Section 58 TPA — Mortgage Defined and Types of Mortgages

Section Text

Section 58 of the Transfer of Property Act, 1882 defines "mortgage" as follows: "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."

The transferor is called the mortgagor, the transferee is called the mortgagee, the principal money and interest of which payment is secured for the time being are called the mortgage-money, and the instrument (if any) by which the transfer is effected is called a mortgage-deed.

Plain Language Explanation

A mortgage is one of the most important transactions in property law and everyday financial life. In simple terms, when a person borrows money and offers their immovable property as security for the repayment of that loan, the transaction is a mortgage.

Unlike a sale where ownership is transferred outright, in a mortgage only an interest in the property is transferred as security. The mortgagor (borrower) remains the owner of the property but creates a charge or encumbrance on it in favour of the mortgagee (lender). If the borrower repays the loan, the mortgage is discharged and the property is freed from the encumbrance. If the borrower fails to repay, the lender can enforce the mortgage and recover the money from the property.

Section 58 recognises six distinct types of mortgages, each with different characteristics regarding possession, rights of the parties, and remedies available. Understanding these types is crucial because the type of mortgage determines the rights and obligations of both the mortgagor and the mortgagee, the mode of enforcement, and the formalities required for creation.

The six types are: simple mortgage, mortgage by conditional sale, usufructuary mortgage, English mortgage, mortgage by deposit of title deeds (equitable mortgage), and anomalous mortgage.

Key Elements

**1. Simple Mortgage — Section 58(b)**

In a simple mortgage, the mortgagor does not deliver possession of the property to the mortgagee but binds himself personally to pay the mortgage-money and agrees that if he fails to pay, the mortgagee shall have the right to cause the property to be sold and to recover the mortgage-money from the sale proceeds. The key feature is the personal liability of the mortgagor and the right of the mortgagee to sell the property through court.

**2. Mortgage by Conditional Sale — Section 58(c)**

The mortgagor ostensibly sells the property to the mortgagee on the condition that if the mortgage-money is paid by a certain date, the sale shall become void; or that if the money is paid, the buyer (mortgagee) will reconvey the property. If the mortgage-money is not paid by the due date, the sale becomes absolute. This type of mortgage is closely related to the concept of a sale with a right of repurchase.

**3. Usufructuary Mortgage — Section 58(d)**

The mortgagor delivers possession of the property to the mortgagee, who is entitled to receive the rents and profits (usufruct) of the property and to appropriate them towards the mortgage-money (both principal and interest) or towards interest only. The mortgagor does not undertake personal liability to pay the mortgage-money. The mortgagee retains possession until the mortgage-money is fully satisfied from the rents and profits.

**4. English Mortgage — Section 58(e)**

The mortgagor transfers the property absolutely to the mortgagee and binds himself personally to pay the mortgage-money by a certain date. The mortgagee is bound to re-transfer the property upon repayment. This is called "English mortgage" because it resembles the English law mortgage where legal title passes to the mortgagee.

**5. Mortgage by Deposit of Title Deeds (Equitable Mortgage) — Section 58(f)**

A person delivers the documents of title of the property to a creditor or the creditor's agent with the intent to create a security thereon. This type of mortgage can be created without any written instrument — the mere deposit of title deeds with the intention to create a mortgage is sufficient. This is commonly used in banking transactions where borrowers deposit their property documents with the bank.

**6. Anomalous Mortgage — Section 58(g)**

Any mortgage that is not a simple mortgage, mortgage by conditional sale, usufructuary mortgage, English mortgage, or mortgage by deposit of title deeds is an anomalous mortgage. It is a residual category that combines features of different types. For example, a usufructuary-cum-simple mortgage (where the mortgagee gets possession and the mortgagor also undertakes personal liability) is an anomalous mortgage.

Practical Application

**Home Loans and Banking**: The most common form of mortgage in modern banking is the mortgage by deposit of title deeds (equitable mortgage). When a person takes a home loan, they deposit the property title deeds with the bank, creating a mortgage without the need for a separate registered mortgage deed. This saves stamp duty and registration costs.

**Registration Requirements**: Simple mortgages, mortgages by conditional sale, usufructuary mortgages, and English mortgages must be effected by a registered instrument. Mortgage by deposit of title deeds does not require registration, making it the preferred mode for banking transactions.

**Right of Redemption**: Every mortgagor has the right to redeem the property by paying the mortgage-money. This right is protected by law and cannot be extinguished by any agreement (known as the doctrine of "once a mortgage, always a mortgage"). Section 60 of the TPA preserves the mortgagor's right of redemption.

**Foreclosure and Sale**: The remedy available to the mortgagee depends on the type of mortgage. In a simple mortgage, the mortgagee can seek a decree for sale of the property. In a mortgage by conditional sale, the mortgagee can seek foreclosure (whereby the mortgagor's right of redemption is extinguished). In an English mortgage, the mortgagee can seek either foreclosure or sale.

**SARFAESI Act**: For bank mortgages, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) provides an expedited mechanism for enforcement without the need for court intervention, subject to statutory safeguards.

Important Judgments

**1. Pandurang v. Maruti (1966) 3 SCR 5**

The Supreme Court distinguished between a mortgage by conditional sale and a sale with a condition of repurchase. The key test is the intention of the parties: if the intention was to create security for a loan, it is a mortgage; if the intention was an outright sale with a right to repurchase, it is a sale.

**2. United Bank of India v. Satyawati Tondon (2010) 8 SCC 110**

The Supreme Court discussed the relationship between mortgage rights and the SARFAESI Act, holding that secured creditors (banks) have the right to enforce their security interest through the SARFAESI mechanism. The Court emphasised that borrowers should not use writ jurisdiction to frustrate legitimate recovery proceedings.

**3. Chettinad Cement Corporation Ltd. v. Commissioner of Income Tax (2004) 267 ITR 534**

The Court examined the nature of equitable mortgage (mortgage by deposit of title deeds) and held that the mere deposit of title deeds with the intention of creating a security constitutes a valid mortgage without the need for any written instrument or registration.

**4. Balkrishna Rama Tarle v. Phoenix Mills Ltd. (1951) 22 Bom LR 869**

The Court held that the right of redemption is an incident of the mortgage and cannot be taken away by any agreement between the parties. The maxim "once a mortgage, always a mortgage" applies regardless of the type of mortgage.

**5. Narandas Karsondas v. S.A. Kamtam (1977) 3 SCC 247**

The Supreme Court discussed the distinction between a mortgage and a sale, holding that the intention of the parties at the time of the transaction determines whether a transaction is a mortgage or a sale. The substance of the transaction, not its form, is decisive.

Frequently Asked Questions

What is the difference between a simple mortgage and an English mortgage?

In a simple mortgage, the mortgagor does not transfer ownership but only creates a charge on the property. The mortgagor retains possession. The mortgagee's remedy in case of default is to seek a court decree for sale of the property. In an English mortgage, the mortgagor transfers the property absolutely to the mortgagee (similar to a sale) and binds himself personally to repay by a specific date. The mortgagee must re-transfer upon repayment. The English mortgagee has the remedy of both foreclosure and sale.

Can a mortgage be created without a written document?

Yes, a mortgage by deposit of title deeds (equitable mortgage) can be created without any written instrument. The borrower simply deposits the original title documents of the property with the lender with the intention of creating a security. This is the most common form of mortgage in banking transactions. However, all other types of mortgages (simple, conditional sale, usufructuary, and English) must be created by a registered instrument.

What happens if the borrower fails to repay the mortgage loan?

The mortgagee's remedy depends on the type of mortgage. In a simple mortgage, the mortgagee can file a suit for sale of the property and recover the mortgage-money from the sale proceeds. In a mortgage by conditional sale, the mortgagee can seek foreclosure. In an English mortgage, the mortgagee can seek either foreclosure or sale. For bank mortgages, the SARFAESI Act provides a mechanism for enforcement without court intervention, including taking possession and selling the property after issuing a notice to the borrower.

Can the mortgagor sell the mortgaged property to a third party?

Yes, the mortgagor can sell the mortgaged property, but the sale is subject to the mortgage. The buyer takes the property with the mortgage encumbrance. The mortgagee's rights are not affected by the sale — the mortgage continues to be enforceable against the property regardless of who owns it. The buyer can redeem the mortgage by paying the mortgage-money. In practice, properties are usually sold only after the mortgage is discharged, or the sale proceeds are used to pay off the mortgage.

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*This content is for educational and informational purposes only and does not constitute legal advice. For guidance on specific situations, consulting a qualified legal professional is recommended.*