The Supreme Court has clarified the evidentiary requirements for establishing an equitable mortgage by deposit of title deeds under Section 58(f) of the Transfer of Property Act, 1882, in a dispute between a lender bank and the legal heirs of a deceased borrower over a residential property in a notified town. The bank claimed an equitable mortgage over the property based on its possession of the original sale deed, but the heirs argued the documents had merely been left with the bank for safekeeping in connection with an unrelated locker facility, not deposited to secure any loan.
The Court held that mere physical possession of title deeds by a bank does not, by itself, establish an equitable mortgage. The creditor must additionally prove that the deeds were deposited by the borrower with the specific intention of creating security for a debt. This intention can be shown through the loan documentation, correspondence, or the surrounding circumstances of the transaction, but cannot be presumed from possession alone, particularly where the borrower has advanced a plausible alternative explanation for how the bank came to hold the documents.
Applying this standard, the Court found that the bank in this case had failed to produce any loan sanction letter, memorandum of deposit, or contemporaneous correspondence linking the deposit of the sale deed to any credit facility, and upheld the High Court's finding that no valid equitable mortgage had been created.