The main legal point established in the judgment is that the acceptance of certified copies of title deeds for an equitable mortgage without proper verification constitutes gross negligence, allowing a subsequent mortgagee to have priority as per Section 78 of the Transfer of Property Act.

P.K. Misra, J.

This writ petition is a fight between two Nationalised Banks, namely Indian Bank and Punjab National Bank, in the matter relating to applicability of Section 78 of the Transfer of Property Act.

2. The secured property in question was mortgaged by the undisputed owner with the Indian Bank on 5. 1989, the petitioner in the present writ petition, by depositing certified copies of the title deeds. The very same owner of the property subsequently created another equitable mortgage over the very same property by depositing the original title deeds with Punjab National Bank, on 6. 1989. Two banks had separately filed independent suits, which were transferred to the Debt Recovery Tribunals as per The Recovery of Debts Due to Banks and Financial Institutions Act, 1993, and two separate orders were passed in their favour. When the Punjab National Bank took steps to put the property for sale, objection was raised by Indian Bank. The Debt Recovery Officer faced with the conundrum directed that the matter should be placed before the Presiding Officer of the Debt Recovery Tribunal. The contention of the Indian Bank before the Tribunal was to the effect that it was admittedly the prior mortgagee and, since at the time of creation of the equitable mortgage the owner had informed that the original title deeds such as sale deed and the Will were lost and untraceable, the certified copies of the sale deed and the Will were deposited and subsequently the Bank also obtained an affidavit from the owner on 27. 1989, wherein it had been indicated that the original title deeds were lost.

3. The contention of the Punjab National Bank was to the effect that the Indian Bank had acted negligently in accepting the certified copies of the sale deed and the Will for creation of the equitable mortgage without proper verification and because of such negligence, the owner of the property, who was in possession of the original sale deed and the original Will, created another equitable mortgage subsequently by deposit of such original documents.

4. The Debt Recovery Tribunal by referring to Section 58(f) of the Transfer of Property Act concluded that in law there was no bar in creating equitable mortgage by deposit of certified copy of the title deeds. The Tribunal by referring to the decisions of the Calcutta High Court reported in Air 1961 Cal. 300 (Lloyds Bank V. P.E. Guzdar & Company) And Kerala High Court Reported In 1983 Kerala 38 (State Bank Of India V. Kerala Financial Corporation) further observed that Punjab National Bank had not proved that Indian Bank was in gross neglect while creating equitable mortgage and further Indian Bank had shown due diligence by obtaining sworn affidavit from the owner that the title deeds have been lost. Accordingly, it observed that from out of the sale proceeds of the mortgaged property, the debt in favour of the Indian Bank has to be met and thereafter the surplus can be applied towards the debt in favour of Punjab National Bank. This decision of the DRT was the subject matter of challenge in Appeal No.8 of 2002 filed before the Debt Recovery Appellate Tribunal (DRAT) by the Punjab National Bank.

5. The DRAT, while reversing the judgment of the DRT, observed that Indian Bank had not taken proper care and caution while accepting the certified copies of the sale deed and the Will for creation of the equitable mortgage. By applying the principle of Section 78 of the Transfer of Property Act, DRAT has concluded that since Indian Bank was not diligent in getting proper documents from the borrower and the original owner took advantage by producing the original deeds before Punjab National Bank for obtaining subsequent loan by deposit of original title deeds, the Punjab National Bank was entitled to have priority as contemplated in Section 78 of the Act.

6. Learned counsel appearing for the Indian Bank / appellant submitted that since creation of equitable mortgage by deposit of certified copies of th