Dhanashree Yeole
With the evolution of human beings and the increasing standard of quality of humans, the needs and borrowing for meeting those needs started from very old times. Moneylenders wanted security for the loans that they gave and thus the system of mortgage of property whether movable or immovable started. There were various loopholes like too much interest rate which led to all these transactions always going in favor of moneylenders. After Transfer of Property Act, 1882 came into existence systematic and detailed rules were laid down to govern law relating to mortgages and to determine the rights and liabilities of both the mortgagor and the mortgagee. This article is going to cover mortgage and the rights and liabilities of mortgagor given under Transfer of Property Act, 1882.
Mortgage
Section 58 defines mortgage, mortgagor, mortgagee, mortgage money, mortgage deed and types of mortgages.
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. Mortgage is the transfer of an interest in specific immovable property and it acts as security to a loan given.
Transfer of an Interest
Mortgage debt is not an actionable claim under this Act but it is only a transfer of an interest in an immovable property. It is different from sale because in sale there is complete transfer of all the interests in the property whereas in mortgage it is transfer of interest less than ownership. What type of interest is transferred to the mortgagee decides the kind of mortgage.
Specific Immovable property
The interest created by mortgage must be in some specific immovable property. In mortgage-deed the property must be defined specifically and not in general terms. The property must be immovable property. Things attached to what is embedded in the earth are also included in immovable property.
Consideration
The mortgage must be supported by consideration. The consideration may be either money advanced or to be advanced by way of loan, an existing or future debt or the performance of an engagement giving rises to a pecuniary liability.
Who are mortgagor and mortgagee?
The person who transfers the interest in an immovable property is the mortgagor. A person who takes money is mortgagor.
The person receiving the transfer is called as mortgagee. A person who gives money is the mortgagee.
What is mortgage money?
The principal money and interest of which payment is secured for the time being are called the mortgage-money.
What is a mortgage deed?
The instrument (if any) by which the transfer is effected is called a mortgage-deed.
Essential elements of mortgage
For a particular transaction to be constituted as mortgage, following elements must be present in that transaction-
- There must be transfer of an interest.
- The interest transferred must be in specific immovable property.
- The transfer must be made to secure a loan of money, debt or performance of an engagement which may give rise to a pecuniary liability.
Types of mortgages
- 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.
- 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: [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.]
- Usufructuary mortgage.—Where the mortgagor delivers possession [or expressly or by implication binds himself to deliver possession] of the mortgaged property to the mortgagee, and authorizes 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] in lieu of interest, or in payment of the mortgage-money, or partly in lieu of interest [or] partly in payment of the mortgage-money, the transaction is called an usufructuary mortgage and the mortgagee an usufructuary mortgagee.
- 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.
- Mortgage by deposit of title-deeds.—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 immoveable property, with intent to create a security thereon, the transaction is called a mortgage by deposit of title-deeds.
- Anomalous mortgage. — A mortgage which is not a simple mortgage, a mortgage by conditional sale, an usufructuary mortgage, an English mortgage or a mortgage by deposit of titledeeds within the meaning of this section is called an anomalous mortgage.
Mode of Transfer in Mortgage (Section 59)
The property may be transferred by way of mortgage in the following three ways:—
- by a registered instrument
- by delivery of possession
- by deposit of title-deeds
Registered Instrument
In a mortgage (other than a mortgage by deposit of title deeds), where the principal money secured is Rs 100 or more, the mortgage can be affected only by—
- a registered instrument
- instrument signed by mortgagor
- attested by at least two witnesses.
Delivery of Possession
Where the principal money secured is less than Rs 100, a mortgage may be affected either by a registered instrument or by delivery of possession. The registered instrument has to be signed by the mortgagor and attested by at least two witnesses. The mortgage may be affected by delivery of possession only except in the case of a simple mortgage. In a simple mortgage, the mortgagor himself retains the possession of the property and it is not given to the mortgagee, therefore, the mortgage can be affected only by a registered instrument although the secured debt is less than Rs 100.
Deposit of Title-Deeds
In mortgage by deposit of title deeds, whatever be the amount of mortgage debt, writing and registration are not necessary. This type of mortgage is allowed only in certain cities for promoting smooth flow of business.
Mortgagor
Rights-
- Right of Redemption
As per Section 60, right to redeem the mortgage is one of the most important right of the mortgagor.
- Once the mortgage period is over, then it is the right of mortgagor to get the property back after paying the money to the mortgagee.
- Redemption is a statutory and legal right and cannot be destroyed by any agreement.
- Mortgagee has to give possession of the property to the mortgagor.
- Right of transfer to a third party instead of re-transference to himself.
As per Section 60A, a mortgagor can authorize a mortgagee to transfer the property to third person.
- The mortgagor may direct the mortgagee to assign the mortgage debt and authorise him to transfer the property to a third party instead of transferring him the same.
- The object of this section is to enable the mortgagor to pay off the debt of the mortgagee by taking a loan from another person on the security of the same property.
- Right to inspection and production of documents.
According to Section 60B, a mortgagor can inspect all the documents relating to mortgage and also he can inspect the property mortgaged. The cost and expenses incurred during the inspection can be paid by the mortgagee.
- Right to accession
As per Section 63, where mortgaged property in possession of the mortgagee has, during the continuance of the mortgage, received any accession, the mortgagor, upon redemption, shall, in the absence of a contract to the contrary, be entitled as against the mortgagee to such accession.
- Right to improvement
As per Section 63A if any improvement is made to the property when the property is in possession of mortgagee, then the mortgagor has the right to take that improvement with that property. But where the improvements were at cost of the mortgage by preserving the property from destruction then the mortgagor is liable to pay the cost which is incurred by the mortgagee in preserving the property.
- Right to a renewed lease
As per Section 64, when the mortgaged property is a lease , and the mortgagee obtains a renewal of the lease, the mortgagor, upon redemption, shall, in the absence of a contract by him to the contrary, have the benefit of the new lease.
- Right to grant a lease
As per Section 65A, a mortgagor shall have the right to grant a lease of which is lawfully in possession with the mortgagee and such lease shall be binding on the mortgagee subject to the following conditions:
- The lease shall be according to the local laws, custom or usages.
- No rent or premium shall be paid in advance.
- The lease shall not contain a covenant for renewal.
- The lease shall come into effect within six months from the date on which it is made.
- In case lease of buildings, the duration of the lease shall not exceed not more than three years.
Liabilities-
Section 65 and Section 66 deals with liabilities of the mortgagor. Section 65 is the implied liabilities which are laid upon the mortgagor. Subject to the contrary, every mortgagor is deemed to have made the following covenant.
a. Covenant for Title [Section 65(a)]
- As per Section 65(a) of the Transfer of the Property Act, 1882 there is an implied covenant that the mortgagor transferring the interest in the property to the mortgagee belongs to the mortgagor only.
- And it is necessary that the mortgagor possess the transferable interest in the property.
- In case mortgagor makes a breach in the covenant the mortgagor is liable to compensate.
- Covenant for the defence of the title
- As per Section 65(b) of the Transfer of the Property Act, 1882 the mortgagor has a duty impliedly to either defend the title if anyone tries to take away the title from the mortgagee or help the mortgagee in defending the title.
- By doing so, the mortgagor bears all the expenses incurred while defending the title.
- Covenant for payment of public charge
- As per Section 65(c) of the Transfer of the Property Act, 1882 there is an implied duty to the mortgagor that upon the execution of the mortgage the mortgagor shall pay all the necessary changes.
- If the mortgagor fails to meet the required charges the property would be sold by the public authorities and realise the charges.
- Covenant for payment of rent
- As per Section 65(d) of the Transfer of the Property Act, 1882 where the property mortgaged by the mortgagor is a leasehold property there is an implied duty of the mortgagor to pay the rent of the mortgaged property.
- Covenant for the discharge of prior mortgage
- As per Section 65(e) of the Transfer of the Property Act, 1882 there is implied duty of the mortgagor to discharge the prior mortgage if any.
- There is always a presumption that the mortgagor has a covenant with the subsequent mortgages to pay off the mortgage on becoming due.
- In such subsequent mortgage if the mortgagor makes a breach the subsequent mortgagee would have the right to sue for his mortgaged money.
Waste by mortgagor in possession
- Section 66 states there are an implied duty on mortgagor that he shall not do any act which is injurious or destructive to the mortgaged property.
- Mortgagee should also see that he also does not commit any act which results in reducing the value of the mortgaged property.
Case law
In the case of Shiv Dev Singh vs Sucha Singh (2000) 4 SCC 326: AIR 2000 SC 1935, the facts were that the mortgagor, being financially hardpressed, mortgaged his property for 99 years for a consideration of Rs 7,000. The mortgagee took possession of the property and was enjoying its usufruct. A suit for redemption was filed after around 26 years. In the present case all the courts below on facts held that the mortgage deed being for a period of 99 years was a clog on the equity of redemption. Such findings were returned keeping in view the facts and circumstances of the case and the financial position under which the mortgagor Shri Prakash Singh was placed at the time of execution of the mortgage deed on 19.3.1968. The appellants were found to be in an advantageous position qua the mortgagor. They were also found to be deriving the usufructs of the mortgaged land for a period of over 26 years at the time of filing of the suit on payment of meager sum of Rs.7,000/- only to the mortgagor.
References
- Transfer of Property Act by Prof. Poonam Pradhan Saxena.
- Transfer of Property Act by Avtar Singh.
Transfer of Property Act, 1882, Bare Act