Introduction
Whenever a mortgage takes place, the mortgagor does have the right to take back the property once he pays back the mortgage amount. This concept basically arises from equity and in Indian law, it is known by the name of right of redemption. The right of the mortgagor to redeem the property is basically dealt under section 60 of the Transfer of Property Act, 1882.[1] While we talk about clog on redemption in very general sense it means, anything which obstructs the right of the mortgagor to redeem his property is a clog and such clog makes the agreement void. This is commonly known by the name of clog on redemption.
In legal term, clog is a condition or stipulation which prevents the mortgagor from redeeming the mortgaged property on the payment of loan. In India clog on redemption is against the concept of equity and also no stipulation prevails against the statutory right.[2]
In the case of mortgages, two categories of interest are created. The first interest is basically created in the interest of creditor on the property. The nature of interest is limited and temporary. The second interest lies with the mortgagor, which lies with him after the property is mortgaged. The nature of this interest is residuary. This division of interest gives the mortgagor to redeem his property after the repayment of the loan. The contract of mortgage comes to an end once the mortgagor pays off the loan and exercises his right to redeem the property. Hence, the nature of section 60 of the act is statutory and its provision has to be followed.[3]
Historical Development Of Clog On Redemption
In the case of Stanley v. Wilde,[4] it was held by the Court that a mortgage means transferring the interest in an immovable property to a third party as security for the loan that the party has advanced. Such security is redeemable by the transferor once he repays the loan or discharges his liability. If the party fails to redeem the mortgaged property, anything done to obstruct the party from redeeming the property is a clog and it’s simply void. This means that no covenant can modify the nature and character of a mortgage. The doctrine of clog on redemption is based on the principles of justice, equity and good conscience. In the case of U. Nilan v Kannayyan Through Lrs,[5] the court held that the hardship of one party should not act as an opportunity for the other. If a person is taking a loan in lieu of his property as security, the other party cannot exploit him. In case of exploitation, the court seeks to protect the victim.
Essential Elements Of Clog On Redemption
A condition or stipulation is a clog and therefore it’s void. The elements of clog are as follow:-
- The condition or stipulation needs to be imposed by the mortgagee only. No other person or stranger to the transaction is allowed.
- Such condition and stipulation must be incorporated in the mortgaged deed itself. But here the parties are free to stipulate by any other contract outside the mortgage deed.
- The condition or stipulation included in the deed must be unreasonable, against the public policy and with mala fide intention.
- The nature of the condition or stipulation should be such that it puts either absolute restrain on the mortgagor’s right of redemption and thus prevent him from redeeming the property for longer period unreasonably.
- The determination of such condition or stipulation is a matter of fact. It may vary from case to case depending on the situation.[6]
Instances On The Clog Of Redemption
1. Condition of the sale of property in default
A condition that makes the mortgage a sale is clog on redemption. If a condition in the mortgage is stated that, in case the mortgagor fails to redeem the property within a fixed period, it will be considered as a sale by default is a clog. This was held in the cases of Rocky Flora v. Parvarthy Ammal[7]and Hajee Fatma Bee v. Prohlad Singh.[8] But there might be a situation when a separate deed is executed in the favor of mortgage, then such sale would be valid. [9]
For example, A mortgaged his property to B by conditional sale and he was given four years time for repayment. The mortgage deed provided that in case, A fails to redeem his property, the mortgagee shall be the owner of the property. Such stipulation is a clog on redemption.
2. Postponement of redemption for long term
The postponement of redemption for the long term is not necessarily a clog because it may be beneficial for both parties. In the case of a long-term mortgage, the mortgagor does not have to find a creditor and the mortgagee is secured with an increasing rate of interest in his investment. But there might be a situation when a mortgage is for 150 years, it will go beyond the life of the mortgagor and is a clog on redemption.[10] The court in the cases of Vadilal Chhaganlal v. Gokaldas Mansukh[11] and Ramkhilawan Ashwasi v Mullo[12] had the same opinion.
For Example, A mortgaged his property to B. The mortgagee agreed to the advancement of the loan on the condition that the property shall remain with him for 100 years and also the mortgagee does have the right to construct two buildings on the plot. The agreement was such that the mortgagor would repay the loan after 100 years including the construction expenses. This agreement constitutes clog and is void.
3. Penalty in case of default
In case the mortgagor has defaulted on any grounds, then the mortgagee does have the right to impose a penalty. But such a penalty must be fair and just. In case of small default, the mortgagee imposing compound interest instead of simple interest is unjust and cannot be given effect.[13]
For Example, the mortgagor as per the contract was to repay the loan on the 1st of the month. The mortgagor defaulted on the 10th of the month. The mortgagee instead of charging interest from the 10th charges the interest from the 1st itself. It’s a clog and cannot be enforced against the mortgagor.
4. Collateral benefit to the mortgagee
A mortgagee may avail of some collateral benefit during the period of the mortgage. In the case of a usufructuary mortgage, the mortgagee has the right of possession and takes rent of that property in order to adjust the sum due. The collateral benefit becomes clog only when:-
- The benefit given to the mortgagee is unfair and unconscionable.
- The benefit was not the part of mortgage transaction rather it was an independent benefit.[14]
For Example, A mortgaged his property to B. A fails to repay the sum and agrees that till he repays the amount, B may collect the rent out of it. This is not a clog and hence it’s valid.
5. Condition postponing redemption in default on a certain date (Subsequent agreement to postpone redemption)
A subsequent agreement that becomes an obstruction to the mortgagor is a clog on redemption. The stipulation that postpones the date of redemption is a clog.[15]
For example, A mortgaged property to B for five years. The deed provided that in case A fails to repay the sum, B will be entitled to possess the property for twelve years. Such stipulation is a clog as it hindered A’s existing right of redemption.
6. Restraint on alienation
A stipulation that restrains the mortgagor from transferring mortgaged property is a clog. In a mortgage as discussed above only certain interests are transferred and the mortgagor is still the residuary owner of that property. The agreement that restrains the mortgagor from mortgaging the property once again or even an agreement that prevents him from making a gift of the mortgaged property is a clog. [16]
For example, A mortgaged property to B. B imposes the condition that the mortgagor cannot take a loan from another creditor by the property again. The condition is a clog because it restrained A’s right to alienation.
Implication Of Clog On Modern Dealings
Once a mortgage, always a mortgage, and nothing else. It simply means that the mortgagor’s right to redeem won’t be defeated even if he himself agrees to it. Also, the agreement between parties cannot prevail against the statutory provision.
With the instances on the clog of redemption, it becomes quite clear that the present law favors the mortgagee under the grab of traditional justification of unfair bargaining. And this unfair bargaining power may be subject to criticism.
Let’s take an example, suppose X is a contractor and he owns assets of five crores and goes to the bank for a three crore loan, where he agrees to pay back the loan in 2 years. Now, the bank granting a loan would be at risk and for safety, it may ask for security, which possibly may be in terms of land. The bank keeping in mind the rate of non-performing assets could further add a stipulation that in case of failure of repayment, the bank would be the owner of the property. Now, X had little knowledge of property law and may argue that the stipulation is a clog and hence the agreement is void.
As a result of this, I’m of the opinion that, the bank which has performed its obligation will have to incur additional costs to seek a declaration of foreclosure from the court.
Hence, the present approach puts the lender to risk because the market is increasingly going competitive. So, I hold the view that making a good bargain should be left at the option of parties rather than the courts.[17]
Conclusion
In the concluding remarks, I would state that a clog on redemption is something that cannot be determined absolutely. Clog has to be settled through close perusal of the mortgage deed. This doctrine is subject to criticism as well. Sir Fredrick Pallock has termed the doctrine as a complete anachronism. This doctrine considers one party that is mortgagor as the only victim. But in reality, both parties are subject to risk and they must be protected as well. Since the doctrine focuses on only one party, it is against public policy. This precedent provides one party with the excuse to escape from his obligation is bad law to set. In India, complete discretion is given to the court to decide as to which conditions form the part of clog.
[1] The Transfer of Property Act, 1882, Section 60
[2]Meaning of Mortgage, available at: https://corporatefinanceinstitute.com/resources/knowledge/finance/mortgage/ (last visited 25th March, 2022)
[3] Supra note 1
[4] Stanley v. Wilde, (1899) 2 Ch 474
[5] U. Nilan v. Kannayyan Through Lrs, AIR 1999 SC 3750.
[6] DR. R.K. Sinha, The Transfer of Property Act 321 (Central Law Agency, Allahabad, 21st Edn., 2021)
[7] Rocky Flora v. Parvarthy Ammal, AIR 1957 Ker 175
[8] Hajee Fatma Bee v. Prohlad Singh, AIR 1985 MP 1
[9] Clog on redemption, available at: https://blog.ipleaders.in/doctrine-clog-redemption/#:~:text=This%20is%20known%20as%20the,of%20a%20clog%20on%20redemption (last visited 25th March, 2022)
[10] Supra Note 6 at 322
[11] Vadilal Chhaganlal v. Gokaldas Mansukh, AIR 1953 Bom 408.
[12] Ramkhilawan Ashwasi v. Mullo, AIR 1957 MP 200.
[13] Supra note 6 at 326
[14] Supra note 6 at 325
[15] Supra note 6 at 324
[16] Ibid
[17] Implication on modern dealings, available at: https://core.ac.uk/download/pdf/217002317.pdf (last visited 25th March 2022).
