Introduction 

A mortgage complies with Roman Law’s “Hypotheca,” which allowed creditors to seize the debtor’s property and recoup their losses if the debtor failed to make payments. The notion of a mortgage is also recognised in Hindu and Islamic law, where the property is pledged to the creditor, the debtor is prohibited from possession until the obligation is repaid, and the creditor keeps the profits in place of interest.

In other words, a mortgage is to be understood as a transfer of interest explicitly in immovable property as security for a loan. Let’s say that Mr. X lends some money to Mr. Z, he may do so without asking for any security or he may demand some security for the payment of money. If Mr. X does not demand any security and Mr. Z fails to pay the same, the former will have a right to sue the latter for the money lent but if Mr. Z becomes insolvent, Mr. X may lose all of his money. However, in a situation where some security of adequate value is given for the loan, the lender (Mr. X) will be safeguarded if the borrower (Mr. Z) becomes insolvent since precedence is given to security over the claims of other creditors.

The fundamental component of a mortgage is that it is a transfer of a legal interest in the property with a provision for redemption, meaning that the interest will be re-conveyed upon debt repayment or the transfer will be void. The Transfer of Property Act, 1882 (hereafter “TPA”), Section 58, contains the mortgage-related provisions.

Definitions

Loans can be classified as either secured debt or unsecured debt. A pledge is used to secure a loan against movable property, while a mortgage is used to secure a loan against an immovable asset owned by the debtor. A mortgage is the transfer of a security interest in a specific piece of real estate used to secure the repayment of debt.

Justice Mahmud observed: “Mortgage, as understood in this country, cannot be defined better than by the definition adopted by the legislature in section 58, TPA.”

The TPA read with Order 34 Rules 1 to 15 of CPC, which deals with lawsuits relating to mortgages of immovable property, is where the entirety of Indian mortgage law is included, according to the Supreme Court’s observation in Kedar Lal v. Hari Lal . AIR 1952 Cal 176 It is crucial to remember that the court is constrained by these legislative restrictions.

Section 58(a) of TPA defines the terms ‘mortgage’, ‘mortgagor’, ‘mortgagee’, ‘mortgage-money’, and ‘mortgage-deed’. 

Clause (a) of Section 58 reads: 

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 that 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 effected is called a mortgage-deed.

As we all know, a “mortgage” refers to the transfer of a property interest in order to finance a debt that may or may not result in personal obligation. A “mortgagor” is a borrower who requires a loan and pledges his property as security, and a “mortgagee” is a party who grants the loan. Both the mortgage money and the mortgage deed, which is the legal document through which the property is transferred, are terms used to describe the sum of the current principal and interest payments.

Kinds of mortgage

Simple Mortgage [Section 58(b)]

Clause (b) of Section 58 reads:

Simple mortgage: When the mortgagor enters into a personal obligation to pay the mortgage sum without actually transferring ownership of the mortgaged property, and expressly or obliquely acknowledges that the mortgagee will have the right to sell the mortgaged property and use the proceeds of the sale to the extent necessary to satisfy the mortgage sum, the transaction is referred to as a simple mortgage.

The basic elements of a simple mortgage are:

1. The mortgagor must have bound himself personally to repay the loan; 
2. The possession of the property is not given to the mortgagee; and
3. To secure the loan he has transferred to the mortgage the right to have the specific immovable property sold in the event of his failure to repay.

Mortgagor’s Personal Obligation

The personal duty of the mortgagor to make payments is the essential component of a simple mortgage. Due to the fact that accepting the loan creates a promise to pay, such personal liability or obligation to pay may be stated or inferred from the terms of a transaction.

The promise to pay is implicit in the borrowing transaction itself but it may be displaced by the terms of the mortgage transaction for instance in the case of a usufructuary mortgage. 

No Delivery of Possession

In the case of a straightforward mortgage, possession stays with the mortgagor. The mortgagee obtains security in the form of the mortgaged property, not the rents and profits derived from it. A decree for possession would be unlawful under Section 68 if a simple mortgagee brought a lawsuit to enforce his security. Additionally, it wouldn’t function like a foreclosure; instead, it would change a basic mortgagee into a mortgagee in possession.

Right to cause the Property Sold 

The mortgagee is empowered to sell the property in the case of non-payment of the mortgaged money. However, the power of sale is not to be exercised without the intervention of the court. This implies that the mortgagee needs to get a decree from the court to execute the sale. Upon the sale of property by the intervention of the court, the mortgagee shall get the money advanced by him with interest and the remaining portion of proceeds of sale shall be given to the mortgagor whose property was sold.

Registration

A simple mortgage can be created only through a registered document. According to Section 59, even when the sum of money secured is less than rupees 100, a simple mortgage needs to be effected by a registered instrument. 

Mortgagee’s Remedy

In case the mortgagor fails to repay the loan within the stipulated date, the following two remedies are available to the mortgagee:

1. A simple mortgage entails a personal obligation on the part of the mortgagor to repay the debt, therefore the mortgagee may file a personal lawsuit against the mortgagor to reclaim the money. In this situation, he will receive a straightforward money decree.
2. To get his money back, the mortgagee might also ask the court to order the sale of the collateral. In this scenario, he wins a court order authorising the sale of the land.

The mortgagee may, however, file a single lawsuit encompassing both causes of action. The suit must be filed within 12 years of the date the loan, or the mortgage money, becomes due. He may sue the mortgagor personally or ask the court for a ruling in his favour for the sale of the property.

Mortgage by Conditional Sale [Section 58(c)]

Clause (c) of Section 58 reads:

Mortgage by conditional sale: When the mortgagor purports to sell the mortgaged property while placing conditions on it, such as the requirement that the sale become void upon the payment of the mortgage balance or that the buyer transfer the property to the seller upon the payment of the mortgage balance, the transaction is known as a mortgage by conditional sale, and the mortgagee is referred to as a mortgagee by condition.

Due to their religion’s ban on charging interest on money granted as a loan, Muslims invented the idea of a mortgage by conditional sale, also known as “bye-bil-wafa” in Arabic. They were able to pay off their principal and interest thanks to this form of mortgage while also maintaining their moral integrity.

Basic elements of a mortgage by conditional sale are: 

1. The mortgagor must ostensibly sell the property to the mortgagee.
2. There must be a condition on such sale that either,
3. on the repayment of the debt on a certain date,  
4. the sale shall become void or the buyer shall transfer the property to the seller, or in default of payment on the agreed date, the sale shall become absolute. 
5. The condition must be contained in the same document. 

In other words, when the mortgagor ostensibly sells the mortgaged property to the mortgagee with a certain condition such as:

1. If the mortgagee makes any default on repayment of the debt (if the loan is not repaid), the sale would become absolute and binding, or
2. If the mortgagee does not make any default in the payment (repayment of the debt has been made), the sale would become void, or
3. If the mortgagee makes the payment, the buyer shall transfer the mortgaged property to the seller (the mortgagor shall transfer the property back to the mortgagee), such a transaction is called a mortgage by conditional sale. 

However, it is to be noted that no such transaction will be considered to be a mortgage where no condition is mentioned in the same document which shall affect the sale.

Condition in the Same Deed

There was a substantial shift brought about by the Proviso stipulated in clause (c) of Section 58. The following proviso was included as a result of Section 19 of the Transfer of Property (Amendment) Act of 1929:

With the caveat that no such deal shall be regarded as a mortgage unless the condition is included in the legal document that affects or pretends to impact the sale.

It specifies that any deed that seeks to effect a sale will only be referred to be a mortgage by conditional sale if it satisfies the requirements listed above. This change is not retroactive in any way. After this caveat, the buyback condition must be stated in the same document that specifies the ostensible sale in order for the transaction to be considered as a mortgage by conditional sale and not a sale in and of itself.

The intention of the Parties

Remember that any documents including reconveyance conditions would not in any way purport to be mortgages. When determining the nature of a transaction, one of the most important aspects to consider is the parties’ intentions, and if one party’s claim conflicts with the deed in question’s written terms, proof must be shown to the court. In the case of Sheikh Ebadat v. Pandit Chunchun Jha

The mortgagee is not allowed to include other of his properties in this transaction because there is no personal obligation on the part of the mortgagor to pay the loan in a mortgage by conditional sale. The rule of “No Debt, No Mortgage” is an exception in this case.

Absolute Ownership

In Thumbuswamy v. Hossain Rowthen, the Privy Council noted that the fundamental feature of a mortgage is that, in the event of a violation of condition, the sale deed would be performed itself and the transaction would turn into an absolute sale without any type of accountability between the parties.

The mortgagee does not have possession of the property in this type of mortgage i.e. it gets only qualified ownership which may lead to absolute ownership in case of default by the mortgagee.

Remedy Available 

The mortgagee can only be compensated by foreclosure rather than sale, which requires a court order. Only when the mortgagor fails to make the required payment on time and the transaction becomes final can the mortgagee file a decree for foreclosure in accordance with Section 67 of the TPA, Rules 2 and 3 of Order 34, and CPC.

Usufructuary Mortgage [Section 58(d)]

Clause (d) of Section 58 reads:

Usufructuary mortgage.—If the mortgagee receives possession of the mortgaged property from the mortgagor, or if the mortgagor expressly or implicitly commits himself to doing so, and authorises the mortgagee to keep possession of the property until the mortgage is paid in full, as well as to receive all or any portion of the rents and profits accruing from the property, and to appropriate those rents and profits in lieu of interest, or payment of the mortgage-money, or partly in lieu of interest, or payment of.

The basic elements of usufructuary mortgage are: 

1. The mortgagor either delivers possession or expressly or impliedly binds himself to deliver possession of the mortgaged property to the mortgagee.
2. The mortgagor authorises the mortgagee till the payment of the mortgage money is satisfied:

• to retain such possession;
• to receive the rents and profits or any part of such rents and profits arising from the property; and 
• to appropriate such rents and profits in lieu of interest, or payment of the mortgage money, or partly in payment of the mortgage money. 

Delivery of Possession 

As a guarantee for making mortgage payments, the mortgagor gives the mortgagee possession of the property that is subject to the mortgage. Until the debt is paid off, the mortgagee is allowed to keep possession of the property. Although it is possible for the mortgagor to offer an express or implied pledge to deliver possession, it is not necessary for this to occur at the time the deed is executed.

Rent and Profits

The mortgagor transfers ownership of the mortgaged property to the mortgagee as security for the repayment of the mortgage debt. The mortgagee has the right to hold onto the property as long as the loan is not paid in full. The stated or implied pledge to deliver possession by the mortgagor may be accepted in place of the actual conveyance of possession occurring at the time the deed is executed.

1. in lieu of interest,
2. in lieu of principal, or
3. in lieu of principal and interest. 

When the principle is paid in the first instance, the mortgagor regains possession of the property. In the second instance, the mortgagee collects rents and profits until they are equal to the principal amount, at which point the mortgagor is entitled to reclaim possession while continuing to pay interest. In the final instance, the mortgagor is not granted possession until the principle and interest have been settled using the rentals and profits.

No Personal Liability of the Mortgagor

In the case of a usufructuary mortgage, the mortgagor assumes no personal liability for the payment of the mortgage debt. The mortgagee must use the property’s rents and profits to pay down his mortgage. Since it is difficult to foresee when the loan will be paid off, there is absolutely no time limit on how long the mortgage may continue to exist.. 

Mortgagee’s Remedies 

If the mortgagor fails to handover ownership of the property, the mortgagee may file a lawsuit to regain possession or advance funds; however, if the mortgagor has already been granted possession, the mortgagor’s sole option is to keep the property until his debts are paid in full. The usufructuary mortgagee lacks the right to foreclose or sell the property. Because he can pay himself back, the mortgagee benefits.. 

Rights of Usufructuary Mortgagor

A usufructuary mortgagor has been given a right under Section 62 to recover possession of the mortgaged property from the mortgagee in the cases where: 

1. The mortgagee was authorised to pay himself the amount of mortgage money from the rents and profits of the property and the mortgage money is paid,
2. The mortgagee is authorized to pay himself from the rents and profits and the terms stipulated for the payment of the mortgage money have expired and the mortgagor pays the mortgage money or balance of the same to the mortgagee or deposits it in the court.

English Mortgage [Section 58(e)]

Clause (e) of Section 58 reads:

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.

Basic elements of an English mortgage are:

1. There is a consensus to pay the amount on the due date. The mortgagor has to repay the mortgage money on the due date. 
2. There is an absolute transfer of property to the mortgagee. 
3. Such absolute transfer needs to be subject to a proviso that the mortgagee will transfer the property to the mortgagor upon payment of mortgage money on the agreed date. 

In the case of English Mortgage, the mortgagor transfers the ownership of the mortgaged property absolutely to the mortgagee as security. The mortgagee shall return or re-transfer the property once the mortgagor repays the amount as agreed on a particular date. 

Personal Liability

In an English mortgage, there is a personal liability of the mortgagor to repay the amount of mortgage debt on a certain date as agreed. An agreement to pay is an important part of such a mortgage. 

Remedy Available

In case of default by the mortgagor, the remedy available with the mortgagee is to sell off the mortgaged property and recover himself.

No Absolute Interest

The property is transferred completely, but there is a clause that allows for a retransfer if the mortgage borrower pays off the debt. Due to the transfer, interest is subject to the right of redemption.

where the mortgagor formally transfers the property to the mortgagee and agrees to pay back the debt to the mortgagee on a specific date. In this situation, two conditions are prevalent.

1. Mortgagor repays the amount: If the mortgagor repays the agreed upon to the mortgagee on the date specified, the property which was absolutely transferred by him shall be reconveyed to the mortgagor.
2. Mortgagor makes default in payment: If the mortgagor does not repay the amount on the mentioned date, then the remedy with the mortgagee is to sell off the property and recover its debt. However, there is a personal liability on the mortgagor to pay the debt.

Right of the Mortgagee

The mortgagee in this form of mortgage gets the right of possession whether the right of entry is expressed or not, and can retain the same till the said amount is not paid to him. But when the mortgagor is in possession he is entitled to profit but is not accountable to the mortgagee. However, where the mortgagee is in possession and is enjoying the profits from such property, it shall apply them in reduction to mortgagees dues.

For instance, B, a mortgagor absolutely sells the property to A through a sale deed. Here if B makes any default, A has to do nothing except registration of the sale deed, as an absolute right has been given to A.

Mortgage by deposit of title deeds (Equitable Mortgage) [Section 58(f)]

Clause (f) of Section 58 reads :

Mortgage by deposit of title-deeds.—The delivery of title documents to immovable property to a creditor or his agent with the intention of creating a security interest thereon is referred to as a mortgage by deposit of title-deeds in any of the following towns: Calcutta, Madras, Bombay, and any other town that the State Government concerned may, by notification in the Official Gazette, specify in this regard.

Due to the lack of a written instrument or any other further requirements, this type of mortgage is known as a “equitable mortgage” in English law as opposed to a “legal mortgage.” The purpose of the law in allowing for such a mortgage is to provide the mercantile community with options in cases where it would be required to acquire money on the spot before having the chance to prepare a mortgage deed is feasible. Because it is an oral transaction, this sort of mortgage is exempt from the Law of Registration and does not require any writing.

The basic elements of this type of mortgage are:

1. There must be a debt.
2. There must be a deposit/delivery of the title deeds.
3. There is an intention that the deeds shall be security for the debt; and
4. Territorial restrictions 

It’s vital to remember that not all places of India allow for the establishment of such mortgages. The location of the delivery of the deeds, not the location of the property mortgaged, is meant by the restriction to specified places. Additionally, a deposit of deeds outside of that region won’t result in either an exchange or a mortgage.

Existence of Debt

A debt may be of the present or the future variety. The term “mortgage” refers to the transfer of an interest in any property to secure the payment of funds advanced or to be advanced, a current or future debt, or the performance of any engagement that results in a pecuniary obligation. Equitable mortgage is just one of the modes of creating a mortgage, and clause (f) contains one.

Deposit of Title-Deeds

Providing documents in a constructive manner suffices in place of their actual delivery. There is no requirement that all title documents be deposited or that the deposited documents demonstrate a complete title in order for an equitable mortgage to be valid. If the deeds are genuine, pertain to the property, and serve as substantial proof of ownership, it is sufficient. An equitable mortgage is not established if any title of deed is not shown in any way in the documents that are placed but there are documents that exist that show his title to the property and they are not deposited.

Intention to Create Security

The gist of the transaction lies in the intention that the title deeds shall be security for the money borrowed (debt). Merely handing over the title deeds to Mr. X by Mr. Z does not create a mortgage. The deeds need to be delivered in the performance of that agreement that they are security for the debt. 

The intention for creating security is a question of fact, not of law, which needs to be determined in all cases just like any other fact-based on presumptions and oral, documentary, or circumstantial evidence. 

Anomalous Mortgage [Section 58(g)]

Clause (g) of Section 58 reads:

Anomalous mortgage.—A mortgage that 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 order to protect various customary mortgages prevailing in different parts of the country, clause (g) was enacted by the legislation. An anomalous mortgage is said to be a combination of two or more mortgages. 

This section shall be read with Section 98 of the TPA which reads :

Rights and liabilities of parties to anomalous mortgages.—In the case of an anomalous mortgage the rights and liabilities of the parties shall be determined by their contract as evidenced in the mortgage deed, and, so far as such contract does not extend, by local usage.

Such agreement which is made between the mortgagor and the mortgagee according to their terms and conditions is called an anomalous mortgage. Where it is not a simple, usufructuary, mortgage by conditional sale, etc. is termed as an anomalous mortgage.

A usufructuary mortgage, for instance, can also hold the right to sell (as stated above, a usufructuary mortgage only possession is given to the mortgagee and it does not have the right of sale). Here, the mortgagee is granted ownership of the property for a predetermined amount of time under the proviso that, in the event of debt non-repayment, the mortgage will be declared a mortgage by conditional sale. This turns the mortgage into an anomalous mortgage because it is both a conditional sale mortgage and a usufructuary mortgage.

Remedy Available 

In this case, the mortgage has the right of ‘foreclosure’ as well as ‘sale’ if the agreement of mortgage permits the same; and if the debt is not repaid, the mortgagee would become the owner of the property.

Mortgagor’s Right of Redemption 

The mortgagor’s right of redemption may be exercised through the mortgage deed, and it may only be exhausted in the event of a mutual agreement between the parties, a court order, a statutory restriction, or both. The mortgagor’s right to redeem the mortgage is created when the mortgagee is paid; nevertheless, this right is only unusable when parties’ actions prevent it from being done.

There are two other terms as well which are used in relation to mortgage, which the reader must know. These are:

Sub mortgage

Where a mortgaged property is mortgaged again is termed as sub mortgage, or where the mortgagee mortgages its interest in the said property.

For instance, where Mr. X mortgages his house to Mr. Z for ₹15,000 and Mr. Z further mortgages its mortgagee rights( it can be the right to sue the mortgagor in case of default or possession, rents, etc) on the property to Ms. B for ₹5,000. Here Mr. Z created a Sub Mortgage.

Puisne mortgage (also called pari pasu mortgage)

When the mortgagor mortgage a property to one person and mortgages the same property to another person in order to secure another loan, the second mortgage is termed as Puisne Mortgage.

For instance, the property value of ‘Z’ is ₹1,00,00,000 (1 crore) has been given as security to the ‘Bank of Baroda’ for the loan of ₹10,00,000 (10 lakh). If an additional loan is required, the same can be taken from another bank due to the difference in interest rate. So here the same property can be used as security for securing another loan from ‘Syndicate Bank’ of ₹5,00,000 (5 lakh). This transaction of taking a loan from ‘Bank of Baroda’ would be referred to as the first mortgage while the loan from ‘Syndicate Bank’ would be referred to as the second or puisne mortgage. Here syndicate bank becomes puisne mortgagee and can recover its debt once the first mortgagee i.e. Bank of Baroda claims its money.

A puisne mortgage is allowed only after the 1st mortgagee permits to use the same property as security for another loan, by the valuation of the mortgaged property.

Conclusion 

Consequently, a mortgage is defined as an express transfer of an interest in real property used as loan collateral. The most crucial aspect of a mortgage is that it transfers a legal interest in the property with a provision for redemption, meaning that the transfer will be nullified or the interest will be re-conveyed upon payment of the obligation.