Doctrine of Marshalling(section 81 of TPA)
Marshalling is a crucial concept in property law that deals with the allocation of debt among multiple properties. Governed by Section 81 of the Transfer of Property Act, marshalling ensures that creditors are treated fairly when multiple properties are involved in securing loans. Let’s break down the concept of marshalling and how it applies in legal scenarios.
.png)
What is Marshalling?
In a generic sense, "marshalling" means to arrange or organize. In property law, marshalling involves the equitable distribution of a debtor’s assets among multiple creditors when the debtor has mortgaged more than one property.
Key Principles of Marshalling
Multiple Properties and Mortgages
- To invoke the rules of marshalling, there must be at least two properties and an owner who has mortgaged these properties to one or more creditors.
Sale of Mortgaged Property
- If the owner sells one or more of the mortgaged properties to a third party, the buyer has a right to request that the mortgage debt be settled from the properties that were not sold to them before they purchase.
Rights of Mortgagee
- The application of marshalling should not prejudice the rights of the mortgagee (the lender). This means that while marshalling can help distribute the debt fairly, it cannot harm the mortgagee’s ability to recover the owed amount.
Illustrative Example
Scenario:
- Ajay owns two properties, A and B, which he mortgaged to Vijay for ₹60 lakhs.
- Later, Ajay mortgages property A to Kumar for ₹30 lakhs.
In this case:
- Kumar can request Vijay to sell property B to recover the debt if selling property A is not sufficient to cover the mortgage.
- If property A cannot fully satisfy the mortgage debt, Vijay has the right to sell property B to recover the remaining amount.
Case Study: Barness v. Rector
- W mortgaged properties A and B to X.
- W later mortgaged property A to Y and property B to Z.
In this case, the court ruled that X’s mortgage should be apportioned proportionately between properties A and B. Any surplus from property A would be used to benefit Y, and any surplus from property B would benefit Z.
Contribution and Marshalling
- Section 81 of the Transfer of Property Act outlines the rules for marshalling, while Section 82 deals with contribution, which involves the equitable sharing of debt among multiple parties or properties.
Conclusion
Marshalling is a vital legal principle that helps ensure fairness in the distribution of debts when multiple properties are involved. By understanding the rules and applications of marshalling, property owners and creditors can navigate the complexities of mortgage settlements more effectively. If you’re dealing with multiple properties and mortgages, marshalling can play a key role in ensuring that your rights and interests are protected.
Team YOURLAWS