In Ram Kishan v. Shio Ram (2007), the court said that,
“the provisions of the Act in respect of usufructuary mortgage are required to be interpreted keeping in view the principles of justice, equity and good conscience and keeping in view the fact that the stipulations introduced in the mortgage transactions are not unreasonable, oppressive and unjust.”
The Provision of Transfer of Property Act
The relevant provisions contained in Sections 58(a), 58(d), 60, 62, 67 of the Act and Articles 61, 62 and 63 of the Limitation Act, 1963, are being reproduced as under:
58. “Mortgage”, “mortgagor”, “mortgagee”, “mortgage-money” and “mortgaged” defined,
(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.
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(d) Usufructuary mortgage-
Where the mortgagor delivers possession or expressly or by implication 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 or any part of such rents and profits and to appropriate the same in lieu of interest or in payment of the mortgage-money, or partly in lieu of interest or partly in payment of the mortgage-money, the transaction is called a usufructuary mortgage and the mortgagee a usufructuary mortgagee.
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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 him or to such third person as he may direct, or to execute and (where the mortgage has been effected by a registered instrument) to 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 has not been extinguished by the act of the parties or by decree of a court.
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62. Right of usufructuary mortgagor to recover possession
In the case of a usufructuary mortgage, the mortgagor has a right to recover possession of the property together with the mortgage-deed and all documents relating to the mortgaged property which are in the possession or power of the mortgagee,-
(a) where the mortgagee is authorised to pay himself the mortgage-money from the rents and profits of the property,-when such money is paid;
(b) where the mortgagee is authorised to pay himself from such rents and profits or any part thereof a part only of the mortgage-money, when the term (if any) prescribed for the payment of the mortgage-money has expired and the mortgagor pays or tenders to the mortgagee the mortgage money or the balance thereof or deposits it in court hereinafter provided.
General Principles of Usufructuary Mortgage
A Full Bench of the Lahore High Court in Lachhman Singh v. Natha Singh through Harnam Singh and Ors. A.I.R. 1940 Lahore 401 has delineated the characteristics of a usufructuary mortgage as under:
It will be seen that the characteristics of a usufructuary mortgage, as defined above, are:
(1) that the possession of the mortgaged property is delivered, or agreed to be delivered, to the mortgagee;
(2) that he is to appropriate the rents and profits either (a) in lieu of interest, or (b) towards the principal, or (c) partly in lieu of interest and partly in payment of the principal;
(3) that in none of these cases the mortgagor incurs any personal liability to repay; and
(4) as the mortgagor has not bound himself to repay (but may repay if and when he chooses) there can be no “forfeiture” and therefore the remedies by way of foreclosure or sale are not open to the mortgagee.
Thus, any personal liability on the part of mortgagor is excluded in case of usufructuary mortgage and a usufructuary mortgagee is not entitled to sue for sale of the property. If there is any stipulation to the contrary, the transaction ceases to be one of usufructuary mortgage and is described as anomalous mortgage. The Court proceeded to hold as under:
As stated in (2) above, usufructuary mortgages are of three kinds. Of these, the two described in (b) and (c) are self redeeming; the mortgagee has to look to the rents and profits only to re-pay himself and when his entire charge is so liquidated he must re-deliver possession of the mortgaged property to the mortgagor free from all encumbrances.
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The most common form of usufructuary mortgage however is that described in 2(a) above, and it is to this class that the mortgages in the cases before us belong. Here the rents and profits are to be set off against interest and the mortgagee is entitled to retain possession until such time as the mortgagor chooses to redeem on payment of the principal sum secured. This form of mortgage has been in vogue in India since ancient times.
It was known to the Hindu lawyers under the expressive name of bhog bandakam which literally means “mortgage (bandaka) by enjoyment (bhog).” It was a mortgage for an indefinite period, during which the mortgagee enjoyed the usufruct and the mortgagor was entitled to redeem at any time on payment of the principal.
It retained its popularity during the Mughal period, especially among the Mohammedan creditors who by obtaining possession of property (as zer-i-peshgi lessee and under other similar names) and appropriating the rents and profits till redemption, could find a safe investment for their money without charging interest.
The Court concluded to the following effect:
It will be clear from the foregoing discussion that the principal characteristics of a usufructuary mortgage are that there is no personal liability of the mortgagor to pay, nor has the mortgagee a right to have the mortgaged property brought to sale.
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Judged in this light, it must be conceded that a usufructuary mortgagor is under no liability to mortgagee. He is under no legal obligation to pay; it is his option to redeem, if and when he chooses….
In Ramprasad v. Bishambhar Singh A.I.R. 1946 Allahabad 400, the Court while examining the provisions of Section 60 of the Act held that it applies to a case in which the mortgagor goes to the Court to obtain the return of his property on repayment of debt amount still due. On the other hand, Section 62 of the Act applies in the case of usufructuary mortgage. The mortgagor has a right to recover possession of the property when the principal money is paid off, where the mortgagee is authorized to pay himself the mortgage money out of the rents and profits of the property.
It was held that is not a case of redemption at all. When the rents and profits of the mortgaged property discharge the principal amount secured by the mortgage, the mortgage came to an end and the correlative right arise in the mortgagor to recover possession of the property. The said judgment was affirmed by the Hon’ble Supreme Court in Prithi Nath Singh and Ors. v. Suraj Ahir and Ors. . A Division Bench of Batna High Court in Jadubans Sahai and Ors. v. Bahuria Phulpati Kuer and Ors. , considered the scope of Sections 60 and 62 of the Act.
Suit for Redemption of a usufructuary Mortgage
While considering Section 60 of the Act, it was observed that suit for redemption of a usufructuary mortgage necessarily involves a prayer for possession of the mortgaged property. It is essentially a suit for both redemption and possession of the mortgaged property. But, there may be cases where the mortgagor may claim only possession of the mortgaged property and for this provision has been made in Section 62 of the Act.
The Court found that in terms of Clause (a) of Section 62 of the Act, the only relief which the mortgagor can claim is return of possession when by the contract between the parties, the mortgagee is authorised to recover the mortgage debt from usufruct of the property in mortgage. Clause (b) of Section 62 of the Act contemplates cases where the rents and profits of the mortgaged property are to be applied towards interest accruing due on the mortgage debt or towards principal or partly towards principal and partly towards interest.
It was held that Section 62 of the Act comes into operation, where in terms of the contract between the parties, the mortgagee is authorised to appropriate the rent and profits of the mortgaged property towards partial deduction of either the principal amount or interest or both. The Court held to the following effect:
There may be cases where accounts may have to be taken before a redemption of the mortgage is granted. Wherever, the mortgagor claims satisfaction of the mortgage debt with the usufruct, the suit is not necessarily a suit for possession. In a pure redemption suit also there may be a prayer for account for redemption and for possession.
If the mortgagor claims that the entire mortgage money had been satisfied and nothing is due on the basis of the mortgage, it is for the Court to determine whether or not there is satisfaction of the mortgage. Therefore, such an allegation is immaterial so far as the determination of the question whether the suit is one for possession or one for redemption is concerned. In my opinion, a suit purely for possession arises only when the case falls under Clause (a) of Section 62.
While considering the question that when limitation begins to run under Article 148 (now Article 61 of the Limitation Act, 1963), the Court found that if suit is for possession under Section 62 of the Act, the period of limitation starts from the date on which the right to recover possession accrues, and that will be after the mortgage money has been paid off in the circumstances mentioned in Section 62.