NOTE ON ENGLISH MORTGAGE

An English mortgage is where the mortgagor binds himself to repay the mortgage money on a certain date,
and transfers the mortgaged property absolutely to the mortgagee, but subject to a proviso that he will re-
transfer it to the mortgagor upon payment of the mortgage money as agreed, the transaction is called an
English mortgage.
I. CREATION OF A MORTGAGE
1. Preparatory Steps
a. dentification of Specific Property
b. !itle Search and search to determine whether a prior charge e"ists on the Specific
Property
c. dentify restrictive covenants in e"isting contracts
d. #apacity and authorisation
i. power to borrow money and create security under the articles of association of
the company.
ii. Shareholder$s approval under Section %&'(1)(a) of the #ompanies Act, 1&*+ is
re,uired for transfer of an underta-ing which is relevant in case of a charge.
mortgage over substantial part of the property
iii. Section //(%) of the #ompanies Act prohibits creation of security to assist
purchase of the shares of the company
e. #onsent under Section %01(i) of the ncome !a" Act, 1&+1
i. 1nder Section %01 of the ! Act any transfer of property by a company against
whom income ta" claims are pending can be invalidated or reversed by the
ncome !a" authorities
ii. Since mortgage amounts to a transfer of property, a certificate is re,uired from
income ta" authorities permitting the creation of mortgage
f. n case of creation of mortgage for the benefit of foreign lenders, approval is re,uired from
an Authorised 2ealer 3an-
%. 2ocumentation
a. 4oan Agreement
b. ndenture of mortgage
English or legal mortgage is recorded in an indenture of mortgage which is e"ecuted by both
parties
c. Security !rustee Agreement
A s
a. 5hy have a security trustee6
b. Syndication and participation in loans
c. #reation of security for future debt
'. 7ortgage 2eed
As aforementioned, English or legal mortgage is recorded in an indenture of mortgage or a mortgage
deed which is e"ecuted by both parties. 8or a mortgage deed to be e"ecutable must fulfil certain
re,uirements
a) 9ecorded in 5ritten 8orm
b) Payment of Stamp 2uty
c) 9egistration of the 7ortgage 2eed
!hese re,uirements have been e"plained in detailed below
a) Written Form
!he 7ortgage deed is a formal written instrument by which a lien or claim against real property given
by the buyer to the lender as security for money borrowed. !he deed should contain an accurate
description of the property being conveyed, the amount of money being borrowed as well as the details
of repayment and default.
b) Payment of Stamp !ty
As shown in the preceding paragraphs, in an English mortgage the mortgagor binds himself to repay
the debt with interest on a specified date. !o secure the repayment, the mortgagor transfers the
property absolutely in favour of the mortgagee, subject to a proviso and condition. !he aforesaid
provision and condition is that the mortgagor will effect a resale and re-conveyance of the property
bac- to the mortgagor on the full repayment of the debt with interest by the mortgagor.
!he stamp duty payable on the deed of mortgage of an English 7ortgage is that of a :conveyance:
within the 7aharashtra Stamp Act, which is calculated on the true mar-et value of the property which is
subject matter of the conveyance. t is to be noted that in the case of an English mortgage, the stamp
duty e,ual to that of conveyance is payable both at the time of the first sale as well as at the time of re-
conveyance.
Article %* stipulates the stamp duty as follows,
(a) f relating to movable property, for every
rupees *;; or part thereof<
8ifteen rupees
(b) f relating to immovable property situated, -
(i) 5ithin the limits of any 7unicipal
#orporation or any #antonment area
anne"ed to it or any urban area not
mentioned in sub-clause (ii).
(ii) 5ithin the limits of any 7unicipal #ouncil
or =agar Panchayat or #antonment area
anne"ed to it, or any rural area within the
limits of the 7umbai 7etropolitan 9egion
2evelopment Authority, or the nfluence
Areas as per the annual statement of rates
*> of the mar-et value of the property
?> of the mar-et value of the property
published under the 3ombay Stamp
(2etermination of !rue 7ar-et @alue of
Property) 9ules, 1&&*<
(iii) 5ithin the limits of any Arampanchayat
area or any such area not mentioned in
sub-clause (ii)
'> of the mar-et value of the property
(c) f relating to both movable and
immovable property.
!he same duty as is payable under clauses (a)
and (b) above
An instrument being stamped under Article %* of the 7aharashtra Stamp Act, a non-judicial stamp
paper under 9ule + or an mpressed 4abel.Special Adhesive Stamp affi"ed by Proper Bfficer under
9ule 11 should be used.
") Re#i$tration of t%e Mort#a#e ee&
i. Re#i$tration A"t
An English mortgage by virtue of Section *& of the !P Act, is re,uired to be effected by a registered
instrument signed by the mortgagor and attested by atleast two witnesses. Section *& reads as
follows,
59. Mortgage when to be by assurance
Where the principal money secured is one hundred rupees or upwards, a mortgage other than a
mortgage by deposit of title deeds can be effected only by a registered instrument signed by the
mortgagor and attested by at least two witnesses.
Where the principal money secured is less than one hundred rupees, a mortgage may be effected
either by a registered instrument signed and attested as aforesaid or (except in the case of a
simple mortgage) by deliery of the property.!
(Emphasis supplied by underlining)
Section %0 of the 9egistration Act, 1&;0 (CRe#i$tration A"tD) prescribes that the mortgage
instrument has to be registered with the Sub-9egistrar$s office, within the local limits of who$s the
whole or part of the mortgaged property is situate, within four months from the date of e"ecution
1
.
Section %? of the 9egistration Act further provides that where there are several persons e"ecuting
a document at different times, such document may be presented for registration and re-registration
within four months from the date of each e"ecution.
ii. C'arity in t%e notifie& to(n$ or area$ in $tate$
At the outset it must be clarified that a territorial restriction under section *0(f) of the !P Act only
applies to a mortgage by deposit of title deeds and not to an English mortgage.
1
Section %', 9egistration Act
!he !P Act prescribes in section *0(f) that a mortgage by deposit of title deeds can only be made in
the towns of #alcutta, 7adras and 3ombay, and in any other town which the State Aovernment
concerned may, by notification in the Bfficial AaEette, specify in this behalf. Prior to an amendment
in 1&'/, the power vested with the #entral Aovernment to notify in the Bfficial AaEette from time to
time, during which Ahmadabad
%
< 3andra, Furla and Ahath-oper Firol
'
< #awnpore, Allahabad and
4uc-now
?
< #ochin, #oimbatore, 7adura and #ocanada
*
, were notified by the #entral Aovernment.
Pursuant to an amendment by A. B. 1&'/ and A. B. 1&*; this power then vested with the State
Aovernment, and therefore each State Aovernment concerned can now separately notify the towns
and areas within the State where a mortgage by deposit of title deeds can be made.

t is reiterated that no such territorial restriction has been made for an English mortgage within the
!P Act.
II. ENFORCEMENT OF THE MORTGAGE
1. Sale through the Process of the #ourt
Enforcement through court process
#ourt appointed receiver
Enforcement is governed by the provisions of the #ode of #ivil Procedure, 1&;0
Brder '? of the #P# provides for suits related to mortgages over immovable property
SpecialiEed legislation
9ecovery of 2ebts 2ue to 3an-s and 8inancial nstitutions Act, 1&&' (29! Act)
Securitisation and 9econstruction of 8inancial Assets and Enforcement of Security
nterests Act, %;;% (SA98AES)
1se of Proceeds- Section +&(?)
!he proceeds recovered from the sale of the secured property shall first be applied to the
discharge of prior encumbrances to which the property is subject
!he remaining amount shall be held in trust for application in the following mannerG
Payment of costs and e"penses of enforcement
2ischarge of the debt due
Payment to the other claimants, i.e. other encumbrances
9esidual amount to be paid to the debtor
%. Sale possible without the intervention of the #ourt
An English mortgage closely resembles an absolute sale with a condition of repurchase.
+
8ollowing
which, upon default of payment, it is possible for the mortgagee to sell the mortgaged security without
the intervention of any #ourt if the conditions prescribed in Section +& of the !P Act are satisfied.
Section +& states as follows,
"9. #ower of sale when alid
2
AaEette of ndia, 1&'*, Pt. , p. &'+.
3
AaEette of ndia, 1&%?, Pt. , p. 1;+?.
4
AaEette of ndia, 1&'0, Pt. , p. 1*0.
5
AaEette of ndia, 1&'*, Pt. , p. *%+.
6
$arayana . %en&atramana, %* 7ad %%; (%'*)< 'atyacharan . (am )in&ar, +% #4H %0
(*) + mortgagee, or any person acting on his behalf, shall, sub,ect to the proisions of this section
hae power to sell or concur in selling the mortgaged property or any part thereof, in default of
payment of the mortgage-money, without the interention of the court, in the following cases and in
no others, namely,-
(a) where the mortgage is an .nglish mortgage, and neither the mortgagor nor the mortgagee is a
/indu, Mohammedan or 0uddhist or a member of any other race, sect, tribe or class from time to
time specified in this behalf by the 'tate 1oernment, in the 2fficial 1a3ette4
5555.
(c) where a power of sale without the interention of the court is expressly conferred on the
mortgagee by the mortgage-deed and the mortgaged property or any part thereof was, on the date
of the execution of the mortgage-deed, situate within the towns of 6alcutta, Madras, 0ombay, or in
any other town or area which the 'tate 1oernment may, be notification in the 2fficial 1a3ette,
specify in this behalf.
(7) $o such power shall be exercised unless and until-
(a) notice in writing re8uiring payment of the principal money has been sered on the mortgagor, or
on one of seeral mortgagors, and default has been made in payment of the principal money, or of
part thereof, for three months after such serice4 or
(b) some interest under the mortgage amounting at least to fie hundred rupees is in arrear and
unpaid for three months after becoming due.
(9) When a sale has been made in professed exercise of such a power, the title of the purchaser
shall not be impeachable on the ground that no case had arisen to authorise the sale, or that due
notice was not gien, or that the power was otherwise improperly or irregularly exercised4 but any
person damnified by an unauthorised or improper or irregular exercise of the power shall hae his
remedy in damages against the person exercising the power555.D
(Emphasis supplied by underlining)
!he first case in which the mortgagee can have the power to sell without the intervention of the
#ourt is mentioned in clause (a) of sub-section (1) of Section +& of the !P Act. t lays down the
following conditions for the ac,uisition of the property, firstly that the mortgage must be an English
mortgage, as defined in Section *0(e) of the !ransfer of Property Act, 100%, and secondly that
neither the mortgagor nor the mortgagee must be-
(i) a Iindu, 7ohammedan or 3uddhist, or
(ii) a member of any other race, sect, tribe, or class from time to time specified in this behalf
by the State Aovernment in the Bfficial AaEette.
!he power of sale is inherent in the mortgagee, if #onditions (i) and (ii) mentioned above are
satisfied. ndia. !his section is ta-en advantage of by corporate bodies who are not natural persons
since such bodies are not deemed to belong to any religion, and allows the power under section +&
to be e"ercised by the mortgagee. n L.V. Apte v. R.G.N. Price
7
, the Andhra Pradesh Iigh #ourt
applied Section +& to an English mortgage between a company and trustees for debenture-
holders, when some of the trustees were Iindus.
7
A91&+%AP%/?
As far as individuals are concerned, this section can be adopted if both the mortgagor and
mortgagee do not belong to the religion, race, sect, tribe or class which are e"cluded from the
purview of Section +&(1) (a).
!he second case is provided for in clause (b) of sub-section (1) of Section +& whereby the power of
sale without the intervention of the court must have e"pressly been conferred on the mortgagee by
the mortgage deed, and the mortgaged property, or any part thereof, must, on the date of the
e"ecution of the mortgage deed, have been situate within the towns of #alcutta, 7adras, 3ombay
or in any other town, or area, which the State Aovernment may, by notification in the Bfficial
AaEette, specify in this behalf.
t appears that the three cases mentioned in clauses (a), (b) and (c) of sub-section (1) of Section
+& of the !ransfer of Property Act are independent and mutually e"clusive.
Section +&(%) (a) and Section +&(%) (b) specify the conditions for e"ercise of the power to sell the
mortgaged property without the intervention of the #ourt. !hese conditions are imperative and
cannot be varied by an agreement between the parties. !he power to e"ercise the right of sale
arises when,
(a) notice in writing re,uiring payment of the principal money has been served on the
mortgagor, or on one of several mortgagors, and default has been made in payment of the
principal money, or of part thereof, and such default has continued for three months after
such service< or
(b) some interest under the mortgage amounting at least to five hundred rupees is (a) in
arrear, and (b) remains unpaid for three months after becoming due.
!he two conditions above are in the alternative. t is sufficient if any one of them is fulfilled. !he
power of sale under Section +&(1) can be e"ercised by the mortgagee only when the conditions
under Section +&(%) are fulfilled.
III. PERFECTION OF MORTGAGE
!he priority of proprietary interests against all adverse third party claims depends on completion of
perfection of all actions necessary to assert that priority
Section 1%* of the #ompanies Act, 1&*+ provides for a statutory registration process for charges
t specifies that every charge created by a company is re,uired to be registered. 1nless
such a charge is registered the charge shall be void against a li,uidator or any
subse,uent charge
Principles
An unregistered interest is deemed to be void against a subse,uent interest
Priority depends on the order of registration of charges
A statutory registration process has two advantages for the secured creditor
Ie can verify that no prior charge e"ists
Ie can protect himself from subse,uent charges gaining priority
5ilde v Australian !rade E,uipment, (1&0;) 1?* #49 *&; at *&+
Cthe re,uirement that a charge shall be registered is intended to enable persons
who are minded to deal with companies, to be able, by searching the register, to
find out whether the company has encumbered the property or notD
I). THE A)ANTAGES OF AN ENGLISH MORTGAGE WITH S*PPORTING CASE LAWS.
!he advantages of an English mortgage provided for in section *0(e) of the !ransfer of Property Act, 100%
(CTP A"tD) are three fold, that being
A) Personal liability of the mortgagor
3) Absolute !ransfer of nterest in the mortgaged property
!hese advantages have been e"plained in detailed below.
a) Per$ona' Liabi'ity of t%e mort#a#or
n an English mortgage the mortgagor ordinarily underta-es to pay the debt personally. !hus in an
English mortgage the mortgagee has a remedy not only against the mortgaged property but also
against the mortgagor personally. !his plays a pivotal role when the mortgaged property is sold to third
parties, which ta-e the property subject to the mortgaged liability. 3ut since in an English mortgage the
mortgagor has bound himself to repay the mortgaged money from the mortgaged property, this liability
is to be discharged from out of the property given as security by the mortgagor. 3ut some human
agency represents the property for the time whether it is the original mortgagor or a sub agent
assignee, the owner for the time which is the mortgagor being personally liable, would be liable to pay
the debt from and out the property to the mortgagee.
0

Apart from an English mortgage only a simple mortgage is characteriEed with a right to the mortgagee
to sue personally the mortgagor for the repayment of the debt. n all other types of mortgages, the
mortgagor does not necessarily ma-e himself personally liable for the payment of the mortgage money
and accordingly the mortgagee has his remedy against the mortgaged property alone.
b) Ab$o'!te Tran$fer of Intere$t in t%e mort#a#e& property
n an English mortgage, the ownership in the mortgaged property is absolutely transferred to the
mortgagee, which is, however, liable to be divested by the repayment of the loan as agreed.
Iowever, it must be noted that judicial interpretation of Cabsolute ownershipD pertains to the in-form
transfer of ownership of property and not an in-substance. Section *0(e) which pertains to an English
mortgage only deals with form, and not substance. !he section declares that an English mortgage
would be absolute had it not been for the provision of retransfer of mortgaged property by the
mortgagor upon payment of the mortgage money.
&
n an English mortgage under the mortgagor retains
a legal interest both before and after the date fi"ed for payment. 3efore the date he has a legal interest
in the land and he transfers only an interest in the property. After the date the mortgagor has the legal
right of redemption given to him by Section +; of the Act. n each case the mortgagor has a legal
interest.
Section +; of the !P Act reads as follows,
8
Ield in the full bench case of the Andhra Pradesh Iigh #ourt in +mbati (amayya : +nr . 'ubbayya J Brs
KA91&*+AP1//L
9
(am&in&ar . 'atya 6haran, A9 1&'& P# 1?(1&)
";. (ight of mortgagor to redeem
+t any time after the principal money has become due, the mortgagor has a right, on payment or
tender, at a proper time and place, of the mortgage-money, to re8uire the mortgagee (a) to delier to
the mortgagor the mortgage-deed and all documents relating to the mortgaged property which are in
the possession or power of the mortgagee, (b) where the mortgagee is in possession of the mortgaged
property, to delier possession thereof to the mortgagor, and (c) at the cost of the mortgagor either to
re-transfer the mortgaged property to him or to such third person as he may direct, or to execute and
(where the mortgage has been effected by a registered instrument) to hae registered an
ac&nowledgement in writing that any right in derogation of his interest transferred to the mortgagee has
been extinguished<
=he right conferred by this section is called a right to redeem and a suit to enforce it is called a suit for
redemption55.D
!his however does not ta-e away from the fact that an interest in the mortgaged property is transferred,
which though subject to the right of redemption, will
(i) allow the mortgagee, in the absence of an agreement to the contrary, to have the right to enter
upon possession of the property immediately upon e"ecution of the deed<
(ii) allow the mortgagee to be entitled to possession of the property as a necessary corollary of the
right of ownership. Iowever, a stipulation in the deed of mortgage that the mortgagor would,
until he committed default in payment of principal or interest, remain in possession of the
property or that he would continue to pay the rates and ta"es on the property to the proper
authorities, does not ma-e the transfer any the less absolute.
1;

(iii) result in an absolute transfer of mortgaged property upon failure.default by the mortgagor to
pay the debt by the stipulated date of payment in accordance with the procedure in Section +;
and +& of the !P Act. !he procedure for the same has been elaborated herein below.
10
>o3mal 0huta,i . 'hridhar %ithal, A91&?+3om?&&