ORDER
K. Gnanaprakasam, J. (Chairperson)
This Miscellaneous Appeal is directed as against the Order dated 5.5.2006 in Appeal No. 8/2002, in DRC-130/2001 (TA-1746/1997, DRT-I, Chennai), passed by the DRT-II at Chennai.
1. The Appellant viz. Punjab National Bank, obtained a Debt Recovery Certificate for sale of property in TA-1746/1997 dated 6.5.1999 and the DRC dated 16.8.1999. The 4th Respondent herein viz. Indian Bank, also obtained orders in TA-168/1997 dated 15.7.1997, and the date of DRC was 9.1.1998. Pursuant to the DRCs issued in favour of the Appellant and the 4th Respondent, both the Banks brought the property for sale and that in the auction taken by the Punjab National Bank, the sale was fixed on 17.7.2002, and the same was postponed to 5.8.2002. During that point of time, it was brought to the notice of the Recovery Officer by the 4th Respondent Bank, that the property mortgaged to them was put on public auction in DRC-130/2001 on 17.7.2002, by way of filing Affidavit. The Appellant Bank also filed Counter Affidavit. That thereafter, the Recovery Officer heard both the parties and came to the conclusion that the claim of the Appellant and the 4th Respondent involves a mixed question of law and fact and he was not in a position to decide the same and placed the matter before the Ld. PO. Pursuant to the same, the Appellant filed Appeal No. 8/2002 before the Ld. PO. The Ld. PO after having heard the parties was of the view that the Appellant and the 4th Respondent are public sector Banks and the money advanced by them to the 1st Respondent (Borrower) is a public money. One can infer from the conduct of R1 from the proceedings as well as the observation of the Recovery Officer that his intention was only to defraud the Banks. Therefore, after satisfying the dues in favour of R4 (Indian Bank), if anything is left out by sale of the property, the same should be applied towards the dues of the Appellant (PNB). Thus the Appeal has been disposed of. Aggrieved by the same, this Appeal has been filed.
Heard the Ld. Advocate for the Appellant and the Respondent and also perused the Appeal papers.
2. It is seen from the records that the 1st Respondent created equitable mortgage by deposit of title deeds in favour of R4 on 10.5.1999, with the help of certified copies of the documents and he had also executed Indemnity bond stating that the original documents of title deeds were lost/mis-placed. As the borrower did not pay the amount, 4th Respondent Indian Bank filed the Suit before the High Court in C.S. No. 150/1997, and subsequently after the formation of the DRT, the Suit was transferred to DRT in TA No. 168/1997, and final Orders were passed on 15.7.1997, and DRC No. 20/1998 was also issued.
It is the contention of the Ld. Advocate for the Appellant that though an equitable mortgage was created with the 4th Respondent, the same is not valid in law as it wass created with the certified copies of the title deeds, whereas the Appellant is in possession of the original title deeds. It is also further contended that the 4th respondent did not take any care to find out whether the original title deeds were actually lost/mis-placed by the 1st Respondent/borrower. The 4th respondent has not taken proper care and caution to get necessary information from the 1st respondent borrower about the documents said to have been lost/mis-placed, whether they have given any Police complaint about the loss of the documents or whether they have given any publication in any newspapers requesting the public to handover the documents if they are available or warn the public not to deal with the property. It is also submitted that the 4th respondent is trying to take shelter under Section-58(f) of the Transfer of Property Act, 1882, and the same will arise only if the original title deeds are lost and not traceable, but whereas the originals were with the Appellant.
3. From the above said facts, it is revealed that the mortgage in favour of R4 Indian Bank was on 10.5.1989, but whereas, the mortgage in favour of the Appellant was on 10.6.1989. Of course, the mortgage in favour of Indian Bank was created with the help of certified copies of the documents, but whereas the original title deeds were deposited with the Appellant Bank. Now the point that arises for consideration of this Tribunal is –
1) Whether R4 Indian Bank has taken all care and caution in obtaining the equitable mortgage with the help of the certified copies of the documents or it has committed gross negligence in getting the equitable mortgage.
4. It is no doubt true as contended by the 4th Respondent that original documents of title deeds are not required to create an equitable mortgage and the said submission is supported by the case of C. Rajagopal v. State Bank of Travancore, Karur Branch, Karur by its Manager etc. 1995 I- Law Weekly 513, wherein it was held, “We are also unable to countenance the contention of the learned Counsel for the appellant that the mortgage created by the appellant only with a copy of the document, is not valid, in view of the number of pronouncements of our High Court and also of the Andhra Pradesh High Court. An identical question came up for consideration before a Division Bench of our High Court reported in 1993(1) L.W. 456 M.A.V.R. Nataraja Nadar & Sons etc. v. State Bank of India and 2 Ors. in which one of us, is a party (Abdul Hadi, J.). The Division Bench, on a consideration of the entire law on the subject and in the light of the pronouncements of the Supreme Court and of this Court and other High Courts, held that in order to create a valid mortgage, it is not necessary that the original documents of title to the property should be deposited. The Division Bench has also followed some of the earlier judgements of our High Court reported in A.I.R. 1925 Madras 723 The Official Assignee of Madras v. Basudeva Doss Badrinarayan Doss and 1973(1) M.L.J.334 + 86 L.W.94 Angu Pillai v. Kasi Viswanathan Chettiar, which in turn followed a Full Bench decision of the Rangoon High Court in Chidambaram Chettiar v. Aziz A.I.R. 1938 Rangoon 148. The Full Bench has reviewed the English and Indian authorities and has pointed out that in order to create a valid mortgage, it is not necessary that the whole, or even the most material of the documents of title to the property should be deposited, that the documents deposited should show a complete or good title in the depositors and it is sufficient if the deeds deposited bona fide relate to the property or are material evidence of title and shown to have been deposited with the intention of creating security thereon.” But the borrowers have not filed any satisfactory proof before the 4th respondent Indian Bank that why they were not able to furnish the original documents of title deeds. Equally, 4th respondent Indian Bank also has not obtained any satisfactory explanation from the mortgagor for not having deposited the original title deeds. It is not known under what circumstances, the 4th respondent Indian Bank have accepted the certified copies of the original title deeds from the borrowers. But however, it appears that the 4th respondent Bank had obtained an Affidavit of R. Srinivasan only on 28.7.1989. It is also not known under what circumstances, the said Affidavit was obtained, two months after the creation of the equitable mortgage. The Assistant General Manager of the Indian Bank (R4) also filed an Affidavit before the Recovery Officer in July, 2002 wherein in Para-6 he has stated that the Certified copies of the documents were deposited with the Petitioner Certificate holder in DRC-20/1998 with intention to create equitable mortgage on 10.5.1989, and an indemnity bond was also executed in favour of the Petitioner stating that the original documents of title deeds were lost or mis-placed. But now it is seen that the borrower Mr. R. Srinivasan, who had deposited the certified copies of the documents with R4, again created equitable mortgage over the above said property by depositing the original documents with the Punjab National Bank on 10.6.1989. From the Affidavit, it is made out, that the borrower had stated that the original documents of title deeds were lost or misplaced. If that be so, the borrowers have not even given any Police complaint about the alleged loss of title deeds nor a public notice in any one of the news papers either in English or in Vernacular about the loss of title deeds. It is also to be noted that even the Affidavit was not obtained on the date of creation of mortgage on 10.5.1989, but whereas it was obtained only on 28.7.1989. By that time, the borrowers have created equitable mortgage in favour of the Appellant on 10.6.1989. From this, it is made out that the Indian Bank has not acted with due care and diligent at the time of obtaining the mortgage with certified copies of the documents, but it was grossly negligent in accepting the certified copies of the title deeds. At least, when the borrowers approached the Bank for loan and agreed to create an equitable mortgage, the Indian Bank should have advised the borrowers to publish notice in the newspapers calling for objections before creating mortgage and it was also not done. Hence the Appellant claims the benefit of Section-78 of the Transfer of Property Act, 1882, which states, “Where, through the fraud, misrepresentation or gross neglect of prior mortgage, another person has been induced to advance money on the security of the mortgaged property, the prior mortgagee shall be postponed to the subsequent mortgagee.” This Section enacts an exception based on the doctrine of estoppel. That in order to have the benefit of the Section, it need not necessarily be proved that the prior mortgagee was guilty of fraud, but it is sufficient that he has been guilty of such gross negligence.
5. It is, therefore, clearly made out that R4 Bank was not diligent in getting proper documents from the borrowers at the time when they wanted to create an equitable mortgage. As such, though the mortgage was executed in favour of R4 Bank is in anterior point of time i.e. on 10.5.1989, and the mortgage in favour of the Appellant was on 10.6.1989, I am unable to accept the explanations given by R4 that the mortgage executed in their favour is valid. But on the other hand, the Appellant Bank was satisfied with the original documents produced by the borrower and they have also obtained a valid equitable mortgage and, therefore, I am inclined to accept the case of the Appellant. As I have already observed that no original documents of title deeds are required to create mortgage by deposit of title deeds, the preponderance of circumstances in this case are in favour of the Appellant to come to the conclusion that the Appellant Bank made all enquiries, but whereas the Respondent Bank has not discharged even the minimum requirement before getting mortgage from the borrowers by way of deposit of title deeds. I am also fortified to state so by relying upon the case of K. Prakasa Rao v. N. Ramakrishna Rao , wherein it was held that, “The mortgagee (equitable mortgage) in such cases only to be vigilant in accepting such representation made to him and should make the necessary enquiries before agreeing to advance any monies on the basis of registration extracts of documents before agreeing to advance any monies on the basis of registration extracts of documents of title to property or copies of documents. That seems to be underlying principle of Section 78 of the Transfer of Property Act which provided that if a conduct of a prior mortgagee amounted to gross neglect, the mortgage in his favour will be postponed to the subsequent mortgage.” As such, mortgage in favour of the Indian Bank R4 has got to be postponed to that of the mortgage of the Appellant.
6. For the reasons stated above, the Order dated 5.5.2006, in Appeal-8/2002 in DRC-130/2001, passed by the DRT-I, Chennai, is set aside.
7. The Appellant Bank is at liberty to bring the property for sale and realise the entire amount due to them and if there is any excess amount after defraying their amount, the same may be paid to the 4th respondent Indian Bank
8. Appeal is disposed of with the above said observation.