Transfer of Property Act (TPA)
Foreclosure vs Sale: The Two Decrees under Section 67, and What Each of Them Does
Section 67 offers a mortgagee two decrees, and he does not choose between them freely: which is open to him depends on the kind of mortgage he holds. Foreclosure ends the mortgagor's right to redeem and leaves the mortgagee with the property itself. Sale converts the property into money, which is applied to the debt, with any surplus going back to the mortgagor and any shortfall pursued personally where a covenant allows. One closes the account by taking the thing; the other closes it by taking its value.
1. The Two Decrees
Section 67, TPA In the absence of a contract to the contrary, the mortgagee has, at any time after the mortgage money has become due and before a decree has been made for redemption or the money has been paid or deposited, a right to obtain from the court a decree that the mortgagor shall be absolutely debarred of his right to redeem the property, or a decree that the property be sold. A suit to obtain the first is called a suit for foreclosure. |
2. Who May Ask for Which
The mortgagee | The remedy | Why |
|---|---|---|
Mortgagee by conditional sale | Foreclosure | The transaction is an ostensible sale which becomes absolute on default; the decree makes the ostensible sale real by extinguishing the right to redeem |
Simple mortgagee | Sale | He never had any interest in the property beyond a right to have it sold |
English mortgagee | Sale | The transfer is absolute in form, but the security is for money; the property is realised and the proceeds applied |
Mortgagee by deposit of title deeds | Sale | The deposit secures money, and the security is realised by sale |
Usufructuary mortgagee | Neither | His security is his possession and the profits; he holds until he is paid |
Anomalous mortgagee | Whichever the terms of the mortgage give him | Section 98 leaves his rights to the contract |
3. The Comparison
Point | Foreclosure | Sale |
|---|---|---|
What the decree does | Declares the mortgagor absolutely debarred of his right to redeem | Directs that the property be sold and the proceeds applied to the mortgage money |
What the mortgagee ends with | The property itself | Money — so much of the proceeds as answers his debt |
The equity of redemption | Extinguished by the decree | Extinguished when the sale is complete, and not before |
Surplus | There is none; the mortgagee keeps the property whatever its value | Any surplus after satisfying the mortgage money and costs belongs to the mortgagor |
Shortfall | None arises; the security is taken in satisfaction | A shortfall may be recovered personally where there is a covenant to repay — section 68(a) |
Who may ask for it | A mortgagee by conditional sale, and an anomalous mortgagee whose terms allow | A simple, English or deposit-of-title-deeds mortgagee, and an anomalous mortgagee whose terms allow |
Out of court | Never | Possible under section 69, in the three situations that section allows and on its conditions |
Procedure | Preliminary decree fixing a date for payment; final decree on default — Order 34 of the Code | Preliminary decree fixing a date; final decree directing sale on default — Order 34 of the Code |
4. The Stages of Each Suit
- A preliminary decree is passed in both, fixing the amount due and allowing the mortgagor a date by which to pay.
- If he pays within that time, the suit ends in his favour in both: the mortgage is redeemed, and he takes a re-conveyance or an acknowledgment.
- If he does not, the final decree follows — in foreclosure, debarring him absolutely from redeeming; in a sale suit, directing the property to be sold.
- And until the decree takes effect the right to redeem survives. In a sale, the mortgagor may redeem at any time before the sale is complete; where the mortgagee sells out of court under section 69, the right subsists until the conveyance is executed and registered.
5. Which Is Better for Whom
Foreclosure suits the mortgagee where | Sale suits the mortgagee where | |
|---|---|---|
The value of the property | It is worth more than the debt, since he keeps the whole of it | It is worth less than the debt, since he may then pursue the balance personally |
The mortgagor's position | He loses the surplus value, which is why the remedy is confined to one form of mortgage | He keeps any surplus, and is exposed to a personal claim only where he covenanted to repay |
Speed | A single decree ends the matter | A sale must be held, confirmed and completed |
The court's role | Essential — there is no foreclosure out of court | Not always — section 69 allows a sale without the court in defined cases |
6. Landmark Cases
📖 Narandas Karsondas v. S.A. Kamtam, (1977) 3 SCC 247 Held: Where a mortgagee sells under a power of sale without the intervention of the court, the mortgagor's right of redemption is not extinguished by a contract for sale. The equity of redemption subsists until the sale is complete by a registered conveyance, and the mortgagor may redeem until that moment. Ratio: In a sale, the right to redeem ends only when the conveyance is registered; it is not cut short by the agreement to sell. |
📖 Chunchun Jha v. Ebadat Ali, AIR 1954 SC 345 Held: Whether the transaction was a mortgage by conditional sale, carrying the remedy of foreclosure, or a sale with a condition of repurchase, carrying none, depends on the intention of the parties gathered from the document and the circumstances. The proviso to section 58(c) requires the condition to be embodied in the same document, and the substance of the transaction governs. Ratio: The availability of foreclosure depends on the character of the mortgage, which depends on intention. |
7. Related Topics and Provisions
- Rights and Liabilities of the Mortgagee — sections 67 to 77 in full
- Kinds of Mortgages under Section 58 — which remedy belongs to which mortgagee
- Section 69, TPA — sale without the intervention of the court
- Right of Redemption, Section 60 — the right both decrees bring to an end
- Section 68, TPA — the personal remedy, and the shortfall after a sale
- Order 34, Code of Civil Procedure, 1908 — preliminary and final decrees in mortgage suits