Vadilal Chhaganlal Soni v Gokaldas Mansukh (1952)

This is the judgment that settled, for India, that the doctrine of the clog on the equity of redemption exists at all. The mortgagee's whole argument was that the doctrine is an English import with no place under the Act: s. 60 is statutory, a mortgage is a contract, and unless a term offends the Contract Act or the Transfer of Property Act it binds. The Court rejected that argument root and branch, and in doing so gave the reasoning that later courts have adopted wholesale.

It then applied the doctrine to a ninety-nine year term coupled with an unrestricted liberty to build at the mortgagor's ultimate expense and struck both terms down. The list of circumstances it lays down for testing whether a long term is a clog is the most quoted part of the judgment, and it is the list you should reproduce in any long-term problem.

The property was an open plot measuring 34 square yards. It was mortgaged for Rs 176. The agreement between the parties was that the mortgagor was to redeem ninety-nine years after execution, and that the mortgagee was given full authority to build any structure on the plot after spending any amount he liked, the mortgagor undertaking to repay that amount to the mortgagee at the time of redemption.

When the plaintiffs sued to redeem, the mortgagee pleaded that the claim was premature: ninety-nine years had not passed, so the mortgage money had not become due within the meaning of s. 60. Both courts below held the two stipulations to be a clog and passed a preliminary decree for redemption. The mortgagees appealed.

Counsel's contention was that the right to redeem is purely statutory, that Indian courts must confine themselves to s. 60, and that every stipulation in a contract of mortgage binds unless shown to be contrary to law. He conceded only that undue influence, coercion, misrepresentation or fraud might let the mortgagor escape; otherwise the parties had fixed the due date and the mortgagor could not tender earlier.

The Court's answer had four steps.

1. The doctrine is consistent with the section. It accepted that English doctrines cannot always safely be applied, and that if anything in s. 60 were inconsistent with the doctrine the doctrine could not be invoked. But "the doctrine of the clog on the equity of redemption is applied as a rule of justice, equity and good conscience, and in a sense it is consistent with the provisions of Section 60 itself." The decisive textual point is the same one the Privy Council had made: the words "in the absence of a contract to the contrary", used in some sections of the Act, "are absent in Section 60". From that it is legitimate to infer that an agreement which obstructs, hampers or fetters the mortgagor's right to redeem is invalid.

2. The maxim. The principle "once a mortgage always a mortgage" is well established, and "it brings out emphatically the mortgagor's right to redeem which must always remain unimpaired." That right can be extinguished only by act of parties or by operation of law, and any act of parties must be subsequent to the mortgage and must clearly extinguish the equity of redemption.

3. The rule as stated in England. Lord Davey's formulation in Noakes & Co Ltd v Rice: "The meaning of that is that the mortgagee shall not make any stipulation which will prevent a mortgagor, who has paid principal, interest, and costs, from getting back his mortgaged property in the condition in which he parted with it." By this rule the mortgagee is prevented from stipulating for a collateral advantage unfair to the mortgagor or imposing any other term acting as a fetter on the right to redeem. Lord Macnaghten's words in the same case were adopted as directly pertinent: "Redemption is of the very nature an essence of a mortgage, as mortgages are regarded in equity. It is inherent in the thing itself. And it is, I think, as firmly settled now as it ever was in former times that equity will not permit any device or contrivance designed or calculated to prevent or impede redemption."

4. The criticism answered. The judgment fairly records the academic attack. Dr Ghose, agreeing with Sir Frederick Pollock, had written that the doctrine of clogging, "though useful enough in a primitive age when ignorant people were often entrapped into oppressive bargains, is an anachronism in our day", and that in enforcing it courts exercise a paternal jurisdiction anomalous in a system that permits every sane adult to ruin himself. The Court nevertheless held: "there is no doubt that this doctrine has been applied by Indian Courts for nearly a century and it has now become virtually a part of the law of mortgages." Care must be taken not to apply English precedents without scrutiny, since what amounts to a clog is always a question of fact — but "it is too late now to contend that the doctrine of the clog on redemption itself is inapplicable in India."

Two Privy Council decisions were relied on. In Mohammad Sher Khan v Swami Dayal the mortgagor was to redeem at the end of five years, failing which the mortgagee had an option to take possession, and during that possession the mortgagor was not to redeem; the Board rejected the plea that redemption was premature. That conclusion, the Court reasoned, shows that even where the mortgagor has agreed to submit his equity of redemption to fetters, the Court will remove them. In Mehrban Khan v Makhana, from a province where s. 60 did not apply, the Judicial Committee applied the doctrine anyway, holding the terms of s. 60 themselves to be an indication that the English rules as to a mortgagor's right to redeem are applicable to Indian society and circumstances.

The Court also dealt with two decisions relied on the other way. Of Genu v Narayan, where Heaton Ag. C.J. had observed that s. 60 merely enacts that redemption is according to the terms of the contract and that the Act says nothing about clogs, the Court pointed out that both judges had found the agreement fair, so the general observations were properly treated as obiter; read in context they were aimed at the blind application of English technicalities. Of the Allahabad decision in Sabratan, where a sixty-year term with liberty to rebuild was upheld, it noted that the mortgagee there was not given the option to spend any amount he liked but only to rebuild the house or build a similar one, and that the rebuilding had in fact cost Rs 300 — so the result was well justified on its facts; and that the broad statement that "Mere vague grounds of equity" "will not justify a Court in interfering with the terms of a contract" had drawn strong dissent in a later Allahabad case.

The length of the term. Ninety-nine years is "undoubtedly a very long period". The Court accepted that a long term is not necessarily or in every case a clog, and that the English standard — a reasonable fixed term of five or seven years — cannot rigorously be applied in India, where restricting periods are much longer; earlier Bombay authority had upheld periods of 15, 20, 25, 29, 30 and 35 years, and it had there been said that no Indian case had struck a period down solely for being unreasonably long. But the Court added a pointed observation: "we have not been referred to any case in which a period of 99 years has been held to be reasonable."

The test. This is the passage to learn. Whether a long term is a clog requires the Court "to consider all the circumstances attending the execution of the mortgage-deed" — specifically, "The amount advanced under the mortgage, the nature of the security offered by the mortgagor, the circumstances in which the mortgagor was compelled to secure the amount, the terms and conditions on which the amount was in fact advanced and the other alternatives to which the mortgagor could have taken recourse for obtaining the sum advanced, would have to be considered before it is held that a particular term of redemption amounts to a clog because it is unreasonably long." At the outer limit, a period of 200 years could be struck down without difficulty as unreasonably long.

Applied to this mortgage. The advance was "a very small amount of Rs. 176", and nothing on the record showed that the mortgagor needed to submit to a ninety-nine year term to obtain it. The mortgagee owned neighbouring property, and it was not unreasonable to hold that he stipulated for the long term because he wanted the use of a plot beneficial to the enjoyment of his own house for a very long period. Accordingly, "in this particular case this long term for redemption has undoubtedly conferred upon the mortgagee a collateral advantage which is unfair to the mortgagor."

The building clause. The mortgagee had full liberty to spend any amount he liked on a structure on the open plot. "The mortgagor comes from a poor family, and if the mortgagee were to exercise his option under this particular clause, he would easily make it impossible for the mortgagor to redeem his property." No restriction was placed on the nature of the structure or on the amount to be spent. Hence: "The option given to the mortgagee by this clause is, in our opinion, wholly unreasonable and it confers upon the mortgagee an advantage to which he was legitimately not entitled."

The two terms were so unreasonable and oppressive as to amount to a clog on the equity of redemption. The courts below were right, and the appeal was dismissed with costs; the preliminary decree for redemption stood.

1. The doctrine of the clog on the equity of redemption applies in India, as a rule of justice, equity and good conscience, and is consistent with s. 60, which — unlike other sections — contains no saving for a contract to the contrary. 2. A mortgagor who has agreed to a fetter is not precluded from attacking it; the Court will remove the fetter notwithstanding his agreement. 3. Whether a long term is a clog is a question of fact on all the circumstances of execution: the amount advanced, the nature of the security, the circumstances compelling the borrowing, the terms on which the money was advanced, and the alternatives open to the mortgagor. 4. A ninety-nine year term on an advance of Rs 176 over a plot beneficial to the mortgagee's own adjoining house confers an unfair collateral advantage; and an unrestricted liberty to build at any cost, repayable on redemption, is wholly unreasonable. Together they are a clog.