2018 (4) TMI 1543 - HC - Customs

Recovery of dues - first charge on property - Sale of property - whether the right of the petitioner would be protected only if the mortgage was registered as has been held in the impugned order? Held that - The equitable mortgage in the instant case is created in favour of the petitioner-Bank on 2-7-1997 by depositing the original documents relating to the property owned by them. In that regard respondent No. 4 has written a letter to the Bank on 6-6-1998 confirming the deposit of title deeds with an intention to create mortgage by way of deposit of title deeds. If that be the position, it is clear that in the instant case there is no deed executed between the parties which required a registration as contemplated under Section 17 of the Registration Act, but actual delivery of the original title deeds relating to the property is completed and the letter was addressed to the Bank. Insofar as the recovery as contemplated under the Central Excise Act or the Customs Act, there is no such provision to provide for precedence as has already been filed by this Court. If that be the position the Order-in-Original and the order passed in an appeal as at Annexures J and K in the present context would not be sustainable. Petition disposed off.

Issues:
1. Validity of mortgage claimed by petitioner-Bank.
2. Precedence of respondent's claim over petitioner's claim.
3. Registration requirement for mortgage validity.
4. Interpretation of relevant legal provisions.
5. Priority of government debts over other claims.

Issue 1: Validity of Mortgage Claimed by Petitioner-Bank:
The petitioner-Bank advanced a loan to a party who deposited title deeds for equitable mortgage. The Recovery Certificate was issued by the Debt Recovery Tribunal, initiating recovery proceedings. However, the respondent authorities sought to sell the same property for recovery. The High Court initially directed consideration of the matter. The respondent No. 1 later held the mortgage as claimed by the petitioner-Bank to be null and void due to lack of a registered mortgage deed. The petitioner challenged this decision, arguing that the deposit of title deeds was sufficient to create a valid mortgage.

Issue 2: Precedence of Respondent's Claim Over Petitioner's Claim:
The core issue was whether the respondent's claim had precedence over the petitioner's claim as a mortgagee. The respondent authorities contended that without a registered mortgage deed, the petitioner could not claim to be a secured creditor. They argued for precedence as a crown debt. The petitioner, on the other hand, relied on the intention to create a mortgage by depositing title deeds, asserting their rights as a mortgagee over the property in question.

Issue 3: Registration Requirement for Mortgage Validity:
The Court examined the requirement of registration for mortgage validity. The respondent No. 1 based its decision on Sections 58(f) and 59 of the Transfer of Property Act, 1882, stating that without registration, the petitioner could not claim to be a secured creditor. The petitioner cited a Supreme Court decision emphasizing that the deposit of title deeds sufficed to create a charge over the property, even without a registered mortgage deed.

Issue 4: Interpretation of Relevant Legal Provisions:
The judgment delved into the interpretation of legal provisions, including the Transfer of Property Act, 1882, and the Registration Act, 1908. The Court analyzed past decisions to determine the validity of the mortgage claimed by the petitioner-Bank and the rights of the parties involved. It compared various legal provisions to ascertain the rights and obligations of the petitioner and the respondents.

Issue 5: Priority of Government Debts Over Other Claims:
The Court addressed the precedence of government debts over other claims, referencing a Supreme Court decision regarding the Doctrine of Priority. It highlighted that specific provisions in certain acts give precedence to government debts over other claims, but such provisions were absent in the context of the Central Excise Act or the Customs Act. Consequently, the orders passed by the respondent authorities were deemed unsustainable, and the petitioner's rights as a mortgagee were upheld.

The judgment ultimately quashed the orders passed by the respondent authorities, affirming the petitioner's rights as a mortgagee over the property in question. It clarified that any excess amount from the property sale should be deposited with the respondent No. 1. The respondents were granted liberty to identify other properties for recovery. The petition was disposed of accordingly, providing a detailed analysis of the legal issues involved and the rights of the parties concerned.

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