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Doctrine of clog on redemption

March 27, 2015

by

Neerja Gurnani

1 Comment

By Akshay Malpani

Editors note:

When a mortgage takes place, there exists a right of the mortgagee to buy back the property without
any encumbrances by paying the loan. This right arises out of equity, and is commonly known as the
right to redemption. It is codified under 60 of the Transfer of Property Act, 1882. Any obstruction to
this right is void as it constitutes a clog on the equity of redemption. The maxim once a mortgage
always a mortgage means that there can no covenant that modifies the character of the mortgage
agreed between the parties that would stop the mortgagor to redeem his property back on payment of
the principal and respective interests.

Introduction

Equity would mean in a laymans life as fairness. Back during the middle Ages in England, there were
certain grey areas where it was observed that the Common Law was inadequate in its abilities to deliver
justice to the common person[1]

. This led to a directive by the King to appoint Chancellors in special courts who would go beyond the
realm of the law to dole out justice and fairness to the parties

[2]
. In Common Law, equity is used as a means to sharpen the meticulousness of the law in order to
achieve justice

[3]

. Such courts were called Courts of Equity.

Under a mortgage, two interests are generated by the owner of the property. One is the interest of the
creditor on the property, which is limited and fixed and another, is the residuary interest left which can
be quantified only by deducting the creditors interest from the value of the security[4]

. The fundamental bargain from this division of interests is the presence of a right to buy back the
property without any encumbrances by paying the loan

[5]

. This right is called the equitable right to redeem. The first instance of the presence of the right of
redemption was found in Roman law

[6]

. It has been rightfully said that

Redemption is purely a creature of courts of equity

[7]

Section 60 of the Transfer of Property Act, 1882 provides the right of redemption to the mortgagee. This
right becomes alive only after the principal money becomes[8]

. There are certain limitations to this right by the fact that it exists only till the mortgagee decides to
exercise his right of foreclosure on the property

[9]

. Thus, the contract of mortgage between the parties ends, when the debtor exercises his right to
redeem through paying off the loan

[10]

This right provided by the Transfer of Property Act is a statutory right which can only be done away by
compliance to the procedure established by law[11]
. It would henceforth follow that any obstruction to this right would be declared as void as a clog on the
equity of redemption

[12]

Clog on redemption

In

Stanley v. Wilde

[13]

, Lindley M.R. gave one of the founding explanations of the basis of this doctrine

The principle is this: a mortgage is a conveyance of land or an assignment of chattels as a security for
the payment of a debt or the discharge of some other obligation for which it is given. This is the idea of a
mortgage: and the security is redeemable on the payment or discharge of such debt or obligation, any
provision to the contrary notwithstanding. That, in my opinion, is the law. 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
from this, that once a mortgage always a mortgage.

The maxim once a mortgage always a mortgage means that there can no covenant that modifies the
character of the mortgage agreed between the parties that would stop the mortgagor to redeem his
property back on payment of the principal and respective interests[14]

The basis of this doctrine lies in the exercise equity, justice and good conscience[15]

and is extensive to areas where the act is not applicable

[16]

. On a realistic perusal of the workings of a mortgage, it is observed in most of the cases that the
mortgagor enters into such an agreement because of some financial predicament

[17]

. The law recognizes the power of the dominant party to insert clauses which will serve his personal
interests by creating impediments on the right to redeem the property

[18]
. Such obstructions are henceforth struck down by the courts to enable the mortgagee to redeem his
property

[19]

. In

U. Nilan v. Kannayyan (Dead) Through Lrs

[20]

, explaining the philosophy behind the doctrine, it was said that

Adversity of a person is not a boon for others. If a person in stringent financial conditions had taken the
loan and placed his properties as security therefor, the situation cannot be exploited by the person who
had advanced the loan. The Court seeks to protect the person affected by adverse circumstances from
being a victim of exploitation. It is this philosophy which is followed by the Court in allowing that person
to redeem his properties by making the deposit under Order 34 Rule 5 C.P.C.

Leading cases

There are no fixed qualifying circumstances in determining what would or would not amount to a
clog[21]

. It has been something that would have to be decided on the facts and circumstances of the case

[22]

. There are certain situations where it was held that the covenant was a clog on the right.

Long Term Mortgages

Long term mortgages are common in cases of usufructuary mortgages. A term of 95 years or 100 years
would definitely extend beyond ones lifetime and superficially seems like a clog[23]

. Taking cognizance of the same, the Supreme Court has ruled that only by virtue of lengthy period, a
mortgage would not amount to a clog, there must exist a presence of undue advantage or fraud to term
it as a clog

[24]

.
In

Vadilal Chhaganlal v. Gokaldas Mansukh

[25]

, the mortgage agreement provided that it would subsist for 99 years and the mortgagee would be
allowed to construct any structure on the property without any limit on the cost. The Supreme Court
reasoned that it would be beyond the ability of the mortgagor to repay the principal money along with
the interests and the construction expenses. It was held that both the conditions amounted to a clog on
the mortgagees right of redemption.

In

Ramkhilawan Dilrakhan Ahwashi v. Mullo

[26]

, the case of the plaintiff was that a covenant for the payment of principal money after 80 years and only
in the month of Baisakh, was a clog. The Trial Court dismissed the suit by calculating that the profits
from the mortgaged property was sufficient to pay the interests on the principal. On appeal, the High
Court upheld the lower courts decision. However in

Balbhaddar Prasad v. Dhanpat Dayal

[27]

, the property mortgaged for 50 years was worth 9000. The final amount to be paid after deducting the
profits from the property was around two and a half lakhs. The Court held that such an enormous fund
had led the property to be irredeemable and the terms of the contract were oppressive and
unconscionable.

Condition of Sale of Property

A covenant that a mortgaged property, if not redeemed within a fixed time, would translate into a sale is
a clog[28]

. However if there is a separate agreement whereby the mortgagor executes a sale deed in favor of the
mortgagee as an independent transaction, such sale deed is valid

[29]

In
Meharban Khan v. Makhna

[30]

, the mortgage agreement provided that the mortgagee was to be entitled to possession of the property
for 19 years. There was a stipulation that if the mortgagor paid off his debt, he would be allowed to
redeem the property only till a limited interest and the residual interest would belong to the mortgagor.
It was further envisaged that on failure of the mortgagor to pay, the property would be deemed to be
sold to the mortgagee permanently. The Court ruled that both conditions amounted to a clog. It was
held that on payment of the full amount due, the property would be reverted back without any
encumbrance.

This principle would also extend to cases where on default of payment, the property would be deemed
to have been foreclosed, amounts to a clog[31]

. However parties are free to stipulate such a condition subsequently after the mortgage agreement

[32]

In

Kuddi Lal v. Aisha Jehan Begam

[33]

, the plaintiff-mortgagor was allowed to redeem the property back by paying from her own pockets and
not through transferring the property. The Court held that such a covenant was a clog on redemption
since it restrained alienation by the mortgagor.

Penalty in case of default

Payment of a penalty if there is default on behalf of the mortgagor can reasonable but in certain
situations it may be unreasonable and penal[34]

. Certain situations where a penalty has been held to be unreasonable are

On default, compound interest is stipulated even when the original interest was very high[35]

On default, increased rate of interest would apply from the time the agreement is made[36]
.

By merely the virtue of there being a high interest does not lend the condition to be a clog on
redemption unless it could be shown that there was undue influence in the dealing[37]

Collateral Benefit to Mortgagor

A mortgagor may avail of a collateral benefit either during the subsistence of the mortgage, which is
valid, or after the redemption, which in some cases is not valid[38]

In

Noakes " Co. v. Rice

[39]

, a covenant in the mortgage agreement stipulated that the mortgagee would buy all the beer he would
consume on his property from the mortgagor who was a brewer. It was held that the tie was valid
during the subsistence of the mortgage but not beyond redemption. The property must be delivered
back without any tie.

One of the famous cases on collateral benefit was

Kreglinger v. New Patagonia Meat and Cold Storage Co. Ltd

[40]

. In that case, the mortgage was of a term of 5 years with an option to the mortgagor to redeem the
property before completion of the term. The agreement further stipulated that the mortgagor should
sell sheepskins exclusively to the mortgagee as long as both parties agreed to a fixed price. The
mortgagee paid the mortgage before 5 years and filed a suit for declaring the tie of exclusive selling to
be declared as a clog on redemption.

The House of Lords held that the provision of exclusive sale to lenders did not amount to a clog. It was
reasoned that the mortgagee is allowed to stipulate for a collateral benefit beyond the period of
redemption provided that the stipulation is not

Unconscionable or unfair.

A penalty amounting to a clog on the right to redeem.

Contrary to the right of redemption.

Kreglingers
case is important in recognizing the limits of the doctrine by the terms of the contract unless they are
oppressive, unconscionable or unreasonably hard

[41]

. The freedom of the parties to contract is asserted by this case

[42]

The rule enunciated in

Kreglingers

met with approval in

re Cuban Land and Development Co.

[43]

, where it was stipulated that in the event of the winding up of the company, the debenture-holders
were entitled to a part of the remaining profits. Such a provision was held not to be a penalty clogging
the right of redemption.

It has also been approved by Indian Courts. A provision that allowed the mortgagee to remain in
possession of the mortgaged property through permanent tenancy was held to be clog because the
collateral benefit extended beyond the period of redemption[44]

Subsequent Agreement to postpone redemption

A subsequent agreement which becomes an obstruction to the mortgagee by creating a personal

obligation is a clog on his right to redemption[45]Google.com

. The reason is that unless the agreement forms a charge on the property, the mortgagee is not liable to
pay any sum arising from his personal obligation except the mortgage amount.

In

Sheo Shankar v. Parma

[46]
, the mortgagor had already executed a usufructuary mortgage in favor of the mortgagee. He further
executed a simple mortgage in order to borrow more money. A provision in the simple mortgage
provided that the mortgagor was stopped from redeeming the property till the amount in the simple
mortgage was paid. It was held that such a provision was void as a clog.

In

Hari v. Vishnu

[47]

, a loan of 1500 was advanced to the plaintiff on mortgage by the defendant. The mortgage deed
provided that 5000 was still to be paid by the plaintiff on a previous mortgage and stipulated that till
both the sums were paid, the plaintiff was not entitled to redeem the property. The deed was stamped
at a value on 6500. It was held that since both the transactions were clubbed into one, the provision
was not a clog.

Conclusion

As we have seen, whether something would or would qualify as clog on the right of redemption is
something that cannot be determined absolutely. It has to be settled through a careful perusal of the of
the mortgage deed, the circumstances surrounding the parties entering into a mortgage, the amount
advanced and nature of the transaction[48]

However the doctrine has not escaped without controversy. Sir Fredrick Pollock has made his
displeasure known by terming this doctrine as an anachronism[49]

. He believed that the doctrine cannot keep on assuming that the mortgagor is a victimized party in the
bargain. According to him, in the modern age, both parties are at a level playing field and giving a
mortgagor a ground to repudiate his obligations by portraying one of the clauses of the contract as
unconscionable, it works against public policy as a whole

[50]

Pollock isnt completely wrong in his analysis of the doctrine. The doctrine was envisaged at a time when
feudal landlords would use their power over oppressed peasants to enter into unfair agreements by
virtue of their necessity. But with the growth of commerce and passage of time, such inequality has
been more or less abolished. Providing an excuse to one party to escape his obligations is a bad
precedent to set. However these criticisms have not stopped the courts in India to apply this test. Where
a major chunk of the population in India still works in the agrarian sector and lives under below poverty
line without any formal banking systems, the doctrine still has some prevalence in such situations. It is
left at the discretion of the judiciary to decide in which cases a prudent application of this doctrine lies.
Edited by Neerja Gurnani

[1]

S.N. Shukla, The Transfer of Property Act 219 (23

rd

ed., 2001).

[2]

Id.

[3]

F.H. Lawson " Bernard Rudden, The Law of Property 15 (Peter Birks ed., 3

rd

ed., 2002).

[4]

Id

. at 131.

[5]

Id.

[6]

2 Leonard A. Jones, A Treatise on the Law of Mortgages of Real Property 1 (The Riverside Press,
Cambridge 1894).

[7]

Posten v. Miller

, 19 N.W. 540.

[8]

Sarojini Prabhu v. Papikutty Adiesian

, AIR 2007 Ker 44.

[9]

Poonam Pradhan Saxena, Property Law 344 (2

nd

ed., 2011).

[10]

Parmeswaran Govindan v. Krishnan Bhaskaran

, AIR 1992 SC 1135.

[11]

Mulla, The Transfer of Property Act, 1882 656 (Solil Paul ed., 9

th

edition, 2000).

[12]

Id.

[13]

(1899) 2 Ch 474

[14]

G.C.V. Subha Rao, Law of Transfer of Property Act 882 (4

th

ed., 2006).

[15]

Murarilal v. Dev Karan

, AIR 1965 SC 225.

[16]

Ambalal Jasraj v. Ambalal Badarwal

, AIR 1957 Raj 321.

[17]

Poonam Pradhan Saxena, Property Law 348 (2

nd

ed., 2011).

[18]

Id.

[19]

Id.

[20]

AIR 1999 SC 3750.

[21]

Bhullan v. Bachcha

, AIR 1931 All 380.

[22]

Pomal Kanji Govindji v. Vrajilal Karsandas Purohit

, AIR 1989 SC 436.

[23]

Saxena,

supra
note 17, at 354.

[24]

Valdas and Ors. v. Bai Jivi and Ors

, AIR 1973 Guj 93.

Saleh Raj v. Chandan Mal

, AIR 1960 Raj 47, held that a term of 99 years was not held as not oppressive and not amounting to clog.

[25]

AIR 1953 Bom 408.

[26]

AIR 1957 MP 200.

[27]

AIR 1924 Oudh 193.

[28]

Rocky Flora v. Parvarthy Ammal

, AIR 1957 Ker 175.

Hajee Fatma Bee v. Prohlad Singh

, AIR 1985 MP 1.

[29]

Poonam Pradhan Saxena, Property Law 359 (2

nd

ed., 2011).
[30]

AIR 1930 PC 142

[31]

Shankar Dhonddev v. Yeshwant Raghunath

, AIR 1928 Bom 82.

[32]

2 Sanjiva Row, Transfer of Property Act 1095 (6

th

ed., 1999).

[33]

AIR 1927 Oudh 199.

[34]

1 Sanjiva Row, Transfer of Property Act 879 (7

th

ed., 2011).

[35]

Rama Krishnayya v. Venkata Somayajulu

, AIR 1934 Mad 31.

[36]

Sunday Koer v. Sham Krishnen

, ILR 34 Cal 150.

[37]

Sarfarz Singh v. Udwat Singh

, AIR 1929 Oudh 30.

[38]

Row,

supra

note 34, at 883.

[39]

1902 AC 24.

[40]

1914 AC 25.

[41]

2 Sir Hari Singh Gour, The Transfer of Property Act, 1882 1248 (10

th

ed., 2002).

[42]

Id.

[43]

(1921) 2 Ch 147.

[44]

Bhimrao Nagojirao Patankar v. Sakharam Sabaji Kantak

, AIR 1922 Bom 277.

[45]

1 Sanjiva Row, Transfer of Property Act 884 (7

th

ed., 2011).

[46]

ILR 26 All 559.

[47]

ILR 28 Bom 349.

[48]

2 Sir Hari Singh Gour, The Transfer of Property Act, 1882 1260 (10

th

ed., 2002).

[49]

19 L. Q. Rev. 359 (1903)

[50]

Id.

Filed Under:

Property Law

Tagged With:

clog on redemption

doctrine

,
mortgage

transfer of property

Comments

Maryam

says

January 11, 2017 at 7:30 am

Its really a helpful article.

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