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CS Professional · Banking and Insurance - Laws and Practice · Advances, Securities and Documentation

Meera Industries mortgaged its Plot A and Plot B to Bank X. It then mortgaged only Plot B to Bank Y. Bank X is unpaid and there is no contract to the contrary. Which statement correctly reflects Section 81 of the Transfer of Property Act, 1882 on marshalling securities?

Bank Y can insist that Bank X first satisfy its debt from Plot A, the property not mortgaged to Bank Y, so far as it will extend. This is marshalling under Section 81, available absent a contrary contract and without prejudicing the prior mortgagee.

  1. ABank Y can require Bank X to recover its debt first from Plot A, so far as it will extend, without prejudicing Bank X's rightsCorrect
  2. BBank X must recover only from Plot B so that Bank Y is paid first
  3. CBank Y can compel Bank X to release Plot B entirely
  4. DBank X and Bank Y must share both plots equally

Explanation

Section 81 lets the subsequent mortgagee, absent a contrary contract, have the prior mortgage debt satisfied out of the property not mortgaged to him (Plot A) so far as it extends, but not so as to prejudice the prior mortgagee. Hence Bank Y can ask for this, not for release of Plot B or equal sharing.

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