'Once A Mortgage, Always A Mortgage' - Right To Redeem Mortgage Can Be Extinguished Only By Process Of Law : SC [Read Judgment]

The Supreme Court on Friday decreed a suit filed in 1978 applying the principle that right to redeem a mortgage can be extinguished only by a process known to law.

"This emanates from the legal principle applicable to all mortgages – "Once a mortgage, always a mortgage"", observed a bench comprising Justices Mohan Shantanagoudar and R Subhash Reddy.

The bench explained the principle as follows :

"It is well-settled that the right of redemption under a mortgage deed can come to an end or be extinguished only by a process known to law, i.e., either by way of a contract between the parties to such effect, by a merger, or by a statutory provision that debars the mortgagor from redeeming the mortgage. In other words, a mortgagee who has entered into  possession of the mortgaged property will have to give up such possession when a suit for redemption is filed, unless he is able to establish that the right of redemption has come to an end as per law". 

The case pertained to an inam/watan land which was governed by the Bombay Hereditary Offices Act, 1874. The original watandar put one Ramchandra as a permanent tenant of the land in 1947.

In 1947 itself, Ramachandra mortgaged the land to one Shankar Sakharam Kenjal (predecessor of appellants in SC). As per the deed, the mortgage period was 10 years, during which the mortgagee will remain in possession of the land.

In 1950, the Bombay Paragana and Kulkarni Watans (Abolition) Act, 1950 (hereinafter 'the Abolition Act') was passed, which abolished all watans and resumed the land to the Government.

Section 4 of the Abolition Act empowered the holder of  the watan to seek re-grant of the land upon payment of the requisite occupancy price. The original watandar did not apply for re-grant of the land. However, the mortgagee, applied for re-grant on the ground that he was in possession of the land, and he got the re-grant eventually.

In 1978, the legal heirs of the original mortgagor, Ramachandra, filed a suit for redemption of mortgage and recovery of possession of the land upon receipt of the mortgage money.

The trial court dismissed the suit in 1983, holding that the mortgagor's right to redemption was extinguished by the Abolition Act.

The first appeal filed against it was dismissed in 1987.

The plaintiffs filed the second appeal before High Court in 1987. Twenty years later, the High Court allowed the appeal, holding that the right to redemption was not lost. 

This was done on the basis that but for the mortgage, the mortgagee would not have been in possession of the suit land and could not have obtained the re-grant order in his favour. Given that such re-grant was premised on the underlying mortgagor-mortgagee relationship, it was held that the benefit obtained by the mortgagee by virtue of such re-grant must accrue to the mortgagor.

The defendants challenged this in Supreme Court.

Eleven years later, the SC dismissed the SLP, affirming the reasoning of the HC.

Following the principle that the right to redemption can be lost only by way of process of law, the SC observed :

"in our considered opinion, the re-grant to the Appellants' predecessor based on actual possession as mortgagee cannot be divorced from the existence of the underlying mortgagor-mortgagee relationship between the parties. Therefore, any benefit accruing to the mortgagee must necessarily ensue to the Mirashi tenant–– mortgagor". 

The SC also applied the principle under Section 90 of the Indian Trusts Act, regarding which the SC said :

"A bare reading of this provision indicates that if a mortgagee, by availing himself of his position as a mortgagee, gains an advantage which would be in derogation of the right of the mortgagor, he must hold such advantage for the benefit of the mortgagor".

The Court held that the right to redeem the mortgage was not extinguished but was protected by virtue of the Abolition Act as well as under the provisions of the Bombay Tenancy and Agricultural Lands Act, 1948.

The SC held :

"the mortgagee could only obtain the re-grant in his favour by availing himself of his position as a mortgagee, as such re-grant is traceable to the possession of the land accorded to him by virtue of the mortgage deed. Further, the said re-grant was certainly in derogation of the rights of the mortgagor who was the permanent Mirashi tenant and thereby protected by virtue of the subsisting tenancy. The fact that the lessor/Mirashi tenant Ramachandra did not claim re-grant is not relevant inasmuch the right of redemption of a mortgagor is not extinguished by virtue of re-grant in favour of the original defendant inasmuch as the re-grant was obtained and the property was held by the original defendant for the benefit of the mortgagors. Re-grant made in favour of the original defendant is an advantage traceable to the possession of the suit property obtained by him under the mortgage and the said re-grant certainly subserves the right of mortgagor who was a Mirashi tenant in respect of the suit property.

As mentioned earlier, Section 90 of the Indian Trusts Act, 1882 casts a clear obligation on the mortgagee to hold any right acquired by him in the mortgaged property for the benefit of the mortgagor, as he is seen to be acting in a fiduciary capacity in respect of such transactions. Therefore, the advantage derived by the Appellants (mortgagee) by way of the re-grant must be surrendered to the benefit of the Respondents (Mirashi tenant––mortgagor)"

The apex court held that the situation was covered by the precedents in the cases Jayasingh Dnyanu Mhoprekar and Another v. Krishna Babaji Patil and Another, (1985) 4 SCC 162 and Namdev Shripati Nale v. Bapu Ganapati Jagtap and Another, (1997) 5 SCC 185

Case Details
Title : Shankar Sakharam Kenjale (Died) through LRs v Narayan Krishna Gade and another
Case No : Civil Appeal 4594 of 2010
Bench : JJ Mohan M Shantanagoudar and R Subhash Reddy

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