The Supreme Court reinstated an equitable mortgage claim, emphasizing the importance of evidentiary and procedural fairness.
The Supreme Court Bench of Justice Hima Kohli and Justice Ahsanuddin Amanullah reviewed a bunch of two appeals and observed that an equitable mortgage can be validly constituted through the deposit of title deeds with the requisite intent, without requiring registration, and that courts must holistically evaluate evidence, including admissions and agreements while ensuring procedural fairness; excessive interest rates may be reduced to uphold principles of justice and equity.
In a recent judgment, the Supreme Court addressed appeals arising from two orders of the Madras High Court, engaging with pivotal issues surrounding the creation and enforcement of equitable mortgages. The appeals were brought by the appellant, challenging the Division Bench's reversal of a Single Judge's decree in favour of the appellant and the subsequent dismissal of an application to reopen the matter. The case revolved around a loan extended in 1995, secured by mortgages and promissory notes, with a 2000 agreement acknowledging a debt of ₹11,00,000. The Single Judge had ruled in favour of the appellant, granting a mortgage decree. However, the Division Bench reversed this judgment, concluding there was insufficient evidence to substantiate the creation of a mortgage.
The Supreme Court found the Division Bench's approach flawed, emphasizing its disregard for critical evidence, including the respondent's admissions under the Agreement and the absence of substantiated claims of coercion. Procedural lapses affecting the appellant's representation during the appeal were also highlighted. Revisiting the foundational principles of equitable mortgages under Section 58(f) of the Transfer of Property Act, 1882, the Court clarified the requisites for an equitable mortgage: (i) the existence of a debt, (ii) deposit of title deeds, and (iii) the intention to create security for the debt. It underscored that physical delivery of title deeds is not mandatory and constructive delivery suffices if intent is established, referencing landmark precedents such as Syndicate Bank v. Estate Officer & Manager and Narvir Singh v. Vinod Kumar.
The judgment differentiated between agreements that merely record transactions and those creating substantive rights or liabilities. It held that an equitable mortgage does not necessitate registration unless a written instrument constitutes the sole evidence of the transaction. The Supreme Court observed that the impugned agreement merely documented prior events and did not create new obligations, a fact overlooked by the Division Bench. Restoring the Single Judge's findings with modifications, the Court reduced the interest rate from 36% per annum to 12% per annum, deeming the former excessive, and imposed costs of ₹1,20,000 on the appellant for procedural delays.
In condoning delays, the Supreme Court followed the liberal principles established in Collector, Land Acquisition, Anantnag v. Mst. Katiji, emphasizing that substantial justice should not be thwarted by technicalities. The appeals were allowed, reaffirming the necessity of evidentiary rigor in mortgage disputes and ensuring a just resolution in light of the governing legal framework. The judgment serves as a significant reaffirmation of the legal standards applicable to equitable mortgages and delay condonation, balancing procedural rectitude with equitable outcomes.
Mr. Narendra Kumar, Advocate represented the Appellant.
Mr. V. Prabhakar, Senior Advocate appeared for the Respondent.
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