Mortgage of Immovable Property

Definition of Mortgage (Section 58)

A mortgage is one of the most common forms of transfer of an interest in immovable property. Unlike a sale where ownership is transferred, a mortgage involves the transfer of only a limited interest in the property as security for a debt or the performance of an obligation. Section 58 of the Transfer of Property Act, 1882, defines a mortgage and classifies its various types.

Section 58. "Mortgage", "mortgagor", "mortgagee", "mortgage-money", "mortgage-deed", "simple mortgage", "mortgage by conditional sale", "usufructuary mortgage", "English mortgage", "mortgage by deposit of title-deeds", "anomalous mortgage" defined:

Section 58(a).

"A mortgage is the transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability."

Explanation of the Definition:

Based on Section 58(a), the essential elements of a mortgage are:

Transfer of an Interest: It is not a transfer of ownership, but only a transfer of a right or interest in the property. The ownership remains with the transferor (mortgagor). The nature of the interest transferred varies with the type of mortgage.
In Specific Immovable Property: The property being mortgaged must be clearly identified and must be immovable property.
For the Purpose of Securing Payment: The primary object of a mortgage is to provide security for a debt or obligation. This debt or obligation can be:
- Money advanced or to be advanced by way of loan.
- An existing debt (already due).
- A future debt (to be incurred later).
- Performance of an engagement giving rise to a pecuniary liability (e.g., securing the performance of a contract which, if breached, would result in a monetary claim).
The Secured Amount: The money advanced, debt, or pecuniary liability is the amount secured by the mortgage.

Mortgagor and Mortgagee

Section 58(a) also defines the parties involved in a mortgage transaction:

Mortgagor: The person who transfers an interest in his property as security. This is the debtor.
Mortgagee: The person to whom the interest is transferred as security. This is the creditor who lends the money or is owed the debt.

Mortgage Money and Mortgage Deed

Section 58(a) further defines the financial aspect and the documentation:

Mortgage Money: The principal money and interest of which payment is secured for the time being by the mortgage. This is the total amount owed by the mortgagor to the mortgagee that the property stands as security for.
Mortgage Deed: The instrument by which the transfer is effected. It is the legal document that records the terms and conditions of the mortgage. As per Section 59 of TPA, a mortgage (other than a mortgage by deposit of title deeds) can be effected only by a registered instrument signed by the mortgagor and attested by at least two witnesses, unless the principal money secured is less than ₹100 (a rare scenario today, making registration and attestation practically compulsory for all mortgages).

A mortgage is a specific type of encumbrance or charge on immovable property, created voluntarily by the act of parties, for the purpose of securing a debt. It gives the mortgagee certain rights over the property, which they can enforce if the mortgagor defaults on the payment.

Types of Mortgages

The Transfer of Property Act, 1882, classifies six types of mortgages based on the nature of the transfer of interest and the rights and obligations created between the parties. These types are defined in clauses (b) to (g) of Section 58.

Simple Mortgage (Section 58(b))

Section 58(b). Simple mortgage.

"Where, without delivering possession of the mortgaged property, the mortgagor binds himself personally to pay the mortgage-money, and agrees, expressly or 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 as may be necessary, in payment of the mortgage-money, the transaction is called a simple mortgage and the mortgagee a simple mortgagee."

Characteristics:

No Delivery of Possession: The mortgagor retains possession of the property.
Personal Covenant: The mortgagor undertakes personal liability to repay the loan.
Right to Cause Property Sold: The mortgagee gets a right to sell the property through court intervention if the mortgagor defaults. The sale proceeds are used to repay the mortgage money.
Remedy: The simple mortgagee's remedy is to sue the mortgagor personally for the debt and/or sue for the sale of the mortgaged property through a court decree (Suit for Sale). They cannot sell the property without court intervention.

This is a common form of mortgage where the lender relies on the property as security and the borrower's promise to pay.

Mortgage by Conditional Sale (Section 58(c))

Section 58(c). Mortgage by conditional sale.

"Where the mortgagor ostensibly sells the mortgaged property—

(1) on condition that on default of payment of the mortgage-money on a certain date the sale shall become absolute, or

(2) on condition that on such payment being made the sale shall become void, or

(3) 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 and the mortgagee a mortgagee by conditional sale:

Provided that no such transaction shall be deemed to be a mortgage, unless the condition is embodied in the document which effects or effects and completes the sale."

Characteristics:

Ostensibly a Sale: The transaction appears on its face to be a sale, but it is subject to conditions that make it a mortgage.
Condition Attached: The apparent sale is subject to a condition related to the repayment of the mortgage money. The condition must be part of the same document as the ostensible sale.
No Personal Liability: Generally, there is no personal covenant by the mortgagor to repay.
Remedy: The mortgagee's remedy upon default is foreclosure. If the mortgagor fails to repay by the specified date, the ostensible sale becomes absolute, and the mortgagee becomes the full owner of the property without the need for a court sale. The mortgagee cannot sue for sale or sue the mortgagor personally for the debt. This mortgage is potentially harsher for the mortgagor as they can lose the property without a sale process.

Usufructuary Mortgage (Section 58(d))

Section 58(d). Usufructuary mortgage.

"Where the mortgagor delivers possession or expressly or impliedly binds himself to deliver possession of the mortgaged property to the mortgagee, and authorises him to retain such possession until payment of the mortgage-money, and to receive the rents and profits accruing from the property and to appropriate the same in lieu of interest, or in payment of the mortgage-money, or partly in lieu of interest and partly in payment of the mortgage-money, the transaction is called a usufructuary mortgage and the mortgagee a usufructuary mortgagee."

Characteristics:

Delivery of Possession: The mortgagor delivers or promises to deliver possession of the property to the mortgagee.
Enjoyment of Usufruct: The mortgagee is entitled to the rents and profits (usufruct) from the property.
Appropriation of Rents/Profits: These rents and profits are appropriated towards interest, principal, or both. The mortgage is discharged when the entire mortgage money is realised from the usufruct or otherwise repaid.
No Personal Liability: The mortgagor does not undertake personal liability to repay the debt.
Remedy: The usufructuary mortgagee's only remedy is to remain in possession and enjoy the rents and profits until the debt is satisfied. They cannot sue for sale or foreclosure. The mortgagor's remedy is to sue for redemption (reclaiming the property) upon payment of the mortgage money.

This type of mortgage is common in agricultural areas where the income from the land can be used to service or repay the debt.

English Mortgage (Section 58(e))

Section 58(e). English mortgage.

"Where the mortgagor binds himself to repay the mortgage-money on a certain date, and transfers the mortgaged property absolutely to the mortgagee, 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."

Characteristics:

Personal Covenant: The mortgagor undertakes personal liability to repay the mortgage money on a specific date.
Absolute Transfer of Ownership (Subject to Proviso): The mortgagor transfers the ownership of the property *absolutely* to the mortgagee. However, this transfer is subject to a condition (proviso) that the mortgagee will re-transfer the ownership back to the mortgagor upon repayment of the debt on the agreed date.
Delivery of Possession: Possession is typically delivered to the mortgagee, though not strictly essential in all cases.
Remedies: The English mortgagee has multiple remedies:
- Sue the mortgagor personally for the debt.
- Sue for the sale of the mortgaged property through court.
- Power of Sale without Court: They may also have a power to sell the property without the intervention of the court under certain circumstances (Section 69 TPA), provided the mortgage is by deed, the power is expressly conferred, and certain conditions are met (e.g., notice to mortgagor).

This type is called "English" because it originated from English law. The transfer of absolute ownership distinguishes it from a simple mortgage, although the ownership is subject to the right of redemption.

Mortgage by Deposit of Title-Deeds (Section 58(f))

Section 58(f). Mortgage by deposit of title-deeds.

"Where a person in Calcutta, Madras, Bombay, or 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."

Characteristics:

Delivery of Title Deeds: The mortgagor delivers the documents showing title to the property to the mortgagee.
Intention to Create Security: The delivery must be with the intention of creating a security for a debt.
Limited Geographical Area: This type of mortgage can only be created in the cities of Kolkata, Chennai, Mumbai, and other areas specifically notified by the State Government. It is prevalent in major commercial centres.
No Written Instrument Required: This is a unique feature. This type of mortgage can be created by the mere act of delivering title deeds with the requisite intention. No registered instrument is required (except in specific cases where a memorandum accompanying the deposit itself creates the security). However, a memorandum recording the transaction is often prepared, and if it creates the mortgage itself, it requires registration.
Remedies: The remedies are generally the same as those of a simple mortgagee, i.e., the right to sue for the sale of the property through court. There is usually no personal covenant unless separately agreed.

This is also known as an Equitable Mortgage (derived from English Equity law) or a 'memorandum of deposit' mortgage. It is simpler and quicker to create than a formal registered mortgage deed.

Anomalous Mortgage (Section 58(g))

Section 58(g). Anomalous mortgage.

"A mortgage which is not a simple mortgage, a mortgage by conditional sale, a usufructuary mortgage, an English mortgage or a mortgage by deposit of title-deeds within the meaning of this section is called an anomalous mortgage."

Characteristics:

Combination of Types: This is a mortgage that does not strictly fall into any of the five defined categories. It is usually a combination of two or more of the standard types or a mortgage with unique terms and conditions not covered by the defined types.
Terms Governed by Deed: The rights and liabilities of the parties are governed by the specific terms and conditions laid down in the mortgage deed.
Remedies: The remedies available to the mortgagee depend entirely on the terms agreed upon in the deed. They could include a right to sue for sale, a right to foreclosure, or a right to possession and appropriation of rents, or a combination thereof, as stipulated in the agreement.

Anomalous mortgages provide flexibility for parties to structure the security arrangement to suit their specific needs, as long as it is not contrary to law.

The classification of mortgages under Section 58 is exhaustive. Every mortgage of immovable property in India must fall into one of these six categories. The type of mortgage determines the specific rights and obligations of the mortgagor and mortgagee, particularly the remedies available to the mortgagee upon default.

Rights and Liabilities of Mortgagor and Mortgagee

Rights of Mortgagor (Section 60-62)

Despite transferring an interest in their immovable property, the mortgagor retains significant rights under the Transfer of Property Act, 1882. These rights are crucial as they protect the mortgagor's underlying ownership and provide means to redeem the property upon fulfilling their obligations. The most important right is the right of redemption.

Right of Redemption

The most fundamental and valuable right of a mortgagor is the Right of Redemption, enshrined in Section 60 of the Transfer of Property Act, 1882.

Section 60. Right of mortgagor to redeem:

Section 60. Right of mortgagor to redeem.

"At any time after the principal money has become ^*due, the mortgagor has a right, on payment or tender, at a proper time and place, of the mortgage-money, to require the mortgagee (a) to deliver to the mortgagor the mortgage-deed and all documents relating to the mortgaged property which are in the possession or power of the mortgagee, (b) where the mortgagee is in possession of the mortgaged property, to deliver possession thereof to the mortgagor, and (c) at the cost of the mortgagor either to re-transfer the mortgaged property to the mortgagor or to have the mortgage-deed cancelled or, subject to the provisions of any law for the time being in force, to execute and have registered an acknowledgment in writing that any right in derogation of his interest transferred to the mortgagee has been extinguished:"

"Provided that the right conferred by this section shall not be extinguished or limited by act of the parties in contravention of a provision in that behalf ^* inserted in the mortgage-deed." (This is the principle of 'Clog on Redemption')

"The right conferred by this section is called the right to redeem and a suit to enforce it is called a suit for redemption."

^* Words like "payable" or "secured" might be used in deeds instead of "due", but the principle applies once the contractual date for repayment arrives.

Explanation of Right of Redemption:

This is a statutory right that arises as soon as the mortgage money becomes due. It allows the mortgagor to clear the debt and reclaim their property, free from the mortgage encumbrance. Upon payment or tender of the full mortgage money, the mortgagor can demand:

Return of the mortgage deed and all title documents.
Recovery of possession, if the mortgagee was in possession.
Re-transfer of the property (in case of English mortgage) or cancellation of the mortgage deed or acknowledgement of the extinguishment of the mortgagee's rights.

Clog on Redemption:

The proviso to Section 60 embodies the equitable principle "once a mortgage, always a mortgage." This means that any term or condition inserted in the mortgage deed itself, or as part of the mortgage transaction, which has the effect of preventing, restricting, or making redemption more burdensome or difficult for the mortgagor is void. Such conditions are called a clog on redemption.

Examples of Clogs:

A condition that the mortgagor can only redeem the property after a very long period (e.g., 50 or 100 years), if deemed unreasonable.
A condition giving the mortgagee an option to purchase the mortgaged property.
A condition requiring the mortgagor to sell some other property to the mortgagee as part of the redemption.
A condition increasing the interest rate retrospectively upon default.
A condition allowing redemption only to the mortgagor personally, preventing their heirs from redeeming.

Courts zealously protect the right of redemption and will strike down any clause found to be a clog. The right of redemption can only be extinguished by a decree of foreclosure (in a mortgage by conditional sale or anomalous mortgage where foreclosure is allowed) or by lapse of time (limitation period for filing a redemption suit is generally 30 years from when the right accrues).

Right to Inspection and Production of Documents

Section 60B, inserted later into the Act, grants the mortgagor the right to inspect and request copies of documents related to the mortgaged property that are in the mortgagee's custody.

Section 60B. Right to inspection and production of documents.

"A mortgagor, as long as his right of redemption subsists, shall be entitled at all reasonable times, at his request and at his own cost, and on payment of the mortgagee’s costs and expenses in this behalf, to inspect and make copies or abstracts of, or extracts from, the documents of title relating to the mortgaged property which are in the custody or power of the mortgagee."

Explanation: This right allows the mortgagor access to their title documents held by the mortgagee, which might be needed for purposes such as selling a part of the property not mortgaged, dealing with other legal matters, or simply verifying the documents. This right exists as long as the right of redemption is alive.

Right to Recover Possession

This right is particularly relevant for a Usufructuary Mortgagor. Section 62 of the TPA specifically deals with their right to recover possession.

Section 62. Right of usufructuary mortgagor to recover possession.

"(a) Where a usufructuary mortgage is for a fixed period, the mortgagor is entitled to possession at the expiration of the period, if the mortgage-money has been paid or is deposited in Court according to law."

"(b) Where the mortgagee is authorized to pay himself the mortgage-money from the rents and profits of the property, the mortgagor is entitled to recover possession when the mortgage-money is paid or realized."

Explanation: For a usufructuary mortgage, the mortgagor is out of possession. Section 62 confirms their right to regain possession when the purpose of the mortgage is fulfilled, i.e., when the debt is fully repaid or when the mortgagee has recovered the debt from the income of the property as agreed.

Other Rights of Mortgagor (within the range 60-62 and slightly beyond):

Section 61. Right to redeem separately or simultaneously: A mortgagor who has executed two or more mortgages in favour of the same mortgagee shall, in the absence of a contract to the contrary, be entitled to redeem any one mortgage separately, or two or more mortgages simultaneously.
Section 63. Accession to mortgaged property: If, after the date of the mortgage, any accession (addition) is made to the mortgaged property, the mortgagor is entitled to such accession upon redemption, unless there is a contract to the contrary.
Section 64. Renewal of mortgaged lease: If the mortgaged property is a leasehold and the mortgagor obtains a renewal of the lease, the mortgagor is entitled to the benefit of the new lease upon redemption.

These rights collectively ensure that the mortgagor's position as the ultimate owner is protected and that the property is restored to them, possibly with any additions or renewals, once the debt is cleared.

Liabilities of Mortgagor

Just as the mortgagor has rights, they also have certain liabilities or obligations towards the mortgagee and in relation to the mortgaged property. These liabilities are often implied covenants that are deemed to exist in every mortgage unless excluded by contract. They are primarily listed under Section 65 of the Transfer of Property Act, 1882.

Section 65. Implied covenants by mortgagor:

Section 65. Implied covenants by mortgagor.

"In the absence of a contract to the contrary, the mortgagor shall be deemed to contract with the mortgagee—

(a) that the interest which the mortgagor professes to transfer to the mortgagee subsists, and that the mortgagor has power to transfer the same;..." (This is a covenant for title)

"(b) that the mortgagor will defend, as against the mortgagee, all such suits relating to the property as may be brought by any person other than the mortgagee;..." (Covenant to defend title)

"(c) that the mortgagor will, so long as the mortgagee is not in possession of the property, pay all public charges and rent accruing due in respect thereof, and where the property is leasehold, will pay the rent reserved by the lease, and perform the conditions and covenants annexed to the lease;..." (Covenant to pay taxes and rent)

"(d) that the mortgagor will, so long as the mortgagee is not in possession of the property, make all necessary repairs of the property;..." (Covenant to repair)

"(e) that the mortgagor will not do, or permit to be done, any act which is destructive of, or permanently injurious to, the property;..." (Covenant against waste)

"(g) that the mortgagor will pay, in accordance with the contract in that behalf, the principal money and interest secured by the mortgage." (Covenant to pay mortgage money)

The section also includes covenants related to registered mortgages, prior mortgages, and insurance.

Explanation of Mortgagor's Liabilities:

Unless the mortgage deed specifies otherwise, the mortgagor is bound by the following implied covenants:

Covenant for Title and Authority to Mortgage: The mortgagor guarantees that they have the right to mortgage the property and that the interest they are transferring as security is valid and subsisting.
Covenant to Defend Title: The mortgagor must defend the property's title if challenged by a third party and keep the mortgagee informed of any such litigation.
Covenant to Pay Public Charges and Rent: If the mortgagor is in possession, they are responsible for paying all taxes, rates, and other government levies on the property, as well as any ground rent for leasehold property.
Covenant to Repair: If the mortgagor retains possession, they must maintain the property and carry out necessary repairs.
Covenant against Waste: The mortgagor must not commit any act (like demolition of buildings, cutting down valuable trees) that would destroy or permanently damage the property or reduce its value, especially if this impairs the mortgagee's security. This is also specifically covered under Section 66 TPA.
Covenant to Pay Mortgage Money: The most fundamental liability is the obligation to repay the principal amount and interest as per the terms of the mortgage deed. This is a personal liability unless excluded by the nature of the mortgage (e.g., usufructuary mortgage).
Covenant to Discharge Prior Encumbrances: If there are earlier mortgages or charges on the property, the mortgagor is bound to pay them off to ensure the current mortgage is a valid security.

Failure to perform these liabilities can give rise to various rights for the mortgagee, including the right to sue for the mortgage money (if there is a personal covenant) or take steps to protect their security.

Section 66. Waste by mortgagor in possession:

Section 66. Waste by mortgagor in possession.

"A mortgagor in possession of the mortgaged property is not liable to the mortgagee for allowing the property to deteriorate; but he must not commit any act which is destructive of, or permanently injurious to, the property, if the security is thereby rendered insufficient or will be rendered insufficient."

Explanation: While a mortgagor in possession is not liable for ordinary wear and tear, they are liable for committing "waste" that damages the property and significantly reduces its value, thus jeopardizing the mortgagee's security. Examples include dismantling structures or removing valuable fixtures.

Rights of Mortgagee (Section 63-67)

The rights of a mortgagee are primarily designed to enable them to recover the mortgage money secured by the property. These rights arise when the mortgagor defaults on the repayment or fails to perform their obligations. The specific remedies available to the mortgagee depend heavily on the type of mortgage created.

Right of Foreclosure or Sale

This is the principal remedy available to a mortgagee to recover the mortgage money by realizing the security. Section 67 of the TPA deals with this right.

Section 67. Right to foreclosure or sale:

Section 67. Right to foreclosure or sale.

"In the absence of a contract to the contrary, the mortgagee has, at any time after the mortgage-money has become due to him, and before a decree has been made for the redemption of the mortgaged property, or the mortgage-money has been paid or deposited as hereinafter provided, a right to obtain from the Court a decree that the mortgagor shall be absolutely debarred of his right to redeem the property, or a decree that the property be sold."

Explanation of Foreclosure and Sale:

Foreclosure: This is a right available to certain mortgagees to obtain a court decree extinguishing the mortgagor's right of redemption. If a foreclosure decree is granted and becomes absolute, the mortgagee becomes the absolute owner of the property.
- Available in: Mortgage by Conditional Sale (Section 58(c)) and certain Anomalous Mortgages (Section 58(g)), if the terms permit foreclosure.
- Not available in: Simple Mortgage, Usufructuary Mortgage, English Mortgage, Mortgage by Deposit of Title Deeds.
Sale: This is the right to have the mortgaged property sold (usually through a court auction) and apply the sale proceeds towards the mortgage money. Any surplus goes to the mortgagor, and if there is a deficit, the mortgagee may have a right to sue the mortgagor personally (if a personal covenant exists).
- Available in: Simple Mortgage (Section 58(b)), English Mortgage (Section 58(e)), Mortgage by Deposit of Title Deeds (Section 58(f)), and certain Anomalous Mortgages (Section 58(g)), if the terms permit sale.
- Not available in: Mortgage by Conditional Sale (their remedy is foreclosure), Usufructuary Mortgage (their remedy is to remain in possession).

The mortgagee usually has to file a suit in court to obtain a decree for foreclosure or sale. The right arises after the mortgage money becomes due and before the mortgagor has redeemed the property.

Power of Sale without Intervention of Court (Section 69):

Section 69 provides certain mortgagees with the power to sell the mortgaged property without filing a suit in court. This power is available only in specific types of mortgages:

English mortgage, where the mortgage money exceeds ₹ 500.
Mortgage by deposit of title deeds in Kolkata, Chennai, or Mumbai.
Certain Anomalous Mortgages if the deed expressly confers such a power.

This power can only be exercised under certain conditions, usually after giving notice to the mortgagor and if default has occurred and continued for a specified period.

Right to sue for Mortgage Money

This right allows the mortgagee to recover the debt from the mortgagor personally, not just from the mortgaged property. This right is dealt with in Section 68 of the TPA.

Section 68. Right to sue for mortgage-money:

Section 68. Right to sue for mortgage-money.

"(1) The mortgagee has a right to sue for the mortgage-money in the following cases and no others, namely:—

(a) where the mortgagor binds himself to repay the same; (This is the personal covenant)

(b) where, by any cause other than the wrongful act or default of the mortgagee or mortgagor, the mortgaged property is wholly or partially destroyed or the security is rendered insufficient and the mortgagee has given the mortgagor a reasonable opportunity of providing further security, and the mortgagor has failed to do so; (Destruction of security)

(c) where the mortgagee is deprived of the whole or part of his security by or in consequence of the wrongful act or default of the mortgagor; (Loss of security due to mortgagor's fault)

(d) where the mortgagee is entitled to possession of the mortgaged property and the mortgagor fails to deliver the same to him, or the mortgagor or any person claiming under him prevents the mortgagee from entering into possession of the property or from retaining possession thereof; (Deprivation of possession in mortgages where mortgagee has a right to it)

..."

Explanation: The right to sue for the mortgage money (i.e., sue the mortgagor personally) is not available in all mortgages. It is available primarily when:

The mortgagor has undertaken a personal covenant to repay the debt (e.g., Simple Mortgage, English Mortgage).
The mortgaged property is destroyed or its value becomes insufficient due to reasons not attributable to the mortgagee or mortgagor's wilful act, and the mortgagor fails to provide further security.
The mortgagee loses their security due to the wrongful act or default of the mortgagor.
In mortgages where the mortgagee is entitled to possession (Usufructuary, English, some Anomalous), if the mortgagor fails to give possession or obstructs the mortgagee's possession.

In a Usufructuary mortgage, where there is generally no personal covenant, the mortgagee cannot usually sue for the mortgage money; their sole remedy is to remain in possession.

Right to possession of mortgaged property

The right of the mortgagee to take or retain possession of the mortgaged property is not a universal right available in all types of mortgages. It depends specifically on the terms of the mortgage deed and the type of mortgage created.

Usufructuary Mortgage: The mortgagee has the right to take and retain possession and receive rents/profits. Possession is integral to this type of mortgage.
English Mortgage: The mortgagee receives an absolute transfer of ownership (subject to redemption) and usually has the right to possession, although they may allow the mortgagor to remain in possession.
Simple Mortgage: The mortgagee has no right to possession. The mortgagor remains in possession.
Mortgage by Conditional Sale: Possession may or may not be delivered depending on the terms, but the core right is foreclosure, not enjoyment of usufruct.
Mortgage by Deposit of Title Deeds: The mortgagee does not get the right to possession by virtue of the deposit itself, unless the deed accompanying the deposit specifically grants it.
Anomalous Mortgage: The right to possession depends entirely on the specific terms agreed upon in the deed.

When a mortgagee is in possession (lawfully), they have certain rights and powers regarding the management and preservation of the property, outlined in Section 72 of the TPA.

Section 72. Rights of mortgagee in possession:

Section 72. Rights of a mortgagee in possession.

"A mortgagee in possession may spend such money as is necessary—

(a) for the management of the property and the collection of the rents and profits thereof; (b) for the preservation of the property from destruction, forfeiture or sale; (c) for supporting the mortgagor's title to the property; (d) for making his own title thereto good against the mortgagor; and (e) when the mortgaged property is a renewable leasehold, for the renewal of the lease;"

Provided that the mortgagee may not make any accession to the property at the expense of the mortgagor unless the accession is necessary to preserve the property from destruction, forfeiture or sale, or is reasonable and proper in the circumstances.

Explanation: This section allows a mortgagee in lawful possession to incur necessary expenses for the upkeep, management, and protection of the property, and to add these expenses to the mortgage money (principal). They cannot generally make expensive additions or improvements without the mortgagor's consent and add the cost to the debt, unless necessary for preservation.

The mortgagee's rights are primarily focused on the recovery of the debt, either by taking over the property (foreclosure), getting it sold (sale), suing the mortgagor personally (suit for money), or enjoying its income (usufructuary mortgage).

Liabilities of Mortgagee

While a mortgagee has rights to protect their security and recover the debt, they also have corresponding liabilities, particularly when they are in possession of the mortgaged property. These liabilities are designed to ensure that the mortgagee manages the property prudently and accounts for any income received.

The liabilities of a mortgagee are mainly detailed in Section 76 of the Transfer of Property Act, 1882, which applies when a mortgagee is in possession.

Section 76. Liabilities of mortgagee in possession:

Section 76. Liabilities of mortgagee in possession.

"When, during the continuance of the mortgage, the mortgagee takes possession of the mortgaged property—

(a) he must manage the property as a person of ordinary prudence would manage it if it were his own; (Duty of prudent management)

(b) he must use his best endeavours to collect the rents and profits thereof and to account for the same; (Duty to collect and account for income)

(c) he must, in the absence of a contract to the contrary, out of the income of the property, pay the Government revenue, all other charges of a public nature and all rent accruing due in respect thereof, and any rent which the mortgagor is bound to pay to the mortgagee: (Duty to pay outgoings from income)

(d) he must, in the absence of a contract to the contrary, make such necessary repairs of the property as he can pay for out of the rents and profits thereof after deducting therefrom the public charges and rent mentioned in clause (c) and the interest on the mortgage-money; (Duty to repair from income)

(e) he must not commit any act which is destructive of, or permanently injurious to, the property; (Duty not to commit waste)

(f) where he has no right to a fixed amount of rents and profits or to receive an amount sufficient to pay the interest on the mortgage-money and the expenses of management and necessary repairs, he must keep clear, full and accurate accounts of all sums received and spent by him as mortgagee, and, at any time during the continuance of the mortgage, give the mortgagor, at his request and cost, copies of such accounts and the vouchers by which they are supported; (Duty to keep accounts)

(g) his receipts from the mortgaged property shall, in the absence of a contract to the contrary, be debited against him in reduction of the amount (if any) from time to time due to him on account of interest, and, so far as such income exceeds the interest, in reduction or satisfaction, of the principal money." (Duty to apply income towards debt)

Explanation of Mortgagee's Liabilities in Possession:

Duty of Prudent Management: The mortgagee must manage the property with the same care and diligence as a prudent owner would manage their own property.
Duty to Collect Rents and Profits: They must make sincere efforts to collect all income generated from the property and be accountable for it.
Duty to Pay Outgoings: From the income collected, the mortgagee must first pay government taxes, rates, rent, and other public charges.
Duty to Repair: They must perform necessary repairs using the remaining income after paying outgoings and interest. They are not obliged to spend their own money on repairs unless contractually agreed.
Duty Not to Commit Waste: The mortgagee must not perform acts that destroy or permanently damage the property (e.g., pulling down buildings, felling timber unless allowed by terms).
Duty to Keep Accounts: They must maintain accurate records of all income received and expenses incurred and provide copies to the mortgagor upon request.
Duty to Apply Income: The income from the property must be applied first towards interest on the mortgage money, and any surplus must be used to reduce the principal amount of the debt. This ensures the debt is progressively reduced by the property's income.

Liability for Default:

Section 76 further states that if the mortgagee in possession fails to collect rents and profits that could have been collected with proper management, or fails to pay outgoings, or commits waste, they will be liable to the mortgagor. Any loss or expense incurred due to their gross default or negligence will be debited against them when accounts are settled at the time of redemption (Section 76(g), last part).

Section 77. Receipts in lieu of interest:

Section 77 provides an exception to the strict accounting requirement in Section 76(f) for specific agreements where the mortgagee is entitled to receive rents and profits in lieu of interest, or in lieu of interest and in part payment of principal. In such cases, unless the contract specifies otherwise, the mortgagee is generally not bound to render accounts of rents and profits collected, and the mortgagor has no right to insist on them being applied in any other manner, provided the agreed amount is credited.

In summary, a mortgagee, especially one in possession, is held accountable for their actions regarding the mortgaged property and must manage it diligently and account for the income to ensure the mortgagor's right to redemption is not prejudiced.

Charge

Definition of Charge (Section 100)

A 'charge' is another mode of creating a right over immovable property as security for a debt or the performance of an obligation. While similar to a mortgage in creating a security interest, a charge is distinct as it does not involve a transfer of an interest in the property. Section 100 of the Transfer of Property Act, 1882, defines a charge.

Section 100. Charges:

Section 100. Charges.

"Where immovable property of one person is by act of parties or operation of law made security for the payment of money to another, and the transaction does not amount to a mortgage, the latter person is said to have a charge on the property; and all the provisions hereinbefore contained which apply to a simple mortgage shall, so far as may be, apply to such charge."

"Nothing in this section applies to the case of a trustee when property is vested in him upon trust for sale."

"Nothing in this section shall be deemed to extend to create any charge within the meaning of the Indian Succession Act, 1925."

"Notwithstanding anything in this section, no charge shall be enforced against any property in the hands of a person to whom such property has been transferred for consideration and without notice of the charge."

Explanation of the Definition:

Based on Section 100, the essential elements of a charge are:

Immovable Property as Security: Immovable property of one person is made security for the payment of money to another.
Created by Act of Parties or Operation of Law: The security is created either through an agreement between the parties or automatically by the force of law.
Does Not Amount to a Mortgage: This is the key distinguishing feature. If the transaction involves a transfer of an interest in the property (even a limited one) for the purpose of security, it is a mortgage. If it merely creates a right to receive payment out of the property without transferring an interest, it is a charge.
Right to Payment out of Property: The charge holder has a right to recover the secured money out of the specific immovable property.

A charge holder does not have the right to possess the property by virtue of the charge itself, nor does the legal title or any defined interest vest in the charge holder. They simply have a right to have the property made available for the payment of their debt.

Distinction between Mortgage and Charge

Although both mortgage and charge are forms of security interests in immovable property, they differ fundamentally:

Feature	Mortgage	Charge
Definition	Transfer of an interest in specific immovable property for securing debt (Section 58).	Property made security for payment of money, not amounting to a mortgage (Section 100).
Creation of Interest	Transfers an interest in the property to the mortgagee. The nature of interest varies (e.g., conditional sale, usufruct).	Does not transfer any interest in the property. Merely creates a right to payment out of the property.
Right to Possess	May or may not involve delivery of possession, depending on the type (e.g., Usufructuary, English mortgage usually involves possession).	Generally does not give a right to possession to the charge holder.
Remedy upon Default	Remedies are foreclosure or sale (Section 67), right to sue personally (Section 68), power of sale without court (Section 69). Specific remedies depend on the mortgage type.	Remedy is generally suit for sale through court intervention, similar to a simple mortgage (as per Section 100). No right of foreclosure.
Personal Liability	Mortgagor often undertakes personal liability to repay the debt, unless excluded by the terms or nature of the mortgage (e.g., Usufructuary mortgage usually has no personal covenant).	There may or may not be a personal covenant to pay, depending on how the charge is created. However, the primary right is against the property.
Creation Mode	Always created by the act of parties through a mortgage deed.	Can be created by act of parties (agreement) or by operation of law.
Registration	Mandatory registration for principal money of ₹ 100 or more (Section 59), except for mortgage by deposit of title deeds in specified towns.	Mandatory registration for charges created by act of parties if exceeding ₹ 100 (Section 17, Registration Act). Charges created by operation of law do not require registration.

In essence, a mortgage is a transfer of interest creating a specific right in property, while a charge is merely a right to have a specific property appropriated for the payment of a debt without transferring any interest in it.

Creation and Enforcement of Charge

As mentioned in Section 100, a charge can be created in two ways: by act of parties or by operation of law. The mode of creation impacts the formalities required and the rights of the charge holder against third parties.

Creation of Charge

1. By Act of Parties (Agreement):

A charge can be created by an agreement in writing between the parties, where they expressly agree that specific immovable property will be security for the payment of a debt or the performance of an obligation. This agreement does not involve the elements necessary for it to be a mortgage (e.g., there is no transfer of interest, no personal covenant, or no delivery of possession meant to operate as a usufructuary arrangement, etc.).

Example:

Example. A takes a loan of ₹ 10 Lakhs from B and executes a document stating, "I hereby charge my house in Delhi (clearly identified) for the repayment of this loan." The document does not contain a personal covenant to pay, nor does it purport to transfer any interest or deliver possession.

Answer:

This transaction creates a charge on A's house in favour of B. It is created by the act of the parties through their agreement documented in writing. As this charge exceeds ₹ 100 in value and is created by an instrument, it would require compulsory registration under Section 17 of the Indian Registration Act, 1908, to be legally effective against the property.

Charges created by agreement require registration if the value of the money secured is ₹ 100 or upwards, similar to mortgages, as they involve an instrument creating an interest in immovable property (the right to realise money out of it).

2. By Operation of Law:

In certain cases, the law itself creates a charge on property even if the parties have not explicitly agreed to it. These charges arise due to the relationship between the parties or specific statutory provisions.

Examples of charges created by operation of law under the TPA:

Seller's Charge for Unpaid Price (Section 55(4)(b)): When the ownership of property is transferred by sale, but the full purchase money has not been paid, the seller gets a statutory charge on the property in the hands of the buyer (and subsequent transferees with notice) for the unpaid amount and interest. This charge arises by virtue of the sale itself, irrespective of any agreement for security.
Buyer's Charge for Prepaid Price (Section 55(6)(b)): If a buyer has paid part or all of the purchase money for property but the sale is not completed (e.g., seller refuses to sell, title defect), the buyer gets a statutory charge on the seller's interest in the property for the amount paid, interest, and costs incurred. This arises from the moment the buyer pays the money.
Charge for Maintenance: Under personal laws (like Hindu Adoption and Maintenance Act, 1956) or court decrees, a right to future maintenance may be secured by a charge on the property of the person liable to provide maintenance. This charge can be created by a decree of the court or by operation of the personal law read with TPA.

Charges created by operation of law generally do not require registration under the Indian Registration Act, 1908, as they are not created by an 'instrument'.

Enforcement of Charge

Section 100 states that "all the provisions hereinbefore contained which apply to a simple mortgage shall, so far as may be, apply to such charge." This means that the charge holder can enforce their security by filing a suit for sale, similar to a simple mortgagee (Section 67 TPA). The court will order the sale of the charged property, and the proceeds will be used to satisfy the debt secured by the charge.

The charge holder cannot, however, foreclose the property (take ownership without sale) because a charge does not involve the transfer of an interest that can be made absolute (unlike a mortgage by conditional sale).

The remedies available to a simple mortgagee, such as the right to sue the mortgagor personally (if there is a personal covenant) and the right to recover costs, would also generally apply to a charge holder, unless contrary to the nature of the charge.

Protection of Subsequent Transferees

The last paragraph of Section 100 contains a crucial provision protecting bona fide purchasers:

Section 100 (Last Paragraph).

Explanation:

This means that a charge, whether created by act of parties or operation of law, cannot be enforced against a person who subsequently purchases the property (or acquires an interest for consideration) if they took the property:

For consideration (i.e., it was not a gift).
Without notice of the charge.

Notice here includes actual notice, constructive notice, and notice through registration (explained in the definition of "a person is said to have notice" in Section 3 TPA).

Example:

Example. A's property has a statutory charge for unpaid municipal taxes. A sells the property to C for ₹ 50 Lakhs. C makes diligent inquiries, checks the property records available for public inspection, and finds no record of the charge. C has no actual or constructive notice of the charge for taxes.

Answer:

Even though the municipal tax charge exists by operation of law, it cannot be enforced against C because C is a transferee for consideration who purchased the property without notice of the charge. C gets the property free from this charge. The municipal authority would have to pursue A for the unpaid taxes personally or seek other remedies against A's other assets.

This protection for transferees without notice is a significant limitation on the enforceability of charges and highlights the importance of conducting thorough due diligence before acquiring immovable property.