Section 58(a) of the Act defines the term mortgage as follows: “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.”
The person who mortgages the property is the ‘mortgagor’ and the person to whom the
property is mortgaged is the ‘mortgagee’. The instrument used by the parties involved in such
transfer is known as the ‘mortgage deed’.The different types of mortgages under Transfer of
Property Act can be divided into 6 types as detailed below per Section 58.

Essentials of a Mortgage

1)Transfer of Interest: The first thing to note is that a mortgage is a transfer of interest in the
specific immovable property. The mortgagor as an owner of the property possesses all the
interests in it, and when he mortgages the property to secure a loan, he only parts with a part
of the interest in that property in favour of the mortgagee. After mortgage, the interest of the
mortgagor is reduced by the interest which has been transferred to the mortgagee. His
ownership has become less for the time being by the interest which he has parted with in
favour of the mortgagee. If the mortgagor transfers this property, the transferee gets it subject
to the right of the mortgagee to recover from it what is due to him i.e., the principal plus
interest.

2)Specific Immovable Property: the property must be specifically mentioned in the

mortgage deed. Where, for instance, the mortgagor stated “all of my property” in the
mortgage deed, it was held by the Court that this was not a mortgage. The reason why the
immovable property must be distinctly and specifically mentioned in the mortgage deed is
that, in case the mortgagor fails to repay the loan the Court is in a position to grant a decree
for the sale of any particular property on a suit by the mortgagee.

3)To Secure the Payment of a Loan: Another characteristic of a mortgage is that the
transaction is for the purpose of securing the payment of a loan or the performance of an
obligation which may give rise to pecuniary liability. It may be for the purpose of obtaining a
loan, or if a loan has already been granted to secure the repayment of such loan. There is thus
a debt and the relationship between the mortgagor and the mortgagee is that of debtor and
creditor. When A borrows 100 bags of paddy from B. on a mortgage and agrees to return an
equal quantity of paddy and a further quantity by way of interest, it is a mortgage transaction
for the performance of an obligation.

Types Of Mortgage:

1. Simple Mortgage – Section 58(b)

Where the mortgagor promises to pay the mortgage-money (loan) without delivering
possession of the mortgagor property and agrees expressly or impliedly that in case of non-
payment of the loan, the mortgagee shall have the right to cause the mortgaged property to be
sold through a decree or order from the Court, the mortgage is a simple mortgage.
In Maharaja Ram Narayan Singh v. Adhindra Nath Mukhurji, the Court held that the fact
that some immovable property has been mentioned as security for its repayment does not
displace the personal liability of mortgagor to repay the loan with interest.

Characteristics of a Simple Mortgage

• The possession of the mortgagee-property is not given to the mortgage.

• In the case of non-payment of the loan, the mortgagee has the right to have the mortgage-
property sold through the intervention of the Court.

2. Mortgage by Conditional Sale – Section 58(c)

The sale with a condition that upon repayment of the consideration amount, the purchaser
shall retransfer the property to the seller is known as Mortgage by conditional sale. Although
the whole transaction looks like a conditional sale, yet, the intention of the parties is to secure
the money (an essential ingredient of the mortgage) which the seller takes as a loan from the
purchaser.

Characteristics of Mortgage by Conditional Sale

• On non-payment of mortgage-money (price) the sale would become absolute or,

• The condition must be embodied in the same document.

Shanti Devi v Nand Lal,AIR 2005

Contract provided a time of 7 yrs for its repayment. It also specified that the liability to pay
house tax and necessary repairs would be of the mortgagor. Mortgagee under the contract was
given right to foreclose the mortgage. Court held it was not a sale with an option of
repurchase but a mortgage by conditional sale.
3. Usufructuary Mortgage – Section 58(d)
When the mortgagor gives possession of the property to the mortgagee, then the mortgage is
called a usufructuary mortgage. Since possession is with the mortgagee, he enjoys the fruits
of the property i.e. produce, benefits, rents or profits of the mortgaged property in lieu of
interest on the principal money (debt) advanced by him. Therefore, on the payment of a debt
(principal money), the mortgagee has no right of possession.

Characteristics of Usufructuary Mortgage

• Delivery of possession of the mortgage-property or, an express or implied undertaking by

the mortgagor to deliver such possession.

• Enjoyment or use of the property by the mortgagee is until his dues are paid off.

4. English Mortgage – Section 58(e)

There is an absolute transfer of property to mortgagee with a condition that when the debt is
paid off on a certain date, he (mortgagee) shall re-transfer the property to the mortgagor.
According to section 58 (e) of this Act, where mortgagor binds himself to repay the money
(debt) on a certain date and transfers the mortgage-property absolutely subject to the proviso
that mortgagee will re-transfer it to mortgagor on payment of debt as agreed, the mortgage is
English mortgage.

Characteristics of English Mortgage

• The mortgagor binds himself to repay the mortgage money (debt) on a certain date.

• The mortgage-property is transferred absolutely to the mortgagee.

5. Mortgage by Deposit of Title Deeds – Section 58(f)

This type of mortgage is also called an equitable mortgage. Here the mortgage loan is given
by the mortgagee upon the deposit of title deeds of the property by the mortgagor.

In Jethibai v. Putlibai case, the Court held that there is no equitable mortgage unless there is
a connecting link between the debt and the possession of title-deeds suggesting a definite
intention on the part of the debtor that deeds are in possession of the creditor as security for
the debt.
Characteristics of Mortgage by Deposit of Title deeds

• Existence of a debt. The debt may be an existing or future debt.

• Intention to create security.

6. Anomalous Mortgage – Section 58(g)

When a transaction is a mortgage in all respects i.e. there is the existence of debt and security
of immovable property for repayment of that debt but the agreement between the debtor and
creditor is of such nature that it cannot be included in any specific category of mortgage; the
transaction is an anomalous mortgage.
Rights and Liabilities of Mortgagor

Rights of Mortgagor

The Transfer of Property Act 1882 grants the mortgagor (the borrower) several rights to
protect their interests. These rights include:

• Right to redemption

• Right to transfer mortgaged property to a third party instead of retransferring

• Right of inspection and production of documents

• Right to accession
• Right to improvements

• Right to a renewed lease

• Right to grant a lease
Right to Redemption (Section 60)

The right to redemption is a vital right granted to the mortgagor under Section 60 of the Act.
This right allows the mortgagor to bring the mortgage to an end by reclaiming full ownership
of the mortgaged property. The right to redemption encompasses three key rights for the
mortgagor:

• Right to Terminate the Mortgage: The mortgagor has the right to end the mortgage
arrangement by repaying the mortgage debt and any outstanding interest to the
mortgagee.

• Right to Transfer Mortgaged Property: The mortgagor has the right to transfer the
mortgaged property back into their name or to any other person’s name upon redemption.
This enables the mortgagor to regain full legal ownership of the property.

• Right to Reclaim Possession: If the mortgagor delivered possession of the property to

the mortgagee, the right to redemption entitles the mortgagor to take possession of the
property upon redemption.
In the case of Noakes & Co. vs. Rice (1902) AC 24, the court clarified that any provision or
condition restricting the mortgagor’s right to redeem the mortgaged property is considered a
“clog” on the right of redemption and invalid. This principle was established to protect the
interest of the mortgagor. The right to redemption persists even if the mortgagor fails to repay
the loan amount. Provisions in the mortgage deed that obstruct or impede the right to
redemption are deemed void, as seen in the case of Stanley v. Wilde (1899) 2 Ch 474.

Exceptions to the Right to Redemption

The right to redeem can be extinguished under three circumstances:

• By the Act of Parties: The right to redemption may be eliminated if both the mortgagor
and the mortgagee mutually agree to do so.

• By Operation of Law: The right to redemption may be extinguished by the operation of

certain legal provisions or circumstances.

• By Decree of the Court: In certain cases determined by the court, the right to redemption
may be eliminated through a court decree.

Obligation to Transfer to a Third Party (Section 60A)

This right was introduced through the Amendment Act of 1929. Under this provision, the
mortgagor is entitled to request the mortgagee to assign the mortgage debt and transfer the
property to a third person as directed by the mortgagor. The purpose of this right is to enable
the mortgagor to repay the mortgagee by obtaining a loan from a third party using the same
property as security.
Right to Inspection and Production of Documents (Section 60B)

Section 60B grants the mortgagor the right to request the mortgagee to produce copies of
documents related to the mortgaged property in the mortgagee’s possession. The mortgagor
can exercise this right by giving reasonable notice to the mortgagee to allow for inspection of
the documents.

However, the mortgagor will bear the expenses incurred for producing the documents,
including the cost of copies or the mortgagee’s travel expenses. This right remains available
to the mortgagor only if their right to redeem the mortgaged property exists.

Right to Accession (Section 63)

The term “accession” refers to any additions made to the property. Section 63 of the Act
grants the mortgagor the right to claim any accession that has occurred to their property while
it was in the custody of the mortgagee. There are two types of accession:

• Artificial Accession occurs when the mortgagor’s efforts have led to improvements or
enhancements to the property, thereby increasing its value.

• Natural Accession refers to any additions to the property that happen naturally without
any man-made efforts.

In cases where an accession is made to the property due to the efforts of the mortgagee or at
their expense, and it becomes inseparable from the property, the mortgagor can be entitled to
claim such accession. However, in such cases, the mortgagor must compensate the mortgagee
for the expenses incurred in acquiring that accession.

If the accession is separate from the property and can be delivered independently, the
mortgagee must hand it over to the mortgagor. In the case of an acquisition necessary to
preserve the property from destruction, forfeiture, or sale, or if the acquisition was made with
the mortgagor’s assent, the mortgagor is liable to pay the proper cost of the accession. This
cost is treated as an addition to the principal amount and is subject to the same interest rate as
payable on the principal or at the rate of nine percent per annum if no specific rate is fixed.

These provisions aim to ensure fair treatment of the mortgagor’s rights with regard to any
improvements or additions made to the mortgaged property during the mortgage period.

Right to Improvements (Section 63A)

Under Section 63A of the Act, if the mortgaged property experiences improvements while it
is in possession of the mortgagee, then upon redemption, and in the absence of any contract
stating otherwise, the mortgagor is entitled to benefit from those improvements. The
mortgagor is not obligated to compensate the mortgagee for these improvements unless:

• The mortgagee made improvements to protect the property or with the prior permission of
the mortgagor.
• The mortgagee made the improvements with the permission of a public authority.
The purpose of this provision is to ensure that the mortgagor can benefit from any
enhancements or developments that occurred during the mortgage period without bearing an
additional financial burden.

Right to Renewed Lease (Section 64)

If the mortgaged property is a leasehold property, and during the mortgage period, the lease
gets renewed, then upon redemption, the mortgagor is entitled to enjoy the lease benefit.

This right is available to the mortgagor unless they have entered into a contract with the
mortgagee stating otherwise. This means that the mortgagor can continue to enjoy the
leasehold property under the new lease terms after redeeming the mortgage.
Right to Grant a Lease (Section 65A)

The right allows the mortgagor to lease out the mortgaged property while they legally possess
it. However, there are certain conditions that must be met:
• The conditions in the lease should be in accordance with local laws and customs to
prevent fraudulent transactions.
• No rent or premium should be paid in advance or promised to the mortgagee.

• The lease contract should not contain any provision for the renewal of the lease.

• The lease must come into effect within six months from its execution.

• If the mortgaged property is a building, the term of the lease should not exceed three
years in total.

Before this amendment, the Transfer of Property Act only allowed a mortgagor to lease out
the mortgaged property with the mortgagee’s permission. This amendment empowers the
mortgagor to lease the property independently, subject to the specified conditions.
Liabilities of a Mortgagor

In addition to the rights granted to a mortgagor, the Transfer of Property Act also imposes
certain duties on them. The following are the duties of a mortgagor:

• Duty to avoid waste

• Duty to indemnify for defective title

• Duty to compensate mortgagee

• Duty to direct rent of a lease to mortgagee

Duty to Avoid Waste (Section 66)

The mortgagor has a duty not to engage in any activity that would waste the property or
diminish its value. Waste can be categorized as permissive waste and active waste. Minor or
permissive waste committed by a mortgagor in possession of the property does not render
them liable to the mortgagee.
However, if the mortgagor commits major or active waste that significantly damages the
property or reduces its value, they will be held liable to the mortgagee.

Duty to Indemnify for Defective Title

The mortgagor is responsible for compensating the mortgagee if any defect in the title of the
mortgaged property arises, such as a third party making claims or interfering with the
property.

In such cases, the mortgagor must reimburse the mortgagee for any expenses incurred in
defending and protecting the title of the property.

Duty to Compensate Mortgagee

When the mortgaged property is in the possession of the mortgagee, and the mortgagee pays
taxes and other public charges on the property, the mortgagor has a duty to compensate the
mortgagee for these expenses. Conversely, if the mortgaged property is still in the possession
of the mortgagor, it is their duty to bear all the public charges and taxes levied on the
property.

Duty to Direct Rent of a Lease to Mortgagee

In cases where the mortgagor leases out the mortgaged property, it becomes their duty to
instruct the lessee to pay the rent and other dues directly to the mortgagee.

These duties are aimed at ensuring that the mortgaged property is preserved and its value is
maintained during the mortgage period, and the interests of both the mortgagor and the
mortgagee are protected.

Rights and Liabilities of Mortgagee

Rights of Mortgagee

Right to Foreclosure or Sale

Section 67 of the Transfer of Property Act addresses the right to foreclosure or sale. It grants
the mortgagee the authority to obtain a decree for foreclosure from the court after the
mortgage money becomes due.

Right to Sue for Mortgage Money

Section 68 of the Transfer of Property Act outlines the circumstances in which the mortgagee
has the right to sue for the mortgage money. These situations include when:

a. The mortgagor agrees to repay the money.

b. The mortgaged property is wholly or partially destroyed, except due to the wrongful act or
default of the mortgagee.

c. The mortgagee’s security is wholly or partially deprived.

d. The mortgagee was entitled to possession of the mortgaged property, and the mortgagor
failed to deliver it.

Power to Sale when Valid

Section 69 of the Transfer of Property Act specifies cases where a sale is valid. These
include:

a. English mortgage between non-Hindus, non-Muslims, non-Mohammedans, and members

of any race or sect notified by the State Government in the Official Gazette.

b. Government being the mortgagee, with an express provision for sale without the
intervention of the court.

c. Mortgaged property situated in Calcutta, Madras, Bombay, or any other gazetted town or
area.

Right of Accession

The mortgagee has the right of accession to any increased value or improvements made to the
mortgaged property.

Right to Renewal of Lease

If the mortgaged property is under a lease, the mortgagee is entitled to seek lease renewal for
security purposes.

Right to Reimbursement of Expenses

The mortgagee has the right to reimbursement, along with interest, for the expenses incurred
for purposes such as preserving the mortgaged property.

Right to Mesne Mortgage

In cases where a property is mortgaged for successive debts to successive mortgagees, a

mesne mortgagee has the same rights against subsequent mortgagees as they have against the
mortgagor.

Liabilities of Mortgagee (Section 76)

Duty to Sue on Behalf of Other Mortgagees

The mortgagee is obligated to sue on behalf of all the mortgagees for whom the mortgage
money has become due unless there is an express contract stating otherwise. This duty
applies throughout the duration of the mortgage.

Duty to Manage the Property

The mortgagee has a duty to manage the mortgaged property with the same level of prudence
and care that a person of ordinary prudence would use if the property belonged to them.
Duty to Collect Rents

The mortgagee is required to make their best efforts to collect the rents and profits from the
mortgaged property.

Duty to Pay Government Revenue and Charges

In the absence of any contrary agreement, the mortgagee has a duty to pay government
revenue and other public charges, as well as all rents, from the income derived from the
property.

Duty to Make Necessary Repairs

Unless there is a contract stating otherwise, the mortgagee must make necessary repairs to the
property within the limits of the property’s income.

Duty to Avoid Destructive Acts

The mortgagee must refrain from engaging in any acts that could lead to the destruction or
permanent injury of the property.

Handling Loss or Damage due to Fire

Suppose the property is insured against loss or damage by fire. In that case, the mortgagee
must either reinstate the insured property using the money obtained from the insurance policy
or use it to discharge the mortgage debt, as directed by the mortgagor.

Duty to Maintain Clear Accounts

The mortgagee must keep clear, accurate accounts of all sums received and spent in relation
to the mortgaged property and provide these accounts to the mortgagor upon request. The
receipts from the property, or a fair occupation rent if the mortgagee personally occupies the
property, shall be applied first against the interest on the mortgage money and then against
the principal.

The mortgagee must also account for the receipts from the mortgaged property, and such
accounting shall be taken in lieu of interest on the principal money given to the mortgagor.
Marshalling means arranging things, systematize, or regulate things which mean the things
arranged in a proper manner or order. In the Transfer of Property Act, section 56, 81 and 82
deals with the doctrine of marshalling and contribution.

According to section 56 of the transfer of property act, the marshalling applies on seller and
buyer. Section 56, the rule of marshalling by the subsequent purchaser only deals with the
sale not mortgage. Section 56 incorporates the rule of marshalling by a purchaser. And for a
mortgage, section 81 is the rule of marshalling in which the subsequent mortgagee has the
right to claim to marshal. The right of marshalling securities is not absolute.

The rule of contribution described in section 82 of the transfer of property act. The meaning
of the rule of the contribution means providing money for a common fund. The doctrine of
marshalling and contribution are very vital section (81, 82) for the transaction of the
mortgage.
Doctrine of Marshalling

Marshalling means arranging something. Section 81 of the transfer of property act says that if
the owner of two or more properties mortgages them to one person and
other property mortgages to other people, the new mortgagee is in the absence of a contract to
the contrary, entitled to have the mortgaged debt satisfied out of the properties not mortgaged
to him, so far as the same will extend, but not to prejudice the rights of the prior mortgagee or
persons claiming under him or of any other person who has for consideration acquired an
interest in any of the properties. The right given to the subsequent mortgagee under this
section contemplates a situation where a mortgagor, mortgages more than two or more than
two properties firstly to a mortgagee and after that mortgages some of these properties to the
other person.

For example-
· X mortgages properties A, B and C to Y for securing a loan of 30,000 rupees.

· After that X mortgages property B to Z for securing another loan of 10,000 rupees.
In this Y is the first mortgagee on properties A, B and C which are securities for a loan of
30,000 rupees. And property B mortgages to X for loan 10,000 rupees. Here Y is the prior
mortgaged and Z is the subsequent mortgagee. The right is given to Z (subsequent
mortgagee) entitles him to say that the loan of rupees 30,000, it should be satisfied out of sale
proceeds of properties A and B only and it is not from C which has been mortgaged to him. In
the case, A and B could be sold for less than 30,000 rupees, property C mat be sold to
complete the amount. Although Z is a subsequent mortgagee and his claim is not before the Y
but Z has right of marshalling or in other word he has right to arranging the securities in his
favour.

According to this, the subsequent mortgagee under section 81 has right of marshalling
securities.
Here the right of marshalling securities is not absolute, it follows some conditions-

1. The mortgagees may be two or more than two-person and the mortgagor must be same.

2. Mortgagor mortgages two or more than two properties to another new mortgagee without
prejudice the prior mortgagee.

3. There exists not a contract to the contrary.

4. The new mortgagee entitled to have the mortgage debt satisfied out of the property.

5. At last new mortgagee must not be prejudiced to the first mortgagee as well as a third
person or other person claiming as the purchaser.

Landmark Cases
In the case of Devatha Pullaya v. Jaldu Manikyala Rao, where a puisne mortgagee has
taken the mortgage expressly on condition of discharging certain amount due on the prior
mortgage but fails to fulfil that term, he cannot exercise the right of marshalling.

In the case of Fiatallis North America, Inc Et Al v. Pigott Construction Limited Et Alheld
that there must be a single or common mortgagor or debtor.

In the case of Nova Scotia saving & loan v. O’Hara et al, held that the doctrine, whose
object is to achieve fairness, will not be applied to the prejudice of the third party.

Section 82, Contribution to Mortgage-Debt

Contribution means providing money for the common fund. Section 82 of the transfer of
property act deals with the rules relating to the contribution of money towards mortgaged
debt. It is the right of a person who has discharged a common liability to recover
proportionate share from others. The doctrine of contribution requires that the persons under
common liabilities that liabilities equitable.
Section 82 contemplates a situation in which there are two or more than two mortgagors who
take a common debt by mortgaging different properties in one property. The nature of the
doctrine of contribution is based on the principles of equity, justice and good faith or good
conscience. Each mortgagor or debtor must be liable to contribute to such common debt.
When two or more properties of different persons are mortgaged to secure a loan, the
mortgagee has the right to recover the debt from the property of any one person.

Rules of Contribution

1. The mortgaged property belongs to two or more persons.

2. One property is mortgaged first and then again mortgaged with another property.

3. Marshalling supersedes contribution.

Difference Between Doctrine of Marshalling and Contribution

• Marshalling is the right of subsequent mortgagees, while Contribution relates to

mortgagors sharing the debt.
• In marshalling, if a creditor has multiple funds, they must pursue these funds without
harming those secured by only one fund.
• In contribution, all mortgagors must contribute towards the debt based on their shares.
Charge:

Section 100 of the Transfer of Property Act defines a charge as an interest in specific
immovable property, created by an act of parties or operation of law, that secures payment of
money or performance of an obligation.

A charge is similar to a mortgage in that it gives a creditor a right over the property, but it is
not a transfer of ownership.

Unlike a mortgage, the owner retains possession and ownership unless specifically stipulated
otherwise.

Examples:

Example 1: A company borrows money from a bank and creates a charge over its factory as
security for repayment. The factory remains under the control of the company unless they
default.
Example 2: A person borrows money from a relative and agrees to secure it by creating a
charge on their apartment. The apartment cannot be sold or mortgaged without clearing the
charge first.

K.K. Verma v. Union Bank of India (1991): The court clarified that a charge does not imply
the transfer of ownership but simply provides a right to the creditor to take action in case of
default.

Exceptions to Charges

1. Equitable Charge: A charge can be equitable where the rights of the creditor are not
registered or perfected as per the legal standards for a mortgage.

2. Charge by Operation of Law: This type of charge arises without the express consent of
the property owner. For example, a court judgment can create a charge on a person’s property
for non payment of a debt.

3. Charge by Agreement: Where the property owner agrees to give a charge as security for
an obligation but does not convey title.
Difference between Mortgage and Charge

1)A mortgage is created by the act of the parties whereas a charge may be created either
through the act of parties or by operation of law.

2)A charge created by operation of law does not require the registration as prescribed for
mortgage under the Transfer of Property Act. But a charge created by act of parties requires
registration.

3)A mortgage is for a fixed term whereas the charge may be in perpetuity.

4)A simple mortgage carries personal liability unless excluded by express contract. But in
case of charge, no personal liability is created. But where a charge is the result of a contract,
there may be a personal remedy.

5)A charge only gives a right to receive payment out of a particular property, a mortgage is a
transfer of an interest in specific immovable property.
6)A mortgage is a transfer of an interest in a specific immovable property, but there is no such
transfer of interest in the case of a charge. Charge does not operate as transfer of an interest in
the property and a transferee of the property gets the property free from the charge provided
he purchases it for value without notice of the charge.

A mortgage is good against subsequent transferees, but a charge is good against subsequent
transferees with notice.

R. Raghunath v. Union of India (1961): The court explained the difference between a
mortgage and a charge, highlighting that a mortgage involves transfer of property ownership
while a charge is merely a lien or encumbrance over the property.

Bank of India v. Harish Kumar (1998): The court emphasized that a charge does not create
a right to take possession, unlike a mortgage, which transfers a legal interest in the property.