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Sec.59,100 of T.P. Act Charge – Deposit of Title Deeds – Mortgage – mere undertaking not to sale the property till the discharge of loan with out registration does not create any charge over the properties of JDr against the loan – the decree is only simple money decree – Suit for cancellation of decree obtained by wife against Jdr – is liable to be dismissed even though the decree is collusive one as the Finance Corporation does not hold Registered Charge over the properties = =Haryana Financial Corporation …. Appellant Verses Gurcharan Singh & Anr. …. Respondents = Published in judis.nic.in/supremecourt/filename=41086

Sec.59,100 of T.P. Act Charge – Deposit of Title Deeds – Mortgage – mere undertaking not to sale the property till the discharge of loan with out registration does not create any charge over the properties of JDr against the loan – the decree is only simple money decree – Suit for cancellation of decree obtained by wife against Jdr – is liable to be dismissed even though the decree is collusive  one as the Finance Corporation does not hold Registered Charge over the properties =

Whether  the  mere  undertaking that  the  party  will  not  dispose  of  the  properties  mentioned  in  an undertaking, during the currency of the loan, will   create  any  charge over those properties, unless charge is created by deposit  of  title  deeds or through a registered document.?  – No

 

We, therefore, find no error  in  the  judgment

of the lower Appellate Court which was affirmed by the High Court.

 A conjoint reading of Section 100 with Section 59 of the TP Act  makes

it clear that if by act of parties, any immovable property is made  security

for the payment of money to another and it  does  not  amount  to  mortgage,

then all the provisions which apply to a simple mortgage, as far as may  be,

apply to such charge.  Consequently, in view of Section 59  of  the  TP  Act

when there is a mortgage other than a  mortgage  by  deposit  of  the  title

deeds, it can be effected only by a registered instrument.  So  far  as  the

present case is concerned, no registered mortgage deed was executed  by  the

first respondent and no title deed of the property was handed  over  by  the

first respondent to the Corporation.   The mere undertaking  that  a  person

would not dispose of the properties mentioned, during the  currency  of  the

loan, would not confer any charge  on  the  immovable  properties  mentioned

therein.   In other words, a mere undertaking to create a  mortgage  is  not

sufficient to create an interest in any  immovable  property.    

This  legal

position has been settled by  various  judgments  of  this  Court.    In  K.

Muthuswami Gounder (supra), this Court was dealing with the  legal  validity

of a security bond by which parties undertook that they would  not  alienate

the  properties  till  the  decree  was  discharged.   

 Referring  the  said

document, this Court held as follows :

      “17. The document, Exhibit A-6, security bond does  not  in  substance

      offer suit property by way of security. Even giving the  most  liberal

      construction to the document, we cannot say that a charge as such  has

      been created in respect of the suit property for money to  be  decreed

      in the suit. All that it states is that in the event of a decree being

      passed not to alienate the property till  the  decree  is  discharged,

      which is a mere undertaking without creating a charge.  Therefore,  we

      agree with the finding of the High Court that the document at  Exhibit

      A-6 is not a charge. If that is so, the suit filed  by  the  appellant

      has got to be dismissed.”

 

 

 

12.   The Court held that the decree obtained in  that  suit  was  a  simple

money decree and not a decree on a charge or mortgage with the  result  that

the appellant who purchased the property in execution  of  that  decree  did

not acquire the rights under the Security Bond.

 

13.   In Bank of India (supra),  this  Court  was  examining  the  scope  of

undertaking made for creating an equitable charge over a flat in  favour  of

the Bank.   

This Court held that without a transfer of  interest,  there  is

no question of there being a mortgage  and  that  mere  undertaking  is  not

sufficient to create a charge.  

The ratio laid down by  the  above-mentioned

judgment applies to the present case.  In our  view,  the  mere  undertaking that  the  party  will  not  dispose  of  the  properties  mentioned  in  an undertaking, during the currency of the loan, will  not  create  any  charge over those properties, unless charge is created by deposit  of  title  deeds

or through a registered document.  

We also hold that even  if  the  purpose

of the decree obtained in Civil Suit No.767 of 1995 between the  respondents

was fraudulent and collusive one  so  to  defeat  the  undertaking  made  on

5.3.1994, that would not confer any charge over the properties,  unless  the

undertaking is registered.   

We, therefore, find no error  in  the  judgment

of the lower Appellate Court which was affirmed by the High Court.

 

14.   In the result, the appeal fails and is accordingly dismissed.    There

will be no order as to costs.               

 

REPORTABLE
IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 11028 OF 2013
(Special Leave Petition (C) No.8202 of 2006)
Haryana Financial Corporation …. Appellant

Verses

Gurcharan Singh & Anr. …. Respondents

 

J U D G M E N T
K.S. Radhakrishnan, J.
1. Leave granted.
2. M/s Amrit Steel Industries, Jagadhari, a proprietorship concern of
which the first respondent is the sole proprietor, had obtained a loan of
Rs.5,05,750/- on 15.9.1994 from the Appellant, Haryana Financial
Corporation, by entering into hypothecation of machinery, fixture, as well
as, personal guarantee bond dated 15.9.1994. The first respondent also gave
a written undertaking dated 5.3.1994 that he would not dispose of his
properties during the currency of the loan. The first respondent failed to
repay the loan. Consequently, the Corporation took over the hypothecated
property and sold the same and appropriated the amount. In the meantime,
the second respondent, the wife of the first respondent filed Civil Suit
No.767 of 1995 against the first respondent before the Court of Civil Judge
(Jr. Divn.), Jagadhari, seeking a declaration that she is the absolute
owner and in possession of the properties mentioned in the undertaking
dated 5.3.1994. The suit was decreed on 3.2.1996 as against the first
respondent.

3. The Corporation then filed Civil Suit No.167 of 2003 in the Court of
Additional Civil Judge (Senior Division), Jagadhari, against the
Respondents seeking a declaration that the decree dated 3.2.1996 was null
and void. The Corporation also submitted that the decree was obtained by
fraud to defeat the personal undertaking executed by the first respondent
on 5.3.1994 in favour of the Corporation. The Court decreed the suit
holding that the decree passed in Civil Suit No.767 of 1995 is a collusive
one obtained to defeat the undertaking created by the first respondent on
5.3.1994 in favour of the Corporation. The second respondent filed Civil
Appeal No.34 of 2005 in the Court of Additional District Judge,
Yamunanagar. The Additional District Judge, however, allowed the Appeal
vide judgment dated 30.8.2005 holding that the loan taken by the first
respondent was not subject to charge over the property covered by the
decree in Civil Suit No.767 of 1995 and that the Appellant had no locus
standi to challenge the decree suffered by the first respondent in favour
of the second respondent. The Corporation aggrieved by the aforesaid
judgment filed RSA No.44 of 2006 before the Punjab and Haryana High Court,
which was dismissed by the High Court on 9.1.2006. Aggrieved by the same,
the Corporation has filed the present Appeal.

4. Shri Amit Dayal, learned counsel appearing for the Corporation,
submitted that the High Court has committed an error in sustaining the
order passed by the Additional District Judge after having found that the
decree obtained by the second respondent against the first respondent in
Civil Suit No.167 of 2003 was a collusive one. Learned counsel submitted
that apparently such a decree was obtained without any contest by the first
respondent, only to defeat the undertaking given to the Corporation on
5.3.1994. Learned counsel also placed reliance on the judgments of this
Court in S.P. Cheranalvaraya Naidu (dead) by LRs. v. Jagannath (dead) by
LRs and others [(1994) 1 SCC 1] and Badami (deceased) by her LR v. Bhali
[(2012) 11 SCC 574] and submitted that the Court cannot grant relief to a
party who has obtained a fraudulent decree and who has come to the Court
with unclean hands. Learned counsel also placed reliance on the judgment
of this Court in M.L. Abdul Jabbar Sahib v. M.V. Venkata Sastri & Sons &
Ors. [(1969) 1 SCC 573] and submitted that even if the undertaking dated
5.3.1994 was not registered, still the first respondent is bound by the
undertaking and the Corporation can always proceed against the properties
referred to in the said undertaking.

5. Shri Gagan Gupta, learned Advocate appearing for the Respondents,
submitted that the High Court has rightly affirmed the judgment of the
lower Appellate Court after having noticed that the undertaking dated
5.3.1994 has not created any charge over the properties mentioned therein.
Consequently, the Corporation cannot proceed against the properties
mentioned in the undertaking. Learned counsel submitted that without
transfer of interest in the properties in question by a registered
document, no charge could be created in those properties and hence the
Corporation cannot proceed against those properties on the basis of mere
undertaking dated 5.3.1994. In support of this contention, reliance was
placed on the judgments of this Court in K. Muthuswami Gounder v. N.
Palaniappa Gounder [(1998) 7 SCC 327] and Bank of India v. Abhay D.
Narottam and others [(2005) 11 SCC 520].

6. We may, for the purpose of this case, extract the undertaking given
by the first respondent in favour of the Corporation on 5.3.1994, which
reads as follows :-
“That the proprietor of the concern have the following means :-
|Name of the |Immovable &|Personal |Net Worth |
|Proprietor/ |Moveable |Liabilitie| |
|Partner/Director |Property |s | |
|Gurcharan Singh |Assets & Liabilities | |
| | | |
| |Capital with Amrit |1,20,760.00 |
| |Steel Industries | |
| |Land & Building of | 8,14,000.00 |
| |Amrit Steel Industries | |
| |Jewellery | 1,00,000.00 |
| |Cash & Bank Balance | 1,00,000.00 |
| |Deposit with Malhotra | 50,000.00 |
| |Timber | |
| | |11,84,760.00 |
LIABILITIES NIL
NET WORTH 11,84,760.00
Sd/-
DEPONENT
VERIFICATION
I, Gurcharan Singh, the above named deponent do hereby verify contents
of the above paras as true and correct to the best of my knowledge and
belief and nothing has been concealed from.
Further confirm that the means as indicated above in the name shall
not be disposed off during the currency of the loan.
Sd/-
DEPONENT
PLACE : Yamuna Nagar
Dated : 05/03/94”
7. The above-mentioned undertaking dated 5.3.1994 was submitted by the
first respondent on a duly attested Stamp Paper, but was not registered
under the Registration Act. The above-mentioned undertaking was given
before the loan was sanctioned to the first respondent on 15.9.1994. We
also fully endorse the view taken by the Courts below that the decree in
Civil Suit No.767 of 1995 was obtained by the second respondent as against
the first respondent collusively to defeat the undertaking given by the
first respondent on 5.3.1994 in favour of the Corporation. Still the
question is whether the undertaking dated 5.3.1994 has created any charge
over the properties mentioned therein in favour of the Corporation. This
Court in J.K. (Bombay) Private Limited v. New Kaiser-I-Hind Spinning &
Weaving Co. Ltd. & Others [(1969) 2 SCR 866], explained the difference
between the charge and the mortgage as follows :-
“While in the case of a charge there is no transfer of property or any
interest therein, but only the creation of a right of payment out of
the specified property, a mortgage effectuates transfer of property or
an interest therein. No particular form of words is necessary to
create a charge and all that is necessary is that there must be a
clear intention to make a property security for payment of money in
praesnti.”

8. Section 100 of the Transfer of Property Act, 1882 defines “charge” as
follows :-
“100. Charges.- Where immoveable property of one person is by act of
parties or operation of law made security for the payment of money to
another, and the transaction does not amount to a mortgage, the latter
person is said to have a charge on the property; and all the
provisions hereinbefore contained which apply to a simple mortgage
shall, so far as may be, apply to such charge. Nothing in this section
applies to the charge of a trustee on the trust- property for expenses
properly incurred in the execution of his trust, and, save as
otherwise expressly provided by any law for the time being in force,
no charge shall be enforced against any property in the hands of a
person to whom such property has been transferred for consideration
and without notice of the charge.”

The above-mentioned Section clearly indicates the following types of
charges :
1) Charges created by act of parties; and
2) Charges arising by operation of law.
9. An ordinary charge created under the Transfer of Property Act is
compulsorily registerable. The first portion of Section 100 of the TP Act
lays down that where immoveable property of one person is by act of parties
or operation of law made security for the payment of money to another, and
the transaction does not amount to a mortgage, the latter person is said to
have a charge on the property; and all the provisions hereinbefore
contained which apply to a simple mortgage shall, so far as may be, apply
to such charge. The words “which apply to a simple mortgage shall, so far
as may be, apply to such charge” in this Section were substituted by
Section 53 of the Transfer of Property (Amendment) Act, 1929, for the words
“as to a mortgagor shall, so far as may be, apply to the owner of such
property, and the provisions of Sections 81 and 82 shall, so far as may be,
apply to the persons having such charge.” Evidently, the effect of the
amendment was that all the provisions of the TP Act which apply to simple
mortgages were made applicable to charges.

10. Section 59 of the Transfer of Property Act refers to the mode of
transfer which reads as follows :-
“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.”
11. A conjoint reading of Section 100 with Section 59 of the TP Act makes
it clear that if by act of parties, any immovable property is made security
for the payment of money to another and it does not amount to mortgage,
then all the provisions which apply to a simple mortgage, as far as may be,
apply to such charge. Consequently, in view of Section 59 of the TP Act
when there is a mortgage other than a mortgage by deposit of the title
deeds, it can be effected only by a registered instrument. So far as the
present case is concerned, no registered mortgage deed was executed by the
first respondent and no title deed of the property was handed over by the
first respondent to the Corporation. The mere undertaking that a person
would not dispose of the properties mentioned, during the currency of the
loan, would not confer any charge on the immovable properties mentioned
therein. In other words, a mere undertaking to create a mortgage is not
sufficient to create an interest in any immovable property. This legal
position has been settled by various judgments of this Court. In K.
Muthuswami Gounder (supra), this Court was dealing with the legal validity
of a security bond by which parties undertook that they would not alienate
the properties till the decree was discharged. Referring the said
document, this Court held as follows :
“17. The document, Exhibit A-6, security bond does not in substance
offer suit property by way of security. Even giving the most liberal
construction to the document, we cannot say that a charge as such has
been created in respect of the suit property for money to be decreed
in the suit. All that it states is that in the event of a decree being
passed not to alienate the property till the decree is discharged,
which is a mere undertaking without creating a charge. Therefore, we
agree with the finding of the High Court that the document at Exhibit
A-6 is not a charge. If that is so, the suit filed by the appellant
has got to be dismissed.”

 

12. The Court held that the decree obtained in that suit was a simple
money decree and not a decree on a charge or mortgage with the result that
the appellant who purchased the property in execution of that decree did
not acquire the rights under the Security Bond.

13. In Bank of India (supra), this Court was examining the scope of
undertaking made for creating an equitable charge over a flat in favour of
the Bank. This Court held that without a transfer of interest, there is
no question of there being a mortgage and that mere undertaking is not
sufficient to create a charge. The ratio laid down by the above-mentioned
judgment applies to the present case. In our view, the mere undertaking
that the party will not dispose of the properties mentioned in an
undertaking, during the currency of the loan, will not create any charge
over those properties, unless charge is created by deposit of title deeds
or through a registered document. We also hold that even if the purpose
of the decree obtained in Civil Suit No.767 of 1995 between the respondents
was fraudulent and collusive one so to defeat the undertaking made on
5.3.1994, that would not confer any charge over the properties, unless the
undertaking is registered. We, therefore, find no error in the judgment
of the lower Appellate Court which was affirmed by the High Court.

14. In the result, the appeal fails and is accordingly dismissed. There
will be no order as to costs.
…………………………………J.
(K.S. Radhakrishnan)

 

…………………………………J.
(C. Nagappan)
New Delhi,
December 13, 2013.

 

 

 

 

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