“Redeem up and foreclose down” comment with the help of decided cases? [H.P.J.S 2015]

1. “Redeem up and foreclose down” comment with the help of decided cases? [H.P.J.S 2015]

Introduction

Ordinarily ‘redemption’ means; ‘the action of saving or being saved from sin, error, or evil’. However, judicial courts are not equipped to decide such cases. So, we shall confine ourselves to the more pragmatic meaning ‘the action of regaining or gaining possession of something in exchange for payment or clearing a debt’; and this falls within the realm of our courts of justice. Considering that our rate of success shall be directly proportional to our knowledge on the subject matter. So, it is paramount to get down to brass tacks. To quote Neil deGrasse Tyson, “I know of no time in human history where ignorance was better than knowledge.”

Decree in redemption suit, when defined in layman’s language shall mean a process by which a borrower called mortgagor files a suit in a court of law for repossessing his immovable property that was earlier pledged as security with lender called mortgagee, for money. This shall fructify after payment of principal and interest due to the lender. Sections 58-104 of T.P. Act, deal with mortgages of immovable property and charges.

Relevant terminology

Before we embark on the journey of filing a suit for redemption, it shall be imperative to understand all the associated terms. Though, each of them is defined under ‘The Transfer of Property Act, 1882’. However, it shall be our endeavour to explain and understand the same in layman’s language. These terms are either directly or indirectly connected with redemption. For example, the word mortgage forms the foundation of suits for redemption. Similarly, foreclosure is part of redemption suits, and it is equally essential to understand subrogation and so on and so forth. So, lets us try to comprehend the infra words and phrases one-by-one.

Mortgage [S. 58 (a) T.P. Act.].

Types of mortgage [S. 58 (b) to (g) T.P. Act.].

Charge (S. 100 T.P. Act.).

Foreclosure.

Right to redemption (S. 60 T.P. Act.).

Persons who can sue for redemption (S. 91 T.P. Act.).

Maxim ‘Redeem up and foreclose down’.

Subrogation (S. 92 T.P. Act.).

Mortgage

The word mortgage and other related terms are defined in section 58 (a) of The Transfer of Property Act, 1882, and sub-clauses (b-g) describe the 6 different kinds of mortgages. Briefly, the difference in various kinds of mortgages is with respect to interests in the proprietary property that has been transferred by the mortgagor in favor of the mortgagee. Special emphasis is drawn to ‘Mortgage by Conditional Sale & Anomalous Mortgage’ as it shall have bearing on suits for redemption. Depending upon contents of the mortgage-deed there may be a clause to the effect that in case of a default in payments due by the mortgagor; the mortgagee shall reserve the right for filing a suit of foreclosure which shall then debar the mortgagor from redemption. Likewise, in the case of usufructuary mortgages while computing account due; rents and profits accruing from the mortgaged property shall be considered. Also, a passing reference can be made to the fact that as per section 96 of the ibid act mortgage by deposit of title-deeds is a ‘Simple Mortgage’ [Sec. 58 (b)]. The most salient feature of mortgage is the transfer of interest in mortgaged property from the mortgagor to mortgagee.

Charge

Most often title-deeds are held as security against default of payments. There is no transfer of any interest, thereby it is not a mortgage but charge. Extracted infra are some of the salient features that differentiate a mortgage from charge.

S.No.	Mortgage S.58	Charge S.100
1.	Security for repayment of a debt.	Also security; however it may or may not be debt.
2.	Transfer of an interest in immovable property, mandatory.	No transfer of interest.
3.	Can be created only by act of parties.	By parties or by operation of law.
4.	Creates a right in rem.	Only those having notice of charge are affected.
5.	A mortgagee can follow his security where-so-ever it goes. Even into the hands of a bona fide purchaser for value.	No such right is available.
6.	Can be enforced vide Suit for foreclosure under S.67, suit for money (S.69) or suit for sale (S.69)	Only by virtue of sale that too through court.
7.	Every mortgage is a charge.	Charge is not a mortgage.
8.	Simple mortgage is enforceable within 12 years, and others within 30 years.	Enforceable within 12 years, only.

Foreclosure

Foreclosure many-a-times is not only a part of redemption suit, but it precedes redemption. Simply put, it deprives the mortgagor of his inalienable right to redemption. It shall come into play only if there is a provision inscribed within the four corners of the mortgage deed stating unequivocally that upon default of payment; mortgagee shall reserve the right to sue the mortgagor for foreclosure. And if successful, mortgagor shall be foreclosed and debarred from redeeming his interest in the mortgaged property. However, it is only enforceable through a court decree, and the liability of mortgagor stands discharged and extinguished.

Right to redemption

Right to redemption as defined under section of 60 T.P. Act is a formidable right protecting the interest of mortgagor. Crux of it has been explicitly laid in paragraph 23 of the apex court judgment in case titled L. K. Trust vs. EDC Ltd. & Others.

“23. The mortgagor under Indian law is the owner who had parted with some rights of ownership and the right of redemption is the right which he exercises by virtue of his residuary ownership to resume what he has parted with. In India this right of redemption, however, is statutory one. A right of redemption is an incident of a subsisting mortgage and subsists so long as the mortgage itself subsists. The judicial trend indicates that dismissal of an earlier suit for redemption whether as abated or as withdrawn or in default would not debar the mortgagor from filing a second suit for redemption so long as the mortgage subsists. This right cannot be extinguished except by the act of parties or by decree of a court. As explained by this Court in Jayasingh Dnyanu Mhoprekar and Another Vs. Krishna Babaji Patil and Another, the right of redemption under a mortgage deed can come to an end only in a manner known to law. Such extinguishment of the right can take place by contract between the parties, by a merger or by statutory provision which debars the mortgager from redeeming the mortgage. The mortgagor’s right of redemption is exercised by the payment or tender to the mortgagee at the proper time and at the proper place of the mortgage money. When it is extinguished by the act of parties, the act must take the shape and observe the formalities which the law prescribes. A mortgage being a security for the debt, the right of redemption continues although the mortgagor fails to pay the debt at the due date. Any provision inserted to prevent, evade or hamper redemption is void. Having regard to the facts of the instant case, it is difficult to hold that the Respondent No. 3 had lost its right to redeem the mortgaged property or that by the acts of the Appellant and the Respondent No. 1, the right of the Respondent No. 3 to redeem the property was extinguished.”

Who can sue for redemption

After obtaining a basic understanding of the statutory provisions, the next logical step is to know who qualifies to sue for redemption. Perusal of S.91 reveals that the infra mentioned can file a suit for redemption under Order 34 of Civil Procedure Code, 1908. They are subdivided into two categories those having interest in mortgaged property and those devoid of any such interest.

Persons having interest in mortgaged property

Mortgagor.

Co-mortgagors, or any person who has interest in or charge upon the mortgaged property.

Or any person, who has a right to redeem the mortgaged property.

Persons having no interest in the mortgaged property

Any person who stands surety for the payment of mortgage debt.

Any creditor of mortgagor.,

Creditor with a decree for sale of the mortgaged property.

Legally appointed person, to pay debts of deceased mortgagor.

What is subrogation

This is the right occasion to discuss the word ‘subrogation’ as it also relates to redemption. Subrogation as defined under the Black’s Law dictionary, ‘the substitution of one person in the place of another with reference to a lawful claim, demand or right, so that he who is substituted succeeds to the rights of the other in relation to the debt or claim, and its rights, remedies, or securities’. Alternatively, subrogation means ‘substitution’ but upon venturing into legal terminology it is ‘the right of a person to stand in the place of a secured creditor. And this person can be anyone other than the mortgagor, including co-mortgagor who, for any reason or interest, redeems a share in the mortgaged property, while keeping the security alive. The party who pays off the mortgage gets clothed with all the rights of the mortgagee i.e. redemption, foreclosure or sale of mortgaged property.

Referring to S. 92 of T.P. Act defining subrogation, a subtle difference can be observed between paras 1 & 3. Para 1 relates to any person except mortgagor who redeems property subject to mortgage, while in para 3 it is a person who has advanced money to the mortgagor, and by virtue of this act full share of that mortgagee is redeemed. Under such circumstances right of subrogation shall be transferred in the favor of lender only after written consent of mortgagor vide registered instrument.

Lastly, as enunciated in para 3 of section 92 of T.P. Act, it needs mentioning that subrogation is only possible so long as there is only redemption of mortgage and not redemption of the mortgaged property. For then all rights shall stand extinguished and there shall be none to whom the person advancing money could be subrogated. This fact has been illustrated in case titled Raja Janak Nath Roy vs. Raja PramathaNath Malia. Extracted infra is relevant portion from paragraph 22.

“22. ……..This contention, however, loses sight of the distinction between the redemption of a mortgage and the redemption of the property mortgaged. In their lordships’ opinion, it is clear that the words in the Section ” mortgage has been redeemed ” refer merely to the payment off of the mortgage money and not to an extinction’ of the mortgagees’ rights over the mortgaged property. If such rights had become extinguished there would be none to which the person advancing the money could be subrogated…..”

Redeem up foreclose down

Lastly, coming to the maxim, ‘Redeem up and foreclose down’, which means that whenever there are more than one mortgagee, the later mortgagee can redeem only those prior to him and foreclose those after him.

AIR 1970 MADRAS 244 ::1983 MADLW 4 Madras High Court HON'BLE JUDGE(S): PALANISWAMI , J Transfer of Property Act (4 of 1882) , S.91(a)— Suit filed on prior mortgage without impleading puisne mortgagee - Execution of the decree obtained - Purchaser is entitled to redeem the puisne mortgagee. A purchaser in execution of a decree obtained on a prior mortgage in a suit to which the puisne usufructuary mortgagee is not a party is entitled to redeem the puisne mortgage.(Para 10) It cannot be said that all that the purchaser in such a suit acquires is only the right of the mortgagee and he continues to be a mortgagee qua the puisne mortgagee, and that as such, such a purchaser is not entitled to redeem the puisne mortgagee under the well-recognised principle 'redeem up and foreclose down.' The auction purchaser in execution of the prior mortgage decree occupies a dual capacity, that is, the capacity of the first mortgagee as well as the owner of the equity of redemption. In his first capacity

Synopsis, suits for redemption

Procedure for filing mortgage suits is governed by Or. 34 CPC. To begin with, ‘…..all persons having interest in the mortgaged-security or in the right to redemption shall be joined as parties’ For the mortgagor it is a property of which he is the natural owner, and wants to redeem it at all costs, while for the mortgagee it is simply a security to safeguard his investment.

Plaintiff shall plead for the redemption of his mortgaged property since he is ready to pay all dues to the mortgagee. After the court is so satisfied, it shall pass a preliminary decree. Directing that accounts be taken to ascertain the due amount, which may include principal and interest on mortgage, income if any received from the mortgaged property(usufructuary), costs, charges and expenses incurred, and account of any loss or damage to the mortgaged property etc. To accomplish this task, court may invoke its powers to appoint a commissioner (Or. – 26), or the same can be set in motion on application of either of the parties to the suit.

On submission of commissioner report to court, it shall declare the due amount and countersign it. The plaintiff is required to deposit such sum within 6 months. However, the time can be extended provided good cause is shown, subject to the fact that final decree has not been passed yet.

Similarly, defendant is also directed that on plaintiff’s payment of due sum, he shall deliver to the plaintiff all such documents in his possession relating to the mortgaged property, and additionally do all such acts necessary to restore the plaintiff with the mortgaged property free of all encumbrances.

However, if the plaintiff fails to pay the due sum, the defendant shall exercise his right to apply for final decree praying for foreclosure or sale depending on the terms inscribed in the mortgage deed viz mortgage by conditional sale, or an anomalous mortgage.

In spite of all the above, the court may allow the plaintiff to redeem his property under the infra mentioned two circumstances.

Plaintiff pays all dues before the passing of the final decree of foreclosure, and so informs the court. The court shall accordingly order the defendant to free mortgaged property from all interests in his favor.

Final decree may have been passed ordering sale of the mortgaged property, but the sale is yet to be confirmed. Before that happens here again, if the plaintiff clears all dues then the defendant shall do his part and free the mortgaged property of all legal restrains.

With regards to cases wherein plaintiff fails to pay the due sum, and the court has ordered foreclosure or sale of the whole or part property. Pertaining to the later, any money deposited by the purchaser in court i.e. prerequisite 5% of the sale amount, but the sale is yet to be confirmed. Now in such circumstances, if the plaintiff wishes to redeem his property, he will be required to pay both mortgage sum and prerequisite purchase money deposited into court.

In cases, where sale proceeds obtained after selling the mortgaged property are not enough to pay off all dues. The court shall on the application of an execution application, decree recovery of balance amount provided it is legally recoverable.

Alternatively, in cases where after finalization of accounts due, it is found that there is nothing due from the plaintiff or the defendant has been overpaid, then the court shall decree recovery of such excess amount.

While decreeing costs of suit etc. the conduct of the mortgagee shall be the deciding factor. If in the opinion of the court it is seen that the mortgagee’s only aim is to deprive the mortgagor of his inalienable right to redeem his property, it shall not award costs. Interest to be charged on all due sums shall be as per agreement between the two parties or @ 6 % per annum.

4. Mr. Somasundaram appearing for the appellant, third defendant, contended that all that the purchaser in a suit of the kind referred to above acquires is only the right of the mortgagee and he continues to be a mortgagee qua the puisne mortgagee, and that as such, such a purchaser is not entitled to redeem the puisne mortgagee under the well recognised principle "redeem up and foreclose down". In support of this argument he cited Nag v. Gopal . The head-note in that case, which is misleading, no doubt tends to support the above contention. But the facts of the case show that the puisne mortgagee sued on his mortgage first and purchased the property in Court auction in execution of his decree and thereafter the prior mortgagee instituted a suit on his mortgage without impleading the puisne mortgagee and bought the property in Court sale. The question arose who among them was entitled to redeem the order. It would be seen from the above facts that on ,the date of the sale in execution of the prior mortgage decree, the mortgagor had no, subsisting title inasmuch as his right, title and interest had already been sold in execution of the decree obtained on the puisne mortgage. It is on account of that reason that the Court held that despite the auction sale in execution of the prior mortgage decree the prior mortgagee purchaser continued only to be a mortgagee and that the right of the puisne mortgagee to redeem the prior mortgage subsisted in spite of the sale held in execution of the prior mortgage decree.

5. The auction purchaser in execution of the prior mortgage decree occupies a dual capacity, that is, the capacity of the first mortgagee as well as the owner of the equity of redemption. In his first capacity he can use the first mortgage as a shield against the second mortgagee. In the second capacity he can redeem the subsequent mortgages. To acquire that right of redemption the consent of the subsequent mortgagee is not necessary. A mortgagor can assign his equity of redemption, and for such an assignment, the consent of the puisne mortgagee is not necessary. If such an assignment can be made by private negotiation, there is no good reason why such an assignment cannot take place by process of Court in execution of a money decree or any other decree. All that the law safeguards in favour of the puisne mortgagee is that his right as a puisne mortgagee shall not be affected (1) to redeem the prior mortagage and to sell the property for the amount due on both the mortgages or (2) to sell the property subject to the first mortgage. A Bench of this Court has laid down in Sarvothama Rao v. Raja Row Sahib (1921) M.W.N. 603, that a prior mortgagee who is also the purchaser of the equity of redemption can redeem the puisne mortgagee even without his consent and that the purchaser, who is also the puisne mortgagee, is entitled to redeem the puisne mortgagee. See in this connection the decision of the Punjab High Court in Rattan Chand v. Prite Shah , and also the Full Bench decision of the Allahabad High Court in Ram Sanehi Lal v. Janki Prasad A.I.R. 1931 All. 466.

8. Lastly, Mr. Somasundaram, appearing for the appellant, cited Shanmugam Nadar v. Sivan Pillai (1967) 2 M.L.J. 233 at 236, and strongly relied upon it as supporting his contention that the suit is not maintainable. In that case, the facts are a bit complicated. The question considered was whether the auction purchaser in execution, of the decree obtained by the first mortgagee without impleading the puisne mortgagee though the sale was held earlier is entitled to redeem the auction purchaser in a sale held in execution of the decree obtained on the puisne mortgage though held subsequently. The learned. Judge, Kailasam, J. examined the question as to what right was acquired by the auction-purchaser in execution of the first mortgage decree. At page 236 it is observed:

10. In the result, the learned Judge held that the purchaser in the sale held in execution of the first mortgage decree was not entitled to redeem the auction-purchaser in the sale held in execution of the puisne mortgage.

11. Mr. Rengaswamy Ayyangar, appearing for the plaintiff-respondent, contended that the above view is not correct having regard to the decision of the Bench in Sarvothaiha Rao v. Raja Rao Sahib (1921) M.W.N. 603, in which the principle is laid down that the auction" purchaser in execution of the prior mortgage decree is entitled to redeem the puisne mortgagee even though the latter had not been impleaded as a party in the suit filed on the first mortgage. He also referred to the observations of the learned Author Mulla on the Transfer of Property Act, Fifth Edition, at pages 606 and 607, where the learned Author has pointed out that in a case where the right of the puisne mortgagee to redeem the prior mortgagee and the right of the prior mortgagee as the assignee of the equity of redemption, as in the instant case, t(c) redeem the puisne mortgagee come in conflict, the right of the prior mortgagee purchaser to redeem the puisne mortgagee takes priority. This view is supported by the decisions in Hasanbhai v. Umaji (1904) I.L.R. 28 Bom. 153, Paras Ram Singh v. Pandohi (1922) I.L.R. 44 All. 462, and Ram Baran. Chaube v. Bkagwati (1925) I.L.R. 47 All. 751. In my view, it is unnecessary to express any opinion on this question in this case as there is no question of conflict of interest between two auction, purchasers, one having taken a sale in execution of the first mortgage decree and the other in execution of the subsequent mortgage decree as in the case reported in. Shanmugam Nadar v. Sivan Pillai (1967) 2 M.L.J. 233. I have already pointed out that in the instant case the appellant is only a usufructuary mortgagee and without any more right.