A mortgage corresponds to the Hypotheca of Roman Law. The creditor, on the failure of the debtor to pay the debt, could bring the debtor’s property to sale and recoup himself. It differs from Nexum and Fiducia of that system of law. Under the former, the debtor was merely forced to become the servant or slave of the creditor, and, under the latter, the debtor was kept out of ownership and possession of his own property. According to Black’s Law Dictionary, mortgage is defined as a conveyance of title to property that is given as security for the payment of a debt or the performance of a duty and that will become void upon payment or performance according to the stipulated terms.
Sec. 58 of the Transfer of Property Act, 1882 defines mortgage as -
“A mortgage is the transfer of an interest in specific immoveable 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 are called the mortgage-money, and the instrument (if any) by which the transfer is effected is called a mortgage-deed.
The various types of mortgages recognized in India are:
1. Simple Mortgage
2. Mortgage by Conditional Sale
3. Usufructuary Mortgage
4. English Mortgage
5. Mortgage by deposit of title of deeds
6. Anomalous mortgage
In a Simple mortgage, the possession of the mortgaged property is not transferred from mortgagor to the mortgagee. If the mortgagor fails to repay the loan, the mortgagee has the right to sell the property and recover the loan from the sale amount.
Mortgage by Conditional Sale:
Under such Mortgage, the mortgagor apparently sells the property to the mortgagee on certain conditions –
i. On failure to repay the mortgage money before a certain date the sale shall become absolute, or
ii. On condition that on such repayment of mortgage money the sale shall become invalid, or
iii. On condition that on such repayment the mortgagee shall retransfer the property.
In such case, the mortgagee is a "mortgagee by conditional sale”.
In a usufructuary mortgage, the possession of the mortgaged property is transferred to the mortgagee. The mortgagee receives the income from the property (rent, profit, interest, etc) until the repayment of the loan. The title deeds remain with the owner.
In an English Mortgage -
i. The mortgagor binds himself to repay the borrowed money on a certain date.
ii. The mortgagor transfers the property absolutely to the mortgagee.
iii. But such transfer is subject to the condition that the mortgagee will retransfer the property on repayment before the agreed date.
Mortgage by deposit of title of deeds:
In such mortgage, the mortgagor delivers the title document of the property to the mortgagee with an intention to create a security thereon. Such mortgage is valid in towns of Kolkata, Mumbai and any other town as the State Government may notify by publication in Official Gazatte.
A mortgage that does not fall under the purview of any of the mortgage types is called an anomalous mortgage.
Conditions attached with mortgage:
While mortgaging property, only legal rights are transferred to the mortgagee but not the possession.
An instrument of mortgage deed is mandatory.
On sale of a mortgaged property, the mortgage flows along with the property.
Section 63-A deals with the law relating to improvements to mortgaged property. Section 63-A declares as follows:
(1) Where mortgaged property in possession of the mortgagee has, during the continuance of the mortgage, been improved, the mortgagor, upon redemption, shall, in the absence of a contract to the contrary, be entitled to the improvement; and the mortgagor shall not, save only in cases provided for in sub-section (2), be liable to pay the cost thereof.
(2) Where any such improvement was effected at the cost of the mortgagee and was necessary to preserve the property from destruction or deterioration or was necessary to prevent the security from becoming insufficient, or was made in compliance with the lawful order of any public servant or public authority, the mortgagor shall, in the absence of a contract to the contrary, be liable to pay the proper cost thereof as an addition to the principal money with interest at the same rate as is payable on the principal, or, where no such rate is fixed, at the rate of nine per cent per annum, and the profits, if any, accruing by reason of the improvement shall be credited to the mortgagor.
Prior to the Amending Act of 1929, there was no express provision in the Act allowing a mortgagee to make improvements to the mortgaged property. In the absence of such express provision, it was held in some cases that a mortgagee was not entitled to charge or obtain any compensation for improvements made. Om the other hand, some courts following the English decisions in Shepared v Jones, held that a mortgagee should be allowed costs for improvements if they are 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.” The Amendment Act of 1929 has been acknowledgedly been drawn from Fisher’s Law of Mortgage.
Therefore, this project will be analyzing and discussing the law relating to mortgaged property as given under Section 63-A which has embodied the principles of the English cases.
Object of Section 63-A:
The object underlying S. 63-A is to prevent the mortgagee from improving the property in such a way as to make it impossible for the mortgagor with his means to redeem the property.
It also takes into account the improvements necessary for preservation of the property coming under Section 63 or repairs under Section 72, the cost of which is the liability of the mortgagor, and mortgagee is liable to pay costs thereof to the mortgagee.
The section allows costs to mortgagee only in respect of improvements:
i. Necessary to prevent security from being insufficient, or
ii. Made in compliance with lawful orders of any public servant or public authority, such as Municipality, Panchayat, etc, and profits due to improvements are credited to mortgagor.
Any improvements made to the mortgaged property by the mortgagee must have been made for preserving the property from destruction or deterioration and expenditure on improvements shall not be deemed necessary unless the mortgagor has been called upon and has failed to take proper and timely steps to preserve the property. In the absence of any pleading or evidence to support his claim, the mortgagee shall not be entitled to any relief on that account.
Erection of pucca building in place of a kutcha building cannot be an improvement for the preservation of property and, therefore, mortgagor could not claim profits arising therefrom. Improvement of agricultural lands for increasing yield cannot be brought within the scope of Section 63 A.
The present section lays down a uniform rule and provides that the mortgagor is liable to pay the cost of the improvements only if they are:
i. Necessary to preserve the property from destruction or deterioration; or
ii. Necessary to prevent the security from becoming inadequate; or
iii. Done under the orders of a public authority such as a Municipality.
If the improvement fulfills any one of these tests, the cost is allowed to the mortgagee as an addition to the principal money secured by the mortgage, interest at the rate specified in the section is allowed on the cost. Profits due to the improvements are credited to the mortgagor.
Once the mortgage money is deposited with notice, the contractual relationship of mortgagor and mortgagee ceases and, therefore, the mortgageor can no longer continue. The right of the mortgagee to remain in possession is also co-terminus and the mortgagee’s possession thereafter is unlawful. In such circumstances, the mortgagee is not entitled to get any improvement which has been effected after the deposit of the mortgage money, and value of improvements. Where the mortgagee, in making improvements, is not acting bona fide, he is not entitled to claim their cost under Section 63-A of the Act.
Even though the mortgagee might have spent on improvements of the mortgaged property, he would not be entitled to the same in the final decree proceeding if he permits the preliminary decree to attain finality without contesting the same in the view of Section 97 of the CPC. Section 97 of the CPC talks about where any party which is aggrieved by a preliminary decree does not appeal from such decree, then he shall be precluded from disputing its correctness in any appeal which may be preferred from the final decree.
The mortgagee in possession is not in the same position as the owner, though being entitled to its beneficial enjoyment; he is necessarily entitled to improve it so as to enable him not only to realize his security but also to see that his security does not suffer, and is on the other hand maintained in state of good repair. But he is not entitled to commit ameliorative waste, convert its nature and character, or without doing so enhance its value rendering its redemption difficult, if not impossible. This does not mean that the mortgagee may not make other improvements, for he may, but if he wishes to retain them or be paid their cost, he must have made them with the consent or acquiescence of the mortgagor.
This section closely follows the language of the preceding one, but differs from it in the respect that while Section 63 makes a distinction between accessions capable of separate enjoyment and accessions not so enjoyable, no such distinction is recognized in the present section as to improvements. Further, the section says nothing about improvements made with the consent of the mortgagor.
The mortgagee, if in possession, is entitled to lay out any money necessary for the maintenance of the property. The mortgagee may be allowed extraordinary expenses insurrecting for the protection of the property, but the mortgagor should be informed of the outlay as soon as possible. Expenses of maintenance and improvement of the mortgaged property incurred by the mortgagee and of permanent improvements property incurred by the mortgagee and of permanent improvements properly undertaken or expenses for repair, etc are allowed to be added to his security.
Meaning of words:
According to Webster’s International Dictionary of the English Language (2 Vols) –
Repair – Act of repairing: restoration, or state of being restored, to a sound or good state after decay, waste, injury, etc; supply of loss; reparation mending. Also, an instance or results of such restoration – often in plural, as, the repairs to the house are extensive. Condition with respect to soundness, need for repairing, etc, as a house in good, or bad repair, or out of repair.
Improvement – A valuable addition, or betterment, as a building cleaning, drain, fence, etc. on land.
According to Ballantine’s Law Dictionary (1954) –
Repair – Under statues authorizing special assessments for the reconstruction of street improvements but not for the repair thereof, the word repair contemplates an existing structure or thing which has become imperfect by reason of the action of the elements, or otherwise. Work done on a structure which has not demolished, but which has been damaged. The word is to be distinguished from reconstruction which properly applies only to work done upon a structure which had been demolished in whole or in part.
Improvement – A word that includes everything that enhances the value of premises permanently for general uses. The erection of a building, making substantial changes or addition in existing buildings, the laying of necessary side-walls and the digging of wells, are common illustrations.
According to Stroud’s Judicial Dictionary (Third Edition) 1952 –
“The word repairing has been distinguished from improvement. Repairs are often used in the plural 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 has been held to embrace rebuilding and to include improvements.”
Quicquid insodiricature solo solo cedit:
The maxim quicquid insodiricature solo solo cedit meaning that whatever is affixed to the soil belongs to the soil has no application in India. Rather, the Act proceeds on the basis that in law ownership of a building is different from ownership in the land, and that land and building could be owned by different persons in the eye of the law. Even in the case of a mortgage or a lease or any transaction relating to a transfer of interest in property, it is open to parties to convey only such of those rights or interests which they choose to transfer and that when an owner of land only intends to transfer his rights therein either as a whole or partly, he cannot be compelled to part with his rights in the superstructure.
Muramat shakasht rekhat:
In Khairati Ram v Dina Nath, the mortgaged property was found by the local Municipal Committee to be in a dangerous condition and, therefore, a notice under the Punjab Municipal Act was served on the mortgagees to demolish it within six hours. Part of the house fell down before the rest was demolished. The mortgage was for Rs 600 and it provided that the mortgagee would be entitled to do the muramat shakasht rekhat to the house and add the expenses incurred thereon, with interest t the stipulated rate, to the amount due under the mortgage. The house, as rebuilt at the cost of Rs. 1,120 was not larger than the one that existed at the time of mortgage, though it was better constructed. The mortgagor did not contend that when the house was pulled down it was not necessary to do so and to reconstruct it, but urged that the ruinous condition of the house was due to the action of the mortgagee in not keeping it in good condition by doing ordinary repairs, and, therefore, even if the mortgagee was otherwise entitled to claim the expenses of rebuilding, he was not entitled in the particular case by virtue of this default. This plea of the mortgagor was rejected as the same was urged for the first time in the second appeal before the High Court and there was no evidence on record to enable the Court to come to the conclusion that the mortgagee neglected to repair the house and thus allowed it to fall into a state of disrepair. It was, therefore, held that under the terms of the mortgage-deed the mortgage was entitled to the cost of rebuilding the house and also to interest thereon.
But this has to be read and interpreted in that light of the facts of the particular case. “It cannot be regarded to mean that the phrase muramat shakasht rekhat includes destruction of the mortgaged property by the mortgagee himself and at his own sweet will, irrespective of its nature and condition. The stipulation that the mortgagor shall pay the cost of shakshat (breakage) and rekhat (destruction) cannot be taken to mean that the mortgager thereby binds himself to pay the expenses which the mortgagee may incur in breaking or demolishing the mortgaged property and then in rebuilding the same. Reasonably interpreted the stipulation only means that the mortgagor takes upon himself to pay the cost of repairs of rebuilding in case of breakage or destruction. The breakage or destruction ought to be due to natural deterioration or by some other act of nature beyond the control of the mortgagee, and not undertaken by him at his own initiative and out of his own sweet will. By the use of these or such like words, the mortgagor cannot be taken to have authorized the mortgagee to pull down the entire mortgaged property whenever he (mortgagee) pleases and rebuild it in the manner he desires. That would be authorizing the mortgagee to improve out the mortgagor of his estate the principles of justice, equity and good conscience. Reading the document as a whole I am not inclined to place any such interpretation on the first condition in the mortgage-deed.”
In Nijalingappa v Chanbasawa, it was held that in a redemption suit, a mortgagee is to recover from his mortgagor the reasonable and proper costs incurred in making lasting improvements, viz., making the property more productive; and that in allowing costs of improvements the Court must naturally be on its guard against extravagant or unfounded claims and that it should inquire strictly into the bona fides and fairness of the claim in each particular case.
In Ramappa v Yellapa, where the amount spent on improvements was five times the mortgage amount, the claim was not allowed, following Dyanu Laxman v Fakira Ibram. But the grounds on which the conclusion was arrived at are not indicated in the judgement of Dyanu case. Therefore, this decision is not very helpful in deciding the principle relating to the improvements relating to mortgaged property
. In the case of Ram Asray v Hiralal, mortgagors mortgaged a certain kachcha house. Under the mortgage-deed the mortgagee was given possession of the property. The mortgagee demolished the old kachcha building and constructed a new pucca building in its place. The mortgaged property was demolished and rebuilt without authority or justification.
Held that the new building was in fact an improvement and by no stretch of imagination could be called an accession. Neither in law nor on any other principle would the mortgagor in the present case claim the benefit of such additional income from the property as may have resulted from the improvement made by the mortgagee at his own cost which he was under the existing law no able to recover.
Contract to Contrary:
Section 63-A of the Act applies only when there is no contract between the parties. In the absence of any agreement, the question whether the mortgagor has to pay for the improvements depends upon whether the claim of the mortgagee comes within terms of sub- section (2) and if there is such an agreement it prevails over s.s. (2) of S. 63-A.
Sub section (2) only lays down the circumstances under which the costs of the improvement can be recovered from the mortgagor. It says nothing about the profits that may have been realized by the mortgagee on the account of his improvements. In the case of Ram Asray v Hiralal, mortgagors mortgaged a certain kachcha house. Under the mortgage-deed the mortgagee was given possession of the property. The mortgagee demolished the old kachcha building and constructed a new pucca building in its place. The mortgaged property was demolished and rebuilt without authority or justification. Held that the new building was in fact an improvement and by no stretch of imagination could be called an accession. Neither in law nor on any other principle would the mortgagor in the present case claim the benefit of such additional income from the property as may have resulted from the improvement made by the mortgagee at his own cost which he was under the existing law no able to recover.
Under sub section (2) costs of improvements will not be recoverable from the mortgagor when there is nothing to show that the amount said to have been spent by the mortgagee was necessary to preserve the mortgaged property from destruction or deterioration or to prevent the security from becoming insufficient. Mortgagee cannot on his part claim the money laid out by him in order to increase yield from the land so as to recompense himself in lieu of the interest due on the principal money.
There is no ground in law for granting compensation to the mortgagee-in-possession, and Sec. 63-A as its restricted language clearly shows, cannot be attracted on this ground. The mortgagee-in-possession cannot be permitted to lay money in increasing the value of the estate except in circumstances which strictly fall within the four corners of the section. The mortgagee cannot increase the value of the estate as to cripple the mortgagor’s power of redemption. This obviously could not be the intention of the Legislature.
Right of private contract is safeguarded under this provision by excluding the application of the provisions of the section to a contract entered into between parties to the mortgage deed. Stipulation of making improvements at the cost of the mortgagor may be incorporated in the mortgage deed whereby the mortgage is entitled to a charge under the contract.
In cases falling under sub section (2) of Section 63 A, where improvements are such that they cannot be secured from land and taken away by the mortgagee, the mortgagor is liable to pay costs as he will have the benefit of them. Usufructuary mortgages in Malabar carry the customary incident of effecting improvements by mortgagee, at the cost of the mortgagor. Mortgagee may not be allowed to carry improvements as he wishes since the condition to pay for all such improvements may amount to a clog on equity of redemption.
It is very doubtful whether the mortgagee is entitled to receive interest on the money spent by him on improvements and repairs. Section 63-A of the Act deals with improvements to mortgaged property. Sub section (2) of Sec 63-A provides for payment of interest on money spent on improvements. But it was pointed in Chhedi Lal v Babu Nandan, that the Sec 63-A of the Act applies only if there is no contract between the parties.
From the above analysis, it can be said that under Section 63-A of the Transfer of Property Act, it will be seen that, the mortgagor will not only be entitled to the improvement but also he shall not be liable to pay the cost thereof except in cases falling under sub-section (2). The combined effect of sub sections (1) and (2) of Section 63-A of the Transfer of Property Act is that, on no account, the mortgagee will be entitled to retain the improvement, rather the mortgagor will be entitled to the improvement and he will not be, at the same, liable pay cost thereof except in cases falling under sub-section (2).
Where it is not the case of the mortgagees that the improvement effected by them is covered by sub section (2) of Section 63-A, the mortgagor is entitled to improvement without payment of the costs thereof to the mortgagee. It inevitably follows that the mortgagee cannot in law claim to have materials to them.
Thus, after looking at the principle developed by the courts in various cases, it can be said that Section 63-A of the Transfer of Property Act applies only when there is no contract between the parties. In the absence of any agreement, the question whether the mortgagor has to pay for the improvements depends upon whether the claim of the mortgagee comes within the terms of sub-section (2) and if there is such an agreement it prevails over sub-section (2) of Section 63-A.
Thus, after analyzing Section 63-A of the Transfer of Property Act through various authorities and the principles laid down in the case laws, I can say that my hypothesis is correct by saying that if there is any improvement to the mortgaged property, then the mortgagee has to pay for the mortgage-money which is due.
1. Chari, S.A, Law of Mortgages (with Model Forms), 3rd Ed., Asia Law House, Hyderabad, 2007.
2. Dr. Sir Gour, H.S., Dr. Sir H.S. Gour’s Commentary on Transfer of Property Act, 1882 (Vol 2), 12th Edition, Delhi Law House, Delhi, (2010).
3. BB Mitra and Sengupta, Transfer of Property Act, 19th Ed., Kamal Law House, Kolkata, (2008).
4. Manohar & Chitaley, Transfer of Property Act – Vol II, 7th Edn., All India Reporter, Nagpur, 2010.
5. Bharuka, G.C., Mulla on the Transfer of Property Act, 10th Ed., Lexis Nexis Butterworths, Nagpur, (2006).
6. Sarathi, V.P., Law of Transfer of Property, 5th Ed., Eastern Book Company, Lucknow, 2010 (Reprint).
7. Dr. Shukla, S.N., Transfer of Property Act, 26th Ed., Allahabad Law Agency, Allahabad, (2006).
# Garner, Bryan, Black’s Law Dictionary, 8th Ed., 2004, pg 1031
# Hereinafter referred to as the Act
# Sarathi, V.P., Law of Transfer of Property, 5th Ed., Eastern Book Company, Lucknow, 2010 (Reprint), pp. 152-166
# (21 Ch.D. 469)
# 6th Ed., Section 1783
# Md Mohideen Rowther v NNH Mohd Mohideen Rowther, AIR 1960 Mad 24
# Rahmatmullah Beg v Yusuf Ali, (1912) 10 All LJ 124
# Wasu Ram v Mohd. Ramzan, AIR 1940 Lah 199
# Sarada Baivi v Suresh Chandu Chauhan, 2005 (1) CCC 129 (Ker)
# Wasu Ram v Mohomed Ramzan, AIR 1940 Lah 199
# Chinnathampi Nadar Chinnyyan Nadar v Ponnamma Pillai Prassanakumari Amma, AIR 204 Ker 123
# Varadappa Naicker v Appavi Gounder, AIR 1973 Mad 454
# MG Eswara Rao v Rabiyabi, AIR 2000 Kant 232
# Sandon v Hooper, (1843) 6 Beav 246
# Lord Trimleston v Hamill (1810) 1 Ball & B 377
# Halsbury’s Laws of England, 4th Ed., Vol. 32, para 778
# BB Mitra and Sengupta, Transfer of Property Act, 19th Ed., Kamal Law House, Kolkata, (2008) , p. 749
# Park View Enterprise v State of Tamil Nadu, AIR 1990 Mad 251
# AIR 1927 Lah 815
# Charan Dass v Shadiram, AIR 1955 Pepsu 87 at p. 89
# ILR 43 Bom 69
# AIR 1928 Bom 150
# AIR 1928 Bom 250
# AIR 1949 All 681
# AIR 1949 All 681
# Rup Ram Dhan Singh v Munshi Chhilu, AIR 1960 Punj 480 at pg. 481
# Mahal Singh v Amar Nath, AIR 1926 Lan 430
# Mammunhi Beary v Neelamma, AIR 1976 Karn 21
# AIR 1944 All 204
# Shankar Lal v Gangadhar, AIR 1956 Mys 14 at pg. 17
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