impugned judgment wherein it has been observed that the Bank had failed to establish the creation of equitable mortgage in respect of immovable properties and has declined to pass any order in respect thereof. In this very connection attention of this Tribunal has been drawn towards para 13 of the impugned judgment for the observations that the defendant-respondents had not specifically denied availing of financial assistance from the appellant-Bank and also execution of relevant papers in respect thereof. It is pointed out that it was further observed by D.R.T. that it is not at all necessary for the Tribunal to discuss the affidavits and documents filed by the Bank in detail.K.J. Nathan v. S.V. Maruthi Rao Lakshmanan Chettiar. ," the learned Counsel for the appellant Bank has argued that in para 10 of the above ruling K.J. Nathan v. S.V. Maruthi Rao (supra), Hon'blc Apex Court has observed as under: 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-deeds; 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-deeds 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 constructive mode of 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 title-deeds, it would be hyper-technical to insist upon the formality of the creditor delivering the title-deeds to the debtor and the debtor re-delivering 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.
In the ruling Veerammal v. K.R.L. Lakshmanan Chettiar (supra) in para 4 Hon'ble Madras High Court has observed that: Both the Courts came to the conclusion that the delivery of the title-deeds was made personally by the husband (defendant No. 1) on behalf of himself and his wife, that the delivery of the documents was to a creditor, that the documents were title-deeds relating to immovable properties in regard to which an equitable mortgage could be created, that the delivery was with intent to create a security thereon, that no maximum amount for the security need be fixed, and that the story of the defendants about the husband double-crossing the wife or about the title-deeds and other documents being entrusted to the plaintiffs clerk P.W. 1 and their being not returned and the plaintiff exploiting them for putting forward an equitable mortgage was totally false. They gave a preliminary mortgage decree to the L.J. in 1904-1 Ch. 87 (ibid.) is instructive on them.
In para 8 of this ruling the requisites of the equitable mortgage by deposit of title-deeds are given as under: (v) Delivery must be of the documents of title to immovable property; and Hon'ble Madras High Court has further dealt with above requisites one by one to discuss them elaborately in the said ruling.
In the ruling Rangabati v. United Bank of India (supra) Hon'ble Palna High Court has observed (para 43) as under: In my opinion, the present is governed by the principles laid down by the Supreme Court in the case noticed before. Considered in the light of the principles laid down there, the proper construction of Exhibit 1(c) is that it is nothing but a memorandum merely recording particulars of the title-deeds deposited earlier with the plaintiff, and that it was merely a list of the documents already deposited and nothing more. It did not at all embody the terms of the agreement between the parties and, therefore, it did not require registration.
On the basis of above observations learned Counsel for the appellant has argued that the finding recorded by the learned D.R.T. is incorrect and against the evidence available on the record. His argument is that the requirement for creation of equitable mortgage is fulfilled in the instant case and the evidence led by the appellant Bank on this point remains unshaken and uncontroverted, therefore the finding recorded by the Tribunal is not at all justified. He has taken this Tribunal through Annexure-1 filed along with memo of this appeal which is copy of the plaint filed by the appellant Bank for recovery of its amount and has made special reference to the pleadings contained in para 8 of the said plaint mentioning about above assent dated 3rd January, 1990 by deposit of title-deeds of their property by the defendants. In the same context it has been pointed out that the relief (C) sought in the said plaint is on the basis of above materials brought before the D.R.T. from the side of the Bank. It is argued from the side of the Bank that Annexure-2 is the entry of the register of loan securities wherein entry of oral assent in respect of equitable mortgage of immovable properties of Mrs. Maya Devi and Mrs. Sandhya Devi (directors-guarantors) were recorded in detail mentioning therein for the deposit of title-deeds of their properties on this basis it is argued that this oral assent followed by deposit of title-deeds and amount sanctioned by Bank substantiates the intention of the directors-guarantors for the creation of equitable mortgage in respect of immovable properties. Papers Annexures-3 and 4 filed with memo of this appeal affidavits of T.V. Sebastian and I.M. Sarin, the Bank officers have also been pointed out to argue that in the affidavit of T.V. Sebastian there is special mention of all the documents which were executed by the defendants in respect of this loan in question and that he was the Chief Manager of the appellant Bank before whom these all documents were executed in respect of this loan as well as cash credit facility. It is also argued from the side of the Bank that the affidavit of I.M. Sarin another officer of the Bank supports the case of the Bank in respect of the creation of equitable mortgage with regard to this loan. Learned Counsel for the appellant Bank has also pointed out that above affidavits remain uncontroverted even then without any discussion of evidence learned D.R.T. has declined to accept the case of equitable mortgage. He further argued that the requirements for the creation of the equitable mortgage have been established from all above evidence filed by the Bank, therefore, the finding recorded by the learned D.R.T. declining to accept the case of the Bank for creation of equitable mortgage is totally against the evidence and deserves to be set aside.
7. Against above submissions, learned Counsel for the respondents has argued before this Tribunal that the intention of the guarantor while furnishing the documents of title-deed to create equitable mortgage is very important factor to be established by the Bank by leading substantial evidence to prove the same. He has taken this Tribunal through para 8 of the affidavit filed by respondent Vivek Gautam before this Tribunal to plead that the documents i.e. title-deeds with regard to the property situated at 28, Kanti Nagar, Gwalior were never depositee with the intention to create equitable mortgage and that the titles were demanded by the Bank with a view to determine the background of the defendant-respondents and on their insistence the defendants left these title-deeds with the Bank. He has also pointed out that in this very paragraph, the so-called assent dated 3rd January, 1990 of the defendant Nos. 3 and 4 to create equitable mortgage for the cash credit limit has also been denied and is not established by the Bank. According to the learned Counsel for the defendant-respondents in the affidavits Annexures-3 and 4 available along with memo of appeal the managers of the Bank have nowhere specifically mentioned anything for the expression proof of intention of the guarantors to create equitable mortgage by depositing the title-deeds. His further argument is that in the affidavit Annexure-4, maker of the affidavit I.M. Sarin as per his own para 1 of the affidavit, was not posted at the relevant time when the said mortgage was created. It is pointed out that the verification part of the affidavit is also incorrect because he has verified contents of this affidavit on the basis of his personal knowledge but when he was not posted, there is no question of his personal knowledge with regard to these facts. Drawing the attention of this Tribunal towards the Annexure-3 copy of affidavit of T.V. Sebastian it has been pointed that in para 11(m) there is a mention of memorandum of the title-deed dated 19th May, 1989 but no such memorandum was brought before the Tribunal to prove the same in accordance with the provisions of Evidence Act, 1872. His argument is that the affidavit of Sri T.V. Sebastian without disclosing the names of the officials or officers to whom the title-deeds were entrusted and to prove their signatures in his presence according to the Evidence Act and for the signatures which were said to have been made by the concerned Deputy Manager or Manager without calling upon them to file affidavits before D.R.T. is of no help to the Bank. His argument is that the learned Tribunal has taken correct view that the affidavits filed by the Bank are not at all sufficient to establish the creation of the equitable mortgage by depositing title-deeds and to prove intention for the creation of equitable mortgage in respect of immovable properties. Another argument from the side of the defendants is that when the Bank has failed to establish its case with regard to creation of equitable mortgage and intention of guarantor by depositing title-deeds the rulings cited from the side of the appellant before this Tribunal are of no help to the Bank. There is no such contention from the side of Bank that for the grant of loan by giving collateral security, if any something was done by defendants.
8. Let us examine the pleadings of the parties in connection with the controversy raised before this Tribunal. In para 7 of the plaint the following assertions have been made: That as further security towards the due repayment of the said term loan and the balance due in the said cash credit account from time to time with interest, costs, charges etc. defendant No. 1 agreed and undertook to create equitable mortgage in favour of the plaintiff on company's immovable properties situated at 60-61, Malanpur Industrial area, Malanpur. Distt. Bhind consisting of land, buildings, fixed machinery and plant and to deposit their title-deeds with the plaintiff. Although, the original title-deeds were handed over to the plaintiff with the intention to create security but defendant No. 1 failed to create equitable mortgage as undertaken by it and, therefore, the plaintiff is entitled to have the specific performance of the said undertaking of defendant No. 1 to create equitable mortgage in favour of the plaintiff on its immovable properties hereinabove mentioned.
In the written statement the reply of this para 7 of the plaint is as under: In the affidavit of Sri Vivek Kumar Gautam defendant-respondent the same admission has been made in para 7 of the affidavit. In the affidavit of Sri Vivek Kumar Gautam defendant-respondent nowhere clearly stated that he had been present when the documents were executed and title-deeds, etc. were handed over. He himself has not mentioned anything as the director-guarantor.
9. Having considered all above arguments, this Tribunal is of the view that in para 1 of his affidavit copy of which is Annexure-3, Mr. T.V.Sebastian has been able to establish by stating that at the relevant time when the financial assistance was provided to the respondents and the above documents relating to said facility were executed he was present being posted as officer in the branch of the appellant Bank.
The defendants have nowhere challenged his above assertion for his posting and presence at the relevant time. He has given all the required details in his affidavit for the execution of documents, production of title-deeds, entries of the register of loan securities i.e. oral assents of Mrs. Maya Devi and Mrs. Sandhya Devi. In para 11 of his affidavit Mr. T.V. Sebastian has specifically mentioned about the documents which were submitted as well as executed by the defendants. Subsequently, in this very affidavit he has mentioned that these documents were submitted and executed by the defendants in his presence in the aforesaid branch. The argument for the non-production of item No. (m) memorandum of deposit of title-deed dated 19th May, 1989 Exhibit A-14 copy of which is although said to be filed but it is shown to be register of loan security filed as Exhibit A-14 before the D.R.T. by the Bank. All these go to show that the Bank has been able to establish its case with regard to creation of equitable mortgage by deposit of title-deeds and intention to create equitable mortgage in respect of loan in question. In the opinion of this Tribunal the learned D.R.T. while observing in a slip shod manner in para 13 of the impugned judgment wrongly observed that despite no specific denial from the side of the defendant from taking of loan and availing all facilities as well as execution of the documents, there was no need to discuss the affidavits and documents filed by the Bank in detail. This Tribunal is of the view that the affidavit Annexure-4 as argued from the side of the respondents is of no help to Bank as Mr. Sarin had not been posted and present at the relevant time. The other evidence in the form of entries of loan register of securities, deposit of title-deeds, affidavit of T.V. Sebastian and other documents are sufficient to inspire confidence of the Tribunal to conclude that deposit of title-deeds and entries of register of loan securities, all done in presence of T.V. Sebastian go to prove intention to create equitable mortgage. The plea of respondents that title-deeds were made to enable the Bank to assess the status of defendants cannot be given weight as directors-guarantors have not dared to come forward to file any affidavit in support of above plea.
10. In view of the above pleadings as well as evidence there remains absolutely nothing for the present respondents to argue that they had never created any equitable mortgage by depositing title-deeds and that they had never shown their intention for the same. There is no denial of the fact that admission is the best proof of a fact, therefore, in view of this admission on the side of the defendants it appears that the learned D.R.T. did not consider this aspect of the case in correct perspective.
11. I Keeping in view all above discussions, this Tribunal is of the opinion that the learned D.R.T. has committed error in declining to accept the plea of the appellant Bank for equitable mortgage because the deposit of title-deeds and the advancement of amount in pursuant to above intention and deposit of title-deeds unequivocally stands established all the necessary requirements of equitable mortgage.
12. Also the two ladies did not turn up before D.R.T. to controvert the affidavit of the Bank official T.V. Sebastian. In the circumstances of this case that affidavit of the Bank is worth placing reliance.
13. In the opinion of this Tribunal whatever has been written in the impugned judgment is not at all sufficient ground to derive the conclusion as mentioned in the para 21 of the impugned judgment holding that the Bank has failed to prove the intention and creation of equitable mortgage. In respect of this in the opinion of this Tribunal in the circumstances of this case the intention as well as the deposit of the title-deeds on the basis of above discussed evidence go to prove that the finding recorded by the D.R.T. is not justified, therefore, this finding deserves to be set aside.
11. The result of above discussions is that the present appeal has a lot of force and the impugned order is liable to be amended with observations that the Bank, has been able to establish the creation of equitable mortgage in respect of this loan in question.
The appeal is decided with observations and modification in the impugned judgment that the recovery certificate for Rs. 41,56,412.09 along with such interest and costs as decreed by D.R.T. shall be taken to be decreed with authority of appellant Bank to proceed in respect of mortgaged properties also. No order for costs are being passed.