Whether mortgaging the family property during pendency of a partition suit violates the undertaking of status quo in relation to title of aforesaid property?

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Shubham Budhiraja[1]

 

Mr. A filed a partition suit against Mr. B. Undertaking given by Mr. B to maintain the status  w.r.t family properties and not to transfer the title during the pendency of suit. During the proceedings, Mr. A gets to know about Mr. B that it has mortgage the aforesaid property by deposit of title deeds. Mr. A filed Order 39 R2A against Mr. B alleging breach of undertaking. The Hon’ble High Court dismissing the application and has held that creating mortgage by deposit of title deed confers no transfer of legal title. Thus, there is no breach of undertaking.[2]

 

(I)                   Section 58 of the Transfer of Property Act provides for creation of mortgage by depositing title deed, but it is not necessary that the mortgagor would have forfeited is complete title over the property. The complete title over a property can be acquired by a vendee only when the Deed of Sale is executed and registered by the vendor in terms of Section 54 of the Transfer of Property Act.

 

(II)                 Three theories exist regarding who has the legal title to the mortgaged property. Under the Title Theory, title to the security interest rests with the Mortgagee. As per the Lien Theory, the legal title remains with the Mortgagor unless there is a foreclosure. The Intermediate Theory applies the Lien Theory unless there is a default on the mortgage whereupon the Title Theory applies.

 

(III)              In India, it is the lien theory which is followed and the legal title remains with the Mortgagor unless there is a foreclosure. There is no legal transfer of title between the two parties, but only the Mortgagor surrenders the Title deeds to the custody of Mortgagee at the time of mortgaging the property. Such transaction by itself is not subject to registration or stamp duty. Resultantly, although the Mortgagor might hold the legal title, the Mortgagee keeps the title documents

 


[1] Advocate, Delhi High Court [LLB, ACS, BCOM(H)], Budhirajalawchambers@gmail.com , +91-9654055315

[2] NEUTRAL CITATION NO. 2022/DHC/004989

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