Report No. 70
Accessions to Mortgaged Property
The obligation of the mortgagee in possession to deliver back possession of the mortgaged property raises certain questions of considerable theoretical and practical interest. What is to happen where a change in the character of the mortgaged property has taken place in the period during which it was in the mortgagee's possession? How far can this change in character affect or benefit the mortgagor?
The primary right of the mortgagor-one may assume-should be to claim the mortgaged property back exactly in the condition in which he delivered it, except for reasonable wear and tear and except for the effects of such acts as may be reasonably attributable to the fact that the property is delivered as a security for the loan.
But enunciation of this primary duty does not solve the problem that may arise in the numerous fact situations that one can conceive of by way of a physical change in the nature of the property. Where such a physical change has, in fact, taken place, the law must take a positive stand on the question-who will reap the benefit or suffer the loss consequent on the change in character? A change in character of the property may result-
(a) from action of natural forces (e.g., alluvion); or
(b) from an act of the mortgagee for which he ought to be held responsible; or
(c) from a human act for which the mortgagee ought not to be held responsible.
Again, the change may be beneficial to the property or it may cause injury to the property or deterioration in its value. These being the various permutations and combinations, the provisions intended to deal with them could, in theory, have been complex, elaborate and extensive. Actually, they are not so-presumably because every legislative measure is not necessarily framed on the lines of an academic treatise. The provisions on the point under consideration are, in the Act, scattered at several places.
61.2. Taking up the provisions such as they are, we come to section 63, which deals with "accessions" to mortgaged property-
"63. Where mortgaged property in possession of the mortgagee has, during the continuance of the mortgage, received any accession, the mortgagor, upon redemption, shall, in the absence of a contract to the contrary, be entitled as against the mortgagee to such accession.
Where such accession has been acquired at the expense of the mortgagee, and is capable of separate possession or enjoyment without detriment to the principal property, the mortgagor desiring to take the accession must pay to the mortgagee the expense of acquiring it. If such separate possession or enjoyment is not possible, the accession must be delivered with the property; the mortgagor being liable, in the case of an acquisition necessary to preserve the property from destruction, forfeiture or sale, or made with his assent, to pay the proper cost thereof, as an addition to the principal money, with interest at the same rate as is payable on the principal, or, where no such rate is fixed, at the rate of nine per cent. per annum.
In the case last mentioned the profits, if any, arising from the accession shall be credited to the mortgagor. Where the mortgage is usufructuary and the accession has been acquired at the expense of the mortgagee, the profits, if any, arising from the accession shall, in the absence of a contract to the contrary, be set off against interest, if any, payable on the money so expended."
Section 63 and section 70 are both based on the principle enunciated by the maxims accessio credit principal (the increase follows the principal) and accessorium non ducit sed secultur suum principale (that which is the accessory or incident does not lead but follows, its principal). This section provides that the mortgagor shall, upon redemption, be entitled to the accession received during the continuance of the mortgage, and section 70 provides that the mortgagee shall be entitled to such accession as part of his security. They merely enact the law as it was applied before the Act was passed.1
It is, however, necessary for the application of this section or of section 70, that the property or right claimed by the mortgagor under this section or by the mortgagee under section 70 should constitute an "accession". The word "accession" has not been defined in the Act. In the Roman law, "accessio" is the general name given to every accessory thing, whether corporeal or incorporeal, that has been added to principal thing from without, and has been connected with it, whether by the powers of nature or by the will of man, so that in virtue of this connection, it is regarded as part and parcel of the thing.2
1. (1874) 77 Born HCRAC 32 (33) (DB).
2. Mackeld Roman Law, 155 (156), cited in Broom A Selection of Legal Maxims, 10 Edn., (1939), p. 317.
Although the section does not make it a condition that the mortgage should have made the acquisition by availing himself of his position as such mortgagee, yet the judgment of the Privy Council in Sorabjee v. Dwarkadas, AIR 1932 PC 199, shows that the sections is only1 an application of the equitable principle enacted in section 30 of the Indian Trusts Act. That section is as follows:-
"30. Where a tenant for life, co-owner, mortgagee or other qualified owner of any property, by availing himself of his position as such, gains an advantage in derogation of the rights of the other persons interested in the property, or where any such owner, as representing all persons interested in such property gains any advantages, he must hold, for the benefit of all persons so interested, the advantage so gained, but subject to repayment by such persons of their due share of the expenses properly incurred, and to an indemnity by the same persons against liabilities properly contracted in gaining such advantage."
What amounts to an accession within section 63 is a question of a fact.2 Accession by alluvion is a natural accession by virtue of section 63, and can be redeemed by the mortgagor along with the other property without payment of any additional moneys. There may also be what are called incorporeal accessions, such as the acquisition of an interest in the property.3
Of course, every thing which is substituted in place of the old property would not be an accession. Re-building a fallen house is not, therefore, an accession4; nor is a substantial building re-erected in place of a pre-existing kuccha building.5 These propositions are of particular importance in India, since the technical English common law rules as to fixtures do not, in terms, apply in India.
Natural accessions do not present much difficulty in regard to the adjustment of the rival claims of the mortgagor, and the mortgagee, since no money would ordinarily have been spent thereupon and, in any case, they would not be capable of separate possession or enjoyment without detriment to the principal property. Where, however, money has been spent by the mortgagee, and the accession is capable of separate possession or enjoyment without such detriment as aforesaid, the question of adjustment of the rival claims naturally arises.
It is for this situation that the second and third paragraphs of the section make certain provisions. The last paragraph of the section deals with the special situation where, in a usufructuary mortgage, the accession has been acquired at the expense of the mortgagee, by providing that the profits shall be set off against the interest payable on the money so spent by the mortgagee.
1. Mulla, (1973), p. 454.
2. Sheo Pujan Prasad v. Bhagwati Dubey, AIR 1949 Pat 99.
3. Siddheshwar v. Rant Saroop, AIR 1963 Pat 412 (FB).
4. Kallu v. Ganesh, AIR 1929 All 340.
5. Cheddi Lal v. Babu Nandan, AIR 1944 All 204.
61.5. Contract Act.-
It may be noted1 that under the Contract Act, in the absence of any agreement to the contrary, the bailee of goods is bound to return to the bailor natural increases or profits accruing to the goods during the period of bailment. Section 163 of that Act reads-
"163. Bailor entitled to increase or profit from goods bailed.- In the absence of any contract to the contrary, the bailee is bound to deliver to the bailor, or according to his directions, any increase or profit which may have accrued from the goods bailed.
A leaves a cow in the custody of B to be taken care of. The cow has a calf. B is bound to deliver the calf as well as the cow to A."
1. Section 163, Contract Act.
61.6. Case law.-
In Motilal Hirabhai v. Bai Mani, AIR 1925 PC 86, the Privy Council held that where after shares, in a company, were pledged, the company issued fresh shares and allotted them to the old shareholders taking the call money from the yearly dividend payable on the old shares, on which they had resolved to pay a fixed interest of 6 per centum per annum, the new shares were "increase or profit" and the pledgee must return them to the pledgor along with the old shares.
These additional shares were, in the opinion of the Privy Council accessions to the shares expressly pledged or hypothecated, and the pledgor was entitled to recover them. The decision of this case is based upon section 163 of the Indian Contract Act; nonetheless, the principles underlying this decision apply to the present case also.
In the case of Shripad Laxman v. Kashibai, AIR 1945 Bom 248, it has been held that where a shop is mortgaged with the site on which it was standing and the shop is subsequently destroyed by fire and a new shop is constructed in its place, the new shop must be deemed to be an accession to the mortgaged property within the meaning of section 70.
Again, if a person mortgages his occupancy right in a holding and subsequently acquires the full right in the land, that is to say, becomes the absolute owner as a landlord, the mortgagee will be entitled to enforce the mortgage security against the enhanced right which the mortgagor happens to acquire subsequent to the mortgage, under section 70. In such cases, increase in the right must be regarded as accession to the security to which the mortgagee will be entitled.
61.7. Recommendation-Change in structure.-
While section 63 does not need any change of substances, its structure leaves some scope for improvement. The arrangement would, in our opinion, be improved if the various situations and sub-situations are dealt with distinctly. The structure of the section, on a proper analysis, could be represented as follows:-
(1) The first paragraph lays down the general proposition that the mortgagor is entitled to the accession in the absence of a contract to the contrary. This could be put as sub-section (1).
(2) Where such an accession has been acquired at the expense of the mortgagee, the second and third paragraphs govern the situation. There are two sub-situations:
(a) Where the accession is capable of separate possession or enjoyment without detriment to the principal property, the mortgagor desiring to take the accession must pay the expenses.
[This could be put as a separate sub-section].
(b) Where the accession is not capable of separate possession or enjoyment without detriment to the property, the accession must be delivered to the mortgagor subject to what is provided in (c) below.
(c) In the case put in (b) above, the mortgagor is liable, in the case of an accession which is necessary to preserve the property or which is made with the assent of the mortgagor, to pay the proper cost thereof as an addition to the principal money with interest, at the same rate as is payable on the principal, or, where no such rate is fixed, at the rate of nine per cent. per annum.
(d) In the case (c) above, the profits from the accession shall be credited to the mortgagor.
[Propositions (b), (c) and (d) above could be put into one sub-section].
(3) The last paragraph of the section makes a special provision for usufructuary mortgages. This could be put as the last sub-section.
61.8. Recommendation.- We recommend a restructuring of the section on the above lines.