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Nature And Scope Of Mortgage Law In India

It appeared to Sir Edward Coke[1] that this had something to do with transferor's inability to settle the mortgage. Where there is a question about whether or not the individual can pay debt, a strict provision must be imposed keeping in mind the interests of transferee. In India, Transfer of Property Act (TPA) of 1882 governs the mortgage of immovable property. The term "mortgage" refers to use of land, property, commodity or some other asset as collateral (assurance) to borrow money or get a loan from a lender.

Mortgage Law in India

Sections 58-104 that are mentioned under Chapter IV of TPA deals with all the important fragments of mortgage and mortgage law in India. It was only after enactment of TPA that a uniform, systematic and detailed rules were established to govern laws relating to mortgages and to determine liabilities as well as rights of both the parties.

A mortgage deal is when a person in need of money, borrows it from someone else. This in return is secured by some valuable property (value > loan amount). Section 58[2] has defined "mortgage" as transferring of an interest in specific immovable property with intention of safeguarding the payment of money advanced or to be advanced by means of loan, actual or perceived debt, or execution of an engagement that could result in a monetary obligation.

Illustration:
X, owner of a barn, borrows money from Y and assures to repay within one year. X clearly mentions that if he fails to do so, then Y has full right to the property. This transaction will amount to a mortgage as all the essential elements to mortgage are present.

Primarily, there are two parties to a mortgage: Mortgagor and Mortgagee. In Jati Kar vs Mukunda Deb [3] it was held that the act lists down laws that govern mortgage of immovable property only. Interest and transfer of same must take place in order to declare a mortgage valid. This transfer creates a relationship of mortgagee with the property. The ownership changes from mortgagor to mortgagee, that is, while with execution of mortgage he/she parts with some of the rights in favour of mortgagee.[4] Covenant not to sell a property will not amount to mortgage as no right has been transferred.

Analysis of Nature and Scope
In Noakes & Co. vs Rice [5], it was held that anything that blocks the rights is erroneous, so they coined the phrase "once a mortgage, always a mortgage" and held that a mortgage should never be irreducible. This principle was brought to protect the interest of mortgagor. Any condition/provision that stops mortgagor from redeeming his/her mortgaged property acts as a blockage on the right of redemption. There are few essentials to mortgage.

Section 65[6] and 66[7] of the Act lays down liabilities of Mortgagor whereas Section 67[8] to 77[9] deals with rights and liabilities of Mortgagee. Under Section 68[10] the mortgagee has full right to sue the mortgagor for mortgage-money and Section 69[11] allows him/her the right to sell the mortgaged property.

As per Section 76[12], duties of mortgagee are listed down who is in possession of the property. There are two essential doctrine under mortgage, that is, Doctrine of Priority (section 78[13] & 79[14]) and Doctrine of Marshalling (section 81[15]). Lastly, Section 100 to 101 of TPA deals with Charges of Immovable property.

Nature Of Mortgage Law:

  • It is always a transfer of interest in a specified immovable property. Ownership of the property is transferred. For instance, A (mortgagor) retains her rights to redeem mortgaged property.
     
  • It will only affect immovable property which includes house, land, machinery (which is permanently fixed), benefits that arise out of things attached to earth.
     
  • The aim of transfer should necessarily be to secure loan. Transfer for purposes other than this will not amount to mortgage. For instance, a property transferred to liquidate prior debt will not establish a mortgage.
     
  • The property should clearly be specified. There should not be any ambiguity.
     
  • Actual possession need not be transferred to mortgagee literally.
     
  • In case default arises in repayment, the mortgagee gets right to recover the debt by sale of mortgaged property.
     
  • On redemption of loan, the interest in the mortgaged property is re-conveyed to the mortgagor.
     
  • Verbal communication is valid and legal. Written documents are not always necessary.

Scope Of Mortgage Law:

  • This law creates grounds for mortgage to take place. Transfer of property is for securing the debt. In Basanti Lal vs Phaphi[16], it was held that if there is no consideration, the mortgage is void.
     
  • Where, however, if anyone borrows money and agrees with creditor that till debt is repaid, he/she will not alienate the property, transaction does not amount to a mortgage. Here the person merely says that he/she will not transfer his property till he has repaid the debt. He/she did not transfer any interest in the property to mortgagee.
     
  • The transaction amounts to mortgage or not depends upon the substance of mortgage deed. Mortgage law will only apply when value of borrowed money is always greater than the mortgaged property.
     
  • This law also ensures that monetary needs are fulfilled in exchange of immovable property. This connects man to property.
     
  • Interest rates on mortgages tend to be lower than any other form of borrowing because the loan is secured against specific property.
     
  • Lastly, interest created of mortgagor as well of mortgagee is transferable[17]. The property which is mortgaged once can be mortgaged again in favour of third-party again (sub-mortgage).

Types of Mortgage

TPA recognises six variants of Mortgage, namely:

Simple Mortgage:

Section 58(b)[18] defines Simple Mortgage. In this, mortgagor retains possession of the property, but he/she binds to directly pay the mortgage-money[19]. Mortgagor agrees (expressly/impliedly) to a condition that if he/she fails to pay mortgage-money to the mortgagee, mortgagee can sell the property[20]. In this case, mortgagee is simple-mortgagee and transaction is called simple-mortgage. Applicability: If X borrows money from Y and in return keeps his car as security of repayment. He also empowers Y with all the rights against the property in case default arises. Here, not only property is mortgaged but X is personally bound. This also gives Y the rights to act against X in the court of law and obtain a moNEY DECREE.

Mortgage By Conditional Sale:

Section 58(c)[21] deals with the said type. It is described as a condition in which mortgaged property is ostensibly[22] sold by mortgagor on a condition that if default of payment of mortgage-money arises on a specific date[23], then sale will become absolute. The sale, however will become void if, payment is made in accordance with said terms. This is a form of mortgage where an ostensible sale is made, but if the ostensible seller is unable to repay the loan, then sale is turned into an absolute sale.

There is no personal liability of mortgagor to pay, but liability is only of the property[24]. Applicability: If X mortgaged his house (by conditional sale) worth Rs. 20 lakhs as security to Y and raises Rs. 15 lakhs. The deed explicitly mentioned that if X did not redeem the house in two years, it shall be treated as sold to Y. Now, if X succeeds in paying Rs. 20 lakhs within two year, the sale of property by Y becomes void, but if not so, then Y has full right to sell the property. Intention of parties becomes a real test here. X's transaction was a sale transaction with condition to repurchase his house[25].

Usufructuary Mortgage:

Section 58(d)[26] contains Usufructuary Mortgage (Possessory Mortgage). As name suggest, it is delivery of possession of mortgaged property to mortgagee. This delivery whether expressly or impliedly, gives mortgagee the permission to keep the mortgaged property until payment of mortgage-money[27]. He also authorises the mortgagee to collect profits and rent from the mortgaged property in lieu of interest, partially or entirely, or as payment of the mortgaged-money, partially or entirely.

The transfer, thus is an Usufructuary Mortgage[28]. Essential feature is that the mortgagee is entitled to receive profits relating to mortgaged property until loan is repaid. The mortgager is not personally liable to repay the mortgage-money. So, the mortgagee cannot sue the mortgager for repayment. Applicability: Rohan borrows money from Rita and gives his apartment (as security) as assurance to repay. Here the possession is shifted to Rita till repayment is done.

Since, Rita is entitled to retain possession, she gives it on rent to X. X pays the lease (derivative) to Rita (as she is entitled to it) and not to Rohan. Even if Rohan himself lived there, he would pay lease to her. Since, Rita is entitled to enjoy usufruct of apartment, possession cannot be retained until Rohan repays. This enjoyment by Rita will depend upon the contract between them[29].

English Mortgage:

Section 58(e)[30] of TPA defines English Mortgage. Here, transaction between mortgagor and mortgagee is such that mortgagor approves to repay mortgage-money on specific date[31] and transfers the mortgaged property absolutely to mortgagee. Only condition is that mortgagee agrees to re-transfer the property to mortgagor[32] upon payment of the agreed mortgage-money.

In case non-repayment arises, mortgagee has the authority to sell mortgaged property without seeking permission of the Court in circumstances mentioned under Section 69[33] of TPA.

Applicability:
X borrows money from Y and binds himself that he would pay the money on a specified date. X transfers the property (as security) in name of Y at the time of taking money and gives him a condition that property shall be returned back to him once he completely pays the amount back to Y. here, as soon as X pays the full amount, he has the right to take back possession to property. In India, Y (mortgagee) cannot turn security into sale. Also, before the specified date, X has legal interest in land but after this date, X has legal right of redemption.

Mortgage By Deposit Of Title Deeds:

Section 58(f)[34] defines Mortgage by title deed. It is known as equitable mortgage under English Law[35]. When document of title to immovable property is delivered by debtor to creditor or his agent, with an intention[36] to create a security there on[37], the transaction, thus is mortgage by deposit of title deeds. Such a mortgage is territorially restricted to Mumbai, Kolkata and Chennai. Other towns notified by Government of State for this purpose in Official Gazette can also be restricted.

This type of mortgage requires no registration. Applicability: X, a citizen of Patna, deposits (oral transaction; needs not be a written one[38]) title deeds of his land to ABC Bank and takes a loan. This was done with an intention to keep the land as security for repayment of loan taken. Here, X by depositing the title deeds transfers the interest to ABC Bank. Since, all the essentials are present, this will amount to mortgage by title deed.

Anomalous Mortgage:

According to Section 58(g)[39], an Anomalous mortgage is one which does not fall under any of the above five mortgages. Such a mortgage can be affected by terms and conditions of mortgager and mortgagee. Generally, it ascends from combining two or more of the above-mentioned mortgages[40]. It may take various forms depending upon custom, usage or contract. Applicability: If X takes money from Y and in return gives possession to his house (as security).

This possession if delivered with additional liability on X to pay interest on the borrowed money, then this will amount to Anomalous mortgage. This mortgage between X and Y necessarily needs to be in written & attested in order to be legally valid.

Conclusion
For parties concerned (mortgagor and mortgagee), a mortgage-deed creates slew of rights and obligations. The TPA established and contained these rights and liabilities. The idea of mortgage is one of the most relevant principles for it helps secure loan owed to the mortgagor and still allowing mortgagor to reclaim property after the amount owed is paid back to mortgagee.

In above mentioned types of mortgage, the possession of mortgage property is clearly listed making obvious who will have its possession and that too up to which extent, except in two cases, which are mortgage by conditional sale and anomalous mortgage.

Even though amendments were made in the Amendment Act of 1929, no recent changes have been made in liabilities and rights of mortgagor. This has led to numerous fraudulent transactions lately. As a result, it is essential that rules be amended and made stricter so that none continues to engage in fraudulent transactions.

End-Notes:
  1. European Central Bank, https://www.ecb.europa.eu/press/key/date/2005/html/sp051123.en.html (last visited May 21, 2021
  2. Transfer of Property Act, 1882, Section 58.
  3. Jati Kar vs Mukunda Deb, (1912) ILR 39 Cal 227.
  4. Pappamma vs Ramch, (1896) 19 Mad 249.
  5. Noakes & Co. vs Rice (1902) AC 24.
  6. Transfer of Property Act, 1882, Section 65
  7. Transfer of Property Act, 1882, Section 66.
  8. Transfer of Property Act, 1882, Section 67.
  9. Transfer of Property Act, 1882, Section 77.
  10. Transfer of Property Act, 1882, Section 68.
  11. Transfer of Property Act, 1882, Section 69.
  12. Transfer of Property Act, 1882, Section 76.
  13. Transfer of Property Act, 1882, Section 78.
  14. Transfer of Property Act, 1882, Section 79.
  15. Transfer of Property Act, 1882, Section 81.
  16. Basanti Lal vs Phaphi, AIR 2008 Raj 72.
  17. Maung Thanag vs MM Chettiar Firm, AIR 1936 Rang 366.
  18. Transfer of Property Act, 1882, Section 58(b).
  19. Prakash vs Mukhtar, AIR 1940 Lah 486.
  20. Dalip Singh vs Bahadur Ram, (1912) 34 All 446.
  21. Transfer of Property Act, 1882, Section 58(c).
  22. Mumtaz vs Mt Luchmi, AIR 1931 All 196.
  23. Specific date means on or before the said date.; Kinuram vs Nitve Chand, (1907) 11 Cal WN 400.
  24. Gobardhan vs Gokul Das, (1880) ILR 2 All 633.
  25. Rajamma vs B. Renuka, 2016 (3) AKR 291.
  26. Transfer of Property Act, 1882, Section 58(d).
  27. Harnath Singh vs Maiya Ambika Devi, AIR 1941 Pat 307.
  28. Hastimal vs P Tej Raj Sharma, AIR 2007 SC 3246.
  29. Indua vs Manimala, AIR 1955 Pat 505.
  30. Transfer of Property Act, 1882, Section 58(e).
  31. Raja Janki Nath vs Syed Asad Raza, AIR 1936 Pat 211.
  32. Ram Kinkar vs Satyacharan, AIR 1939 PC 14.
  33. Transfer of Property Act, 1882, Section 69.
  34. Transfer of Property Act, 1882, Section 58(f).
  35. In India it doesn't differentiate between equitable and legal estate.; Rani Chhatra vs Mohan Bikram, AIR 1931 PC 196.
  36. Kevaldas vs Chhotubhai, AIR 1955 Bom 454.
  37. Amulya Gopal vs United Industrial Bank Ltd., AIR 1981 Cal 404.
  38. Sham Lal vs Punjab National Bank, AIR 1961 Punj 81.
  39. Transfer of Property Act, 1882, Section 58(g).
  40. Motiram vs Vitai, (1889) ILR 13 Bom 90.

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