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Sunday, December 15, 2013

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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