This article is written by Sai Manoj Reddy, pursuing Certificate Course in Advanced Civil Litigation: Practice, Procedure and Drafting from Lawsikho.com. The article has been edited by Prashant Baviskar (Associate, LawSikho) and Smriti Katiyar (Associate, LawSikho).

Introduction

In general, Mortgage refers to giving an immovable property as security for a loan or money borrowed from someone where the lender can sell the immovable property or get it transferred to himself in the event of default of the borrower. There are many types of mortgages that are recognized in India under The Transfer of Property Act, 1882 (from here on referred to as “TPA”).

Section 58 of The Transfer of Property Act, 1882 defines mortgage as:

“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 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.”

There are other types of mortgages like Mortgage by conditional sale, English mortgage, Mortgage by deposit of sale deed, Usufructuary mortgage and Anomalous mortgage that are recognised and defined further under Section 58 of the TPA.

It is settled law that there is no limitation period for redemption under the Usufructuary Mortgage and the Courts have time and again held that ‘once a mortgage, always a mortgage’ and stated that the mortgagee cannot claim the ownership of the mortgaged property just because a long period of time has been elapsed. The Courts have also observed that if the ownership is given to the mortgagee in such cases, then the whole purpose of the usufructuary mortgage will be defeated. We will further understand the reasoning given by the Courts in detail and also understand what is a usufructuary mortgage and how it works.

What is a usufructuary mortgage?

The term ‘Usufruct’ means a legal right that is temporary in nature that is conferred to a party that allows him to use and derive income like rent, profits etc. from the property of another party. A usufruct is a person holding the property by usufruct.

Now coming to the Usufructuary Mortgage, it is a type of mortgage where the mortgagor delivers the possession of a property to the mortgagee to use the property and obtain rent, profits etc. from such property for repayment of the mortgage money. The mortgagee holds possession of the property and enjoys the benefits from such property till the payment of the mortgage money is complete.

How does a usufructuary mortgage work?

Let’s assume that Mr. Manoj is a businessman who sells ceramic tiles and also owns a lot of apartments in the city of Bangalore. In the course of his business, Manoj wanted to borrow 50 lakh rupees to buy some material for his business. Manoj approaches Mr. Alok Desai who is the lender and borrows 50 Lakh rupees and in return delivers the possession of 5 apartments to Mr. Alok Desai where he can obtain monthly rent as a form of repayment of the 50 Lakh rupees loan borrowed by Mr. Manoj. In this deal, Mr. Alok Desai gets temporary possession of the 5 apartments and the rent out of such apartments till the payment of the 50 Lakhs and interest is completed. Once the payment of borrowed money is completed, the possession ceases to be with Mr. Alok Desai. In this transaction, only the Usufructuary Right is given to Mr. Alok Desai whereas Mr. Manoj is still the owner of the property. Mr. Alok Desai can only use and obtain profits out of such property but he cannot change, modify, sell or do any such other activity which affects the ownership of Mr. Manoj. In simple terms rather than Mr. Manoj paying the borrowed money every month to Mr. Alok Desai, the rent from the apartments is used as a form of repayment of the borrowed money.

Legal provisions related to usufructuary mortgage

Usufructuary Mortgage is defined under Section 58(d) of the TPA.

The Usufructuary mortgage comes into force once the parties to the mortgage deed have signed the deed and the mortgagor has delivered the possession of the property to the mortgagee in return for the mortgage money borrowed from the mortgagee. 

Now the next step is to know what happens once the mortgagor has completed his payment of the mortgage money along with the interest. Section 62 of TPA deals with the right of the usufructuary mortgagor to recover the possession of the property from the mortgagee. According to this section, the mortgagor has the right to recover the possession of the property along with the mortgage deed and other documents once the entire mortgage money has been paid/recovered by/to the mortgagee. The mortgagee is duty-bound to return the possession of the property to the mortgagor along with the mortgage deed and all other documents which the mortgagor has submitted to the mortgagee once he has received all the mortgage money payable to him by the mortgagor.

Judgments

The landmark judgement on the concept of limitation on the usufructuary mortgage is delivered by the Punjab and Haryana High Court in the case of Ram Kishan & Ors. V. Sheo Ram & Ors. Where the court has held that there is no limitation for a usufructuary mortgage where there is no time fixed for repayment of the mortgage money. The court also relied on the concept of ‘Once a mortgage, always a mortgage and stated that if there is no time fixed in the mortgage deed for repayment then the mortgagor can redeem the property at any time he wants and the limitation period won’t apply to such mortgages. The court also held that the conception of mortgage involves three principles. Firstly, there is the maxim: ‘Once a mortgage, always a mortgage’, which means the mortgage is always redeemable by the mortgagor and any provision contrary to that is invalid. Secondly, the mortgagee cannot have any collateral advantage outside the mortgage agreement which is adversely affecting the ownership rights of the mortgagor over the mortgaged property. Thirdly, any stipulation that is preventing a mortgagor from getting back the property mortgaged will be null and void.

This judgement has been upheld by the Supreme Court in the case of Singh Ram (D) Tr.Lr vs Sheo Ram & Ors where the Supreme Court has reiterated that the special right of the usufructuary mortgagor under Section 62 of the TPA to recover the possession of the mortgaged property commences when the mortgage-money is completely paid out of the rents and profits or partly out of rents or profits and partly by payment or deposit by the mortgagor. The limitation period does not start until then for purposes of Article 61 of Schedule to the Limitation Act. A usufructuary mortgagee is not entitled to file a suit for declaration that he is the owner of the mortgaged property just because a long period of time has elapsed.

A similar question has been put before the supreme court in the case of Ram Dattan (Dead) by LRs vs Devi Ram and others where the appellants have approached the Supreme Court under a special leave appeal seeking the declaration of the ownership of the mortgagee over the mortgaged property as 45 years have been elapsed since the mortgage has been entered into between the parties. The Supreme Court has reiterated the law settled in the earlier judgements and dismissed the appeal before it stating that there is no limitation in the case of a usufructuary mortgage and the mortgagee is not entitled to any declaration just because a certain amount of time has elapsed from the date of the mortgage.  

Analysis and conclusion

The law is well settled when it comes to the limitation period for a usufructuary mortgage. The mortgagee cannot claim ownership of the property just because a long time period has elapsed. The courts have clearly made a distinction between the redemption rights under any other types of mortgages and usufructuary mortgages. Section 60 of the TPA applies to all the other types of mortgages where the mortgagee has the right to redeem the property by paying the mortgage money to the mortgagee and the limitation period starts from the day the mortgage money becomes due. But there is a clear distinction when it comes to usufructuary mortgage where the right to recover possession is dealt exclusively under Section 62 of the TPA and such right commences on payment of mortgage money out of the usufructs or partly out of the usufructs and partly on payment or deposit by the mortgagor. This distinction can be understood by reading Section 58, 60 and 62 of TPA along with Article 61 of the Limitation Act. A usufructuary mortgage is not like any other mortgage and cannot be treated on par with other types of mortgages because by doing so, Section 62 of TPA will be defeated. The right of the usufructuary mortgagor is not only an equitable right, it has statutory recognition under Section 62 of the TP Act. The Courts have time and again held that there is no principle of law on which this right can be defeated and any contrary view, which does not take into account the special right of the usufructuary mortgagor under Section 62 of the TP Act, has to be held to be erroneous on this ground or has to be limited to a mortgage other than a usufructuary mortgage.

References

1. https://www.livelaw.in/top-stories/no-limitation-period-for-usufructuary-mortgage-supreme-court-183652 
2. https://www.investopedia.com/terms/m/mortgage.asp 
3. https://www.investopedia.com/terms/u/usufruct.asp 
4. https://indiankanoon.org/doc/627172/ 
5. https://indiankanoon.org/doc/116608229/ 
6. https://www.livelaw.in/pdf_upload/usufructory-mortgage-no-limitation-sc-562-402336.pdf 
7. https://upload.indiacode.nic.in/schedulefile?aid=AC_CEN_3_20_00005_196336_1517807319297&rid=33 
8. https://www.indiacode.nic.in/bitstream/123456789/2338/1/A1882-04.pdf

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