Mortgage — Definition and Six Kinds (Section 58)

A debtor who has land has a security worth offering. A creditor who lends against land knows that, if the borrower defaults, he can reach back into the property and satisfy himself out of it. That elementary bargain — a debt secured on immovable property, with the borrower retaining ownership and the lender taking an interest — is what Section 58 of the Transfer of Property Act, 1882 calls a mortgage. The section then catalogues six legally recognised varieties of that bargain. Each variety prescribes who holds possession, who pays the principal and interest, what the lender can do on default, and what formalities the parties must observe. The differences sound minute on the page but they decide who can sue whom, in what cause of action, and within what limitation. Mastery of Section 58 is mastery of half the law of mortgages. The chapter sits beside the basic scope and application of the TPA and the rules on competence to transfer in Section 7.

Section 58(a) — Mortgage, mortgagor, mortgagee, mortgage-money

Section 58(a) supplies the foundational vocabulary. "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." The transferor is the mortgagor; the transferee, the mortgagee. The principal money and interest of which payment is secured for the time being are called the mortgage money; the instrument by which the transfer is effected is the mortgage deed.

Five elements are embedded in that definition. First, there is a transfer of an interest — not the whole ownership. The mortgagor remains owner; the mortgagee acquires only such interest as is sufficient to secure his debt. Second, the property must be specific immovable property; a mortgage of "all my property" is not invalid, but the property must be ascertainable. Third, the security must be of money or money's worth — money advanced or to be advanced, an existing or future debt, or a pecuniary engagement. A bare promise to perform a non-pecuniary obligation cannot be secured by a mortgage. Fourth, the property is given as security; the central feature of every mortgage is that the property reverts to the mortgagor on satisfaction of the debt. Fifth, the parties stand in a relationship of debtor and creditor; if there is no debt, there is no mortgage. The principle bites particularly hard where parties try to dress an unsecured loan as a mortgage of specific transferable property under Section 6.

The section's relationship to sale under Section 54 is one of contrast. A sale extinguishes the seller's interest; a mortgage preserves it, subject only to the lender's security. Where a transaction is dressed as a sale but the substance is security for a debt — recital of indebtedness, agreement to reconvey on payment, payment of interest — the courts have consistently held it to be a mortgage. The doctrine "once a mortgage, always a mortgage" rests on this rule of substance over form. The clog on the equity of redemption is, in the same way, a corollary: the right to redeem cannot be made nugatory by a clever drafting choice.

The six kinds — a comparative map

Section 58 then lists six varieties: (b) simple mortgage; (c) mortgage by conditional sale; (d) usufructuary mortgage; (e) English mortgage; (f) mortgage by deposit of title deeds; and (g) anomalous mortgage. The classification turns on three axes: who holds possession, what right the mortgagee can exercise on default, and what formalities the parties must observe. Take each in turn.

(b) Simple mortgage

In a simple mortgage, the mortgagor binds himself personally to pay the mortgage money and agrees, expressly or by implication, that in the event of default the mortgagee shall have the right to cause the mortgaged property to be sold by court order and the proceeds applied in payment of the debt. Possession remains with the mortgagor. The mortgagee has no right to take possession; his remedy on default is a suit for sale under Order XXXIV CPC, leading first to a preliminary decree for sale and then a final decree.

Two features are characteristic. First, the personal covenant — the mortgagor undertakes a personal liability to repay, and the mortgagee can sue on that covenant alone, even without resorting to the security. Second, the right of sale through the court, not foreclosure. A simple mortgage is therefore the lender's instrument of choice where he wants the borrower's general assets, not just the land, behind the debt; if the property at sale fetches less than the debt, the mortgagee can pursue the personal decree for the shortfall, subject to the priorities settled by notice — actual and constructive. Like the rules in Sections 8 to 11 on the operation of transfer, the formalities here cannot be relaxed by agreement. By Section 59, a simple mortgage where the principal is ₹100 or more must be effected by a registered instrument signed by the mortgagor and attested by at least two witnesses.

(c) Mortgage by conditional sale

In a mortgage by conditional sale, the mortgagor ostensibly sells the property to the mortgagee, on condition that on default of payment of the mortgage money on a certain date, the sale shall become absolute, or that on payment of the mortgage money the sale shall become void, or that on payment of the mortgage money the buyer shall transfer the property back to the seller. Section 58(c), as amended in 1929, contains a vital proviso: no such transaction shall be deemed to be a mortgage unless the condition is embodied in the document which effects or purports to effect the sale.

The proviso closes a notorious litigation channel. Before 1929, parties could execute a sale deed and a separate agreement of reconveyance the same day; later, the seller would say it was a mortgage and the buyer would say it was a sale. The 1929 amendment requires the condition of reconveyance to be in the same instrument, so that the document must be read as a whole. The mortgagee's right on default is not sale through the court but foreclosure — a decree absolute that the mortgagor's right to redeem is foreclosed and the conditional sale becomes absolute. There is no personal covenant; the mortgagee cannot sue on the debt independently of the security.

(d) Usufructuary mortgage

In a usufructuary mortgage, the mortgagor delivers possession of the property to the mortgagee, or expressly or by implication binds himself to deliver possession, and authorises the mortgagee to retain such possession until payment of the mortgage money, and to receive the rents and profits of the property and to appropriate them in lieu of interest, or in payment of principal, or partly in lieu of interest and partly in payment of principal.

The defining feature is that the mortgagee takes possession; the rents and profits become his security in lieu of interest. There is no personal covenant for repayment, and there is no fixed date by which the mortgagor must pay. The mortgagee cannot sue for sale or foreclosure; his only remedy is to retain possession until satisfaction. The mortgagor's right to redeem accrues only on the rents and profits exhausting the principal; the limitation under Article 61 of the Limitation Act, 1963 is thirty years from the date the right to redeem accrues. A usufructuary mortgage where the principal is below ₹100 may be effected by an oral agreement coupled with delivery of possession — see the closing paragraph of Section 59 — but where the principal is ₹100 or more, the usufructuary mortgage must be by registered instrument.

(e) English mortgage

In an English mortgage, the mortgagor binds himself to repay the mortgage money on a certain date and transfers the mortgaged property absolutely to the mortgagee, but subject to a proviso that the mortgagee shall retransfer it to the mortgagor upon payment of the mortgage money as agreed. Three structural features distinguish the English mortgage from the simple variety. First, there is an absolute transfer to the mortgagee, subject to retransfer; the mortgagor has only the equity of redemption. Second, possession passes — though English mortgages in practice are sometimes structured to leave physical possession with the mortgagor as a tenant. Third, the mortgagee's remedy on default is a suit for sale, like a simple mortgage, but the rents and profits in the meantime are his under the absolute conveyance.

The English mortgage is the variety used most often by institutional lenders — banks, financial institutions, insurance companies — where the security is a high-value commercial property and the parties want the mortgagee's interest to be visible on the title. Like a simple mortgage, the English mortgage of property worth ₹100 or more must be by registered instrument attested by two witnesses (Section 59).

(f) Mortgage by deposit of title deeds — the equitable mortgage

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, the transaction is called a mortgage by deposit of title deeds. The section confines the variety to cities specified by the State — Calcutta, Madras (now Chennai), Bombay (now Mumbai), and any other towns the State Government may, from time to time, notify by publication in the Official Gazette.

The equitable mortgage has three remarkable features. First, no formal instrument is required; what is required is delivery of title deeds with intent to create a security. The intent is the operative element, and an oral statement at the time of deposit, or a contemporaneous memorandum recording the deposit, is admissible to prove it. Second, no registration is required, because the transaction is not effected by an instrument; the proviso to Section 48 of the Registration Act, 1908 inserted in 1929 confirms that an equitable mortgage takes effect as against any subsequently executed and registered mortgage of the same property. Third, the term "equitable mortgage" is something of a misnomer in India; the Privy Council in Imperial Bank of India v U Rai Gyaw AIR 1923 PC 211 made clear that the English distinction between legal and equitable mortgages does not apply in India — every mortgage in India is a statutory mortgage.

The most common modern use of the equitable mortgage is as a quick, low-cost security for short-term commercial finance — bills, cash credits, working capital loans — where the borrower deposits title deeds with the bank and the bank parts with the money. If a memorandum is signed at the time of deposit purporting to record or constitute the contract of security, that memorandum will itself be required to be registered; the safe practice is for the deposit to precede the memorandum or for the memorandum to record only the fact of deposit, not the terms.

(g) Anomalous mortgage

Section 58(g) is the residual category. A mortgage which is not a simple mortgage, not a mortgage by conditional sale, not a usufructuary mortgage, not an English mortgage, and not a mortgage by deposit of title deeds is called an anomalous mortgage. Two well-known examples are the combined simple-and-usufructuary mortgage — the mortgagee is given possession and the right to appropriate rents in lieu of interest, and is also given the right to sue for sale on default of repayment of the principal — and certain customary mortgages such as the kanom in Kerala or the otti in southern India, which combine features that do not fit cleanly into the statutory four corners.

The terms of an anomalous mortgage are governed primarily by the contract; the residual provisions of the TPA fill in any silence so far as they are not inconsistent with the express terms. The mortgagee's remedies are determined by what the contract gives him — he may sue for sale, for foreclosure, or both, depending on what the parties agreed. The combination is most often seen alongside other doctrinal complications such as the rules on lis pendens under Section 52, where mortgage litigation routinely overlaps with subsequent transfers.

Comparative table — six kinds at a glance

Kind	Possession	Personal covenant	Mortgagee's remedy on default	Form
Simple — S.58(b)	Mortgagor	Yes	Suit for sale (court)	Registered deed (if ₹100+)
Conditional sale — S.58(c)	Either	No	Foreclosure	Registered deed; condition in same document
Usufructuary — S.58(d)	Mortgagee	No	Retain possession until satisfaction	Registered deed (if ₹100+); else oral with delivery
English — S.58(e)	Mortgagee (with retransfer proviso)	Yes	Suit for sale (court)	Registered deed (if ₹100+)
Deposit of title deeds — S.58(f)	Mortgagor	Implied (debt)	Suit for sale (court)	Delivery of deeds in notified town; no instrument required
Anomalous — S.58(g)	Per contract	Per contract	Per contract	Registered deed (if ₹100+)

Section 59 — formalities for execution

Section 59 governs the form in which mortgages must be effected. The general rule is twofold. Where the principal money secured is one hundred rupees or upwards, every 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 or, except in the case of a simple mortgage, by delivery of the property. The result is that a usufructuary mortgage of a small principal can be made orally with delivery of possession; a simple mortgage cannot, because a simple mortgage has no possession to deliver and rests entirely on the personal covenant.

Attestation is a structural requirement, not a mere formality. A mortgage deed not attested by two witnesses, where it ought to be, is not a mortgage at all; it cannot be sued upon as a mortgage and will give the lender at most a personal decree for the debt, with no charge on the property. The Privy Council in Shamu Patter v Abdul Kadir (1912) ILR 35 Mad 607 (PC) and the Supreme Court in M L Abdul Jabbar v Venkata Sastri AIR 1969 SC 1147 emphasised that attestation requires the witnesses to have seen the executant sign, or to have received from him a personal acknowledgment of his signature. A formal attestation that does not satisfy these conditions is no attestation in law.

Mortgage and sale distinguished

Distinguishing a mortgage by conditional sale from an outright sale with a separate option to repurchase is one of the most heavily litigated questions in the law of mortgages. The 1929 proviso to Section 58(c) supplies the structural test: if the condition of reconveyance is in the same document as the sale, the transaction is a mortgage by conditional sale; if it is in a separate document, the transaction will, in general, be treated as an outright sale. But that is only a starting point. Even where the condition is in the same document, the court will look at the totality of the transaction — was there a relationship of debtor and creditor; was the consideration grossly less than the value of the property; was the agreed reconveyance price the same as the consideration plus interest; was the transaction tainted by any of the badges of fraud or undue advantage identified under Section 53; did the transferor remain in possession; was there a recital of indebtedness — to decide whether the substance was security for a debt or a true sale.

The substance-over-form principle runs all the way through the chapter on mortgages. A transaction described as a sale that is in truth a security for a debt will be construed as a mortgage; the borrower's right of redemption cannot be defeated by drafting. The principle protects vulnerable mortgagors against the cleverness of moneylenders, and it is one of the equities that has flowed unbroken from the Privy Council into the Supreme Court.

Mortgage and lease distinguished

A mortgage and a lease both involve a partial transfer of interest. The lease transfers the right to enjoy the property for a term in exchange for rent or premium; the mortgage transfers an interest as security for a debt. The two are kept apart by the absence in the lease of any debtor-creditor relationship. A usufructuary mortgage and a lease can look superficially alike — the mortgagee is in possession, paying nothing, taking the rents — but the question is whether there is a debt at the foundation. If there is, it is a usufructuary mortgage; if there is not, it is a lease.

Mortgage and charge distinguished

A charge under Section 100 is a security on immovable property for the payment of money where, by act of parties or by operation of law, the security does not amount to a mortgage. The crucial difference is that a charge does not transfer any interest in the property; it merely creates a right against the property to compel payment out of it. A mortgage is a transfer of interest; a charge is not. The distinction matters for limitation, for priority, and for the remedies available — a chargeholder can enforce his charge by way of suit for sale, but he cannot foreclose, cannot take possession, and the charge does not bind a transferee for consideration without notice.

Why Section 58 is the doctrinal hinge

Section 58 is the gateway to the rest of the chapter on mortgages. The detailed rights and liabilities of the parties — the rights of accession and improvements, the right of redemption, the rules of marshalling, contribution, subrogation, tacking, and notice — all turn on which kind of mortgage was created. A simple mortgagee cannot foreclose; a mortgagee by conditional sale cannot sue for sale; a usufructuary mortgagee cannot sue for the principal until the rents and profits run out; an equitable mortgagee outside a notified town has no statutory mortgage at all. Each kind has its own remedies, its own formalities, and its own limitation. Reading Section 58 against the closing paragraph of Section 54, the practitioner is reminded that an agreement to sell does not create any interest, but a registered mortgage deed does — the difference between a contract and a transfer is the difference between a personal right and a real right, just as in the law of conditions restraining alienation.

The discipline of Suraj Lamps & Industries v State of Haryana (2012) 1 SCC 656 — that immovable property is transferred only by a registered conveyance — applies with even greater force to mortgages. A purported mortgage that is not registered, where Section 59 requires registration, is no mortgage. The lender who relies on it has, at most, a personal decree against the borrower; the property is untouched by his claim. For the aspirant facing a Section 58 problem, the structural method is invariable: identify whether the transaction creates a debtor-creditor relationship; identify which of the six varieties the parties have chosen; check whether the formalities of Section 59 have been observed; and then trace the rights and liabilities through the rest of the chapter. That four-step routine answers nearly every Mortgage problem on the paper.

Frequently asked questions

What are the six kinds of mortgage recognised under the Transfer of Property Act?

Section 58 of the TPA recognises six kinds: (b) simple mortgage, where the mortgagor remains in possession, undertakes a personal covenant to repay, and the mortgagee's remedy on default is a suit for sale through the court; (c) mortgage by conditional sale, where the property is ostensibly sold subject to a condition of reconveyance and the mortgagee's remedy is foreclosure; (d) usufructuary mortgage, where the mortgagee takes possession and applies the rents and profits in lieu of interest or in payment of principal; (e) English mortgage, where the property is transferred absolutely subject to a proviso of retransfer and the mortgagee's remedy is sale; (f) mortgage by deposit of title deeds, available in notified towns and effected by delivery of title deeds with intent to create a security; and (g) anomalous mortgage, the residual category for any mortgage that combines features of the above or is structured by local custom.

What is the difference between a mortgage by conditional sale and an outright sale with an option to repurchase?

The 1929 proviso to Section 58(c) gives the structural test: a mortgage by conditional sale requires the condition of reconveyance to be embodied in the same document as the sale. If the condition is in a separate document executed contemporaneously, the transaction is, in general, an outright sale with a separate option to repurchase. But the test is not purely formal; courts also examine the relationship between the parties (was it debtor-creditor?), the adequacy of consideration, whether the reconveyance price equals the consideration plus interest, and whether the transferor retained possession. Where the substance is security for a debt, the transaction will be construed as a mortgage even if its form looks like a sale.

Can a mortgage be created orally in India?

Yes, but only in two narrow situations. First, a usufructuary mortgage where the principal money secured is less than ₹100 may be effected orally, provided possession of the property is delivered — Section 59 last paragraph. Second, a mortgage by deposit of title deeds in a notified town under Section 58(f) does not require any instrument at all; delivery of title deeds with intent to create a security is enough, and oral evidence of intent is admissible. In every other case — simple, English, conditional sale, anomalous, and usufructuary mortgages of ₹100 or more — Section 59 mandates a registered instrument signed by the mortgagor and attested by at least two witnesses.

Why is the equitable mortgage in India different from the equitable mortgage in English law?

In England, an equitable mortgage is a mortgage that fails the formalities of a legal mortgage but is given effect in equity, and the legal mortgage takes priority over the equitable mortgage save where the legal holder has acted unfairly. The Privy Council in Imperial Bank of India v U Rai Gyaw AIR 1923 PC 211 held that this distinction does not exist in India. Section 58(f) creates a statutory mortgage by deposit of title deeds wherever the conditions are met — delivery of title deeds in a notified town with intent to create a security. The mortgage is not equitable in the English sense; it is a statutory mortgage, and the proviso to Section 48 of the Registration Act gives it priority against any subsequently executed and registered mortgage of the same property.

What happens if a mortgage deed is not attested by two witnesses as Section 59 requires?

Attestation is not a mere formality. A mortgage deed that ought to be attested by two witnesses but is not so attested is not a mortgage at all. The lender cannot sue on it as a mortgage; he cannot enforce a charge against the property under that document. At best he has a personal decree for the money lent against the borrower. The Privy Council in Shamu Patter v Abdul Kadir (1912) and the Supreme Court in M L Abdul Jabbar v Venkata Sastri (1969) emphasised that attestation requires the witnesses to have seen the executant sign or to have received from him a personal acknowledgement of his signature. A signature obtained without these conditions is no attestation.

When is a mortgage by deposit of title deeds available, and where must the deposit take place?

Section 58(f) confines the mortgage by deposit of title deeds to towns notified by the State Government. The original notified towns were Calcutta, Madras, and Bombay; State Governments have since notified other towns by publication in the Official Gazette. The deposit must take place in a notified town, but the property mortgaged need not be situated there. What is required is delivery of documents of title to a creditor or his agent with intent to create a security; the intent is the operative element. If the parties sign a memorandum at the time of deposit that itself purports to constitute the contract of security, that memorandum will require registration; the better practice is for the memorandum to record only the fact of deposit, not the terms.