When does the right of redemption get extinguished?

The proviso to Section 60 of the Transfer of Property Act, 1882 is deceptively brief, yet it carries within it the entire law on the extinguishment of the mortgagor's most precious right. It declares that the right of redemption is available to the mortgagor, provided it "has not been extinguished by act of the parties or by decree of a Court." These are the only two recognised modes of extinguishment. The Supreme Court has categorically affirmed that the right of redemption under a mortgage deed can come to an end only in a manner known to law, and that such extinguishment may take place by a contract between the parties, by a merger, or by a statutory provision debarring the mortgagor from redeeming. Beyond these recognised modes, no condition in the mortgage deed — however clearly worded and however willingly accepted — can operate to extinguish this right.

Extinguishment by Act of Parties

The phrase act of the parties has a precise and restricted meaning. It refers to a transaction that occurs subsequent to the mortgage and stands entirely apart from the mortgage transaction. It does not include conditions written into the original mortgage deed itself — those would amount to clogs on redemption and would be void. The act of the parties, to be effective, must comply with all formalities prescribed by law.

The most classic example of extinguishment by act of parties is where the mortgagor sells his equity of redemption to the mortgagee himself. When the person who holds the mortgage interest and the person who holds the right to redeem become one and the same, the two interests merge and the right of redemption is extinguished. The Supreme Court, in Narandas Karsondas v S.A. Komatam (AIR 1977 SC 774), laid down the governing rule: in India, the right of redemption is extinguished only on the execution of the conveyance and the registration of the transfer of the mortgagor's interest by a registered instrument. A mere oral agreement to sell, an unregistered document, or a mutation of revenue records in the mortgagee's name is wholly insufficient.

The courts have been vigilant in insisting upon this strict requirement. In Bachan Kaur v. Kaka Singh (AIR 2016 PH 291), a document used the expression "it would be treated as a sale at the time of need." The Punjab High Court held that this vague, one-sided expression, not contained in a registered instrument, could not extinguish the right of redemption. On the other hand, where a mortgagor executed a document expressly expressing his inability to repay the loan amount and authorising the mortgagee to put the property to public auction, the Andhra Pradesh High Court held that this amounted to a valid extinction of the right of redemption, and further held that no provision of law mandates that a document having the effect of extinguishing the right of redemption must always be registered.

The act of parties can also consist of an independent sale by the mortgagor to a third person. Such a sale is entirely valid and extinguishes the mortgagor's own right of redemption — the third person then steps into the shoes of the mortgagor and acquires the equity of redemption. As the Madras High Court observed in A. Gnanam v. Palaniappa Co. (AIR 2001 Mad 14), a right of redemption does not remain independent of the property itself, and once the title to the property passes to a stranger, the equity of redemption accompanies it.

Extinguishment by Decree of a Court

The second mode of extinguishment is by a decree of a court, and here too the law is strict. The decree must run strictly in accordance with the form prescribed for the purpose. A passing or incidental order, or a decree that does not conform to the prescribed form, will not extinguish the right of redemption. The Federal Court affirmed this in Thota China Subba Rao v. Matapalli Raju (AIR 1950 FC 1).

The relevant decrees that extinguish the right of redemption may be classified as follows:

Foreclosure Decree: In the case of a mortgage by conditional sale and an anomalous mortgage (where the terms so provide), the mortgagee may file a suit for foreclosure under Section 67. The court passes a preliminary decree giving the mortgagor a final opportunity to pay. If the mortgagor fails to pay within the time fixed in the preliminary decree, a final decree of foreclosure is passed, and by that final decree, the mortgagor is absolutely debarred of his right to redeem. The right of redemption continues even after the preliminary decree — only the final decree extinguishes it. The Supreme Court in K. Vilasini v. Edwin Pereira (AIR 2009 SC 1041) held that the right of redemption becomes extinguished upon the final decree in a suit for foreclosure. Even where the mortgagor has defaulted in compliance with the preliminary decree, the court has held in Achaldas Durgaji Oswal v. Ramvilas Gangabisan Heda (AIR 2003 SC 1017) that as long as the deposit was made within the thirty-year limitation period, the right of redemption was not extinguished.

Court Sale/Auction Sale: Where the mortgaged property is sold by order of the court — either in a suit for sale filed by a simple mortgagee, or in execution proceedings — and the auction sale becomes absolute by issuance of a certificate of sale, the mortgagor's right of redemption is extinguished from that moment. The Supreme Court made this position unambiguously clear: once the sale certificate is issued in favour of the auction purchaser, the sale cannot be set aside on balancing of equities or on the mere ground that the mortgagor was willing to pay the entire debt. The right is simply gone.

An important qualification was settled in L.K. Trust v. EDC Ltd. (AIR 2011 SC 2060): where the secured asset had been put up for auction and an offer accepted, but no sale deed had yet been executed or sale certificate issued, the Supreme Court held that the right of redemption was not lost. The mortgagor's intervention to redeem at that stage was valid. This was contrasted with Shree Jayalakshmi Textiles v. International Asset Reconstruction Co. Pvt. Ltd. (AIR 2016 Kant 40), where the sale was confirmed and the certificate issued, and redemption was held barred.

In cases under the SARFAESI Act, 2002, the Madras High Court in Shakeena v. Bank of India (AIR 2008 Mad 10) held that the word "sale or transfer" in the statute connotes the execution of a conveyance and a registered sale deed. Until there is completion of the sale by the secured creditor through registration of the sale deed, the mortgagor's right to redeem is not extinguished.

What Does NOT Extinguish the Right

An equally important aspect of this question is what does not bring the right to an end. The courts have consistently struck down attempts to extinguish the right in ways not recognised by law:

• A condition in the original mortgage deed to the effect that if money is not repaid within a specified time the mortgage will be deemed a sale, is a clog on redemption and void.

• The mere lapse of the time specified in the mortgage deed does not extinguish the right. In a usufructuary mortgage with no fixed period for repayment, no limitation runs at all until the mortgage money is paid or deposited.

• The dismissal of an earlier suit for redemption — whether it abated due to the death of the mortgagor, was withdrawn, or was dismissed for default — does not extinguish the right, and a fresh suit for redemption is maintainable during the subsistence of the mortgage.

• Mutation of revenue records in the mortgagee's name does not by itself extinguish the right.

• An unregistered document purporting to convey the mortgaged property to the mortgagee, not being a properly executed and registered transfer, cannot extinguish the right.

Extinguishment by Expiry of Limitation

There is a third mode of extinguishment that operates outside the frame of Section 60 itself, through the law of limitation. Under Article 61 of the Limitation Act, 1963, the mortgagor has thirty years from the date the right to redeem accrues to file a suit for redemption. Once this period expires without a suit being filed, the right of the mortgagor to seek redemption is extinguished, and simultaneously, the title to the property vests in the mortgagee who has been in possession. In Manjit Kaur v. Kaushalya Devi (AIR 2011 PH 75), the mortgage was for two years and the limitation for redemption had expired; the suit for a declaration of title in favour of the mortgagee was held to be proper. Where, however, the mortgage is without a fixed period for repayment — as is usual in usufructuary mortgages — no limitation runs until the mortgagor makes payment or deposits the money in court, for the right to redeem does not accrue until that date.

It is worth pausing to note the important principle confirmed by the Supreme Court in Ganga Dhar v. Shankar Lal: where no time is fixed for the repayment of the mortgage money, there is no fixed point from which limitation begins to run, and the mortgage remains redeemable indefinitely until the mortgagor pays or deposits the amount.

Extinguishment by Merger

Merger is a distinct, though related, mode of extinguishment. When a person acquires both the mortgagee's rights and the mortgagor's equity of redemption, the two interests meet in the same hands and the lesser merges into the greater. As Section 101 of the Act contemplates, a mortgagee who purchases the mortgagor's interest would ordinarily cause the mortgage to merge — but this merger operates only between those parties and not against a subsequent mortgagee, who retains his independent rights. Merger requires a genuine union of the two estates; it does not occur merely because two capacities are vested in the same physical person, unless the law so directs or the parties so intend.

The lesson running through all of this is consistent: the right of redemption is statutory, jealously protected, and can be extinguished only by the modes that the law itself recognises. As the Supreme Court has repeatedly emphasised, the mortgagor's right must come to an end only in a manner known to law — any other attempt to extinguish it, however craftily worded in the deed, remains a nullity.