Mehrban Khan v Makhan (1930)

The rule against clogs on the equity of redemption is English equity. This case is one of the routes by which it is treated as part of Indian law. The Privy Council held that where the Transfer of Property Act did not even apply, a court deciding by "justice, equity and good conscience" should apply the English rule — because s. 60 of the Act itself shows that the English rules on redemption suit Indian conditions.

It also settles a second point students often miss: a clog is void, not merely unenforceable against the mortgagor personally, so it cannot bind a person who buys the mortgagor's equity of redemption either.

By a mortgage dated 6 May 1898 the mortgagees were entitled to possession for nineteen years. The deed went further. "At the end of that period, if the mortgagor paid off the mortgage money, the property was to belong, as to a limited interest therein only, to the mortgagor, and as to the major interest therein to the mortgagees." If the mortgagor failed to pay at the end of the nineteen years, "the property was apparently to belong to the mortgagees absolutely."

The appellant (plaintiff) had bought, for value, the mortgagor's interest. After the nineteen years expired he sued to redeem.

The Subordinate Judge and the Divisional Judge held that the provisions limiting the mortgagor's interest on redemption were a clog on the equity of redemption, and allowed him to redeem free of them. The Judicial Commissioner agreed that they were a clog, but held that "a purchaser of the equity of redemption is bound by the terms of the mortgage deed and cannot set up that such terms amount to a clog." The assignee appealed.

1. Which law governs redemption in the North-West Frontier Province, where the Transfer of Property Act did not apply?
2. Were the provisions giving the mortgagees an interest in the property even after redemption a clog on the equity of redemption?
3. Can an assignee of the mortgagor's equity of redemption object to such a clog, or is he bound by the deed?

The appeal was allowed and the decree of the Divisional Judge restored, with costs.

The governing law

The Board noted that "the Transfer of Property Act, by Section 60 of which the right of a mortgagor to redeem is regulated, has no application to the North-West Frontier Province." The local Regulation directed the judges, in cases not otherwise provided for, to decide according to justice, equity and good conscience. Following Waghela Rajsanji v Shekh Masludin (1887), that direction was generally read as meaning the rules of English law if found applicable to Indian society and circumstances.

The Board then held that "the terms of Section 60 of the Transfer of Property Act are an indication that the rules of English law relating to a mortgagor's right to redeem are applicable to Indian society and circumstances." Therefore: "The matter must therefore be determined by the rules of English law."

The English rule

The Board relied on Lord Lindley in Santley v Wilde [1899], approved in Noakes & Co v Rice [1902]: "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 also quoted Lord Macnaghten in Noakes: "Redemption is of the very nature and essence of a mortgage," and equity "will not permit any device or contrivance designed or calculated to prevent or impede redemption." Lord Macnaghten added that it was contrary to principle for a mortgagee to stipulate that "after full payment of principal, interest, and costs, he should continue to receive, for a definite or an indefinite period, a share of the rents and profits of the mortgaged property". The Board also referred to Lord Parker in Kreglinger v New Patagonia Meat and Cold Storage Co [1914].

The deed was a clog

All the Courts below were right "in holding that the provisions of the mortgage deed conferring on the mortgagees on redemption an interest in the property constituted a clog or fetter upon the equity of the redemption."

The assignee is not bound

The Judicial Commissioner erred. The Board held that "the provisions in question, being a clog upon the equity of the redemption, were void and could have no more binding force against the assign of the mortgagor than they had against the mortgagor himself." They were not provisions "avoided against the mortgagor" personally because of pressure or undue influence: "They are provisions which, when forming part of the actual mortgage contract, have under the general law no validity at all."

The Board pointed to the absurd result of the opposite view: "The mortgagor, if he redeemed, would escape from the burden, but if he sold to another he would necessarily bear the burden, as the validity of the provisions as against the assign would be reflected in the price which he received."

1. Where Indian courts must decide by justice, equity and good conscience, the English rules on a mortgagor's right to redeem apply, because s. 60 of the Transfer of Property Act shows those rules suit Indian conditions.
2. A term in the mortgage giving the mortgagee an interest in the mortgaged property after the debt is paid is a clog on the equity of redemption and void.
3. Because such a clog is void in itself, and not merely voidable by the mortgagor, it binds an assignee of the equity of redemption no more than it bound the mortgagor.

• Explain "once a mortgage, always a mortgage" and the rule against clogs on the equity of redemption, with case law. Use this case for two points: the English doctrine applies in India (through s. 60), and a clog is void as a matter of general law.
• A mortgagor sells his equity of redemption. Can the buyer attack a clog in the mortgage deed? Yes — this case answers it directly: a void term cannot bind the assignee, and the Board's "illogical result" argument (the burden would be passed on through a lower sale price) is worth reproducing.
• Remember the court: it is a Privy Council decision on appeal from the North-West Frontier Province, where the Transfer of Property Act did not apply.
• In Sarjug Mahto v Devrup Devi (1962), this case was relied on for the proposition that the doctrine of clogs applies in India.