State empowered to bring its entire territory within purview of Section 58(f) of Transfer of Property Act: Kerala High Court

The Kerala High Court recently held that the provisions of Section 58(f) of the Transfer of Property Act (TP Act) do not restrict the State government from bringing in every part of the State under its purview [Pradeep Kumar P v State of Kerala & Ors.]..Justice Devan Ramachandran held that not only does the Act empower the government to bring its territories within its ambit, it also does not require the government to justify such policy decisions through specific orders. "I cannot find from Section 58(f) of the TP Act any fetter or bridle on the right of the State Government concerned to issue a notification bringing in its territories into the fold of Section 58(f); and therefore, the argument that Government must justify such inclusion through specific orders or proceedings, can certainly be only seen to be far fetched. The decision to bring in a particular territory or area within the umbra of Section 58(f) of the TP Act is essentially a policy and financial decision and if the Government was of the considered opinion that entire State of Kerala - as in the case of States like Haryana, Punjab and Orissa - require to be notified, so as to enable Banks and other Financial Institutions to enjoy the fiscal flexibility offered by Section 58(f) of the TP Act," the Court said..The judgement was passed on a plea raised by a loan-borrower from South Indian Bank Ltd., for which he had delivered certain title documents as security.The primary contention raised by the petitioner was that since the documents were delivered at Kanjirapilly, it cannot be construed to have created an equitable mortgage over the property in question because, as per the original provisions of Section 58(f) of the TP Act, such a deposit was permitted only in certain specified towns.Section 58(f) reads:"Mortgage by deposit of title-deeds.—Where a person in any of the following towns, namely, the towns of Calcutta, Madras, and Bombay, and in any other town which the State Government concerned may, by notification in the official gazette, specify in this behalf, delivers to a creditor or his agent documents of title to immoveable property, with intent to create a security thereon, the transaction is called a mortgage by deposit of title-deeds."Advocate R Surendran, appearing for the petitioner, argued that the notification issued by the Government of Kerala extending every part of the territory of the State within the purlieus of the said provision is improper, because when 'any town' is brought within the umbra of the said provision, the government is required to explain why it was so done..The Court noted that the original provision relating to equitable mortgage in Section 59 created an exception to the rule that a mortgage can be effected only through a registered document.This was done by mandating that when a debtor delivers title documents to a creditor in the towns of Calcutta, Madras, Bombay, Karachi, Rangoon, Moulmein, Bassein and Akyab, with the intent to create a security upon it, such a transaction shall not be held invalid.By way of the 1929 amendment, for the first time, the word and concept of ‘equitable mortgage’ was expressly incorporated into the TP Act and it was the Governor-General in Council who was vested with the unfettered power to decide the other areas to be brought within its ambit..The Court referred to the judgments in Jessie Moyle Stewart v Bank of Upper India Ltd., Imperial Bank of India v U.Rai Gyaw Thu and Co.Ltd., and Himalaya Bank Ltd. v F W Quarry and Ors., and found that the singular purpose and intent behind the original TP Act was to create an opportunity for creditors and debtors to enter into financial transactions, without the burden of having to register the said arrangement. Subsequently, when the scope of businesses expanded and when ease of doing commercial ventures required being freed from the fetters of territorial limitations, the governments began to consider inclusion of more towns and areas."Therefore, irrefutable that what governs their minds in doing so is only the financial and commercial importance of such areas, which have to be offered the flexibility under the said provision," the Court said..The Court opined that the State of Kerala has evolved rapidly in the last many years, both in terms of size of businesses and of commercial and industrial activities. As such, the Court stated that the government was well within its rights as the policy maker to bring its entire territory within the purview of Section 58(f) of the TP Act, which it did in 2010..In the instant case, the Court noted that even though the primary contentions raised by the petitioner are unsustainable in law, he has already filed applications before the jurisdictional Debts Recovery Tribunal, assailing the alleged mortgage on other grounds.Therefore, the Court left open all the other contentions raised and dismissed the petition..[Read Jugdment]