REG 041 Mortgage and Registration — Law of Registration Notes for Judiciary

Mortgage and Registration: Section 59 of the Transfer of Property Act, the Six Kinds of Mortgage, and the Memorandum of Deposit of Title Deeds

The Transfer of Property Act recognises six kinds of mortgage, and Section 59 prescribes one mode for five of them and excepts the sixth. Where the principal money secured is one hundred rupees or more, a mortgage can be effected only by a registered instrument signed by the mortgagor and attested by at least two witnesses. The exception is the mortgage by deposit of title deeds, which is created by the act of deposit itself and needs no instrument at all. The whole of the difficulty in this branch of the law lies in what happens when the parties, having made such a deposit, nevertheless write something down.

Section 59, the one mortgage that escapes it, and when a memorandum of deposit falls back within it

1. Mortgage Defined, and the Six Kinds

Section 58, Transfer of Property Act, 1882, in substance

58(a). Mortgage defined. A mortgage is the 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, an existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability.

(b) Simple mortgage. The mortgagor binds himself personally to pay, and agrees that in default the mortgagee shall have a right to cause the property to be sold; possession is not delivered.

(c) Mortgage by conditional sale. The mortgagor ostensibly sells the property on condition that on default the sale shall become absolute, or that on payment the sale shall become void and the buyer shall retransfer.

(d) Usufructuary mortgage. The mortgagor delivers possession, and authorises the mortgagee to retain possession until payment and to receive the rents and profits in lieu of interest, or of principal, or of both.

(e) English mortgage. The mortgagor binds himself to repay on a certain day and transfers the property absolutely to the mortgagee, subject to a proviso for retransfer on payment.

(f) Mortgage by deposit of title deeds. Where a person in any of the towns notified by the State Government delivers to a creditor or his agent documents of title to immovable property, with intent to create a security thereon.

(g) Anomalous mortgage. A mortgage which is not any of the above.

Every one of these is a transfer of an interest in immovable property, and that is why Section 17(1)(b) of the Registration Act is attracted. Section 59 supplies the mode, and the Registration Act supplies the machinery and the consequence of non compliance.

2. Section 59 and the Registration Requirement

Section 59, Transfer of Property Act, 1882

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 delivery of the property.

The threshold is on the principal money secured, not on the value of the property mortgaged. A mortgage of property worth ten lakhs to secure a loan of ninety rupees is below the threshold.
Attestation by two witnesses is an independent requirement, exactly as for a gift under Section 123. A registered but unattested mortgage deed is bad as a mortgage.
Signature of the mortgagor suffices, because it is he who transfers the interest. Unlike a lease, execution by both parties is not required.
A simple mortgage can never be made by delivery of the property, even below the threshold, because a simple mortgage is by definition one in which possession is not delivered.
The instrument must be registered in the office of the district in which the property is situate, under Sections 28 to 30, and within the time allowed by Sections 23 to 26.

Kind of mortgage	Possession	Registration where principal is Rs. 100 or more
Simple, Section 58(b)	Not delivered	Registered instrument, Section 59
By conditional sale, Section 58(c)	May or may not be delivered	Registered instrument, Section 59
Usufructuary, Section 58(d)	Delivered to the mortgagee	Registered instrument, Section 59
English, Section 58(e)	Ordinarily delivered	Registered instrument, Section 59
Anomalous, Section 58(g)	As the parties agree	Registered instrument, Section 59
By deposit of title deeds, Section 58(f)	Not delivered; the title deeds are	None. Expressly excepted by Section 59

⚠ The proviso to Section 58(c) on mortgages by conditional sale

A transaction is a mortgage by conditional sale and not a sale with a right of repurchase only where the condition is embodied in the same document that effects or purports to effect the sale. That proviso was added to end the practice of proving by extrinsic evidence that an out and out sale deed was really a mortgage. Where the condition is in a separate document, the transaction is a sale with an agreement to reconvey, and the consequences differ completely: there is no equity of redemption, no suit for redemption, and the only remedy is specific performance of the agreement to reconvey within the period of limitation.

3. The Mortgage by Deposit of Title Deeds

This mortgage, also called an equitable mortgage, is the one true exception to Section 59. It is created by the act of deposit and requires no writing, no attestation and no registration. The reason is historical: it came from the English practice of depositing deeds with a banker, and it was preserved in India for the convenience of commercial lending. Three things must concur.

1. A debt, existing or to be advanced.

2. A deposit of the documents of title to immovable property with the creditor or his agent. The deeds need not be all of them, provided what is deposited is material evidence of title.

3. An intention that the deeds shall be security for the debt. This is the essential element, and it may be proved by the circumstances of the deposit; it need not be in writing.

It operates only in a notified town. Section 58(f) applies where the deposit is made in a town which the State Government has notified for the purpose, and the list is a matter of State notification.
No writing is necessary, and no registration. The security is created by the deposit itself, which is why Section 59 excepts it in terms.
It is a mortgage for all purposes. The mortgagee has the remedies of a mortgagee, and the mortgagor the right of redemption.
It takes its place in priority from the date of the deposit, subject to Sections 48 and 50 of the Registration Act and to the rules of notice.

4. When a Memorandum of Deposit Requires Registration

In practice the lender almost always asks the borrower to sign something. Whether that writing needs registration is the question this branch of the law is really about, and the answer is the same test we have met elsewhere: does the document create the security, or does it merely record a security already created by the deposit?

📖 Rachpal Mahraj v. Bhagwandas Daruka, AIR 1950 SC 272

Facts. Title deeds were deposited with a creditor as security, and a writing was executed in connection with the deposit. The question was whether that writing was compulsorily registrable, and whether, being unregistered, the security failed.

Held. The Supreme Court held that where the parties intend the writing to be the bargain between them, that is, where the document itself is the contract of mortgage and contains its terms, it is the source of the security and must be registered. But where the deposit of title deeds is itself the transaction, and the writing is merely evidence of, or a record of, that deposit, it does not require registration, because the mortgage was created by the deposit and not by the paper.

Ratio. The enquiry is into the intention of the parties as gathered from the document and the circumstances: is the document the instrument of the bargain, or is the bargain the deposit and the document only its memorial? Only the former falls within Section 17(1)(b).

A memorandum that only records	A memorandum that is the bargain
States that the deeds have been deposited, and lists them	Sets out the terms: the sum, the rate, the period, the remedies
Refers to a deposit already made	Operates to create the security by its own force
Creates nothing; the deposit created the mortgage	Creates a right in immovable property
Not registrable	Compulsorily registrable, Section 17(1)(b)
Admissible without registration	Inadmissible to prove the mortgage unless registered, Section 49

⚠ The consequence of getting it wrong is that the security fails

If the writing is held to be the bargain and it was not registered, the lender cannot prove the mortgage by that document, and Section 49 shuts it out as evidence of the transaction. He may be left with an unsecured debt, or with the difficult task of proving an oral deposit with intent to secure, independently of the writing he himself drew. This is why lenders draw the memorandum in the narrowest possible terms, reciting only that the deeds were handed over on a stated date with intent to create security, and keep the covenants in a separate unregistered loan agreement that deals with the debt and not with the property. Some States have in any event made such memoranda chargeable with stamp duty or registrable by local amendment, so the State law must be checked.

5. Deposit of Title Deeds and Registered Mortgage Compared

	Mortgage by deposit of title deeds	Registered mortgage
How created	By delivery of the title deeds with intent to secure	By a registered instrument signed and attested, Section 59
Writing	Not necessary	Essential
Attestation	Not necessary	Two witnesses, Section 59
Registration	Not required, expressly excepted by Section 59	Compulsory where the principal is Rs. 100 or more
Where available	Only in a town notified by the State Government	Anywhere
Public notice	None from any register; the security is invisible to a searcher	Constructive notice from the date of registration
Speed and cost	Immediate; no stamp duty on a conveyance scale	Slower; full mortgage duty and registration fee
Principal risk	Proof of the deposit and of the intention, and the memorandum trap	None once registered, subject to priority

6. Acknowledgment of the Mortgage Money

A writing by which the mortgagor acknowledges that the mortgage money remains due is not an instrument affecting immovable property. It creates, declares, assigns, limits and extinguishes nothing; its only effect is on limitation, under Section 18 of the Limitation Act, 1963, which gives a fresh period from the date of the acknowledgment. It therefore requires no registration.

The acknowledgment must be in writing and signed by the party against whom the right is claimed, and must be made before the expiry of the period of limitation.
An acknowledgment cannot revive a debt already barred. It extends a running period; it does not resurrect a dead one.
A document that goes further and creates a fresh charge is a different thing altogether, and falls within Section 17(1)(b).
A part payment of principal or interest endorsed on the deed operates under Section 19 of the Limitation Act, and equally needs no registration.

7. Release, Redemption and the Discharge of a Mortgage

When the mortgage money is paid the mortgagee's interest must be got rid of, and the form in which that is done decides whether registration is needed. The right of the mortgagor is the right of redemption under Section 60 of the Transfer of Property Act, which includes the right to require the mortgagee to deliver a registered acknowledgment that the right has been extinguished, where the mortgage was effected by a registered instrument.

The document	Effect	Registration
A deed of release or reconveyance by the mortgagee	Extinguishes the mortgagee's interest in the immovable property	Compulsory, Section 17(1)(b)
A receipt endorsed on the mortgage deed for payment of the mortgage money	Acknowledges payment; it is not an instrument of transfer	Exempt, Section 17(2)(xi)
A separate receipt for the mortgage money, not endorsed on the deed	Depends on its terms; a bare receipt creates nothing	Not registrable if it is a bare receipt
A decree in a redemption suit	Declares the redemption and directs reconveyance	Exempt as a decree of a court, Section 17(2)(vi)
An assignment of the mortgage by the mortgagee to a third party	Transfers an interest in immovable property	Compulsory, Section 17(1)(b)

Section 17(2)(xi), Registration Act, 1908

17(2). Nothing in clauses (b) and (c) of sub section (1) applies to: (xi) an endorsement on a mortgage deed acknowledging the payment of the whole or any part of the mortgage money, and any other receipt for payment of money due under a mortgage when the receipt does not purport to extinguish the mortgage.

8. The Registered Mortgage Against a Subsequent Transfer

1. Section 48 of the Registration Act gives a registered document, from the date of its execution, effect against every oral agreement or declaration relating to the same property, unless the oral agreement is accompanied by delivery of possession and amounts to a valid transfer.

2. Section 50 gives a registered document relating to immovable property priority over an unregistered document relating to the same property, subject to the exceptions in that section.

3. Section 47 carries the operation of the registered mortgage back to the date of its execution, so priority between two registered mortgages is determined by the dates of execution and not by the order of registration.

4. Section 3 of the Transfer of Property Act fixes a subsequent transferee with constructive notice of a registered instrument, so he cannot claim to be a purchaser without notice of the mortgage.

5. A mortgage by deposit of title deeds carries no such notice, because there is nothing on any register to be found. Priority between an equitable mortgage and a later registered transfer is decided on the ordinary rules of notice and of possession of the title deeds, which is why the deposit of the originals matters so much.

6. Section 55 of the Transfer of Property Act and the doctrine of the unpaid vendor's charge, and Section 100 on charges, supply further competing interests that a searcher must consider.

9. The Position Stated Shortly

1. A mortgage is a transfer of an interest in specific immovable property to secure a debt, Section 58.

2. Where the principal money is one hundred rupees or more, a mortgage other than one by deposit of title deeds can be made only by a registered instrument signed by the mortgagor and attested by two witnesses, Section 59.

3. Simple, conditional sale, usufructuary, English and anomalous mortgages all fall within that rule and within Section 17(1)(b).

4. A mortgage by deposit of title deeds is expressly excepted. It requires a debt, a deposit of title deeds in a notified town, and an intention to create security.

5. A memorandum recording a deposit already made needs no registration; a memorandum that is itself the bargain must be registered, Rachpal Mahraj v. Bhagwandas Daruka.

6. An acknowledgment of the mortgage money affects limitation only and requires no registration.

7. A deed of release or reconveyance extinguishes an interest in immovable property and must be registered; an endorsement of payment on the mortgage deed is exempt under Section 17(2)(xi).

8. An assignment of a mortgage is a transfer of an interest in immovable property and is compulsorily registrable.

9. A registered mortgage operates from the date of execution under Section 47, takes priority under Sections 48 and 50, and fixes a later transferee with constructive notice.

10. An equitable mortgage appears on no register, so its priority turns on notice and on possession of the title deeds.