This article is written by Tanisha Kohli, pursuing Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho.
In a mortgage, one gives certain immovable property as security for a loan that one has taken. The one who has taken the loan is called a mortgagor, and he is the one who has mortgaged his property in favour of the mortgagee. The mortgagee is the one who has provided the loan, and in whose favour the property is mortgaged.
The mortgaging of the property can never be confused with the sale of the property from the mortgagor to the mortgagee. The mortgaged property is only to be understood as a security for the loan. Thus, there is the phrase “once a mortgage, always a mortgage”.
The aim of this article is to provide an overview of the right to redemption, the concept of clog on the equity of redemption, and answer the question of whether a long term redemption in a mortgage deed is valid or invalid.
Right to redemption
The right to redeem is a statutory right contained in Section 60 of the Transfer of Property Act, 1882 (‘TPA’). Simply put, the right to redeem means that the mortgagor can take back the mortgaged property on payment of the principal loan amount and the interest.
Section 60 of the TPA answers several questions for us:
- When does the right to redeem commence? – At any time after the principal money has become due.
- How can the right to redeem be extinguished? – By an act of the parties or by decree of the Court.
- Who has the right to redeem? – The mortgagor, on payment of the mortgage money, at a proper time and place
- What is the content of the right to redeem? The right is to require the mortgagee to :
a. Deliver to the mortgagor:
- The mortgage deed.
- All documents relating to the mortgaged property which the mortgagee possesses or has power over.
b. If the mortgagee is in possession of the mortgaged property, then deliver to the mortgagor:
- Possession of the mortgaged property.
c. Retransfer the mortgaged property to the mortgagor or to a third person as directed by the mortgagor OR to execute + get registered (if the mortgage was registered) a written acknowledgement that any right which was transferred to the mortgagee, and was in derogation to the mortgagor’s interest, is extinguished.
- Exception to the right to redeem – A mortgagor who is interested in only a portion of the mortgaged property cannot redeem only that portion of it by paying a proportion of the mortgaged property.
- Exception to the exception – A mortgagor who is interested in only a portion of the mortgaged property can redeem only that portion of it by paying a proportion of the mortgaged property when the mortgagee(s) has acquired the portion of the mortgaged property in which such mortgagor has an interest.
What is a redemption clause?
A redemption clause answers the question as to when and how the mortgagor is entitled to redeem his property. The answer to when the right to redemption accrues may also be found in the termination clause of the mortgage deed.
What a redemption clause may look like:
“That the Mortgagor hereby in lieu of interest for the said loan amount, gives possession of the said house for a period of ….. years and thus transfers limited ownership of the property to the mortgagee.”
“That the mortgagor promises to pay back the mortgage loan to the mortgagee immediately after expiry of the mortgage and that the mortgagee promises to give back the possession of the house and title deeds to the mortgagor, immediately on receipt of the mortgaged money from the mortgagor.”
“And this deed further witnesseth that in consideration aforesaid, the mortgagor hereby mortgage his said scheduled property hereunder written as security for repayment of the said sum with interest and all other money due and payable hereunder with a condition that on the mortgagor repaying the said principal sum of Rs. with all interest and other amounts of money due to the mortgagee (hereinafter referred to as the mortgage amount) the mortgagor will redeem the said scheduled property from the mortgage security and shall if so required by the mortgagor execute a deed of release but at the costs of the mortgagor.
“I or my heirs will not be entitled to redeem the property for a period of 85 years. After the expiry of 85 years, we shall redeem it within a period of six months. In case we do not redeem within a period of six months, then after the expiry of the stipulated period, I, my heirs, and legal representatives shall have no claim over the mortgaged property, and the mortgagee shall have no claim to get the mortgage money and the lagat (i.e. repairs) expenses that may be due at the time of default. In such a case this very deed will be deemed to be a sale deed. There will be no need of executing a fresh sale deed. The expenses spent in repairs and new constructions will be paid along with the mortgage money at the time of redemption according to the account produced by the mortgagee.”
Concept of clog on the equity of redemption
“…necessitous men are not, truly speaking, free men…” – Northington L.C. in Vernon v. Bethell [(1762) 28 ER 838], as quoted in Pomal Kanji Govindji v. Vrajlal Karsandas Purohit [AIR 1989 SC 436].
Clauses of the mortgage deed which take away or restrict the right to redeem are considered to be a clog on the equity of redemption. Even though the mortgagor has agreed to these clauses while making the mortgage, the Court can step in and hold the clause invalid on the ground that it is a clog on the equity of redemption.
The principle of clog on the equity of redemption was clearly established by the observations of Lindley, M.R. in Santley v. Wilde,  2 CH 474. These observations were quoted in Pomal Kanji Govindji v. Vrajlal Karsandas Purohit [AIR 1989 SC 436] as follows:
“The principle is this: a mortgage is a conveyance of land or an assignment of chattels as a security for the payment of a debt or the discharge of some other obligation for which it is given. and the security is redeemable on the payment or discharge of such debt or obligation. Any provision inserted to prevent redemption on payment or performance of the debt or obligation for which the security was given is what is meant by a clog or fetter on the equity of redemption and is therefore void. It follows from this, that “once a mortgage always a mortgage.”
The reason why courts hold such clauses which limit or take away the right to redeem as void is because the parties to a mortgage deed may be on an unequal footing. The mortgagee is in a position to use the mortgagor’s need for money and take advantage of the difficulty that the mortgagor is in.
Examples of a clog on the equity of redemption:
- In mortgage deed, there is a clause that provides that if there is the default in repayment of the loan within a fixed date the mortgagee shall be deemed to be the purchaser of the mortgaged property. Such a clause would amount to a clog on the equity of redemption.
- In a mortgage deed there is a clause that provides that on default in repayment of the loan within a fixed period, the mortgage shall be renewed for another period of 12 years. Such a clause would amount to a clog on the equity of redemption.
- In a mortgage deed there is a clause for redemption after a long period of time, say 99 years or 100 years. Whether this long term condition would be a clog on the equity of redemption is dealt with in the next section of this article.
A very long term of redemption in a mortgage deed : is it invalid?
The answer can be yes or no. A very long term of redemption in the mortgage deed by itself does not mean that it is invalid. Its validity or invalidity will be judged keeping in mind a basic principle. The principle is that if the mortgage has been entered into by taking advantage of the difficulty the mortgagor is in, then the long term will be invalid. However, if the mortgagor and mortgage were on equal footing and the mortgagee was not in a position to dominate or take advantage of the mortgagor, then the long term is valid.
In Seth Ganga Dhar v. Shankar Lal [AIR 1958 SC 770] the Court noted that the power of the Court to relieve a mortgagor of a bargain which restricts his right to redeem must depend on whether the bargain, in the facts and circumstances of any particular case, was one imposed on the mortgagor by taking advantage of his difficult and impecunious position at the time when he borrowed the money.
However, it is important to note that a very long term, taken with other relevant factors, would create a presumption that it is a clog on the equity of redemption. This was held by the Court in Pomal Kanji Govindji v. Vrajlal Karsandas Purohit [AIR 1989 SC 436]. The Court makes this presumption keeping in mind the context of inflation, and high increase in real estate prices, as well as population explosion and need for habitat. In other words, this means that the Court will draw a presumption that the long term is invalid. This presumption however can be displaced and is not to be understood as the conclusion of the Court. It only means that the burden of proof falls on the mortgagee to show that the term is valid.
Whether the mortgage takes advantage of the mortgagor can be determined by several factors. In Pomal Kanji Govindji v. Vrajlal Karsandas Purohit [AIR 1989 SC 436] the Court observed that the following facts showed that there was a clog on equity:
- The mortgagor’s economic and financial position,
- The clause providing that interest had to be paid not periodically but in a lump sum at the time of ultimate redemption,
- The clauses allowing demolition and reconstruction of the building in this inflationary age and debiting the mortgagor with an obligation to pay for the same as an obligation for redemption,
- Without pressure from the creditor, no one would like to mortgage the only house which is the only abode on the earth.
In Seth Ganga Dhar v. Shankar Lal [AIR 1958 SC 770] the Court held that the period of 85 years was not a clog on the equity of redemption as the facts showed the mortgagor and mortgagee to be on equal footing. However, there was another clause in the mortgage deed which provided that the mortgagor had to redeem the property within 6 months from the expiry of 85 years, and if he failed to redeem within 6 months, he would lose his right to redeem, and the mortgage deed would be considered as a sale deed in favour of the mortgagee. This clause was held to be a clog on the equity of redemption.
Reading the mortgage deed : What all to look for?
The deed has to be read in its entirety to determine whether the long term of redemption is valid or not. It is not enough to come to a conclusion about the validity or invalidity of the term of redemption by merely looking at the redemption clause.
Other clauses such as whether the interest is payable periodically or in a lump sum at the time of redemption, and the clause providing for the amount of money taken as a loan are also of importance.
For instance, in Kunj Bihari Lal v. Pandit Prag Narayan [AIR 1922 Oudh 283], which was referred to Pomal Kanji Govindji v. Vrajlal Karsandas Purohit [AIR 1989 SC 436], in the mortgage deed had a condition that the mortgagor should pay the interest along with the principal amount at the time of redemption after 50 years. The Court held that the intention of this condition was to make it impossible to exercise the right of redemption.
In another case, Shivdev Singh v. Sucha Singh (2000) 4 SCC 326: AIR 2000 SC 1935, the facts were that the mortgagor, being financially hard-pressed, mortgaged his property for 99 years for a consideration of Rs 7,000. The mortgagee took possession of the property and was enjoying its usufruct. A suit for redemption was filed after around 26 years. The Court held that there was a clog on the equity of redemption on several facts and circumstances which showed that the mortgagee was in an advantageous position qua the mortgagor, including the fact that the appellants were also found to be deriving the usufructs of the mortgaged land for a period of over 26 years at the time of filing of the suit on payment of a meagre sum of Rs 7000 only to the mortgagor.
The consequence of the invalidity of the long term
Normally, if the right to redeem starts after a particular term, then a suit for redemption can be filed once that term has ended. A suit for redemption is filed to enforce the right to redeem. Filing a suit for redemption before the expiry of the mortgage term will be considered a premature suit. For instance, in Ganga Dhar v. Shankar Lal, AIR 1958 SC 770 the Court held that the term of 85 years was not invalid, and thus, filing suit before the expiry of 85 years was premature. However, if the Court holds that the long term period is a clog on the equity of redemption and thus invalid, then a suit for redemption can be filed even before the expiry of the term.
Thus, the answer to whether a long term redemption is invalid will vary in the facts and circumstances of the case. The key principle to keep in mind is that if the mortgagee took advantage of the mortgagor’s pecuniary difficulty at the time when the mortgagor borrowed the money, then the long term is invalid.
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