Sunday, 14 August 2016

Whether unregistered mortgage deed is admissible in evidence?

The said argument would, however, be of no assistance to

the petitioners herein because a mortgage deed, to be valid, has to be
registered in terms of Section 17 of the Registration Act and, it is not

in dispute in the instant case that Ext.P3 agreement is not a

registered document. The effect of non -registration of a document

that is compulsorily registrable is clearly spelt out in Section 49 of the

Registration Act, which reads as follows:

                "49. Effect of non-registration of documents
          required to be registered.- No document required by
          Section 17 or by any provision of the Transfer of
          Property Act,1882 (4 of 1882) to be registered shall-
                a) affect any immovable property comprised
                therein, or
                b) confer any power to adopt, or
                c) be received as evidence of any transaction
                affecting such property or conferring such power,
                unless it has been registered:
                Provided that an unregistered document affecting
          immovable property and required by this Act or the
          Transfer of Property Act, 1882 (4 of 1882), to be
          registered may be received as evidence of a contract in a
          suit for specific performance under Chapter II of the
          Specific Relief Act, 1877 (3 of 1877), or as evidence of
          any collateral transaction not required to be effected by
          registered instrument."

     17. Further, in the decision of the Supreme Court in United

Bank of India Ltd v. Lekharam Sonoram & Co. - [AIR 1965 SC

1591], the possibility of relying on such a document as evidence was

negated in the following words;

                "7. ... It is essential to bear in mind that the essence
         of a mortgage by deposit of title deeds is the actual
         handing over by a borrower to the lender of documents of
         title to immovable property with the intention that those
         documents shall constitute a security which will enable
         the creditor ultimately to recover the money which he has
         lent. But if the parties choose to reduce the contract to
         writing, this implication of law is excluded by their
         express bargain, and the document will be the sole
         evidence of its terms. In such a case the deposit and the
         document both form integral parts of the transaction and
         are essential ingredients in the creation of the mortgage.
         It follows that in such a case the document which
         constitutes the bargain regarding security requires
         registration under Section 17 of the Registration Act,
         1908, as a non-testamentary instrument creating an
         interest in immovable property, where the value of such
         property is one hundred rupees and upwards. If a
         document of this character is not registered it cannot be
         used in the evidence at all and the transaction itself
         cannot be proved by oral evidence either."


 IN THE HIGH COURT OF KERALA AT ERNAKULAM

                                            PRESENT:

               THE HONOURABLE MR. JUSTICE A.K.JAYASANKARAN NAMBIAR

               TUESDAY, THE 19TH DAY OF JANUARY 2016
                                   WP(C).No. 30016 of 2015 (B)
                                   
         P.M. KELUKUTTY,
           Vs
         YOUNG MEN'S CHRISTIAN ASSOCIATION,
             A.K.JAYASANKARAN NAMBIAR, J.
                       -------------------------------
                 
              Dated this the 19th day of January, 2016
Citation:AIR 2016 kerala 135
                 
   
      As the issue involved in all these writ petitions is the same, they

are taken up together for consideration and disposed by this common

judgment. For the sake of convenience, the reference to facts and

exhibits is from W.P.(C).No.30016/2015.




      2.    The petitioners in these writ petitions are tenants in

buildings owned by the 1st respondent. The 1st respondent

constructed the said building, which is a four storeyed building, after

demolishing a two storeyed building that originally stood on the site.

For the purposes of constructing the said building, the 1st respondent

had availed a term loan of Rs.400 Lakhs from the 2nd respondent

bank. The security offered by the 1st respondent, for the loan amounts

advanced to it by the 2nd respondent, was in the form of a mortgage

by deposit of title deeds. Ext.P2 dated 31.12.2004 is the memorandum
of deposit of title deeds. The 1st respondent also entered into Ext.P3

loan agreement dated 27.12.2004, whereby it agreed to repay the 2nd

respondent the said loan amount in installments in the manner

specified in the schedule to the said agreement. Annexure 3 of the

schedule to the said agreement states that towards the term loan of

Rs.4 Crores, a sum of Rs.150 Lakhs has to be paid on receipt of

advance from prospective shop tenants within the time stipulated

therein, and the balance amount has to be paid in 120 equal monthly

installments starting from 6 months from the date of disbursement.




      3.   The 1st respondent began to lease out various premises

within the building in question to third parties even while the building

was under construction. As a result, there were registered lease deeds

executed by the 1st respondent in favour of various persons, both

prior to and subsequent to, the creation of the mortgage by deposit of

title deeds. There were also certain unregistered lease deeds that

were executed by the 1st respondent, subsequent to the creation of

the mortgage. The 1st respondent, thereafter, occasioned a default in

effecting repayment of the loan amounts to the 2nd respondent and, as
a consequence, the 2nd respondent initiated steps under the

SARFAESI Act, against the secured asset viz. the four storeyed

building, for recovery of the defaulted loan amounts. The said

proceedings culminated in a private sale of the building in question to

one Ahammed Koya.




      4.   It is relevant to note that the petitioners had, in the

meanwhile, and on coming to know of the proposed sale to Ahammed

Koya, got themselves impleaded in a writ petition that had been filed

by the 1st respondent seeking to interdict the proceedings initiated by

the 2nd respondent bank under the SARFAESI Act. The petitioners

basically wanted an opportunity to redeem the mortgage executed by

the 1st respondent by paying the amounts payable to the 2nd

respondent bank. The writ petition was subsequently dismissed as

infructuous when the private sale took place. The petitioners,

therefore, filed S.A.No.18/2010 before the Debts Recovery Tribunal

challenging the private sale. This S.A. was dismissed by Ext.P18 order

on the ground that the Tribunal did not have the jurisdiction to decide

the claim for redemption of mortgage and subrogation put forward by

the petitioners.
      5. The 2nd respondent thereafter, issued a sale certificate of sale

of the property in question and registered the same as Document No

630/1/2013 of the Sub Registrar, Kozhikode on 10.09.2013.

Immediately thereafter, it took steps in terms of Section 14 of the

SARFAESI Act, to obtain vacant possession of the building in question.

The petitioners, therefore, submitted objections before the Chief

Judicial Magistrate, inter alia, pointing out that their tenancy rights in

the building could not be determined without recourse to the

provisions of Section 111 of the Transfer of Property Act. The

litigation that ensued resulted in Exts.P20A and P21 judgments, of a

single bench and Division bench respectively, of this court whereby

this court directed the Chief Judicial Magistrate to consider the

objections raised by the tenants in the building to the application

preferred by the 2nd respondent bank under Section 14 of the

SARFAESI Act. The Chief Judicial Magistrate, thereafter, considered

the matter and by Ext.P26 common order dated 18.08.2015 found that

only those tenants who had obtained tenancy rights before the date of

creation of mortgage would be entitled to a protection from

dispossession and that, the tenants who had obtained tenancy rights
through lease deeds executed subsequent to the creation of the

mortgage, would not be entitled to such protection. In arriving at the

said finding, the learned Magistrate found that Ext.P3 agreement

constituted a mortgage deed, the terms of which expressly prevented

the 1st respondent from executing lease agreements with respect to

the building in question and, further, that the lease agreements

executed subsequent to the creation of the mortgage did not conform

to the nature of leases permitted under Section 65A (2) of the

Transfer of Property Act. Ext.P26 common order of the Chief Judicial

Magistrate is impugned in these writ petitions.




     6. I have heard learned Senior Counsel Sri.Sudhi Vasudevan for

the petitioners in all these writ petitions and Sri.E.Narayanan,

Sri.Mohammed Navaz as also Sri.S.Easwaran, the learned counsel

appearing for respondents 1, 2 and 3.




     7. The contentions put forth on behalf of the petitioners in these

writ petitions, briefly stated, are as follows:




      Ext.P3 agreement is not valid since the 1  st respondent
        did not have the necessary permission from the

        International YMCA to execute such an agreement. The

        agreement is therefore null and void.



      Alternatively, the 1      strespondent had the power to

        execute lease agreements, and this power was one that

        was generally available with any mortgagor and

        independent of the powers granted under Section 65A

        of the Transfer of Property Act. The lease agreements

        entered into between the petitioners and the 1st

        respondent were therefore valid and the petitioners

        were    consequently      entitled to  protection    from

        dispossession under Section 14 of the SARFAESI Act.


      The contrary intention referred to in Section 65A(3) is

        in respect of an intended prohibition, if any, to create a

        lease so long as it is expressed in a mortgage deed. It

        follows, therefore, that if there is no express

        prohibition on the mortgagor to create a lease, then

        the provisions of Section 65A will not be attracted.

        Reliance is placed on paragraph 17 of the decision of

        the Supreme Court in Harshad Govardhan Sondagar

        v. International Assets Reconstruction Company

        Limited and Others - [(2014) 6 SCC 1].


      It is contended, in the alternative, that there is no

        requirement of the contrary intention mentioned in
        Section 65A (3) being expressed in a mortgage deed. A

        contrary intention can be gathered from an express

        consent granted in an agreement entered into between

        the parties. The general power of a mortgagor to

        create a lease was recognised in law even before the

        introduction of Section 65A of the TP Act. The Section

        does not take away the right of the mortgagee to give

        consent to the creation of a lease. Reference is made to

        the decision in Kamakshaya Narayan Singh v.

        Chohan Ram and another - [AIR 1952 SC 401].


      As     regards the requirement of registration of a

        mortgage deed, it is submitted that a mortgage deed

        need not be in writing. An oral arrangement can also

        be deemed to be a mortgage deed by adopting a

        purposive interpretation by reading the provisions of

        Section 58 along with Section 96 of the Act.

        Alternatively, for the purposes of Section 65A, an

        agreement to create a mortgage can also be seen as a

        mortgage deed and in such a case, the requirement of

        registration will not apply.


      It is further contended that the provisions of Section

        49 of the Registration Act clearly indicate that a

        non-registration of the mortgage deed itself would

        render the mortgage invalid. As Ext.P3 is not

        registered, it cannot be seen a valid mortgage deed in
        the eyes of law and consequently, a mortgage itself

        never came into existence. The document itself can,

        however, be relied upon for a collateral purpose of

        establishing the consent of the mortgagee under the

        document. Reliance is placed on the decisions in Babu

        Parasu Kaikadi (Dead) by L.Rs. v. Babu (Dead) by

        L.Rs. - [AIR 2004 SC 754] and State of Haryana

        and Others v. Navir Singh and Another - [2013

        KHC 2518]. The decision in Dipak Kumar Singh

        and Another v. Park Street Properties (P) Limited

        - [2014 KHC 3373 (Cal)] is relied upon for the

        proposition that once a document has been accepted in

        evidence before the lower court, the same cannot be

        challenged as inadmissible before the Higher Court.


      It is submitted that in the private sale entered into

        between the mortgagee and the purchaser of the

        property, there was an express agreement that the sale

        was on "as is where is" basis. This meant that the

        mortgagee intended that the tenancies created in the

        property would continue notwithstanding the sale. The

        mortgagee cannot, therefore, now turn around and

        contend that the tenants should be dispossessed. Any

        such contention would be hit by the principles of

        estoppel.    Reliance is placed on the decision in

        Mahendra Mahato v. Central Bank of India -

        [2015 (1) KLT SN 81 (C.No.100) (Cal)].

      It is argued that since the petitioners' induction as a

        lessee is accepted by the respondents, the termination

        of the lease can only be in the manner contemplated

        under the Rent Control Laws. The decision in V.

        Dhanapal Chettiar v. Yesodai Ammal - [AIR 1979

        SC 1745] is relied upon for contending that the Rent

        Control Laws will prevail over the provisions of the TP

        Act.


      Lastly, by referring to Article 137 of the Limitation Act,

        it is contended that the time for making an application

        under Section 14 of the SARFAESI Act is three years

        from the date of arising of the cause of action. It is

        contended that for reckoning the starting point of

        limitation, the date on which the necessity arose to

        seek the assistance of court is relevant. The resistance

        by the petitioners to the attempt at dispossession was

        evident in 2009, when the writ petition that led to

        Ext.P31 judgment was filed and, further, in 2010, when

        the petitioners approached the DRT through an S.A.

        The application under Section 14 was preferred only

        on 11.09.2013, and was therefore, barred by limitation.

        It is pointed out that this issue, although raised in the

        objection filed before the Magistrate, was not

        considered by him in Ext.P26 common order.
      8. The above contentions of the learned Senior Counsel for the

petitioners are vehemently resisted by counsel for the respondents

who would contend as follows:-




         The issue regarding validity of the mortgage, raised

          by the petitioners, is hit by the principles of

          constructive res judicata. Reliance is placed on the

          provisions of Section 11 of the CPC and, in

          particular, Explanation IV thereto. It is also pointed

          out that the petitioners had accepted the creation of

          mortgage in the earlier writ petition filed before this

          court.


         As regards the submissions made on the applicability

          of Section 65A (3) of the Transfer of Property Act, it

          is submitted that paragraph 17 of the decision of the

          Supreme Court in Harshad Govardhan Sondagar

          v. International Assets Reconstruction Company

          Limited and Others - [(2014) 6 SCC 1] is a

          complete answer to the submissions on behalf of the

          petitioners.


         On the issue of whether Ext.P3 can be treated as a

          mortgage deed, it is contended that the said

          document is only a loan agreement that was marked

          as such by the Magistrate. For the said document to
          be a mortgage deed, it should be an instrument that

          effects a transfer of the property. In Ext.P3

          agreement, there is no stipulation with regard to a

          transfer of property. It only speaks of the creation of

          a charge on fixed assets but does not effect a

          transfer of property. Reliance is placed on the

          decision in Bank of India v. Abhay D. Narottam

          and Others - [(2005) 11 SCC 520] to contend that

          a mere undertaking to create a mortgage is not

          sufficient to create any interest in immovable

          property. It is also argued that the said document is

          not registered and since the collateral purpose, for

          which the document is sought to be used by the

          petitioners, is for styling it as a mortgage deed, the

          proviso to Section 49 would not come to the aid of

          the petitioners and the unregistered document

          cannot be relied upon for any purpose. Reliance is

          placed on the decisions in State of Haryana and

          Others v. Narvir Singh and Another - [(2014) 1

          SCC 105] and Indus Towers Ltd. v. Sub

          Inspector of Police - [2013 (3) KLT 828]. It is

          reiterated that merely by giving consent, the

          mortgagee cannot be seen as contracting out of the

          provisions of Section 65A (1) & (2) and that the

          contrary intention must be expressed in the

          mortgage deed. Reliance is placed on the decision in

          Public Trustee v. Lawrence - [(1911-1913) All.
          E.R. Rep. 670].



             Countering the submissions on the issue of

          limitation, it is submitted that Section 36 of the

          SARFAESI Act makes the Limitation Act applicable

          only for the purposes of Section 13 (4) of the

          SARFAESI Act. The said provision, read with Section

          29 of the Limitation Act, would indicate that it is the

          period of limitation in the special statute that would

          prevail. Reliance is placed on the decision in

          Commissioner of Customs and Central Excise v.

          Hongo India Private Limited and Another -

          [(2009) 5 SCC 791]. It is contended that in such

          cases, the period of limitation is 12 years from the

          date of creation of mortgage as provided under

          Article 62 of the Limitation Act. Section 14

          proceedings being post Section 13 (4) actions, the

          provisions of Section 36 will ensure that, so long as

          Section 13 (2) proceedings are initiated within 12

          years from the date of creation of the mortgage,

          Section 14 proceedings will be treated as within

          time. Reliance is placed on the decisions in

          Kottakkal       Co-op.    Urban    Bank      Ltd.    v.

          Balakrishnan - [2008 (2) KLT 456] and

          Sreedharan v. Indian Bank - [2011 (2) KLT

          627]. Alternatively, it is contended that, even if the

          limitation period is taken as 3 years under Article
          137, which governs applications made to court, then

          in the instant case the notice under Section 13 (2)

          was issued on 16.11.2007, which was well within the

          period of three years from the date of arising of the

          cause of action.




     9. On a consideration of the facts and circumstances of the case

and the submissions made across the bar, I find that the sustainability

of Ext.P26 common order dated 18.08.2015 of the Chief Judicial

Magistrate is the issue that arises for consideration in these cases.

The learned Magistrate found that only those tenants who had

obtained tenancy rights before the date of creation of mortgage would

be entitled to a protection from dispossession and that, the tenants

who had obtained tenancy rights through lease deeds executed

subsequent to the creation of the mortgage, would not be entitled to

such protection. The petitioners in these writ petitions are all persons

who had entered into lease agreements with the 1st respondent,

subsequent to Ext.P3 agreement entered into between the 1st and 2nd

respondents, as also subsequent to 31.12.2004, the date on which a

mortgage by deposit of title deeds was created by the 1st respondent
in favour of the 2nd respondent. The judgment of the Supreme Court

in Harshad Govardhan Sondagar v. International Assets

Reconstruction Company Limited and Others - [(2014) 6 SCC 1]

recognises the rights of tenants under post mortgage leases to resist

an action for dispossession subject to certain conditions. The following

extracts from the said decision may now be noted;

                 17. After the mortgage of an immovable property
           is created by the borrower in favour of a secured creditor,
           the right of the borrower to lease a mortgaged property
           is regulated by Section 65-A of the Transfer of Property
           Act. Section 65-A of the Transfer of Property Act is
           extracted hereinbelow:
                 "65-A. Mortgagor's power to lease.--(1) Subject
           to the provisions of sub-section (2), a mortgagor, while
           lawfully in possession of the mortgaged property, shall
           have power to make leases thereof which shall be
           binding on the mortgagee.
                 (2)(a) Every such lease shall be such as would be
           made in the ordinary course of management of the
           property concerned, and in accordance with any local
           law,custom or usage.
                 (b) Every such lease shall reserve the best rent that
           can reasonably be obtained, and no premium shall be
           paid or promised and no rent shall be payable in advance.
                 (c) No such lease shall contain a covenant for
           renewal.
                 (d) Every such lease shall take effect from a date
           not later than six months from the date on which it is
           made.
                 (e) In the case of a lease of buildings, whether
           leased with or without the land on which they stand, the
           duration of the lease shall in no case exceed three years,
           and the lease shall contain a covenant for payment of the
           rent and condition of re-entry on the rent not being paid
           within a time therein specified.
                  (3) The provisions of sub-section (1) apply only if
           and as far as a contrary intention is not expressed in the
           mortgage deed; and the provisions of sub-section (2) may
           be varied or extended by the mortgage deed and, as so
           varied and extended, shall, as far as may be, operate in
           like manner and with all like incidents, effects and
           consequences, as if such variations or extensions were
           contained in that sub-section."
           Thus, sub-section (1) of Section 65-A of the Transfer of
           Property Act states that the mortgagor has the power to
           make lease of a mortgaged property while he is in lawful
           possession of the same subject to the provisions of sub-
           section (2) of Section 65-A of the Transfer of Property Act
           and such lease is binding on the mortgagee. Sub-section
           (3) of Section 65-A further provides that such a power is
           available with the mortgagor to make a lease of the
           mortgaged property only if and as far as a contrary
           intention is not expressed in the mortgage deed. Thus, so
           long as the mortgage deed does not prohibit a mortgagor
           from making a lease of the mortgaged property and so
           long as the lease satisfies the requirements of sub-section
           (2) of Section 65-A, a lease made by a borrower as a
           mortgagor will not only be valid but is also binding on the
           secured creditor as a mortgagee.


                  18. We may now consider whether the provisions
           of the SARFAESI Act have the effect of terminating these
           valid leases made by the borrower or the mortgagor
           made in accordance with the provisions of the Transfer of
           Property Act. Section 35 of the SARFAESI Act, on which
           the High Court has placed reliance in Trade Well as well
           as in the impugned judgment is reproduced hereinbelow:
      "35. The provisions of this Act to override
                other laws.--The provisions of this Act shall have
                effect, notwithstanding anything inconsistent
                therewith contained in any other law for the time
                being in force or any instrument having effect by
                virtue of any such law"
           Section 35 of the SARFAESI Act, therefore, provides that
           the provisions of the SARFAESI Act shall have effect,
           notwithstanding      anything     inconsistent    therewith
           contained in any other law for the time being in force.
           Thus, if there is any provision in the SARFAESI Act and if
           there is any provision in any other law which is
           inconsistent therewith, the provision of the SARFAESI
           Act will have effect and not the provision of any other law.

              19. The only section in the SARFAESI Act which
           confers a statutory right on the secured creditor to take
           possession of the secured asset and enforce the secured
           asset for the realisation of the secured debt is Section 13.
           We will, therefore, have to find out whether there is any
           provision in Section 13 of the SARFAESI Act which is
           inconsistent with the right of a borrower or a mortgagor
           to make a lease in accordance with the provisions of the
           Transfer of Property Act and the corresponding right of a
           lessee to remain in possession of the property leased out
           to him during the period of a lease.

              20.       xxxxx

              21. When we read the different provisions of Section
           13 of the SARFAESI Act extracted above, we find that
           sub-section (4) of Section 13 provides that in case the
           borrower fails to discharge his liability in full within
           sixty days from the date of notice, as provided in sub-
           section (2) of Section 13 of the SARFAESI Act, the
           secured creditor may take recourse to one or more of the
           measures mentioned therein to recover his secured debt.
           One of the measures mentioned in clause (a) in
           sub-section (4) of Section 13 of the SARFAESI Act is to
           take possession of the secured assets of the borrower
           including the right to transfer by way of lease. Where,
           however, the lawful possession of the secured asset is
           not with the borrower, but with the lessee under a valid
           lease, the secured creditor cannot take over possession
           of the secured asset until the lawful possession of the
           lessee gets determined. There is, however, no mention in
           sub-section (4) of Section 13 of the SARFAESI Act that a
           lease made by the borrower in favour of a lessee will
           stand determined on the secured creditor deciding to
           take any of the measures mentioned in Section 13 of the
           said Act. Sub-section (13) of Section 13 of the SARFAESI
           Act, however, provides that after receipt of notice
           referred to in sub-section (2) of Section 13 of the
           SARFAESI Act, no borrower shall lease any of his secured
           assets referred to in the notice, without the prior written
           consent of the secured creditor. This provision in sub-
           section (13) of Section 13 of the SARFAESI Act and the
           provisions of the Transfer of Property Act enabling the
           borrower or the mortgagor to make a lease are
           inconsistent with each other. Hence, sub-section (13) of
           Section 13 of the SARFAESI Act will override the
           provisions of Section 65-A of the Transfer of Property Act
           by virtue of Section 35 of the SARFAESI Act, and a lease
           of a secured asset made by the borrower after he
           receives the notice under sub-section (2) of Section 13
           from the secured creditor intending to enforce that
           secured asset will not be a valid lease.

               36. We may now consider the contention of the
           respondents that some of the appellants have not
           produced any document to prove that they are bona fide
           lessees of the secured assets. We find that in the cases
           before us, the appellants have relied on the written
           instruments or rent receipts issued by the landlord to
           the tenant. Section 107 of the Transfer of Property Act
           provides that a lease of immovable property from year to
           year, or for any term exceeding one year or reserving a
           yearly rent, can be made "only by a registered
           instrument" and all other leases of immovable property
           may be made either by a registered instrument or by oral
           agreement accompanied by delivery of possession.
           Hence, if any of the appellants claim that they are
           entitled to possession of a secured asset for any term
           exceeding one year from the date of the lease made in his
           favour, he has to produce proof of execution of a
           registered instrument in his favour by the lessor. Where
           he does not produce proof of execution of a registered
           instrument in his favour and instead relies on an
           unregistered instrument or oral agreement accompanied
           by delivery of possession, the Chief Metropolitan
           Magistrate or the District Magistrate, as the case may be,
           will have to come to the conclusion that he is not entitled
           to the possession of the secured asset for more than a
           year from the date of the instrument or from the date of
           delivery of possession in his favour by the landlord."




     10.     The issue that arises for consideration, therefore, is

whether the petitioners can be treated as tenants under post

mortgage leases who are entitled to a protection from dispossession.

The power of a mortgagor, who retains possession of the mortgaged

property, to create leases, is recognised by Section 65A of the

Transfer of Property Act. The said provision reads as under;
        [65A. Mortgagor's power to lease.-(1) Subject to the
        provisions of sub section (2), a mortgagor, while lawfully in
        possession of the mortgaged property shall have power to make
        leases thereof which shall be binding on the mortgagee.
               (2) (a) Every such lease shall be such as would be made
        in the ordinary course of management of the property
        concerned, and in accordance with any local law, custom or
        usage,
               (b) Every such lease shall reserve the best rent that can
        reasonably be obtained, and no premium shall be paid or
        promised and no rent shall be payable in advance,
               (c) No such lease shall contain a covenant for renewal,
               (d) Every such lease shall take effect from a date not
        later than six months from the date on which it is made,
               (e) In the case of a lease of buildings, whether leased
        with or without the land on which they stand, the duration of
        the lease shall in no case exceed three years and the lease shall
        contain a covenant for payment of the rent and a condition of
        re-en try on the rent not being paid with a time therein
        specified.
               (3) The provisions of sub-section (1) apply only if and as
        far as a contrary intention is not expressed in the mortgage-
        deed; and the provisions of sub section (2) may be varied or
        extended by the mortgage-deed and, as so varied and extended,
        shall, as far as may be, operate in like manner and with all like
        incidents, effects and consequences, as if such variations or
        extensions were contained in that sub-section.]



     11. It will be seen from a reading of the above provision that it

is one that is designed to protect the interests of the mortgagee,

inter alia in a mortgage created by deposit of title deeds, by

permitting the mortgagor, who retains possession of the immovable

property, to create only such leases as do not prejudice the right of

the mortgagee to proceed against the property in the event of the
mortgagor not paying the amounts due to him. The power to create

leases is therefore made subject to the provisions of sub-section 2,

which stipulates the conditions that must necessarily be incorporated

in the leases that are so created. The provisions of sub-section (3),

however, recognise a power in the mortgagee to permit a mortgagor

to create leases that are not hedged in by the conditions specified in

sub-section (2), with the rider that such a contrary intention must be

found expressed in a mortgage deed and, when so expressed, will

operate to extend or vary the terms of the mortgage entered into

between the parties.




      12. In the instant cases, de hors Ext.P3 agreement, the lease

agreements under which the petitioners herein obtained their tenancy

rights, are post mortgage leases that do not satisfy the requirement of

Section 65A of the Transfer of Property Act, as rightly found by the

Chief Judicial Magistrate in Ext.P26 common order. Consequently, the

petitioners would not ordinarily be entitled to the protection from

dispossession. This is because the judgment of the Supreme Court in

Harshad Govardhan's case (Supra) has interpreted the provisions

of the SARFAESI Act as recognizing only such post mortgage leases

as conform to the requirements of Section 65 A, and have been
created prior to the initiation of proceedings under Section 13 (2) of

the SARFAESI Act, as entitled to a protection from dispossession

under Section 14 of the SARFAESI Act.




      13. The question then arises as to whether Ext.P3 agreement

could be construed as a mortgage deed and, if so, whether the terms

of the said deed contain an express permission by the mortgagee to

the mortgagor to create leases that were not hedged in by the

conditions stipulated in sub-section (2) of Section 65A of the Transfer

of Property Act. Such an enquiry is necessitated since the petitioners

contend that the lease agreements that conferred tenancy rights on

them were entered into before a notice under Section 13 (2) was

served on the 1st respondent mortgagor and Ext.P3 agreement

contains a contrary intention with regard to the nature of leases that

could be created by the 1st respondent mortgagor. It is contended,

therefore, that the lease agreements in their case were valid and not

hit by the provisions of Section 65A (2).




      14. I find from a reading of the clauses in Ext.P3 agreement,

especially clause 3 of the agreement, read with Appendix III thereto,
that the agreement between the 1st and 2nd respondent did envisage

the creation of tenancy rights in the building in question, as the

specific terms of repayment clearly stipulate that repayments should

be effected utilizing the advance amounts received from prospective

tenants. The said clause, when read with clause 3 of the agreement,

must be seen as permitting the entering into of lease agreements by

the mortgagor. Consequently, Ext.P3 agreement can be said to have

contained the expression of a contrary intention for the purposes of

Section 65 A (3) of the Transfer of Property Act, though not in a valid

mortgage deed. The finding to the contrary in Ext.P26 common order

of the Chief Judicial Magistrate is therefore factually and legally

incorrect.




      15.   The learned Magistrate, however, finds that Ext.P3 is a

mortgage deed. While there is no discussion in the order to support

such a finding, it is relevant to note that Ext.P3 does not effect a

transfer of the interest in respect of the property from the 1st

respondent in favour of the 2nd respondent. As already noted, the said

agreement was entered into on 27.12.2004 and it was only on

31.12.2004 that a mortgage was created by deposit of title deeds. No
doubt, it could be argued that, the inter se rights of the mortgagor

and mortgagee were spelt out in Ext.P3 agreement and, on account of

its proximity in time with the creation of a mortgage by deposit of title

deeds, it ought to be seen as a mortgage deed. Such an argument

would find support in the decision of the Supreme Court in Rachpal

Mahraj v. Bhagwandas Daruka - [AIR 1950 SC 272], wherein, at

para 4 it is observed as follows:



              "4. A mortgage by deposit of title deeds is a form of
        mortgage recognised by Section 58(f) of the TP Act, which
        provides that it may be effected in certain towns (including
        Calcutta) by a person `delivering to his creditor or his agent
        documents of title to immovable property with         intent to
        create a security thereon'. That is to say, 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 choose to reduce the contract to
        writing, the implication is excluded by their express bargain,
        and the document will be the sole evidence of its terms. In
        such a case the deposit and the document both form integral
        parts of the transaction and are essential ingredients in the
        creation of the mortgage. As the deposit alone is not intended
        to create the charge and the document, which constitutes the
        bargain regarding the security, is also necessary and operates
        to create the charge in conjunction with the deposit, it
        requires registration under Section 17 of the Registration
        Act, 1908, as a non-testamentary instrument creating an
        interest in immovable property, where the value of such
        property is one hundred rupees and upwards. The time
        factor is not decisive. The document may be handed over to
        the creditor along with the title deeds and yet may not be
        registrable."



      16. The said argument would, however, be of no assistance to

the petitioners herein because a mortgage deed, to be valid, has to be

registered in terms of Section 17 of the Registration Act and, it is not

in dispute in the instant case that Ext.P3 agreement is not a

registered document. The effect of non -registration of a document

that is compulsorily registrable is clearly spelt out in Section 49 of the

Registration Act, which reads as follows:

                "49. Effect of non-registration of documents
          required to be registered.- No document required by
          Section 17 or by any provision of the Transfer of
          Property Act,1882 (4 of 1882) to be registered shall-
                a) affect any immovable property comprised
                therein, or
                b) confer any power to adopt, or
                c) be received as evidence of any transaction
                affecting such property or conferring such power,
                unless it has been registered:
                Provided that an unregistered document affecting
          immovable property and required by this Act or the
          Transfer of Property Act, 1882 (4 of 1882), to be
          registered may be received as evidence of a contract in a
          suit for specific performance under Chapter II of the
          Specific Relief Act, 1877 (3 of 1877), or as evidence of
          any collateral transaction not required to be effected by
          registered instrument."
     17. Further, in the decision of the Supreme Court in United

Bank of India Ltd v. Lekharam Sonoram & Co. - [AIR 1965 SC

1591], the possibility of relying on such a document as evidence was

negated in the following words;

                "7. ... It is essential to bear in mind that the essence
         of a mortgage by deposit of title deeds is the actual
         handing over by a borrower to the lender of documents of
         title to immovable property with the intention that those
         documents shall constitute a security which will enable
         the creditor ultimately to recover the money which he has
         lent. But if the parties choose to reduce the contract to
         writing, this implication of law is excluded by their
         express bargain, and the document will be the sole
         evidence of its terms. In such a case the deposit and the
         document both form integral parts of the transaction and
         are essential ingredients in the creation of the mortgage.
         It follows that in such a case the document which
         constitutes the bargain regarding security requires
         registration under Section 17 of the Registration Act,
         1908, as a non-testamentary instrument creating an
         interest in immovable property, where the value of such
         property is one hundred rupees and upwards. If a
         document of this character is not registered it cannot be
         used in the evidence at all and the transaction itself
         cannot be proved by oral evidence either."



     18. The inescapable conclusion, therefore, is that while it may

be possible to contend that Ext.P3 agreement contains within it an

express consent by the 2nd respondent, to the creation of leases by the
1st respondent, Ext.P3 agreement cannot be treated as a mortgage

deed for the purposes of Section 65A (3) of the Transfer of Property

Act. Consequently, the petitioner cannot be heard to contend that the

mortgagee had expressly consented to the creation of leases contrary

to the provisions of sub-section (2) of Section 65A. This is more so

because I am of the view that the contrary intention, if any, must be

expressed in a mortgage deed and cannot be inferred from other

circumstances or conduct of the mortgagee. The arguments to the

contrary advanced by the learned Senior counsel for the petitioners,

are therefore, rejected.      I also do not find any substance in the

contentions of the petitioner on the validity of Ext.P3 agreement

because the petitioners had accepted the said transaction in earlier

proceedings and such a contention would not be available to them at

this stage on the principles of constructive res judicata.       I hold,

therefore, that the petitioners are not entitled to any protection from

dispossession, in proceedings under the SARFAESI Act initiated at the

instance of the 2nd respondent bank.




     19. I must now turn to the contentions of the learned Senior

Counsel for the petitioners on the issue of limitation. As already noted,
it is the stand of the petitioners that the application under Section 14

of the SARFAESI Act was filed before the Chief Judicial Magistrate

only on 11.09.2013 and therefore, beyond a period of 3 years from the

date on which the 2nd respondent was aware of the resistance offered

by the petitioners to an attempted dispossession. The petitioners point

to their submissions in the writ petition filed by the 1st respondent as

also the S.A. filed by them before the Debts Recovery Tribunal to

contend that the 2nd respondent was aware, as early as in 2009, of

their objections in the matter. It is argued, therefore, that by virtue of

Article 137 of the Limitation Act, the Section 14 application ought to

have been filed within three years from 2009 and, since it was not, the

said application of the 2nd respondent could not have been

entertained by the learned Magistrate. Persuasive though the

argument may seem at first blush, I'm afraid it cannot be accepted.

Section 36 of the SARFAESI Act that deals with limitation reads as

follows:


           "36. Limitation.-No secured creditor shall be entitled to
           take all or any of the measures under sub-section (4) of
           section 13, unless his claim in respect of the financial
           asset is made within the period of limitation prescribed
           under the Limitation Act, 1963 (36 of 1963).



      20. It will be apparent from a reading of the above provision

that once a claim in respect of a financial asset is made within the

period of limitation prescribed under the Limitation Act, 1963, then

the measure adopted by the secured creditor under Section 13 (4) is

also deemed to be within limitation. This view has been endorsed by a

Division Bench of this Court in the judgment dated 22.08.2012 in

W.A.No.899 of 2011 [E.P.Sreedharan v. Manager, Indian Bank

and Ors.].     A Special Leave Petition preferred against the said

judgment was dismissed by the Supreme Court on 17.02.2014

[S.L.P.Nos.10904-10905/2013]. Further, the decision of this Court in

Sami v. Bank of India - [2011 (3) KLT 554] is authority for the

proposition that the action of a financial institution in approaching the

Magistrate under Section 14 of the SARFAESI Act would itself

constitute a measure under Section 13 (4) of the Act. On the facts of

the instant cases, therefore, since it is not in dispute that the notice

under Section 13 (2) was issued within the period of limitation under

the Limitation Act, 1963, the subsequent measures taken by the 2nd

respondent, including approaching the Magistrate under Section 14 of

the SARFAESI Act, have to be seen as within the period of limitation
prescribed under the SARFAESI Act. Thus, although it might be a fact

that the issue of limitation, though raised by the petitioners before the

Magistrate, was not considered by him in Ext.P26 common order, for

the reasons stated above, I do not see any merit in the said contention

and therefore do not deem it necessary to remit the matter to the

learned Magistrate for an examination of the said issue.



      The writ petitions are thus dismissed by holding as follows:


              1.    The post mortgage lease agreements that

       conferred tenancy rights on the petitioners in the instant

       cases, though created before the initiation of proceedings

       under Section 13 (2) of the SARFAESI Act, cannot be

       seen as valid leases on account of the fact that they do

       not conform to the conditions stipulated in Section 65A(2)

       of the Transfer of Property Act.


             2.   Ext.P3 agreement cannot be seen as a valid

       registered mortgage deed, the terms of which would

       operate to express a contrary intention for the purposes

       of sub-section (3) of Section 65A of the Transfer of

       Property Act.


             3. The proceedings initiated by the 2nd respondent

       under Section 14 of the SARFAESI Act, for dispossession
       of the petitioners from the building in question, are not

       barred by limitation.


             4. The petitioners are consequently, not entitled to

       any protection against dispossession as envisaged in the

       judgment of the Supreme Court in the Harshad

       Govardhan's case (Supra).




                                A.K.JAYASANKARAN NAMBIAR
                                            JUDGE



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