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LAW OF PROPERTY PROJECT,

REDEMPTION AND FORECLOSURE
REDEMPTION AND FORECLOSURE
A Project Submitted to:-

ARMY INSTITUTE OF LAW, MOHALI

In partial fulfilment of the requirements of the award of degree of B.A. L.L.B

Submitted to: -
Dr. Bhupinder Kaur (Asst. Professor of Law)

Submitted by: -
PRATIKSHA (2014)

PUNJABI UNIVERSITY PATIALA (PUNJAB)

Semester – 5th

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DECLARATION

It is certified that the project work presented in this report entitled “Redemption
and Foreclosure” embodies the results of original research work carried out by
me. All the ideas and references have been duly acknowledged.

Pratiksha
(2014)

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ACKNOWLEDGEMENT

In preparation of my assignment, I had to take help of and guidance of some

respected persons, who deserve my deepest gratitude. As the completion of this
assignment gave me much pleasure, I would like to show my gratitude towards
Dr Bhupinder Kaur for giving me guidance for assignment throughout
numerous consultations. I would also like to extend my gratitude to all those
who have directly and indirectly guided me in writing the assignment.

I would like to thank my family and peers, whose constant encouragement kept
me motivated to work towards the completion of this project. I would also like
to extend my gratitude towards Army Institute of Law, Mohali and Dr. Tejinder
Kaur, the Principle, Army Institute of Law, Mohali for giving me this golden
opportunity of making a project on such an interesting and engaging topic.

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TABLE OF CONTENTS
Declaration ................................................................................................................................. 2

Acknowledgement ..................................................................................................................... 3

Table of Contents ....................................................................................................................... 4

Introduction ................................................................................................................................ 5

RIGHT OF FORECLOSURE .................................................................................................... 6

RIGHT OF FORECLOSURE AND TYPES OF MORTGAGES ......................................... 7

Right of redemption, Once a mortgage always a mortgage and Clog on redemption ............... 8

Indian Law ............................................................................................................................. 9

Right of redemption section 60 of Transfer of Property Act describes the right of
redemption- ........................................................................................................................ 9

Once a mortgage, always a mortgage .................................................................................. 10

The doctrine of Clog on Redemption................................................................................... 11
Exceptions to Clog on redemption being void ..................................................................... 12
RIGHT OF REDEMPTION AND RIGHT OF FORECLOSURE .......................................... 13

RIGHT OF SUBROGATION.............................................................................................. 13
Exceptions under Section 67 of TPA, 1882 ..................................................................... 13

Remedies for Different Kinds of Mortgages ....................................................................... 14

Simple Mortgage.............................................................................................................. 14

Usufructuary Mortgage .................................................................................................... 14

Mortgage by Deposit of Title Deeds ................................................................................ 14

Mortgage by Conditional Sale ......................................................................................... 14

English Mortgage ............................................................................................................. 14

Anomalous Mortgage....................................................................................................... 15

CODE OF CIVIL PROCEDURE AND MORTGAGE ....................................................... 15

LANDMARK JUDGMENTS .............................................................................................. 16
CONCLUSION ........................................................................................................................ 17

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INTRODUCTION

The Transfer of Property Act, 1882 is the primary statute dealing with the regulation of transfer
of property in India. It came into effect on July 1, 1882. This Act also governs the mortgage of
property. The Act also provides the rights and duties of the mortgagor and mortgagee. This Act
is a beneficial legislation and aims at ensuring that no party is able to exploit the other.

Section 58 of the Transfer of Property Act defines the mortgage as transfer of certain specific
interest in the immovable property for obtaining an advanced payment, loan, debt or for such
performance which incurs pecuniary liability. Mortgagor is the person who transfers interest in
immovable property and the person who advances the loan is the mortgagee. The advanced
sum of money or the liability incurred is the mortgage money. There are various types of
mortgages such as simple mortgage, English mortgage, usufructuary mortgage and mortgage
by conditional sale

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RIGHT OF FORECLOSURE

The traditional practice where the mortgagee forfeited the mortgaged property in the event of
any default in payment is not considered to be good in law anymore. The mortgagee has to
exercise his rights in the procedure prescribed by the Act. This means that the mortgagee cannot
appropriate or sell the property to himself. He has to obtain a decree of the Court enabling his
to sale the property.

Once the mortgage deed is executed, the mortgagee becomes entitled to recovering the
principal amount advanced to the mortgagee once the amount becomes due. The Transfer of
Property Act also vests the right of recovering the loan amount on the mortgagee.

Right of foreclosure is the right through which a mortgagee can obtain a decree to get the
amount lawfully due to him. Section 67 of the Transfer of Property Act envisages the right of
foreclosure. Under Section 67, once the amount becomes due, the mortgagee has the right to
obtain a court decree restricting the mortgagor from exercising his right of redemption or for
selling the mortgages property. Such decree can be obtained once the principal amount
becomes due and before the mortgagee either obtains a Court decree for exercising his right of
redemption or before the mortgage pays back the mortgaged amount. Thus, the essentials under
Section 57 can be classified as the following:
1. The mortgage amount becomes due
2. The mortgagor has not obtained a decree for exercising his right of redemption
3. The mortgagor has not paid back the mortgaged money
4. The mortgage deed should not contain a clause to the contrary

The right of foreclosure can be exercised after the expiry of the period of repayment as specified
in the mortgage deed. The right of foreclosure can be exercised within a period of 30 years
from the day on which the application of this right becomes enforceable. If the mortgage deed
states that the right of foreclosure is applicable once the mortgage is executed, then such a right
is subject to a limitation of 12 years.
Once the mortgagee initiates the suit of foreclosure, the mortgagor is barred from transferring
the mortgaged property. If during the pendency of the suit of foreclosure, the mortgagor
transfers the mortgaged property to a third party, then such transfer could be challenged before
the Court to be violative of the doctrine of Lis pendens. In the case of Parsotam v Chedda Lal1,

1
Parsotam v Chedda Lal, (1907) ILR 29 All 76

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it was held that a foreclosure suit is considered to be pending as long as a final decision is
passed on the matter.
RIGHT OF FORECLOSURE AND TYPES OF MORTGAGES

The right of foreclosure also depends on the nature of the mortgage. In case of a simple
mortgage, the mortgagee cannot exercise the right of foreclosure as he does not receive the
actual possession of the mortgage property. The only remedies that are available to the
mortgagee are sale of mortgage property or proceeding personally against the mortgagee.

In the case of unconditional sale of mortgage, upon the failure of repayment of debt, the
mortgagee can bar the mortgagor from exercising his right of redemption and thus the mortgage
matures into resale.

In the case of a usufructuary mortgage, the mortgagee retains the possession of the mortgaged
property as long as the mortgagor repays the money. He will also be entitled to interest, if any.
Thus, we see that the right of foreclosure is not available in this case too. Where there are
several mortgagees and one of the mortgagee is interested in only a proportion of the mortgaged
money, he may institute a suit with respect to only that corresponding part of the mortgaged
property. However, in this case the mortgagees must have severed their interests by the consent
of the mortgagor.

In case of an English mortgage, the mortgagee has the remedy of sale of property. Where the
mortgage is a combination of multiple mortgages, that is anomalous Mortgage by deposit of
title deeds

Section 96 deals with mortgages through title deeds. This Sections provides that the provisions
applicable to a simple mortgage will be applicable to mortgage by deposit of sale deeds. Hence,
the remedy available to a mortgagee in case of mortgage by deposit of sale deeds would be the
sale of the mortgage property or proceeding against the mortgagor. The mortgagee cannot
exercise the right of foreclosure

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RIGHT OF REDEMPTION, ONCE A MORTGAGE ALWAYS A MORTGAGE AND CLOG ON

REDEMPTION
A mortgagor is entitled to redeem their property once the debt secured by the mortgage has
been discharged, or the surplus remaining after a power of sale has been exercised by the
mortgagee. This is referred to as the mortgagor’s “equitable right of redemption”.

However, if an option to purchase (or transfer) is included as part of the mortgage transaction
(as is the case in the above example), then the option will be void for extinguishing – or
‘clogging’ – the mortgagor’s equity of redemption. This position is consistent with the doctrine
that “once a mortgage, always a mortgage”.

Example

A lender (as mortgagee) advances 1 Lakh to a borrower (as mortgagor), and to secure its
repayment, the lender takes a mortgage over the mortgagor’s land, which is currently valued at
Rs. 2 Lakh. The wider property market considers the mortgaged land to be undesirable, but the
lender sees potential in the land and thinks it could soon be valued at Rs. 3 Lakh. The lender
has therefore decided to insert an „option to transfer‟ clause in the deed of mortgage with words
to following effect:

“upon an event of default, the mortgagor must transfer the mortgaged property to the
mortgagee as full satisfaction of the mortgage debt.”

That is, upon an event of default, the lender will receive full possession of the mortgaged
property. If the lender’s predictions are correct, they would receive a Rs. 3 Lakh property,
which if they could realise at that price, may result in them earning a Rs. 2 Lakh profit on their
original Rs. 1 Lakh loan.

Another reason why an option to purchase (or transfer) won’t work is because it would likely
be a penalty. It would be construed as a penalty if the amount to be paid by the mortgagor on
default exceeds what can be regarded as a genuine pre-estimate of the damage likely to be
caused by the breach.

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INDIAN LAW
Right of redemption section 60 of Transfer of Property Act describes the right of redemption-
Right of the mortgagor to redeem at any time once the principal cash has become due- the
mortgagor has a right, on payment or tender, at a proper time and place, of the mortgage
money, to require the mortgage holder to deliver to the mortgagor the mortgage-deed and
every one documents concerning the encumbered property that area unit within the possession
or power of the mortgage holder, where the mortgagee has the mortgaged property, to deliver
possession thereof to the mortgagor, and at the cost of the mortgagor either to re-transfer the
mortgaged property to him or to such person as he could direct or to execute and (where the
mortgage has been affected by a registered instrument) to have registered an acknowledgment
in writing that any right in derogation of his interest transferred to the mortgagee has been
extinguished provided that the correct presented by this section has not been destroyed by the
act of the parties or by decree of a court.

Nothing during this section shall be deemed to render invalid any provision to the result that,
if the time fixed for payment of the principal money has been allowed to pass or no such time
has been fastened, the mortgagee shall be entitled to reasonable notice before payment or
tender of such money.

There are three important provisions made in section 60 of the Transfer of Property Act 1882:

1. Right of redemption
2. Clog on Redemption
3. Once mortgage, always a mortgage.

Redemption is a right of the mortgagor by which the mortgaged property is kept secure and the
property is returned to the mortgagor. The word redemption means to make free or get back
the mortgaged property by paying mortgage debt.

Anything which obstructs the right of the mortgagor to redeem his property is void, and such
obstruction constitutes a clog on the right to redemption.

ESSENTIAL ELEMENTS OF RIGHT OF REDEMPTION:

From the definition u/s 60, following essential of the right of redemption are viewed:

• Legal validity of mortgage- the first compulsory element for the applicability of right
of redemption is the legal validity of the mortgage.

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• Due to principle- the mortgagor can redeem the mortgage anytime after the mortgage
money is paid and he can‟t be avoided from it accept the degree of the court or any act
of the court.
• Payment of dues money – The third essential condition of applicability of the right of
redemption is the payment of dues money can be done to mortgagee himself or to his
agent. But it is compulsory that such payment must be done without condition and at
the proper time and place.
• Filing of the suit – filling of the suit is compulsory for The Redemption of mortgage
the use of the right of redemption cannot be done without filing a suit the suit of
redemption can be filed by the mortgagor or by any transferee from his side.

ONCE A MORTGAGE, ALWAYS A MORTGAGE

The rule of opposition on the right of redemption is based on the maximum once a mortgage
always a mortgage. Mortgage always remain a mortgage and no change or revision can be done
in it. Such right of redemption of mortgage cannot be put to an end or cannot be limited.

As per this maxim, the right of redemption is inherent to all mortgages on the full payment of
the debt, for which such an immovable property was used as a security.

In this regard, the case of Knocks v. Roulds 2is a good example where under lord Dev laid
down that- “once a mortgage always a mortgage and nothing but a mortgage”. The right of
redemption of mortgage cannot be failed by any activity that is it cannot be made
nonredeemable. If any exercises is made then it will null and void. If any condition is imposed
by the party then it will also be void. In the instant case, the goodwill and premise were
mortgaged by Mr rice to company and a condition was laid down that on payment of mortgage
money and interest by Mr rice he will have the right to get back the mortgaged property. The
court stated the mortgage deed created a mortgage and such mortgage always remain mortgage.
But the limitation of the right of redemption after mortgage by a contract will not be considered
an opposition.

The Indian courts have reiterated the same principle in Jaimal v State of HP3, wherein the right
to redemption was found to be an absolute right that cannot be waived by any contract to
contrary.

2
Knocks v. Roulds, (1902 Sc 24)
3
Jaimal v. State of Himachal Pradesh, Appeal (crl.) 530 of 1997

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The condition of converting the mortgage into the sale is also considered as opposition on the
right of redemption. A condition that in case of non-payment of mortgage money the mortgagee
will hold the mortgaged property as a lease, in the mortgage deed has also been considered
illegal and ineffective.

In nutshell, the intention is that mortgage and the right of redemption of mortgagee are
coextensive whether the right of redemption has been a mention or not. The mortgage and right
of redemption are coextensive whether the right of redemption is described or not. Thus,
meaning that once a mortgage is done it will always be a mortgage. It cannot be transferred in
any other transaction.

THE DOCTRINE OF CLOG ON REDEMPTION

The right of redemption is a right free from restrictions and always remains. In other words, it
can be said that the mortgage is always redeemable. It can neither be finished nor making limits.
However, there have been situations in the past where the mortgagee has made attempts to
obstruct the mortgagor’s right of redemption by putting conditions in the mortgage- deed that
forbids the mortgagor from exercising the right to redemption. These obstacles are called ‘clog’
and any deed with such a ‘clog’ has been declared void ab initio by the courts. The deeds that
have a clog on redemption are often seen as having been signed under coercion. This can be
seen as the mortgagee, possess the financial resources to pressurize the mortgagor to accept
any terms in the deed. Apart from this, any clog on redemption affects the mortgagor’s right to
enjoy and possess property, along with the right to alienate. These rights are fundamental to
having an interest in the property. Thus, the courts to protect the rights of the mortgagor have
found deeds with any clog, to be void ab initio.

This principle was first laid down in an English case Santley v. Wilde 4and has been adapted
into Indian jurisprudence to protect the mortgagor.

The courts in India have declared any ‘clog’ on redemption in the mortgage deed as void ab
initio. This is done to protect the mortgagor who is in a vulnerable position, in the mortgage
deed as the mortgagee has the financial resources, for which the mortgagor is ready to
temporarily depart with his/her interest in the immovable property. Another reason for
following the position has been the widespread abuse of powers by the mortgagees against the
mortgagors.

4
Santley v. Wilde, (1899) 2 Ch 474

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It is known that the main object of mortgage is to secure the repayment of mortgage money
hence the mortgage exists in the repayment of debt irrespective of the matter passing of the
date of repayment. The right of redemption neither can be extinguished nor be made limited or
restricted.

EXCEPTIONS TO CLOG ON REDEMPTION BEING VOID

Under the following circumstances the right of redemption can be limited or restricted-

• The right of redemption cannot be finished in mortgage deed of the agreement but after
it can be finished by submission of the right of redemption or by sale or by any method
by the free transaction.
• The right can be finished by the degree of court. The mortgagor only has the right to
get such decree the right of redemption can be awaited till exercising after the degree
for forfeiture of the right of redemption can be passed by the court.
• If the right of redemption and interest of mortgage vested in one person then the right
is finished.
• If the mortgaged property is vested in-state or if the mortgaged property acquisition by
the government the right is finished.

In Rama Shankar Singh vs Silver Screen Corp. Pvt. Ltd5 (1998) it was decided the right of
redemption of mortgagor cannot be finished.

In Shiv Dev Singh vs Sucha Singh 6(2001) it was sad that no condition can be put in the deed
of mortgage which makes it irredeemable.

In Gangadhar vs Shankarlal 7(1958) it has been stated by the supreme court that the right of
redemption of mortgage to mortgagor there exist forever this right neither can be finished no
limited by any condition of the parties if any such condition is imposed then it will be void.

In Murarilal vs Dev Karan 8was said that the parties cannot restrict the right of redemption of
mortgages. Even after a fixed period if done so such agreement will be void.

5
Rama Shankar Singh vs Silver Screen Corp. Pvt. Ltd, AIR 1988 Cal 46
6
Shiv Dev Singh vs Sucha Singh, (2000) 4 SCC 326
7
Gangadhar vs Shankarlal, AIR 1958 SC 770
8
Murarilal vs Dev Karan, AIR 1965 SC 225

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RIGHT OF REDEMPTION AND RIGHT OF FORECLOSURE

The primary difference between the right of redemption and the right of foreclosure is that the
right of redemption is an absolute right while the right of foreclosure is not an absolute right.
The mortgagor itself cannot restrict or suspend his right of redemption. The right of foreclosure,
on the other hand, can be restricted by virtue of the contract between the parties. This is clear
from the language of Section 67 which itself states that the provisions of the Section would be
applicable in the absence of any contract to the contrary. The reason behind this distinction can
be attributed to the fact that law assumes the mortgagee to be in a superior position when it
comes to instances of mortgages. As the mortgagors usually mortgage their property out of any
urgency of money, the law gives them the benefit of the weaker position and makes the right
of redemption an absolute right. The same protection cannot be attributed to the mortgagees
who are assumed to be in a superior position and well aware of their rights.

A similarity between the right of redemption and right of foreclosure is that both the rights
cannot be exercised before the date on which the mortgage money becomes due. However, the
mortgagee cannot exercise his right of foreclosure after the mortgagor exercises his right of
redemption.

RIGHT OF SUBROGATION
The Right of Subrogation is envisaged under Section 92 of the Transfer of Property Act.
Subrogation refers to the redemption of mortgaged property by a person, other than the
mortgagee, who has interest in the mortgaged property. Where any such person exercises the
right of subrogation, he becomes the new mortgagee and enjoys the same rights as that of the
original mortgagee. Since partial Subrogation is not recognised by the law, it is essential that
the person pays the entire debt and the mortgage is redeemed completely. Subrogation carries
an equitable charge and can be exercised only by operation of law. Hence, only a person having
an interest in the property can exercise this right.

Exceptions under Section 67 of TPA, 1882

1. Under section 67(b) of TPA, 1882 a mortgagor cannot file a suit for foreclosure, if that
mortgagor holds his mortgagee’s rights as his trustee or legal representative. But that
mortgagor can sue for sell of the property but can not sue for foreclosure.
2. Under section 67(c) of TPA, 1882 a mortgagee of railway, canal or other public utility is
restricted from instituting a suit for foreclosure due to the public interest. The proper
remedy of mortgagee under this clause is the appointment of a receiver of the mortgaged
property by a competent court.

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3. Section 67(d) of TPA, 1882 deals with the rule of partial foreclosure or sale. One of the
many mortgagees can file a suit for foreclosure or sale in respect of only his part of the
mortgaged-property, merely when all the mortgagees have separated their interests under
the mortgage with the consent of the mortgagor. The purpose of this provision is to
safeguard the mortgagor from multiplicity of proceedings and harassment by the
mortgagees.
The general rule is all the co-mortgagees must join together and file one suit for foreclosure or
sale of the mortgaged property under section 67 of TPA, 1882 in respect of the total mortgage
money.

REMEDIES FOR DIFFERENT KINDS OF MORTGAGES

Simple Mortgage
A simple mortgagee cannot file a suit for foreclosure but he can file a suit for sale of the
mortgaged property. A simple mortgagee has another remedy against the mortgagor that is the
mortgagee can sue on the personal covenant and attain a simple money decree from the court.

Both of these remedies are independent of each other.

Usufructuary Mortgage
The usufructuary mortgagee satisfies the mortgage-money from the rents and profits of the
mortgaged property and keeps possession of the property until the debt is paid off completely.
The usufructuary mortgagee can not file suit either for foreclosure or sale of the mortgaged
property. If mortgagee’s possession is interfered with, then he can file a suit to recover his
possession. In addition, he can also file suit for mesne profits.

Mortgage by Deposit of Title Deeds

The mortgagee can file a suit for a decree for sale but not for foreclosure.

Mortgage by Conditional Sale

This kind of mortgage turns itself into a sale in case of default of payment by the mortgagor.
The mortgagee can file a suit for foreclosure to satisfy his mortgage debt.

English Mortgage
Prior to the Amendment of 1929 of Transfer of Property Act, 1882 an English mortgagee could
file a suit either for sale or for foreclosure. The current position is that an English mortgagee
can only file a suit for sale in default of payment.

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Anomalous Mortgage
The proper remedy of the mortgagee in respect of anomalous mortgage depends upon the
factual circumstances of the mortgage and stipulations of the mortgage deeds. If a mortgage is
a mixture of simple and usufructuary mortgage then the mortgagee has two remedies. He can
file a suit for money decree if he is deprived of the possession of the property. He can also file
a suit for sale of the mortgaged property under section 67.

CODE OF CIVIL PROCEDURE AND MORTGAGE

Order XXXIV, Rule 1 of the Code of Civil Procedure provides that " all persons having an
interest either in the mortgage-security or in the right of redemption shall be joined as parties
to any suit relating to the mortgage."

XXXIV Rule 14 provides that the mortgagee can establish a claim for resale if the claim is
borne out of a mortgage and the mortgagee is permitted to file a suit for enforcement of the
mortgage.

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LANDMARK JUDGMENTS
In the landmark case of KS Dhillon v Punjab Financial Corp9, a property mortgaged by transfer
of sale deeds was transferred during the pendency of the suit of foreclosure and it was held that
such a transfer would not be valid due to the doctrine of lis pendens.

In the landmark case of Achaldas Durgaji Oswal v. Gangabisan Heda10, the mortgagor had
failed to pay the mortgage money to the mortgagee. The case related to a usufructuary mortgage
and the possession of the property was transferred to the mortgagee for a period of 5 years. The
mortgagor had filed for a suit of redemption before the Court. At the same time, the mortgagee
filed a suit for exercising his right of fore-closure. The Court gave a time of 3 months to the
mortgagor to deposit the amount. The mortgagor failed to do so but deposited the amount after
3 years and pleaded to the Court for a final decree. The mortgagor's plea was rejected by the
lower court but upheld by the High Court. The matter thereafter went to the Supreme Court.
The Supreme Court, while upholding the decision of the High Court, observed that irrespective
of the fact that the mortgagor had defaulted in making the payment, he could still exercise his
right of redemption as he had made the payment within the period of 30 years as prescribed
under the Limitation Act. Thus, in this case the Apex Court laid down an essential principle by
stating that the mortgagor could exercise his right of redemption by making the payment within
the Limitation period.

In the landmark judgment of Narayan Deorao Javle (Deceased) v. Krishna & Ors 11., the
Supreme Court of India held that “the right of redemption and the right of foreclosure are
coextensive, therefore, no sooner than a decree for foreclosure is passed, the right to redeem
extinguishes.”

9
KS Dhillon v Punjab Financial Corp, AIR 2012 P&H 75
10
Achaldas Durgaji Oswal v. Gangabisan Heda, Appeal (civil) 288 of 2003
11
Narayan Deorao Javle (Deceased) v. Krishna & Ors., Civil Appeal No. 4726 of 2021

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CONCLUSION
Thus, we see that the mortgagee has two rights in the event of non-payment of principal amount
of debt,

• He can recover the amount from the proceed of the sale of the mortgage property
• He can sue the mortgagor for the recovery of the money.

The right of foreclosure can be exercised only upon the failure of the mortgagor to repay the
principal amount. The mortgagee can absolutely bar the mortgagor from exercising his right of
redemption by obtaining a court decree. The right of foreclosure, however, is not applicable in
case of all the mortgages. In such mortgages where the mortgagee does not obtain the actual
possession of property, he cannot exercise the right of foreclosure. The right of foreclosure,
thus, cannot be exercised in the case of a simple mortgage, mortgage by transfer of sale deeds
and mortgage by conditional sale.

Another pertinent point is that the right of foreclosure is not an absolute right and is subject to
the terms of the mortgage deed. This right can be limited by the terms of the contract and
mutual consent of the parties. This is in contradiction to the right of redemption which cannot
be limited by any contract.

ARMY INSTITUTE OF LAW, MOHALI