Transfer of Property Act (TPA)
Clog on the Equity of Redemption: The Doctrine, Its Application in India, and What Is Not a Clog
A borrower in need is not in a position to bargain, and a lender who knows it can ask for terms that leave the security irredeemable in all but name. Equity answered by refusing to enforce such terms at all. The rule is short: a mortgage is redeemable, and any provision inserted to prevent redemption on payment of the debt is a clog and is void. It applies however freely the term was agreed, and it applies to the substance of the bargain rather than to its form — but it does not strike down every hard term a lender extracts.
Figure 1: The right of redemption, and the stipulations that cannot hold it down
1. The Doctrine
The classical statement A mortgage is a conveyance of property as a security for the payment of a debt. Any provision inserted to prevent redemption on payment or performance of the debt or obligation for which the security was given is what is meant by a clog or fetter on the equity of redemption, and is therefore void. It follows that, the security being redeemable by its nature, it cannot be made irredeemable by any stipulation in the mortgage itself. |
- The right is an incident of the transaction, not a term of the contract. It arises because the transaction is a security, and it cannot be bargained away at the time the security is given.
- Hence the maxim, once a mortgage, always a mortgage — and its corollary, that a mortgage cannot be made irredeemable.
- The doctrine rests on inequality of bargaining power. Its whole justification is that the mortgagor, needing the money, will agree to anything.
- In India it is applied as a rule of justice, equity and good conscience, and it is reinforced by the proviso to section 60, which allows the right to be extinguished only by the act of the parties or by the decree of a court.
2. What Has Been Held to Be a Clog
The stipulation | Why it is struck down |
|---|---|
That on default the mortgage shall operate as a sale, or the property shall become the mortgagee's absolutely | It converts a security into a conveyance, and destroys the right the transaction carries |
That redemption shall not be made after a fixed date | A right that must subsist so long as the mortgage subsists cannot be cut off by a date |
That redemption shall not be made for a very long term, in circumstances making the bargain oppressive | The length of a term is not objectionable in itself; it becomes a clog where, taken with the other circumstances, it makes redemption illusory |
An option to the mortgagee to purchase the property | A right of purchase reserved in the mortgage itself fetters the mortgagor's recovery of his own property |
A collateral advantage that continues after redemption | It burdens the property returned, and so survives the very transaction it was said to accompany |
A penalty or an enhanced rate of interest operating on default so as to make redemption impracticable | The court looks at the practical effect, not the label |
3. What Is Not a Clog
- A long term by itself. Parties may agree that the money shall not be called in, or the mortgage redeemed, for a substantial period; the question is always whether the term, in its setting, fetters the right.
- A collateral advantage that ends with the redemption. A lender may stipulate for a benefit during the security — a trading advantage, for instance — provided it is not unconscionable and does not survive the redemption.
- A subsequent and independent sale of the equity of redemption. A mortgagor may afterwards sell what remains in him, including to the mortgagee, provided the transaction is genuine, separate and for value.
- A stipulation about the mode or place of payment, or reasonable terms about notice, which regulate redemption rather than prevent it.
- And a bargain between parties of equal standing is scrutinised less anxiously, because the reason for the doctrine is weaker.
4. The Test the Courts Apply
The question, and the circumstances The question is whether the stipulation, in substance, prevents or fetters the right to redeem. The form of the clause and the freedom with which it was accepted are not answers. The circumstances the court weighs include the length of the term, the relation of the parties and their comparative bargaining strength, the adequacy of the consideration, whether the mortgagor was in urgent need, whether the property is of a kind that will appreciate, and the conduct of the mortgagee. |
5. Landmark Cases
📖 Stanley v. Wilde, (1899) 2 Ch 474 Held: Lindley MR stated the doctrine in the form in which it has since been applied: a mortgage is a conveyance of property as a security for the payment of a debt, and any provision inserted to prevent redemption on payment or performance of the debt is a clog or fetter on the equity of redemption and is void. The security is redeemable, and cannot be made irredeemable. Ratio: The classical statement: a mortgage is always redeemable, and a provision preventing redemption is void. |
📖 Noakes & Co. Ltd. v. Rice, (1902) AC 24 (HL) Held: A covenant by the mortgagor of a public house that he would, during the whole of the term and whether or not the money was repaid, buy his beer only from the mortgagee brewer was held void so far as it was to operate after redemption. The mortgagor was entitled to get back what he had given, unencumbered by the collateral obligation. Ratio: A collateral advantage that continues after redemption is a clog: the mortgagor must get his property back as it was. |
📖 Kreglinger v. New Patagonia Meat & Cold Storage Co. Ltd., (1914) AC 25 (HL) Held: A collateral advantage stipulated for by a lender is not void merely because it is a collateral advantage. Where the stipulation is not unfair or unconscionable, is not in the nature of a penalty clogging the equity of redemption, and is in substance a separate and independent bargain, it may be enforced even after redemption. Ratio: Not every collateral advantage is a clog; the question is whether it fetters the redemption or is a separate bargain. |
📖 Gangadhar v. Shankar Lal, AIR 1958 SC 770 Held: The rule against clogs is applied in India as a rule of justice, equity and good conscience. A long term for redemption is not by itself a clog; the court must consider whether, in the circumstances in which it was imposed, the condition operates as a fetter on the right to redeem. Ratio: Length alone does not make a clog; the circumstances of the bargain decide. |
📖 Pomal Kanji Govindji v. Vrajlal Karsandas Purohit, (1989) 1 SCC 458 Held: Examining long-term usufructuary mortgages, the Court held that the doctrine rests on the recognition that a borrower deals from weakness, and that the court will look at the whole of the circumstances — the length of the term, the relation of the parties, the adequacy of the consideration, and the conduct of the mortgagee — in deciding whether the bargain is oppressive and the postponement a clog. Ratio: The clog enquiry is a survey of all the circumstances in which the bargain was made. |
6. Related Topics and Provisions
- Right of Redemption, Section 60 — the right the doctrine protects
- Kinds of Mortgages under Section 58 — and the conditional sale, where the line with a real sale is drawn
- Section 60 proviso — extinguishment by act of the parties or by decree
- Sections 67 and 69, TPA — foreclosure and sale, which end the right lawfully
- Transfer of Interest vs Transfer of Ownership — why the equity of redemption exists at all
- Section 91, TPA — the persons who may redeem