Section 73 of Transfer of Property Act, 1882 - Revenue Sale Proceeds and Acquisition Compensation

Section 73 of the Transfer of Property Act, 1882 protects a mortgagee's security when mortgaged property is sold for unpaid public revenue, public charges or rent, or is compulsorily acquired. Subject to the statutory conditions and the rights of prior encumbrancers, the mortgagee can seek payment from the surplus sale proceeds or compensation, even if the secured principal is not yet due.

Section 73 - Complete statutory text

73. (1) Where the mortgaged property or any part thereof or any interest therein is sold owing to failure to pay arrears of revenue or other charges of a public nature or rent due in respect of such property, and such failure did not arise from any default of the mortgagee, the mortgagee shall be entitled to claim payment of the mortgage-money, in whole or in part, out of any surplus of the sale proceeds remaining after payment of the arrears and of all charges and deductions directed by law.

(2) Where the mortgaged property or any part thereof or any interest therein is acquired under the Land Acquisition Act, 1894 (1 of 1894), or any other enactment for the time being in force providing for the compulsory acquisition of immovable property, the mortgagee shall be entitled to claim payment of the mortgage-money, in whole or in part, out of the amount due to the mortgagor as compensation.

(3) Such claims shall prevail against all other claims except those of prior encumbrancers, and may be enforced notwithstanding that the principal money on the mortgage has not become due.

Definitions and legal meaning

Mortgage: Under Section 58(a), a mortgage transfers an interest in specific immovable property to secure a loan, debt or pecuniary obligation. The person creating the mortgage is the mortgagor; the person receiving the security interest is the mortgagee. Mortgage-money means the principal and interest secured for the time being.

Revenue sale: A sale of property or an interest in it to recover arrears of land revenue, public charges or rent under applicable law. Surplus proceeds means the money left after payment of arrears and deductions and charges required by law. Compulsory acquisition is an acquisition under statutory authority, ordinarily accompanied by compensation determined under the applicable enactment. Prior encumbrancer means a person whose legally enforceable charge or security interest has priority over the mortgagee's claim.

Section 73(1): Mortgagee's right after revenue sale

Where the mortgaged property, part of it, or an interest in it is sold for unpaid public revenue, public charges or rent, a mortgagee may claim all or part of the mortgage-money from the surplus remaining after legally mandated deductions. The crucial condition is that the failure to pay the arrears must not have arisen from the mortgagee's own default. The mortgagee does not receive the gross sale price ahead of the statutory revenue demand; the claim is directed to the eligible surplus.

Section 73(2): Compensation for compulsory acquisition

Where mortgaged immovable property, any part of it or an interest in it is compulsorily acquired, the mortgagee can claim all or part of the mortgage-money from the compensation due to the mortgagor. Section 73 refers to the Land Acquisition Act, 1894, and also expressly covers any other acquisition enactment for the time being in force. The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, which generally replaced the 1894 Act subject to savings, and any applicable special acquisition statute must therefore be examined for the acquisition concerned. Section 73 does not by itself determine the compensation amount or displace the applicable acquisition procedure.

Section 73(3): Priority and payment before maturity

The claims under subsections (1) and (2) prevail against other claims except those of prior encumbrancers. A mortgagee may enforce the statutory claim even though the principal sum under the mortgage has not yet fallen due. This preserves the value of security where the mortgaged asset is replaced by sale proceeds or compensation, but does not extinguish superior interests.

Practical examples

Sale for land-revenue arrears: A mortgaged parcel is auctioned for unpaid land revenue without fault of the mortgagee. After the arrears and statutory deductions are paid, a surplus remains. The mortgagee may claim payment from that surplus, subject to prior encumbrancers.

Acquisition for a public project: Land subject to a mortgage is acquired by the competent authority. The mortgagee may assert a claim against compensation due to the mortgagor, even if repayment of the loan was originally scheduled for a later date. Applicable acquisition law governs the award, disbursement and any reference or dispute procedure.

Section 72 addresses certain expenditure and insurance rights of a mortgagee. Section 68 concerns specified grounds for a personal suit for mortgage-money. Section 78 concerns postponement of a prior mortgagee in particular circumstances. These provisions address different rights and must be applied to the particular mortgage and facts.

Official legal resources

Read the Transfer of Property Act, 1882 (India Code) and consult India Code for the applicable land acquisition legislation, amendments and state-specific law. Relevant statutory provisions, priorities, court orders and acquisition proceedings should be checked before making or opposing a claim.