MORTGAGE AND HYPOTHECATION.

The term mortgage is derived from two French words- mort (dead) and gage (pledge). It means a dead pledge, a thing put in the hands of a creditor. It is one of the means of creating a security. Security interest has been defined in THE SECURITISATION AND

RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORECMENT OF SECURITY INTEREST ACT, 2002 as a right, title and interest of any kind,

created in favour of a secured creditor and includes any mortgage, charge, hypothecation, assignment other than those specified in Section 31.

Section 58(a) A mortgage is the transfer of an interest in specific immovable property for the purpose ofsecuring 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 apecuniary liability.

Simple mortgage (cl. b). Mortgage by conditional sale (cl. c). Usufructuary mortgage (cl. d). English mortgage (cl. e). Mortgage by deposit of title-deeds. (cl. f). Anomalous mortgage (cl. g).

Mortgage is essentially a form of security for a debt, this means

that debt must subsist. Any document by which debt or liability is discharged cannot therefore be a mortgage. The Rule of Damdupt , which is an equitable rule, is applicable to cases of mortgage governed by the Transfer of Property Act.

 The validity of a mortgage is not dependent upon the passing of the consideration then and there. As soon as the deed is executed a transfer of an interest takes place.

DESCRIPTION OF PROPERTY: there should be an accurate description of the property so as to render it capable of identification.
THE PURPOSE OF A MORTGAGE: A mortgage, like every other contract, requires consideration, which may be a loan, a debt or the performance of an engagement which may give rise to a pecuniary liability. LOAN: This is one of the purposes for which a mortgage is executed by a borrower. The loan may be advanced or to be advanced when the mortgage contains a covenant by the lender to advance money at a future date.

DEBT: The debt may be already due and as such an existing debt, or it may be to secure a liability which may arise in future and thus a future debt. It includes a contingent liability. PERFORMANCE OF AN ENGAGEMENT, ETC: A mortgage may be executed by a person as a security for the performance of a contract or the fulfilment of a promise. PRINCIPAL MONEY AND INTEREST- These are together known as mortgage-money, to which the mortgagee is entitled till the date of realization or actual payment at the time of the reconveyance. DATE OF MORTGAGE DEED: It is the date of execution and not the date of registration that counts.

A mere agreement to mortgage does not constitute either a mortgage

under S. 58 or charge under S. 100.

S. 58(b) : SIMPLE MORTGAGE.

No possession is delivered. There is a personal covenant to pay. An agreement, expressed or implied, that in the event of failure to pay i. ii. The mortgagee shall have the right to cause that mortgaged property to be sold, and The proceeds applied in payment of the mortgage-money. Two fold security- personal security and security of the property.

POSSESSION.

It is neither given nor claimed. A simple or an equitable mortgagee have no legal right to take possession of the mortgaged property or to claim security in the rents and profits accruing from that property. PERSONAL OBLIGATION. In every simple mortgage, unless there is a pecific covenant to the contrary, a personal obligation to pay debt exists. SALE

Besides the right to obtain a personal decree against the mortgagor, the mortgagees other remedy is to obtain a decree for judicial sale.
Under the CPC, O. 34, rr. 4 and 5, the power of causing the property to be sold being the essence of the transaction, it need not be expressly stated in the deed and will be implied.

 Remedies of a simple mortgage.

The mortgagee has concurrent remedies. He may obtain a decree on the personal covenant or a decree for judicial sale which he must work out in execution proceedings, or adopt both remedies. No right of foreclosure. Implied right of sale of the mortgaged property on mortgagors failure to pay the mortgage money.
RECEIVER- A simple mortgagee is not entitled to be a receiver. SUIT FOR REDEMPTION- A suit to redeem a simple mortgage is

regulated by Order 34, rules 7 and 8 of the CPC, 1908.

The mortgagor ostensibly sells the mortgaged property on the condition

i.

that the sale shall become absolute on default of payment of the mortgage money on a certain date, or
that the sale shall become void on such payment being made, or

ii.

iii.

that the buyer shall transfer the property to the seller on such payment being mad.
It is this class which gave rise to a difficulty in distinguishing a transaction of sale from a mortgage.

The proviso of clause (c) to S. 58 by Act 20 of 1929 so as to set at rest the conflict of decisions.

A mortgagor by conditional sale must be evidenced by one document whereas a sale with a condition of re-transfer may be evidenced by more than one document. It must contain a condition that on default of payment of mortgage money on a certain date, the sale shall become absolute, or on a condition that on the payment being made, the buyer shall transfer the property to the seller. The intention needs to be gathered from the language of the deed and the surrounding circumstances. This proviso is not retrospective. In a mortgage, the debt subsists and the right to redeem is reserved thereby.

The essential feature of this mortgage is that on the breach of the condition of repayment, the contract executes itself and the transaction is closed and becomes one of absolute sale without any further act of the parties or accountability between them.

Requirements :
the existence of a debt,
the long period of repayment, the continuance of the guarantor in possession, a stipulation for interest on repayment, a price below the true value, a contemporaneous deed stipulating for reconveyance. Where condition for reconveyance is not contained in the sale deed itself but in a separate document, the transaction cannot be regarded mortgage by conditional sale.

DIFFERENCE BETWEEN CONDITIONAL SALE AND A SALE WITH AN OPTION TO REPURCHASE:

Mortgage- the relationship between the debtor and the creditor subsists and the right to redeem remains with the debtor. The debt subsists. A stipulation for the payment of interest on repayment indicates a mortgage. The right of redemption and the right of foreclosure are co-etensive. The absence of such a right of mortgagee could only mean that it is a conditional sale.

Sale with an option to repurchase:

It is an out and out sale whereby the owner transfers all his rights in the property in the purchaser reserving a personal right of repurchase.

The right to redeem is not reserved .

a.
b. c. a. b.

PossessionIs delivered

Or agreed to be delivered expressly or by implication And to be retained till payment of the mortgage-money.

The rents and profits thereof are :to be received, and

Appropriated

Interest, or b. mortgage-money, or c. partly interest, or d. partly mortgage money. e. No time is fixed and there is no personal covenant. d. Conditions necessarya.

in lieu of :-

The mortgagee should either deliver possession or expressly or by implication bind himself to deliver possession of the mortgaged property to the mortgagee and The mortgagor must authorize the mortgagee to retain such possession until payment of the mortgage money and to receive the rents and profits accruing from the property in lieu of interest of money or in payment of the mortgage money. If the mortgagee cannot retain the possession of the mortgaged property till the payment of the mortgage money, the mortgage would not be usufructuary mortgage.

The only right left with the mortgagor is the right of redemption.
The distinguishing feature- in lieu of payment of interest or adjustment of the whole part of the borrowed amount, the mortgagor permits the mortgagee to enjoy the rents of a specified immovable property and delivers the possession thereof, to the mortgagee. Where mortgage is a combination of simple and usufructuary mortgage, decree for sale of the mortgaged property can be awarded by the court.

 PERSONAL COVENANT.

A usufructuary mortgagee cannot have a personal remedy against the mortgagor, yet there is no rule of law that if the mortgagor is so minded, he may not also give his usufructuary mortgagee the power to sue him personally or to sell the land, or both, at any time. Unless there is a personal covenant to pay, a suit or recovery of amount due on the mortgage does not lie.
No fixed time for repayment. It is open to the mortgagor to pay off the mortgage or not as he pleases. No stipulation in terms that the mortgagee is put in possession until the payment of the mortgage-money- such a mortgage would ne anomalous. An intention to deliver possession in present or future is one of the essentials for an usufructuary mortgage. The requirements of law are satisfied if the mortgagor delivers such possession as the property is capable of: actual elivery of possession is not necessary. On dispossession, his remedy lies under Sec. 68 of the Transfer of Property Act.

On being deprived of his possession by a third party the mortgagees only right is to sue to recover possession. A usufructuary mortgagee is not bund to sue for possession. If he is disturbed in his possession by the mortgagor or those claiming against him, he is entitled to sue for money. When he is kept out of possession by the mortgagor, he is entitled to recover the rents and profits received by the mortgagor during that period.

The mortgagee is entitled to remain in possession till the debt is satisfied from the usufruct and it is not necessary for him to sue for the amount due to him.

REDEMPTION SUIT.

A suit for redemption would be under Orders 34, rules 7 and 8.

The right of redemption under mortgage deed can come to an end but only in a manner known to law.

It can take place by contact between the parties or by a decree of the court or by a statutory provision which debars the mortgagors from redeeming the mortgage The mortgagors right of redemption is exercised by the payment or tender to the mortgagee at the proper time and at the proper place, of the mortgage money.The mortgagee cannot escape from his obligation by bringing the equity of redemption to sale in execution of decree on personal covenant. REMEDIES OF THE USUFRUCTUARY MORTGAGE. Under Section 67 such a mortgagee cannot as such sue either for foreclosure or for sale. Section 109 of the Transfer of Property Act entitles the usufructuary mortgagee includes his right to possession of such property and the right to receive rents and profits accruing fro it. Therefore, when a tenant commits nuisance, the usufructuray mortgagee can evict the tenant from the tenanted premises.

 i. ii.

A transaction is an English mortgage where:-

The mortgagor binds himself to repay the mortgage-money on a certain date Transfers the mortgaged property absolutely to the mortgagee

a. b.

Subject to the proviso

That the mortgagee will retransfer it to the mortgagor Upon payment of the mortgage money as agreed. One of the essential features of English mortgage is that the mortgagor

has to bind himself to pay the mortgage money on a certain date. Two elements are essentialA covenant to repay, and
A transfer of property.

i.
ii.

PERSONAL COVENANTBeing the essence of an English mortgage, the covenant is always expressed. Its omission will render the mortgagor liable by implication.

REMEDY OF AN ENGLISH MORTGAGE.

Prior to the Amending Act, 20 of 1929, he could foreclose or sell within 60 years. Now, being left with the remedy by sale only, the question whether Section 147 will apply, will have to be determined in view of the observations of the Judicial Committee.

SECTION 58(f) : MORTGAGE BY DEPOSIT OF TITLE-DEEDS.

Also known as Equitable Mortgage. There is deliver to the creditor (or his agent), documents of title to immovable property, with intent to create a security thereon. It can be created in such towns by deposit of title deeds, even though the property is outside those towns. The object of the Legislature in providing for this kind of mortgage is to give facility to the mercantile communities in cases where it may be necessary to raise money all of a sudden before an opportunity can be afforded of preparing the mortgage deed

It can be created by mere deposit of title deeds without any written contract between the parties but once the contract or bargain as it is called, between the parties is reduced to writing it cannot become effective unless the writing is registered. The intention that deeds deposited should be security for the debt should be present.

In order to prove the existence of an equitable mortgage, the following requisites are necessaryThere must be a debt a) Delivery must be by a debtor or his agent b) Delivery must be in towns mentioned in the Act c) Delivery must be to the creditor or his agent d) Delivery must be of documents of title to immovable property, and e) Delivery must be with the intent to create a security thereon. The debt may be an existing or a future debt. The mere fact of deposit does not raise the presumption that such an intention exists.

FORMS OF EQUITABLE MORTGAGES.

The most common and the simplest way is by way of delivery of deeds to the debtor or to his agent. A promissory note is taken from the debtor accompanied with the deposit and the creditor on the following day sending to the debtor a list of deeds deposited. A third method is for the solicitor to create evidence of the deposit by recording what takes place, when the promissory note is passed and the deeds handed over. Another form is memorandum, in which case, are should be taken of registration.

INDIAN COMPANIES ACT, VII OF 1913- Under Section 109 it is necessary to file with the Registrar particulars of mortgage by deposit of title deeds whether or not it is accompanied by a memorandum of deposit.
STAMP DUTY- on an equitable mortgage, where the amount is repayable on demand or after more than three months from date of instrument, duty would be according to Article 6 of the Stamp Duty Act, 1899. If the loan or debt is repayable not more than three months from the date of the instrument, Article 13(h) would apply.

Where the sale deed transferring property was registered and simultaneously an agreement to re-convey the property was executed, possession was also transferred, the transaction was held anomalous and not sale. A combination of simple and usufructuary mortgage is an anomalous mortgage. The rights and liabilities of the parties to such a mortgage are to be determined by their contract, as evidenced in the mortgage-deed and failing that, by local usage. In such a mortgage, the possession may or may not be delivered. The mortgagors remedy is by sale, and also foreclosure, if the terms of the mortgage permit it. Includes : A simple mortgage usufructuary, and

Simple mortgage usufructuary- In this, the mortgagee is in possession and pays himself the debts out of the rents or profits and there is also a personal undertaking as well as a right to cause the property to be sold on the expiry of the date fixed for payment. Mortgage usufructuary by conditional sale- In this, the mortgagee is in possession as a usufructuary mortgagee for a fixed period and if the debt is not discharged at the expiry of the period, he gets all the rights of a mortgagee by conditional sale.

ENFORCEMENT REMEDIES.

The mortgagors right to redeem as conferred by Section 60 is co-

extensive with the mortgagees right to foreclosure or sue for sale as given by Sec 67.
A decree for foreclosure or sale is available only in the absence of a

contract to the contrary.

A mortgagee cannot acquire any right except what is given by the

mortgage deed or if he has pre-existing rights.

RIGHT OF FORECLOSURE:

Foreclosure is the process by which the mortgagor is deprived of his interest in the mortgaged property. SIMPLE MORTGAGE- Remedy by sale not by foreclosure. This was so under the old section

MORTGAGE BY CONDITIONAL SALE- Foreclosure and not sale. The remedy was the same under the old section.
USUFRUCTUARY MORTGAGE- No foreclosure or sale. Under the old section the law was the same. ENGLISH MORTGAGE- Sale only and not foreclosure. Under the old section the remedy was both foreclosure and sale. EQUITABLE MORTGAGE-Sale only not foreclosure. There was no express provision under old Sec 59. ANOMALOUS MORTGAGE- Ordinarily, sale; foreclosure allowed, if it is provided by terms of the mortgage.

RIGHT TO APPOITEMENT OF A RECEIVER.

PROCEDURE OF APPOINTMENT. a. Under sub-sec. (2), the mortgagee can appoint as receiver b. (i) a person named in the mortgage deed and able and willing to act as such, or c. (ii) otherwise any person to whose appointment the mortgagor agrees.

d. Failing such agreement the mortgagor can apply to the court for the appointment of a receiver.
THE POSITION OF THE RECEIVER.

o Under clause (3), the receiver is deemed to be the agent of the mortgagor.
o Under Order 40, rule 1 of CPC, 1908, the court may appoint a receiver if it appears just and convenient.

A mortgage-deed [S.2(17)] would be liable to stamp duty only if it effected a transfer valid in law and not only that it purported to effect a transfer.

Sec. 17- Instruments executed in India- all instruments chargeable

with duty and executed by any person in India shall be stamped before or at the time of execution.

The Stamp Act is made applicable to both movable and immovable properties, while Sec 58 refers to mortgages relating to immovable property only.

The Income Tax Act, 1961.

CHAPTER XXIII, SECTION 281. If an assesse creates a charge on or parts with his possession during the pendency of any proceeding, transfer shall be void as against any claim in respect of any tax or any other sum payable by the assessee.

THE COMPANIES ACT, 1956. (d) :

SECTION 293 (1) (a) AND

RESTRICTIONS ON THE POWER OF THE BOARD. The Company needs the permission of the Board, in a General Meeting, before : (a) Before it sells, leases or otherwise disposes the whole or part of the undertaking (d) To borrow money after the commencement of the Act, where the moneys to be borrowed, along with the moneys already borrowed will exceed the aggregate of the paid-up capital of the company.

Chapter III SECTION 13- ENFORCEMENT OF SECURITY INTEREST.

Notwithstanding anything contained in section 69 or section 69-A of the Transfer of Property Act,1882, any security interest created in favour of any secured creditor may be enforced, without the intervention of the Court or Tribunal, by such creditor in accordance with the provisions of this Act.