1. Equity of Redemption - The Heart of Mortgage Law

Principle: Once a mortgage, always a mortgage. A mortgagor has an equitable right to redeem property on payment of dues, even after expiry of contractual date. Any clause that clogs or fetters this right is void.

Application in Banking:
Banks often insert clauses: mortgaged property will not be redeemable unless all other loans are also paid, or bank can sell without notice. These are clogs.

Case Laws:

• U Nilan v. Kannayyan (1999) 8 SCC 511: SC held any provision that prevents redemption is a clog on equity of redemption and void.
• Murarilal v. Devkaran - AIR 1965 SC 225: Right of redemption can be extinguished only by act of parties or by decree of Court, not by contract alone.
• SBI v. K.S. Venkatesh - DRT: Redemption must be allowed till final sale under SARFAESI, if borrower deposits full dues.

2. Equitable Mortgage vs Legal Mortgage

This was unsettled till 2025.

Legal Mortgage under Section 58(f) TPA - Mortgage by deposit of title deeds: Deposit of title deeds with intent to create security in notified towns. No registration needed. Creates interest in property.

Equitable Mortgage in English sense: Mere agreement to create mortgage, deposit of agreement to sell, or incomplete title. In India, it is not a mortgage but enforceable as a Charge under Section 100 TPA.

Landmark Judgment:
The Cosmos Co-operative Bank Ltd. v. Central Bank of India & Ors., 2025 INSC 243 (Civil Appeal No.1565 of 2025) - Dated 4th Feb 2025 - Justice J.B. Pardiwala and R. Mahadevan

SC held:
a) Mortgage by deposit of title deeds is a legal mortgage - handing over title deeds is essential.
b) Equitable mortgages ARE legally recognised in India and enforceable as a charge.
c) Legal mortgage created subsequent to an equitable mortgage will prevail over equitable mortgage unless subsequent mortgagee had notice of prior equitable mortgage.

Earlier law: Rachpal Maharaj v. Bhagwandas (1950) SCR 548, United Bank of India Ltd. v. Lekharam Sonaram & Co. AIR 1965 SC 1591: Mere deposit of title deeds sufficient, no registration needed.

Other Cases: Amulya Gopal Majumdar v. United Industrial Bank Ltd. (Calcutta High Court 1980) on validity of equitable mortgage through deposit of agreements.

3. Doctrine of Marshalling, Contribution and Subrogation - Sec 81, 82, 92 TPA

Marshalling (Sec 81): If owner mortgages two properties to one lender (Bank A) and later mortgages only one property to another lender (Bank B), Bank B can compel Bank A to satisfy itself first from property not mortgaged to Bank B. Equity for second mortgagee.

Contribution (Sec 82): Where several properties mortgaged to same debt, each property liable rateably.

Subrogation (Sec 92): Person who pays off prior mortgage steps into shoes of prior mortgagee. Banks use this in takeovers. Legal subrogation vs conventional subrogation.

Case: SBI v. Krishna Enterprises - DRT Ranchi 16.08.2005 - DRT examined equitable mortgage enforcement along with limitation.

4. Promissory Estoppel / Equitable Estoppel Against Banks

When Bank/Financial Institution makes a clear promise, borrower acts on it and alters position, Bank cannot go back. Especially for state-owned banks as State under Article 12.

Case Laws:

Gujarat State Financial Corporation v. Lotus Hotels Pvt. Ltd. (1983) 3 SCC 379
GSFC promised loan of Rs.10 lakhs, sanction letter issued. Hotel acted, incurred expenses. GSFC refused later. SC applied promissory estoppel and issued Mandamus directing disbursement. Held financial corporations as State cannot act arbitrarily.

Motilal Padampat Sugar Mills v. State of UP (1979) 2 SCC 409: Foundation case - doctrine of promissory estoppel applies to Government and its instrumentalities.

Mercantile Bank of India Ltd. v. Central Bank of India Ltd. - Privy Council 03.12.1937
Laid strict prerequisites for estoppel in banking transactions - duty and clear representation required.

Current Application: Allahabad High Court 2024 - Banks cannot retrospectively reduce Fixed Deposit interest rates once booked, invoking promissory estoppel to protect depositor rights.

Limitation: Promissory estoppel cannot be used to enforce oral agreement void under Statute of Frauds - as reiterated in foreign and Indian banking cases. No estoppel against statute.

5. Banker's General Lien and Right of Set-off - Equitable Rights

Section 171 Indian Contract Act - Bank has general lien over goods and securities bailed, but not over safe custody articles or money in fixed deposits held for specific purpose.

Case: Syndicate Bank v. Vijay Kumar & Ors. AIR 1992 SC 1066: SC held bank's general lien is a valuable equitable right and can be exercised over FDRs unless there is express contract to contrary.

Set-off: Equitable set-off allows bank to adjust credit balance against dues of same customer in same capacity. Cannot set-off personal account against partnership firm dues without notice.

6. Special Equities and Fraud Exception in Bank Guarantees

Rule: Bank Guarantee is independent contract. Courts will NOT grant injunction against encashment except on grounds of:

a) Fraud of egregious nature, b) Irretrievable injustice, c) Special equities.

Case Laws:

U.P. Cooperative Federation Ltd. v. Singh Consultants (1988) 1 SCC 174: Supreme Court laid down only two exceptions - fraud and special equities leading to irretrievable injustice.

Svenska Handelsbanken v. Indian Charge Chrome (1994) 1 SCC 502, Larsen & Toubro v. Maharashtra SEB (1995) 6 SCC 68, Bhasin Associates v. Hyundai Heavy Industries 1991: Reaffirmed principles.

New Development:
Hindustan Construction Co. Ltd. v. NHPC - Delhi High Court Division Bench u/s 37 Arbitration Act 1996: Held that proportionality constitutes a special equities exception against invocation of unconditional bank guarantees.

7. Unjust Enrichment and Money Had and Received - Section 70, 72 Contract Act

Where money paid by mistake, bank must refund. Equitable principle - no one can enrich unjustly.

Case: M/s Grindlays Bank v. Centre for Development of... AIR 1997 Delhi 164
Bank was merely conduit pipe, money passed to defendant No.1 who did not derive benefit. After reference to Section 72 and English/Indian case law, principle laid down for recovery of money paid under mistake.

SBI v. Shyama Devi AIR 1978 SC 1263: Equitable liability of bank for acts of its employees.

8. Court of Equity - Residual Power

Supreme Court Verdictum Report 2023: "This Court is Not Only The Court Of Law But Also A Court Of Equity"
Supreme Court directed borrower company to pay additional Rs.125 crore to ARC to which SBI had assigned its debt, as full and final settlement, even though legally not bound, to do complete justice under Article 142.

9. Equitable Defences Banks Face: Delay, Laches, Clean Hands, Unconscionable Interest

a) Doctrine of Laches: Under SARFAESI, borrower must approach DRT within 45 days. But Writ Courts apply equitable delay.
b) Clean Hands: Borrower seeking equitable relief must disclose all loans. Lloyds Bank Ltd. v. P.E. Guzdar & Co. (Calcutta High Court 10.04.1929)- case of conflicting equities - first mortgage by deposit, regained possession of title deeds, second mortgage to Lloyds - Court applied rule Qui prior est tempore potior est jure (first in time stronger in law).
c) Penal Interest: Courts can reduce unconscionable penal interest under Section 23 Contract Act and equitable jurisdiction - Central Bank of India v. Ravindra AIR 2001 SC 3095 - interest must not be penal, excessive.

How to Argue in Your Case:

1. Identify which equity you invoke - borrower will invoke equity of redemption, clog, promissory estoppel. Bank will invoke lien, priority, charge.
2. For priority fights: Always check if equitable mortgage had notice? Cosmos Bank 2025 is your main weapon.
3. For BG injunction: Do NOT argue breach of contract. Argue fraud + special equity + proportionality + irretrievable injury.
4. For loan recall: Argue Gujarat State Financial Corp estoppel if sanction acted upon.