Equitable mortgages in the present day scenario

With the development of trade and commerce, and of banking and finance practice in particular, the doctrine of equitable mortgage has progressed exponentially, presenting a lot of challenges for lenders and borrowers. Discussed below are certain practical aspects and issues pertaining to equitable mortgage.

Stamp duty: Under law, no document is needed to create an equitable mortgage. Delivery of title documents with the intent to create security is sufficient. However, as a practice, the creditor or its agent (lender) requires the mortgagor to execute a declaration about the delivery of the title documents of the property proposed to be mortgaged. The declaration is stamped with a nominal stamp duty as an affidavit.

Typically, the lender executes a memorandum of entry (MOE), which records the delivery of the title documents by the mortgagor to the lender. The stamp duty payable on such an MOE is nominal in most of the states, however, states such as Maharashtra, Rajasthan, Tamil Nadu and Karnataka have prescribed ad valorem stamp duty on such MOEs, subject to an upper cap in certain cases. An MOE in the form of an agreement which records the bargain between the parties/is executed by both parties, may have ad valorem stamp duty implications.

SNG & Partners has offices in Delhi, Mumbai, Singapore and Doha. Amit Ronald Charan is a principal associate and Prerana Malhotra is an associate.