1. How it is Created - 3 Essentials

Supreme Court in A.B. Govardhan v P. Ragothaman (2024) reiterated:

For a valid equitable mortgage you need only:
(i) a debt; (ii) deposit of title deeds; and (iii) intention that the deeds shall be security for the debt.

No registered instrument is required under Section 59.

a) Debt: Existing or future debt, loan, overdraft, credit facility. Can be for third party's debt as guarantor.

b) Deposit: Physical delivery of original title deeds evidencing ownership. Photocopy is not sufficient except in exceptional cases where originals lost - C. Assiamma v State Bank of Mysore, Kerala HC 20 Nov 1989 held deposit of copies can create mortgage if intention proved, but weak title.

Delivery must be by mortgagor in a notified town. In Indian Cotton Company Ltd v Hari Poonjoo, Bombay HC 11 Feb 1936, delivery of deeds by post was held invalid because depositor was not physically present in notified town.

c) Intent: This is the soul. Deposit alone is not mortgage. It must be with intent to create security. Intent can be proved by:

• Memorandum of Deposit of Title Deeds (MoTD)
• Letter from borrower
• Bank's sanction letter mentioning equitable mortgage
• Oral evidence

As held in Punjab & Sind Bank Ltd v Jaswant Singh, 1937 39 PLR 253: for creating an equitable mortgage all that is necessary is a loan coupled with deposit of deeds relating to property to be mortgaged, with intent to create a charge

2. Indian vs English Concept - Very Important

In England, mortgage by deposit of title deeds is equitable mortgage, subservient to legal mortgage.

In India, Supreme Court in The Cosmos Co-operative Bank Ltd vs Central Bank of India & Ors 2025 clarified the distinction:

(a) a mortgage by deposit of title deeds is a legal mortgage and handing over of title deeds evidencing ownership to mortgagee is essential to create valid mortgage

But under Indian law, because Section 58 itself recognizes it as a mode of legal mortgage whereunder there will be transfer of interest in property mortgaged to mortgagee, its nature is different.

In Cosmos Bank case, Court further held:

• Deposit of complete title deed = legal mortgage under 58(f)
• Deposit of unregistered Agreement to Sell = only equitable charge, which will be subservient to mortgage by deposit of title deeds

So a title deed mortgage prevails over agreement-to-sell mortgage.

3. Memorandum and Registration - Biggest Litigation Point

Rule:

• Creation of mortgage is by deposit. No registration needed.
• If a memorandum is executed AFTER deposit merely recording past transaction, it does NOT require registration under Sec 17 of Registration Act, 1908.
• If memorandum creates mortgage itself containing terms, it requires registration.

Settled in Rachpal Maharaj v Bhagwandas Daruka AIR 1950 SC 272:

When a debtor deposits with creditor title deeds of his property with an intent to create security, law implies a contract between parties to create mortgage and no registered instrument is required under Section 59

Followed in United Bank of India Ltd v Lekharam Sonaram & Co AIR 1965 SC 1591: Court held documents did not form integral part of transaction requiring registration and granted mortgage decree

State Bank of Mysore v M/s S.M. Essence Distilleries Pvt Ltd 21 April 1993 Karnataka HC:
Trial court held equitable mortgage can be created only in notified towns under S. 58(f). Mysore was notified, but memorandum registered at Srirangapatna which was not notified, still mortgage valid because deposit happened at notified town. Memorandum registration place irrelevant.

Similarly, (2008) 149 PLR 593 held memorandum merely confirms equitable mortgage but did not create mortgage, as it was merely record of transaction, so registration did not render it invalid

4. Priority of Charges

• Between two equitable mortgages by deposit of title deeds: First in time prevails.
• Between equitable mortgage by title deeds vs equitable mortgage by agreement to sell: Title deed mortgage prevails - Cosmos Bank 2025, LiveLaw summary
• Under Sec 48 TP Act: mortgage by deposit of title deeds shall take effect against any mortgage-deed subsequently executed and registered, if deposited earlier - K.J. Nathan vs S.V. Maruty Reddy 11 Feb 1964 discussion

5. Latest Supreme Court Evolution - A.B. Govardhan v P. Ragothaman 8 S.C.R. 1002[2024]

This case addresses nature of agreements under Transfer of Property Act specifically creation of equitable mortgage by deposit of title deeds.

Facts: Plaintiff deposited sale deeds and produced MoTD. Defendant argued no valid mortgage because no registered deed.

Supreme Court held:

Production of title deeds of property as security towards debt amounts to creation of 'mortgage by deposit of title deeds' under Section 58(f)

Appellant had indeed created equitable mortgage through deposit of title deeds pursuant to Sec 58(f). Reversed High Court, restored single judge decree.

6. Practical Checklist for Creation in Bank

1. Borrower to bring original chain of title - sale deed, mother deed, tax receipts, EC.
2. Verify property in notified town.
3. Board resolution if company, personal presence.
4. Deliver deeds in notified town to bank officer - record time/place.
5. Execute MoTD on same day - wording: "have deposited with intent to create security" - NOT "hereby create mortgage". Keep it as record.
6. MoTD does not need registration, but in many states stamp duty payable as per Article 6 of State Stamp Act (e.g., 0.1-0.5% in Maharashtra, Tamil Nadu).
7. Lien marking and custody in fireproof locker.
8. CERSAI registration within 30 days mandatory for banks/NBFCs under SARFAESI.