Report No. 70
English law has certain analogies with classical Roman law in that they are both "action-oriented" systems, in the sense that lawyers in both systems think in terms of remedies rather than of rights. While this preoccupation with remedies seems to have led to a relative lack of interest in the theory of legal procedure-which is otherwise in the civil law systems of the continent-it has its compensations. Civil procedure, sometimes, is seen as offering a screen on which great legal themes are projected with dramatic sharpness and clarity. So it is in the case of a suit for redemption and the pleas and defences raised in such a suit.
The right which has been often described as the most important right in the light of mortgages is the right of the mortgagor to redeem. Although, sometimes it is described as the "equity of redemption", that expression is not strictly accurate, even when one is speaking of the pre-1925 position in England, for reasons which will be indicated later. However, the substance of the matter is that section 60 describes the right of redemption, delimits its operation, gives it a name, contains a saving regarding the requirement of reasonable notice, and finally deals with redemption of a portion of a mortgaged property, when the person seeking redemption is interested in a share in the property.
57.2. Right to redeem.-
It is in the first paragraph of section 60 that the right to redeem is dealt with. Curiously, the name to be given to this right is postponed until the third paragraph, and the section begins with a description of the contents of the right. The time element is important- "at any time after the principal money has become due". The right, in its content, is divided into three branches, which are given in clause (a), (b), and (c) of the section in the first paragraph. But it is conditional on payment or tender at a proper time and place of the mortgage money. It may be recalled that "mortgage money" is defined in section 58.
The three branches of the right relate to-(i) delivery of the mortgage deed and documents of title, (ii) delivery back of possession, and (iii) re-transfer of the mortgaged property to the mortgagor. The most important element is not enacted in positive terms, but negatively, namely, that a contract made at the time of the mortgage cannot effect or abrogate or substantially reduce this right. This position flows indirectly from the fact that there are no words such as "in the absence of a contract to the contrary". It is the absence of these words which facilitates the application of the legal doctrine that a clog cannot be imposed on redemption, or the legal maxim-"once a mortgage, always a mortgage".
In Kreglier v. New Patagonis Meat & Cold Storage Co. Ltd., (1914) 83 LJ Ch 79 (84): 109 LT 802, Lord Haldane, L.C., stated the history of the subject as follows:-
"The reason for which a Court of Equity will set aside the legal title of a mortgagee and compel him to re-convey the land on being paid principal, interest and costs, is a very old one. It appears to owe its origin to the influence of the Church in the Courts of the early Chancellors. As early as the Council of the Lateran in 1178, we find, according to Mathew Parie (Historia Major at pp. 114-115), that famous assembly of ecclesiastics condemning usurers and laying down that when a creditor had been paid his debt, he should restore his pledge.
It was, therefore, not surprising that the Court of Chancery should, at an early date, have begun to exercise jurisdiction 'in personam' over mortgages. This jurisdiction was merely a special application of a more general power to relieve against penalties and to mould them into mere securities. The case of the Common law mortgage of land was indeed a gross one. The land was conveyed to the creditor upon the condition that if the money which he had advanced to the feoffor was repaid on a date and at a place named, the fee-simple should revest in the latter, but that if the condition was not strictly and literally fulfilled, he should lose the land for ever.
What made the hardship on the debtor a glaring one was that the debt still remained unpaid and could be recovered from the feoffor, notwithstanding that he had actually forfeited the land to his mortgagee. Equity, therefore, at an early date began to relieve against what was virtually a penalty, by compelling the creditor to use his legal title as a mere security."
The equity of redemption, given by Courts of Equity, was however, regarded as an estate in land which could be devised, granted, etc., and of which there may be seisin.
The English doctrine of the equity of redemption was unknown to the ancient law of India. As was observed by their Lordships of the Privy Council in Pattabhiramier v. Vencatarow Naicken, (1871) 13 MIA 560 (571):
"What is known in the law of England as 'the equity of redemption' depends on the doctrine established by Courts of Equity that the time stipulated in the mortgage deed is not of the essence of the contract. Such a doctrine was unknown to the ancient law of India."
57.4. Equity of redemption and equitable right to redeem.-
There is, in England, as stated above, a distinction between the "equity of redemption" and the "equitable right to redeem". The equitable right to redeem is lesser than what is included in the equity of redemption. The equity of redemption includes all the interest of the mortgagor that survives in him, after the mortgage. The equitable right to redeem, on the other hand, is confined to the actual right to redeem. This distinction is not often observed in practice, but is supported by leading writers, such as Fisher.1
1. Fisher and Lightwood Law of Mortgage, (1969), p. 78.
The equity of redemption arises as soon as the mortgage is made, while the equitable right to redemption arises only after the contractual right of redemption has come to an end.
The right of redemption cannot be altogether done away with upon the original contract. It may still be lawfully postponed in circumstances to be presently mentioned. The mere length of time is, of course, not conclusive, although it may be an important consideration. So long as the essential requirement of a mortgage is observed and the terms imposed are not oppressive and unconscionable, the court will not interfere.1
If the interest of the mortgagor is for short term itself, postponement of redemption for a long period is objectionable. For example, in a case often cited, decided by the Privy Council,2 a term of 171/2 years was mortgaged, but the redemption was postponed until the last 6 weeks of the term. Such postponement was regarded as rendering the right of redemption illusory and therefore not binding.
Of course, if the transaction is not one of mortgage but of a different nature-for example, partnership-these principles have no relevance. In this connection, it is worth noting that even a collateral agreement might be regarded as objectionable. Thus, the doctrine of restraint of trade applies to mortgages,3 so that a term imposing on the mortgagee a restraint, unreasonable in the circumstances may not be recognised. Postponement of redemption for an uncertain period would certainly be void.
In applying these principles, regard will, of course, have to be given to the relation of the parties. "The directors of a trading company in search of financial assistance are certainly in a very different position from that of a land owner in the hands of a crafty money-lender", as Lord McNaughten observed.4 So much, however, is the anxiety of the law to protect the right to redemption that in one English case,5 a mortgagor was allowed to redeem even though he had solemnly sworn on the Bible never to exercise the right.
1. Knightsbright Estates Trust Ltd. v. Brvne, (1938) 4 All ER 618 (Court of Appeal).
2. Fairclough v. Swan Brewery Co. Ltd., 1902 AC 562 (PC).
3. Esso Petroleum Co. Ltd., (1967) 1 All ER 699.
4. Samuel v. Jarrhl Timber & Wood Paving Corp. Ltd., 1904 AC 323 (327).
5. Sitsted's case cited in East India Co. v. Atkyns, 1 Comyns 348; Ghose Law of Mortgage in India, (1902), p. 269, footnote 4.
So much is the importance attached to redemption that it has been held that even a mortgagor of movable property is entitled to sue for redemption.1 Before the Privy Council2 the question was raised, but not decided, whether, in the case of mortgage of movables by Hindus and Muhammadans, the right of redemption was lost after default by the mortgagor.
1. Jagannath v. Fatehchand, AIR 1949 Nag 368 (369).
2. Baijnath v. Vally Mahomed, AIR 1925 PC 75 (79).
57.7. The equitable right to redeem being a creature of equity, is protected by equity, for otherwise the mortgagee, who can often bring pressure to bear on a prospective mortgagor by threatening to hold to the strict terms of the loan, might be able to defeat the whole purpose of the mortgage. The purpose of mortgage is to provide security and nothing more;1 this purpose will be defeated by excess if any other right in the mortgage is recognised that might substantially defeat redemption.
It has been observed that redemption is of the very nature and essence of mortgage, as mortgages are regarded in equity.2 It is for this reason that provisions making the mortgage irredeemable, or unduly confining the right of redemption either in respect of the persons who can redeem or in respect of the period during which redemption may be permissible or as to the extent of the mortgaged property that may be redeemed, were not favoured in equity.
This is pithily expressed by the proposition that there must be no clog or fetter on redemption. This means not only that the mortgagor cannot be prevented from eventually redeeming his property- this would be a self-evident proposition-but also that he cannot be prevented from redemping it free from all the conditions of the mortgage.3
Lord Henley, Lord Chancellor, observed in Vernon v. Betchell, (1962) 2 Ed 110 (113) (Lord Henley, L.C.).-
"For, necessitous men are not, truly speaking, free men, but, to answer a present exigency, will submit to any terms that the crafty men impose upon them."
Broadly speaking, clogs or fetters on redemption fall into major classes, namely, either the mortgage is practically rendered irredeemable, or redemption is made subject to onerous conditions. Under the first class, the principal subclasses are-
(a) total bar against redemption, or unduly confining the right to redemption in regard to persons or property;
(b) exclusion of redemption by giving an absolute right to the mortgagee-for example, an option to purchase a mortgaged property, incorporated in the original mortgage;
(c) postponement of redemption until some future period which is oppressive and unconscionable, or makes redemption illusory.
In the second class, the principal instances are those furnished by collateral advantages.
1. Megarry and Wade Real Property, (1966), p. 931.
2. Nokes and Company Ltd. v. Rise, 1902 AC 24 (30) (Lord McNaughten).
3. Megarry and Wade Real Property, (1966), p. 931, para. 2.
57.8. Gujarat case.-
How wide and beneficial is the jurisdiction of the court to determine whether a particular stipulation is or is not a clog on redemption, and how appropriate it is to Indian conditions as it is in England, is illustrated by a recent Gujarat case.1
In 1909, a childless widow mortgaged a building site measuring 24 square yards situate in a taluka town to the owner of an adjacent property for a period of 199 years to secure a debt of Rs. 61. One of the terms of the mortgage was that the mortgagee could make any type of construction or raise any superstructure on the mortgaged property and that if he did so, the property was to be redeemed on payment of the price of such superstructure in addition to the mortgage money.
In 1965, the mortgagor's successor-in-title filed a suit for redemption for alleging that the postponement of redemption for 199 years constituted a clog on the equity of redemption and that, therefore, he was entitled to redeem the mortgage forthwith on tender of the mortgage money. The trial court dismissed the suit, holding that it was premature. On appeal, the District Court reversed the decision on the ground that in the facts and circumstances of the case the postponement of redemption for such a long period constituted a clog on the equity of redemption. On appeal to the High Court, it was held (affirming the decision of the District Court) that:
(1) The doctrine of clog on the equity of redemption means that no contract between a mortgagor and mortgagee made at the time of the mortgage and as a part of the mortgage transaction or, in other words, as a part of the loan, would be valid, if in substance and effect, it prevents the mortgagor from getting back his property on payment of what is due on his security. Any bargain which has that effect is invalid and inconsistent with the transaction being a mortgage, and has no binding force.
(2) The Court's jurisdiction to relieve a mortgagor from his bargain on the ground that any condition which is a part of the transaction of mortgage constitutes a clog on the equity of redemption depends on whether the condition was imposed by taking advantage of any difficulty or embarrassment that the mortgagor might have been in, when he or she borrowed the money on the mortgage.
If the Court, on an examination of the circumstances of the case, comes to the conclusion that the disputed covenant is so unduly harsh and unconscionable that for all practical purposes it nullifies the right of redemption or restricts the exercise of the right in such an unreasonable manner as to practically deny it, the Court will relieve the mortgagor of his bargain.
(3) A long term for redemption is not necessarily, or in every case, a clog on the equity of redemption. But a long term for redemption may, on a consideration of all the circumstances attendant on the execution of the mortgage deed, amount to such a clog.
It would be necessary in this context to consider, besides others, the circumstances as to what was the amount advanced under the mortgage, the nature of the security offered by the mortgagor, the circumstances in which the mortgagor was compelled to secure the amount, the terms and conditions on which the amount, was, in fact, advanced and the other alternatives to which the mortgagor could have taken recourse for obtaining the sum advanced.
(4) Having regard, inter alia, to the fact:
(i) that the mortgagor in the instant case was childless widow who mortgaged the property in question for 199 years to secure a debt of Rs. 61, although it was not necessary or customary to submit to such a long term;
(ii) that the mortgagee who was the owner of the adjacent property thereby obtained a collateral advantage of beneficial enjoyment of his own property for a considerable period of time to the detriment of the mortgagor; and
(iii) that the mortgagee was entitled to raise any construction or superstructure on the mortgaged property and the mortgagor was liable to pay the price of the said construction or superstructure at the time of redemption, the bargain between the mortgagor and the mortgagee was unconscionable and the long term of the mortgage constituted a clog on the right of redemption.
1. Maganlal Chhotalal Chhatrapati v. Bhalchandra Chhaganlal Shah, (1974) 15 GLR 193, cited in the Yearly Digest.
57.9. Act of parties.-
The right of redemption can be extinguished by the act of parties. The "act of parties" must mean acts to which both the mortgagor and the mortgagee are parties.1 Assertion of adverse title by the mortgagee during continuance of mortgage does not extinguish the right to redeem. Deposit by the mortgagor of the mortgage-money under section 83 does not also extinguish the mortgage, where the mortgagee does not accept the deposit.2
Again, the act of parties extinguishing the right to redeem must be one which is independent of the mortgage transaction and not part and parcel of it.3 Otherwise, it will be a clog on redemption and consequently void. Thus, a condition in the mortgage deed that, on default of payment on a certain date, the mortgagee shall become the absolute owner, cannot extinguish the right to redeem, even if the date has passed.
1. Panna Lal v. Rameshar Sahai, AIR 1915 All 203 (206).
2. Ahmadullah v. Abdul Rahim, AIR 1924 All 26 (28) (DB).
3. Ram Singh v. Baij Nath, AIR 1919 All 126 (128) (DB).
57.10. Loss of right by act of parties-Supreme Court case.-
A recent Supreme Court judgment1 (on appeal from the Maharashtra State Co-operative Appellate Court) discusses the question whether a mortgagor loses his right to redeem merely by a contract to sell. In India, there is no distinction between legal and equitable property, in the sense in which it was understood when equity was administered by the Court of Chancery in England. Under the Indian law, there can be but one owner, that is, the legal owner. A contract of sale does not, in view of section 54, itself create any interest in, or charge on, the property.
The combined effect of section 54 of the Transfer of Property Act and section 17 of the Registration Act is that a contract for sale in respect of immovable property creates no interest. It is only on execution of the conveyance and registration of transfer of the mortgagor's interest that the mortgagor's right of redemption will be extinguished. The conferment of a power on the mortgagee to sell the property without intervention of the Court in a mortgage deed will not, by itself, deprive the mortgagor of his right to redemption. The extinction of the right of redemption must be subsequent to the deed conferring such a power.
The right of redemption is not extinguished at the expiry of the period, and is not extinguished by a mere contract for sale. Therefore, until the sale is complete by registration, the mortgagor does not lose the right of redemption. It is only on the execution of the conveyance that ownership passes from one party to another. It cannot be said that the mortgagor lost the right of redemption just because the property was put to auction. The mortgagor has a right to redeem, unless the sale of the property was complete by registration in accordance with the provisions of the Registration Act.2
It may be noted that even after the period fixed for redemption has expired, it remains a mortgage.
1. Narandas v. S.A. Kamtam, AIR 1977 SC 774 (A.N. Ray, C.J., M.H. Beg & Jaswant Singh, ff•)
2. AIR 1937 Mad 293 and AIR 1944 Born 156, approved.