Decree of foreclosure passed in suit filed by mortgagee will not extinguish right of mortgagor to redeem mortgaged property: SC

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Read Judgment: Narayan Deorao vs. Krishna & Ors.

Pankaj Bajpai

New Delhi, August 23, 2021: The Supreme Court has ruled that the decree of foreclosure passed in the suit filed by the mortgagee will not extinguish the right of the mortgagor to redeem land in view of the fact that he was not impleaded as a party in the suit, though he has purchased part of the mortgaged property by virtue of registered sale deed.

While setting aside the judgment of the High Court, a Division Bench of Justice Hemant Gupta and Justice A.S. Bopanna, gave three months’ time to the appellant to deposit the mortgage amount after which he shall be entitled to seek restoration of possession which was taken from him in execution of a decree of foreclosure. 

The observation came pursuant to a classic case where the plaintiff (appellant in present case) stepped in the shoes of the mortgagor on account of the sale transaction of a mortgaged land. 

Going by the background of the case, original mortgagee filed a Regular Civil Suit seeking recovery of mortgage amount along with the interest accrued against the original mortgagors. Later, a preliminary decree was drawn based on a compromise. However, since the defendant failed to pay the agreed mortgage amount, the preliminary decree was converted into a final decree which led to foreclosing the rights of the mortgagor to redeem the property. In execution of such decree, the mortgagee had taken possession from the appellant. 

The matter travelled to the High Court, where the decree of foreclosure was set aside and the suit for redemption was held not maintainable.

After considering the arguments, the Division Bench found that the plaintiff has purchased property vide registered sale deed much before the filing of the suit for foreclosure. 

“The possession of the plaintiff was recorded in the revenue record after the purchase of the property, but still, the mortgagee chose not to implead the subsequent purchaser. The original mortgagor who has mortgaged the property had no subsisting title, interest or right in the property conveyed, therefore, the factum of compromise between the mortgagor and the mortgagee is ineffective and not enforceable against the purchaser,” found the Bench.

Reiterating that the possession was delivered and the fact that the parties are residents of the same village, the Apex Court said that there is ‘constructive notice’ of purchase of land by the appellant.

Thus, the Top Court opined that decree passed in the suit for foreclosure as a result of collusion, so as to frustrate rights of a purchaser from the mortgagor, is non-est in law. 

The Top Court observed that Section 60 of the Transfer of Property Act, 1882 provides that a person interested in a share of the mortgaged property will not entitle him to redeem his own share on payment of a proportionate part of the amount remaining due on mortgage. 

Therefore, conversely, a purchaser from the mortgagor is entitled to redeem the share of the land purchased by him but on payment of the entire mortgage amount, added the Top Court. 

The Top Court therefore concluded that equity of redemption is a right which is subsidiary to the right of ownership, and such right is not over and above the right of ownership purchased by the plaintiff. 

“The expression equity of redemption is a convenient maxim but an owner, who has stepped into the shoes of the mortgagor, after the purchase from the mortgagor but before filing a suit for foreclosure is entitled to redeem the property in terms of Section 60 of the Act,” reiterated the Bench.

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