Report No. 70
54.61. However, as already stated,1 a personal covenant is not usually found in mortgages in England. Thus the definition, in that respect, departs from the English practice. The truth is that mortgages by conditional sale and English mortgages, taken together, exhaust those species of mortgages, in which a security is created by the transfer of ownership as distinct from a transfer of possession or a covenant giving the remedy of sale. A mortgage by conditional sale as defined in the Act excludes a personal covenant, while an English mortgage includes such a covenant.
How far the retention of this complex scheme based on a refined distinction is desirable is a point which could be raised. But, then, the abolition of the distinction between English mortgage and mortgage by conditional sale may bring in the question of remedies. It is to be noted in this connection that an English mortgagee cannot now sue for foreclosure, these being an amendment made in 19292 to that effect. Before 1929, the Act in section 67, did not put any such limitation on the right of an English mortgagee.3
1. Para. 54.60, supra.
2. Section 67, third paragraph, clause (a).
3. Vasudeva v. Srinivasa, 1907 ILR 30 Mad 426.
54.61A. Genesis.-
Until 1925 (when the English law of Property Act was passed), the usual form of a mortgage in England was the transfer of the mortgagor's interest in the property, with a proviso for reassignment upon payment of the mortgage money by a particular date. After the date had passed for payment, the mortgagor's right at law determined and the mortgagee was in law the absolute owner of the property. In equity the mortgagor still retained a right to redeem and, upon payment of the debt and interest, to have the property recovered to him.
It was, however only an equitable right and did not prevent the legal interest of the mortgagor from passing despite his retention of the equity of redemption. The equity of redemption was an estate in land which could be devised, granted etc., and whereof they may be seisin.
In fact, the mortgagor in England had only an equitable interest in the property both before and after the date for payment had elapsed-before the date, because he had a contractual right to have the property reconveyed, and this contract created an equitable interest of the property; after the date, because, in equity, time was not the essence of the transaction, the contract of mortgage being in equity, considered merely a loan of money secured by a pledge of the estate.1
Before the passing of the Law of Property Act of 1925, a mortgage in the English form of properties situated in the mofussil between parties of whom one was a Hindu, was always treated as only a mortgage by conditional sale.2 Where both the parties were Englishmen, all the incidents of an English mortgage were held applicable.3 After the passing of the Act, a mortgage in the English form could be created in the mofussil as well as in the Presidency Towns, no matter to what community the parties belonged. This is the genesis of the clause. The three essentials of an "English mortgage" were stated in Narayana v. Venkataramana, 1902 ILR 25 Mad 235 (FB), to be as follows:
(1) The mortgagor should bind himself to repay the mortgage money on a certain day.
(2) The property mortgaged should be transferred "absolutely" to the mortgagee.
(3) The absolute transfer should be made subject to a proviso that the mortgagee will reconvey the property to the mortgagor upon repayment of the mortgage money, on the date on which the mortgagor bound himself to repay the same.
1. Seton v. Slade, (1802) 32 ER 108 (111): 6 RR 124: 7 Ves 265.
2. 1886 ILR 12 Cal 614 (616) (DB).
3. 1881 ILR 7 Cal 394 (398).
54.62. Personal liability.-
In an English mortgage, the debtor remains personally liable to pay the debt. A covenant to pay is an essential ingredient of such a mortgage. Where the intention is to create an English mortgage, this covenant will, in fact, be presumed. For every mortgage implies a loan, and every loan implies a debt for which the mortgagor's personal estate is liable. The absence of a covenant is, however, a strong indication of the intention of the parties. The fair criterion by which the court is to decide whether a deed of sale containing an agreement to recovery is a mortgage or not, is whether the remedies are mutual and reciprocal. If not, it is merely a conditional sale and not a mortgage.
54.62A. Transfer whether absolute.-
It would be noticed that section 58(e) speaks of an "absolute" transfer to the mortgagee, subject of course, to the specified proviso. While the definition of "mortgage" in the abstract in section 58(e) states that the mortgage is a transfer of an interest in specific immovable property, section 58(e) regards the transaction as a transfer of the property. There is an apparent inconsistency between the two, which gave rise to prolific case law.
The position is now however fairly well-settled,1-2 since it has been held by the Privy Council that clause (e), on its true construction, does not declare an English mortgage to be an absolute transfer of the property. It declares only that such a mortgage would be absolute, but for the proviso for re-transfer. In this sense, clause (e) dealts with form, and not with substance. Whatever form is used, nothing more than the mortgagor's interest is transferred, and that transfer is subject to the right of redemption.
1. Ramkinkar v. Satyacharan, AIR 1930 319 (414).
2. See discussion in 43 CWN Journal 47, Transfer of an interest.
54.63. English mortgage by Lessee. Question also arose in the past whether, after a lessee has mortgaged his interest in form of an English mortgage, privity of estate is established between the lessor and the mortgagee from the lessee, so as to entitle the lessor to claim rent from the mortgagee of the lease on the basis that there has been an absolute assignment of the lease.
After considerable fluctuation of views in the Calcutta High Court,1 the position is now settled by virtue of the judgment of the Privy Council already referred to,2 that the mortgagee is not liable by privity of estate for the burdens of the lease. This, in substance, means that the original relationship continues between the lessor and the lessee, notwithstanding the mortgage.
1. Palakrishna Pal v. Jagannath, AIR 1932 Cal 775, doubting Bengal National Bank v. Janki Nath Roy, AIR 1927 Cal 725.
2. Ramkinkar v. Satyacharan, AIR 1939 PC 14.
54.64. Power of sale without intervention of court.-
While an English mortgage, like a simple mortgage, can be enforced by sale,1 it bears an additional feature worth mentioning. An important consequence resulting from the creation of an English mortgage is the validity of a power of extra judicial sale in certain circumstances.2 In default of payment of the mortgage-money, a mortgagee in English mortgage has, without the intervention of the Court, the power to sell, or to concur in selling, the mortgaged property or any part thereof in the cases enumerated in section 69, subject to following the procedure prescribed by that section. Of the cases so enumerated, one is stated thus-
"(a) where the mortgage is an English mortgage, and neither the mortgagor nor the mortgagee is a Hindu, Muhammadan or Buddhist or a member of any other race, sect, tribe or class from time to time specified in this "behalf by the State government in the official gazette."
This provision, incidentally, discloses two features of social and juristic interest-
(1) The legislature desired to create a dividing line between mortgages by conditional sale and English mortgages. The former was meant primarily for those traditional Indian mortgages which were framed as ostensible transfers of ownership. The latter was primarily meant for non-traditional mortgages framed as absolute transfers of ownership.
(2) While a mortgage by conditional sale primarily results in foreclosure, for an English mortgage, there exists a number of remedies-
(a) remedy on the personal covenant;3
(b) sale through court;4
(c) sale without intervention of court where the parties do not belong to the excluded communities.5
1. Section 67, first para.
2. Section 69(1)(a).
3. Section 68.
4. Section 67, first para.
5. Section 69(a).
54.65. Position regarding English mortgagee's right to possession.-
While, as the above analysis will show, the position as to the English mortgagee's right to cause the property to be sold is fairly clear, the question of his remedy to sue for possession raises several interesting points. The question turns upon the words in section 58(e), speaking of "absolute transfer". Do these words mean that the English mortgagee, when his mortgage debt is not paid in time, can seek possession of the property? Section 58(e) does not, of course, expressly confer any right to possession.
But, at least before 1939 (before the Privy Council case), the view taken by some High Courts was that he had such a right. This view primarily bases itself on the postulate that an English mortgage is essentially an "absolute transfer" of the property and that so long as payment by the mortgagor in time does not bring the condition into operation, the transfer retains its character of "absolute transfer".
54.66. Bombay case.-
In this connection, the following observations of Chagla, C.J. may be referred to-1
"Now, well-known text books on mortgages and eminent English Judges have admitted frankly the difficulty in defining the relationship between a mortgagor and a mortgagee when the mortgagor remains in possession of the mortgaged property. We are here dealing with an English mortgage and an "English mortgage" is defined under section 58(e) of the Transfer of Property Act as:
"Where the mortgagor binds himself to repay the mortgage-money on a certain date, and transfers the mortgaged property absolutely to the mortgagees, but subject to a proviso that he will re-transfer it to the mortgagor upon payment of the mortgage money as agreed, the transaction is called an English mortgage."
Therefore, in an English mortgage there is the transfer of the absolute interest2 of the mortgagor to the mortgagee, but the transfer is not complete and some interest is left in the mortgagor because he has a right to the reconveyance of the property and also to the right of redemption. To that extent it may be said that the whole of the interest of the mortgagor is not transferred to the mortgagee, but subject to this right which I have just indicated, there is a complete and absolute transfer of the interest of the mortgagor to the mortgagee. Therefore, under an English mortgage a mortgagee is entitled to the same rights as the mortgagor himself had in the property and one of the most important rights is the right of possession.
There can be no doubt that on an English mortgage being executed the mortgagee, becomes entitled to possession of the property. He may not take actual possession by sufferance of the mortgagee or by permission express or implied given by the mortgagee. The mortgage may provide that on the mortgagor committing a certain default the mortgagee would be entitled to enter into actual possession.
In such a case the stipulation amounts to the permission being withdrawn or the license being terminated on the default taking place. Therefore, in this case when the English mortgage was executed, the possession of the mortgagor was a permissive possession. The mortgagee had bound himself not to withdraw that permission unless there was a default, and when the default did take place, the mortgagee withdrew the permission and the licence came to an end.
It seems to me that under these circumstances the mortgagee was entitled under section 41 (of the Presidency Small Cause Courts Act) to institute proceedings for ejectment, because section 41 provides that when any person has had possession of any immovable property as the tenant or by permission of another person and the tenancy or permission has been determined or has been withdrawn, the person to whom the property belongs can apply for a summons against the occupant calling upon him to show cause why he should not be compelled to deliver up the property.
In this particular case the person had possession of the property not as tenant but by permission of another person, and as that permission has determined, that other person is entitled to a summons against the occupant. With regard to the nature of the mortgagor's possession under an English mortgage, there are interesting observations of Lord Selborne in Heath v. Pugh, (1881) 6 QBD 345 (359) :
"The possession of the mortgaged land by the mortgagor, during the subsistence of the security, and while the mortgagee did not choose to take possession, was held (at law as well as in equity), to be "at the will" or by the "sufferance", or "permission", of the mortgagee, under a "tacit agreement" which the mortgagee might determine at his pleasure. It was of the nature of the transaction that the mortgagor should continue in possession. His possession was rightful and not wrong. He was entitled to the rents and profits as long as he remained in possession; mesne profits accrued due and received prior to action or demand could not be recovered from him by the mortgagee".
Mr. Sukhtankar has relied on a decision of the Privy Council in Ram Kinkar v. Satya Charan, AIR 1939 PC 14(B), and his contention is that whatever view might have been taken of an English mortgage prior to this decision, after this decision it could not be said that a mortgagor under an English mortgage had no interest in the mortgaged property at all. Now, all that the Privy Council has done in this case, with respect, is to emphasise the fact that under an English mortgage a mortgagor has some interest left in the mortgaged property.
That is undoubtedly so, because, as the definition of an English mortgage under the Transfer of Property Act itself indicates, a mortgagor has the right to have the property reconveyed to him and also the right of redemption. This important right that the mortgagor has, does create an interest in the mortgaged property which the mortgagor enjoys. But the Privy Council has not discussed in this judgment what are the rights of a mortgagor to the mortgaged property or what is the nature of the possession that a mortgagor has of the mortgaged property under an English mortgage."
1. Sequerira v. Boolbar, AIR 1954 Bom 81.
2. Emphasis added.
54.67. We have cited these observations in extenso, since they set out in full the reasons in support of the view taken. There are other decisions to that effect. Although the factual situations vary, these decisions-namely, in Patna1 and Calcutta2-take the view, expressly or by implication, that an English mortgagee can claim possession.
1. (a) AIR 1936 Pat 211 (220);
(b) AIR 1932 Pat 360 (362).
2. (a) AIR 1919 Cal 908 (912);
(b) AIR 1925 Cal 77 (79).
54.68. Need for change and recommendation.-
Having devoted serious attention to the matter, we have come to the conclusion that whatever be the position in England, it is not the intention of the legislature in India that an "English" mortgagee as defined in section 58(e) should, by the very fact of execution of the mortgage, have a right to possession. If the English mortgagee is to be taken as acquiring the right to take possession as soon as the mortgage is executed whether a right of entry is expressly covenanted for or not, then a jarring element is introduced into the section. The section, as we conceive the true position to be, is based on a scheme of keeping distinct the remedies of:-
(a) sale,
(b) possession,
(c) foreclosure, resulting from a conditional transfer of ownership, and of classifying the various mortgages into species in which one of the remedies enumerated above would be available.
In other words, the remedy available constitutes a basic element of the scheme, even though on the surface it may appear that only the form of the transfer is the criterion. No doubt, the parties can create a mortgage combining more than one of the remedies enumerated above or even adding thereto. But, in the scheme of the Act, such a mortgage is to be regarded as an anomalous mortgage.
The view taken in England1 is that if the mortgagee allows the mortgagor to remain in possession, the mortgagor is, at law, merely a tenant at sufferance, but in equity, (being the owner, the mortgagor can take the rents and profits for his own use and is not liable to account to the mortgagee. This may be a logical course to adopt in England, but it does not appear to be in harmony with the scheme of the section 58. The mortgagor in India transfers only an interest. This aspect was sufficiently elaborated by the Privy Council.2
Assuming that our construction of section 58, as stated above, is not correct, we would still take the view that if the law is as it has been held to be by the Bombay, Calcutta and Patna High Courts, it ought to be changed not merely in order to introduce a symmetry into section 58, but for a more fundamental reason, namely, that unless the parties expressly agree to give possession, the remedy of sale which is available to the English mortgagee3 should be regarded as enough for all practical purposes. An argument that an "absolute" transfer carries with it the right to possession-assuming that it is theoretically valid-does not carry in its support practical reasons of a compelling nature.
As a matter of legislative policy, the remedy of sale should suffice for an English mortgage.
We, therefore, recommend that4 it should be provided in section 58(e) that an English mortgage does not carry a right to possession in the absence of an express agreement giving such right.
1. Scobie v. Collins, (1895) 64 LJQB 10(2).
2. AIR 1939 PC 14.
3. Section 67, first para.
4. This is not a draft.
54.69. Section 58(f)-Mortgage by deposit of title-deed.-
The next category of mortgages to be considered is defined in section 58(f). It is popularly known as an equitable mortgage, but its legal appellation is "mortgage by deposit of title deeds". Where a person in any of the following towns, viz the towns of Calcutta, Madras and Bombay and in any other town which the State government concerned may, by notification in the official gazette, specify in this behalf, delivers to a creditor or his agent documents of title to immovable property with intent to create a security thereon, the transaction is called a mortgage by deposit of title deeds.
Equitable mortgages (mortgages by deposit of title deeds) were accepted in India as equivalent to simple mortgage, as pointed out by Mulla,1 after the decision of the Privy Council in Varden Seth v. Lachpathy, Mulla, (1973), p. 394s. By virtue of section 96, the provisions in the chapter, which applied to a simple mortgage, apply, so far as may be, to a mortgage by deposit of title deeds. This, in fact, was substantially the position before the amendment of 1929 also.2
It is to be noted that, although popularly known as an equitable mortgage, such a mortgage creates a mortgage in which an interest in the mortgaged property is transferred to the mortgagee.3
1. Varden Seth v. Lachpathy, (1864) 9 MIA 307; see also Manekji v. Rustamji, 1890 ILR 14 Born 369.
2. Imperial Bank of India v. Uri Gyam Thu, AIR 1923 PC 211.
3. K.J. Nathan v. S.B. Maruty Reddy, AIR 1965 SC 1964: 2 SCJ 671.
54.70. Territorial restrictions.- As clause (f) of section 58 now stands, it is applicable
(i) to the towns of Calcutta, Madras and Bombay; and
(ii) to any other town which the State Government concerned may notify. Though a large number of towns and cities have been notified by the State Government, a list whereof is available in most of the commentaries,1 the question to be considered is whether this clause should not now be extended to all territories to which the Act extends. In the alternative, the next question to be considered is whether the cities and towns already notified should not be included in the clause, instead of it being left to the citizen to ascertain the position from the various notifications which are not always easily accessible.
As to the first alternative, it may be pointed out that even in the districts to which the Act does not extend, deposit of title deeds as creating a mortgage has been recognised.2-3 A mortgage by deposit of title deed is, therefore, valid throughout the Punjab, even in areas where the Act does not extend.4
1. Mulla, (1973), pp. 394, 395, under "Territorial restrictions".
2. Moti Ram v. Bharat National Bank, AIR 1921 Lah 253.
3. Stewart v. Bank of Upper India, 1916, Punjab Record Civil No. 31, p. 83.
4. Paras Ram v. Mohun Manucha, AIR 1944 PC 22.
