The mortgagee's primary right is to enforce the security upon default.
The TPA provides two principal remedies: foreclosure (S.67) and sale (S.67/S.69). The mortgagee also has rights to possession (in certain mortgages), to spend on preservation, and to accession.
Legal Framework
| Provision | Subject |
|---|---|
| S.67 | Right to foreclosure or sale |
| S.68 | Right to sue for mortgage-money (personal liability) |
| S.69 | Power of sale without court intervention (limited cases) |
| S.69A | Appointment of receiver |
| S.71 | Right of prior mortgagee (priority by date) |
| S.72 | Right to proceeds of revenue sale |
| S.73 | Right to expenses for preservation of property |
| S.76 | Liabilities of mortgagee in possession |
Rights of Mortgagee
Right to Foreclosure or Sale (S.67)
| Mortgage Type | Remedy Available |
|---|---|
| Simple mortgage (S.58(a)) | Sale ONLY (no foreclosure) |
| Conditional sale (S.58(b)) | Foreclosure ONLY (no sale) |
| Usufructuary (S.58(c)) | Neither (only possession + rents) |
| English (S.58(d)) | Sale (foreclosure also possible) |
| Equitable/Deposit (S.58(e)) | Sale |
| Anomalous (S.58(f)) | As agreed |
Foreclosure: Court declares that the mortgagor is debarred from redeeming. Property becomes absolute property of the mortgagee. Harsh remedy available ONLY for conditional sale mortgage.
Sale: Court directs sale of the property; proceeds applied to mortgage-money. Any surplus goes to mortgagor (S.63A). Available for most mortgages.
Right to Sue for Mortgage-Money (S.68)
In simple and English mortgages (where personal liability exists), the mortgagee can:
- Sue on the mortgage alone (sell property), OR
- Sue personally for the money, OR
- Do both simultaneously
Power of Sale Without Court (S.69)
Limited cases where mortgagee can sell WITHOUT going to court:
| Condition | When Available |
|---|---|
| Power of sale clause in deed | English mortgage where deed expressly grants power |
| Government or scheduled bank mortgagee | Government/bank lenders (special statutory power) |
| SARFAESI Act, 2002 | Banks can enforce security interest without court (see PROP-3.7 for full treatment) |
Right to Spend on Preservation (S.73)
Mortgagee can add to the mortgage-money any amount spent on:
- Preservation of the property (repairs to prevent deterioration)
- Defence of title (litigation costs to protect against third-party claims)
- Payment of prior charges (government revenue, taxes)
These additions become part of the mortgage-money and the mortgagee has a charge for them.
Illustrations
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Foreclosure decree: A mortgages by conditional sale to B. A defaults. B files a foreclosure suit. Court issues preliminary decree: "A shall pay within 6 months. If A fails, A shall be debarred from redeeming." A does not pay within 6 months. Court passes FINAL decree of foreclosure. Property becomes B's absolutely. A's right of redemption is permanently extinguished.
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Sale decree (simple mortgage): C takes a simple mortgage from D. C defaults. D files a suit for sale (S.67). Court directs sale. Property sells for Rs. 25 lakhs. D's claim is Rs. 18 lakhs (principal + interest + costs). D takes Rs. 18 lakhs. Surplus of Rs. 7 lakhs goes to C (mortgagor) under S.63A. If property sells for only Rs. 15 lakhs, D can sue C personally for the deficit of Rs. 3 lakhs (personal liability in simple mortgage).
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Mortgagee's expenditure (S.73): Mortgagee B is in possession of mortgaged agricultural land. A monsoon flood damages the irrigation channels. B spends Rs. 50,000 repairing them (necessary for preservation). Under S.73, this Rs. 50,000 is added to the mortgage-money. When mortgagor redeems, he must pay original loan + interest + Rs. 50,000.
Liabilities of Mortgagee in Possession (S.76)
When the mortgagee has possession (usufructuary or English), they must:
| Liability | Content |
|---|---|
| Manage as prudent person | Exercise same care as a person of ordinary prudence would with own property |
| Account for rents/profits | Must apply income towards mortgage-money |
| Not commit waste | Must not damage or diminish value |
| Pay public charges | Taxes and government dues out of income |
| Make necessary repairs | From income of property |
| Not lease without consent | Cannot grant lease beyond term needed for prudent management |
Why: The mortgagee in possession has a fiduciary duty. The property is SECURITY, not a gift. If the mortgagee exploits the property or mismanages it, the mortgagor's asset is destroyed. The mortgagor must get back property in substantially the same condition.
Recall Check
- Which type of mortgage allows foreclosure, and which allows only sale?
- Under S.69, when can a mortgagee sell without approaching the court?
- What duties does a mortgagee in possession owe under S.76?
Key Cases
Narandas Karsondas v. SA Kamtam (1977) Narandas-Karsondas-v-SA-Kamtam-1977 Issue: Whether a mortgagee can claim ownership merely by long possession without a foreclosure decree. Rule: The mortgagee cannot acquire ownership by mere possession, however long. Foreclosure requires a court decree. Held: Without a decree of foreclosure, the mortgagee remains a mortgagee regardless of duration of possession. The mortgagor's right to redeem survives.
Rudra Pratap v. Badri Narain (1951) Rudra-Pratap-v-Badri-Narain-1951 Issue: Whether a mortgagee in possession is liable to account for rents and profits actually received or those which they COULD have received with due diligence. Rule: Under S.76, the mortgagee must account not only for what they actually received but also for what they MIGHT have received but for their wilful default or gross negligence. Held: A mortgagee who lets the property remain vacant when it could have been rented must account for the notional rent (what would have been earned with due diligence).
Distinctions
| Basis | Foreclosure (S.67) | Sale (S.67/69) |
|---|---|---|
| Available for | Conditional sale mortgage only | Simple, English, equitable mortgages |
| Effect | Property becomes mortgagee's absolutely | Property sold; proceeds applied to debt |
| Surplus | No surplus (mortgagee gets property) | Surplus goes to mortgagor (S.63A) |
| Deficit | No personal suit possible | Personal suit for deficit (if personal liability exists) |
| Court process | Preliminary decree → final decree | Decree for sale → auction |
| Finality | Mortgage extinguished; ownership shifts | Mortgage extinguished; new buyer gets property |
| Harshness | Harsh (mortgagor loses everything) | Less harsh (surplus returned) |
| Basis | Mortgagee's Right to Sue (S.68) | Foreclosure/Sale (S.67) |
|---|---|---|
| Nature | Personal action (in personam) | Action against property (in rem) |
| Liability type | Personal liability of mortgagor | Security of the property |
| Available when | Money due and default | Money due and default |
| Can be combined | Yes (both simultaneously) | Yes |
| Available in | Simple + English mortgages only | All mortgages (except usufructuary) |
Flashcards
Q: What two remedies does a mortgagee have upon default under S.67? A: Foreclosure (in conditional sale mortgage) or Sale (in simple/English/equitable mortgages).
Q: Can a mortgagee claim ownership by long possession without a decree? A: No. Narandas Karsondas (1977): without a foreclosure decree, the mortgagee remains a mortgagee regardless of possession duration.
Q: When can a mortgagee sell WITHOUT court intervention? A: Under S.69: (a) English mortgage with power of sale clause, (b) Government or scheduled bank as mortgagee, (c) Under SARFAESI Act for banks/FIs.
Q: What must a mortgagee in possession account for under S.76? A: Not only rents actually received, but also rents that COULD have been received with due diligence (Rudra Pratap, 1951).
Q: What is the difference between foreclosure and sale in terms of surplus? A: Foreclosure: no surplus (mortgagee takes entire property). Sale: surplus above mortgage-money goes to mortgagor (S.63A).
Q: Can foreclosure and personal suit coexist? A: No. Foreclosure is available only in conditional sale mortgage where NO personal liability exists. If personal liability exists (simple/English), the remedy is sale, not foreclosure.
Q: In which mortgage can the mortgagee seek foreclosure? A: Only in mortgage by conditional sale (S.58(c)).
Q: Under S.69, when can a mortgagee sell without court? A:
- (1) English mortgage with express power of sale in the deed
- (2) Mortgage by or to Government
- (3) Where mortgagee is a bank/lending institution with express power.
Exam Scenario
A mortgages property to B (simple mortgage) for Rs. 15 lakhs. A defaults. B takes possession of the property (without court order) and collects rent of Rs. 50,000/month for 2 years. B then files a suit for sale claiming the full Rs. 15 lakhs + interest. A objects that B should have adjusted rents against the debt. Advise.
Approach: (1) In a simple mortgage, possession remains with the mortgagor. B taking possession without court order is irregular (but S.76 liability attaches once in possession). (2) Under S.76, a mortgagee in possession MUST account for rents and profits and apply them towards the mortgage-money. (3) B collected Rs. 50,000 × 24 months = Rs. 12 lakhs. This must be adjusted against mortgage-money. (4) B's claim should be reduced: Rs. 15 lakhs + interest - Rs. 12 lakhs = net claim (Rs. 3 lakhs + remaining interest). (5) A's objection is valid. Court will direct accounting under S.76. (6) Additionally, if B could have earned MORE rent with due diligence but let some units remain vacant, B is accountable for notional rent too (Rudra Pratap, 1951). (7) B cannot claim full Rs. 15 lakhs while simultaneously pocketing Rs. 12 lakhs in rent that would be unjust enrichment.
Illustrations (from consolidated notes)
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Foreclosure remedy: A mortgages by conditional sale (S.58(c)) to B. A defaults. B files a suit for foreclosure. Court issues preliminary decree giving A 6 months to pay. A fails. Court passes final decree of foreclosure. B becomes absolute owner. A's equity of redemption is extinguished.
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Power of sale without court (S.69): English mortgage deed contains express power: "On default, mortgagee may sell without court intervention." After default and due notice, mortgagee can sell directly. Available only in limited cases.