Report No. 70
Power of Sale without Intervention of Court
The remedies of the mortgagee with which we have so far been concerned contemplate the institution of judicial proceedings. But the Act also recognises, in certain special situations, a remedy without the intervention of the Court-power of sale. This is contained in section 69. The section reads-
"69.(1) A mortgagee, or any person acting on his behalf shall, subject to the provisions of this section, have power to sell or concur in selling the mortgaged property, or any part thereof, in default of payment of the mortgage-money, without the intervention of the Court, in the following cases and in no others, namely-
(a) Where the mortgage is an English mortgage, and neither the mortgagor nor the mortgagee is a Hindu, Muhammadan or a Buddhist or 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;
(b) where a power of sale without the intervention of the Court is expressly conferred on the mortgagee by the mortgage-deed, and the mortgagee is the Government;
(c) where a power of sale without the intervention of the Court is expressly conferred on the mortgagee by the mortgage-deed, and the mortgaged property or any part thereof was, on the date of the execution of the mortgage-deed, 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.
(2) No such power shall be exercised unless and until-
(a) notice in writing requiring payment of the principal money has been served on the mortgagor, or on one of the several mortgagors, and default has been made in payment of the principal money, or of part thereof, for three months after such service; or
(b) some interest under the mortgage amounting at least to five hundred rupees is in arrear and unpaid for three months after becoming due.
(3) When a sale has been made in professed exercise of such a power, the title of the purchaser shall not be impeachable on the ground that no case had arisen to authorise the sale, or that due notice was not given, or that the power was otherwise improperly or irregularly exercised; but any person damnified by an unauthorised, or improper, or irregular exercise of the power shall have his remedy in damages against the person exercising the power.
(4) The money which is received by the mortgagee arising from the sale, after discharge of prior encumbrances, if any, to which the sale is not made subject, or after payment into Court under section 57 of a sum to meet any prior encumbrance, shall, in the absence of a contract to the contrary, be held by him in trust to be applied by him, first, in payment of all costs, charges and expenses properly incurred by him as incident to the sale or any attempted sale; and, secondly, in discharge of the mortgage-money and costs and other money, if any, due under the mortgage; and the residue of the money so received shall be paid to the person entitled to the mortgaged property, or authorised to give receipts for the proceeds of the sale thereof.
(5) Nothing in this section or in section 69 A applies to powers conferred before the first day of July, 1882.".
The power of sale of the mortgagee without the interference of the court was long recognised in the English law.1-2 In India, such a power was recognised in large towns-for example, in the island of Bombay3-4, and in the town of Karachi.5
In the mofussil, the parties were governed by the local Regulations.6 These Regulations did not recognise such a power but they did not prohibit sale either. In the Presidency of Bombay, the courts were inclined to recognise the power provided the parties intended to be governed by the English law.7 To some extent, the power of extra-judicial sale given in section 69 owes its origin to this position which prevailed before the passing of the Act.
1. Kershaw v. Kollon, (1885) 4 WR (Eng) Col. Digest 74.
2. Cockell v. Bacon, (1852) 51 Eng Reports 737 (738).
3. ILR 2 Born 1.
4. ILR 2 Born 252.
5. (1908) 2 Sind LR 90 (92).
6. Bombay Regulation 5 of 1872; Bengal Regulation 17 of 1806.
7. Pitambar v. Vanmali, 1875 ILR 2 Born 1 (8) (Mortgage in the ordinary English form).
69.2A. General power of sale.-
It is to be noted that though a simple mortgagee has always a power of sale,1 that power does not extend to bringing the property to sale without intervention of courts.2 It is section 69 which confers such a power. The words "no others" in section 69 show that the section is exhaustive. The limited scope of the section are rise to an attack on its constitutional validity with reference to Article 14 and Article 19(1)(f) of the Constitution before the Madras High Court, but the challenge did not succeed.3
1. Section 58(b).
2. Kishan 1.111 v. Ganga Ram, 1890 ILR 13 All 28 (48) (Mahmood, J.).
3. Narasimhachar v. E.B.S. 3rd Branch, AIR 1955 Mad 138 (139, 140).
69.3. Analysis of the clauses.-
We may point out that the power under the section is based partly on contract and partly on other considerations. Clause (a) of sub-section (1)-though limited in its scape-operates irrespective of contract. Clauses (b) and (c) require a consensual element, though that by itself is not sufficient.
The rationale underlying clause (a) is that either the parties were, historically speaking, governed by the English common law which recognised such a power, on that in their case it would not be against justice, equity and good conscience to recognise such a power. The rationale underlying clause (c) is that the persons residing in the notified cities have voluntarily chosen a remedy allowed in English common law.
Having regard to the fact that in the Presidency towns and other noticed places competent legal advice from persons familiar with English conveyancing practice would be available, and also having regard to the fact that the parties, would, in general, be able to afford such advice, it would not be against justice, equity and good conscience to recognise such a power.
Of course, these assumptions may or may not necessarily be true at the present day in all their amplitude, but they seem to underlie the special provision in clauses (a) and (c). Incidentally, in part, these clauses have their genesis in the Trustees' and Mortgagees' Power Act, 1866 (now repealed), but we need not go into details of that Act.
Clause (b) of sub-section (1) represents a special case. The power is expressly conferred by the mortgage and the mortgagee is the Government. Public interest in the speedy realisation of public dues is one important consideration that justifies this provision-of course, where the contract confers the necessary power. It may also be added that when the power is vested in the Government, the Government would act in a just and fair manner. Not only may it be expected to comply with the letter of the law-i.e., the strict formalities prescribed by the rest of the section- but also it can be trusted to resort to this power only when absolutely necessary.
69.4. Section 69(2).-
So much as regards sub-section (1). Sub-section (2) places two restrictions on the exercise of the power. The prescribed notice must be under clause (a). Under clause (b), some interest under the mortgage amounting at least to five hundred rupees must be in arrears and unpaid for three months after becoming due. Whether these restrictions are cumulative or alternative, will be considered later. As to the requirement of notice, the important points that arise in practice relate to the effect of absence of, or defeat in, notice.
This can be more conveniently dealt with under sub-section (3). As to the amount mentioned in sub-section (2), clause (b), we are of the view and we recommend, that "five hundred rupees" should now be raised to "five thousand rupees", having regard to the present purchasing power of the rupee as contrasted with what it was in 1882. We hope that this amendment will receive acceptance without much difficulty, for the reason given above.
69.5. History of differences.-
In one of the well-known works on these mortgages in India,1 it has been pointed out that the section was drafted after considerable debate and differences of opinion. The following history is given:
"In the Bill, as introduced, powers of sale were (subject to certain provisions for the protection of the mortgagor), declared valid in all cases. The Select Committee, to whom the Bill was first referred, disapproved of this provision and hence the Bill declared2 that such powers were invalid, except where the mortgagee was the Government or the property was situate in the Presidency towns or Rangoon.
The Law Commissioners of 1879 modified this section by allowing3 powers of sale in all cases where the principal money originally secured was Rs. 500 upwards. Lastly, the Select Committee at first adopted the section as modified by the Law Commissioners, but finally changed their minds,4 and having formed the opinion that there were certain parts of the country in which the power was liable to be abused, re-drafted the section in its present shape."
It is to be noted that the power of sale is of an exceptional character.5 Gour6 has pointed out that the Code Napoleon absolutely prohibits the power of sale without recourse to court, and declares it to be null and void. This rule has been adopted by most of the continental systems.7
1. Macpherson on Mortgage, 7th Edn., p. 672, cited by Gour.
2. See Bill No. II, section 39.
3. See Bill No. IV, section 69.
4. See their final Report, dated 24th January, 1882, para. 4.
5. Gour Transfer of Property Act, Commentary on section 69.
6. Articles 2078, 2090, Code Napoleon.
7. Story Bailments, section 309.
69.6. Section 69(1)(a).-
With reference to section 69(1)(a), it is to be pointed out that the exclusion of Hindus and other communities has no relevance where the parties are limited companies. Not only has the Privy Council held, as a matter of principle, that limited companies do not need the special protection that is needed by others who do not execute mortgages in English form1 but also it has been specifically held that clause (a) does not apply to limited companies mortgaging their assets to trustees of debenture-holder2.
1. Kanhaya Lal v. National Bank of India Ltd., AIR 1923 PC 114
2. L.B. Apte v. R.G.N. Trusts Official Liquidator, AIR 1962 AP 274 (297, 298).
69.7. Section 69(2)-Defect in.-
It would appear that there is some defect in the drafting of sub-section (2), inasmuch as the sub-section which contains two clauses or conditions, does not state clearly that the two conditions must be both satisfied. In fact, the use of the conjunction "or" at the end of clause (a) naturally gives support to the view that it is enough if either of the two conditions is satisfied. Such a view, in fact, has been taken by the Madras High Court,1 which has held that if interest amounting to Rs. 500 is in arrears and unpaid for three months, then the mortgagee can exercise the power of sale without notice to the mortgagor.
Another consequence of the present wording of the section is that it has been held2 that the power of sale under clause (b) can be exercised even if there is no default in paying off the principal money. This view, in the view of one commentator, is not correct, since the power of sale arises only in the default of payment of mortgage money under section 69. But the matter is not so simple, since "mortgage money" is a wide expression.
1. P.H.J.S. Nidhi v. Kuddus Sahib, AIR 1926 Mad 841.
2. Firm of A.C. Kundu v. Rookanand, 11 Burma Law Times 147: 43 IC 921, cited by Mitra Transfer of Property Act, (1971), p. 696, para. 429.
69.8. On the first point, there is certainly scope for a re-consideration of the substance of the section. One consequence of- the section as it now stands, is that because of the word 'or', where the arrears of the interest mount to a specified sum, the power of sale can be exercised without the necessity of giving any notice. In the Madras case,1 Kumaraswamy J. observed that it was unnecessary to decide the question, but Krishnan J. observed that in cases falling under section 69, if interest amounting to Rs. 500 is in arrears for three months, the power of sale can be exercised without notice.
It is also the view taken in Mysore2 that the two clauses are alternative. In England also, the statutory provision3 is couched in the alternative. The Madras construction may be correct on the present wording. But if the matter were to be examined on principle, we do not think that such a position is really a just one. The power of sale without intervention of the court is, at least in Indian conditions, somewhat extraordinary and it will be conducive to justice if the scheme is altered in this regard.
Opportunity should also be taken of providing that the mortgage money or some part thereof (this is meant for instalments) should have become due and should have been in arrears. Although this point can be said to be fairly implicit in the present scheme, it is better to make it clear. A better course would be to impose a restriction as to the minimum amount to become due before sale can be held.
1. P.H.J.S. Nidhi v. Khuddus Sahib, AIR 1926 Mad 841 (844, 847).
2. (1968) 1 Mys LJ 69 (80).
3. Section 103, Law of Property Act, 1925.