Lease under Transfer of Property Act, 1882

Section 105-117

Lease & Determination of Lease

 

Introduction

The provision regarding Lease is covered under section 105 to section 117 of Transfer of Property Act, 1882

A lease is the transfer of a right to enjoy a certain property.  It is either for a certain period or perpetuity. It is an agreement by which the owner of the property or the lessor transfers his right of possession to the lessee. It is not an absolute transfer of all rights in the property.  It is merely a partial transfer. A lease can be done only on immovable property.

In a lease, the transfer of immovable property is not an absolute transfer like a Sale. The ownership and possession get separated from a certain period but after the expiry of the specified period possession again gets merged into ownership.

Section 105 defines lease as:

“A transfer of right to enjoyment in immovable property made for certain time either express or implied or in perpetuity in consideration f price paid or promised in the form of money, services rendered, share of the crop or other things of value to be rendered either periodically or on a specific occasion to the  transferor by the transferee on such terms

Section 105 also defines terms like Lessor, lessee, premium, and rent

One who transfers the property i.e. transferor called Lessor,

One who accepts it i.e. the transferee called lessee,

The price is called the premium and services and other things which are rendered is called rent.

 Essentials of Valid Lease

So there are 4 essential for valid lease, they are:

1) Parties to lease must be competent

The person who transfers the property under the lease is called the lessor and to whom it is transferred is called the lessee.

“Lessor” must be competent according to the Indian Contract act i.e., he should be major, of sound mind ad not disqualified by law.

“Lessor” must have the right to transfer the property and the property must be transferable according to section 6 of transfer of property act.

Thus minor cannot transfer the property, but the guardian  may transfer on behalf of minor.

”Lessee” must also be competent according to Indian Contract Act i.e., he should be major and of sound mind and not disqualified by law.

Under the lease, the lessee had also to be competent because there is some liability on the lessee also.

2) Subject Matter/ Demise

The subject matter of lease must be immovable property. The word "immovable property" not only  means house or land but also benefits to arise out of the land, right to collect the fruit of a garden, right to extract coal or minerals, hats, rights of ferries, fisheries.

In case of a lease, it is only the transfer of partial interest and not the absolute interest in consideration. So in the lease, there are two rights:

·       Right of lessor called as the reversion

·       Right to lessee called as the right to lease Hold.

 Girdhari Singh vs. Meghlal Pandey (1918) 45 Cal 87, and

Shanti Bai vs. the State of Bombay

In these two cases, the court held that,

•  In a lease one has the right to enjoy the property but he had no right to take away the property.
•  Lease conveys an only limited estate.
• In this transfer right of the transferee is called leasehold and the remaining interest is called right to reversion

3) Duration

The right to enjoyment in the property must be in a certain period which is called the term of the lease. So the term of lease may be for any period shorter or longer as specified in the lease deed.

The term of the lease may be for a specific time or for the permanent duration.

{Duration can be any, but it should be specified in lease deed}

We can categories the term of the lease into three categories:

• ·     Lease for a Certain time
• ·     Periodic Lease
• ·     Lease for Agriculture and Manufacturing purpose

Lease for Certain time:

The time may begin either from the date if execution or from the date of a specific time in the future or any specific event in future,

Periodic lease:

The lease may be from month to month or from year to year.

According to section 106 of transfer of property act, for ascertaining the term of the lease the section categories into 2 categories:

Lease for agricultural and manufacturing Purpose:

Then the duration will be a lease from year to year and in

Any other case the duration of the lease will be from month to month.

When no fixed time is specified as duration but it may be terminated at any time at the will of the lessor and less than the lessee is called as tenant –at-will.

In this situation, the lessee has no certain and sure estate and the lessor may pout him out anytime he pleased/want. Thus in tenant –at-will the lease is not for f=certain time where neither party is sure about the duration of time.

Tenant-at-sufferance:

Where the tenant continues to hold the possession even after the expiry of the notice to quit then the tenant is not in legal possession and he may be treated ads a trespasser but the law does not penalize such tenant by treating him as trespasser and called such tenant as tenant at-sufferance. such tenant maybe evicted any time without giving notice.

4) Consideration

In case of lease consideration is in the form of either premium or rent.

Premium is a single and nonrecurring payment prior to the creation of tenancy also known as salami.

Rent is a consideration paid periodically it need not be in the form of money it may be in the form of crop, services or anything of value and it must be certain.

Section 107: Lease how made

For this purpose we can categories the lease into:

a)  Lease for more than 1 year or year to year or permanent basis

It must be executed by a registered document between lessor and lessee

b)  Lease for 1 year or less than 1 year or month to month basis

It may be executed by 2 ways either by a registered instrument or by oral agreement accompanied by delivery of possession.

Exception:

State government by issuing a notification can also, direct that lease of immovable property other than leases from year to a year or any term exceeding one year or any class of such leases, may be made by unregistered instrument or by oral agreement without delivery of possession.  

Section 111: determination of Lease

A lease of immovable property determines:

(a) By the efflux of the time-limited

The lease is transfer of demise for a certain period .after the expiry of the period specified the lease is automatically determined.

However, if there is a stipulation of renewal the lease may continue even after the expiry of the fixed period. In such a case, notice is required.

(b) By happening of specific event

The lease may be made subject to certain condition such as happening of an event .if the term is limited conditionally on the happing of certain event, the lease determines on happing of such event.

(c) Termination of lessor interest in property

Where lessor interest in the immovable property is limited then the lease come to an end upon the termination of lessor interest Thus where person is given authority to make lease the lease, made by him  is determined when that authority is taken away.

 (d) By merger         

Merger means meeting of smaller interest with another interest, when the limited interest becomes absolute, there is a merger because smaller interest merge with larger interest.

It is based on the principle that nobody can be the landlord and tenant at the same time thus for the merger, it is necessary that there is a union of two unequal interest at the same time and in the same person.

(e) By Express surrender

Surrender is opposite to merger. In a merger, larger interest merges with the smaller interest while in surrender smaller interest unite with larger interest

In merger tenant acquires reversion while in surrender landlord acquires lease,  It is base on the principle that the  two sets can not co-exist being incompatible and inconsistent.

(f) By implied surrender

Surrender is implied if it takes place by operation of law.

By operation of law, there is surrender:

·       By creation of a new lease, or

·       By relinquishment of possession

When the lessee accepts from the lessor new lease of the same property which is already in the lease to him i.e., called implied surrender of the earlier lease and former the lease is impliedly determined

The delivery of possession may be either actual or constructive.

(g) By forfeiture

Lease may be forfeiture in 3 ways:

   1)   Breach of any express condition

   2) Denial of lessor’s title

      3)  Lessee adjudicated insolvent

1)   Breach of any express condition

For forfeiture there must be two essential:

·       Their must be express condition between the lessor and lessee.

·       The lessor on such breach of condition shall take back the property. 

2)   Denial of lessor’s title

When the lessee deny the title of the lessor r in case the lessee renounces his character y setting up the title of the lessor in the third person or in himself then the lease maybe determined.

3) Lessee adjudicated insolvent

By insolvency of a lessee there are two essential:

·       Lessee adjudicated insolvent

·  The term of the lease provided that lessor may re-enter to the premise on happening of such act.

Rights and Liabilities of Lessor and Lessee

 Section 108 of The Transfer of Property Act, 1882 defines the rights and liabilities of lessor and lessee respectively.

 The rights and liabilities of lessor and lessee in section 108 of the transfer of property act, 1882 are in the absence of any contract to the contrary.

 Rights of Lessor: 

Section 108 of Transfer of Property Act, 1882 does not provide for any specific right of the lessor. But since rights and duties are correlative, the liabilities of lessee would identically mean rights of the lessor.

 Liabilities of Lessor:

1) Duty to disclose latent material defect:

Lessor must disclose a latent material defect in the property to the lessee. A defect in the property is latent if it is not apparently visible but the lessor has knowledge of it. Such a defect is material if it is of substantial nature.

   2) Duty to give possession:

Lease is transfer of the right to enjoy or use an immovable property. Without possession, enjoyment of property is not possible. The lessor is, therefore, liable to deliver the possession of the property to the lessee so that he may use it or enjoy it.

 3) Covenant for quiet enjoyment:

Lease being transfer of the right of enjoyment in immovable property, it is the implied duty of the lessor to ensure the lessee a peaceful enjoyment of this right. Accordingly, the lessor is deemed to have contracted that during the term of the lease if the lessee continues to pay the rent, he is entitled to possess the property without any interference. ‘Quiet Enjoyment’ means ‘no interference or objection’ in the lessee’s possession of the immovable property during the period of the lease.

Rights and Liabilities of Lessee

The rights of a lessee under the transfer of property act, 1882 are as follows:

1) Right to Accretions:

Accretions can be defined as the additions made to the property either by a human being or by the operation of natural forces. If during the continuance of lease some accretion has been made to the property, it is then presumed to be the part of the property.

 2) Right to avoid lease on the destruction of property:

Where the property is rendered substantially and permanently unfit for use due to fire, flood, violence, mob, or other uncontrollable reason, the lessee has the right to get the lease terminated before the expiry of the term.

 3) Right to deduct the cost of repairs:

The lessor has no obligation to repair the property. But under an express agreement, the lessor may take the obligation of making necessary repairs in the tenanted property.

 4)  Right to deduct outgoings:

It is the duty of the lessor to pay the outgoings. Where a lessee makes a payment of the public charge in respect of tenanted property, he has the right to deduct the amount from the rents.

 5) Right to remove fixtures:

After termination of the lease, the lessee has the right to remove the fixtures made by him during the continuance of the lease. The lessee can remove and take out these fixtures even after the determination of the lease.

 6)  Right to remove crops:

 After the termination of the lease, the lessee is entitled to remove the crops sown by him during the subsistence of the lease.

 7)   Right to assign his Interest:

A lessee has the right to assign or transfer his right of enjoyment in the property. The right of enjoyment of immovable property is a property owned by the lessee. He can transfer it to any other person provided there is no prohibition imposed by the lessor.

 

 The liabilities of a lessee  are as follows:

1) Duty to disclose facts:

Just as the lessor has a duty to disclose a latent material defect to the lessee, the lessee to is bound to disclose to the lessor any fact known to him which increases the value of the property. 

 2)  Duty to pay rent:

The lessee is bound to pay the rent or premium as stipulated in the lease deed. But, the tenant’s liability to pay rent begins from the date on which he takes the possession and not from the date from which the landlord signs the deed.

 3)    Duty to maintain property:

The lessee is bound to keep and maintain the property in the same condition in which it was given to him. He has, therefore, to take reasonable care in keeping the property in good condition.

 4)   Duty to give notice of encroachment:

If the lessee comes to know that encroachment has been made on the property in his possession, it is a duty to inform the lessor so that he may take proper action.

5) Duty to use property reasonably:

The lessee has a duty to use and enjoy the tenanted property as a person of ordinary prudence would use his own property.

6) Duty not to erect permanent structure:

The lessee cannot erect any permanent structure on the leased property without the consent of the lessor. If a lessee makes permanent constructions without the lessor’s consent, he is entitled to remove them without causing damage to the tenanted property. If the permanent structures on the leased property are not removed by the lessee, then on the expiry of the lease, they belong to the landlord.

7) Duty to restore Possession:

 Upon the expiry of the term or determination of the lease before its expiry the lease must re-transfer the possession to the lessor. It is the duty of the lessee to vacate the possession and restore it to the lessor after the expiry of the term.

 

 

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Mortgage under Transfer of Property Act, 1882

                                                                   MORTGAGE  (Section 58) 

Transfer of Property Act

   Section 58 of the transfer of property act,1882 deals with "mortgage".

 Section 58 (a) of Transfer of property act, 1882 defines what is mortgage?
A mortgage is the transfer of an interest in specific immovable property for the purpose/ sake of:

• securing payment of money advanced or to be advanced by way of loan
• satisfaction of an existing debt or future debt
• performance of any engagement which may give rise to a pecuniary liability.

Mortgagor:- mortgagor is the person who transfers the interest in mortgage property.

Mortgagee:- Mortgagee is the person whom such interest is transferred in a mortgaged property.

Mortgage Money:- it is money or interest of which payment is secured.

Mortgage Deed:- it is the instrument or  deed of such transfer 

A mortgage is a transfer of an interest in specific immovable property as security for repayment of a debt or mortgage money.

 The nature of right/ interest transferred depends upon the form of the marriage.

In a simple mortgage:- 

What is transferred is a power to sale, which is one of the components that make up the aggregate of ownership.

In a usufructuary Mortgage:- 

In the case of Prahalad

                                       Versus 

                                                   Manganlal (1952_)ILR Bom, 

Court held that usufructuary mortgage, what is transferred is a right of possession & enjoyment of the usufruct.

In a conditional mortgage & in an English mortgage, 

the right transferred is, in form, a transfer of a right of ownership subject to a condition.

In a Ram Kinkar 

                            Versus  

                                         Satya Chauhan (1939) ILR

In this case, the court held that "In each case, whatever be the form of the mortgage, there is a transfer of some interest only, & not a transfer of the whole interest of the mortgagor."

The characteristic feature of mortgages is that the right in the property created by the transfer is accessory to the right to recover the debt. The debt subsists in a mortgage, while a transaction by which, a debt is extinguished is not a mortgage but a sale.

This is well illustrated by the case of:  

Nidha Sah 

                          Versus

                                                   Murli Dhar (1903) ILR All

Court held that where the deed was purported to be a deed of mortgage with passion of certain villages for a period of 14 years. The deed provided that at the expiry of the term, the mortgagors came into possession of the mortgaged villages without settlement of account & that the mortgage should than have no power what so ever in respect of the said estate, but should return the mortgage deed to the mortgagor without their repaying the mortgage money. The mortgage refused to return such villages as he had, on the ground that he had not received the full number of villages & had not been able to recoup (regain money spent) himself.

The privy council said that the deed was not a security for the payment of any money & that the transaction was not a mortgage but a grant of land for a fixed term free of rent

Essential Elements Of Mortgage

(1) Transfer of an interest 

 The transfer must be to a living person or persons by a living person ie, inter Vivos (Section 5)
'transfer of an interest", these words stands in contrast with the words transfer of ownership,

According to the definition of "sale" in section 54

In sale, 

all the rights of ownership which the transferor has, pass to the transferee.

In a mortgagor, 

some rights are transferred to the mortgagee and some remain vested in the mortgagor.

Eg:- Transfer of the right to receive rents & profit from tenants for a term of the year is a transfer of an interest in land & may constitute a mortgage.

The word " transfer of an interest:" also distinguish a mortgage from an agreement to mortgage & from a charge.

In an agreement to mortgage, no right in rem is transferred at all, but only a personal obligation is created.

Similarly in a charge, no right in rem is created, but the right is something more than a  personal obligation; for it is a jus ad rem. ie, a right to payment out of the property specified.

In a mortgage, there is a transfer of only ownership. The 'interest' is transferred in favor of the mortgagee who advances the money as a loan. It is the transfer of property which gives him(mortgagee) the right to recover his money from mortgage's property.

Ali Hussain 

                     Versus

                              Nilla Kandon (1864)

'Mortgage is not a transfer of all the interest in favor mortgagee, there still remains vested remainder with the mortgagor'.

An agreement to a mortgage does not create any interest in favor of the mortgage. In fact, it does not constitute any mortgage at all. Such agreement creates only a personal obligation to repay the loan; there is no transfer of any interest in any property. Therefore, an agreement to mortgage is neither a mortgage nor charges. 

However, in England 

an agreement to mortgage may be regarded as an equitable mortgage which may be enforced against mortgage property. 

But in India 

such agreement is merely a personal agreement & only remedy available in this case is claim of damages for breach of contract.

The first essential condition in a mortgage is that there must be a transfer of some interest in the property of the mortgagor. Therefore mortgage is a transfer of property within the meaning of section 5 of this act. This all the essential conditions for a valid transfer must be fulfilled also in mortgage.

(2) Specific immovable Property

In order to create a mortgagor, it is necessary to specify the immovable property. The description must at least be sufficient to identify the property according to the requirement of section 21 & 22 of the Registration Act, 1908.

The description must follow sections 29 and 92 of the Indian Contract Act 1872 and the Indian Evidence Act 1872 respectively.

There should be consensus ad idem between the mortgagor and mortgagee for which immovable property is to be transferred.

The word specific shows that the description should not only be free from ambiguity & uncertainty but also that it is should be specific, as distinguished from the general.

The property must not be described in general terms such as, " my all property"," my house and landed properties". On the other hand, where the property has been described in a manner that is can be ascertain led without any doubt, the property is specific even though no particulars details are given in the deed.

Example:-Where the mortgagor has only one house in a city say at Varanasi," my house in Varanasi " is specific even no house no is given.

The immovable property also includes things attached to what is embedded to the earth. For instance, machinery attached permanently in a house for beneficial enjoyment of that house (say, water, pump) is also an immovable property. 

Therefore mortgage of the house shall include also the mortgage of that machinery which is part of that immovable property. but if the machinery or the other fixed is not attached for permanent beneficial enjoyment, it shall not form part of security if the house is mortgaged":- Narayana   Vs. Bologuruswami(1924)

  Purpose of Mortgage

The purpose or object of mortgage is to secure a debt. A transfer made for the purpose of discharging a debt, not a mortgage. Thus if A land to B for a term of the year in satisfaction of the debt, this is not mortgage, but a grant of land for a term free from rent.

The mortgage is transfer of property supported with some consideration; the consideration of mortgage is to secure a debt.


Mortgagor transfers the interest in his property to mortgage in consideration of security for a payment of some kind of loan taken by him.

The loan may be in the form of:-

• Money advanced or to be advance
• An existing  or future debt 
• The performance of an engagement which may give rise to any pecuniary liability

1. Money advanced or to be advanced:- 

A mortgage may be executed for a sum of money advanced or to be advanced on a future date. Where the mortgagee has already given some money, the mortgagor may execute a deed of mortgage as security for its payment. This is a mortgage for the money advanced.

The mortgage may also execute the deed of mortgage before he gets full amount from the mortgagee.

In the case

                State of Kerala 

                                        Versus

                                                 Cochin Chemical Refineries (1968)  

The Supreme Court held that; the transaction of mortgage does not become ineffective merely because the mortgage could not advance the money on the debt of execution of the deed.

It may also happen that some of the money is advanced on the due date and the remaining is given on any future date. It is immediately as to when the money is given after the execution of the mortgage deed.

In the case

                         Raghunath

                                           Versus 

                                                     Amir Baksh (1922) Pat.

Fact of the Case: 
"A" executed a mortgage in favor of  "B" on 3rd May. "B"  gave the money to  "A"  on 10th May but in the meantime, on 7th may "A" sold the mortgaged property to "C". Thus "C" purchased the property subject to mortgage. But "C" argued that since the consideration was not paid before the sale, there was no mortgagor at the time of sale therefore he was not bound by the mortgage.

It was held by the  Patna High Court that the mortgage was effective from the date of its execution which was 3rd May. ie; before the sale, therefore "C"  was bound by the mortgage.

2. An Existing or Future Debt:-

 'Existing debt' means a debt the claim of which exists at present. 

Example:  a debt that is not barred by limitation. Such debt may be secured by way of mortgage. The mortgage may be affected to secure also a 'future debt'.

'Future debt' is a sum of money that the mortgagee is entitled to get from mortgagor on a future date.

3. The Performance Of Any Engagement Which May Give Rise To Any Pecuniary Liability

Consideration in the mortgage may also be an 'engagement' which gives rise to a pecuniary liability against the mortgagor. The word " engagement" as used in this section means a contract within the meaning of section 2 of the Indian Contract Act 1872.

Just as a breach of a contract results into pecuniary liability the engagement contemplates here should also arise into a pecuniary liability. Pecuniary liability means liability to pay a sum of money

  Classification of Mortgage 

Section 58(b) to (g) of transfer of property act,1872 deals with the classification of the mortgage. 

The classification of mortgage has been made on the basis of the nature of the interest which is transferred for securing the loan.

The various form of mortgage are:-
 1. Simple Mortgage

2. Usufractuary Mortgage

Section 58(b) : Simple Mortgage

Simple mortgage is where the mortgagor promise to pay the mortgage money without delivery of the possession of the mortgaged property & agrees expressly or impliedly that in case of non - payment of loan the mortgage shall have the right to cause the mortgaged property to be sold, the mortgage is a simple mortgage.,

A simple mortgage consists of:-

• A personal obligation, express or implied to pay the loan  
• The transfer of a right to cause the property to be sold

The right transferred to the mortgagee is not ownership

• The possession of the mortgaged property is not given to the mortgagee.

           Essential Features Of Simple Mortgage 

1. Mortgage Personal Obligation To Pay

The first essential feature of a simple mortgage is that mortgagor binds himself personally for the repayment of loan. Such personal liability may either be express or implied.

It is express if the mortgagor, in clear words, takes personal undertaking that he shall repay the money to the mortgagee.

It is implied where such undertaking by the mortgagor is inferred from the terms of the contract.

It is to be noted that for a simple mortgage, the existence of personal liability of the debtor is necessary whether it is express or implied. In the absence of a personal covenant for repayment of the loan, the transaction is not a mortgage.

2. No delivery of possession

Another essential element of a simple mortgage is that possession of the mortgaged - property is not given to the mortgagee. If possession is given to the mortgagee, the transaction would become a ' simple mortgage usufructuary '  & would come under the category of anomalous mortgage under section 58(g) of this act.

Simple mortgage is distinguished from usufructuary mortgage 

because in usufructuary mortgage the possession of the mortgaged property is given to the mortgagee has right for the enjoyment of that property, but in simple mortgage, no such possession is given & the mortgagee is not entitled to get possession of the property.

3. Right To Cause The Property To Be Sold  

In a simple mortgage, it is necessary that mortgagee is given the right to cause the sale of the mortgaged property in default of payment.

If the mortgagor fails to return back the loan, the mortgagor must be entitled to recover his money by causing the sale of the property. Mortgagee himself has no power to sale the property: he has to get a degree from a court for the sale. 

The'right to cause mortgage property to be sold' is an essential element of a simple mortgage & this right must be given to mortgagee expressly or impliedly. Where the document does not give this right to the creditor, the transaction is not a simple mortgage. 

In a simple mortgage, the interest transferred in favor of mortgage is his right to cause the mortgaged property sold in default of non - payment of the loan.

Remedies Available to Mortgagee

 If the mortgagor fails to repay the loan within the stipulated period, the mortgagee has 2 remedies available

• As the mortgagor takes personal obligation to repay the loan, the mortgagee may sue the mortgagor for the recovery of the money.

• Mortgagee may also move to the court for the sale of mortgage property so that his money can be recovered. Proceeds of the sale are applied for payment of debt with interest & the remaining part of it is returned to the mortgagor.

A simple mortgage can be only through a registered instrument. Even if the sum of money secured is less than Rs. 100, a simple mortgage must be effected by registered instrument:- S.59

A mortgage in favor of minor is void ab initio by virtue of section 11 of the  Indian Contract Act,1872.

      Section 58(c): Mortgage by conditional sale 

Mortgage by conditional sale is an apparent sale with a condition that upon repayment of consideration amount, the purchaser  shall re-transfer the property to the seller

Essential Element:

1. There is an ostensible sale of an immovable property
2. The sale is subject to any of the following condition

• On non - payment of mortgage- money (price) shall would become absolute.
• On payment of mortgage - money, the sale shall become void or the buyer shall re-transfer the said property to the seller.

3. The condition must be embodied in the same document.

Ostensible sale:-

an ostensible sale means a sale which apparently looks like a sale but in reality, there is no sale.
In this mortgage apparently, there is a sale of immovable property but in reality it is intended to secure a debt. the whole transaction is given the appearance of a sale.
The seller would sell his property on a certain of money but the seller and buyer both know & intend that seller is taking a loan from the buyer.

Conditions

The characteristics feature of this form of mortgage is that it is a sale but becomes a mortgage because of any particular condition attached to it.

' Existing of debt' makes a sale as a mortgage . although in appearance the transaction maybe like a sale since the intention of the parties ism to treat it as security for a debt, therefore there must exist a relationship of debtor and creditor between seller and buyer. The existing debt is necessary. Where no debt exist between seller and buyer, the sale is no mortgage


Thus whether an ostensible sale becomes a sale in the real sense &  property goes to the buyer absolutely on the sale but does not take place & the property continues to belongs to the seller depends on fulfillment or non - fulfillment of a condition.

Where a mortgage under a conditional sale transferred the property to another person, it was held that the mortgagee in question had no right to make any such transfer. He had obtained the property as security after advancing a sum of money as a loan and after repayment of the loan, he has to re-transfer it.

Condition In The Same Document

It is necessary that any of the conditions mentioned in section 58(c) must be incorporated in the same document which has been executed as a sale deed. This provision was added by the proviso to Section 58 (c) by the amending act of 1929.

     Pandit Chunchun Jha  

                                           

                                        Versus 

                                                     

                                                      Sheikh Ibadat Ali(1954) SC

S.C. held that proviso to section 58(c) makes it clear that if the condition for repurchase is not embodied in the document which effects or purports to effect the sale, the transaction cannot be regarded as mortgage.

In the case 

                  Raj Kishore 

                                        Versus 

                                                   Prem Singh 2011 SC 

 Supreme Court held that '  an ostensible sale with any of the conditioned mentioned in section 58 (c) cannot be regarded as a mortgage unless the condition is laid down in the same documents.'

The Apex Court has laid down the following distinguishing features between the mortgage sale & sale with an option of repurchase

• In a mortgage with condition sale, the relation of a debtor & creditor subsist while in a sale with an option of re - purchase, there is no such relationship & the parties stand on an equal footing.

• A mortgage by conditional sale is effected by a single document while a sale is generally effected with the help of two independent documents.

• In a mortgage with condition sale, the debt subsist as it is a borrowing arrangement while in a sale with an option of repurchase, there is no debt but consideration for sale.

• In a mortgage with the conditional sale, since this is a mortgage transaction, the right of redemption subsists in favor of the mortgagor despite the expiry of the time stipulated in the contract for its payment. The mortgagor has the option to redeem the mortgage & take back the property on the payment of the mortgage money but a sale, a sale within the option of re- purchase the original seller must repurchase the property within the stipulated time - period. If he commits a default the option of re - purchase is lost.

In so far as the legal nature of these 2 transactions is concerned, the distinction is clear.

Mortgage by conditional sale involves existing of debt whereas there is no debt in a sale with a condition of repurchase But sometimes it is difficult to decide whether the transaction is mortgage or sale with the condition of re purchase. This is so because in effect both the transaction provide for re transfer of property by the buyer to seller. 

However, existence or non - existence of any debt between seller and buyer makes a fundamental difference between the two. 

The existence of such debt is a matter of intention of the parties which may be known on the basis of fact & circumstance of each case.

Section 58 (d): Usufructuary Mortgage

Mortgage is usufructuary where the mortgagor gives possession of the property to the mortgagee. Since possession is with mortgagee, he gets the usufruct. ie; produce benefits, rents, or profit of the mortgaged property.

In a usufructuary mortgage, the mortgagee is entitled to enjoy the benefit of mortgaged property in lieu of interest on the principle money (debt) advanced by him.

Essential Element of usufructuary mortgage

1.   Delivery of possession of the mortgaged property or on express or implied undertaking by mortgagor to deliver such possession.

2. Enjoyment or use of the property by mortgagor until his dues are paid off

3. No personal liability of the mortgagor

4. Mortgagee cannot foreclose or sue for the sale of mortgage property

5. Registration is must


 #1) Delivery of possession

the characteristic feature of usufructuary mortgage is the transfer of possession of mortgage property to the mortgagee.
The right of the mortgagee to restrain possession of the property is ' security' for payment of his money.

Where the mortgagee is entitled under the mortgage deed to continue possession of the property until payment of mortgage - money, the transaction is a usufructuary mortgage.

It is not necessary that the delivery of possession is made at the time of execution of the deed. The mortgagor may take an undertaking that he would deliver the possession on a future date. Such an undertaking or promise may either be express or implied.

#2)  Enjoyment of rents or profit

In a  usufructuary  mortgage, the mortgagor has the right to  'use'  the property until the debt is fully paid
The rents and profit or part of the rents and profits may be appropriated.

• In lieu of interest
• In lieu of principle  
• In lieu of principle & interest

#3) NO personal liability

In a usufructuary mortgage, there is no personal liability of the mortgagor. The mortgagee cannot sure the mortgagor personally for payment of his debt. He is entitled only to restrain the possession of mortgaged property till his debt is fully paid.

Where in a usufructuary mortgage there is a covenant that mortgagee may sue the mortgagor personally for recovery of his debt, the mortgage does not remain a usufructuary mortgage.

#4) No Foreclosure or sale 

The mortgagor is entitled to continue in possession and enjoy the usufruct until the debt is fully paid off. He can neither sue the mortgagor personally nor can exercise his right of forecloser under 67 of this act. It is significant to note that in this form of mortgage no time limit is fixed for payment mortgagee is entitled to retain the possession until the money due is paid. 

In a usufructuary mortgage, the time up to which money may be paid by the mortgagor is uncertain. If any time is fixed the mortgage would not be a usufructuary mortgage.

#5) Registration

Registration is necessary when the money is taken under a usufructuary mortgage is rupees 100 or more. Where the mortgage money is less than Rs. 100 registration is not necessary; delivery of possession is sufficient.

What is Zuripeshgi Lease

Where the right of enjoyment of immovable property is transferred for a fixed period of time & the rent is paid in a lump sum in advance, the transaction is zuripeshgi. lease. 

The lease gets right to enjoy the use and appropriate the usufruct of property. There is therefore similarity between a zuripeshgi lease. the lessee gets the right to enjoy, use & appropriate the usufruct of property.

 

There is therefore similarity between a zuripeshgi lease & usufructuary mortgage. 

But, however, there is a difference between 2 transactions:-

1. In zuripeshgi lease, there is no existence of any debt between lessor and lessee. 

Whereas, In a usufructuary mortgage, there must exist debt & relation of debtor & creditor between mortgagor and mortgagee.

2. Zuripeshgi lease is for a specific or fixed term. ie; specific time limit is provided up to which the possession is given to the lessee. In a usufructuary mortgage, there is no time limit up to which mortgagee may retain possession. He continues possession & enjoyment of property until all his dues are paid off.

                        Section 58 (e) : English Mortgage 

In this form of mortgage there is a transfer of ownership(absolute transfer) to the mortgagee with a covenant to repay the debt on a certain date, & a proviso that on this condition being performed the mortgagee will re-transfer the property to the mortgagor.

In 

             Narayana                                             

                               Versus  

                                           Venkataramana  (1902)  

The Madras High court said the three-element of English mortgage are:-

1. That the mortgagor bind himself to repay the mortgage money on a certain date 

2. That the property mortgaged should be transferred absolutely to the mortgagee.

3.  That such absolute transfer should be made subject to a proviso that the mortgage will reconvey the property to the mortgagor, upon payment by him of the mortgage - money, on the date on which the mortgagor bound himself to repay the same.

Registration

Where the principal money is rupees 100 or more the deed of English mortgage must be registered but if the mortgage - money is less than rupees 100 registration is optional

  Section 58(f):Mortgage by deposits of the title - deeds 

Mortgage by deposit of title deeds is a particular kind of mortgage. It is peculiar in the sense that in this mortgage,  execution of mortgage deed by mortgagor is not necessary. 

Mere deposits of the title deed of immovable property by mortgagor to mortgagee is sufficient.

The title deed are those document which are legal proof that a person owns a particular property.

For instance ; 

If A had purchased a house, the sale deed in his favor is the title deed establishing ownership of A in that house. Now if "A" wants to take a loan from "B".

 "A" may execute either a simple mortgage or usufructuary mortgage. But in this kind of mortgage execution of mortgage deed & its registration may take some time because of the legal formalities. So if "A" is in urgent need of money, it may not be possible for him to get the money immediately. 

Mortgage by deposit of title - deed does not require formalities of execution or registration, etc. Therefore just by depositing the title - deeds to "B", "A"  may get the money immediately. 

Possession of title deeds by "B" is the security for the repayment of the loan. 

In this form, the mortgage is created by mere deposits of title deeds with intent to create a security thereon without any legal formality.

Essential element of mortgage by deposit of title- deed

According to section 59 (f),  where a person in an of the specified towns, delivers to a creditor or his agent documents of title to immovable property, with the intention to create a security thereon, the transaction is called a mortgage by deposits of the title - deeds.

Essential element:-

• Existence  of debt

• Deposits of the title  -deeds 

• With the intention to create security

• Territorial restriction

1. Existence of debt

Title deed must be delivered only for securing a debt. The existence of debt is necessary debt may either be an existing debt or a future debt. In this form of mortgage, title - deeds are deposited under an oral agreement to secure present or future advanced.

2. Deposits of Title - deed

The title-deed of an immovable property on which security is intended to create must be deposited with the creditor or his agent. Possession of title - deeds by the mortgagee or his agent is the only security for repayment of money.

Delivery of possession of the title - deeds may either be actual or constructive.

3. Intention to create security

Mere deposits of title deeds is not sufficient. The title - deeds must be deposited by the debtor with the intention of creating security for a debt. The only fact that there is some debt & that the title - deeds of debtor are somehow found in possession of the creditor would not be sufficient to create an mortgage by delivery of title - deed. There must be bona fide intention that possession of title -deed with the creditor is by way of security for the money advanced by him.

4. Territorial Restriction

Mortgage by deposits of the title - deeds is applicable only in certain specified towns of this country. Like other kinds of mortgage, a mortgage by deposit of title - deed is not applicable throughout the country. 

The mortgage by deposit of title - deed may be made only in Culcutta, Bombay & madras & in such other town which the state government may by notification specify in the official gazettes.

The restriction to the specified towns refers to the place where the title - deeds are delivered & not to the place where the property is situated.

5. Registration

Registration is not necessary. Mortgage by deposits of title deeds may be made without any writing or registration.

More delivery of document with an intention, to secure a debt is enough for constituting a valid mortgage by delivery of title - deeds.

                Section 58 (G): Anomalous Mortgage

Section 58 has laid down several kinds of mortgage but the classification of mortgage is given in this section is not exhaustive.

Besides there form of mortgage, there are other forms of mortgage which are either customary or combination of to or more form of mortgage & thereby causing anomaly, they are called anomalous mortgages.

According to section 58(G) 

A mortgage is an anomalous mortgage if it is not a simple mortgage, a mortgage by conditional sale, a usufructuary mortgage, an English mortgage or a mortgage by deposit of title -deed.

When a  transaction is a mortgage in all respect ie; there is existing of debt & security of immovable property for repayment of that debt but the arrangement between the debtor and creditor is of such nature that it can not be included in any specified category of mortgage, the transaction is anomalous mortgage.

Attestation of anomalous mortgage

An anomalous mortgage is required to be in writing  & must also be attested. 

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