Accession to mortgage security does not cover exchanged land unless it is truly added to the mortgaged property.

Land acquired by exchange was not treated as accession to mortgaged property because it was not a genuine addition to, or incorporation into, the mortgage security, and the original mortgaged identity was not preserved in the required sense. The 21 acres obtained in exchange therefore remained outside the mortgage sale process. At the same time, recovery could proceed first against the originally mortgaged 43 acres of item No. 6 and, if necessary, against properties Nos. 1 to 5 to satisfy HUDCO's dues. A further opportunity for settlement and repayment was also left open before coercive sale of the mortgaged assets.

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Issues: (i) Whether the 21 acres of land obtained by exchange could be treated as accession to the mortgaged property and sold for recovery of HUDCO's dues. (ii) Whether, for recovery, HUDCO was entitled to proceed first against the originally mortgaged portion of item No. 6 and then against properties Nos. 1 to 5, while the 21 acres obtained in exchange remained protected.

Issue (i): Whether the 21 acres of land obtained by exchange could be treated as accession to the mortgaged property and sold for recovery of HUDCO's dues.

Analysis: The Court held that accession under the Transfer of Property Act applies where something is added to, united with, or becomes part of the mortgaged security while the identity of the original subject remains intact. The exchanged 21 acres were not a natural or artificial addition to the mortgaged land, and the original mortgaged identity had not been preserved in the manner required for accession. The land was found to be unencumbered when the agreement to sell was entered into, and the mortgagor could not treat it as part of the mortgage security merely because it had earlier been exchanged from mortgaged land.

Conclusion: The 21 acres obtained in exchange were not accession to the mortgaged property and could not be sold as part of HUDCO's mortgage security.

Issue (ii): Whether, for recovery, HUDCO was entitled to proceed first against the originally mortgaged portion of item No. 6 and then against properties Nos. 1 to 5, while the 21 acres obtained in exchange remained protected.

Analysis: The Court accepted HUDCO's first charge over the mortgaged assets and held that the originally mortgaged part of item No. 6, about 43 acres, could be proceeded against first. If that sale did not satisfy the dues, properties Nos. 1 to 5 could be sold to the extent necessary. The Court also granted one further opportunity for settlement and repayment, but left the 21 acres outside the sale process unless the arbitral claim failed and the issue became saleable in accordance with law.

Conclusion: HUDCO was permitted to recover first from the originally mortgaged 43 acres and then from properties Nos. 1 to 5 if required, while the 21 acres remained protected from sale.

Final Conclusion: The impugned order was modified and the dispute was disposed of by balancing recovery of public dues with protection of the unencumbered exchanged land, leaving the parties to attempt settlement before coercive sale of the mortgaged assets.

Ratio Decidendi: Land acquired by exchange is not automatically an accession to mortgaged property; only property that is genuinely added to or incorporated into the mortgage security falls within the mortgagee's right under Section 70 of the Transfer of Property Act, 1882.

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