Rachpal Mahraj vs Bhagwandas Darukaand Others

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. LXVII of 1949

Decision Date: 5 May, 1950

Coram: Hiralal J. Kania, M. Sastri, Patanjali, Das, Sudhi Ranjan

In this matter, the dispute titled Rachpal Mahraj versus Bhagwandas Darukaand Others was decided by the Supreme Court of India on the fifth day of May, 1950. The judgment was authored by Justice Hiralal J. Kania, who also sat as the head of the bench. The bench was composed of Justice Hiralal J. Kania serving as Chief Justice, together with Justices Das, Sudhi Ranjan and the learned members Sasti M. Patanjali and Sasti M. Pat Jal-i. The petitioner in the case was Rachpal Mahraj, while the respondents were Bhagwandas Daruka and others. The decision was recorded under the citation 1950 AIR 272 and also appears in the Supreme Court Reports as 1950 SCR 548. Subsequent citator references to the decision include 1965 SC 1591 (paragraphs 7 and 9), 1970 SC 659 (paragraphs 8 and 23) and 1971 SC 613 (paragraphs 17 and 18). The statutory provisions examined were section 17 of the Indian Registration Act, 1908 (the sixteenth Act), and section 58(f) of the Transfer of Property Act, 1882 (the fourth Act). The essential question presented to the Court concerned whether a memorandum recording the deposit of title deeds created an interest in immovable property that would make it compulsorily registrable under section 17 of the Indian Registration Act. The Court explained that the answer depends on the parties’ intention to reduce their agreement concerning the deposit to a formal document. If the parties intended the memorandum to embody their bargain, registration would be required. Conversely, if the proper construction of the memorandum and the surrounding circumstances indicated that the parties did not intend to create a registrable instrument, and that no explicit bargain was made, the mortgage would arise by implication of law from the deposit itself, and the memorandum would serve merely as evidence and would not need to be registered. The Court noted that the passage of time was not decisive in this analysis. The Court illustrated the factual backdrop where accounts of the appellant’s dealings with the respondents were taken on a particular date, the appellant delivered certain title deeds to the respondents as security for sums then due and potentially due in the future, and on the same day the appellant furnished a memorandum in the form of a letter addressed to the respondents. The letter stated: “We write to put on record that to secure the repayment of the money already due to you from us on account of the business transactions between yourselves and ourselves and the money that may hereafter become due on account of such transactions we have this day deposited with you the following title deeds relating to our properties at … with intent to create an equitable mortgage on the said properties to secure all moneys including interest that may be found due ….” After examining the document, the Court held that the parties did not intend to create a charge through the execution of the memorandum; rather, they intended only to record a transaction that had already been concluded, under which rights and liabilities had already arisen. Accordingly, the memorandum was deemed merely evidential and did not require registration. The judgment also referred to the authorities Obla Sundarachariar v. Narayana Ayyar (53 I.A. 68) and Hari Sankar Paul v. Kedar Nath Saha (66 I.A. 184).

The judgment proceeded to consider an appeal designated Civil Appeal No. LXVII of 1949, which was filed against a judgment and decree dated eleven March, 1947, rendered by the High Court of Judicature at Patna in First Appeal No. 218 of 1944. The material facts that formed the basis of the appeal were extracted from the lower court’s decision. Counsel for the appellant was Mr. Shiva Prasad Sinha, assisted by Sri Kishan. The case thus centered on whether the memorandum signed and delivered by the appellant on twenty-third October, 1936, and relied upon by the respondents as evidence of the creation of a mortgage, was compulsorily registrable under section 17 of the Indian Registration Act, 1908, and consequently whether its non-registration rendered it inadmissible as proof of the mortgage. The Subordinate Judge of Darbhanga who tried the suit, and the Patna High Court on appeal, had both held that the document did not require registration and was admissible as evidence, thereby granting a decree in favour of the respondents. The appeal therefore sought to test the proper construction of the memorandum and the legal consequences of its registration status. Shiva Prasad Sinha (Sri Kishan, with him) for

Counsel for the appellant appeared before the court, and counsel for the first respondent also appeared; however, respondents numbered two through thirteen did not enter appearance. The judgment was delivered on 5 May 1950 by Justice Patanjali Sastri. This appeal arose from a suit instituted by the respondents against the appellant and other members of his joint family, seeking to enforce a mortgage that the respondents alleged the appellant had created by depositing title deeds on 23 October 1936 at Calcutta. The principal issue for determination in the appeal concerned whether the memorandum signed and delivered by the appellant on that date, which the respondents relied upon as evidence of the mortgage’s creation, was required to be compulsorily registered under section 17 of the Indian Registration Act, 1908, and consequently, whether its lack of registration rendered it inadmissible as proof of the mortgage. The Subordinate Judge of Darbhanga who tried the suit, and subsequently the High Court at Patna on appeal, held that the document did not require registration and was admissible in evidence; accordingly, they decreed the suit in favor of the respondents. The question therefore turned on the proper construction of the memorandum and the circumstances surrounding its delivery to the respondents. According to the testimony of the respondents’ witnesses, which the lower courts had accepted, the accounts relating to the appellant’s dealings were examined on 23 October 1936, and a large sum was found to be due to the respondents, who then demanded payment. In response, the appellant produced and handed over certain documents, specifically title deeds concerning immovable properties belonging to his family, with the purpose of offering them as security for the amounts then due and for amounts that might become due in future dealings. After this, a draft of the memorandum was prepared; the appellant took the draft to his lawyer, returned in the afternoon, signed it, and delivered it to the respondents, all of which occurred in Calcutta. The memorandum was formatted as a letter addressed to the respondents’ firm and contained the following terms: “We write to put on record that to secure the repayment of the money already due to you from us on account of the business transactions between yourselves and ourselves and the money that may hereafter become due on account of such transactions we have this day deposited with you the following title deeds in Calcutta at your place of business at No. 7 Sambhu Mallick Lane, relating to our properties at Samastipur with intent to create an equitable mortgage on the said properties to secure all moneys including interest that may be found due and payable by us to you on account of the said transactions ……” A mortgage created by the deposit of title deeds constitutes a form of mortgage recognized under section 58(f) of the Transfer of Property Act, which provides that such a mortgage may be effected in certain towns, including Calcutta, by a person delivering to his creditor or the creditor’s agent documents of title to immovable property with the intent to create a security interest.

In this case, the Court explained that when a debtor hands over his title deeds to a creditor intending to create a security, the law treats the act as a contract to create a mortgage. Under that implied contract, the parties do not need to execute a registered deed as required by section 59 for other kinds of mortgages. However, if the parties decide to put their agreement in writing, that written instrument replaces the implication and becomes the exclusive evidence of the terms they have agreed. In such circumstances, both the physical deposit of the deeds and the written document become essential components of the transaction and are necessary for the mortgage to be created. Because deposit by itself is not sufficient to create the charge and written document sets out the bargain concerning the security, the document must be registered under section 17 of the Indian Registration Act, 1908. It is a non-testamentary instrument that creates an interest in immovable property valued at one hundred rupees or more. The timing of delivery of the document does not determine its need for registration. For example, a document delivered together with the deeds was held to be non-registrable in Obla Sundarachariar v. Narayana Ayyar (1). By contrast, a document delivered at a later stage was held to require registration in Hari Sankar Paul v. Kedar Nath Saha (2). The pivotal issue, therefore, is whether the parties intended to formalise their bargain concerning the deed deposit in the form of a written instrument. If they did, registration is mandatory. If the surrounding facts and proper construction show that the parties did not intend a written contract, the mortgage arises by implication from the deposit alone. In that situation, the document serves only as evidence and does not need to be registered. Numerous decisions have examined this question, though they are not all consistent. The Court did not feel it necessary to review them all, because the two recent Privy Council decisions already illustrate the two possible outcomes. In Obla Sundarachariar v. Narayana Ayyar (1), a signed memorandum was handed to the mortgagee along with the deeds and merely recorded the list of deeds. The Court held that such a memorandum did not fall within section 17 of the Registration Act because it did not on its face embody the essential terms of the security. The test applied was that a memorandum must contain on its face the substantive terms of the transaction to be caught by the registration provision.

In this appeal, the Court considered whether a memorandum that accompanied the deposit of title deeds needed to be registered under the Statute. The Court first recounted the authority in Hari Sankar Paul v. Kedar Nath Saha (1), where the title deeds were initially delivered together with a memorandum at the time a part of the loan was advanced, and a later memorandum superseded the first when the balance of the loan was paid. That later memorandum was a formal document that set out the essential terms of the transaction, used the expressions “hereby agreed” and “hereby secured,” and expressly gave the mortgagee a power of sale. Lord Macmillan, after reviewing earlier Board decisions, held that such a document required registration, observing that “where, as here, the parties professing to create a mortgage by a deposit of title deeds contemporaneously enter into a contractual agreement, in writing, which is made an integral part of the transaction, and is itself an operative instrument and not merely evidential, such a document must, under the statute, be registered.”

Turning to the memorandum before the Court, it was evident on its face that the parties did not intend the memorandum to create the charge. The document merely recorded a transaction that had already been concluded and whose rights and liabilities had been agreed orally. The respondents relied on the memorandum to demonstrate that the appellant’s title deeds were held by them as security for the money advanced, and to pre-empt any claim that the deeds were retained for purposes other than security, a point the appellant himself raised in his written statement by alleging that the non-registration of the memorandum was being used to his advantage. However, the memorandum did not aim to reduce the entire bargain to writing nor to serve as the basis for the parties’ rights and obligations. Agreeing with the High Court, the Court held that the memorandum delivered by the appellant together with the title deeds, cited as (1) 66 I.A. 184, did not require registration and was properly admitted as evidence to prove the creation of the charge. Consequently, the appeal was dismissed with costs, and the order affirmed. The appellant’s agent was identified as Tarachand Brijmohanlal, while the respondent’s agent was S. P. Varma.