This article is written by Harshit Bhimrajka currently pursuing B.A.LLB (Hons) from the Rajiv Gandhi National University of Law, Patiala. This is an exhaustive article which talks about the improvement to the mortgaged property under Section 63A of the Transfer of Property Act, 1882.
Table of Contents
Introduction
In the world of inflation and economic slowdown, most of the people use loans and advances to conduct their businesses or to buy an asset or for ceremonial purposes and for many other activities. Generally, there are three types of system in which a loan is provided- Nexum system is a system in which the debtor is forced to become slave or servant of the creditor for the loan given to him; Fiducia system is a system in which the debtor is kept out of possession or ownership of his own property; Hypotheca system corresponds to mortgage system in which the debtor has to give a mortgage for the loan provided to him and the creditor has the right to sell or occupy his property in case of failure of paying the debt. Nowadays the Hypotheca system is most commonly used as the world of finance is fastly becoming competitive and every creditor ensures protection of their money by taking collateral security. Thus, every debtor knows that if a loan has to be sanctioned, then he has to provide some collateral i.e. mortgage to the creditor. In this article, we will talk about the concept of a mortgage, laws concerning mortgage in India, and the improvements to the mortgaged property.
Mortgage and its types
There are various statutes that deal with the concept of mortgages like Transfer of Property Act, 1882 (under this Sections 58-104 mentioned in Chapter IV deals with the mortgage), Indian Contract Act, 1872 (contracts related to mortgage and its general principles are mentioned), and the Civil Procedure Code, 1908 (it deals with the procedural part of mortgage of immovable property).
Mortgaged is defined by Black’s Law Dictionary “as a conveyance of title to a property that is given as a security for the payment of a debt or the performance of duty and that will become void upon payment or performance according to the stipulated terms.”
It is also defined under Section 58 of the Transfer of Property Act, 1882 as the transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced by way of loan, and existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability.
There are six types of mortgage as discussed under Section 58 of the Transfer of Property Act, 1882.
- Under Section 58(b), the first type of mortgage i.e. Simple Mortgage is defined. In this type of mortgage, the mortgagor or the debtor has bound himself to repay the loan so that he can secure his immovable property and the possession of it is not transferred to the mortgagee.
- Under Section 58(c), Mortgage by conditional sale is defined. In this type of mortgage, the mortgagor ostensibly sells his property to the mortgagee on some conditions- if he fails to repay the loan, then the sale of the property will become absolute, if he repays the loan, then the sale becomes invalid, and after repaying, the mortgagee shall retransfer the possession of the property to him.
- Under Section 58(d), Usufructuary Mortgage is listed. The mortgagor transfers all legal rights of the mortgaged property to the mortgagee- the possession, income from the property (rent, profit, interest, etc) until the repayment of the loan.
- Under Section 58(e), English Mortgage is explained. In this type, the mortgagor binds himself to pay the loan on a specific date and absolute transfer of mortgage property takes place with a condition that after repayment, retransfer of property from the mortgagee to mortgagor will take place.
- Under Section 58(f), Mortgage by deposit of title of deeds is discussed. It is called an equitable mortgage. The essential requisites are – a debt on mortgagor, the deposit of the title deed with the mortgagee and such deposit is with the intention as a deed for the security of the loan. It is considered the same as a simple mortgage under Section 96 of the Transfer of Property Act.
- Under Section 58(g), the last Anomalous Mortgage is explained. It is that type of mortgage that doesn’t come in the purview of any of the other mortgages. It is completely different from English mortgage, usufructuary mortgage, simple mortgage, mortgage by deposit of title deeds and mortgage by conditional sale.
Section 63A of Transfer of Property Act, 1882
Section 63A deals with the law related to the improvements made by the mortgagee in the mortgaged land. When the mortgagor gives his property to the mortgagee as collateral to the loan provided, then only legal rights of that mortgaged property are transferred to the mortgagee and not the possession of the land. The provision of allowing the mortgagee to make some improvements to the mortgaged land was included in the act after the Amendment of 1929. Before that in some cases, the mortgagee was not entitled to obtain compensation from the mortgagor if any improvement is made by him on the mortgaged property. However, in some cases like Shepard v. Jones (1907) the judiciary interpreted that a mortgagee is allowed to obtain compensation from the mortgager if the improvement made is reasonable. According to the English law, as summarized by Fisher on Mortgagees (Art. 1782) “the improvements must always be reasonable having regard to the nature and value of the estate; for it, were not so, a weapon would be put in the mortgagee’s hands with which he might greatly clog the right of redemption which he has no right to make more expensive than is necessary to keep the estate in good repair and working order and to protect the title.” Through Fisher’s Law of Mortgage, the Amendment of 1929 was made.
Conditions & Object
There are few conditions given in Section 63A dealing with the improvement in the mortgaged property.
When the mortgage is in progress and the mortgaged property is in the possession of the mortgagee and he improved the property then, in the absence of any contrary contract, the mortgagor is liable to pay the costs of improvement as an addition to the principal with the same rate of interest. If the rate of interest is not fixed, then at the rate of nine per cent per annum in the following cases:
- It was necessary to preserve the property from deterioration or destruction or
- It was necessary to prevent the security from becoming insufficient or
- It was made in the compliance of a lawful order given by a public servant or public authority like Panchayat, Municipality, etc.
And if any profits are accrued by the reason of improvement, then the mortgagor is entitled to those.
The object of this section is to prevent the mortgagee from improving the mortgaged property in such a way that it becomes impossible for the mortgagor with his means to redeem the property and if it becomes necessary to improve the mortgaged property, then it gives the mortgagee right to do so under Section 63A and Section 72. If the mortgagee failed to provide any evidence to support his claim that the improvement made was necessary to preserve the property, then he shall not be entitled to any relief or compensation.
For instance, if the mortgagor erects a pucca house by replacing the kutcha house, then it will not be considered as an improvement under Section 63A. For increasing yield, if mortgagor improved the fertility of the soil of the mortgaged land, then also it will not be considered as an improvement.
The term repair and improvement have very different meanings when it comes to the law. Although sometimes we use these terms as synonyms but in this statute, they have different meanings. According to Stroud’s Judicial Dictionary, The term repairing is different from the term improvement. “Repairs are often used in the plural that is not technical suppression and invokes the idea of something pre-existing, the condition of which has been affected in one of the modes suggested and presupposes something in existence to be repaired or the existence of the thing to be repaired. The term ‘repairs’ has been held to include improvements and embrace rebuilding.”
Principle
The mortgagee although received the possession of the mortgaged property but it is not the same as that of the owner or the mortgagor. He is entitled to any benefit arising out of that property till mortgage exists but it also becomes necessary for him to improve the property so that his security does not suffer and the contrary is maintained in a good condition. He doesn’t get the right over the property to change its nature or character, to commit ameliorative waste or reduce its value in any way. He can do improvements by taking the consent or acquiescence of the mortgagor and any expenses done for the maintenance or improvement of the property by him are allowed to be added in his security.
Section 97 of the CPC talks that if any party which is aggrieved by a preliminary decree does not appeal from such decree, then that party shall be precluded from disputing its correctness in any appeal which may be preferred from the final decree. According to Section 97 of the CPC, the mortgagee would not be entitled to any cost he might have spent on the improvement of the mortgaged property in the final decree proceeding if he permits the preliminary decree to attain finality without contesting to the same.
Landmark Cases
Nijalingappa Nijappa Halagatti v. Chanbasawa Kom Satavirappa Nesari and Anr. (1919)
In this case, it was held that in a redemption suit, a mortgagee from his mortgagor is allowed to recover the reasonable and proper costs incurred in making improvement i.e. making the property more productive; and that in allowing costs of improvements the Court should inquire into the fairness of claims in each and every case and also must naturally be on its guard against extravagant or unfounded claims.
Ram Asray v. Hiralal (1948)
In this case, the mortgagors mortgaged a kutcha house to the mortgagee by transferring the possession of the property to him. The mortgagee demolished the house and built a new building without any justification or authority. It was held that the new building built by the mortgagee was, in fact, improvement and by no stretch of the imagination could be called an accession. The mortgagor in the present case cannot claim the benefit of such additional income from the property as may have resulted from the improvement made i.e. construction of the new building by the mortgagee at his own cost which he was, under the existing law, not able to recover.
The local Municipal Committee found that the mortgaged property is in a very dangerous condition and can fall any time. So a notice was notified to the mortgagee to demolish the mortgaged property within six hours of notification. In the deed, it was mentioned that any improvement in the property will be made by the mortgagee and the additional expenses will be incurred thereon with the same rate of interest as that of the loan provided. The loan was of Rs. 600 and the cost incurred on rebuilding the house was Rs. 1,120. The mortgagor contended that it was not necessary to demolish and rebuild the house if the mortgagee would have kept the house in good condition by doing ordinary repairs and even if the mortgagee was otherwise entitled to the repair cost, he was not entitled because of his own default. The sentence was passed in the favor of the mortgagee as there was no evidence on record to show that the mortgagee neglected to repair the house and thus allowed it to fall into a state of disrepair. It was held that under the deed, the mortgagee is entitled to the cost of improvement and the interest thereon.
Conclusion
After reading Section 63A of the Transfer of Property Act, 1882 in detail it can be said that the mortgagee will be entitled to the money for the improvement if the case comes under the purview of subsection 2 of the said section. If there is a contract between both the parties, then Section 63A will not apply but the provisions under the contract will. In the absence of the contract, if the question arises that if the mortgagor has to pay for the improvements made by the mortgagee, then Section 63A will be considered to answer the question. The mortgagor only transfers the legal rights of the property to the mortgagee, not the complete possession as the owner has. It is the duty of the mortgagee to take care of the security and to retransfer after the repayment.
References
- https://www.advocatekhoj.com/library/bareacts/transferofproperty/63a.php?Title=Transfer%20of%20Property%20Act,%201882&STitle=Improvements%20to%20mortgaged%20property
- https://www.latestlaws.com/bare-acts/central-acts-rules/section-63a-tpa-improvements-to-mortgaged-property-/
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