Mortgagees Right To Sell: Past Situation

The power of the mortgagee to sell without intervention of the court, before the incorporation of
such right under Section 69 of the Transfer of Property Act, 1882, was a subject-matter of
controversy and divergent views.

This power of sale, a feature of the English mortgage was originally confined to Englishmen or to
Indian residents in the Presidency Towns who were conversant with the forms of English
mortgage and English law and procedure as administered in the Presidency Towns. In the
mofussil, prior to the Transfer of Property Act, there were certain regulations governing the law of
mortgages between the parties who were not Europeans. Those regulations did not empower the
mortgagee to effect sale of the mortgaged property without the intervention of the court.

Section 69 of the Transfer of Property Act, 1882, was modelled on the English Conveyancing
Act, 1881 and the English Law of Property Act, 1925. Section 69 was later remodelled by
amending Act 20 of 1929 drawing the principles from the English law.

Section 69 of the Transfer of Property Act, 1882 contains five sub-sections. Sub-sections (1) and
(2) as detailed hereunder, deal with the circumstances under which the mortgagee's right to
exercise the power of sale without the intervention of the court arises. Sub-sections (3) and (4)
respectively dwell on the title of the purchaser from the mortgagee and the manner of
deployment of sale proceeds of the mortgaged property by the mortgagee, his duties and
responsibilities. Sub-section (5) states that nothing in this section applies to powers conferred
before the first day of July, 1882.
The right under Section 69 is as much and as full a right as the right of redemption of the
mortgagor. The mortgagee is, in no sense, a trustee for the mortgagor in the matter of the power
of sale; as he holds it for protection of his interest and for his benefit. The mortgagee is not
debarred from exercising the power of sale, even though the mortgagor files a suit for
redemption. So long as the mortgage money is not paid or validly tendered, the mortgagee with
full knowledge of a pending suit for redemption and even to defeat the suit can enforce his power
of sale under this section.

While clauses (b) and (c) of sub-section (1) require that power of sale without intervention of the
court must be expressly conferred on the mortgagee by the mortgage deed, no such conditions
need be fulfilled, where the mortgage is an English mortgage and neither of the parties is Hindu,
Mohammedan or Buddhist or any sect, race etc., as stipulated under clause (a) of sub-section
(1).

Power of sale without intervention of court

The words "power of sale" refer to a clause expressly included in the mortgage deed. They mean
conveyancing. The expression has not been defined in the Act. It includes all steps which are
necessary to be taken in connection with a sale. The law permits the greatest freedom of
contract, unless it is expressly taken away. If any party contends that a particular clause restricts,
in any way, the power of parties to enter into a contract, the burden rests on him to show that the
words prevent an agreement between the parties.

The power of sale, under Section 69, can be exercised only in the three cases mentioned in
clauses (a), (b) and (c) of sub-section (1). The situation of the property is immaterial in cases
falling within clauses (a) and (b).
A mortgagee has no right of sale if there is no default in payment of the mortgage money. There
can be default in payment of mortgage money only after it has become due, and not before. In
cases, where no time is fixed for payment of the mortgage money, there must be a demand for
payment before it can be said that the mortgagor has made a default in payment of the mortgage
money. It has been held in Purasawalkam Hindu Janopakara Saswatha Nidhi Ltd. v. Kuddus
Sahib that where the amount due for principal is not repayable at any particular date, nor is
anything stated as to when it is to be repaid, there can be no default in the payment of the
principal sum due until there is a demand made for the money.

Section 69(1) (a)

The first case in which the mortgagee can have the power to sell is mentioned in clause (a) of
sub-section (1) of Section 69 of the Transfer of Property Act, 1882. It lays down the following
conditions for the acquisition of the power, namely: (1) that the mortgage must be an English
mortgage, as defined in Section 58(e) of the Transfer of Property Act, 1882, and (2) neither the
mortgagor nor the mortgagee must be-
(i) a Hindu, Mohammedan or Buddhist, or
(ii) a member of any other race, sect, tribe, or class from time to time specified in this behalf by
the State Government in the Official Gazette.

The power of sale is inherent in the mortgagee, if Conditions (i) and (ii) mentioned above are
satisfied. Thus it can be exercised where an English mortgage is executed by a company, which
can be said to have no religion3 In L.V. Apte v. R.G.N. Price, the A.P. High Court applied
Section 69 to an English mortgage between a company and trustees for debenture-holders,
some of the trustees being Hindus.

Section 69(1) (a) is confined only to a select sect of mortgagors and mortgagees who do not
belong to the majority communities in India. This section is taken advantage of by corporate
bodies who are not natural persons since such bodies are not deemed to belong to any religion.
As far as individuals are concerned, this section can be adopted if both the mortgagor and
mortgagee do not belong to the religion, race, sect, tribe or class which are excluded from the
purview of Section 69(1) (a).

If the conditions in Section 69(1) (a) and Section 69(2) are complied with, mortgagee's power of
sale arises suo motu.

It is opined that Section 69(1) (a) is outdated in the present circumstances since the stipulations
cannot be applied to the commercial transactions like mortgages, in letter and spirit. No
community can be compelled to exclude themselves from a particular commercial venture as it
would affect their constitutional rights.

Sections 69(1) (b) and 69(1) (c)

The words "expressly conferred" in clauses (b) and (c) indicate that the inherent power available
under clause (a) is not available under clauses (b) and (c).

To bring a case under Section 69(1) (b), it is necessary to establish that

(i) a power of sale without the intervention of the court is expressly conferred on the mortgagee
by the mortgage deed, and
(ii) the mortgagee is Government. This clause is applicable only where the mortgagee is the
Government and does not extend to any other person. It applies both to the State Governments
and the Central Government.

Section 69(1) (c) requires that

(i) a power of sale without the intervention of the court must have expressly been conferred on
the mortgagee by the mortgage deed, and

(ii) the mortgaged property, or any part thereof, must, on the date of the execution of the
mortgage deed, have been situate within the towns of Calcutta, Madras, Bombay or in any other
town, or area, which the State Government may, by notification in the Official Gazette, specify in
this behalf.

It is observed that the three cases mentioned in clauses (a), (b) and (c) of sub-section (1) of
Section 69 of the Transfer of Property Act are independent and mutually exclusive. Clause (a)
applies only where the mortgage is an English mortgage and the parties do not belong to certain
religions, or sects, etc. Clause (b) applies to cases where the mortgagee is the Government.
Under clauses (a) and (b), it is not necessary that the property mortgaged should be situated in
any particular place. It may be situated in any part of India. But an essential condition of clause
(c) is that the mortgaged property must be situated within any of the towns or area, specified in
the clause.

Conditions for exercise of power

Section 69(2) (a) and Section 69(2) (b) specify the conditions for exercise of the power. These
conditions are imperative and cannot be varied by an agreement between the parties. The power
to exercise the right of sale arises when

(i) (a) notice in writing requiring payment of the principal money has been served on the
mortgagor, or on one of several mortgagors, and

(b) default has been made in payment of the principal money, or of part thereof, and

(c) such default has continued for three months after such service; or

(ii) some interest under the mortgage amounting at least to five hundred rupees is (a) in arrear,
and (b) remains unpaid for three months after becoming due.

Conditions (i) and (ii) are in the alternative. It is sufficient if any one of them is fulfilled.

The power of sale under Section 69(1) can be exercised by the mortgagee only when the
conditions under Section 69(2) are fulfilled.

No notice is necessary when default is made for the payment of interest. It is sufficient that
interest under the mortgage amounting at least to five hundred rupees is in arrear and unpaid for
three months after becoming due.

Notice cannot be waived

The notice required by Section 69(2) (a) is not only necessary but is imperative and even the
period of three months cannot be curtailed by agreement of the parties.
The Supreme Court in Narandas Karsondas v. S.A. Kamtam held that the conferment of power
on mortgagee to sell without intervention of the court in a mortgage deed by itself will not deprive
the mortgagor of his right of redemption. The equity of redemption is not extinguished by mere
contract for sale. Therefore, until sale is complete by registration the mortgagor does not lose his
right of redemption. In view of the fact that only on execution of conveyance ownership passes
from one party to another, it cannot be said that the mortgagor lost the right of redemption just
because the property was put to auction. The mortgagor has a right to redeem unless the sale of
property was complete by registration in accordance with the provisions of the Registration Act.

Section 69(1)(a) of the Transfer of Property Act, 1882 unduly excludes the majority communities
in India from exercising the power of sale available for an English mortgagee. This section
appears to have been enacted only for the transactions between mortgagors and mortgagees
who are English people or people of English origin.

Section 69(1) (a)a blot on statute

When the debate on uniform civil code in India is hotting up amongst the law-makers and the
general public, retention of Section 69(1) (a) of the Transfer of Property Act, 1882 is a blot on the
statute-book. This section is a clear discrimination between religious communities in commercial
transactions in India.

Section 69(1) (a) of the Transfer of Property Act, 1882 has lost its relevance in the present-day
secular circumstances. English mortgage is rarely resorted to by the lenders like banks in view of
the religious discrimination in the section itself and stamp duty and registration expenses being
heavy to be borne by the mortgagors.

It is suggested that an amendment to Section 69 of the Transfer of Property Act is the need of
the hour deleting the portion regarding restriction of the power of sale without intervention of the
court only to certain religious communities.

The power of sale under Section 69(1) (c) of the Transfer of Property Act can be exercised only
when the mortgaged properties are situated within certain towns. The restriction in respect of
location of the properties within certain towns for the purpose of Section 69(1) (c) might have
been a carefully considered decision at the time when the section was inserted into the Act. It
protects the gullible rural masses from the usurious moneylenders. Since then, the situation has
undergone changes and the people in the rural sector are prudent enough to know the
implications of mortgage transactions.

Mortgagees Right To Sell: Present Situation

At present, an attempt has been made to change the situation by passing the “Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Act 54 of
2002)”, which protects the interests of the banks and other financial institutions by providing ways
to recover their amounts by selling the assets of the mortgagor.

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest
Act, 2002, fondly called by bankers as Securitisation Act, has recently been enacted conferring
powers on banks and financial institutions, if they are secured creditors, to realize the securities
by sale etc., without intervention of court. The Act contains a provision overriding the provision of
Section 69 of the Transfer of Property Act, 1882. Sub-section (1) of Section 13 of the said Act
reads as under:
"13. (1) Notwithstanding anything contained in Section 69 or Section 69-A of the Transfer of
Property Act, 1882, any security interest created in favour of any secured creditor may be
enforced, without the intervention of court or tribunal, by such creditor in accordance with the
provisions of this Act."

The provisions of the Act have been made applicable exclusively to banks and financial
institutions as secured creditors to enforce their security interest with a view to recovering their
debts. That is, if the banks and financial institutions are secured creditors having lent against
securities like mortgage of immovable property, charge, hypothecation they can take over and
sell such securities after giving 60 days' notice to the borrowers so as to adjust the loan, without
resort to litigation in a competent court of law. The provisions of the Act cannot be considered to
have been extended to the secured creditors in general. In a nutshell, the provisions of Section
69 of the Transfer of Property Act, 1882 can be ignored by the banks and financial institutions in
the matter of recovery of their debts ex curia whereas other creditors have to file a suit in a
competent court for recovery of the loan. Otherwise, Section 69 of the Transfer of Property Act,
1882 still remains on the statute and is applicable to other creditors who are not banks and
financial institutions. The banks and financial institutions are empowered to short-circuit the legal
process to enforce the securities for recovery of their loans while the other creditors such as
individuals, association of persons have to undergo the rigmorale of court proceedings. This is a
clear discrimination endowing one section with legal favouritism and depriving similarly placed
others of such right. Hence the suggestion for the amendment to make the law uniform to all
creditors who have lent against mortgage securities.

It is suggested that the stipulation of certain notified towns in Section 69(1) (c) of the Transfer of
Property Act, 1882 should be deleted by an amendment since such a stipulation does not have
any sanctity or reasonable purpose in the present circumstances.

Recourse to legal proceedings through a court of law for recovery of debts, though secured by
mortgage, is not only time-consuming but expensive too. The suggested amendment to Section
69 of the Transfer of Property Act, 1882 will result in enforcement of mortgage security by the
mortgagee without resort to court proceedings and will, to some extent, disburden the courts
from the current scenario of docket explosion so that the other cases can be adjudicated as
expeditiously as possible.

Conclusion
After going through this project, I have come to the conclusion that, section 69(1) (a) of the
Transfer of Property Act, 1882 has lost its relevance in the present-day secular circumstances.
English mortgage is rarely resorted to by the lenders like banks in view of the religious
discrimination in the section itself and stamp duty and registration expenses being heavy to be
borne by the mortgagors.

This is because, section 69(1) (a) of the Transfer of Property Act, 1882 unduly excludes the
majority communities in India from exercising the power of sale available for an English
mortgagee. This section appears to have been enacted only for the transactions between
mortgagors and mortgagees who are English people or people of English origin.

Therefore, I have come to the conclusion that an amendment to Section 69 of the Transfer of
Property Act is the need of the hour, deleting the portion regarding restriction of the power of sale
without intervention of the court only to certain religious communities.
Further, as regards the Securitisation and Reconstruction of Financial Assets and Enforcement
of Security Act, 2002 is concerned, there is a clear discrimination endowing one section with
legal favouritism and depriving similarly placed others of such right. Hence I would suggest for
the amendment to make the law uniform to all creditors who have lent against mortgage
securities. This is because this Act is applicable only to banks and financial institutions and not to
other types of creditors.

Further, recourse to legal proceedings through a court of law for recovery of debts, though
secured by mortgage, is not only time-consuming but expensive too. The suggested amendment
to Section 69 of the Transfer of Property Act, 1882 will result in enforcement of mortgage security
by the mortgagee without resort to court proceedings and will, to some extent, disburden the
courts from the current scenario of docket explosion so that the other cases can be adjudicated
as expeditiously as possible.

Therefore, in my view there is an urgent need to amend the provisions of sec.69 of the "Transfer
of Property Act, 1882", so that the interest of the secured creditors can be realized more fruitfully
and without much delay and harassment.