LEGAL MORTGAGE

CASE LAWS SINCE 2015

Avinash-47
Nanditha-18
Manisha-09
Girishma-21
 Legal Mortgage
A legal mortgage is one, where, the mortgager transfers absolutely his
legal title in the mortgaged property to the mortgagee, by executing a
deed. This deed has to be registered.
◦ Its execution requires payment of stamp duties, registration fees etc.
so, it is a cumbersome and costly affair.
◦ On repayment the loan, the legal title has to be retransferred to the
mortgager. It again involves payment of registration fees, stamp
duty etc. hence, creation of legal mortgage is very expensive.
• But, from the banker’s point of view, legal mortgage is preferable,
because, in the event of non-repayment of money, he can sell the
mortgaged property without going to the court.
 Preference of banker
◦The banker would prefer for legal mortgage rather than the
Equitable mortgage. When a person lends money from the
bank for any reason the banker would ask any immovable
property for security. Here the mortgages are different legal
mortgage and equitable mortgage.
◦In case of equitable mortgage the land will be registered as
it is mortgaged by certain bank. It takes a lot of time to
register and heavy charges have been charged .
• But in case of legal mortgage there will be no registration just it will be
written on a bond that the land or any immovable asset is mortgaged to a
particular person. The time is saved because there is no registration and
no heavy charges are paid. So the banker would prefer for the legal
mortgage rather than the equitable mortgage
 A CASE STUDY ON LEGAL MORTGAGE
◦ Punjab National Bank (“PNB”) sanctioned a term loan and working capital
facility to UltraTech Private (“UT”). Pursuant to this, original title-deeds in
respect certain immovable properties belonging to Narvir Singh and Rajinder
Kaur were deposited with the Bank by the borrower as ‘mortgage by deposit
of title-deeds’. A request for mutation on the basis of mortgage effected was
made by the Bank which was resisted by the Respondent on the ground that no
entry can be made as the instrument of deposit of title-deeds is compulsorily
registrable Under Section 17(1)(c) of the Registration Act.
◦ Issue: Whether creation of mortgage by way of deposit of title deeds would
require compulsory registration under Section 58(f) of the Transfer of Property
Act?
Relevant Provisions:
◦ Section 58(f) of the Transfer of Property
Act, 1882–
◦ “Mortgage by deposit of title-deeds-
Where a person in any of the following
towns, namely, the towns of Calcutta,
Madras, and Bombay, and in any other
town which the State Government
concerned may, by notification in the
Official Gazette, specify in this behalf,
delivers to a creditor or his agent
documents of title to immovable property,
with intent to create a security thereon, the
transaction is called a mortgage by deposit
of title-deeds.”
◦ Section 59 of Transfer of Property Act,
1882
◦ “Mortgage when to be by assurance –
Where the principal money secured is one
hundred rupees or upwards, a mortgage
other than a mortgage by deposit of title
deeds can be effected only by a registered
instrument signed by the mortgagor and
attested by at least two witnesses…”
◦ Letter dated 29th March, 2007 of the
Finance Commissioner inter alia makes
“instrument of deposit of title-deeds
compulsorily registrable under Section
17(1) (c) of the Registration Act.”
Held:

Mortgage by way of deposit of title deeds to the creditor with the intent to create a security thereon can be effected by the debtor
and no instrument is required to be drawn for this purpose.

The parties may choose to draw a memorandum showing deposit of the title-deeds. In such a case also registration will not be
required. However, in a case where memorandum recorded in writing creates right, liability or extinguishes them, the registration
would be required to that effect.

The letter of the Finance Commissioner would apply in cases where the instrument of deposit of title-deeds incorporates terms and
conditions in addition to what flow from the mortgage by deposit of title-deeds. However, in such a situation, there has to be an
instrument which is an integral part of the transaction regarding the mortgage by deposit of title-deeds. A document merely
recording a transaction which is already concluded and which does not create any rights and liabilities does not require registration.

When the borrower and the creditor choose to reduce the contract in writing and if such a document is the sole evidence of terms
between them, the document shall form integral part of the transaction and same shall require registration Under Section 17 of the
Registration Act.

Laying down the above points, the Apex Court in this case noted that there was nothing to show existence of any instrument which has
created or extinguished any right or liability. Only, the original deeds have been deposited with the bank. Thus, the Supreme Court
concluded that the charge of mortgage can be entered into revenue record in respect of mortgage by deposit of title-deeds and for that,
instrument of mortgage is not necessary