Holding

Equitable mortgages are recognised as charges under Section 100 of the Transfer of Property Act, but a later legal mortgage created by deposit of title deeds has priority over an earlier equitable mortgage.

Summary

The Cosmos Co. Operative Bank Ltd. (appellant) challenged a High Court order that held Central Bank of India (respondent No.1) had the first charge over a flat mortgaged by the original borrowers. Both banks had received security documents: the appellant bank held the share certificate of ownership, while the respondent bank only had unregistered agreements of sale. The Supreme Court examined whether an equitable mortgage created by the respondent constitutes a 'charge' under Section 100 of the Transfer of Property Act, 1882, and whether such a charge can outrank the appellant's legal mortgage. It held that equitable mortgages are recognised as charges but are enforceable only in personam and are subordinate to a later legal mortgage supported by title deeds. Consequently, the appellant's legal charge, created by deposit of the share certificate, has priority over the respondent's equitable mortgage. The Court set aside the High Court judgment and allowed the appeal, directing the release of escrow funds to the appellant bank.

Issues considered

Whether an equitable mortgage is recognised in India as a 'charge' under Section 100 of the Transfer of Property Act, 1882.
Whether the appellant bank or the respondent bank holds the valid and prior mortgage/charge over the flat.
Whether an equitable mortgage can be enforced against third parties and bona fide transferees without notice.
Whether the registration requirements affect the priority of an unregistered equitable mortgage versus a later legal mortgage.

Legislation cited

Maharashtra Apartment Ownership Act, 1970s. 2, s. 4, s. 5
Maharashtra Ownership Flats (Regulation of the promotion of construction, sale, management and transfer) Act, 1963s. 11, s. 4, s. 4A
Registration Act, 1908s. 17, s. 49
Specific Relief Act, 1963s. 53A
Transfer of Property Act, 1882s. 100, s. 43, s. 58, s. 59, s. 78, s. 82, s. 92

Headnote

Issue for Consideration Whether ‘equitable mortgages’ are recognized in India under the nomenclature of ‘charge’ in terms of Section 100 of the Transfer of Property Act, 1882 (TPA); Who holds a valid mortgage over the property—the Appellant (Cosmos Co. Operative Bank Bank of India). Headnotes† Transfer of Property Act, 1882 – Sections 58, 100 – Equitable mortgage – Equitable mortgages are recognized in India as a ‘charge’ under Section 100 of the TPA – Charge created by equitable mortgage will be enforceable

Subjects

Equitable mortgageChargeLegal mortgageTransfer of Property ActSection 58Section 100Priority of chargeRegistrationDebt recoveryMortgage by deposit of title deedsEquity

Judgment

[2025] 2 S.C.R. 1091 : 2025 INSC 243

The Cosmos Co. Operative Bank Ltd.
v.
Central Bank of India & Ors.
(Civil Appeal No. 1565 of 2025)
4 February 2025
[J.B. Pardiwala* and R. Mahadevan, JJ.]

Issue for Consideration
Whether ‘equitable mortgages’ are recognized in India under the
nomenclature of ‘charge’ in terms of Section 100 of the Transfer
of Property Act, 1882 (TPA); Who holds a valid mortgage over the
property—the Appellant (Cosmos Co. Operative Bank Ltd.) or the
Respondent No.1 (Central Bank of India).

Headnotes†
Transfer of Property Act, 1882 – Sections 58, 100 – Equitable
mortgage – Equitable mortgages are recognized in India as
a ‘charge’ under Section 100 of the TPA – Charge created by
equitable mortgage will be enforceable against third parties as
far as possible in terms of the procedure applicable to a simple
mortgage, except against bona fide transferees without notice –
Equitable mortgages can be enforced in equity but remain a
right in personam, not in rem, unless properly registered:
Held: Equitable mortgages are recognized in India as a ‘charge’
under Section 100 of TPA – Concept of equitable mortgage is a
creation of the doctrine of equity, and its absence from the Act, 1882
does not negate its validity, as it serves to uphold the principles of
fair-play, good conscience, and justice – Enforceable against the
mortgagor but not against bona fide transferees without notice –
If a transaction does not amount to a mortgage but constitutes a
preliminary step towards mortgage creation, three recourses are
available to the lender (1) Claim that the transaction amounts to
an equitable mortgage as it was intended to create present or
immediate security; (2) Claim that part-performance of the contract
has occurred, justifying relief to perfect the mortgage by executing
further documentation; (3) Bring a suit for recovery of money, relying
on the initial intention of the parties to create security – Appeal
allowed, High Court order set aside. [Paras 56-61]
* Author
1092 [2025] 2 S.C.R.

Supreme Court Reports

Transfer of Property Act, 1882 – Sections 58, 100 – Valid
mortgage – Priority of charge – the Appellant had the first
valid charge over the mortgaged property as it held the share
certificate of ownership – High Court and DRAT erred in holding
that the Respondent No. 1 held the first charge:
Held: The first valid charge over the mortgaged property is with the
Appellant (Cosmos Co. Operative Bank Ltd.), not the Respondent
(Central Bank of India) – When the original borrowers deposited
with the appellant bank, the share certificate of ownership to the
said Flat, on that very day and date, a legal charge is said to have
been created on the flat in favour of the appellant bank, whereas,
when it comes to the respondent no. 1 bank no such charge on the
flat was created, rather what was created was only an equitable
mortgage, though prior in time – This distinction is particularly
important, because even if the agreements to sale deposited with
the respondent no. 1 bank were registered and thereby, giving
public notice of their existence, still the appellant bank by virtue
of possession of the actual title deeds to the said Flat in the form
of the share certificate of ownership would be accorded priority in
charge for the sole reason that the charge created by it is a legal
mortgage in terms of Section 58 of the Act, 1882 – Appeal allowed,
High Court order set aside. [Paras 47, 52, 67, 68]

Case Law Cited
Kedar Lal v. Hari Lal [1952] SCR 179 : AIR 1952 SC 47; K.J.
Nathan v. S.V. Maruthi Rao [1964] 6 SCR 727; Suraj Lamp &
Industries (P) Ltd. (2) through Director v. State of Haryana & Anr.
[2011] 11 SCR 848 : (2012) 1 SCC 656; Bank of India v. Abhay D.
Narottam & Ors. (2005) 11 SCC 520; Anita Enterprises & Anr. v.
Belfer Coop. Housing Society Ltd. & Ors. [2007] 12 SCR 1 : (2008)
1 SCC 285 – relied upon.
J.K. (Bombay) (P) Ltd. v. New Kaiser-I-Hind Spinning & Weaving
Co. Ltd. & Ors. [1969] 2 SCR 866 : (1970) 1 SCC 556; Haryana
Financial Corporation v. Jagdamba Oil Mills [2002] 1 SCR 621 :
(2002) 3 SCC 496; Ram Baran Prasad v. Ram Mohit Hazra [1967]
1 SCR 293 : AIR 1967 SC 744; Shakeel Ahmed v. Syed Akhlaq
Hussain [2023] 15 SCR 590 : 2023 SCC OnLine SC 1526 –
referred to.
Russell v. Russell [1783] 28 E.R. 1121 – referred to.
[2025] 2 S.C.R. 1093

The Cosmos Co. Operative Bank Ltd. v. Central Bank of India & Ors.

List of Acts
Transfer of Property Act, 1882; Maharashtra Ownership Flats
(Regulation of the promotion of construction, sale, management and
transfer) Act, 1963; Maharashtra Apartment Ownership Act, 1970.

List of Keywords
Equitable mortgage; Charge; Simple mortgage; Debt recovery; Title
deeds; Enforceability; Right in personam; Transfer of Property Act;
Debt Recovery Tribunal.

Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1565 of 2025
From the Judgment and Order dated 12.12.2018 of the High Court
of Judicature at Bombay in WP No. 11324 of 2015

Appearances for Parties
Advs. for the Appellant:
Ninad Laud, Ivo Dcosta, Guruprasad Naik, Ms. Ishani Shekhar,
Sahil Tagotra.
Advs. for the Respondents:
Krishan Kumar, Seemant K Garg, Nitin Pal, Nitin Mishra, Ms. Mitali
Gupta, Hargun Singh Kalra.
Judgment / Order of the Supreme Court

Judgment

J.B. Pardiwala, J.

For the convenience of exposition, this judgment is divided into the
following parts: -
INDEX*

A. FACTUAL MATRIX ........................................................... 2
B. SUBMISSIONS OF THE PARTIES .................................. 8
i. Submissions on behalf of the appellant Cosmos Co.
Operative Bank ......................................................... 8

* Ed. Note: Pagination as per the original Judgment.
1094 [2025] 2 S.C.R.

Supreme Court Reports

ii. Submissions on behalf of the respondent no.1; Central
Bank of India ............................................................. 10
C. ISSUE FOR CONSIDERATION ....................................... 11
D. ANALYSIS ........................................................................ 12
i. Relevant Provisions .................................................. 12
ii. Concept of Equitable Mortgage ............................... 24
iii. Nature of an Equitable Mortgage ............................. 31
iv. Distinction between Mortgage by Deposit of Title
Deeds under the English Law and under the Transfer
Of Property Act, 1882 ............................................... 41
E. CONCLUSION .................................................................. 58

1. Leave granted.
2. This appeal arises from the judgment and order passed by the
High Court of Judicature at Bombay (Civil Appellate Jurisdiction)
dated 12.12.2018 in Writ Petition No.11324 of 2015, by which the
writ petition filed by the appellant herein seeking to challenge the
order passed by the (Debt Recovery Appellate Tribunal) (for short,
the “DRAT”) dated 28.08.2015 in Appeal No. 41 of 2007 came to be
rejected thereby affirming the order passed by the DRAT.

A. FACTUAL MATRIX
3. The facts giving rise to this appeal may be summarised as under: -
(a) We take notice of the fact that the respondent nos. 2, 3 and 4
respectively, are the original borrowers. However, the respondent
No.4 has passed away and therefore his name came to be
deleted from the array of parties vide order dated 4.12.2020.
(b) The original borrowers on the strength of one unregistered
agreement of sale availed loan facility from the Central Bank
of India i.e. the respondent No. 1 to the tune of Rs.30,00,000/-
approximately. What was offered by way of security was a flat
which the original borrowers proposed to purchase from the
developer and all that they had on the day and date when they
[2025] 2 S.C.R. 1095

The Cosmos Co. Operative Bank Ltd. v. Central Bank of India & Ors.

went before the bank to avail the loan was an unregistered
agreement of sale.
(c) It is not in dispute that the Central Bank on the strength of an
unregistered agreement of sale sanctioned the loan creating
a charge over the flat.
(d) Since the borrowers defaulted in the repayment of the loan,
the Central Bank initiated proceedings for the recovery of the
requisite amount before the Debt Recovery Tribunal-I, Mumbai
(in short “the DRT”). The DRT Mumbai adjudicated the Original
Application No. 74 of 2002 and held the borrowers jointly and
severally liable to pay an amount of ₹43,15,405.56 paisa with
interest thereon @15% per annum from the date of filing of the
O.A. till its payment.
(e) The relevant observations made by the DRT, Mumbai in Para 8
reads thus: -
“8. In application affidavit of the applicant state that
the Defendant No. 2 with intention to create mortgage
deposited title deeds of her flat No. C-28, Sahyadari
Apartment, L.T. Road, Borivali West, Bombay-400092
as security of the loan. sanctioned to Defendant
No. l. To prove this fact the Applicant’s side rely on
Exh. 53, which is an unregistered memorandum. It
being unregistered document itself is not sufficient
to create the mortgage. The applicants state further
on 04.02.1993, the Defendant No. 2 again attended
Applicants office and re-deposited the title deeds
of her flat on the enhanced, revised loan. The
applicant’s case about mortgage is based on the title
deeds, the documents produced by Defendants to
create the mortgage. That was primary evidence. It
was not produced. Memorandum, Exh. 53 affidavit
and pleading of applicant cannot take place. The
applicant do not state or explain why that primary,
basic evidence is not brought before the Tribunal.
Unless these documents are on record, it cannot
be assessed/ascertained whether those documents
were sufficient to create mortgage or not. In all the
circumstances, I hold the applicant failed in proving
1096 [2025] 2 S.C.R.

Supreme Court Reports

the Defendant No. 2 mortgaged her flat as a security
of the loan given by the Applicants.”
(f) The operative part of the order passed by the DRT reads thus: -
“A) The Defendant No. 2 and 3 shall jointly and
severally pay the amount of Rs. 43,15,405.56 ps
(Rupees Forty Three Lacs Fifteen Thousand Four
Hundred Five and Paise Fifty Six only) to the Applicant
with interest thereon @ 15% p.a. from the date of
filing of this application till the payment.
B) The defendant No. 2 shall pay the Applicant, the
amount of Rs. 5,70,787.21 ps. (Rupees Five Lacs
Seventy Thousand Seven Hundred Eight Seven
and Paise Twenty One Only) as dues of Overdraft
Accounts, Rs. 4,08,157.25 ps. (Rupees Four Lacs
Eight Hundred One Hundred Fifty Seven and Paise
Twenty Five only) as due of Short Term Loan Account,
Rs. 2,25,498.45 ps. (Rupees Two Lacs Twenty Five
Thousand Four Hundred Ninety Eight and Paise
Forty Five only) as dues of Working Capital Loan
with interest thereon @ 15% p.a.
C) The Applicant will be entitled to recover this amount
from the hypothecation created by the defendants as
mentioned in the application of the defendants fail to
pay the above amount.”
D) The defendants No. 2 & 3 shall pay cost of this
Application to the applicant and to bear their own
costs”.
(g) The Central Bank of India had to file an appeal before the DRAT
because of the observations made by the DRT in its order as
contained in para 8 referred to above.
(h) The order passed by the DRAT, allowing the appeal filed by
the Central Bank reads thus: -
“1. This appeal has been filed by the plaintiffs /
appellant herein being aggrieved by the order dated
30/11/2006 passed by the learned Presiding Officer,
DRT-I, Mumbai in O.A. No. 74 of 2002, whereby the
learned Presiding Officer directed the defendant nos.
[2025] 2 S.C.R. 1097

The Cosmos Co. Operative Bank Ltd. v. Central Bank of India & Ors.

2 and 3 to jointly and severally pay the amount of
Rs.43,15,405.56 ps. to the applicant with interest
thereon @15% p.a. from the date of filing of the
application till its payment. Further directed the
defendant No. 2 to pay the amount of Rs.5,70,787.21
ps. as dues of Overdraft Accounts, Rs. 4,08,157.25
ps. as dues of Short Term Loan Account and
Rs.2,25,498.45 ps. as dues of Working Capital Loan
with interest thereon @15% p.a.
2. The ld. counsel for the appellant raised two grounds
namely the description made by the defendant no.1
is not correct one and second ground is that the
original title deeds have not been produced before
this court. Hence he prayed that the appeal has to
be allowed against the defendant no.1 alone. The
suit has been dismissed against the defendant no.1.
Anyhow the suit against the defendant nos. 2 and 3
has been decreed.
3. The contention of the ld. counsel for the appellant
is that the defendant no.1 is real borrower and is
sued in his personal capacity as proprietor of M/s.
Ajanta Industries which is evident from Para No. 2.
Hence he prayed that the appeal has to be allowed.
4. The contention of the respondent is that the mortgage
has not been proved before the DRT. Hence the suit
has been rightly dismissed. Thereafter respondent
no. 4 has advanced the loan to the respondent no. 1
and thereafter the property is sold to the third person.
Hence he prayed that the appeal has to be dismissed.
5. From the perusal it is seen that it has been
mentioned that the respondent no.1 was sued in
his personal and individual capacity as proprietor of
M/s. Ajanta Industries as clearly set out in Para No.2.
Hence as per Order 30 Rule 10 he has been properly
described, hence the finding in this regard given by
the DRT has to be set aside and in turn is set aside.
6. The next contention is that the original documents
have not been produced before the trial court is not in
1098 [2025] 2 S.C.R.

Supreme Court Reports

dispute. Now it has been produced before this court
which pertains to the mortgaged property and original
agreement are now brought on record and is taken on
record. It is pertinent to note that the original title deeds
are with the appellants and mortgage is not denied
by the guarantor. It is also clear that respondent no.4
do not have title deeds pertaining to the property and
their alleged mortgage is very much subsequent to
the mortgage of appellants. Hence, I am of the view
that it can be accepted that the appellant bank has
valid and subsisting mortgage in its favour and in turn
mortgage is admitted and finding given by the DRT in
this regard has to be set aside and the O.A. against
the defendant no.1 also decreed and allowed as all
parties are properly sued and joined.
7. The appeal is allowed.
8. Subsequent to sale by respondent no. 4 in favor
of third party and amount of deposit is concerned,
this point is left open to agitate before the appropriate
forum.”
(i) While the proceedings before the DRAT were pending in the
form of appeal filed by the Central Bank of India, the appellant
bank herein had to intervene, and they were also heard on the
question as to which bank had the first charge over the security
interest created by the original borrowers.
(j) The appellant bank herein being dissatisfied with the order
passed by the DRAT referred to above challenged the same
by filing a writ petition before the High Court. The High court
proceeded on the footing that the DRAT was right in recording
a finding that the mortgage of the flat in question created in
favour of the appellant bank herein was subsequent in point of
time and besides the same, the appellant bank had no valid title
deeds with them at the time of sanctioning the loan in favour
of the original borrowers.
(k) In short, the finding of fact recorded by the High Court in its
impugned judgment is that the flat was mortgaged with the
Central Bank of India on 31.10.1989, whereas the mortgage
claimed by the appellant Bank herein was of October, 1998.
[2025] 2 S.C.R. 1099

The Cosmos Co. Operative Bank Ltd. v. Central Bank of India & Ors.

(l) The High Court observing as aforesaid, rejected the writ petition
filed by the appellant herein. The relevant observations made
by the High Court in its impugned judgment read thus: -
“6. By the impugned order, therefore, the DRAT had
arrived at a clear finding of fact that the mortgage
of the said flat to the Petitioner-Cosmos Bank is
‘subsequent’ to the mortgage of the Respondent-
Central Bank apart from the fact that the Petitioner-
Cosmos Bank did not have title deeds pertaining to
the said flat. This finding was arrived at by DRAT
as the said flat was mortgaged to the Respondent-
Central Bank on 31-10-1989, whereas the mortgage
claimed by the Petitioner-Cosmos Bank was of
October 1998.
7. It is brought out in the Affidavit-in-Reply of the
Respondent-Central Bank that the Respondent-
Central Bank had Initially filed a suit against the
borrower/guarantors (Respondents Nos.2 to 4 herein)
in this Court on 5 September 1994. By an interim
order dated 20-10-1994, this Court had appointed a
Court Receiver in respect of the said flat.
8. It would thus be evident that at the time of sanction
and grant of the Loan by the Petitioner-Cosmos
Bank i.e. sometime in November 1998, the said flat
was in custodia legis as the Court Receiver was
appointed in the year 1994. In these circumstances,
there appears to be substance in this submission
of the learned Counsel for the Respondent-Central.
Bank that the validity of the mortgage of the said flat
in favour of the Petitioner-Cosmos Bank was even
otherwise questionable. The suit which was filed in
this Court was ultimately transferred to DRT only in
the year 2002 and numbered as O.A.No. 74 of 2002.
Before this Court, the Petitioner-Cosmos Bank have
essentially relied upon the Share Certificate which was
as a matter of fact issued by the Society only in the
year 1989 (as the Society itself was formed in the year
1986-87) and Agreement for Sale dated 7-12-1978
1100 [2025] 2 S.C.R.

Supreme Court Reports

(which is subsequent to Agreement for Sale dated
09-11-1978 relied upon by the Respondent-Central
Bank). Both the Agreements are unregistered. It Is
not even pleaded by the Petitioner-Cosmos Bank in
the present Petition that the documents of title deeds
relied upon by the Respondent-Central Bank were not
credible or that the mortgage of the said flat in favour
of the Respondent-Central Bank was not valid. In any
event, it can be hardly disputed that the mortgage in
favour of the Respondent- Central Bank was prior
in point of time. In the circumstances, in our view,
the DRAT rightly held in the impugned order that the
alleged mortgage of the Petitioner-Cosmos Bank was
subsequent in point of time to the mortgage of the
Respondent-Central Bank.
9. In view of the aforesaid discussion, we are unable
to find fault with the impugned order of the DRAT.
The Petition is, accordingly, dismissed. The Recovery
Officer, DRT may now pass appropriate orders as
regards the distribution of the sale proceeds of the
said flat which has been deposited in the DRT.”
4. In such circumstances referred to above, the appellant bank is here
before this Court with the present appeal.

B. SUBMISSIONS OF THE PARTIES

i. Submissions on behalf of the appellant Cosmos Co.
Operative Bank.
5. The learned counsel appearing for the appellant bank vehemently
submitted that the High Court committed an egregious error in
rejecting the writ petition filed by his client and thereby affirming an
equally egregious order passed by the DRAT.
6. He would submit that indisputably the first mortgage was created
in favour of the Central Bank of India, but the said mortgage was
invalid or rather having no force in law. According to him any bank,
while sanctioning the loan would ensure that what is being offered by
way of security is something valid. In such circumstances, when an
unregistered agreement of sale was offered as a title deed, it was of
[2025] 2 S.C.R. 1101

The Cosmos Co. Operative Bank Ltd. v. Central Bank of India & Ors.

no value as it is a settled law that agreement of sale does not confer
any right title or interest. Far from being a registered agreement of
sale, in the case on hand, what was offered by way of security to
the Central Bank was an unregistered agreement of sale.
7. In the aforesaid context, the learned counsel first invited the attention
of this Court to Section 54 of the Transfer of Property Act, 1884 (for
short, the “Act, 1884”) which defines the terms sale. Thereafter he
invited the attention of this Court to Section 58 of the Act, 1884 which
defines the term “Mortgage”, “mortgagor”, “mortgagee”, “mortgage-
money” and “mortgage-deed”.
8. He laid much emphasis on sub-section (a) of Section 58, which
explains what is mortgage. Thereafter, he invited the attention of the
Court to Section 100 of the Act, 1884 which explains what is “charge”.
9. The learned counsel thereafter invited the attention of this Court to
certain provisions of the Maharashtra Ownership Flats (Regulation
of the promotion of construction, sale, management and transfer)
Act, 1963 (for short the “Act 1963”) more particularly Section(s) 4,
4A and 11 therein, respectively.
10. He thereafter invited the attention of this Court to few provisions of
the Maharashtra Apartment Ownership Act 1970 (for short the “Act,
1970”) more particularly the preamble to the Act and Sections 2, 4
and 5 respectively.
11. To fortify his submissions more particularly the principal contention
that the respondent no. 1 Bank cannot be said to have the first
charge over the mortgaged property, he relied on few decisions of
this Court, which are as under: -
i. Suraj Lamp & Industries (P) Ltd. (2) through Director v.
State of Haryana and Another reported in (2012) 1 SCC 656
more particularly paras 16 and 19 respectively therein.
ii. Bank of India v. Abhay D. Narottam and Others reported in
(2005) 11 SCC 520 more particularly the observations made
in paras 9 and 11 respectively therein.
iii. Anita Enterprises and Anr. v. Belfer Coop. Housing Society
Ltd. and Ors. reported in (2008) 1 SCC 285 more particularly
the observations made in para 41 therein.
1102 [2025] 2 S.C.R.

Supreme Court Reports

iv. Dattatreya Shanker Mote and Ors. v. Anand Chintaman Datar
and Ors. reported in (1974) 2 SCC 799 more particularly the
observations made in para 67 therein.”
12. In such circumstances referred to above, the learned counsel prayed
that there being merit in his appeal, the same may be allowed and
the impugned order passed by the High Court may be set aside.

ii. Submissions on behalf of the respondent no.1; Central
Bank of India.
13. On the other hand, the learned counsel appearing for the Central
Bank of India submitted that no error not to speak of any error of
law could be said to have been committed by the High Court in
passing the impugned order. He would submit that indisputably
the first charge over the mortgaged property is that of the Central
Bank.
14. At this stage, we must record that the learned counsel wanted to place
few additional documents on record to make good his case that the
view taken by the High Court is correct. However, considering the
fact that this litigation is pending past almost 10 years, we declined
such request.
15. We requested the learned counsel to proceed on the basis of the
material on record and make good his case that the impugned order
passed by the High Court needs no interference.
16. He would submit that there are concurrent findings recorded by the
DRAT and by the High Court in so far as the validity of the mortgage
is concerned and also which bank has the first charge over the
mortgaged property.
17. In such circumstances, referred to above, the learned counsel would
submit that there being no merit in this appeal, the same may be
dismissed.

C. ISSUE FOR CONSIDERATION
18. Having heard the learned counsel appearing for the parties and
having gone through the materials on record, the only question that
falls for our consideration is whether the High Court committed any
error in passing the impugned order.
[2025] 2 S.C.R. 1103

The Cosmos Co. Operative Bank Ltd. v. Central Bank of India & Ors.

D. ANALYSIS

i. Relevant Provisions
19. Before adverting to the rival submissions canvassed on either side, we
must look into the few provisions of the law relevant for the purpose
of deciding the present appeal which are as follows: -

SECTION(S) 58 AND 100 OF THE ACT, 1884.
“58. “Mortgage”, “mortgagor”, “mortgagee”, “mortgage-
money” and “mortgage-deed” defined.—
(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. The transferor is called a mortgagor, the transferee
a mortgagee; the principal money and interest of which
payment is secured for the time being arc 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 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 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 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 the property to the seller, the transaction is
called a mortgage by conditional sale and the mortgagee
a mortgagee by conditional sale:
1104 [2025] 2 S.C.R.

Supreme Court Reports

Provided that no such transaction shall be deemed to
be a mortgage, unless the condition is embodied in the
document which effects or purports to effect the sale.
(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 authorises 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 and to appropriate the same in
lieu of interest, or in 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 re-pay the mortgage-money on a certain date,
and transfers the mortgaged property 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.
(f) Mortgage by deposit of title-deeds.— Where a person in
any of the following towns, namely, the towns of Calcutta,
Madras, and Bombay, 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.
(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.”
“100. Charges.—
Where immoveable property of one person is by act of
parties or operation of law made security for the payment
of money to another, and the transaction does not amount
[2025] 2 S.C.R. 1105

The Cosmos Co. Operative Bank Ltd. v. Central Bank of India & Ors.

to a mortgage, the latter person is said to have a charge
on the property; and all the provisions hereinbefore
contained which apply to a simple mortgage shall, so far
as may be, apply to such charge. Nothing in this section
applies to the charge of a trustee on the trust property for
expenses properly incurred in the execution of his trust,
5 [and, save as otherwise expressly provided by any law
for the time being in force, no charge shall be enforced
against any property in the hands of a person to whom
such property has been transferred for consideration and
without notice of the charge.”

SECTIONS 4, 4A AND 11 RESPECTIVELY OF THE ACT, 1963
“4. Promoter before accepting advance payment or
deposit to enter into agreement and agreement to be
registered. –
(1) Notwithstanding anything contained in any other law,
a promoter who intends to construct or constructs a block
or building of flats, all or some of which are to be taken or
are taken on ownership basis, shall, before, he accepts
any sum of money as advance payment or deposit, which
shall not be more than 20 per cent. of the sale price
enter into a written agreement for sale with each of such
persons who are to take or have taken such flats, and
the agreement shall be registered under the Registration
Act, 1908 (hereinafter in this section referred to as “the
Registration Act”) and such agreement shall be in the
prescribed form.”
(lA) The agreement to be prescribed and sub-section (1)
shall contain inter alia the particulars as specified in clause
(a); and to such agreement there shall be attached the
copies of the documents specified in clause (b),-
(a) particulars,-
(i) if the building is to be constructed, the liability of
the promoter to construct it according to the plans
and specifications approved by the local authority
where such approval is required under any law for
the time being in force;
1106 [2025] 2 S.C.R.

Supreme Court Reports

(ii) the date by which the possession of the flat is to
be handed over to the purchaser;
(iii) the extent of the carpet area of the flat including
the area of the balconies which should be shown
separately;
(iv) the price of the flat including the proportionate
price of the common areas and facilities which should
be shown separately, to be paid by the purchaser of
flat; and the intervals at which instalments thereof
may be paid;
(v) the precise nature of organisation to be constituted
of the persons who have taken or are to take the flats;
(vi) the nature, extent and description of limited
common areas and facilities;
(vii) the nature, extent and description of limited
common areas and facilities, if any;
(viii) percentage of undivided interest in the common
areas and facilities appertaining to the flat agreed
to be sold;
(ix) statement of the use of which the flat is intended
and restriction of its use, if any;
(x) percentage of undivided interests in the limited
common areas and facilities, if any, appertaining to
the flat agreed to be sold;
(b) copies of documents,-
(i) the certificate by an Attorney at law or Advocate
under clause (a) of sub-section (2) of section 3;
(ii) Property Card or extract of village Forms VI or
VII and XII or any other relevant revenue record
showing the nature of the title of the promoter to the
land on which the flats are constructed or are to be
constructed;
(iii) the plans and specifications of the flat as approved
by the concerned local authority.
[2025] 2 S.C.R. 1107

The Cosmos Co. Operative Bank Ltd. v. Central Bank of India & Ors.

(2) Any agreement for sale entered into under sub-
section (1) shall be presented by the promoter or by any
other person competent to do so under section 32 of
the Registration Act, at the proper registration office for
registration, within the time allowed under sections 23 to 26
(both inclusive) to the said Act and execution thereof shall
be admitted before the registering officer by the person
executing the document or his representative, assign or
agent as laid down in sections 34 and 35 of the said Act
also within the time aforesaid:
Provided that, where any agreement for sale is entered
into, or is purported to be entered into, under sub-
section (1), at any time before the commencement of
the Maharashtra Ownership Flats (Regulation of the
promotion of construction, sale, management and transfer)
(Amendment and Validating Provisions) Act, 1983, and
such agreement was not presented for registration or was
presented for registration but its execution was not admitted
before the registration officer by the person concerned,
before the commencement of the said Act, then such
document may be presented at the proper registration
office for registration, and its execution may be admitted,
by any of the persons concerned referred to above in
this sub-section, on or before the 31st December 1984,
and the registering officer shall accept such document for
registration, and register it under the Registration Act, as if
it were presented, and its execution was admitted, within
the time laid down in the Registration Act:
Provided further that, on presenting a document for
registration as aforesaid if the person executing such
document or his representative, assign or agent does
not appear before the registering officer and admit the
execution of the document, the registering officer shall
cause a summons to be issued under section 36 of the
Registration Act requiring the executant to appear at the
registration office, either in person or by duly authorised
agent, at a time fixed in the summons. If the executant fails
to appear in compliance with the summons, the execution
on the document shall be deemed to be admitted by him
1108 [2025] 2 S.C.R.

Supreme Court Reports

and the registering officer may proceed to register the
document accordingly. If the executant appears before the
registering officer as required by the summons but denies
execution of the document, the registering officer shall,
after giving him a reasonable opportunity of being heard,
if satisfied that the document has been executed by him,
proceed to register the document accordingly.
4A. Effect of non-registration of agreement required
to be registered under section 4.-
Where an agreement for sale entered into under sub-
section (1) of section 4, whether entered into before or
after the commencement of the Maharashtra Ownership
Flats (Regulation of the promotion of construction, sale,
Management and transfer) (Amendment and Validating
Provisions) Act, 1983, remains unregistered for any reason,
then notwithstanding anything contained in any law for
the time being in force, or in any judgement, decree or
order of any Court, it may be received as evidence of a
contract in a suit for specific performance under Chapter
II of the Specific Relief Act, 1963, or as evidence of part
performance of a contract for the purposes of section 53A
of the Transfer of Property Act, 1882, or as evidence of
any collateral transaction not required to be effected by
registered instrument.

xxx xxx xxxx
11. Promoter to convey title, etc., and execute
documents, according to agreement-
(1) A promoter shall take all necessary steps to complete
his title and convey to the organisation of persons, who
take flats, which is registered either as a co-operative
society or as a company as aforesaid or to an association
of flat takers or apartment owners, his right, title and
interest in the land and building, and execute all relevant
documents therefor in accordance with the agreement
executed under section 4 and if no period for the execution
of the conveyance is agreed upon, he shall execute the
conveyance within the prescribed period and also deliver
[2025] 2 S.C.R. 1109

The Cosmos Co. Operative Bank Ltd. v. Central Bank of India & Ors.

all documents of title relating to the property which may
be in his possession or power.
(2) It shall be the duty of the promoter to file with the
Competent Authority, within the prescribed period, a copy
of the conveyance executed by him under sub-section (1).
(3) If the promoter fails to execute the conveyance in
favour of the Cooperative society formed under section 10
or, as the case may be, the Company or the association
of apartment owners, as provided by sub-section (1),
within the prescribed period, the members of such Co-
operative society or, as the case may be, the Company
or the association of apartment owners may, make an
application, in writing, to the concerned Competent
Authority accompanied by the true copies of the registered
agreements for sale, executed with the promoter by each
individual member of the society or the Company or the
association, who have purchased the flats and all other
relevant documents (including the occupation certificate,
if any), for issuing a certificate that such society, or as
the case may be, Company or association, is entitled to
have an unilateral deemed conveyance, executed in their
favour and to have it registered.
(4) The Competent Authority, on receiving such application,
within reasonable time and in any case not later than six
months, after making such enquiry as deemed necessary
and after verifying the authenticity of the documents
submitted and after giving the promoter a reasonable
opportunity of being heard, on being satisfied that it is a
fit case for issuing such certificate, shall issue a certificate
to the Sub-Registrar or any other appropriate Registration
Officer under the Registration Act, 1908, certifying that it is
a fit case for enforcing unilateral execution, of conveyance
deed conveying the right, title and interest of the promoter
in the land and building in favour of the applicant, as
deemed conveyance.
(5) On submission by such society or as the case may
be, the Company or the association of apartment owners,
to the Sub-Registrar or the concerned appropriate
1110 [2025] 2 S.C.R.

Supreme Court Reports

Registration Officer appointed under the Registration Act,
1908, the certificate issued by the Competent Authority
alongwith the unilateral instrument of conveyance, the
Sub-Registrar or the concerned appropriate registration
Officer shall, notwithstanding anything contained in the
Registration Act, 1908, issue summons to the promoter to
show cause why, such unilateral instrument should not be
registered as ‘deemed conveyance’ and after giving the
promoter and the applicants a reasonable opportunity of
being heard, may on being satisfied that it was fit case
for unilateral conveyance, register that instrument as,
‘deemed conveyance’.”

SECTIONS 2, 4 AND 5 RESPECTIVELY OF THE ACT,
1970
“2. Application of the Act. -
This Act applies only to property, the sole owner or all of
the owners of which submit the same to the provisions of
this Act by duly executing and registering a Declaration
as hereinafter provided : Provided that, no property shall
be submitted to the provisions of this Act, unless it is used
or proposed to be used for residence, office, practice of
any profession or for carrying on any occupation, trade
or business or for any other type of independent use :

xxx xxx xxxx
4. Status of apartments. –
Subject to the provisions of the second proviso to section
2 of this Act, each apartment, together with its undivided
interest in the common areas and facilities, appurtenant to
such apartment, shall for all purposes constitute heritable
and transferable immoveable property within the meaning
of any law for the time being in force in the State;
and accordingly, an apartment owner may transfer his
apartment and the percentage of undivided interest in the
common areas and facilities appurtenant to such apartment
by way of sale, mortgage, lease, gift, exchange or in any
other manner whatsoever in the same manner, to the
[2025] 2 S.C.R. 1111

The Cosmos Co. Operative Bank Ltd. v. Central Bank of India & Ors.

same extent and subject to the same rights, privileges,
obligations, liabilities, investigations, legal proceedings,
remedies and to penalty, forfeiture and punishment as
any other immoveable property, or make a bequest of
the same under the laws applicable to the transfer and
succession of immoveable property.
5. Ownership of apartments. –
(1) Each apartment owner shall be entitled to the exclusive
ownership and possession of his apartment in accordance
with the Declaration executed and registered as required
by section 2 of this Act.
(2) Each apartment owner shall execute a Deed of
Apartment in relation to his apartment in the manner
prescribed for the purpose.”
20. Without any doubt in our mind, we say that the High Court fell in
error more particularly, in view of, what has been observed in para
8 of the impugned order. The law is very well settled as explained
by this Court in Suraj Lamp (supra) that a contract of sale i.e. an
agreement of sale does not itself create any interest in or charge
on any property. This is evident on plain reading of Section 54 of
the Act, 1884 which we have referred to above.
21. In the aforesaid context, the decision of this Court in Abhay D.
Narottam (supra) is also relevant more particularly the observations
made in para 11 therein. Paras 9 and 11 read thus: -
“9. It is not necessary for us to determine the import of
Section 125 of the Companies Act as we are of the opinion
that the appeal must be dismissed on a much more basic
ground. “Mortgage” has been defined in Section 58(a) of the
Transfer of Property Act, 1882 as a transfer of an interest
in specific immovable property for the purpose of securing
the payment of money advanced or to be advanced by
way of loan, etc. Without a transfer of interest there is no
question of there being a mortgage. The same principle
would apply to a charge under Section 100 of the Transfer
of Property Act. Section 100 provides that all the provisions
which apply to a simple mortgage shall, so far as may be,
apply to such charge. The definition of simple mortgage in
1112 [2025] 2 S.C.R.

Supreme Court Reports

Section 58(b) of the Act merely speaks of the procedure
and describes that species of mortgage.

xxx xxx xxxx
11. As far as the flat is concerned, it needs no authority
to say that a contract for sale of immovable property does
not of itself create any interest in or charge over such
property. This is provided in Section 54 of the Act and is
well-settled law. In this case, the agreement for sale which
was deposited by Respondent 2 with the appellant Bank
was not an agreement by which Respondent 2 agreed
to sell the property to a third party, but an agreement to
sell the flat to Respondent 2. No interest was created in
favour of Respondent 2 by virtue of this agreement for sale
which could have been transferred by way of security to
the appellant Bank. There is as such no question of the
appellant Bank having any charge over such non-existent
interest.”
(Emphasis supplied)

22. The observations referred to above are directly applicable to the
facts of the present case.
23. The observations made by this Court in Dattatreya Shanker Mote
(supra), more particularly, in para 67 also assumes significance.
Para 67 reads thus: -
“67. The contention was that, although a charge may not
be described as “a transfer”, yet, the result of Section 100
of the Act was to equate it with a simple mortgage which
is a transfer because Section 100 says: “all the provisions
hereinbefore contained which apply to a simple mortgage
shall, so far as may be, apply to such charge”. I think that,
apart from the qualifying words, “so far as may be”, used
by Section 100 of the Act, a condition essential to the
applicability of Section 48 of the Act is that there must be an
actual transfer of property. Furthermore, another condition for
invoking Section 48 of the Act is that the previous and the
subsequently created rights “cannot all exist or be exercised
to their full extent together”. In the case before us, this does
[2025] 2 S.C.R. 1113

The Cosmos Co. Operative Bank Ltd. v. Central Bank of India & Ors.

not appear from facts found. In any case, the prior right
of the charge-holders could only obtain priority provided
other things are not unequal. This follows from words
used indicating that each of the two or more transactions
must at least be a “transfer”. Furthermore, the conditions
of priority as between the holder of a previous charge and
a subsequent simple mortgage are completely covered by
Section 100 of the Act. The principle underlying Section
48 is one expressed in the maxim of Equity: “Qui prior est
tempore potior est jure” (first in time is stronger in right).
This principle, applied to ranking between rival equitable
claims, is applied by Section 48 to contending claims of
otherwise equal legal validity. The effect of Section 100 is
that while a charge, which is not a “transfer” of property, gets
recognition as a legally enforceable claim, that enforceability
is subjected by the proviso to the requirements of a prior
notice in order to give it precedence over a legally valid
transfer of property. The rights of the appellants charge-
holders could only be exercised, on facts found, subject
to the priority obtained by the respondent mortgagee’s
rights. This clear result of the law, as contained in Section
100 of the Act, cannot be defeated by invoking either the
terms of or the principles underlying Section 48 of the Act
read with the first part only of Section 100 of the Act. If
the respondent simple mortgagee Oswal could not have
claimed the benefit of the proviso to Section 100, the first
part of Section 100, read with Section 48 of the Act, could
have come to the aid of the appellants. But, on the view
adopted by me, this line of reasoning does not help the
unfortunate charge-holders at all.”
(Emphasis supplied)

24. The observations made by this Court in Anita Enterprises (supra)
in para 41 are also relevant. The para 41 reads thus: -
“41. It appears to us that the status of a member in a
tenant co-partnership housing society is very peculiar. The
ownership of the land and building both vests in the society
and the member has, for all practical purposes, right of
occupation in perpetuity after the full value of the land and
1114 [2025] 2 S.C.R.

Supreme Court Reports

building and interest accrued thereon have been paid by
him. Although de jure he is not owner of the flat allotted
to him, but, in fact, he enjoys almost all the rights which
an owner enjoys, which includes right to transfer in case
he fulfils the two preconditions, namely, he occupies the
property for a period of one year and the transfer is made
in favour of a person who is already a member or a person
whose application for membership has been accepted
by the society or whose appeal under Section 23 of the
Societies Act has been allowed by the Registrar or to a
person who is deemed to be a member under sub-section
(1-A) of Section 23 of the Societies Act. In case any of
these two conditions is not fulfilled, a member cannot be
said to have any right of transfer. Thus, we reiterate the
law laid down by this Court in Sanwarmal [(1990) 2 SCC
288] that a member has more than a mere right to occupy
the flat, meaning thereby higher than tenant, which is not
so in the case of a tenant within the meaning of Section
5(11) of the Rent Act. This being the position, we have
no difficulty in coming to the conclusion that the status of
a member in the case of tenant co-partnership housing
society cannot be said to be that of a tenant within the
meaning of Section 5(11) of the Rent Act, as such there
was no relationship of landlord and tenant between the
Society and the member.”
(Emphasis supplied)

25. The observations made by this Court in Suraj Lamp (supra) in paras
16 and 19 are also relevant. The paras 16 and 19 respectively read
thus: -
“Scope of an agreement of sale
16. Section 54 of the TP Act makes it clear that a contract
of sale, that is, an agreement of sale does not, of itself,
create any interest in or charge on such property. This
Court in Narandas Karsondas v. S.A. Kamtam [(1977) 3
SCC 247] observed: (SCC pp. 254-55, paras 32-33 & 37)
“32. A contract of sale does not of itself create
any interest in, or charge on, the property. This is
[2025] 2 S.C.R. 1115

The Cosmos Co. Operative Bank Ltd. v. Central Bank of India & Ors.

expressly declared in Section 54 of the Transfer
of Property Act. (See Ram Baran Prasad v. Ram
Mohit Hazra [AIR 1967 SC 744 : (1967) 1 SCR
293] .) The fiduciary character of the personal
obligation created by a contract for sale is
recognised in Section 3 of the Specific Relief
Act, 1963, and in Section 91 of the Trusts Act.
The personal obligation created by a contract of
sale is described in Section 40 of the Transfer
of Property Act as an obligation arising out
of contract and annexed to the ownership of
property, but not amounting to an interest or
easement therein.
33. In India, the word ‘transfer’ is defined with
reference to the word ‘convey’. … The word
‘conveys’ in Section 5 of the Transfer of Property
Act is used in the wider sense of conveying
ownership.
***
37. … that only on execution of conveyance,
ownership passes from one party to another….”

xxx xxx xxxx
19. Any contract of sale (agreement to sell) which is not
a registered deed of conveyance (deed of sale) would fall
short of the requirements of Sections 54 and 55 of the TP
Act and will not confer any title nor transfer any interest in
an immovable property (except to the limited right granted
under Section 53-A of the TP Act). According to the TP Act,
an agreement of sale, whether with possession or without
possession, is not a conveyance. Section 54 of the TP Act
enacts that sale of immovable property can be made only
by a registered instrument and an agreement of sale does
not create any interest or charge on its subject-matter.”
(Emphasis supplied)

26. Suraj Lamp (supra) later came to be referred to and relied upon by
this Court in Shakeel Ahmed v. Syed Akhlaq Hussain reported in
1116 [2025] 2 S.C.R.

Supreme Court Reports

2023 SCC OnLine SC 1526 wherein the Court after referring to its
earlier judgment held that the person relying upon the customary
documents cannot claim to be the owner of the immovable property
and consequently not maintain any claims against a third-party. The
relevant paras read as under: -
“10. Having considered the submissions at the outset, it is to
be emphasized that irrespective of what was decided in the
case of Suraj Lamps and Industries (supra) the fact remains
that no title could be transferred with respect to immovable
properties on the basis of an unregistered Agreement to
Sell or on the basis of an unregistered General Power of
Attorney. The Registration Act, 1908 clearly provides that
a document which requires compulsory registration under
the Act, would not confer any right, much less a legally
enforceable right to approach a Court of Law on its basis.
Even if these documents i.e. the Agreement to Sell and
the Power of Attorney were registered, still it could not
be said that the respondent would have acquired title
over the property in question. At best, on the basis of
the registered agreement to sell, he could have claimed
relief of specific performance in appropriate proceedings.
In this regard, reference may be made to sections 17 and
49 of the Registration Act and section 54 of the Transfer
of Property Act, 1882.
11. Law is well settled that no right, title or interest in
immovable property can be conferred without a registered
document. Even the judgment of this Court in the case
of Suraj Lamps & Industries (supra) lays down the same
proposition. Reference may also be made to the following
judgments of this Court:
(i). Ameer Minhaj v. Deirdre Elizabeth (Wright) Issar–(2018)
7 SCC 639
(ii). Balram Singh v. Kelo Devi Civil Appeal No. 6733 of 2022
(iii). Paul Rubber Industries Private Limited v. Amit Chand
Mitra SLP(C) No. 15774 of 2022.
12. The embargo put on registration of documents would
not override the statutory provision so as to confer title
[2025] 2 S.C.R. 1117

The Cosmos Co. Operative Bank Ltd. v. Central Bank of India & Ors.

on the basis of unregistered documents with respect to
immovable property. Once this is the settled position,
the respondent could not have maintained the suit for
possession and mesne profits against the appellant, who
was admittedly in possession of the property in question
whether as an owner or a licensee.
13. The argument advanced on behalf of the respondent
that the judgment in Suraj Lamps & Industries (supra)
would be prospective is also misplaced. The requirement
of compulsory registration and effect on non-registration
emanates from the statutes, in particular the Registration
Act and the Transfer of Property Act. The ratio in Suraj
Lamps & Industries (supra) only approves the provisions
in the two enactments. Earlier judgments of this Court
have taken the same view.”

iii. Concept of Equitable Mortgage.
27. The question whether Central Bank of India i.e., the respondent
no. 1 herein had a valid mortgage or not can be looked at from one
another angle. It is an undisputed fact that the original borrowers
herein whilst availing the loan facility from the respondent no. 1
bank herein had offered the said flat in question as a security, and
pursuant to the same had willingly deposited the agreement of sale
in respect of the same with the respondent no. 1 bank.
28. Although, indisputably as discussed in the foregoing paragraphs the
said agreement to sale can by no means be treated as title deeds to
the said flat and as such would not constitute a mortgage in terms
of Section 58 of the Act, 1884, yet could it be said that there was no
charge created on the said flat at all by the original borrowers? Could
it be argued that the failure to deposit the share certificate to the
said flat at the time of availing the loan for whatsoever reasons by a
necessary implication nullifies the charge that was intended or sought
to be created over the said flat in favour of the appellant bank herein,
merely because the agreement to sale in itself does not purport any
title even though the intention of the parties was to create a charge
over the flat? The answer to the same has to be an emphatic “No”.
29. Before we proceed to explain the aforesaid, it would be apposite for
us to understand the concept of “Equitable Mortgage”. Under the
1118 [2025] 2 S.C.R.

Supreme Court Reports

English Law, broadly there are two kinds of mortgages; (i) a legal
mortgage and (ii) an equitable mortgage. A ‘legal mortgage’ entails
creation of a charge by way of conveyance of a proprietary interest
over the property or security in favour of the lender in accordance
with the formalities set out under the Law of Property Act, 1925.
This is typically effectuated through execution of a deed of charge
or a mortgage deed simpliciter. While such conveyance need not
involve transfer of the title or ownership in itself nor is the conveyance
required to be physical or actual and may be symbolic in nature
where the borrower or mortgagor continues to retain possession or
even title of the mortgaged property; however, the de jure effect of
such conveyance must be in the nature of vesting the lender with
an enforceable right to take possession, to foreclose or to sell the
property in the event of default. Thus, the legal effect of the deed of
charge or mortgage must convey certain enforceable rights in favour
of the lender or mortgagor over the mortgaged property even though
the title or ownership may not be transferred.
30. However, there may be instances where the parties agree to
mortgage a property as security, but no formal charge or conveyance
of any proprietary interest in the said property has taken place,
still the same may be recognized as a mortgage. This is popularly
understood as an ‘equitable mortgage’ where although under the
law the formalities required for creating a legal charge or mortgage
over a property are patently absent, yet the said property would
be in equity deemed to have been mortgaged and as such may
be apportioned or appropriated by the lender on the strength of
mere intention of the parties to create a mortgage. In other words,
where under the law no mortgage or charge is said to have been
created over a property i.e., no conveyance of a right or interest
over the subject property has been effected, yet if the intention of
parties to create a mortgage is clear, equity would demand that
such intention is not only respected but given some effect to and
the said property be deemed to have been mortgaged so as to
enable the lender to assert its rights over the same, it is known as
an ‘equitable mortgage’.
31. The concept or doctrine of ‘equitable mortgage’ owes its origin to
the English case of Russel v. Russel reported in [1783] 28 E.R.
1121 wherein the High Court of Chancery speaking through Lord
Thurlow held that where there is delivery of title by the borrower to
[2025] 2 S.C.R. 1119

The Cosmos Co. Operative Bank Ltd. v. Central Bank of India & Ors.

the lender for the purpose of availing a loan, although such deposit
may not constitute a valid mortgage, but the courts in granting
specific performance to the lender to create a security or lien over
the property would effectively be “supplying the legal formalities
necessary to create nothing but a mortgage though one in equity”. He
explained that the court in permitting the lender to create a security
over the property on the strength of the title deeds lying with it is
not per se performance of a contract but rather its execution and
hence for all purposes would be a mortgage inter se the borrower
and the lender in equity. He lastly elaborated that the further grant
of relief to execute such a contract which is not a valid mortgage
but nevertheless being converted into one is grounded on it being
already being a contract part performed. [See; J.B. White & Tudor
in Equitable Mortgage and Leading Cases in Equity, 9th Ed. (Sweet
& Maxwell (1928)]
32. Thus, the underlying distinction between a legal mortgage and an
equitable mortgage under the English Law is that in the former,
there is conveyance or transfer of some proprietary interest in the
mortgaged property in accordance with the statute or law whereas
in the latter the formalities required for a legal mortgage are not fully
satisfied, but the parties’ intentions to create a mortgage are clear
as result of which it is deemed as a mortgage.
33. The rationale behind the existence of the concept of an ‘equitable
mortgage’ was elaborated upon by Sir William Holdsworth in A
History of English Law. He explained that the evolution of equitable
mortgage is based on the principle that a mortgage at its core is
essentially nothing more than a ‘security’. It is not intended as a
mechanism of transferring either ownership or any vested interest in
the strict sense but rather only a means for providing a security. He
elaborated how ‘equitable mortgages’ of today’s time is a reflection
of the practicalities of the then mercantile system of the time where
due to the commercial exigencies and need for quick financial
arrangements led the community to resort to the informal practice
of extending loans and creating security by mere deposit of titles
or a promissory note to repay solely on a ‘mutual understanding’
between the parties, without any actual agreement or memorandum
and without following the cumbersome formalities of any transfer of
conveyance of proprietary rights as required under a traditional or
legal mortgage.
1120 [2025] 2 S.C.R.

Supreme Court Reports

34. The aforesaid may be better understood through the well-known
maxim of ‘Quod fieri debuit pro facto censetur’ which means that ‘what
ought to have been done is considered as done’. Edward Henry Turner
Snell in his book on The Principles of Equity explained that the role of
equity in law is only one i.e. to rectify the injustice arising out of the
rigidities of the law, to intervene and ensure that substantive justice
prevails over mere formalities or hyper technicalities, even when strict
legal requirements have not been met. Snell articulated that equity
operates as a “court of conscience” tempering the harshness of the
law and fulfilling its enduring mission to deliver fairness and justice
where the rigid application of legal rules would otherwise result in
inequity. In the context of mortgages, take a situation where there is
no express document or deed to evince that a charge was created
over the subject property and the parties at the time of availing the
loan merely agreed that they would create a mortgage in the event
of default. In the eyes of law, it would be said that no mortgage
has been created whatsoever, yet the understanding between the
parties to later create a mortgage at the time whilst advancing the
loan shows the ab initio intention to create a charge and treat the
subject property as a security or a collateral for the sum so advanced.
Under the general principle of law, the recourse that would ordinarily
be available to the lender in the aforesaid situation would be to seek
specific performance of the said agreement (oral or written) to create
a mortgage on the strength that there has been part performance
of the agreement i.e., loan has been advanced and thus, charge
should now be permitted to be created, and thereafter proceed to
exercise its rights after the said mortgage is created. But a “court of
conscience” would instead of subjecting the lender to the rigmarole of
the law, will directly give effect to the true sum and substance of the
intention of the parties and thereby give to the very agreement itself
the effect of creating a mortgage in ‘equity’ and enable the lender to
exercise its rights as he would be entitled to if the agreement had
been performed.
35. Thus, where a borrower willingly parts away with any title deed or
a document or a promissory note or an undertaking in respect of a
property by depositing it with the lender for the purpose of availing
any credit facility and upon such deposit, the loan is so advanced
by the lender, fairness, good conscience and justice or in other
words ‘equity’ would demand that some meaningful significance
be given to such act or conduct of the parties, as generally such
[2025] 2 S.C.R. 1121

The Cosmos Co. Operative Bank Ltd. v. Central Bank of India & Ors.

act of depositing documents against loans is more often than not
for no other purpose but to create a mortgage. Thus, a “court of
conscience” would give effect to the intention of the parties in the
form of an ‘equitable mortgage’ even if there is no formal agreement
or a shred of document expressly providing that such deposit is for
the purpose of creating a charge OR if the documents so deposited
do not necessarily have the effect of transferring or conveyancing
any title or interest in the subject property to the lender.

iv. Nature of an Equitable Mortgage.
36. Having understood the concept of ‘equitable mortgage’, it would
now be apposite to understand the ways in which an equitable
mortgage may be created and its nature. Under the English Law,
the two primary ways for creating an ‘equitable mortgage’ is either
(i) by deposit of the original title deeds to the subject property
with the lender or where the original title deeds are retained by the
borrower then (ii) by way of a memorandum of understanding or
an agreement simpliciter recording the intention of the parties
to create a charge over the subject property.
37. In the case on hand, the original borrowers had availed loan facilities
from both, the appellant bank and the respondent no. 1 bank herein by
deposit of certain documents in respect of the said Flat. For availing
the loan facility from the respondent no. 1 bank, the original borrowers
deposited two unregistered agreement to sale dated 15.10.1973 and
09.11.1978 respectively in relation to the said Flat all the way back in
1989. Whereas, whilst availing the loan facility from the appellant bank
herein in the year 1998 the original borrowers deposited one another
unregistered agreement to sale dated 07.12.1978 in respect of the
said flat which is subsequent in time along with a share certificate
of ownership of the said Flat dated 14.09.1989 that was issued by
the concerned cooperative housing society.
38. Indisputably, when the loan was granted to the original borrowers,
the share certificate of ownership being the sole document for
conveyance of title had not been issued by the concerned housing
society. In such a scenario, could it be said that in order to create
a mortgage by deposit of title deeds, the respondent no. 1 bank
was required to take or collect all documents and deeds of title to
the said Flat in its possession, more particularly when the title deed
or share certificate of ownership was not in existence at that time?
1122 [2025] 2 S.C.R.

Supreme Court Reports

39. The High Court of Chancery in Robberts v. Croft reported in 44 E.R.
887 and a catena of other decisions have emphatically answered
the aforesaid question in a negative. It has been held that “[...] It
is not necessary, to create an equitable mortgage, that all the title
deeds, or even all the material title deeds, should be deposited. It
is sufficient if the deeds deposited are material evidence of title.”
40. In fact, the English Courts have gone to the extent of saying that
the title deeds are not the only documents a deposit of which may
create an equitable charge upon the subject property, and that even a
promissory note or an agreement for purchase of the subject property
can create an equitable mortgage. [See; Ex parte Warner, reported
in [1812] 19 Ves Jr 202; Lacon v. Allen reported in [1856] 3 Drew.
579]. Samuel Miller in The Law of Equitable Mortgages explained
the aforesaid with a illustration that take a case where the owner
has lost an important deed or where the deeds which have been
deposited while purporting title to the property contain no reference
to any other material deeds, or a situation where there exists no
possible way for the lender to ascertain whether any other deeds or
documents are actually outstanding, should the lender be deprived
of the benefit of the deposit of the other documents even if the
intention of parties to create a mortgage is clear? In his opinion, the
principle underlying the doctrine of ‘equitable mortgages’ is premised
to mitigate these very hardships or technicalities that often emerge
in transactions of such nature from coming in the way of creation
and enforcement of mortgages. He added, to hold otherwise, would
be nothing but an unfaithful dilution of the doctrine of equitable
mortgages and by extension the concept of ‘equity’ based justice.
This is because for deciding a question of an equitable mortgage, the
court is not required to look for deposit of a valid legal title, because
no passing or transfer of title is involved in the first place in equitable
mortgage unlike a legal mortgage, rather what the courts look for is
a transaction in the nature of a contract whereby the interests of the
borrower embraced in the subject property may be later subjected
and made liable for the debt.
41. Even though, the High Court of Chancery speaking through Lord
Eldon in the case of In Re: Rice reported in [1819] 36 E.R. 632
argued against the idea of extending the doctrine of ‘equitable
mortgage’ to instances of deposit of ‘part-deeds’ to discourage the act
of scrupulous borrowers of obtaining loans from multiple creditors by
[2025] 2 S.C.R. 1123

The Cosmos Co. Operative Bank Ltd. v. Central Bank of India & Ors.

dividing and depositing different deeds with each of them, the position
under the English Law has continued to remain the same i.e., part
deposits of title would be sufficient to create an equitable mortgage
and that there is neither any requirement that the mortgagee or the
lender should be required to acquire every title deed, nor is there
any requirement that the documents so deposited show a good title
to the vested property. [See; Robberts (supra). What is required is
that the deeds or documents so deposited materially evinces the
intention of the parties to create a charge over the subject property
and the mortgagor assures itself that he has acquired all available
titles or documents.
42. The Court of Chancery speaking through Lord Eldon in Knight v.
Knight reported in (1840) 3 Beav 148 held that “equity looks to the
intent rather than the form”. Thus, even if the document that was
deposited with the lender falls short, it would still be enforceable in
equity provided the intention of the parties to do so is as clear as a
noon day. In the case at hand, even though what was deposited with
the respondent no. 1 bank herein was nothing but an unregistered
agreement to sale having no legal effect of conveyance or transfer of
the said flat or any right therein in favour of the bank, the undisputed
factum that the said agreement to sale was deposited by the original
borrowers herein so as to offer the said flat as security would
tantamount to an equitable mortgage. Moreover, since at the time of
availing the loan, the share certificate of ownership to the said Flat
was yet to be issued, it could be said that the respondent no. 1 bank
had all the documents to the said Flat that it could have at that time
possibly taken in possession, and we even proceed on the footing that
the respondent no. 1 bank might have undertaken all the necessary
steps to assure itself that there were no other material documents
to be taken possession of at the time of extending the loan.
43. Thus, where ‘equitable mortgages’ have been created based on
deposit of part-deeds or documents purporting title or evincing
intention of parties to create an interest, all such deposits will be
a valid mortgage in equity and the charge that might have been
created prior in time will assume priority over any subsequent
charges or mortgagors. However, since such a mortgage is an
‘equitable mortgage’ any rights flowing from such mortgages are
only of personal character and only rights in personam and as such
will not operate against any strangers or subsequent incumbrancers
1124 [2025] 2 S.C.R.

Supreme Court Reports

unaware of such equitable mortgage. This stems from the rule that
equity acts only in personam. The very basis for creation of an
‘equitable mortgage’ is the intention of parties alone, and as such
any action or remedy can be directed only against the parties so
involved. This is because, unlike a legal mortgage where a ‘charge’ is
created directly on the property itself and the title or any proprietary
interest therein is transferred to the lender thereby becoming a right
enforceable in rem in respect to the property, in case of an ‘equitable
mortgage’ no such charge is said to have been formally created on
the property nor any transfer or conveyance of interest has said to
occur. Rather on the contrary, the de jure title or ownership continues
to vest with the original borrower and only the documents thereof is
ordinarily retained by the lender and as such the right of the lender
in such a situation is being enforced through the party having title
over the said property alone i.e., the borrower and thus is only a
right in personam. Edgar N. Durfee in The Lien or Equitable Theory
of the Mortgage explaining the aforesaid stated that, in cases of
equitable mortgage in the absence of any ‘conveyance’ or creation
of ‘charge’, the money so advanced against the subject property is
only in the form of a personal debt and hence a right in personam
at best and the right of the lender to apportion or appropriate the
subject property for repayment of loan only a right to take such an
action rather than a right in the property itself.
44. ‘Equitable Mortgage’ being a right in personam will not affect
successive incumbrances and will not be enforceable against
successive mortgagees if the creation of such equitable charge
was no disclosed to them. This is particularly because, ‘equitable
mortgages’ are construed as ‘incomplete mortgages’ (as no actual
charge is created nor any conveyance of title has taken place) and
thus no person can be permitted to derive any advantage from any
incomplete title who has on his own volition not done everything
requisite to complete its title. If a first mortgagee voluntarily either
leaves the title deeds with the mortgagor, or voluntarily accepts
part-deeds and fails to either secure the rest or assure himself of
any outstanding deeds or documents, then the charge of such first
mortgagee must be postponed to any and all subsequent mortgagees,
without notice of the charge of first mortgagee, because he due to
his own gross negligence enabled the subsequent incumbrances.
Thus, even if multiple equitable mortgages are created, the first
[2025] 2 S.C.R. 1125

The Cosmos Co. Operative Bank Ltd. v. Central Bank of India & Ors.

charge will have priority, unless in case of fraud or gross negligence,
or a voluntary, distinct, and unjustifiable concurrence, on the part of
the first mortgagee in either (i) retaining the remaining deeds or (ii)
failure to take steps in putting everyone to notice, more particularly
the subsequent incumbrancers about the first equitable mortgage.
Where the first mortgagor has made bond fide inquiry for them and
received a reasonable excuse for their non-delivery, he shall not be
postponed to a subsequent equitable mortgage that may be created.
45. In India, the aforesaid has been recognized in Section 78 of the
Act, 1882 which provides that where on account of any fraud,
misrepresentation or gross neglect of a prior mortgagee, another
person has been induced to advance money on the security of the
mortgaged property, the prior mortgagee shall be postponed to the
subsequent mortgagee. The said provision reads as under: -
78. Postponement of prior mortgagee. —
Where, through the fraud, misrepresentation or gross
neglect of prior mortgagee, another person has been
induced to advance money on the security of the mortgaged
property, the prior mortgagee shall be postponed to the
subsequent mortgagee.
46. It is in this very context, this Court in Suraj Lamps (supra) emphasized
on the need for registration of documents so as to give publicity and
public exposure to various transactions in respect of immovable
properties and enable people to find out whether any particular
property with which they are concerned, has been subjected to any
legal obligation or liability and who is or are the person/s presently
having right, title, and interest in the property. The relevant observation
reads as under: -
Advantages of Registration
10. In the earlier order dated 15.5.2009, the objects and
benefits of registration were explained and we extract
them for ready reference: -
“The Registration Act, 1908, was enacted with
the intention of providing orderliness, discipline
and public notice in regard to transactions
relating to immovable property and protection
1126 [2025] 2 S.C.R.

Supreme Court Reports

from fraud and forgery of documents of transfer.
This is achieved by requiring compulsory
registration of certain types of documents and
providing for consequences of non-registration.
Section 17 of the Registration Act clearly provides
that any document (other than testamentary
instruments) which purports or operates to
create, declare, assign, limit or extinguish
whether in present or in future “any right, title
or interest” whether vested or contingent of the
value of Rs. 100 and upwards to or in immovable
property.
Section 49 al the said Act provides that
no document required by Section 17 to be
registered shall, affect any immovable property
comprised therein or received as evidence of
any transaction affected such property, unless it
has been registered. Registration of a document
gives notice to the world that such a document
has been executed.
Registration provides safety and security to transactions
relating to immovable property, even if the document is
lost or destroyed. It gives publicity and public exposure
to documents thereby preventing forgeries and frauds
in regard to transactions and execution of documents.
Registration provides information to people who may
deal with a property, as to the nature and extent of the
rights which persons may have, affecting that property.
In other words, it enables people to find out whether any
particular property with which they are concerned, has been
subjected to any legal obligation or liability and who is or
are the person/s presently having right, title, and interest
in the property. It gives solemnity of form and perpetuate
documents which are of legal importance or relevance by
recording them, where people may see the record and
enquire and ascertain what the particulars are and as far
as land is concerned what obligations exist with regard to
them. It ensures that every person dealing with immovable
[2025] 2 S.C.R. 1127

The Cosmos Co. Operative Bank Ltd. v. Central Bank of India & Ors.

property can rely with confidence upon the statements
contained in the registers (maintained under the said
Act) as a full and complete account of all transactions by
which the title to the property may be affected and secure
extracts/copies duly certified.”
(Emphasis supplied)

47. In the present case, it appears from the materials on record, that
when the loan was being advanced by the respondent no. 1 bank, a
Memorandum of Equitable Mortgage recording transfer / deposit of
the agreement to sale in respect of the said Flat was sought to be
created, although the same has not been placed on record. There
are no correspondences or communications between the respondent
no. 1 bank or the original borrowers where the share certificate of
ownership was demanded, even though the Bank was well aware
that the conveyance of title where the subject Flat is situated only
takes place through such certificate and not by the agreement of
sale in terms of Section 11 of the Act, 1963 read with Section 4 of
the Act, 1970. Moreover, it appears that no steps were taken by the
respondent no. 1 bank to issue a public notice of equitable charge
that was created in its favour, as discernible from the fact that when
the appellant bank upon inquiry was informed by the concerned
cooperative housing society that the said flat was not subject to any
prior encumbrances or charge. In such a scenario, the equitable
charge of the respondent no. 1 bank herein is liable to be postponed
to the charge created in favour of the appellant bank herein in terms
of Section 78 of the Act, 1882, and the impugned order of the High
Court is liable to be set-aside on this ground alone.

v. Distinction between Mortgage by Deposit of Title Deeds
under the English Law and under the Transfer Of Property
Act, 1882.
48. At this stage we must also address ourselves on one another
important aspect where the High Court grossly erred whilst passing
the impugned judgment and order. As discussed in the foregoing
paragraphs of this judgment, the original borrower whilst availing
the loan facility from the respondent no. 1 and appellant, had
deposited with them two unregistered agreement to sale, and another
unregistered agreement to sale along with the share certificate of
1128 [2025] 2 S.C.R.

Supreme Court Reports

ownership, respectively. Although both of the aforesaid transactions
seek to create mortgage by deposit of documents or title, yet there lies
a very fine but pertinent distinction between the two transactions. In
respect of the loan advanced by the respondent no. 1 bank, only two
unregistered agreements to sale were deposited which as discussed
earlier do not purport any title as held in Suraj Lamps (supra) while
with the appellant bank herein apart from one unregistered agreement
to sale the share certificate of ownership had also been deposited
which has the effect of conveyance of title.
49. Under the English Law, whether the documents so deposited actually
purport or transfer any title is immaterial for the purpose of creating
an ‘equitable mortgage’ as long as the intention to do so is clearly
discernible. The position in India however is quite different. This is
because under the English Law, a mortgage created by deposit of
title or documents is not construed as a legal mortgage and is only
treated as an equitable mortgage. Whereas in India under the Act,
1882, more particularly under Section 58 sub-section (f) a statutory
recognition has been given to the mode of creation of mortgage by
deposit of title deeds. Such a mortgage by deposit of title deeds is
for all purposes a ‘legal mortgage’ and not an equitable mortgage.
At the cost of repetition, the said provision is once again reproduced
hereunder: -
“58. “Mortgage”, “mortgagor”, “mortgagee”, “mortgage-
money” and “mortgage-deed” defined.—
(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.
The transferor is called a mortgagor, the transferee a
mortgagee; the principal money and interest of which
payment is secured for the time being arc 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 mortgaged property, the mortgagor
binds himself personally to pay the mortgage-money,
and agrees, expressly or impliedly, that, in the event of
[2025] 2 S.C.R. 1129

The Cosmos Co. Operative Bank Ltd. v. Central Bank of India & Ors.

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 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 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 the property to the seller, the transaction is
called a mortgage by conditional sale and the 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
document which effects or purports to effect the sale.
(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 authorises 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 and to appropriate the same in
lieu of interest, or in 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 re-pay the mortgage-money on a certain date,
and transfers the mortgaged property 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.
(f) Mortgage by deposit of title-deeds.— Where a person in
any of the following towns, namely, the towns of Calcutta,
1130 [2025] 2 S.C.R.

Supreme Court Reports

Madras, and Bombay, 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.
(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.”
50. Section 58 sub-section (a) stipulates the general rule that mortgage is
“the transfer of an interest in specific immoveable” or as understood
under the English Law as a “legal mortgage”. Section 58 sub-section(s)
(b) to (g) further explains the different modes to create a mortgage
under the Act, 1882. What is particularly important to note is the
fact that, the subsequent sub-section(s) do not either expressly or
impliedly stipulate that no transfer of interest is taking place where
mortgage is created in terms of the other modes provided therein.
There is also nothing in the entire Act, 1882 that mortgage created
by one particular mode under Section 58 would be subservient to
another. In such a scenario, any mortgage that happens to be created
in terms of the Act, 1882 more particularly Section 58 would for all
purposes be equal except in the consideration of priority of charge.
Thus, while mortgage by deposit of title deeds under the English
Law is an equitable mortgage and subservient to a legal mortgage,
in India mortgage created by such deposit is not subservient to an
equitable mortgage as such mortgage is in itself a legal mortgage.
51. Deposit of title deeds is one of the many forms of mortgages
whereunder there is a transfer of interest in specific immovable
property for the purpose of securing payment of money advanced
or to be advanced by way of loan. The three requisites for a valid
mortgage are, (i) debt; (ii) deposit of title deed; and (iii) an intention
that the deed shall operate as security for the debt. In other words,
when the debtor deposits with the creditor title deeds of his property
with an intent to create a security, the law implies a contract between
the parties to create a mortgage and no registered instrument is
required under Section 59 of the Act, 1882 as in other classes
[2025] 2 S.C.R. 1131

The Cosmos Co. Operative Bank Ltd. v. Central Bank of India & Ors.

of mortgage. It is essential to bear in mind that the essence of a
mortgage by deposit of title deeds is the actual handing over by a
borrower to the lender of documents of title to immovable property
with the intention that those documents shall constitute a security
which will enable the creditor ultimately to recover the money which
he has lent. Whether there is an intention that the deed shall be
security for the debt is a question of fact to be decided in each case
on its own merits. The said fact will have to be decided just like any
other fact based on legal presumptions, oral, documentary and/or
circumstantial evidence. Normally, title deeds are delivered to the
bank along with a covering letter indicating therein an intention of
delivering title deed i.e. to create security for the present or future
liability. In turn, bank gives a letter to the person delivering title
deeds indicating acceptance of the documents and/or title deeds
by way of security either for the outstanding dues or for the loan to
be advanced. The banks, normally, maintain register of securities
called Equitable Mortgage Register; wherein the entry of title deeds
is taken in the form of memorandum signed by the Branch Manager
alone, as a person accepting delivery of the documents as security.
These formalities are done to establish three essential requisites
of equitable mortgage, viz. (1) debit, (2) deposit of title deed
and (iii) the intention that deed shall operate as security for
the present or future debt. But if the parties choose to reduce the
contract to writing, this implication of law is excluded by their express
bargain, and the document will be the sole evidence of its terms. In
such a case the deposit and the document both form integral parts
of the transaction and are essential ingredients in the creation of
the mortgage.
52. Thus, when the original borrowers deposited with the appellant bank
herein, the share certificate of ownership to the said Flat, on that
very day and date, a legal charge is said to have been created on
the flat in favour of the appellant bank, whereas, when it comes to
the respondent no. 1 bank no such charge on the flat was created,
rather what was created was only an equitable mortgage, though prior
in time. This distinction is particularly important, because even if the
agreements to sale deposited with the respondent no. 1 bank were
registered and thereby, giving public notice of their existence, still
the appellant bank by virtue of possession of the actual title deeds to
the said Flat in the form of the share certificate of ownership would
1132 [2025] 2 S.C.R.

Supreme Court Reports

be accorded priority in charge for the sole reason that the charge
created by it is a legal mortgage in terms of Section 58 of the Act,
1882. At this stage, we may clarify that deposit of part-deeds of title
would not constitute a mortgage in terms of Section 58 sub-section
(e) of the Act, 1882 unlike English Law, because under the latter such
deposit is only an equitable mortgage and thus, the strict rigidities
may not be imposed or insisted upon whereas in India mortgage
by deposit of title deeds is a legal mortgage which in effect would
defeat any equitable mortgage, and thus, the requirement to deposit
all title deeds would have to mandatorily be required except those
deeds which despite best of efforts of the mortgagee could not have
been deposited or known to be outstanding.
53. The underlying reason behind why an equitable mortgage would
be subservient to a legal mortgage, even where proper notice
was effectuated may be understood in many different ways, we
have already discussed one of them in the foregoing paragraphs,
particularly that the former does not create any de jure charge or right
in the subject property and rather is only a right in personam, however,
the short answer to the above is that equity cannot supplant the law
and can only supplement it. Thus, where the law is unambiguous and
clear, equity will always yield to the law. However, when it comes to
equitable mortgages, we may rephrase the above to only say that
equity will yield to the law only to the extent provided by the law.
Thus, although the legal mortgage would have assumed priority
in charge, yet an equitable mortgage may still be enforceable as
secondary charge, provided the other considerations such as notice
of such mortgage is fulfilled.
54. This Court in K.J. Nathan v. S.V. Maruthi Rao reported in AIR 1965
SC 430 has explained the fine distinction between an equitable
mortgage as understood in the English law and the mortgage by
deposit of title deed. K. Suba Rao J. (as His Lordship then was)
speaking for Court observed as under: -
“Under this definition (referring to section 58(f) of the
Transfer of Property Act) the essential requisites of
mortgage by deposit of title deeds are, (i) debt), (deposit
of title-deeds, and (iii) an intention that the deeds shall
be security for the debt. Though such a mortgage is often
described as an equitable mortgage, there is an essential
[2025] 2 S.C.R. 1133

The Cosmos Co. Operative Bank Ltd. v. Central Bank of India & Ors.

distinction between an equitable mortgage as understood
in English Law and the mortgage by deposit of title deeds
recognized under the Transfer of Property Act in India. In
England an equitable mortgage can be created either, (1)
by actual deposit of title deeds, in which case collateral
evidence is admissible to show the meaning of the deposit
and the extent of the security created, or (2) if there be no
deposit of title deeds, then by a memorandum in writing,
purporting to create a security for money advanced;
See White and Tudor’s Leading Case in Equity, 9th Edition,
Vol. II, at p. 77. In either case it does not operate as an
actual conveyance though it is enforceable in equity;
whereas under the Transfer of Property Act a mortgage by
deposit of title deeds is one of the modes of creating a legal
mortgage whereunder there will be transfer of interest in
the property mortgaged to the mortgagee. This distinction
will have to be borne in mind in appreciating the scope of
the English decisions cited at the Bar. This distinction is
also the basis for the view that for the purpose of priority
it stood on the same footing as a mortgage by deed. […]”
(Emphasis supplied)

55. However, in order to obviate any confusion, we may clarify that
the aforesaid observations in K.J. Nathan (supra) must not be
understood to mean that equitable mortgage has no valid basis or is
not recognized in toto in India. Any act of the parties that evinces a
clear intention of the parties to create a mortgage though the same
might not have been created in terms of Section 58 of the Act, 1882,
may still be a valid charge in terms of Section 100 of the Act, 1882.
The said provision reads as under: -
“100. Charges.—
Where immoveable property of one person is by act of
parties or operation of law made security for the payment
of money to another, and the transaction does not amount
to a mortgage, the latter person is said to have a charge on
the property; and all the provisions hereinbefore contained
which apply to a simple mortgage shall, so far as may be,
apply to such charge.
1134 [2025] 2 S.C.R.

Supreme Court Reports

Nothing in this section applies to the charge of a trustee
on the trust-property for expenses properly incurred in the
execution of his trust, and, save as otherwise expressly
provided by any law for the time being in force, no charge
shall be enforced against any property in the hands of a
person to whom such property has been transferred for
consideration and without notice of the charge.”
56. Section 100 of the Act, 1882 provides that where a transaction does
not amount to a mortgage i.e., not a mortgage in terms of Section 58
of the said Act, the person to whom the immovable property is offered
as a security would still nevertheless be said to have a “charge” in
terms of the said provision, and that all provisions under the Act,
1882 as applicable to simple mortgage envisaged under Section 58
sub-section (b) of the said Act shall apply to such “charge” insofar
as possible. The key distinction is that any mortgage which is not
created in terms of Section 58 of the Act, 1882 i.e., all equitable
mortgages are still nevertheless a “charge” to such property. The
expression “and all the provisions hereinbefore contained which apply
to a simple mortgage shall, so far as may be, apply to such charge”
assumes significance as it is not suggestive that such charge would
be deemed a simple mortgage, rather it only goes so far as to provide
that the provisions that apply to simple mortgage will also apply to
such “charges” so far as possible but by no means does it provide
that such “charge” is to be treated as a simple mortgage in terms of
Section 58 of the Act, 1882 i.e., as a legal mortgage. The last part
of Section 100 of the Act, 1882 further statutorily recognizes the in
personam nature of such “charge” and provides that they shall not
be enforced against any person to whom such property or interest
therein has been transferred i.e., to whom it has been mortgaged in
terms of Section 58 of the said Act or any other bona-fide transferee
who does not have notice of the said charge. Thus, what may be
discerned is that, ‘equitable mortgages’ are very much recognized in
India under the nomenclature of “charge” in terms of Section 100 of
the Act, 1882, and the same will be enforceable as far as possible
in terms of the procedure and provisions applicable to a simple
mortgage except those without notice of such charge.
57. We are conscious of the decision of this Court in J.K. (Bombay)
(P) Ltd. v. New Kaiser-I-Hind Spg. and Wvg. Co. Ltd. reported in
1968 SCC OnLine SC 32 which held that an agreement to create
[2025] 2 S.C.R. 1135

The Cosmos Co. Operative Bank Ltd. v. Central Bank of India & Ors.

a mortgage only gives rise to perform such an agreement and
does not amount to either a mortgage or a charge and the decision
in Haryana Financial Corpn. v. Gurcharan Singh reported in
(2014) 16 SCC 722 wherein it was held that since all provisions
applicable to a simple mortgage shall, as far as possible, also apply
to a charge, Section 59 of the Act, 1882 which requires a simple
mortgage to be compulsorily be registered would also be applicable
and as such the creation of a charge under Section 100 of the Act,
1882 must be compulsorily registered. However, a close reading of
the decision in J.K. (Bombay) (P) Ltd. (supra) will reveal that this
Court never held that any agreement to mortgage will be incapable
of creating a charge in terms of Section 100 of the Act, 1882, rather
what was held is that only those agreement to mortgage where the
intention to create a charge in praesenti is absent will be incapable
of creating either a mortgage or a charge, but where such intention
of parties is there, the same will definitely tantamount to a ‘charge’
under Section 100 of the Act, 1882 as held in ONGC Ltd. v. Official
Liquidator reported in (2015) 5 SCC 300. Similarly, the decision
of Haryana Financial Corpn (supra) holding that registration in
terms of Section 59 of the Act, 1882 is mandatory in order to create
a charge prima facie appears to be incorrect in view of an earlier
decision of a larger bench of this Court in M.L. Abdul Jabbar Sahib
v. M.V. Venkata Sastri & Sons reported in (1969) 1 SCC 573 which
in clear terms held that the second part of Section 100 of the Act,
1882 does not attract the provisions of Section 59 of the said Act
and that a charge may be made without any writing and there is
no provision of law which require that such an instrument must be
attested or registered. We are also in agreement with the decision of
M.L. Abdul Jabbar Sahib (supra) as to hold otherwise would result
in absurd consequences which could not have been intended by the
legislature. We say so because, if a charge can be made only by a
registered instrument in accordance with Section 59 of the Act, 1882,
then the subsequent transferee will always have notice of the said
charge in view of Section 3 Explanation I which stipulates that “where
any transaction relating to immoveable property is required by law
to be and has been effected by a registered instrument, any person
acquiring such property or any part of, or share or interest in, such
property shall be deemed to have notice of such instrument as from
the date of registration [...]”. This would effectively render the second
part of Section 100 of the Act, 1882 which mandates requirement
1136 [2025] 2 S.C.R.

Supreme Court Reports

of notice to all subsequent transferees before the enforcement of
a ‘charge’ as otiose and redundant, as the moment when such
instrument is registered, notice is deemed to have been made. The
very idea behind stipulating the requirement of notice under Section
100 of the Act, 1882 seems to be to save even those transactions
which are not registered and do not amount to a mortgage yet in
equity may still be enforceable provided the subsequent transferee
has notice of such charge. We do not intend to dwell any further
on the decisions of this Court in J.K. (Bombay) (P) Ltd. (supra)
and Haryana Financial Corpn (supra) as the present case does
not require examining whether the respondent no. 1 bank could be
said to have an enforceable charge against the appellant bank, and
even otherwise if an ‘equitable mortgage’ cannot be construed as
a ‘charge’ in terms of Section 100 of the Act, 1882, the former may
still be permitted to be enforceable in the extant of equity in the
peculiar facts of each case. This is because the enforcement of an
‘equitable mortgage’ being a by-product of the doctrine of equity is
purely a matter of discretion that a court of conscience may grant
keeping in mind the principles of fair-play, good conscience and
justice. Where any ‘equitable mortgage’ is found to be unenforceable,
the same though neither a ‘legal mortgage’ nor a ‘charge’ may still
nevertheless entitle a lender to seek other reliefs such as specific
performance of the contract or a suit for recovery on the strength of
the ab inito intention of the parties to create a security evident from
such ‘equitable mortgage’.
58. We are conscious of the decision of this Court in Kedar Lal v. Hari
Lal reported in AIR 1952 SC 47 wherein it was held that the whole
of law of mortgage in India, including the law of contribution arising
out of a transaction of mortgage, is now statutory and is embodied
in the Act, 1882 read with the Civil Procedure Code, 1908 and that
the courts cannot travel beyond these provisions. The relevant
observations read as under: -
“27. So far as Section 43 is concerned, I am not prepared
to apply it unless Sections 82 and 92 can be excluded. Both
Sections 43 and 82 deal with the question of contribution.
Section 43 is a provision of the Contract Act dealing with
contracts generally. Section 82 applies to mortgages. As
the right to contribution here arises out of a mortgage, I
am clear that Section 82 must exclude Section 43 because
[2025] 2 S.C.R. 1137

The Cosmos Co. Operative Bank Ltd. v. Central Bank of India & Ors.

when there is a general law and a special law dealing with
a particular matter, the special excludes the general. In
my opinion, the whole law of mortgage in India, including
the law of contribution arising out of a transaction of
mortgage, is now statutory and is embodied in the Transfer
of Property Act read with the Civil Procedure Code. I am
clear we cannot travel beyond these statutory provisions.”
59. However, a close reading of the aforesaid paragraph of Kedar Lal
(supra) would reveal that the observations were made in light of the
question whether Section 43 of the Indian Contract Act, 1882 which
deals with right to contribution would be applicable to such a right
which is arising out of a mortgage to the exclusion of Section 82 of
the Act, 1882 which deals with mortgages. It was in this context this
Court held that when it comes to mortgages it will not be permissible
to travel beyond the scheme of Act, 1882 and venture into the
provisions contained in other laws.
60. However, this by no stretch means that the concept of equitable
mortgage has no place in the Indian jurisprudence. The concept
of equitable mortgage is purely a creation and by-product of the
doctrine of equity, and thus, the absence of any specific provision
under the Act, 1882 providing for such a mortgage will not run to the
detriment of something which is essentially designed to ensure that
principles of fair-play, good conscience and justice endure. There is
no decision which either specifically excludes or outrightly rejects the
application of this doctrine. Rather, the subsequent decision of this
Court in K.J. Nathan (supra) it was specifically stated that although
the concept of equitable mortgage as evolved under the English Law
cannot be considered to be a rule of law, which as also discussed
by us in the foregoing paragraphs is by-product of doctrine of equity
and not the law of the land, yet they may serve as a guide. The
relevant observations read as under: -
10. The foregoing discussion may be 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 of money advanced
or to be advanced by way of loan. Therefore, such a
mortgage of property takes effect against a mortgage deed
1138 [2025] 2 S.C.R.

Supreme Court Reports

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 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 deeds constitutes a mortgage, for no such
presumption has been laid down either in the 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 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 till the mortgage deed was executed. The
decisions of English courts making a distinction between
the debt preceding the deposit and that following it can at
best be only a guide; but the said distinction itself cannot
be considered to be a rule of law for application under
all circumstances. 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 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.”
(Emphasis supplied)
[2025] 2 S.C.R. 1139

The Cosmos Co. Operative Bank Ltd. v. Central Bank of India & Ors.

61. Thus, in such a situation where a transaction does not amount to
a mortgage but nevertheless can be construed as a preliminary
step towards the preparation of a mortgage which will be security
thereafter with nothing else done for conveyance or transfer of title
or interest, there three recourses may be available to the lender: -
(i) He may simply claim that the transaction amounts to an equitable
mortgage as it was for the purpose of creating a present or
immediate security which a court of equity ought to consider; or
(ii) He may claim that there has been a sufficient part performance
of the contract, with attending circumstances which a court ought
to relieve by permitting the lender to ‘perfect its mortgage’ i.e.,
to take further steps for the transfer of conveyance of title or
interest in order to create a mortgage; or
(iii) He may bring a suit for recovery of money and base his claim
simply on the ab initio intention of the parties to create a
security in the first place and the resultant part-performance of
the contract insofar as the loan was extended based on such
promise or consideration of security.
62. Before we close this judgment, we must look into the observations
made by the High Court in para 8 of its impugned order. In para 8
the High Court has recorded that at the time of sanction and grant
of the loan by the appellant-bank herein i.e. sometime in November,
1998 the flat in question was in custodia legis of the court receiver
appointed in the year 1994. What weighed with the High Court was
the submission canvassed on behalf of the Central Bank that the
validity of the mortgaged flat in question in favour of the appellant
bank was also questionable. The reason why the High Court said
so is because both the agreements are unregistered. According to
the learned counsel appearing for the Central Bank, the agreement
which appellant bank accepted was also unregistered. Then both
the banks are sailing in the same boat. However, what seems to
have been overlooked by the Central Bank is the fact that when the
borrowers approached the appellant bank for loan they had a valid
title deed i.e., the original share certificate issued by the society. The
issuance of the original share certificate was also confirmed by the
society vide letter dated 13.11.1998, which forms a part of the record.
63. The original share certificate which was produced before the
appellant-bank as availed Title deed assumes significance in view
1140 [2025] 2 S.C.R.

Supreme Court Reports

of the provisions of Section 11 of the Act 1963, more particularly,
sub-section (1) of Section 11 of Act which reads thus: -
“11. Promoter to convey title, etc., and execute
documents, according to agreement.— (1) A promoter
shall take all necessary steps to complete his title and
convey, to the organisation of persons, who take flats,
which is registered either as a co-operative society or
as a company as aforesaid, or to an association flat-
takers or apartment owners his right, title and interest in
the land and building, and execute all relevant documents
therefor in accordance with the agreement executed
under Section 4 and if no period for the execution of
the conveyance is agreed upon, he shall execute the
conveyance within the prescribed period and also deliver
all documents of title relating to the property which may
be in his possession or power.”
(Emphasis supplied)

64. In para 8 of the impugned judgment, the High Court has recorded
that the appellant bank herein had sought to rely upon the original
share certificate issued by the Society as a valid piece of title deed.
However, the High Court got carried away by the fact that the first
charge was that of the Central Bank and not of the appellant bank,
and failed to notice the distinction that exists between an ‘equitable
mortgage’ and a ‘legal mortgage’.
65. The proposition of law is that though the transaction evidenced by the
prior unregistered document is valid in itself, yet any title or interest
created by it is liable to be defeated under the rule of priority by a
valid later and legal sale or mortgage evidenced by a duly registered
document. The reason is, otherwise, no effect can be given to the
rule which implies that the later registered title is intended to prevail
against an earlier unregistered title. No weight can, therefore, be
attached to the contention that by a valid unregistered agreement of
sale, the vendor’s title is exhausted, he has, afterwards, nothing to sell,
and the later registered sale deed gives nothing to the predecessor.
The fallacy in the contention lies in ignoring the reason of the rule,
namely that as between the registered and unregistered transactions,
the registered transaction creates the dominant right or title.
[2025] 2 S.C.R. 1141

The Cosmos Co. Operative Bank Ltd. v. Central Bank of India & Ors.

E. CONCLUSION
66. In view of the aforesaid, we have reached the conclusion that the
impugned order passed by the High Court is not correct and it
deserves to be set aside.
67. In the result the appeal succeeds and is hereby allowed. The
impugned Order passed by the High Court is hereby set aside. Since,
the respondent no. 1 had failed in bringing the factum of its ‘equitable
mortgage’ to the notice of the appellant bank, the respondent no. 1
bank is not entitled to enforce the same qua the recovery proceeds
of the appellant bank herein.
68. We are informed that an amount of Rs. 51 lakh is lying deposited
with the DRT maintained in an escrow account. The same now be
disbursed along with interest in favour of the appellant bank.
69. We direct the Registry to send one copy each of this judgment to
all the High Courts with further request to each of the High Courts
to forward the judgment to the DRTs and DRAT benches.
70. Pending application(s), if any, stand disposed of.

Result of the case: Appeal allowed.

†
Headnotes prepared by: Aishani Narain, Hony. Associate Editor
(Verified by: Ms. Liz Mathew, Sr. Adv.)