Unit-3

3.1 Definitions

Meaning:
S.58 of the Transfer of the Property Act, 1882 defines “Mortgage” as follows:
“Mortgage”, “mortgagor”, “mortgagee”, “mortgage-money” and “mortgage-deed” defined-
(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, and the
instrument (if any) by which the transfer is affected is called a mortgage-deed.
Essential Elements:
The valid essentials of a mortgage include as follows:
Transfer of Interest- The first thing to note is that a mortgage is a transfer of interest in the
specific immovable property. The mortgagor as an owner of the property possesses all the
interests in it, and when he mortgages the property to secure a loan, he only parts with a part
of the interest in that property in favour of the mortgagee. After mortgage, the interest of the
mortgagor is reduced by the interest which has been transferred to the mortgagee. His
ownership has become less for the time being by the interest which he has parted with in favour
of the mortgagee. If the mortgagor transfers this property, the transferee gets it subject to the
right of the mortgagee to recover from it what is due to him i.e., the principal plus interest.
Specific Immovable Property-
The second point is that the property must be specifically mentioned in the mortgage deed.
Where, for instance, the mortgagor stated “all of my property” in the mortgage deed, it was
held by the court that this was not a mortgage. The reason why the immovable property must
be distinctly and specifically mentioned in the mortgage deed is that, in case the mortgagor
fails to repay the loan the court is in a position to grant a decree for the sale of any particular
property on a suit by the mortgagee.
The words “specific immovable property” make it necessary to specify the immovable
property in order to create a mortgage. The description must at least be sufficient to identify
the property. It has been held in the case of Indian Insurance & Banking Corpn v Paramasiva
Mudaliar (1957), that machinery in a mortgaged building does not form part of the security,
unless it is attached to the building for the permanent beneficial enjoyment thereof.
To secure the payment of a loan- Another characteristic of a mortgage is that the transaction
is for the purpose of securing the payment of a loan or the performance of an obligation which
may give rise to pecuniary liability. It may be for the purpose of obtaining a loan, or if a loan
has already been granted to secure the repayment of such loan. There is thus a debt and the
relationship between the mortgagor and the mortgagee is that of debtor and creditor. When A
borrows 100 bags of paddy from B on a mortgage and agrees to return an equal quantity of
paddy and a further quantity by way of interest, it is a mortgage transaction for the performance
of an obligation.

3.2 Kinds of Mortgages and Their Features

Kinds of Mortgage:
Section 58 further classifies mortgage into following kinds:
 Simple mortgage.—
In a simple mortgage, the mortgager does not deliver the possession of the mortgaged
property. He finds 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:
- Apply to the court for permission to sell the mortgaged property, or
- File a suit for recovery of the whole amount without selling the property
 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: 1[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.]
It could be summarised as the mortgage in which the mortgager ostensibly sells the property to
the mortgagee on the following conditions:
· The sale shall become void on payment of the mortgage money.
· The mortgagee will retransfer the property on payment of the mortgage money.
· The sale shall become absolute if the mortgager fails to repay the amount on ascertain date.
· The mortgagee has no right of sale but he can sue for foreclosure.
In the case of Natesa Pathar v Pakkirisamy Pathar (1997), the condition of sale and resale was
engrafted in the same document. The purchaser was specifically prohibited from encumbering
the property within the period of five years stipulated for repurchase. There was a substantial
difference between the actual value of the property and consideration as stipulated in the deed.
The transaction was held to be a mortgage by conditional sale. In another case of Chunchun
Jha v Ibadat Al (1954), the Supreme Court held that if the sale and repurchase is embodied in
separate documents then the transaction cannot be a mortgage whether the documents are
contemporaneously executed or not.
 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.
In the case of Ferozshah v Sobhat Khan (1933), it was observed by the court that it is
not necessary that the mortgagee should take physical possession, for the mortgagor
may continue in possession as lessee of the mortgagee; but unless there is a clause
providing for the mortgagee going in possession, there cannot, of course, be a
usufructuary mortgage.
 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.
In the case of Ramkinkar v Satya Charan (1939), the Privy Council held that Sec 58 (e)
cannot be construed as declaring an English mortgage to be an absolute transfer of the
property, but as merely declaring that such a mortgage would be absolute, were it for
the proviso for retransfer. In the case of Narayana v Venkataramana (1902), the court
had stated three essential ingredients for English mortgage which could be stated as
follows:
- First, the mortgagor has to bind himself to repay the mortgage money on a certain day.
- Secondly, the property mortgaged is transferred “absolutely” to the mortgagee.
- Thirdly, this transfer is subject to a proviso that the mortgagee will recover the property
to the mortgagor upon payment of the mortgage – money on the date fixed for
repayment.
 Mortgage by Deposit of Title deeds- Sec. 58(f) of the Act states that 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 with intent to create a security thereon, the transaction is called a mortgage by
deposit of title – deeds. This is called in English law an equitable mortgage.
The court in the case of Webb v Macpherson (1904), held that the term “equitable
mortgage” is not appropriate in India, for the law of India knows nothing of the
distinction between legal and equitable estates.
In case of K.J. Nathan v S.V. Maruthi Rao (1965), the Supreme Court observed that,
what constitutes the transaction is delivery with the intention of creating a security.
Hence in a case where physical delivery takes place outside the notified town, but the
 intention to create a mortgage is formed after the deeds are in one of the notified towns,
the Supreme Court applied the section. The requisites of a mortgage by deposit of title
deeds are:
- a debt;
- a deposit of title – deeds in notified town; and
- An intention that the deeds shall be security for the debt.
In accordance with the provisions of Section 96 of the Transfer of Property Act, 1882,
mortgage by deposit of title deeds, though without writing or by any deed, is equivalent
to a simple mortgage.
 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.] In the case of Madho Rao v Gulam Mohiuddin (1919), the Privy Council
held that an anomalous mortgage is, one which does not fall within any of the other five
classes enumerated. While considering an anomalous mortgage, the intention of the
parties must be gathered from the terms of the instrument as controlled by the
provisions of the Act.

3.3 Rights and Liabilities of Mortgagor and Mortgagee

Rights of a Mortgagor
1. Right of mortgagor to redeem (Section 60) –Discussed in detail
2. Right to Transfer to the third party. (Section 60A)-
Section 60A is inserted via amendment act of 1929, this right provides the Mortgagor with
authority to ask the Mortgagee to assign the Mortgage debt and transfer the property to a third
person directed by him. The purpose of this right is to help the Mortgagor to pay off the
Mortgagee by taking a loan from a third person on the same security.
3. Right to inspection and production of documents (Section 60B)-
Section 60B is also inserted by Amendment Act of 1929, which talks about the inspection and
production of the documents. On a reasonable time Mortgagor can check the documents with
the Mortgagee. The expenses incurred on production or copies of documents or travel expenses
of a Mortgagee are to be paid by the Mortgagor.
4. Right to redeem separately or simultaneously (Section 61)-
A mortgagor who has executed two or more mortgages in favour of the same mortgagee shall,
in the absence of a contract to the contrary, when the principal money of any two or more of
the mortgages has become due, be entitled to redeem any one such mortgage separately, or any
two or more of such mortgages together.
5. Right of usufructuary mortgagor to recover possession (Section 62)-
In the case of a usufructuary mortgage, the mortgagor has a right to recover possession of the
property together with the mortgage-deed and all documents relating to the mortgaged property
which are in the possession or power of the mortgagee.
6. Accession to mortgaged property (Section 63)
Basically, accession means any addition to the property. According to this right, mortgagor is
entitled to such accession of his property which is in the custody of the mortgagee. There are
two types of accession-
Artificial accession: – This is when the mortgagor made some efforts and this increased the
value of land.
Natural accession: – The name itself defines i.e. without any man-made efforts.
7. Right to Renewal of Mortgaged Lease (Section 64)-
Where 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.
8. Mortgagor's power to lease (Section 65A)-
This right was introduced by the Amendment Act of 1929. Prior to this right, the Transfer of
Property Act did not permit a mortgagor to lease property mortgaged on his own, but only with
the permission of the mortgagee. Now, a mortgagor has the right to lease the mortgaged
property while in lawful possession of the property subject to the following conditions: –
 All conditions in the lease must be in accordance with local laws and customs to prevent
any fraudulent transactions.
 No rent or premium shall be paid by the mortgagor in advance or promised by him.
 There will be no provision for renewal of the lease in the contract.
 Every such lease shall come into force within a period of six months from the date of
its execution.
 Where the mortgaged property is a building, the lease period should not exceed three
years in total.
9. Right in the case of waste (Section 66)
A mortgagor in possession of the mortgaged property is not liable to the mortgagee for allowing
the property to deteriorate; but he must not commit any act which is destructive or permanently
injurious thereto, if the security is insufficient or will be rendered insufficient by such act.
Explanation - A security is insufficient within the meaning of this section unless the value of
the mortgaged property exceeds by one-third, or, if consisting of buildings, exceeds by one-
half, the amount for the time being due on the mortgage.
Liabilities of a Mortgagor:
1. Covenant for the title (Sec. 65)
The mortgagor has a contract with the mortgagee to transfer the property to the mortgagee,
with which there is a warranty for the title of the property. If the mortgaged property title is
found defective, the mortgagee can bring an action against the mortgagee for the principal
amount and the damages incurred.
2. Liability to indemnify for defective title [Sec. 65(b)]
When the property title is found to be defective on the part of the mortgagor, the mortgagor is
liable to pay damages to the mortgagee. The injuries are for the charges incurred by the
mortgagee in claiming the right to the title.
3. Covenant for payment of Public Charges [Sec. 65 (c)]
The mortgagor will, so long as the mortgagee is not in possession of the mortgaged property,
pay all public charges accruing due in respect of the property.
4. Covenant for payment of Rents [Sec. 65 (d)]
where the mortgaged property is a lease that the rent payable under the lease, the conditions
contained therein, and the contracts binding on the lessee have been paid, performed and
observed down to the commencement of the mortgage; and that the mortgagor will, so long as
the security exists and the mortgagee is not in possession of the mortgaged property, pay the
rent reserved by the lease, or, if the lease be renewed, the renewed lease, perform the conditions
contained therein and observe the contracts binding on the lessee, and indemnify the mortgagee
against all claims sustained by reason of the non-payment of the said rent or the a non-
performance or non-observance of the said conditions and contracts;
5. Covenant for the discharge of prior mortgage [Sec. 65 (e)]
Where the mortgage is a second or subsequent incumbrance on the property, that the mortgagor
will pay the interest from time to time accruing due on each prior incumbrance as and when it
becomes due, and will at the proper time discharge the principal money due on such prior
incumbrance.
6. Liability to avoid waste (S. 66)
Under this section, the mortgagor has the liability to not commit any such act which might lead
to waste of property or any such act which is detrimental to the value of the mortgaged property.
Waste can be divided into 2 types-
 Active waste is the kind of waste when the act of the mortgagor would lead to reduction
in the value of the mortgaged property and the mortgagor will be liable to the
mortgagee.
 Permissive waste is minor waste caused by the mortgagor while he has the possession
of the mortgaged property, but he won’t be liable to the mortgagee for this waste.
7. Improvements to mortgaged property (Section 63A)
When the mortgaged property undergoes improvements in the continuance of a mortgage need,
the mortgagor is liable to pay the amount incurred.
When such improvements are necessary to prevent the property from destruction and are
incurred by the mortgagee, the mortgagor is liable to pay the amount in addition to the mortgage
money and the principal, if not contract to the contrary is present. The interest has to pay at the
required rate and 9% if no rate is specified.
8. Liable to compensate mortgagee
 When the property is in possession of the mortgagee and the mortgagee incurs the property's
taxes, the mortgagor is liable to pay the mortgagee's expenses. If the property is in the
mortgagor's possession, he is liable to pay all the property taxes and public charges.
9. Accession acquired in virtue of transferred ownership
The accession incurred at the mortgagee cost or which is capable of separate possession
acquired at the mortgagor's desire, the expenses occurred are to be paid by the mortgagor. Also,
if such accession is necessary to save the property from destruction or harm, the mortgagor is
liable to pay the amount and is entitled to the profits.
Right of mortgagor to Redeem (Section 60)
Section 60 of the Transfer of Property Act
Meaning –
The action of regaining or gaining possession of something in exchange for payment, or
clearing a debt.
There are three kinds of primary kind of redemption:
[Link] of the possession back to the mortgagor
[Link] of the title documents and the mortgage deed.
[Link] the property in favor of the mortgagor.
Section 60 deals with the right of the mortgagor to take his property back from the mortgagee
by giving the money back with its interest, it says “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”. It binds the mortgagee to follow these
following conditions-
1. To deliver the mortgagor property and every document of the property which deals with
its area, location, possession or any detail. It is the duty of the mortgagor to deliver
these documents just after the payment of the money.
2. It is the duty of the mortgagee to deliver the possession of the property to the mortgagor
and if the mortgagee has transferred the possession to some third party then it is duty
to of mortgagee to take possession back from him and deliver it to the mortgagor.
3. It is the duty of mortgagee that at the cost of the mortgagor, to transfer the possession
of the property to the mortgagor or to the person he has directed, it is also duty of the
mortgagee to give the documents, to show that, mortgagor has paid the money and
mortgage property has been transferred to him.
It is to be noted that the right that this section provides defined as a right to redeem and an
action to enforce it is called a redemption action. In this section, nothing shall be deemed to
make null any provision to the effect that, if the time fixed for payment of the principal money
has passed or no such date has been set, the mortgagee shall be entitled to reasonable notice
before payment or tender of such money.
Essential Conditions for Redemption
1. The mortgage should not be illegal:
To use the right of redemption, it is very important that mortgage is legal and there should not
be any question on the validity of the mortgage. It can be said that where mortgage registration
is required, a mortgage without registration shall be deemed illegal and the mortgage shall not
be entitled to receive mortgage compensation.
2. The appropriate time to take the mortgage back:
It is necessary to give money first and then the only mortgagor can take the property back, but
there is question on this topic that that whether the mortgage can be redeemed in prior periods?
To answer this question in Rozamma vs Rajaratnam case court held that, if nothing is
mentioned in the contract then he can take the mortgage back prior to the time, but if something
is mentioned in the contract then the mortgagor cannot take it back before the prior time, this
decision was held in Begum vs Hussaini Khanam case.
3. Time and place for payment:
It is also a necessary condition that the payment of the money should happen the time and
place, which is mentioned in the contract or according to the mortgagee, also the person giving
and taking the payment should be either mortgagor and mortgagee respectively or their agents.
4. There must be a suit:
To enjoy the right of redemption it is necessary to file a suit from the mortgagor’s side and then
only the court will interfere.
Once a Mortgage always a Mortgage
In the case of Noakes & Co. vs. Rice (1902) AC 24, Rice was a dealer who mortgaged his
property, premise and goodwill to N subject to the provision that if R paid back the whole
amount, the property would be transferred back to his name or any other person’s. A covenant
was attached that stated whether or not the amount is due, R would only sell Malt liquor by N
in his premises. Because of this covenant, R had difficulty in redemption and it didn’t give him
absolute right over his property. House of Lords held that anything which clogs this right is bad
and they came up with the concept that ‘once a mortgage always a mortgage’ and said that
mortgage could never be irreducible.
This principle was added to protect the interest of a mortgagor. Any condition or provision
which prevents a mortgagor from redeeming his mortgaged property is a clog on the right of
redemption. The right to redemption continues even though the mortgagor fails to repay the
loan amount to mortgagee. In the case of Stanley v. Wilde, (1899) 2 Ch 474, it was held that
any provision mentioned in the mortgage-deed which has an effect of preventing or impeding
the right to redemption is void as a clog on redemption.
CLOG ON REDEMPTION
Introduction
Equity would mean in a layman’s life as fairness. Back during the middle Ages in England,
there were certain grey areas where it was observed that the Common Law was inadequate in
its abilities to deliver justice to the common person. This led to a directive by the King to
appoint Chancellors in special courts who would go beyond the realm of the law to dole out
justice and fairness to the parties. In Common Law, equity is used as a means to sharpen the
meticulousness of the law in order to achieve justice. Such courts were called Courts of Equity.
Under a mortgage, two interests are generated by the owner of the property. One is the interest
of the creditor on the property, which is limited and fixed and another, is the residuary interest
left which can be quantified only by deducting the creditor’s interest from the value of the
security. The fundamental bargain from this division of interests is the presence of a right to
buy back the property without any encumbrances by paying the loan. This right is called the
equitable right to redeem. The first instance of the presence of the right of redemption was
found in Roman law. It has been rightfully said that “Redemption is purely a creature of courts
of equity”.
Section 60 of the Transfer of Property Act, 1882 provides the right of redemption to the
mortgagee. This right becomes alive only after the principal money becomes. There are certain
limitations to this right by the fact that it exists only till the mortgagee decides to exercise his
right of foreclosure on the property. Thus, the contract of mortgage between the parties ends,
when the debtor exercises his right to redeem through paying off the loan.
This right provided by the Transfer of Property Act is a statutory right which can only be done
away by compliance to the procedure established by law. It would henceforth follow that any
obstruction to this right would be declared as void as a clog on the equity of redemption.
In Stanley v. Wilde, Lindley M.R. gave one of the founding explanations of the basis of this
doctrine –
“The principle is this: a mortgage is a conveyance of land or an assignment of chattels as a
security for the payment of a debt or the discharge of some other obligation for which it is
given. This is the idea of a mortgage: and the security is redeemable on the payment or
discharge of such debt or obligation, any provision to the contrary notwithstanding. That, in
my opinion, is the law. Any provision inserted to prevent redemption on payment or
performance of the debt or obligation for which the security was given is what is meant by a
clog or fetter on the equity of redemption and is therefore void. It follows from this, that ‘once
a mortgage always a mortgage’.”
The maxim ‘once a mortgage always a mortgage’ means that there can no covenant that
modifies the character of the mortgage agreed between the parties that would stop the
mortgagor to redeem his property back on payment of the principal and respective interests.
The basis of this doctrine lies in the exercise equity, justice and good conscience and is
extensive to areas where the act is not applicable. On a realistic perusal of the workings of a
mortgage, it is observed in most of the cases that the mortgagor enters into such an agreement
because of some financial predicament. The law recognizes the power of the dominant party to
insert clauses which will serve his personal interests by creating impediments on the right to
redeem the property. Such obstructions are henceforth struck down by the courts to enable the
mortgagee to redeem his property.
Leading Examples
There are no fixed qualifying circumstances in determining what would or would not amount
to a clog. It has been something that would have to be decided on the facts and circumstances
of the case. There are certain situations where it was held that the covenant was a clog on the
right.
 Long Term Mortgages
Long term mortgages are common in cases of usufructuary mortgages. A term of 95 years or
100 years would definitely extend beyond one’s lifetime and superficially seems like a clog.
Taking cognizance of the same, the Supreme Court has ruled that only by virtue of lengthy
period, a mortgage would not amount to a clog, there must exist a presence of undue advantage
or fraud to term it as a clog.
In Vadilal Chhaganlal v. Gokaldas Mansukh, the mortgage agreement provided that it would
subsist for 99 years and the mortgagee would be allowed to construct any structure on the
property without any limit on the cost. The Supreme Court reasoned that it would be beyond
the ability of the mortgagor to repay the principal money along with the interests and the
construction expenses. It was held that both the conditions amounted to a clog on the
mortgagee’s right of redemption.
In Ramkhilawan Dilrakhan Ahwashi v. Mullo, the case of the plaintiff was that a covenant
for the payment of principal money after 80 years and only in the month of Baisakh, was a
clog. The Trial Court dismissed the suit by calculating that the profits from the mortgaged
property was sufficient to pay the interests on the principal. On appeal, the High Court upheld
the lower court’s decision. However in Balbhaddar Prasad v. Dhanpat Dayal, the property
mortgaged for 50 years was worth ₹9000. The final amount to be paid after deducting the
profits from the property was around two and a half lakhs. The Court held that such an
enormous fund had led the property to be irredeemable and the terms of the contract were
oppressive and unconscionable.
 Condition of Sale of Property
A covenant that a mortgaged property, if not redeemed within a fixed time, would translate into
a sale is a clog. However if there is a separate agreement whereby the mortgagor executes a
sale deed in favor of the mortgagee as an independent transaction, such sale deed is valid.
In Meharban Khan v. Makhna AIR 1930 PC 142, the mortgage agreement provided that the
mortgagee was to be entitled to possession of the property for 19 years. There was a stipulation
that if the mortgagor paid off his debt, he would be allowed to redeem the property only till a
limited interest and the residual interest would belong to the mortgagor. It was further
envisaged that on failure of the mortgagor to pay, the property would be deemed to be sold to
the mortgagee permanently. The Court ruled that both conditions amounted to a clog. It was
held that on payment of the full amount due, the property would be reverted back without any
encumbrance.
This principle would also extend to cases where on default of payment, the property would be
deemed to have been foreclosed, amounts to a clog. However parties are free to stipulate such
a condition subsequently after the mortgage agreement.
In Kuddi Lal v. Aisha Jehan Begam, the plaintiff-mortgagor was allowed to redeem the
property back by paying from her own pockets and not through transferring the property. The
Court held that such a covenant was a clog on redemption since it restrained alienation by the
mortgagor.
 Penalty in case of default
Payment of a penalty if there is default on behalf of the mortgagor can reasonable but in certain
situations it may be unreasonable and penal. Certain situations where a penalty has been held
to be unreasonable are –
1. On default, compound interest is stipulated even when the original interest was very
high.
2. On default, increased rate of interest would apply from the time the agreement is made.
By merely the virtue of there being a high interest does not lend the condition to be a clog on
redemption unless it could be shown that there was undue influence in the dealing.
 Collateral Benefit to Mortgagor
A mortgagor may avail of a collateral benefit either during the subsistence of the mortgage,
which is valid, or after the redemption, which in some cases is not valid.
In Noakes & Co. v. Rice, a covenant in the mortgage agreement stipulated that the mortgagee
would buy all the beer he would consume on his property from the mortgagor who was a
brewer. It was held that the tie was valid during the subsistence of the mortgage but not beyond
redemption. The property must be delivered back without any tie.
One of the famous cases on collateral benefit was Kreglinger v. New Patagonia Meat and
Cold Storage Co. Ltd. 1914 AC 25 In that case, the mortgage was of a term of 5 years with
an option to the mortgagor to redeem the property before completion of the term. The
agreement further stipulated that the mortgagor should sell sheepskins exclusively to the
mortgagee as long as both parties agreed to a fixed price. The mortgagee paid the mortgage
before 5 years and filed a suit for declaring the tie of exclusive selling to be declared as a clog
on redemption.
The House of Lords held that the provision of exclusive sale to lenders did not amount to a
clog. It was reasoned that the mortgagee is allowed to stipulate for a collateral benefit beyond
the period of redemption provided that the stipulation is not –
1. Unconscionable or unfair.
2. A penalty amounting to a clog on the right to redeem.
3. Contrary to the right of redemption.
Kreglingers case is important in recognizing the limits of the doctrine by the terms of the
contract unless they are oppressive, unconscionable or unreasonably hard. The freedom of the
parties to contract is asserted by this case.
The rule enunciated in Kreglingers met with approval in re Cuban Land and Development Co.
(1921) 2 Ch 147, where it was stipulated that in the event of the winding up of the company,
the debenture-holders were entitled to a part of the remaining profits. Such a provision was
held not to be a penalty clogging the right of redemption.
 It has also been approved by Indian Courts. A provision that allowed the mortgagee
to remain in possession of the mortgaged property through permanent tenancy was held to be
clog because the collateral benefit extended beyond the period of redemption.
Subsequent Agreement to postpone redemption
A subsequent agreement which becomes an obstruction to the mortgagee by creating a personal
obligation is a clog on his right to redemption. The reason is that unless the agreement forms a
charge on the property, the mortgagee is not liable to pay any sum arising from his personal
obligation except the mortgage amount.
In Sheo Shankar v. Parma ILR 26 All 559, the mortgagor had already executed a usufructuary
mortgage in favor of the mortgagee. He further executed a simple mortgage in order to borrow
more money. A provision in the simple mortgage provided that the mortgagor was stopped from
redeeming the property till the amount in the simple mortgage was paid. It was held that such
a provision was void as a clog.
In Hari v. Vishnu ILR 28 Bom 349, a loan of ₹1500 was advanced to the plaintiff on mortgage
by the defendant. The mortgage deed provided that ₹5000 was still to be paid by the plaintiff
on a previous mortgage and stipulated that till both the sums were paid, the plaintiff was not
entitled to redeem the property. The deed was stamped at a value on ₹6500. It was held that
since both the transactions were clubbed into one, the provision was not a clog.
However the doctrine has not escaped without controversy. Sir Fredrick Pollock has made his
displeasure known by terming this doctrine as an ‘anachronism’. He believed that the doctrine
cannot keep on assuming that the mortgagor is a victimized party in the bargain. According to
him, in the modern age, both parties are at a level playing field and giving a mortgagor a ground
to repudiate his obligations by portraying one of the clauses of the contract as unconscionable,
it works against public policy as a whole.
Rights and Liabilities of Mortgagee
Once the property is mortgaged in the name of mortgagee, even the mortgagee attains some
rights and liability towards the mortgaged property. In fact, the mortgagee possesses one right
against the property and the other right against the mortgagor.
Rights –
1. Right to foreclosure (section 67)
Meaning- The legal procedure for satisfying claims against a mortgagor in default who has not
redeemed the mortgage.
A mortgage is a transfer of an interest in some immovable property, as a security for
advancement of some loan. A person who gives security and takes the loan is called as
mortgagor and person who advances the money is known as mortgagee. The relationship
between the mortgagor and mortgagee is that of a creditor and debtor. The law on mortgage in
India is governed by Transfer of Property Act, 1882.
The right of foreclosure is a right available to a mortgagee to recover his outstanding
money. This right is available under Section 67 of the Transfer of Property Act, 1882. After the
principal amount has become due, and before payment of mortgage money by mortgagor or
before decree of redemption has been passed by Court, mortgagee has a right to obtain a decree
of foreclosure from the Court. A suit to obtain a decree that a mortgagor will be absolutely
debarred from exercising his right to redeem the mortgaged property is called a suit for
foreclosure.
Conditions:
The right to foreclosure can be exercised by mortgagee only when:
 The debt amount has become due for payment.
 There are no contrary conditions in the mortgage deed as to the time fixed for repayment
etc.
 Mortgage money has become due but mortgagor has not got a decree of redemption of
the mortgaged property.
 Mortgage money has become due but mortgagor has not paid or deposited the amount.
After the mortgage money has become due, the mortgagor can pay off his debt in three
ways:
 By tendering or making payment of the mortgage money directly to mortgagee
 By filing a suit for redemption.
 By depositing the amount in court.
 Mortgagee should not be mortgagee of public works like canal, railway etc.
 A trustee or legal representative of mortgagee cannot file a suit for foreclosure but for
sale only.
Partial foreclosure:
Partial foreclosure is not a remedy under Section 67. The rule is that one of the several
mortgagees cannot foreclose or sell in respect of his share unless several mortgagees have, with
consent of the mortgagor, severed their interests under the mortgage. The reason of this rule
is to protect the mortgagor from being harassed by a multiplicity of suits where the severance
of interest of the mortgagees has taken place without the consent of the mortgagor. Accordingly
all the co-mortgagees must join together and file one suit in respect of the whole mortgage
money.
As per this section, once the time has lapsed to pay the mortgage money or at any time before
the decree for the redemption of the mortgaged property has been passed after the payment of
the loan amount, the mortgagee can redeem the property or get a decree from the court to sell
the property. In the case of K. Vilasini v. Edwin Periera, AIR 2009 SC 104, it was noted that
an order of foreclosure is passed only after determining the kind and nature of mortgage and
the parties who are operating within the mortgage.
The right of foreclosure is usually invoked when the mortgagor fails to pay the debt amount in
the given time period and his right to redeem the property has also expired due to default in his
payment. Thus, the mortgagee can file a suit of decree to debar the mortgagor from his
redemption rights.
2. Right to sue (section 68)
The mortgagee has the right to sue the mortgagor in the following cases to retrieve his mortgage
money-
 Where the mortgagor is personally bound himself to pay the debt
 In case where the mortgaged property is completely or partially destroyed without any
fault of them mortgagee
 In case where the mortgagee is destituted from the whole or part of the security by any
faulty act of the mortgagor
 In specific mortgage, where the mortgagee is entitled to possession of the security but
the mortgagor fails to do so
The Court can put a stay on all the suit and proceedings as per the suit filed by the mortgagee
until the mortgagee exhausts all its remedies or abandons the security property and if decided
in favour of mortgagor, re-transfers the property.
3. Right to sell (section 69)
As per this section, the mortgagee has the right to sell the mortgaged property without getting
a decree or order from the Court. When the mortgagor fails to pay the mortgage money in the
stated time period, mortgagee is entitled to sell the property to recover the mortgage money
without the intervention of court.
But there are only certain conditions under which the mortgagee has this right to sell the
property without the permission of Court. They are-
 Where the mortgage is an English Mortgage and the mortgagor and mortgagee are not
Hindus, Muhammadan, Buddhist or a member of any race, sect, tribe or as stated by
the official gazette of the State government.
 Where this power of mortgagee is explicitly stated by the mortgagee in the mortgage
deed and the mortgagee is itself government and the property is located in specified
towns i.e. Calcutta, Madras or Bombay originally
This right to sale without intervention of Court is independent of the right to have receiver of
the property appointed under section 69A and right to sale can be exercised after the
appointment also. This was mentioned in the case of Saraswati Bai v. Vardarajalu N Dicker,
1955 Mad. 1310, that the power of sale of the mortgagee will not affect the ordinary right of
realization of suit.
4. Right to accession (section 70)
Accession are the additions made to the mortgaged property as stated above, and this section
mentions that after the date of execution of the mortgage deed if any additions are made to the
property, then even the mortgagee shall have rights over those accessions for the purpose of its
security of his mortgage money.
This is section is quite the opposite of section 63 where the mortgagor has the right over any
accession made by mortgagee, but under this section the mortgagee can claim over the acquired
accession as part of the security only enforce his authority on them.
5. Right to renewal of lease of the mortgaged property (section 71)
As per this section, when the mortgaged property is under lease and the mortgagor has renewed
the lease of the property, then even the mortgagee shall be entitled to the benefits of the renewed
lease and consider it as part of security only unless anything contrary has been stated in the
contract.
6. Right of mortgagee to spend money (section 72)
This section applied on the mortgagee when the property is in possession of the mortgagee and
the mortgagee has the right to spend on the mortgaged property if he finds it is necessary and
unless there is contract contrary to that. The following conditions are mentioned where the
mortgagee can spend money-
 In case of destruction, forfeiture of property, the mortgagee may spend money to protect
it
 To support the title of the mortgaged property
 For defending his own title over the mortgaged property against the title of the
mortgagor
 The mortgagee can also spend money to renew the lease of the mortgaged property
 He can also insure the property if it is of insurable nature
Liabilities
The liabilities of the mortgagee are as follows-
1. Mortgagee must bring one suit for several mortgages (section 67A)
Section 67A of the Act states that if a mortgagee has two or more mortgages of same or different
properties from the same mortgagor, then with respect to each mortgagee he has the right to
get a decree of the court under section 67 and in case the mortgagee wishes to sue the mortgagor
on anyone of the mortgages, then he shall have to sue all the mortgages where the mortgage
money is due on part of the mortgagee.
2. Duty of mortgagee when the property is in his possession (Section 76)
When the mortgaged property is in the possession of the mortgagee and during the continuation
of the mortgage, the mortgagee is bound by the following liabilities-
 To manage the property well in manner of ordinary prudence
 Duty to collect rents and profits of the property to his best endeavour
 To pay the government dues duly while the property is in his possession
 To make the necessary repairs of the property unless it is contrary to the contract
 To not commit any act which may damage or deteriorate the value of the property
permanently
 Duty to apply for insurance money for reinstating the property or in case he receives
reduction in mortgage money from the mortgaged property
 To keep proper accounts of all the sums received and spent by him over the mortgaged
property
 Duty to apply for rents and profits for discharging the interests of principal amount and
make certain deductions
 3.4 Priority of Securities
78. Postponement of prior mortgagee.—

Where, through the fraud, misrepresentation or gross neglect of a prior mortgagee, another
person has been induced to advance money on the security of the mortgaged property, the prior
mortgagee shall be postponed to the subsequent mortgagee.

79. Mortgage to secure uncertain amount when maximum is expressed.—

If a mortgage made to secure future advances, the performance of an engagement or the balance
of a running account, expresses the maximum to be secured thereby, a subsequent mortgage of
the same property shall, if made with notice of the prior mortgage, be postponed to the prior
mortgage in respect of all advances or debits not exceeding the maximum, though made or
allowed with notice of the subsequent mortgage.

Illustration A mortgages Sultanpur to his bankers, B & Co., to secure the balance of his account
with them to the extent of Rs. 10,000. A then mortgages Sultanpur to C, to secure Rs. 10,000,
C having notice of the mortgage to B & Co., and C gives notice to B & Co. of the second
mortgage. At the date of the second mortgage, the balance due to B & Co. does not exceed Rs.
5,000. B & Co. subsequently advance to A sums making the balance of the account against him
exceed the sum of Rs. 10,000. B & Co. are entitled, to the extent of Rs. 10,000, to priority over
C.

3.5 Marshalling and Contribution

Marshalling means arranging things, systematize, or regulate things which mean the things
arranged in a proper manner or order. In the Transfer of Property Act, section 81 and 82 deals
with the doctrine of marshalling and contribution. Section 81 is the rule of marshalling in which
the subsequent mortgagee has the right to claim to marshal. The right of marshalling securities
is not absolute. The rule of contribution described in section 82 of the transfer of property act.
The meaning of the rule of the contribution means providing money for a common fund. The
doctrine of marshalling and contribution are very vital section (81, 82) for the transaction of
the mortgage.
Doctrine of Marshalling
Marshalling means arranging things, systematize, or regulate thin things arranged in a proper
manner or order. As per Section 81 of the transfer of property act , if the owner of two or more
properties mortgages them to one person and other property mortgages to other people, the new
mortgagee is in the absence of a contract to the contrary, entitled to have the mortgaged debt
satisfied out of the properties not mortgaged to him, so far as the same will extend, but not to
prejudice the rights of the prior mortgagee or persons claiming under him or of any other person
who has for consideration acquired an interest in any of the properties. The right given to the
subsequent mortgagee under this section contemplates a situation where a mortgagor
mortgages more than two or more than two properties firstly to a mortgagee and after that
mortgages some of these properties to the other person.
Essentials
1. The mortgagees might be at least two people yet the mortgagor must be common i.e.,
there must be a common debtor.
2. The right can’t be practiced to be the prejudice of the earlier mortgagee.
3. The right can’t be practiced to the prejudice of any other person having claim over the
property.
In Barness v. Rector , W mortgaged two of his properties A and B to X. W then mortgaged
property A to Y and property B to Z . Here, the court held that X’s mortgages will be
apportioned proportionately between properties A and B and the surplus of A will go to Y
and surplus of B will go to Z.
According to this, the subsequent mortgagee under section 81 has right of securities.
The Right of Marshalling Securities Is Not Absolute, It Follows Some Conditions
1. The mortgagees may be two or more than two same person and the mortgagor must be
same.
2. Mortgagor mortgages two or more than two properties to without prejudice the prior
mortgagee.
3. There exists not a contract to the contrary.
4. The new mortgagee entitled to have the mortgage debt satisfied out of the property.
5. At last new mortgagee must not be prejudiced to the first third person or other person
claiming as the purchaser.
Contribution of Mortgage Debt (Section 82)
The rule of contribution described in section 82 of the transfer of property act. The meaning
of the rule of the contribution means providing money for a common fund. Section 82 of
the transfer of property act deals with the rules relating to the contribution of money
towards mortgaged debt. It is the right of a person who has discharged a common liability
to recover proportionate share from others. The doctrine of contribution requires that the
persons under common liabilities that liabilities equitable.
Section 82 contemplates a situation in which there are two or more than two mortgagors
who take a common debt by mortgaging different properties in one property. The nature of
the doctrine of contribution is based on the principles of equity, justice and good faith or
good conscience. Each mortgagor or debtor must be liable to contribute to such common
debt. When two or more properties of different persons are mortgaged to secure a loan, the
mortgagee has the right to recover the debt from the property of any one person.
Rules of Contribution
1. The mortgaged property belongs to two or more persons.
2. One property is mortgaged first and then again mortgaged with another property.
3. Marshalling supersedes contribution.
 Difference between Doctrine of Marshalling and Contribution
DOCTRINE OF MARSHALLING DOCTRINE OF CONTRIBUTION

The right of marshalling is available only The right of contribution is available to one
for the lender of the mortgage. borrower against other borrower.

It settles right of subsequent lender of the

It rights of borrower inter se.
mortgage.

Doctrine of marshalling based on principle Doctrine of Contribution based on the

of ratable distribution. principle of equity.

The right of marshalling is available only The right of contribution is available to one
for the lender of the mortgage. borrower against other borrower.

Supersession of the Rule of Marshalling over the Contribution

The proviso to Section 82 denotes that the rule of Marshalling under section 81 supersedes
Contribution under Section [Link] Hon’ble Madras High Court has even held it to be well
settled that the Right to Contribution is controlled by the Right of Marshalling. This may
be best understood by an example:
There is an owner of two properties X and Y, who mortgages property X to A then to B then
X and Y properties to C and lastly property X to D. Since X and Y both contribute to C’s
mortgage, the value of the said contribution must include a deduction from property X, the
value of A’s mortgage and from property Y, the value of B’s mortgage. However, D being
the last mortgagee still has a right of marshalling and he can ask C to pursue property Y
first instead of property X. Thus, right of D to marshal his securities supersedes his
contribution that is to be made.
The reason why marshalling supersedes contribution is because the last mortgagee is given
an opportunity to make the mortgagor discharge the mortgage debt from other mortgaged
properties first before he realizes the mortgage debt from the properties mortgaged to the
person who holds the right of marshalling. However, if after exercising the right of
marshalling, the amount realized from the other properties is insufficient, the last
mortgagee must then contribute as his is the only mortgage debt left to be realized.
 3.6 Charge
Charge, meaning of – A charge is nothing but a devise to create security which is enforceable
in law. In Fisher and Lightwood’s Law of Mortgage. 8th Ed., P. 156, Charge has been defined
thus –
A charge is a security whereby real or personal property is appropriated for the discharge of a
debt or other obligation, but which does not pass either an absolute or a special property. In the
subject of the security to the creditor, nor any right to possession, but only a right of realisation
by judicial process in case of non-payment of the debt.
A charge is an obligation to make payment out of the property specified – S. Rajendra Babu,
[Link] K. Muthuswami Gounder v. N. Palaniappa Gounder (1998) 7 SCC 327. Defendant
suffered a money decree and thereafter, as per order of the court, executed a bond stipulating
that he would not alienate property till the discharge of the said decree. Held, that the security
bond does not in substance offer the said property by way of security and no charge has been
created, with the result that the party who has purchased the property in execution of that decree
cannot acquire the rights under the security bond.
Even it is assumed for the sake of argument that a charge was created by the award made by
the arbitrator, unless the award was made a rule of the court, such a charge would be ineffective,
more so when the attachment had preceded the award – Delhi Auto and General Finance v.
Tax Recovery Officer (1998) 8 SCC 705.
What is encumbrance? : Encumbrance, if a ‘Charge’ – The terms & conditions of the deed
must be read as a whole. It must be given a purposive meaning. The word encumbrance in
relation to the word immovable property carries a distinct meaning. It ordinarily cannot be
assigned a general and/or dictionary meaning.
Transfer of Property – Meaning – The expression transfer of property in sec. 100 connotes
transfer of the whole of the property and not a mere interest in or over the property like a
mortgage, lease etc. – Dattatreya Shankar v. Anand (1974) 2 SCC 799.
Act of Parties, ‘Operation of law’ – An act of party is an expression of the will or intention
of that party directed to the creation, transfer or extinction of a right by operation of the law
itself, independent of any consent on the part of the party affected. Consequently, decrees are
not outside the expression ‘operation of law’ – Bapurao v. Narayan AIR 1950 Nag 117; ILR
1949 Nag 802.
Charge, how created – If the payment of money is secured on land, but no interest in specific
immovable property is actually transferred, the transaction will amount to a mere charge. A
charge is generally created by a settlement or will by which the property of the settlor or testator
is specially appropriated to the discharge of a portion or legacy or debt, or the support of a
religious or charitable endowment. The creation of a charge does not necessarily imply the
existence of a debt. It is merely an interest carved out of the estate which may be substituted
by a mortgage. The distinction is not merely verbal, as it carries with it very important
consequences, because, generally speaking, although a mortgage may be enforced against a
bona fide purchaser for value, a charge may not be so enforced.
Particular form of words, if necessary, to create charge –
No particular form of words in necessary to create a charge and all that is necessary is that there
must be a clear intention to make a property security for payment of money in praesenti.
Difference between ‘mortgage and charge’ –The difference between mortgage and charge
may be summarized as under-
1. A mortgage is a transfer of interest in a specific immovable property but a charge is not.
This distinction has been fully set out in note under sec. 58. A charge differs from a
mortgage in the sense that in a mortgage there is transfer of interest in the property
mortgaged while, in a charge no interest is created in the property charged so as to
reduce the full ownership to a limited ownership – R.M. Arunachalam v.
Commissioner of Income Tax (1999) 7 SCC 698.
2. A charge may be created by act of parties or by operation of law; but a mortgage can
be created only by act of parties.
3. A simple mortgage carries a personal liability, unless excluded by an express contract,
but the same rule does not apply to a charge, in fact the rule is opposite, because by the
definition of charge, no personal liability is created. But where a charge is the result of
contract, there may be a personal remedy. Every case must depend upon its own facts -
-- Raghukul v. Pitam 52 AII 901.
4. A power to bring the mortgaged property to sale is given in a simple mortgage either
expressly or by implication, but a charge does not contain any words to the effect –
Balasubramania v. Sivaguru 21 MLJ 562. If the date is specified, the property is
specified, there is a covenant to pay and there are words which indicate that the property
is to be sold in case the debt is not paid, then the bond should be treated as creating a
mortgage and not a mere charge – Narayanaswamy v Ramaswamy 12 LW 674; 60
IC 611 (613). But like a simple mortgage a charge holder has the right to bring the
property to sale.
5. A charge created by operation of law (e.g. a chance created by a decree) does not require
the formalities (e.g. registration) prescribed by sec. 59 for a mortgage.
6. As regards the relief granted, there is now no distinction between a charge and a simple
mortgage.
7. In the case of a charge the property need not be specific. A charge differs from a
mortgage not only in form but in substance. For instance, a plea of purchase for value
without notice may be good against a charge, but not against a mortgage—Bapurao v.
Narayan AIR 1950 Nag 117; ILR 1949 Nag 802.