Transfer of Property Act (TPA)
Rights and Liabilities of the Mortgagee: Sections 67 to 77, Foreclosure, Sale, Possession and Accounts
The mortgagee's rights are measured by his security and by the form of mortgage he took. Section 67 gives him a decree — foreclosure to some, sale to others, neither to a usufructuary mortgagee. Section 68 gives him a personal remedy in four defined situations. Section 69 lets a few mortgagees sell without going to court at all, on strict conditions. And when he takes possession, sections 72 and 76 hold him to the standard of a prudent manager and require him to account for every rupee he receives.
Figure 1: The six kinds of mortgage, and the remedy that belongs to each
1. Section 67: The Right to Foreclosure or Sale
Section 67, TPA — the substance In the absence of a contract to the contrary, the mortgagee has, at any time after the mortgage money has become due to him, and before a decree has been made for the redemption of the property or the mortgage money has been paid or deposited as provided, 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 a decree that a mortgagor shall be absolutely debarred of his right to redeem is called a suit for foreclosure. |
The mortgagee | Foreclosure | Sale |
|---|---|---|
Simple mortgagee | No | Yes |
Mortgagee by conditional sale | Yes | No |
Usufructuary mortgagee | No | No — his security is his possession |
English mortgagee | No | Yes |
Mortgagee by deposit of title deeds | No | Yes |
Anomalous mortgagee | Only if the terms of the mortgage entitle him to foreclose | Only if the terms entitle him to sale |
2. Section 67A: One Suit on Several Mortgages
A mortgagee who holds two or more mortgages executed by the same mortgagor, and who sues to obtain the same kind of decree under section 67, is bound to sue on all the mortgages in respect of which the mortgage money has become due. The object is to prevent a mortgagee harassing the mortgagor with a series of suits on securities that have all matured.
3. Section 68: The Right to Sue for the Mortgage Money
Clause | When the personal remedy is available |
|---|---|
(a) | Where the mortgagor binds himself to repay the mortgage money — the case of a simple and an English mortgage |
(b) | Where, by any cause other than the wrongful act or default of the mortgagor or mortgagee, the property is wholly or partially destroyed, or the security is rendered insufficient, and the mortgagee has given the mortgagor a reasonable opportunity of providing further security |
(c) | Where the mortgagee is deprived of the whole or part of his security by or in consequence of the wrongful act or default of the mortgagor |
(d) | Where, the mortgagee being entitled to possession of the property, the mortgagor fails to deliver it to him, or to secure the possession of it to him without disturbance |
Where the mortgagee sues under clause (a), the court may at its discretion stay the suit until he has exhausted his remedies against the property, unless the mortgagee abandons his security.
4. Section 69: Power of Sale Without the Intervention of the Court
4.1 When the power is available
- An English mortgage, where neither the mortgagor nor the mortgagee is a Hindu, Muhammadan or Buddhist, nor a member of any race, sect, tribe or class specified by the State Government in the Official Gazette.
- Where a power of sale without the intervention of the court is expressly conferred by the mortgage deed and the mortgagee is the Government.
- Where such a power is expressly conferred and the mortgaged property or any part of it was, on the date of the mortgage deed, situate within the towns of Calcutta, Madras or Bombay, or in any other town or area notified by the State Government.
4.2 The conditions before the power may be exercised
The condition | Content |
|---|---|
Notice of default in payment of principal | Notice in writing requiring payment of the principal money has been served on the mortgagor or on one of several mortgagors, and default has been made in payment for three months after service |
Or arrears of interest | Some interest under the mortgage amounting at least to ₹500 is in arrear and unpaid for three months after becoming due |
Protection of the purchaser | The title of a purchaser is not impeachable on the ground that no case had arisen to authorise the sale, or that due notice was not given, or that the power was otherwise improperly exercised; the remedy of a person damnified is in damages against the person exercising the power |
Application of the proceeds | The money received is held in trust to be applied first in payment of the costs and expenses of the sale, then in discharge of the mortgage money and costs, and the residue paid to the person entitled to the mortgaged property |
5. Section 69A: Appointment of a Receiver
A mortgagee having the right to exercise a power of sale under section 69 is entitled to appoint a receiver of the income of the mortgaged property, or of any part of it, by writing signed by him. The receiver is deemed to be the agent of the mortgagor, who is solely responsible for his acts and defaults unless the deed provides otherwise. The receiver applies what he receives in the order the section lays down — rents and outgoings, then his own commission, then premiums on insurance and the cost of necessary repairs, then the interest falling due, and the residue to the person who would be entitled to receive the income of the property.
6. The Mortgagee's Other Rights: Sections 70 to 73
Section | Right | Substance |
|---|---|---|
70 | Accession to the mortgaged property | An accession made after the date of the mortgage falls within the security, for the purposes of the security |
71 | Renewal of a mortgaged lease | Where the mortgaged property is a lease and the mortgagor obtains a renewal, the mortgagee is entitled to the new lease for the purposes of his security |
72 | Rights of a mortgagee in possession to spend money | He may spend such money as is necessary for the preservation of the property from destruction, forfeiture or sale; for supporting the mortgagor's title; for making his own title good against the mortgagor; and, where the property is a renewable lease, for the renewal of the lease. Such expenses are added to the principal money and carry interest |
73 | Proceeds of a revenue sale, or compensation on acquisition | Where the mortgaged property is sold for arrears of revenue or rent, or is acquired under a law for the acquisition of land for public purposes, the mortgagee is entitled to claim payment of the mortgage money out of the surplus proceeds or the compensation |
7. Section 76: The Liabilities of a Mortgagee in Possession
Clause | Duty |
|---|---|
(a) | To manage the property as a person of ordinary prudence would manage it if it were his own |
(b) | To use his best endeavours to collect the rents and profits |
(c) | In the absence of a contract to the contrary, to pay the government revenue, other charges of a public nature and rent out of the income of the property |
(d) | To make such necessary repairs as he can pay for out of the income after deducting the items in clause (c) and the interest on the principal |
(e) | Not to commit any act which is destructive or permanently injurious to the property |
(f) | Where the property is wholly or partially destroyed and he has received insurance money, to apply it in reinstating the property, or, if the mortgagor so directs, in reduction or discharge of the mortgage money |
(g) | To keep clear, full and accurate accounts of all sums received and spent, and to furnish them to the mortgagor on demand, at his cost |
(h) | To apply the receipts from the property, after deducting the sums properly spent, first in payment of interest and then in reduction of the principal |
(i) | After the mortgage money has been paid or tendered, to account for his gross receipts, and to take no interest |
The sanction Where the mortgagee fails to perform any of these duties, he may be debited with the loss occasioned by his failure in taking the accounts. The section thus enforces itself through the account, and a careless mortgagee in possession finds the shortfall charged against his own security. |
8. Section 77: Receipts in Lieu of Interest
Where there is a contract between the mortgagee and the mortgagor that the receipts from the mortgaged property shall, so long as the mortgagee is in possession, be taken in lieu of interest on the principal money, or in lieu of such interest and defined portions of the principal, clauses (b), (d), (g) and (h) of section 76 do not apply. The reason is straightforward: where the parties have agreed that the profits stand in place of interest, there is no occasion to require the collection of rents, the making of repairs out of income, the keeping of accounts, or the application of receipts in a prescribed order.
9. Landmark Cases
📖 Narandas Karsondas v. S.A. Kamtam, (1977) 3 SCC 247 Held: A mortgagee exercising a power of sale without the intervention of the court does not, by entering into a contract for sale, extinguish the mortgagor's right of redemption. The equity of redemption subsists until the sale is complete by a registered conveyance, and until that moment the mortgagor may redeem. The power of sale must also be exercised in strict compliance with the conditions of the section. Ratio: The mortgagor may redeem until the conveyance under section 69 is executed and registered. |
📖 Chunchun Jha v. Ebadat Ali, AIR 1954 SC 345 Held: The remedy available to a mortgagee depends on the kind of mortgage he holds, and the kind of mortgage depends on the intention of the parties. A transaction that is in substance a mortgage by conditional sale carries the remedy of foreclosure, and one that is in substance a sale carries none. Ratio: The remedy follows the form, and the form follows the intention. |
10. Related Topics and Provisions
- Foreclosure vs Sale — the two decrees compared
- Kinds of Mortgages under Section 58 — which remedy belongs to which mortgagee
- Right of Redemption, Section 60 — the right the mortgagee's remedies bring to an end
- Accession to Mortgaged Property — sections 63, 63A, 70 and 71
- Postponement of a Prior Mortgagee, Section 78 — and the rules of priority
- Order 34, Code of Civil Procedure, 1908 — suits relating to mortgages, and preliminary and final decrees