Usufructuary Mortgage
Usufructuary Mortgage
1. Meaning
A usufructuary mortgage is a form of mortgage where the mortgagor delivers possession (or binds himself to deliver possession) of the property to the mortgagee and authorises him to retain possession and appropriate the rents and profits of the property in lieu of interest, or in payment of the principal, or both.
Here:
Title/ownership remains with the mortgagor.
Possession goes to the mortgagee.
Mortgagee enjoys the “usufruct” (income, rents, profits) until repayment.
2. Essentials
Delivery of possession: Actual or constructive.
Right to rents/profits: Mortgagee applies them to debt/interest.
Ownership not transferred: Mortgagor remains owner.
Right to redeem: Mortgagor retains the right of redemption by repaying debt.
No personal liability: The mortgagor does not usually promise personal repayment; the mortgagee depends on rents/profits.
3. Rights of the Parties
(a) Mortgagee
To retain possession until debt is satisfied.
To collect rents and profits.
To appropriate income towards principal/interest as per contract.
To sue for mortgage money only if there is a personal covenant.
(b) Mortgagor
Right to redeem at any time by repayment.
Right to surplus: If rents/profits exceed the debt, surplus belongs to mortgagor.
Right to accounts from the mortgagee.
4. Distinction from Other Mortgages
Simple Mortgage → No possession given; mortgagee can sue for sale.
Usufructuary Mortgage → Possession given; mortgagee enjoys rents instead of suing immediately.
Mortgage by Conditional Sale → Looks like a sale but is really a mortgage if condition to reconvey exists.
English Mortgage → Absolute transfer with obligation to retransfer.
5. Case Laws
(i) Jaffer Meher Ali v. Budge-Budge Jute Mills (1906)
The Calcutta High Court held that usufructuary mortgage does not transfer ownership but only possession, and the mortgagee’s right is limited to enjoyment of property till satisfaction of debt.
(ii) Narandas Karsondas v. S.A. Kamtam (1977, SC)
The Supreme Court reiterated that mortgagee never becomes absolute owner by mere possession; ownership always remains with mortgagor until foreclosure or sale.
(iii) Harbans v. Om Prakash (SC, 2006)
The Court held that where no time limit for redemption is fixed in a usufructuary mortgage, the mortgagor’s right to redeem is not extinguished merely by lapse of time. This preserves the mortgagor’s equity of redemption.
(iv) Union of India v. Sri Sarada Mills (1973, SC)
The Court clarified that usufructuary mortgage creates a right to appropriate usufruct, not ownership, and mortgagee must render accounts for the benefits received.
(v) Tulsi v. Chandrika Prasad (2006, SC)
It was held that usufructuary mortgage is only a security; mortgagee cannot treat himself as owner. The mortgagor’s right of redemption is a statutory right and cannot be taken away except in accordance with law.
6. Legal Principles from Case Law
Right of redemption is inviolable – The mortgagor’s equity of redemption is fundamental (Harbans v. Om Prakash).
Mortgagee is not owner – Mortgagee’s possession is only as a security (Narandas Karsondas v. S.A. Kamtam).
No extinguishment by time alone – Unless contract/decree fixes otherwise, mere lapse of years doesn’t end redemption rights (Harbans v. Om Prakash).
Mortgagee’s duty to account – Mortgagee must account for rents/profits (Sri Sarada Mills case).
7. Illustration
A borrows ₹5,00,000 from B and delivers his orchard to B. B will enjoy fruits and income from the orchard until the loan is repaid. B cannot sell the orchard but can only enjoy its produce. When A repays, he can redeem and take back possession. This is a usufructuary mortgage.
8. Conclusion
A usufructuary mortgage is a security arrangement where possession is transferred, ownership remains with the mortgagor, and the mortgagee enjoys usufruct in lieu of repayment. Courts consistently protect the mortgagor’s equity of redemption, ensuring that the mortgagee cannot, by mere passage of time or by possession, convert himself into the owner.
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