Case Note & Summary
The dispute arose from a suit filed by Andhra Bank Ltd. to recover loans advanced to Godavari Sugars Refiners Ltd., of which defendants 1 to 3, as partners of Aid Co. Ltd., were managing agents. The appellant, Veeramachineni Gangadhara Rao, was the brother of defendant No.1 and was impleaded as defendant No.4, with Godavari Sugars as defendant No.5. The bank's claim against the appellant rested on an alleged equitable mortgage created by deposit of title deeds A-7 and A-8 on 15-1-1953 at Masulipatam. The first defendant applied for a loan on behalf of Godavari Sugars on January 29, 1952; the bank sanctioned up to Rs 1,25,000 and initially advanced Rs 50,000. Later the bank learned that a provisional liquidator had been appointed for Godavari Sugars on April 18, 1952; the bank's claim for lien over pledged goods was rejected by the High Court. The plaint alleged that defendants 1 and 4 requested the bank to refrain from legal action and deposited title deeds A-7 and A-8 as security for all sums due, in consideration of which the bank refrained from proceeding against defendants 1 to 3 and sanctioned an overdraft account. The appellant denied this, stating he deposited the title deeds to secure his own overdraft loan of Rs 25,000 and had no connection with the suit transactions. Exhibit A-6, a letter signed by defendants 1,4 and another, recorded the deposit of title deeds as security for money due. The core legal questions were whether Ex. A-6 was a contract of mortgage requiring registration under Section 17 of the Indian Registration Act, 1908, or a mere memorandum evidencing deposit of title deeds; and whether the title deeds were deposited to secure the suit debts. The bank contended that Ex. A-6 clearly recorded the deposit as security and that the deposit was made in consideration of the bank refraining from action. The appellant argued that Ex. A-6 was incomplete, did not contain the alleged consideration, and if it was a contract, being unregistered it was inadmissible; if a mere memorandum, the evidence showed no agreement to secure the suit debts. The Supreme Court, per Hegde J., reiterated the principle that if parties intended to reduce their bargain regarding deposit of title deeds to a document, that document required registration; if the document was merely evidential of a prior oral bargain, it did not. Examining Ex. A-6, the Court found it incomplete and it did not contain the alleged term that the bank would refrain from proceeding against defendants 1 to 3. The recitals indicated the memorandum was intended to put on record terms already agreed upon. Thus, if considered a contract, it was unregistered and inadmissible; if considered a mere memorandum, the correctness of its recitals could be examined without inhibition of Sections 91 and 92 of the Evidence Act. On overall evidence, including absence of any mention in bank correspondence or books that the equitable mortgage secured the suit debts, and lack of oral testimony from bank officials about the alleged agreement, the Court held that Exhs. A-7 and A-8 were not deposited to secure the debts due from defendant No.1 to the bank. The Supreme Court allowed the appeal, set aside the decree against the appellant, and held the plaintiff bank had failed to prove its case. The decree against other defendants remained final.
Headnote
A) Registration Law - Equitable Mortgage by Deposit of Title Deeds - Registration Requirement - Indian Registration Act, 1908, Section 17 - The court held that if parties intended to reduce their bargain regarding deposit of title deeds to the form of a document, the document requires registration; if it is merely evidential, no registration needed. Ex A-6 was not intended to embody the contract but to put on record terms already agreed, and it was incomplete and omitted the alleged consideration of the bank refraining from action. Held that Ex A-6 could not be considered a contract governing the rights of the parties. (Paras not mentioned) B) Evidence Law - Admissibility of Unregistered Document - Sections 91 and 92, Indian Evidence Act, 1872 - If an unregistered document is considered a contract of mortgage, it is inadmissible in evidence; if considered a mere memorandum, the correctness of its recitals can be examined without inhibition of Sections 91 and 92. The court held that on either view the plaintiff's case must fail because evidence showed the title deeds were not deposited for the suit debts. (Paras not mentioned) C) Contract Law - Equitable Mortgage - Consideration and Consensus - Indian Registration Act, 1908, Section 17; Indian Evidence Act, 1872, Sections 91, 92 - The alleged consideration of the bank refraining from legal action against defendants 1 to 3 was not found in Ex A-6 and was not supported by evidence. The court held that the plaintiff failed to prove the agreement that the deposit of title deeds A-7 and A-8 secured the suit debts. (Paras not mentioned)
Issue of Consideration
Whether Ex. A-6, a document signed while depositing title deeds, required registration under Section 17 of Indian Registration Act, 1908, and whether the deposit of title deeds A-7 and A-8 was made to secure the suit debts due from defendant No.1 to the bank.
Final Decision
Supreme Court allowed the appeal, set aside the decree against the appellant, and held that the plaintiff bank failed to establish that Exhs. A-7 and A-8 were deposited to secure the suit debts; Ex. A-6 could not be treated as a contract because it was incomplete, did not reflect the alleged consideration, and if intended as contract required registration under Section 17 of Registration Act, 1908 and being unregistered was inadmissible; if treated as mere memorandum, the recitals therein could be examined without inhibition of Sections 91 and 92 Evidence Act, and on evidence the bank's claim was not proved.
Law Points
- Document evidencing deposit of title deeds need not be registered if not intended to embody contract
- Unregistered contract of mortgage inadmissible under Section 17 Registration Act
- Sections 91 and 92 Evidence Act do not bar evidence to prove terms of prior agreement when document is mere memorandum
- Equitable mortgage by deposit of title deeds requires intention to secure debt
- Mere memorandum of prior oral agreement is not contract requiring registration
