Supreme Court Reinforces Equitable Mortgage Principles through a deposit of title deed.

Supreme Court upheld the consept of equitable mortgage as enshrined under Section 58(f) of The Transfer of Property Act, 1882, reinstated the Single Judge's findings and decree.
The Court emphasized that for an equitable mortgage by deposit of title deeds to be valid, it requires:
(i) a debt;
(ii) a deposit of title deeds; and
(iii) an intention that the deeds shall be security for the debt.
The Court clarified that although the respondent claimed coercion in the agreement's execution, the burden of proof lay upon him to substantiate such claims. His inaction in taking legal recourse for years after the agreement's execution weakened his stance.

Background:
This case concerns a loan dispute that escalated to the Supreme Court due to differing interpretations of an agreement and the principles of equitable mortgages. The appellant (originally the plaintiff), A.B. Govardhan, had lent a substantial sum to the respondent (originally the defendant), P. Ragothaman. The respondent, facing financial difficulties, offered the title deed of a property as security for the loan. This arrangement, documented through a written agreement, formed the crux of the legal battle.
.

While analzing the case the Supreme Court observed that the respondent, by way of agreement, created a mortgage by depositing the title deed and held as follows "22. In our view, the Single Judge had appreciated the bundle of facts in the correct perspective, that is, the respondent had, by way of the Agreement, created a mortgage by deposit of title deeds. There was no redemption of this mortgage." and has held that the Single Judge of the Madras High Court recognized the agreement as creating an equitable mortgage by deposit of title deeds and ruled in favor of the appellant, the Division Bench overturned this decision, leading to the appeal before the Supreme Court.

The Court meticulously reviewed the contention of the respondent herein which cliams that the agreement was made under coersion and threat, however, lacking the evidence. Reffering to the case of Kalyan Kumar Gogoi v Ashutosh Agnihotri the court emphasized the need of having evidence, either oral or documentary, to substantiate the claim and furhter observed and quoted from the Kalyan Kumar (supra) "“33. The word “evidence” is used in common parlance in three different senses: (a) as equivalent to relevant, (b) as equivalent to proof, and (c) as equivalent to the material, on the basis of which courts come to a conclusion about the existence or non-existence of disputed facts. Though, in the definition of the word “evidence” given in Section 3 of the Evidence Act one finds only oral and documentary evidence, this word is also used in phrases such as best evidence, circumstantial evidence, corroborative evidence, derivative evidence, direct evidence, documentary evidence, hearsay evidence, indirect evidence, oral evidence, original evidence, presumptive evidence, primary evidence, real evidence, secondary evidence, substantive evidence, testimonial evidence, etc.”., and observed that the evidence confirming to the agreement and, relying on its interpretation in State of Haryana v. Narvir Singh, concluded that it merely documented an already agreed-upon transaction, thereby not necessitating registration. The Court emphasized that the Division Bench erred in not applying Section 58(f) of the Transfer of Property Act and overlooking crucial precedents governing equitable mortgages.

Key Observations made the Apex Court:
On equitable mortgages the court held that "The requisites of an equitable mortgage are : (i) a debt; (ii) a deposit of title deeds; and (iii) an intention that the deeds shall be security for the debt." On the respondent's failure to prove coercion: "Admittedly, no steps whatsoever were taken, in law, by the respondent to resile from the Agreement or to revoke it for at least half a decade i.e., from the date of the Agreement till the suit came to be instituted."
On the Division Bench's misinterpretation, the Court observed that "Quite evidently, the Division Bench did not account for Section 58(f) of the Act."

For agreement as evidence of an already concluded transaction, the Supreme Court held that "We are of the opinion that the Agreement only records what has happened and does not create/extinguish rights/liabilities.", thus, setting aside the impugned orders, and restoring the Single Judge's judgment with a reduction in the interest rate, bringing a decisive end to the prolonged litigation.
This judgment serves as a reminder of the significance of equitable principles in mortgage law and emphasizes the courts' responsibility to curb the misuse of legal processes for delaying tactics.

Coram: Justices Hima Kohli and Justice Ahsanuddin Amanullah.
Between: A.B. Govardhan v. P. Ragothaman.
Date of Judgment: August 29, 2024