INTRODUCTION:
A mortgage is not just a financial relationship but also a legal relationship between the mortgagor and mortgagee under the governance of the Transfer of Property Act, 1882, Section 58.[1] When a person buys a property like a house using a loan and keeps the property itself as collateral to secure the loan is known as a mortgage.
Mortgages are not mere technicalities. In India, they touch everyday lives. A farmer may mortgage his fields to secure a loan for seeds. A middle-class family may pledge their flat to a bank to buy a new home. Even large corporations mortgage land to raise money for business expansion. In each case, the property is not just a piece of land or a building—it is often someone’s livelihood.
The mortgagor is the borrower who keeps their property as collateral as security for the loan and the mortgagee is the lender of the loan who provides the funds and keeps a legal interest in the property until the loan is fully repaid, the mortgagor retains possession and the use of the property, while the mortgagee has the right to foreclose and sell the property to recover their money if the mortgagor fails to make payments; a legal process that ends the borrower’s rights to reclaim their property.
WHAT IS FORECLOSURE OF MORTGAGES?
Imagine you kept your house for a loan. If you repay on time, the house is yours. But if you default on paying and the court passes a foreclosure decree, the lender becomes the outright owner, and you lose the last thread of ownership. This power is given to the mortgagee under [2]Section 67, Transfer of Property Act, 1882. In [3]Narandas Karsondas vs S.A. Kamtam & Anr, (1976) SCR (2) 341, the Supreme Court emphasised that the mortgagor’s rights to redeem do not end until the judge specifically states it as extinguished. The rights of redemption are not lost just because the repayment period has expired.
Foreclosure is not allowed in all mortgage types; it depends on the specific mortgage and its terms, as well as the jurisdiction’s laws. In the Transfer of Property Act, foreclosure is generally only permitted for certain types, like mortgage by conditional sale or an anomalous mortgage, while it is not available for simple mortgage, usufructuary mortgages, or English mortgages, where the remedy is typically a suit for sale instead.
Mortgage types where foreclosure may be allowed:
- Mortgage by Conditional Sale: In this type of Mortgage, if the mortgagor defaults, the sale becomes absolute. The remedy in this case is foreclosure, which ends the mortgagor’s right to redeem the property.
- Anomalous Mortgage: An anomalous mortgage is a mortgage that is not a simple mortgage or a mortgage by conditional sale. The right to foreclosure may be available in such a mortgage if the terms of the agreement and the nature of the property permit it.
Mortgage types where foreclosure is not allowed:
- Simple Mortgage: In a simple mortgage, the mortgagee does not take possession of the property. The remedy available is not foreclosure but to sue for the sale of the mortgaged property or to proceed against the mortgagor personally.
- Usufructuary Mortgage: In this case, the mortgagee is entitled to take possession and enjoy the usufruct (profits) of the property until the debt is satisfied. Neither foreclosure nor sale is permitted.
- English Mortgage: In an English mortgage, the mortgagee’s primary right is the right of sale of the property, not foreclosure.
RIGHTS OF THE MORTGAGEE UNDER THE TRANSFER OF PROPERTY ACT, 1882
The [4]Transfer of Property Act, 1882 (TPA) lays down a structured scheme of rights available to a mortgagee in Sections 67, 68, 69, 70,72, and 73
- Section 67 – Right to Foreclosure or Sale: The most significant right of the mortgagee is the right to foreclose or to sell the mortgaged property. Foreclosure means the mortgagee can seek a decree in court that permanently bars the mortgagor from redeeming the property. This is most relevant in cases of mortgage by conditional sale or in anomalous mortgages where foreclosure is expressly provided.
Sale, on the other hand, allows the mortgagee to have the property sold through the court and recover the loan amount from the proceeds. This is more common in mortgages like English mortgages. However, there are restrictions. For instance, in a usufructuary mortgage (where the mortgagee enjoys the rents and profits), the mortgagee cannot foreclose or sell because repayment comes from the enjoyment of the property.
In [5]Pomal Kanji Govindji v. Vrajlal Karsandas Purohit (1989) 1 SCC 458, the Supreme Court warned that foreclosure is a “drastic” remedy and courts must not allow it to be used oppressively.
- Section 68 – Right to Sue for Mortgage Money
Normally, the mortgagee looks to the mortgaged property as security. But sometimes the mortgagee may sue the mortgagor personally for the loan amount. Section 68 provides this right in four specific scenarios:
- When the mortgagor has expressly bound himself personally to repay the money.
- When the mortgagee is deprived of his security due to the mortgagor’s wrongful act.
- When the mortgagee is entitled to possession but the mortgagor fails to deliver it.
- When the mortgaged property is destroyed or the security rendered insufficient by the wrongful act or default of the mortgagor.
This section recognises that security alone may not always be sufficient.
In [6]Narandas Karsondas v. S.A. Kamtam (1976) 2 SCR 341, the court underlined that the right to sue for money is separate from foreclosure or sale, although both remedies cannot be exercised at the same time.
- Section 69 – Right of Sale without Court Intervention
This provision is somewhat exceptional. Generally, the mortgagee needs to approach the court for foreclosure or sale. Section 69, however, allows sale without court intervention in limited circumstances:
- In case of an English mortgage, provided the mortgagor is not a Hindu, Muslim, or Buddhist.
- Where the mortgagee is the Government and the mortgage deed provides for such power.
- Where the property is situated in Bombay, Calcutta, or Madras, and the deed expressly confers the power.
This right is exercised only if there is a clear default in repayment; even then, it requires strict compliance with statutory safeguards.
In [7]Narandas Karsondas v. S.A. Kamtam (1976) 2 SCR 341, the Supreme Court held that the mortgagor’s right of redemption continues until the actual completion of sale by a registered deed, underscoring the primacy of the right to redeem.
- Section 70 – Right to Accession
If the mortgaged property gains an accession—meaning an addition, natural increase, or improvement—during the subsistence of the mortgage, the mortgagee is entitled to it as part of the security. The logic is simple: the mortgagee should be able to rely not just on the original property but also on any future accretions which enhance the value of the security.
- Section 72 – Right to Spend Money on Mortgaged Property and to Add to Security
A mortgagee is not merely a passive recipient of security. Section 72 empowers him to take active steps to preserve and protect the mortgaged property.
- Payment of government revenue, taxes, or public charges.
- Repairs and preservation of the property.
- Supporting the mortgagor’s title if it is under challenge.
- Preventing the property from being destroyed, forfeited, or sold.
Any amount spent becomes a charge on the mortgaged property, carrying interest at the same rate as the mortgage money.
In [8]Tarak Chandra v. Anukul Chandra (AIR 1946 Cal 118), it was held that such sums spent by the mortgagee form part of the mortgage money and are recoverable.
- Section 73 – Right to Proceeds of Revenue Sale or Compensation.
Sometimes the mortgaged property may be acquired compulsorily under land acquisition laws, or it may be sold in recovery of arrears of revenue. In such cases, Section 73 ensures that the mortgagee’s interest is protected by giving him a right to the compensation or surplus proceeds in place of the property.
In [9]Prithi Nath Singh v. Suraj Ahir (AIR 1963 SC 1041), the Supreme Court upheld that mortgagees are entitled to compensation when mortgaged land is compulsorily acquired.
CONCLUSION
Foreclosure is not just about legal power; it is about responsibility and rights mentioned under the law. It reminds us that property law weighs both creditors’ security and the debtor’s humanity. As India’s economy grows and reliance on credit deepens, this balance will remain vital. It is crucial to protect such lenders from loss while ensuring borrowers are not crushed under the weight of default.
Author(s) Name: Adit Madhusoodanan Nair (Rizvi Law College)
References:
[1] Transfer of Property Act 1882, s 58
[2] Transfer of Property Act 1882, s 67
[3] Narandas Karsondas vs S.A. Kamtam & Anr, (1976) SCR (2) 341
[4] Transfer of Property Act, 1882, ss 67,68,69,70,72,73
[5] Pomal Kanji Govindji v. Vrajlal Karsandas Purohit (1989) 1 SCC 458
[6] Narandas Karsondas v. S.A. Kamtam (1976) 2 SCR 341
[7] Narandas Karsondas v. S.A. Kamtam (1976) 2 SCR 341
[8] Tarak Chandra v. Anukul Chandra (AIR 1946 Cal. 118)
[9] Prithi Nath Singh v. Suraj Ahir (AIR 1963 SC 1041)
