Suits Relating to Mortgages of Immovable Property (Order XXXIV)

Order XXXIV of the Code of Civil Procedure, 1908 contains the procedural template for the three reliefs available on a mortgage of immovable property — foreclosure, sale, and redemption. The Order was inserted in 1908 by transferring Sections 85 to 90, 92 to 94, 96, 97 and 100 of the Transfer of Property Act, 1882. The substantive law of mortgage continues to live in the Transfer of Property Act, particularly in Sections 60 and 67. What Order XXXIV adds is the structure of the suit: who must be on the record, what the court does at the preliminary-decree stage, and what happens when payment is or is not made within the time fixed for it.

Two ideas hold the Order together. First, the mortgage debt is one and indivisible: unless the integrity of the mortgage has been broken by an act of parties or by operation of law, neither mortgagor nor mortgagee can claim relief except in conformity with that indivisibility. Second, every mortgage suit moves through two decrees — a preliminary decree which works out the rights of the parties on accounts, and a final decree which translates those rights into delivery of documents, re-transfer, sale, or foreclosure. The Order separates the two decrees deliberately, because between them sits the most important window in the Order: the period during which the mortgagor may pay and redeem.

Statutory anchor and scheme

Order XXXIV runs to fifteen rules. Rule 1 fixes the parties to a mortgage suit. Rules 2 and 3 govern the preliminary and final decrees in a foreclosure suit. Rules 4 and 5 govern the preliminary and final decrees in a suit for sale. Rule 6 supplies the mortgagee’s right to a personal decree against the mortgagor for any balance left after sale. Rules 7 and 8 govern the preliminary and final decrees in a redemption suit. Rule 8A is the redemption-suit counterpart of Rule 6. Rule 9 deals with the case where the mortgagee has been overpaid. Rule 10 governs costs subsequent to the preliminary decree. Rule 10A allows mesne profits where the mortgagor has tendered the amount due before suit. Rule 11 governs interest. Rules 12 to 15 deal with sale of property subject to a prior mortgage, sub-mortgages, mortgages by deposit of title-deeds, and the application of the Order to charges within the meaning of Section 100 of the Transfer of Property Act.

Which remedy lies on which mortgage

The remedy a mortgagee may seek depends on the form of the mortgage. After the Transfer of Property (Amendment) Act, 1929 came into force on 1 April 1930, the position is settled. A suit for sale lies on an English mortgage, a simple mortgage, a mortgage by deposit of title-deeds, and on a charge within Section 100 of the Transfer of Property Act. A suit for foreclosure lies only on a mortgage by conditional sale and on an anomalous mortgage where there is an express stipulation for foreclosure. The holder of a usufructuary mortgage cannot sue either for foreclosure or for sale: see Section 67 of the Transfer of Property Act. The mortgagor’s right of redemption, by contrast, is available against any mortgage so long as the mortgage subsists, and is governed by Section 60 of the Transfer of Property Act read with Rules 7 and 8.

Parties — Rule 1

Rule 1 requires that all persons having an interest either in the mortgage-security or in the right of redemption be joined as parties to a mortgage suit. The object is to avoid a multiplicity of suits by deciding all claims in the presence of every interested party. The general principles of joinder under Order I apply, and Rule 1 is in fact controlled by Order I Rule 9 — no suit may be defeated by reason of non-joinder unless the parties not joined are necessary parties and the plaintiff refuses to add them.

The Explanation to Rule 1 makes two related points. A puisne mortgagee may sue for foreclosure or sale without making the prior mortgagee a party — the property will simply be sold subject to the prior mortgage. And a prior mortgagee need not be joined in a suit to redeem a subsequent mortgagee. Where the second mortgagee is, however, omitted from a suit by the first mortgagee, the proceedings do not bind him; his rights of sale on his own mortgage and of redemption of the prior mortgage remain intact. The position was authoritatively explained in Radha Kishun v. Khurshed Hossein, where the Privy Council treated the prior mortgagee, joined but with no relief claimed against him, as standing outside the controversy. A sub-mortgagee, by contrast, is a necessary party in a redemption suit, since he has stepped into the mortgagee’s shoes pro tanto.

Preliminary decree in foreclosure — Rule 2

If the plaintiff in a foreclosure suit succeeds, the court passes a preliminary decree under Rule 2. The decree (a) directs an account to be taken of what is due on the mortgage — principal, interest, costs, and other costs, charges and expenses properly incurred in respect of the mortgage-security — or declares the amount due; and (b) directs that, if the defendant pays the amount within six months of the court’s confirmation of the account or declaration, the plaintiff shall deliver up the documents, re-transfer the property and put the defendant in possession; and that, if payment is not made, the plaintiff is entitled to apply for a final decree foreclosing the defendant’s right to redeem.

Two features of Rule 2 ought to be locked in. First, sub-rule (2) empowers the court, on good cause shown and on terms, to extend the time for payment from time to time before a final decree is passed. Section 148 caps the maximum extension at thirty days. Second, sub-rule (3) ties Rule 2 to Order XX on judgments and decrees by directing that where subsequent mortgagees are joined as parties, the preliminary decree must adjudicate their rights and liabilities in the form set out in Form Nos. 9 or 10 of Appendix D.

Final decree in foreclosure — Rule 3

Where, before the final decree is passed, the defendant pays into court all amounts due under the preliminary decree, the court passes a final decree under Rule 3(1) ordering delivery of documents and re-transfer. Where payment is not made, the court, on the plaintiff’s application, passes a final decree under Rule 3(2) declaring the defendant and all persons claiming through him debarred from all right to redeem. Sub-rule (3) provides that on the passing of a final decree under sub-rule (2), all liabilities of the defendant in respect of the mortgage or on account of the suit are deemed discharged. The decree is a decree on a mortgage and is appealable under Section 96 CPC.

The application for a final decree is governed not by Article 136 of the Limitation Act, 1963 (which applies to execution) but by the residuary Article 137 — three years from the date the right to apply accrues. Where an appeal is preferred from the preliminary decree, the right to apply for a final decree accrues on the date of the appellate decree. Even where the appeal is withdrawn, the appellate order is a decree and supplies a fresh starting point for limitation.

Preliminary decree in suit for sale — Rule 4

Rule 4 governs the preliminary decree in a suit for sale. It tracks Rule 2(1)(a), (b) and (c)(i) — same accounting, same period for payment — but the consequence of default is different. Where the mortgagor fails to pay, the plaintiff is entitled to apply for a final decree directing that the mortgaged property, or a sufficient part of it, be sold and the proceeds applied in payment of what is due, with the balance, if any, paid to the mortgagor. Sub-rule (3) confers on the court a discretion, in a foreclosure suit on an anomalous mortgage, to pass a decree for sale in lieu of a decree for foreclosure where the parties or the equities so require.

Sub-rule (4) requires the preliminary decree, where subsequent mortgagees are joined, to adjudicate their respective rights and liabilities in the form set out in Form Nos. 9, 10 or 11 of Appendix D. The court must frame the suit so that all questions of priority and account are decided once and for all, and not left to spawn separate executions or fresh suits.

Final decree in suit for sale — Rule 5 and the right to redeem until confirmation

Rule 5 is the operative provision in most contested mortgage suits, because it preserves the mortgagor’s right of redemption almost to the last moment. Sub-rule (1) provides that where, on or before the date fixed, or at any time before the confirmation of a sale made in pursuance of the final decree under sub-rule (3), the defendant pays into court all amounts due under Rule 4(1), the court shall pass a final decree (or, if such decree has been passed, an order) directing delivery of documents and re-transfer.

The phrase “or at any time before the confirmation of a sale” is the gravamen of Rule 5. It recognises the principle that a decree for sale does not extinguish the equity of redemption; only confirmation of sale under Order XXI Rule 92 does. So long as the sale has not been confirmed, the mortgagor may pay and redeem. The rule is independent of Order XXI Rule 89 — the mortgagor is not confined to the thirty-day window of that rule, nor restricted to deposit-with-five-per-cent-solatium. Where the deposit is made after sale but before confirmation, sub-rule (2) requires an additional five per cent of the purchase money to be deposited for payment to the auction-purchaser; on such deposit, the sale becomes ineffective and the purchaser is entitled to repayment. Where an appeal against the order of confirmation is pending, the right under Rule 5 continues, because if the appeal succeeds the confirmation is undone.

The Supreme Court has emphasised that the right to redeem is extinguished only by a final decree in foreclosure or by confirmation of sale. While proceedings to set aside the sale are pending and the sale is not yet confirmed, the mortgagor’s prayer for redemption cannot be rejected. An auction-purchaser of the mortgagor’s rights under a separate money decree steps into the mortgagor’s shoes and may himself apply under Rule 5 before confirmation.

Personal decree for balance — Rules 6 and 8A

Where the net proceeds of the sale held under Rule 5 are insufficient to satisfy the mortgagee’s claim, the mortgagee may apply under Rule 6 for a personal decree against the mortgagor for the balance, provided the balance is legally recoverable from the defendant otherwise than out of the property sold. The decree is passed in the original suit, not in a fresh suit; the rule is meant to obviate the necessity of a fresh action. The application is governed by Article 137 of the Limitation Act, 1963 — three years from the date the deficiency is ascertained, which is the date of confirmation of sale in execution, or the date of the appellate order where an appeal has been preferred against an order refusing to set aside the sale. Once the personal decree is obtained, execution is governed by Article 136 — twelve years from the date of the decree.

Rule 8A is the redemption-suit counterpart, applicable where in a redemption suit the mortgagee invokes the sale procedure under Rule 8(3)(b) and the proceeds are insufficient to satisfy the amount found due. A personal decree under Rule 6 cannot be passed until the mortgaged property is sold and the deficiency ascertained; the mortgagee’s primary recourse is to the security, and only where the security is exhausted does the rule allow him to pursue the mortgagor personally. A composite decree which authorises personal recovery in the alternative does not require a separate Rule 6 application, but a usufructuary mortgagee, in default of payment by the mortgagor under a redemption decree, is not entitled to an order for sale.

Preliminary and final decree in redemption — Rules 7 and 8

Rule 7 governs the preliminary decree in a redemption suit. It mirrors Rules 2 and 4 on the taking of accounts. The decree directs that, if the plaintiff (mortgagor) pays the amount declared due within six months, the defendant (mortgagee) shall deliver up the documents, re-transfer the property, and, if necessary, put the plaintiff in possession. If payment is not made, the defendant is entitled to apply for a final decree — for sale, in the case of an ordinary mortgage; for foreclosure, in the case of a mortgage by conditional sale or an anomalous mortgage with an express foreclosure stipulation. A provision in the preliminary decree purporting to forfeit the right to redeem on default of payment is illegal: the right to redeem is governed by the Order itself, not by what the parties write into the decree.

Rule 8 governs the final decree in redemption. As under Rule 5, the right to redeem subsists until a final decree of foreclosure is passed or, in cases routed through Rule 8(3)(b), until the sale is confirmed. Where the deposit is made after sale, the same five-per-cent solatium under sub-rule (2) is required. Limitation for an application under Rule 8(1) is three years under Article 137; in the case of a usufructuary mortgage, the period runs from the date of deposit, since redemption is keyed to deposit and not to the date fixed in the preliminary decree.

Costs, mesne profits, and interest — Rules 10, 10A and 11

Rule 10 governs costs subsequent to the preliminary decree. It is an exception to the general rule that the decree-holder is fixed to the amount decreed in execution. The mortgagee’s post-decree costs, charges and expenses — properly incurred — are added to the mortgage-money before final adjustment. The proviso to Rule 10 reverses the burden where the mortgagor, before or at the time of the suit, tendered or deposited the amount due (or an amount not substantially deficient): in such a case the mortgagor is not ordered to pay the mortgagee’s costs and is entitled to recover his own. Rule 10A goes further, and in foreclosure suits, where the mortgagor has so tendered, requires the court to direct the mortgagee to pay mesne profits to the mortgagor for the period beginning with the institution of the suit.

Rule 11 governs interest. It distinguishes three periods: pre-suit interest at the contract rate (subject to the Usurious Loans Act, 1918 and Section 74 of the Indian Contract Act); interest from the date of suit to the date fixed for payment, also at the contract rate unless penal or excessive; and subsequent interest from the date fixed for payment to the date of realisation, at such rate as the court deems reasonable. The 1956 amendment confined subsequent interest to the principal sum only, eliminating the earlier practice of compounding interest on the aggregate. The discretion under Rule 11(b) is real but not unlimited; the Patna and Calcutta High Courts have held that pendente lite interest may be reduced below the contract rate but cannot be refused altogether.

Procedural overlay and connected provisions

A mortgage suit is a regular suit and follows the general procedure of the Code save where the Order otherwise provides. The plaint must conform to the rules on drafting and particulars; deposit of admitted amounts may be made by way of payment into court under Order XXIV; and where the mortgagor dies before the final decree, his legal representatives must be brought on record under Order XXII. A compromise decree under Order XXIII is not displaced by Rule 5; the parties may, by consent, provide for payment in instalments, and a court is bound to give effect to such a decree even though it does not strictly conform to Rule 5. The Supreme Court has held that a suit for sale, foreclosure or redemption of a mortgaged property — because it requires the court to protect the interests of persons other than the parties — must be tried by a public forum and not by an arbitral tribunal; the court where the suit is pending should not refer the parties to arbitration.

An application for a final decree is not an execution application; the court at the final-decree stage has no power to go behind the preliminary decree. Accidental mistakes may be corrected, but objections to the preliminary decree must be taken in first appeal under Section 96, not deferred to the final-decree stage. Where a final decree is passed without notice to a sui juris mortgagor, the decree is not a nullity, but the mortgagor may apply under Order IX Rule 13 to set it aside on sufficient cause.

MCQ angle and exam pointers

Five distinctions recur in objective papers and ought to be memorised.

1. Remedy depends on the form of mortgage. Foreclosure — mortgage by conditional sale or anomalous (with express stipulation). Sale — English, simple, deposit-of-title-deeds, charge under Section 100 TPA. Redemption — every mortgage, until extinguished.
2. Right to redeem subsists until sale is confirmed. Rule 5(1) and Rule 8(1). Order XXI Rule 89 is not the source of this right; Rule 5 itself is.
3. Five-per-cent solatium. Where the deposit is made after sale but before confirmation, the additional five per cent of the purchase money under Rule 5(2) and Rule 8(2) is mandatory.
4. Article 137 governs final-decree applications. Three years from accrual of the right to apply. Article 136 governs only execution.
5. Personal decree under Rule 6 is conditional. The mortgaged property must first be sold under Rule 5 and the proceeds found insufficient. A personal decree before exhaustion of the security is not maintainable.

The integrity-of-the-mortgage doctrine is the single most asked theory question. Radha Kishun v. Khurshed Hossein on prior mortgagees, Maharaja of Bharatpur v. Kanno Devi on subsequent interest, and the Supreme Court’s line on the inarbitrability of mortgage suits are the authorities most likely to surface in mains-style questions.

Frequently asked questions

Why is the mortgagor's right to redeem not lost when the property is sold in execution?

Because Rule 5(1) of Order XXXIV and Section 60 of the Transfer of Property Act preserve that right until the sale is confirmed under Order XXI Rule 92. A decree for sale does not by itself extinguish the equity of redemption; only confirmation does. So long as confirmation has not been ordered — and even while an appeal against confirmation is pending — the mortgagor may pay all amounts due, plus a five per cent solatium for the auction-purchaser under Rule 5(2), and obtain a re-transfer of the property. Order XXI Rule 89, with its thirty-day window and limited application, is a separate and additional remedy and does not curtail Rule 5.

Is a prior mortgagee a necessary party in a suit by the puisne mortgagee?

No. The Explanation to Rule 1 expressly says that a puisne mortgagee may sue for foreclosure or sale without making the prior mortgagee a party. Where a sale is decreed in such a suit, the property is sold subject to the prior mortgage. The puisne mortgagee may, however, choose to implead the prior mortgagee — for example, where he offers to redeem the prior mortgage — and where the prior mortgagee is impleaded but no relief is claimed against him, his position is that of a holder of paramount title outside the controversy. Conversely, the second part of the Explanation says that a prior mortgagee need not be joined in a suit to redeem a subsequent mortgage.

When can a mortgagee obtain a personal decree against the mortgagor under Rule 6?

Only after the mortgaged property has been sold under Rule 5 and the proceeds are found insufficient to satisfy the mortgagee's claim. The mortgagee's primary recourse is to the security; the personal decree is an after-remedy. Two further conditions apply: the balance must be legally recoverable from the mortgagor otherwise than out of the property sold, and the application must be made within three years of the date when the deficiency is ascertained — usually the date of confirmation of sale, or the date of an appellate order disposing of any application to set aside the sale. Once the personal decree is obtained, execution is governed by Article 136 — twelve years from the date of the personal decree.

What is the limitation for an application for a final decree in a mortgage suit?

Three years under Article 137 of the Limitation Act, 1963, running from the date the right to apply accrues. The provisions on mortgage suits were transferred from the Transfer of Property Act to the Code in 1908, so the application is one under the Code and falls within Article 137 — not within Article 136, which governs execution. Where an appeal is preferred from the preliminary decree, the right to apply for a final decree accrues on the date of the appellate decree, even where the appeal is withdrawn — the appellate order is itself a decree and supplies a fresh starting point. In a usufructuary-mortgage redemption, limitation runs from the date of deposit, not from the date fixed in the preliminary decree.

Can a mortgage suit be referred to arbitration?

No. The Supreme Court has held that a suit for sale, foreclosure or redemption of mortgaged property must be tried by a public forum and not by an arbitral tribunal. The reason is that the court is required to protect the interests of persons who are not parties to any arbitration agreement — subsequent mortgagees, sub-mortgagees, persons subrogated to the rights of mortgagees, the mortgagor's legal representatives, and others falling within Rule 1. An arbitral tribunal cannot bind such persons. Consequently, the court before which a mortgage suit is pending should not refer the parties to arbitration even if the underlying mortgage instrument contains an arbitration clause.