The Entry Memorandum for Equitable Mortgages

The transfer of an interest in a specific piece of real estate with the goal of insuring repayment for loans taken out or to be taken out, payments on existing or future debts, or the fulfillment of agreements that might entail making payments is known as a mortgage. Among other things, the Transfer of Property Act, 1882 (“TP Act”), Section 58(f), permits the creation of an equitable mortgage, which is widely accepted. Title deed deposits are involved in this. Title deeds for real estate may be given to a creditor or his representative in order to establish security; this type of agreement, known as a mortgage by deposit of title deeds, is relevant to the towns that are notified under this paragraph.

Bhagwandas Daruka and Others: An Explanation from the Supreme Court

There is technically no documentation needed to create an equitable mortgage. In the event that a document is found, it will no longer be an equitable mortgage since it is a mortgage by instrument rather than a mortgage by behavior. The Supreme Court clarified in Rachpal Mahraj v. Bhagwandas Daruka and othersWhen the debtor gives the creditor the title deeds to his property with the intention of creating a security, the law assumes a contract between the parties to construct a mortgage; unlike other forms of mortgage, no written instrument is required under section 59. But in actuality, the title deeds are lodged with a letter. The lender may execute a Memorandum of Entry (“MoE”), which records the delivery of title documents by the mortgagor to the lender in order to create a mortgage.

Project Identified as Memorandum of Deposit

The MoE’s goal is very clear: title deeds are important records that belong to the lender or a trustee acting on their behalf. The MoE acts as a safety in case the borrower gets into mischief and claims that the exact title deeds have been misplaced. It also serves as a matter of record that the borrower deposited these documents of his own free will with the intention of creating a charge on his property with the lender/trustee. In order to obtain a loan by establishing a mortgage, the borrower may further provide an undertaking known as a Memorandum of Deposit of Title Deed (“MoDT”), which certifies that the borrower voluntarily placed the title document to his property with the lender.

required in order to establish the mortgage’s construction.

The value of MoE as a resource The language of the title deed deposit itself may be evidence of the parties’ agreement when someone deposits title deeds of their property with a lender with the goal of providing security to the lender and obtaining financial assistance, as per section 58(f) of the Transfer of Property Act, 1882. Moreover, section 59 of the TP Act does not require a registered instrument in order to issue such a mortgage. On the other hand, practically speaking, a number of issues can arise if there is no record of any such mortgage ever being made. To prove the construction of a mortgage, for instance, the parties must demonstrate their desire to offer such security by depositing title deeds. It was determined in the Bejoy Ranjan Das v. Ajit Kumar Dutta[2] decision that each case would ascertain whether or not the deed was intended to function as security for the debt.

Where The Terms of The Bargain have been Reduced

The aforementioned fact shall be determined in the same manner as any other fact, based on inference, oral, written, or circumstantial evidence. The process of carrying out MoE and MoDT has changed in response to this need. In Kedarnath Dutt v. Shamlal Khetry[3], the Calcutta High Court ruled that a MoE is neither the means nor the proof of the construction of an equitable mortgage. It is just an entry that serves as a transaction record. However, it has also been held in the above ruling as well as multiple others[4] that, where the terms of the bargain have been reduced to writing in such a memorandum, it ceases to merely be a record and needs to be considered an instrument through which the equitable mortgage has been created. As a result, it is still difficult to distinguish between an active record of rights and obligations and a simple record of having deposited the title papers. Numerous decisions have been made that have entered the MoE’s language and determined that it is either an instrument or an aide-de-memoire of this kind.

Constructive Title Deed Delivery

The real or constructive deposit of title deeds with the lender is the fundamental component of an equitable mortgage. When further mortgages are being issued on the property and the title deeds are already deposited with the lender or the lender’s trustee, this is known as constructive delivery of title deeds. Since there is not much separating the acts of real or physical delivery and constructive delivery, we do not need to delve into the details of the document in order to decide whether or not it is an instrument of mortgage. The only proof of the equitable mortgage in this case is provided by the MoE and the borrower’s statement and commitment. Therefore, it may not be tenable to argue that title deeds delivered constructively do not have the effect of forming a mortgage. However, it is common business practice in many states (apart from Maharashtra, Gujarat, etc.) to see a mortgage created by the deposit of title documents as an instrument for creating a mortgage.

Prerequisites For Registration

As previously said, a registered instrument need not impact an equitable mortgage; yet, in cases where the parties have reduced the parameters of the agreement to a written document, such document would be regarded as an instrument of creation of that kind of mortgage. The Bombay High Court ruled in Obla Sundarachariar v. Narayana Ayyar[15] that a document did not need to be registered if it was just a list of title deeds and did not specify the terms of the agreement or the nature of the subject.

Again, the parties’ intentions are very important in this case.

If the parties intended to reduce the terms of the equitable mortgage to that form from the beginning, a written document would be considered an instrument and would require registration under section 17 of the Registration Act, 1908. However, the requirement for registration isn’t always clear-cut. For instance, the Indian Stamp Act, 1899, as amended, for the State of Madhya Pradesh, specifies in Explanation II to Article 7 of Schedule 1-A that any letter, note, memorandum, or writing pertaining to the deposit of title deeds shall be deemed to be an instrument, evidencing an agreement relating to the deposit of title deeds, in the absence of any separate agreement or memorandum of agreement relating to deposit of such title deeds; consequently, subject to stamp duty under the aforementioned Article.

Last Words

In the financial business, equitable mortgages are highly sought-after due to their affordability and user-friendliness. However, because they necessitate the demonstration of intention, specific documentation becomes indispensable. When it comes to real estate paperwork, stamp duty and registrations are tightly intertwined. Understanding these parameters is essential to ensure that there are no potential negative situations. These criteria are contingent upon several circumstances, such as the type and substance of the documents, the location of the document execution, the jurisdiction pertaining to the immovable property, etc. The parties must take into consideration the implications of generating written documents while recording the equitable mortgage, as the contents of the document will be the decisive factor in determining whether or not stamp duty will be levied and whether or not the mortgage may be registered.

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