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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