"Mortgage and its Types under Section 58 of the Transfer of Property Act, 1882",
Author ~ chandan sha
Chapterization
Chapter I: Introduction to Mortgage
Chapter II: Types of Mortgages
Chapter III: Challenges
Chapter IV: Conclusion and Suggestions
Bibliography
Chapter I: Introduction to Mortgage
The concept of a mortgage is a fundamental aspect of property law, particularly within the Indian legal framework. Under Section 58 of the Transfer of Property Act, 1882, a mortgage is defined as the transfer of an interest in specific immovable 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 that may give rise to a pecuniary liability.[6] Mortgage is defined by Section 58 (a) of the Transfer of Property Act, 1882 (TPA) as a 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 (monetary) liability.[7]
The transferor is called a mortgagor, the transferee a mortgagee; the principal money and interest of which payment is secured for the time being are called the mortgage-money, and the instrument (if any) by which the transfer is affected is called a mortgage-deed.
This transfer, however, does not amount to the transfer of ownership but merely an interest, distinguishing it from a sale. The mortgagor, who creates the mortgage, retains the title, while the mortgagee, who accepts the mortgage, gains the right to recover the loan from the property.
The historical evolution of the mortgage system in India reflects a transition from customary practices to codified laws. Before 1882, mortgages were governed by traditional customs, often leading to uncertainty in enforcement and interpretation. The Transfer of Property Act, 1882, introduced clarity and uniformity by codifying the rights and obligations of parties involved in mortgage transactions.[8] This codification was influenced by the English law of property and aimed to standardize legal procedures across different provinces of India.
Section 58 of the Act categorizes mortgages into six types: simple mortgage, mortgage by conditional sale, usufructuary mortgage, English mortgage, mortgage by deposit of title deeds (equitable mortgage), and anomalous mortgage. Each type carries distinct legal characteristics and remedies available to the mortgagee in case of default. For example, in a simple mortgage, the mortgagor personally binds himself to repay the loan and allows the mortgagee to cause the mortgaged property to be sold through court intervention if the debt is unpaid.[9]
In contrast, a mortgage by conditional sale appears as a sale with a condition to retransfer upon repayment. However, courts often analyse the substance over form to determine the true nature of the transaction. In Leela Agrawal v. Sarkar, the Supreme Court held that where the intent of the parties is genuinely a mortgage by conditional sale, the mortgagor retains the right of redemption even after the due date for repayment.[10]
A usufructuary mortgage allows the mortgagee to take possession and enjoy the rents and profits in lieu of interest or principal. The English mortgage requires the mortgagor to bind himself to repay on a certain date and transfer the property absolutely to the mortgagee, subject to retransfer upon repayment. The equitable mortgage is created by depositing title deeds, commonly used in urban commercial transactions. An anomalous mortgage, as per Section 58(g), refers to mortgages that do not fall under the previous categories and may include hybrid features.[11]
The introduction of these categories was crucial for ensuring predictability and legal certainty. Judicial interpretations have further refined the application of these provisions. Courts have consistently upheld the mortgagor’s right to redeem the property as a statutory right, even if delayed. In K. J. Nathan v. Maruthi Rao, the Supreme Court reiterated that the right of redemption is not lost merely due to delay unless barred by limitation or valid foreclosure.[12]
Understanding the legal framework governing mortgages is essential not only for legal practitioners but also for borrowers and financial institutions. As property transactions become more complex, especially in the context of urbanization and increased lending activities, clarity in mortgage documentation and legal compliance becomes crucial to avoid disputes. This chapter lays the foundation for the subsequent analysis of each type of mortgage and the corresponding legal remedies.
Chapter II: Types of Mortgages
Section 58 of the Transfer of Property Act, 1882, defines six distinct types of mortgages. Each type has unique legal characteristics, remedies, and obligations, making it crucial for both mortgagors and mortgagees to understand their legal implications.[13]
1. Simple Mortgage [Section 58(b)]: In a simple mortgage, the mortgagor binds himself personally to repay the mortgage money and agrees that in default of payment, the mortgagee has the right to cause the mortgaged property to be sold through the court.[14] The possession of the property remains with the mortgagor. This type of mortgage is most commonly used when the borrower is confident in their ability to repay.
§ The essential elements of simple mortgage are:
o There is a personal undertaking by the mortgagor to repay the loan.
o Possession and enjoyment remain with the mortgagor.
o There is a power of sale but to be exercised only through Court.
o It must be affected by a registered instrument.
o There is no delivery of ownership or possession.
o There is no foreclosure.
§ In the case of a simple mortgage, the mortgagee has two remedies:
o A personal undertaking to obtain a money decree against the mortgagor.
o To sue on the mortgage and obtain a decree for the sale of the property.
In Narandas Karsondas v. S.A. Kamtam, the Supreme Court clarified that a mortgagee does not get possession unless specifically agreed.[15]
2. Mortgage by Conditional Sale [Section 58(c)]: This form involves the ostensible sale of property with a condition that upon default of payment, the sale becomes absolute or on payment, the sale becomes void. It’s essential that the condition is incorporated in the same document as the sale.[16]
§ The essential elements of mortgage by conditional sale:
o There is an ostensible sale by the mortgagor to the mortgagee of the mortgaged property.
o There is a condition that the sale shall be void if the loan is repaid on a particular date. The property is then retransferred to the mortgagor.
o The remedy of the mortgagee is by a suit for foreclosure.
o Registration is compulsory only if the consideration exceeds Rs. 500.
o There should be only one document.
In Ganga Dhar v. Shankar Lal, the court emphasized that separate documents will not constitute a valid mortgage by conditional sale.[17]
3. Usufructuary Mortgage [Section 58(d)]: Here, the mortgagor delivers possession to the mortgagee, who then enjoys the rents and profits in lieu of interest or principal. There is no personal liability of the mortgagor, and no specific time limit for repayment is fixed. In Radhakrishna v. State of Kerala, the court observed that this type of mortgage is often informal and used in rural settings where the land yields income.[18]
4. English Mortgage [Section 58(e)]: This mortgage requires three conditions: the mortgagor binds himself to repay on a certain date, transfers the property absolutely to the mortgagee, and the mortgagee promises to retransfer it upon repayment[19]. This is a formal and structured mortgage, commonly used in institutional lending. In Sunderdas v. Madanlal, the court upheld that failure to repay on the specified date does not affect the mortgagor’s right to redemption.[20]
5. Mortgage by Deposit of Title Deeds [Section 58(f)]: Commonly known as an equitable mortgage, it is created by mere delivery of title deeds to the creditor.[21] No registration is needed. This is prevalent in notified towns like Mumbai, Chennai, and Kolkata. In K.J. Nathan v. S.V. Maruthi Rao, the court observed that intention to create security is essential to form this type of mortgage.[22]
6. Anomalous Mortgage [Section 58(g)]: Any mortgage that does not fall under the above five categories is an anomalous mortgage. It could be a mixture of usufructuary and simple mortgage or any other type not expressly categorized. The terms depend on the contract between the parties. In Vanchalal v. Gordhandas, the court held that rights and remedies are governed by the terms of the agreement.[23]
In addition to these statutory mortgages, two other types are often discussed under customary law: Sub-Mortgage and Puisne Mortgage. A sub-mortgage occurs when the mortgagee mortgages the mortgaged property to another party, while a puisne mortgage is a second or subsequent mortgage on a property already mortgaged, and it requires registration. Courts have held that the priority of claims must be clearly established for enforcement.[24]
Understanding these types of mortgages is crucial for interpreting the rights of redemption and foreclosure. The Supreme Court has consistently ruled that the right of redemption under Section 60 of the Transfer of Property Act is a statutory right and cannot be waived by mere agreement.[25]
The categorization of mortgages under Section 58 provides clarity and structure in mortgage transactions. Each type has distinct features, and judicial interpretation plays a significant role in their practical application. This legal framework ensures a balance between the creditor’s security and the debtor’s right to property.
Chapter III: Challenges
Challenges in Mortgage Law
While the Transfer of Property Act, 1882, provides a structured legal framework for mortgages, there are several challenges in its implementation and interpretation. Firstly, the overlapping nature of mortgage types, especially anomalous and usufructuary mortgages, creates confusion and litigation due to lack of clarity in contractual terms. Secondly, the informal creation of equitable mortgages through deposit of title deeds is often misused in fraudulent transactions without adequate regulatory safeguards. Further, due to the lack of digitization of land records in many parts of India, proving title and ownership becomes a procedural hurdle. Additionally, mortgagors from rural areas may not fully comprehend the legal implications of mortgage deeds, leading to exploitation. Lastly, although judicial precedents exist to support borrower rights, enforcement remains slow, undermining the effectiveness of redress mechanisms.
Chapter IV: Conclusion and Suggestions
Conclusion
The law relating to mortgages under Section 58 of the Transfer of Property Act provides a detailed classification that balances creditor interests with debtor protection. However, its practical utility is compromised by procedural challenges, outdated formalities, and inadequate borrower awareness. Judicial interpretations have helped evolve the law, especially concerning the mortgagor’s right of redemption and foreclosure safeguards. To ensure that the legal framework keeps pace with financial developments, consistent statutory reforms and legal literacy initiatives are necessary.
Suggestions
There is an urgent need for digitization of land and mortgage records, particularly in rural areas. Awareness drives should be conducted to educate mortgagors about their rights and obligations. It is also suggested that the law be amended to better regulate equitable mortgages. Streamlined court procedures for mortgage disputes would improve access to justice. Lastly, standardized documentation and clarity in mortgage terms should be mandated for financial institutions.
Bibliography
· Avtar Singh, Law of Sale of Goods and Transfer of Property (Eastern Book Company, 2022).
· Mulla, Transfer of Property Act (LexisNexis, 12th ed. 2021).
· R.K. Sinha, The Transfer of Property Act (Central Law Agency, 2020).
STATUTE/ACTS
· Transfer of Property Act, No. 4 of 1882, India Code (1882).
WEBSITES
· https://indiankanoon.org
· https://legislative.gov.in/
DICTIONARY
· Black’s Law Dictionary (11th ed. 2019).
[1] Transfer of Property Act, No. 4 of 1882, §§ 58 et seq. (India).
[2] Ibid
[4] Avtar Singh, Law of Sale of Goods and Transfer of Property (Eastern Book Company, 2022).
[5] R.K. Sinha, The Transfer of Property Act (Central Law Agency, 2020).
[6] Transfer of Property Act, No. 4 of 1882, § 58 (India).
[7] Transfer of Property Act, No. 4 of 1882, § 58(a) (India).
[8] Transfer of Property Act, No. 4 of 1882, §§ 58 et seq. (India).
[9] Transfer of Property Act, No. 4 of 1882, § 58(b) (India).
[10] Leela Agrawal v. Sarkar, FA No.55/2002(Sep. 6,2018)
[11] Transfer of Property Act, No. 4 of 1882, §§ 58(f) (g) (India).
[12] K.J. Nathan v. S.V. Maruthi Rao, (1965) 1 SCR 244 (India).
[15] Narandas Karsondas v. S.A. Kamtam, (1977) 3 SCC 247 (India)
[17] Ganga Dhar v. Shankar Lal, AIR 1965 SC 1379 (India).
[18] Radhakrishna v. State of Kerala, (2000) 1 SCC 230 (India).
[19] Transfer of Property Act, No. 4 of 1882, § 58(e) (India).
[20] Sunderdas v. Madanlal, (1988) AIR MP 12 (India).
[22] K.J. Nathan v. S.V. Maruthi Rao, (1965) 1 SCR 244 (India).
[23] Vanchalal v. Gordhandas, (1963) AIR 1315 (SC) (India).
[24] Union of India v. Raman Iron Foundry, AIR 1974 SC 2340 (India).
[25] Kedar Nath v. Gorie Mohammad, AIR 1951 SC 118 (India).
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