Holding

A mortgagor does not lose his title or right of redemption by lapse of time or by sale of the property when the mortgagee defaults, and the mortgagee remains liable to account for profits and to pay the auction price.

Summary

The father of the appellant hypothecated a 5‑bigha property by usufructuary mortgage on 10 July 1911 for Rs.261, obligating the mortgagee to pay land revenue. The mortgagee defaulted, the property was auctioned and purchased by Ramtahal Singh. The appellant sued for redemption; the trial court decreed in his favour, but the appellate court dismissed the suit, holding that the sale extinguished the right of redemption. The Supreme Court allowed the appeal, holding that under Sections 58(d), 76 and 79 of the Transfer of Property Act a mortgagor does not lose the right of redemption merely because the mortgagee defaults and the property is sold, unless the deed specifies a time limit. The sale certificate does not bind the mortgagor, and the mortgagee remains liable to account for profits and to pay the auction price to the purchaser. The Court directed verification of the deposited amount, issuance of a redemption decree, a money decree against the mortgagee, and delivery of possession to the appellant.

Issues considered

Whether the mortgagor loses his right of redemption upon sale of the mortgaged property due to the mortgagee's default under a usufructuary mortgage.
Whether Sections 58(d), 76 and 79 of the Transfer of Property Act impose any limitation on the mortgagor's right of redemption.
Whether the auction sale certificate binds the mortgagor and extinguishes the mortgage.
Whether the mortgagee is liable to account for profits and to pay the auction proceeds to the purchaser.

Legislation cited

Transfer of Property Act, 1882s. 58(d), s. 76, s. 79

Subjects

usufructuary mortgageright of redemptionmortgagee defaultland revenuesale of mortgaged propertyTransfer of Property Actaccounting of mortgageelimitation period

Judgment

A PANCHANAN SHARMA
v.
BASUDEO PRASAD JAGANANI AND ORS.

MARCH 22, 1995 .

B [K. RAMASWAMY ANDS. SAGHIR AHMAD, JJ.)

Transfer of Property Ac~ 1882:
_f
(
Sections 58(d), 76 and 79-{fsufructuary mortgage-Mortgagee to pay -~

C land revenue-Default in payment by mortgagee-Property sold in auction for
recovering the arrears-Suit filed · by mortgagor for redemp-
tion-Held:Mortgagor does not lose his right of redemption by lapse of time.

The father of the appellant - Plaintiff bypothecated certain property
by usufructuary mortgage on 10.7.1911 for a sum of Rs. 261. One of the
D terms was that the mortgagee should pay the land revenue. There was
default in payment and for recovery thereof the property was brought to
sale. One of the respondents 'R' purchased the property.

t\ppellant filed a suit for redemption of the mortgage property. The
E trial Court decreed the suit. But the appellate Court dismissed the suit on
the finding that the appellant had lost bis title since the property was sold
to 'R' at the auction sale, and therefore the appellant was not entitled to
redeem the property. The second appeal was dismissed. Hence this appeal.

Allowing the appeal, this Court
F
HELD: 1. By operation of s.76(c) of the Transfer of Property Act, the
mortgagee is enjoined to pay land revenue to the Government and for the
default committed by the mortgagee, when the property was sold, the
mortgagor had not lost bis right of redemption by the conduct and actions
of the mortgagee. If the deed gives time for redemption or adjustment of
G the rent or profits and liabilities in terms of the contract read with .the
relevant provisions· of the Act stood discharged, the limitation for redemp·
tion would run from the ~te fixed in the mortgage deed. Otherwise, there
is no limitation for redemption of usufructuary mortgage. The usufruc·
tuary mortgagor does not lose his title to the property or right to redemp·
H tion by lapse of time. (945-D-E]
942
' P.SHARMAv. B.P.JAGANANI 943
2. By operation of the last para of s.76, the mortgagor is entitled to
the accounting of the loss occasioned to it. At best the auction-purchaser,
A

on redemption, would look to the mortgagee who had committed default
in terms of the mortgage and the court would give suitable direction in
that behalf. The possession of the purchaser must be .on behalf of the
mortgagee and becomes liable to accounting etc. Instead, the court held
that the mortgagor lost his title due to misfeasance committed by the
B
mortgagee and the property was sold on account thereof to the third
parties. The High Court has committed grave error of law in dismissing
the appeal in limine. The first appellate court also committed same error
1" of law in reversing the decree of the trial court without appreciating the
~
correct legal position. (945-F·G] · c
3.1 It is stated that the appellant had already deposited the sum of·
Rs. 261. Therefore, the trial c~urt is directed to verify whether the said
amount has been deposited or not. If the amount is deposited, there shall
be a decree redeeming the mortgage. In case, the amount was not deposited
D
or proved to have been deposited, three months' time shall be given for
deposit and on its deposit the mortgagee shall deposit within one month
thereafter the mortgage deed and title deeds with the court. Then the court
shall pass final decree. (946-A·B]

3.2 There shall be a money decree against the first defendant· E
mortgagee to the extent of sale price paid by the auction purchaser. [946-C]

3.3 The auction:.purchaser is entitled to recover the amount of the
money paid in the auction sale from the first respondent. (946-C]
F
,...,.-1 3.4 The sale certificate does not bind the appellant and, therefore,
the mortgage does not stand extinguished by reason of the sale. It is
inoperative as against the appellant. [946·D]
j..
3.5 There shall lte a direction for delivery of the possession of the
property by the first defendant or 11th defendant or any person in posses· G
sion, to the appellant within a period of three months from the date of the
receipt of the judgment or passing the final decree.· [946-E]

3.6 The mortgagee shall account for profits or benefits received by
him in terms of usufructuary mortgage. (946-F] H
944 SUPREME COURT REPORTS (1995) 2 S.C.R.

A CIVIL APPELLATE JURISDICTION : Civi! Appeal No. 1046 of
1979.

From the Judgment and Order 17.7.78 of the Patna High Court in
Second Appeal No. 562 of 1977.

B S.N. Misra, Manish Misra and D.P. Mukherjee with him for the
Appellant.

D. Goburdhan for the Respondent.

The following Order of the Court was delivered :
c
This appeal by special leave arises from the judgment of the Patna
High Court in Second Appeal No. 762/77 dated 17.7.78, which was dis-
missed in limine. The father of the appellant-plaintiff hypothecated the
plaint schedule property of 5 bighas 3 kathas 16 dhoors by usufructuary
D mortgage on 10.7.1911 for a sum of Rs. 261. One of the terms of the
mortgage, as found by the courts below, was that the first respondent-
mortgagee should ·pay the land revenue. It would appear that the
mortgagee committed default in its payment for recovery of which the
property was brought to sale. Under Ex.C-11 dated 3.8.46, the property was +
purchased by Ramtahal Singh, 11th defendant/19th respondent herein.
E Though the trial court decreed the suit, the appellate court in Title appeal
No. 8/71 by judgment and decree dated 'li!..7.77 dismissed the suit on the
finding that the appellant had lost his title since the property was sold and
Ramtahal Singh became the owner of the property at the auction sale.
Consequently, the appellant is not entitled to redeem the property.
F
The only question that arises for consideration is whether by reason ·
of purchase made by Ramtahal Singh, the auction-purchase, the appellant
has lost right of redemption of the hypothica? Under s.58(d) of the
Transfer of Property Act, (for short, 'the Act') where the mortgagor
delivers possession to the usufructuary mortgagee, the latter is authorised
G _to retain possession of such property until the payment of mortgage money
made and to receive the rent and profits accruing form the property or in
part of such rents and profits and to appropriate the same in lieu of interest
or partly in lieu of payment of the mortgaged money subject to the terms
and conditions mentioned in the mortgage deed. Section 76 of the Act
H enjoins the usufructuary mortgagee, during the continuance of the
P.SHARMAv. B.P.JAGANANI 945
mortgage to remain in possession of the mortgaged property subject to his A
managing the same as a person of ordinary prudence would, as if it were
of his own, subject to the conditions envisaged therein. If the loss was
occasioned for his failure to perform any of the duties imposed on him by
s.79, he is enjoined while redeeming the property or otherwise to account
for the same or the court is empowered under the Act to make a decree
for account and/or in pursuance of decree the loss occasioned by his failure
B
would be debited to his account.

It would be seen that in terms of the mortgage, possession was
delivered to the first respondent under the usufructuary mortgage for its
enjoyment till its redemption subject to other terms. When he was enjoined C
to enjoy the usufruct due to misfeasance committed by the first defendant
due to his default committed to pay land revenue, the property was brought
to sale. Though it is not necessary for the purpose of this case to go into
the question whether Ramtahal Singh is a benamidar for the first defen-
dant, suffice to state that by operation of s.76(c), he is injoined to pay land D
revenue to the Government and for the default committed by the
mortgagee, when the property was sold, the mortgagor had not lost his right
of redemption by the conduct and actions of the mortagee. If the deed
gives time for redemption or adjustment of the rent or profits and liabilities
in terms of the contract read with the relevant provisions of the Act stood
discharged, the limitation for redemption would run from the date fixed in
the mortgage deed. Otherwise, there is no limitation for redemption of
usufructuary mortgag~. The usufructuary mortgagor does not lose his title
to the property or right to redemption by lapse of time. By operation of
the last para of s.76, the mortgagor is entitled to the accounting of the loss
occasioned to it. At best the auction-purchaser, on redemption, would look F
to the mortgagee who had committed default in terms of the mortgage and
the court would give suitable direction in that behalf. The possession of the
purchaser must be on behalf of the mortgagee and becomes liable to
acc:ounting etc. Instead, the court held that the mortgagor lost his title due
to misfeasance committed by the mortgagee and the property was sold on
account thereof to the third parties. Accordingly, we are of the considered G
view that the High Court has committed grave error of law in dismissing
the appeal in limine. The appellate court also conun.itted same error of law
in reversing the decree of the trial court without appreciating the correct
legal position. Accordingly, the appeal is allowed. The decree shall be as
under: H
946 SUPREME COURT REPORTS (1995) 2 S.C.R.

A 1. It is stated across the Bar that the appellant had already deposited
the sum of Rs. 261. Therefore, the trial court is directed to verify whether
the said amount has been deposited or not. If the amount is deposited,
there shall be a decree redeeming the mortgage. In case, the amount was
not deposited or proved to have been deposited, three months' time shall
B be given for deposit and on its deposit, the mortgagee shall deposit within
one month thereafter the mortgage deed and title deeds with the court.
Then the court shall pass final decree.

2. There shall be a money decree against the first defendant-
mortagee to the extent of sale price paid by the Ramtahal Singh, the
C auction purchaser-defe~~ant. Np. 11.
3. The defendant No. 11 is entitled to recover the amount of the
money paid in the auction sale from the first respondent.

4. The sale certificate, Ex.C-11 does not bind the appellant and,
D therefore, the mortgage does not stand extinguished by reason of the sale.
It is inoperative as against the appellant.

5. There shall be a direction for delivery of the possession of the
property by the first defendant or 11th defendant or any person in posses- f:-
sion, to the appellant within a period of three months from the date of the
E ·receipt of the judgment or passing the final decree as mentioned in clause
(1).

6. The mortgagee shall account for profits or benefits received by
him in terms of usufructuary mortgage.

F In the circumstances, parties are directed to bear their own costs
throughout.

G.N. Appeal allowed.