Mohammad Sher Khan v Seth Swami Dayal (1921)

This is the foundation stone of the Indian law on clogs on the equity of redemption, and it is foundational for a reason that is statutory rather than merely equitable. The Board did not decide the case by reciting English maxims. It decided it by reading s. 60 and noticing what is absent from it: unlike many other sections of the Act, s. 60 carries no saving words in favour of a contract to the contrary. Once the principal money has become payable, the right to redeem arises, and a clause in the same deed purporting to suspend that right for a further twelve years cannot stand against it.

Every later Indian clog case — the long-term cases, the rebuilding-liberty cases, the interest-accumulating cases — is built on that single sentence of statutory construction. When you are asked why the doctrine applies in India at all, this is the case that answers it.

By a mortgage dated 9 June 1908, Mohammad Sher Khan, in respect of a recited debt of Rs 82,000, declared "Therefore I...do hereby mortgage for five years" the immoveable property described in the deed. The terms that mattered were these.

- Clause 1 provided for interest half-yearly at 9½ annas per cent per month, with compound interest on default, and that this system of payment "will continue during the stipulated period as well as after that till redemption and payment of the entire amount." - Clause 2 bound the mortgagor, after five years, to "pay at a time and in a lump sum the entire principal, interest and compound interest and redeem the mortgaged property." - Clause 3 gave the mortgagee, on default in four half-yearly instalments of interest or on failure to redeem at the end of five years, an option: either "to take possession of the mortgaged property in lieu of the principal for a period of twelve years commencing from the date of entering into possession", or to let his interest and compound interest run as usual. - Clause 5 was the disputed fetter: "The mortgagee will remain in possession for twelve years from the date on which he takes possession of the mortgaged property and the mortgagor will not have the right of redemption during the period of twelve years." - Clause 6 applied the produce and profits in lieu of interest during possession, with no accounting for shortage or surplus at redemption.

Interest fell into arrear and the money was not paid at the stipulated time. The mortgagee sued in 1913 for possession and obtained it in February 1915. The mortgagor's suit for redemption of 1915 was dismissed as premature, and that dismissal was affirmed in 1918. He obtained special leave in 1919, and the consolidated appeals came before the Board.

Everything else had fallen away. As the judgment puts it, "all that now remains to be determined is whether the present claim to redeem is premature" — that is, whether the mortgagor's right to redeem was suspended by the provision entitling the mortgagee to remain in possession for twelve years.

1. The classification of the mortgage was left open. Counsel had argued at length whether this was an anomalous mortgage under s. 98 — a mortgage falling outside the four descriptions in s. 58 and not a combination of a simple and usufructuary, or a conditional sale and usufructuary, mortgage — in which case the rights of the parties would be governed by the contract in the deed and by local usage. Their Lordships declined to pursue the enquiry. The rights of the parties "must depend on the terms of the instrument as controlled by the Transfer of Property Act", because even on the footing of an anomalous mortgage "its provisions offend against the statutory right of redemption conferred by Section 60, and the provisions of the one section cannot be used to defeat those of another unless it is impossible to effect reconciliation between them."

This is an important move to reproduce in an answer: s. 98 does not license a mortgagee to contract out of s. 60.

2. What an anomalous mortgage may and may not do. The Board drew the line precisely. Such a mortgage "enabling a mortgagee after a lapse of time and in the absence of redemption to enter and take the rents in satisfaction of the interest would be perfectly valid if it did not also hinder an existing right to redeem." The vice was not the entry, nor the appropriation of rents; it was the hindrance to a right of redemption that had already accrued.

3. The right had already accrued. The deed was "expressly stated to be for five years, and after that period the principal money became payable." Under s. 60 that is the very event on which the mortgagor became entitled, on payment of the mortgage money, to redeem.

4. The decisive sentence. "The section is unqualified in its terms, and contains no saving provision as other sections do in favour of contracts to the contrary." Their Lordships therefore saw "no sufficient reason for withholding from the words of the section their full force and effect."

The mortgagor's right to redeem was affirmed. The claim to redeem was not premature. The decrees below were to be discharged, save as to the orders for costs, and a single preliminary decree for redemption was to be passed in both suits under Order XXXIV, Rule 7.

Two refinements in the relief are worth noting, because they show that striking down a fetter does not mean discarding the whole bargain. In taking the accounts, the period during which the mortgagee had been in possession under the 1913 decree was to be excluded: although the possession clauses could not defeat s. 60, effect was to be given to them so far as they provided that the mortgagee should appropriate the produce and profits in lieu of interest, so that for that period "neither will the mortgagee be accountable for profits nor the mortgagor for interest." The decree was also to provide for sale of the property if payment was not made on the fixed day.

Finally, although the appellant succeeded, the Board refused him his costs. By "his procedure and dilatoriness" he was held responsible for the protracted litigation and the wasted expense, and to mark their disapproval their Lordships left the orders for costs below untouched and gave him no costs of the appeals.

1. Section 60 is unqualified. It contains no saving for a contract to the contrary, and its words must be given their full force and effect. 2. Once the principal money has become payable, the statutory right to redeem arises, and a stipulation in the mortgage postponing redemption for a further term is ineffective to suspend it. 3. Section 98 cannot be used to defeat s. 60. Even an anomalous mortgage, whose terms are otherwise governed by contract and usage, must yield where its provisions offend the statutory right of redemption. 4. A clause allowing the mortgagee to enter and take the rents in satisfaction of interest is valid in itself; it becomes bad only so far as it hinders an accrued right to redeem, and it may be given effect in taking the accounts.