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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 11028 OF 2013  (Special Leave Petition (C) No.8202 of 2006)

Haryana Financial Corporation …. Appellant

Verses

Gurcharan Singh & Anr. …. Respondents

J U D G M E N T      

K.S. Radhakrishnan, J.

1. Leave granted.

2. M/s Amrit Steel Industries, Jagadhari, a proprietorship  

concern  of  which  the  first  respondent  is  the  sole  

proprietor,  had  obtained  a  loan  of  Rs.5,05,750/-  on  

15.9.1994  from  the  Appellant,  Haryana  Financial  

Corporation, by entering into hypothecation of machinery,  

fixture,  as  well  as,  personal  guarantee  bond  dated

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15.9.1994.  The  first  respondent  also  gave  a  written  

undertaking dated 5.3.1994 that he would not dispose of  

his properties during the currency of the loan.  The first  

respondent failed to repay the loan.   Consequently,  the  

Corporation took over the hypothecated property and sold  

the same and appropriated the amount.  In the meantime,  

the second respondent,  the wife of  the first  respondent  

filed Civil Suit No.767 of 1995 against the first respondent  

before  the  Court  of  Civil  Judge  (Jr.  Divn.),  Jagadhari,  

seeking a declaration that she is the absolute owner and  

in  possession  of  the  properties  mentioned  in  the  

undertaking  dated  5.3.1994.  The  suit  was  decreed  on  

3.2.1996 as against the first respondent.    

3. The Corporation then filed Civil Suit No.167 of 2003  

in  the  Court  of  Additional  Civil  Judge  (Senior  Division),  

Jagadhari, against the Respondents seeking a declaration  

that the decree dated 3.2.1996 was null  and void.   The  

Corporation also submitted that the decree was obtained  

by fraud to defeat the personal undertaking executed by  

the  first  respondent  on  5.3.1994  in  favour  of  the

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Corporation.   The Court decreed the suit holding that the  

decree passed in Civil Suit No.767 of 1995 is a collusive  

one obtained to  defeat  the  undertaking  created by  the  

first respondent on 5.3.1994 in favour of the Corporation.  

The second respondent filed Civil Appeal No.34 of 2005 in  

the Court of Additional District Judge, Yamunanagar. The  

Additional  District  Judge,  however,  allowed  the  Appeal  

vide  judgment  dated  30.8.2005  holding  that  the  loan  

taken by the first respondent was not subject to charge  

over  the  property  covered  by  the  decree  in  Civil  Suit  

No.767 of 1995 and that the Appellant had no locus standi  

to challenge the decree suffered by the first respondent in  

favour  of  the  second  respondent.    The  Corporation  

aggrieved by the aforesaid judgment filed RSA No.44 of  

2006 before the Punjab and Haryana High Court,  which  

was dismissed by the High Court on 9.1.2006.  Aggrieved  

by the same, the Corporation has filed the present Appeal.  

4. Shri  Amit Dayal,  learned counsel  appearing for  the  

Corporation, submitted that the High Court has committed  

an error in sustaining the order passed by the Additional

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District Judge after having found that the decree obtained  

by the second respondent against the first respondent in  

Civil  Suit No.167 of 2003 was a collusive one.  Learned  

counsel  submitted  that  apparently  such  a  decree  was  

obtained without any contest by the first respondent, only  

to  defeat  the  undertaking  given  to  the  Corporation  on  

5.3.1994.   Learned counsel also placed reliance on the  

judgments of this Court in  S.P. Cheranalvaraya Naidu  

(dead)  by  LRs.  v.  Jagannath  (dead)  by  LRs  and  

others  [(1994)  1  SCC 1]  and  Badami  (deceased)  by  

her LR v. Bhali [(2012) 11 SCC 574] and submitted that  

the Court cannot grant relief to a party who has obtained  

a fraudulent decree and who has come to the Court with  

unclean hands.  Learned counsel also placed reliance on  

the judgment of this Court in  M.L. Abdul Jabbar Sahib  

v. M.V. Venkata Sastri & Sons & Ors.  [(1969) 1 SCC  

573]  and submitted  that  even if  the  undertaking dated  

5.3.1994 was not registered,  still  the first respondent is  

bound by the undertaking and the Corporation can always

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proceed  against  the  properties  referred  to  in  the  said  

undertaking.   

5. Shri  Gagan Gupta,  learned Advocate  appearing  for  

the  Respondents,  submitted  that  the  High  Court  has  

rightly affirmed the judgment of the lower Appellate Court  

after having noticed that the undertaking dated 5.3.1994  

has not created any charge over the properties mentioned  

therein.   Consequently,  the Corporation cannot  proceed  

against  the  properties  mentioned  in  the  undertaking.  

Learned  counsel  submitted  that  without  transfer  of  

interest  in  the  properties  in  question  by  a  registered  

document, no charge could be created in those properties  

and hence the Corporation cannot proceed against those  

properties  on  the  basis  of  mere  undertaking  dated  

5.3.1994.    In  support  of  this  contention,  reliance  was  

placed on the judgments of this Court in K. Muthuswami  

Gounder v. N. Palaniappa Gounder [(1998) 7 SCC 327]  

and Bank of India v. Abhay D. Narottam and others   

[(2005) 11 SCC 520].  

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6. We may,  for  the  purpose  of  this  case,  extract  the  

undertaking given by the first respondent in favour of the  

Corporation on 5.3.1994, which reads as follows :-

“That  the  proprietor  of  the  concern  have  the  following means :-

Name  of  the  Proprietor/  Partner/Director

Immovabl e  &  Moveable  Property

Personal  Liabilities

Net Worth

Gurcharan  Singh

Assets & Liabilities

Capital  with  Amrit  Steel Industries

1,20,760.00

Land  &  Building  of  Amrit  Steel  Industries

8,14,000.00

Jewellery  1,00,000.00 Cash  &  Bank  Balance

1,00,000.00

Deposit  with  Malhotra Timber

   50,000.00

11,84,760.00 LIABILITIES   NIL NET WORTH 11,84,760.00

Sd/-   DEPONENT

VERIFICATION

I, Gurcharan Singh, the above named deponent  do hereby verify contents of the above paras as  true and correct to the best of my knowledge  and  belief  and  nothing  has  been  concealed  from.

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Further  confirm  that  the  means  as  indicated  above in  the  name shall  not  be disposed off  during the currency of the loan.

Sd/-   DEPONENT

PLACE : Yamuna Nagar Dated   : 05/03/94”

7. The  above-mentioned  undertaking  dated  5.3.1994  

was submitted by the first respondent on a duly attested  

Stamp  Paper,  but  was  not  registered  under  the  

Registration Act.   The above-mentioned undertaking was  

given  before  the  loan  was  sanctioned  to  the  first  

respondent on 15.9.1994.  We also fully endorse the view  

taken by the Courts below that  the decree in  Civil  Suit  

No.767 of 1995 was obtained by the second respondent  

as against the first  respondent collusively to defeat the  

undertaking given by the first respondent on 5.3.1994 in  

favour of the Corporation.  Still  the question is whether  

the undertaking dated 5.3.1994 has created any charge  

over  the  properties  mentioned  therein  in  favour  of  the  

Corporation.    This  Court  in  J.K.  (Bombay)  Private  

Limited v.  New Kaiser-I-Hind Spinning & Weaving

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Co. Ltd.  & Others  [(1969)  2  SCR 866],  explained the  

difference  between  the  charge  and  the  mortgage  as  

follows :-

“While  in  the  case  of  a  charge  there  is  no  transfer of property or any interest therein, but  only the creation of a right of payment out of  the specified property, a mortgage effectuates  transfer of property or an interest therein.  No  particular form of words is necessary to create a  charge and all  that  is  necessary is  that  there  must be a clear intention to make a property  security for payment of money in praesnti.”  

8. Section  100  of  the  Transfer  of  Property  Act,  1882  

defines “charge” as follows :-

“100.  Charges.-  Where immoveable  property  of one person is by act of parties or operation of  law made security for the payment of money to  another, and the transaction does not amount  to a mortgage, the latter person is said to have  a charge on the property; and all the provisions  hereinbefore contained which apply to a simple  mortgage shall, so far as may be, apply to such  charge.  Nothing  in  this  section  applies  to  the  charge of  a  trustee on the trust-  property for  expenses properly incurred in the execution of  his  trust,  and,  save  as  otherwise  expressly  provided by any law for the time being in force,  no  charge  shall  be  enforced  against  any  property in the hands of a person to whom such  property has been transferred for consideration  and without notice of the charge.”

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The  above-mentioned  Section  clearly  indicates  the  

following types of charges :

(1)   Charges created by act of parties; and  

(2)   Charges arising by operation of law.

9. An  ordinary  charge  created  under  the  Transfer  of  

Property Act is compulsorily registerable.  The first portion  

of  Section  100  of  the  TP  Act  lays  down  that  where  

immoveable property of one person is by act of parties or  

operation of law made security for the payment of money  

to  another,  and  the  transaction  does  not  amount  to  a  

mortgage, the latter person is said to have a charge on  

the  property;  and  all  the  provisions  hereinbefore  

contained which apply to a simple mortgage shall, so far  

as may be, apply to such charge.  The words “which apply  

to a simple mortgage shall,  so far  as may be,  apply to  

such charge” in this Section were substituted by Section  

53 of the Transfer of Property (Amendment) Act, 1929, for  

the  words  “as  to  a  mortgagor  shall,  so  far  as  may be,  

apply to the owner of such property, and the provisions of  

Sections 81 and 82 shall, so far as may be, apply to the

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persons having such charge.”  Evidently, the effect of the  

amendment was that all the provisions of the TP Act which  

apply  to  simple  mortgages  were  made  applicable  to  

charges.   

10. Section 59 of the Transfer of Property Act refers to  

the mode of transfer which reads as follows :-

“59.  Mortgage when to be by assurance.-  Where  the  principal  money  secured  is  one  hundred rupees or upwards, a mortgage other  than a mortgage by deposit of title- deeds can  be  effected  only  by  a  registered  instrument  signed  by  the  mortgagor  and  attested  by  at  least two witnesses. Where the principal money  secured  is  less  than  one  hundred  rupees,  a  mortgage  may  be  effected  either  by  a  registered  instrument  signed  and  attested  as  aforesaid,  or  (except  in  the  case  of  a  simple  mortgage) by delivery of the property.”

11. A conjoint reading of Section 100 with Section 59 of  

the TP Act makes it  clear that if  by act of parties,  any  

immovable property is made security for the payment of  

money to another and it does not amount to mortgage,  

then all the provisions which apply to a simple mortgage,  

as far as may be, apply to such charge.  Consequently, in  

view of Section 59 of the TP Act when there is a mortgage

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other than a mortgage by deposit of the title deeds, it can  

be effected only by a registered instrument.  So far as the  

present case is concerned, no registered mortgage deed  

was executed by the first respondent and no title deed of  

the property was handed over by the first respondent to  

the Corporation.    The mere undertaking that  a person  

would not dispose of the properties mentioned, during the  

currency of the loan, would not confer any charge on the  

immovable properties mentioned therein.   In other words,  

a mere undertaking to create a mortgage is not sufficient  

to create an interest in any immovable property.   This  

legal position has been settled by various judgments of  

this Court.   In  K. Muthuswami Gounder  (supra), this  

Court was dealing with the legal validity of a security bond  

by which parties undertook that they would not alienate  

the properties till the decree was discharged.   Referring  

the said document, this Court held as follows :

“17. The document, Exhibit A-6, security bond  does not in substance offer suit property by way  of  security.  Even  giving  the  most  liberal  construction  to  the  document,  we  cannot  say  that  a  charge  as  such  has  been  created  in  respect  of  the  suit  property  for  money  to  be

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decreed in the suit. All that it states is that in  the  event  of  a  decree  being  passed  not  to  alienate  the  property  till  the  decree  is  discharged,  which  is  a  mere  undertaking  without creating a charge. Therefore, we agree  with  the  finding  of  the  High  Court  that  the  document at Exhibit A-6 is not a charge. If that  is so, the suit filed by the appellant has got to  be dismissed.”

 12. The Court held that the decree obtained in that suit  

was a simple money decree and not a decree on a charge  

or  mortgage  with  the  result  that  the  appellant  who  

purchased the property in execution of that decree did not  

acquire the rights under the Security Bond.   

13. In  Bank of India (supra), this Court was examining  

the scope of undertaking made for creating an equitable  

charge over a flat in favour of the Bank.   This Court held  

that without a transfer of interest, there is no question of  

there being a mortgage and that mere undertaking is not  

sufficient to create a charge.  The ratio laid down by the  

above-mentioned judgment applies to the present case.  

In our view, the mere undertaking that the party will not  

dispose of  the  properties  mentioned in  an undertaking,

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during the currency of the loan, will not create any charge  

over those properties, unless charge is created by deposit  

of title deeds or through a registered document.   We also  

hold that even if the purpose of the decree obtained in  

Civil  Suit No.767 of 1995 between the respondents was  

fraudulent and collusive one so to defeat the undertaking  

made on 5.3.1994, that would not confer any charge over  

the properties, unless the undertaking is registered.   We,  

therefore,  find  no  error  in  the  judgment  of  the  lower  

Appellate Court which was affirmed by the High Court.

14. In  the  result,  the  appeal  fails  and  is  accordingly  

dismissed.   There will be no order as to costs.  

…………………………………J. (K.S. Radhakrishnan)

………………………………...J.       (C. Nagappan)

New Delhi, December 13, 2013.

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