A) ABSTRACT / HEADNOTE

The Cosmos Co. Operative Bank Ltd. v. Central Bank of India & Ors., Civil Appeal No. 1565 of 2025 (4 Feb 2025), addresses whether equitable mortgages are recognized in India under the rubric of a charge in Section 100 of the Transfer of Property Act, 1882 and which of two rival banks held the first valid charge over a flat offered as security. The Supreme Court held that an equitable mortgage is enforceable in India as a charge under Section 100 TPA, though it ordinarily yields to a later bona fide transferee without notice and remains primarily a right in personam unless converted into a registered legal interest.

The Court emphasized the distinction between an Indian mortgage by deposit of title-deeds (recognized as a legal mortgage under Section 58(f)) and the English concept of deposit creating merely an equitable mortgage; the former can confer a legal mortgage where the deposited instrument itself operates as a conveyance. Applying these principles to the facts, the Court found that Cosmos Co. Operative Bank Ltd. (the appellant) held the first valid charge because it possessed the share certificate of ownership for the apartment at the time its loan was advanced, whereas the Central Bank of India (respondent) only held unregistered agreements to sell which, though constituting an equitable charge, did not amount to a registered legal mortgage and were postponed to the appellant’s legal charge. The High Court and DRAT orders were set aside and the appeal allowed.

Keywords: Equitable mortgage, charge, Section 100 TPA, deposit of title deeds, priority of charge.

B) CASE DETAILS (IN TABLE FORM)

i) Judgment Cause Title: The Cosmos Co. Operative Bank Ltd. v. Central Bank of India & Ors..
ii) Case Number: Civil Appeal No. 1565 of 2025.
iii) Judgment Date: 4 February 2025.
iv) Court: Supreme Court of India.
v) Quorum: J. J.B. Pardiwala and R. Mahadevan.
vi) Author: J. Pardiwala (opinion).
vii) Citation: [2025] 2 S.C.R. 1091 : 2025 INSC 243.
viii) Legal Provisions Involved: Sections 54, 58 & 100 Transfer of Property Act, 1882; Sections 4, 4A, 11 Maharashtra Ownership Flats Act, 1963; Sections 2, 4, 5 Maharashtra Apartment Ownership Act, 1970.
ix) Judgments overruled by the Case (if any): None expressly overruled; clarifies application of prior authorities.
x) Related Law Subjects: Property Law; Equity; Banking & Securities; Civil Procedure; Debt Recovery (DRT/DRAT jurisprudence).

C) INTRODUCTION AND BACKGROUND OF JUDGMENT

The dispute arose from competing claims by two banks over proceeds deposited with the DRT following enforcement of security furnished by defaulting borrowers. The borrowers had originally offered documents relating to a flat as security. Central Bank of India advanced a loan in reliance on unregistered agreements for sale deposited with it in 1989; Cosmos Bank later advanced funds (1998) but took, along with an unregistered agreement, an original share certificate of ownership dated 14.09.1989.

The DRT initially found mortgage on the facts unproved for the Central Bank’s claim; DRAT set aside that finding and accepted Central Bank’s earlier charge. Cosmos Bank insisted its possession of the share certificate gave it a superior legal mortgage. The High Court upheld DRAT and dismissed Cosmos Bank’s writ petition, relying on priority in time for Central Bank’s earlier deposit.

The Supreme Court granted leave and framed the core question: does equity recognize the Central Bank’s earlier deposit as an equitable mortgage/charge vis-à-vis Cosmos Bank’s later legal mortgage by deposit of the share certificate and how does Section 100 operate to determine priority and enforceability? The Court examined statutory definitions, English equity doctrine and Indian precedents to reconcile equitable principles with the statutory scheme.

D) FACTS OF THE CASE

The original borrowers deposited two unregistered agreements to sell with Central Bank in 1989 and obtained a loan of about ₹30,00,000; that bank asserted a charge over the flat. The borrowers later defaulted and DRT proceedings followed; DRT found Central Bank had not produced primary title documents and dismissed mortgage claims. DRAT allowed Central Bank’s appeal after original documents were placed before it and decreed recovery. Meanwhile Cosmos Bank, which had advanced loans in 1998, possessed a share certificate of ownership issued by the cooperative society and an unregistered agreement dated 07.12.1978; Cosmos claimed a legal mortgage by deposit of the share certificate and asserted priority.

The High Court concluded Central Bank’s mortgage was prior in time (31.10.1989) and that Cosmos’s 1998 mortgage was subsequent, rejecting Cosmos’s challenge. Cosmos appealed to the Supreme Court contesting both the legal effect of unregistered agreements and the priority issue, arguing that Central Bank’s documents could not create a legal mortgage and at best constituted an equitable charge which must yield to Cosmos’s registered-analogous title deed possession.

E) LEGAL ISSUES RAISED

i. Whether a transaction by deposit of unregistered agreements or documents can constitute an equitable mortgage enforceable as a charge under Section 100 TPA?
ii. Whether a deposit of a share certificate of ownership with a bank constitutes a legal mortgage under Section 58(f) TPA and thereby confer priority over prior equitable charges?
iii. Whether a prior equitable charge (unregistered agreements) can defeat a later legal mortgage established by deposit of title-deeds or documents that convey title?
iv. What remedies are available to a lender who advances money intending security where formalities have not been completed (specific performance, part-performance, or recognition as charge)?
v. How should competing claims be distributed where sale proceeds lie in escrow with the DRT?

F) PETITIONER / APPELLANT’S ARGUMENTS

The counsel for Cosmos Bank contended that an agreement to sell does not create title and is not a valid basis for a legal mortgage; thus Central Bank’s reliance on unregistered agreements was legally insufficient. By contrast, Cosmos possessed the share certificate of ownership when it advanced the loan, which operated as the effective title-deed under cooperative society law and thereby created a legal mortgage by deposit of title-deeds under Section 58(f). Cosmos argued Section 100’s recognition of charge could not elevate Central Bank’s unregistered documents to the status of a legal mortgage capable of defeating Cosmos’s later legal charge, and equitable considerations favour enforcing the bank which held the effective title-deed.

G) RESPONDENT’S ARGUMENTS

Central Bank argued that its prior deposit and the earlier date of its transaction afforded it priority; DRAT and the High Court had concurrently found priority and validity. It maintained that equitable doctrines should protect pre-existing understandings and that the earlier deposit created a charge enforceable under Section 100. The respondent relied on the timing of deposits and on the contention that the appellant failed to show the respondent’s documents were not credible. The bank pressed for upholding concurrent findings below.

H) RELATED LEGAL PROVISIONS 

i. Section 54, Transfer of Property Act, 1882 — agreement to sell does not itself create any interest in immovable property.
ii. Section 58(a), (f), Transfer of Property Act, 1882 — definitions of mortgage and mortgage by deposit of title-deeds.
iii. Section 100, Transfer of Property Act, 1882 — recognition of charge where transaction does not amount to mortgage; provisions applicable mutatis mutandis to simple mortgage.
iv. Sections 4, 4A, 11, Maharashtra Ownership Flats Act, 1963 — registration, effect of non-registration and promoter duties delivering title documents.

I) JUDGMENT

The Court first analysed the statutory text and the settled rule that an agreement to sell does not of itself create any proprietary interest (Section 54). It surveyed English chancery doctrine (e.g., Russell v. Russell) to explain equitable mortgages’ origin and utility, then contrasted the English position with the Indian statutory framework which expressly recognizes mortgage by deposit of title-deeds as a species of legal mortgage under Section 58(f). The Court held that equitable mortgages are cognizable in India as a charge under Section 100, enforceable in equity as far as possible by applying simple mortgage procedures, but remain in personam and are vulnerable to defeat by bona fide transferees without notice.

On facts, the Court found Cosmos Bank’s possession of the share certificate of ownership created a legal mortgage by deposit of title-deeds; Central Bank’s earlier reliance on unregistered agreements created at best an equitable charge. Because Cosmos’s deposit conferred the legal mode recognized by Section 58(f), it enjoyed priority. The Court directed distribution of the escrowed funds in favour of Cosmos and remitted ancillary issues as appropriate. The Court also set out remedial alternatives for lenders where formalities are incomplete: claim equitable mortgage, seek specific relief on part-performance, or sue on the underlying debt. The Supreme Court reversed the High Court and DRAT on the priority question and disposed the appeal in favour of the appellant.

a. RATIO DECIDENDI

The operative ratio is twofold. First, Section 100 recognizes charges arising from transactions not amounting to formal mortgages and such charges (equitable mortgages) are enforceable in equity, subject to limitations against bona fide purchasers without notice. Second, where a later deposit operates under Section 58(f) as a mortgage by deposit of title-deeds (i.e., a legal mortgage analogue in India), that legal charge will ordinarily have priority over an earlier equitable charge created only by unregistered agreements. Priority is determined by the nature of the interest (legal vs equitable) and by notice; possession of an instrument that effectually conveys or evidences title (here the share certificate) can transform a lender’s right into a legal mortgage capable of prevailing.

b. OBITER DICTA 

The Court observed obiter that English authorities allowing part-deposits to create equitable mortgages are instructive but must be read in the light of Indian statutory vocabulary. The Court reiterated equitable doctrines of quod fieri debuit pro facto censetur and emphasized that equity remedies (specific performance; recognition of part-performance) remain available where parties intended security but formalities are incomplete. The judgment suggested procedural guidance for DRT/DRAT benches to account for notice and the nature of deposited documents when adjudicating competing claims.

c. GUIDELINES

The Court distilled practical guidelines: banks must verify title and ensure possession of material title-deeds; where a lender relies on deposit of documents which are not formal conveyances, the lender should record notice and register where applicable; a claimant asserting an equitable mortgage must prove intention to create immediate security; courts should enforce equitable charges by adapting remedies available for simple mortgages so far as may be; and priority disputes require examination of the nature (legal/equitable) of competing interests and whether transferees took without notice.

J) CONCLUSION & COMMENTS

The decision reconciles equity with statutory clarity: it preserves the doctrine of equitable mortgages as charges under Section 100 while reinforcing the superior efficacy of statutory-recognized deposit-of-deeds mortgages under Section 58(f). Practically, lenders must heed the judgment: possession of title documents that amount to conveyance-equivalents confers a stronger position than mere deposit of preliminary or unregistered agreements. For practitioners, the ruling underscores careful title due diligence, timely registration where required, and the tactical need to record notice and possession to defeat later legal transfers. The Court’s approach is balanced: it protects equitable expectations without diminishing the statutory goal of certainty through registration formalities. The ruling will have immediate significance for bank recovery practice, DRT/DRAT adjudication, and cooperative society conveyancing where share certificates function as effective title instruments.

K) REFERENCES

a. Important Cases Referred

1. Suraj Lamp & Industries (P) Ltd. v. State of Haryana, (2012) 1 S.C.C. 656.
2. Bank of India v. Abhay D. Narottam & Ors., (2005) 11 S.C.C. 520.
3. Anita Enterprises & Anr. v. Belfer Coop. Housing Society Ltd. & Ors., (2008) 1 S.C.C. 285.
4. Dattatreya Shanker Mote & Ors. v. Anand Chintaman Datar & Ors., (1974) 2 S.C.C. 799.
5. Russell v. Russell, [1783] 28 E.R. 1121.
6. K.J. Nathan v. S.V. Maruthi Rao, (1964) 6 S.C.R. 727.
7. Ram Baran Prasad v. Ram Mohit Hazra, AIR 1967 S.C. 744.

b. Important Statutes Referred

1. Transfer of Property Act, 1882, ss. 54, 58, 100.
2. Maharashtra Ownership Flats (Regulation of the promotion of construction, sale, management and transfer) Act, 1963, ss. 4, 4A, 11.
3. Maharashtra Apartment Ownership Act, 1970, ss. 2, 4, 5.