Himachal Pradesh National Law University

ASSIGNMENT OF TRANSFER OF PROPERTY ACT ON

CONTEMPORARY MORTGAGE INDUSTRIES AND FORECLOSURE PRACTISES

SUBMITTED BY:

Nishchay Dutt

(B.B.A LL. B, 5th SEMESTER, ROLL NO. 1120171825)

SUBMITTED TO:

MRS. NAVDITYA TANWAR

ASSISTANT PROFESSOR OF LAW ,

HIMACHAL PRADESH NATIONAL LAW UNIVERSITY, SHIMLA

ACKNOWLEDGMENT

Every project big or small is successful largely due to the effort of a number of wonderful people

who have always given their valuable advice or lent a helping hand. I sincerely appreciate the

inspiration; support and guidance of all those people who have been instrumental in making this

project a success.

I, Nishchay Dutt, the student of H.P. National Law University (Shimla), am extremely

grateful to H.P. National Law University (Shimla) for the confidence bestowed in me and

entrusting my assignment of Transfer of Property.

I extend my gratitude to my Project Guide, Mrs. Navditya Tanwar, who assisted me in

compiling the project.

I would also like to thank all the faculty members of H.P. National Law University (Shimla)

for their critical advice and guidance without which this project would not have been possible.

Our land is more valuable than your money. It will last forever. It will not even perish by the
flames of fire. As long as the sun shines and the waters flow, this land will be here to give life to
men and animals. Compulsory acquisition of land not only leads to loss of economic assets and
livelihood but also disrupts communities, cultural identities, local markets for goods and labour,
consequently placing the oustees in a “spiral of impoverishment”

Introduction:

The Transfer Of Property Act ,1882 deals with the mortgage of immovable property in India.

Mortgage is the transfer of an interest in immovable property for the purpose of securing a loan

or the performance of an engagement. Hence, though mortgage does not transfer the property to

a third party, it creates an interest in immovable property. In this paper, the author looks at some

of the major laws and regulations concerning property mortgage in India.

The right of foreclosure is a right available to a mortgagee to recover his outstanding money.

This right is available under Section 67 of the Transfer of Property Act, 1882. After the principal

amount has become due, and before payment of mortgage money by mortgagor or before decree

of redemption has been passed by Court, mortgagee has a right to obtain a decree of foreclosure

from the Court. A suit to obtain a decree that a mortgagor will be absolutely debarred from

exercising his right to redeem the mortgaged property is called a suit for foreclosure.

History and Background

Human beings have multifarious needs, and borrowing money for satisfaction of these needs is

perhaps as old as civilization itself. Moneylenders wanting security for the repayment of the loan

gave birth to the system of hypothecation or mortgage of property, movable or immovable. In the

beginning, property kept as security was delivered to the one who advanced the loan, and it was

forfeited in the event of the non-payment of loan despite its worth. This was also a universal

practise that the value of the property kept as security for the repayment of the loan much higher

than the amount of loan raised, even if calculated with interest. Simple money or money lending

on the strength or security of immovable property has again been in existence from time

immemorial. In some cases the possession continued with the mortgagor, but the property was

again forfeited in the event of non-payment of the loan. In the absence of clear rules, exorbitant

interest rates and condition favorable to the mortgage yet grossly adverse to the mortgagor, the

whole transaction of mortgage was perceived as a transaction, on an entirely different platform

than other civil contracts, like sale and purchase of property.

The prevalent understanding of a mortgage deal was that it is a transaction, where, a person who

is in need of money borrowed it from another on the strength of some tangible property of value

higher than the loan amount. He promises to repay the loan within the specified time. In this

manner, the economic needs of the borrower are met with. The benefit coming to the mortgagee

in this transaction was that he was entitled to charge interest on the loan amount and would get

back more than what he had lent. The transaction, in theory, therefore, was for the mutual benefit

of both the parties but the inequality of the standing of both the parties was evident as almost in

all communities, the general practise was that in the event of non-payment of loan amount by the

mortgagor, the ownership in the property passed to the mortgagee without him having to pay

anything extra.

In certain communities, charging interest from the needy was prohibited and the system of

mortgage prevalent among those communities could be compared to what is presently called a

possessory mortgage or usufructuary mortgage. In this transaction, the possession of property

was delivered to the mortgage who was entitled to use it till the repayment of loan by the

mortgagor. A mortgage by conditional sale was also prevalent in Hindu and Muslim law while

English mortgage, to begin wit, was limited to contracts involving Europeans and inhabitants of

the presidency town. There was no written law in existence in respect of mortgage of property

prior to 1882, even then no basic change has been made in the law but only some terms, rights

and liabilities of the mortgagor and mortgagee or the assignees have been specifically provided.

For instance, despite the fact that the ace of 1882 would not have been made applicable to

previous transactions, a mortgagor would always be entitled to redeem the mortgage by making

the payment of the mortgage money.

After the enactment of the TPA Act, systematic and detailed rules were laid down to govern law

relating to mortgages and to determine the rights and liabilities of both the mortgagor and the

mortgagee.

Meaning of mortgage:

A mortgage is the transfer of an interest in specific immovable property for the purpose of

securing the payment of money advanced or to be advanced by way of loan, an existing or future

debt or the performance of an engagement, which may give rise to a pecuniary liability

Characteristics of Mortgage

● A mortgage can be effected only on immovable property, immovable property includes

land, benefits that arise out of things attached to the earth like trees, buildings, and
machinery. But a machine that is not permanently fixed to the earth and is shiftable from
one place to another is not considered to be immovable property.
● A mortgage is the transfer of an interest in specific immovable property and differs from

sale wherein the ownership of the property is transferred. Transfer of an interest in the

property means that the owner transfers some of the rights of ownership to the mortgagee

and retains the remaining rights with himself. For example, a mortgagor retains the right

to redeem the property mortgaged.

 ● The object of transfer of an interest in the property must be to secure a loan or

performance of a contract which results in monetary obligation. Transfer of property for

purposes other than the above will not amount to the mortgage. For example, a property

transferred to liquidate prior debt will not constitute a mortgage.

● The property to be mortgaged must be a specific one, i.e., it can be identified by its size,

location, boundaries, etc.

● The actual possession of the mortgaged property need not always be transferred to the

mortgagee.

● The interest in the mortgaged property is re-conveyed to the mortgage on repayment of

the loan with interest due on.

● In case the mortgagor fails to repay the loan, the mortgagee gets the right to recover the

debt out of the sale proceeds of the mortgaged property.

Different Types of Mortgage

The act contemplates six kinds of mortgage, namely simple mortgage, mortgage by conditional

sale, usufructuary mortgage, English mortgage, mortgage by deposit of title deeds and

anomalous mortgage.

1. Simple mortgage: A simple mortgage is one where; without delivering possession of the

mortgaged property, the mortgagor binds himself personally to pay the mortgage money and

agrees expressly or impliedly that in the event of his failure to pay according to his contract, the

mortgagee shall have a right to cause the mortgaged property to be sold and the proceeds of the

sale to be applied so far may be necessary, the payment of the mortgage money.

However, the mortgagee cannot directly sell the property. The sale must be through the

intervention of the court.

The mortgagee will have to obtain first a decree from the court for the sale of the mortgaged

property since the words used are “cause the mortgaged property to be sold”.
2. Mortgage by conditional sale: Mortgage by conditional sale is one where the mortgagor

ostensibly sells the mortgaged property on the condition that –

▪ On default of payment of the mortgage money on a certain date the sale shall become

absolute, or

▪ On such payment being made the sale shall become void, or

▪ On such payment being made the buyer shall transfer the property to the seller.

3. Usufructuary mortgage: A usufructuary mortgage is one where the mortgagor delivers or

agrees to deliver the possession of the mortgaged property to the mortgagee and authorizes

him –

▪ To retain such possession until payment of the mortgage money,

▪ To receive the whole or any part of the rents and profits accruing from the property, and

▪ To appropriate such rents or profits; (i) in lieu of interest, or (ii) in payment of the mortgage

money, or (iii) partly in lieu of interest and partly in lieu of the mortgage money.

4. English mortgage: English mortgage has the following characteristics:

▪ The mortgagor makes a personal promise to repay the mortgage money on a certain day.

▪ The property mortgaged is transferred to the mortgagee. The mortgagee, therefore, is entitled

to take immediate possession of the property. He/She may, under certain circumstances, sell

the mortgaged property without the intervention of the court.

▪ The transfer is subject to this condition that the mortgagee will re-transfer the property to the

mortgagor upon making payment of the mortgage money as agreed.

5. Mortgage by deposit of title deeds: Where a person delivers to a creditor or his/her agent

documents of title to immovable property, to create a security thereon, the transaction is called

a mortgage by deposit of title deeds. This mortgage does not require registration. It is the most

popular with banks.

 6. Anomalous mortgage: A mortgage other than any of the mortgages explained so far. It is

an anomalous mortgage. Such a mortgage includes a mortgage formed by the combination of

two or more types of mortgages as explained above. It may, therefore, take various forms

depending upon custom, local usage, or contract.

Legal Mortgage and Equitable Mortgage – Advantages and Disadvantages

Based on the transfer of title to the mortgaged property, mortgages are divided into types

namely:

1. Legal Mortgage

2. Equitable Mortgage

Legal Mortgage

In a legal mortgage, the legal title to the property is transferred in favor of mortgagee by a deed.

The deed is to be registered when the principal money is Rs.100 or more. On repayment of the

loan, the legal title is re-transferred to the mortgagor. The method of creating a charge is

expensive as it involves registration charges and stamp duty.

Equitable Mortgage

An equitable mortgage is affected by the delivery of documents of title to the property to the

mortgagee.

The mortgagor through Memorandum of deposit undertakes to grant a legal mortgage if he fails

to pay the mortgage money.

Advantages

▪ No registration is required for an inequitable mortgage and so stamp duty is saved.

▪ It involves minimum formalities.

 ▪ The information regarding such a mortgage is kept confidential between the lender and the

borrower. So the reputation of the borrower is not affected.

Disadvantages

▪ If the mortgagor fails to repay, the mortgagee must get a decree for the sale of the property.

Getting a degree is expensive and time-consuming.

▪ The borrower may hold the title deeds not on his account, but in the capacity of a trustee. If

an equitable charge is created, the claim of the beneficiary under the trust will prevail over the

equitable mortgage.

▪ There is the risk of a subsequent legal mortgage in favor of another party. If the equitable

mortgagee parts with the security, even for a short period, the debtor may create a second legal

mortgage over the same property.

Right of foreclosure:
The right of foreclosure is a right available to a mortgagee to recover his outstanding money.

This right is available under Section 67 of the Transfer of Property Act, 1882. After the principal

amount has become due, and before payment of mortgage money by mortgagor or before decree

of redemption has been passed by Court, mortgagee has a right to obtain a decree of foreclosure

from the Court. A suit to obtain a decree that a mortgagor will be absolutely debarred from

exercising his right to redeem the mortgaged property is called a suit for foreclosure.

Conditions:

The right to foreclosure can be exercised by mortgagee only when:

● The debt amount has become due for payment.

 ● There are no contrary conditions in the mortgage deed as to the time fixed for repayment

etc.

● Mortgage money has become due but mortgagor has not got a decree of redemption of

the mortgaged property.

● Mortgage money has become due but mortgagor has not paid or deposited the amount.

After the mortgage money has become due, the mortgagor can pay off his debt in three

ways:

● By tendering or making payment of the mortgage money directly to mortgagee

● By filing a suit for redemption.

● By depositing the amount in court.

● Mortgagee should not be mortgagee of public works like canals, railway etc.

● A trustee or legal representative of mortgagee cannot file a suit for foreclosure but for

sale only.

However, when mortgagor fails to redeem the property, the mortgagee does not become the

owner of the property, he has to file a suit for recovery of the amount due. The limitation period

for instituting a suit is 12 years. The final decree in a suit for foreclosure on the failure of

defendant to pay all amounts due extinguishes the right of redemption which has to be

specifically declared. A mortgagee may hold two or more mortgages executed by the same

mortgagor. In respect of each of such mortgages, he may have a right to obtain a decree of

foreclosure. In case he sues to obtain such a decree on any one of the mortgages, he will be

bound to sue on all the mortgages in respect of which the mortgage money has become due.

When does the right to foreclosure arise ?

When no time is fixed for repayment of debt, the right to foreclosure arises from the date of

execution of the deed., or from the date of demand for the repayment is made and is refused by

the mortgagor. In case of time is fixed, the right arises after the time expires. A default in the
payment of interest does not accelerate the right of foreclosure unless the contract specifies so. It

however, entitles the mortgagee to take the action of sending a notice of demand or filing a suit.

In case of agreement it is to repay installments, the right to sue arises each time an installation

due.

Right to foreclosure and right of redemption:

The right of foreclosure is counterpart of right of redemption. Mortgagor gets a right of

redeeming his security after payment of debt amount; similarly mortgagee has a right of

foreclosure or sale in default of redemption by the mortgagor. Section 67 protects interest of a

mortgagee who has advanced a loan in pursuance of some interest in a security and mortgagor

has defaulted in payment.

The right of foreclosure of mortgagee is co-extensive to right of redemption of mortgagor.

Subject to the intention expressed in the contract, the mortgagee gets the right to enforce his

security when the mortgagor’s right to redeem accrues. But the rule may be limited by the terms

of the mortgage and if the limitation is not oppressive or unreasonable, it will be given effect to.

Right to foreclosure can be limited in nature subject to the contract between the parties, but right

to redemption is an absolute right, which cannot be limited in any way.

It follows that when a mortgagee makes a statement about his right to recover the mortgage

amount, such statement impliedly acknowledges the corresponding right of redemption of the

mortgagor. Further, a statement admitting jural relationship, need not refer to or reiterate the

rights and obligations flowing there from. Where a party to the mortgage, by his statement,

admits the existence of the mortgage or his rights under the mortgage, he admits all legal
incidents of the mortgage including rights and obligations of both parties that is mortgagee and

mortgagor.

Kinds of foreclosure:

Partial foreclosure: Partial foreclosure is not a remedy under Section 67. The rule is that one of

the several mortgagees cannot foreclose or sell in respect of his share unless several mortgagees

have, with the consent of the mortgagor, severed their interests under the mortgage. The reason

of this rule is to protect the mortgagor from being harassed by a multiplicity of suits where the

severance of interest of the mortgagees has taken place without the consent of the mortgagor.

Accordingly all the co-mortgagees must join together and file one suit in respect of the whole

mortgage money.

Subrogation: Where redemption of mortgaged property is carried out by any person who has an

interest in the mortgaged property other than the mortgagee, like subsequent mortgagees, co-

mortgagors, buyer of mortgaged property, surety of mortgaged debt or creditor of mortgagor,

such person enters into the shoes of mortgagee. He gets all the rights that the creditor

(mortgagee) had against the principal debtor (mortgagor) including right to foreclosure,

redemption or sale. This is known as subrogation. However, the entire mortgage should be paid

off by the person.

The person can enforce the security over the original debtor for reimbursement. A person pays a

mortgage to protect his/her own interest in the property or because s/he is secondarily liable for

the debt or for the discharge of the lien. However, if the borrower used the proceeds of the loan

to discharge a prior encumbrance, it is not a sufficient reason to entitle the lender to subrogation.

There should be ample proof that the loan was made for that purpose.
A co- mortgagor in possession, of excess share redeemed by him can enforce his claim against

non redeeming mortgagor by exercising rights if foreclosure or sale as exercised by mortgagee

under Section 67 of the Transfer of Property Act but that does not make him a mortgagee. The

remedy of redemption, foreclosure and sale available to such co-mortgagor are the rights as a

subrogee not as a mortgagee reincarnate but by way of rights akin to those vesting in the

mortgage.

Estoppel of right of foreclosure: Where mortgagee has accepted the redemption amount and

revalued amount and right to redeem has been enforced, it cannot be interfered with. Mortgagee

could not approbate and reprobate, since mortgagee didn’t challenge execution proceedings

during pendency of appeal in Supreme Court, the right of foreclosure is lost by estoppel

Defenses to foreclosure

The borrower can pursue certain defenses depending upon the situation:

1. The foreclosing party can’t prove that it owns the debt.

2. The borrower is on active duty in the military and is entitled to protection from foreclosure

under the Servicemembers Civil Relief Act (SCRA).

3. The foreclosing party did not follow the required procedure to foreclose.

Supreme court recent decision:

The Hon'ble Supreme Court of India recently pronounced a judgment on the extinguishment of

this right of redemption in Allokam Peddabbayya & Ors. v. Allahabad Bank & Ors. it was

laid down categorically that right to redemption exists only till the time sale of the mortgaged

property has been confirmed.

Redemption is the act of buying back the property after tendering the amount due to the creditor.

In a transaction of mortgage, the mortgagor has the right to redeem his property after paying off

the debt amount. The right of redemption is statutory and inalienable, meaning thereby, that it

cannot be taken away by the provisions of the contract. Section 60 of the Transfer of Property

Act, 1882 (hereinafter, 'TPA') confers the right of redemption on the mortgagee. It lays down

that after the principal money becomes due, the mortgagor can tender the money and require the

mortgagee to deliver the possession of the property or the deed/documents to him. The proviso to

section 60 puts a restriction on the exercise of this right. It can only be exercised till the time it is

not extinguished by the act of the parties or by decree of a court.

The Hon'ble Supreme Court of India recently pronounced a judgment on the extinguishment of

this right of redemption in Allokam Peddabbayya & Ors. v. Allahabad Bank & Ors. it was laid

down categorically that right to redemption exists only till the time sale of the mortgaged

property has been confirmed. Once the sale is confirmed, the right to redeem is lost within the

meaning of the proviso.

The facts of the case were that the mortgagor had created an equitable mortgage of their property

in favour of the Allahabad Bank by deposit of title deeds in 1979. The bank had instituted

proceedings for sale of the mortgaged property and it was sold to the Respondents. The

Respondents executed the decree and were put in possession in 1997. Meanwhile, the original

mortgagor had sold the property to the Appellants in 1985. Before the execution of the decree,

the Appellant brought suit asserting their possession and seeking a permanent injunction

restraining defendant from interfering with their peaceful possession of the property. They did

not ask for redeeming the property or to set aside the sale. It was after execution in 1997 that

they brought a suit under Order XXXIV Rule 1 of the Code of Civil Procedure (hereinafter

referred to as 'the CPC').

It was contended that the Appellants had purchased the property and by virtue of Order XXXIV

Rule 1, CPC, they were necessarily to be impleaded as party defendants before institution of the
suit for foreclosure by the Bank or sale of the mortgaged property. Because the same was not

done, the decree was not binding on them and did not affect their right to redemption. They also

relied on section 91 of TPA which gives right to persons other than the mortgagor to redeem the

mortgaged property.

The Supreme Court recognized the interest of the Appellants in the mortgaged property as per

section 91 and held them to be competent to bring a suit for redemption. However, in light of the

facts of the case, the court denied the right of redemption to the Appellants. It held that the

conduct of the Plaintiffs amounted to a waiver of their rights. The court concluded that the

Appellants preferred a suit seeking a permanent injunction against any interference by the

auction purchaser. All the facts regarding mortgage, foreclosure suit, and consequent sale were

disclosed by the Respondents. Despite this, they did not take any steps for redeeming the

property or setting aside the sale. Action for redemption was taken after the sale was confirmed

in favour of the Respondents, when the right to redeem had become irrelevant. In the words of

the court

"The right to enforce a claim for equity of redemption is a statutory right under the Act. It

necessarily presupposes the existence of a mortgage. The right to redeem can stand extinguished

either by the act of the parties or by operation of the law in the form of a Decree of the Court

under the proviso to Section 60 of the Act."

Thus, the law emerges to be that actions to redeem property and to claim it back should be such

that a clear intention is evinced to protect the property. Court does not entertain claims of those

who appear to be sleeping on their rights and approach it at their own sweet will.

With respect to the query that whether the right to redemption gets extinguished on passing of

decree or its execution, the court relied on following paragraph in L.K. Trust v. EDC Ltd.:

"...What is held by this Court is that in India it is only on execution of the conveyance and

registration of transfer of the mortgagor's interest by registered instrument that the

mortgagor's right of redemption will be extinguished but the conferment of power to sell the

mortgaged property without intervention of the court, in a mortgage deed, in itself, will not

deprive the mortgagor of his right of redemption..."

Furthermore, for availing right of redemption after decree for sale of mortgaged property has

been passed, it is not enough that a suit for redemption is filed, it is necessary that objection is

raised against the decree or sale certificate. It has been observed as follows in Embassy Hotels

Pvt. Ltd. vs. Gajaraj & Co. & ors.:

"15....In such circumstances, in our considered view, the only option was to directly

challenge the court auction of the suit property and the issuance of sale certificate...it

is not possible to accept the contention on behalf of the plaintiff that the first defendant

being a mortgagor will continue to have a right of redemption, although the sale of

mortgaged property to a third party through a court auction became final."

Therefore, based on the aforesaid discussion it becomes clear that the right to redemption is not

an absolute right. It is extinguishable in terms of section 60 of the TPA. As pointed out in the

aforesaid judgment, the right gets extinguished if the sale is confirmed. The mortgagor can still

redeem before the confirmation of the sale, but once it is confirmed and he raises no objection to

the validity of the sale, the right to redeem gets extinguished. The courts provide no relief to the

person who has been sleeping on his right before and did not claim the same even after being

provided opportunity. Nevertheless, it is an important right and given utmost superiority by the

courts. It is based on the principle 'once a mortgage, always a mortgage and imbibes that a

person is not deprived of his property if he is willing to make good his dues. The right to

redemption is an incident of a subsisting mortgage and is inseparable from it such that the right is

coextensive with the mortgage itself.

Conclusion:
At last we can say that the right of foreclosure is a right available to a mortgagee to recover his

outstanding money. Mortgage is a transfer of interest in a property to secure payment of money

advanced. A mortgagee advances money to the mortgagor. The mortgagor provides some

property as security to the mortgagee.The transaction is effected through a document called the

mortgage deed. The relevant provisions regarding foreclosure are contained under Section 67 of

The Transfer Property Act.The foreclosure right can be enforced on failure of the mortgagor to

repay the money borrowed on the due date. it is an important right and given utmost superiority

by the courts. It is based on the principle 'once a mortgage, always a mortgage and imbibes that a

person is not deprived of his property if he is willing to make good his dues. The right to

redemption is an incident of a subsisting mortgage and is inseparable from it such that the right is

coextensive with the mortgage itself.