Mortgage under the Transfer of Property Act, 1882

Suppose A borrows ₹10 lakh from a bank to buy a house and transfers a limited interest in the house as security. On repayment, A gets the property free and on default, the bank may use legal remedies. This arrangement is a mortgage.

Mortgages are studied under Chapter IV of the Transfer of Property Act, 1882 (TPA), mainly Sections 58 to 104. The chapter balances two interests i.e. the lender must have effective security, but the borrower must not permanently lose ownership merely because a loan was taken. The TPA, therefore recognises the borrower’s right of redemption and regulates the rights and duties of both parties.

A mortgage is not an outright sale. In K.J. Nathan v. S.V. Maruty Reddy (1964), the Supreme Court held that equitable mortgage is created by delivery of title deeds with the intention of creating security.

Where the principal money secured is ₹100 or more, a mortgage, other than a deposit of title deeds, generally requires a registered instrument signed by the mortgagor and attested by two witnesses. Registration, stamp duty and local requirements must also be checked.

After the mortgage-money becomes due, the mortgagor can pay or tender the amount and require the mortgagee to return the documents, possession and security. This is the most important right of the mortgagor. The principle is popularly expressed as “once a mortgage, always a mortgage.” 

Redemption is the absolute legal right of a borrower (mortgagor) to reclaim their property free from all liabilities once they have fully paid back the loan amount, interest, and any associated costs to the lender (mortgagee). A term that unfairly prevents redemption is a clog on redemption. In Ganga Dhar v. Shankar Lal (1958) and Pomal Kanji Govindji v. Vrajlal Karsandas (1989), the Supreme Court held that courts must scrutinise oppressive terms that make redemption unreal. In Narandas Karsondas v. S.A. Kamtam (1977), the Court stressed that the right of redemption continues until it is legally extinguished by act of parties or a court decree.

Sections 60A and 60B allow the mortgagor, in appropriate circumstances, to direct transfer to a third party instead of re-transfer and to inspect or obtain copies of title documents.

Sections 63 and 63A protect the mortgagor’s benefit in accessions and improvements. Section 64 concerns renewal of a mortgaged lease. Under Section 65A, a mortgagor in lawful possession may grant a lease binding on the mortgagee if local law is followed, no premium is paid in advance, there is no renewal covenant and the term remains limited.

Section 65 implies covenants that title is valid and transferable, the title will be defended, public charges and lease rent will be paid, and prior mortgages will be discharged where required.

A mortgagor in possession in breach of section 66 is guilty of waste, that is destructive conduct which diminishes the value or security of the property permanently. Removing fixtures, demolishing a building or damaging valuable timber may amount to waste. Ordinary use consistent with the property’s nature is not automatically wasted.

If the owner mortgages two or more properties to one mortgagee and later mortgages one or more of those properties to another mortgagee, the subsequent mortgagee may ask that the prior debt be satisfied first from properties not mortgaged to them, as far as possible.\

This cannot prejudice the prior mortgagee or another person with rights in the property. The doctrine creates an equitable relation among the securities and does not mean the automatic cancellation of the first mortgage.

A charge exists when immovable property is made security for payment of money by act of parties or operation of law, but the transaction does not amount to a mortgage. A charge therefore creates security without transferring an interest in the property in the mortgage sense. A statutory charge for unpaid public dues is an example.

A mortgage is based on transfer of an interest in specific immovable property, a charge is only a security over property. A mortgage usually arises from a contract, while a charge may arise by operation of law. A mortgagee has the remedies given by the mortgage, whereas a charge-holder’s remedies depend on Section 100 and the underlying law.

A charge created by act of parties may generally be enforced like a simple mortgage, so far as applicable, but a transferee for value without notice is protected by Section 100.

A lien is usually a right to retain possession until payment. It does not necessarily create an interest in the property and generally gives no power of sale unless law or contract provides it. In Syndicate Bank v. Vijay Kumar (1992), the Supreme Court explained the banker’s general lien as a right of retention, showing why lien is conceptually different from a mortgage or charge.

A mortgage is a security transaction, not an ordinary sale. Section 58 defines its essential structure and six kinds. Sections 60 to 76 balance the mortgagor’s right to redeem with the mortgagee’s right to recover money. Sections 78 and 81 deal with priority and marshalling, while Section 100 explains the charge.

For CLAT PG, remember the principle that , the lender receives security, not an unfair opportunity to defeat the borrower’s right of redemption