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Report No. 70

54.31. Agreement to mortgage.-

Since a mortgage requires a present transfer of property-this is implicit in the use of the word "transfer" and its meaning as elaborated by section 5-it follows that a mere agreement to mortgage cannot create a mortgage. It creates merely a right to obtain another document creating a mortgage.1 Ordinarily, such an agreement will not be specifically enforced.2

1. Hukam Chand v. Radha Kishan, AIR 1930 PC 76 (78).

2. Waman Mahadeo v. Janardan, AIR 1938 Born 357 (358).

54.32. Section 58(c).-

Defines a mortgage by conditional sale. We shall come to the text of the definition later. But, at this stage, it is enough to mention that, in form, this mortgage is a sale upon a condition, as is obvious from its very name. The origin of this form of mortgage as given in the Act could be traced to the form of mortgage as it existed in England in the seventeenth and eighteenth centuries-in fact, until the passage of the Law of Property, 1925.

This is not, of course, to say that such a mortgage was totally unknown to the people of India. We do come across such forms of mortgage even now in India amongst persons who could not have adopted it from West. The point to be made is that so far as the text of clause (c) is concerned, its genesis can be traced to Western influence rather than to Indian practice.

54.33. Section 58(c), text.-

Under clause (c), where the mortgagor "ostensibly" sells the mortgaged property on condition that, on default of payment of the mortgage money on a certain date, the sale shall become absolute, or on condition that on such payment being made the sale shall become void, or on condition that on such payment being made the buyer shall transfer the property to the seller, the transaction is called a mortgage by conditional sale.

This is a more complex definition than the earlier one in Regulation 17 of 1806, in which a mortgage by conditional sale was said to be "a conditional conveyance of land as a security for the repayment of a loan on the stipulation that, if the money borrowed be not paid, with or without interest, by a certain date, the sale shall become absolute."1

1. Ghose Law of Mortgage in India, (1902), p. 109.

54.34. English usage.-

It should be noted that the expression "mortgage by conditional sale" is not now current in England, and it is not very definite whether this particular expression was current at any earlier period in England. But the concept of a mortgage as an estate upon condition was, of course, very much prevalent in common law. By the old common law,1 the ordinary mortgage was strictly an estate upon condition. There was a feoffment of the land, with a condition providing that on payment by the feoffer of a given sum at a time and place certain, it should be lawful for him to re-enter immediately on delivery of season being made.

The feoffee became the legal owner of the land, subject to the condition. If the condition was performed, the feoffor will re-enter; otherwise, the estate of the feoffee became absolute and indivisible as from the time of the feoffment, the legal right of redemption being then lost for ever.2

It was this very contingency against which equity gave relief. Although the mortgagor lost his legal right to redeem, equity recognised such a right on payment within a reasonable time of the principal, interest and costs.3 At first, this right to redeem was regarded as a mere right, but later, it came to be recognised as an equitable estate in the land, as this equitable estate amounted to ownership of the property subject to the mortgage.4 The "equitable right to redeem" and the "equity of redemption" are not identical concepts. The equitable right to redeem did not exist until the stage for exercising the legal right for redemption had passed.5

The equity of redemption, on the other hand, existed as soon as the mortgage was made.6 This distinction is based on the somewhat refined notion that uptil the appointed day, it is the legal or contrachial right to redeem, and after that, it is the equitable right to redeem which arises only after the contractual right of redemption has passed. The equity of redemption, on the other hand, is an interest inherent in the land so that, even though the mortgagor had, at law, conveyed his ownership to the mortgagee, yet he was, in equity, considered as the owner of the land, subject only to the mortgage.7

1. Snell Equity, (1966), p. 416.

2. Snell Equity, (1966), p. 416.

3. Snell Equity, (1966), p. 417.

4. Hanham v. Howard, Wells Swinburn (in re:), 1933 Ch 29 (32).

5. Brown Cole, (1845) 14 Sim 427.

6. Kreglinger v. New Patagonia Meat & Cold Storage Co. Ltd., 1914 AC 25 (48).

7. Fisher & Lightwood Law of Mortgage, (1969), p. 460.

54.35. Probable origin of mortgage by conditional sale.-

There is considerable obscurity as to why the practice of expressing a mortgage in the form of conditional sale arose in those countries where the feudal system of England did not prevail. The original reluctance of the people of India to sell their immovable property might have led to this practice. The Mitakshara, it will be noted, approves of mortgages, but reprobates sales.1

This does not, of course, mean that the sale was invalid in law, but there seems to have been a social disapproval of sale of land. The fact that land was regarded as impartible in the beginning-there are texts of Usanas2 and of Prajapati3 to that effect-shows the deep-seated antipathy of the Hindus to any transaction approaching a sale of land. Urgent necessity might have given rise to the practice of creating a mortgage. One cannot express very definite views in the matter.

1. Mitakshara, Chapter 1, verse 32, referred to in Bapuji v. Senavaraji, 1877 ILR 2 Born 231 (240) (Westropp, C.J.).

2. Usanas, quoted in the Mitakshara, Chapter 1, section 4, verse 26.

3. Prajapati, quoted by Devanda Bhatta in the Srimati Chandrika, Chapter 7, verse 49.

54.36. History.-

Indigenous mortgages like bai-bil-wafa and kutkubala, which were expressed in the form of sale, were referred to in Macpherson's treatise written with reference to Bengal and the then existing North West Province.1

1. Bapuji v. Senavaraji, 1877 ILR 2 Boni 231 (238).

54.37. Mortgages by conditional sale under various names, such as, bai-bil-wafa, kutkubala and lahangahan have been a very common form of mortgage in India from very early times. It is not necessary in such mortgages that the mortgagor should make himself liable for the repayment of the loan.1 Nor is the mortgagee entitled to possession in such cases, though generally possession also is transferred.2 Essence of lahangahan mortgage, for example, is foreclosure, whether or not there is a personal covenant.3 Where the mortgagee is put in possession under the terms of the deed, he is entitled, if wrongfully dispossessed, to recover possession,4 but such possession is only that of a mortgagee.

When a mortgage by conditional sale is effected without delivery of possession, subsequently with the consent of the mortgagee, he can convert it into a usufructuary mortgage.5 But that does not destroy its character as a mortgage.

1. 1900 ILR 22 All 149 (159).

2. 1893 ILR 16 Mad 64 (66) (DB).

3. AIR 1949 Nag 34 (36) (DB).

4. Ganpat v. Hanamgonda, AIR 1933 Born 439 (442, 443).

5. Afsar Shia v. Saurava Sundari, AIR 1917 Cal 217 (218).

54.38. The nature of a mortgage by conditional sale, as it was common in India (before the Act) was described by MacPherson in his work on Mortgages as follows:

"The mortgage by conditional sale, 'Kutkubaia' or 'bai-bil-wafa' is that in which the borrower, nor making himself personally liable for the repayment of the loan, covenants that on default of repayment of the principal and interest on a certain date, the land pledged shall pass to the mortgagee."

In Thumbuswamy v. Hossain Rowthen, 1875 ILR 1 Mad 1, the Privy Council, after referring to the above passage in Macpherson on Mortgages, observed:

"Such a mortgage might or might not be usufructuary. If usufructuary, it usually contained a stipulation that the usufruct should be in lieu of interest. The essential characteristic of a mortgage by conditional sale was that, on the breach of the condition, the contract executed itself, and the transaction was closed and became one of absolute sale without any further act of the parties or accountability between them."1

1. See AIR 1926 All 493 (486).

54.39. Equity of redemption.-

It should also be pointed out at this stage that in the ancient law of India, there was no equity of redemption in case of a mortgage by conditional sale, any mere that in an out and out sale with a condition of re-purchase.1

In fact, before the passing of the Act, there arose an acute controversy on the question whether the judges could engraft upon the contract of the parties the equitable rules of redemption which had been established by the Court of Chancery in England. The Bombay High Court consistently followed the practice of allowing the equity of redemption even in a case of a mortgage in the form of a conditional sale. The judgment of Westropp, C.J., in the case of Bapuji v. Senavaraji, 1877 ILR 2 Bom 231, confirmed the position, so far as that High Court is concerned.

In the other High Courts, however, there prevailed some uncertainty, the more so because the Privy Council had, in two decisions,2 made observations which threw doubt on the subject. No final view was expressed by the Privy Council in its judgments, but in one of the judgments,3 it did suggest that an Act affirming the right of the mortgagor might be useful alongwith certain other provisions of a consequential nature. This suggestion was made in a judgment rendered in 1875 by the Privy Council and seems to have been very promptly adopted by the legislature when it passed the present Act.

1. Mulla, (1973), p. 382, citing the following cases:

(a) 1875 1LR 1 Mad 1 (PC); (b)1880 ILR 2 All 63;

(c) 1885 ILR 8 Mad 185.

2. (a) Pattabhiramaier v. Vankatrao, (1871) 13 MIA 560 (PC);

(b) Thumbaswamy v. Hossain, 1875 ILR 1 Mad 1 (PC).

3. Thumbaswamy v. Hossain, 1875 ILR 1 Mad (PC).

54.40. Comparison with English mortgage.-

In form, a mortgage by conditional sale resembles very closely an English mortgage, since, in both cases, there is an ostensible transfer of ownership of the property on default of payment. For this reason, both are treated as analogous.1 One distinction, however, between the two is that in a mortgage by conditional sale, there is no need to have an express covenant to repay the mortgage money, while in an English mortgage, there is such a covenant. This is obvious from the opening words of section 58(e) defining an English mortgage-

"Where the mortgagor binds himself to pay the mortgage money on a certain date.....

1. Surnoyee v. Srinath, 1885 ILR 12 Cal 614, affirmed on another point by the Privy Council in Srinath v. Khetter, 1888 ILR 16 Cal 693.

The Transfer of Property Act, 1882 Back

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