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CHANAKYA NATIONAL LAW UNIVERSITY

A PROJECT OF

PROPERTY LAW ON

MORTGAGE IN GENERAL

SUBMITTED TO:

DR. P K V SITA RAMA RAO

(Faculty Of Property Law)

SUBMITTED BY:

UDIT KAPOOR

ROLL NO.-1660

3ND SEM.,2nd YEAR

B.B.A. LL.B.(Hons)

2016-21
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DECLARATION BY THE CANDIDATE

I hereby declare that the work reported in the BB.A. LL.B (Hons.) Project Report
Entitled MORTGAGE IN GENERAL submitted at Chanakya National Law
University, Patna is an authentic record of my work carried out under the
supervision of Dr. P K V Sita Rama Rao.

I have not submitted this work elsewhere for any other degree or diploma. I am fully
responsible for the contents of my Project Report.

(Signature of the Candidate)

UDIT KAPOOR
Chanakya National Law University, Patna
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Contents
INTRODUCTION ....................................................................................................................................... 6
Section 58 of The Transfer Of Property Act, 1882 .............................................................................. 6
MORTGAGE ............................................................................................................................................. 7
Forms of Mortgages ............................................................................................................................ 8
Rights of Mortgager .......................................................................................................................... 11
Dhoomi Mal Ram Chand Vs. the Collector of Stamps ......................................................................... 13
RIGHT OF REDEMPTION. ....................................................................................................................... 14
POSITION IN THE TRANSFER OF PROPERTY ACT. .......................................................................... 15
EQUITY OF REDEMPTION. ................................................................................................................. 16
ONCE A MORTGAGE ALWAYS A MORTGAGE........................................................................... 17
CLOG ON REDEMPTION. ................................................................................................................. 18
CASES ON EQUITY OF REDEMPTION. .......................................................................................... 20
CONCLUSION......................................................................................................................................... 21
BIBLIOGRAPHY ...................................................................................................................................... 22
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ACKNOWLEDGEMENT
Firstly, I would like to thank my faculty of fundamentals of management Dr. Sita Rama rao
for providing me an opportunity to make my project on such an interesting topic which is also
a contemporary issue as for now.

Secondly, I would like to thank all my colleagues and friends for helping me out in
arranging of the accumulated collected study material.

Lastly, special thanks to my parents for guiding me in giving the final touch to this project
and helping me out throughout this project.
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RESEARCH METHODOLOGY:
The reseacher has used descriptive style of writing in presentation of this paper.Further,the
researcher has used the doctrinal method to look for the related to this topic

AIM AND OBJECTIVE

the aim and objective of the project work are:

To critically analyse the nature of mortgage

To define and understand type of mortgage

To understand about redemption

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INTRODUCTION

Section 58 of The Transfer Of Property Act, 1882

Section 58(a) 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.

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.

The instrument (if any) by which the transfer is effected is called a Mortgage-Deed.

Section 58(b) 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.

Section 58(c) 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
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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 a 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.

Section 58(d) 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 authorises 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 a usufructuary mortgage and the mortgagee a usufructuary mortgagee.

Section 58(e) 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.

Section 58(f) 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 immovable property, with
intent to create a security thereon, the transaction is called a mortgage by deposit of title-
deeds.

Section 58(g) Anomalous mortgage-A mortgage which is not a simple mortgage, a

mortgage by conditional sale, a usufructuary mortgage, an English mortgage or a mortgage
by deposit of title-deeds within the meaning of this section is called an anomalous mortgage.

MORTGAGE
A mortgage is a method of creating charge on immovable properties like land and building.
Section 58 of the Transfer of Property Act 1882, define a mortgage as follows:
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"A mortgage is 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 which may give rise to a pecuniary
liability."
In terms of the definition, the following are the characteristics of a mortgage:
(1) A mortgage can be effected only on immovable property. Immovable property includes
land, benefits that arise out of land and things attached to earth like trees, buildings and
machinery. But a machine which is not permanently fixed to the earth and is shift able
from one place to another is not considered to be immovable property.
(2) A mortgage is the transfer of an interest in the specific immovable property. This means
the owner transfers some of his rights only to the mortgagee. For example, the right to
redeem the property mortgaged.
(3) The object of transfer of interest in the property must be to secure a loan or performance
of a contract which results in monetary obligation. Transfer of property for purposes other
than the above will not amount to mortgage. For example, a property transferred to
Liquidate prior debt will not constitute a mortgage.
(4) The property to be mortgaged must be a specific one, i.e., it can be identified by its size,
location, boundaries etc.
(5) The actual possession of the mortgaged property is generally with the mortgager.
(6) The interest in the mortgaged property is re-conveyed to the mortgager on repayment of
the loan with interest due on.
(7) In case, the mortgager fails to repay the loan, the mortgagee gets the right to recover the
debt out of the sale proceeds of the mortgaged property.

Forms of Mortgages
Section 58 of the transfer of Property Act enumerates six kinds of mortgages:
(1) Simple mortgage.
(2) Mortgage by conditional sale.
(3) Usufructuary mortgage.
(4) English mortgage.
(5) Mortgage Ly deposit of title deeds.
(6) Anomalous mortgage.
(1) Simple Mortgage
In a simple mortgage, the mortgager does not deliver the possession of the mortgaged
property. He binds himself personally to pay the mortgage money and agrees either
expressly or impliedly, that in case of his failure to repay, the mortgagee shall have the
right to cause the mortgaged property to be sold and apply the sale proceeds in payment
of mortgage money.
The essential feature of the simple mortgage is that the mortgagee has no power to sell the
property without the intervention of the court. The mortgagee can:
(i) apply to the court for permission to sell the mortgaged property, or
(ii) file a suit for recovery of the whole amount without selling the property.
(2) Mortgage by Conditional Sale
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In this form of mortgage, the mortgager ostensibly sells the property to the mortgagee on
the following conditions:
(i) the sale shall become void on payment of the mortgage money.
(ii) the mortgagee will retransfer the property on payment of the mortgage money.
(iii)the sale shall become absolute if the mortgager fails to repay the amount on a certain
date.
(iv) the mortgagee has no right of sale but he can sue for foreclosure.
Foreclosure means the loss of right possessed by the mortgager to redeem the mortgaged
property. The mortgagee has the right to institute a suit for a decree so that the mortgager
will be absolutely debarred from his right to redeem the property. The right to foreclosure
arises when the time fixed for repayment expires and the mortgager fails to repay the
mortgage money. Without the fore closure order the mortgagee will not become the
owner of the property.

(3) Usufructuary Mortgage

Under this form of mortgage, the mortgager delivers possession of the property or binds
himself to deliver possession of the property to the mortgagee. The mortgagee is
authorized to retain the possession until the debt is repaid. The mortgager reserves the
right to recover the property when the money is repaid.
The essential feature of this form of mortgage is that the mortgagee is entitled to receive
rents and profits relating to the mortgaged property till the loan is repaid and appropriate
the same in lieu of interest or in repayment of the loan or both.
The mortgager is not personally liable to repay the mortgage money. So the mortgagee
cannot sue the mortgager for repayment. He can neither sue foreclosure nor sue for sale of
the mortgaged property; the only remedy for the mortgagee is to remain in possession of
the property and pay himself out of the rents or profits of the mortgaged property. Since
there is no time limit he has to wait for a very long time to recover his dues.
(4) English Mortgage
The English mortgage has the following characteristics:
(1) The mortgager transfers the property absolutely to the mortgagee. The mortgagee,
therefore, is entitled to take immediate possession of the property. The transfer is
subject to the condition that the property shall be transferred on repayment of the
loan.
(2) The mortgager also binds himself to pay the mortgage money on a certain date.
(3) In case of non-repayment, the mortgagee has the right to sell the mortgaged property
without seeking permission of the court in circumstances mentioned in section 69 of
the Transfer of Property Act.
(5) Mortgage by Deposit of Title Deeds
When a debtor delivers to a creditor or his agent document of title to immovable property,
with an intention to create a security there on, the transaction is called mortgage by
deposit of title deeds. Such a mortgage is restricted to the towns of Kolkata, Mumbai and
Chennai and other towns notified by the State government for this purpose in the Official
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Gazette. This type of mortgage requires no registration. This form of mortgage is also
known as equitable mortgage.
(6) Anomalous Mortgage
In terms of this definition an anomalous mortgage is one which does not fall under
anyone of the above five terms of mortgages. Such a mortgage can be effected according
to the terms and conditions of the mortgager and the mortgagee. Usually it arises by a
combination of two or more of the above said mortgages. It may' take various forms
depending upon custom, usage or contract.

Legal Mortgage Vs. Equitable Mortgage

On the basis of transfer of title to the mortgaged property, mortgages are divided into two
types, namely:
(i) Legal Mortgage.
(ii) Equitable Mortgage.

Legal Mortgage
In a legal mortgage, the legal title to the property is transferred in favour of mortgagee by a
deed. The deed is to be registered when the principal money is Rs. 100/- or more. On
repayment of the loan, the legal title is retransferred to the mortgagor. This method of
creating charge is expensive as it involves registration charges and stamp duty.

Equitable Mortgage
An equitable mortgage is effected by mere delivery of documents of title to property to the
mortgagee. The mortgagor through Memorandum of deposit undertakes to grant a legal
mortgage if he fails to pay the mortgage money.
Essential Requirements of Equitable Mortgage
(1) An equitable mortgage requires three essential features
i. there must be a debt existing or future,
ii. there must be deposit of title deeds, are the title deeds should be deposited as security
for the debt.
(2) Registration of documents is not necessary.
Royal Printing Works and Others Vs. Oriental Bank of Commerce (7990). It was
established in the above case, that where a security is furnished by deposit of title deeds,
no registration is necessary.
(3) An equitable mortgage can be effected only in the towns of Kolkata, Mumbai and
Chennai and in certain places notified by the State Government.
Sulochana and Others Vs. The Pandyan Bank Ltd1. It was held in the above case that the
debtor need not produce the documents and deposit the same in person in any of the
towns mentioned in that Section. If the intention was to deposit the documents in the
1 AIR 1975 Mad 70
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towns mentioned and the documents were duly forwarded, such deposit shall be deemed
to have been made in the towns specified in the Section.
Sabasiva Rao Vs. Bank of Baroda2 It was held that even if certified copies of documents
of title to goods are deposited, if the intention of the deposit is for. security to cover a
loan, it would amount to equitable mortgage.
(4) The documents are to be retransferred to the mortgagee on repayment of the debt.
(5) The mortgagee is empowered to apply to the court to convert the equitable mortgage into
a legal mortgage, if the mortgager fails to repay the loan on a specified date.

Advantages
(1) No registration is required in equitable mortgage and so stamp duty is saved.
(2) It involves minimum formalities.
(3) The information regarding such mortgage is kept confidential between the lender and
borrower. So the reputation of the borrower is not affected.

Disadvantages
(1) If the mortgagor fails to repay, the mortgagee must get the decree for the sale of the
property. Getting a decree is expensive and time consuming.
(2) The borrower may hold the title deeds not on his own account, but in the capacity of a
trustee. If an equitable charge is created, the claim of the beneficiary under the trust will
prevail over equitable mortgage.
(3) There is the risk of subsequent legal mortgage in favour of another party. If the equitable
mortgagee parts with the security, even for a short period, the debtor may create a second
legal mortgage over the same property. In that case, the second mortgage shall have the
first priority over the equitable mortgagee. The mortgagee should be very careful in this
regard.

Rights of Mortgager
(1) Rights of Redemption: The mortgager has a right to redeem the mortgaged property
provided:
a. he-pays the mortgage money on due date at the proper place and time,
b. the right of redemption has not been terminated by an act of the parties or by decree
of a court.

2
1991 70 CompCas 840 AP
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The mortgager who has redeemed the mortgage is entitled to the following rights:
(a) to get back the mortgage deed and all other documents relating to the mortgaged
property,
(b) to obtain possession of the mortgaged property from the mortgagee, as in the case of
English mortgage,
(c) to have the mortgaged property retransferred at his cost to him or to such third person
as he may direct.
(2) Accession to Mortgaged Property: During the possession of the property, if the
mortgagee has voluntarily made any improvement in the property, the mortgager, on
redeeming the property, is entitled to all such additions or improvements, unless there is a
contract to the contrary.
(3) Right to Transfer to Third Party: The mortgager may require the mortgagee to transfer
the mortgaged property to a third person instead of retransfer to him.
(4) Right to Inspection and Production of Documents: The mortgager has the right to
inspect and make copies of all documents of title in the custody of mortgagee.

Rights of Mortgagee
(1) Right to sue for mortgage money: The mortgagee has the right to file a suit in a court of
law for the mortgage money in the following cases:
a. Where the mortgager binds himself to repay the mortgage money, as in the case of
simple and English mortgage.
b. Where the mortgaged property is wholly or partly destroyed or the security is
rendered insufficient and to mortgager has not provided further security.
c. Where the mortgagee is deprived of the whole or a part of his security by the
wrongful act of the mortgager.
d. Where the mortgager fails to deliver the mortgaged property in case the mortgagee is
entitled to it.
(2) Right of sale: The mortgagee in case of a simple, English and equitable mortgage has the
right to sell the property after filing a suit and getting a decree from a court.
A mortgagee has a right of sale without the intervention of the court under certain
circumstances mentioned in Section 69 of Transfer of Property Act.
(3) Right of foreclosure: The mortgagee has a right to obtain from the Court a decree for
foreclosure against the mortgager, that is, the mortgager is absolutely debarred of his right
to redeem the property. The right of fore closure is allowed in (i) a mortgage by a
conditional sale, and the anomalous mortgage.
(4) Right of accession to property: If any addition is made to the mortgaged property, the
mortgagee is entitled to such addition for the purpose of security provided there is no
contract to the contrary. For example, A mortgages a certain plot of land to B and
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afterwards constructs a building on it. B is entitled to the building and land as security for
the loan.
(5) Right of possession: The mortgagee is entitled to the possession of the mortgaged
property as per the terms of mortgage deed. Such a right is available in usufructuary
mortgage.

Sub-Mortgage
A sub-mortgage is created when the mortgagee gives the mortgaged property as security for
advance. The mortgaged security is the property of the mortgagee and so he has the right to
re-mortgage for securing loans.
The sub-mortgagee is placed in the position of the original mortgagee and entitled to receive
the mortgage money, sue for the property and realise, the security. Therefore, a sub-mortgage
is also known as 'mortgage of mortgagee.'
Tacking
A borrower can legally create any number of mortgages on his property. But the mortgage
will rank in priority according to the dates of mortgage. For example, a property is mortgaged
in the following order.
1-1-03 in favour of A Rs.l0,OOO
1-2-03 in favour of B Rs. 8,000
1-3-03 in favour of C Rs. 6,000

A question may raise in this connection whether C, by redeeming the prior mortgage of A is
entitled to tack to the first mortgage?

According to Section 93 ofTransfer of Property Act, no subsequent mortgagee by paying off

a prior mortgage acquires any priority in respect of his original security.

Dhoomi Mal Ram Chand Vs. the Collector of Stamps3

it is common ground that the deed in question is a 'mortgage deed' within the meaning
of section 2(17) of the Stamp Act. The question is whether it is a mortgage with possession
or a simple mortgage. The distinction between these two types of mortgage has to be gathered
from the provisions of the Transfer of Property Act, 1882, section 58(b), of which defines a
simple mortgage and section 58(d) of which defines a usufructuary mortgage. In a simple
mortgage. the mortgagor does not deliver possession of the mortgaged property to the
mortgagee but binds himself personally to pay the mortgage-money and agrees that on his
failure to pay the same, the mortgage, the mortgagor does not deliver possession of the

3
AIR1972Delhi146; ILR1972Delhi755
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mortgaged pro so far as may be necessary for the satisfaction of the mortgage debt. In a
usufructuary mortgage, on the other hand, the mortgagor delivers possession of the
mortgaged property to the mortgagee or expressly or by implication binds himself to deliver
such possession and authorises the mortgagee to retain such possession until payment of the
mortgage-money and to receive rents and profits of the property and appropriate the same
towards the satisfaction of the mortgage debt. The meaning of 'possession' in section 58 of
the Transfer of Property Act is not actual physical possession but such possession which
the property is capable of.

In Mst. Fatima Bibi v. Abdul Gaffar Khan4, the sale consideration was full value of the
property conveyed. There was an agreement to reconvey in favour of one of the vendors. It
was held that no mortgage by conditional sale was created.

In Debi Singh v. Jagdish Saran Singh,5 a Full Bench of this court had occasion to consider
the effect of the proviso to Section 58(c), Transfer of Property Act. It was held by the Full
Bench by a majority that if a deed effecting or purporting to effect a sale, after the
amendment in Clause (c) of Section 58 of the Transfer of Property Act came into
force, contains any one of the three conditions mentioned in that clause, it is in every case a
deed of mortgage by conditional sale. Nasirullah Beg J. took a different view. He was of the
view that where the transaction is embodied in one document, the transaction does not
necessarily become a mortgage by conditional sale irrespective of the intention of the parties.
In view of subsequent decisions of the Supreme Court, the proposition laid down by the
majority in Debi Singh's case cannot be accepted as an accurate statement of law.

RIGHT OF REDEMPTION.
Section 60 of the Act lays down the provision of the redemption of the mortgaged property in
following words:
60. Right of mortgagor to redeem
At any time after the principal money has become due, the mortgagor has a right, on
payment or tender, at a proper time and place, of the mortgage-money, to require the
mortgagee (a) to deliver to the mortgagor the mortgage-deed and all documents
relating to the mortgaged property which are in the possession or power of the
mortgagee, (b) where the mortgagee is in possession of the mortgaged property, to
deliver possession thereof to the mortgagor, and (c) at the cost the mortgagor either to
re-transfer the mortgaged property to him or to such third person as he may direct, or
to execute and (where the mortgage has been effected by a registered instrument) to

4
A.I.R. 1924 All. 743.

5
A.I.R. 1952 All 716
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have registered an acknowledgement in writing that any right in derogation of his

interest transferred to the mortgagee has been extinguished:
Provided that the right conferred by this section has not been extinguished by act of
the parties or by decree of a court.
The right conferred by this section is called a right to redeem and a suit to enforce it
is called a suit for redemption.
Nothing in this section shall be deemed to render invalid any provision to the effect
that, if the time fixed for payment of the principal money has been allowed to pass or
no such time has been fixed, the mortgagee shall be entitled to reasonable notice
before payment or tender of such money.

The right of redemption of the mortgaged property is one of several rights that are vested in
the mortgagor. Right to redeem is the right to recover something by making certain payments.
In case of the mortgage, mortgagors right to redeem is called his right to recover or get back
the property, after he repays the loan.

Dwelling upon the provision of section 60 of the Act, the subject matter of the right
of redemption can described as that right of the mortgagor, or of any third person directed by
him, which entitles him to get back the possession of the mortgaged property after the
payment of the mortgaged money

However, if the above stated rights have been extinguished by the act of the parties or
by a decree of the court, they can not be exercised.

The right granted under this section is called the right of redemption and the suit for
its enforcement is called the suit of redemption. The mortgagee has the right to get a
reasonable notice before payment or tender of such money.

It is the most important right of the mortgagor, through which, the mortgagor after
paying-off the money becomes entitle to get back the property. At any time after the
mortgage- money has become due, the mortgagor has a right on the payment of the mortgage-
money to require the mortgagee to reconvey the mortgaged property to him. This right of the
mortgagor, through which he is entitled to get the property returned to him,
contemporaneously with the discharge of his obligation, is called the right of redemption.

POSITION IN THE TRANSFER OF PROPERTY ACT.

Unlike England, the Act does not distinguish between the right to redeem and equity of
redemption. In England, this right was evolved by the Chancery Courts and was known as
equity of redemption. On the following counts, the mortgagors right to redeem can be
justified:

1. Transfer of an interest. In a mortgage, the mortgagor transfers one of all his interests in
the immovable property. The mortgagor transfers only an interest in favour of mortgagee
and not the whole interest in the property.
 P a g e | 16

2. Residuary ownership. After creating an interest in favour of mortgagee, the mortgagor

still has the remaining interest. The remaining interest is called the residuary ownership
of the mortgagor in the mortgage-property. It is the residuary ownership, by virtue of
which, the mortgagor has the right to redemption vested in him.
3. Purpose is only securing the payment of debt. As per the provisions of the Transfer of
Property Act, in the transaction of mortgage, since there is a transfer of an interest of the
immovable property by the mortgagor for securing the loan, he is entitled to get back that
interest on the repayment of the loan. By making the payment of the loan with its
interest, the mortgagor becomes entitled to redeem, that is call back the interest given
to the mortgagee as security for repayment.
4. Principles of equity, justice and good conscience. Mortgagor neither intends nor desires
that the property should go absolutely to mortgagee. Therefore if the mortgagee is unable
to repay the debt on a fixed date and there is some delay, the law must extend his right to
redemption upto a reasonable time. Principles of equity, justice and good conscience do
not allow that a transaction which is of borrowing nature should become an absolute
conveyance, only on the ground that the debt was not paid on the fixed date. It is
therefore, an inherent right of every mortgagor, laid down in sec. 60, irrespective of the
kind of mortgage.

EQUITY OF REDEMPTION.
The right of redemption of the mortgagor under sec. 60 of the Transfer of Property Act is
based on the equity of redemption under English law.

In England, the mortgagors right of redemption was introduced by the Chancery

Courts, also known as the Courts of Equity. The mortgagors right to redeem the mortgage by
making payment, even after the due date is known as equity of redemption. The Chancery
Court introduced this right in order to do justice with cases on mortgage decided under the
common law.

Prior position at Common Law.

At common law, the mortgage was the transfer of legal estate (absolute interest), subject to a
condition. The condition was non-payment of loan upto fixed date, which if fulfilled, the
mortgaged property belonged absolutely to the mortgagee. Common law treated the non-
payment of debt upto a specified period as penalty for the mortgagor. The common law gave
no relief to the mortgagor, who failed to repay the debt upto the specified period, even though
he was ready to repay within few days after the specified period. Thus, in default of the
repayment the mortgagor lost all his rights in his immovable property.

This situation was exploited by the money-lenders, by not accepting the money on the
due date. They knew that if somehow the loan with interest remained unpaid upto the fixed
 P a g e | 17

date, they will become owner of the property in lieu of the small sum of money, which the
debtor took in his urgent need.

Role of Chancery Courts.

Soon the Chancery Courts realized that the main purpose of the mortgage is to keep the
property as a security to the money-lender for the repayment of money. Therefore, the
money-lender should not be given any legal right to hold on the property absolutely if the
mortgagor was ready to repay the debt within reasonable time after the expiry of the due date.
Thus, the right which was denied by the Common Law was given to the mortgagor by the
Courts of Equity. This right of the mortgagor to redeem even if he was in default was known
as equity of redemption.

Thus, this very principle evolved by the Chancery Courts went against the common
law. Equity started with the notion that stipulation as to time (fixed date for repayment)
should not be treated as penalty. The Courts even held it to be the essential character of every
mortgage. They provided further that it was an important right of the mortgagor and it could
not be denied in any manner, not even express agreement of the parties themselves. Equity
declared that once a mortgage, always a mortgage.

ONCE A MORTGAGE ALWAYS A MORTGAGE.

This maxim implies that the mortgagors right of redemption would not be defeated by any
agreement to the contrary, even if the mortgagor himself has agreed to it. The maxim simply
denied the validity of any stipulation in the mortgage deed, which defeats the mortgagors
right of redemption. In other word, a transaction, which at one time is mortgage, could not
cease to be so by having any stipulation in the mortgage deed intended to defeat the
mortgagors right of redemption.

The underlying principle of this maxim was stated by LORD HENLEY in following
words:

This Court as a Conscience is very jealous of persons taking securities for a loan

and converting such securities into purchases. And therefore I take it to be an

established rule, that a mortgagee can never provide at the time of making the loan
for any event or condition on which the equity of redemption shall be discharged and
the conveyance made absolute. And there is great reason and justice in this rule for
necessitous men are not, truly speaking, free men, but to answer present exigency,
will submit to any terms that the crafty may impose upon them6.

6
Vernon v. Bethell, (1762) 1 Eden 113; available in R. K. Sinhas The Transfer of Property Act, 9th ed., p.
289.
 P a g e | 18

CLOG ON REDEMPTION.
The right of redemption continues although the mortgagor fails to pay the debt at the due
date. Any provision inserted in the mortgage-deed which has the effect of preventing or
impeding this right is void as a clog on redemption. This view was substantiated by
LINDLEY M. R. in Stanley v. Wilde7.

The Supreme Court considered this rule in Murarilal v. Devkaran8, where the clause
incorporated in the mortgage deed provided that the amount due under the mortgage should
be paid within 15 years whereupon the property would be redeemed. Further it provided that
in case payment was not made within that period, mortgagee would become the owner of the
property. The Supreme Court affirming the decision of the Rajasthan High Court, held that
any stipulation contained in the mortgage deed, which unreasonably restrained the
mortgagors equity of redemption can be ignored by the courtsubject to the general law of
limitation prescribed in that behalf.

a) Long Term for Redemption. It is not necessarily true that a long term for redemption
is always a clog on redemption. However, if the length of the term is found to be
oppressive, redemption would be allowed before the expiry of that period. A period
of 90 years for redemption has been held to be unreasonable and a clog on
redemption9. A period of 90 years for redemption has not been held to be a clog on
redemption10.

b) Condition of Sale in Default. A condition in the deed that has the effect of converting
a mortgage into a sale is invalid as a clog on redemption. such condition converts a
mortgage into a sale. Equity disfavours a mortgage to be converted into a sale. It is
therefore void. In Gulab Chand Sharma v. Saraswati Devi11, there was a mortgage
by conditional sale. The mortgagor was given a time of four years for repayment of
the debt. The mortgage property was on lease. The deed contained a stipulation that
in case the mortgagee receives any notice from any public authority for breach of
covenants of lease within four years term, the mortgagee shall become owner of the
property. The apex court held this stipulation to be a clog on mortgagors right of
redemption and therefore not to be enforced.

7
(1899) 2 Ch 474.
8 AIR
1965 SC 225.
9 Fateh
Mohd. v. Ram Dayal, 2 Luck 588.
10
Massa Singh v. Gopal Singh, AIR 1983 P&H 437.
11
AIR (1977) SC 242.
 P a g e | 19

But after the execution of the deed, the parties agree to the sale of the property
that does not amount to be a clog on the redemption.

c) Condition Postponing Redemption in Default on a Certain Date. The condition or

stipulation that postpones the mortgagors right of redemption in case of default of
payment on a certain date, is regarded a clog on redemption as it bars or restricts the
redemption. In Mohd. Sher Khan v. Seth Swami Dayal12, the mortgage was for a
term of five years. A stipulation in deed said that if the mortgagor failed to pay the
money, the mortgagee was entitled to take possession of the property for next 12
years, during which the mortgage could not be redeemed. The Privy Council held the
stipulation to be a clog on redemption for it hindered the right of redemption.
d) Restraint on Alienation. A condition, which restraints the mortgagor from
transferring mortgage-property is a clog. In a mortgage, the mortgagor only transfers
an interest in the property and still has residuary ownership. Hs has every right to
transfer the property by sale, gift etc and can even, effect another mortgage.
e) Collateral benefits to Mortgagee. Collateral benefits to mortgagee are not necessarily
clog on the redemption. In order to establish that the collateral benefits are clog on the
redemption it is necessary that:
a. The collateral benefits given to the mortgagee are unfair and unconscionable,
and
b. The collateral benefits to mortgagee are part of the transaction of mortgage
and not an independent benefit.
In Kreglinger v. New Patagonia Meat & Cold Storage Company Ltd.10, there was an
agreement dated 24 August 1910, whereby a firm of wool brokers agreed to lend to a
company carrying on the business of meat preservers a sum of 10,000 at 6 per cent.
The deed further provided that if the interest was punctually paid the loan was not to
be called in until 30 September 1915, but the company, might pay off at any time on
giving one calendar month's notice. The loan was secured by a floating charge on the
undertaking of the company. The agreement provided that for a period of five years
from the date thereof the company should not sell sheepskins to any person other than
the lenders so long as the latter were willing to buy at the best price offered by any
other person and that the company should pay to the lenders a commission on all

12
AIR (1922) PC 17.
 P a g e | 20

sheepskins sold by the company to any other person. The loan having been paid off
by the company in January 1913, in accordance with the agreement, the lenders
claimed to exercise their option of pre-emption notwithstanding the payment off of
the loan. The House of Lords held the stipulation for the option of pre-emption
formed no part of the mortgage transaction, but was a collateral contract entered into
as a condition of the company obtaining the loan. It was not a clog on the equity of
redemption or repugnant to the right to redeem and the lenders were entitled to an
injunction restraining the company from selling sheepskins to any person other than
the lenders in breach of the agreement.

f) Penalty in Case of Default. An agreement which amounts to penalty in case of non-

payment of debt is a clog on redemption. 13
CASES ON EQUITY OF REDEMPTION.

In Seth Gangadhar v. Shankar Lal and Ors11, it was admitted that the transaction was that
of a mortgage and Section 60 of the Transfer of Property Act was applicable. The Court held
that therein the term of mortgage was 85 years and there existed no stipulation entitling the
mortgagor to redeem during that term which had not expired. The document in question was
held by this Court to be containing a stipulation creating a clog on the equity of redemption
which was found to be illegal.

In Pomal Kanji Govindji and Ors. v. Vrajlal Karsandas Purohit and Ors.12, the Court held
that whether a clause used in a transaction of mortgage amounted to clog on the equity of
redemption is a mixed question of law and fact. In that case, there existed a provision for
payment of interest at the rate of half per cent per annum payable on the principal amount at
the end of the long period which led the Court to conclude that there was a clog on equity of
redemption. Furthermore, in that case, materials were brought on record to show that the
transaction was entered into by way of security for the loan obtained.

In Shivdev Singh and Anr. v. Sucha Singh and Anr.13, the Court was dealing with a case of
anomalous mortgage. Therein the mortgage was to remain operative for a period of 99 years.
It was in that situation, this Court opined that the original owner having been in great
financial difficulty, the mortgagees took advantage of the said fact and incorporated a 99
year's term which constituted a clog on the equity of redemption. 14 15 16

13 (1914) AC 25.
14 1959
SCR 509.
15 MANU/SC/0372/1988.

16 MANU/SC/0230/2000.
 P a g e | 21

On 18.2.1983, the plaintiffs/respondents (mortgagors), after nearly three decades,

filed a suit before Addl. City Civil Judge, Bangalore for a decree of redemption of the
mortgage of the suit schedule property sold in public auction as long back as on 11.9.1952.
The Civil Judge, after considering both oral and documentary evidence, dismissed the suit
with costs on 31.7.1990. Aggrieved by the said order, the plaintiffs filed an appeal before the
High Court. The High Court allowed the appeal decreeing the suit for redemption. Against
the impugned judgment of the High Court, the defendants filed the present appeal by way of
special leave before the Supreme Court. The apex court upheld the decision of the High
Court.

CONCLUSION
There are certain advantages of mortgage over other form of transfers
1.No registration is required in equitable mortgage and so stamp duty is
saved.
2.It involves minimum formalities.
3.The information regarding such mortgage is kept confidential between the
lender and borrower. So the reputation of the borrower is not affected.
The equity of redemption has been well recognized in Common Law as well
as in the Indian statutes. The provisions of the Transfer of Property Act, 1882,
explicitly substantiate this principle. In the Indian scenario, various conditions have
been discussed, whereby the stipulations in the mortgage deed have turned to be the
clog on the equity of redemption. The equity of redemption can be brought to an end
either by the act of parties or by a decree of the court.
 P a g e | 22

BIBLIOGRAPHY
Text books.
1. Sarathi, Vepa P., Law of Transfer of Property, 5th ed., 2005, Eastern Book Company,
Lucknow.
2. Saxena, Poonam Pradhan, Property Law, 2006, Lexis Nexis Butterworths, New Delhi
3. Sinha R.K., The Transfer of Property Act, 4th edition 1999, Central Law Agency.
4. Singh, Dr. Avtar, Textbook On The Transfer Of Property Act, 2008, Universal Law
Publishing Co.
Statues.
1. The Transfer of Property Act, 1882.

Internet sources.
www.manupatra.com

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