This blog talks about the reasons, the courts follow the general position and the situations in which a ‘clog’ is valid under a mortgage agreement.
Introduction
A mortgage is a form of transfer wherein a party uses an interest in an immovable property as a security for a loan. The party that transfers such interest is known as the mortgagor, while the party providing the loan is the mortgagee. The rules for a valid mortgage are defined under Chapter-IV of the Transfer of Property Act, 1882. As per the chapter, all mortgages follow the basic premise that the mortgagee has to return the interest in immovable property, advanced as a security, to the mortgagor on payment of debt in full. The right by which the mortgagor, gets his interest in immovable property is known as the right of redemption. This right is defined under Section 60 of the Act.
The right to redemption is applicable to all mortgages and the mortgagee or the transferee loses all interests in the immovable property, after the payment of the debt in whole. In case of a part payment, the interest stays with the mortgagee till the amount is paid in full. If the mortgagor fails to pay the debt, the mortgagee can sell the land for the payment of the loan and the right to redemption stays till the actual sale is made. This is based on the popular maxim, ‘once a mortgage always a mortgage’. As per this maxim, the right of redemption is inherent to all mortgages on the full payment of the debt, for which such an immovable property was used as a security. The Indian courts have iterated the same principle in Jaimal v State of HP, wherein the right to redemption was found to be an absolute right that cannot be waived by any contract to contrary.
However, there have been situations in the past where the mortgagee has made attempts to obstruct the mortgagor’s right of redemption by putting conditions in the mortgage- deed, that forbids the mortgagor from exercising the right to redemption. These obstacles are called ‘clogs’ and any deed with such a ‘clog’ has been declared void ab initio by the courts. The deeds that have a clog on redemption are often seen as having been signed under coercion. This can be seen as the mortgagee, possess the financial resources to pressurize the mortgagor to accept any terms in the deed. Apart from this, any clog on redemption affects the mortgagor’s right to enjoy and possess property, along with the right to alienate. These rights are fundamental to having an interest in the property. Thus, the courts to protect the rights of the mortgagor have found deeds with any clog, to be void ab initio. This principle was first laid down in an English case and has been adapted into Indian jurisprudence to protect the mortgagor.
Law in India
As mentioned above, the courts in India have declared any ‘clog’ on redemption in the mortgage deed as void ab initio. This is done to protect the mortgagor who is in a vulnerable position, in the mortgage deed. So, can be said because the mortgagee has the financial resources, for which the mortgagor is ready to temporarily depart with his/her interest in the immovable property.
Another reason for following the position has been the widespread abuse of powers by the mortgagees against the mortgagors. In a case, in Punjab High Court, the mortgagor charged a higher interest than statutorily fixed by the government as the mortgagor was illiterate and hence, could not read the deed. The courts found that such a fraud was not limited to was not limited to charging higher interest rates but often, there were clogs barring redemption in the mortgage deed, that barred the mortgagor from getting his/her interest in the property back. Hence, to protect such vulnerable mortgagor’s, the courts have generally found any ‘clog’ on redemption in the deed, to be void ab initio, as prescribed by Santley v Wilde.
Exceptions to the law in India
The position established by Santley v Wilde, has largely been followed by the Indian Courts. However, there have been instances where the courts have deviated from the position and pronounced judgments wherein a ‘clog’ on the right to redemption has been held to be valid. Some examples of such exceptions are a short-term clog on redemption, long-term mortgages, an order from courts and implied clog. The first two conditions, namely short term and long term clogs are explicit conditions while the other two conditions are implied conditions that hold a clog as valid, by virtue of a statute.
Explicit Conditions
A short-term clog can be seen to be valid to protect the interests of the mortgagee. An example is the case of Kripal v Sheoamber, where the inability to exercise the right of redemption in the month of ‘Jeth’, was found not to be a clog and the deed was found to be valid. In another example, the court found a restriction on exercise to the right of redemption during the month of Vaisakh (A clog), to be a part of a perfectly valid mortgage deed.
Hence, it can be said that the courts look for a certain permanency when judging the effect of the clog. A restraint which is for a short-term, will not be a clog as the mortgagor possess the right to redemption barring the short term. The condition usually followed to determine a short-term period is that of a reasonable time. The courts also in finding a ‘clog’, valid in the short term look at the intention of parties for introducing such a ‘clog’. In the above cases, the mortgagee wanted to make sure that the redemption happens at a time when the crops are not standing on the land. The court found that such a condition is not a ‘clog’ as the right to redemption is only limited to one month, so that the mortgagee can protect his interests in the crops, for which he has employed capital. Thus, it can be said that a clog for a short period of time with a reasonable excuse to protect the mortgagee’s interests will not be a clog, provided the same has been mentioned in the mortgage deed by the consent of both the parties.
Another exception where a clog on redemption, in a deed, has not been held to be void ab initio is the case of long-term mortgages. Such mortgages are called usufructuary mortgages. These mortgages have the tendency to extend beyond the mortgagor’s death and hence, act as ‘clog’ on the right to redemption. Such mortgages, usually extended for 50 years or 99 years, the condition of a valid mortgage requires it to be signed by the age of majority, the same as a valid contract. Hence, it can be reasonably assumed that any such mortgage extending for 50 years or 99 years will naturally bar the right to redemption, by virtue of the death of the mortgagor. The Supreme court in the case of Chaturlal Valdas v Bai Jivi, on the same point held that a mortgage for a long-term, exceeding 50 years or one that bars the right of redemption by virtue of death will itself not be a ‘clog’, till there is evidence to show that the deed was signed under coercion.
However, there has been no clear position on defining ‘long term.’ The Apex court has usually followed the reasonable time principle. Hence usufructuary mortgages, extending for 100 years, have been found to be valid if there is no evidence of a fraud or coercion. However, a mortgage exceeding for 200 years has been found to be a clog on redemption as it looks unnatural and displays coercion. In a case, the supreme court found a mortgage extending for 85 years, wherein the heirs were required to pay the amount due after the death of the original mortgagor, to be valid as there was no evidence to show coercion or fraud.
The courts to find evidence of coercion, have looked at the mortgage deed. This test was first devised in the case of Pomal Kanji Govindji v Varjilal Karsandas Purohit, wherein the mortgagee could demolish the original structures and build new ones, was found to be a deed signed under coercion. This is because the court felt that no mortgagor would let the mortgagee demolish the original structures. Since then, the test called the ‘Freedom of Contract’ has been used in numerous cases of long-term mortgages.
The reason for following this position in terms of long term mortgages, can be again seen to be the protection of the rights of the mortgagee. So, can be said as the right to redemption, only arises when the mortgage is paid in full. Hence, it would be difficult to provide the mortgagor, the right to redemption before the payment has been made as it was prejudice the mortgagee. This is because, the mortgagee, will neither receive the payment, nor have a right to property, if a mortgagor is given a right to redemption before the whole amount is paid. Thus, to protect the rights of the mortgagee, the courts have found a long term mortgage to be valid.
Implicit Conditions
This includes situations where a clog has been found to be valid due to an order of the court or by the virtue of a statute.
One such instance is wherein the right to redemption has been found to be extinguished and a clog has been held valid, is where the court has passed the decree of foreclosure. This decree of foreclosure, extinguishes the right of the mortgagor in the property. Such a decree is passed wherein the mortgagor, has not paid back the amount due after the due date has passed and the mortgagee and the court, see no signs of the payment been made. However, such a deed if not passed by following the valid procedures will not amount to a clog on redemption.
Such a clog on redemption is valid, only when the court passes a decree of foreclosure. This decree is only passed when the mortgagee, files a suit for payment of a debt due in court. The court after providing reasons can foreclose or extinguish the mortgagor’s right in the property. It would not be wrong to assume that the mortgagee would only file a suit for foreclosure, when despite repeated efforts, the mortgagor has not paid back and also the court has to provide reasonable reasons for a judgment. In such a case, if a mortgagor, is given the right to redemption, the mortgagee will lose on both the payment and the security and will be prejudiced and will suffer a loss from the deed.
There is also an implied ‘clog’ on right to redemption, once the property has been sold by the mortgagee.to a third party. The mortgagor has no right of redemption, as such a right extinguished after the sale is made as mentioned in Section 60 of the Transfer of Property Act, 1882. The same was reiterated in the case of K Narayan Rao v Meenakshivelu.
Conclusion
Therefore, it can be said that the courts have largely followed the position laid down in Stanley v Wilde, and held any clog on redemption to be void ab initio. However, in cases where the mortgage deed imposes a short term clog on exercise of the right to redemption has been found to be valid. This position is mainly followed by the high courts and hence, will not be binding upon jurisdictions that fall beyond the scope of such high courts or the Supreme court.
However, other instances like long term mortgages, court decrees and statute based clogs have all been found to be valid by the apex court and hence, is a good precedent for all courts throughout India.
Hence, it can be said that the situations in which a mortgagee is prejudiced, the courts are likely to hold a clog on redemption on valid. However, for a such a position to be followed, it is necessary that the mortgagor has given free consent, which can be seen by the terms of the deed. If the terms, prima facie show no evidence of coercion, the courts usually assume that there has be no coercion, based on freedom of contract test.
The courts usually do not award judgments based on prima facie evidence alone and look at the surrounding circumstances to look for coercion.
Thus, it can be said that there is no fix way in which the validity of a clog can be judged. If it falls within the explicit conditions described above, it should be free from coercion to be a valid clog. The same is largely followed in cases of implied clogs, wherein the courts satisfy themselves about the free consent aspect, before the decision. However, in any other case, the clog will be void ab initio.
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