9911796707
TMI Blog1993 (7) TMI 302X X X X Extracts X X X X X X X X Extracts X X X X ..... ereinafter also referred to as "the bank") claims to be a secured creditor of the company. According to the applicant, a sum of Rs. 98 lakhs was advanced by the bank to the company and in that behalf the company had executed an on-demand promissory note, an agreement for term loan and other documents on September 30, 1986, copies of which are produced as exhibits B to I to the application ; and premises bearing No. 48, Church Street, Bangalore, belonging to the company were equitably mortgaged in favour of the applicant bank confirmed by memorandum dated September 30, 1986 (annexure G); and a power of attorney was executed by the company on September 30, 1986, irrevocably authorising the applicant to demand and receive from the State Bank of India or any other person' in possession of the portion of premises No. 48, Church Street, Bangalore, measuring 45,460 square feet described in the schedule to the said power of attorney ; and in view of the said documents, the applicant claims that there is an equitable assignment of the rents in favour of the bank and, therefore, the bank is entitled to receive the monthly rent of Rs. 1,36,380 for the said portion from the State Bank of India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds to the creditor, will create a valid equitable charge upon such fund, in other words, will operate as an equitable assignment of the debts or fund to which the order refers." Thus the several documents executed by the company in favour of the bank will have to be examined to find out whether there is any basis for the bank's contention that there is an equitable assignment of the rents payable by the State Bank of India in its favour and that the bank is entitled to receive the rents, to the exclusion of others, till its amounts are recovered. It is admitted by the applicant that property No. 48, Church Street, Bangalore, is secured in favour of the bank by way of equitable mortgage (mortgage by deposit of title deeds) and not by way of usufructuary mortgage or mortgage with possession. Possession of the mortgaged property is not delivered to the bank in lieu of interest or otherwise, by way of an usufructuary mortgage or mortgage with possession. By virtue of such mortgage, the bank is only entitled to such rights which a simple mortgagee will have in regard to the mortgaged property (vide section 96 of the Transfer of Property Act). That is the mortgagee is not entitled t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he property referred to above and more fully described in the schedule below and we have been collecting the said rent from our tenants, namely, State Bank of India, as per the lease deed dated the 13th day of June, 1983. Now (by) this irrevocable power of attorney we do hereby nominate, constitute and appoint Corporation Bank, Malleswaram branch, to do the following acts on our behalf, viz. , ( i )To ask or demand and receive from the State Bank of India or any other persons to be in possession of the building more fully described in the schedule below, the respective rent of Rs. 1,36,380 only from time to time ; ( ii )To collect, receive and realise all such rents or arrears of rent due and payable by the State Bank of India, thereafter fully or partially lump sum or by instalments or otherwise and to give and execute all necessary receipts and discharges for the same with power to accept security and grant time for payment ; ( iii )To institute suits or other legal proceedings authorised by law for recovery of all or any of such arrears of rent payable by the lessee and to sign any complaint, petition or other pleadings, vakalatnama, warrant of attorney, to execute any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whereas we, for the purpose of carrying out the terms of the said agreement more effectively and to secure the interest of the attorneys are desirous of appointing the Bharat Bank Ltd., as our lawful attorneys in all matters relating to the receipt of all payments under the contracts made or to be made hereafter." and the power of attorney empowered Bharat Bank Ltd. (at page 116) : "to present and submit supply bills regarding our contracts to the proper officers and/or authority of the Government departments concerned ; to obtain cheques for sums payable to us under the contracts directly in their own name or in our names in payment of such bills or other amounts and to cash and to receive the amount thereof and appropriate such receipts towards and in repayment of the advances made or to be made hereafter and all other monies due from us to the attorneys in any account whatsoever." The Supreme Court held that the question whether a document amounts to an equitable assignment or not, was primarily one of construction. The court, after-referring to the terms of the power of attorney, observed as follows (at page 117) : "In construing the power of attorney it is necessary to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decree) objected to such execution. In that context, the Supreme Court examined whether the power of attorney executed in favour of the said bank constituted an equitable assignment of the amount due under the decree or so much of that amount as was necessary for discharging the debt due to it. The relevant portion of the power of attorney executed by the bank's debtor in favour of the bank read as follows (at page 761) : "And whereas I am very heavily indebted to the Bank of Jaipur Limited, Agra branch, and my liability is partly secured by the pledge of my goods and partly by the equitable mortgage of my and my mother's immovable properties with the said bank ; and whereas major part of my said liability is unsecured ; and whereas I have agreed to appoint the Bank of Jaipur Ltd. to be my true and lawful attorney to execute the said decree in Suit No. 76 of 1949, which may ultimately be passed in my said appeal and to do the following acts, deeds, matters and things for me, on my behalf and in my name and to credit to my account the sum or sums which may be realised in execution of or under the said decree." The Supreme Court on examination, of the tenor and terms of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attorney, towards the amount due by the company to the bank ; ( c )It did not refer to any arrangement between the bank and the company under which, the company had agreed for the amounts realised to be appropriated towards the loan. In short, the several ingredients which persuaded the Supreme Court to hold that the power of attorney created an equitable assignment in Bharat Nidhi Ltd. v. Takhatmal [1969] 39 Comp. Cas. 114 ; AIR 1969 SC 313, and Seth Loon Koran Sethiya v. Ivan E. John [1968] 38 Comp. Cas. 760 ; AIR 1969 SC 73, are absent in the power of attorney that is executed by the company in favour of the bank. The power of attorney merely authorises the bank to demand and receive the rent from State Bank of India and do acts connected with such collection of rent on behalf of the company. There is no reference to any agreement or obligation undertaken by the company to the bank for repayment of the debt or authorisation to the bank as agent to adjust and appropriate the rents towards the amounts due by the company. The power of attorney dated September 30, 1986, is a power of attorney simpliciter executed by a principal in favour of an agent authorising them to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity given to an agent is irrevocable. The relevant portion reads thus : "(1) Where the authority of an agent is given by deed, or for valuable consideration, for the purpose of effectuating any security, or of protecting or securing any interest of the agent, it is irrevocable during the subsistence of such security or interest. But it is not irrevocable merely because the agent has an interest in the exercise of it, or has a special property in, or lien for advances upon, the subject-matter of it, the authority not being given expressly for the purpose of securing such interest or advances. (2) Where a power of attorney, whenever created, is expressed to be irrevocable and is given to secure a proprietary interest of the donee of the power, or the performance of an obligation owed to the donee, then, so long as the donee has that interest, or the obligation remains undischarged, the power if irrevocable." "The mere fact that a power is declared in the instrument granting it to be irrevocable does not make it so ; irrevocability requires something further to be irrevocable, the authority must be conferred as protection of the agent's interest". Sri Udaya Holla, next conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble assignment in regard to rents can be created otherwise than through a registered instrument. But if none of the documents executed by the company in favour of the bank refers to any such arrangement for recovery of loan advanced by them, then the position is different. Merely because the loan is advanced by the bank and a power of attorney is executed by the debtor in favour of the creditor (bank) to receive the rent, the two acts, without anything more, cannot be read together to draw an inference that there was an equitable assignment in regard to the rents. To illustrate, assume a case where a person creates an equitable mortgage in regard to a property ; and on the same day, he also executes a power of attorney in favour of the mortgagee authorising him to manage the property and receive the rents from the property ; the two acts cannot be read together to convert the equitable mortgage into an usufructuary mortgage. Such an interpretation or reading, if done, will violate the provisions of the Transfer of Property Act, Stamp and Registration Laws. It is well-settled that an instrument which creates a right or interest in the rents, profits, benefits and income from an im ..... X X X X Extracts X X X X X X X X Extracts X X X X
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