Mortgagees Right To Sell: Past Situation
The power of the mortgagee to sell without intervention of the court, before the incorporation of such right under Section 69 of the Transfer of Property Act, 1882, was a subject-matter of controversy and divergent views.
This power of sale, a feature of the English mortgage was originally confined to Englishmen or to Indian residents in the Presidency Towns who were conversant with the forms of English mortgage and English law and procedure as administered in the Presidency Towns. In the mofussil, prior to the Transfer of Property Act, there were certain regulations governing the law of mortgages between the parties who were not Europeans. Those regulations did not empower the mortgagee to effect sale of the mortgaged property without the intervention of the court.
Section 69 of the Transfer of Property Act, 1882, was modelled on the English Conveyancing Act, 1881 and the English Law of Property Act, 1925. Section 69 was later remodelled by amending Act 20 of 1929 drawing the principles from the English law.
Section 69 of the Transfer of Property Act, 1882 contains five sub-sections. Sub-sections (1) and (2) as detailed hereunder, deal with the circumstances under which the mortgagee's right to exercise the power of sale without the intervention of the court arises. Sub-sections (3) and (4) respectively dwell on the title of the purchaser from the mortgagee and the manner of deployment of sale proceeds of the mortgaged property by the mortgagee, his duties and responsibilities. Sub-section (5) states that nothing in this section applies to powers conferred before the first day of July, 1882.
The right under Section 69 is as much and as full a right as the right of redemption of the mortgagor. The mortgagee is, in no sense, a trustee for the mortgagor in the matter of the power of sale; as he holds it for protection of his interest and for his benefit. The mortgagee is not debarred from exercising the power of sale, even though the mortgagor files a suit for redemption. So long as the mortgage money is not paid or validly tendered, the mortgagee with full knowledge of a pending suit for redemption and even to defeat the suit can enforce his power of sale under this section.
While clauses (b) and (c) of sub-section (1) require that power of sale without intervention of the court must be expressly conferred on the mortgagee by the mortgage deed, no such conditions need be fulfilled, where the mortgage is an English mortgage and neither of the parties is Hindu, Mohammedan or Buddhist or any sect, race etc., as stipulated under clause (a) of sub-section (1).
Power of sale without intervention of court
The words "power of sale" refer to a clause expressly included in the mortgage deed. They mean conveyancing. The expression has not been defined in the Act. It includes all steps which are necessary to be taken in connection with a sale. The law permits the greatest freedom of contract, unless it is expressly taken away. If any party contends that a particular clause restricts, in any way, the power of parties to enter into a contract, the burden rests on him to show that the words prevent an agreement between the parties.
The power of sale, under Section 69, can be exercised only in the three cases mentioned in clauses (a), (b) and (c) of sub-section (1). The situation of the property is immaterial in cases falling within clauses (a) and (b).
A mortgagee has no right of sale if there is no default in payment of the mortgage money. There can be default in payment of mortgage money only after it has become due, and not before. In cases, where no time is fixed for payment of the mortgage money, there must be a demand for payment before it can be said that the mortgagor has made a default in payment of the mortgage money. It has been held in Purasawalkam Hindu Janopakara Saswatha Nidhi Ltd. v. Kuddus Sahib that where the amount due for principal is not repayable at any particular date, nor is anything stated as to when it is to be repaid, there can be no default in the payment of the principal sum due until there is a demand made for the money.
Section 69(1) (a)
The first case in which the mortgagee can have the power to sell is mentioned in clause (a) of sub-section (1) of Section 69 of the Transfer of Property Act, 1882. It lays down the following conditions for the acquisition of the power, namely: (1) that the mortgage must be an English mortgage, as defined in Section 58(e) of the Transfer of Property Act, 1882, and (2) neither the mortgagor nor the mortgagee must be-
(i) a Hindu, Mohammedan or Buddhist, or
(ii) a member of any other race, sect, tribe, or class from time to time specified in this behalf by the State Government in the Official Gazette.
The power of sale is inherent in the mortgagee, if Conditions (i) and (ii) mentioned above are satisfied. Thus it can be exercised where an English mortgage is executed by a company, which can be said to have no religion3 In
L.V. Apte v. R.G.N. Price, the A.P. High Court applied Section 69 to an English mortgage between a company and trustees for debenture-holders, some of the trustees being Hindus.
Section 69(1) (a) is confined only to a select sect of mortgagors and mortgagees who do not belong to the majority communities in India. This section is taken advantage of by corporate bodies who are not natural persons since such bodies are not deemed to belong to any religion. As far as individuals are concerned, this section can be adopted if both the mortgagor and mortgagee do not belong to the religion, race, sect, tribe or class which are excluded from the purview of Section 69(1) (a).
If the conditions in Section 69(1) (a) and Section 69(2) are complied with, mortgagee's power of sale arises suo motu.
It is opined that Section 69(1) (a) is outdated in the present circumstances since the stipulations cannot be applied to the commercial transactions like mortgages, in letter and spirit. No community can be compelled to exclude themselves from a particular commercial venture as it would affect their constitutional rights.
Sections 69(1) (b) and 69(1) (c)
The words "expressly conferred" in clauses (b) and (c) indicate that the inherent power available under clause (a) is not available under clauses (b) and (c).
To bring a case under Section 69(1) (b), it is necessary to establish that
(i) a power of sale without the intervention of the court is expressly conferred on the mortgagee by the mortgage deed, and
(ii) the mortgagee is Government. This clause is applicable only where the mortgagee is the Government and does not extend to any other person. It applies both to the State Governments and the Central Government.
Section 69(1) (c) requires that
(i) a power of sale without the intervention of the court must have expressly been conferred on the mortgagee by the mortgage deed, and
(ii) the mortgaged property, or any part thereof, must, on the date of the execution of the mortgage deed, have been situate within the towns of Calcutta, Madras, Bombay or in any other town, or area, which the State Government may, by notification in the Official Gazette, specify in this behalf.
It is observed that the three cases mentioned in clauses (a), (b) and (c) of sub-section (1) of Section 69 of the Transfer of Property Act are independent and mutually exclusive. Clause (a) applies only where the mortgage is an English mortgage and the parties do not belong to certain religions, or sects, etc. Clause (b) applies to cases where the mortgagee is the Government. Under clauses (a) and (b), it is not necessary that the property mortgaged should be situated in any particular place. It may be situated in any part of India. But an essential condition of clause (c) is that the mortgaged property must be situated within any of the towns or area, specified in the clause.
Conditions for exercise of power
Section 69(2) (a) and Section 69(2) (b) specify the conditions for exercise of the power. These conditions are imperative and cannot be varied by an agreement between the parties. The power to exercise the right of sale arises when
(i) (a) notice in writing requiring payment of the principal money has been served on the mortgagor, or on one of several mortgagors, and
(b) default has been made in payment of the principal money, or of part thereof, and
(c) such default has continued for three months after such service; or
(ii) some interest under the mortgage amounting at least to five hundred rupees is (a) in arrear, and (b) remains unpaid for three months after becoming due.
Conditions (i) and (ii) are in the alternative. It is sufficient if any one of them is fulfilled.
The power of sale under Section 69(1) can be exercised by the mortgagee only when the conditions under Section 69(2) are fulfilled.
No notice is necessary when default is made for the payment of interest. It is sufficient that interest under the mortgage amounting at least to five hundred rupees is in arrear and unpaid for three months after becoming due.
Notice cannot be waived
The notice required by Section 69(2) (a) is not only necessary but is imperative and even the period of three months cannot be curtailed by agreement of the parties.
The Supreme Court in Narandas Karsondas v. S.A. Kamtam held that the conferment of power on mortgagee to sell without intervention of the court in a mortgage deed by itself will not deprive the mortgagor of his right of redemption. The equity of redemption is not extinguished by mere contract for sale. Therefore, until sale is complete by registration the mortgagor does not lose his right of redemption. In view of the fact that only on execution of conveyance ownership passes from one party to another, it cannot be said that the mortgagor lost the right of redemption just because the property was put to auction. The mortgagor has a right to redeem unless the sale of property was complete by registration in accordance with the provisions of the Registration Act.
Section 69(1)(a) of the Transfer of Property Act, 1882 unduly excludes the majority communities in India from exercising the power of sale available for an English mortgagee. This section appears to have been enacted only for the transactions between mortgagors and mortgagees who are English people or people of English origin.
Section 69(1) (a)a blot on statute
When the debate on uniform civil code in India is hotting up amongst the law-makers and the general public, retention of Section 69(1) (a) of the Transfer of Property Act, 1882 is a blot on the statute-book. This section is a clear discrimination between religious communities in commercial transactions in India.
Section 69(1) (a) of the Transfer of Property Act, 1882 has lost its relevance in the present-day secular circumstances. English mortgage is rarely resorted to by the lenders like banks in view of the religious discrimination in the section itself and stamp duty and registration expenses being heavy to be borne by the mortgagors.
It is suggested that an amendment to Section 69 of the Transfer of Property Act is the need of the hour deleting the portion regarding restriction of the power of sale without intervention of the court only to certain religious communities.
The power of sale under Section 69(1) (c) of the Transfer of Property Act can be exercised only when the mortgaged properties are situated within certain towns. The restriction in respect of location of the properties within certain towns for the purpose of Section 69(1) (c) might have been a carefully considered decision at the time when the section was inserted into the Act. It protects the gullible rural masses from the usurious moneylenders. Since then, the situation has undergone changes and the people in the rural sector are prudent enough to know the implications of mortgage transactions.
Mortgagees Right To Sell: Present Situation
At present, an attempt has been made to change the situation by passing the “Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Act 54 of 2002)”, which protects the interests of the banks and other financial institutions by providing ways to recover their amounts by selling the assets of the mortgagor.
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, fondly called by bankers as Securitisation Act, has recently been enacted conferring powers on banks and financial institutions, if they are secured creditors, to realize the securities by sale etc., without intervention of court. The Act contains a provision overriding the provision of Section 69 of the Transfer of Property Act, 1882. Sub-section (1) of Section 13 of the said Act reads as under:
"13. (1) Notwithstanding anything contained in Section 69 or Section 69-A of the Transfer of Property Act, 1882, any security interest created in favour of any secured creditor may be enforced, without the intervention of court or tribunal, by such creditor in accordance with the provisions of this Act."
The provisions of the Act have been made applicable exclusively to banks and financial institutions as secured creditors to enforce their security interest with a view to recovering their debts. That is, if the banks and financial institutions are secured creditors having lent against securities like mortgage of immovable property, charge, hypothecation they can take over and sell such securities after giving 60 days' notice to the borrowers so as to adjust the loan, without resort to litigation in a competent court of law. The provisions of the Act cannot be considered to have been extended to the secured creditors in general. In a nutshell, the provisions of Section 69 of the Transfer of Property Act, 1882 can be ignored by the banks and financial institutions in the matter of recovery of their debts ex curia whereas other creditors have to file a suit in a competent court for recovery of the loan. Otherwise, Section 69 of the Transfer of Property Act, 1882 still remains on the statute and is applicable to other creditors who are not banks and financial institutions. The banks and financial institutions are empowered to short-circuit the legal process to enforce the securities for recovery of their loans while the other creditors such as individuals, association of persons have to undergo the rigmorale of court proceedings. This is a clear discrimination endowing one section with legal favouritism and depriving similarly placed others of such right. Hence the suggestion for the amendment to make the law uniform to all creditors who have lent against mortgage securities.
It is suggested that the stipulation of certain notified towns in Section 69(1) (c) of the Transfer of Property Act, 1882 should be deleted by an amendment since such a stipulation does not have any sanctity or reasonable purpose in the present circumstances.
Recourse to legal proceedings through a court of law for recovery of debts, though secured by mortgage, is not only time-consuming but expensive too. The suggested amendment to Section 69 of the Transfer of Property Act, 1882 will result in enforcement of mortgage security by the mortgagee without resort to court proceedings and will, to some extent, disburden the courts from the current scenario of docket explosion so that the other cases can be adjudicated as expeditiously as possible.
ConclusionAfter going through this project, I have come to the conclusion that, section 69(1) (a) of the Transfer of Property Act, 1882 has lost its relevance in the present-day secular circumstances. English mortgage is rarely resorted to by the lenders like banks in view of the religious discrimination in the section itself and stamp duty and registration expenses being heavy to be borne by the mortgagors.
This is because, section 69(1) (a) of the Transfer of Property Act, 1882 unduly excludes the majority communities in India from exercising the power of sale available for an English mortgagee. This section appears to have been enacted only for the transactions between mortgagors and mortgagees who are English people or people of English origin.
Therefore, I have come to the conclusion that an amendment to Section 69 of the Transfer of Property Act is the need of the hour, deleting the portion regarding restriction of the power of sale without intervention of the court only to certain religious communities.
Further, as regards the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Act, 2002 is concerned, there is a clear discrimination endowing one section with legal favouritism and depriving similarly placed others of such right. Hence I would suggest for the amendment to make the law uniform to all creditors who have lent against mortgage securities. This is because this Act is applicable only to banks and financial institutions and not to other types of creditors.
Further, recourse to legal proceedings through a court of law for recovery of debts, though secured by mortgage, is not only time-consuming but expensive too. The suggested amendment to Section 69 of the Transfer of Property Act, 1882 will result in enforcement of mortgage security by the mortgagee without resort to court proceedings and will, to some extent, disburden the courts from the current scenario of docket explosion so that the other cases can be adjudicated as expeditiously as possible.
Therefore, in my view there is an urgent need to amend the provisions of sec.69 of the "Transfer of Property Act, 1882", so that the interest of the secured creditors can be realized more fruitfully and without much delay and harassment.
The author can be reached at: rks_nlu@legalserviceindia.com / Print This Article
Names Posted 23 hour(s) ago 
Ashok Kini
