Report No. 70

Chapter 55

Mode of Creating Mortgages

Section 59

55.1. Section 59.-

The mode of creating a mortgage-the formal aspect-is dealt with by section 59. The first paragraph deals with cases where the principal money secured is one hundred rupees or upwards. In such a case, the mortgage, other than 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 delivery of the property.

55.2. History.-

Before 1929, section 59 ran as follows:-

"Where the principal money secured is one hundred rupees or upwards, a mortgage 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 delivery of the property.

Nothing in this section shall be deemed to render invalid mortgages made in the towns of Calcutta, Madras, Bombay, Karachi, Rangoon, Moulmein, Bassein, Akyab and in any other town which the Governor-General in Council may by notification in the Gazette of India, specify in this behalf, by delivery to a creditor or his agent of documents of title to immovable property, with intent to create a security thereon."

The last paragraph of the section has now been transferred to section 58(f), and the words "other than a mortgage by deposit of the title deeds" inserted in the first paragraph as a consequential amendment. But, as will be indicated later, no consequential amendment has been made in the second paragraph of section 59.

55.3. Before the passing of this Act, no written conveyance was necessary by the law of India for creating a mortgage.1 An oral mortgage could be validly made without writing, by simple delivery of possession.2 Where, however, a mortgage securing a sum of more than one hundred rupees was created by a written instrument, it was required to be registered under the provisions of the Registration Act.3 Under section 59-

(1) A simple mortgage can be made only by a registered instrument.

(2) A mortgage, other than an equitable mortgage, can be made only by a registered instrument, if the principal money secured by it is one hundred rupees or upwards.

(3) A mortgage, other than a simple mortgage or an equitable mortgage, can be made either by a registered instrument or by delivery of possession if the principal money secured by it is less than one hundred rupees.

1. Mahomed Musa v. Aghore Kumar, AIR 1914 PC 27 (28).

2. Ahmad Raza v. Syed Abid Hussain, AIR 1916 PC 41 (43).

3. Section 17(1)(b), Registration Act.

55.4. Scope.-

The section has a wide scope. It applies to all mortgages, including anomalous mortgages.

A combination of a simple mortgage and a usufructuary mortgage, often referred to as a "simple mortgage usufructuary" was not classed under the Act, as it stood before 1929, as an anomalous mortgage. The characteristic of this mortgage is that the property is collaterally pledged (as in the case of a simple mortgage), with a covenant to pay, and the mortgage is given the usufruct of it by allowing him to take the rents and profits.

Where, under an instrument purporting to be a mortgage, possession was transferred and there was a stipulation to pay the money at a particular time, failing which the property was to be regarded as sold to the mortgagee, it was held, before 1929, that it was a simple mortgage usufructuary, and not a mortgage by conditional sale.1 It would now be an anomalous mortgage.

Where a mortgage provided that if the mortgagee took possession, he would be entitled to receive the rents and profits in lieu of interest, but that, if during the period of possession the profits do not cover the amount of interest at a certain rate, the mortgagor will make good the deficiency, it was held by the Privy Council that this was a combination of a simple and usufructuary mortgage.2 A stipulation in a document ran as follows:-

"If according to the terms of the deed the interest of each year be not paid on the due date, these terms will not prevent you (mortgagee) from recovering the amount then and there if you should so desire without waiting for the due date."

The agreement provided that if interest is not paid on due date, mortgagee could enter upon the property and pay himself the interest and also portion of the principal if the income is available for that purpose also.

It was held that the mortgage was primarily a simple mortgage, though in certain events, it might be converted into a usufructuary mortgage.3

In all these cases, the formalities must be complied with.

1. Venkiah v. Donga Pallai, AIR 1921 Mad 12 (16) (FB).

2. Jawahir Singh v. Someshwar, 1906 ILR 28 All 225 (231) (PC).

3. Rama Chandra v. Maharaja of Jeypore, AIR 1917 Mad 198 (199).

55.5. Section 59-Recommendation as to second paragraph.-

In regard to the first paragraph of section 59, it may be mentioned that an exception for mortgage by deposit of title deeds is necessary, because in such a case there is neither restoration of the instrument-usually, there is no instrument-nor delivery of the property. Insisting on an instrument being registered would defeat the very object of recognising this category of mortgages, hence the need for an express exception.

It is curious that in the second paragraph of the section, there is no exception for a mortgage by deposit of title deeds. The available material does not disclose any reason for not making an exception. There is already an exception even in the second paragraph for a simple mortgage, obviously because, in a simple mortgage as defined in section 58(b), there is no delivery of the property.

If there is a delivery of the property, then it would no longer remain a simple mortgage, and would become an anomalous mortgage. We are of the view that in the second paragraph also, there ought to be an exception for a mortgage by deposit of title deeds, and we recommend that such an exception should be inserted.

55.6. Section 59-Recommendation as to signature.-

As to the expression "signed" which is followed by the words "by the mortgagor" in the first paragraph, we should mention that it is not the intention of the legislature that the signature must be by the mortgagor himself. Signature by an agent properly authorised would suffice, according to judicial construction.1-3 Whilst this is a fairly sensible construction of the section, we think that it is desirable that the point should be expressly provided for in the language of the section. In this connection, we may draw attention to the language of the corresponding section4 regarding gift.

In the first paragraph of section 123, it is provided that for the purpose of making a gift of immovable property, the transfer must be effected by a registered instrument "signed by or on behalf of the donor". Of course, the absence of these words in section 59 fortunately does not make any difference according to the judicial construction. However, it is to be noted that this position was not arrived at without some controversy. For example, in the Allahabad High Court for some time, the contrary view prevailed.5

To prevent the controversy from arising again, and in any case, to make the section more self-contained than at present, we recommend that in section 59, first paragraph, after the words "signed by", the words "or on behalf of" should be inserted. Of course, it is not necessary in this context to elaborate the meaning of "signature". "Signature" includes a mark,6 and signature is not confined to signature by pen and ink; it can be in any other convenient mode-for example, use of a facsimile.7

1. Deonarain v. Kukarbind, ILR 24 All 319 (FB).

2. Shashi Bhushan v. Chandra Pashkar, ILR 33 Cal 861.

3. Sristidhar v. Raksha Kely, ILR 49 Cal 438.

4. Section 123.

5. Motia Begum v. Uorawar, 1889 All WN 196.

6. Compare section 3(52), General Clauses Act, 1897.

7. Chandra v. Saratmani, 1899 ILR 25 Cal 911.

55.7. Attestation.-

Under the section, in the case of a registered instrument,1 attestation by at least two witnesses is compulsory. A document which is not duly attested as required by law is of no effect, and this is so even if the execution is admitted. Hence a mortgage deed which is not properly attested is invalid as a mortgage deed, though it may be admissible in evidence as a simple money bond.2 It is to be noted, however, that its use as a simple bond is permissible only where there is a personal liability.3 Although a loan prima facie involves a personal liability to pay, this is not so in the case of every secured loan-and certainly not in the case of every mortgage.

This consequence, arising from the invalidity of the mortgage by reason of want of due attestation, or for the matter of that, by reason of non-compliance with other statute, is not merely one operating on the mortgagee. In certain circumstances, it may operate on the mortgagor also. For example, if the mortgage deed is not attested, a mortgagor cannot be granted a decree of redemption on the basis of that deed, and his only remedy to sue on his title, that is to say, disregarding the mortgage.

1. Hira Bibi v. Ram Hari Lal, AIR 1925 PC 203 (204).

2. Dhana Mohammad v. Nastulla, AIR 1926 Cal 637.

3. Ram Narayan v. Adhindra, AIR 1916 PC 169.

55.8. Proof of execution.-

Execution of the document must be proved. Thus, it must be proved that the document was attested by two witnesses, and that the mortgagor signed the document. In Namberumal Chettiar v. Raghavachariar, AIR 1921 Mad 701 (702, 703) (DB), Abdur Rahim, J., observed as follows:-

"A mortgage bond, in order to be valid, must be executed in the presence of two attesting witnesses. Section 68 of the Evidence Act further requires that one at least of the attesting witnesses to a mortgage bond should be called, if there is any alive. But that does not in any way affect the requirements of section 59 of the Transfer of Property Act, section 68 of the Evidence Act lays down that in order to prove a mortgage bond, one of the attestators must be called.

It would be competent for that attestator or for any other witness to prove that the execution was in the presence of two attestators and it is not necessary to call two attestators. There may be cases where all the attesting witnesses are dead, when the requirements of the law would be satisfied by any evidence which would shown that the document was executed in the presence of two attesting witnesses."

And Seshagiri Aiyar, J., in the same case, observed:

"Under section 68, it is necessary that a particular class of witness should be called in order to prove a document which is required by law to be attested. Therefore this provision does not do away with the necessity of showing that the document is valid. A document may be proved as requited by section 68 and put on record. Nonetheless, in order that a decree may be founded on it, it must be shown to be valid; and for this purpose we must go to section 59 of the Transfer of Property Act.

That section lays down that unless a mortgage is attested by two witnesses, there cannot be a proper mortgage. Mere proof by a single witness that it has been executed, cannot enable a party to get a decree on the mortgage, unless it is also shown that at its execution, the document is attested by two witnesses."

55.9. Invalidity.-

The section lays down the manner in which a mortgage can be validly made. And it is a general principle that where a statute requires a transfer to be made in a particular manner, it can be made only in the way so prescribed by the statute, or by a decree of a competent Court. The section requires that where the principal amount secured is one hundred rupees or upwards, a mortgage other than an equitable mortgage can be made only by a registered instrument.

An unregistered document of mortgage, in such a case, does not affect the property dealt with by it. Where such bond is executed in consideration of previous bonds, the previous bonds do not get merged in the unregistered bond, and the promisee does not lose his right to proceed to enforce such previous bonds. An oral mortgage, in a case where the sum secured is one hundred rupees or upwards, is also invalid and conveys no interest.

55.10. Consequence.-

Where the mortgagor is not permitted to establish the relationship by reason of an invalid deed, one consequence may be that the mortgagee acquires the status of a mortgagee by the doctrine of prescription-if his possession has been qua mortgagee. Incidentally, the above discussion shows the utility of a personal covenant, wherever such a covenant can be spelt out.

In Shamu Patter's case1, the Privy Council held-

"Section 59 of the Transfer of Property Act requiring that in a certain class of cases a mortgage 'can be effected only by a registered instrument signed by the mortgagor and attested by at least two witnesses,' could only mean that the witnesses were to attest the fact of execution. Any other construction in their Lordships' opinion would remove the safeguards which the law clearly intended to impose against the perpetration of frauds."

1. 1912 ILR 35 Mad 607.

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