Rights and Liabilities of Mortgagee

Synopsis

67. Right to foreclosure or sale

67-A. Mortgagee when bound to bring one suit on several mortgages

70. Accession to mortgaged property

74. Right of subsequent mortgagee to pay off prior mortgagee. 

73. Right to proceeds of revenue sale or compensation on acquisition.

CASE LAWS

(1993SCMR92)(2004 MLD472)

LD1995 SC410

IN anomalous mortgage suit for foreclosure may le if granted under contract of mortgage,(AIR1936 Pat.211(222)

Meaning of foreclosure

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.

Case Laws.

Right of foreclosure can only arise when money becomes due.AIR 1961 Andh pra 175 (Pr 4)

The only remedy of mortgagee by conditional sale is to institute suit for foreclosure. (AIR 1942.Nag 88)

RELEVANT PROVISIONS

67. Right to foreclosure or sale. In the absence of a contract to contrary, the mortgagee ha
s 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 foreclose, to institute a suit for foreclosure, or an usufructuary mortgagee as such or mortgagee by conditional sale as such, to institute a suit for sale ; or (b) to authorize a mortgagor who holds the mortgagee's right 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.

[67-A. Mortgagee when bound to bring one suit on several mortgages. A mortgagee who holds two or more mortgages executed by the same mortgagor in respect of each of which he had a right to obtain the same kind of decree under section 67, and who sues to obtain such decree on anyone of the mortgages, shall, in the absence of a contract to the contrary, be bound to sue on all the mortgages in respect of which the mortgage-money has become due. 68. Right to sue for mortgage-money. (1) The mortgagee has a right to sue for the mortgage-money in the following cases and no others, namely:- (a) where the mortgagor binds himself to repay the same; (b) where by any cause other than the wrongful act or default of the mortgagor or mortgagee, the mortgaged property is wholly or partially destroyed or the security is rendered insufficient within the meaning of section 66, and the mortgagee has given the mortgagor a reasonable opportunity of providing further security enough to render the whole security sufficient, and the mortgagor has failed to do so; (c) where the mortgagee is deprived of the whole or part of his security by or in consequence of the wrongful act or default of the mortgagor; (d) where the mortgagee being entitled to possession of the mortgaged property, the mortgagor fails to deliver the same to him, or to secure the possession thereof to him without disturbance by the mortgagor or any person claiming under a title superior to that of the mortgagor: Provided that, in the case referred to in the clause (a), transferee from the mortgagor or from his legal representative shall not be liable to be sued for the mortgage-money. (2) Where a suit is brought under clause (a) or clause (b) of subsection (1), the Court may, at its discretion, stay the suit and all proceedings therein, notwithstanding any contract to the contrary, until the mortgagee has exhausted all his available remedies against the mortgaged property or what remains of it, unless the mortgagee abandons his security and, if necessary, re-transfers the mortgaged property. 69. Power of sale valid. (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, [Muslim] or Buddhist [or a member of any other race, sect, tribe or class from time to time specified in this behalf by '[the Provincial 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] [or a Scheduled Bank as defined in section 2 of the State Bank of Pakistan Act, 1956 (XXIII of 1956) ; (c) where a [power of sale without the intervention of the Court is expressly conferred on the mortgagee by the mortgagedeed and] the mortgaged property or any part thereof [was, on the date of the execution of the mortgage-deed], situate within the [town of] Karachi, or in any other town [or area] which the [Provincial Government] may, by notification in the [official Gazette], specify in this behalf. (2) [A power under sub-section (1) shall not be exerciser unless and until:. (a) notice in writing requiring payment of the principal money 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 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 . Provided that the power of a Scheduled Bank under clause (b) of sub-section (1) shall further be subject to such conditions as may be prescribed in this behalf by notification in the official Gazette by the [Federal Government] in consultation with the State Bank of Pakistan. (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 incumbrances, 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 incumbrance, 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 mortgagemoney 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 authorized to give receipts for the proceeds of the sale thereof. 69-A. Appointment of receiver. (1) A mortgagee having the right to exercise a power of sale under section 69 shall, subject, to the provisions of sub-section (2), be entitled to appoint, by writing signed by him or on his behalf, a receiver of the income of the mortgaged property or any part thereof. (2) Any person who has been named in the mortgage-deed and is willing and able to act as receiver may be appointed by the mortgagee. If no person has been so named, or if all persons named are unable or unwilling to act, or are dead, the mortgagee may appoint any person to whose appointment the mortgagor agrees; failing such agreement, the mortgagee shall be entitled to apply to the Court for the appointment of a receiver, and any person appointed by the Court shall be deemed to have been duly appointed by the mortgagee. A receiver may at any time be removed by writing signed by or on behalf of the mortgagee and the mortgagor, or by the Court on application made by either party and on due cause shown. A vacancy In the office of receiver may be filled .in accordance with the provisions of this sub-section. (3) A receiver appointed under the powers conferred by this section shall be deemed to be the agent of the mortgagor; and the mortgagor shall be solely responsible for the receiver's acts or defaults, unless the mortgage-deed otherwise provides or unless such acts or defaults are due to the improper intervention of the mortgagee. (4) The receiver shall-have power to demand and recover all the income of which he is appointed receiver, by suit, execution or otherwise, in the name either of the mortgagor or of the mortgagee to the full extent of the interest which the mortgagor could dispose of, and give valid receipts accordingly for the same, and to exercise any powers which may have been delegated to him by the mortgagee in accordance with the provisions of this section. (5) A person paying money to the receiver shall not be concerned to inquire if the appointment of the receiver was valid or not. (6) The receiver shall be entitled to retain out of any money received by him for his remuneration, and in satisfaction of all costs, charges, and expenses incurred by him as receiver, a commission at such rate not exceeding five per cent on the gross amount of all money received as is specified in his appointment, and, if no rate is so specified then at the rate of five per cent on that gross amount, or at such other rate as the Court thinks fit to allow, on application made by him for the purpose. (7) The receiver shall, if so directed in writing by the mortgagee, insure to the extent, if any, to which the mortgagee might have insured, and keep insured against loss or damage by fire, out of the money received by him, the mortgaged property or any part thereof being of an insurable nature. (8) Subject to the provisions of this Act as to the application of insurance money, the receiver shall apply all money received by him as follows, namely:- (i) in discharge of all rents, taxes, land revenue, rates and outgoings whatever affecting the mortgaged property; (ii) in keeping down all annual sums or other payments, and the interest on all principal sums, having priority to the mortgage in right whereof he is receiver ; (iii) in payment of his commission, and of the premiums on fire, life or other insurances, if any, properly payable under the mortgage-deed or under this Act, and the cost of executing necessary or proper repairs directed in writing by the mortgagee ; (iv) in payment of the interest falling due under the mortgage; (v) in or towards discharge of the principal money, if so directed in writing by the mortgagee ; and shall pay the residue, if any, of the money received by him to the person who, but for the possession of the receiver, would have been entitled to receive the income of which he is appointed receiver, or who is otherwise entitled to the mortgaged property. (9) The provisions of sub-section (1) apply only if and as far as contrary intention is not expressed in the mortgage-deed; and the provisions of sub-sections (3) to (8) inclusive may be varied or extended by the mortgage-deed, and, as so varied or extended, shall, as far as may be, operate in like manner and with all the like incidents, effects and consequences, as if such variations or extensions were contained in the said sub-sections. (10) Application may be made, without the institution of a suit, to the Court for its opinion, advice or direction on any present question respecting the management or administration of the mortgaged property, other than questions of difficulty or importance not proper in the opinion of the Court for summary disposal. A copy of such application shall be served upon, and the hearing the

reof may be attended by, such of the persons interested in the application as the Court may think fit. The costs of every application under this sub-section shall be in the discretion of the Court. (11) In this section, 'the Court' means the Court which would have jurisdiction in a suit to enforce the mortgage.

70. Accession to mortgaged property. If after the date of a mortgage, any accession is made to the mortgaged property, the mortgagee, in the absence of a contract to the contrary, shall, for the purposes of the security, be entitled to such accession.

Illustrations (a) A mortgages to B a certain field bordering on a river. The field is increased by alluvion. For the purposes of his security, B is entitled to the increase. (b) A mortgages a certain plot of building land to B and afterwards erects a house on the plot. For the purposes of this security B is entitled to the house as well as the plot. 71. Renewal of mortgaged lease. When the mortgaged property is a lease and the mortgagor obtains a renewal of the lease, the mortgagee in the absence of a contract to the contrary, shall, for the purposes of the security, be entitled to the new lease. 72. Rights of mortgagee in possession. [A mortgagee] may spend such money as is necessary :-- (a) Omitted (b) for the preservation of the mortgaged property] from destruction, forfeiture or sale ; (c) for supporting the mortgagor's title to property; (d) for making his own title thereto good against the mortgagor; and (e) when the mortgaged property is a 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 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]. When 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 padded 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 authorize 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 authorized to insure.

[73. Right to proceeds of revenue sale or compensation on acquisition. (1) Where the mortgaged property or any part thereof or any interest therein is sold owing to failure to pay arrears of revenue or other charges of a public nature or rent due in respect of such property, and such failure did not arise from any default of the mortgagee, the mortgagee shall be entitled to claim payment of the mortgage-money in whole or in part, out of any surplus of the sale-proceeds remaining after payment of the arrears and of all charges and deductions directed by law. (2) Where the mortgaged property or any part thereof or any interest therein is acquired under the Land Acquisition Act, 1894 (I of 1894), or any other enactment for the time being in force providing for the compulsory acquisition of immovable property, the mortgagee shall be entitled to claim payment of the mortgage-money, in whole or in part, out of the amount due to the mortgagor as compensation. (3) Such claims shall prevail against all other claims except those of prior encumbrances, and may be enforced notwithstanding that the principal money on the mortgage has not become due].

74. Right of subsequent mortgagee to pay off prior mortgagee. [Repealed by the Transfer of Property Amendment Act, 1929 (XX of 1929), S. 39]. 75. Rights of mesne mortgagee against prior and subsequent mortgagees. [Repealed by the Transfer of Property {Amendment) Act, 1929 (XX of 1929), S. 39. 76. Liabilities of mortgagee in possession. When, during the continuance of the mortgage, the mortgagee takes possession of the mortgaged property :- (a) he must manage the property as a person of ordinary prudence would manage it if it were his own ; (b) he must use his best endeavours to collect the rents and profits thereof ; (c) he must, in the absence of a contract to the contrary out of the income of the property, pay the Government revenue, all other charges of a public nature '[and all rent accruing due in respect thereof during such possession, and any arrears of rent in default of payment of which the property may be summarily sold ; (d) he must, in the absence of a contract to the contrary, make such necessary repairs of the property as he can pay for out of the rents and profits thereof after deducting from such rents and profits the payments mentioned in clause (c) and the interest on the principal money ; (e) he must not commit any act which is destructive or permanently injurious to the property ; (f) 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 or so much thereof as may be necessary, in reinstating the property, or, if the mortgagor so directs in reduction or discharge of the mortgage-money ; (g) he must keep clear, full and accurate accounts of all sums received and spent by him as mortgagee, and, at any time during the continuance of the mortgage, give the mortgagor, at his request and cost, true copies of such accounts and of the vouchers by which they are supported; (h) his receipts from the mortgaged property, or, where such property is personally occupied by him, a fair occupationrent in respect thereof, shall, after deducting the expenses [properly incurred for the management of the property and the collection of rents and profits and the other expenses] mentioned in clauses (c) and (d); and interest thereon be debited against him in reduction of the amount (if any) from time to time due to him on account of interest and so far as such receipts exceed any interest due, in reduction or discharge of the mortgage-money; the surplus, if any, shall be paid to the mortgagor ; (i) when the mortgagor tenders, or deposits in manner hereinafter provided, the amount for the time being due on the mortgage, the mortgagee must, notwithstanding the provisions in the other clauses of this section, account for his receipts from the mortgaged property from the date of the tender or from the earliest time when he could take such amount out of Court, as the case may be [and shall not be entitled to deduct any amount therefrom on account of any expenses incurred after such date or time in connection with the mortgaged property]. Loss occasioned by his default.