Report No. 70

Chapter 66

Right to Foreclosure on Sale

Section 67

66.1. Introductory.-

Discussion of the rights and liabilities of the mortgagor commenced, it may be recalled, with the right of redemption (section 60). In symmetry with this, a discussion of the rights and liabilities of the mortgagee commences with the most important right-the right of foreclosure or sale. Redemption puts an end to the mortgage. Foreclosure or sale also puts an end to it, though in a different manner. This right is dealt with in section 67, which reads-

"67. In the absence of a contract to the contrary, the mortgagee has, at any time after the mortgage-money has become 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 a decree that the mortgagor shall be absolutely debarred of his right to redeem the property, or a decree that the property be sold. A suit to obtain 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 authorize 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 foreclosure, to institute a suit for foreclosure, or an usufructuary mortgagee as such or a mortgagee by conditional sale as such to institute a suit for sale; or

(b) to authorize 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 authorize 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 authorize 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."

66.2. Recommendation-Foreclosure to be abolished.-

With reference to this section, the most important question to be considered is whether the right of foreclosure should be retained at the present day. Although this right has been recognised for along time in India, we have to consider the question whether it is just and fair to allow it to continue. The recognition of a right of foreclosure appears to us to be hardly in conformity with the approach of the law in other respects towards a mortgage.

The doctrine evolved in the Court of Chancery-doctrines which have found expression in all the important sections of the Act dealing with mortgages-have all through placed emphasis on the fact that a mortgage remains, from the beginning to end, a security. And this is so-

(a) irrespective of the formula adopted in the particular mortgage, and

(b) regardless of whether the mortgage is between persons unequally situated, or is between parties who are both experienced in business affairs.

Without showing any unduly soft corner for the mortgagor, it is possible to do justice to both the parties by substituting sale for foreclosure. This, no doubt, is a modification of the rights flowing from a transaction into which both parties have entered of their own volition, but that may not be a conclusive argument in this particular field of law. If the mortgagee is given a right of sale through Court, the mortgagee will be able to realise his debt and at the same time the mortgagor will have satisfaction of realising the best possible price.

66.3. If this reasoning is accepted, section 67 could be suitably amended. A simple provision to the effect that in the case of a mortgage by conditional sale or an anomalous mortgage providing for foreclosure, the mortgagee may bring a suit for sale, could be substituted. After this substitution it will be possible to shorten the section considerably. And, of course,1 consequential changes will be required in the Code of Civil Procedure in the Order relating to mortgages.

1. Order 34, C.P.C. to be amended.

66.4. Recommendation for change in structure.-

Apart from this change of substance, we would also recommend a re-structuring of the section on the following lines in order to facilitate a better understanding:-

(a) The first sub-section should indicate separately that mortgagees have the right of sale. This will incorporate the present first paragraph and part of clause (a) of the last paragraph.

(b) The second paragraph should be omitted, since foreclosure is to be omitted.

(c) The third paragraph, clause (a) in part, clause (b) and clause (c) may be put in the next sub-section, with consequential changes, since foreclosure is to omitted.

(d) The third paragraph, clause (d) should appear as a separate sub-section, since it is an exception of a general character.

66.5. Redraft.-

In order to implement the changes which we have recommended-in substance and in the structure-we recommend the following redraft of the section:

"67. (1) In the absence of a contract to the contrary, the mortgagee has, at any time after the mortgage-money has become 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 a decree that the property be sold.

(2) Nothing in this section shall be deemed-

(a) to authorise a usufructuary mortgagee as such to institute a suit for sale; or

(b) 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 sale.

(3) Nothing in this section shall be deemed 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."