State of Kerala v Sankar J., Ramesh J. and The Repco Bank

## **C.R.** IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE THE ACTING CHIEF JUSTICE MR.ANTONY DOMINIC & THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU TUESDAY, THE 14TH DAY OF NOVEMBER 2017/23RD KARTHIKA, 1939 WA.No.2063 of 2017 IN WP(C).21855/2017 --------------------------------------AGAINST THE JUDGMENT IN WP(C) 21855/2017 of HIGH COURT OF KERALA DATED 11.8.2017 APPELLANTS/RESPONDENT NOS.1 TO 3 IN W.P.(C): -------------------------------------------1. STATE OF KERALA, REPRESENTED BY ITS PRINCIPAL SECRETARY TO GOVERNMENT, REGISTRATION DEPARTMENT, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM-695 001. 2. THE INSPECTOR GENERAL OF REGISTRATION, VANCHIYOOR, THIRUVANANTHAPURAM-695 035. 3. THE SUB REGISTRAR, OFFICE OF THE PRINCIPAL SUB REGISTRAR, EAST FORT, THIRUVANANTHAPURAM-695 023. BY ADV. SRI.K.V.SOHAN, STATE ATTORNEY RESPONDENTS/PETITIONERS & RESPONDENT NO.4 IN W.P.(C): ----------------------------------------------------- 1. SANKAR J., S/O. LATE P.S. JANAKAN, SANKAR BHAVAN, SUBHASH NAGAR, NETHAJI ROAD, VALLAKKADAVU P.O, THIRUVANANTHAPURAM, NOW RESIDING AT ERA-71-B, VAYANASALA JUNCTION, ELENJIPURAM LANE, PALKULANGARA, THIRUVANANTHAPURAM-695 008. 2. RAMESH J, S/O. LATE P.S. JANAKAN, SANKAR BHAVAN, SUBHASH NAGAR, NETHAJI ROAD, VALLAKKADAVU P.O, THIRUVANANTHAPURAM, NOW RESIDING AT ERA-71-C, VAYANASALA JUNCTION, ELENJIPURAM LANE, PALKULANGARA, THIRUVANANTHAPURAM-695 008. 3. THE REPCO BANK, REPRESENTED BY ITS CHIEF MANAGER, SHALIMAR COMPLEX, SS KOVIL ROAD, THAMPANOOR, THIRUVANANTHAPURAM-695 001. R BY SRI.D.KISHORE THIS WRIT APPEAL HAVING COME UP FOR ADMISSION ON 14-11-2017, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: **C R** # **ANTONY DOMINIC, Ag.C.J. & DAMA SESHADRI NAIDU, J. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Writ Appeal No.2063 of 2017** **- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 14[th] day of November 2017** ## **JUDGMENT** ## _**Dama Seshadri Naidu, J.**_ ## **Introduction:** Two persons borrow money from a bank by depositing their title deeds as security. They register the transaction. The loan satisfied, the borrowers want the title deeds back. The banker and the borrowers execute a deed of cancellation and present it for registration. The Registration Department wants to treat the cancellation deed either as a reconveyance or as a deed relating to deposit of title deeds—exacting higher stamp duty. 2. The questions to be answered are these: (a) Does the cancellation deed amount to “an agreement relating to deposit of title deeds” under Article 6 of the Schedule to the Kerala Stamp Act? Or (b) does the cancellation deed “reconvey the mortgaged Writ Appeal No.2063 of 2017 : 2 : property” attracting stamp duty under Article 47 of the same Schedule? ## **Facts in Brief:** 3. In this writ appeal, the State assails the judgment dated 11.8.2017 in W.P.(C)No.21855/17. 4. The respondents 1 and 2 obtained a loan from the third respondent Bank and deposited their title deeds as security. This offering of security is technically termed 'mortgage by deposit of title deeds'—an equitable mortgage. Though simple handing over the title deeds would suffice, the banker and the borrowers felt it desirable to have some record of the transaction: the deposit of the title deeds. They registered it, paying stamp duty under Article 6 of the Schedule to the Stamp Act (“the Act”). 5. Later, the loan satisfied, the borrowers wanted the title deeds back. For that purpose, again the bank and the borrowers Writ Appeal No.2063 of 2017 : 3 : executed a deed cancelling the memorandum of depositing the title deeds and presented it for registration. 6. Initially, the Registration Department insisted that the cancellation amounts to re-conveyance and the stamp duty be paid under Article 47 of the Schedule to the Act. In the alternative, the Department also insisted that it could be, in the least, under Article 6 of the Schedule to the Act. 7. Aggrieved, the respondents 1 and 2 filed W.P.(C)21855 of 2017, which the learned Single Judge allowed through the impugned judgment, dated 11[th] August 2017. The learned Single Judge, in fact, held that the borrowers are required to pay the stamp duty under Article 15 of the Schedule to the Act. This time, it is the State’s turn to come before us with this writ appeal. Writ Appeal No.2063 of 2017 : 4 : ## **Submissions:** ## **The Appellant’s:** 8. Sri K.V. Sohan, the learned State Attorney, has strenuously contended that it is an agreement contemporaneously recording the transaction of mortgage; as such, both its creation and nullification fall under Article 47. In the alternative, he has contended that it must be under Article 6, for the cancellation concerns, or relates to, a mortgage. ## **The Respondents 1 & 2:** 9. Sri D. Kishore, the learned counsel for the respondents 1 and 2, placing reliance on _South Indian Bank Ltd. v K. P. Ramachandran_[1] _**,**_ has contended that the very memorandum requires no registration. So it attracts no stamp duty, either. He has nevertheless contended that for a deed cancelling a registered 12017 (2) KHC 705 Writ Appeal No.2063 of 2017 : 5 : document the parties should pay the stamp duty only under Article 15 of the Act. 10. Heard Sri K. V. Sohan, the learned State Attorney and Sri D. Kishore, the learned counsel appearing for the respondents 1 and 2, besides perusing the record. ## **Discussion:** 11. To begin with, section 58 of the Transfer of Property Act defines the expressions employed in a mortgage transaction. _a_ Clause ( ) defines a mortgage as the transfer of an interest in specific ‘immovable property for securing the payment of money advanced or to be advanced by way of loan, an existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability. Clause ( _f_ ) of that section defines ‘ _Mortgage by deposit of title-deeds’: “_ Where a person . . . delivers to a creditor or his agent documents of title to immovable property, Writ Appeal No.2063 of 2017 : 6 : with intent to create a security thereon, the transaction is called a mortgage by deposit of title-deeds.” 12. Section 59 of the Transfer of Property Act, further, mandates that when “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.” So, a mortgage created by deposit of title deeds falls beyond the purview of section 59, despite the mortgage value. 13. The banking practice favours both parties to the loan— the banker and the borrower—to record the transaction of depositing the title deeds in a memorandum. Thus, the memorandum is an aid to the memory, and it usually records a past transaction—though not always so. To be precise, the memorandum acknowledges the rights and obligations already Writ Appeal No.2063 of 2017 : 7 : existing. On the other hand, an agreement records a contemporaneous transaction; the very agreement, in fact, creates the rights and obligations. 14. Given the nature of the memorandum about the deposited title deeds, it is not compulsorily registerable under Section 17 of the Registration Act, 1908. But the banker and the borrowers played safe and had it registered. As seen from the record, when the memorandum was registered, the Registration Department levied stamp duty under Article 6 of the Schedule. 15. As with the deeds of cancellation, Article 15 determines the stamp duty. It is a generic provision applying to all registered deeds intended to be cancelled unless they are affected by other provisions. So the borrowers are prepared to pay the stamp duty under Article 15 of the Schedule to the Act. But the Revenue Department refuses; it insists that the stamp duty must be paid Writ Appeal No.2063 of 2017 : 8 : under either Article 6 or Article 47 of the Schedule. 16. As early as in 1950, the Supreme Court in _Rachpal Mahraj v. Bhagwandas Daruka_[2] held that 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 reduce the contract to writing, the implication is excluded by their express bargain, and the document will be the sole evidence of its terms. Then, the contract must be registered. The crucial question, according to _Rachpal Mahraj,_ is, did the parties intend to reduce their bargain regarding the deposit of the title deeds to the form of a document ? 17. The question posed in _Rachpal Maharaj_ was elaborated and answered in _Deb Dutta Seal vs. Ramanlal Phumra_[3] . The 2AIR 1950 SC 272 3AIR 1970 SC 659 Writ Appeal No.2063 of 2017 : 9 : Supreme Court (2:1) has held that the document must contain all the essentials of the transaction. And one essential is that the deeds must be deposited by virtue of the instrument or acknowledge an earlier deposit of title deeds and say further that the title deeds shall be held as security on the said mortgage. In other words, whether the memorandum represents the very bargain between the parties assumes importance. At any rate, a mere statement that the deposit is made by way of security for the repayment of the loan cannot be read as a contract arrived at by the document itself. 18. All is said and done, the parties registered the transaction; they paid the stamp duty as well. Now, what engages our attention is the cancellation. 19. Article 6 mandates that an agreement “relating to deposit of title deeds,” that is to say, any instrument evidencing any agreement relating to the deposit of title deeds, attracts 0.5% stamp Writ Appeal No.2063 of 2017 : 10 : duty on the secured amount up to five lakh rupees. If the amount exceeds five lakh rupees, the stamp duty varies. Under Article 15 of the Schedule, if any instrument cancels a previously executed attested-instrument, that instrument attracts a stamp duty of Rs.500/-. Of course, if any other provision affects the transaction of cancellation, Article 15 cannot be invoked. 20. The Registration Department insists that Article 6, but not Article 15, applies to the deed cancelling an earlier registered deed witnessing the deposit of title deeds. Sri Sohan, the State Attorney, argues that even a deed of cancellation, too, is an agreement “relating” to deposit of title deeds. Regrettably, farfetched. 21. “Relating to deposit of title deeds”, we reckon, means a transaction that results in depositing the title deeds. Not every sundry transaction remotely referring to a past event of depositing the title deeds is not a transaction relatable to the depositing of title Writ Appeal No.2063 of 2017 : 11 : deeds. A contemporaneous transaction creating rights and obligations—even by deposit of title deeds—alone falls within the sweep of Article 6, and nothing else. 22. On the other hand, Article 15 of the Schedule is clear and simple as truth. The instrument now we are seized of is an instrument cancelling a previously executed attested-instrument. And, we must add, this deed has not been provided for or dealt with in any other provision. 23. The respondents relied on _K. P. Ramachandran._ But, as seen, the Division Bench in that case has dealt with the question whether a memorandum acknowledging the deposit of title deeds to create an equitable mortgage requires registration. It has not, in fact, dealt with neither Article 6 nor Article 15 of the Schedule to the Act. Writ Appeal No.2063 of 2017 : 12 : 24. So, without referring to _K. P. Ramachandran_ , we hold that an instrument or deed cancelling a registered document “relating to the deposit of title-deeds” falls only under Article 15 of the Schedule to the Act. 25. We may, before parting, also answer whether cancelling a registered document relating to the deposit of title deeds amounts to reconveyance. 26. Article 47 of the Schedule deals with the “reconveyance of mortgaged property.” In this context, we may observe that the reconveyance of property presupposes transfer of title and, perhaps, possession, too. Here, neither took place. In an equitable mortgage, unlike a usufructuary one, the mortgagor never loses possession. And a mortgage essentially securing a debt, the title never passes to the mortgagee, lest it should become a conveyance —a sale, at that. In other words, it is a matter of release, not Writ Appeal No.2063 of 2017 : 13 : re-conveyance. The deed sought to be registered relates to release of the documents deposited; it does not re-convey any property. So, viewed from either perspective, the impugned judgment, dt.11.08.2017, suffers from no legal infirmities and calls for no interference. As a result, we dismiss the writ appeal. No order on costs. _sd/-_ **ANTONY DOMINIC, ACTING CHIEF JUSTICE** _sd/-_ **DAMA SESHADRI NAIDU, JUDGE** _jes_