NATIONAL LAW UNIVERSITY ODISHA

TRANSFER OF PROPERTY

TOPIC - RIGHTS AND LIABILITIES OF A MORTGAGEE

SUBMITTED TO SUBMITTED BY
MS. T.R RUJITHA SHENOY PARUL PRIYA NAYAK
(Assistant Professor of Law) (18BA074)

TABLE OF CONTEN
 T

INTRODUCTION......................................................................................................................3

MORTGAGE: WHAT IS IT?....................................................................................................5

Eligibility criteria for a mortgage loan...................................................................................5

RIGHTS OF A MORTGAGEE.................................................................................................7

1) Section 67 - Right to foreclosure or sale.....................................................................7

2) Section 68 - Right to sue for mortgage money............................................................8

3) Section 69 - Power of sale when valid.......................................................................8

4) Section 69-A - Appointment of receiver....................................................................9

5) Section 70 - Accession to mortgaged property...........................................................9

6) Section 71 - Renewal of mortgaged lease.................................................................10

7) Section 72 - Rights of mortgagee in possession........................................................10

8) Section 73 - Right to proceeds of revenue sale or compensation on acquisition.....11

LIABILITIES OF A MORTGAGEE.......................................................................................12

1. Section 67A - Mortgagee when bound to bring one suit on several mortgages...........12

2. Section 76 - Liabilities of mortgagee in possession......................................................12

CONCLUSION........................................................................................................................15

BIBLIOGRAPHY....................................................................................................................16

Indian Cases.........................................................................................................................16

English Cases.......................................................................................................................17

Books and Treatises.............................................................................................................17

Hyperlinks............................................................................................................................17

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 INTRODUCTION

A“mortgage involves the transfer of an interest in land as security for a loan or other
obligation. It is the most common method of financing real estate transactions. The
mortgagor is the party transferring the interest in land. The mortgagee, usually a financial
institution, is the provider of the loan or other interest given in exchange for the
security”interest.

The term “mortgage” is a term derived into the English Law and subsequently into the Indian
Law from the French Law. The term, in French, post translation means death pledge. It
means that it comes to an end only when either the obligation of the mortgagor is completed
or the property is taken by the mortgagee through the process of foreclosure.“In the ancient
system of laws,“a mortgage“was really a pledge- the property being a gage which was
forfeited on default of payment. The transaction was effected either by delivery
of”possession, or by conditional conveyance”1.

Justice Mahmood in Gopal v. Parsotam has borrowed the classic definition of mortgage from
Macpherson’s Law of Mortgages , stating“that, “Mortgage as understood by this country
cannot be defined better than by the definition adopted by the Legislature in s 58 of the
Transfer of Property”Act, 1882. “That definition has not in any way altered the law, but, on
the contrary, has only formulated in clear language the notions of mortgage as understood by
all the writers of textbooks on Indian mortgages. Every word of the definition is borne out by
the decision of the Indian Courts of Justice”2.

The author in the present paper will not attempt to do anything revolutionarily new in terms
of the definition, and scope of mortgage, the rights and liabilities of a mortgagee, etc. “The
author shall merely, in a concise, precise and easy-to-understand manner, present in a nutshell
the definition and scope of mortgage, along with the development of the law on mortgage as
well as the rights and liabilities of a mortgagee” 3.The object of the author, through the
medium of this research paper, is not a new, ground breaking research (which is not really
possible in this area of law as it is already very precise and has been analysed a lot over the
last 100 years). “Rather, it is to bring together, at one place, all the contents and opinions and

1
Mulla, The Transfer of Property Act, LexisNexis Butterworths Wadhwa, Nagpur, (10th Ed., 2006), pp. 551
2
Gopal v. Parsotam, (1883) ILR 5 All 121.
3
Macpherson, Law of Mortgages, 6th Ed, pp. 10 (As seen from Mulla, The Transfer of Property Act,
LexisNexis Butterworths Wadhwa, Nagpur, (10th Ed., 2006), pp. 552.

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interpretations of various authors, scholars and judges (through their judgments) about the
definition of the term mortgage, the rights and liabilities of a mortgagee as understood by the
legal-sphere”4.

4
Mulla, The Transfer of Property Act, LexisNexis Butterworths Wadhwa, Nagpur, (10th Ed., 2006), pp. 552

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 MORTGAGE: WHAT IS IT?

A Mortgage is a contract. A contract is an agreement between two or more parties to do or

not do something for a specified period, for consideration. In this case a Mortgage is a
financial instrument (contract) between the purchaser of real estate and the lender whereby
the purchaser borrows the money from the lender to give to the landowner in order to secure
the property and uses the property as collateral for the loan in addition to providing payments
to the lender in the form of interest until the loan is paid off. “ The Mortgage contains certain
conditions such as proof of identity; amount to be purchased; interest to be paid; location of
the property or item to be purchased; duration of the loan; agreement to pay in a timely
manner and to acknowledge payment in a timely manner, schedule of payment; terms of
default, avenues of redress and explanation of penalties for failure to perform.”5.

There are many different kinds of mortgages and a mortgage can be structured in any way
that all the parties agree upon. Most mortgages are 30 year fixed interest rate mortgages but
there are also 15 year, 10 year, 3 year, 5 year, balloon mortgages, adjustable rate mortgages
and more. “In the landmark case of Nidha Shah v Murli Dhar” 6 ,“ Lenders advertise their
mortgages as "products" and compete on "interest rates" and "closing costs". Many lenders
are willing to provide a better interest rate if the purchaser is willing to pay "points". A point
is 1 percentage point of the loan amount. Typically the lender will reduce the interest rate a
certain amount for each point paid up front. This allows the buyer to have a lower monthly
payment. Points must be "amortized" or averaged over a period of time to determine how
long it takes to pay them off. Homeowners use this information to determine how long they
must stay in the house before selling it to make using the points worthwhile.”7.

Eligibility criteria for a mortgage loan

To get a mortgage loan, you need to be salaried or a self-employed person having at least 21
years of age. In addition to this, a bank would also assess:

 Property Value

5
Sir Dinshaw Fardunji Mulla, Dr“Poonam Pradhan Saxena, Mulla The Transfer of Property Act, LexisNexis
Butterworths Wadhwa, Nagpur, (11th Ed., 2013), pp. 442; Madan Lal Sobti v. Rajasthan State Industrial
Development & Investment Corporation, AIR 2007 (NOC) 638 (Del)”.
6
Nidha Shah v Murli Dhar, (1903) ILR 25 All 115, 30 IC 54
7
Sir Dinshaw Fardunji Mulla, Dr Poonam Pradhan Saxena, Mulla The Transfer of Property Act, LexisNexis
Butterworths Wadhwa, Nagpur, (11th Ed., 2013), pp. 442

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 Experience With The Current Company
 Existing Loans/Liabilities, If Any
 Income Tax Returns For The Last Three Years
 Total Annual Income
 Total Work Experience
 Total Number Of Dependents
 The interest rate on a mortgage loan

A personal loan generally comes with a higher interest rate that is why mortgage loan is
considered as a second cheapest retail loan after home loans offered by banks. However, the
interest rate can vary depending upon amount and banks. The eligibility requirements can
differ from bank to bank.

Types of properties required to get a mortgage loan

Various “types of real estates can be used to get a mortgage loan. You can mortgage your
home, rented property, a piece of land, commercial and industrial property etc. A property
under construction can also be used for having a mortgage loan”8.

8
“Bryan A Garner, Black’s Law Dictionary”, Thomson West, (8th Ed., 2004).

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 RIGHTS OF A MORTGAGEE

1) Section 67 - Right to foreclosure or sale.

“ This remedy is counterpart of section 60( right redemption).Right of redemption is absolute

but right to foreclosure or sale is not absolute” 9. In the absence of contract to the contrary , a
mortgagee can file suit for foreclosure for sale is : -

1. Mortgage money is due

2. No redemption suit filed by mortgagor
3. No payment /no deposit by mortgagor in court.
a) Suit foreclosure means“a suit to obtain a decree that a mortgagor shall be absolutely
debarred of his right to redeem the mortgaged”property.
 Sample mortgage – No foreclosure only sale.
 Usufructuary mortgage – Can’t sue for sale or foreclosure
 Mortgage by conditional sale - Only foreclosure no sale.
 English Mortgage – no foreclosure only sale
 Mortgage by deposit of title deeds – no foreclosure only sale.
 Anomalous mortgage – depends upon the terms of mortgage deed. Mortgagee can adopt
both or only one.
b) Where a mortgagor becomes a trustee or legal representative of the mortgagee, he is
prohibited from instituting a suit for foreclosure or sale.
c) A mortgage of public works like railway canal etc, is also prohibited from instituting a
suit for foreclosure or sale. The remedy in such case is appointed of a receiver.
d) Any of the several mortgagees can’t sell or foreclose in respect of his share unless
permitted by the mortgagor. The reason is to prevent multiplicity of suits against the
mortgagor. All“co – mortgagees join together and file one suit in respect of the whole”
mortgaged money.

9
Sir Dinshaw Fardunji Mulla, Dr Poonam Pradhan Saxena, Mulla The Transfer of Property Act, LexisNexis
Butterworths Wadhwa, Nagpur, (11th Ed., 2013), pp. 575.

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2) Section 68 - Right to sue for mortgage money.

“ In the following cases a mortgage can sue for mortgaged money”10.

a) Personal covenant to repay – In simple English mortgage where mortgagor binds himself
to repay the mortgaged money. Proviso, if the mortgagor transfers such property, then the
transferee shall not be liable to be used for such mortgaged money.
b) Destruction of the mortgaged property – Where mortgaged property is wholly or partially
destroyed property is wholly or partially destroyed by accidental causes like fire, flood
etc. Without any fault on the part of the mortgagor or mortgagee and property becomes
insufficient( section 66) then mortgagee calls upon mortgagor to furnish another security.
If mortgage fails to furnish another additional security , then mortgagee can bring suit for
recovery of mortgaged money.
c) Wrongful act or default of the mortgagor – If mortgagee is deprived of mortgaged
property wholly or in party the wrongful act or default of the mortgagor, then mortgagee
property is lost due to default of mortgagee, he can’t sue for mortgaged money.
d) Failure of mortgagor to deliver possession – If mortgagor fails to deliver the possession to
the mortgagee (e.g. in usufructuary mortgage) or secure peaceful possession to the
mortgagee due to any third person clamming better title to the mortgaged property than
the mortgagor, then mortgagee can sue mortgagor for mortgaged money.

In cases mentioned under clause a and b , the court its discretion stay the proceeding or suit
of mortgagee if the mortgagee has not exhausted all his remedies against the property if: -

1)The mortgagee has already exhausted all his remedies

2) abandoned mortgaged property

3) has re transferred the mortgaged property to the mortgagor , then this sub section will not
be applicable .

3) Section 69 - Power of sale when valid.

The “power of sale in clauses (b) and (c) must be expressed. A provision in mortgage deed
that the mortgagee should ‘have all the rights, powers, remedies and privileges conferred

10
Sir Dinshaw Fardunji Mulla, Dr Poonam Pradhan Saxena, Mulla The Transfer of Property Act, LexisNexis
Butterworths Wadhwa, Nagpur, (11th Ed., 2013), pp. 590; Bhikkam Lal v. Janki Dulari, 171 IC 296 Oudh 517.

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upon a mortgagee by Act 4 of 1882”11 does not confer an express power of sale under this
section.

The “power of sale referred to in this section is a power of sale without the intervention of the
court, and is distinct from the power of a simple mortgagee to cause the mortgaged property
to be sold, i.e., under s. 67, by decree of the court” 12. “It refers to a clause expressly included
in the mortgage. A power of sale without the intervention of the court does not affect the
mortgagee’s ordinary right of realization by suit. The right recognized by this section is
independent of the right to have a receiver appointed under s 69-A, and may be exercised
even after a receiver has been appointed under s 69-A”13.

4) Section 69-A - Appointment of receiver.

“He appointed for the management of the property.” 14. “He may be nominated in the
mortgage deed.”15. “”He may be appointed by the mortgagee with the consent of the
mortgagor

If party do not agree then mortgagee can approach code for appointment of receiver.

The receiver appointed is deemed to be the agent of the mortgagor. Mortgagor is liable for
his acts. His power does not terminate with the death of the mortgagor.16.

5) Section 70 - Accession to mortgaged property.

In the absence of contract to contrary the mortgagee shall be entitled to any development/
improvement in the mortgaged property during more mortgage period. We have already
studied in section 63 that at the time of redemption the mortgagor is entitled to claim any
accession of the property

In simple language during mortgage period , mortgagee will enjoyed the accession and after
the accession will be handed over to the mortgagor

11
(4) The Mortgagee Act of 1882
12
Ibid; Also see Kishan Lal v. Ganga Ram, (1891) ILR 13 All 28
13
Ibid at pp. 607; Also see Goburdhun Bysack v. Sonattum, (1874) 23 WR 84
14
Ibid at pp. 616; Also see Venkatnarayan v. Champalal, AIR 1954 Mad 896
15
Ibid; Also see Mayor v. Murray, (1878) 8 Ch D 424
16
Ibid; Also see Gaskell v Gosling, (1896) 1 QB 669.

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 Example A mortgages to B certain plot Afterwards B builds a house in the plot. B is entitled
to a house as well as plot for the purpose of his security”17.

6) Section 71 - Renewal of mortgaged lease.

This is collar of section 64.

Mortgagor is entitled to renew the lease of mortgaged property under section 64. In the same
way in the absence of contract to the contarty, the mortgagee is entitled to renew lease of
mortgaged property under sec 71.

7) Section 72 - Rights of mortgagee in possession.

The mortgagee (whether in possession or not ) may spend money for the purposes mentioned
in this section because he has substantial interest in the mortgaged property”18.

He may spend money for:

a) Repealed
b) Preservation of property from destruction of sale or forfeiture for arrears of revenue or
taxes , but before spending money he has to call upon the mortgagor to take steps. If
mortgagor falls , the mortgagee can spend for safeguarding his own interest.
c) Supporting the mortgagor’s title initial duty to safeguard the title is on mortgagor but if
he fails to do so then mortgagee can incur expenses in safeguarding the title of the
mortgagor and add the expenses to the mortgaged money.
d) Costs of defending his own title mortgage can spend money to save his own title against
the mortgagor in case mortgagor seeks to set aside the mortgage .He can add this
expenditure with the mortgaged money.
e) Renewal of lease of mortgaged property – The expense incurred by mortgagee in renewal
of lease shall be re – imbursed by the mortgagor.

Premium paid for insurance

If mortgaged property is of insurable nature , then mortgagee can insure it fully or in part
against“loss/damage by fire. The amount of insurance shall not exceed the amount agreed
between mortgagor and mortgagee in the”mortgaged deed. If no such amount is agreed

17
Ibid; Also see Krishna Gopal v Miller, (1902) ILR 29 Cal 803.
18
34, “r 2(1)(a)(iii) The Code of Civil Procedure” , 1908

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between them then the insurance amount shall not exceed 2/3 of amount required to reinstate
the property.

The money spent by the mortgagee will be added to the mortgaged money along with the
interest at the rate payable on mortgaged money or if rate is not fixed then 9% per annum.

Money to be paid to the mortgagee by mortgagor = Mortgaged money + Expenditure by

mortgagee + interest@ applicable on mortgaged money or 9%

If mortgagor has taken insurance of the mortgaged property upto2/3 of the value of property
then mortgagee need not to take further insurance .But if mortgagor has taken up insurance
less than 2/3 then mortgagee can insure for remaining of the value of the property .

8) Section 73 - Right to proceeds of revenue sale or compensation on acquisition.

Where “mortgaged property is sold due to arrears of revenue/public/charge/taxes/rents due

the mortgagee will be entitled to claim mortgage money out of the surplus remaining after
payment of said charges”19.

Similarly , if“mortgaged property is acquired under Land Acquisition Act, the mortgagee will
claim mortgaged money”from mortgagor as compensation.

19
Ibid; Also see Prem Chand Pal v Purnima Dasi, (1888) ILR 15 Cal 546.

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 LIABILITIES OF A MORTGAGEE

As the author has stated previously also, he shall be discussing the liabilities of a mortgagee
only in the context of the Transfer of Property Act, 1882. Sections 67A, 76 and 77 deal with
the liabilities of mortgagee under the Indian law.

1. Section 67A - Mortgagee when bound to bring one suit on several mortgages.

According to section 67A if a mortgagee“holds two or more mortgages of the same property
or of different properties from the same mortgagor , he must enforce all or more , in the
absence of a contract to the”contrary

Although there have been conflicting views, the general trend has been“that a mortgagee
might sue on a later mortgage reserving his rights on a prior”mortgage. “This was decided by
the Full bench of the Madras High Court in Subramania v. Balasubramania” 20 , “which
adopted the view taken by the Allahabad HC in Sundar Singh v. Bholu”21 that two mortgages
constituted different causes of action.

This“section is primarily for the benefit of the mortgagor, and he may waive its benefit, and
such a waiver would be implied by his failure to object in good time. However, this rule does
not apply, unless and until the mortgagor were the”same.

2. Section 76 - Liabilities of mortgagee in possession.

In this section, duties of mortgagee are classified under nine heads :-

a) To“manage the property with ordinary prudence : - The criteria for management by a
prudent man of his own property . His position is like a”trustee.
b) To collect rents and profits he must take every effort to collect rents and profits arising
out of the property.
c) Payment of revenues – Government revenues,“public charges and rents are always
paramount charges on immovable property and failure to pay them renders the property
liable to be sold. Hence the mortgage in possession must pay the revenue and other public
charges, unless there”is contract to the contrary.
d) To carry necessary repairs under certain circumstances in the absence of contract to the
contrary, the mortgage must carry out necessary repairs out of the profits left after
satisfying revenue , public charges and deducting interest on principal money.
20
Subramania v. Balasubramania, (1915) ILR 38 Mad 927
21
Sundar Singh v. Bholu, (1898) ILR 20 All 322

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 Repairs = profit – (public charges + interest on principal money )
e) Not to commit any waste – The mortgage must use the property mortgaged with care as
his own property . He must not cut down trees which already existed on the property at
the time of mortgage.
f) To apply the insurance money in reinstating the property – under section 72 mortgage
has right to take insurance for the mortgaged property. He is under duty to apply the
money received under insurance policy in reinstating the property or if he is directed by
the mortgagor , he can use such money for discharge of mortgaged money.
g) To keep proper accounts – He must keep a clear and full , accurate account of all sums
received as well as expenditure incurred supported by vouchers. However , the question
of accounting does not arise if mortgagor has allowed him to use income of the property
for satisfaction of his principal money and its interest.
h) To apply the rents and profits arising from property in satisfaction of interest after
making certain deductions.

Receipts from the mortgaged property shall be :-

i. If property is in possession of tenants – rents received from them

ii. If it is directly cultivated or profitably employed by mortgagee – profits derived from it
iii. If it is occupied by mortgagee- rent for it.

The above three receipts will be applied in following manner :

 Expenses incurred in management of property

 Public charges and revenue
 Expenses incurred in necessary repairs
 Interest on amounts spent above

The balance must be appropriated for reduction of mortgage debt , first towards interest on
principal money and then the principal money. If surplus remains after satisfaction of the
interest and principal money ,it shall be given to the mortgagor.

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i) Tender“or deposits by the mortgagor after the mortgagor repays mortgage repays
mortgaged money to the mortgagee or deposits it to court, if mortgagee spends any amount in
connection with the mortgaged property , then mortgagor shall not be liable for that .
Mortgagee shall not be entitled to deduct such amount after his mortgaged money is tendered
to”him.

Loss due to mortgagee’s default – If mortgagee fails to perform any of the duty mentioned in
this section and any loss arises due to such failure then he shall be liable for such loss.

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 CONCLUSION

In the view of the author, after having read and gone through numerous books, the rights and
liabilities of a mortgagee, especially in Indian context, are provided for completely within the
Transfer of Property Act, 1882 and hence do not need any jurisprudential development.

The understanding of the jurisprudence behind the concept of rights and duties simpliciter, is
of utmost significance in any and all subjects even minutely dealing with, containing or
relating to the general concept of rights and duties. Thus, in the opinion of the author, just
reading books by scholars and various other authorities on the law of mortgages is not
sufficient. The person must understand the jurisprudence behind the concept of rights and
duties and then accordingly understand their application in the law of mortgages.

A“mortgage is as valuable to a mortgagee as it is to a mortgagor. obviously, the main benefit

is that a rate of interest can be charged for the money lent, and an income is generated for the
mortgagee on the security of what is, in all but the most severe economic conditions, an asset
that is going to appreciate in value. However, just as the property owner uses the mortgage to
liquidate his assets, the mortgagee uses the mortgage to capitalise his income. The inherent
characteristic of a mortgage is that it is security for money lent, and the ultimate goal of any
mortgagee will be to recover payment of the principal debt, plus interest and related”costs.

This is why and where the rights and the liabilities of a mortgagee come into play, for the
benefit of all the parties in the long run. An existing knowledge about what are the right
liabilities of a mortgagee, how they apply to various situations, and when they apply are all
specifics which each mortgagor and mortgagee should have. This will be valuable in helping
and aiding the mortgagor to return the amount plus interest, as well as the mortgagee to
ensure the return of the same.

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 BIBLIOGRAPHY

Indian Cases

1. A Kumar v. Sanjoga, (1953) 32 ILR Pat 903.

2. Ali Husain v. Nilla Kanden, (1864) 1 Mad HC 356.

3. Anadi Ram v Dur Najaf Ali, (1891) ILR 13 All 195.

4. Bachu Lal v Chaudhri Syed Mohammed, AIR 1933 PC 136.

5. Bhikkam Lal v. Janki Dulari, 171 IC 296 oudh 517.

6. Dhondo v Balakrishna, (1884) ILR 8 Bom 190.

7. Goburdhun Bysack v. Sonattum, (1874) 23 WR 84.

8. Gopal v. Parsotam, (1883) ILR 5 All 121.

9. Kamalapat v Union Sugar Mills, AIR 1929 PC 256.

10. Kishan Lal v. Ganga Ram, (1891) ILR 13 All 28.

11. Krishna Gopal v Miller, (1902) ILR 29 Cal 803.

12. Krishnammal v N Krishna, AIR 1956 Mad 424.

13. LV Apte v RGN Price, AIR 1962 AP 274.

14. Madan Lal Sobti v. Rajasthan State Industrial Development & Investment
Corporation, AIR 2007 (NoC) 638. (Del).

15. Maharaj Bahadur Singh v Basiruddin, AIR 1925 Cal 1135.

16. Manikchand v Mohammed Sait, (1969) 1 SCC 206.

17. Mataprasad Upadhya v. Kunnon Devi, AIR 1928 Rang 128.

18. Naidu SR v. Bank of Karaikudi, AIR 1971 SC 884.

19. Nidha Shah v Murli Dhar, (1903) ILR 25 All 115, 30 IC 54.

20. Prahlad v Maganlal, (1952) ILR Bom 1090.

21. Prem Chand Pal v Purnima Dasi, (1888) ILR 15 Cal 546.

22. Rajkumari Kaushalya Devi v. Bawa Pritam Singh, [1960] 3 SCR 570.

23. Rudra Prasad v. Nasiruddin. AIR 1927 oudh 315.

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24. Sivraj Lal v HPF Ltd, AIR 1943 Mad 62.

25. Subramania v. Balasubramania, (1915) ILR 38 Mad 927.

26. Sundar Singh v. Bholu, (1898) ILR 20 All 322.

27. Suratsingh v Nomanbhai, AIR 1961 Bom 43.

28. Umartara Gupta v Umacharan Sen, (1906) 3 Cal LJ 52.

29. Upendra Nath v Tara Nath, AIR 1962 Assam 52.

30. Venkatnarayanv. Champalal, AIR 1954 Mad 896.

English Cases

1. Gaskell v Gosling, (1896) 1 QB 669.

2. Mayor v. Murray, (1878) 8 Ch D 424.

3. Page v Linwood, (1837) 4 Cl & Fin 399.

Books and Treatises

1. Bryan A Garner, Black’s Law Dictionary, Thomson West, (8th Ed., 2004).

2. Mulla, The Transfer of Property Act, LexisNexis Butterworths Wadhwa, Nagpur,

(10th Ed., 2006).

3. Sir Dinshaw Fardunji Mulla, Dr Poonam Pradhan Saxena, Mulla The Transfer of
Property Act, LexisNexis Butterworths Wadhwa, Nagpur, (11th Ed., 2013).

Hyperlinks

1. http://www.law.cornell.edu/wex/mortgage

2. www.heinonline.com (used en passant)

3. www.jstor.com (used en passant)

4. www.manupatra.com (used en passant)

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