Report No. 70
We have devoted some thought to the substance of the matter. Leaving aside the thorny question of the proper construction of the section, we are of the view that on principle it is desirable that before the power can be exercised, there must be satisfied two conditions, namely-Firstly, a safeguard in the form of notice, and secondly, that the minimum amount due (to be laid down in the section) is in arrears. If these two conditions are satisfied, then it should not matter whether the amount in arrears is under the head of principal or under the head of interest.1
We are aware that such an amendment will change the scheme of the section as it now stands, but that cannot be a factor detracting from the soundness of the amendment if it is otherwise justifiable. If the proposed amendments is regarded as imposing a stringent restriction on the right of sale, then we would, in reply, quote the view expressed in one of the English cases,2 to the effect that a power of sale in mortgage deed is nothing but an authority to defeat the equity of redemption. Much has been and can be said on both sides in regard to the recognition of such a power. But the fact that caution is required cannot be denied. The observations in an elaborate judgment of the Madras High Court are worth quoting:3
1. Use of the mortgage-money in the opening may require reconsideration.
2. Harwood (in re:), (1887) 35 Ch D 470.
3. A. Batcha Sahib v. Nariman K. Irani, AIR 1955 Mad 491 (493), para. 8 to 12 (Mack & Krishnaswamy Naidu, JJ.).
"(8) We have no hesitation in observing that section 69, T.P. Act is a drastic provision and places ' bona fide' mortgagors who have a real defence to any action on the mortgage, in a very disadvantageous and helpness position.
Section 69 empowers the mortgagees, in whom the power of sale without the intervention of the court is expressly conferred by the terms of the mortgage deed and where the properties are situated in certain important towns including the City of Madras, to sell after giving three months' time in writing and calling upon the mortgagors to pay the principal sum;
and when once the sale has been effected in exercise of such a power, section 69(3) provides that the title of the purchaser shall not be impeached 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, and the only remedy of a person who is damnified by an unauthorised or improper or irregular exercise of the power is to sue the mortgagee for damages.
While therefore in a suit for sale or foreclosure instituted on a mortgage, the defences open to the mortgagor can be raised and considered, no such opportunity is however available to the mortgagor, where the mortgagee purports to exercise the power of sale under section 69 without intervention of court.
Even bona fide and substantial defences open to the mortgagor as to any pre-maturity of the sale and as to the correctness of the amount claimed by the mortgagee in pursuance of which he purports to sell and such other defences, as would disentitle the mortgagee from recovering the mortgage amount, cannot prevent the sale being proceeded with, unless by an order of court in a suit instituted by the mortgagors. The present suits have therefore become necessary in order to prevent the mortgagees from seeking to sell the properties for the recovery of the amount which, according to the plaintiffs, "will not be the amount to which they will be legally liable.
(9) Further, if one examines the legal effect of such a sale, by reason of section 69(3), the title of the purchaser cannot be impeached. The grounds which are ordinarily available to a judgment debtor in a sale of mortgaged property in execution of a mortgage decree to have the sale set aside under the provisions of Order 21, C.P.C., will not be available, however much the sale is vitiated by any material irregularity in the conduct of the sale and even if the sale is for an amount which is not actually due. The mortgagor is really helpless and the properties, however valuable they may be, will be lost to him, his right against the mortgagee being only for recovery of damages.
While section 69, T.P. Act as is seen from its application being restricted to important towns, was enacted for the purpose of facilitating recovery of money advanced on immovable properties situated in towns of commercial importance and to encourage the growth of trade and commerce-the idea being to enable the lender to recover the amount speedily rather than by pursuing the ordinary remedy of instituting a mortgage suit and going through the formalities of a suit and execution proceedings-in actual practice, the benefit conferred by the section on the mortgagee to sell mortgaged properties without intervention of court has been more often misused to the detriment of the mortgagors, taking advantage of the immunity of the purchaser from his title being questioned, provided by the statute.
There is great scope afforded by the language of section 69(3) for mortgagees to circumvent the law and notwithstanding that they may not have a real right to recover the amount and may not succeed in getting a decree for the amount claimed by them in a suit on a mortgage, the properties might be sold, causing irreparable injury to the mortgagor, who is disentitled from recovering his properties, which sometimes are very valuable.
Once the sale is held, ordinarily it is not liable to be set aside except on the ground of fraud or that the sale was a benami transaction, the mortgagee himself being the purchaser. In view of the language of section 69(3), it is generally a herculean task for one to have a sale held under section 69 set aside and it is seldom that one succeeds in such a suit to set aside sale.
(10) Section 69, T.P. Act of 1882, was modelled on the English Conveyancing Act of 1881 (41 and 42 Vict., Ch. 41) and the English Property Act of 1925. Prior to the enactment of the Transfer of Property Act, 1882, the powers of a mortgagee to sell the properties mortgaged were dealt with under sections 6 to 9 Trustees' and Mortgagees' Powers Act (28 of 1866), which was modelled on Lord Cranworth's Act (23 and 24 Vict., C. 145).
It was found, as pointed out by Fisher on Mortgage, Para. 975, 6th Edn., that the purchaser's title was protected where no case had arisen to authorise the exercise of the power, and where no notice had been given and that Lord Cranworth's Act was silent as to improper exercise of the power after it had arisen, and which was irregular otherwise than by the absence of notice; nor did it protect the purchaser where he was aware of the absence of notice, or of other irregularities; and it gave the person damnified an express remedy in damages only where the exercise of the power was unauthorised, but none where, being authorised, it was improperly exercised either for want of notice or otherwise.
Section 8, Trustees' and Mortgagees' Powers Act, 28 of 1866, was in similar terms and the only "grounds on which the title of the purchaser could be impeached were that no case had arisen to authorise the exercise of such a power and that no notice had been given.
The additional protection given to the purchaser in respect of the non-impeachability of the sale was that even if the power was otherwise irregularly and improperly exercised, the right of the mortgagor, who had suffered by such unauthorised or improper or irregular exercise of the power, was only in damages and not to have the sale set aside. The defect pointed out by Fisher as existing in Lord Cranworth's Act was subsequently removed by Conveyancing Act of 1881 reproduced in the English Property Act of 1925.
(11) The anxiety of the Indian draftsmen in incorporating into section 69(3) the language of the provisions of the Conveyancing Act of 1881 and the English Property Act of 1925 was therefore to bring it in line with the law of England to protect the purchaser's right in respect of properties sold in pursuance of the power of sale conferred on the mortgagee. By virtue of section 69(1) the provisions of the Trustees' and Mortgagees' Powers Act of 1866, were no longer applied to mortgages and it is section 69, T.P. Act, as amended by Act 20 of 1929, that now governs the mortgages, where a power of sale without the intervention of court is conferred on the mortgagee.
In the statement of Objects and Reasons of the Amending Act of 1929 with particular reference to section 69, it is stated that it was the intention of the provisions of section 69 to bring it in accordance with the English Statute, viz the English Conveyancing Act and the English Property Act of 1925 as the procedure of the Indian Act 28 of 1886 based on the earlier Lord Cranworth's Act, which has been repealed could no longer exist and required to be revised.
The incorporation into the Indian statute of the provisions of the English enactment places the mortgagor in a mortgage, where a power of sale is conferred without the intervention of court, at a great disadvantage.
In view of the language of section 69(3), as it stands, no sale held in pursuance of the power of sale can be successfully challenged in a court of law, however much the mortgagor may have a just and real grievance as to the circumstances under which and the manner in which the sale is held, apart from the question as to whether any case had arisen for the sale at all. Except that it was thought necessary to bring section 69(3), T.P. Act in line with the English statutory provisions, there was no other ground shown for such wholesale incorporation of the provisions of the English statute in the Indian enactment.
But experience has shown that far from advancing the object with which section 69 was included in the Indian Act, which was mainly on grounds of commercial policy to facilitate lending and borrowing on security of immovable properties in towns of commercial importance and to make recovery of amounts advanced on security of immovable properties easier and quicker, the protection of section 69(3) has been working havoc to the great detriment of honest mortgagors.
(12) While the power of sale without the intervention of court may be supported and justified in the conditions prevailing in a commercially advanced country like England, where the machinery employed for selling the properties can be said to be perfect and reliable, its introduction in India, though it is confined to towns of commercial importance, with all the implications of the English statute, does not seem to be necessary or justified since, from the results of its working, it has been found that there is scope for its abuse resulting in great injustice to ' bona fide' mortgagors, who are likely to be deprived of their properties by an improper and irregular exercise of the power of sale.
Section 69(3) affords greater sanctity to a private sale than to a sale held by court in pursuance of the provisions of the Civil Procedure Code, where, after notice and settlement of sale proclamation, a sale is ordinarily held and such sale may be set aside for any material irregularity in the conduct of the sale.
However such a provision in a mortgage for a power of sale may be supported, it does not appear that such a power of sale requires to be conferred on the mortgagee enabling him to sell the property without the intervention of court, especially in the conditions prevailing in our country and taking into account the manner in which this power is liable to be misused.
A power of sale may no doubt be conferred not without the intervention of court, but without the necessity of instituting a mortgage suit and selling the property only after the final decree through the elaborate process provided in the Civil Procedure Code for sale of immovable property. A power of sale may be conferred in the mortgage-deed, but such a power of sale may be exercised without the necessity of the mortgagee instituting a suit for sale and obtaining a decree, and he may be direct to apply to the court to exercise the power of sale, asking the court to appoint a Commissioner to sell the property.
Such a provision might greatly help the furtherance of the object with which the provision came to be included in England and incorporated in Indian statute and at the same time protect the interests of the mortgagor, since the court, before appointing a commissioner, will have an opportunity to go into the question as to whether a case had arisen for the sale and since the sale would then be in the hands of the commissioner, an officer of Government, the property may be expeditiously sold without the elaborate procedure of setting a sale proclamation and other formalities required for sale under the Civil Procedure Code.
I consider that no power of sale without the intervention of court should be conferred on mortgagee and any sale of mortgaged property in order to ensure the interest of the parties must be through a civil court. In enacting the provision one of the objects must have been to enable the mortgagees to realise their monies without instituting a suit on the mortgage paying the necessary court-fee.
But in actual practice, this object of dispensing with the court-fee is rarely achieved, since a purchaser at a private sale has necessarily to seek the assistance of court to recover possession of the properties purchased and a suit for possession would be necessary for the purpose, with the consequential heavy court-fee to be paid, calculated on the market value of the property. Payment of court-fee therefore at some stage or other could not be avoided.
Further, the purchaser at such a sale is not likely to pay the full value of the property as he has to make provision for expenses of the litigation for recovery of possession, which invariably is inevitable, as no mortgagor in possession would ordinarily deliver possession to a purchaser at a sale held in pursuance of the power of sale under section 69.
(13) Section 69(3), which protects the purchaser at a private sale against all possible and reasonable objections as to the sale on grounds, which would otherwise entitle the mortgagor, if he were a judgment-debtor, to question the sale successfully if one is held in pursuance of a mortgage decree for sale, is a provision resulting in considerable injustice, which requires to be suitably amended so as to protect the interests of the power of the property as well. Section 69 therefore requires in the light of the experience of its working consideration by the legislature.
In any event, suitable and substantial amendments appear to be necessary by bringing the conduct of sale under supervision of courts, removing the restrictions imposed on the mortgagor from questioning the sale, and making provisions for the sale being questioned in appropriate cases on grounds similar to that provided in the Civil Procedure Code for setting aside a sale held through court, and such other amendments as may be necessary to avoid the abuse to which the provisions might furnish an easy handle.
(14) I have considered it necessary to deal with this aspect of the case at some length with a view to impress upon the courts the disastrous effects of allowing such a sale to be proceeded with, and the principles that should therefore guide a court in considering a relief for injunction, restraining the mortgagees from selling the properties without intervention of court."
We have given this lengthy extract to show that the section needs to be amended.
69.10. Redraft of section 69(2).-
A tentative re-draft of section 69, sub-section (2), is recommended below:-
"(2) No such power shall be exercised unless and until both the following conditions are satisfied, namely-
(a) an amount due under the mortgage, whether by way of principal or interest, amounting at least to five thousand rupees, is in arrear and unpaid after becoming due; and
(b) notice in writing requiring payment of the principal money or interest in arrear has been served on the mortgagor, or on one of several mortgagors, and default has been made in payment of the principal money or of interest or part thereof, for three months after such service".
69.11. Section 69(3).-
This brings us to sub-section (3). From the practical point of view, sub-section (3) is the most important part of the section. The subsection saves non-compliance with sub-section (2) in certain cases, so as to save the validity of the sale, but rights as between the mortgagor and the mortgagee are not affected. When a mortgagee desires to exercise his power of sale for recovery of the principal money, he cannot do so unless and until he complies with the provisions as to notice contained1 in the section. If, however, a sale is held without a notice, it will only afford a ground for damages, if any, to the mortgagor damnified by the sale.2 If there has been no fraud or collusion in the matter, the mortgagor has no cause for complaint.3
1. Kamalambal v. Purushottam, AIR 1934 Mad 644 (645) (DB).
2. Madras Deposit etc. Society v. Passanhaes, 1888 ILR 11 Mad 201 (203).
3. Nadar v. Indian Bank, AIR 1967 SC 1296 (1297): (1967) 2 SCR 613.
69.12. Effect of notice.-
What is the position if the purchaser had notice of impropriety or irregularity at the time of the sale? In Chabildas Laloobhai v. Dayal Mowaji, (1904) 6 Born LR 557 [affirmed in ILR 31 Born 566: 34 Ind App 179 (PC)]. it has been observed by Jenkins C.J. that the section permits a distinction between a purchaser with notice and a purchaser without notice of an irregularity and that though a sale may not be impeachable on the mere ground that the power was improperly exercised, this protection does not extend to a case when there is the additional ground that the purchaser had notice of the improper exercise of the power.
69.13. Section 69-Effect of sale.-
Finally, we may deal with the effect of a sale. In England,1 the effect of a sale under the provision corresponding to this section is to destroy the equity of redemption and convey the property to the purchaser free from all subsequent encumbrances. In India, the same principle was held applicable in cases before the Act. In Kishendatt Ram v. Mumtaz Ali Khan, 1880 ILR 5 Cal 198 (211) the Privy Council observed as follows:-
"The effect of sale under a power of a sale is to destroy the equity of redemption in the land, and to constitute the mortgagee exercising the power a trustee of the surplus proceeds, after satisfying his own charge, first for the subsequent incumbrancers, and ultimately "for the mortgagor. The estate if purchased by stranger, passes into his hands free from all incumbrances."
Even under the present section, the effect of a sale would be the same. The right to redeem does not come to an end when the mortgagee, having a power of sale under the mortgage-deed, enters into a contract of sale, in the purported exercise of that power. The right to redeem is not extinguished by such a contract; the right comes to an end only when the conveyance in pursuance of the contract is executed.2 The mortgagor can, therefore, redeem the mortgage at any time before the completion of the sale.
1. The Law of Property Act, 1925 (15 Geo V., Chapter 20), section 104(1);
Waring (Lord) v. London & Manchester Assurance Co. Ltd., (1935) 152 LT 390 (391): 1935 Ch 310: 104 LT Ch 201;
Belton v. Bass Ratchiffe and Greeton Ltd., (1922) 2 Ch 449 (463): 91 LJ Ch 216: 127 LT 357; Born v. Turner, (1900) 2 Ch 211 (215, 216): 48 WR (Eng) 697: 69 LJ Ch (Property passes to the purchaser with all its legal incidents).
2. Abrahan Ezra v. Abdul Latif, AIR 1944 Born 156 (158, 159).