Report No. 70
54.22. Debt.- Viewing the matter from another angle, Ghose says1-
"Another problem which has arisen out of the double obligation created by a mortgage is the sites of a secured debt. Is the debt to be regarded as situated in the country where the parties reside, or where the land is situated if it is secured by a mortgage on land in a foreign country?
The question was recently discussed before the Privy Council in a colonial appeal, in which it was contended that the securities were merely accessory to the debts which were payable elsewhere and could not have an independent locality, but their Lordships overruled the contention as it is idle to say that a debt covered by a security is in the same position with one depending solely on the personal obligation of the debtor. I told you in the introductory lecture of the difficulty which has been felt by eminent judges in attempting to define the precise relation between a mortgagor and a mortgagee in English law.
Their Lordships of the Privy Council did not pretend to be wiser than Baron Parke or Lord Denman. But while abstaining from any attempt to define the relation in which a mortgagee stands to the subject of his security, they point out that the mortgagee has not merely a jus ad rem but a present interest in the pledge, which is preferable to the interest of the mortgagor."2
1. Ghose Law of Mortgage in India, (1902), pp. 83-84.
2. Walsh v. Queen, 1894 AC 144 (PC).
54.23. True position.-
It appears to us that the true position is that the Act was not, in general, intended to apply to immovable property situated outside the territories of its application. We are not sure if the special case of mortgage by deposit of title deeds-section 58(f)-was intended to be, or can be dealt with, on a special footing in this context. It was held by Kania, J. in a Bombay case1 that the Transfer of Property Act is to be construed irrespective of the fact whether the property is inside or outside British India or whether the property is situate in a province to which the Act applies or not.
The Court must judge the transaction according to the provisions contained in the Act, unless the contrary is proved. It was held that a valid equitable mortgage can be made in (British) India of property outside British India by persons residing in British India. This position having been established about forty years ago, we do not consider it proper to disturb it so far as section 58(f) is concerned. But we believe that the general position is as we have stated above.
1. Central Bank of India v. Nusserwanji H. Bharucha, AIR 1932 Born 642 (643) (Kania, J.).
54.24. Covenant by owner against alienation.-
Since a mortgage must be a transfer of an interest, the question arises whether a particular transaction amounts to a transfer. The question arises where there is no express formula used to transfer an interest. For example, a mere undertaking by the borrower of money that he will not alienate his property until the loan is paid, does not transfer any interest in the property to the creditor. Hence a document merely having such undertaking (undertaking against alienation) is not a mortgage.1 But where a covenant not to alienate is associated with words expressly making a property a security for the debt, there may be a transfer of an interest constituting a mortgage.2
Whether there is a transfer of an interest depends upon the intention of the parties gathered from the document as a whole. It is not necessary that there should be a formal transfer of interest in so many words.
1. Mohun Lal v. Indomati, AIR 1917 All 4 (5, 6).
2. Anand Ram v. Dhanpat, AIR 1916 Pat 11 (13).
54.24A. Transfer of mortgagee's interest.-
Since a mortgage is a transfer of an interest in immovable property, such interest is capable of transfer by way of assignment, mortgage, etc. and is heritable. But the assignee of the mortgage without privity of the mortgagor takes it subject to the state of account between the mortgagor and the mortgagee at the date of the transfer.1 Further, a payment by the mortgagor to the mortgagee without notice of the assignment is binding on the mortgagee.2
And the result of the principle that a mortgage is a transfer of an interest in immovable property is that from the time of lending his money, the mortgagee, whether he be in or out of possession, acquires the right to have the mortgaged property secured from deterioration in the hands of the mortgagor or of any other person to whose rights those of the mortgagee are superior.3
1. Mathews v. Wallwyn, (1798) 31 ER 62 (66): 4 Ves 118.
2. William v. Scrrell, (1799) 31 ER 198 (199): 4 Ves 389.
3. Alyappa Reddi v. Kuppuswami Reddi, 1905 ILR 28 Mad 208 (209) (DB).
54.25. Section 58(b)-Simple mortgage.-
We have now done with the definition of "mortgage" in section 58(a). Let us now proceed to section 58(b) relating to simple mortgage. Under section 58(b), a simple mortgage is created where, without delivering possession of the mortgaged property, the mortgagor binds himself personally to pay the mortgage money and agrees, expressly on impliedly that in the event of his failing to pay according to his contract, the mortgagee shall have a right to cause the mortgaged property to be sold and the proceeds of sale to be applied, so far a may be necessary, in payment of the mortgage money.
The essence of a simple mortgage is the obligation to re-pay the loan coupled with the power of sale. Ghose1 has pointed out that this type of mortgage corresponds to the hypothecation of the civil law and the systems which are founded upon it. The mortgagee is not put into possession, he does not acquire the absolute ownership of property nor has he the right to satisfy the debt out of the rents and profits. In this sense, it is properly called a "simple mortgage", since the remedy of the mortgagee is one and only one. The addition of any other remedy would take it out of clause (b) and bring it under the category of anomalous mortgages.
1. Ghose Law of Mortgage in India, (1902), p. 100.
54.26. Previous Law.-
It would appear that before the Act such kinds of transactions were known in Madras and Bombay under the classical name of hypothecation,1 or the more modem designation of equitable liens or charges.2
1. Aliba v. Nanu, 1885 ILR 9 Mad 218.
2. Khemji v. Rama, ILR 10 Born 519; see Ghose Law of Mortgage in India, (1902), p. 100.
A simple mortgage is one of those mortgages which is nearest to a charge, inasmuch as both create a security on property and both confer a power of sale. Of course, there are many differences between a mortgage and a charge, which we need not state here. The point to be made is that a power to sell the property is of the essence of a charge, as also of a simple mortgage.
That the land is given only as a collateral security is another aspect which ought to be borne in mind in the context of simple mortgages. In order to make his security available, a simple mortgagee should, except in cases specifically provided in the Act,1 obtain an order of a civil court directing a sale.2 That the mortgagee has a two-fold security, namely, the personal obligation and the property, is, of course, undisputed.
The mortgagee in the case of a simple mortgage had, in the event of default being made in the payment of the debt, two causes of action, the one arising out of the contract of hypothecation. He is free to put both these causes of contract of hypothecation.3 He is free to put both these causes of action in suit at once, or he may pursue the one remedy at one time and the other at another time. Subject, however, to the right created by the mortgage, the mortgagor remains the owner of the property.
1. Section 69.
2. Khub Chand v. Kalyan Das, 1876 ILR 1 All 240 (244).
3. Khub Chand v. Kalyan Das, 1876 TLR 1 All 240 (244).
54.28. Power of sale whether express or implied.-
It is not necessary that the power of sale should be in express words. The agreement may be implied. Words of hypothecation generally import the right to sell the property, but controversy does arise sometimes as to whether the right to sell can be implied from the language of the instrument. Thus, in an Allahabad case,1 there was a personal covenant to pay and no express covenant to cause the property to be sold. It was held that there was no right to sell the property. On the other hand, in a Nagpur case2 the terms of the document ran as follows:-
"I mortgage my field; the same shall stand mortgaged so long as the money is not paid off. If repayment is not made within time, I shall pay compound interest until liquidation."
It was held that an agreement that the creditor may get the lands sold was implied. Indian words such as rehan, arh and similar expressions, have been held to import a power of sale.3 On the other hand, the words tamassh or makhuza do not imply such a power.4-5 One wonders whether such controversies as to the right of the mortgagee should be allowed to continue on such an important matter and whether some machinery cannot be devised where by such controversies, if they could not be totally eliminated, could at least be reduced to the minimum.
A practical solution would be to provide that where a mortgage deed creates a security with a personal covenant (express or implied), under which the mortgagor undertakes to pay the mortgage money on the due date, the personal covenant carries with it a power of sale, unless the contrary is necessarily implied. Such a provision would not, it is hoped, create any rigidity, because the parties can always contract to the contrary.
The importance of such a provision lies in this, that it will make it easy to work out the rights and liabilities of the mortgagor and the mortgagee, which sometimes depend on the particular category to which the mortgage belongs. It will not, in any way, prejudice the right of the mortgagor in general, for two reasons; the equity of redemption is not affected, and a decree that the property be sold is even now available unless the mortgage is a usufructuary mortgage or a mortgage by conditional sale. A clarification as proposed will, in fact, prevent the mortgage from falling within the category of mortgage by conditional sale.
1. Kanhaiya Prasad v. Hamidan (Mt.), AIR 1938 All 418 421.
2. Khem Chand v. Mafia, AIR 1914 Nag 32 (35).
3. Kishan Lai v. Ganga Ram, 1891 ILR 13 All 28 (41, 43).
4. Khurshed All v. Abdul, AIR 1917 All 439 (440, 441).
5. Dalip Singh v. Bahadur Ram, 1912 ILR 34 All 446 (449).
In the light of the above discussion, we recommended that a suitable Explanation as indicated above1 should be added to section 58(a).
1. Para. 54.28, supra.
54.30. In a Madras case1 a deed recited that-"in default, I shall, on the security of the house cited belonging to me, pay and make good the principal and interest". It was held that this was simple mortgage and the instrument need not expressly state that the mortgagee shall recover his money by sale. The amendment which we are recommending will incorporate a similar approach.
1. 21 MLJ 562.