- The Apex Court in Bhimrao Ramchandra Khalate (D) v. Nana Dinkar Yadav (Tanpura) determined whether a deed is of absolute transfer or mortgage by a conditional sale.
- Mortgages are covered by Sections 58 to 98 of the Transfer of Property Act, 1882.
- Section 58 deals with the various kinds of mortgages.
- Sections 60 to 76 deal with the rights and liabilities of mortgagor and mortgagee.
- Subsequent purchasers have a right of marshalling under Section 56 and under Section 81, puisne mortgagees do.
- Section 82 states about contribution to mortgage-debt.
- Section 92 provides for subrogation.
This article firstly studies the recent case of Bhimrao Ramchandra Khalate (D) v. Nana Dinkar Yadav (Tanpura). In this case, the Supreme Court, while determining the finality of the case, observed that the intention of the parties has to be considered. Then, the article will discuss the provisions around the topic of "mortgage" under Indian law, which is the Transfer of Property Act, 1882, along with some of the landmark cases.
The case is discussed below:
The Supreme Court of India
The Apex Court determined whether a deed is of absolute transfer or mortgage by a conditional sale in the following case. The Court observed that while determining the same, the intention of the parties has to be looked into.
Date of Judgment
August 13, 2021
Justice Hemant Gupta
Justice A.S. Bopanna
Appellant(s): Bhimrao Ramchandra Khalate (D) through LRs
Respondent(s): Nana Dinkar Yadav & Anr.
- The plaintiff owned a total of 20 gunthas of agricultural land in the Khunte Village. The plaintiff needed money, so on 22.2.1969, he borrowed Rs.3,000/- from the defendant by signing a "conditional sale deed" document as a security for the loan amount.
- The plaintiff asked the defendant to relinquish the suit land in exchange for a loan of Rs.3,000/-, but the defendant refused. On February 25, 1989, the defendant transferred the suit land to his brother.
- On 5.4.1989, the plaintiff sued the defendants to redeem the mortgaged property and possession under the Transfer of Property Act, 1882. Even though it was titled a conditional sale, the plaintiff claims that the transaction dated 22.2.1969 was like a mortgage.
- On 14.1.2000, the First Appellate Court passed an order dismissing the suit for redemption of the mortgaged property. The High Court affirmed the order on 11.8.2006 in the second appeal. Hence, the appeal was then before the Supreme Court.
- Whether the document dated 22.2.1969 is a document of conditional sale or a mortgage?
- Section 58(c), Transfer of Property Act: This Section states that when the mortgagor ostensibly sells the mortgaged property on the condition that the sale becomes absolute if the mortgage-money is not paid on a certain date, or if the sale becomes void if the payment is made, or if the buyer transfers the property to the seller if the payment is made, the transaction is void. Provided that no such transaction shall be deemed a mortgage unless the condition is embodied in the document which effects or purports to effect the sale.
Analysis of the Judgment
- After a complete reading of the document, the Court stated that the loan amount was to be returned to the defendant as well as, he was bound to retransfer the land to the plaintiff. The condition is that the document will be considered a permanent sale deed if the plaintiff did not pay the loan amount in one year.
- The defendants claimed that the suit for redemption was filed twenty years after the document was signed. In that time, defendants had made improvements to the land. As a result, the plaintiff would be unable to seek redemption. The Court stated that none of the events arose that compelled the mortgagor to carry out any improvements.
- It was claimed that the plaintiff filed a suit for redemption after 20 years of the document's execution, and it is not tenable as a suit for redemption. However, the Court stated that it must be filed within 30 years of the redemption date. As a result, the 30-year period begins on 22.2.1969, and the suit was filed in 1989, which is within the statute of limitations.
Conclusion of the Case
Hence, the Apex Court finally held that the order of the First Appellate Court accepting the defendants' appeal and dismissing the suit for redemption and the order of the High Court is not sustainable in law. Hence, the First Appellate Court's and the High Court's judgments and decrees were reversed, and the suit was dismissed. Further, the Court stated that the plaintiff might pay or deposit the mortgage amount within three months of receiving a copy of the order. The appeal was, therefore, granted.
Mortgage under Transfer of Property Act, 1882
Mortgages are covered by Sections 58 to 98 of the Transfer of Property Act, 1882. The following terms are defined in Section 58 of the 1882 Transfer of Property Act:
- Mortgage, Mortgagor, and Mortgagee: A mortgage is the transfer of an interest in immovable property to secure the payment of money advanced, the payment of an existing or future debt, or the performance of an engagement that may result in a financial liability. The mortgagor is the person who transfers an immovable property's interest. The mortgagee is the person to whom it is transferred.
- Mortgage Money and Mortgage Deed: Mortgage money refers to the principal and interest for which payment is guaranteed for the time being. A mortgage deed is an instrument used to bring the transfer into effect.
In the case of Chetti Goundan v. Sundaram Pillai, (1865) 2 Mad HCR 51, as a result of the transfer, the right to the property created by the transfer is considered an accessory right to the right to recover the debt.
Further, Section 58 also deals with the various kinds of mortgages:
Section 58(b), Transfer of Property Act, 1882, defines simple mortgage. Here, the mortgagor agrees to pay the mortgage but does not transfer property. A simple mortgage is where the mortgagee agrees to sell the property if the borrower does not reimburse the mortgage.
Section 58(c), Transfer of Property Act, 1882, defines mortgage by conditional sale. The mortgagee has the right to sell the property if the mortgagor fails to pay the mortgage on a certain date. Here, the deal is void as soon as the mortgagor pays as well as, the property is transferred upon payment of the mortgage and is known as a mortgage by conditional sale. However, in Raj Kishore v. Prem Singh, AIR 2011 SC 382, it was held that every sale accompanied by an agreement for the reconveyance of the property does not constitute a mortgage by conditional sale.
Section 58(d), Transfer of Property Act, 1882, defines usufructuary mortgage. Here, the mortgagor gives the mortgagee possession of the property and authorises him to keep it until the mortgagor pays the mortgagee and receives the rent or profit instead of paying interest.
Section 58(e), Transfer of Property Act, 1882, defines English Mmortgage. This mortgage binds the mortgagor to repay the mortgage - money on the specified date and requires the mortgagee to retransfer the property upon repayment. This type of deal is called an English mortgage deal.
Section 58(f), Transfer of Property Act, 1882, defines a deposit of title deeds. When a person is in Calcutta, Madras, Bombay, or any other town designated by the State Government, the mortgagor delivers the documents of title to the immovable property to a creditor or his agent with the intent to create security, the transaction is known as deposits of title-deeds.
Section 58(f) of the Transfer of Property Act, 1882 defines an anomalous mortgage. An anomalous mortgage does not fit into any of the categories listed above.
Rights and Liabilities of Mortgagor and Mortgagee
Rights of Mortgagor
Right of Redemption- (S. 60) - When the money is due on the specified date, the mortgagor has the right to reclaim the mortgaged property upon the payment.
Thota China Subba Rao v. Matapalli Raju, AIR 1950 FC 1: Redeeming a mortgage is an incident of the mortgage itself, the Court held. To be extinguished under this Section, a decree must be issued strictly according to the form prescribed.
Right to transfer to a third party- (S. 60A) - Instead of transferring the property to him, the mortgagor may instruct the mortgagee to assign the mortgage debt to a third party. This Section allows the mortgagor to pay off the mortgagee's debt by borrowing money from someone else on the same property.
Right to inspection and production of documents - (S. 60B) allows the mortgagor to inspect the mortgaged property's title at any time.
Right to accession - (S. 63), if any accession is made to the mortgaged property while the mortgage is in force, the mortgagor has the right to redeem the mortgage.
Right to improvement - (S. 63A), if any improvements are made to the property while the mortgage is in force, the mortgagor is entitled to take the improvements upon redemption. However, if the improvements were made to save the property from destruction, the mortgagor is responsible for the mortgagee's costs.
Right to a renewed lease - (S. 64), if the mortgagee renews the leases of a leasehold property, during the mortgage term, the mortgagor receives the benefit of the lease upon redemption of the mortgage.
Sree Lakshmi Products v. SBI, AIR 2007 Mad. 148: The mortgage is not bound by the lease when it is made without fulfilling any conditions. Parties may also agree to limit the mortgagor's ability to execute any mortgage-deed lease.
Right to grant a lease - (S.65A), a mortgagor has the right to grant a lease to the mortgagee for which he is lawfully in possession. Such lease is binding on the mortgagee subject to certain conditions.
Right in case of waste - (S.66), an owner of the mortgaged property is not liable to the mortgagee for letting it deteriorate. Still, he must not permanently harm the property if the security is inadequate or will be inadequate.
Liabilities of Mortgagor
Covenant for the title – (S. 65A) - There is an implied covenant that the mortgagor owns the property, and only the mortgagor owns it. Also, the mortgagor must own the transferable interest in the property. In the event of a breach of the covenant, the mortgagor must compensate.
Covenant for the defence of the title – (S. 65B) - The mortgagor has a duty impliedly to either defend the title if anyone tries to take away the title from the mortgagee or help the mortgagee in defending the title. By doing so, the mortgagor bears all the expenses incurred while defending the title.
Covenant for payment of public charge – (S. 65C) - The mortgagor has an implied duty to pay all necessary charges upon execution of the mortgage. If the mortgagor fails to pay the required charges, the property will be sold to recoup the payments.
Sangapalli Lekshmayya v. Intoory Bolla Reddi, 1903 26 Mad. 385: If the mortgagor fails to pay and the property is sold for arrears and revenue, the property will remain under the mortgage because he cannot take advantage of his own mistake to improve his financial situation.
Covenant for payment of rent – (S. 65D) - If the mortgaged property is a leasehold property, the mortgagor is obligated to pay the rent.
Covenant for the discharge of prior mortgage – (S. 65E). The mortgagor has an implied duty to discharge any previous mortgage. There is always a presumption that the mortgagor will pay the subsequent mortgages when due. In the event of a breach by the mortgagor, the subsequent mortgagee may sue for the money mortgaged.
Mortgagor's liability for waste – (S. 66) - The mortgagee has an implied duty not to harm or destroy the mortgaged property.
Rights of Mortgagee
Right to foreclosure of sale - (S. 67) - This Section gives the mortgagee the right to redeem or sell the property at any time after the mortgage payment is due and before the mortgage money is paid or deposited. The Court in K. Vilasini v. Edwin Periera, AIR 2009 SC 1041 held that a foreclosure order could only be issued after determining the mortgage's nature and the parties entitled to it.
Right to sue for mortgage money - (S. 68) - Mortgagee has the right to sue in the following four cases: Where the mortgagor agrees to repay; when the mortgaged property is destroyed without any fault of the parties; when the mortgagee loses all or part of his security due to the mortgagor's responsibility; when the mortgagee is entitled to possession, but the mortgagor does not deliver it.
Right to sell (S. 69) - This Section allows the mortgagee to sell only in certain cases without court intervention. If the mortgagee fails to repay the loan, the lender may sell the property to recoup the debt.
Right to appoint receiver (S. 69A) - A mortgagee may appoint a receiver of the mortgaged property's income in writing. The mortgagee may nominate any person named in the mortgage deed who is willing and able to act as a receiver. Otherwise, the mortgagee may appoint any person with the consent of the mortgagor. If the mortgagor refuses to consent, the receiver may apply to the Court for an appointment.
Right to accession - (S. 70) - If an addition is made to the mortgaged property after the mortgage is recorded, the mortgagee is entitled to that addition as security for his mortgage debt. Section 63 provides for the mortgagor's accessions rights. The mortgagee may treat the acquired property as part of his security and enforce his lien.
Right of renewal of mortgaged lease - (S. 71) - If the mortgaged property is a lease and the mortgagor renews the lease, the mortgagee is entitled to the new lease for security purposes unless the contract states otherwise.
Right of the mortgagee to spend money - (S. 72) – This Section governs the mortgagee's right to spend money. In the absence of a contract to the contrary, a mortgagee may pay as necessary.
Right to proceeds of revenue sale or compensation on acquisition - (S. 73) - According to this Section, if the mortgaged property or any interest in it is sold due to non-payment, the mortgagee is entitled to receive the mortgage money from the sale proceeds after paying the arrears and all charges and deductions required by law.
Liabilities of Mortgagee
Mortgagee bound to bring one suit on several mortgages - (S. 67A) - According to Section 67A, a mortgagee who holds two or more mortgages from the same mortgagor must enforce all or any of them unless otherwise agreed. A contract between the mortgagor and the mortgagee may limit this liability.
Liabilities of mortgagee in possession - (S. 76) - According to this Section, if the mortgagee takes possession of the mortgaged property during the mortgage term, he must:
- Manage the property prudently;
- Collect rent and profits from the property;
- Unless otherwise agreed, pay government dues;
- Unless otherwise agreed, repair the mortgaged property;
- Not permanently destroy or harm property;
- Use insurance proceeds to restore the property or reduce the mortgage if received;
- Keep proper accounts of all mortgagee funds received and expended;
- Apply rent and profits to certain deductions and account for gross receipts.
Marshalling, Contribution, and Subrogation Under The Transfer of Property Act, 1882
Marshalling means arranging. Subsequent purchasers have a right of marshalling under Section 56 and under Section 81, puisne mortgagees do. This right arises when a property owner mortgages two or more properties to one person and then mortgages one or more of them (to the first mortgagor) to another. Unless otherwise agreed, the subsequent mortgagee can have the prior mortgage debt paid from non-mortgaged assets.
In the case of Aldrich v. Cooper, (1803) 8 Ves 382, it was held that if two creditors have taken securities for their debts and one's security is confined to both, while the other's security is limited to one of those funds, the Court will arrange or marshal the assets so that the person who has two funds is liable to his demand on the one that is not liable to the debt of the second creditor, i.e., it will not depend on the unsecured debt of the second creditor.
Contribution of Mortgage-debt
Section 82 states about Contribution to Mortgage-debt. Where the property subject to a mortgage is owned by two or more people with distinct and separate ownership rights, the different shares in or parts of the property owned by those people are liable to contribute rateably to the debt secured by the mortgage, absent a contract to the contrary.
The value of each such share or part shall be deemed to be its value at the sale of the mortgage after deduction of the amount of any other mortgage or charge to which it may have been subject to on that date to determine the rate at which it will contribute. This Section explains how to contribute to mortgage debt. It states that multiple properties mortgaged to secure one debt are liable for the debt proportionally to their values at the time of Mortgage, less any prior mortgage or charge. In both cases, each co-owner must pay the mortgage debt in full, regardless of how many properties are mortgaged.
Section 92 provides that – On redeeming the mortgaged property, any person other than the mortgagor referred to in Section 91. Any co-mortgagor shall have the same rights as the mortgagee whose mortgage he redeems against the mortgagor or any other mortgagee in terms of redemption, foreclosure, or sake of such mortgaged property.
Assuming this right, one is said to be subrogated to the mortgagee's rights. A person has the right to take the role of a creditor after paying off his debts. In the case of a mortgage, subrogation is only possible through redemption. To be eligible for subrogation, a person must pay off a prior mortgage in full. Partial mortgage debt payment does not entitle to partial subrogation.
The Transfer of Property Act, 1882, is one of the most important Acts under the Indian legal system. Similarly, the concept of mortgage under the Act is very important as it enables a person to secure some monetary help. As well as, it enables the creditor to obtain a security in return of the money. This concept has been followed for a long time in India and with time, it has legally developed in ample number of ways.