A mortgage is the transfer of an interest in a particular piece of real estate with the intention of securing payment for loans made or to be made, payments on current or future debts, or the fulfillment of contracts that could result in financial obligations. The Transfer of Property Act, 1882 (“TP Act”), Section 58(f), allows for the construction of an equitable mortgage, which is commonly recognized, among other methods. This involves the deposit of title deeds. Title deeds to immovable property may be delivered to a creditor or his agent with the intention of creating security; this arrangement is known as a mortgage by deposit of title deeds and is applicable to the notified municipalities under this clause.
Bhagwandas Daruka and Others, The Supreme Court Elaborated
Legally, no paperwork is required in order to establish an equitable mortgage. If a paper exists, it will be a mortgage by instrument rather than a mortgage by behavior, and as a result, it will no longer be an equitable mortgage. In Rachpal Mahraj v. Bhagwandas Daruka and others, the Supreme Court elaboratedThe law presumes a contract between the parties to create a mortgage when the debtor submits the title deeds of his property with the creditor with the desire to create a security ; unlike other forms of mortgage, no recorded instrument is needed under section 59. In reality, though, a note is deposited with the title deeds. A Memorandum of Entry (“MoE”), which documents the delivery of title documents for the purpose of creating a mortgage by the mortgagor to the lender, may be executed by the lender.
Undertaking Known as a Memorandum of Deposit
The MoE’s goal is very clear: title deeds are important records that belong to the lender or a trustee acting on their behalf. The MoE acts as a safety in case the borrower gets into mischief and claims that the exact title deeds have been misplaced. It also serves as a matter of record that the borrower deposited these documents of his own free will with the intention of creating a charge on his property with the lender/trustee. In order to obtain a loan by establishing a mortgage, the borrower may further provide an undertaking known as a Memorandum of Deposit of Title Deed (“MoDT”), which certifies that the borrower voluntarily placed the title document to his property with the lender.
Necessary To Establish The Construction of a Mortgage.
The importance of MoE as a tool According to section 58(f) of the Transfer of Property Act, 1882, when a person deposits title deeds of their property with a lender with the intention of giving security to the lender and obtaining financial assistance, the language of the deposit of title deeds itself may be an evidence of the parties’ agreement. Furthermore, a registered document is not required to issue such a mortgage according to section 59 of the TP Act. Practically speaking, though, a number of problems could occur if there is no documented proof that a mortgage of this kind was ever created. For example, proving the intention of the parties to provide such security through the deposit of title deeds is necessary to establish the construction of a mortgage. In the case of Bejoy Ranjan Das v. Ajit Kumar Dutta[2], it was decided that each case will determine whether or not there was an intention for the deed to serve as security for the debt.
Where The Terms of The Bargain have been Reduced
The aforementioned fact shall be determined in the same manner as any other fact, based on inference, oral, written, or circumstantial evidence. The process of carrying out MoE and MoDT has changed in response to this need. In Kedarnath Dutt v. Shamlal Khetry[3], the Calcutta High Court ruled that a MoE is neither the means nor the proof of the construction of an equitable mortgage. It is just an entry that serves as a transaction record. However, it has also been held in the above ruling as well as multiple others[4] that, where the terms of the bargain have been reduced to writing in such a memorandum, it ceases to merely be a record and needs to be considered an instrument through which the equitable mortgage has been created. As a result, it is still difficult to distinguish between an active record of rights and obligations and a simple record of having deposited the title papers. Numerous decisions have been made that have entered the MoE’s language and determined that it is either an instrument or an aide-de-memoire of this kind.
Constructive Title Deed Delivery
The real or constructive deposit of title deeds with the lender is the fundamental component of an equitable mortgage. When further mortgages are being issued on the property and the title deeds are already deposited with the lender or the lender’s trustee, this is known as constructive delivery of title deeds. Since there is not much separating the acts of real or physical delivery and constructive delivery, we do not need to delve into the details of the document in order to decide whether or not it is an instrument of mortgage. The only proof of the equitable mortgage in this case is provided by the MoE and the borrower’s statement and commitment. Therefore, it may not be tenable to argue that title deeds delivered constructively do not have the effect of forming a mortgage. However, it is common business practice in many states (apart from Maharashtra, Gujarat, etc.) to see a mortgage created by the deposit of title documents as an instrument for creating a mortgage.
Prerequisites For Registration
As previously said, a registered instrument need not impact an equitable mortgage; yet, in cases where the parties have reduced the parameters of the agreement to a written document, such document would be regarded as an instrument of creation of that kind of mortgage. The Bombay High Court ruled in Obla Sundarachariar v. Narayana Ayyar[15] that a document did not need to be registered if it was just a list of title deeds and did not specify the terms of the agreement or the nature of the subject.
Once More, the Parties’ Intentions are Crucial in This Situation.
A written document would be regarded as an instrument and would need to be registered under section 17 of the Registration Act, 1908, if the parties intended to reduce the terms of the equitable mortgage to that form from the start. Nonetheless, the registration need isn’t always ambiguous. The Indian Stamp Act, 1899, as amended, for the State of Madhya Pradesh, for example, states in Explanation II to Article 7 of Schedule 1-A that any letter, note, memorandum, or writing relating to the deposit of title deeds shall, in the absence of any separate agreement or memorandum of agreement relating to deposit of such title deeds, be deemed to be an instrument, evidencing an agreement relating to the deposit of title deeds and shall, therefore, be subject to stamp duty under the aforementioned Article.
Final Thoughts
Due to its affordability and ease of use, equitable mortgages are among the most popular mortgage types in the financial industry; yet, because of the requirement to demonstrate intention, certain documentation become necessary. Stamp duty and registrations are closely related when documents pertaining to real estate are involved. It is necessary to comprehend these conditions to make sure there are no potential unfavorable circumstances. These requirements depend on a number of factors, including the nature and content of the documents, the place of execution of documents, the jurisdiction under which the immovable property is situated, etc. Because the contents of the document will be the deciding factor in determining whether or not stamp duty will be charged and whether or not the mortgage may be registered, the parties must consider the ramifications of creating written records while recording the equitable mortgage.
