Introduction
As per Section 58 of the Transfer of Property Act, 1882, the mortgage is a conditional conveyance of certain interests in immovable property as security for payment of the loan or performance of a duty that may give rise to a pecuniary liability. In general-parlance, if a person takes a loan, he grants some interest in his immovable property as security for repayment of such loan to the lender, it is known as a mortgage of a property. The person raising funds through keeping his/her property as security or lien is the mortgagor and the person in whose favour the interest has been transferred is the mortgagee. It is to be noted that mortgagors are irrefutably bestowed with the right of redemption i.e. they can get their property back by repaying the loan, without any encumbrances, because the ownership still remains with the mortgagor.
Right of Redemption
Ownership of immovable property is associated with a bundle of rights. Upon a mortgage, a mortgagor generate two interests,
- The interest of the creditor/lender on the property (limited, fixed, and temporary)
- Residuary interest qua the interest that remains with the mortgagor (can be estimated through deducting the interest transferred to the mortgagee)
The mortgagor can retain the former division of interest by paying off the borrowed principal money with interest. Per contra, the status quo is that since mortgagors borrow money out of some financial predicaments, lenders often ostensibly purported to take advantage of it by persuading mortgagors to sign agreements that transcends mere mortgage qua intends to turn a mortgage deed into a sale deed. Such covenants are of nature that deliberately seizes the mortgagor’s right of redemption conferred by Section 60 of Transfer of Property Act, 1882.
It is pertinent to note that the mortgagor’s right to redeem is a statutory right; thereby, the parties are no way competent to withhold such an absolute right through any agreement. To address the bone of contention and to reinforce the mortgagor’s right to buy back the mortgaged property, the principle ‘once a mortgage always a mortgage,’ was laid down in the case of Harris v. Harris.
Construing the right to redemption as a right of equity, any impediment to this right is void, and it constitutes a clog on the equality of redemption. Thus, covenants that modify the character of the mortgage would not defeat the mortgagor’s right of redemption, even he himself agrees to it.
Basis of right to redemption = Mortgagor’s ownership in the mortgaged property
What exactly is a clog on redemption?
Let us suppose that a clause in a mortgage deed debars the mortgagor from getting back his property on default in repayment of the loan within a stipulated deadline i.e. if the mortgagor is not able to repay the loan within 5 years of the execution of the sale deed. Then, he is left with no option but to sell his property to the mortgagee. This condition/stipulation would be a clog on the equity of redemption, such clog is inequitable and hence, void.
Similarly, in the case of Murari Lal v. Devkaran,[1] a condition was imposed by the mortgage deed that the mortgaged money must be paid within 15 years; otherwise, the mortgagee would become the owner of the property. It was held that the condition is void as it is unreasonable and implies impediment to the mortgagor’s right to redemption.
Provisions under Transfer of Property Act,
1. Section 60– It confers the Right of Redemption and the suit by which this right can be enforced is Suit for Redemption. Unlike common law, since the right to redemption and equity of redemption are indistinguishable under the Transfer of Property Act, this Section is the one catchall provision that dealt with the rights of the mortgagor on redemption. The mortgagee must reconvey the title to the mortgagor upon the satisfaction of the debt. In a nutshell,
- This right comes into play only when the mortgage money becomes due.
- Upon the payment of the mortgage money, the mortgagee has to return all the documents related to the mortgaged property and the possession as well.
- The Mortgaged property can be delivered to any third party as directed by the mortgagor.
- No additional clause in the mortgage deed can preclude the mortgagor from redeeming his property.
- Such a clause constitutes a clog on the equity of redemption.
- Exception: This Section itself puts a restriction that the mortgagor’s right to redemption is exercisable unless and until it is extinguished by the parties conduct or court’s decree.
- Thereon, the only relief available to the mortgagee is to file a suit for foreclosure before a competent court.
In the case of Allokam Peddabbaya & Ors v. Allahabad Bank & Ors, [2]Apex court elucidated that at which instant the right of the mortgagor to redeem the property can be extinguished. It was held that the extinguishment of the right to redemption takes place with the confirmation of the sale of mortgaged property appertaining to the execution of the foreclosure decree.
2. Section 91- This provision lists individuals empowered to redeem the mortgaged property or sue for redemption other than the mortgagor. They are,
- Any person who has an interest in the property other than mortgagee,
- Any surety for the payment of mortgaged debt,
- Any creditor of the mortgagor who has obtained a decree for sale of the mortgaged property.
Once a Mortgage always a Mortgage
The doctrine of equity of redemption is expressed in this maxim and it is an exception to the principle, ‘the agreement of the parties overrides the law.’ Reiteratively, the maxim, established in 1681 by Lord Nottingham in the case of Harris v. Harris is basically to safeguard the mortgagor’s right to redemption. In the case of Noakes & Co v. Rice, [3]the maxim was interpreted by Lord Davey as ‘That a mortgage cannot be made irredeemable and that a provision to that effect is void’. Therefore, one of the manifestations of this maxim is that the clog on the equity of redemption is void. No matter whether the provision that makes a mortgage irredeemable is there in the mortgage deed itself or any collateral but connected transaction outside the mortgage contract, it is void to the extent to which it prevents the mortgagor from getting his whole of the property back on repayment of the mortgaged money.
Sometimes, such provision may have been disguisedly inserted in the mortgage deed, like in the case of Samuel v. Jarrah Timber and wood paving corporation.[4] Wherein, a Timber Company borrowed money on the security of its debenture stock and granted the lender with an option to buy its stocks within the next twelve months upon the nonpayment of the loan. Within the stipulated time, the lender wanted to exercise the granted option, before the company gave notice of its intention to repay the loan amount. It was held by the House of Lords that the option itself is void as it debars the mortgagor from redeeming his property back upon the repayment of the principal amount along with the interest and costs.
Historical Development of the Doctrine “Once A Mortgage Always A Mortgage”
This doctrine “Once A Mortgage Always A Mortgage” is the outcome of combined notions viz. Equity, Justice, and Good Consciences. In layman’s terms, equity is equivalent to fairness and egalitarianism. Back then, the major lacuna in the justice delivery system was emerging in England. To cope with such an inadequacy, the Chancellors were appointed by the king in special courts to outreach the sphere of the law to dole out justice and fairness to common people. Court under the control of Lord Chancellor was named the Court of Chancery qua Court of Equity, which was developed to provide remedies that are not available in the Court of Common Law.
The mortgage law was developed almost completely in the Court of Equity. It is pertinent to note that the equity of redemption principle was found in England mortgage law originated under roman civil law.[5]
The basis of the maxim was explicated by Lindley M R in the case of Stanley v. Wilde[6]as ‘Any provision inserted to prevent redemption on payment or performance of the debt or obligation for which the security was given is what is meant by a clog or fetter on the equity of redemption and is therefore void. It follows from this, that ‘once a mortgage always a mortgage.’
The maxim ‘once a mortgage always a mortgage,’ is the connotation of the fact that the mortgagee will always remain as mortgagee and can never become an owner. All acts he commits in order to exalt himself as an owner are perceived to be a clog on redemption.
Pursuant to equity of redemption, a clog on redemption is void; in the Indian context, its philosophy was explained by the Supreme Court in the case of U. Nilan v. Kannayyan (Dead) Through Lrs[7]as,
Adversity of a person is not a boon for others. If a person in stringent financial conditions had taken the loan and placed his properties as security therefore, the situation cannot be exploited by the person who had advanced the loan. The Court seeks to protect the person affected by adverse circumstances from being a victim of exploitation. It is this philosophy which is followed by the Court in allowing that person to redeem his properties by making the deposit under Order 34 Rule 5 C.P.C.[8]
Case laws
Clog on redemption affects the right of redemption, by that way it is against the rationale of this maxim. Indian courts have never failed to affirm this maxim by nullifying the doctrine of clog on redemption. Though there are no defined circumstances, which were firmly established to determine whether or not the condition in question will amount to a clog, it has been decided by construing the facts and circumstances of every single case. Some of the notable cases are as follows,
Long Term Mortgage: Vadilal Chhaganlal v. Gokaldas Mansukh[9]
This case is of a mortgage of 99 years, where the mortgagee was allowed to construct any structure on the property at any expense. It was observed by the Apex court that repayment of the principal money along with interest and the cost of construction make the mortgage practically impossible as it is something beyond the ability of the mortgagor. Thus, it is quite clear that the mortgagee had taken advantage of a helpless mortgagor to sign that agreement, hence, the conditions were held clog on redemption. The same was held in the cases like Fateh Mohd. v. Ram Dayal,[10] Massa Singh v. Gopal Singh, Ganga Dhar Lal v. Shankar Lal,[11] so on.
Condition of the sale in default: Kuddi Lal v. Aisha Jehan Begam,[12]
In this case, the mortgagor was allowed to redeem his property not through transferring the property but only paying out of her own pockets. It was held as a clog on redemption since it restraint alienation by the mortgagor.[13]
Conclusion
In extenso, the maxim ‘once a mortgage always a mortgage’ provides that the true nature of the mortgage can never be changed. The mortgage and the right of redemption are inseparable i.e. the right of redemption can never be limited or closed as it will always remain in the mortgage deed. Any clause/ condition/ stipulation is included in the mortgage deed by the mortgagee, which is unreasonable and against public policy, as it put absolute restraint on the mortgagor’s right to redemption is void.
References
- https://www.lawctopus.com/academike/doctrine-of-clog-on-redemption/#_ftn33
- https://lordsoflaw.com/once-a-mortgage-always-a-mortgage/
- https://blog.ipleaders.in/critical-analysis-mortgagors-right-redemption/
[1] AIR (1965) SC 225.
[2] 2017 SCC OnLine SC 671.
[3] 1902 AC 24
[4] [1904] UKHL 2; [1904] AC 323.
[5] Thomas W. Bigley, William Mitchell Law Review, Volume 21 Issue 1,
Property Law—The Equity of Redemption: Who Decides When it Ends? https://open.mitchellhamline.edu/cgi/viewcontent.cgi?referer=&httpsredir=1&article=2153&context=wmlr.
[6] (1899) 2 Ch 474.
[7] [1999] 8 SCC 511.
[8] Id. at 7.
[9] AIR 1953 Bom 408.
[10] AIR 1927 Oudh 224 (E).
[11] AIR 1958 SC 770.
[12] AIR 1927 Oudh 199.
[13] Id. at 12.
