REDEMPTION AND FORECLOSURE

SUBMITTED BY
NARGEES BASHEER
1368
IV SEMESTER
B.A. L.L.B. (Hons.)
NUALS
 ACKNOWLEDGEMENT

I am deeply indebted to many to have been able to complete this project. I am thankful to
Dr. Liji Samuel for her guidance. A word of thanks to the librarian and NUALS library for
providing me with all necessary resources. I am grateful to my family and friends for their
constant support.
 INTRODUCTION
The history of transfer of property dates back to time immemorial. Property has had varying
importance in personal as well as social life of a human. The laws shaping the norms of dealings
of property were predominantly customary. However, with codification attaining importance,
the law of Transfer of Property has also been put into paper.

The types of transfers define the type of rights and remedies one is entitled to. Mortgage has
been a prominent kind of transfer throughout history and the rights and remedies available to
the mortgagor and mortgagee form a substantial part of the law relating to mortgage. It is
important to understand and analyse the varying positions of the mortgagor and mortgagee with
respect to each other and entitlement to the property.

This project aims to explain the right to redemption and foreclosure and the evolution of th
concepts. It further aims to study the complexities that arise in the claims to redemption and
foreclosure.
The concepts of redemption and foreclosure lie as the heart and soul of the law relating to
mortgage. Mortgage is a document in which the owner pledges his/her/its title to real property
to a lender as security for a loan described in a promissory note. A mortgage is a transfer of an
interest in some immovable property, as a security for advancement of some loan. A person
who places security in order to take the loan is called as mortgagor and person who advances
the money is known as mortgagee. The relationship between the mortgagor and mortgagee is
similar to that of a creditor and debtor. The law on mortgage in India is governed by Transfer
of Property Act, 1882. ‘Mortgage’ is an old English term derived from two French words
"mort" and "gage" which means "dead pledge."
It is important to understand briefly the concept of mortgage and what the Transfer of Property
Act, 1882 lays down about mortgaging to discuss the concepts of redemption and foreclosure.
Section 58 (a) of The Transfer Of Property Act defines the term ‘mortgage’ as under:
“A mortgage is the transfer of an interest in specific immovable property for the purpose of
securing the payment of money advanced i.e., the mortgagee, gets only some rights depending
upon the form or to be advanced by way of loan, an existing or future debt, or the performance
of an engagement which may give rise to a pecuniary liability.” There is only a partial transfer
of rights in mortgage.
Sir Edward Coke explains the concept of mortgage. He says that it deals with the doubtfulness
as to whether the mortgagor will pay the debt. When there exists such a doubt, there arises the
necessity to place a condition. This condition lays the foundation for the concept of mortgage.
If the mortgagor does not pay the debt, it is dead to him upon condition. If he does pay the debt,
the pledge or mortgage is dead to the mortgagee. Hence, the term “dead pledge” acquires
meaning.

The Transfer of Property Act divides mortgages into six groups, viz., simple mortgage,
mortgage by conditional sale, usufructuary mortgage, English mortgage, equitable mortgage
(mortgage by deposit of title deeds) and anomalous mortgage.

In Simple mortgage, the mortgagor does not deliver possession of the mortgaged property but
undertakes to personally bind himself to pay the mortgage money. In the absence of payment,
the mortgagee is entitled to proceeds of sale of the property to the extent of the loan advanced.
The mortgagee is a simple mortgagee.
In case of Mortgage by Conditional Sale, the mortgagor sells the property to the mortgagee on
the condition that upon default of payment of mortgage money, the sale shall become absolute.
However, if the mortgagor pays the money, the sale becomes void or the buyer shall have to
transfer the property to the seller. This mode of mortgage is recognisable only if the document
that gives effect to the sale, embodies so.

An Usufructuary Mortgage is one whereby the mortgagor transfers the property to the
mortgagee to collect income such as rent or profits accruing from the property to settle the
mortgage money. The mortgagee is an usurfructuary mortgagee. The title deed remains with
the mortgagor.

In English Mortgage, the mortgagor binds himself to pay the mortgage money on a certain date
and transfers the property absolutely to the mortgagee. However, it is subject to the condition
that upon repayment of the mortgage money as agreed, the property be transferred back to the
mortgagor.

In Equitable Mortgage or Mortgage by deposit of Title Deeds the mortgagor delivers to the
mortgagee documents of title to immovable property with the intention of creating a security.
This type of mortgage is valid in the towns of Calcutta, Madras and Bombay and any other
town, which the State Gvernments may, from time to time, notify.

Anomalous Mortgage is a combination of different types of mortgages. It does not fall under
the categories of other mortgages aforementioned.

Once we have understood the types of mortgages, we may look into the rights and duties of the
mortgagor and mortgagee.

RIGHTS AND DUTIES OF MORTGAGOR

The most important right of the mortgagor is the right to redeem the mortgage. According to
S.60 of the Transfer of Property Act, after the mortgage money becomes payable, the
mortgagor has a right, upon payment, at a proper place and proper time, of the mortgage money,
to require the mortgagee;
 (a) to deliver to the mortgagor the mortgage deed and all documents relating to the
mortgaged property which are in the possession or power of the mortgagee;

(b) where the mortgagee is in possession of the mortgaged property, to deliver possession
thereof to the mortgagor; and

(c) at the cost of the mortgagor either to retransfer the mortgaged property to him or to
such third persona she may direct, or to execute and (where the mortgage has been
effected by a registered instrument) to have registered an acknowledgment in writing
that any right in derogation of his interest transferred to the mortgagee has been
extinguished; provided that the right conferred by this section has not been extinguished
by act of the parties, or by decree of a court.

The right conferred by this section is called a right to redeem.

The mortgagor has the right to have the mortgagee transfer the property to a third party named
by him upon the mortgage money becoming payable and the conditions met (S.60-A). Under
this section, the mortgagor or an encumbrancer has the right.

The mortgagor has a right to inspect and take copies of the document of title relating to the
mortgaged property which are in the possession of the mortgagee (S. 60-B). The right subsists
so long as his right of redemption subsists.

A mortgagee who has executed two or more mortgages in favour of the same mortgagee shall,
in the absence of a contract to the contrary, when the principal money of any two or more of
the mortgages has become due, be entitled to redeem any one of such mortgages separately, or
any two or more of such mortgages together (S.61).

In the case of an usufructuary mortgage, the mortgagor has a right to recover possession of the
property together with the mortgage deed and all documents relating to the mortgaged property;
which are in the possession or power of the mortgagee
(a) where the mortgagee is authorised to the mortgage money from the rents and profits of the
property, when such money is paid; and
(b) where the mortgagee is authorised to only a part of the mortgage money from such rents
and profits or any part thereof and the term, if any, prescribed for the payment of the mortgage
money has expired and the mortgagor pays or tenders to the mortgagee the mortgage money or
the balance thereof or deposits it in court (S.62).

Where the mortgaged property in possession of the mortgagee has, during the existence of the
mortgage, received any accession, the mortgagor, upon redemption, shall in the absence of a
contract to the contrary, be entitled as against the mortgagee to such accession (S. 63).
The above provisions relate to accessions or accretions due to natural causes. Where however
such accession has been acquired at the expense of the mortgagee and is separable, without
detriment to the principal property, the mortgagor desiring that accession, must pay to the
mortgagee the expense of acquiring it. If, however, separate possession or enjoyment of such
accession having been made at the mortgagee’s expense is not possible, the mortgagor is liable
to pay the cost only
(1) if the acquisition was necessary to preserve the property from destruction, forfeiture or sale,
or
(2) if the acquisition was made with his consent.

Ordinarily, a mortgagee is not at liberty to make improvements and charge the mortgagor
therewith. Accordingly S. 63-A of the Act lays down that where mortgaged property in
possession of the mortgagee has, during the continuance of the mortgage, been improved, the
mortgagor, upon redemption, shall, in the absence of a contract to the contrary, be entitled to
the improvement, and the mortgagor shall not be liable to pay the cost thereof. However, the
mortgagor shall be liable to pay the cost of improvements in the following cases only:
(i) if improvement was necessary to preserve the property from destruction or
deterioration, or
(ii) was necessary to prevent the security from becoming insufficient;
(iii) was made in compliance with the lawful order of any public servant or public
authority.

Where the mortgaged property is a lease, and the mortgagee obtains a renewal of the lease, the
mortgagor, upon redemption, shall, in the absence of a contract by him to the contrary, have
the benefit of the new lease (S.64).
THE PRINCIPLE ON WHICH THE MORTGAGOR’S RIGHT TO REDEEM
THE MORTGAGED PROPERTY IS BASED
“EQUITY OF REDEMPTION’
The equity of redemption is the right of the mortgagor to redeem the mortgaged property by
paying off the principal and interest. It is the right of the mortgagor to get back his property on
payment of the mortgage money. It arises when the principal money secured by the mortgage
becomes payable in accordance with the terms of the mortgage, and exists so long as it is not
barred by limitation or foreclosure.
The common law courts in England was strict about the payment of mortgage money in the
right manner and if the mortgagor failed to do so, then he lost his power to recover the property.
The courts of equity, however, prevented manifest mischief and injustice by holding that
“mortgages ought to be treated as a mere security for the debt to the mortgagee; that the
mortgagee held the estate, although forfeited at law, as a trust and that the mortgagor had what
was significantly called an equity of redemption, which he might enforce against the
mortgagee, as he could against any other trust, if he applied within a reasonable time to redeem,
and offered a full payment of the debt and of all equitable charges.” 1 The courts of equity,
therefore, compelled the mortgagee to surrender the property if the mortgagor applied to
redeem at any time before sale. They granted this relief to the mortgagor on the ground that
equity looked to the essence of the transaction and that a mortgage is in essence a borrowing
transaction. The borrower is in need of protection and a condition whereby, if he loses his
property, he should be relieved against and that the condition of forfeiture in default of payment
on the due date is a penalty.

EQUITY OF REDEMPTION AND EQUITABLE RIGHT TO REDEEM ARE

TWO DIFFERENT THINGS.
The differences between the two are as under:
(1) Equity of redemption arises when the mortgage is created, but the equitable right to redeem
comes into existence only after the expiry of the period of redemption.
(2) Equitable right to redeem is one of the incidents of the equity of redemption.

1
http://bramhaiyaa.blogspot.com/2013/11/equitable-rights-2_9654.html
In Manik Chand V. Salim Mohammed 2, it was observed that in a suit for redemption on the
payment of mortgage money, the mortgagor is entitled to reliefs as are enumerated under
clauses (a), (b) and (c) of section 60 of the Transfer of Property Act. If all or any of these reliefs
is claimed in a suit, the suit can be taken as a suit for redemption.

Redemption is of the very essence of a mortgage and equity does not permit any device or
contrivance that would impede redemption.
This principle was explained by Lindlay, M.R.:
“A mortgage is a conveyance of property as a security for the payment of a debt or the discharge
of some other obligation for which it is given. That is the idea of a mortgage and the security
is redeemable on the payment or discharge of such debt or obligation, any provision to the
contrary notwithstanding. Any provision inserted to prevent redemption on payment or
performance of the debt or obligation for which the security was given, is what is meant by a
clog or fetter on the equity of redemption and is, therefore, void. It follows from this that ‘once
a mortgage always a mortgage.’ The courts of equity have fought for years to maintain the
doctrine that a security is redeemable.”
A mortgage is regarded as a security for money and the mortgagor can always redeem on
payment of principal, interest and costs and no bargain preventing such redemption is valid,
nor will unconscionable bargains be enforced.

‘CLOG ON THE EQUITY OF REDEMPTION’

The right of redemption is inseparably connected with the mortgage, and equity does not permit
any device or contrivance designed or calculated to prevent or impede redemption. Any such
device or contrivance is termed a clog on the equity of redemption or the right to redeem, and
is consequently void.
It was observed by Lord Davey in Noakes v. Rice 3 - “There are three doctrines of the Courts
of equity in the country: The first is expressed in the maxim “once a mortgage always a
mortgage”. The second is that the mortgagee shall not reserve to himself any collateral
advantage outside the mortgage contract; and the third is that a provision or stipulation which
will have the effect of clogging or fettering the equity of redemption is void. The third doctrine

2
, A.I.R, 1969 S.C. 751
3
(1902) A.C. 24
to which I have referred is only a corollary from the first and might be expressed in this form
‘once a mortgage always a mortgage and nothing but mortgage.’ The meaning is that the
mortgagee shall not make any stipulation which will prevent a mortgagor, who has paid
principal, interest and costs, from getting back his mortgaged property in the condition in which
he parted with it,”
In India, section 60 of the Transfer of Property Act confers on the mortgagor a statutory right
of redemption which cannot be fettered by any condition impeding or obstructing redemption.
“Since the object of a mortgage is merely to afford security to a lender, it follows that any
contract which ·directly or indirectly prevents the recovery by the mortgagor of his property
upon the performance of the obligation for which the mortgage was given security, is
inconsistent with the very nature of the transaction, for upon such performance being complete
there is no longer any need or justification for the retention of the security. On grounds,
therefore, of logic as well as of justice, the courts have consistently held void any contract
which in this sense is repugnant to the nature of a mortgage transaction.”
The principle was explained by Romer, J. 4
“Now there is a principle which I will accept without any qualification that on a mortgage you
cannot, by contract between the mortgagor and mortgagee, clog, as it is termed, the equity of
redemption so as to prevent the mortgagor from redeeming on payment of principal, interest
and costs.”
It must, however, be clearly understood that in order to amount to a clog, the stipulation must
form part of the mortgage agreement.
Any prohibition subsequent to or independ3nt of the mortgage does not amount to a clog. It
was observed by Vaughan Williams, L.J. in Reeve v. Lisle (1902) A.C., 461 that “the
mortgagee cannot, at the momi3nt when he is lending his money and taking his security, enter
into an agreement the effect of which would be that the mortgagor should have no equity of
redemption. But there is nothing to prevent that being done by an agreement which in substance
and in fact is subsequent to, and independent of, the original bargain.”
The leading case on the subject is that of Kreglinger v. New Patagonia Meat Co 5. In this case
a firm of wool-brokers lent to a company carrying on business as meat preservers, a sum of £
10,000 upon the security of a floating charge upon the undertaking of the company. The
agreement provided that for five years from the date of the loan the company should sell its

4
(1904) A.C. 323
5
. (1914) A.C. 25
sheepskins only to the lenders and should pay them a commission upon sales to others. It was
held that the right of pre-emption was enforceable notwithstanding that the loan was paid off
earlier as the stipulation was a collateral bargain and a condition of the loan and was not invalid
as a clog on the equity of redemption. It was observed by Lord Parker:
“There is no rule in equity which precludes a mortgagee from stipulating for any collateral
advantage, provided such collateral advantage is not either
(i) unfair or unconscionable;
(ii) in the nature of a penalty clogging the equity of redemption; or
(iii) inconsistent with or repugnant to the contractual or equitable right to redeem.”
Lord Parker of Waddington further observed: “I doubt whether, even before the repeal of the
usury laws, this perfectly fair and business like transaction would have been considered a
mortgage within any equitable rule or maxim relating to mortgages. The only possible way of
deciding whether a transaction is a mortgage within any rule or maxim is by reference to the
intention of the parties. It never was intended by the par ties that if the defendant company
exercised their right to pay off the loan they should get rid of the option. The option was not in
the nature of a penalty, nor was it, nor could it ever become inconsistent with or repugnant to
any other part of the real bargain within any such rule or maxim. The same is true of the
commission payable on the sale of skins as to which the option was not exercised. Under these
circumstances it seems to me that the bargain must stand and that the plaintiffs are entitled to
the relief they claim.”
In Bigg v. Hoddinott6, the mortgage to brewers was for five years certain, with a “tie” during
the continuance of the mortgage. Two questions that fell for consideration were regarding the
right of the mortgagor to redeem before the expiration of the five years and as to the validity
of the tie. Romer, J. held that there was no objection to the five years period, either in itself or
when taken in conjunction with the tie. He observed:
“I am of opinion that it is obviously to the advantage of both the mortgagor and mortgagee that
such a provision should be enforced. Of course, that does not prevent the Court in a proper case
from preventing the application of the clause if it is too large or there are circumstances
connected with the proviso which renders it, in the opinion of the Court, unreasonable or
oppressive.”
Marshall thus summarizes the two propositions emanating from the modern decisions:-

6
(1898) 2 eh. 307
(1) The postponement of the contractual right to redeem cannot be impugned on the ground
that its length is unreasonable but only in the ground that it is oppressive.
(2) A collateral stipulation in a mortgage transaction is not invalid qua collateral stipulation,
and if not unconscionable, it may form part of the security.
What is a clog on equity of redemption is a matter of fact in each case. The following instances
would make it clear:
(1) Condition of sale in default- If one of the terms of the mortgage is that on the failure of the
mortgagor to redeem the mortgage within the specified period, the mortgagor will have no
claim over the mortgaged property, and the mortgage deed will be deemed to be a deed of sale
in favour of the mortgagee, it cannot be given effect to. It takes away the mortgagor’s right of
redemption of the mortgaged property.
(2) Long term for redemption.-A long term is not necessarily a clog on redemption. In
Gangadhar v. Shankarlal. A.I.R.7, it was held by the Supreme Court that the term in the
mortgage that it will not be redeemable until the expiry of 85 years was not a clog in the
circumstances of the case.
Accordingly the rule is that if the length of the term is found oppressive, redemption would be
allowed before the expiry of the term.
(3) Stipulation barring mortgagor’s right of redemption after certain period.- If there is a
stipulation which bars the mortgagor’s right of redemption after certain period, the stipulation
is treated as a ‘clog’ on the mortgagor’s equitable right of redemption.
(4) Condition postponing redemption in case of default- In Mohammad Sher Khan v. Sethi
Swami Dayal8, the mortgage was for a term of five years with a condition that if the money
was not paid the mortgagee might enter into possession for a period of twelve years during
which the mortgagor cannot redeem. It was held that such a condition was a clog because it
hinders an existing right to redeem.
(5) Restraint on alienation- A stipulation that the mortgagor shall not alienate the mortgaged
property or shall not take loan on the security of the mortgaged property has been held to be a
clog.
(6) Redemption restricted to mortgagor- An agreement that redemption should be available to
the mortgagor, and not to his heirs has been held as a clog.

7
(1958) S.C. 773
8
(1922) 44 All. 185
(7) Penalty in case of default- A stipulation to charge enhanced rate of interest from the date of
the mortgage in case of default in payment, has been held to be a clog.
In Gulab Chand v. Saraswati Davi9, the Supreme Court observed that a condition in the
mortgage which seeks to take away the right of redemption even before the period within which
the mortgagor was entitled to pay off the debt had run out, is a clog on the right of redemption
because it takes away the right even before the time of mortgage has expired.
Exception- Under the proviso to S. 60 of the Transfer of Property Act, it is open to the parties
to extinguish a mortgage by, mutual agreement before the expiry of the term mentioned therein.
However, a tenant who is lawfully inducted on the property under the terms of the mortgage
cannot be evicted by the mortgagor on redemption of the mortgage before the expiry of the
period mentioned therein.

The mortgagor’s right of redemption is extinguished,

(a) by foreclosure; and
(b) when the mortgagee has exercised power of sale.

PARTIAL REDEMPTION
The last paragraph of S. 60 of the Transfer of Property Act states that any person having a share
in the mortgaged property cannot redeem his own share of the property alone. In other words,
where there are several mortgagors none of them can redeem his own share alone, but any of
them can redeem the entire mortgage. There is a counterpart of this rule stated in S. 67 that any
one of the several mortgagees cannot sue to enforce on his share of the mortgage debt by fore
closure or sale. It is based on the principle that the mortgage is one and indivisible. In Nilakant
v. Smesh Chunder 10, the Privy Council observed:
“It would put him (mortgagee) to a separate suit against each purchaser of a fragment of the
equity of redemption through purchasing without his content, and he would have separate suits
against each of them, and suits in which no one of the parties would be bound by anything
which took place in a suit against another. Different propositions of value might be struck in
the different suits, and the utmost confusion and embarrassment would be created.”
For example, if four fields are mortgaged for Rs. 400, and the mortgagor sells field No.1 to A
for Rs. 100, field No.2 to B for Rs.100, field No.3 to C for Rs. 100 and the fourth to the

9
A.I.R. (1977) S.C. 242
10
(11186) 12 Cal. 414
mortgagee for Rs.100, then the mortgage of the fourth field is extinguished and there remains
a mortgage of three fields for Rs. 300. But since the mortgagee purchased field No.4, the
integrity of the mortgage as a whole has been split up with the result that A, B, or C may each
redeem his one field for Rs. 100.

RIGHT TO FORECLOSURE
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 in the court, a right to
obtain from the court a decree that the mortgagor should be absolutely debarred of his right to
redeem the property. A suit to obtain from the court a decree that the mortgagor shall be
absolutely debarred of his right to redeem the mortgaged property is called a suit for
foreclosure. (S.67, Transfer of Property Act).
When a mortgagor has thus failed to pay off the mortgage money within the proper time, the
mortgagee is entitled to bring an action praying that a day may be fixed on which the mortgagor
is to pay off the debt, and that in default of payment on that day the mortgagor may be
foreclosed of his equity of redemption.
A suit for foreclosure or sale can be brought at any time after the mortgage money has become
due. However, this right is subject to a contract to the contrary. The mortgagee may curtail his
right of foreclosure or sale. On the other hand, the right of redemption is not subject to a
contract to the contrary.
According to Megarry, “foreclosure was the name given to the process whereby the
mortgagor’s equitable right to redeem was extinguished and the mortgagee left owner of the
property both at law and in equity. The right to foreclose does not arise until the legal right to
redeem has ceased to exist, i.e., until the legal date of redemption has’ passed.”
In India under the Transfer of Property Act the remedy of foreclosure is confined to the case
of a mortgage by conditional sale and an anomalous mortgage where the terms of the deed have
stipulated for foreclosure.

CO-EXTENSIVE RIGHTS OF REDEMPTION AND FORECLOSURE

The right to redeem and the right to foreclosure are co-extensive. When a date is fixed for the
payment of the mortgage debt, the mortgagor cannot redeem the mortgage before the due date,
nor can the mortgagee enforce his security before the due date. Neither can the mortgagor ask
for redemption nor can the mortgagee recalls his mortgage money before the due date. After
the mortgagor’s right to redeem becomes complete and he has not availed himself of his right
to redeem, it is then that the mortgagee’s right to foreclose arises. The two rights, therefore,
accrue at the same time and it may be said that the right to redeem and the right to foreclosure
are co-extensive. There is, however, one important difference between the two rights. Whereas
the right of redemption is not subject to a contract to the contrary, the reason being that the
mortgagor requires protection against oppression, the right of foreclosure is subject to the
contract to the contrary because the mortgagee is not in the need of the same protection. Hence,
a mortgagee can curtail his right of foreclosure or sale by contract.

REDEEM UP FORECLOSE DOWN

Under S.91 (a) of the Transfer of Property Act, prior mortgagees can foreclose subsequent
mortgagees, while subsequent mortgagees can redeem prior mortgagees. Foreclosure is
downwards: redemption is upwards.
ILLUSTRATION
(1) A mortgages X to ………………B
(2) A mortgages X to ………………C
(3) A mortgages X to ………………..D
C is the assignee of part of the right of redemption of A against B and has therefore the right
to redeem B. D is also the assignee of the part of the right of redemption of A against B and C
and therefore D and redeem both B and C. In other words since C’s mortgage is subject to B’s,
C has a right to wipe off the incumbrance and since D’s mortgage is subject to C’s and B’s, D
has the right to payoff C and B. This is ‘redeem up’. There is not ‘redeem down’, that is a prior
mortgagee has no right to pay off a subsequent mortgagee. He can simply foreclose or deprive
the right of redemption of a subsequent mortgagee. Hence B can foreclose A and as part of A’s
right of redemption has been transferred to C and D, B can foreclose C or D or both. This is
the familiar rule ‘foreclose down’.
 BIBLIOGRAPHY

1. The Transfer of Property Act, 1882

2. Law of Transfer of Property, G.C.V. Subba Rao
3. The Story of Mortgage Law, Harvard Law Review, Vol. 4, No. 1 (Apr. 15, 1890), pp. 1-
14
4. “Why the Equity of Redemption?”, D.P. Waddilove
5. https://blog.ipleaders.in/right-foreclosure-transfer-property-act/#_ftn21
6. http://bramhaiyaa.blogspot.com/2013/11/equitable-rights-2_9654.html
7. https://www.investopedia.com/terms/r/right-of-foreclosure.asp
8. https://www.legalbites.in/right-of-redemption/
9. https://lawtimesjournal.in/rights-of-mortgagor-and-mortgagee/