KANIGALLA PRAKASA RAO Vs. NANDURI RAMAKRISHNA RAO

JUDGEMENT

(1.) This is a plaintiffs appeal arising on he following material facts. The plaintiff advanced a sum of Rs. 25,000 to defendants 1 and 2, partners of a rice mill, under Ex. A-1 pro-note dated 30-4-1970, stipulating for the payment of interest at 24% per annum with annual rests. The 1st defendant is the father-in-law of the 2nd defendant. The rice mill was constructed to a vacant site of about 3,354 sq. yards. An extend of 2,292 sq. yards originally belonged to one Digavalli Venkataratgam husband of the 3rd defendant. Defendants 1 & 2 took on lease this vacant at from the said Venkataratnam for constructing the rice mill, but in doing so, have constructed the rice mill partly on that site and in an extent of 1962 sq. yards belonging to one K. Chiranjivi Rao. The 1st defendant later acquired title to the site of 1062 sq. yards under the registered sale deed Ex. A-2j dated 2-5-1951; subsequently both defendants 1 and 2 acquired title to the site of 2292 sq. yards from the 3rd defendant under the registered sale deed Ex A-3 dated 29-7-1966 in respect of which transaction, part of the sale consideration remained still to be paid to the 3rd defendant. To secure the repayment of the amount due under Ex. A-1 pro-note, both the defendants 1 and 2 deposited Exs. A - 2 and A-3 with the plaintiff on 10-5-70 with an intent to create an equitable mortgage and executed the memorandum Ex. A-4 dated 12-5-1970. The 3rd defendant filed O. S. No. 136/72 to recover the unpaid purchase money due to her in respect of Ex. A-3 sale transaction and impleaded to here suit, both the plaintiff and the 5th defendant, State Bank of India, and obtained a decree against defendants 1 and 2. The plaintiff thereupon filed the suit O. S. No. 96/72 which has given rise to this appeal. He filed the suit initially against defendants 1 to 4, the 4th defendant having been impleaded as the lessees n possession of the mortgage property and having an interest in the same. Interest was claimed at 24% per annum up to the date of suit and at the same rate from the date of suit till date of decree and at 6% per annum from the date of decree. Defendants 1 and 2 contested the suit, stating among other grounds, that there was a prior equitable mortgage dated 21-10-65 created in favour of the 5th defendant over the property covered by Ex. A-2 sale deed; that at the time the equitable mortgage was created in favour of the 5th defendant over the property covered by Ex. A-2 sale deed; that at the time the equitable mortgage was created in favour of the plaintiff, the plaintiff as informed about the earlier equitable mortgage created in favour of the 5th defendant and the rate of interest was usurious and interest should be calculated at 9% per annum. The 5th defendant was subsequently added as per order in I. A. No. 29/73. The Bank, in its written statement, denied the equitable mortgage alleged by the plaintiff in his favour. According to the Bank, at the time the equitable mortgage was created in its favour on 21-10-1985, defendants 1 and 2 orally and in their written statement assured the Bank that the original title deed dated 2-5-1951 was lost and they were, therefore, depositing the registration extract and it was on the strength of such assurance, the Bank accepted the certified copy of the state deed date 2-5-1951 with a view to bring about the transaction as an equitable mortgage. The Bank claimed priority over the mortgage in favour of the plaintiff. The learned Subordinate Judge, Eluru, held that the equitable mortgage pleaded by the 5th defendant was true and in granting a preliminary decree for redemption calculating interest at 12% till date of suit and thereafter at 6%, held that the plaintiffs rights in terms of the decree are subject to the prior encumbrances created by defendants 1 and 2 in favour of the 5th defendant. He did not give any indication that while the equitable mortgage in favour of the plaintiff was over the mill raised on the site purchased under Exs. A-2 and A-3, the equitable mortgage in favour of the 5th defendant had effect only against that portion of the site acquired under Ex. A - 2.

(2.) It is not disputed that at the time defendants 1 and 2 created the equitable mortgage in favour of the 5th defendant, they deposited with the 5th defendant the partnership agreement Ex. B-17 dated 2-11-1961, the encumbrance certificate Ex. B-19 dated 24-9-1965 and Ex. B-18 registration extract of the sale deed Ex. A-2 and obtained the receipt Ex. B-1 dated 26-10-1965 and the 1st defendant also addressed the letter Ex. B-20 informing the Bank that the original of Ex. B-18 was lost.

(3.) Sri Seetharamayya, learned counsel appearing for the plaintiff-appellant has made the following main submissions; (1) There cannot be a valid equitable mortgage in favour of the Bank over the property subject-matter of Ex. A-2 without delivering to the Bank the original title deed. What S. 58(f) of the Transfer of Property Act contemplates is the delivery of the document of title which in the context means the original document and not a registration extract. If such equitable mortgages can be crated by delivering registration extracts, it gives scope to persons to commit repeated frauds and injustice to persons who subsequently deal bona fide with the owners, who are still found to be in possession of the original title deeds. (2) It was an act of gross neglect on the part of the Bank to have accepted the delivery of a registration extract of a sale deed without insisting on the delivery of the original of the sale deed. The Bank has not let in any evidence as to what enquiry the Bank made to verify the statement allegedly made by defendants 1 and 2 that the original of Ex. B-18 was lost. Such evidence, as has been given by the 2nd defendant as D. W. 1 in the case, does not establish that the Bank made any enquiry expected of it in accepting Ex. B-18 registration extract and, therefore, gross neglect on the part of the Bank should be inferred. Under S. 78 of the T. P. Act, the Banks rights shall therefore be postponed to the plaintiffs rights in view of the Banks gross neglect. (3) The Subordinate Judge erred in cutting into the agreed rate of interest and he should have granted to the plaintiff the agreed rate of interest till date of decree. (4) The Bank has no prior encumbrance over the subject matter of Ex. A-3 sale deed and the decree should appropriately be modified.