2013 (10) TMI 722 - SC - Companies Law

Registration fee and stamp on mortgage - Whether charge of mortgage can be entered in the revenue record in respect of a mortgage effected by deposit of title-deeds without its registration and payment of registration fee and stamp duty - Held that - it may be effected in specified town by the debtor delivering to his creditor documents of title to immoveable property with the intent to create a security thereon. No instrument is required to be drawn for this purpose. However, the parties may choose to have a memorandum prepared only showing deposit of the title-deeds. In such a case also registration is not required. But in a case in which the memorandum recorded in writing creates right, liability or extinguishes those, same requires registration - letter of the Finance Commissioner would apply in cases where the instrument of deposit of title-deeds incorporates terms and conditions in addition to what flow from the mortgage by deposit of title-deeds. But in that case there has to be an instrument which is an integral part of the transaction regarding the mortgage by deposit of title-deeds. A document merely recording a transaction which is already concluded and which does not create any rights and liabilities does not require registration. Nothing has been brought on record to show existence of any instrument which has created or extinguished any right or liability. Original deeds have just been deposited with the bank. In the face of it, we are of opinion that the charge of mortgage can be entered into revenue record in respect of mortgage by deposit of titledeeds and for that, instrument of mortgage is not necessary. Mortgage by deposit of title-deeds further does not require registration. Hence, the question of payment of registration fee and stamp duty does not arise. By way of abundant caution and at the cost of repetition we may, however, observe that when the borrower and the creditor choose to reduce the contract in writing and if such a document is the sole evidence of terms between them, the document shall form integral part of the transaction and same shall require registration under Section 17 of the Registration Act - Decided against petitioner.

Issues Involved:
1. Whether the mortgage by deposit of title-deeds requires registration under Section 17(1)(c) of the Registration Act, 1908.
2. Whether the charge of mortgage can be entered into the revenue record without registration and payment of registration fee and stamp duty.
3. Applicability of Section 58(f) of the Transfer of Property Act regarding specified towns.
4. Remittance of the matter back to the High Court for fresh consideration.

Detailed Analysis:

Issue 1: Registration Requirement for Mortgage by Deposit of Title-Deeds
The primary issue was whether the mortgage by deposit of title-deeds requires registration under Section 17(1)(c) of the Registration Act, 1908. The respondents argued that the instrument of deposit of title-deeds is compulsorily registrable, necessitating the payment of registration fees and stamp duty. However, the High Court and the Supreme Court negated this view, stating that an equitable mortgage is created by the mere deposit of title-deeds without the need for a written instrument. The Supreme Court emphasized that the essence of such a mortgage is the actual handing over of the title-deeds with the intent to create security. A memorandum recording the deposit does not constitute an instrument of mortgage and does not require registration unless it incorporates additional terms and conditions.

Issue 2: Entry of Charge in Revenue Records Without Registration
The Supreme Court examined whether the charge of mortgage can be entered into the revenue record without registration and payment of registration fee and stamp duty. The Court reiterated that no instrument is required to be drawn for creating a mortgage by deposit of title-deeds. The charge of mortgage can be entered into the revenue record based on the deposit of title-deeds alone, without necessitating registration or the payment of associated fees. The Court cited previous judgments, including Rachpal v. Bhagwandas and United Bank of India v. M/s. Lekharam Sonaram & Co., to support this view, clarifying that a document merely evidencing the transaction does not require registration.

Issue 3: Applicability of Section 58(f) of the Transfer of Property Act
The Court also addressed the applicability of Section 58(f) of the Transfer of Property Act, which allows mortgage by deposit of title-deeds in specified towns. The petitioners contended that the properties were not situated in towns notified under Section 58(f). The Supreme Court noted that the High Court had not considered this aspect and highlighted the importance of verifying whether the properties in question were in notified towns as per the relevant notification by the Government of Punjab.

Issue 4: Remittance for Fresh Consideration
Given the oversight regarding the specified towns under Section 58(f), the Supreme Court set aside the impugned judgment of the High Court and remitted the matter back for fresh consideration. The High Court was directed to re-evaluate the case in light of the observations made by the Supreme Court, particularly focusing on the location of the properties and their compliance with the notification under Section 58(f).

Conclusion:
The Supreme Court upheld the High Court's decision that an equitable mortgage by deposit of title-deeds does not require registration or the payment of registration fees and stamp duty. However, it remitted the matter back to the High Court to consider whether the properties were situated in towns specified under Section 58(f) of the Transfer of Property Act. The appeal was dismissed without costs, but the second appeal was allowed, and the High Court's judgment was set aside for fresh consideration.

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