Report No. 70
Mortgages of Immovable Property
After sale of immovable property, the next transaction to be considered is mortgage. The subject is, in the Act, spread over more than forty sections. A mortgage, as is well-known, is a transfer by way of security. Unlike other transfers, such as sale, lease, exchange or gift, a mortgage has no independent existence of its own. There can be no mortgage without a debt-we are using the expression "debt" in a wide sense as including money or money's worth or-to borrow a part of the phraseology used in the Transfer of Property Act and the Stamp Act-an engagement which may give rise to a pecuniary liability.
It is only in conjunction with an actual or future debt that a mortgage is created. There may or may not be a personal liability on the mortgagor to pay the debt. But the existence or anticipation of a debt is a condition precedent to the creation of a mortgage. If the debt is discharged with the period of limitation, the mortgage cannot survive. In this sense, a mortgage creates a right which is ancillary to another right, or at least connected with another right. It is this dual character of the transaction that gives rise to a part of the complexity of the law, and brings in the doctrine of equity of redemption wherein lies much of the romance of the law of mortgages.
A creditor may be willing to rely solely on the debtor's personal credit for the repayment of the debt, but often he would like something proprietary and not merely contractual. This desire of the creditor is normally achieved by his taking a security. Security itself could be non-proprietary, in the sense that there is a personal security-the contract of guarantee-whereby another person (called the guarantor or surety) promises to answer for the obligation of the debtor in the case of the default by the debtor. But this security merely gives another contractual remedy, while we are concerned with proprietary rights.
The subject has a very interesting history, both in India and elsewhere. In the West, it goes back to Roman times. In India, it goes back to a period earlier than Manu. The economic necessities of agriculturists seem to have led to the creation and evolution of rules on the subject in the legal system in ancient India. The financial needs of businessmen led to the evolution of rules as to mortgages of movables. There are, in fact, instances of mortgages of ships and cargo in ancient Indian literature.
The Hindu law-as also the Roman Law-evolved from the stage of the possessory security to the stage of a non-possessory security. Just as hypothecation found a place in the Roman Jurisprudence at a later stage, and the first pledges were possessory, similarly, possessory pledges arose first in Hindu law (known by the name of adhi), to be later replaced by the non-possessory mortgages which came to be known as barrdhak.
That the emergence of non-possessory pledge represents a Later stage is illustrated, though incidentally, by the discussion in a judgment of the Supreme Court of Calcutta.1-2 In that case the principal question involved was whether a pledge unaccompanied by possession was valid according to Hindu law. Conflicting texts were cited (Vrihaspati and others) from Colebrook's Digest. Vrihaspati's text, so far as is material appears to have been non-committal, because it stated-
"Of him who does not enjoy a pledge, nor possess it, nor claim it on evidence, the written contract for that pledge is nugatory, like a bond when the debtor and witnesses have deceased."
According to another text-
"by the acceptance of actual possession of a pledge the validity of the contract is maintained.3"
According to a text of Vyasa
"Pledges are declared to be of two sorts, immovable and movable and both are valid, when there is the actual enjoyment, and not otherwise."
On an examination of the text and on a consideration of usages, the majority of the Supreme Court Judges held that later Hindu law clearly recognised non-possessory pledge.
1. Shiv Chandra Ghose v. Russick Chandra Neoghy, 1842 Ful 36.
2. Chose Law of Mortgage in India, (1902), p. 42, footnote 1.
3. Colebook's Digest, Vol. 1, p. 205, para. 126, and p. 161, para. 96.
That in all system of law, at least in the earlier stages, possession is an important element in the acquisition of rights, cannot be disputed. There is an elaborate discussion of the matter in a judgment of Markby, J.1 But the inconvenience of the requirement of change of possession might have led to the Gradual relaxation. In Rome, this relaxation was affected by the Roman Praetors when they recognised the validity of hypothecation.
It must have been in India also at a late stage that non-possessory mortgages came to be recognised, whatever may be the actual process of evolution in its details. According to Sir William Jones,2 the distinction between pledging when possession is transferred to the creditor and hypothecation where possession remains with the debtor was originally derived from the Attic Law.
1. (1869) 3 Bengal Law Reports (App Civil Jurisdiction), Appeal No. 2.
2. William Jones, cited Shiv Chandra Ghose v. Russick Chandra Neoghy, 1842 Ful 36 (43, 44).
54.5. Thus, in the later stages of Hindu Law, if the debtor committed a default, the property in the pledge was liable to pass to the creditor who might, however, in his discretion sell the pledge, but, in the case of pledge for custody.
Where there was an express stipulation against forfeiture, the creditor could not foreclose, but could exercise only the right of sale. There was to be sale or foreclosure where the pledge was of a description known as "beneficial pledge". By a, beneficial pledge is meant a pledge for use where there was no express agreement that the property should be forfeited or fore-closed.1
1. Mitakshara, Chapter 6, section 6, para. 58.
As to sale, non-judicial sale was not recognised, at least in the case of immovable property, but sale through the judicial process was recognised. There is a text1 of Katyayana under which, when the pledgor is missing, the creditor may produce his pledge before the king and it may then be sold with the permission of the king.
That the law of mortgages must have attained a certain degree of sophistication in Hindu law in its later stages, is obvious from the fact that there are to be found in the texts, rules relating to the mortgages of property not in existence, priority of incumbrances, effect of destruction of the pledge, personal liability of the pledgor, liability of the pledges to take care of the property, right of the mortgagor (now described as the equity of redemption) and the transfer of the right to redeem the mortgage. Sir Thomas Strange2 thought that hypothecation which is usually traced to Greece might have travelled from India.
1. Katyayana, cited in Colebrooke's Digest, Vol. 1, para. 122; Ghose Law of Mortgage in India, (1902), p. 57, footnote 1.
2. Sir Thomas Strange Hindu Law, Vol. 1, p. 282.
54.7. Classes of mortgages under Hindu law-The enumeration of various classes of mortgages in section 58 reminds one of the elaborate classification made by Brihaspati, viz., (1) movable, (2) immovable, (3) for Custody, (4) for use, (5) discretionary (that is, without a time limit), (6) with a fixed time limit, (7) evidenced by a document, (8) evidenced merely by witnesses.
Although the classification by Brihaspati is, in form, eight-fold, in substance it is four-fold,1 the principles of classification being, (i) nature of the property pledged, (ii) form of the pledge, (iii) time relation, and (iv) nature of the evidence by which the pledge is supported.
In section 58 of the Act also, the differentia are-the nature of the obligation, viz whether or not there is a personal liability, the nature of the right transferred to the mortgagee (possession or right to sell or conditional ownership), and the formality adopted, viz deposit of title deeds or other formality. The actual types of mortgages specifically enumerated in section 58 represent transfer of a variety of rights-limited ownership, possession or sale. Some of these had counterparts in Hindu law.
Recognising that the enumerated species may not exhaust the entire scope of mortgage which can be conceived in theory or which may be created in practice, section 58, clause (g), leaves scope for a residuary category under the heading of "anomalous mortgage". Incidentally, this category will also cover combinations of one or more of the enumerated types, which may more appropriately be called composite mortgages. Whenever any specific immovable property is made answerable for the repayment of a debt or the performance of any other engagement which may give rise to a pecuniary liability, a mortgage is created in favour of the creditor.
If the mortgage does not fall under one or other of the enumerated species, it must be treated as an anomalous mortgage.2 In the case of anomalous mortgages, the rights and liabilities are regulated by the terms of the contract and, where the contract is silent, by the local usage. Anomalous mortgages have considerable juristic interest from at least two aspects. They are regulated primarily by contract or custom and, in that sense, they are more elastic than mortgages governed by the rigid provisions of the law.
Secondly, they reflect, more intimately than the other mortgages, practices; this is particularly true of the various kinds of local mortgages possessing well-known-incidents derived from custom, of which the familiar instances in South India are the Otti, the Kanom and the llludwara.3 It appears that in the Punjab also, there are various forms of mortgage recognised by custom, some of which may not, in all respect, fit into the scheme of classification given in section 58. In some of these mortgages, the mortgagee is even made to pay a token part of the produce to the mortgagor by way of acknowledgment of the mortgagor's title to the land.4
Anomalous mortgages, thus, constitute a living link with ancient Hindu law and usage.
1. P.N. Sen Hindu Jurisprudence, (1918), p. 177.
2. Ghose Law of Mortgage in India, (1902), p. 140.
3. Ghose Law of Mortgage in India, (1902), pp. 141, 917, 919.
4. Ghose Law of Mortgage in India, (1902), p. 143.
54.8. History in England.-
In England, the pledges of land are found in Anglo-Saxon times and in the Domes day Book.1 The rules relating to "gage" or pledge are dealt with in Glanville (1187), as for movables, and then applied by reference to immovable property.2 Possession would usually be given to the mortgagee, but he had only a special sort of seisin, which the law did not protect.3
Such a pledge giving possession was called-(i) a mortgage mortuum vadium, when the fruits or the rents received did not tend to reduce the debt; (ii) a vivum vadium when the fruits or rents proceeds were applied in reduction of the debt. The property became the mortgagee's on default of repayment on the appointed day if it was so agreed, or if mortgagor failed to redeem within a reasonable time after the court had ordered him to do so.4
1. Plucknett Concise History of the Common Law, (5th Edn.), pp. 603-608.
2. Holdsworth History of English Ilrw, Vol. 2, p. 188.
3. Holdsworth History of English Law, Vol. 3, p. 128, Pollock & Maitland History of English Law, Vol. 2, p. 120.
4. I.L. Bartin in 83 ER 229.
54.9. Later, this form of mortgage of land was succeeded by the form in which the mortgagee took an ordinary estate in the land, entitling him to the usual remedies for recovery of possession. The interest of the mortgagee seems to have fluctuated between an interest regarded as for a term of years though capable of being enlarged automatically into the fee simple on default and a more rigid position, namely, absolute interest.
This distinction was important in the context of the rule then prevailing, namely, that "livery of seisin", was essential for the creation of a fee simple and since there was no livery on the grant of the term, a freehold estate would not arise afterwards. Later, an alternative was evolved to comply with this rule, whereby a mortgage was made by a conveyance of the land in fee simple, subject to the condition either that the mortgagor might re-enter, or that the conveyance should be void if the debt was unpaid by the appointed day.1
The form of conveyance was again modified, whereby a more convenient covenant or re-conveyance by the mortgagee on default in repayment by the mortgagor by the appointed time was substituted.2 One merit of this form of covenant was that proof of title was simplified thereby, because title then depended on execution of the re-conveyance.3 It was this form of mortgage by conveyance which became the usual form of legal mortgage of freehold till the Law of Property Act, 1925, was enacted.
1. Holdsworth History of English Law, Vol. 3, pp. 129-130.
2. Vol. 5, pp. 330-331.
3. Derham Brothers v. Robertson, (1898) 1 QB 765 (772) (Court of Appeal).
54.10. The evolution of real security- as it is called in England-is vitally linked up with the law of bankruptcy. Real security gives the creditor certain rights over property which has been appropriated to meet the debt or other obligation.1 Its attraction for the creditor is that, if the debtor should become insolvent, the creditor may exercise his rights over the security in priority to the claims of the general creditors. The property may be real or personal.
1. Fisher & Lightwood Law of Mortgage, (1969), p. 3.