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. Transfer of Property Act deals with Mortgage in India.
INTRODUCTION TO MORTGAGE OF IMMOVABLE PROPERTY
Mortgage is French term which means ‘death contract’. The term death contract means that the pledge (promise, bailment, and guarantee) ends only when the loan is repaid, the obligation is fulfilled or when the borrower takes over and/or sells the collateral, the mortgaged property by way of foreclosure.
According to the Bouvier’s Law Dictionary (8th) Edition, “Mortgage” is a conditional conveyance of land designed as a security for the payment of money, the fulfilment of some contract, or the performance of some act, and to be void upon such payment, fulfilment or performance. Mortgage works as a security of the loan amount. It is way to secure profit for the bank and/ financial institutions and it is the way of getting loans for the common people, builder and/or company, firm etc.
The Black’s Law Dictionary (7th) Edition defines the term “mortgage” through the following definitions as: A conveyance of title to property that is given as security for the payment of a debt or the performance of a duty and that will become void upon performance according to the stipulated terms.
· A lien against property that is granted to secure an obligation (such as debt) and that is extinguished upon payment or performance according to stipulated terms.
· An instrument (such as a deed or contract) specifying the terms of such a transaction.
· Loosely the loan on which such a transaction is based.
· The mortgagee’s right conferred by such a transaction.
· Loosely any real- property security transaction, including a deed of trust.”
MORTGAGE OF PROPERTY IN INDIA
The Transfer of Property Act, 1882 was modelled on the English Law of mortgage. The latter has been changed by the Law of Property Act, 1925. As a result the mortgage in England has become a demise (lease) and the condition one of defeasance: A cesser of the term comes in with the discharge of the mortgage – money. It has been rightly observed in the case of Gopal v Parsotam (1883), that mortgage as understood in this country cannot be defined better than by the definition adopted by the legislature in Section 58 of the Transfer of Property Act, 1882.
In case of Kottayya v Annapumamma (1945), a debtor who was not able to repay the amount of the debt granted to the creditor a right to occupy and enjoy certain land for a period of 20 years. It was held that the transaction was not a mortgage but a lease. In the case of South African Territories Ltd v Wallington (1898), Lord Macnaghten said, “That specific performance of a contract to lend money cannot be enforced is so well established and obviously so wholesome a rule, that it would be idle to say a word about it”.
S.58of the Transfer of the Property Act, 1882 defines “Mortgage” as follows:
“Mortgage”, “mortgagor”, “mortgagee”, “mortgage-money” and “mortgage-deed” defined.—
(a) 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. The transferor is called a mortgagor, the transferee a mortgagee; the principal money and interest of which payment is secured for the time being are called the mortgage-money, and the instrument (if any) by which the transfer is effected is called a mortgage-deed.
In the case of Dattatreya Shanker Mote v Anand Chintaman Datar (1974), the court observed that a charge is wider than a mortgage and as such a mortgage is included in it also. Hence, every mortgage is a charge, but every charge is not a mortgage.
(b) Simple mortgage.—Where, without delivering possession of the mortgaged property, the mortgagor binds himself personally to pay the mortgage-money, and agrees, expressly or impliedly, that, in the event of his failing to pay according to his contract, the mortgagee shall have a right to cause the mortgaged property to be sold and the proceeds of sale to be applied, so far as may be necessary, in payment of the mortgage-money, the transaction is called a simple mortgage and the mortgagee a simple mortgagee.
It could be summarised as in a simple mortgage, the mortgager does not deliver the possession of the mortgaged property. He finds himself personally to pay the mortgage money and agrees either expressly or impliedly, that in case of his failure to repay, the mortgagee shall have the right to cause the mortgaged property to be sold and apply the sale proceeds in payment of mortgage money. The essential feature of the simple mortgage is that the mortgagee has no power to sell the property without the intervention of the court. The mortgagee can:
· Apply to the court for permission to sell the mortgaged property, or
· File a suit for recovery of the whole amount without selling the property
(c) Mortgage by conditional sale.—Where, the mortgagor ostensibly sells the mortgaged property— on condition that on default of payment of the mortgage-money on a certain date the sale shall become absolute, or on condition that on such payment being made the sale shall become void, or on condition that on such payment being made the buyer shall transfer the property to the seller, the transaction is called mortgage by conditional sale and the mortgagee a mortgagee by conditional sale: 1[Provided that no such transaction shall be deemed to be a mortgage, unless the condition is embodied in the document which effects or purports to effect the sale.]
It could be summarised as the mortgage in which the mortgager ostensibly sells the property to the mortgagee on the following conditions:
· The sale shall become void on payment of the mortgage money.
· The mortgagee will retransfer the property on payment of the mortgage money.
· The sale shall become absolute if the mortgager fails to repay the amount on ascertain date.
· The mortgagee has no right of sale but he can sue for foreclosure.
In the case of Natesa Pathar v Pakkirisamy Pathar (1997), the condition of sale and resale was engrafted in the same document. The purchaser was specifically prohibited from encumbering the property within the period of five years stipulated for repurchase. There was a substantial difference between the actual value of the property and consideration as stipulated in the deed. The transaction was held to be a mortgage by conditional sale. In another case of Chunchun Jha v Ibadat Al (1954), the Supreme Court held that if the sale and repurchase is embodied in separate documents then the transaction cannot be a mortgage whether the documents are contemporaneously executed or not.
(d) Usufructuary mortgage.—Where the mortgagor delivers possession 1[or expressly or by implication binds himself to deliver possession] of the mortgaged property to the mortgagee, and authorises him to retain such possession until payment of the mortgage-money, and to receive the rents and profits accruing from the property 2[or any part of such rents and profits and to appropriate the same] in lieu of interest, or in payment of the mortgage-money, or partly in lieu of interest 3[or] partly in payment of the mortgage-money, the transaction is called an usufructuary mortgage and the mortgagee an Usufructuary mortgagee.
In the case of Ferozshah v Sobhat Khan (1933), it was observed by the court that it is not necessary that the mortgagee should take physical possession, for the mortgagor may continue in possession as lessee of the mortgagee; but unless there is a clause providing for the mortgagee going in possession, there cannot, of course, be a usufructuary mortgage.
(e) English mortgage.—where the mortgagor binds himself to repay the mortgage-money on a certain date, and transfers the mortgaged property absolutely to the mortgagee, but subject to a proviso that he will re-transfer it to the mortgagor upon payment of the mortgage-money as agreed, the transaction is called an English mortgage.
In the case of Ramkinkar v Satya Charan (1939), the Privy Council held that Sec 58 (e) cannot be construed as declaring an English mortgage to be an absolute transfer of the property, but as merely declaring that such a mortgage would be absolute, were it for the proviso for retransfer. In the case of Narayana v Venkataramana (1902), the court had stated three essential ingredients for English mortgage which could be stated as follows:
· First, the mortgagor has to bind himself to repay the mortgage money on a certain day.
· Secondly, the property mortgaged is transferred “absolutely” to the mortgagee.
· Thirdly, this transfer is subject to a proviso that the mortgagee will recover the property to the mortgagor upon payment of the mortgage – money on the date fixed for repayment.
(g) Anomalous mortgage.—a mortgage which is not a simple mortgage, a mortgage by conditional sale, a usufructuary mortgage, an English mortgage or a mortgage by deposit of title-deeds within the meaning of this section is called an anomalous mortgage.] In the case of Madho Rao v Gulam Mohiuddin (1919), the Privy Council held that an anomalous mortgage is, one which does not fall within any of the other five classes enumerated. While considering an anomalous mortgage, the intention of the parties must be gathered from the terms of the instrument as controlled by the provisions of the Act.
(h) Mortgage by Deposit of Title deeds- Sec. 58(f) of the Act states that Where a person in any of the following towns, namely, the towns of Calcutta, Madras and Bombay, and in any other town which the State Government concerned may, by notification in the Official Gazette, specify in this behalf, delivers to a creditor or his agent documents of title to immovable property, with intent to create a security thereon, the transaction is called a mortgage by deposit of title – deeds. This is called in English law an equitable mortgage.
The court in the case of Webb v Macpherson (1904), held that the term “equitable mortgage”is not appropriate in India, for the law of India knows nothing of the distinction between legal and equitable estates.
In case of K.J. Nathan v S.V. Maruthi Rao (1965), the Supreme Court observed that, what constitutes the transaction is delivery with the intention of creating a security. Hence in a case where physical delivery takes place outside the notified town, but the intention to create a mortgage is formed after the deeds are in one of the notified towns, the Supreme Court applied the section. The requisites of a mortgage by deposit of title deeds are:
· a debt;
· a deposit of title – deeds in notified town; and
· An intention that the deeds shall be security for the debt.
In accordance with the provisions of Section 96 of the Transfer of Property Act, 1882, mortgage by deposit of title deeds, though without writing or by any deed, is equivalent to a simple mortgage.
ESSENTIALS OF MORTGAGE OF PROPERTY:
The valid essentials of a mortgage include as follows:
Transfer of Interest- The first thing to note is that a mortgage is a transfer of interest in the specific immovable property. The mortgagor as an owner of the property possesses all the interests in it, and when he mortgages the property to secure a loan, he only parts with a part of the interest in that property in favour of the mortgagee. After mortgage, the interest of the mortgagor is reduced by the interest which has been transferred to the mortgagee. His ownership has become less for the time being by the interest which he has parted with in favour of the mortgagee. If the mortgagor transfers this property, the transferee gets it subject to the right of the mortgagee to recover from it what is due to him i.e., the principal plus interest.
Specific Immovable Property- The second point is that the property must be specifically mentioned in the mortgage deed. Where, for instance, the mortgagor stated “all of my property” in the mortgage deed, it was held by the court that this was not a mortgage. The reason why the immovable property must be distinctly and specifically mentioned in the mortgage deed is that, in case the mortgagor fails to repay the loan the court is in a position to grant a decree for the sale of any particular property on a suit by the mortgagee.
The words “specific immovable property” make it necessary to specify the immovable property in order to create a mortgage. The description must at least be sufficient to identify the property. It has been held in the case of Indian Insurance & Banking Corpn v Paramasiva Mudaliar (1957), that machinery in a mortgaged building does not form part of the security, unless it is attached to the building for the permanent beneficial enjoyment thereof.
To secure the payment of a loan- Another characteristic of a mortgage is that the transaction is for the purpose of securing the payment of a loan or the performance of an obligation which may give rise to pecuniary liability. It may be for the purpose of obtaining a loan, or if a loan has already been granted to secure the repayment of such loan. There is thus a debt and the relationship between the mortgagor and the mortgagee is that of debtor and creditor. When A borrows 100 bags of paddy from B on a mortgage and agrees to return an equal quantity of paddy and a further quantity by way of interest, it is a mortgage transaction for the performance of an obligation.
S.59 of the Transfer of the Property Act, 1882
Section 59 of the Transfer of Property Act, 1882 provides as, where the principal money secured is one hundred rupees or upwards, a mortgage other than a mortgage by deposit of title deeds can be effected only by a registered instrument signed by the mortgagor and attested by at least two witnesses. Where the principal money secured is less than one hundred rupees, a mortgage may be effected either by a registered instrument signed and attested as aforesaid or (except in the case of a simple mortgage) by delivery of the property”.
The words “other than a mortgage by deposit of title deeds” were inserted by the Amending Act 20 of 1929. In either case, a simple mortgage can only be effected by a registered instrument. Mortgage by deposit of title deeds has been specifically excluded from the purview of this section and no registered instrument is necessary to effect such a mortgage. The words “principal money secured” in the section show that interest is not to be taken into account in estimating the amount secured. A mortgage does not become complete and enforceable until it is registered.
Textbook on The Transfer of Property Act, Dr. Avtar Singh, Universal Law Publishing Co. Pvt. Ltd., 2006
The Transfer of Property Act, Dr. Hari Singh Gour, Delhi Law House, 2004
Principles of the Law of Transfer, S. M. Shah, N. M. Tripathi Pvt. Ltd., 1969
The Transfer of Property Act, 1882, Prof. G. P. Tripathi, Central Law Publications, 2005