Equity of redemption under Transfer of Property Act

MORTGAGE
The term 'Mortgage' consists of two words 'Mort' and 'Gage'. Mort which means ' a place of public
sale and 'Gage' means 'A pledge'. In this way, mortgage means a pledge made at a place of public
sale.

In India, Mortgage is governed under Section 58 to 104 of the Transfer of Property Act, 1882.
Section 58(a) of the Transfer of Property Act 1882 defines Mortgage as "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 which 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.

Essentials of a Mortgage-

1.Specific immovable property-

The immovable property must be distinctly specified. The description of the property in the mortgage
deed must be sufficient to identify the property.

2. Consideration-
The consideration of a mortgage may be either :-
i. The performance of a contract giving rise to a pecuniary liability,
ii. money advanced or to be advanced by way of loan, or iii.an
existing or future debt.
3.Transfer of an Interest-

According to the definition given above the third requisite of mortgage is that there should be a
"transfer of an interest" of an immovable property for the purpose of securing the payment of money
advanced by way of loan or for the purpose of securing the performance. The words "transfer of
interest" signify that the interest which passes to the mortgage is not ownership or dominion, which
notwithstanding the mortgage, resides in the mortgagor. This right is only an accessory right which is
intended merely to secure the due payment of the debt. In mortgage, there is a transfer of a partial

interest.

4.Parties-
The person who transfers an interest in the property is called the mortgagor, the person to whom the
interest is transferred is called the mortgagee. The mortgagor must be competent to transfer. Thus a
minor cannot be a mortgagor but a minor can be a mortgagee.

Types of Mortgages-

1. Simple Mortgage: The term ‘Simple Mortgage’ is defined under Section 58(b) of the
Transfer of Property Act, 1882.

In this case, the possession of the property is with the mortgagor himself but he binds himself
personally to pay the mortgage-money and agrees to a condition that if he fails to pay the mortgage
money to the mortgagee then in that event, the mortgagee can sell that property by way of sale. The
mortgagee in this case is known as a simple-mortgagee.

2. Mortgage by Conditional Sale: The term ‘mortgage by conditional sale” is defined under
Section 58(c) of the Transfer of Property Act, 1882.

In a mortgage by conditional sale the mortgagor sells the mortgaged property to the mortgagee on a

condition that if the mortgagor fails to pay the mortgage money on a certain date then the sale shall
become absolute. But, if the payment is made by the terms agreed, then the sale shall become void.
This is a type of mortgage where there is an ostensible sale which gets converted into an absolute sale
if the ostensible seller is unable to repay the loan.
3. Usufructuary Mortgage: The term ‘Usufructuary mortgage’ is defined under Section 58(d)
of the Transfer of Property Act, 1882.

In this type of mortgage, the mortgagor delivers possession of the mortgaged property whether
expressly or impliedly to the mortgagee and gives him the authorization to retain the mortgaged
property until the payment of the mortgage-money. He also authorizes the mortgagee to receive the
rent and profits accruing from the mortgaged property in lieu of interest, either partly or wholly or in
payment of the mortgaged money, either partly or wholly.

4. English Mortgage: The term English Mortgage is defined under Section 58(e) of the
Transfer of Property Act, 1882.

In English mortgagee, the transaction between the mortgagor and the mortgagee is such that the
mortgagor agrees to repay the mortgage money on a specified date and transfers the mortgaged
property absolutely to the mortgagee. The only condition being that the mortgagee agrees to retransfer
the property to mortgagor upon payment of the agreed mortgage money.

5. Mortgage by Deposit of Title Deeds: The term ‘Mortgage by title deed’ is defined under
Section 58(f) of the Transfer of Property Act, 1882.

This type of mortgage is known as an equitable mortgage. The essential requirements of this type of

mortgage are :- 1. There must be a debt

2. There must be a deposit of title deed with the lender

3. The deposit must be with the intention that the said title deed shall be the security for the debt.

Section 96 of the Transfer of Property Act, 1882 places mortgages by deposit of title deeds on the
same footings as simple mortgages. As such, the security can, like a simple mortgage can be
enforced by a suit for sale of mortgaged property, of course, by the process of the law.
And this kind of mortgage does not require registration and is at par with any other legal mortgage.

5. Anomalous Mortgage: The term ‘anomalous mortgage is defined under Section 58(g) of the
Transfer of Property Act, 1882.
So any mortgage that doesn’t fall within the ambit of simple mortgage, a mortgage by conditional
sale, an usufructuary mortgage, an English mortgage or a mortgage by deposit of title deeds within
the meaning of Section 58 of the Transfer of Property Act, 1882 is an anomalous mortgage.

Essentials of a Mortgage-

1.Specific immovable property-

The immovable property must be distinctly specified. The description of the property in the mortgage
deed must be sufficient to identify the property.

2.Consideration-
The consideration of a mortgage may be either :-
i. The performance of a contract giving rise to a pecuniary liability,
ii. money advanced or to be advanced by way of loan, or iii. an
existing or future debt.

3.Transfer of an Interest-
According to the definition given above the third requisite of mortgage is that there should be a
"transfer of an interest" of an immovable property for the purpose of securing the payment of money
advanced by way of loan or for the purpose of securing the performance. The words "transfer of
interest" signify that the interest which passes to the mortgage is not ownership or dominion, which
notwithstanding the mortgage, resides in the mortgagor. This right is only an accessory right which is
intended merely to secure the due payment of the debt. In mortgage, there is a transfer of a partial
interest.

4.Parties-
The person who transfers an interest in the property is called the mortgagor, the person to whom the

interest is transferred is called the mortgagee. The mortgagor must be competent to transfer. Thus a

minor cannot be a mortgagor but a minor can be a mortgagee.

EQUITY OF REDEMPTION
Under a mortgage, two interests are generated by the owner of the property. One is the interest of the
creditor on the property, which is limited and fixed and another, is the residuary interest left which
can be quantified only by deducting the creditor’s interest from the value of the security. The
fundamental bargain from this division of interests is the presence of a right to buy back the property
without any encumbrances by paying the loan. This right is called the equitable right to redeem.

Section 60 of the Transfer of Property Act, 1882 provides the right of redemption to the mortgagee.
This right becomes alive only after the principal money becomes. There are certain limitations to this
right by the fact that it exists only till the mortgagee decides to exercise his right of foreclosure on
the property. Thus, the contract of mortgage between the parties ends, when the debtor exercises his
right to redeem through paying off the loan.

This right provided by the Transfer of Property Act is a statutory right which can only be done away
by compliance to the procedure established by law. It would henceforth follow that any obstruction
to this right would be declared as void as a clog on the equity of redemption.

In Stanley v. Wilde (1899), Lindley M.R. gave one of the founding explanations of the basis of this
doctrine-

“The principle is this: a mortgage is a conveyance of land or an assignment of chattels as a security

for the payment of a debt or the discharge of some other obligation for which it is given. This is the
idea of a mortgage: and the security is redeemable on the payment or discharge of such debt or
obligation, any provision to the contrary notwithstanding. That, in my opinion, is the law. Any
provision inserted to prevent redemption on payment or performance of the debt or obligation for
which the security was given is what is meant by a clog or fetter on the equity of redemption and is
therefore void. It follows from this, that ‘once a mortgage always a mortgage’.”

The maxim ‘once a mortgage always a mortgage’ means that there can no covenant that modifies the
character of the mortgage agreed between the parties that would stop the mortgagor to redeem his
property back on payment of the principal and respective interests.

The basis of this doctrine lies in the exercise equity, justice and good conscience and is extensive to
areas where the act is not applicable. On a realistic perusal of the workings of a mortgage, it is
observed in most of the cases that the mortgagor enters into such an agreement because of some
financial predicament. The law recognizes the power of the dominant party to insert clauses which
will serve his personal interests by creating impediments on the right to redeem the property. Such
obstructions are henceforth struck down by the courts to enable the mortgagee to redeem his
property.

In U. Nilan v. Kannayyan (Dead) Through Lrs. (1999), explaining the philosophy behind the
doctrine, it was said that –

“Adversity of a person is not a boon for others. If a person in stringent financial conditions had taken
the loan and placed his properties as security therefor, the situation cannot be exploited by the person
who had advanced the loan. The Court seeks to protect the person affected by adverse circumstances
from being a victim of exploitation. It is this philosophy which is followed by the Court in allowing
that person to redeem his properties by making the deposit under Order 34 Rule 5 C.P.C.”