In the realm of debt financing, the securitization of immovable property—primarily land and buildings—through mortgages forms a cornerstone of lenders' risk mitigation strategies. This practice, deeply rooted in property law which typically involves the transfer of an interest in real estate to a lender as collateral for loan repayment. In India, the legal framework governing the creation and registration of mortgages is primarily delineated by two pivotal pieces of legislation: the Transfer of Property Act, 1882 (TPA)[i] and the Registration Act, 1908.[ii]

Section 58 of the TPA defines various types of mortgages, among which two forms have gained particular prominence in the financial sector: the 'English mortgage' (commonly referred to as a registered mortgage) and the 'mortgage by deposit of title deeds' (also known as an equitable mortgage). These instruments are widely favoured by banks, non-banking financial companies (NBFCs), and other financial institutions due to their efficacy and legal standing.

Of particular interest and the topic of the day is the equitable mortgage, defined under Section 58(f) of the TPA where this particular form of security is created when a borrower delivers the title deeds of immovable property to a creditor or their agent with the explicit intent to create a security interest. A notable feature of the equitable mortgage is its simplicity—which features that legally, no formal document is required for its creation and this principle was reinforced by the Supreme Court in the landmark case of Rachpal Mahraj v. Bhagwandas Daruka and others[iii], which affirmed that the mere act of depositing title deeds with the intent to create security implies a mortgage contract, obviating the need for a registered instrument.

However, in practice, the process often involves the execution of a Memorandum of Entry (MoE) which includes the deposition of title deeds, where this memorandum serves to record the fact of delivery and the parties' intent to create a mortgage. While not strictly necessary from a legal standpoint, the MoE has become a standard practice which offers an additional layer of protection by documenting the borrower's deposit and ensuring legal recognition of the transaction thereby performing a pragmatic approach which aims to safeguard the interests of both the lender and the borrower, adding a layer of clarity and enforceability to the mortgage agreement.[iv]

Registration of Mortgage: A Complex Legal Landscape

The registration of mortgages in India presents a nuanced legal framework, for English mortgages, registration is not merely a formality but a legal imperative, it is crucial for establishing the lender's security rights and safeguarding their interests in the event of borrower default; also Section 59 of the Transfer of Property Act, 1882 (TPA) stipulates that any mortgage exceeding one hundred rupees in principal amount must be executed through a registered instrument, signed by the mortgagor and attested by at least two witnesses. This provision explicitly excludes mortgages by deposit of title deeds, creating a clear distinction in the treatment of English and equitable mortgages.

The Registration Act, 1908, further reinforces this requirement where Section 17 of the Act delineates documents that must be registered with the sub-registrar's office, including any instrument that creates rights and liabilities in immovable property. However, the application of this provision to equitable mortgages remains a point of legal nuance. This is because equitable mortgages are not typically considered "transfers of property" within the meaning of Section 17 of the Registration Act.

However, where the parties have reduced the terms of the bargain to a written document, such a document would be treated as an instrument of creation of such a mortgage and would be required to be registered under Section 17 of the Registration Act, 1908.

In practice, equitable mortgages in debt financing transactions typically involve the mortgagor submitting property title deeds to the lender which is often accompanied by an undertaking evidencing the intent to create a mortgage where lenders, frequently document this submission through a Memorandum of Entry (MoE). Following this, the Supreme Court, in the landmark case of State of Haryana v. Navir Singh[v], clarified that the mere act of depositing title deeds with the lender suffices to create an equitable mortgage under Section 58(f) of the TPA along with this, the Court emphasized that neither the MoE nor the undertaking is mandatory; as they serve merely as evidentiary documents rather than instruments creating the mortgage itself.

Despite this judicial clarification, lenders in India face a complex regulatory landscape regarding equitable mortgage registration as the concurrent nature of property registration legislation, as per Schedule VII of the Indian Constitution, which has consequently led to diverse state-level regulations which enabled some states, including Maharashtra, Gujrat and Karnataka, etc. mandate notifying the sub-registrar's office via a Notice of Intimation (NOI) about equitable mortgage creation under Section 89B of the (State) Registration Act. Conversely, states like Delhi, Haryana, Telangana and many more lack specific provisions for NOI registration in equitable mortgages.

This regulatory heterogeneity poses significant challenges for lenders operating across multiple states where varying rules and filing processes, coupled with the often limited availability of updated regulations in the public domain, create a risk of non-compliance in debt financing transactions which can severely jeopardize a lender's ability to enforce their security interest in case of borrower default under the financing documents.[vi]

State-wise Variations in Equitable Mortgage Registration
To provide clarity on this complex issue, below is a table that summarizes the registration requirements for equitable mortgages across various states in India. This table illustrates which states mandate the registration of equitable mortgages and which do not, offering a quick reference guide for lenders and legal practitioners:

States	Mandatory	Not Mandatory	State Specific Registration/ Stamp Act
Maharashtra	✔		IGR Maharashtra, PRS India
Gujarat	✔		PRS India, PRS India
Haryana	✔	✔	HSLC
Karnataka			Karnataka Registration Rules, Karnataka Act
Telangana		✔	Telangana Registration Act, Telangana Stamp Act
Tamil Nadu	✔		PRS India, TN Government
Punjab	✔		Punjab Assembly, PLRS
Rajasthan		✔	SWCS Rajasthan, PRS India, Rajasthan Tax Board
Andhra Pradesh	✔		PRS India, AP Registration, AP Stamp Act
Madhya Pradesh		✔	MP IGR
Delhi		✔	BBSR
Arunachal Pradesh		✔	India Code
Assam		✔	PRS India, Assam Government
Manipur		✔	India Code
Meghalaya		✔	PRS India
Bihar		✔	PRS India, CAG
Goa		✔	PRS India, India Code
Himachal Pradesh		✔	HP Government
Nagaland		✔	India Code
Odisha		✔	Odisha Law
Jharkhand		✔	PRS India
Kerala		✔	Blink Visa, Kerala Registration
Uttarakhand		✔	UK Registration, UK Registration
Uttar Pradesh		✔	IGR SUP, IGR SUP

In states across India the stamp duty is applicable for executing a memorandum of deposit of title deeds, even when such memorandums are not required to be registered. The specific rates and regulations regarding stamp duty may vary from state to state.

It's important to note that this table provides a general overview, and the specific requirements may be subject to change and lenders and legal professionals should always verify the current regulations in each state, as legislative updates can occur.

Moreover, it is also a well-established practice to even register in those states where registration is not compulsory, many lenders choose to register equitable mortgages voluntarily as an extra precautionary measure.

Conclusion
The landscape of mortgage registration in India, particularly for equitable mortgages, reveals a complex interplay of state law, judicial interpretation, and diverse state-level regulations and this complexity poses significant challenges for lenders operating across multiple states, potentially impacting the efficiency and security of mortgage transactions and here, the basic key issues entails variations in state-level registration requirements, risks of non-compliance due to regulatory inconsistencies, and difficulties in accessing up-to-date information on state-specific regulations and addressing these challenges will be crucial in creating a more streamlined, secure, and efficient mortgage financing system in India where this, in turn, will support the country's economic growth by facilitating smoother lending practices while safeguarding the interests of both lenders and borrowers.

End Notes:

1. The Transfer of Property Act, No. 4 of 1882, India Code (2023), https://www.indiacode.nic.in/bitstream/123456789/2338/1/A1882-04.pdf
2. The Registration Act, No. 16 of 1908, India Code (2023), https://www.indiacode.nic.in/bitstream/123456789/15937/1/the_registration_act%2C1908.pdf
3. 1950 AIR 272
4. Amit Prakash & Kumar Aditya Bhardwaj, Registration of Equitable Mortgage: The Lenders' Conundrum, Bar & Bench (Oct. 19, 2023), https://www.barandbench.com/law-firms/view-point/registration-of-equitable-mortgage-the-lenders-conundrum
5. 2014 (1) SCC 105
6. Neha Sinha & Shraddha Shivani, Memorandum of Entry for Equitable Mortgages: A Mortgage by Conduct? (Oct. 3, 2022), https://vinodkothari.com/2022/10/memorandum-of-entry-for-equitable-mortgages-a-mortgage-by-conduct/