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Report No. 70

Chapter 72

Right to Reimbursement for Necessary Expenses

Section 72

72.1. Introductory.-

Dealing with the rights of the mortgagee to incur certain necessary expenditure, section 72 permits the mortgagee to spend money for necessary purposes and, in the absence of a contract to the contrary, to add such money to the principal money at the specified rate of interest. After the amendment of 1929, the section is not confined to a mortgagee in possession-though the marginal note still continues to refer to "Right of mortgagee in possession".1

The section reads as follows:

"72. A mortgagee may spend money as is necessary-

(b) for the preservation of the mortgaged property from destruction, forfeiture or sale;

(c) for supporting the mortgagor's title to the property;

(d) for making his own title thereto good against the mortgagor; and

(e) when the mortgaged property is renewable lease-hold, for the renewal of the lease; and may, in the absence of a contract to the contrary, add such money to the principal money at the rate of interest payable on the principal and where no such rate is fixed, at the rate of nine per cent. per annum:

Provided that the expenditure of money by the mortgagee under clause (b) or clause (c) shall not be deemed to be necessary unless the mortgagor has been called upon and has failed to take proper and timely steps to preserve the property or to support the title.

Where the property is by its nature insurable, the mortgagee may also, in the absence of a contract to the contrary, insure and keep insured against loss or damage by fire the whole or any part of such property; and the premiums paid for any such insurance shall be added to the principal money with interest at the same rate as is payable on the principal money or, where no such rate is fixed, at the rate of nine per cent. per annum. But the amount of such insurance shall not exceed the amount specified in this behalf in the mortgage-deed or if no such amount is therein specified, two-thirds of the amount that would be required in case of total destruction to reinstate the property insured.

Nothing in this section shall be deemed to authorise the mortgagee to insure when an insurance of the property is kept up by or on behalf of the mortgagor to the amount in which the mortgagee is hereby authorised to insure."

1. This may be attended to when reorinting the Act.

72.2. Genesis.-

Clauses (b) to (e) of section 72 are founded on the pre-existing law. The Bill referred to the earlier cases as their justifying authorities.1 The section therefore codifies the pre-existing rules.2

The penultimate paragraph3 as to insurance was originally taken from Lord Craneworth's Act.4

1. The reference as marginally noted in the Bill were-

Clause (a)-Macpherson's Mortgagees, 109, 113;

Ramji v. Chinto, 1 BHCR 199 (203);

Manchersha v. Kamrunisa, 5 BHCR (AC) 109;

Bagho v Anaji, 5 BHCR (AC) 116;

Clause (b)-Ameeroolah v. Ram Das, 1868 NWP HCR 187;

Clause (c)-Brojonath v. Bhugobutty, 1 WR 133;

Clause (d)-Nutiendra Chunder v. Kaminee, 11 MIA 241 (PC).

2. Girdhari Lal v. Bholanath, ILR 10 All 611 (614); Bohra Thakur Das v. Collector of Aligarh, ILR 26 All 593 (597).

3. (1860) 23 & 24 Vict., C. 145, section 11 (Powers of mortgagee) since replaced by 44 & 45 Vict., C. 41, sections 19(h), 23(1), (2)(iii), re-enacted as sections 107(2), 109(7), Law of Property Act, 1925.

4. Gour.

72.3. Not exhaustive.-

The provisions of section 72 are not exhaustive,1 for it is conceivable that instances may occur which, though not falling within its scope, may still call for the intervention of the Courts on the ground of justice, equity and good conscience; but such cases must in any case be regarded as exceptional.

1. Upendra Chandra v. Tara Prosanna, 1903 ILR 30 Cal 794 (800); Rakhohari v. Biprodas, 1904 ILR 31 Cal 975 (978).

72.4. Section 69, Contract Act.-

As will be seen later, there is a provision in section 69 of the Contract Act which would entitle the mortgagee to secure re-imbursement for some, if not all, of the expenses listed in section 72. In particular, the situation in section 72(b) is largely covered by section 69. In so far as the section secures the outlay in the same way as the mortgage money, section 72 goes a good deal further than section 69, Contract Act which confers on him a bare right to re-imbursement.

72.5. Rationale.-

The rationale of section 72 is sometimes said to be based on the fiction of an implied request by the mortgagor. There might be another rationale also, viz. the payments are in the nature of a salvage payments, and are, therefore, recoverable as part of the mortgage-money.1-3 (See the word "necessary").

1. Lachman Singh v. Saligram, ILR 8 All 384.

2. Kamaya v. Devappa, ILR 22 Born 440.

3. Upendra Chandra v. Tara Prosanna, ILR 30 Cal 794.

72.6. Section 72(b).-

To come now to the text of the section, we find a provision in clause (b) authorising the mortgagee to spend such money as is necessary for the preservation of the mortgaged property from "destruction, forfeiture or sale." These words also occur in section 63, second paragraph under which, where mortgaged property in possession of the mortgagee has, during the continuance of the mortgage, received any accession at the expense of the mortgage, and separate possession or enjoyment of the accession is not possible, then the accession must be delivered with the property.

But the mortgagor is liable, if the accession was necessary to guard the property from "destruction, forfeiture or sale," to pay the proper cost thereof. We are concerned this time with the meaning of the word "sale". It is stated1 that the word "sale" is to be construed ejusdem generis with destruction or forfeiture" and must therefore be a sale which threatens to extinguish the security, an equity of redemption, would not be within the section and the mortgagee could not recover the amount paid to save a sale, subsequent to the mortgage, in execution of a money decree, or sale for recovery for ceases for which the mortgage right could not be sold.

Ordinarily, a compulsory sale would be a sale of the equity of redemption, but circumstances may arise where the sale is of the entire ownership. This, would normally happen where the proceedings for sale are prior to the mortgage-as was the situation in a case which went up to the Privy Council.2

1. Mulla, (1973), p. 516.

2. Mahomed Rahimtulla v. Esmail Allarakhia, AIR 1924 PC 133.

72.7. Recommendation as to section 72(b)-word "sale".-

That the intervention by the mortgagee where only the equity of redemption is sold would be an officious intervention, seems to have been settled long before the Act.1 This was also laid down in a Kerala case.2 We think that it may be desirable to make it clear that the "sale" spoken of in the section must be a sale free from the particular mortgage on which the mortgagee bases his claim of reimbursement. We recommend accordingly.

1. Seetal v. Huzaree, (1845) Sadar Diwani Adalat North-Western Provinces 196; Gour (1973), Vol. 3, p. 2970, footnote 10.

2. George v. South Indian Bank Ltd., AIR 1959 Ker 294.

72.8. Clauses (c), (d) and (e) require no comments.

72.9. Insurance.-

As to the last two paragraphs relating to insurance, it is necessary to discuss one criticism made by Ghose. This is what he said:1

"I presume that the proportion of two-thirds has been fixed upon, because mortgagees seldom lend more than two-thirds of the value of the property which is given as security. But clause (f) of section 76 of the Act requires the mortgagee to apply any money which he may receive on a policy of insurance in reinstating the property, and if he fails to do so, he may be debited with such loss as may be sustained by the mortgagor.

But how the mortgagee can be expected to discharge his duty when he receives two-thirds only of the value of the property, is a puzzle for which I do not pretend to be able to give you any solution. The fact that a similar provision is found in the English Conveyancing Act from which this section has been borrowed, almost word for word, may explain the situation, but cannot help us in solving the difficulty."

This comment was repeated in later editions.2

1. Chose Law of Mortgage in India, (1902), p. 639.

2. Ghose Law of Mortgage in India, (5th Edn.) pp. 575-576, quoted in Mitra, (12th Edn.), p. 732.

72.10. Recommendation.-

We have given careful thought to the question, since the matter has been raised by such an eminent jurist. It appears to us, however, that if the matter is viewed in the proper light, there is no such difficulty as has been put forth by Chose. What the Act contemplates is that the money which is received actually by the mortgagee as insurance money shall be applied towards re-installing the property in so far as such money is sufficient for the purpose.

It is not the intention of the Legislature that the mortgagee should be out of pocket. If loss or damage by fire has occurred, then what he receives on account of insurance against such loss should not be spent for any other purpose. That is the principal object of the provision. Of course, opportunity could be taken of making this clear-and we do so recommend-by adding suitable words in section 76(f). But even without such an amendment, the true position is as we have stated above.

What section 76(f) requires the mortgagee to do is that, where he has insured the whole or any part of the property against loss or damage by fire, he must, in case of such loss or damage, apply any money which he 'actually receives under the policy'1 or so much as may be necessary, in reinstating the property. It is seen that the mortgagee is not required to spend in any case more than what he has received under the policy and there is, therefore, no question of the mortgagor claiming any further loss, beyond the amount of two-thirds of the value of the property. If the money is insufficient and the property has been destroyed, remedy is under section 68.

1. Emphasis added.

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