WHAT IS MORTGAGE?
In a mortgage, a person (mortgagor) transfer the interest of his property or property or title deed of his property to another person (mortgagee) to take the loan from him. This transfer of interest of property or property or title deeds, is considered as a security to secure the mortgage.
If mortgagor pays the loan to the mortgagee at the settled time, mortgagor can take back his property. But if mortgagor fails in paying the loan at settled time, in such case, mortgagee has a right to hold the property as it belongs to him.
DEFINITION OF MORTGAGE
Transfer of property act, 1882 in its section 58 defines the mortgage in following terms,
“A mortgage is the transfer of an interest in specific immoveable 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.”
Further it defines the meaning of mortgagor, mortgagee, mortgage money and mortgage deed.
“The transferor is called a mortgagor, the transferee a mortgagee; the principal money and interest of which payment is secured for the time being arc called the mortgage-money, and the instrument (if any) by which the transfer is effected is called a mortgage-deed.”
This definition brings out clearly the nature of mortgage. It was understood and followed in same sense, even, before the Act came into force. In Gopal v. Parsotam 1883 5 All. 121. 137 F.B. it was observed:
“Mortgage as understood in this country cannot be defined better than by the definition adopted by the Legislature in section 58 of the Transfer of Property Act (IV of 1882). That definition has not in any way altered the law, but, on the contrary, has only formulated in clear language the notions of mortgage as understood by all the writers of text-books on Indian mortgages. Every word of the definition is borne out by the decisions of lndian Courts of Justice.”
Fisher & Lightwoods in their Law of Mortgage (10th Edn) define “mortgage” as a form of security created by contract, conferring an interest in property defeasible (i.e. annullable) upon performing the condition of paying a given sum of money, with or without interest, or of performing some other condition.
The classic definition of mortgage given by Lindley M.R. in Santley vs Wilde (1899 is in the following terms: “A mortgage is a conveyance on land or an assignment of chattels as a security for the payment of a debt or the discharge of some other obligation for which it is given.” 
ESSENTIAL ELEMENTS OF MORTGAGES
As per the definition, given in Transfer of property act, 1882, there are three essentials of the mortgages, which are as follows-
- Specific Immovable property
In a mortgage, there must be transfer of interest in specific immovable property for the repayment of debt. In a mortgage, some rights are transferred to the mortgagee, and some remain vested in the mortgagor
The nature of the transferred right depends upon the forms of mortgage.
In a simple mortgage, what is transferred is a power of sale, which is one of the component rights that make up the aggregate of ownership.
In a usufructuary mortgage, there is transfer of right of possession and enjoyment of the usufruct.
In a conditional mortgage and in an English mortgage, the right transferred is, in form, a transfer of a right of ownership subject to mortgagor’s right to get his property back.
In each case, whatever be the form of the mortgage, there is a transfer of some interest only, and not a transfer of the whole interest of the mortgagor.
When the parties agree to enter into a mortgage, the interest of the mortgagor in the property reduces to the extent which has been passed on to the mortgagee. The ownership of the mortgagor is also temporarily reduced until he repays the loan he has secured.
Mortgage and lease
There is difference between mortgage and lease. There was well-illustrated in the case of Nidha Sah v Murli Dhar there was a document which was purported to be a deed of mortgage with possession of certain villages for a period of 14 years. The deed provided that at the expiry of the term, the mortgagors were to come into possession of the mortgaged villages without settlement of accounts, and that the mortgagee should then have no power whatsoever in respect of the said estate, but should return the mortgage deed to the mortgagors without their repaying the mortgage money. The mortgagee refused to return such villages as he had, on the ground that he had not received the full number of villages, and had not been able to recoup himself
It was held by their Lordships of the Privy Council that it was merely a lease. Sir John Bonser who delivered the judgment of their Lordships observed:
“This instrument, though it is called a mortgage, and though it will be convenient to follow the nomenclature used in the document itself and in the pleadings and judgments in the Courts below, is not a mortgage in any proper sense of the word. It is not a security for the payment of any money or for the performance of any engagement. No accounts were to be rendered or required. There was no provision for redemption, express or implied. It was simply a grant of land for a fixed term free of rent in consideration of a sum made up of past and present advances.”
CONSTRUCTION OF MORTGAGE DEED
In the case of Fuzhakkal Kuttappu v. C. Bhargavi & Ors, it has been observed that the nomenclature given to a document by the writer or even by the parties is not always conclusive. In construing a document, it is necessary to find out the intention of the parties executing such document. Such intention has to be gathered from the recital, the terms in the document and from surrounding circumstances. When there is a document of a composite character disclosing features of mortgage and lease, the Court will have to find out the pre-dominant intention of the parties executing the document viewed from the essential aspect of the reality of the transaction.
2. SPECIFIC IMMOVABLE PROPERTY
In order to create a mortgage, there should be an existence of specific immovable property. The word ‘specific’ shows that the description should not only be free from ambiguity and uncertainty, but also that it should be specific, as distinguished from general. And it should be mentioned in the mortgage deed. The purpose to write about property specifically, is to attach that property, in case, the mortgagor doesn’t repay.
In his authoritative work on Transfer of property act, Mulla mentioned illustration of property description. The following description was held to be sufficiently specific:
- ‘house situated in Ghaziabad owned and possessed by us’;
- ‘our rights and property in the aforesaid taluka, Rajapur’;
- ‘all the properties appertaining to entire bhag’;
On the other hand, general descriptions such as
- ‘my house and landed property’;
- ‘our property with all rights and interests therein’;
- ‘the whole of my property;’
are not proper description.
In Jaggeswar Butt v. Bhuhan Mohan Mitra (1906) I.L.R., 33 Calc., 425 Rampini and Mookerjee, JJ., held that the term ‘property comprised in a mortgage,’ as used in Section 85 of the Transfer of Property Act, means not the physical object but the interest therein which the mortgagor is competent to transfer by way of mortgage at the date of the transaction.
MORTGAGED PROPERTY ATTACHED TO THE LAND
In The Indian Insurance And Banking vs S. Paramasiva Mudaliar And Anr. It has been held that machinery in a mortgaged building does not form part of the security, unless it is attached to the building for the permanent beneficial enjoyment thereof.
The main purpose to create a mortgage is to secure the debt. In a mortgage, the transaction done is for repaying any loan or performing any obligation.
Money to be advanced
A transaction of mortgage does not become void or ineffective merely because the mortgage fails to advance the amount undertaken to be advanced by him.
This rule was laid down in Tatya v. babaji case, where CJ Farran called the “radical distinction between a perfected conveyance and a contract”. In State of Kerala v Cochin Chemical Refineries, the Supreme Court, approving Tatia v Babaji , has held that a transaction of mortgage does not become void or ineffective merely because the mortgage fails to advance the amount undertaken to be advanced by him.
In State of Kerala v. The Cochin , Chemical Refineries Ltd. (AIR 1968 SCC 1361), the respondent had executed a mortgage under which the State of Travancore – Cochin was to advance certain sum to the respondent. It executed a simple mortgage in favour of the State in respect of certain properties and undertook to supply certain quantity of ground-nut cake to the State. The State failed, inter alia, to advance the amount. On the question of claim for damages, for breach of covenant, it was contended that the failure to advance the amount absolved the State from its obligation to purchase the goods of the respondent. This contention of the State was repelled. In the course of the Judgment, the Court also held as follows:
“The transaction of mortgage formally executed does not become void or ineffective merely because the mortgagee fails to advance the amount of money undertaken to be advanced by him. If without advancing the amount agreed to be advanced, he sues on the title created under the deed of mortgage, the court will not award him a decree for anything more than what he has advanced. But, that is not to say that the mortgage is invalid.”
Following illustration from Mulla’s Transfer of property act, can be helpful to understand this principle.
A mortgaged property to B by a deed executed on May. B advanced the money secured by the mortgage a week later on 10 May. Meanwhile on 7 May A sold the property to C, C contended that as the consideration had not been paid at the time of his sale, he was not bound by the mortgage. Held that the mortgage was effective from the date of execution, and that C’s purchase was subject to the mortgage.
DIFFERENCE BETWEEN SALE AND MORTGAGE
There is difference between sale and mortgage. This can be explained in the following terms: –
- Sale is defined in section 54 of Transfer of property act, 1882, and it defines it as,” Sale” is a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised.”
Section 58 defines the “mortgage” in following words, “A mortgage is the transfer of an interest in specific immovable property…”
- Thus, it is clear that, in a sale there is “transfer of ownership” and In a mortgage there is just “transfer of an interest” in specific immovable property.
- In a sale, transferor pass all rights to transferee. In a mortgage, some rights are transferred to the mortgagee, and some remain vested in the mortgagor.
SALE WITH A CONDITION OF RETRANSFER
A sale with a condition of retransfer is not a mortgage, because, in this transaction, a relationship of debtor and creditor does not subsist, also there is not debt for which the transfer is security. This type of transfer is not a partial transfer, which is required for mortgage.
This distinction was made in the case of Alderson v White, and it was accepted by the Privy Council in Bhagwan Sahai v Bhagwan Din Their Lordships quoted with approval the following passage from Alderson v White :
“The rule of law on this subject is one dictated by common sense that prima facie an absolute conveyance containing nothing to show that the relation of debtor and creditor is to exist between the parties do not cease to be an absolute conveyance and become a mortgage merely because the vendor stipulates that he shall have a right to repurchase.”
Indian courts interpreted and clarified the meaning of mortgage very elaborately. The mortgage system is prevalent in India for a very long time. And property disputes are those disputes which are the main cause of court’s overburden. Therefore, the question of mortgage and the chance to interpret the complicated issue of mortgage came before the court again and again.
 See also, ariavan Saraswathi And Anr vs Eachampi Thevi And Ors on 13 November, 1992
 2 Ch 474 Ca
 See also, State Bank Of India vs Samneel Engineering Company 1995 (35) DRJ 485
 Prahlad v Maganlal (1952) ILR Bom 1090,
 (1903) ILR 25 All 115
 See also, Archaka Sundara Raju Dikshatulu vs Archaka Seshadri Dikshatulu (1928) 54 MLJ 76; Lallu Singh vs Ram Nandan And Ors. 1929 AIR 1930 All 136; Gulabbhai Ranchhodbhai vs Bhagvan Kesur (1928) 30 BOMLR 980, 114 Ind Cas 266
 AIR 1977 SC 105
 See also, Kaveripatnam Subbaraya Setty … vs S.K.Viswanatha Setty on 22 July, 2004
 Phul Kaur v Murli Dhar (1879) ILR 2 All 527.
 Bishen Dayal v Udit Narain (1886) ILR 8 All 486
 Tribhovandas v Krishnaram (1894) ILR 18 Bom 283.
 Darshan Singh v Hanwanta (1877) ILR 1 All 274.
 Deojit v Pitambar (1876) ILR 1 All 275
 Baldeo Rai v Murli Rai (1912) 10 All LJ 120, 16 IC 638.
 (1957) 2 MLJ 256,
 (1898) ILR 22 Bom 176, p 183
 AIR 1968 SCC 1361
 9th edition
 Raghunath v Amir Baksh (1922) ILR 1 Pat 281
 (1858) 2 De G and J 97
 (1890) ILR 12 All 387, 17 IC 98.
This article is written by Advocate A.H. Gnagohi.