Mortgage & Its types under the Transfer of Property Act, 1882

This Article is authored by Rhea Banerjee, Pursuing B.A.LL.B from Indore Institute of Law.

Introduction –

One must have heard the word “Mortgage” many times in their daily life or whenever they opt for some loan with respect to immovable property. In simple words, mortgage can be understood as a legal agreement between the debtor and creditor which can be with a bank, society (creditor) etc on the primary condition that the debtor will transfer its interest of his immovable property to the creditor for the time being till he repays back the loan amount. So, the mortgage of the immovable property is created in favour of lender (creditor).

So basically, the mortgagor lends money at certain interest rate in exchange of title of the property of mortgagee for specific period of time or till the loan amount or debt amount is paid off by the mortgagee under the condition that the transfer of title to the mortgagor will become void once the debt is completely repaid. In a mortgage, there are two parties, mortgagor (creditor) and mortgagee (debtor) and in India there are several statues which deal with the concept of Mortgage.

• Transfer of Property Act, 1882– the Act talks about various types of transfer of immovable and movable property. Chapter IV, Section 58 to 104 deal with the concept of Mortgage, its types, rights and liabilities of mortgagor and mortgagee.
• Civil Procedure Code, 1908– Chapter XXXIV states the procedural portion of Mortgage of an immovable property
• Indian Contract Act, 1872– the general principles of mortgage and other transfers can be found in this Act. It explains the basic concepts of bailor, bailee, pledgor, pledgee which further develops into different kinds of transfer.

We are going to discuss the definition of mortgage and its kinds stated under the Transfer of Property Act, 1882 which states mortgage as, “the transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced in way of loan, an existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability.

Section 58 gives the definition as well as the kinds of Mortgage. The person transferring the security or his title of the property is called the ‘mortgagor’ and the transferee, to whom the property is being kept as security is called the ‘mortgagee’ and the principal money and interest against which the property is kept is called mortgage-money, and if there is any contract or deed or instrument by which the transfer is initiated is called a mortgage-deed.

Kinds Of Mortgage –

There are 6 types of mortgages recognized under Indian law in the Transfer of Property Act 1882, and it is essential to know the difference between each kind of mortgage so as to determine the uniqueness of each mortgage and its importance in the transfer of immovable properties. The kinds of mortgages are as follows-

1. Simple Mortgage –

Section 58(b) defines Simple mortgage as, “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.”

As per the above definition, Simple mortgage means when the mortgagor (debtor) makes  promise to pay the loan amount or mortgage money without delivering the possession of his mortgaged property to the mortgagee and agrees expressly or impliedly that in case he is unable to pay the loan amount in the given time, then the mortgagee shall have absolute right to sell the mortgage property through a decree or by getting an official order from the Court to recover his loan amount.

The main feature of Simple Mortgage is that the possession of the mortgaged property is not transferred to the mortgagee, but the mortgagee acquires the right to sale of the mortgaged property when the mortgagor defaults in his payment and the mortgagor has to transfer his right to sale to mortgagee and is made personally liable to pay the loan which means that in case the mortgaged property is not sufficient enough to repay the loan amount, then the mortgagee can make the mortgagor personally liable to pay the rest of the amount by other means.

The mortgagee doesn’t have the right to foreclose the property i.e. keep the property in lieu of the mortgage money but obtains a right to sale of the property. The basic features of Simple Mortgage are-

• In this mortgage, the mortgagor is personally liable to repay the loan amount
• The possession of the mortgaged property stays with the mortgagor and not with mortgagee
• In case of non-payment of loan, mortgagee has the right to sale of property by getting an order from the court
• The mortgagee cannot obtain the title of the property via foreclosure, he has right to sale of property to secure his loan amount
• Simple mortgage needs to be done through valid registered agreement
• Simple mortgage the security of debt is in two ways, the personal obligation of the mortgagor as well as the property mortgaged by the mortgagor

In case of Kishan Lai v. Ganga Ram (1891), the Court had held the words mentioned under Section 58(b) “right to cause the property to be sold” clarified that the mortgagee shall have the right to sell the property only through the intervention of the Court and not otherwise. Another case of Ram Narayan Singh v. Adhindra Nath, AIR (1916) PC 119, stated that even though some property was kept as security by the mortgagor, but that would not relieve him of his personal liabilities to pay off the debt along with the interest amount.

2. Mortgage by Conditional Sale –

Section 58(c) of the Transfer of Property Act defines the 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.]”

This type of mortgage offers the sale of the mortgaged property with a condition that if the loan amount is repaid by the mortgagor, then the mortgagee shall retransfer the title to the mortgagor and sale of the property shall become void. Under this mortgage, the mortgaged property is apparently sold to the mortgagee for sum of loan amount and if the seller is successful in repaying the loan amount, then the property shall be transferred back to the seller and sale of property becomes void.

Thus, this mortgage can be seen as a conditional sale, where the sole motive of the party is to secure the debt amount which is taken by the seller of the property. The characteristics of Mortgage by Conditional sale are-

• There is an apparent/ ostensible sale of an immovable property
• It is conditional sale and is subject to conditions, wherein if the loan amount is paid then the sale becomes void and buyer needs to retransfer the property, in case of non-payment of loan the sale of property becomes absolute.
• The document of mortgage should explicitly mention about the condition of sale and only then it can be considered

In the case of Natesa Pathar v. Pakkirisamy Pathar, AIR 1997 Mad 105, it was stated that the condition of sale and resale of the property was stated in the same document. The purchaser of the property was also prohibited from hampering the property for a period of 5 years till its repurchase. The deed even mentioned the actual value of the property and consideration stipulated by the purchaser; thus, the transaction was considered to be mortgage by conditional sale.

In case of Kamal Shaivajirao Katkar v. Gajrabai Sopanrao Algud, AIR 2001 Bom. 369, the case was that A was the owner of the land and had given possession of the land to B on receipt of money taken by him and under the agreement that B shall reconvey the property back to A once the amount is paid or else it would amount to sale of land to B. But the agreement didn’t mention anything or postulate the interest amount of loan. Thus, the Court found that the parties had no common intention to treat the transfer of property as “security for the debt” and therefore this cannot be considered as “mortgage by conditional sale” and was rather a sale transaction with the explicit condition to repurchase.

The case of Chunchun Jha v. Ibadat Ali, AIR 1954 SC 345 it was held by the Court that if sale and repurchase of the same property are drafted in separate documents or deeds then the transaction cannot be considered as “mortgage by conditional sale” irrespective of the fact whether the deed are simultaneously executed or not.

3. Usufructuary Mortgage –

Section 58(d) of the transfer of property act defines the Usufructuary mortgage, “Where the mortgagor delivers possession 1[or expressly or by implication binds himself to deliver possession] of the mortgaged property to the mortgagee, and authorises him to retain such possession until payment of the mortgage-money, and to receive the rents and profits accruing from the property 2[or any part of such rents and profits and to appropriate the same] in lieu of interest, or in payment of the mortgage-money, or partly in lieu of interest 3[or] partly in payment of the mortgage-money, the transaction is called an usufructuary mortgage and the mortgagee an usufructuary mortgagee.”

This mortgage basically allows the mortgagee to receive the rents and profits ensued from the mortgaged property and cover the interest amount from the respective benefits of the property. Under this mortgage, the mortgagor transfers the possession of the property to the mortgagee and since the property in in the possession of the mortgage, he is entitled to enjoy the rents and profits of the mortgaged property in lieu of the interest on the principal amount advanced to him. Once the debt is paid off, then the mortgagee shall return the possession of the property and is no more entitled to its rents and benefits.

The features of usufructuary mortgage are as follows-

• There is delivery of possession of mortgaged property to the mortgagee, can be express or implied undertaking of the mortgagor to deliver the possession
• Mortgagee can enjoy the benefits of the property or even use it till the dues are paid off by the mortgagor
• Mortgagor is not personally liable under this mortgage unlike in simple mortgage he is
• There is transfer to the mortgagee certain benefits of ownership, such as the right of possession of the property and enjoyment and use of the property.
• The mortgagee does not have the right to foreclose the property or even sue the property for sale.
• The most essential feature of this mortgage is that there is no time-limit stated for the repayment of the debt

In case of Hikmatulla v. Imam ali (1890) 12 All 203, it was held that under usufructuary mortgage the mortgagee can hold onto the possession of the property till the dues and interest is paid off and as there is no time limit specified in this mortgage, there cannot be a definite period of possession of property and in case a time limit is specified, then it would not be counted as usufructuary mortgage.

In case of Butto Kristo v. GOvindram, AIR (1939) Pat 540, it was held by the Court that if the mortgaged property is tenanted place, then the only viable way to give the possession of the property is by giving the right to collect the rents of the property and appropriate it towards the debt cumulatively.

4. English Mortgage –

Section 58(e) of the act defines the 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.”

English mortgage can be considered as the absolute form of transfer of property to mortgagee on the terms that when the loan is paid off on the certain date, then the mortgagee shall re-transfer the property to the mortgagor. As per the section stated above, the mortgagor here binds himself to repay the debt amount on specified date and transfers the property completely to the mortgagee on the condition that when the debt amount is paid off, the mortgagee will return the property back to mortgagor on payment of principal amount and interest.

Under English mortgage, it should be noted that the ownership is transferred on the promise that it shall be re-transferred to the person (mortgagor) once the loan amount is returned on the decided date, and as long as the property is with mortgagee, he is allowed the possession of property along with the enjoyments of profits and rents accrued to it. The features of English mortgage are-

• Mortgagor binds himself to repay the mortgage money on a specified date
• Mortgaged property is absolutely transferred to the mortgagee till the debt is paid off
• Absolute transfer is made on the condition that it shall be re-transferred once the payment is made by mortgagor
• The debt is to be paid within a certain time period and in case the mortgagor fails to do so, then mortgagee can foreclose or sell the property

In the case, Narayan v. Venkataramana, ILR (1902) 25 Madras 220 (235) FB the Court had noted the above three essential elements English Mortgage which included that the mortgagor needs to bind himself to repay the money, it should be an absolute transfer of property and the mortgagee shall reconvey the property back to mortgagor once the amount is paid.

But in India, the statutory power of sale of property is limited to very few communities like the Christians, people from English community and not to Hindus, Muhammadans, or Buddhists or any member of race, sect tribe as mentioned by the State government in its Official Gazette. Thus, in India people do have the right to enter into English mortgage but don’t have the power of sale of mortgaged property.

Read – Important Provisions of Consumer Protection Act

5. Mortgage by deposit of Title-deeds –

Section 58(f) defines the 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.”

This is a unusual kind of mortgage as the execution of the mortgage deed is not necessary by the mortgagor and mere submission of the documents of the title-deed is adequate to constitute a mortgage, documents of title-deeds is a legal evidence that the he/she owns the property. Thus, this mortgage is often opted by people by submitting their documents with the mortgagee to advance rapid loans especially common in the trading community. This mortgage has been adopted from the English Law and is known as the equitable mortgage.

As per, Section 96 of the transfer of property Act the mortgage by deposit of title deeds can be done without any writing or executing of deed and is as equivalent to simple mortgage. usually this kind of mortgage is adopted by bankers as it is less complex, inexpensive and time saving and the remedy for non-payment of loan can be filed by the mortgagee by filing a suit for sale of the mortgaged title. The major factors of this mortgage are-

• Debt should be existing
• Deposit of title deeds of property
• To create a security against the loan amount

In case of Jethibai v. Putlibai (1961) 14 Bom. L.R. 1020, it was held by the Court that there can be no equitable mortgage unless there is a common link between the debt owed and the possession of title-deeds which suggests the intention of security on the part of debtor and it can be attained only after repayment of the loan amount.

6. Anomalous Mortgage –

Section 58(g) of the Act defines 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 title-deeds within the meaning of this section is called an anomalous mortgage.”

The mortgage which doesn’t come in either of the categories mentioned above can be considered as an anomalous mortgage. So basically, if there is existence of loan or debt for which an immovable property is kept as a security till the loan amount is paid back, but the terms and condition of that mortgage don’t match with either of the mentioned mortgages, then it will come under the category of anomalous mortgage.

In case of Madho Rao v. Gulam Mohiuddin AIR 1919 PC 121, it was decided by the Court in case of an anomalous mortgage the intention of both the parties should be considered first from the deed or agreement executed by them as per the provision of the Act.

Conclusion –

Hence, one must have got an overview of all kinds of mortgages that exist and are recognized in India and the essential elements of a mortgage that should be kept in mind while constituting a mortgage. It should be noted that whenever you mortgage any immovable property what are the terms and conditions of that mortgage and be well versed with them in order to avoid any illegal transfer of your immovable property. People should also be well aware of the rights and liabilities of mortgagor and mortgagee depending upon the mortgage opted by them.

Refer – Transfer of Property Act, 1882