Holding

The Court held that there is no clear authority on the validity of a mortgage created by deposit of documents that are not a registered title deed and therefore referred the questions to a larger bench for an authoritative decision.

Summary

Syndicate Bank advanced a loan to United Auto Tractor Ltd. secured by a mortgage on 51 acres of land allotted by the Andhra Pradesh Government, relying on an allotment letter and a consent letter from the Director of Industries. The land was later partially cancelled and the allotment rescinded by AP ILC, and the bank sought enforcement of its charge through a recovery certificate and auction. The High Court held that the consent letter was not a document of title, the mortgage was invalid, and the auction was ultra vires, also noting the bank’s failure to obtain prior government consent for advances exceeding 60% of the land’s value. The Supreme Court examined whether a mortgage can be created under Section 58 of the Transfer of Property Act without a registered sale deed or complete title, and whether all title documents must be deposited, and found no clear authority, referring the matter to a larger bench for an authoritative pronouncement.

Issues considered

Whether a mortgage by deposit of title deeds under Section 58(f) of the Transfer of Property Act can be created when the documents deposited (allotment letter, consent letter) do not constitute a complete or registered title deed.
Whether the deposit of all documents of title is required to satisfy Section 58 and whether registration of a sale deed is a prerequisite for a valid mortgage.
Whether the bank’s advance exceeding 60% of the land’s value required prior government consent under clause 8(b) of the agreement and whether such consent was obtained.
Whether the recovery certificate and subsequent auction of the land were ultra vires in the absence of a valid charge.
Whether the cancellation of the land allotment by AP ILC is final and bars the bank’s claim.

Legislation cited

Companies Act, 1956s. 125
Income Tax Act, 1922s. 128, s. 12B
Recovery of Debts Due to Banks and Financial Institutions Act, 1993s. 19(20), s. 19(22), s. 25
Transfer of Property Act, 1882s. 54, s. 58

Subjects

mortgage by deposit of title deedsTransfer of Property Actregistered title deedgovernment consent for loanloan exceeding 60% valuerecovery certificatepublic auctioncancellation of land allotmentlarger bench referralequitable mortgage

Judgment

SYNOICATE BANK A
v.
ESTATE OFFICER & MANAGER, A.P.1.1.C. LTD. & ORS.

AUGUST 30, 2007

(S.B.SINHAANDMARKANDEYKATJU,JJ.J B

Transfer of Property Act, 1882:

ss. 54 and 58-Mortgage of land by allottee-Necessity of showing
complete/good title and depositing ofall the documents of titl(!-land allotted C
to a Company for setting up an industrial unit-Allotment letter issued to
Company-50% of the total cost deposited by company-Agreement be"'!'een
the Industrial Corporation and the Company stipulating that on full payment
oj entire consideration amount, sale deed would be executed and registered
in the name of company-Company permitted to mortgage the land to any D
scheduled bank to obtain financial assistance to the project-Company
obtaining loan by mortgaging land with the bank on the basis of allotment
letter and the said permission-Validity of mortgage-HELD: There is no
clear authority on the question as to whether in absence of any title deed,
the property can be a subject matter of mortgage-Besides, the effect of an
admission by an authorized representative of the State having regard to the E
rules of executive business or otherwise vis-a-vis the appellant-Bank also
requires consideration-Keeping in view the importance of the issues, the
questions: whether for satisfying the requirement of s.58(j) of the Act, it was
necessary to deposit documents showing complete title or good title and
whether all the documents of title to the property were required to be F
deposited; and whether in all such cases, the property should have been
acquired by reason of a registered document, require consideration by a
larger bench so that an authoritative pronouncement can be made thereupon.

Bank of India v. Abhay D. Narottam and Ors., (20051 11 SCC 520;
Alapati Venkataramiah v. Commissioner ofIncome Tax, Hyderabad, (196513 G
SCR 567; KJ. Nathan v. S. V. Maruty Reddy and Ors., (19641 6 SCR 727;
1 -4.. Angu Pillai and Ors. v. MS.M Kasiviswanathan Chettiar and Ors., AIR (1974)
Mad. 16; MM T. C. Ltd v. S. Mohamed Gani and Anr. AIR 2002 Mad. 378 and
Amulya Gopal Majumdar v. United Industrial Bank Ltd. and Ors., AIR (1981)

619 H
620 SUPREME COURT REPORTS [2007] 9 S.C.R.

A Cal. 404, referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 7824-7828 of
2004.

From the final Judgment and Order dated 6.8.2003 of the High Court of
B Andhra Pradesh in Writ Petition Nos. 14174, 24502, 36133 and 24060 of 1998
and 17443 ofl999.

WITH

C.A. Nos. 7833-7837 of2004.
c Adarsh B. Dial, Sum~ti Anand and Rajiv Nanda for the Appellant.

Vahanavati, Solicitor General, A.K. Ganguli, K. Ramamurthy, H.S. Gururaja,
Devdath Karnath, T. Anamika, Guntur Prabhakar, S. Madhusudhan Basu,
Mukesh K. Giri, Manoj Saxena, Rajnish Kumar Singh, Rahul Shukla, T. V.
D George, Jayant Muthuraj (for C.K. Sasi), Manik Karanjawala and Anil Kumar
Tandale for the· Respondents.

The Order of the Court was delivered by

ORDER
E
On or about 19.03.1969, United Auto Tractor Ltd'. (for short, 'the
Company') filed an application before the St~te.Government for allotment of
l 00 acres of land in the industrial area for setting up an industrial unit for the
purpose of manufacture of agricultural tractors and implements. The
Government of Andhra Pradesh pursuant to or in furtherance thereof made
F allotment of 5 I acres of land in the Industrial Development Area, Nacharam,
Andhra Pradesh to the Company for the aforementioned purpose in tenns of
an order dated 18.07.1972. On 03.0.8.1972, an agreement was·entered into by
and between the Government ?f Andhra Pradesh and the Company in relation
thereto; some of the tenns and conditions whereof are as under :

G "6. Only on the. completion and full payment of the er.tire
consideration amount, the sale deed shall be executed apd
registered in the name of the Company.

8(a) Without prejudice to the rights of the State Bank of India or any
H
SYNDICATEBANKv.ESTATEOFFICER&MANAGER,A.P.l.l.C.LTD.621

other financing agency approved by the Government as first A
mortgagees, Government have a second charge on the land,
buildings, plant and machinery which shall be converted into a
first charge when the obligation of the financing agencies are
liquidated.
8(b) If the Financing Institutions were to advance more than 60% of B
the value of the land, building, machinery and structure, prior
agreement of the Government will be required.
JOO( JOO( JOO(

13. The company shall bear, pay and discharge all existing and further
amounts, duti~s, imposing and out-going of whatsoever rates, c
taxes imposed or charged upon the premises or upon the occupier
in respect thereof from the date of taking possession.
*** *** ***
(s) Till such time as the ownership of the property is
D
transferred to the Company in the manner mentioned above the
property shall continue to remain the property of the Government.
16. The Government shall have right to resume the land, if the
Company do not use the land for the purpose for which it was
allotted within the period specified above, the period to be
reckoned from the date of which the company was placed in
E
possession of the land.
17. In case the Company shall become bankrupt or proceedings of
y. insolvency or for winding up are filed by or against the Company
the sale shall forthwith stand determined and the Government
shall be entitled to re-enter the premises or any part thereof in
F
the name of the whole, without prejudice to the rights of the
Government to seek any available remedy against the company
for recovery of the loss.
JOO( xxx xxx
G
21. All payments due to the Government under this agreement shall
carry interest at 8 1/2%. All payments made/instalments paid after
the due dates carry penal interest at 12% per annum."
In terms of clause 2 of the said agreement the Company indisputably
had made initial payment of 50% of the total cost of the allotted land. H
622 SUPREME COURT REPORTS [2007] 9 S.C.R.

A On the said date, the Government of Andhra Pradesh .also issued a
letter to the Company, permitting it to mortgage the said 51 acres of land to
any scheduled bank to obtain financial assistance to the project, which the
Company sought to establish, stating :

"In the circumstances stated in your letter second cited, you are
B hereby permitted to mortgage the 51 acres of land allotted in the
Ncharam Industrial Development area to any Scheduled Bank to obtain
financial assistance to your project.

The agreement executed by you is returned herewith duly signed."

C Relying on or on the basis of the said purported sanction, the Company
mortgaged the said lana in favour of Appellant Bank, pursuant whereto arid
in furtherance whereof moneys were advanced to it.on the said security from
time to time. Indisputably, the Government of Andhra Pradesh transferred all
the industrial estates and development areas to Mis Andhra Pradesh Industrial
Infrastructure Ltd. (for short, 'AP.I.LC') with effect from 01.01.1974. Accounts
D Officer of AP.I.LC. informed the Director of Industries that amount of incentive
to the extent of Rs.78,860/- sanctioned to the borrower had been adjusted
against a sum of Rs.91,840/- against the balance cost of the land sold to
borrower on outright sale basis.

E The allotted land allegedly was being utilised by the borrower for the
purpose for which the same was allotted. It is stated that the borrower paid
tf1e entire cost of the land to the Government on or about 31.07.1980 being
a sum of Rs. 2,03,304/-, which was acknowledged by A.P.I.I.C. After, a long
time, however, A.P.I.l.C. purported to have cancelled 81e allotment of25 acres
out of 51 acres of land allotted to the Company. The balance 26 acres of land
F was designated as Plot No.A-27/1, which is the disputed property in this case.

Appellant-Bank filed O.A. No. 425of1995 against the Company and the
guarantor for recovery of a sum of Rs.2,57, I 0,393/- before the Debt Recovery
Tribunal, Bangalore. In the said application, the Bank intended to enforce its
charge on the property which had been created.
G
The said application was allowed by an order dated 18. l 0.1996, whereafter
a recovery certificate was issued on 01.07.1997. >

A notice for sale of the entire 51 acres of land by public auction was
proposed to be held by the Recovery Officer on 08.03.1998. An objection
H thereto was made by A.P.I.l.C. on or about 21.03.1998, stating that it had no
SYNDICATE BANK v. ESTATEOFFICER&MANAGER,A.P.1.1.C. LTD.623

objection for sale of 26 acres of land. A writ petition was thereafter filed A
before the High Court questioning the validity of the said proposed auction
before the Andhra Pradesh High Court by A.P.1.1.C., inter alia, praying for
the following reliefs :

"(g) Sale of 26-00 acres of land which is allowed to be retained
by the 3rd Respondent company would secure more than the decreetal B
amount passed in O.A. No. 425 of I 996 and therefore, inclusion of
25-00 acres of land i.e., plot no. A-27/2 belonging to the Ilnd Petitioner
Corporation in the proposed sale by the I st Respondent herein by
way of public auction is unwarranted, arbitrary, and opposed to the
principles of Natural Justice." C
During pendency of the said writ petition, A.P.1.1.C. resumed possession
of 25 acres of land and decided to hold auction in respect thereof only, which
was questioned by the appellant-Bank by filing a writ petition before the
Andhra Pradesh High Court, which was marked as W.P. No. 24060 of 1998.
By an order dated 12.08.1998, the claim petition filed by A.P.1.1.C. before the D
Debt Recovery Tribunal was dismissed. A.P.1.1.C. being aggrieved by and
dissatisfied therewith filed a writ petition before the Andhra Pradesh High
Court on or about 01.09.1998.

A sale proclamation for the entire 51 acres of land proposing to sell the
said land by public auction was issued by the Recovery Officer on or about E
10. 12. 1998. Yet again a writ petition was filed by A.P.1.1.C. and the operation
of the said for holding auction was stayed.

On or about 24.08.1998, one Nacharam Industries Association also filed
a writ petition questioning the auction in respect of 25 acres of land. The
Company also filed a writ petition, which was marked as Writ Petition No. F
25056 of 1998 questioning the auction-cum-sale notice dated 06.08.1998 held
by APIIC. No stay, however, was granted therein. During pendency of the
aforementioned writ petition, APIIC issued a show cause notice dated
18. I 2.1998 upon the Company directing it to show cause as to why the
allotment of balance 26 acres of land should not be cancelled on the following G
grounds that : (a) it had failed to set up an industry much less the proposed
industry for which the land was allotted, except constructing some structures
on Plot No.A.27/1; and (b) the Company had failed to pay the balance cost
of the land, property tax and maintenance charges etc. amounting to a sum
ofRs.27,19,366/-.
H
\

624 SUPREME COURT REPORTS [2007) 9 S.C.R.

A No cause, however, was shown by the Company. It had merely been
asking for time for submitting the explanation. On or about 14.07.1999, allotment
in favour of the Company in-respect of the balance 26 acres of land was also
cancelled, the agreement dated' 03.08.1972 was determined and the amount
already paid by the Company was forfeited. The Company was directed to
B surrender the vacant possession of the land.

As noticed hereinbefore, the grounds of cancellation of allotment inter
alia were : (i) the outstanding amount as payable in accordance with the
terms and conditions of the agreement had not been paid; and (ii) the land
was not utilised for the purposes for which it was allotted.
c Appellant filed a writ petition questioning the said order dated 14.07.1999
before the Andhra Pradesh High Court, which was marked as Writ Petition
No. 17443 if 1999.

A Division Bench of the High Court took up for considerations all the
D writ petitions as well ,as contempt proceeding initiated for the alleged violation
and disobedience of the order dated 22.05.1998 passed in W.P. No. 14174 of
1998 being C.C. No. 2065 of 1998.

The High Court by reason of the impugned judgment, inter alia, held :

E (i) The Company having obtained the allotment of land failed to
utilise the same for industrial purposes.
(ii) The Company had taken APIIC as well as the.Syndicate Bank for
a ride. "t
F (iii) .The Syndicate Bank did not initiate any coercive steps against
the Managing Director and Directors for realisation of the
amounts.
(iv) The most singular and remarkable feature was the non performance
of the Company and its abstentious silence.
G (v) This, however, was not to certify that the Syndicate Bank acted
diligently in the matter and in advancing huge financial assistance
to the Company on the strength of a letter of no objection
purported to have been issued by the Director of Industries.
What was surprising was that Syndicate Bank equated that letter
to that of a title deed and accordingly advanced monies without
H
I

-f---
SYNDICATEBANKv.ESTATEOFFICER&MANAGER,A.P.l.I.C.LTD.625

taking proper care and caution. A
(vi) APIIC by its proceedings dated 17.08.1993 cancelled the allotment
of land to an extent of 25 acres of land. The said order remained
unquestioned.
(vii) The Estate Officer under the Public Premises Act could not have B
filed an affidavit for and on behalf of APIIC stating that the sale
of 26 acres of land could be permitted.

(viii) A reading of all the covenants clearly reveals that the Government
merely granted permission by putting the Company in possession
of the land. The ownership always remained with the Government
until the recovery. No sale deed was executed by the Government C
in favour of the Company.
(ix) Admittedly, no such sale deed was executed by the Government
in favour of the Company.

In regard to the interpretation of clause 8 of the agreement, the High D
Court while opining that there was absolutely no dispute whatsoever that the
Appellant-Bank advanced more than 60% of the value of the land, building,
machinery and structures in favour of the Company posed a question which,
according to it, fell for its consideration, namely, as to whether th~ Company
as well the Syndicate Bank obtained prior consent of the government in the
matter as was required under clause 8(b) of the agreement. The High Court E
having opined that no prior consent of the Government was taken by the
Appellant-Bank before advancing more than 60% of the value of the land
came to the conclusion that the letter dated 03.08.1972 of the Director of
Industries could not be treated as a document of title enabling the Company
to create a charge against the properties belonging to APIIC. It was held that F
there was nothing on record to show that the said letter had been issued by
the Director of Industries with the prior approval of the government. It was
observed :

" ... There is nothing on record suggesting that the so-called no
objection of the Director of Industries binds the Government. There G
is nothing on record to show that the said letter has been issued by
the Director of Industries with the prior approval of the Government.
The agreement requires prior consent of the Government expressing
no objection if the financing agencies were to advance more than 60%
of the value of the land. The said letter by no stretch of imagination
H
626 SUPREME COURT REPORTS [2007] 9S.C.R

A could be characterized and treated as a prior agreement of the
Government enabling the Syndicate Bank to advance more than 60%
of the value of the land. The actual mortgage deed executed by way
of deposit of title deeds is not made available for the perusal of the
Court by the Syndicate Bank."
t'

B In the aforementioned premise the High Court held that the order of
cancellation of allotment of25 acres ofland dated 17.08.1993, having not been
challenged, the same became final. It was also held that as a clear and
categorical finding had been arrived at by APIIC in its order dated 14.07.1999
that the Company had failed to utilise the land for the purpose for which the
C same had been allotted, the order of cancellation of allotment was also valid
in law, stating :

" ...The Company failed to submit any explanation to the show cause
notice and after providing innumerable opportunities, the APIIC passed
final order dated 14.7.1999 canceling the allotment of remaining extent
D of land also. The first order dated 17 .8.1993 canceling the allotment of
Ac.25-00 of land remained unchallenged. This order dated 14.7.1999
canceling the allotment of remaining extent of Ac.26-00 of land, i,n our
considered opinion, is not vitiated for any reason whatsoever. ,There
is a clear and categorical finding in the said order that the Company
failed to utilize the land for the purpose for which it was allotted. The
E APIIC was well within its limits to cancel the remaining extent of
fund ..."

In regard to the question as to whether the recovery certificate dated
30.12.1996 issued by the Debt Recovery Tribunal to recover the amount by
sale of mortgaged property, it was held that despite the fact that in the
F recovery certificate the schedule of the properties attached -and sold was
shown to be nil, stating :

"Be it as it may, the finding, recorded by the DRT as against the
APIIC, in no manner, effects the title since the lands in question
remained under the ownership of the APIIC as there is no transfer of
G title as such in favour of the company. Admittedly, no. sale deed has
been executed by the APIIC in favour of the company."

It was further held :

"In the circumstances, we hold that the proclamation of sale
H notice dated 21.1.1998 iss.ued by the Recovery Officer proposing to
SYNDICATE BANK v. ESTATEOFFICER&MANAGER,A.P.1.1.C. LTD.627

auction the lands belonging to the APIIC is ultra vires. Such a A
proclamation has been issued without putting the APIIC on any
proper notice."

In regard to the purported concession made by APIIC in regard to 26
acres of land, it was opined that the same had been made inadvertently by
the APIIC as it did not have a copy of the recovery certificate. It was S
observed that in any view of the matter, the consent on the part of the parties
did not confer any jurisdiction on the authorities concerned, stating :

"It is well settled that the consent of the parties does not by itself
confer any jurisdiction upon the authorities. Nor such consent can
take away the jur\sdiction if otherwise conferred under the provisions C
of the Act. It is not open to the parties to confer, by their agreement,
jurisdiction on a court, which it does not possess ..."

It was further held that the letter of the Director dated 03 .08.1972 cannot
be said to be in terms of clause 8(b) of the agreement and, thus, the appellant D
cannot be allowed to say that the land had been completely utilised for
industrial purposes, in absence of any such assertion and proof furnished by
the Company itself. It was also opined :

"(a) That the letter dated 3.8.1972 purported to have been issued l:iy
the Director of Industries, by no stretch of imagination, could be E
characterized as a document of title so as to enable the Company
to mortgage these same by way of deposit of title deeds in order
to secure financial assistance from the Syndicate Bank. The
Director of Industries cannot be equated to that of the Government
and it is the only government, which could have agreed to the
company raising money on the property. Such letters voluntarily F
issued by an individual officer of the Government, in no manner,
bind the Government unless it is clearly pleaded and established
that the Director of Industries has been authorised and delegated
with the power to accord permission to the company raising
money on the property;
G
(b) that the Syndicate Bank admittedly advanced more than 60% of
the value of the land but without prior agreement of the
Government as is required in terms of clause 8(b) of the agreement.
Therefore, the APIIC, being the successor in interest of the
Government, is not bound by the advances so made by t\:ie
H
628 SUPREME COURT REPORTS [2007] 9 S.C.R.

A Syndicate Bank. Therefore, the Syndicate Bank cannot have the
first charge over the property in question;

(c) that there is no specific agreement as such by the Syn!ii~ate
Bank agreeing to pay the government on behalf of the company
so much of the amount advanced as loan to the company will
B remain due on the promissory note executed by the Company. In
the absence of any specific agreement, the APIIC is not bound
to accept the demand draft for a sum of Rs.3,366.35 paise
~-
purporting to be due from the company towards the land cost
and the same has been rightly rejected by the APIIC;

c (d) that the order of cancellation of allotment of land dated 17.8.1993,
which remained unchallenged, has not only become final, but
also does not suffer from any legal infirmities requiring any
interference;

(e) that the order dated 14.7. l 999 cancelling the allotment of remaining
D extent of Ac.26-00 of land which is challenged by the Syndicate
Bank in W.P. No. l 7443 of 1999, is not vitiated for any reason
whatsoever. It is a composite order passed by the APIIC canceling
the allotment of land both on the ground of failure to pay the
balance sale consideration by the Company and also on the
ground that the Company failed to utilize the land for the purpose
E for which it has been allotted to it. The orders of cancellation of
allotment of land have duly taken into account the admissions
made by the Company. that it has failed to utilize the land for the
purpose for which it has been allotted to it. The company has
admitted that it was in red and could not establish any industrial
unit for the purpose of manufacture of agricultural tractors for
F
which purpose the land has been allotted to it;
(f) that the order dated 12 .8. l 998 passed by the Recovery Officer
rejecting the claim petition of the APIIC is vitiated. The Recovery
Officer could not have proceeded with the sale of the land
belonging to the APIIC in the absence of any specific
G. authorization and permission by the Presiding Officer ofDRT. In
the schedule of the recovery certificate, there is no mention of
-the details of the lands in question enabling the Recovery Officer
to proceed against the same for recovery and realization of the
decreetal amount; and
H
L
SYNDICATEBANKv.ESTATEOFFICER&MANAGER,A.P.l.I.C.LID.629

(g) that the sale notifications issued by the APIIC do not suffer from A
any legal infirmities."

Mr. Rajiv Nanda, learned counsel appearing on behalf of the Appellant-
Bank, would submit :

(i) The High Court committed a factual error insofar as it proceeded B
on the basis that the mortgage was created merely by deposit of
consent letter, whereas in fact the same was created by deposit of
allotment letter, original counter part of the agreement dated 03.08.1972
and letter dated 03.08.1972.

(ii) The High Court erred in so far as it failed to notice that the order C
of the Debt Recovery Tribunal dated 18.10.1996 became final as the
same had not been challenged by any party to the Iis.

(iii) APIIC having categorically made a statement before the Recovery
Officer that 26 acres of land should be allowed to be retained by
United Auto, which was more than sufficient to recover the bank dues D
and, thus, it was estopped and precluded from cancelling the letter of
allotment in relation to the said land.

(iv) Allotment letter dated 18.07.1972, agreement dated 03.08.1972 as
also the consent letter dated 03.08.1972 being documents of title
within the meaning of Section 58(t) of the Transfer of Property Act, E
the High Court committed a mistake in opining otherwise.

(v) Consent letter dated 03.08.1972, which is in conformity with clause
8(b)of the agreement dated 03 .08.1972 was misconstrued by the High
Court, inasmuch as by reason thereof, the State agreed that the
allottee may raise loan mortgaging the lands agreed to be sold as well F
as the buildings constructed thereupon.

(vi) Clause 8(b) supersedes other clauses to the contrary in the
agreement, which provides for prior agreement of government before
creating charge/mortgage only if more than 60% of the value of the
land was to be advanced and a consent letter of the government was G
to be issued therefor.

(vii) Clause 8(b) having provided that the charge of the financial
institution would be the first charge and that the government having
provided that the second charge, the obligation of the financial
institution was required to be liquidated at the first instance. H
630 SUPREME COURT REPORTS [2007] 9 S.C.R.

A (viii) It is borne out from the records that the entire cost of the land
being Rs.4,93,680/- stood paid. In any event ihe value of the entire
land having been adjusted for 25 acres of land which had been
cancelled, the APIIC did not make it clear as to on what basis further
cost of the land towards 26 acres was being made. APIIC was not only
estopped and precluded from raising the aforementioned contentions
B and its order would be wholly inequitable if the bank is left with no
remedy when it had acted on the basis of its consent.

(ix) The schedule of the recovery certificate having been shown nil,
the Recovery Officer could not have determined as to which properties
were to be attached or sold; the finding of the High Court is clearly
c contrary to the provisions of Section 19(20), 19(22) and Section 25 of
the Recovery of Debts due to the Banks and Financial Institutions
Act, 1993 and in that view of the matter the High Court committed an
error in holding that the auction of land by the Recovery Officer was
ultra vires as the mortgaged property was not specified in the recovery
D certificate.

(x) If the consent made by the Manager (Law) did not bind APIIC, it
is difficult to conceive as to how the writ petitions which were filed
by the said parties could be entertained.

(xi) The finding of the High Court that the letter dated 03.08.1972
E
issued by the Director of Industries was not binding on the government
and APIIC was wholly without any basis as all the orders of the
government had been communicated only through the letters issued
by the Director of Industries.

(xii) The purported finding of the High Court that the Company had
F
failed to utilise the land for the purpose of allotment is clearly erroneous
as there is nothing to show that the conditions precedent therefor
existed 1md in any event, clause 8(b) of the agreement dated 03.08.1972
would override clauses 13, 15 and 16 thereof, in terms whereof interest
of the bank would prevail over that of APIIC.
G
(xiii) The High Court should not have entertained the writ petition
filed by the APIIC as it did not prefer any appeal against the order
of the Debt Recovery Tribunal.

The learned Solicitor General and Mr. A.K. Ganguli, learned Senior
H
SYNDICATE BANK v. ESTATEOFFICER&MANAGER,A.P.1.1.C. LTD. 631

Counsel, appearing on behalf of the State and APIIC, on the other hand, A
would submit :

(i) The agreement dated 03.08.1972 being not registered, no title was
conferred on the Company, pursuant whereto or in furtherance whereof
the Company had not derived any assignable title.
B
(ii) It is not a case where a mortgage could be created by reason of
deposit of title deed as contemplated under Section 58 of the Transfer
of Property Act.

(iii) Mere deposit of allotment letter or the agreement dated 03 .08.1972,
thus, did not create any charge in favour of the Bank. The letter dated C
03 .08.1972 issued by the Director of Industries being not a document
of title, the judgment of the High Court cannot be assailed.

(iv) Appellant-Bank having not questioned the orders of cancellation
of allotment dated 17.08.1993 and 14.07.1993 respectively, it must be
held to have waived its right, if any, to question the same. The sale D
proceeds in tenns of the judgment and order dated 22.02.1977, therefore,
should be directed to be paid to APIIC.

The principal question which arises for consideration is as to whether
in absence of any execution and registration of deed of sale by the Government
of Andhra Pradesh or by A.P.I.l.C. in favour of the Company, any interest in E
the land has been and could be created. Our attention has been drawn by the
learned counsel for Appellant to a large number of decisions of different High
Courts to show that for the purpose of creating mortgage by depositing title
deeds in terms of Section 58 of the Transfer of Property Act, it is not
necessary that the mortgagor would have forfeit complete title over the F
property. Even if the mortgagor derives some interest which can be subject-
matter of mortgage, a mortgage by deposit of title deeds can be created. It
is not in dispute that whereas a deposit of title deeds by itself does not
require a document in writing, but in the in event a mortgage is created
thereby, it will require registration. It is furthermore not in dispute that complete
title over a property can be acquired by a vendee only when a deed of sale G
is executed and registered by the vendor in terms of Section 54 of the Transfer
of Property Act. In this case, it has not been disputed that apart from the
letter of allotment, an agreement coupled with the letter dated 03.08.1972, no
deed of sale was executed or registered by the Government of Andhra Pradesh
or by A.P.1.1.C. in favour of the Company.
H
632 SUPREME COURT REPORTS [2007] 9 S.C.R

A As would appear from the following, we are of the opinion that the .
,
issues raised herein are of some importance and as any decision thereupon·
would have serious impact on similar transaction in future, it should be heard
by a larger bench.

We may, however, make some general observations.
B
Section 58 of the Transfer of Property reads as under :

"Section 58 - "Mortgage", "mortgagor", "mortgagee", "mortgage-
money" and ''mortgage-deed" defined

c (a) A mortgage is the transfer of an interest in specific immoveable
property for the purpose of securing the payment of money advanced
or to be advanced by way of loan, an existing or future debt, or the
performance of an engagement which may give rise to a pecuniary
liability.

D The transferor is called a mortgagor, the transferee a mortgagee; the
principal money and interest of which payment is secured for the time
being are called the mortgage-money, and the instrument (if any) by
which the transfer is effected is called a mortgage-deed.

(b) Simple mortgage.-Where, without delivering possession of the
E mortgaged property, the mortgagor binds himself personally to pay
the mortgage-money, and ·agrees, expressly or impliedly, that, in the
event of his failing to pay according to his contract, the mortgagee
shall have a right to cause the mortgaged property to be sold and the
proceeds of sale to be applied, so far as may be necessary, in payment
of the mortgage-money, the transaction is called a simple mortgage
F and the mortgagee a simple mortgagee.

(c) Mortgage by conditional sale.-Where, the mortgagor ostensibly
sells the mortgaged property-

on condition that on default of payment of the mortgage-money on
G a certain date the sale shall become absolute, or

on condition that on such payment being made the sale shall become >-
void, or

on condition that on such payment being made the buyer shall transfer
· H the property to the seller,
+--
,,

SYNDICATE BANK v. ESTATE OFFICER& MANAGER,A.P.l.I.C. LTD.633

the transaction is called a mortgage by conditional sale and the A
mortgagee a mortgagee by conditional sale:

Provided that no such transaction shall be deemed to be a mortgage,
unless the condition is embodied in the documerit which effects or
purports to effect the sale.
B
(d) Usufructuary mortgage.-Where the mortgagor delivers possession
or expressly or by implication binds himself to deliver possession of
the mortgaged property to the mortgagee, and authorizes him to retain
such possession until payment of the mortgage-money, and to receive
the rents and profits accruing from the property or any part of such
rents and profits a~d to appropriate the same in lieu of interest, or in C
payment of the mortgage-money, or partly in lieu of interest or partly
in payment of the mortgage-money, the transaction is called an
usufructuary mortgage and the mortgagee an usufructuary mortgagee.

(e) English mortgage.-Where the mortgagor binds himself to repay the
mortgage-money on a certain date, and transfers the mortgaged property D
absolutely to the mortgagee, but subject to a proviso that he will re-
transfer it to the mortgagor upon payment of the mortgage-money as
agreed, the transaction is called an English mortgage.

(t) Mortgage by deposit of title-deeds.-Where a person in any of the
following towns, namely, the towns of Calcutta, Madras, and Bombay, E
and in any other town which the State Government concerned may,
by notification in the Official Gazette, specify in this behalf, delivers
to a creditor or his agent documents of title to immoveable property,
with intent to create a security thereon, the transaction is called a
mortgage by deposit of title-deeds. p
(g) Anomalous mortgage.-A mortgage which is not a simple mortgage,
a mortgage by conditional sale, an usufructuary mortgage, an English
mortgage or a mortgage by deposit of title-deeds within the meaning
of this section is called an anomalous mortgage."

The requisites of an equitable mortgage are : (i) a debt; (ii) a deposit G
of title deeds; and (iii) an intention that the deeds shall be security for the
debt. The existence of the first and third ingredients of the said requisites is
not in dispute. The territorial restrictions contained in the said provision also
does not stand as a bar in creating such a mortgage. The principal question,
which, therefore, requires consideration is as to whether for satisfying the H
634 SUPREME COURT REPORTS [2007] 9 S.C.R.

A requirements of Section 58(f) of the Transfer of Property Act, it was necessary
to deposit documents showing complete title or good title and whether all the
documents of title to the property were required to be deposited. A' fortiori
the question which would arise for consideration is as to whether in all such
cases, the property should have been acquired by reason of a registered
document.
B
Each case will have to be considered on its own facts. A jurisprudential
title to a property may not be a title of an owner. A ti_tle which is subordinate
to an owner and which need not be created by reason of a registered deed
of conveyance may at times create title. The title which is created.in a person
C may be a limited one, although confennent of full title may be governed upon
fulfilment of certain conditions. Whether all such conditions have been fulfilled
or not would essentially be a question of fact in each case. In this case a right
appears to have been conferred on the allottee by issuance of a valid letter
of allotment coupled with possession as also licence to make construction
and run a factory thereon, together with a right to take advances from banks
D and financial institutions; subject, of course, to its fulfilment of condition may
confer a title upon it in terms of Section 58(f) of the Transfer of Property Act,
but the question would be whether such a right is assignable. -

In Mulla's Transfer of Property Act, a large number of cases have been
noticed where even a patta of land has been considered to be a document
E of title depending of course on the circumstances under which it had been
given.

Moreover, if insistence on the original document of title is laid, it may
give rise to the conclusion that once the document of title is lost, no mortgage
F of deposit of title deed can be created at all.

It is, however, one thing to say that a 'person cannot convey any title,
which he himself does not possess; but it is another thing to say that no
mortgage can be created unless he pbtains a title by reason of a registered
conveyance.
G In Angu Pillai and Ors. v. M.S.M. Kasiviswanathan Chettiar and Ors.,
AIR (1974) Madras 16, a Division Bench of the High Court reversed the
decision of the Trial Judge, holding that the said document did not constitute
a valid mortgage by deposit of title, stating :

"13. The only question, in these circumstances, is whether, by
H
SYNDICATEBANKv.ESTATEOFFICER&MANAGER,A.P.l.I.C.LTD.635

depositing Exs. A.23 to A.26 a valid equitable mortgage was created A
in favour of the plaintiff. Section 58 of the Transfer of Property Act
inter a/ia provides that where a person in any of the towns mentioned
therein delivers to a creditor or his agent documents of title to
immovable property with intent to create a security thereon, the
transaction is called a mortgage by deposit of title deeds. It would be B
seen from this provision that three essentials are required for an
equitable mortgage, namely, (I) a debt, (2) deposit of title deeds and
(3) the intention that.the delivery should be security for the debt. In
the instant case, the first and third essentials are satisfied. The only
question is whether Exs. A.23 to A. 26 are documents of title within
the meaning of S. 58. The trial Court, relying upon the decisions of C
the Rangoon High Court in V.E.R.M.A.R.'Chettiar firm v. Ma foo Teen,
AIR 1933 Rang 299 held that the said documents were not documents
of title and that, therefore, no valid equitable mortgage was created.
We are clearly of the opinion that this conclusion cannot be sustained.
The expression 'documents of title' occurring in Section 58 has been
the subject of consideration in some decisions. The law in regard to D
equitable mortgage is precisely the same in England as it is in India ..."

It was further noticed :

"I 5. In Indian law, deposit of patta has been held to constitute a
valid equitable mortgage, though patta is not in itself a deed of title, E
but is only an evidence of title. This Court has consistently taken the
view that the main object of tender of patta is merely to give information
of the land revenue payable and the details of the property and that
the exact weight to be given to the patta would depend upon the
circumstances of the case. In Dohganna v. Jammanna, AIR (L93 l) p
Mad 613 it is pointed out that in case of pattas in respect of a land
in Zamindari, ifthe land be at the disposal of the landlord at the time
of granting the patta, prima facie such patta would not be mere bill
of rent but something more and that if it is not so it would not create
any rights in the pattadar in derogation of the rights of a person who
would be entitled to the land subject to the proper and regular payment G
of rent. The question directly arose before a Bench of this Court in
Official Assignee v. Basudevadoss, AIR (1925) Mad 723, as to whether
a deposit of patta is enough to constitute an equitable mortgage. The
Bench answered the question in the affirmative. Srinivasa Aiyangar,
J. who delivered the leading judgment in that case, has pointed out H
636 SUPREME COURT REPORTS [2007] 9 S.C.R.

A that the answer to the question as to whether the pattas in respect
of a land is a document which would be sufficient, by being deposited,
to evidence the intention required for an equitable mortgage would
vary according to the conditions of the country and the consciousness
on the part of the members of the community and that though a patta
is not a document of title still a deposit of the same with intent to
B create an equitable mortgage would create an equitable mortgage."

In M.M. T.C. Limitedv. S. Mohamed Gani and Anr., AIR (2002) Madras
378, a learned Single Judge opined :

"The plaintiff has sought for a mortgage decree specifically alleging
c that the first defendant in respect of the ·advances ma~e by the
plaintiff to his business has offered the immovable property of his
wife viz., the second defendant herein as security and has created an
equitable mortgage. Both the counsel have made elaborate submissions
in that regard. Hence, a question would arise whether an equitable
D mortgage by deposit of title deeds was created. What is mortgage by
deposit of title deed is defined under Section 58(f) of the Transfer of
Property Act, as follows :

'Where a person in many of the following towns, namely, the
towns of Calcutta, Madras and Bombay, and in any other town
E which the State Government concerned may by notification in the
Official Gazette, specify in this behalf, delivers to a creditor or his
agent, documents of title to immoveable property, with intent to
create a security thereon, the transaction is called a mortgage by
deposit of title deeds.'

F It is called in English law an equitable mortgage. Lord Cairns defined
the same as 'It is well established rule of equity that a deposit of a
document of title without more, without writing, without word of
mouth, will create Equity a charge upon the property referred to.' In
order to prove the existence of an equitable mortgage, the following
requisites are necessary :·-(I) a debt; (2) a deposit of title deeds, and
G (3) an intention that the deeds shall be security for the debt. The debt
may be an existing debt or a future debt. Insofar as the deposit of title
deeds is concerned, physical delivery of document is not the only
mode of deposit and even the constructive delivery has been held
sufficient. It is sufficient if the deeds deposited bona fide relate to the
property or are any material evidence of title and are shown to have
H
SYNDICATEBANKv.ESTATEOFFICER&MANAGER,A.P.l.1.C.LTD.637

been deposited with an intention to create a security thereon. The A
essence of the whole transaction of euitable mortgage by deposit of
title deeds is the intention that the title deeds shall be the security
for the debt. Whether the said requisite intention is available in a
given case is a question of fact and has to be ascertained after
considering the oral, documentary and circumstantial evidence. Jt is
true the mere fact of deposit does not raise the presumption that such B
an intention existed. Such an intention cannot be presumed from the
possession since the mere possession of the deeds is not enough
without evidence as to the manner in which the possession originated
so that an agreement may be inferred. Even the mere possession of
the deeds by the creditor coupled with the existence of a debt need C
not necessarily lead to the presumption of a mortgage. The mere fact
that the documents were coming from the custody of the plaintiff is
not by itself sufficient to prove an ntent to create a security. But in
a given case unless and until the defendants satisfactorily explain
how the documents came to the plaintff's custody, the said fact would
be significant and have a great bearing." D
In Amu/ya Gopal Majumdar v. United Industrial Bank Ltd. and Ors.,
AIR (1981) Calcutta 404, a Division Bench of the Calcutta High Court held that
possessory title itself can be a subject-matter of mortgage, opining :

" ... Therefore, at the time when the disputed transaction was entered E
into the mortgagor Eagle Plywood Industries Private Limited had
entered into lawful possession of the Behala property on the basis of
an agreement for sale dated July 18, 1950. Such possessory title could
very well in law be furnished as security for the mortgage. On this
point we are in respectful agreement with the view taken by M.M.
Dutt and R.K. Sharma, JJ. in the case of Usha Rice Mills Company F
Limited v. United Bank of India, ( 1978) 82 Cal WN 92, since the view
taken by their Lordships is based on high authorities."

We may notice that that a Division Bench of this Court in Bank of India
v. Abhay D. Narottam and Ors., [2005] 11 SCC 520, did not think it fit to G
consider the correctness thereof having regard to the provisions contained
in Section 125 of the Companies Act, 1956.

Some decisions of this Court in this connection may also be noticed.

In Alapati Venkataramiah v. Cor11missioner of Income Tax Hyderabad, H
638 SUPREME COURT REPORTS [2007] 9 S.C.R.

A [1965] 3 SCR 567, while considering the provisions of Section:12B of the
Indian Income Tax Act, 1922, this Court repelled a contention that a possessary
title in terms of Section -53-A of the Transfer of Property -Acf would not
subserve the requirements of an effective conveyance of the capital assets,
as delivery of possession of immovable property cannot by itself be treated
as equivalent to conveyance of the immovable property.
B
However, in terms of Section 128 of the Income Tax Act, title must pass
by any of the modes mentioned therein, namely, sale; exchange or transfer.
It did not contemplate any other mode of transfer'.

In K.J. Nathan v. S. V. Maruty Reddy and Ors., [1964] 6 SCR 727, this
C Court held :
"IO. The foregoing discussion may ~e 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
D of money advanced or to_ ~e 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 deed; and ( iii ) an intention that the deeds shall be security
E 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 deed s constitutes
a mortgage, for no such presumption has been laid down either in the
F 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
G 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 tin the- mortgage
deed was executed. The decisions of English courts making a distinction
between the debt preceding the deposit and that followirtg it can at
best be only a guide; but the said distinction itself cannot be
H
I

,'
SYNDICATEBANKv.ESTATEOFFICER&MANAGER,A.P.l.l.C.LTD.639

considered to be a rule of Jaw for application under all circumstances. A
Physical delivery of documents by the debtor to the creditor is not
the only mode of deposit. There may be a constructive 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 titledeeds; it would be hypertechnical
to insist upon the formality of the creditor delivering the title deeds B
to the debtor and the debtor redelivering 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."

The question which arose therein was that what would be the extent of C.
subject-matter of mortgage; the entire property forming the subject-matter of
mortgage or a part thereof.

There cannot be any doubt whatsoever that in absence of a registered
deed of sale, the title to the land does not pass, but then what would not be D
conveyed is the title of the estate and not the allotment and possession itself.

It would, therefore, appear that there is no clear authority on the question
as to whether in absence of any title deed in terms whereof the mortgagee
obtained title by reason of a registered deed can be a subject-matter of
mortgage. Section 58 of the Transfer of Property Act does not speak of E.
mortgage of an owner's interest. If any interest in property can be created by
reason of a transaction or otherwise which does not require registration, in
our opinion, it may not be necessary to have a full title before such a
mortgage is created by deposit of title deeds. A person may acquire title to
a property irrespective of the nature thereof by several modes e.g. a lease of
land which does not require registration; (ii) by. partition of a joint family F
property by way of family settlement, which does not require registration.

In a case of this nature where valuable right is created which may or
may not confer an assignable right, the question requires clear determination
having regard to the equitable principle in mind, and would have far reaching G
consequences, as a large number of banks and financial institution advance
a huge amount only on the basis of allotment letters. If such allotment letters
.~
are to be totally ignored, the same may deter the banks in making advances
which would in effect and substance create a state of instability.

Apart from the said question, the effect of an admission by an authorized H
\

- -t-
'...
640 SUPREME COURT REPORTS [2007]9 S.C.R.

A representative of the State having regard to the rules of executive business
or otherwise vis-a-vis the Appellant-Bank also requires consideration.

We, therefore, are of the opinion that keeping in view the importance
of the questions raised at the Bar, as noticed herein before, and in the context
of the factual matrix involved in the matter, the questions require consideration
B by a larger bench so that an authoritative pronouncement can be made
thereupon.

R.P. Referred to Larger Bench.