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] 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]
As published in the Supreme Court Reports, Supreme Court of India. Headnotes prepared by: Aishani Narain, Hony. Associate Editor (Verified by: Ms. Liz Mathew, Sr. Adv.). Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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