Of all the various types of mortgages, the equitable mortgage or mortgage by deposit of title deeds stands out as being the only one that requires no registration, irrespective of the amount secured by the mortgage. This is provided for in Sections 58 and 59 of the Transfer of Property Act, 1882:
58(f) 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 immoveable property, with intent to create a security thereon, the transaction is called a mortgage by deposit of title- deeds.
59. 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. Where the principal money secured is less than one hundred rupees, a mortgage may be effected either by a registered instrument signed and attested as aforesaid, or (except in the case of a simple mortgage) by delivery of the property.
The provision of law is amply clear – such mortgages do not require any registration whatsoever. The intent behind waiving the registration requirement was to facilitate trade and commerce in the relevant jurisdictions, as equitable mortgages could be carried out with ease, granting parties liquidity and credit without cumbersome formality. However, there is a catch – very often, parties, over and above the deposit of title deeds simpliciter, choose to evidence their agreement by executing some sort of written document. A common belief has been that as the transaction is essentially an equitable mortgage, such document would not have to be registered. This is not true, and all such documents do have to be registered. The proposition has been considered by the Supreme Court on several occasions, and the registration requirement for such supplementary documents has been affirmed time and again.
In Rachpal Mahraj v. Bhagwandas Daruka, (AIR 1950 SC 272), a three judge bench of the Court held thus (at para 4, per Sastri J.):
“A mortgage by deposit of title deeds is a form of mortgage recognised by section 58(f) of the Transfer of Property Act which provides that it may be effected in certain towns (including Calcutta) by a person “delivering to his creditor or his agent documents of title to immovable property with intent to create a security thereon.” That is to say, when the debtor deposits with the creditor the title deeds of his property with intent to create a security, the law implies a contract between the parties to create a mortgage and no registered instrument is required under Section 59 as in other forms of mortgage. But if the parties choose to reduce the contract to writing, the implication is excluded by their express bargain, and the document will be the sole evidence of its terms. In such a case the deposit and the document both form integral parts of the transaction and are essential ingredients in the creation of the mortgage. As the deposit alone is not intended to create the charge and the document, which constitutes the bargain regarding the security, is also necessary and operates to create the charge in conjunction with the deposit, it requires registration under section 17 of the Indian Registration Act, 1908, as a non-testamentary instrument creating an interest in immovable property, where the value of such property is one hundred rupees and upwards.”
This was re-affirmed by a larger bench in United Bank of India Ltd. v. Lekharam Sonaram, (AIR 1965 SC 1591), where the Court went a step further and made the consequences of non-registration clear (at para 7, per Ramaswami J.):
“…But if the parties choose to reduce the contract to writing, this implication of law is excluded by their express bargain, and the document will be the sole evidence of its terms. In such a case the deposit and the document both form integral parts of the transaction and are essential ingredients in the creation of the mortgage. It follows that in such a case the document which constitutes the bargain regarding security requires registration under Section 17 of the Indian Registration Act, 1908, as a non-testamentary instrument creating an interest in immovable property, where the value of such property is one hundred rupees and upwards. If a document of this character is not registered it cannot be used in the evidence at all and the transaction itself cannot be proved by oral evidence either.”
Accordingly, it must be noted that parties creating an equitable mortgage do not have to register the transaction as long as they do not involve a document in creating the mortgage. If, however, there is such a document that they choose to evidence the transaction by, it would ordinarily be registrable and the consequences of non-registration severe, unless it can be proved that in executing it, ‘the parties did not intend to reduce their bargain regarding the deposit of the title deeds to the form of a document” (Sastri J. In Rachpal Maharaj’s case supra), which would be a question of fact that differs from case to case, based on the circumstances. As always, it would be better to err on the side of caution and register any document executed in the course of such a transaction or better still, not execute such a document at all.