MEANING OF MORTGAGE
Mortgage is an agreement of transaction between a borrower and a lender where lender provides loan to the borrower against the security on an immovable property on a condition that in case of failure of repayment of the barrowed money including the interest if any the lender is entitled to take the specific immovable property of the borrower in regard to the transfer of the interest.
In Gopal v parsotam, 1883 5All. 12
Justice Mahmood observed: “A mortgage, as understood in this country cannot be defined better than by the definition adopted by the legislature in section 58 of The transfer of property Act,1882. That definition has not, in any way altered the law, but, on the contrary, has only formulated in clear language, the notions of a mortgage, as understood by all the writers of text-books on Indian mortgages. Every word of the definition is borne out by the decisions of the Indian Courts of justice.”
Section 58(a) of The Transfer of Property Act, 1882 enumerates that:
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 of future debt, or
- the performance of an engagement which may give rise to a pecuniary liability.
Here the transferor is called a ‘mortgagor’ and the transferee is called a ‘mortgagee.’ The principal money and the interest of which payment is secured for the time being is called the ‘mortgage money’ and the instrument by which the transfer is affected is called a ‘mortgage deed.’
From the above drawn meaning, we have few essential elements of a mortgage aiming to secure the repayment of advanced or to be advanced money for the engagement of a pecuniary liability.
- Parties involved in mortgage transaction.
- Transfer of an interest.
- Specific immovable property.
Section 58 of the Act exhibits six kinds of exhaustive mortgage which are as follows:-
- Simple mortgage
- Mortgage by conditional sale.
- Usufructuary mortgage.
- English mortgage.
- Mortgage by deposit of title deeds or equitable mortgage.
- Anomalous mortgage.
Now we shall do a detailed study on ‘ Simple Mortgage’:
In a layman’s words when a borrower fails to repay the loan amount to the lender then the lender is entitled to recover the amount from the sale of the immovable property kept as a security although the possession remains with the mortgagor. This king of mortgage is called simple mortgage.
According to Section 58(b) of the transfer of property Act,1882, when-
- Possession of the mortgaged property is not given to the mortgagee, and
- the mortgagor-
- binds himself personally to pay the mortgage money; and
- agrees that if he does not so pay, the mortgagee will have a right to cause the mortgaged property to be sold by the court and the proceeds of such sale to be applied in payment of the mortgage-money.
The transaction is called a simple mortgage.
EXAMPLE – A, the mortgagor borrowers Rs 20,000 from B, the mortgagee keeping his house as security to be known as mortgaged property. Although the possession of the house is not given to B, he is empowered to either proceed against the house or may obtain a money decree against A from the court on the occasion of non-payment of the mortgage-money which the mortgagor should repay as an obligation arising out of his personal understanding.
Essential Ingredients of a Simple Mortgage
- The mortgagor takes an understanding of a personal obligation of his part to pay the debt of loan.
- The possession of the mortgaged property resides with the mortgager without giving it to the mortgagee.
- In case of failure of repayment of the mortgage-money the mortgagee has an express or implied right to cause the property to be sold through the intervention of the court.
Here the words “cause to be sold” transpires that the sale of the property must be through the court’s intervention without it being made out of the court. To get hold of the security, the mortgagee has to get court’s decree allowing sale of the mortgage-property.
- A simple mortgage has two-fold security namely: –
- Personal understanding and obligation.
- the immovable property
- In this mortgage, the borrower`s right of sale ceases which is to be known as a right in rem actualizing by way of empowering the lender with the right of sale in regard to the accessary security.
- Section 59 of the Act enumerates that a simple mortgage can be created irrespective of any sum of money kept as security by way of a registered document.
- There is absence of transfer of ownership.
- A simple mortgagee ceases to acquire absolute ownership by foreclosure and as a matter of course, he is empowered to a degree for sale.
PERSONAL OBLIGATION OF MORTGAGER
Generally, a mortgagor does not involve himself personally with any liability in a mortgage but specifically in case of a simple mortgage having personal covenant, mortgagor along with keeping his immovable property as a security engages his understanding to bind his personal obligation for the repayment of the loan and such liability to pay can be both expressed or implied arising from the very initiation of the transaction with the receiving of the loan amount.
And subsequently on the nonpayment of the said amount along with the interest, the mortgagee has a legal right to either proceed against the mortgage-property by filing a suit for foreclosure to sell such property and realize his loan amount or has a provision to proceed against the mortgagor personally to obtain a money decree against him.
NO DELIVERY OF POSSESSION
The concept of simple mortgage affirms the possession of the mortgage-property with the mortgagor for the loan amount can be regained through a money decree passed personally against such mortgagor. A clause entitling a mortgagee to hold complete interest of a mortgage-property on failure of loan converts a simple mortgage into a mortgage with possession.
SALE OF PROPERTY
The mortgagee is granted power by the mortgagor either expressly of impliedly to sell the mortgage-property. At the mere advent of pledging the property as security for the loan, such above mentioned power on part of the mortgagee is sufficiently implied in words per se. Even if the contract of mortgage conspicuously speaks about the mortgagee’s power of sale the mortgagee has to draw inference from the intervention of the court to exercise such power.
A trespasser as becomes an owner of the equity of redemption by prescription ousts the mortgagor to hold his property adversely. However, such adverse possession does not cease the mortgagee’s right to sell off the property in such simple mortgage. Additionally, the mortgagee is empowered to hold the adverse possession since the time started running against him and from the date of his entitlement of entering into the land. Thus, mortgagee’s right is not barred by any adverse possession of a claimant whereby the mortgagee’s possession is not accrued. Even if a mortgage stands illegal on account of absence of registration, a valid mortgage may come into picture after the expiration of 12 continuous years of the mortgagee’s possession of such mortgage-property.
REMEDIES OF SIMPLE MORTGAGE
A mortgagee acquires the right to sell the mortgage-property with the intervention of the court in this regard. A mortgagee however cannot foreclose and is personally liable to repay the mortgage-money by selling the mortgage-property not excluding the personal covenant under section 58 of the Act.
RELEVANT CASE LAWS
- In Ram Narayan Singh v Adhindra Nath, AIR (1916) PC 119, the learned court observed that mere mentioning of few immovable property as security for the repayment of loan does not bring out the personal liability of the mortgagor to repay the loan with interest.
- In kishan Lai v Ganga Ram (1891) 13 Allahabad 28, the honorable court held that the “right to cause the property to be sold” as mentioned under section 58(b) of The Transfer of Property Act,1882 transpires the intervention of the court being necessary for the exercisation of the power of sale on part of the mortgagee.
- In Jati Kar v Mukunda Deb (1912) ILR 39 Cal 227, it was held that a mortgage is declared valid with the interest and transfer of the same. In the process of execution of mortgage, the mortgagor transfers some of his rights in favour of the mortgagee and subsequently the ownership converts from mortgagor to mortgagee.
Human beings having incessant desires, need money for satisfying them. Thus, the system of loan was introduced by the moneylenders keeping property movable or immovable as security with the enactment of The Transfer of Property Act, 1882. Well-structured provisions were formed relating to mortgages for realizing the rights and liabilities of the mortgagor and mortgagee and gave statutory recognition to simple mortgage but it being the most conventional form of mortgage has observed numerous fraudulent transactions lately which asks for a fair legislative conduct to amend strict rules and legislations with equivalent judicial decisions corroborating such affirmations.
- Dr Poonam Pradhan Saxena, Property Law, (Third Edition ,2017)
- The Transfer of Property Act, 1882, No.4, Acts of Parliament,1882. (India)
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