A. B. Govardhan Vs. P. Ragothaman

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CITATION	2024 INSC 640
DATE OF JUDGMENT	22.02.2017
COURT	Supreme Court of India
APPELLANT	A.B. Govardhan
RESPONDENT	Ragothaman
BENCH	Ms. Justice Hima Kohli & Mr. Justice Ahsanuddin Amanullah

INTRODUCTION

This case involves a dispute between a Plaintiff and a defendant, along with his wife who runs a building materials business. In February 1995, the defendant sought a loan of Rs. 10,00,000 from the Plaintiff, which was secured by the defendant’s properties. Due to financial issues, the defendant created two separate registered mortgage deeds and four promissory notes to cover the loan. The first mortgage deed, dated 16.03.1995, was for Rs. 1,00,000, and the second, dated 17.04.1995, was for Rs. 50,000, both carrying an interest rate of 36% per annum. The remaining Rs. 8,50,000 was secured by four promissory notes.

The defendant failed to pay interest payments which lead to several meetings, and in one held on 24th June 2000, the defendant offered the title to a property located at Avvai Thirunagar, Chennai, as security. This property, valued at Rs. 9,00,000, was intended to cover a debt of Rs. 11,00,000. The defendant agreed to execute a sale deed for the property and pay an additional Rs. 2,00,000 by re-mortgaging the property elsewhere. Although the promissory notes were torn up, the defendant failed to execute the sale deed or pay the remaining balance. The Plaintiff filed a suit seeking recovery of Rs. 23,96,000, a decree for the sale of the property, and other reliefs.

The Single Judge ruled in favor of the Plaintiff, affirming the mortgage. The defendant, dissatisfied, appealed and accepted for a delay in filing the appeal, which was granted by the Division Bench with a cost of Rs. 1,000. However, in the first impugned order, the Division Bench allowed the appeal, stating that the Plaintiff had not sufficiently proven the existence of a mortgage. The Plaintiff then sought to set aside this decision, arguing that their counsel was not notified of the appeal. The Division Bench dismissed this request in the second impugned order.

FACTS OF THE CASE

The respondent borrowed Rs. 8,50,000 through four promissory notes but defaulted on the interest payments. To settle his total debt of Rs. 11,00,000, he agreed to use a property in Chennai as collateral, providing the title document. This property, which included 1300 square feet of land and a 700 square foot building, was valued at Rs. 9,00,000. As part of the agreement, the respondent was supposed to register a Sale Deed and pay off the remaining Rs. 2,00,000, but he failed to follow through on either commitment. This led the appellant to take legal action, seeking a mortgage decree and permission to sell the property.

On April 1, 2010, the Single Judge ruled in favor of the appellant, affirming that an equitable mortgage had indeed been created. However, the respondent was unhappy with this decision and filed an appeal along with a petition requesting to condone a 176-day delay in filing the appeal. The court granted this request, but with a fine. Despite this, the Division Bench later determined that the appellant hadn’t adequately proven the existence of the mortgage, resulting in the appeal being allowed.

Following this, the appellant sought to have the case reopened for a fresh hearing, arguing that his former lawyer had only been authorized to handle the delay petition and had not been informed of any further developments regarding the appeal. Unfortunately, the court dismissed this request, concluding that the appellant’s lack of representation during the appeal proceedings contributed to the unfavorable outcome. Thus, the situation highlights the complexities of legal agreements and the importance of proper representation in court.

ISSUES RAISED

The Supreme Court of India was tasked with the following legal issues which needed clarity.

Whether the mere deposit of title deeds by the Respondent without creating a formal mortgage deed constitutes an equitable mortgage under the Indian Law?

An intent to create security interest in addition with deposit of the title deeds is sufficient for equitable mortgage?

CONTENTIONS OF APELLEANT

At the outset, the appellant’s counsel argued that the Division Bench of the High Court made an error by concluding that the Plaintiff’s statements were insufficient to establish a valid mortgage, so by denying the appellant the right to seek a mortgage decree. The appellant argued that when considering the Plaintiff in conjunction with the Agreement, Proof Affidavits, and the evidence presented by PW-1 (the appellant) and DW1 (the respondent), it becomes evident that the loan was secured by the respondent through the mortgage of the schedule property. The amount specified in the Agreement corresponds to the loan transactions for which the mortgage was created by the respondent. In light of these circumstances, the appellant asserts that the findings in the First Impugned Order are highly wrong.
According to the appellant’s learned counsel, the Single Judge correctly concluded that the present case involved the respondent’s agreement to create a mortgage by depositing the title deed. The existence of an actionable debt was evident, and the respondent had a clear intention to use the deed as security for that debt. The Single Judge also took note of the respondent’s testimony as DW1, where he acknowledged the deposit of the title deed to establish an ‘equitable mortgage’ for the loan amount received from the appellant. Consequently, the Single Judge appropriately decreed in favor of the appellant, issuing a preliminary mortgage decree.
Furthermore, the appellant’s counsel contends that the Division Bench made an error in asserting that there was no stipulation regarding interest in the Agreement. According to the appellant, various loans were extended to the respondent, explicitly specifying an interest rate of 36% per annum upon repayment. Once this contractual interest rate was mutually agreed upon, there should be no room for the Division Bench to assert otherwise. The appellant also argues that the Division Bench incorrectly held that there was no prayer for a personal decree against the respondent. The appellant points out that the Plaintiff’s prayer clause contradicts this assertion.
In the context of the Second Impugned Order, the appellant’s counsel contends that the Division Bench failed to recognize that the appellant had never authorized his counsel to represent him in the OSA . The appellant’s vakalatnama was specifically limited to the Miscellaneous Petition (MP) filed by the respondent, seeking allowance of a 176-day delay. The Division Bench allowed this MP through an order dated April 18, 2011. Subsequently, the appellant claims that he received no notice regarding the OSA proceedings. Neither his counsel, Mr. V. Manohar, nor the High Court Registry informed him about the appeal’s status.
Additionally, the appellant’s counsel contends that the Division Bench made a significant error by assuming that the vakalatnama granted to Mr. V. Manohar covered representation not only in the Miscellaneous Petition (MP) for condonation of delay but also in the main appeal and even before this Court. The appellant emphasizes that Mr. V. Manohar was exclusively practicing in the High Court, and there was no authorization for him to represent the appellant in other courts or proceedings. The appellant argues that a generic printed statement on a vakalatnama cannot automatically imply authorization for representation across all courts and contexts.
Furthermore, the appellant’s counsel argued that Mr. Sukumar, the advocate representing the appellant in the Court at Tiruvannamalai, contacted the appellant. Mr. Sukumar informed the appellant that a judgment bearing the appellant’s name had been published in one of the law reports under the citation 2017 (3) MLJ 521. Notably, the judgment indicated that the appellant had gone unrepresented. It was at this point that the appellant became aware that the intra-court appeal (OSA) arising from the suit had been decided against him ex-parte. The appellant now prays for permission to appeal

CONTENTIONS OF RESPONDENT

On the contrary, the learned senior counsel representing the respondent contends that the present appeals lack merit, and the impugned orders do not warrant interference by this Court under Article 136 of the Indian Constitution. According to the respondent’s argument, the Agreement does not explicitly mention the creation of a mortgage. Instead, the recitals within the Agreement clarify that its purpose was to sell the schedule property to the appellant. The respondent asserts that the title deed of the property was handed over to the appellant solely for this purpose. Given that the Agreement itself does not reveal the establishment of a mortgage, the respondent argues that a suit for foreclosure cannot be sustained. The Division Bench’s conclusion in the First Impugned Order that no mortgage was created aligns with the Agreement’s contents.
Furthermore, the respondent’s counsel argues that the Plaintiff’s claim in the Plaintiff—asserting that Rs. 23,96,000/- (Rupees Twenty-Three Lakhs Ninety-Six Thousand) is due as per the Agreement, including interest at 36% per annum until the date of instituting the suit—lacks specificity. The respondent contends that the Plaintiff does not provide particulars on how this specific amount was calculated. While the cause of action mentioned in the suit refers solely to the Agreement, the appellant simultaneously asserts claims related to mortgages dated 16.03.1995 and 17.04.1995, while also reserving the right to pursue separate actions. Consequently, the respondent argues that the appellant has blended the mortgages and/or promissory notes with the Agreement, leading to confusion. Additionally, the respondent points out that the promissory notes have not been exhibited in the suit.
In relation to the two mortgages dated 16th March 1995 and 17th April 1995, the High Court addressed the matter in Second Appeal No. 1235 of 2014. This appeal arose from a redemption suit filed by the respondent. In an interim order dated 25th August 2022, the High Court directed the respondent to pay the appellant a total sum of Rs. 10,00,000/- (Rupees Ten Lakhs), representing the principal amount and interest on both mortgages. Subsequently, in its final order dated 24th January 2023, the High Court took note of the payments made by the respondent to the appellant. The original Mortgage Deeds were returned, and the mortgages were canceled. As a result, since the decree in the redemption suit had been fully complied with, the second appeal was dismissed as having become irrelevant. The appellant had received payment and, in turn, returned the original title deeds to the respondent concerning the property that was the subject of the two mortgages dated 16th March 1995 and 17th April 1995.
Additionally, it was argued that in the criminal case initiated by the appellant against the respondent under Section 138 of the Negotiable Instruments Act, 1881, this Court dismissed Special Leave Petition (Criminal) No. 994 of 2019, thereby upholding the respondent’s acquittal. Regarding the Second Impugned Order, it was contended that the factual record therein speaks for itself, and the appellant is not entitled to any leniency. Based on these submissions, the respondent seeks the dismissal of the present appeals.

JUDGEMENT

Mr. Narendra Kumar represented the appellant, while Mr. V. Prabhakar represented the respondent.

The court has granted permission to proceed with the case, and any pending applications will be addressed later in the judgment.

The current appeals arise from two key decisions:

The first is a Final Judgment and Order from February 22, 2017, issued by a Division Bench of the Madras High Court in Original Side Appeal No. 189 of 2011. This decision overturned a previous ruling made on April 1, 2010, by a Single Judge in Civil Suit No. 701 of 2005 , which had favored the appellant.

The second is an Order dated July 12, 2018, also from the same Division Bench. This order dismissed a petition filed by the appellant (Civil Miscellaneous Petition No. 10107 of 2017) that aimed to set aside the first order and have the main appeal heard again.

ANALYSIS

The Supreme Court highlights the important legal principle of the burden of proof, which requires parties making claims in court to back them up with evidence. In this case, the Respondent asserts that they signed an agreement under coercion and threat. However, simply claiming this without providing supporting evidence won’t be enough in court. Mr. Narendra Kumar represents the appellant, while Mr. V. Prabhakar is the Senior Counsel for the respondent. The court has allowed the case to move forward, with any pending applications to be addressed later.

The appeals originate from two key court orders. The first is the Final Judgment and Order from February 22, 2017, known as the “First Impugned Order,” issued by a Division Bench of the High Court of Judicature at Madras. This order favored the respondent and overturned a previous decision by a Single Judge of the High Court in April 2010. The second order, known as the “Second Impugned Order,” was issued on July 12, 2018, also by the same Division Bench. In this case, the appellant filed a petition to set aside the First Impugned Order and restore the main appeal for a fresh hearing, but the court dismissed that petition.

These two orders have significantly shaped the ongoing legal dispute, emphasizing the complexities and stakes involved. Each ruling adds another layer to the case, showcasing the difficulties both parties face in navigating the legal process.

The relevance of evidence is crucial; it must logically connect to the disputed facts. For the Respondent’s claim of coercion to be credible, they need to present evidence such as witness testimony, documents, or correspondence. Evidence can come in different forms, including oral testimony, written documents, or circumstantial evidence that suggests a fact without directly proving it.

In this instance, the burden of proof rests with the Respondent, who must provide evidence for their claim of coercion. If it’s found that they signed the agreement voluntarily, the burden shifts back to them to prove otherwise. In civil cases, the standard of proof is typically “preponderance of evidence,” meaning it must be more likely true than not, while criminal cases require proof “beyond a reasonable doubt.” Courts weigh the evidence based on its credibility, consistency, and reliability.

When it comes to equitable mortgages, three key elements must be present: there must be a debt, the borrower must deposit the property’s title deeds as security, and both parties must intend for those deeds to serve as security for the debt. In this case, the court recognized the agreement as an equitable mortgage under Section 58(f) of the Transfer of Property Act, noting that registration is not required. Additionally, understanding the borrower’s intention to create a security interest is crucial, which could be clarified by the Supreme Court’s ruling in K.J. Nathan v. S.V. Maruty Reddy (AIR 1965).

Precedent: State of Haryana v Narvir Singh, 2014:

In this case, the court emphasized that depositing title deeds with the creditor creates an equitable mortgage under Section 58(f) of the TOPA.

Importantly, no registered instrument (like a formal mortgage deed) is required for other classes of mortgage.

However, a mere document recording a concluded transaction (without creating new rights or liabilities) doesn’t need registration.

It’s fascinating how legal principles intersect with practical scenarios, and courts meticulously analyze the facts and evidence.

CONCLUSION

In the conclusion of the case of A.B. Govardhan vs. Ragothaman, the court held that a mortgage by deposit of title deeds does not require formal registration or a separate mortgage deed. This conclusion was based on Section 58(f) of the Transfer of Property Act (TOPA) and relevant precedents dealing with similar legal issues. The court restored the order of the Single Judge Bench, with amendments to reduce the interest rate from 36% to 12%. Importantly, the court emphasized that the borrower’s intent to create a security interest remains a case-specific consideration.

Furthermore, the court allowed the appeal and imposed costs of Rs. 1,20,000 on the appellant for wasting judicial time and causing delays. This judgment serves as a reminder of the importance of equitable principles in mortgage law and the court’s duty to prevent misuse of legal processes for tactical delays.

REFERENCES

This Article is written by Karan Chhetri student of ‘RNB Global University’ (RNB) ;Intern at Legal Vidhiya.

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