Rights and Liabilities of Mortgagee (Sections 67–77)

Once the mortgage is created and the debt becomes due, the mortgagee has a structured set of remedies. Sections 67 to 77 of the Transfer of Property Act, 1882 codify those remedies — foreclosure, sale, suit on the personal covenant, sale without intervention of court, appointment of a receiver, retention of accessions, and the rights of a mortgagee in possession — together with the duties that come with them. The remedies available to a particular mortgagee depend on which of the six kinds of mortgage in Section 58 the parties have created. The duties depend on whether the mortgagee has taken possession or not. The whole architecture is built to leave the mortgagee with adequate security and the mortgagor with his right of redemption, which Sections 60 to 66 protect on the other side of the same bargain.

Section 67 — right to foreclosure or sale

Section 67 confers on the mortgagee, at any time after the mortgage money has become due to him and before a decree has been made for the redemption of the mortgaged property or before the mortgage money has been paid or deposited, a right to obtain from the court (a) a decree that the mortgagor shall be absolutely debarred from his right to redeem the property — foreclosure; or (b) a decree that the property shall be sold and the proceeds applied in payment of the mortgage money — sale.

The choice between foreclosure and sale is not at large. The section assigns each remedy to a particular kind of mortgage. A mortgagee by conditional sale, and a mortgagee under an anomalous mortgage by which he is given that right, can foreclose. A simple mortgagee, an English mortgagee, an equitable mortgagee, and a mortgagee under an anomalous mortgage giving the right of sale, can sue for sale. A usufructuary mortgagee, who has neither, has no right under Section 67 — he must wait for the rents and profits to satisfy the debt or for the mortgagor to redeem. The structure restates the inner logic of Section 58: each kind of mortgage carries its own remedy.

Two limitations on the right are built into the section. First, the right does not arise until the mortgage money has become due — that is, until the date fixed by the deed for repayment, or, in default of any such date, on demand. Second, the right is lost once a redemption decree has been passed in favour of the mortgagor or once the mortgage money has been paid or deposited. The right of foreclosure or sale is, in this sense, a window: it opens with the default and closes with redemption.

Section 67A — one suit on several mortgages

Where a mortgagee holds two or more mortgages executed by the same mortgagor in respect of each of which he has a right to obtain the same kind of decree (foreclosure or sale), and sues to obtain such decree on any one of the mortgages, he is, in the absence of a contract to the contrary, bound to sue on all the mortgages in respect of which the mortgage money has become due. The section is intended to spare the mortgagor the costs of repeated litigation when several mortgages with the same mortgagee are due at the same time. It does not require simultaneous suits on mortgages where the right to sue arose at different points; it only forbids the multiplication of suits on rights that have all matured.

Section 68 — right to sue for mortgage money

Section 68 confers a right to sue for the mortgage money — i.e., on the personal covenant — in four enumerated cases. (a) Where the mortgagor binds himself to repay the same. (b) Where, by any cause other than the wrongful act or default of the mortgagor or mortgagee, the mortgaged property is wholly or partially destroyed, or the security is rendered insufficient, and the mortgagor has not, on the mortgagee's reasonable request, given further security. (c) Where the mortgagee is deprived of the whole or part of his security by or in consequence of the wrongful act or default of the mortgagor. (d) Where, the mortgagee being entitled to possession of the mortgaged property, the mortgagor fails to deliver it to him or to secure his possession without disturbance.

The section is one of the few in the chapter to recognise that a mortgage may sometimes have to be enforced as a debt, divorced from the security. Clause (a) is the obvious case — a simple or English mortgage, where the mortgagor has expressly bound himself to repay; clauses (b), (c) and (d) cover the situations where the security has failed or been impaired through no wrong of the mortgagee. In each of those situations the mortgagee may at his option sue for sale instead, but Section 68 lets him recover the debt without resort to the impaired or destroyed security.

Section 69 — power of sale without intervention of the court

Section 69 carves out a narrow class of mortgages in which the mortgagee, on default, may sell the mortgaged property without the intervention of the court. The power is available in only three situations. First, where the mortgage is an English mortgage and neither the mortgagor nor the mortgagee is a Hindu, Mohammadan, Buddhist, or a member of any other race, sect, tribe or class from time to time specified by the Government in the Official Gazette. Second, where a power of sale without the intervention of the court is expressly conferred on the mortgagee by the mortgage deed and the mortgagee is the Government. Third, where a power of sale without the intervention of the court is expressly conferred on the mortgagee by the mortgage deed, the mortgaged property or any part of it was, on the date of the execution of the deed, situated within the towns of Calcutta, Madras, Bombay, or in any other town or area which the Government may, by notification in the Official Gazette, specify.

Even where the power is available, it cannot be exercised at the mortgagee's whim. The section requires that notice in writing of intention to exercise the power be served on the mortgagor; that three months elapse from the service of the notice without payment; or, alternatively, that interest amounting to at least five hundred rupees has been in arrear and unpaid for three months after becoming due. Sale conducted without strict compliance with these conditions does not pass title to the purchaser, and the mortgagor's right of redemption is preserved.

Section 69A — appointment of a receiver

Section 69A enables a mortgagee in whose favour the power of sale under Section 69 is exercisable, after the power has become exercisable, to appoint a receiver of the income of the mortgaged property. The receiver receives the income, applies it in payment of all rates, taxes, rents, and other outgoings; in keeping down the interest on prior encumbrances; in payment of his own commission; and in payment of the principal and interest due on the mortgage. The provision is the statutory equivalent of the English receiver-out-of-court regime; it lets the mortgagee bring in income from the property without selling, and without having to apply to the court.

Section 70 — accession to mortgaged property

Section 70 is the converse of Section 63. If, after the date of the mortgage, any accession is made to the mortgaged property, the mortgagee, in the absence of a contract to the contrary, is entitled, for the purposes of the security, to such accession. The section ensures that the security keeps pace with the property — accretions by alluvion, additions by act of the mortgagor, mokarari interests acquired by the mortgagor over the same property, all enure for the benefit of the mortgagee as part of his security. The mortgagee does not become the owner of the accession; the accession passes to the mortgagor on redemption, in accordance with Section 63. But while the security subsists, the accession is part of it.

Section 71 — renewal of mortgaged lease

Where the mortgaged property is a lease and the mortgagor obtains a renewal of the lease, the mortgagee, in the absence of a contract to the contrary, is entitled, for the purposes of his security, to the new lease. The section is the converse of Section 64, which deals with renewal obtained by the mortgagee in possession. The principle is the same: the mortgagor cannot, by securing a fresh lease in his own name, lift the property out of the security; the new lease enures, while the security lasts, for the benefit of the mortgagee.

Section 72 — rights of mortgagee in possession

A mortgagee in possession has, in addition to his other rights, three powers under Section 72. He may, at the cost of the mortgagor, (a) make payments necessary for the preservation of the mortgaged property from destruction, forfeiture or sale; (b) make insurance against loss or damage by fire of the property, where the mortgaged property is buildings; and (c) supply such defects in the title as he may discover. Money so spent is added to the mortgage debt, bears interest at the contract rate, and is recoverable on redemption. The section is the practical complement to Section 8's principle that the transferee takes the property with its incidents — the mortgagee in possession is permitted to take the steps an owner of ordinary prudence would take to preserve the property, and to add the cost to the security.

Section 73 — proceeds of revenue sale and acquisition compensation

Section 73 protects the mortgagee where the mortgaged property is sold for arrears of revenue or rent, or is acquired under the law of land acquisition. Where, owing to the failure of the mortgagor to pay arrears of revenue or other charges of a public nature, or rent due in respect of the mortgaged property and a consequent sale of the property by the revenue authority or the landlord, the mortgagee is deprived of the whole or part of his security, he is entitled to claim payment of the mortgage money out of any surplus of the sale proceeds remaining after payment of the arrears. Where the property is acquired under the Land Acquisition Act, 1894 (now the 2013 Act), the mortgagee is entitled to claim payment of his money, in whole or in part, out of the compensation awarded.

The section restates an obvious principle. The security is the property; if the property is taken out of the mortgagor's hands by a sale for revenue or by acquisition, the mortgagee's claim follows the proceeds. The mortgagee's lien is on what was the property; once the property has been converted into money, the lien shifts to the money. The principle parallels Section 57's machinery for discharging encumbrances on sale: the encumbrance moves from the land to the fund.

Sections 74 and 75 — repealed in 1929

Sections 74 and 75 of the original Act dealt with subrogation and contribution between subsequent mortgagees. They were repealed by the Transfer of Property (Amendment) Act, 1929, and the substantive law on those topics was redrafted into Sections 91 to 95 of the Act. The repeal is, however, important to remember in any examination question that asks for an enumeration of the chapter on mortgages: the rights of subrogation and tacking are now found in the later sections, not in this part.

Section 76 — liabilities of mortgagee in possession

Section 76 is the longest provision in the chapter on mortgagee's rights and liabilities, and it is the most heavily examined. A mortgagee in possession of the mortgaged property is deemed to be in a fiduciary position relative to the mortgagor; the section spells out, in eight clauses, what that fiduciary position requires. He must (a) manage the property as a person of ordinary prudence would manage it if it were his own; (b) use his best endeavours to collect the rents and profits thereof; (c) in the absence of a contract to the contrary, out of the income of the property, pay the Government revenue, all other charges of a public nature, and all rents accruing due in respect thereof during such possession, and any arrears of rent in default of payment of which the property may be summarily sold; (d) in the absence of a contract to the contrary, make such necessary repairs of the property as he can pay for out of the rents and profits thereof after deducting the items in clause (c) and the interest on the principal money; (e) not commit any act which is destructive or permanently injurious to the property; (f) where he has insured the property from loss or damage by fire, in case of such loss or damage, apply any money he may receive in such manner as the mortgagor directs, or, in default of such direction, in either reinstating the property or in reduction or discharge of the mortgage money; (g) keep clear, full and accurate accounts of all sums received and spent by him as mortgagee, and produce them to the mortgagor on demand and on payment of costs; and (h) his receipts from the mortgaged property, or where such property is personally occupied by him, a fair occupation rent of the property, shall, after deducting the items in clauses (c) and (d) and the interest on the principal, be debited against him in reduction of the amount, if any, from time to time due to him on account of interest, and, so far as such receipts exceed any interest due, in reduction or discharge of the mortgage money.

Two practical applications of Section 76 dominate the litigation. First, the rule of appropriation — clause (h) requires the mortgagee in possession to apply his receipts first against interest due, and then against principal; he cannot, by silence in his accounts, leave the principal undiminished while drawing rents and profits indefinitely. Second, the duty of accounts — clause (g) makes the mortgagee a constructive trustee for the surplus, and on suit by the mortgagor, the court will direct an account on the footing of the section. The Privy Council's decisions on accounts before 1929 — and the Supreme Court's decisions since — proceed on the assumption that the mortgagee in possession bears the burden of producing his accounts; if he does not, the court will draw inferences against him.

Section 76 is also subject to the proviso that the mortgagee shall not be liable for any allowance for deterioration of the property arising from wear and tear. Like the mortgagor under Section 66, the mortgagee is liable for waste; ordinary deterioration is a charge of nature, not of the mortgagee.

Section 77 — receipts in lieu of interest

Section 77 caters to a particular contractual choice. Where the mortgage is a usufructuary mortgage and there is a contract between the mortgagor and the mortgagee that the receipts from the mortgaged property shall, so long as the mortgagee is in possession, be taken in lieu of interest, or in lieu of such interest and defined portions of the principal, the rules of clauses (c), (d), (g) and (h) of Section 76 do not apply. The parties have, by contract, fixed the application of the receipts; the section honours their bargain. The remaining duties under Section 76 — management, collection of rents, prevention of waste, application of insurance proceeds — continue to apply, since they are duties owed by the mortgagee to the mortgagor that go to preservation of the security.

The mortgagee's remedies — a working table

The remedies available to a mortgagee depend on the kind of mortgage. A simple mortgagee may sue for sale (Section 67) and may sue for the mortgage money on the personal covenant (Section 68(a)). A mortgagee by conditional sale may sue for foreclosure (Section 67) but cannot sue for the mortgage money — there is no personal covenant. A usufructuary mortgagee may neither foreclose nor sue for sale; he holds for satisfaction by rents and profits, and his only money remedy is under Section 68(b)–(d) where the security is impaired through no wrong of his own. An English mortgagee may sue for sale, sue on the personal covenant, and (where Section 69 conditions are met) sell without intervention of the court. An equitable mortgagee may sue for sale; he has no right of foreclosure under the Indian scheme. An anomalous mortgagee's remedies are governed by his contract.

Mortgagee, lis pendens, fraudulent transfers, ostensible owner

The mortgagee's enforcement of his security must reckon with the same set of cognate doctrines that bear on the mortgagor's dealings. A transfer of the equity of redemption pendente lite, made by the mortgagor while a foreclosure or sale suit is pending, is hit by the doctrine of lis pendens. A pre-mortgage transfer that the mortgagor has fraudulently concealed will engage Section 53 if the mortgagee can show the transfer was made to defeat or delay him. A purchaser from a mortgagor who appears as ostensible owner of the property may invoke Section 41 against the true owner — but not against a mortgagee whose mortgage is on the title. The mortgagee's notice of any prior interest controls his priority against earlier encumbrances; the mortgagor's competence under Section 7 controls the validity of the mortgage at the threshold.

Why Sections 67 to 77 matter

The eleven sections are the operative engine of the Indian mortgage. They tell the lender, in concrete terms, what to do when the borrower defaults, how the security can be preserved while the suit is pending, what happens if the property is sold for revenue or acquired by the State, how to take possession safely, and how to account for what comes in. Together with Sections 60 to 66 on the mortgagor's rights and liabilities, they describe the bargain in full. The mortgagor cannot lose his right to redeem; the mortgagee cannot lose his security. The two doctrines, tightly interlocked, have made Section 58's six kinds of mortgage workable in Indian practice for almost a century and a half.

Frequently asked questions

Which kinds of mortgage permit foreclosure and which permit sale under Section 67?

Section 67 distributes the remedies of foreclosure and sale across the kinds of mortgage. A mortgagee by conditional sale (Section 58(c)), and a mortgagee under an anomalous mortgage that gives him the right, may sue for foreclosure. A simple mortgagee, an English mortgagee, an equitable mortgagee (mortgage by deposit of title deeds), and a mortgagee under an anomalous mortgage that gives the right of sale, may sue for sale. A usufructuary mortgagee under Section 58(d) has neither remedy; he must satisfy himself out of the rents and profits or wait for the mortgagor to redeem, with the limited money remedy under Section 68(b)–(d) where the security has been impaired through no wrong of his own.

When can a mortgagee sue for the mortgage money on the personal covenant under Section 68?

Section 68 lists four cases: (a) where the mortgagor has expressly bound himself to repay, which covers the simple and English mortgage; (b) where, without any wrong by either side, the mortgaged property is destroyed or the security rendered insufficient and the mortgagor refuses, on reasonable request, to give further security; (c) where the mortgagee is deprived of the security by the wrongful act or default of the mortgagor; and (d) where the mortgagee, being entitled to possession, is not given possession or quiet enjoyment by the mortgagor. The section recognises that a mortgage is sometimes a debt that must be enforced as a debt — divorced from a security that has failed.

Can a mortgagee always sell the property without going to court?

No. Section 69 confines the power of sale without intervention of the court to three narrow classes of cases — an English mortgage where neither party is a Hindu, Mohammadan, Buddhist or notified class; a Government mortgagee under an express power of sale in the deed; and a mortgagee under an express power of sale where the property is in Calcutta, Madras, Bombay, or any other notified town or area. Even where the power is available, the mortgagee must give written notice of intention to exercise the power, and either three months must elapse without payment or interest of at least ₹500 must be in arrear for three months. Strict compliance is required; a sale that ignores the conditions does not pass title.

What are the principal duties of a mortgagee in possession under Section 76?

A mortgagee in possession is deemed to stand in a fiduciary position to the mortgagor and is bound by eight duties under Section 76: manage the property as a person of ordinary prudence would; use his best endeavours to collect rents and profits; pay revenue, public charges and rent out of the income; make necessary repairs out of the income, after revenue, charges and interest; not commit any act destructive or permanently injurious; apply insurance proceeds either to reinstate or to reduce the mortgage; keep clear, full and accurate accounts; and apply his receipts first to interest, then in reduction of the principal. The mortgagee is therefore both a manager and a constructive trustee of any surplus income, and the burden of producing accurate accounts lies on him.

What happens to the mortgage when the mortgaged property is acquired by the State?

Section 73 follows the security into the proceeds. Where the property is sold for arrears of revenue, rent or other public charges and the mortgagee is deprived of the whole or part of his security, he is entitled to be paid out of the surplus of the sale proceeds remaining after the arrears. Where the property is acquired under the Land Acquisition Act, 1894 (now the 2013 Act), the mortgagee is entitled to be paid his money, in whole or in part, out of the compensation. The principle is that the mortgagee's lien shifts from the land, once the land has been taken out of the mortgagor's hands, to the money that takes its place.

Why are Sections 74 and 75 of the Transfer of Property Act blank?

Sections 74 and 75 of the original 1882 Act dealt with subrogation and contribution between subsequent mortgagees. They were repealed by the Transfer of Property (Amendment) Act, 1929, and the law on subrogation was redrafted into Section 92, with related provisions in Sections 91, 93 and 94. The reason for the repeal was that the original sections had been criticised as obscure and unworkable; the 1929 redraft consolidated the doctrine in a more coherent form. The position now is that any answer on the rights of a subsequent mortgagee against a prior mortgagee or against a co-mortgagor must look to Sections 91 to 95, not to Sections 74 and 75.