Introduction:

Mortgage under the Transfer of Property Act, 1882 refers to the legal process of creating a security interest over a property by way of a mortgage. The Transfer of property Act, 1882 governs the transfer of property in India, and it defines a mortgage as the transfer of an interest in the property for the purpose of securing a debt or an obligation.

When a person takes out a mortgage loan to buy a property, the lender typically requires the borrower to create a mortgage over the property in the favour of the lender. The mortgage serves as a security for the loan and gives the lender the right to take possession of the property if the borrower defaults on the loan.

Under the Transfer of Property Act, 1882, a mortgage can be created by way of registered mortgage deed, which sets out the terms and conditions of the mortgage, including the amount of loan, the rate of interest, and the repayment terms. The mortgage deed must be executed by both the borrower and the lender and must be registered with the relevant authority.

Meaning: A mortgage is a form of collateral given by the borrower (mortgagor) for the repayment of loan to the lender (mortgagee). The principle behind the concept of mortgage is to secure the debt or some other obligation. It involves transfer of limited interest in the property.

The High Court of Allahabad in the case of Ratan Pal Singh vs Kunwar Pal Singh held that a mere undertaking to create a mortgage is not sufficient to create an interest in any immovable property and without transfer of interest there is no mortgage.

Definition:

The definition for ‘Mortgage’ is given under Section 58(a) of The Transfer of Property Act, 1882 which is as follows:

“A mortgage is the transfer of an interest in specific immoveable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability.”

Features of Mortgage:

1. Parties involved: A mortgage involves two parties – the mortgagor, who is the borrower, and the mortgagee, who is the lender.
2. Creation of Mortgage: A mortgage can be created by a registered instrument or by deposit of title deeds with the mortgage.
3. Rights and Liabilities of the mortgagor: The mortgagor has the right to redeem the mortgaged property on repayment of loan. In case of default, the mortgagee can take possession on the property and sell it to recover the outstanding loan.
4. Transfer of Mortgage: A mortgage can be transferred by the mortgagee to another person, with or without the consent of the mortgagor.
5. Discharge of Mortgage: A Mortgage can be discharged by the mortgagee on the receipt of the full amount of the loan.
6. Priority of Mortgages: In case of multiple mortgages on the same property, the mortgagee who has the first mortgage has the priority over the subsequent mortgages.
7. Limitation period: There is a limitation period of 12 years within which a mortgagee must take action to recover the outstanding loan.

Essential elements of Mortgage:

The essential elements of mortgage are:

(a) Transfer of an Interest.

Mortgage debt is only a transfer of interest in an immovable property and not an actionable claim. It differs from a sale because in a sale there is a complete transfer of the interest in the property whereas in a mortgage it is just a transfer of a limited interest in the property and not the entire ownership.

(b) Specific Immovable Property.

The interest credited by mortgage must be in some specific immovable property which may include land, benefits arise out of things attached to earth such as trees, machinery, and buildings. But again, Life insurance cannot be the subject matter of mortgage because it is not considered as a property.

(c) Consideration:

The Consideration can be in form of money advanced or to be advanced in form of loan, or it may also include existing or future debt or performance of engagement giving rise to pecuniary liability.

In the case of State of Kerala vs. Cochin Chemical Refineries3 it was held that just because the mortgagee could not advance money on the date of execution of deed, the transaction of mortgage does not become ineffective.

Important Terms and Definitions:

• The person who transfers the interest in an immovable property is called a mortgagor.
• The person to whom it is transferred is the Mortgagee.
• The principal money along with the Interest which is secured for the time being is called Mortgage Money.
• The instrument if any which is used to give effect to the transfer in mortgage is a Mortgage Deed.

Kinds of Mortgages:

Simple Mortgage:

It is defined under Section 58(b) of Transfer of Property Act, 1882. In this kind of Mortgage, the mortgagor agrees to pay the mortgage money and does not transfer the immovable property to the mortgagee. The mortgagee agrees on a condition that he has every right to sell the property and can use the proceeds from the sale and such transaction in the event of not paying the mortgage money.

3 1968 AIR 1361.

CHARACTERISTICS:

• There must be a transfer of specific immovable property.
• Mortgagor retains the possession of the property.
• Title is not given to mortgagee.
• Mortgagee has the right to sale on execution of a decree against the mortgagor.
• The mortgagee has no right of foreclosure.

In the case of Ram Narayan Singh vs. Adhindra Nath, the court held that just because an immovable property is being mentioned as security for its repayment does not mean it displaces the personal liability of mortgagor to repay the loan with interest.

Mortgage by Conditional Sale:

It is defined under Section 58(c) of Transfer of Property Act, 1882. In this kind of mortgage, the purchaser shall retransfer the property to the seller upon the repayment of the consideration amount.

CHARACTERISTICS:

• Ostensible sale of immovable property by the mortgagor.
• Conditional sale.
• No right to sale given to mortgagee.
• Mortgagee has the right to foreclose the property.

In the case of Rama vs. Sawmiyappa, the Hon’ble Court held that the essential of this kind of mortgage is that when there is a default of payment in the transaction, then the transaction is closed and the mortgaged property becomes the absolute property of mortgagee. There lies no personal liability on the mortgagor to repay the debt and the right to redemption of the mortgagor will be lost by a decree for foreclosure.

Usufructuary mortgage:

It is defined under Section 58(d) of Transfer of Property Act, 1882. It is a kind of mortgage where the possession of the property if being given to the mortgagee by the mortgagor. Since the possession of property is with the mortgagor, he enjoys the fruits of the property i.e., rents or profit from the mortgage property, produce, benefits, etc.

CHARACTERISTICS:

• No title given to mortgagee.
• Mortgagor has given the possession to the mortgagee; hence mortgagee enjoys the right to usufruct.
• No personal security, right to sale or foreclosure to the mortgagee being given by mortgagor.

In the case of Hikmatulla vs. Imam Ali , the Hon’ble Court held that generally in mortgage, the mortgagee is entitled to retain possession until the due money is paid. In usufructuary mortgage, the period for the payment of money is uncertain and if any time period is being fixed, then it is not considered to be a usufructuary mortgage.

English Mortgage:

It is defined under Section 58(e) of Transfer of Property Act, 1882. In this kind of mortgage, there is an absolute transfer of property to the mortgagee upon a condition that the mortgagee would re-transfer the property to the mortgagor. Here the ownership of property is transferred with a promise to pay the due money on a certain date.

CHARACTERISTICS:

• The mortgagor repays the money debt on a certain date.
• The mortgage property is being absolutely transferred to the mortgagee.
• Right to foreclosure is given to the mortgagee.

In the case of Narayana v Venkataramana, the court has opined that the English Mortgage has three essential ingredients, Firstly, the mortgagor bind himself to repay the mortgage money on a certain day. Secondly, the mortgaged property is absolutely transferred to the mortgagee. Thirdly, the mortgagor will re-transfer the property to the mortgagee upon the payment of mortgage money.

Mortgage by deposit of Title-deeds:

It is defined under Section 58(f) of Transfer of Property Act, 1882. In this kind of mortgage where a person is in Calcutta, Madras, Bombay and in any other towns as specified by the state government and the mortgagor delivers the documents of title of immovable property to a creditor or his agent with an intent to create security and then such a transaction is called Deposits of title-deeds.

CHARACTERISTICS:

• Existence of a debt which may be an existing one or future debt.
• Intention that deed is security for debt.
• Deposit of title deed.

Anomalous Mortgage:

It is defined under Section 58(f) of Transfer of Property Act, 1882. A mortgage which does not fit in any of the above mortgages is called an Anomalous mortgage.

Customary Practices in Mortgages:

In the case of N.K. Rajaraja Varman Thirumalpad ... vs K.K. Krishnan Nair And Ors, the hon’ble court has defined certain customary practices in mortgages:

1. Chuntippanayam is a kind of simple mortgage without possession. In this kind of mortgage, the land is here pledged as security for the repayment, with interest, and for certain sums advanced, but the lender has no right to interfere in the management of the property.
2. Totupanayam is a kind of mortgage where the mortgagor agrees to put the mortgagee in possession of the property mortgaged in case of default of payment of interest as per the stipulation in the deed. Where stipulation exists, the lender can sustain an action for possession. In other cases, he must sue for the recovery of principal and interest of the loss, the land being liable in the event of the money not being paid.
3. Nilamuri or Kutiyirumpad is a kind of simple mortgage without possession. Here, the creditor under an arrangement with the mortgagor agrees to receive the rent produce of the land leased by the mortgagor to a tenant, in lieu of interest. If the tenant fail to deliver the rent produce to the creditor, he can sustain an action only against his debtor, the landlord.
4. Karippanayam, Koluvirukkampanayam or Kaivasampanayam is a usufructuary mortgage, the mortgage enjoying the usufruct or part thereof, of the property in lieu of interest and accounting for the remainder to the mortgagor.
5. Untarutippanayam is a kind of mortgage which redeems itself within a fixed period, and the principal debt being liquidated by the surplus usufruct after payment of interest only.
6. Otti is a sort of mortgage with possession in which the mortgagee enjoys the entire produce of the land, the landlord merely retaining the proprietary title and the power to redeem after the lapse of 12 years. It carries with it a right of pre-emption in favour of the mortgagee. In Travancore, an otti does not differ from a usufructuary mortgage.
7. Perumartham, a kind of mortgage in which the mortgagor receives the then full market value of the property, retaining the empty title of jenmi, and, at the time of redemption, he repays not the amount originally advanced to him but the actual market value at the time of redemption.

Redemption of Mortgage:

The right of redemption is described under Section 60 of the Transfer of Property Act, 1882. The word ‘Redemption refers to get back or to make free the mortgaged property by paying the mortgage debt money. Redemption is also a sort of right by which the mortgaged property is kept secured and returned upon the payment of dues. Three important provisions made under Section 60 of Transfer of Property Act, 1882 are:

• Clog on Redemption.
• Right to Redemption.
• Once a Mortgage, always a Mortgage.

Right of Redemption:

Section 60 of the Transfer of Property Act, 1882 describes about the right of the mortgagor to redeem at any point of time once the due payment is made. The mortgagor, on the payment of dues, at proper place and time, of the mortgage -debt, to make the mortgage holder:

• The mortgagee is required to deliver the mortgage deed, all documents concerning the mortgaged property, and possession of the property to the mortgagor.
• If the mortgagee has the mortgaged property, they must also deliver possession of the property to the mortgagor.
• The mortgagee is also required to execute and register an acknowledgment in writing that any right in derogation of the mortgagor's interest has been extinguished, provided that the correct documents have not been destroyed by the act of the parties or by decree of a court.

The right mentioned under this Section is called Right to Redemption and the Suit to enforce the Redemption is called Suit for Redemption.

Essential Elements of Right of Redemption:

1. Legal Validity of Mortgage.

The first and most essential element for the applicability of right of redemption is the legal validity of the mortgage. In the case of Vishnu Kaya vs. Vishnu Maya, it was held by the Hon’ble High Court that when registration of mortgage is necessary, then a mortgage without registration will be considered to be illegal and thus the mortgage does not become entitled to get compensation on the basis of mortgage.

2. Redemption before time period.

The next essential element is the duration of time mentioned in the mortgage deed to be followed. In order to redeem the mortgage before the time mentioned in the deed and to change the time duration in the deed, then it is possible either by a decree from the court or with the consent of both parties. In the case of Bakhatawar Begum vs. Hussaini Khanam , the court upheld that the redemption of mortgage is possible before the time mentioned in the deed through the court decree and the same was agreed in Pranil Kumar vs. Kishori Lal12, the also further held that if the contract does not state anything contrary towards the point, then the property could be redeemed before the time period.

3. Payment of Due Money.

The third essential condition is that the payment of due money can be made either to the mortgagee himself or to his agent.

4. Filing of the Suit.

The fourth essential condition is that the right of redemption cannot be made without filing a suit, and the suit of redemption can be filed by either mortgagor or by any transferee.

Clog on Redemption.

If a person has obtained a loan by placing his property as security, then the person who has advanced the loan does not exploit the situation. The courts seek the protection to the victims from the exploitation by adverse circumstances. This philosophy introduces the concept of ‘clog.’

Any clause which is introduced to prevent the redemption instead of payment or performance of debt for which the property was given as security is meant to be a clog and therefore it is void. It prevents the mortgagor to take back his property and opposes the idea of “Once a mortgage always a mortgage” which means if any property is given as security for mortgage money, then after the payment of due mortgage money, the property can be taken back.

Kinds of Clog in mortgage deed:

1. Long-term Redeem.

When there is a clause in a contract which says that a mortgagor can take back the mortgage after a long period of time be it 90 or 100 years. This would restrict the mortgagor to take back the property, and thus act as a clog. If the courts find any malicious intention behind this clause, then the court would declare it as a clog and declare it void.

2. Condition of the sale in the default.

If there is a clause or condition in the contract which says that, in the state of condition where the mortgagor is not able to make the due mortgage payment within certain time, then he wont able to redeem the property and right of redemption becomes futile. The court found it to be disadvantageous towards the weaker party and called it to be a clog. In the case of Meherban Khan vs. Makhna , the mortgage agreement specified that the mortgagee would have the right to enjoy the property for 19 years. There was a condition that if the mortgagee paid off his debts, he’d would be allowed to redeem until a limited interest and the mortgage’s residual interest belonged to it. Further, it says that if the mortgagor fails to pay, also the mortgaged property would be vended to mortgagee permanently. And court declared this condition to be clog.

3. Restriction on Alienation.

This is an indirect way to circumscribe someone from taking his property back. It would circumscribe the mortgagee to transfer the possession of the property. The court observed this clause as clog on right of redemption as it circumscribes the transfer of possession of the property.

4. The Penalty in case of default.

Payment of a penalty where there is a default on behalf of the mortgage may be reasonable but it may be unreasonable and punishable in certain situations.

Once a Mortgage Always a Mortgage.

The above-mentioned phrase means that once a mortgage deed would always remain a mortgage deed and it cannot be changed. Revision or changes can be made in the mortgage deed, but it should not affect the right to redemption. In the case of Knocks vs. Roulds , it was held that the right of redemption cant be filled with any action which makes the mortgage nonredeemable and if any changes is made which makes it non-redeemable, then it will be invalid or void. And, in the event of any condition which is forced by any part, then it would be void to that extent.

A condition that in the case of non-payment of any instalment of the mortgage due, the mortgagee will then hold the mortgaged property as lease, and as per the mortgage deed, the following will be ineffective.

Doctrine of Priority:

The doctrine of priority is an important legal principle under the Section 48 of the Transfer of Property Act, 1882, that determines the order in which competing interests in a property are enforced.

When multiple parties have an interest in a property, such as a mortgage lender and the subsequent purchaser, the doctrine of priority determines which party has the superior claim to the property. The general rule is that the first in time is the first right, meaning that the party with the earlier interest has the priority over the party with the later interest.

Postponement of Prior Mortgagee:

Section 78 of the Transfer of property Act, 1882 provides for the postponement of the rights of prior mortgagee in the favour of a subsequent mortgagee. This section applies when a property that is subject to prior mortgage is subsequently mortgaged to a second mortgagee.

According to Section 78 of the Act, if a subsequent mortgage is executed with the knowledge that there is a prior mortgage on the property, the subsequent mortgagee can require the prior mortgagee to agree to postpone their right to payment until the subsequent mortgage is satisfied. This is known as the postponement of the prior mortgagee.

The subsequent mortgagee must serve a notice in writing on the prior mortgagee, informing them of the subsequent mortgage and requesting their agreement to postpone their right to payment. If the prior mortgagee agrees to postpone their right to payment, they will become a subsequent mortgagee in relation to the subsequent mortgage.

Conclusion

In conclusion, a mortgage is a legal mechanism that allows individuals to secure financing for the property purchases by creating a security interest over the property. The doctrine of priority is an important legal principle that determines the order in which the competing interests in a property are enforced. However, there are exceptions to the general rule of priority, such as the postponement of the prior mortgagee under section 78 of the Transfer of Property Act, of 1882.

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Cases Referred:

1. Ratan Pal Singh vs Kunwar Pal Singh, Second Appeal No. 1662 of 1998.
2. State of Kerala vs. Cochin Chemical Refineries 1968 AIR 1361.
3. Ram Narayan Singh vs. Adhindra Nath AIR (1916) PC 119.
4. Rama vs. Sawmiyappa ILR (1881) 4 Mad 183.
5. Hikmatulla vs. Imam Ali (1890) 12 All 203.
6. Narayana v Venkataramana ILR (1902) 25 Madras 220.
7. N.K. Rajaraja Varman Thirumalpad ... vs K.K. Krishnan Nair and Ors (1956) 2 MLJ 46.
8. Vishnu Kaya vs. Vishnu Maya AIR 1980 Sikkim 1.
9. Bakhatawar Begum vs. Hussaini Khanam (1914) 16 BOMLR 344.
10. Pranil Kumar vs. Kishori Lal AIR 2003 Cal 1.
11. U. Nilan v Kannayyan (1999) 8 SCC SC 621.
12. Vadilal Chhaganlal v. Gokaldas Mansuk (1953) 55 AIR BOMRL 773.
13. Meherban Khan vs. Makhna (1930) AIR PC 132.
14. Knocks vs. Roulds (1902) 24 SC.

Bibliography:

• GCV Subba Rao- Transfer of Property.
• https://lawcorner.in/right-of-redemption (visited on 13/03/2023 at 18:30 pm.)
  
• https://www.lawyersclubindia.com/articles (visited on 10/03/2023 at 16:45 pm.)