Code of Civil Procedure, 1908 (CPC)
Order XXXIV CPC: Suits Relating to Mortgages of Immovable Property
A mortgage is security for a debt, and every rule in Order XXXIV of the Code of Civil Procedure, 1908 follows from that. The mortgagee is entitled to his money, not to a windfall; the mortgagor is entitled to his property back on paying, not to keep it while owing. The Order gives effect to both by passing a preliminary decree that fixes what is due and gives the mortgagor a last period to pay, and only then a final decree that reflects what he did. These notes cover the three suits, the two-stage decree in each, the right of redemption, and the position of a usufructuary mortgagee.
The three mortgage suits, and the single two-stage decree they all pass through
1. The Three Suits: Rule 1 and the Substantive Law
§ Order XXXIV Rule 1, CPC 1908 Subject to the provisions of this Code, all persons having an interest either in the mortgage-security or in the right of redemption shall be joined as parties to any suit relating to the mortgage: Explanation. A puisne mortgagee may sue for foreclosure or for sale without making the prior mortgagee a party to the suit; and a prior mortgagee need not be joined in a suit to redeem a subsequent mortgage.* |
Suit | Who brings it | What it achieves | Provision |
|---|---|---|---|
Redemption | The mortgagor, or any person having a right to redeem | He pays what is due and recovers the property free of the mortgage, with a reconveyance and delivery of the documents | Rules 7 and 8; Section 60, Transfer of Property Act, 1882 |
Foreclosure | The mortgagee | The mortgagor's right to redeem is extinguished, and the mortgagee keeps the property absolutely | Rules 2 and 3; available on a mortgage by conditional sale or an anomalous mortgage |
Sale | The mortgagee | The property is sold and the debt satisfied out of the proceeds, any balance going to the mortgagor | Rules 4 and 5; the ordinary remedy on a simple or English mortgage |
The choice of suit is not the mortgagee's to make at will: it is fixed by the kind of mortgage, under Sections 67 and 68 of the Transfer of Property Act, 1882. Foreclosure lies on a mortgage by conditional sale and on an anomalous mortgage where the contract so provides; sale lies on a simple mortgage, an English mortgage and a mortgage by deposit of title deeds. What the Code supplies is the procedure common to all three.
2. The Preliminary Decree: What It Does in Each Suit
§ The common structure In every one of the three suits the court first passes a preliminary decree that does three things: It takes an account. The court ascertains and declares the amount due to the mortgagee for principal and interest, together with his costs and the expenses properly incurred in respect of the mortgage-security. It fixes a day. The decree orders that the mortgagor shall pay that amount into court on or before a day to be fixed, being not less than six months from the date on which the court confirms and countersigns the account. It states the consequence of each course. What follows if he pays, and what follows if he does not. |
Suit | If the mortgagor pays by the day fixed | If he does not |
|---|---|---|
Foreclosure, Rules 2 and 3 | The mortgagee shall deliver up the documents, retransfer the property at the mortgagor's cost, and, if necessary, put him in possession | A final decree is passed debarring the defendant from all right to redeem: the equity of redemption is extinguished |
Sale, Rules 4 and 5 | The same: documents delivered up, property retransferred, possession given if necessary | A final decree directs that the property be sold, the proceeds applied to the amount due, and the balance, if any, paid to the mortgagor |
Redemption, Rules 7 and 8 | The same reconveyance and delivery; the redemption is complete | In a redemption suit on a mortgage by conditional sale or an anomalous mortgage, a final decree debarring him from redemption; in other cases, a final decree directing the property to be sold |
§ Why six months The period, fixed by Rule 2(1)(c), is the Order's most characteristic provision, and the reason for it is the nature of the transaction. The mortgagee has lent money; what he is entitled to is repayment. The court therefore gives the mortgagor a real opportunity to find the money before the security is turned into a loss of the property. Rule 8(3) reinforces it: the court may, upon good cause shown and upon such terms as it thinks fit, from time to time postpone the day fixed for payment. Rule 5(1) goes further: even after the preliminary decree and at any time before the confirmation of a sale, the mortgagor may pay into court the amount due together with subsequent costs, and the court shall then pass an order directing the mortgagee to deliver up the documents and retransfer the property. |
3. The Right of Redemption
§ Four propositions on redemption Substance from the Transfer of Property Act, procedure from Order XXXIV: • Once a mortgage, always a mortgage. The right to redeem under Section 60 cannot be taken away by a term in the mortgage deed itself; a clog on the equity of redemption is void, and the right subsists until it is extinguished by the act of the parties or by a decree of the court. • It is extinguished in only two ways, by Section 60 itself: by the act of the parties, as by a valid release, or by a decree of a court, which in practice means a final decree of foreclosure or a confirmed sale. • Who may redeem. Not only the mortgagor but any person having an interest in the right of redemption: a subsequent mortgagee, a co-mortgagor, a purchaser of the equity of redemption, or a surety. • Limitation. Article 61 of the Limitation Act, 1963 allows thirty years for a suit to redeem or recover possession of immovable property mortgaged, from the date the right to redeem or to recover possession accrues. |
4. Foreclosure Compared with Sale
Basis | Foreclosure | Sale |
|---|---|---|
What happens to the property | It remains with the mortgagee absolutely; the equity of redemption is extinguished | It is sold, and the mortgagee takes his money out of the proceeds |
Which mortgages | A mortgage by conditional sale, and an anomalous mortgage where the contract so provides | A simple mortgage, an English mortgage, and a mortgage by deposit of title deeds |
Surplus | None arises; the mortgagee keeps the property whatever its value | Any balance after satisfying the debt and costs is paid to the mortgagor |
Shortfall | The debt is satisfied by the property, and a personal decree is not the ordinary course | Rule 6: where the net proceeds are insufficient, the court may pass a personal decree against the defendant for the balance, if he is personally liable |
Effect of paying by the day fixed | Reconveyance and delivery of documents; no foreclosure | Reconveyance and delivery of documents; no sale |
The mortgagee's advantage | He may gain if the property is worth more than the debt | He recovers the debt and no more, which is why sale is the ordinary remedy |
The contrast explains why the law has moved towards sale. Foreclosure can give the mortgagee more than he is owed, and a security interest is not meant to produce a profit on the debtor's default. Sale confines him to his money and returns the surplus, which is why it is the remedy on the ordinary forms of mortgage and why Rule 6 supplies the personal decree for any shortfall rather than letting him keep an asset in lieu.
5. Payment into Court, and Special Cases
i. Rule 5: payment before confirmation of sale. At any time before the confirmation of a sale made in pursuance of a final decree, the defendant may pay into court the amount due together with subsequent costs, and the court shall order the mortgagee to deliver up the documents and retransfer the property. The right to stop the process survives almost to the last moment.
ii. Rule 6: the personal decree. Where the net proceeds of a sale are insufficient to pay the amount due, the court, on the mortgagee's application, may, if the balance is legally recoverable from the defendant otherwise than out of the property sold, pass a decree for that balance.
iii. Rule 9: decree where the mortgaged property is one of several. Provides for the apportionment of the decree where the mortgage-security comprises several properties or several mortgagors are concerned.
iv. Rules 10 and 11: costs and interest. The court may add to the mortgage-money such costs of the suit and other costs, charges and expenses as are properly incurred, and shall order payment of interest on the principal at the rate payable on the principal, or, where no rate is fixed, at such rate as the court deems reasonable.
v. Rule 14: no sale in execution of a simple money decree. Where a mortgagee has obtained a decree for the payment of money in satisfaction of a claim arising under the mortgage, he shall not be entitled to bring the mortgaged property to sale otherwise than by instituting a suit for sale in enforcement of the mortgage. The security must be enforced as a security, not as an ordinary money decree.
§ Rule 15: the usufructuary mortgagee A usufructuary mortgagee is already in possession, and he pays himself out of the rents and profits. He therefore has no occasion to sue for sale or foreclosure in the ordinary way, and Section 67 of the Transfer of Property Act denies him those remedies. Rule 15 provides that the provisions of the Order apply, so far as may be, to a suit for the redemption of a usufructuary mortgage and to a suit by such a mortgagee for the recovery of the balance where the property is insufficient. The practical consequence is that the mortgagor's suit is one for redemption and account: the court ascertains what the mortgagee has received out of the property, sets it against what is due, and declares the balance one way or the other. |
6. Landmark Points
- Order XXXIV Rule 1. All persons having an interest in the mortgage-security or in the right of redemption must be joined, subject to the Explanation about puisne and prior mortgagees.
- Rules 2, 4 and 7. In foreclosure, sale and redemption alike, a preliminary decree takes an account and fixes a day, not less than six months away, for payment into court.
- Rules 3, 5 and 8. The final decree follows what the mortgagor did: reconveyance if he paid, and foreclosure or sale if he did not.
- Rule 5(1). Payment may be made at any time before the confirmation of a sale, and the property is then retransferred.
- Rule 6. Where the sale proceeds are insufficient, a personal decree may be passed for the balance if it is otherwise legally recoverable.
- Rule 14. A mortgagee with a money decree on a mortgage claim cannot bring the mortgaged property to sale except by a suit for sale on the mortgage.
- Section 60, Transfer of Property Act, 1882, with Article 61, Limitation Act, 1963. The right of redemption cannot be clogged, is extinguished only by act of parties or decree of court, and is enforceable within thirty years.
7. Frequently Asked Questions
What are the three kinds of mortgage suit?
Redemption, brought by the mortgagor to recover the property on paying what is due; foreclosure, brought by the mortgagee to extinguish the right of redemption; and sale, brought by the mortgagee to have the property sold and the debt paid out of the proceeds.
Why is a preliminary decree passed in a mortgage suit?
Because the amount due must be ascertained and the mortgagor must be given a chance to pay before the security is realised. The preliminary decree takes an account, declares the amount, and fixes a day not less than six months away for payment into court.
What happens if the mortgagor pays by the day fixed?
The mortgagee must deliver up the documents of title, retransfer the property at the mortgagor's cost, and if necessary put him in possession. This is so whether the suit was one for foreclosure, for sale, or for redemption.
Can the mortgagor pay after the final decree?
Yes, in a sale suit. Under Rule 5(1) he may pay the amount due with subsequent costs into court at any time before the confirmation of the sale, and the court shall then order the mortgagee to deliver up the documents and retransfer the property.
What is the difference between foreclosure and sale?
In foreclosure the mortgagee keeps the property and the right to redeem is extinguished, so he may gain if the property is worth more than the debt. In sale the property is sold, he takes his money from the proceeds, and any surplus goes to the mortgagor, with a personal decree under Rule 6 for any shortfall.
Can a mortgagee sell the property in execution of a money decree?
No. Rule 14 provides that where he has obtained a decree for payment of money in satisfaction of a claim arising under the mortgage, he shall not be entitled to bring the mortgaged property to sale otherwise than by instituting a suit for sale in enforcement of the mortgage.
What is a clog on the equity of redemption?
A term in the mortgage that restricts or defeats the mortgagor's right to redeem. Such a term is void: under Section 60 of the Transfer of Property Act the right of redemption can be extinguished only by the act of the parties or by the decree of a court, on the principle that once a mortgage, always a mortgage.
How does the Order apply to a usufructuary mortgage?
Under Rule 15, so far as may be, to a suit for redemption of such a mortgage and to a suit by the mortgagee for the balance where the property is insufficient. Since he is in possession and pays himself from the rents, the mortgagor's suit is in substance one for redemption and account.
8. Related Topics in This CPC Series
- Section 33 and Order XX: Judgment and Decree
- Preliminary Decree and Final Decree under the CPC
- Sale of Attached Property in Execution
- Decree for Accounts under Order XX Rule 16