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KEY TAKEAWAYS

  • The Right of Redemption is envisaged under Article 60 of the Transfer of Property Act. Under this right, the mortgagor can redeem the mortgaged property after the payment of the amount due.
  • Where the mortgagor mortgages multiples properties with the same mortgagee, he may redeem them separately or collectively provided there is no contract to the contrary.
  • The right of redemption is subject to certain exceptions and it may be restricted by a Court order.

INTRODUCTION

Redemption is the right of the mortgagor to get back the mortgaged property after the payment of debt. The mortgaged property is kept secured so that it can be given back to the mortgagor once the debt is paid.

RIGHT OF THE MORTGAGOR

The mortgagor enjoys several rights under the Transfer of Property Act, 1882. The purpose of these rights is to prevent the exploitation of the borrowers. The mortgagor has the following rights:

  1. Right to redeem the property upon the discharge of debt (Section 60)
  2. The mortgagor can ask the mortgagee to transfer the property to a third party and not to re-transfer the property back to him (Section 60A)
  3. Mortgagor can ask the mortgagee to present the documents related to the mortgaged property and such documents can be inspected by the mortgagor (Section 60B)
  4. When the property received any accession while in the possession of the mortgagee, then the mortgagor shall be entitled to benefit from such accession upon the redemption of the property (Section 63)
  5. The mortgagor is also entitled to benefit from any improvements made to the mortgaged property while it was in the possession of the mortgagee (Section 63A)
  6. When the mortgagor mortgages a lease property and while the mortgaged property was in the possession of the mortgagee, the lease gets renewed then the mortgagor would be entitled to benefit from the renewed lease. (Section 64)
  7. The mortgagor, while in legal possession of the mortgaged property, can lease the property. (Section 65A)

SECTION 60 OF TRANSFER OF PROPERTY ACT

Section 60 of the Transfer of Property Act, 1882 provides the right of redemption to the mortgagor. This section provides that when the principal money becomes due, the mortgagor is vested with a right to require the mortgagee, once the payment of debt is made at a proper time, to transfer the possession of the mortgaged property back to him or to any third party as he may direct or to transfer the mortgage deed or other relevant documents to him. Thus, the mortgagor can redeem his property after discharge of debt and this right is known as the right of redemption of property.

From a simple reading of the section, following essentials of the right of redemption can be framed:

  1. The mortgage must be legally valid and enforceable
  2. The mortgagor can redeem the property by paying the debt but he can be barred from exercising this right by a Court of law.
  3. The mortgage money must be paid at the proper place and time either to the mortgagee himself or his agent.
  4. The mortgagor may file a suit for the enforcement of the right of redemption of mortgage.

In the English Case of Stanley v Wilde, mortgage was defined as transferring, as security for a loan, the immovable property interest to a third party.

Section 60 of the Transfer of Property Act, 1882 envisages two significant doctrines

  • Once a mortgage always a mortgage
  • Clog on right of redemption

ONCE A MORTGAGE ALWAYS A MORTGAGE

The right to redemption of mortgage cannot be restricted or ended as once a mortgage always remains a mortgage. In all mortgages, this right of redemption is inherently applied. In Noakes & Co Vs. Rice, the Court held that the mortgagee cannot make any such reservations which would restrict the mortgagor from exercising his right of redemption after paying the debt along with interest, if any. In Knocks vs Roulds, the Court held that once a mortgage will always remain a mortgage. In this case, there the premises and goodwill were mortgages and a contract limiting the right of redemption was entered into, the Court held such a contract will not imply that the mortgagor has waived his right of redemption.

CLOG ON REDEMPTION

Any provision in the contract which restricts the right of redemption after the payment of debt and interest by the mortgagor, is hit by the doctrine of clog on redemption and hence is void. This doctrine is also similar to the concept of once a mortgage always a mortgage.

In Stanley, the Court held that deeds containing any clog to the right of redemption would be void ab initio and thus, the doctrine of clog was laid down. This principle has been upheld by the Indian Courts as well.

The doctrine of clog on redemption is based on the concept that the mortgagee is at a dominant position and any clause restricting the mortgagor's right of redemption would be an abuse by the mortgagee and hence against the principle of justice, equity and good conscience.

In another landmark case of VadilalChhaganlal v. Gokaldas Mansukh, the Apex Court held that any conditions imposed on the mortgagor restricting or ending his right to redemption would be void.

WHEN RIGHT TO REDEMPTION IS LOST

Section 61(a) of the Limitation Act, 1963 provides that the right of redemption will cease after the expiry of a 30-year period from the accrual of the right.

The proviso to Section 60 provides that where the time fixed for repayment of principal amount has lapsed, this right cannot be exercised if a suit is filed before the Court of law and a decree is passed by the Court against the mortgagor.

Furthermore, where the mortgaged property is acquired by the state, then the right of redemption would cease.

In the case of Moro v. Balaji, it was held that where the mortgagee himself acquires a share of the mortgaged property, he would be entitled to keep such share and the mortgagor can redeem his share.

MULTIPLE MORTGAGES

Section 61 of the Transfer of Property Act, 1882 envisages a situation where the mortgagor mortgages several properties to the same mortgagee. In such a situation, when the principal amount becomes due, the mortgagor can either redeem the properties separately or jointly. However, there must not be a contract contrary to the mortgagor's choice. The mortgagor and the mortgagee, by mutual consent, may decide to consolidate the redemption right of all the mortgaged properties.

LANDMARK JUDGMENTS

The Supreme Court, in the landmark case of Prabhakaran and Ors Vs. M. Azhagiri Pillai (Dead) by Lrs. And Ors., held that where a usufructuary mortgage provides that the mortgagee can have the possession of the mortgagee property till the repayment of debt, then in such a case, the mortgagor can exercise his right of redemption by filing a suit within 30 years from mortgage date. Similarly, in the case of Bandhrau Ram (died) through his LR’s Vs Sukh Ram, the Court held that the interpretation that there is no time limit to the institution of suit in case of usufructuary mortgage is incorrect in law and the mortgagor can file a suit to exercise his right only within thirty years of the mortgage.

In the landmark case of Pomal Kanji Govindji&Ors vs Vrajlal Karsandas Purohit & Ors 1988 SCR Supl. (3) 826, the Supreme Court of India held that while the mortgage deed may provide for a long term for payment, such terms must be justifiable and a significantly long period would be considered a clog. The Court held that it would take into consideration factors such as inflation, real estate prices, interest rate (if any), the mortgagor's financial and economic standing, etc while arriving at the validity of the period of payment and the burden of proof is on the mortgagee to establish the validity of the period.

In the case of Seth Ganga Dhar v. Shankar Lal [AIR 1958 SC 770], the Court held that while the Court had the power of relieving the mortgagor from any such clause of the contract which restricts the exercise of his right of redemption, the Court must take into consideration the relevant facts and circumstances of that particular case to determine whether the mortgagor was coerced into entering into such agreement by taking advantage of his weaker bargaining position. In this case the property was mortgaged for a period of 85 years. The Court while deciding on the validity of this period observed that it did "not think that all the terms were for the benefit of the mortgagee, or that what there was in the instrument was for his benefit and indicated that the mortgagee had forced a hard bargain on the mortgagor. We have earlier said how the bargain appears to us to have been fair and one as between parties dealing with each other on equal footing".

Thus, where the Court finds the mortgagor and mortgagee to be on equal footing, the clause would be held to be valid. However, the Court held that a clause providing that the mortgagor must redeem the property within the 6 months of the expiry of the 85 years period was invalid.Only where the Court is satisfied that the mortgagor has been unfairly trapped by the mortgagee, the Court will step in and relieve the mortgagor from such unfair bargain.

In the landmark case of Bakhatawar Begum vs Hussaini Khanam, the Court held that the deed can be redeemed before the expiry of the time period stipulated in the contract by virtue of a court decree.

The Calcutta High Court in the case of Pranil Kumar Sett vs Kishorilal Bysack And Anr, had observed that while the Transfer of Property Act is a beneficial legislation and its purpose is "to provide safeguard measure against tremendously financial hardship of the loanee in certain cases, but this benefit cannot be extended to recalcitrant and dozing borrower".

RIGHT TO FORECLOSURE

The right of the mortgagee to obtain a decree of the Court barring the mortgagor from exercising his right of redemption is known as foreclosure. The right of foreclosure is provided to the mortgagee to enable him to recover the debt money. This right is envisaged under Section 67 of the Transfer of Property Act, 1882.

The right to foreclosure can be exercised by the mortgagee when the amount of debt has become due and has not been paid by the mortgagor and the agreement provides no fixed date for repayment. Further, the mortgagor must have not exercised his right of redemption.

Section 67 deals with the "Right to fore-closure or sale" and provides that the mortgagee has a right to obtain a decree, after the debt amount owed by mortgagor has become due and the mortgagor has not obtained a decree for exercising his right of redemption, for preventing the mortgagor from exercising the redemption right or to obtain a decree for the sale of the mortgaged property. The limitation for instituting a suit for exercising the right of foreclose is 12 years.

CONCLUSION

Hence, from the above discussion it is clear that the mortgagor's right to redemption of mortgage is an inherent right to all mortgages and the mortgagee cannot limit or end this right. Any clause which makes the mortgage property irredeemable after a certain period, would be in contravention to Section 60 of TPA. The right to redemption is an absolute right of the mortgagor which is coextensive with the mortgage.

The mortgagee can take possession of the mortgage property as the original owner after obtaining a decree of the Court to this effect. In the event of multiple mortgages to the same mortgagee, the mortgage may redeem the mortgaged property separately or collectively, provided that there is no contract to the contrary.

We see that the mortgagee too has been given the right to recover the amount rightfully due to him. He can exercise his right of fore-closure by virtue of Section 67. Thus, we see that the Transfer of Property Act is a beneficial legislation which seeks to strike a balance between the rights of the mortgagor and the mortgagee while noting the fact that in most situations it is the mortgagee who has a superior bargaining position.


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