Court rejects bank's claim of equitable assignment of rents for Church Street premises. Bank's application denied.

The court rejected the bank's claim of an equitable assignment of rents from premises No. 48, Church Street, Bangalore. The court found that the documents executed by the company did not create any valid equitable charge or assignment in favor of the bank. As a result, the bank's application was rejected, and the order directing tenants to deposit rents into court remained unchanged.

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Issues Involved:

1. Whether the execution of the power of attorney dated September 30, 1986, or other documents by the company in favor of the bank created an equitable assignment of the rents payable in regard to a portion of premises No. 48, Church Street, Bangalore, in favor of the bank.
2. Whether the bank is entitled to receive the rents to the exclusion of the company.
3. Whether the power of attorney executed by the company in favor of the bank is irrevocable and implies an equitable assignment of the rents.
4. Whether the power of attorney requires registration to be enforceable.

Issue-wise Detailed Analysis:

1. Equitable Assignment of Rents:

The court examined whether the execution of the power of attorney and other documents by the company in favor of the bank created an equitable assignment of the rents payable by the State Bank of India. An equitable assignment is defined as an act that, although not a regular assignment, gives the assignee a right enforceable in equity. The court referred to the principles laid down in Rodick v. Gandell and Palmer v. Carey, which state that an agreement between a debtor and a creditor that the debt owing shall be paid out of a specific fund creates a valid equitable charge upon such fund, operating as an equitable assignment.

2. Bank's Entitlement to Rents:

The court analyzed the documents executed by the company to determine if there was any basis for the bank's contention of an equitable assignment. It was admitted that the property was secured by an equitable mortgage, not by a usufructuary mortgage or mortgage with possession. The bank, as a simple mortgagee, was not entitled to possession of the mortgaged property or its rents. The court found that none of the documents, including the loan application, promissory note, term loan agreement, and letters of guarantee, referred to the rents receivable from the State Bank of India or created any assignment or charge over the rents.

3. Irrevocability and Equitable Assignment:

The court examined the power of attorney dated September 30, 1986, which authorized the bank to demand and receive rent from the State Bank of India. The power of attorney did not refer to the loan advanced by the bank or authorize the bank to appropriate the rents towards the company's debt. The court distinguished this case from the Supreme Court cases Bharat Nidhi Ltd. v. Takhatmal and Seth Loon Karan Sethiya v. Ivan E. John, where the powers of attorney specifically referred to loans and authorized the banks to recover and appropriate amounts towards the loans, thus creating equitable assignments.

4. Requirement of Registration:

The court held that the power of attorney did not create any right or interest in the rents or benefits arising from the immovable property in favor of the bank. It merely authorized the bank to act as the company's agent to collect rents. The court reiterated that an instrument creating a right or interest in rents from an immovable property requires registration. Since the power of attorney did not create an equitable assignment, it did not require registration. However, even if it were to be treated as creating an equitable assignment, it would require registration to be enforceable.

Conclusion:

The court rejected the bank's contention that the rents payable by the State Bank of India had been equitably assigned to the bank. Consequently, the application C. A. No. 139 of 1993 was rejected, and the order directing tenants to deposit rents into court remained unmodified.

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