The English Mortgage is defined in Transfer of Property Act, 1882 under Section 58(e). The Sub – Section (e) of Section 58 states that, “Where the mortgagor binds himself to repay the mortgage – money on a certain date, and transfers the mortgaged property absolutely to the mortgagee, but it is subjected to a proviso that he will re-transfer it to the mortgagor upon payment of the mortgage-money in accordance with the agreement, the transaction is called an English mortgage.”
From the definition, it becomes apparent that a mortgage is done only for an immovable property for securing repayment of present as well as future liability. As the mortgagor is transferring the immovable property absolutely to the mortgagee, like a proper sale transaction, the transaction will be subjected to the applicable stamp duty in accordance with the market value of the property on the date of execution of the documents of this mortgage. This document is also required to be registered as a sale deed, in accordance with the mentioned provisions of the Indian Registration Act, 1908.
TYPES OF MORTGAGE DEFINED UNDER TRANSFER OF PROPERTY ACT, 1882:
Section 58 of the Transfer of Property Act, 1882 enumerates six types of mortgages which are as follows:
- Simple mortgage.
- Mortgage by conditional sale.
- Usufructuary mortgage.
- English mortgage.
- Mortgage by deposit of title deed.
- Anomalous mortgage.
Out of the six mentioned types of mortgages, only two of them, i.e., simple mortgage and mortgage by deposit of title deed are prevalent in India.
THE ESSENTIAL REQUISITES OF AN ENGLISH MORTGAGE:
There are four main characteristics of an English mortgage:
- The borrower or the mortgagor binds himself to repay the loan on a specifically mentioned date.
- The mortgaged property is absolutely transferred to the lender or the mortgagee.
- The absolute transfer is subjected to the condition that the lender will re – transfer the mortgaged property to the borrower upon the payment of the loan amount by the mortgagor.
- While the possession rights remain with the mortgagee, the mortgagor can either occupy the property himself or rent it out.
You need to have a copy of the loan agreement along with the mortgage deed for an English Mortgage. In case there is more than one mortgagee or lender, each one can claim their respective share in the property in accordance with their specific needs. And in such cases, all the mortgage deeds must form a part of the loan process. However, the terms and conditions of the deeds can be in accordance with the specific requirements of the parties.
THE DRAWBACKS OF ENGLISH MORTGAGE:
The biggest drawback of an English mortgage is the cost (amount) involved in its process. The costs involved in an English mortgage are higher as compared to all the other kinds of mortgages. Moreover, due to the fact that the property is first transferred in the name of the lender or mortgagee, and then later on, in the name of the borrower or mortgagor; the stamp duty and registration charges are also to be paid twice in the process. This eventually enhances the borrowing cost for the mortgagor.
As appraised by Aradhana Bhansali, Partner, Rajani Associates, “Under an English mortgage, the Transfer of Property Act allows the lender to sell the mortgaged property without the intervention of the Honorable Courts. If the power to sell is expressly mentioned in the mortgage deed, which is generally beneficial to a mortgagee in commercial or financial transactions. This advantage, therefore,makes English mortgage popular among the companies and government bodies in providing loans or working capital against immovable properties as collaterals. However, this privilege of the mortgagee to sell the property without the intervention of the Honorable Courts comes with certain mandatory stipulations to be fulfilled rigorously by a mortgagee prior to the sale of the property. Another drawback of an English mortgage is that it is applicable and confined to a selected set of mortgagors and mortgagees in the country.”
WHAT MAKES ENGLISH MORTGAGE POPULAR?
As per Section 69 of the Transfer of Property Act, 1882, the English mortgage allows the enforcement without intervention from the Honorable Court in case of a payment default. Despite the fact that the transfer is done twice, the majority of State stamp laws has allowed an exemption for re-transfer in the case of a mortgage. It means that the transactions need not to be stamped twice, at the same rate.
Like simple mortgage, an English mortgage can be enforced by sale too, but it contains certain additional features as well. An important consequence as a result from the creation of an English mortgage is the validity of the power of extra judicial sale in certain circumstances. In default of money, a mortgagee has the right to sell the mortgaged property without the intervention of the Honorable Court and it has been enumerated in section 69 of the Transfer of Property Act, 1882.
RELEVANCE OF ENGLISH MORTGAGE IN INDIA
The first case in which the mortgagee is allowed to have the power to sell is mentioned in clause (a) of sub-section (1) of Section 69 of the Transfer of Property Act, 1882. It lays down the conditions for the acquisition of the power which are as follows:
- That the mortgage must be an English mortgage, as per the definition given under Section 58(e) of the Transfer of Property Act, 1882.
- Neither the mortgagor nor the mortgagee must be:
(a) A Hindu, Mohammedan or Buddhist, or
(b) A member of any other race, sect, tribe, or class from time to time specified in this behalf by the State Government(s) in the Official Gazette.
In L.V. Apte v. R.G.N. Price, the Honorable High Court of Andhra Pradesh applied Section 69 of the Transfer of Property Act, 1882, to an English mortgage between a company and trustees for debenture-holders.
Section 69 (1) (a) of the Transfer of Property Act, 1882, is confined only to a selected section of mortgagors and mortgagees who do not belong to the majority communities in India. This advantage of this section is taken by the corporate bodies that are not natural persons, as such bodies are not deemed to belong to any religion. As far as individuals are concerned, then this particular section can be adopted if both of the mortgagor and mortgagee do not belong to the religion, race, sect, tribe or class, which are excluded from the purview of Section 69 (1) (a) of the Transfer of Property Act, 1882.
It is opined here or considered that Section 69 (1) (a) of the Transfer of Property Act, 1882 is outdated in the present circumstances after the stipulations cannot be applied to the commercial transactions like mortgages, in letter and spirit. No community can be compelled to exclude themselves from any particular commercial venture, as it would affect and hamper their constitutional rights.
The English Mortgage is irrelevant at present as it is violative of the basic fundamental rights of the citizens as provided in the case of section 69 of the Transfer of Property Act, 1882. Therefore, it has become redundant and is not more in use nowadays.
- The Indian Registration Act, 1908
- The Transfer of Property Act, 1882
- L.V. Apte v. R.G.N. Price, AIR 1962 AP 274
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