Legality Of Second Mortgage During Subsistence Of First English Mortgage

The provisions of Sections 81, 82, 91 and 94 of the TP Act clearly recognize the concept of second mortgage and are not excluding English mortgage from the concept of second mortgage

- Vishakha Bhagvat

In a typical project financing, the borrower company is required to avail of financial assistance from the lender(s) more than once till completion of the project. It is common practice among the lenders to obtain mortgage in English form over the immovable properties of the borrower company as security for the financial assistance so advanced. Since the English mortgage as defined in the Transfer of Property Act, 1882 (“TP Act”) involves transfer of the mortgaged property absolutely to the mortgagee, very often a question arises as to whether during the subsistence of the first English mortgage, the borrower company continues to have any legal rights in the property so as to create a second mortgage.

Section 58 of the TP Act defines the expressions “Mortgage” and “English mortgage” as follows:

“(a) 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”.

“(e) English mortgage - Where 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 he will re-transfer it to the mortgagor upon payment of the mortgage-money as agreed, the transaction is called an English mortgage.”