Loan or mortgage by title deposit is not a new or emerging concept, people have been taking loans by depositing the title deed of the property to borrower money and placing the asset as a guarantee in case of non-payment of the borrowed money. However, a mortgage by title deposit is different from that of the normal mortgage with a bank, in an equitable mortgage the lender has no right to take possession over the ownership of the property or claim property.
Mortgage by Title Deposits
In English law, a mortgage for title deposit is referred to as an equitable mortgage. Lord Cains defined it as “it is a well-established rule of equity that a deposit of a document of title without more, without writing, without word of mouth, will create Equity a charge upon the property referred to.” Thus, a mortgage by title deposit can be made by the debtor by depositing his title deeds to the creditor as security for future advances and borrowings.
In Indian law, mortgage for title deposits comes under section 58(f) of Transfer of Property Act, 1821, which can be explained as, Title-deeds as collateral for mortgages It’s called a mortgage by deposit of title-deeds when a person in one of the following cities, namely Calcutta, Madras, and Bombay, and any other city that a state government may specify by notification in the Official Gazette, delivers documents of title to immovable property to a creditor or his agent with the intent to create security thereon.
In the year 1873 the question came into the consideration of the Calcutta High Court in Kedarnath Dutt v. Shamlal Khetry. When it came to Section 17 of the Registration Act , the court held it did not apply to a memorandum since it is neither the indumenta by which an equitable mortgage is created nor is it the evidence of the contract. But if it may be viewed as a mortgage contract, then it is the instrument through which the mortgage was created and falls under Section 17 of the Registration Act.
To prove a mortgage the existence of the below points is mandatory.
- The presence of Debt.
- Delivery of the necessity must be by the Debtor or his agent .
- Delivery must be in the towns mentioned in the Act, as above.
- Delivery must be made to the creditor or his agent.
- Documents of the title of immovable property shall be transferred, and
- The intention to create debt is mandatory.
Registration of Memorandum
For contracts reduced to writing, a document serves as only proof. In accordance with Section 17 of the Registration Act, such a document must be registered. Any document creating a right in an immovable property valued at least one hundred rupees must be registered under section 17(b) of the Registration Act.This document cannot be used as a form of proof if it isn’t registered, and the transaction cannot be established orally either. Section 49 of the Registration Act states that a document that is not registered cannot influence any immovable property in the agreement or be used as proof of a transaction affecting the immovable property.
The honourable Supreme Court in State of Haryana v.s Narvir Singh held that, It was inadmissible if the memorandum contained contract conditions and information such as the amount of loan, interest rate, and specifics of the property for which an equitable mortgage had previously been formed (in evidence), and this required registration.
Without any written contract between the parties, it is possible to form a mortgage by deposit of title documents; but, once the agreement or contract is reduced to writing, it must be registered.
Whether a memorandum reflecting the transfer of title deeds requires registration or not is determined by determining if the memorandum embodies the contract between both parties. Is it thus necessary to ask whether or not the parties intended to limit their agreement on the deposit of title deeds to the form of a document? If this is the case, the document must be registered.A mortgage contract is created by implication of the law, and does not need to be registered, if its correct construction and surrounding circumstances indicate that the parties did not intend to do so.
This is because a simple declaration that a deposit is made as collateral cannot be construed as an agreement formed by the paper itself. As a result, the document cannot be interpreted as a record of a contract between the parties. In the best case scenario, it is proof that the title deeds have been placed with the plaintiff. It depends on the facts of each case whether a document in issue was agreed by the parties as part of the arrangement to form a mortgage by deposit of title deeds.
 Mortgage by deposit by title deeds, Ajar Rab, Partner Rab & Rab Associations, October 12 2016.
Section 58(f). The Transfer of Property Act, 1882.
 (1872) 2k Suth WR 150, India
 (2014) 1 SCC 105
Written By: Manjusha Siriparapu
College: Army Institute of Law (2nd Year).