WORKING OF MORTGAGE SYSTEM IN INDIA By - Atul Kumar Ojha, & Lishanchi Gupta,

WORKING OF MORTGAGE SYSTEM IN INDIA

Authored By - Atul Kumar Ojha,

& Lishanchi Gupta,

(Ll.B(Hons.),1st Sem.) Amity University,

Patna Atulojha909@Gmail.Com

 Patna Lishubaby21@Gmail.Com

Abstract;

Mortgage industry in India followed according to law of transfer of property Act, 1882. It is playing a great role in the development of Indian society. This Act was commission by the British India. After independent RBI (Central Bank of India) control the mortgage industry of India. Major players of this sector are HDFC and SBI etc. Banks mortgage system of India needs a lot of improvement for the growth of the sector. The growth of mortgage industry in India is quite slow as compare to globe. Rights and duties of mortgagor and mortgagee must be need to transparent. RBI appointed authorities guides the banks regarding the local area for the improvement of mortgage sector. Housing sector of India has a great chance in both Urban and Rural area.

Government of India taken a lot of steps to improve this sector, like P.M. Aawas Yojna etc. People took their loan from small traders and pay high rate of interest on the amount borrowed by borrower. It is basic disadvantage for home buyers due to lack of knowledge of law.

Government need to intervene in it and make new policy and create transparency. Spreading the knowledge of duties and rights of mortgagor and mortgagee help the sector improve.

Banks likes HDFC are doing good in this sector.

Key words

Mortgage industry, Right of mortgagor, Right of mortgagee, Duties of mortgagor, Duties of mortgagee.

Introduction

गच्छन् पिपिपिको यापि योजनानाा ं शिान्यपि । अगच्छन् वैनिेयः िदमेका  ं  न गच्छपि ।।

The loan is secured against some immovable property of the debtor, it is called mortgage. According to section 58(a) of transfer of property Act 1882, “Mortgage is the transfer of an interest in specific immovable property for the purpose of securing 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”1.

The transferor is called a mortgagor, the transferee a mortgagee.

Elements which are necessary in mortgage are;

• There must be transfer of an interest.
• The interest transferred must be of some specific immovable property.
• The purpose of transfer of interest must be to secure payment of any debt or, performance of an engagement which may give rise to pecuniary liability.2

Mortgage is classified in six kinds according to section 58 of transfer of property Act 1882;

1. Simple mortgage
2. Mortgage by conditional sale
3. Usufructuary mortgage
4. English mortgage
5. Mortgage by deposit of title-deeds, and
6. Anomalous mortgage.3

1 The transfer of property act by Dr. R.K.Sinha, 25th edition

2 By Nishtha, visit on 19th dec. 2022, https://www.legalserviceindia.com/legal/article-6078-mortgage.html

3 Ibed, Sec. 58

Mode of completing mortgages;

Section 59 of T.P. Act 1882, makes provision for the formalities which are necessary to complete a mortgage. This section lays down three modes of completing a mortgage.

1. 1. Registration
   2. Delivery of possession and
   3. Deposit of title-deeds.

Registration;

All the mortgage made through registered instrument, if the sum assured (debt) is Rs 100 or more except mortgage by deposit of title-deeds. But a simple mortgage must always be made through a registered deed irrespective of the amount of debt.4

Delivery of possession;

Mortgage by conditional sale, usufructuary mortgage and English mortgage may be effected by delivery of mortgage property provided the sum assured (debt) is less than Rs 100.

Registration is optional; it is not compulsory.5

Deposit of title-deeds;

Mortgage by deposit of title-deeds does not require registration. Where a person borrows money for business purpose by executing a promissory note and deposited title-deeds of the subject-matter of dispute and also a letter of confirmation and also admitted and confirmed entire borrowing and signing of document, it is a case of equitable mortgage and the mortgagor is liable to pay mortgage amount. It an oral transaction and mere delivery of the title-deeds of immovable property completes a valid mortgage.6

Historical background;

India being world largest democracy today. The history of mortgage in India going on from ancient time. The word mortgage is derived from a law French term used in British in the middle ages meaning “death pledge”. In ancient system of law, mortgage was really a place the property a gage which was forfeited on default of payment. The transaction was effected either by delivery of possession or by conditional conveyance. It is seen in various law system in world.

Sir H.S. Gour refers in his book. Where the mortgage system in Roman law displayed. In England the mortgage system is followed in common law.7

In British India, when British came to India they found mortgage law in India different from English law in two respect before reformed.

The transaction of conditional sale was treated as mortgage. Time was considered to be of the essence of the contract even in a mortgage, with the result that after he expire of the time fixed under the tract, property could not be redeemed by the mortgage or the ostensible seller.

In Hindu law, A mortgage by conditional sale was a very early from of mortgage among Hindu. In Muhammad an law, the mortgage by conditional sale was a device to evade the Islamic prohibition of interest. This was the bye-bill-wife, a sale with a promise, so that the mortgage enjoyed the rents and profits in form of interest and become absolute owner of property if the debt was not paid.

The mortgage system used in almost every civilized society as a legal system from time immemorial. Maybe because it an easy system to lend money and secure something in lie of money.8

Analytical study;

India is world largest democracy with world 2nd largest population lives here. According to data analysis there is a variety of changes in Urban and Rural area of development in India. The mortgage sector of India id slight lower as expectation but the future growth is very bright. The chairman of one of one India’s biggest housing finance companies Mr. Deepak Parekh also said that favorable condition like rising income levels, improved affordability and fiscal support augur well for the demand for homes.

India should be able to double its home loans to around $600 billion within the next five years. Wrote HDFC chairman Deepak parekh in his letter to the shareholders. “This would coincide with the period when India attains its much-aspired goal of being a $5 trillion economy”, he also pointed out that despite the doubling of housing loans, India’s mortgage penetration would

4 Supra Note - 1

5 Supra note- 1

6 SupraNote- 1

7 law of transfer in British India vol 2 page 911

8 By Julia Kagan visit on 19th dec. 2022 https://www.investopedia.com/terms/h/home-mortgage.asp

still remain law at an estimated 13 percent of GDP. When one idoks at comparable Asian economies the average mortgage to GDP ratios range between 20 to 30 percent.

According to National stock exchange fifty.9

Industry price to earning ratio;

• Investors are most optimistic about the thrifts and mortgage finance industry even through its trading below its 3-year average PE ration of 17.9*.
• Analysts are expecting annual earnings growth of 15.7% , which is lower than the prior year’s growth of 26.4% per year.10

Forecasted growth;

• Analysts are most optimistic on the thrifts and mortgage finance industry, expecting annual earnings growth of 16% over the next 5 years.
• However this is lower than its past earnings growth rate of 26% per year.11

Current industry PE;

• Investors are pessimistic on the Indian mortgage industry, indicating that they anticipate long term growth rates will be lower than they have historically.
• The industry is trading at a PE ratio of 11.5* which is lower than its 3-years average PS ratio of 4.6*.12

Past earning growth;

• The earning for companies in the mortgage industry have declined 35% per year over the last three years.
• Revenues have also declined 42% per year.
• This means overall sales from these companies are declining and profits are subsequently falling as well.13

9 By Timesof india visited on 19th dec. 2022 https://timesofindia.indiatimes.com/city/mumbai/mortgage-mkt- to-double-in-5-yrs-hdfc-chairman/articleshow/92046861.cms

10 The data has taken from NIFTY through growth app

11 Ibed-10

12 Ibed-10

13 Supra Note-10

Statutory provision;

Mortgage system in India followed according to the transfer of property Act, 1882. Where the rights and duties of both mortgagor explain briefly, Also the punishment for violation of law is explain there.

The rights of mortgagor according to T.P. Act 1882 are;

1. Right to redemption section 60 of T.P. Act, 1882.
2. Right to transfer mortgaged property to a third section 60 (A) of T.P. Act, 1882.
3. Right of inspection and production of documents section 60(B) of T.P. Act, 1882.
4. Right to accession section 63 of T.P. Act, 1882.
5. Right to improvements section 63(A) of T.P. Act, 1882.
6. Right to renewed lease section 64 of T.P. Act, 1882.14

Duties/Liabilities of mortgagor according to T.P. Act, 1882;

1. Duty to avoid waste, section 66 of T.P. Act, 1882.
2. Duty to indemnify for defective title.
3. Duty to compensate mortgagee.
4. Duty to direct rent of a lease to mortgagee.15

Rights of mortgagee according to T.P. Act, 1882;

1. Rights to mortgagee in possession section 67 of T.P. Act, 1882.
2. Right to sue section 68 of T.P. Act, 1882.
3. Right to sell section 69 of T.P. Act, 1882.
4. Right to accession to mortgaged property section 70 of T.P. Act, 1882.
5. Right to mortgage to spend the money section 72 of T.P. Act, 1882.16

14 By Falgunwairya visited on 19th dec. 2022 https://www.legalserviceindia.com/legal/article-6089-rights-and- liabilities-of-a-mortgagor.html

15 Ibid-14

16 Ibid 14

Duties/Liabilities of mortgagee in possession according to T.P. Act, 1882;

1. Duty to manage the property.
2. Duty to collect rent and profit.
3. Duty to pay rent, revenue and public changes.
4. Duty to make repairing.
5. Duty not to commit ant act which reduce value of property.
6. Duty to keep the accounts.
7. Duty to apply rents and profit.17

Role of related authority;

RBI regulate the mortgage industry in India. RBI guide banks of India that how they have improve in the mortgage sector for public welfare. But the approval must be done through the inspection of legal government authority, like RBI release notice on 1st July by master circle of housing finance 18in point number 5 i.e. approvals from statutory/ regulatory authorities.

While appraising proposals involving real estate, banks should ensure that the borrowers should have obtained prior permission from government/Local governments/Other statutory authorities for the project, wherever required. In order it is said that the process of loan approval not made to be tough according to it, the loan should be passed but after the approval of government with proper documents.

Judicial Trend;

Indian Bank V. Punjab National Bank,19 Fact of the case;

• The secured property in question was mortgaged by the undisputed owner with the

Indian Bank on 10.5.1985, the petitioner in the present write petition, by depositing certified copies of the title deeds.

17 Supra Note-14

18 RBI/2015-16/46 DBR. No. DIR. BC. 13/08.12.001/2015-16

19 AIR 2010 Mad 84(DB

• The very same owner of the belongings subsequently created every other equitable mortgage over the very same belongings via depositing the authentic title deeds with Punjab national financial institution on 10.6.1989.
• Two banks had separately filed independent suits, which were transferred to the Debt Recovery Tribunals as per the Recovery of Debt due to banks and financial institutions Act, 1993 and two separate orders were passed in their favour.
• while the Punjab country wide financial institution took steps to place the property for sale, objection changed into raised via Indian bank.

Issue of the case;

The competition of the Indian financial institution before the tribunal changed into to the impact that it changed into admittedly the prior mortgagee and due to the fact that on the time of introduction of the equitable loan the owner had knowledgeable that the authentic name deeds which include sale deeds and the need have been lost and untraceable, the licensed copies of the sale deed and the desire have been deposited and finally the bank also attain a sworn statement from the proprietor on 28.7.1989, wherein it have been indicated that the original identify deeds had been misplaced.

Judgment;

• The Indian financial institution had prevalent the certified copies of the original identify deeds i.e. sale deed and registered will at the time of creation of the equitable mortgage.
• there may be not anything to indicate that Indian bank had taken any care on the time of creation of mortgage to investigate as to why the original title deeds had been now not produced.
• Affidavit to the effect that the authentic identify deeds had been misplaced was given by using the owner after about months.
• From these circumstances which one not in dispute at all, the reasonable inference as has been drown by the appellate tribunal is that the Indian Bank had not taken proper care of at the threshold.
• For the aforesaid reasons, we (The Honorable Mr. Justice P.K. Mishra and The Honorable Mr. Justice R. Subbiah) are unable to interfere with the order passed by the Debt Recovery Appellate Tribunal. Accordingly, the write petition is dismissed.

Effect;

• A new doctrine of mortgage of property evolve.

Conclusion & Suggestion;

Mortgage system of India is transfer interest in form of immovable property. Mortgagor and mortgagee relation is like debtor and creditor. There is some essentials to fulfilled for complete a mortgage. It also have right and duties of mortgagor and mortgagee. The object of the mortgage is to secure debt. In the case of default in payment, mortgagee has remedy to recoup money given by sale, foreclosure, where terms of mortgage permit it.

The mortgage has a right of redemption mortgage has a wide scope for the development and growth. It is different transactions from pledge, lease, charge etc.