Discharge of Incumbrances on Sale
Chapter Thirty
Syllabus topic 2.1, "Specific Transfers under the Transfer of Property Act, 1882: Sale [Sections 54 - 57]"
Pages 155 to 158 of 378
In one line
A court can let a buyer take property free of a mortgage by having enough money paid into court to answer it, so a sale is not held up while the parties argue about an old charge.
In exam wording: section 57 provides that where immovable property subject to an incumbrance is sold, whether by the Court, in execution of a decree, or out of Court, the Court may on the application of any party direct payment into Court of an amount sufficient to meet the incumbrance, and may then declare the property freed from it.
Why the provision exists
An incumbrance is a burden on property, typically a mortgage or a charge. A property carrying one is hard to sell: no sensible buyer pays full value for land that a lender can take, and the incumbrancer may be absent, may be disputing the amount, or may simply refuse to co-operate.
Section 57 breaks the deadlock. Instead of requiring the incumbrance to be settled before the sale, it lets the money stand in place of the land. Enough is paid into court to answer the burden, the court declares the land free, the buyer gets a clean title, and the incumbrancer is paid out of the fund. Nobody loses anything of value; the security simply changes its form.
Note where this sits with Module I. Section 2(d) saves transfers by, or in execution of, a decree from this Act "save as provided by section 57 and Chapter IV". Section 57 is one of the two named exceptions, which is why it applies to a court sale at all.
Broken down
Clause (a): payment into court. Where immovable property subject to any incumbrance, whether immediately payable or not, is sold by the Court, or in execution of a decree, or out of Court, the Court may, if it thinks fit, on the application of any party to the sale, direct or allow payment into Court of:
(1) where the charge is an annual or monthly sum, or a capital sum charged on a determinable interest: such amount as, invested in securities of the Central Government, the Court considers will be sufficient by means of the interest to keep down or otherwise provide for the charge; and
(2) in any other case of a capital sum charged on the property: an amount sufficient to meet the incumbrance and any interest due on it.
The cushion. In either case an additional amount must be paid in, as the Court considers sufficient to meet the contingency of further costs, expenses and interest and any other contingency, except depreciation of investments, not exceeding one-tenth of the original amount, unless the Court for special reasons which it must record requires more.
Discharge of Incumbrances on Sale
The one-tenth cap and the recorded-reasons requirement are the sort of detail that makes a good answer, and the exclusion of depreciation of investments is deliberate: the fund is invested in Government securities, and the parties are not to be charged for market movement.
Clause (b): declaring the property free. The Court may then, if it thinks fit, and after notice to the incumbrancer unless it records in writing reasons for dispensing with notice, declare the property freed from the incumbrance, make any order for conveyance or vesting order proper for giving effect to the sale, and give directions for the retention and investment of the money in Court.
Clause (c): paying it out. After notice to the persons interested in or entitled to the money, the Court may direct payment or transfer to the persons entitled to receive it or to give a discharge, and generally give directions about the application or distribution of the capital or income.
Clause (d): appeal. An appeal lies from any declaration, order or direction under the section as if it were a decree.
Clause (e): which court. "Court" means a High Court in the exercise of its ordinary or extraordinary original civil jurisdiction; the Court of a District Judge within whose local limits the property or any part of it is situate; and any other Court the State Government declares competent by notification in the Official Gazette.
A worked example
A bungalow at Igatpuri is being sold in execution of a money decree against its owner. It carries a mortgage of Rs. 20 lakh in favour of a lender who lives abroad and cannot be brought to the negotiating table, and Rs. 1.4 lakh of interest is due.
The problem. Bidders will discount the property heavily, or stay away, because whoever buys it may face the mortgagee.
Section 57 applied. Any party to the sale may apply. This is a capital sum charged on the property, so clause (a)(2) applies and the amount to be paid in is enough to meet the incumbrance and the interest due, that is Rs. 21.4 lakh. To that the Court adds a cushion for further costs, expenses, interest and other contingencies, capped at one-tenth of Rs. 21.4 lakh, so up to about Rs. 2.14 lakh, unless it records special reasons for requiring more.
What follows. After notice to the mortgagee, or on recorded reasons for dispensing with notice, the Court may declare the bungalow free of the mortgage and make the orders needed to give effect to the sale. The buyer takes a clean title. The mortgagee is paid out of the fund under clause (c), and if he is unhappy with any of it he may appeal under clause (d) as from a decree.
Discharge of Incumbrances on Sale
Change the incumbrance. Suppose instead the property is charged with an annuity of Rs. 60,000 a year payable to an elderly relative. Clause (a)(1) applies: the amount paid in is what the Court considers will, invested in Central Government securities, produce enough interest to keep down that annual sum. The capital is not handed over, because the charge is a recurring one and must be provided for indefinitely.
What it does NOT mean
It does not extinguish the incumbrance. It moves it from the land to a fund in court. The incumbrancer is paid; he is not deprived.
It is not confined to court sales. The words are "by the Court or in execution of a decree, or out of Court", so a private sale can use it too.
The court is not obliged. Twice the section says "if it thinks fit". It is discretionary.
Notice to the incumbrancer is the norm. It may be dispensed with only for reasons recorded in writing.
The additional amount is capped. One-tenth of the original sum, unless special reasons are recorded, and it never covers depreciation of investments.
"Court" is defined narrowly. A High Court on its original civil side, a District Judge's Court where the property lies, or a Court notified by the State Government.
Distinctions
| Type of incumbrance | Clause | Amount to be paid into Court |
|---|---|---|
| An annual or monthly sum charged on the property, or a capital sum charged on a determinable interest | (a)(1) | Enough that, invested in Central Government securities, the interest will keep down or provide for the charge |
| Any other capital sum charged on the property | (a)(2) | Enough to meet the incumbrance and the interest due |
| Both | Plus a contingency cushion, up to one-tenth, more only for recorded special reasons, never for depreciation of investments |
Quick revision
- Section 57 lets a sale go through free of an incumbrance by substituting money in court for the burden on the land.
- Applies to a sale by the Court, in execution of a decree, or out of Court, on the application of any party, and the Court acts only if it thinks fit.
- Recurring charges and capital sums on a determinable interest: pay in enough that the interest on Central Government securities provides for the charge.
- Other capital sums: pay in enough to meet the incumbrance and interest due.
- Plus a contingency amount not exceeding one-tenth, unless the Court records special reasons; depreciation of investments is excluded.
- The Court may then declare the property freed, after notice to the incumbrancer unless reasons for dispensing with it are recorded.
- An appeal lies as from a decree. "Court" means a High Court on its original civil side, a District Judge's Court, or a Court notified by the State Government.
- Section 57 is one of the two exceptions named in section 2(d), which is why it reaches a court sale.
Discharge of Incumbrances on Sale
Test yourself
1. What does section 57 achieve? It allows immovable property subject to an incumbrance to be sold free of it, by having a sufficient sum paid into Court to answer the incumbrance, after which the Court may declare the property freed.
2. Does it apply only to sales by a court? No. It applies where the property is sold by the Court, in execution of a decree, or out of Court.
3. How is the amount fixed for an annuity charged on the property? Under clause (a)(1), at such amount as the Court considers will, when invested in securities of the Central Government, be sufficient by means of the interest to keep down or otherwise provide for the charge.
4. What is the limit on the additional contingency amount? One-tenth of the original amount to be paid in, unless the Court for special reasons, which it must record, requires a larger sum. It does not cover depreciation of investments.
5. Must the incumbrancer be given notice? Yes, unless the Court for reasons recorded in writing thinks fit to dispense with notice.
6. Is an order under section 57 appealable? Yes. Clause (d) provides that an appeal lies from any declaration, order or direction under the section as if it were a decree.
The rest of this subject
These notes are cut from the University's printed syllabus. Open the syllabus itself, or the past papers, for the same subject.