Rights and Liabilities of Mortgagor (Sections 60–66)

A mortgage transfers an interest, but never the full ownership. The mortgagor remains the owner, and the corpus of his ownership is the equity of redemption — the right to take the property back on payment of the mortgage money. Sections 60 to 66 of the Transfer of Property Act, 1882 spell out, in painstaking detail, what the mortgagor can do during the subsistence of the mortgage, what accretions and improvements belong to him, and what he must do — by way of implied contract — for the benefit of the mortgagee. The architecture of these seven sections, read with the six kinds of mortgage in Section 58, supplies almost the whole law of mortgagor's rights and liabilities.

Section 60 — the right of redemption

Section 60 enacts the central right of the mortgagor. At any time after the principal money has become due, the mortgagor has the 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 mortgagee's possession; (b) where the mortgagee is in possession of the mortgaged property, to deliver possession to the mortgagor; and (c) at the cost of the mortgagor either to retransfer the mortgaged property to him or to such third person as he may direct, or to execute and register an acknowledgement in writing that any right in derogation of the mortgagor's interest transferred to the mortgagee has been extinguished.

The right is conferred on the mortgagor and on every person having any interest in or charge upon the mortgaged property or in or upon the right to redeem the same. A puisne mortgagee, a co-mortgagor, an assignee of the equity of redemption, and a person who has succeeded to the mortgagor's interest may all exercise the right. The proviso to Section 60 closes the right where, under a decree or by act of parties, the mortgagor's right has been extinguished or the property has been sold; foreclosure or sale, once final, ends redemption.

The doctrine "once a mortgage, always a mortgage"

The right of redemption is the irreducible content of the equity of redemption. It cannot be made nugatory or illusory by drafting. Any provision in the mortgage deed that deprives the mortgagor of his right to redeem on payment of the mortgage money — or that makes the right available only on conditions so onerous as to be in substance a bar — is a clog on the equity of redemption and is void. The maxim is once a mortgage, always a mortgage. The English root is Stanley v Wilde [1899] 2 Ch 474; the Indian Supreme Court in Seth Ganga Dhar v Shankar Lal AIR 1958 SC 770 held that a long term — there a 85-year mortgage with no right of redemption for 85 years — was a clog. Pomal Kanji Govindji v Vrajlal Karsandas Purohit (1989) 1 SCC 458 reaffirmed that the question is one of substance: whether on the totality of the bargain the mortgagor's right of redemption has been rendered illusory.

The doctrine of clog stretches across several recurring fact-patterns. A long postponement of the right to redeem may be a clog if it bears no relation to the size of the loan and the security. A penalty by way of additional interest payable on default may be a clog if it is in substance penal rather than compensatory. A condition that the mortgaged property shall, on default of repayment, become the property of the mortgagee for an inadequate price is a clog. A condition that the mortgagor shall, on redemption, sell or lease the property to the mortgagee is a clog. The principle is the same: a mortgage cannot, by its own terms, ripen into a sale or extinguish the mortgagor's right to redeem.

Section 60A — obligation to transfer to third party

Section 60A, inserted in 1929, supplements the right of redemption. At the instance of the mortgagor, the mortgagee shall, instead of retransferring the property to the mortgagor, transfer it to such third person as the mortgagor may direct. This allows a mortgagor who is paying off the mortgage with money borrowed from a fresh lender to direct the existing mortgagee to transfer the security to the new lender — a kind of statutory subrogation by request. The section has nothing to do with the doctrine of subrogation under Section 92, which is concerned with substitution into the rights of a discharged mortgagee, but it serves the same commercial purpose of facilitating refinance.

Section 60B — right to inspection and production of documents

The mortgagor as long as his right of redemption subsists is entitled, at all reasonable times, at his own cost, and on payment of the mortgagee's costs and expenses in this behalf, to inspect and make copies or abstracts of, or extracts from, documents of title relating to the mortgaged property which are in the custody or power of the mortgagee. The right is the mortgagor's analogue to the buyer's right to title deeds under Section 55(3) of the chapter on sale; it is part of the standing relationship between mortgagor and mortgagee.

Section 61 — right to redeem separately or simultaneously

Where a mortgagor executes two or more mortgages in favour of the same mortgagee, he is entitled, in the absence of a contract to the contrary, to redeem any one such mortgage separately, or any two or more of such mortgages together. The section abolishes the English equitable doctrine of consolidation — under which a mortgagee holding two mortgages from the same mortgagor on different properties could, on a suit for redemption of one, insist that the mortgagor redeem all. In India, after Section 61, the right of separate redemption is the rule; consolidation operates only if there is an express contract to the contrary. The change reflects the policy that the mortgagor's right of redemption shall not be tied to mortgages with which it has no functional connection.

Section 62 — usufructuary mortgagor's right to recover possession

Where the mortgage is usufructuary, the mortgagor's right to recover possession is governed by Section 62. He may recover possession in either of two situations. First, where the mortgagee is authorised to pay himself the mortgage money from the rents and profits of the property — i.e., the simplest form of usufructuary mortgage — when the mortgage money is paid off by the rents and profits. Second, where the mortgagee is authorised to pay himself from such rents and profits or any part thereof and applies it for any other purpose — i.e., where there is a fixed period after which possession is to be returned — on the expiry of that period, the mortgagor may recover possession on payment of any balance due to the mortgagee. The section is an important corollary to the structure of the usufructuary mortgage: there is no personal covenant for repayment, no fixed date for payment of the principal, and the mortgagor's right to redeem accrues only when, by the rents and profits, the debt is satisfied.

Section 63 — accession to mortgaged property

Where mortgaged property in the possession of the mortgagee receives any accession during the continuance of the mortgage, the mortgagor, on redemption, is entitled, in the absence of a contract to the contrary, to such accession. The principle is the same as the rule in Section 8 on the operation of transfer: a transfer of property carries with it the legal incidents of the property, including future accessions. The mortgagee's possession is for the limited purpose of securing the debt; he holds for himself only to that extent and as constructive trustee for the mortgagor as to the surplus.

The section then introduces a structural distinction between two kinds of accession. An accession that is inseparably attached — like alluvion, or a building so erected that it cannot be removed without injury to the original property — passes to the mortgagor on redemption without any payment to the mortgagee, unless the accession was at the cost of the mortgagee and was necessary to preserve the property from destruction, forfeiture or sale, in which case the mortgagor must pay the cost. An accession that is separable — like detachable improvements or moveable additions — the mortgagee may take in lieu of compensation, or the mortgagor may take on payment of the value of the accession.

Section 63A — improvements

Section 63A, inserted in 1929, deals specifically with improvements made by the mortgagee in possession to the mortgaged property. The improvement passes to the mortgagor on redemption, in the absence of a contract to the contrary. Where the mortgagee was bound by his contract or by law to maintain the property and the improvement is necessary to preserve it, or to prevent the security from becoming insufficient, the mortgagor must pay the cost. Otherwise, the cost is borne by the mortgagee — he cannot foist on the mortgagor a charge for unsolicited expenditure.

The section is read against the background of Section 51 on bona fide improvements, which protects a transferee who, believing in good faith that he is absolutely entitled, makes improvements. A mortgagee, knowing himself to be a mortgagee and not the absolute owner, is generally not within Section 51; he is governed by Section 63A and must look to it alone for reimbursement.

Section 64 — renewal of mortgaged lease

Where the mortgaged property is a lease and the mortgagee, during the subsistence of the mortgage, obtains a renewal of the lease, the mortgagor, on redemption, is entitled, in the absence of a contract to the contrary, to have the benefit of the new lease. The section codifies an old equity: the mortgagee in possession of leasehold property cannot, by renewing the lease in his own name, defeat the mortgagor's interest. The renewal is held by the mortgagee as part of his security and passes to the mortgagor on redemption.

Section 65 — implied contracts by mortgagor

Section 65 is the mortgagor's counterpart to the seller's implied terms in Section 55. In the absence of a contract to the contrary, the mortgagor is deemed to contract with the mortgagee on the following five terms.

1. Covenant for title. That the interest which the mortgagor professes to transfer to the mortgagee subsists, and that the mortgagor has power to transfer the same.
2. Defence of title. That the mortgagor will defend, or, if the mortgagee be in possession of the mortgaged property, enable him to defend, the mortgagor's title thereto.
3. Public charges. That the mortgagor will, so long as the mortgagee is not in possession of the mortgaged property, pay all public charges accruing due in respect of the property.
4. Prior encumbrance. Where the mortgaged property is a lease, that the rent payable under the lease, the conditions contained therein, and the contracts binding on the lessee have been paid, performed and observed up to the commencement of the mortgage; and that the mortgagor will, so long as the security exists and the mortgagee is not in possession, pay the rent reserved by the lease and perform the conditions contained therein, and observe the contracts binding on the lessee.
5. Discharge of prior encumbrance. Where the mortgage is a second or subsequent mortgage, that the mortgagor will pay the interest on each prior encumbrance as and when it becomes due, and will at the proper time discharge the principal money due on such prior encumbrance.

These covenants are collateral to the contract of mortgage; they survive the discharge of the principal debt and can be enforced as separate causes of action. A breach gives rise to a claim in damages, which may be set off against the redemption money or recovered separately.

Section 65A — mortgagor's power to lease

Section 65A, also inserted in 1929, expressly empowers the mortgagor in lawful possession of the mortgaged property to make leases, subject to certain restrictions. Every such lease must be made in the ordinary course of management of the property, and must reserve the best rent reasonably obtainable. The lease must not contain any covenant for renewal, must not extend beyond the date when the mortgaged property is to be released to the mortgagee, must not provide for fines or premiums, and must take effect from a date not later than six months from the date on which it is made. Where the mortgaged property is for agricultural use, the lease may not be for a term exceeding the year of cultivation; in other cases, it may not exceed three years.

These restrictions are intended to prevent the mortgagor from creating long leases that would defeat the mortgagee's security or render the property less marketable on sale. A lease made in compliance with Section 65A binds the mortgagee; one made in breach does not, and is liable to be ignored if the mortgagee enforces his security. The section is qualified by the closing words "in the absence of a contract to the contrary" — the parties may, in the mortgage deed itself, provide for a more restrictive or a more permissive regime.

Section 66 — waste by mortgagor in possession

A mortgagor in possession is not liable to the mortgagee for any allowance for deterioration of the property arising from wear and tear, but he is liable for waste — any act which is destructive or permanently injurious to the property and renders the security insufficient. The test of insufficiency is functional: the security is insufficient unless the value of the mortgaged property exceeds the amount for the time being due on the mortgage by one-third, or, where the mortgaged property is buildings, by one-half. A mortgagor who commits waste may be restrained by injunction; if the security has been rendered insufficient, the mortgagee may sue for further security or, in a suitable case, accelerate the mortgage and sue for sale.

The duty not to commit waste is a corollary of the mortgagor's continued ownership: he is the owner, but his ownership is subject to the mortgagee's security, and he cannot exercise it in a way that defeats the security. The section is read with Section 66 of the parallel scheme — see also Section 11 on repugnant conditions — to limit the mortgagor's freedom of action to acts consistent with the mortgage.

The clog on redemption — illustrative cases

The doctrine of the clog on the equity of redemption is examined more often than any other limb of Section 60. Three lines of cases recur. First, postponement of redemption: a long term that locks the mortgagor out of redemption beyond what the loan and the property warrant. The Privy Council in U Po Naing v Anglo-Burma Rice Co Ltd AIR 1924 PC 218 held that a covenant against redemption for sixteen years was, on the facts, a clog. Second, conversion of mortgage into sale on default: a stipulation that on default the mortgagee shall become the owner is in substance a sale dressed as a mortgage and is void. Third, collateral advantages: a mortgage that secures to the mortgagee a continuing benefit beyond the mortgage debt — a long-term commercial tie, a right of first refusal — may be a clog if the benefit is not severable from the security and is unreasonable.

The rule is one of policy. The mortgagor is generally the weaker party at the time of the mortgage; he is borrowing money and will agree to whatever the lender insists on. Equity protects him by refusing to enforce stipulations that take his right of redemption. It is to be noticed, however, that the doctrine does not invalidate the entire mortgage; it strikes down only the clog. The rest of the mortgage subsists and the mortgagor may redeem on the original terms, freed of the offending stipulation.

Partial redemption and the rule of integrity

The right to redeem is in principle an entire right; the mortgagor cannot redeem a part of the property and leave the rest under mortgage, save where the mortgagee has himself acquired a part of the property — the integrity rule. The rationale is that the mortgagee bargained for the whole as security; he cannot be compelled to accept partial redemption that leaves him with diminished collateral. Where, however, the mortgagee has himself acquired a share in the equity of redemption (e.g., by purchase or inheritance), the integrity rule no longer applies and a co-mortgagor may redeem his own share separately. The principle is preserved by the proviso to Section 60.

Mortgagor and lis pendens, fraudulent transfers, ostensible owner

The mortgagor's rights and liabilities under Sections 60 to 66 sit alongside several cognate doctrines that govern his dealings with the property during the subsistence of the mortgage. A transfer of the equity of redemption pendente lite is hit by the doctrine of lis pendens under Section 52; a transfer made with intent to defeat or delay creditors falls within Section 53; and where the mortgagor has been allowed to remain on the property as ostensible owner, a third-party purchaser without notice of the mortgage may invoke Section 41. The four sets of rules together describe the constraints on the mortgagor's freedom to deal with property he has mortgaged.

Why Sections 60 to 66 matter

The seven sections give the Indian mortgagor the strongest position recognised by any modern system of secured lending. He retains ownership; he retains the right to redeem on payment; that right cannot be clogged; he is entitled to accessions and improvements; he can lease within the limits of Section 65A; he is bound by no implied covenant beyond those in Section 65; he is liable for waste only to the extent that it impairs the security. The structure has been remarkably stable since 1882, with the 1929 amendments adding Sections 60A, 60B, 63A and 65A to fill in residual gaps. The doctrine of the clog on the equity of redemption — read with the rule of substance over form that runs through Section 7's competence rules and Section 6's catalogue of transferable property — keeps the mortgage within its proper character: a security for a debt, not a backdoor to a sale.

Frequently asked questions

What does the doctrine 'once a mortgage, always a mortgage' mean?

It means that the right of the mortgagor to redeem the property on payment of the mortgage money is the irreducible feature of every mortgage, and cannot be defeated, postponed unreasonably, or rendered illusory by the terms of the mortgage deed. A clog on the equity of redemption — such as a stipulation that the property shall become the mortgagee's on default, an excessive postponement of the right to redeem, or a collateral advantage that survives redemption — is void. The mortgage rights remain valid; only the offending stipulation is struck down. The Supreme Court in Seth Ganga Dhar v Shankar Lal AIR 1958 SC 770 and Pomal Kanji Govindji v Vrajlal Karsandas Purohit (1989) 1 SCC 458 reaffirmed the doctrine in modern terms.

Can a mortgagor redeem only one of several mortgages he has executed in favour of the same mortgagee?

Yes. Section 61 of the TPA, in the absence of a contract to the contrary, gives the mortgagor the right to redeem any one of two or more mortgages separately, or two or more of them together. The section abolishes the English equitable doctrine of consolidation, under which a mortgagee holding multiple mortgages from the same mortgagor could insist that all be redeemed together. In India the right of separate redemption is the rule; consolidation operates only if there is an express contract to the contrary. The policy is that the right of redemption should not be tied to mortgages with which it has no functional connection.

Is the mortgagor entitled to accessions to the mortgaged property when he redeems?

Yes. Under Section 63, where the mortgaged property in the possession of the mortgagee receives any accession during the continuance of the mortgage, the mortgagor is entitled to the accession on redemption, in the absence of a contract to the contrary. The section distinguishes between accessions that are inseparably attached to the property — which pass to the mortgagor without payment, except where the mortgagee was bound to incur the expense to preserve the property from destruction, forfeiture or sale — and separable accessions, which the mortgagee may take in lieu of compensation or which the mortgagor may take on payment of value. Section 63A makes a parallel provision for improvements made by the mortgagee in possession.

What are the five implied covenants by the mortgagor under Section 65?

In the absence of a contract to the contrary, the mortgagor is deemed to contract with the mortgagee that (a) the interest he professes to transfer subsists and he has power to transfer it (covenant for title); (b) he will defend the title, or if the mortgagee is in possession, enable him to defend it; (c) he will pay all public charges accruing due in respect of the property so long as the mortgagee is not in possession; (d) where the mortgaged property is a lease, the rent and conditions have been paid and performed up to the commencement of the mortgage and will continue to be observed; and (e) where the mortgage is a second or subsequent mortgage, the mortgagor will pay the interest on, and discharge the principal of, every prior encumbrance. These covenants survive the discharge of the principal debt and are enforceable as separate causes of action.

Can a mortgagor in possession lease the mortgaged property?

Yes, but the lease is subject to Section 65A. The mortgagor in lawful possession of the property may make leases that bind the mortgagee, provided the lease is in the ordinary course of management, reserves the best rent reasonably obtainable, contains no covenant for renewal or for fines and premiums, takes effect within six months of being made, and does not exceed three years (or, for agricultural land, the year of cultivation). A lease that complies with these conditions binds the mortgagee even on enforcement of the security; one that does not is liable to be ignored. The parties may by express contract in the mortgage deed make the regime stricter or more permissive.

Is a mortgagor in possession liable for damage to the property?

Section 66 distinguishes between ordinary wear and tear, for which the mortgagor is not liable, and waste — any act that is destructive or permanently injurious to the property and renders the security insufficient. The security is treated as insufficient unless the property's value exceeds the mortgage debt by one-third, or, in the case of buildings, by one-half. A mortgagor who commits waste may be restrained by injunction; if the security is impaired, the mortgagee may sue for further security or, in a suitable case, accelerate the debt and sue for sale. The principle is that the mortgagor's continuing ownership is subject to the mortgagee's security and may not be exercised so as to defeat it.