Rule
When the mortgage-money is due and unpaid, the mortgagee can enforce his security through the court. The two main remedies are foreclosure (the mortgagor loses the right to redeem) and sale (the property is sold and the debt paid from the price) (S.67).
Which remedy he gets depends on the kind of mortgage. He may also sue for the money in the cases in S.68, and sell without the court only in the narrow cases in S.69.
The mortgagee lent money on the strength of the property. The law gives him a sure way to recover it, but only through the remedy his kind of mortgage allows, so that the mortgagor is not stripped of more than the debt.
| Provision | What it says |
|---|---|
| S.67 | Right to foreclosure or sale, and who may use which |
| S.68 | Right to sue for the mortgage-money |
| S.69 | Power of sale without the court, in limited cases |
| S.69A | Appointment of a receiver |
| S.72 | Right to add costs of preservation and protection of title |
| S.73 | Right to proceeds of a revenue sale or compensation for acquisition |
| S.76 | Liabilities of a mortgagee in possession |
Requirements
Which remedy fits which mortgage (S.67 and its proviso):
| # | Kind of mortgage | Foreclosure | Sale |
|---|---|---|---|
| 1 | Simple (S.58(b)) | No | Yes |
| 2 | Conditional sale (S.58(c)) | Yes | No |
| 3 | Usufructuary (S.58(d)) | No | No |
| 4 | English (S.58(e)) | No | Yes |
| 5 | Deposit of title deeds (S.58(f)) | No | Yes |
| 6 | Anomalous (S.58(g)) | Only if the deed allows | As the deed provides |
Foreclosure is not open to an English mortgagee. Only a mortgagee by conditional sale, or an anomalous mortgagee whose deed allows it, can sue for foreclosure.
Suing for the money (S.68)
The mortgagee can sue for the mortgage-money only in these cases:
- The mortgagor has bound himself to repay it.
- The property is wholly or partly destroyed, or the security becomes insufficient, without the mortgagee's fault, and the mortgagor fails to give further security.
- The mortgagee is deprived of his security by the wrongful act or default of the mortgagor.
- A usufructuary mortgagee is not given possession, or is kept out of it.
Sale without the court (S.69)
A power of sale without the court's help is valid only:
- In an English mortgage where neither party is a Hindu, Muslim, Buddhist or member of a notified group.
- Where the power is expressly given by the deed and the mortgagee is the Government.
- Where the power is expressly given by the deed and the property is in Kolkata, Chennai, Mumbai or a notified town.
- Even then, written notice must be given and the default must have run for 3 months (S.69(2)).
Bank recovery without the court under the SARFAESI Act, 2002 is a separate law, not part of S.69.
Liabilities of a mortgagee in possession (S.76)
| Liability | Content |
|---|---|
| Manage prudently | As a person of ordinary prudence would manage his own property |
| Collect rents | Use his best efforts to collect rents and profits |
| Pay charges | Pay public charges and rent from the income |
| Repair | Make necessary repairs from the income |
| No waste | Not commit any act destructive or permanently injurious to the property |
| Insure | Keep insured if the deed so provides |
| Account | Keep clear accounts and apply the net income to interest and then principal |
| Loss by default | If he fails in these duties, he is charged with the loss in the accounts (S.76(h)) |
Illustrations
1. Foreclosure decree
- Facts: A mortgages by conditional sale to B and defaults. B sues for foreclosure. The court passes a preliminary decree giving A 6 months to pay. A does not pay.
- Result: A final decree of foreclosure. A's right to redeem ends and B holds the property free of it.
- Why: Foreclosure is the remedy for a mortgage by conditional sale (S.67).
2. Sale decree and surplus
- Facts: C owes D Rs.18 lakhs under a simple mortgage. On D's suit the court sells the property for Rs.25 lakhs.
- Result: D takes Rs.18 lakhs. The surplus of Rs.7 lakhs goes to C (Order XXXIV, Rule 13, CPC).
- Why: Sale only realises the security. The rest belongs to the mortgagor.
3. Shortfall
- Facts: Same mortgage, but the property sells for Rs.15 lakhs.
- Result: D can get a decree for the balance of Rs.3 lakhs against C personally.
- Why: In a simple mortgage C bound himself to repay (S.68(1)(a)).
4. Costs of preservation
- Facts: B, a usufructuary mortgagee, spends Rs.50,000 repairing irrigation channels after a flood.
- Result: B can add the Rs.50,000 to the mortgage-money (S.72).
- Why: The spending was needed to keep the property from being destroyed.
Key Cases
Narandas Karsondas v SA Kamtam, (1977) 3 SCC 247
- Facts: A mortgagee with a power of sale agreed to sell the mortgaged property. The mortgagor sued to redeem before the sale was completed.
- Held: The right of redemption ends only on a completed sale by registered deed, not on a mere agreement to sell.
- Principle: The mortgagee's power of sale must be fully carried out before the mortgagor's right ends.
S.76 and S.67 are mostly applied on their own words. The second case in the earlier version could not be verified and has been removed (see the review report).
Distinctions
| Basis | Foreclosure (S.67) | Sale (S.67) |
|---|---|---|
| Available for | Conditional sale; anomalous if deed allows | Simple, English, deposit of title deeds |
| Effect | Mortgagor loses right to redeem | Property sold, debt paid from price |
| Surplus | None | Goes to mortgagor |
| Shortfall | No personal decree | Personal decree if personal liability exists |
| Basis | Suit for money (S.68) | Suit on the security (S.67) |
|---|---|---|
| Against | The mortgagor personally | The property |
| When | Only in the S.68 cases | After the money is due |
| Combined | Yes, in one suit | Yes |
Exam Scenario
A gives B a simple mortgage for Rs.15 lakhs and defaults. B takes possession without any court order and collects rent of Rs.50,000 a month for 2 years. He then sues for sale, claiming the full Rs.15 lakhs and interest. Advise A.
Approach
- Issue: A simple mortgagee has no right to possession (S.58(b)). B's taking of possession was not authorised.
- Met: B is in fact in possession, so he must account as a mortgagee in possession (S.76).
- Met: He received Rs.12 lakhs in rent, which must be applied first to interest and then to principal.
- Issue: If he let units stay empty through his own default, he is charged with that loss too (S.76(h)).
Conclusion: B cannot claim the full Rs.15 lakhs. The rents he received must be set off.
Remedy: A should ask for accounts under S.76. Only the balance found due can be recovered by sale. A can also redeem by paying that balance.
Recall Check
- Which mortgagees may sue for foreclosure, and which for sale?
- In what four cases can a mortgagee sue for the money under S.68?
- When is a power of sale without the court valid under S.69?
- Name four duties of a mortgagee in possession.
Flashcards
What two remedies does a mortgagee have upon default under S.67?
Foreclosure (mortgage by conditional sale, or anomalous if the deed allows) or sale (simple, English and deposit of title deeds). A usufructuary mortgagee has neither.
Can a mortgagee claim ownership by long possession without a decree?
No. The mortgagor's right to redeem lasts until ended by act of the parties or a decree (S.60). A mortgagee holds as mortgagee however long he is in possession.
When can a mortgagee sell WITHOUT court intervention?
Under S.69: (a) an English mortgage where neither party is a Hindu, Muslim, Buddhist or member of a notified group, (b) express power and the Government is mortgagee, (c) express power and the property is in Kolkata, Chennai, Mumbai or a notified town. SARFAESI is a separate statute.
What must a mortgagee in possession account for under S.76?
The rents and profits received. If he fails in his duties, for example by letting the property lie vacant, he is charged with the loss caused (S.76(h)).
What is the difference between foreclosure and sale in terms of surplus?
Foreclosure: no surplus, the mortgagee keeps the property. Sale: any surplus after paying the mortgage-money goes to the mortgagor.
Can foreclosure and personal suit coexist?
Usually not. Foreclosure is for a mortgage by conditional sale, which carries no personal liability. Where personal liability exists (simple, English), the remedy is sale plus a personal decree.
In which mortgage can the mortgagee seek foreclosure?
Mortgage by conditional sale (S.58(c)), and an anomalous mortgage whose terms allow it.
Under S.69, when can a mortgagee sell without court?
- (1) English mortgage where neither party is a Hindu, Muslim, Buddhist or member of a notified group - (2) Express power in the deed and the Government is the mortgagee - (3) Express power in the deed and the property is in Kolkata, Chennai, Mumbai or a notified town