The judgment establishes the principle that after the acquisition of mortgaged property by the government, the mortgagee's remedy is to claim compensation as the substituted security, and the property is vested with the government free of all encumbrances.

I Facts in brief

The second defendant in the suit is the appellant. The suit had been filed by the 1st respondent to enforce a mortgage executed by the 2nd respondent since deceased (1st defendant) for securing a loan of Rs.15,000/-under a registered document dated 30.12.1972.

2. Admittedly, the property which was the subject matter of mortgage had been acquired by the Government for the benefit of the Tamil Nadu Housing Board under the provisions of the Land Acquisition Act. After acquisition, a portion of the property covered under the mortgage, viz., 1 Ground 1402 sq.ft. had been again sold after allotment to the mortgagor, the 1st defendant. The Mortgagor in turn sold a portion of the property to the 2nd defendant. It is under these circumstances that the defendants 2 and 3 are also impleaded as parties to secure a binding decree as alleged subsequent encumbers of the property.

3. The 1st defendant (mortgagor) remained ex parte and defendants 2 and 3 filed their respective written statements.

4. The 2nd defendants contention was that after the acquisition of the property by the Government, all the prior encumber had been completely wiped out and when the property was given by the Housing Board by way of sale to the 1st defendant, the 1st defendant obtained title to the property free of encumbrance including the subject matter of mortgage. The 2nd defendant claimed to be a purchaser of the property to an extent of 1 ground 202 sq.ft. under a registered sale seed dated 26.04.1982 and claimed to be a bona fide purchaser for value without notice of any encumbrance.

.5. The 3rd defendant on its part contended that the Housing Board was an unnecessary party and no relief of recovery of money on the security of the property which was acquired could be made against the Housing Board.

.II Disposition in the Court below

.6. The trial Court found that the purchase by the 2nd defendant was not bona fide and observed that the plaintiff was entitled to enforce the mortgage against the property held by her. The Court also found that as regards the 3rd defendant there had been no relief claimed and therefore the decree was being granted only as against defendants 1 and 2 with respect to the property which was the subject of mortgage. Accordingly, a preliminary decree was granted.

.III Contention in appeal

7. The 2nd defendant has appealed, assailing the finding that he was not a bona fide purchaser and further stating that since the property purchased by the 2nd defendant had been taken after the acquisition by the Government, the right of enforcement of the mortgage was lost and that the plaintiff was not entitled to obtain a preliminary decree for sale of hypotheca, as though it was still subsisting.

.8. The counsel further argued that the Court had not taken proper note of the effect of the acquisition proceedings under the Land Acquisition Act, viz., of vesting the property free of all encumbrances and consequently property was un-yoked of the encumbrances of mortgage. According to him, the property which was assigned by the Housing Board to the 1st defendant came back to the 1st defendant free of all encumbrances. The remedy for the plaintiff was the enforcement of a substituted security as provided under Section 73 (2) 3rd proviso of recovering money only out of compensation amount determined by the Collector under the provisions of the Land Acquisition Act. On the failure of the plaintiff to enforce his right under Section 73 (2), the plaintiff had lost right of enforcing his mortgage security.

9. As a last string of argument, it was contended by the appellant that in any event, the entire property which had been assigned by the Housing Board had not been sold to the 2nd defendant and 1st defendant has still retained an extent of 1200 sq.ft. in the property which had been originally mortgaged. The plaintiffs enforcement right could be available only against such a property.

IV Twin Points:

(i) Effect of acquis