PROJECT TITLE

Usufructuary Mortgage and Lease Concepts Often Being

Take as Same - A Discussion

Transfer of Property

PURURAJ AGGARWAL
B.A.LLB (Hons)
2017069

“DAMODARAM SANJIVYYA NATIONAL LAW

UNIVERSITY,”
“VISAKHAPATNAM”

SUBMITTED TO:
Mr. Jogi Naidu
ACKNOWLEDGEMENT
I am heartily thankful to my subject teacher Mr. Jogi Naidu for his constant support and valuable
guidance in the completion of this project. Thank you, sir. without you this project would not
have been possible.

I would like to thank my parents for having supported me in all possible ways for the
completion of this project.

I am also thankful to the Library of my university for the help and support which they provided
to me to complete this project.

And, last but not the least I wish to thank all my friends and colleagues who supported me and
gave their valuable points of view for the completion of this project.
Table of Contents
Introduction ............................................................................................................................................. 4
Mortgage ................................................................................................................................................. 5
Early Law of Mortgage ........................................................................................................................ 6
Consideration of Mortgage ................................................................................................................. 6
Essential Ingredients of a mortgage ................................................................................................... 7
Characteristics of a Mortgage ............................................................................................................. 7
Lease ....................................................................................................................................................... 8
Consideration of Lease...................................................................................................................... 10
Essentials of a Lease.......................................................................................................................... 10
Mortgage or lease.................................................................................................................................. 11
Mortgage and Lease – test to distinguish ......................................................................................... 11
Mortgage and Lease – Test to determine ......................................................................................... 11
Whether a transaction is lease or mortgage – guidelines to decide ................................................ 11
Usufructuary Mortgage ......................................................................................................................... 14
Characteristics of a Usufructuary mortgage ......................................................................... 16
Essential ingredients of usufructuary mortgage. – ............................................................... 17
Usufructuary Mortgage and Lease ........................................................................................... 18
Introduction
Mortgage is a conditional conveyance of land designed as a security for the payment of money,
the fulfilment of some contract, or the performance of some act, and to be void upon such
payment, fulfilment or performance.1
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.2
Transfer of property Act, 18823 defines “usufructuary mortgage” as; ‘Usufructuary
mortgage.—Where the mortgagor delivers possession of the mortgaged property to the
mortgagee, and authorises him to retain such possession until payment of the mortgage-money,
and to receive the rents and profits accruing from the property in lieu of interest, or in payment
of the mortgage-money, or partly in lieu of interest partly in payment of the mortgage-money,
the transaction is called an usufructuary mortgage and the mortgagee an usufructuary
mortgagee.’
The meaning of word ‘usufruct’ from which the expression ‘usufructuary mortgage’ has been
derived as stated in the Random house Dictionary thus: the right of enjoying all the advantage
from the use of something which belongs to another, as far as is compatible with the substance
of the thing not being destroyed or injured. The shorter Oxford English Dictionary also has
given a similar meaning.4
Transfer of property Act, 18825 defines “lease” as; “A lease of immoveable property is a
transfer of a right to enjoy such property, made for a certain time, express or implied, or in
perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service
or any other thing of value, to be rendered periodically or on specified occasions to the
transferor by the transferee, who accepts the transfer on such terms.”
A lease of immovable property is a transfer of right to enjoy such property, made for a certain
time, express or implied, or in perpetuity in consideration of a price pair or promised, or of
money, a share of crops, service or any other thing of value, to be rendered periodically or on
specified occasion to the transferor by the transferee, who accepts the transfer on such terms.
In case of mortgage there is transfer of interest to secure repayment of debt whereas in lease
there is transfer of right to enjoy the property.6

1
Bouvier’s Law Dictionary, 8th Edn, 1914, Vol 2, p.2249
2
Section 58(a) of Transfer of Property Act, 1882
3
Section 58(d) of Transfer of Property Act, 1882
4
Kapildeo Narain Singh v. Maruthakutii Gounder, AIR 1973 Mad. 242 p. 244
5
Section 105 of Transfer of Property Act, 1882
6
K.S.S.A.S.C Trust v. S.K.V. Shetty, AIR 2004 SC 3929
Mortgage
The definition of “mortgage”7 adopted in this section is thus justified by the Indian Law
commissioners in their report. “The objection raised by one eminent critic that this chapter
deals with matter which do not transfer property but only create a charge upon it”, it is one
which seems to us to rest on an assumption that a transfer must of necessity extend to whole
property or interest of the transferor in the subject matter of the transaction. We, considering
ownership as generally divisible, have regarded the term ‘transfer’ as property application to
any interest carved out of the aggregate called ‘ownership’. This is consistent with the English
law ‘a security’ says Mr. Fisher in his work on mortgages, ‘is a redeemable estate or right
which one person has in the property of another. The definition here given may be compared
with the definition of the term and its inflexions as given in the English Conveyancing Act,
1881, which is follows: “mortgage includes any charge on any property for securing money,
or money’s worth; the mortgage money means money or money’s worth secured by a
mortgage; and the mortgagor includes any person from time to deriving title under the original
mortgagor, or entitled to redeem a mortgage, according to his estate, interest, or right, in the
mortgaged property; and mortgage includes any person from time to time deriving title under
the original mortgagee; and mortgagee in possession is, for the purpose of this act, a mortgagee
who, in right of the mortgage, has entered in and is in possession of the mortgaged property.”8
The Act in dealing with the definition of ‘mortgage’ in Section 58(a) does not lay down that a
mortgage is a transfer of proprietary rights and makes a mortgage of them. of course, rights
other than proprietary rights may also be mortgaged.9 Further, in order to determine whether a
mortgage falls under any of the classes enumerated in clause (b) to (g), it is necessary first to
refer to clause (a). Clause (b) to (g) do not give any self-sufficient definition, and do not by
themselves declare what transaction whatever to be mortgage. It is clause (a) which declares
what transactions are mortgage, and it is necessary to determine whether there is a mortgage at
all before the subsequent clauses are referred to.10 But, mortgage defined in sec. 58(a) is a
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, etc. without a transfer of interest there
no question of there being a mortgage.11

7
Naib Ram v. Shib Dat, I.L.R 5 ALL. 238
8
See Law Commission’s Report, 15th November, 1879 sec. 32
9
Balbahaddar v. Raghubir ILR 1939 AII 484
10
Mumtaz v. Lachhmi AIR 1929 AII 174
11
Bank of India v. Abhoy D. Narottam (2005) 11 SCC 520
Early Law of Mortgage
In the early days of the British rule, mortgage were legislated for in regulation 1 of 1789, and
later on in regulation XXIV of 1803 and XVII of 1806, but these regulations gave a somewhat
cumbrous and unsatisfactory procedure, and were confined to bye-bil-waffas, katkobalas, and
other mortgages with possession, and did not cover simple mortgages. This form of mortgage
never having been legislated for, there was no protection to the debtor. The practice was for
the creditor to get a money-decree and sell up the mortgaged property without allowing any
time for redemption. The sales being an ordinary execution sale of the right, little and interest
of the debtor, whatever it might be, it was usual, when the same property was pledged to
different creditors in different mortgage bonds, for each creditor to hold a separate sale, and
leave the purchasers to fight out in court the question of what they had bought under their
respective sales.
There being no machinery for bringing together in one suit the various encumbrances on the
property, endless confusion had been the result, and the decision of the court upon the almost
insoluble problems arising from this state of things had been numerous and contradictory. The
result was that the mortgaged property could not fetch anything like its value. The debtor was
ruined, the honest and respectable money-lender discouraged and a cast amount of gambling
and speculative litigation fostered. It has been one of the objects of this chapter to remedy those
and similar evils.12

Consideration of Mortgage
A mortgage must be supported by consideration; without consideration a mortgage becomes
unenforceable and no charge can be created on the property.13 A mortgage is not rendered
invalid by the mere fact of non-payment of a part of the consideration by the mortgagee. This
fact does not entitle the mortgagor to rescind the contract at his option. 14 But, where a person
granted along with another a mortgage which was for the benefit of the latter and undertook
joint liability for the mortgage-debt, it has been held that he is bound by the mortgage, although
he may receive no part of the consideration money and entire amount is received by the other
mortgagor.15 Where the mortgagor completes his part of the contract, but the mortgagee fails

12
Speech of Hon,ble Mr. Evans on the Transfer of Property Bill (1882)
13
Ramasami v. Sundara 23 IC 805 (Mad)
14
Manicka v. Arumugha AIR 1945 Mad 340
15
Annamoyi v. Umesh 40 CWN 339
to discharge the consideration, the mortgagor has a transferable claim and his assignee is
entitled to sue the mortgages for the amount.16
The consideration of a mortgage may be either-

(1) Money advanced or to be advanced by way of loan; or

(2) An existing or future debt; or
(3) The performance of an engagement giving rise to a pecuniary liability

Essential Ingredients of a mortgage

Where money borrowed by the plaintiffs from defendant by executing sale deed in respect of
property and it was also agreed that if plaintiffs repay borrowed sum within the period of two
years then property will be reconveyed to plaintiffs, the possession of property fulfils all
conditions of mortgage as prescribed by Sec. 58(c) of the Transfer of Property Act, 1882. 17
Essential of mortgage. – In every mortgage –
(1) There must be a contract, express or implied; the original and intentional hypothecation
of the mortgaged property to secure the repayment of the mortgage-money is of the
very essence of a mortgage;
(2) The property must be indetified, specific immovable property must be made security
for the repayment of the loan or the performance of the obligation;
(3) The amount and the terms of the loan must be fixed; the rights of the parties must be
defined or be definable;
(4) The legal form must be complied with.

Characteristics of a Mortgage
In the case of Nidha Sah v. Murli Dhar18, the privy council pointed out that if a transaction
does not provide for the creation of security for the payment of the money or for the
performance of any engagement and does not contain any provision for redemption, explicit or
implied, the transaction cannot be called a mortgage.19

16
Sheopati v. Jagdeo AIR 1931 AII 95
17
Ram Nath v. Baijnath AIR 2005 MP 229
18
ILR 25 AII 115
19
Hirachand v. Parsotam ILR 5 AII
Lease
“A Lease is a transfer of a right” – “A lease contemplates a demise or a transfer of a right to
enjoy land for a term or in perpetuity in” consideration of a price paid or promised or service
or other things of value to be rendered periodically or on specified occasions to the transferor.20
The Transfer of Property Act, 188221 emphasises the prior existence of an agreement for
creation of a lease. So, does every other transaction resulting in a transfer of property by the
act of parties, inter vivos, but it is not necessary in every case to enforce the agreement after
the transfer is complete. Once an agreement results in a transfer of property, the transfer itself
creates certain rights and obligation which are enforceable as such. In the case of certain
transfers, as for example, a sale or an exchange of property almost the entire agreement between
the parties which precedes the sale or exchange is given effect to or whole executed, when the
sale takes place on payment of price and possession over the property sold is simultaneously
delivered to the purchaser. In the case of a lease reserving a rent, the payment of rent is
generally periodical and it may be said in a sense that a person enforces a contract of lease
when he enforces payment of rent that was agreed upon before the lease was created but even
as once a lease comes into being in pursuance of the agreement between the parties, to enforce
payment of rent reserved in the lease is enforcement of the obligation of the lessee to pay rent,
which the law imposes upon him.22 It is not a case of a bare contract. It plaintly means that in
a case where the contract between the parties does not make a provision whether the lease is
from year to year or from month to month, it shall be deemed to be a lease from month to month
in case it is to be granted for any other purpose. If a lease could not be brought about without
the existence of a prior contract in the sense of an agreement enforceable at law, there could be
no lease without a contract and a complete absence of a contract between the parties would be
ruled out by the existence of the lease.23
An agreement of lease of immovable property constitutes a contract under section 10 of
Contract Act.24 The law relating to lease in India has been discussed under:
(a) In India, a lease may be in perpetuity and the law relating to the law, either the transfer
of property Act or the general law abhors a lease in perpetuity. If there is covenant for

20
Tarachand v. Ram gobind ILR 4 Cal. 778
21
Section 105 of Transfer of Property Act, 1882
22
Section 108(1) of the Transfer of Property Act, 1882
23
State of UP v. Phool Chand Agarwal AIR 1982 AII 260
24
Sri Narayan Gosami v. The collector AIR 1986 Ori 46
 renewal in the lease agreement, lessee can exercise his right unilaterally for extension
of lease, for which consent of lessor is not necessary.
(b) Where the principal lease executed between the parties containing a covenant for
renewal, is renewed in accordance with the said covenant, whether the renewed lease
shall also contain similar clause for renewal depends on the facts and circumstances of
each case, regard being had to the intention of the parties as displayed in the original
covenant for renewal and the surrounding circumstances.
(c) There is difference between an extension of lease in accordance with the covenant in
that regard contained in the principal lease and renewal of lease. In the case of
extension, it is not necessary to have a fresh deed of lease executed. However, option
for renewal consistently with the covenant for renewal has to be exercised consistently
with the terms thereof and, if exercised, a fresh deed of lease shall have to be executed
between parties.
(d) Failing all the execution of fresh deed of lease, another lease for a fixed term shall not
come into existence though the principal lease in spite of the expiry of the term thereof
may continue by holding over for year by year or month by month, as the case may be.
(e) If the language in the lease deed is ambiguous, the court would opt for an interpretation
negating the plea of the perpetual lease. Where there is a clause for renewal subject to
the same terms and conditions, it would be construed as given a right to renewal for the
same period as the period of original lease, but not a right to second or third renewal
and so on unless, of course, the language is clear and unambiguous. While ascertaining
the intention of the parties in this behalf, lease deed has to be read as a whole.25
According to the definition, a lease is (1) a transfer of a right to enjoy certain immoveable
property, (2) made for a certain time, (3) in consideration of a price, (4) by the transferor to the
transferee, (5) who accepts the transfer on such terms. In brief, a lease is the grant of a right to
the exclusive possession of immovable property for a determinate term, less than what which
the grantor has himself in the land, for certain consideration.26
A document which itself does not create any right or interest in immovable property but records
only the past interest would not be a document purporting to be a lease.27 A lease of property
by owner to proprietary concern of which he is sole proprietor would be meaningless.28

25
Aggarwal & Modi Enterprise (Cinema Project) Pvt. Ltd. v. NDMC 123 (2005) DLT 154 (170)
26
Banwarli Lal v. Ram Swaroop AIR 1970 Raj. 178
27
Raghunandan Saran Ashok Saran v. Amrit Lal Chopra AIR 1986 Del 301
28
Vijay Kumar Bajaj v. Inder Sain Minocha AIR 1982 Del 260
Consideration of Lease
In India there may be a lease even if no rent is payable. But where rent is payable annually, the
agreement to pay rent is a valuable consideration although no salami is paid.29 When the owner of a
piece of land grants a perpetual lease of it in consideration of rent to be paid as well as premium, he has
got no charge on the leasehold right for the premium as the grant was not a sale.30 As to whether a
particular sum is a premium or purchase price of an electric generation station purported to be let out.31
Under a deed of lease in respect of moveable and immovable properties, a sum of money was reserved
as an annual rent and the deed provided for the payment of an identical towards rent in advance before
the period of lease commenced and the liability for rent was incurred by the lessee. Such advance
payment amounts to a premium and the case is covered under Art. 30(c) of the Schedule to the
Karnataka Stamp Act, 1957.32

Essentials of a Lease
The following things must concur in the making of every good lease;
(i) There must be a lessor, who is able to make the lease. If any lease is granted by one
against whom a decree for recovery of possession on the declaration of title has
been passed, the lessee get no title.33
(ii) There must be a lessee, who is capable of taking the thing demised.
(iii) There must be thing demised, which is demisable.
(iv) If the thing demised or the thing expressed to be granted be not grantable without a
deed, the lease must be made by a deed, containing a sufficient description of the
lessor, the lessee, the thing demised, the term granted, and the rent and covenants;
and all necessary circumstances must be observed.
(v) If it be a lease for years, it must have a certain commencement, at least when it takes
effect in interest or possession, and a certain determination either by an express
enumeration of years or by reference to a certainly that is expressed, or by reducing
it to a certainly upon some contingent event, which must happen before the death
of the lessor or lessee, unless it should be added, the lease is a permanent one.
(vi) There must be an acceptance of the thing demised and of the estate by the lessee.34

29
Rajendra v. Jogiban AIR 1947 Cal 440
30
Venkatacharyulu v. Venlatasubba AIR 1926 Mad 55
31
In re AIR 1934 Cal 803
32
V. Srinivasan v. Sub-Registrar AIR 1985 Kant 56
33
Rentala Lachaiah v. Chimmapudi Subramanyam AIR 1967 SC 1973
34
Woodfall’s Landlord and Tenant. 16th ed., pp. 134
Mortgage or lease

Mortgage and Lease – test to distinguish

In constructing a document, it is always necessary to find out the intention of the party
executing it. the intention is to gathered from the recitals and the terms in the entire document
and from the surrounding circumstances. The property transferred is a security for the
repayment of debt in a mortgage whereas in a lease it is transfer of a right to enjoy the property.
A transaction was help to be a lease because there was no express term making the sum
returnable as a loan either by repayment or by the enjoyment of usufruct. There was no interest
fixed or right of redemption granted. There was also no provision for personal liability in case
any amount remained outstanding at the end of the stipulated period.35 There is one most
essential feature in a mortgage which is absent in a lease, that is, in a mortgage the property
transferred is a security for the repayment of the debt, whereas in a lease it is transfer of a right
to enjoy property.

Mortgage and Lease – Test to determine

Description of a deed or nomenclature of the deed is not decisive. The nature of the transaction
depends entirely upon the terms of transaction. The circumstances and the conduct of the
parties. Are always a useful guide in ascertaining the true nature and content of the transaction.
The factors that are relevant to find out the intention of the parties are – first, the proportion of
the amount advanced to the value of security; secondly, the rate of interest payable on the sum
advanced; thirdly the absence of a provision for making improvements, and the proportion of
the rent; fourthly, the surrounding circumstances at the time of transaction.
Where the ratio of the amount advanced bears a substantial portion to the value of the property
transferred. It would be strong piece of intention and circumstances to indicate loan and
mortgage. The and foremost elements to be found for a lease is whether there is the intrinsic
intention in the written document for enjoyment of the property by the transferee in lieu of rent.
Secondly, the term of renewal of enjoyment would indicate the feature of a lease. Thirdly, it
has to be found out whether there is any provision for payment of customary dues.36

Whether a transaction is lease or mortgage – guidelines to decide

The guidelines for deciding whether a transaction is a lease or a mortgage contemplate that the
name given to the document is not conclusive. The question has to be decided with the
reference to the predominant intention of the parties as gathered from the recitals and the terms
of the documents and the surrounding circumstances including conduct of the parties. In the
case of a mortgage, there is a transfer of a right to enjoy the property.37
In the case of Fuzhakal Kuttappu v. C. Bhargavi38, it has been observed that the nomenclature
given to a document by the writer or even by the parties is not always conclusive. In
constructing a document, such intention has to be gathered from the recital, the terms in the
document and from surrounding circumstances. When there is a document of a composite

35
Namadec v. Nazar AIR 1983 Kant 19
36
Mangala Kunhamina v. puthyiyabeettil Paru Amma AIR 1971 SC 1575
37
See TP Act by Mulla 9th Edn. P. 621
38
AIR 1977 SC 105
character disclosing features of mortgage and lease, the court will have to find out the pre-
dominant intention of the parties executing the document viewed from the essential aspect pf
the reality of the transaction. In that case, it was further observed that the mortgages are not
always simple, English, usufructuary as defined in T.P. Act.39

The test to be applied is whether the purpose of transaction is enjoyment of the property by the
transferee or whether it is intended to secure the repayment od debt by transfer of interest in
property.40 In mortgage the property transferred in security for the repayment of death but in
the case of leaves, it is a transfer of a right to enjoy the property.41 The description of the deed
by itself isolated from the terms and provisions may be misleading on a misnomer.42 The
circumstances and the conduct of the parties are always a very useful guide in a certain in the
true character and content of the transaction.43 The payment of revenue and other dues with the
state but not cloth occupants with the rights of the tenants. Ordinally, mortgagees under section
76(c) of TP act in the absence of a contract to the contrary way out of the income of the property
the government revenue and all other charges of a public nature during the position of such
land.44 A mere direction to pay the revenue of the property by way grantee, particularly when
no payment is stipulated to be made to the grantor or when the payment is not directed to be
made out of anything which is due or payable to the grantor cannot be construed as payment
or rent or michavaram to the grantor.45

In construing a document, it is always necessary to find the intention of the parties executing
it, and that intention has to be gathered from the surrounding circumstances.46 Where in a lease
of a shop business, the transferee was empowered to carry on business, but he had no power to
lease it out, no interest was to be paid on the money lent, it was also not provided as to how the
money said to have the been lent was to be realised or that in case the position was not delivered
back on the expiry of the period, the transferor had no right to redeem the property, the
transaction was held to be lease and not mortgage and the suit of the transfer of position was
dismissed.47

39
Kaveripatnam Subbaraya Setty Annaiah Setty Charities Trust v. S. k. Vishwanatha Setty AIR 2004 SC 3929
40
Mangala v. Puthiyavettie AIR 1971 SC 1575
41
Puzhkkal Kuttapu v C. Bhargari AIR 1977 SC 105
42
Mangala v. Puthiyavettie AIR 1971 SC 1575
43
Mangala v. Puthiyavettie AIR 1971 SC 1575
44
Mangala v. Puthiyavettie AIR 1971 SC 1575
45
Mangala v. Puthiyavettie AIR 1971 SC 1575
46
Mangala v. Puthiyavettie AIR 1971 SC 1575
47
N.K. Hindalekar v. Nazar Sheriyar Mazada AIR 1983 Guj 249
Transaction of "Ogha chhut" in Kathiawar, is Lease and not a mortgage for finding out the
tune nature of the transaction, the intention of the parties must also be looked.48 the Proposition
between the amount advanced and the value of the property is one of the important tests to be
taken into consideration in deciding the nature of the transaction. Where the amount advanced
bears a substantial proportion to the value of the property in it is an important element
indicating that the intention was the creation of a mortgage and not a tenancy.49 where the gist
of the document was not letting of the premises, with the rent reserved, but a mortgage of The
Premises with a small portion of the income of it made payable to the plaintiff, the document
was held amount mortgage and not a lease.50

For finding out whether a transaction is a lease or mortgage, the only guiding rule is that the
intention of the party must be looked into. likewise, In the construction of a document for
finding out the nature of the transaction as Kanam or mortgage, the intention of the parties and
to be looked into. a kanam partakes the character of both lease and mortgage. sometimes The
One character predominant, sometimes the other. A kanam is more in the nature of the
mortgage then a lease and therefore intention of the party must be ascertained to determine the
nature of the transaction.51

where the vendor executed a lease dead in favour of the prospective purchaser, to discharge
liability as to earnest money which arose out of agreement of Sale, there was neither personal
covenant to pay no any provision for redemption not for sale of property is debt was not paid,
the transferee was to be in possession for a specified limit dehors of the question whether the
amount was satisfied or not; only because the consideration was not cash but a past liability it
was held at the deed was not a mortgage but only a lease.52 There is no inconsistency between
possessory mortgage and lease back and the two transaction could simultaneously coexist.53

Where a village was let out for a period of 40 years no right of redemption Express or implied
was given on repayment of the loan, the transaction was held the lease and not mortgage.54

48
Aher Harsur Desa v. Pinjar Jhina Golan AIR 1964 Guj 249
49
Mangala v. Puthiyavettie AIR 1971 SC 1575
50
Ramdhan Puri v. Bankeyn Bihari AIR 1958 SC 941
51
Ayyapan v P.T.V. Naikkan AIR 1963 Ker 309
52
Dinkar v. Ganpat S. Gore AIR 1981 Bom 335
53
Babulal Somalal V. Kantilal Hargovandas AIR 1979 Guj 50
54
Mahesh Bhagat v. Ram Baran AIR 1968 SC 1466
Usufructuary Mortgage
The meaning of the word ‘usufruct’ from which the expression ‘usufructuary mortgage’ has
been derived as stated in the Random House dictionary thus: “the right of enjoying all the
advantage from the use of something which belongs to another, as far as in compatible with
the substance of the thing not being destroyed or injured.” The Shorter Oxford English
Dictionary also has given a similar meaning.55
The mortgage need not necessarily be for the purpose of securing payment of money advanced
as a loan. It may be for securing “performance of an engagement which may give rise to a
pecuniary liability”. When the mortgagor authorize the mortgagee to retain possession of the
property until payment of the mortgage money the transaction amounts to a usufructuary
mortgage.56 There may be a usufructuary mortgage providing for the utilization of the profits
towards the mortgage money and the interest. It is not necessary for the validity of a
usufructuary mortgage that some amount should remain outstanding as principal.
Another form of security, in which re-payment begins as soon as the money is advanced, is that
known as the usufructuary mortgage of which the act specifies three form, but which may
conceivably assume many more forms without forfeiting its character. The delivery of
possession to the mortgagee in this form of security is no longer as sine quo non,57 since it now
suffices that if the mortgagor does not deliver possession he at least “expressly or by
implication binds himself” to do so.
In some cases a usufructuary does not cease to be so merely be reason of the fact that instead
of actually taking possession on the date of the mortgage, the mortgage lease it back to the
mortgagor for the period of the mortgage, but where the mortgage and the lease back are parts
of the some mortgage, but where the mortgage and the lease back are parts of the same
transaction and intention of the parties to the transaction is that the mortgagee should not get
possession of the mortgaged properties but would only get interest on the amounts advanced
by him, at the stipulated rate, every month and the document and the deed of the lease back are
nothing but merely devices to ensure regular payment of the interest, the transaction cannot be
held to be an usufructuary mortgage.58 The delivery of possession and enjoyment of the
usufruct is an incident of ownership to which the usufructuary mortgagee becomes entitled on
the execution of his security. But his possession differs, on the one hand, from that of the
owner59, and on the other from that of a lease, since while the owner parts with some if the
incidents of his ownership temporarily and for a specific object, it does not amount to transfer
of ownership: the face that such transfer is made both by way of security as for the purpose of
discharging it, distinguishes such mortgage both from a sale as well as lease. Sir comer
petheram was then clearly wrong when he held that an usufructuary mortgage being entitled to
exclusive possession of the property until the payment of the loan, became “the proprietor of a
thing during that time, inasmuch as I understand the proprietor of a thing to be the person

55
Kapildeo Narain Singh v Deputy Collector AIR 1985 Pat. 183
56
Raman Pillai Kannakku Nair v. Gowri Pillai Thankachi Bhagavathi Pillai Thankachi 1953 Ker. L.T. 382
57
Venkateshaiah v. Venkatakrishiah 1957 L.J. 232
58
Savitri S Devi Smt. V. Beni Devi Smt. ILR 46 Pat. 1202
59
Indar Sen V. Naubat singh ILR 7 AII. 553
entitled to the exclusive possession of it at the time,60 a view which makes clean sweep of the
rights known as jura in re aliena, recognized by the jurisprudence of all countries.61 The
transfer of possession may be effected by actual delivery or by giving him a right of entry
which has the same effect.62
Usufructuary mortgage as defined under section 58(d) is the mortgage where the mortgage
where the mortgage delivers possession or expressly or by implication binds himself to deliver
possession of the mortgaged property to the mortgagee. The mortgagor authorizes the
mortgagee to retain such possession until payment of the mortgage money and to receive rents
and profits occurring from the property or any part of such rents and profits and to appropriate
the same in lieu of interest or in payment of the mortgage money after the expiry of the
mortgage period, the mortgagor has right to redeem the property.63
In a usufructuary mortgage – Possession –
(1) Is delivered
(2) Or agreed to be delivered expressly or by implication
(3) And to be retained till payment of the mortgage-money.
The rents and profits or any part thereof are: -
(1) To be received, and
(2) Appropriated
In lieu of: -
(1) Interest, or
(2) Mortgage-money, or
(3) Partly mortgage-money
No time is fixed and there is no personal covenant. The condition necessary for creating a usufructuary
mortgage are that (1) the mortgage should either deliver possession or expressly or by implication bind
himself to deliver possession of the mortgaged property to the mortgagee and (2) the mortgagor must
authorize the mortgagee to retain such possession until payment of the mortgage money and to receive
the rents and profits occurring from the property in lieu of interest of money or in payment of the
mortgage money.64 If the mortgage cannot retain the possession of the mortgaged property till the
payment of the mortgage money, the mortgage would not be usufructuary mortgage. 65 It is necessary
condition of the usufructuary mortgage that the mortgage money including interest should be realised
out of the usufruct and it gets redeemed the moment the money is tendered.66 A vatandar transaction in
kutch has all the characteristics of a usufructuary mortgage, and as such has been held a usufructuary
mortgage. where to secure the payment of the loan, the possession of the mortgaged property was
delivered to the mortgagee, the transaction was held usufructuary mortgage within the meaning of
section 58(d).67

60
ibid
61
Cf. Kader Moideen v. Nepean ILR 26 Cal. 1
62
Motiram v. Vithal ILR 13 Bom. 90
63
Laxman v Board of Revenue AIR 2008 Raj 109
64
State v. N.K. Ventkataravanamma
65
Indubala Debya v. Monimala Devi AIR 1955 Pat. 505
66
A. Narayana Rao v. Laxmi Amma AIR 1994 Ker 371
67
Hanuman Prasad Gupta v. Jagya Bhan Gupta 2005 (1) MPLJ 546
A mortgagee with possession is enjoined by section 76(a) of the transfer of property act to manage the
property as a man of ordinary prudence would manage it if it were his own. As such the mortgagee’s
acts, if prudently done, could bind the mortgage even after the redemption of the mortgage. A mortgage
with the possession, steps into the shoes of the mortgagor and becomes entitled to all the rights of the
mortgagor and the only right left with the mortgagor is the right of redemption. A mortgagee with
possession is entitled to be in possession of the mortgage property as long as it is not redeemed. If the
mortgagee with possession, lease back the property to the mortgagor, he acquires the right of lessor and
is entitled to enforce the terms of lease against the mortgagor.68
Different kinds of usufructuary mortgages. – there are four kinds of usufructuary mortgages mentioned
in section 58 (d): -
First, the transaction is one in which the usufruct is taken wholly on account of interest and the
mortgagor is entitled to redeem on payment of principal.
Second, the usufruct is appropriated towards both interest and principal, so that when the debt is paid
off, the mortgagee must reconvey without payment by the mortgagor.69
Thirdly, a part of usufructuary is taken for interest so that the mortgagor redeems on payment of the
principal and balance of interest.
Fourthly, the usufruct is taken to wipe off a portion of the interest and principal, so that the mortgagor
redeems on payment of the balance due both on account of interest and principal.70
The third kind contemplates the usufruct to be less that agreed interest, while in the fourth case it is
contemplated to exceed the interest. In the first two cases no term is fixed, while in the other two a term
may be fixed though it is not essential. In the last two the mortgagor undertakes to pay the balance so
that there is a personal covenant to pay. It is known in Madras as bhogyadhi in Bengal as bhagbandak
or subharna, in malbar as otti, in kanara as iladarawara, the mortgagee being in possession
and taking rents and profits in lieu of interest and the security carrying a right to redeem, but
none to foreclose.
Characteristics of a Usufructuary mortgage: - The characteristics of usufructuary mortgage
are:
(1) The possession of the mortgaged property is delivered, or agreed to be delivered, to the
mortgagee;
(2) He is to appropriate the rents and profits, either –
(i) In lieu of interest or,
(ii) Towards the principal or,
(iii) Party in lieu of interest and partly in payment of the principal;
(3) In none of these cases, the mortgagor incurs any personal liabilities to repay;
(4) As the mortgagor does not bind himself to repay (though may repay the mortgagor –
money if and when he chooses), there can be no forfeiture, and, therefore, the remedies
by way of foreclosure or sale are not open to the mortgagee.71

68
Vide Mathuralal v. Keshar Bai (1970) 1 SCC 454
69
Section 62(a) of the Act.
70
Section 62(b) of the Act.
71
Mohammad Saeed v. Abdul Alim AIR 1947 Lah 40
Section 58(d) of the act enlists the ingredients of a usufructuary mortgage. The distinguishing
feature of this mortgage is that in lieu of payment of interest or adjustment of the whole or
party of the borrowed amount, the mortgagor permits the mortgagee to enjoy the rents of a
specified immovable property and delivers the possession thereof, to the mortgagee. This
would serve two purposes viz., providing security for repayment of the borrowed amount and
adjustment of rent accured thereon, towards of the interest or principal, or both, as the case may
be.72
It is an essential incident of a usufructuary mortgage that personal liability on part of the
mortgagor is excluded. A usufructuary mortgage is not entitled to sue for sale of the property,
and where there is a stipulation to a contrary, the transaction ceased to be one of the
usufructuary mortgage and is described as an anomalous mortgage. A personal covenant to pay
implies a right of sale, and an express covenant to pay excludes the mortgage being taken as
purely usufructuary mortgage.73
Essential ingredients of usufructuary mortgage. –
The section itself makes it perfectly clear that in order to create in usufructuary mortgage, the
mortgagor must authorise the mortgagee to retain possession of the mortgaged property until
payment of the mortgage money.74 The conditions necessary for creating a usufructuary
mortgage are that (1) the mortgage should either deliver possession or expressly or by
implication bind himself to deliver possession of the mortgaged property to the mortgaged and
(2) the mortgagor must authorise the mortgage to retain such possession until payment of the
mortgage money and to receive the rent and profits accuring from the property in lieu of interest
or in payment of the mortgage money.75
In yashvant Narain Kamat v. Vithal Diwakar Prulekar76 , a bench of the Bombay High Court
held as follows:
“Whether a mortgage provides that possession of the mortgage property, if taken by mortgagee,
is only to be taken for securing due payment of the interest, the mortgagee paying the balance
(if any) of the profits to the mortgagor, the mortgage is not usufructuary mortgage, but a simple
mortgage, and is governed by the general law applicable to mortgages of this nature”.
A bond cannot be said to be usufructuary mortgage simply on account of a recital in its very
opening line that this usufructuary mortgage bond is executed to the following effect if from
the terms of the bond it appears that it could not by any stretch of imagination be said to be
usufructuary mortgage.77
From definition of usufructuary mortgage in section 58 (d) it clearly follows that the
appropriation of the income from the property can be against interest as well as the principal
and, if the parties have agreed that by the appropriation for a specified number of years the
principal and, if the parties have agreed that by the appropriation for a specified number of
years the principle as well as the interest or a rate of interest. Section 62(a) does not refer to

72
Yadava Kamala Bai v Bijjan Venkata Subbamma 2005 (5) Andh LT 769
73
Mohammad Saeed v. Abdul Alim AIR 1947 Lah 40
74
Indu Bala Debya v. Monimala Devi 1955 Bih. LJR 571
75
State of Tamil Nadu v. N.K> Venkataravamma AIR 1977 Mad. 47
76
ILR 21 Bom. 267
77
Arunmugan Pillai v. Maruthakutti Gounder, AIR 1973 Mad. 242
any interest at all and it merely refers to the mortgage money and, therefore, it is certainly open
to the parties not to stipulate for interest separately and provide for the mortgage amount, as
the total amount payable by the mortgagor, being wiped put by the appropriation of income
from the property itself.78

Usufructuary Mortgage and Lease

The distinction between as usufructuary mortgage and a lease for a premium is apparent from
the definition of two tenures.79 Under the Uttar Pradesh Debt Redemption Act, 1940 all
usufructuary mortgage become self-liquidating mortgages.80
In the case of Shibhanarain Mandar v Ramautar Singh81, an usufructuary mortgage was
executed in favour of the plaintiff. The following passage appeared in the bond:
“I, the executant, shall pay in cash and in one lump sum the entire amount of debt in jeth, 1341
fasli and resume direct possession payment, then till the re-payment thereof, this very document
along with all its recitals and the possession and the occupation of the mortgagee shall remain
intact just as before. In contravention of the terms of this deed either overtly or covertly, we,
the executant of our heirs and representatives shall not dispossess the mortgagee and his heirs
from the mortgaged property within or after the period without repayment of the amount of
debt. If we do so, we shall be liable to pay entire debt even before the expiry of the period, with
interest at Rs. 3-2 per hundred per month, from the date of possession till realisation from the
mortgaged property and also from our person and out other properties. We have, therefore,
executed this usufructuary mortgage bond so that it may be of use when required.”
The plaintiff was dispossessed. He instituted the suit realisation of the amount lent under the
mortgage by sale of the mortgaged properties. Held that the mortgage in question was a
usufructuary mortgage, and there was no personal covenant to pay.82
In Shyam Sundar v. Seth Balmukund83, the defendant-appellant were owners of the house. They
borrowed a sum of Rs. 3,200 from the plaintiff-respondent and executed a usufructuary
mortgage of the house in his favour. Simultaneous they executed a rent-note under which they
became his tenants and continued to reside in the house for payment of rent at the rat of Rs. 25
per month. Held that the defendant became the tenants of the mortgagee. The money which the
mortgagor pays in not interested on the loan but rent for use and occupation of the property.
The relationship remains that of landlord and tenant even if the parties stipulate that the
mortgage after receiving the rent for the mortgagor shall not entitled to any interest under the
usufructuary mortgage: the reason is twofold: first, interest is not essential for an usufructuary
mortgage which can be free of interest; second, the mortgagor’s right to occupy the property is
based on the tenancy which also creates his liability to pay rent for use and occupation of the
property to which he would not otherwise be entitled under the mortgage.84

78
Arunmugan Pillai v. Maruthakutti Gounder, AIR 1973 Mad. 242
79
Ouseph v Rama Lyen Krishna lyen 1951 KLT 73
80
Ram Adhar Singh v Bansi AIR 1987 SC 987
81
AIR 1956 Pat. 312
82
Kamal Nayan v. Ram Nayan AIR 1930 Pat. 152
83
AIR 1964 AII 370
84
Shyam Sundar v. Seth Balmukund AIR 1964 AII 370