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Section 81: Marshalling securities

Transfer of Property Act • Official Statutory Text & Practice Guide

Statutory Regulation
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Act 1882
Section 80 All 137 Sections of Transfer of Property Act Section 82

Legal Commentary & Landmark Judgments: Section 81

Section 81 codifies the equitable doctrine of marshalling securities among successive mortgagees, compelling a first lender with two securities to satisfy their debt out of the unencumbered security.

  • Marshalling Between Mortgagees: If the owner of two or more properties mortgages them to one person and then mortgages one or more of the properties to another person.
  • Satisfaction from Retained Security: The subsequent mortgagee is, in the absence of a contract to the contrary, entitled to have the prior mortgage-debt satisfied out of the property not mortgaged to him, so far as the same will extend.
  • No Prejudice to Prior Mortgagee: Cannot be exercised so as to prejudice the rights of the prior mortgagee or any other person who has acquired an interest for consideration in either property.
  • Equitable Apportionment Standard: Prevents a senior lender from capriciously auctioning the sole security of a junior lender when other unencumbered collateral is available.
Key Landmark Precedents:
  • J.P. Builders v. A. Ramadas Rao, (2011) 1 SCC 429: The Supreme Court authoritatively analyzed Section 81, holding that marshalling is an equitable doctrine designed to protect junior mortgagees from having their security wiped out when the senior lender holds alternative collateral.
  • Asset Reconstruction Co. (India) Ltd. v. S.P. Velayutham, (2022) 8 SCC 210: Affirmed that marshalling rights can be raised in debt recovery proceedings to direct the sequence of asset sales.
Courtroom Practice & Strategic Litigation Guidance:

When a senior bank initiates SARFAESI auction over property mortgaged to your junior institution, apply to the DRT under Section 81 to compel the senior bank to sell the debtor's unencumbered properties first.

Section 80 All 137 Sections of Transfer of Property Act Section 82