Pomal Kanji Govindji v Vrajlal Karsandas Purohit (1989)

Ganga Dhar (case 12) held that a long term is not by itself a clog. Pomal Kanji is the case that says: in modern conditions, a very long term plus the other usual terms will presumptively be a clog. It is the case that moves the doctrine on, and the sentence that does the moving is the one examiners want:

"Though, long term by itself as the period for redemption is not necessarily a clog on equity but in the changing circumstances of inflation and phenomenal increase in the prices of real estates, in this age of population explosion and consciousness and need for habitat, long term, very long term, taken with other relevant factors, would create a presumption that it is a clog on equity of redemption."

The lead matter concerned a registered mortgage of 20 April 1943 for 30,000 koris of two delis at Bhuj, Kutch, containing residential houses and shops. The mortgagor, the plaintiffs' father, died in 1956. The findings of the trial court, upheld on appeal, were that:

- when the mortgage was made his economic condition was weak and he was heavily indebted to others, and the mortgagees took advantage of that situation; - the term for redemption was ninety-nine years; - though possession went to the mortgagees, the deed still stipulated for interest on part of the principal, payable not periodically but at redemption — at one-half per cent per annum on the principal at the end of the long period; - the mortgagees were at liberty to spend any amount they liked on improvement and to rebuild the entire property, recoverable from the mortgagor on redemption.

The mortgagees had inducted tenants. The suit sought redemption before the term and possession from those tenants.

1. Whether long term mortgages in an inflationary market are clogs on the equity of redemption, so that the mortgagor may redeem before the stipulated period. 2. Whether tenants inducted by the mortgagee can be evicted on the termination of the mortgage, or are protected by the Rent Restriction Acts.

(This brief deals with the first question, which is the property-law question on the syllabus.)

The appeals were dismissed. The courts below were right: on these facts there was a clog on the equity of redemption, and the mortgagors could redeem before the ninety-nine years expired.

1. The rule restated. A mortgage is a security; "The security must, therefore, be redeemable on the payment or discharge of such debt or obligation. Any provision to the contrary, notwithstanding, is a clog or fetter on the equity of redemption and, hence, bad and void." The maxim as this judgment puts it is that the transaction "must not be transformed into a conveyance or deprivation of the right over the property."

2. The source of the rule in India. "This is the English law based on principles of equity. This is the Indian law based on justice, equity and good conscience."

3. The modern presumption. The passage quoted at the top of this brief. Then the specific terms that, together with a long term, will amount to a clog: a clause obliging payment of interest at the time of ultimate redemption even in a usufructuary mortgage, and clauses permitting construction and reconstruction and debiting the mortgagor with the cost as a condition of redemption.

4. Redemption is a statutory right. "Section 60 of the Transfer of Property Act, 1882, conferred on the mortgagor the right of redemption. This is a statutory right. The right of redemption is an incident of a subsisting mortgage and it subsists so long as the mortgage subsists."

5. The doctrine must move with the times. "The doctrine of clog on equity of redemption has to be moulded in the modern conditions", and "Law does not favour any clog on equity of redemption." A mortgage "cannot be made altogether irredeemable or redemption made illusory"; in changing conditions "long term for redemption makes a mortgage an illusory mortage, though not decisive." (read mortgage)

6. The facts that decided it. "In the facts and the circumstances and in view of the long period for redemption, the provision for interest @ ½ per cent per annum payable on the principal amount at the end of the long period, the clause regarding the repairs etc., and the mortgagor's financial condition, all these suggest that there was clog on equity."

Two further findings are worth carrying into a problem answer. The Court accepted the first appellate court's reasoning that the mortgagor's later prosperity is irrelevant — the son became a Civil Judge, but "what was relevant was the financial condition at the time of the transaction". And it approved this common-sense inference: the mortgaged house was the family's only residence, so "if there was no pressure from the creditor, nobody would like to mortgage the only house which is sole abode on the earth."

| Case | Term | Additional term | Result | |---|---|---|---| | Kunjbiharilal v Pandit Prag Narayan (Oudh, 1922) | 50 years | Interest payable with principal only at redemption | Clog — the intention was that redemption could never be exercised | | Rajai Singh v Randhir Singh (All, 1925) | 96 years | Interest not periodic but only at redemption | Clog | | Vadilal Chhaganlal Soni v Gokaldas Mansukh (Bom, 1953) | 99 years | Mortgagee free to build, spending any amount he liked | Clog; the two terms were unreasonable and oppressive | | Sarjug Mahto v Devrup Devi (Pat, 1963) | 99 years | | Clog | | Khatubai Nathu Sumra v Rajgo Mulji Nanji (Guj, 1979) | 99 years | Right to demolish and rebuild, reimbursable on redemption; hard-pressed mortgagor | Terms unreasonable, unconscionable, not binding | | Chhedi Lal v Babu Nandah (All, 1944) | | | Freedom of contract to be given free play unless vitiated by undue influence or pressure of poverty |

Maganlal Chhotalal Chhatrapati v Bhalchandra Chhaganlal Shah is adopted for the statement that no contract made at the time of and as part of the mortgage is valid "if it in substance and effect prevents the mortgagor from getting back his property on payment of what is due on his security", and Macklin J's observation is endorsed that anything with the appearance of clogging redemption "must be examined critically", and that terms which "create unnecessary difficulties in the way of redemption" are a clog.

1. Long term plus oppressive collateral terms equals a clog. In modern inflationary conditions a very long redemption period, taken with other relevant factors, raises a presumption that the provision is a clog on the equity of redemption. 2. The factors that make the presumption good are: the financial weakness of the mortgagor at the date of the mortgage, interest accumulating to redemption rather than paid periodically — especially in a usufructuary mortgage where the mortgagee already takes the rents — and an unlimited liberty to build or rebuild at the mortgagor's ultimate cost. 3. Redemption under s. 60 is a statutory right, an incident of a subsisting mortgage, and cannot be made illusory.

They do not conflict; they are the same test applied to opposite facts. Ganga Dhar: no evidence of the mortgagor's embarrassment, a smaller security taken for a larger advance, no complaint of the rate, a tiny shop where large expenditure was impossible, suit brought forty-seven years later when prices rose. Pomal Kanji: proved indebtedness and weakness at the date of the deed, the only dwelling house mortgaged, interest piling up to the end of ninety-nine years on a usufructuary mortgage, and an unlimited power to rebuild. The question in both is unconscionability; only the answer differs. Pomal Kanji adds that the modern economic background shifts the starting presumption.