Land pledging refers to using immovable property—particularly land—as security for repayment of a debt or performance of a contractual obligation. Although the word “pledge” technically applies only to movable property under Indian Contract Law, the concept of creating a security interest over land is valid and widely used under other laws.
Meaning of Land Pledging in Legal Terms
In Indian legal context, land cannot be pledged in the strict legal sense, because:
Under Section 172 of the Indian Contract Act, 1872, a pledge applies only to movable property.
However, similar legal mechanisms for land exist through:
- Mortgage (under Transfer of Property Act, 1882)
- Charge or lien
- Equitable mortgage through deposit of title deeds
So, when people refer to “land pledging,” they typically mean mortgaging land as collateral.
Legal Instruments Used for Land Pledging
1. Simple Mortgage (Section 58(b), TPA 1882)
- Mortgagor binds land as security.
- Possession stays with the mortgagor.
- Mortgagee has the right to sell the land through court decree in case of default.
2. Equitable Mortgage / Mortgage by Deposit of Title Deeds (Section 58(f), TPA 1882)
- Commonly used by banks.
- Mortgagor gives original land documents to lender in notified towns (e.g., Mumbai, Delhi).
- No formal registration required unless stated otherwise.
3. Usufructuary Mortgage (Section 58(d))
- Mortgagee gets possession and can earn income (rent, crops) from the land until the loan is repaid.
4. English Mortgage (Section 58(e))
- Ownership of land transferred to lender with a condition of retransfer upon repayment.
Purpose of Land Pledging (Mortgage)
- To secure loans from banks, NBFCs, or individuals.
- Often used in:
- Agricultural loans
- Home construction loans
- Land development finance
Process of Land Pledging in India
- Application for Loan
- Borrower applies with land records.
- Verification
- Legal due diligence of land title, encumbrances, possession, etc.
- Loan Sanction and Agreement
- Execution of loan and mortgage agreement.
- Registration (if required)
- Depending on the type of mortgage, registration under Registration Act, 1908 may be mandatory.
- Creation of Charge
- Entry made in land records, CERSAI (Central Registry of Securitisation Asset Reconstruction and Security Interest of India) for banks.
Legal Provisions Applicable
- Transfer of Property Act, 1882 (Sections 58–104)
- Indian Registration Act, 1908
- Indian Stamp Act
- SARFAESI Act, 2002 (for enforcement by banks and financial institutions)
- CERSAI Rules for tracking secured interests
Rights and Duties of the Parties
Borrower (Mortgagor):
- Right to redeem land upon repayment (Section 60 TPA)
- Must disclose all material facts about property
- Cannot sell/lease without consent of mortgagee
Lender (Mortgagee):
- Right to recover dues by selling property (court sale or SARFAESI)
- Must return documents and property upon loan closure
- Cannot unfairly enrich from mortgaged land
Case Law
K.J. Nathan v. S.V. Maruthi Rao (1981 AIR 428)
Held that deposit of title deeds without written document in notified areas constitutes a valid equitable mortgage.
Distinction: Pledge vs Mortgage
| Feature | Pledge | Mortgage |
|---|---|---|
| Property Type | Movable | Immovable (e.g., land) |
| Governing Law | Indian Contract Act, 1872 | Transfer of Property Act |
| Possession Transfer | Yes (optional) | Usually not required |
| Enforcement | Sale of goods | Sale or foreclosure of land |
Land Pledging and Farmers in India
- Many farmers pledge land for seasonal credit.
- Government schemes like Kisan Credit Card require land as security.
- Concerns exist over debt trap, forced auctions, and fraudulent dispossession.