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Mortgages and Chattel Mortgages in India

Introduction​

This page provides an overview of mortgages and chattel mortgages in India, focusing on the legal framework, key concepts, and practical applications. It aims to serve as a valuable resource for law students and aspiring lawyers pursuing their LLB degrees.

The Transfer of Property Act, 1882​

The Transfer of Property Act, 1882 (hereinafter referred to as "TOPA") is the primary legislation governing mortgages in India. Section 58 of TOPA defines a mortgage as:

"A transfer of the right to use and enjoy the property, made by one person to another, for the purpose of securing the payment of money advanced or to be advanced by such other person according to such terms and conditions as may be agreed upon."

The Indian Registration Act, 1908​

Section 17 of the Indian Registration Act, 1908 requires registration of all non-testamentary documents affecting immovable property, including mortgages. This ensures transparency and protects the interests of all parties involved.

Types of Mortgages​

  1. Simple Mortgage

    • Definition: A simple mortgage involves the transfer of ownership of the mortgaed property to the mortgagee for securing the loan.
    • Legal reference: Section 58(i) of TOPA
    • Illustration: In the case of Bhagat Ram v. Ganga Bai (AIR 1959 Raj 123), the court held that a simple mortgage creates an interest in the mortgaed property in favor of the mortgagee.

  2. Mortgage by Conditional Sale

    • Definition: This type of mortgage involves the transfer of ownership of the property to the mortgagee, but with the condition that the transfer becomes absolute upon the fulfillment of certain conditions.
    • Legal reference: Section 58(ii) of TOPA
    • Illustration: In Kamala Mills Ltd. v. Dahyabhai Manilal (AIR 1971 SC 209), the Supreme Court upheld the validity of a mortgage by conditional sale, ruling that such mortgages are valid under Indian law.

  3. Usufructuary Mortgage

    • Definition: This type of mortgage grants the mortgagee th right to enjoy the fruits of the property for a fixed period.
    • Legal reference: Section 58(iv) of TOPA
    • Illustration: In Maharaj Singh v. Kishan Chd (AIR 1926 PC 170), the Privy Council ruled that an usufructuary mortgage is valid under Indian law, subject to certain conditions.

Chattel Mortgages​

Chattel mortgages involve the transfer of movable property as security for a loan. While chattel mortgages are not specifically addressed in TOPA, they are governed by general principles of contract law and the Indian Contract Act, 1872.

Section 172 of the Indian Contract Act, 1872 states:

"When a person lawfully delivers to another thing entrusted to him or which he holds on behalf of the person delivering it, such delivery amounts to an acceptance of the thing delivered."

Types of Chattel Mortgages​

  1. Specific Lien

    • Definition: A specific lien gives the creditor the right to retain possession of the goods until the debt is paid off.
    • Legal reference: Section 172 of the Indian Contract Act, 1872
    • Illustration: In Lachmi Narain Das v. State Bank of India (AIR 1964 All 345), the Allahabad High Court upheld the validity of a specific lien in a chattel mortgage agreement.

  2. General Lien

    • Definition: A general lien allows the creditor to retain possession of all goods belonging to the debtor until the debt is settled.
    • Legal reference: Section 173 of the Indian Contract Act, 1872
    • Illustration: In Commissioner of Income-tax v. M/s. S.K. Agarwal (AIR 1980 SC 148), the Supreme Court recognized the validity of a general lien in a chattel mortgage arrangement.

Case Studies and Illustrations​

  1. Bhagat Ram v. Ganga Bai (AIR 1959 Raj 123)

    • Facts: The plaintiff mortgaed his property to secure a loan. Upon default, the mortgagee sold the property and applied the proceeds towards the loan.
    • Issue: Whether the simple mortgage created an interest in the mortgaed property in favor of the mortgagee.
    • Decision: The court held that a simple mortgage does create such an interest, allowing the mortgagee to sell the property upon default.

  2. Kamala Mills Ltd. v. Dahyabhai Manilal (AIR 1971 SC 209)

    • Facts: The defendants executed a deed of conditional sale, transferring ownership of a building to the plaintiffs but reserving the right to repurchase within three years.
    • Issue: Whether the mortgage by conditional sale was valid under Indian law.
    • Decision: The Supreme Court upheld the validity of the mortgage, ruling that such mortgages are recognized under Indian law.

  3. Maharaj Singh v. Kishan Chd (AIR 1926 PC 170)

    • Facts: The plaintiff mortgaed a property to the defendant for a fixed period, granting him the right to enjoy the fruits of the property during that time.
    • Issue: Whether the usufructuary mortgage was valid under Indian law.
    • Decision: The Privy Council ruled that such mortgages are valid, subject to certain conditions.

Conclusion​

Mortgages and chattel mortgages play crucial roles in India's financial system and property transactions. Understanding these concepts is essential for legal professionals and aspiring lawyers. This guide provides a comprehensive overview of the legal framework governing mortgages and chattel mortgages in India, including real case studies and legal references. It serves as a valuable resource for law students and LLB students studying these topics.