1964 (2) TMI 93 - SC - Indian Laws

Summary

Issues Involved:

1. Validity of mortgage by deposit of title deeds.
2. Priority of security interests.
3. Constructive delivery of title deeds.
4. Intention to create mortgage.
5. Effect of registered memorandum on the mortgage.

Detailed Analysis:

1. Validity of Mortgage by Deposit of Title Deeds:

The primary issue was whether a mortgage by deposit of title deeds was created on May 10, 1947. The plaintiff claimed that the first defendant deposited title deeds to secure loans advanced by the plaintiff. The Subordinate Judge and the High Court found no such mortgage was created on May 10, 1947. However, the Supreme Court noted the significance of Ex. A-19, a registered agreement dated July 5, 1947, which acknowledged the deposit of title deeds as security. The Court emphasized that the essential requisites for such a mortgage are debt, deposit of title deeds, and intent to create security. The Court concluded that the documentary evidence, particularly Ex. A-19, supported the existence of the mortgage.

2. Priority of Security Interests:

The third defendant contended that he had priority over the plaintiff's security due to a security bond executed in his favor on October 10, 1947. The Supreme Court held that under Indian law, a mortgage by deposit of title deeds takes effect against any subsequently executed and registered mortgage deed. Since Ex. A-19 was registered on June 22, 1948, but took effect from July 5, 1947, the plaintiff's mortgage had priority over the third defendant's subsequent mortgage.

3. Constructive Delivery of Title Deeds:

The Court addressed whether the delivery of title deeds to the plaintiff's representative at Kumbakonam constituted a valid mortgage by deposit of title deeds. The Court held that physical delivery is not the only mode of deposit; constructive delivery is sufficient. The Court found that on May 10, 1947, the plaintiff ceased to hold the title deeds as the agent of the first defendant and held them as a mortgagee. The Court recognized that the law permits constructive delivery when the parties agree to treat the documents in the possession of the creditor or his agent as delivery for the purpose of the transaction.

4. Intention to Create Mortgage:

The Court analyzed whether there was an intention to create a mortgage on May 10, 1947. The plaintiff's evidence and Ex. A-19 indicated that the first defendant intended to create a mortgage by deposit of title deeds. The Court found that the oral and documentary evidence supported the existence of such an intention. The Court also noted that the intention to create a mortgage by deposit of title deeds can coexist with an intention to execute a formal mortgage deed in the future.

5. Effect of Registered Memorandum on the Mortgage:

The Court considered whether Ex. A-19, executed on July 5, 1947, could create a mortgage by deposit of title deeds if no such mortgage was created on May 10, 1947. The Court held that even if the mortgage was not created on May 10, 1947, Ex. A-19 could effectuate the mortgage from July 5, 1947. The document acknowledged the deposit of title deeds and expressed the intention to create a mortgage, satisfying the legal requirements for such a transaction.

Conclusion:

The Supreme Court concluded that a mortgage by deposit of title deeds was validly created either on May 10, 1947, or on July 5, 1947. The plaintiff was entitled to a preliminary decree for the recovery of the sum claimed, with interest, and the 'C' schedule properties were to be sold if the amount was not paid within three months. The decree of the Subordinate Judge and the High Court were set aside, and the plaintiff was awarded costs throughout. The appeal was allowed.