Mortgagee- Rights and Liabilities

Section 67 in The Transfer of Property Act, 1882 defines the Right to foreclosure or sale.—In the absence of a contract to the contrary, the mortgagee has, at any time after the mortgage money has become 1[due] to him, and before a decree has been made for the redemption of the mortgaged property, or the mortgage-money has been paid or deposited as hereinafter provided, a right to obtain from the Court 2[a decree] that the mortgagor shall be absolutely debarred of his right to redeem the property, or 2[a decree] that the property be sold. A suit to obtain 2[a decree] that a mortgagor shall be absolutely debarred of his right to redeem the mortgaged property is called a suit for foreclosure. Nothing in this section shall be deemed,

(a) to authorise any mortgagee other than a mortgagee by conditional sale or a mortgagee under an anomalous mortgage by the terms of which he is entitled to foreclose, to institute a suit for foreclosure, or a usufructuary mortgagee as such or a mortgagee by conditional sale as such to institute a suit for sale; or]

(b) to authorise a mortgagor who holds the mortgagee’s rights as his trustee or legal representative, and who may sue for a sale of the property, to institute a suit for foreclosure; or

(c) to authorise the mortgagee of a railway, canal, or other work in the maintenance of which the public are interested, to institute a suit for foreclosure or sale; or

(d) to authorise a person interested in part only of the mortgage money to institute a suit relating only to a corresponding part of the mortgaged property, unless the mortgagees have, with the consent of the mortgagor, severed their interests under the mortgage.

Section 68 in The Transfer of Property Act, 1882 defines the Right to sue for mortgage money.—

(1) The mortgagee has a right to sue for the mortgage money in the following cases and no others, namely:

(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 within the meaning of section 66, and the mortgagee has given the mortgagor a reasonable opportunity of providing further security enough to render the whole security sufficient, and the mortgagor has failed to do so;

(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 is entitled to possession of the mortgaged property, the mortgagor fails to deliver the same to him, or to secure the possession thereof to him without disturbance by the mortgagor or any person claiming under a title superior to that of the mortgagor: Provided that, in the case referred to in clause (a), a transferee from the mortgagor or from his legal representative shall not be liable to be sued for the mortgage-money.

(2) Where a suit is brought under clause (a) or clause (b) of sub-section (1), the Court may, at its discretion, stay the suit and all proceedings therein, notwithstanding any contract to the contrary until the mortgagee has exhausted all his available remedies against the mortgaged property or what remains of it, unless the mortgagee abandons his security and, if necessary, re-transfers the mortgaged property.

Section 69 in The Transfer of Property Act, 1882 defines the power of sale when valid.  A mortgagee, or any person acting on his behalf, shall, subject to the provisions of this section have the power to sell or concur in selling the mortgaged property or any part thereof, in default of payment of the mortgage money, without the intervention of the court, in the following cases and in no others, namely:

(a) where the mortgage is an English mortgage, and neither the mortgagor nor the mortgagee is a Hindu, Muhammadan or Buddhist 4[or a member of any other race, sect, tribe or class from time to time specified in this behalf by 5[the State Government], in the Official Gazette];

(b) where 6[a power of sale without the intervention of the court is expressly conferred on the mortgagee by the mortgage-deed and] the mortgagee is 7[the Government];

(c) where 6[a power of sale without the intervention of the court is expressly conferred on the mortgagee by the mortgage-deed and] the mortgaged property or any part thereof 8[was, on the date of the execution of the mortgage-deed], situate within the towns of Calcutta, Madras, Bombay, 14[(a)] notice in writing requiring payment of the principal money has been served on the mortgagor, or on one of several mortgagors, and default has been made in payment of the principal money, or of part thereof, for three months after such service; or

15[(b)]     some interest under the mortgage amounting at least to five hundred rupees is in arrear and unpaid for three months after becoming due.

16[(3)] When a sale has been made in professed exercise of such a power, the title of the purchaser shall not be impeachable on the ground that no case had arisen to authorise the sale, or that due notice was not given, or that the power was otherwise improperly or irregularly exercised; but any person damnified by an unauthorised or improper or irregular exercise or the power shall have his remedy in damages against the person exercising the power.

17[(4)] The money which is received by the mortgagee, arising from the sale, after discharge of prior encumbrances, if any, to which the sale is not made subject, or after payment into Court under section 57 of a sum to meet any prior encumbrance, shall, in the absence of a contract to the contrary, be held by him in trust to be applied by him, first, in payment of  all costs, charges and expenses properly incurred by him as incident to the sale or any attempted sale; and, secondly, in discharge of the mortgage-money and costs and other money, if any, due under the mortgage; and the residue of the money so received shall be paid to the person entitled to the mortgaged property, or authorised to give receipts for the proceeds of the sale thereof.

18[(5) Nothing in this section or in section 69A applies to powers conferred before the first day of July, 1882.

Section 70 in The Transfer of Property Act, 1882 defines accession to mortgaged property.—If, after the date of a mortgage, any accession is made to the mortgaged property, the mortgagee, in the absence of a contract to the contrary, shall, for the purposes of the security, be entitled to such accession

In Shripad Laxman Nakadi vs Kashibai Dinkar Jog It was stated that the shop which was built after the award decree was passed was not the property mortgaged and as the mortgage had become merged in the decree, the new shop could not be treated as an accession to the mortgaged property, to which the mortgagee became entitled to the purpose of the security under Section 70 of the Transfer of Property Act, 1882,

Section 71 in The Transfer of Property Act, of 1882 defines the renewal of the mortgaged lease. When 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, shall, for the purposes of the security, be entitled to the new lease.

Section 72 in The Transfer of Property Act, of 1882 defines the Right of the mortgagee in possession. 1[A mortgagee] may spend such money as is necessary

(b) for 3[the preservation of the mortgaged property] from destruction, forfeiture or sale;

(c) for supporting the mortgagor’s title to the property;

(d) for making his own title thereto good against the mortgagor; and

(e) when the mortgaged property is a renewable lease-hold, for the renewal of the lease, and may, in the absence of a contract to the contrary, add such money to the principal money, at the rate of interest payable on the principal, and, where no such rate is fixed, at the rate of nine per cent. per annum: 4[Provided that the expenditure of money by the mortgagee under clause (b) or clause (c) shall not be deemed to be necessary unless the mortgagor has been called upon and has failed to take proper and timely steps to preserve the property or to support the title.] Where the property is by its nature insurable, the mortgagee may also, in the absence of a contract to the contrary, insure and keep insured against loss or damage by fire the whole or any part of such property, and the premiums paid for any such insurance shall be 5[added to the principal money with interest at the same rate as is payable on the principal money or, where no such rate is fixed, at the rate of nine per cent. per annum]. But the amount of such insurance shall not exceed the amount specified on this behalf in the mortgage deed or (if no such amount is therein specified) two-thirds of the amount that would be required in case of total destruction to reinstate the property insured. Nothing in this section shall be deemed to authorise the mortgagee to insure when an insurance of the property is kept up by or on behalf of the mortgagor to the amount in which the mortgagee is hereby authorised to insure.

Section 73 in The Transfer of Property Act, 1882 defines the Right to proceeds of revenue sale or compensation on acquisition.

(1) Where the mortgaged property or any part thereof or any interest therein is sold owing to failure to pay arrears of revenue or other charges of a public nature or rent due in respect of such property, and such failure did not arise from any default of the mortgagee, the mortgagee shall be entitled to claim payment of the mortgage-money, in whole or in part, out of any surplus of the sale proceeds remaining after payment of the arrears and of all charges and deductions directed by law.

(2) Where the mortgaged property or any part thereof or any interest therein is acquired under the Land Acquisition Act, 1894 (1 of 1894); or any other enactment for the time being in force providing for the compulsory acquisition of immovable property, the mortgagee shall be entitled to claim payment of the mortgage-money, in whole or in part, out of the amount due to the mortgagor as compensation.

(3) Such claims shall prevail against all other claims except those of prior encumbrancers and may be enforced notwithstanding that the principal money on the mortgage has not become due.

Section 76 defines the liabilities of the mortgagee in possession. When, during the continuance of the mortgage, the mortgagee takes possession of the mortgaged property,

(a) he must manage the property as a person of ordinary prudence would manage it if it were his own;

(b) he must use his best endeavours to collect the rents and profits thereof;

(c) he must, 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 1[and all rent] 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) he must 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 from such rents and profits the payments mentioned in clause (c) and the interest on the principal money;

Section 77 in The Transfer of Property Act, 1882 defines receipts in lieu of interest. Nothing in section 76, clauses (b), (d), (g) and (h), applies to cases where there is a contract between the mortgagee and the mortgagor that the receipts from the mortgaged property shall, so long as the mortgagee is in possession of the property, be taken in lieu of interest on the principal money, or in lieu of such interest and defined portions of the principal.