In general, when a borrower (mortgagor) does not repay the loan, the lender (mortgagee) has to go to court to sell the mortgaged property. This is provided under Sections 67 and 68 of the Transfer of Property Act, 1882. However, Section 69 provides an exception, where the mortgagee can sell the mortgaged property without involving the court, but only in specific circumstances and under strict conditions.
When Can a Mortgagee Sell Without Court intervention?
According to Section 69, a mortgagee is allowed to sell the mortgaged property directly, without court’s help, in the following situations:
- English Mortgage: If the mortgage is an English mortgage and neither the borrower nor the lender is a Hindu, Muslim, Buddhist, or belongs to any community specified by the State Government.
- Government as Mortgagee: If the Government is the lender and the mortgage deed clearly allows sale without court intervention.
- Property Location: If the mortgaged property is located in cities like Kolkata (Calcutta), Mumbai (Bombay), Chennai (Madras), or any area notified by the State Government.
The mortgagee can carry out the sale either personally or through an authorized agent.
Conditions Before Exercising the Power of Sale
Section 69(2) lays down the mandatory conditions that must be fulfilled before a mortgagee can sell the property:
- A written notice must be given to the mortgagor asking for repayment of the principal amount, and at least three months should have passed after this notice.
- If the borrower has not paid interest and the unpaid amount is Rs. 500 or more, then the mortgagee can sell the property even without giving the notice, provided the interest has been unpaid for at least three months.
- These conditions are legal requirements and cannot be changed or avoided by mutual agreement.
Use of Sale Proceeds (Section 69(4))
After the sale, the money received must be used in the following order:
- To clear any earlier debts or charges on the property.
- To pay the costs and expenses related to the sale.
- To repay the loan (mortgage money) of the current lender.
- Any extra money left should be given back to the borrower (mortgagor).
Purchaser's Protection and Effect of Sale
Under Section 69(3) of the Transfer of Property Act, when a mortgagee sells the mortgaged property legally, the buyer gets a valid and secure ownership title—even if there were some minor mistakes in the sale process. Once the sale is done, the borrower (mortgagor) loses the right to redeem the property, which means they can no longer take back the property by paying the loan. This right of redemption can also come to an end in other ways, such as when the borrower fully repays the loan, when the mortgagee uses the legal remedy of foreclosure under Section 67, when the property is sold under Section 69, if the time limit to reclaim the property ends, if someone gains ownership through adverse possession, or if the borrower ends up inheriting the rights of the mortgagee.
Remedy Available to the Mortgagor
If the mortgagee sells the property in a wrongful or improper manner (for example, without fulfilling legal conditions), the borrower can file a case to claim compensation or damages from the lender.
Conclusion
Section 69 of the Transfer of Property Act provides a powerful tool to the mortgagee to sell the property without involving the court, but only under specific situations and conditions. While it speeds up the recovery process, the law ensures that the borrower’s rights are also protected through strict safeguards and the right to claim damages in case of misuse. This balance helps maintain fairness between both parties in mortgage transactions.
