Seth Ganga Dhar vs Shankar Lal and Others

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 150 of 1954

Decision Date: 15 April 1958

Coram: SARKAR J.

In the matter titled Seth Ganga Dhar versus Shankar Lal and others, the Supreme Court of India delivered its judgment on 15 April 1958. The petitioner was Seth Ganga Dhar and the respondents were Shankar Lal together with other parties. The bench that heard the case dealt with an appeal concerning the mortgagor’s right to redeem a mortgage and examined whether a contractual provision that barred redemption for a period of eighty‑five years constituted a clog on the equity of redemption. The issue was considered under section 60 of the Transfer of Property Act, 1882 (Act 4 of 1882).

The headnote of the judgment explained that the rule against clogs on the equity of redemption, as embodied in section 60 of the Transfer of Property Act, authorises the Court to intervene not only where a mortgagor’s right of redemption is wholly taken away, but also where that right is unduly restricted. The Court’s power to set aside such restrictions, however, is limited by the reason for the interference – namely, the unconscionable nature of the bargain. The Court must therefore examine whether, in the facts of each case, the bargain had been imposed on the mortgagor by exploiting his difficult and impecunious position at the time he borrowed the money. The judgment referred to earlier authorities such as Vermon v. Bethell (1762) 2 Eden 110; 28 E.R.S 38, D. and C. Kreglinger v. New Patagonia Meat and Cold Storage Company, Ltd. [1941] A.C. 25, Santley v. Wilde (1913) L.R. 41 I.A. 84 and Mohammad Sher Khan v. Seth Swami Dayal (1912) L.R. 49 I.A. 60.

The Court observed that in the suit for redemption before it, the mortgage deed contained two distinct and independent provisions. The first provision stated that the mortgage could not be redeemed for a period of eighty‑five years. The second provision allowed redemption only after that period and required the mortgagor to exercise the right within six months thereafter; failure to do so would result in the mortgagor losing any claim to the mortgaged property and the deed being deemed a deed of sale in favour of the mortgagee. The Court found, from the surrounding facts and circumstances, that the bargain was fair and entered into by parties on an equal footing. Accordingly, the Court held that the term providing for a period of eighty‑five years did not amount to a clog on the equity of redemption. The mere length of the period, by itself, could not lead to a finding that the bar was oppressive or unreasonable. The term was enforceable in law, and a suit for redemption filed before the expiry of the eighty‑five‑year period was premature.

Furthermore, the Court held that the provision stipulating that, if the mortgagor failed to redeem within the specified six‑month window, he would lose his right to redeem and the mortgage deed would be treated as a deed of sale in favour of the mortgagee, was clearly

The Court observed that the clause which barred redemption for a period of eighty‑five years amounted to a clog on the equity of redemption and therefore was invalid; however, the Court held that the invalidity of that particular clause did not affect the enforceability of the separate term that fixed the duration of the mortgage, which was a distinct provision and remained valid.

The matter before the Court was Civil Appeal No. 150 of 1954, arising from a judgment and decree dated 21 March 1950 rendered by the Court of the Judicial Commissioner at Ajmer in Civil First Appeal No. 13 of 1948. That judgment itself stemmed from an earlier decree dated 30 March 1948 of the Sub‑Judge 1st Class, Ajmer, in Civil Suit No. I of 1947. The appellant was represented by counsel, while the respondents were represented by their own counsel. The appeal was decided on 15 April 1958, and the judgment was delivered by Justice Sarkar.

The appeal concerned a suit for redemption of a mortgage originally executed on 1 August 1899. The mortgaged property consisted of a four‑room shop with its appurtenances, situated on a plot measuring five yards by fifteen yards in Naya Bazar, Ajmer. The mortgage had been created by the now‑deceased Purshottamdas in favour of the respondent Dhanrupmal. The mortgage instrument declared that the property was mortgaged usufructuously for a sum of Rs 6,300, of which Rs 5,750 was retained by the mortgagee to enable him to discharge a prior mortgage affecting the same shop and another property.

The instrument further stipulated that, upon redemption of the prior mortgage, possession of the shop would pass to the mortgagee, Dhanrupmal, who was authorised to appropriate the shop’s rent as interest on the money advanced. Conversely, possession of the other mortgaged asset—a share in a Kachery—was to be restored to the mortgagor, Purshottamdas. The dispute turned on the specific provisions quoted from the mortgage deed, which read in essence as follows: the mortgagor and his heirs would be prohibited from redeeming the property for a period of eighty‑five years; after the expiry of that period they would have six months within which to redeem; failure to redeem within those six months would extinguish any claim by the mortgagor, his heirs or legal representatives to the property, and the mortgagee would not be entitled to recover the mortgage money or the lagat (repair) expenses then due. In such an event the deed would be deemed a sale deed, obviating the need to execute a fresh sale deed, and the mortgagee could recover the cost of repairs and new construction together with the mortgage money at redemption based on an account produced by the mortgagee.

Subsequent to these arrangements, the mortgagee Dhanrupmal fulfilled the condition of redeeming the prior mortgage and entered into possession of the shop, while the share in the Kachery was handed back to the mortgagor. On 12 April 1939, Dhanrupmal assigned all of his rights under the mortgage to Motilal, thereby transferring his interest in the mortgaged property to the assignee.

In this case the estate of Purshottamdas, who had been the original mortgagor, is now represented by his son, who is the appellant before this Court. The estate of the deceased mortgagee Dhanrupmal, who later died, is now represented by his sons; these sons are the other respondents in the present appeal. On 2 January 1947 the appellant instituted a suit in the Court of the Sub‑Judge at Ajmer against the respondents. The only respondents who appeared before the Sub‑Judge were the sons of Motilal, who had been the assignee of the mortgage; henceforth these parties are referred to as the respondents. The respondents argued that the suit was premature because the mortgage contract contained a clause that barred any right of redemption for a period of eighty‑five years from the date of the mortgage, that is, until 1 August 1984. The learned Sub‑Judge, relying on a decision of the Judicial Commissioner of Ajmer to which he was subordinate, held that the clause postponing redemption for eighty‑five years was invalid as it amounted to a clog on the equity of redemption. Consequently, the Sub‑Judge issued a preliminary decree in favour of redemption. The appellant appealed this order to the Judicial Commissioner, Ajmer. The Commissioner examined a large number of authorities and held that the decision relied upon by the Sub‑Judge was distinguishable; he concluded that the clause in question did not constitute a clog on the equity of redemption. Accordingly, the Commissioner allowed the appeal and dismissed the appellant’s suit. The present appeal before this Court arises from that dismissal.

The parties agree that the dispute is governed by the Transfer of Property Act, 1882. Section 60 of that Act provides that, once the principal money becomes due, the mortgagor may, on payment or tender of the mortgage money, demand that the mortgagee reconvey the mortgaged property. This statutory right is described as the right of redemption, and the appellant seeks to enforce that right through his suit. However, Section 60 makes clear that the right of redemption can be exercised only after the mortgage money has become due. In the decision of Bakhtawali‑Begum v. Husaini‑Khanam the Court expressed the same principle, stating that, “Ordinarily, and in the absence of a special condition entitling the mortgagor to redeem during the term for which the mortgage is created, the right of redemption can only arise on the expiration of the specified period.” In the present matter the mortgage specifies a term of eighty‑five years and contains no provision that allows the mortgagor to redeem before the expiry of that term. Because that term has not yet elapsed, the respondents contend that the appellant’s suit is premature and must be dismissed. The appellant counters this contention by arguing that the covenant creating an eighty‑five‑year period, together with the provision that the mortgagor must redeem within six months after the expiry of that period or lose the right altogether, and the remaining terms of the mortgage, constitute a clog on the equity of redemption.

The appellant argued that the provision in the mortgage contract was a clog on the equity of redemption and therefore void. He further asserted that, consequently, the mortgage money had been due from the beginning and the suit was not premature. The case cited (1913) L.R. 41 I.A. 84, 89. The legal rule concerning clogs on the equity of redemption states that a mortgage must always remain redeemable and that a mortgagor’s right to redeem cannot be removed or limited by any agreement between the parties. This rule was articulated by Lindley M. R. in Santley v. Wilde (1). He said: “The principle is this: a mortgage is a conveyance of land or an assignment of chattels as 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 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.’” Accordingly, the right of redemption cannot be taken away, and courts will ignore any contract that deprives the mortgandor of that right. One clear conclusion follows: the clause in the mortgage that stipulates that if the mortgandor fails to redeem within six months he will have no claim to the mortgaged property and that the deed will be treated as a sale to the mortgagee cannot be upheld. That clause entirely eliminates the mortgandor’s right to redeem after the six‑month period, which is impermissible because a mortgage remains redeemable at all times. The same outcome is supported by section 60 of the Transfer of Property Act. In Mohammad Sher Khan v. Seth Swami Dayal (2) it was observed that a mortgage allowing the mortgagee, after a lapse of time and without redemption, to take rents to satisfy interest would be valid only if it did not also obstruct the existing right to redeem. The present mortgage clearly attempts to do so. It is expressly stated to last five years, after which the principal becomes payable. Under section 60, the mortgandor acquires a right to redeem upon payment of the mortgage money, and the section contains no saving provision to preserve any contrary contract.

In this matter the Court observed that there was no justification for limiting the effect of the statutory provision. The provision states that once the right to redeem has arisen it cannot be taken away, and therefore the mortgagor’s right to redeem must continue even after the six‑month period has elapsed. Any clause in a mortgage that limits redemption to within six months and denies it thereafter must be held invalid and ignored. The learned Judicial Commissioner had adopted the same view, and no party in this appeal challenged that view on behalf of the respondents. The dispute, however, did not centre on that six‑month limitation. The appellant’s counsel attacked a different clause in the mortgage instrument which stipulated that redemption would not be possible for eighty‑five years. He argued that this clause constituted a clog on the equity of redemption. The Court noted that the counsel did not argue that the earlier finding of invalidity—concerning the six‑month restriction—automatically rendered the eighty‑five‑year term invalid. The latter clause merely fixes the time at which the principal sum becomes due, that is, when the right to redeem accrues, and it does not relate to a clause that would extinguish that right. Consequently, the invalidity of one clause does not affect the other. The clause stating that the right to redeem arises after eighty‑five years does not take away the mortgagor’s right to redeem and therefore is not a clog in that sense, although it postpones the accrual of the redemption right for the specified period. The Court explained that the redemption right does not arise until the principal money is due, and the due date is determined by the parties’ agreement. In this case the parties agreed that the principal would become due and the right to redeem would arise eighty‑five years after the mortgage was created. The appellant claimed that he should be freed from that bargain, and the Court said this claim must be examined. While the rule against clogs on the equity of redemption allows courts to relieve a party from a clause that wholly forfeits the redemption right, the courts have sometimes gone further than that.

The Court observed that it has in the past freed mortgagors from agreements that did not completely remove the right of redemption but only limited it. The question before the Court therefore was to determine the type of term that would justify the exercise of equitable power to grant relief. The Court explained that the answer depends on the scope of that equitable power, a power that originated in the early English courts of equity for a specific purpose. Throughout history that purpose has remained unchanged, and consequently the power of the Court is confined by the original rationale. To understand the limits of the power, the Court said it must be examined in the light of its historical source. For this purpose the Court referred to two leading authorities. The first authority is an early case, Vermon v. Bethell, Earl of Northington, reported in (1762) 2 Eden 110, 113; 28 E.R. 838, 839. In that case Lord Chancellor described the Court as “a court of conscience” that is extremely protective of persons who take securities for a loan and who might be tempted to convert those securities into purchases. He declared an established rule that a mortgagee cannot at the time of making the loan impose any event or condition that would discharge the equity of redemption and make the conveyance absolute. The Court further explained that the rule is grounded in reason and justice because men who are in urgent need are not truly free; they are forced by present exigencies to accept any terms that a crafty lender might impose. The second authority cited is the later pronouncement of Viscount Haldane, Lord Chancellor, in G. and C. Kreglinger v. New Patagonia Meat and Cold Storage Company Ltd. (1). In that decision he reiterated the earlier view, stating that the jurisdiction is merely a special application of a broader equitable power to relieve parties from penalties and to transform them into ordinary securities.

Viscount Haldane illustrated the principle by describing the common‑law mortgage of land as a gross arrangement. Under that arrangement the land was conveyed to the creditor on the condition that if the debtor repaid the money on a specified date and place, the fee simple would revert to the debtor; however, if the condition was not strictly satisfied, the debtor would lose the land forever. The Court noted that the hardship on the debtor was stark because the debt could still be claimed from the debtor even after the land had been forfeited to the mortgagee. Equity, according to the Court, therefore began early on to intervene against what was effectively a penalty, by compelling the creditor to treat his legal title as merely a security. The Court emphasized that this historical origin of the jurisdiction must be kept in mind, because the purpose for which the jurisdiction was created governs and limits its modern exercise by equity judges. That purpose has always been to ascertain, using any necessary evidence, the true nature and substance of the transaction, and to determine whether the transaction, when examined in its real context, amounts to a genuine mortgage or merely a disguised restraint on the mortgagor’s right of redemption.

The Court explained that equity intervened in mortgage cases only when the conduct of the lender was deemed unconscientious, and not merely to upset the parties’ freedom of contract. It stated that lending money, whether on mortgage or otherwise, attracted judicial suspicion, and the Court of Chancery was always alert to any lack of conscience in the terms imposed by lenders. Accordingly, the power to relieve a mortgagor depended on whether the bargain had been obtained by exploiting any difficulty or embarrassment that the borrower faced at the time of borrowing. The Court asked whether the mortgagor had been oppressed or imposed upon, and if so, whether relief was warranted. The Court then considered whether any term of the mortgage, such as a provision that redemption could not occur for eighty‑five years, was itself oppressive. It observed that this question was essentially factual and had to be decided on the circumstances of each case, and that a review of the many reported decisions would be unprofitable because each turned on its own facts. The Court held that the length of the term, even though it was eighty‑five years, did not by itself demonstrate oppression. The Court did not deem it necessary to declare that a long term could never show oppression, but simply noted that there was no evidence that the term was disadvantageous to the mortgagor; in fact, it might have been to his advantage. Since the suit for redemption was filed forty‑seven years after the mortgage was created, the Court found it implausible that an oppressive term would have been recognized only after such a long interval. The Court did not reject the Judicial Commissioner’s view that the suit was brought because the price of land had risen after the war, and it could not ignore, as many decisions show, that long‑term mortgages are not uncommon in various parts of India. The Court also noted that the property was already subject to an earlier mortgage of unknown term, and that this earlier mortgage included another property which was released by the present mortgage, indicating that the present mortgagee was not exerting pressure on the mortgagor. Further, although the present mortgage loan was larger than the earlier one, the mortgagee appeared satisfied with a smaller security, and there was no complaint that the interest, measured by the rent of the property, was excessive. All these factors, the Court concluded, indicated that the mortgagee had not taken unfair advantage of his position as lender, nor was the mortgagor under financial embarrassment. The Court rejected the contention that the mortgage instrument itself showed hardness because it barred redemption for eighty‑five years while allowing the mortgagee to demand payment at any time, describing that argument as plainly fallacious and noting that the instrument contained no provision permitting the mortgagee to demand any such payment.

The Court observed that the property which became free from the earlier encumbrance did so as a direct result of the mortgage that was the subject of this suit. This fact, the Court held, demonstrated that the mortgagee under the present mortgage was not exerting any undue pressure on the mortgagor. The Court added that this inference was bolstered by the circumstance that the amount of money advanced under the current mortgage exceeded the amount advanced under the earlier mortgage, yet the mortgagee in the present case appeared satisfied with a security of smaller value. Moreover, the Court noted that no grievance had been raised concerning the rate of interest, which was to be measured by the rental value of the property, and that there was no allegation that the interest was excessively high. Taken together, these observations led the Court to conclude that the mortgagee had not abused his position as a lender, nor had the mortgagor been placed under any financial distress.

The Court addressed a contention that the mortgage document itself signified a harsh bargain because, while the mortgagor was barred from redemption for a period of eighty‑five years, the mortgagee could allegedly demand repayment of his dues at any time he chose. The Court rejected this claim as plainly false. It explained that the mortgage instrument contained no provision authorising the mortgagee to demand money arbitrarily, and that established law held that the mortgagee’s right to enforce the mortgage and the mortgagor’s right to redeem were co‑extensive.

Another argument advanced by counsel was that the deed permitted the mortgagee to spend any amount on repairs or new construction on the mortgaged property and that the mortgagor could redeem only after reimbursing those expenses. The Court found this interpretation untenable. It observed that the mortgaged shop and the land on which it stood were very small, making it implausible that large sums could be spent on repairs or construction. The Court further noted that the parties had agreed to a term of eighty‑five years, and it was reasonable for them to anticipate that, over such a long period, necessary repairs or improvements might become required. The Court held that the instrument contemplated only such necessary repairs, and that it was not unfair to require the mortgagor, upon redemption, to pay for those repairs and to receive the benefit of the improvements.

Addressing the suggestion that the mortgagor was bound to accept whatever amount the mortgagee listed in his account as having been spent on repairs and construction, the Court interpreted the relevant clause – which stated that “the expenses spent in repairs and new constructions will be paid … according to the account produced by the mortgagee” – to mean merely that the mortgagee must substantiate his claim for reimbursement by producing a proper account of the expenditures. The Court described this requirement as a safeguard for the mortgagor, not a burden.

Finally, the Court considered the allegation that every term of the deed favoured the mortgagee, thereby indicating a hard bargain. The Court rejected this sweeping view, maintaining that the overall bargain appeared fair and was concluded between parties dealing on an equal footing. No evidence was found to show that the mortgagor’s financial condition at the time of the mortgage compelled him to accept an inequitable arrangement.

In this case, the Court observed that the bargain was not a hard one. The Court rejected the view that every term of the deed was intended solely for the benefit of the mortgagee or that the instrument showed that the mortgagee had forced an oppressive bargain on the mortgagor. Earlier, the Court had commented that the arrangement appeared fair and resembled a transaction between parties who dealt with one another on an equal footing. The Court further noted that no evidence had been placed before it regarding the financial condition of the mortgagor at the time the mortgage was executed, nor any other circumstance that would permit a conclusion that the mortgagee had exploited the mortgagor’s difficulties to impose a harsh bargain. It was submitted that the existence of a prior mortgage on the property at the date of the present mortgage indicated the mortgagor’s impecunious position. The Court was unable to accept this submission, holding that the fact of a prior mortgage does not automatically make every debtor impecunious. The Court pointed out that the mortgagor had obtained a distinct advantage from the earlier mortgage because he was able to free the property from that earlier charge and had since enjoyed the benefit. This fact, the Court said, demonstrated that the bargain was entered into voluntarily. No other material was found that would suggest the bargain was oppressive. Consequently, the Court concluded that the bargain was reasonable and that the mortgage term of eighty‑five years should be enforced. The Court further held that the suit was premature and therefore had to fail. Accordingly, the appeal was dismissed with costs, and the appeal was dismissed.