A usufructuary mortgage is a contract where the borrower transfers possession and usage rights of a property to the lender while retaining ownership. The lender, known as the mortgagee, is granted the right to enjoy the income or produce generated by the property during the mortgage period.
In India, a usufructuary mortgage is a specific type of mortgage that is governed by the Transfer of Property Act, 1882. It allows the borrower to transfer possession and usage rights of the mortgaged property to the lender while retaining ownership.
Meaning of Usufructuary Mortgage
Under a usufructuary mortgage in India, the borrower, known as the mortgagor, transfers the property to the lender, known as the mortgagee and the mortgagee receives the right to possess and enjoy the income or produce from the property. The mortgagee can utilise the property for their own benefit or collect rent, lease it out or use it for any other productive purposes to recover the mortgage debt.
During the mortgage period, the mortgagee retains possession of the property and can enjoy the benefits derived from it. However, unlike other types of mortgages, the mortgagee is not entitled to sell the property to recover the debt. Once the mortgage is fully repaid, the mortgagor regains possession and full ownership of the property.
Usufructuary mortgages in India are typically used in cases where the borrower needs funds and is willing to provide the lender with the income or produce from the property as security. This type of mortgage allows the borrower to retain ownership while providing the lender with an income stream to recover the loan amount.
|Definition||A mortgage arrangement where the mortgagor transfers possession and usage rights to the mortgagee while retaining ownership.|
|Possession||Mortgagor delivers possession or undertakes to deliver possession of the property to the mortgagee.|
|Retention of Possession||Mortgagee retains possession until the mortgage money is paid or appropriated from property’s rents and profits.|
|Personal Liability||Mortgagor has no personal liability to repay the mortgage money.|
|Foreclosure/Sale||Mortgagee cannot foreclose the mortgage or sue for sale of the property.|
|Right of Redemption||Mortgagor has the right to redeem the property by paying the amount due or discharging the debt with rents and profits received by the mortgagee.|
|Time Limit||No specific time limit is set for repayment.|
|Registration Requirement||If the mortgage amount is Rs. 100 or more, registration is required. For amounts less than Rs. 100, it can be a registered deed or delivery of property.|
|Common Usage||Predominantly used in rural areas of India for borrowing and lending.|
Definition of Usufructuary Mortgage
Section 58 (d) of the Transfer of Property Act defines Usufructuary Mortgage as,
“Where the mortgagor delivers possession 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 or any part of such rents and profits and to appropriate the same, instead of interest or in payment of the mortgage money or partly instead of interest or partly in payment of the mortgage money, the transaction is called a usufructuary mortgage and the mortgagee a usufructuary mortgagee.”
Essential Elements of Usufructuary Mortgage
According to Section 58 (d) of the Transfer of Property Act, a usufructuary mortgage is defined as follows:
Delivery of Possession: The mortgagor must deliver possession of the mortgaged property to the mortgagee or undertake to do so explicitly or implicitly.
Retention of Possession: The mortgagee retains possession until the mortgage money is paid or appropriated from the rents and profits of the property mentioned in the mortgage deed.
No Personal Liability: The mortgagor has no personal liability to repay the mortgage money.
No Foreclosure or Sale: The mortgagee cannot foreclose the mortgage or sue for the sale of the mortgaged property.
Right of Redemption: The mortgagor has the right to redeem the property by paying the amount due or by discharging the debt with the rents and profits received by the mortgagee, as per Section 62 of the Transfer of Property Act.
No Fixed Time Limit: There is no specific time limit set for repayment.
Registration Requirement: If the mortgage amount is Rs. 100 or more, the usufructuary mortgage must be registered. If it is less than Rs. 100, it can be executed through a registered deed or by the delivery of the property.
Landmark Judgements on Usufructuary Mortgage
In the case of Prabhakaran v. M Azhagiri Pillai, the Supreme Court initially held that the mortgagor must file a suit for redemption within 30 years from the date of the mortgage deed. However, this decision was later corrected by the Full Bench of Punjab and Haryana High Court, stating that there is no limitation period for a usufructuary mortgage.
The Supreme Court upheld this correction in the case of Singh Ram (D) Tr. Lr v. Sheo Ram & Ors, affirming that the limitation starts once the special right of the usufructuary mortgagor under Section 62 of the Transfer of Property Act is exercised.
It should be noted that a usufructuary mortgagee cannot deny the mortgagor’s title, as stated in the case of Ishwar Dass Jain v. Sohan Lal. The mortgagee, having taken possession of the property as a mortgagee from the mortgagor, cannot question the mortgagor’s title.
A usufructuary mortgage is a unique form of mortgage that provides borrowers with a means to secure loans while retaining ownership of their property. It allows the mortgagor to transfer possession and usage rights to the mortgagee, who enjoys the income and produce from the property until the mortgage debt is fully repaid.
The essential elements of a usufructuary mortgage include the delivery of possession, retention of possession by the mortgagee, absence of personal liability for the mortgagor, the inability to foreclose or sell the property of mortgage and the right of redemption for the mortgagor.
Usufructuary mortgages are particularly prevalent in rural India, where they serve as an important tool for accessing funds in the local economy. While there have been legal debates regarding the limitation period for redemption, recent judgments have clarified that there is no fixed time limit for the exercise of the mortgagor’s right of redemption.
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