Foreclosure of Mortgage
🔹 Meaning of Foreclosure of Mortgage
Foreclosure means the legal process by which the mortgagee (lender) terminates the mortgagor’s (borrower’s) right of redemption and becomes the absolute owner of the mortgaged property if the loan is not repaid within the prescribed time.
In simple terms → when the mortgagor fails to repay the debt, the mortgagee approaches the court and obtains a decree that bars the mortgagor from redeeming the property.
🔹 Legal Provision
Governed by Section 67 of the Transfer of Property Act, 1882 (TPA).
Mortgagee has the right to file a suit for foreclosure or sale, depending on the type of mortgage.
🔹 Mortgages where Foreclosure is allowed
Mortgage by Conditional Sale [Section 58(c), TPA]
Condition: if the mortgagor does not repay within the agreed time, the sale becomes absolute in favour of the mortgagee.
Remedy: Foreclosure is available.
Anomalous Mortgage
If it contains a foreclosure clause, then foreclosure can be sought.
👉 In Simple Mortgage, English Mortgage, and Usufructuary Mortgage, foreclosure is not allowed. The mortgagee can only seek sale of the property.
🔹 Procedure of Foreclosure
Mortgagee files a suit for foreclosure.
Court gives the mortgagor a time period to repay the loan.
If mortgagor pays → mortgage ends.
If mortgagor fails → court passes Final Decree of Foreclosure.
After this decree, mortgagor loses equity of redemption, and mortgagee becomes the absolute owner.
🔹 Important Case Laws
1. Raghunath Singh v. Hansraj Kunwar (AIR 1934 PC 205)
Held: In a mortgage by conditional sale, foreclosure decree is necessary before the mortgagee can be treated as absolute owner.
2. Chinnappa v. Ponnuswami (AIR 1939 Mad 752)
Held: Foreclosure remedy is available only in mortgage by conditional sale.
In simple mortgage, foreclosure cannot be granted; only sale is possible.
3. Ganga Dhar v. Shankar Lal (AIR 1958 SC 770)
Held: Mortgagee does not become absolute owner automatically.
Only after a final decree of foreclosure by the court, the mortgagor’s right of redemption is extinguished.
4. Narandas Karsondas v. S.A. Kamtam (AIR 1977 SC 774)
Held: Until the court passes a foreclosure decree, the mortgagor retains his equity of redemption.
Mortgagee cannot unilaterally claim ownership.
🔹 Conclusion
Foreclosure = remedy available only in mortgage by conditional sale (and some anomalous mortgages).
It is a harsh remedy since it completely bars the mortgagor’s right of redemption.
Mortgagee must obtain a final foreclosure decree from court before becoming absolute owner.
Courts have consistently protected the equity of redemption of the mortgagor and limited foreclosure to strict conditions.
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