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Nature and Scope of Mortgage Law in India and Different Kinds of Mortgages

A mortgage is a transfer of an interest in immovable property. One person gives his/her property to another in exchange for money as a loan for a specific period. The loan can be taken on immovable property specifically, which is tangible form. However, in case of default in repayment, person holding the mortgaged property can sell or use the property to compensate for his loss.

The transaction conditions depend on the parties; for example, when a person lends money to another, he may do so without asking for any security or demand some security for the payment of money. Then, in case of default, when there was no security taken, person who lent the money may sue for repayment. And if there is some security taken, that security may be used to recoup the lost money.

Analysis of nature, and scope:
The concept of mortgage and pledge often found similar; however, there is a fundamental difference between the two. Pledge is when the loan is secured against movable property, whereas loan security is against immovable property in mortgage. Mortgage transactions can be traced back to the early times when there was no law on mortgage, and still, people were performing this kind of transaction. This practice is universally excepted with or without any specific laws on it. As shown in the below illustration.

There was no law in specific related to mortgage property transactions before 1882. After establishment of Transfer of Property Act, the rights and liabilities, laws governing with mortgage, mortgagee, mortgagor took a systematic and much-needed change, and detailed regulations were made. Before the 1882 Act, though act did not apply to previous transactions, however, mortgagor's right to redemption existed to recoup the repayment of the mortgage money.[1]

The suit of mortgage is subject to the rule of lis pendens. It means that during pendency of suit, the mortgagor cannot enter into lease contract. The essential feature of mortgage that there is a proviso for redemption;[2] it is a conveyance of the legal interest in property. It means that after the repayment of loan, the conveyance becomes void.

Under TPA, provisions of mortgage transactions have been provided from Section 58 to 104.[3] Section 58 of TPA[4] defines mortgage. In case,[5] SC observed that mortgage law in India is wholly embodied in Section 58 of TPA, read with CPC. Order XXXIV[6], Rule 1-15[7] deals with suits related to mortgage transactions. The court dealing with the suit is barred from going beyond these provisions. Section 2(a) of the Stamp Act[8] also defines "mortgage."

As per section 58,[9] Essential Ingredients of Mortgage:

  • There should be transfer of interest:
    it means interest is not transfer of ownership. Right of mortgagee is only an accessory right that is intended merely to secure due payment of debt. Nature and quantity of interest or rights transferred will depend on the kind/form of mortgage.
     
  • Of immovable property:
    It must be immovable property with specific mention in deed. For example, it shall not be denoted as "my land or my house." It must be mentioned in a certain reasonable manner, so it can be distinguished as to which property it is.
     
  • With the intention for securing the payment of money:
    1. Advanced or to be advanced by way of loan:
      Transfer made solely with the intention of securing debt or other obligation but by way of discharging liability is not a mortgage.
       
    2. Existing or future debt:
      Existing debt implies which are not barred by time. Future debt is which occurs after mortgage. It is not necessary that securing debt shall be made before the transaction; it could be executed for securing money payment advanced in future.
       
    3. Performance of an engagement which may give rise to pecuniary liability:
      consideration can be an engagement that arises pecuniary liability against mortgagor. Performance infers to act of mortgagor resulting from such engagement.
      These ingredients are essential to follow; if not followed, then mortgage transaction is not complete.

      The section further provides for who is mortgagor, mortgagee, and mortgage- money, mortgage-deed. Mortgage-money is the principal money and interest of which payment is secured for specific time. Mortgage-deed is the instrument through which mortgage has been done. There are certain right and duties are incorporated to both mortgagor[10] and mortgagee.[11]
       

Kinds of mortgage:

Simple mortgage:

Essentials:
  • Mortgagor must bound himself personally to repay loan;
  • Possession is not given to mortgagee
  • To secure loan, he has transferred to mortgagee the right to have specific immovable property sold if he has failed to repay.
Here, the security of loan is in two folds- property and personal obligation. Such personal obligation to pay may be express or implied[12] from the term of particular transaction[13] for a promise to pay arises out of the acceptance of loan. The promise to pay is implicit in the borrowing transaction itself, but terms of mortgage transactions may displace it. It does not exclude out when mortgagor sells the mortgaged property for the repayment of loan.[14]

Here possession remains with the mortgagor. The mortgagor's security is that of mortgaged property and not for the rents and profits arising out of it. If simple mortgagee sues for enforcement of his security, a decree for possession would be illegal.[15] It would not operate as a foreclosure. At the most, it would convert a simple mortgage into a mortgage with possession.[16] The mortgagee has power to sell the property in case of default.

However, it has to be done with court's intervention. Mortgagor himself has no authority to do it. Mortgagor will get money lend by him, and the rest of the money will be directed to mortgagor whose property has been sold. However, mortgagor may put both the cause of actions in one suit. He may sue the mortgagor personally and request a decree in his favor for sale of property. But, in all cases, suit must be filed within twelve years from the date on which the loan becomes due.[17]

Mortgage by conditional sale:

Essentials:
  • Mortgagor must ostensibly sell the immovable property;
  • There must be condition that either;
  • On the repayment of money due under mortgage on a certain date, sale shall become void, or buyer shall transfer the property to seller;
  • In default of payment on that date, sale shall become absolute.
  • The condition must be embodied in same document.

Personal liability is not an essential ingredient of mortgage by conditional sale instead, liability is only regarding property.[18] It has been said that the circumstance makes mortgages by conditional sale an exception to the rule of no debt no mortgage. The remedy of mortgage by conditional is to sue for foreclosure only. It arises only when mortgage-money is not paid on the specified date and sale becomes absolute.

This is a mortgage in which ostensible sale is conditional and intended as a security for debt. The right of redemption subsists notwithstanding that mortgagor has failed to pay at the time stated.The condition affecting a sale as mortgage transaction must be incorporated in one and the same deed. Where there is separate deed, mortgagor will be debarred from saying that transaction was in nature of mortgage by conditional sale.

To determining factor is the intention of parties,[19] which must be ascertained from surrounding circumstances. In case[20] the first part of document spoke of an outright sale, second part had provisions for land redemption. Court observed that the document should be read as a whole and held that it was not a sale with a right to purchase; instead, it was mortgage by conditional sale.

Unfructuary mortgage:

The possession of mortgaged property is handed over to mortgagee by mortgagor as security for payment of mortgage-money. As long debt remains unsatisfied, mortgagee is entitled to remain in possession of property. It is not necessary that physical delivery of possession[21] must be made at the time of execution of deed. Undertaking to give possession could be implied or express by mortgagor.

There cannot be two different usufructuary mortgages of same property at same time, as possession can be given to either one.[22] Mortgagee becomes entitled to receive rent and profit of mortgaged property till money is repaid, and it will depend on the terms of mortgage-deed.

The rent and profit or part of rent and profit may be appropriated- i) in lieu of interest- here, mortgagor recovers possession when he pays the principal money. ii) in lieu of principal- mortgagor continues to pay interest and is entitled to recover possession when rents and profits received by mortgaged equal amount of principal. iii) in lieu of principal and interest-mortgagor is not to recover possession until principal and interest are paid out of rent and profit.

Here, mortgagor does not take any kind of personal responsibility regarding payment of mortgage-money. Mortgagee himself has to utilize rend and profits accruing from property to satisfy money and rent. In case of default by mortgagor to deliver property, the mortgagee can sue for possession or for recovery of money lend. However, if possession is with him, he has to retain the property until his debts are satisfied.

In[23] mortgagor promised to put mortgagee in possession of certain village on certain date and to pay interest at 24% until the delivery of possession. The court held that this transaction was a usufructuary mortgage.

English mortgage:

Here, mortgagor takes personal liability to repay mortgagee-debt on specified date.[24] Covenant to pay is an essential element of this transaction. An option to earlier repayment or extension of time for repayment is matter of grace and in no way affects the undertaking to repay on particular date. The object should certainly be known when mortgagor will redeem or when mortgagee will proceed to enforce by foreclosure or sale.

If no date is fixed, mortgage is not English. English mortgage is not an absolute transfer of property but merely declaring that such mortgage will be absolute, subject to re-transfer. Mortgagee owns right to take possession a soon as mortgage is made out[25] whether the right of entry is covenanted or not, and can stay the same till mortgage-money is not paid to him.

Mortgage by deposit of title-deeds {equitable mortgage}:

Essential:
  • Must be debt:
    it can be existing or future. It's the performance of engagement that may give rise to pecuniary liability in mortgage
     
  • Deposit of title deeds:
    Physical delivery is not a necessary deposit mode; constructive delivery of documents would suffice.[26] It is not essential for a valid equitable mortgage that title-deed document is deposited or that documents deposited should show complete title. It is sufficient if deeds deposited bona fide relate to property and are material evidence of title.[27]

    If documents deposited do not show title all and documents existed showing his title to property but are not deposited, mortgage is not created. The intention that title-deed shall be security for debt is essence of transaction. Merely title-deed given[28] by X to Y does not constitute a mortgage.

Anomalous mortgage:

Anomalous mortgage is a mortgage, which is neither simple, conditional by sale, usufructuary, or English, or mortgage by title-deeds. It is a combination of either of these mortgages.[29] For example: in case of a usufructuary mortgage, mortgagor takes personal liability to repay mortgage-money. It ceases to be usufructuary mortgage and becomes both simple and usufructuary mortgage. This mortgage is an Anomalous mortgage. Such mortgages take innumerable forms moulded either by custom or the caprice of the creditor. This mortgage necessitates writing and attestation.[30]

Conclusion:
Mortgage transaction is transfer of an interest in immovable property. Mortgage is said to be completed when all the essentials of it are fulfilled. Mortgage transactions, along with their essentials, put some rights and duties on mortgagor and mortgagee. Relationship between mortgagor and mortgagee is that of debtor and creditor. The object of mortgage is to secure debt. In case of default in payment, mortgagee has remedy to recoup money given by sale, foreclosure, where terms of mortgage permit it.

Each kind of mortgage, provides conditions as per its nature. The mortgagor has a right of redemption. The payment or tender exercises it to the mortgagee at the proper time, proper place, or mortgage-money. The expression act of parties infers that some transactions after mortgage stand apart from mortgage transactions.

Mortgage has a very wide scope, from giving rights to parties, creating formalities for creating mortgage (section 59), and redemption clause and its variants. Mortgage transactions are different from Pledge, Lease, charge. To determine whether it is a mortgage transaction or any other, a test is to be conducted that whether the purpose of transaction is enjoyment of property by the transferee or whether it is intended to secure repayment of debt by transferor. Hence, in case of mortgage, the latter part is the intention of party. Therefore, there is no transfer of ownership; rather, it is transfer of possession for a specified time in mortgage transactions.

End-Notes:
  1. Shankarlal Nathumal Chandak v. Balkrishna Jagannath Gujarathi, AIR 2010 Bom 4.
  2. Transfer of Property Act, 1882, S. 60.
  3. Transfer of Property, 1882, S. 58-104.
  4. Transfer of Property Act, 1882, S. 58.
  5. Kedar Lal v. Hari Lal, AIR 1952 SC 47.
  6. The Code of Civil Procedure, Order XXXIV.
  7. The Code of Civil Procedure, Rule 1-15.
  8. The Stamps Act, 1899, S. 2(a).
  9. Transfer of Property Act, 1882, S. 58.
  10. Trasnfer of Property Act, 1882, S. 60-66, S. 95.
  11. Transfer of Property Act, 1882, S. 67.
  12. Ram Kishore v. Surajdeo, (1911) 9 Cal L.J 5 (India).
  13. Ram Narayan Singh v. Adindra Nath, AIR 1916 PC 119 (India).
  14. Ram Gopal v. Ram Chandra, AIR 1949 Nag 354 (India).
  15. Transfer of Property Act, 1882, S. 68.
  16. Yashwant v. Vithal, (1897) 21 Bom 271 (India).
  17. Balkrishan v. Mohsin Bhat, AIR 1999 MP 86 (India).
  18. Thumbaswamy v. Mohamad Hossein, (1875) 1 Mad 1 (India).
  19. Vidhyahar v. Mankikrao, AIR 1999 SC 1441 (India).
  20. Ismail Khatri v. Muljibhai Brahmabhatt, AIR 1994 Guj. 8 (India).
  21. Feroz Shah v. Sohbat Khan, AIR 1933 PC 178 (India).
  22. Manu Pande v. Sukhalia, AIR 1958 Pat. 79 (India).
  23. Pratap Bahadur v. Gajadhar, (1902) 24 All 512 (India).
  24. Raja Janki Nath v. Lalta Prasad, (1897) I.L.R 19 All 496 (India).
  25. Raj Kishore v. Prem Singh, AIR 2011 SC 382 (India).
  26. Kj Nathan v. SV Maruthy Reddy, AIR 1965 SC 430 (India).
  27. Supra note, 18.
  28. Nirmala Baldwa v. Govt. of AP, AIR 2011 AP 26 (India).
  29. Hatika v. Puthiyapurayil Padmanabhan, AIR 1994 Ker 141 (India).
  30. Kanna Karup v. Sankara, AIR 1921 Mad 243 (India).

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