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The Central Bank of India Ltd. Vs. Nusserwanji H. Bharucha - Court Judgment

LegalCrystal Citation
SubjectProperty
CourtMumbai
Decided On
Case NumberO.C.J. Suit No. 2275 of 1931
Judge
Reported inAIR1932Bom642; (1932)34BOMLR1384
AppellantThe Central Bank of India Ltd.
RespondentNusserwanji H. Bharucha
Excerpt:
transfer of properly act (iv of 1882), sections 58(f), 5-equitable mortgage-property situate in the baroda state-jurisdiction of bombay high court to enforce the mortgage by an order of sale.; the transfer of property act, 1882, is to be construed irrespective of the fact whether the property is inside or outside british india, or whether the property is situate in a province to which the act applies or not.; it is permissible to effect a valid equitable mortgage in the presidency towns and other towns mentioned in section 58(f) of the transfer of property act of property outside british india by persons residing in british india.; ex parte pollard (1838) 4 deac. 27 and ex parte holthausen. in re scheibler (1874) l.r. 9 ch. 722, followed.;nilkanth v. vidya narasinh bhurati (1930) 32 bom...........in british india'. that explanation limited the jurisdiction of the subordinate judge to order the sale of property situate only in british india, no such limitation, however, is found in clause 12 of the letters patent, and i am unable to find any such limitation to the jurisdiction of this court according to the judgment in hatim-bhai'8 case. under the circumstances i do not think that that decision comes in the way of this court in giving relief to the plaintiffs by way of sale of the mortgaged property.14. while conceding that the distinction between legal and equitable estate was not recognised under the indian acts and a mortgage by deposit of title deeds was a mortgage like any other mortgage under the transfer of property act and involved a transfer of interest in the immoveable.....
Judgment:

Kania, J.

1. At the adjourned hearing of this suit evidence was led on behalf of the defendants to show what was the law of the Baroda State in respect of equitable mortgages. The evidence of Mr. Pranlal T. Munshi, a practising pleader of the Baroda High Court, Bhows that an Act, corresponding to our Transfer of Property Act, came into force in Baroda in Section 1957(1900-01). Before that Act the Baroda High Court in one case at least had recognised an equitable mortgage by deposit of title deeds when the deeds were deposited in Baroda. This is proved by a judgment of the Baroda High Court reported in 4 Baroda Law Reports, at p. 212. Section 83 of Act II of Section 1957 of Baroda, which corresponds with Section 59 of our Transfer of Property Act, prescribes the conditions under which a mortgage transaction should be effected in writing and registered, In that section of the Baroda Act, before it was amended by Act IX of Section 1974, it was provided that a mortgage was to be by a registered deed, if the amount secured was more than Rs. 75, or, if the amount was legs than Rs. 75, either by such deed or by delivery of possession, except in respect of a simple mortgage, which is called a Ban mortgage in that Act. By Act IX of Section 1974 it was provided that if a mortgagor effected a mortgage transaction in the Baroda city by handing over documents which created a right over any immoveable property as security for any debt to a bank, firm or person in whose favour his Highness the Maharaja of Baroda had issued a notification, such transaction would not be void because it did not comply with the then existing provisions of Section 83 of the Baroda Act as regards registration or delivery of possession. Mr. Munshi produced a notification of the Baroda State Gazette (Exhibit 2) which showed that the manager of the Bank of Baroda was authorised to receive the security of an immoveable property by deposit of title deeds under Section 83 (3). That witness farther stated that, so far as he was aware, and could investigate, no notification of a like nature had been issued in favour of any other person by the Baroda State.

2. Having regard to this evidence it is clear that according to the law of the Baroda State an equitable mortgage can be created only in the city of Baroda and that too by depositing title deeds only with the manager of the Baroda Bank. According to that Act, if title deeds in respect of an immoveable property within the territories of His Highness the Maharaja of Baroda were deposited at any place outside Baroda city or even in Baroda city with any one other than the manager of the Bank of Baroda, the transaction would not be given effect to as an equitable mortgage.

3. This being the position of law at Baroda, and it being common ground that the property in question in this suit is situate at Itola, a town within the territories of His Highness the Maharaja of Baroda, the question arises whether the transaction in this suit can be enforced by a sale of the mortgaged property by this Court. It is common ground that the parties in this suit are domiciled in Bombay and the whole transaction took place in Bombay. The debt for which the defendants are liable arose and was repayable in Bombay and the security was given in Bombay. It is contended on behalf of the defendants that as the transaction by way of equitable mortgage was in respect of property within the Baroda State, the validity of the transaction should be decided according to the law at Baroda. In this connection it is pointed out that the English law on the subject is not directly applicable and the cases decided under the English law should be accepted with great caution. Reliance is further placed on the fact that even in British India a transaction by way of equitable mortgage is not generally recognised and it is only in the Presidency towns and the towns mentioned in Section 58(f) of the Transfer of Property Act, that such a transaction is allowed to be effected. Under these circumstances the general statements about the principles of equitable mortgages effected under the English law, where equitable mortgages are recognised all throughout England, should not be considered as applicable here, It is further contended that because in India the difference between legal and equitable estates is not recognised, a mortgage, whether it is legal or equitable, amounts to a transfer of an interest inimmoveable property and does not stand on the same footing as in England where a legal mortgage is considered to be a transfer of interest in immoveable property, while an equitable mortgage is considered to be a contract with a liability to repay the loan out of the mortgaged security. It is pointed out that if this suit had been filed at Baroda, the Baroda Court would not have recognised the transaction by way of equitable mortgage and would not have enforced it. Ex parte Pollard (1838) 4 Deac. 27 and Ex parte Eolthausen. In re Scheibler (1874) L.R. 9 Ch. 22 were decided according to the law of bankruptcy, and, it is contended, have no bearing on the point in this suit. Even in those cases the learned Judges observed that in giving the reliefs to the claimants they were not doing anything which was contrary to the law of the place where the land was situate. According to Mr. Taraporewala's contention the question is, whether, by giving relief to the plaintiff in this suit, recognising the equitable mortgage and ordering the sale of the property, the Court would violate or interfere with the law of the Baroda State. The defendants contend that by ordering the sale this Court would be pronouncing a decision directly contrary to the express provisions of the Baroda Act. In this connection strong reliance is placed on the fact that the plaintiffs want a declaration in terms of prayer (b) to the plaint which, it is contended, would be in direct contravention of Section 83 (3) of the Baroda Act. It is also contended that if according to the Baroda law the plaintiffs have no charge on the property, as was clear from Section 83 (3), the Court could not give such a declaration in respect of title to an immoveable property situate in the territories of His Highness the Maharaja of Baroda and which would be directly against the law of that State. The two English cases referred to above are sought to be further distinguished on the ground that this is not a suit for specific performance of the agreement under which the defendants had agreed to give either a legal mortgage to the plaintiff or had agreed to do all such acts as were necessary to be done for completing the security in favour of the plaintiff.

4. It is contended on the other hand that the parties being domiciled British Indian subjects and the title deeds having been deposited in Bombay the rights of the parties are to be determined according to the law prevailing in British India. The plaintiffs contend that the jurisdiction of this Court to award the reliefs asked by them is not governed by what the Court at Baroda would have done to this plaint if it was presented there. They contend that this Court has clear jurisdiction to grant the reliefa asked for in the prayers if the property was situate in British India, and that jurisdiction is not lost because it is now shown that the transaction did not comply with certain formalities of the law of the place where the property was situate.

5. I find in Dicey's Conflict of Laws, 4th Edn., a discussion as to what law has to be applied in respect of a transaction affecting immoveable property when there is a conflict between the law of the place where the transaction has been effected and the place where the land is situate. The general principle of common law is that the laws of the place where the immoveable property is situate exclusively govern in respect of the rights of the parties, the modes of transfer and the solemnities which should accompany them. It is stated that all questions concerning the property in itnmoveables, including the forms of conveying them, are decided by the lex situs. This principle enunciated by Story and by Westlake is beyond dispute, and applies to rights of every description. This statement of law is supported by the decision in U. States v. J. Crosby (1812) 7 Cranch 115 In that case it was held that title to foreign land can be acquired or lost only in the manner prescribed by the law of the place where such land was situate. This common law principle came to be limited in several respects on equitable grounds. Thus, in Ex parte Pollard, where certain bankrupts deposited with a creditor the title deeds of a real estate in Scotland accompanied with a written agreement to secure the payment of the general balance, both parties being resident in England where the transaction itself took place and would have been considered to be valid, it was held that the transaction could be enforced against the trustee in bankruptcy, although according to the law of Scotland no lien or equitable mortgage was created by such deposit. This was on the ground that the contract being made in England and the contracting parties being domiciled there, which was also the domicile of the assignees in bankruptcy, the estate was charged with the equitable mortgage and the assignees received the property subject to this equity, and, therefore, were bound to pay to the creditor the amount out of the proceeds of the sale of the estate. This decision shows that although the transaction according to the' law of Scotland could not affect the property and if a suit had been filed in Scotland the creditor would not have obtained the relief asked for, the Court in England, relying on the equitable jurisdiction to act in personam, enforced the transaction against the assignees in bankruptcy on equitable grounds. This case also shows that where there was no incapacity in the party entering into the contract which affected the property to enter into the particular transaction, or where the property itself was not incapable of being assigned, the fact that the necessary formalities for the transfer, according to the law of the place where the land was situate, were not complied with, did not impair the jurisdiction of the Court to grant the relief, according to its own law, when the parties were resident within its jurisdiction. Lord Cottenham in delivering the judgment observed that the question was whether the assignees being liable to all the equities to which the bankrupt was subject, such a deposit and agreement, made and entered into in England gave to the creditor such a right as against his debtor as will entitle him to have the agreement performed, and the debt paid out of the property in Scotland, the subject of such deposit and agreement. He further observed that if, indeed, the law of the country where the land was situate should not permit, or not enable, the defendant to do what the Court here might think it right to decree, it would be useless or unjust to direct him to do the act; but when there was no such impediment, the Courts of this country, in the exercise of their jurisdiction over contracts made here, or in administering equities between parties residing here, act upon their own rules, and are not influenced by any consideration of what the effect of such contracts might be in the country where the land was situate, or of the manner in which the Courts of such countries might deal with such equities. In this connection reliance was placed on Penn v. Lord Baltimore (1750) 1 Ves. Sen. 444 Lord Cranstown v. Johnston (1796) 3 Ves. Juu. 170 and Scott v. Nesbit (1808) 14 Ves. Jun. 438 The substance of the agreement was considered to be to charge the debt upon the estate, and to do and perfect all such acts as may be necessary for the purpose; and if the Court could decree specific performance of this contract, and completion of the security according to the forma of law in Scotland, it could equally give effect to this equity by ordering the assigmees to pay out of the estate (which being part of the bankrupt's estate must be sold) what was found to be the amount of the debt so agreed to be charged upon it. That was all that the creditor demanded. To deny to the creditor the benefit of this security would be an injustice, which, if unavoidable, should be much to be regretted. In giving effect to it, the Court acted upon the well-known rules of equity in England, and did not violate, or interfere with, any law or rule of property in Scotland ; as the Court only ordered that to be done which the parties might by that law lawfully perform. In that case the agreement between the parties was to give a security by way of equitable mortgage and contained the following Clause (p. 29), viz,:-.and we agree, that you shall stand in the nature of equitable mortgagee thereof; and on demand, we further agree to make, do, and perfect all such acts for the better securing to you of any such moneys as aforesaid.

6. Having regard to the decision in Hatimbhai v. Framroz Dinshaw 1926 29 Bom. L.R. 498 I do not consider the existence of this provision in the agreement as material for the decision of the point before me. The decision in Ex parte Pollard, therefore, clearly shows that when a relief in peraonam can be granted and the relief granted would not result in creating a situation, which the law of the country where the land was situate would not permit, or enable, the defendant to do, the Court should not hesitate to give the equitable relief which it considers right to decree.

7. In Bank of Africa, Limited v. Cohen [1909] 2 Ch. 129 a married woman, whose domicile was English, by a deed executed in England, agreed to mortgage to a bank carrying on business in England and in the Transvaal certain lands belonging to her at Johannesberg by depositing title deeds of her property for the past and future advances made by the bank to her husband. She appointed the bank manager at Johannesberg her attorney to mortgage and transfer these lands and to execute all the necessary instruments for that purpose and take all necessary steps for getting the same registered and declare it in her name. By the law which prevailed in Transvaal, a married woman was incapable of becoming a surety for her husband unless she expressly renounced the benefit of each of these laws after having been informed of her rights thereunder. It was heldthat; the question of her incapacity to enter into this agreement was governed by the law of Transvaal and consequently the agreement was void for want of capacity and the bank was not entitled to retain the title deeds. The judgment in that case makes it clear that there is a distinction between the invalidity of the transfer owing to the incapacity of the contracting party according to the law of situs and the invalidity due to non-compliance with the formalities of that law. The decision in Ex parte Pollard was distinguished in that case on this ground.

8. The principles laid down in Ex parte Pollard were followed in Waterhouse v. Stanefield (1852) 10 Hara 254 and Smith, In re. Lawrence v. Kitson (1916) 2 Ch. 206

9. In Dicey's Conflict of Laws, 4th Edn., in considering this point about non-compliance with formalities and the effects thereof on alienation and contracts in respect of land situate outside, it is observed as follows (p. 556) :-

So, again, the modes and formalities and the effects...of alienation of an immoveable inter vivos are governed by the lex situs. So also, on one view, are the formalities requisite for, and the effects of, any mere tontraet with regard to an immoveable. On this last point it is necessary to apeak with considerable hesitation.

10. The result of non-compliance with formalities in respect of equit able mortgages is discussed in Palmer's Company Law, 14th Edn,, where it is stated as follows (p. 287-8):-

Even without complying with the formalities required by the local law in relation to mortgages or transfers it is still competent to a company to create an effective charge on property belonging to it in a foreign country; for the Court sitting in Chanoery in virtue of its jurisdiction in personam, enforces equities in regard to foreign land where the mortgagor company is within the jurisdiction...; and in determining whether there is an equity the Court regards English, not foreign, law, and it according to English law there is an equity, e.g. if for valuable consideration a company agrees to give a charge on foreign property, the Court will enforce it, although the equity may be one not recognised by the lex loci retsita....

11. This whole passage is cited with approval in British South Africa Company v. De Beers Consolidated Mines, Limited [1910] 1 Ch. 334 The jurisdiction of the Court to grant relief on equitable principles in such cases is also emphasised in Mercantile Investment and General Trust Company v. River Plate Trust, Loan, and Agency Company [1892] 2 Ch. 303 and Ex parte Holthausen. In Re Scheibler (1874) L.R. 9 Ch. 722

12. These decisions show that merely because the local Courts might not have recognised the transaction if it was sought to be enforced in the country where the land was situate, the jurisdiction of the Court in this country to grant the relief was not ousted. Similarly if there was no incapacity to enter into the contract and no provision affecting the land which made it inalienable according to lex situs, the mere fact that the formalities in respect of the transaction according to that law had not been observed n has not been considered a sufficient ground for refusing the relief on equitable principles, if the transaction took place within the jurisdiction of this Court and the parties were subject to its jurisdiction,

13. It is contended that the decision in Mlkanth v. Vidya Narasink Bharati shows that British Indian Courts have no jurisdiction to order a sale of immoveable property situate in a Native State. As I have pointed out in my judgment delivered on January 13, 1932, in this case, that decision was under the Civil Procedure Code and the jurisdiction of the Subordinate Judge was governed by that Code. Their Lordships of the Privy Council in delivering the judgment pointed out that the explanation to Section 16 of the Code of Civil Procedure showed that the word ' property' in that section meant ' property situate in British India'. That explanation limited the jurisdiction of the Subordinate Judge to order the sale of property situate only in British India, No such limitation, however, is found in Clause 12 of the Letters Patent, and I am unable to find any such limitation to the jurisdiction of this Court according to the judgment in Hatim-bhai'8 case. Under the circumstances I do not think that that decision comes in the way of this Court in giving relief to the plaintiffs by way of sale of the mortgaged property.

14. While conceding that the distinction between legal and equitable estate was not recognised under the Indian Acts and a mortgage by deposit of title deeds was a mortgage like any other mortgage under the Transfer of Property Act and involved a transfer of interest in the immoveable property, I think, that these facts are not conclusive in respect of the jurisdiction of the Court to grant the relief by way of sale of the property. The decision in Hatimbhai's case shows that a mortgage transaction is considered to be a contract to repay the loan with a security given for the same. A suit to enforce a mortgage by sale of the mortgaged property is not considered to be a suit for land within the meaning of Clause 12 of the Letters Patent, but on the ground that the Court can grant the relief in personam, the Court has assumed jurisdiction to order a sale of the mortgaged property. These propositions apply to all the mortgages and are equally good in respect of an equitable mortgage. For these reasons the non-existence of the distinction between legal and equitable estates in Indian Acts does not affect the situation. Having regard to the observations of the Court in Hatimbhai's case, a mortgagee holding an equitable mortgage in India is in the same position as a mortgagee under an equitable mortgage under the English law for the purpose of determining the jurisdiction of the Court to grant the relief by sale of the mortgaged property. Therefore, as under the English law on the facts of the present case the relief by way of sale of the property could have been granted, I do not see any reason why in this suit'such relief should not be granted to the plaintiffs. The validity or invalidity of the transaction according to the law of the Baroda State on the ground that the formalities of the law of that State were not observed is immaterial, because the relief granted is a relief in pereonam. The contention that even according to the Transfer of Property Act an equitable mortgage cannot be created in towns other than those mentioned in Section 59 does not affect the decision, because in the whole of India where the Act is applicable, equitable mortgages, made in the towns mentioned in that section, are to be considered as good mortgages, It should be noted that even before the Transfer of Property Act came into force transactions by way of equitable mortgages were recognized and enforced in presidency towns. I am, therefore, unable to disregard the principles mentioned in the several English cases mentioned above on the ground that an equitable mortgage could be validly created in the whole of England and not, as here, in certain towns only. The observations of Sir G. Mellish L.J. in Ex parte Holthausen. In Re Scheibler (1874) L.R. 9 Ch. 722 are most aptly applicable under the circumstances of this case. The learned Lord Justice at p. 728 observed as follows:-

Now a security by way of deposit of title deeds is a perfectly wollknown security according to English law, and when a man carrying on business in London offers to give a security wellknown to the English law and according to the forms of the English law, it appears to ma that it would be in the highest degree unjust to resort to a foreign law for the purpose of making the security bad, because the foreign law is ignorant of any such security,...

15. The fact that Ex parte Pollard and Ex parte Holthausen were decided under the bankruptcy jurisdiction does not affect the principles of law laid down therein. The reports of those decisions show that if the party had not become bankrupt he would have been considered to be bound to carry out the contract be had entered into and his liability was not seriously disputed. I do not consider that by granting the relief of sale in thissuit. I am doing anything which would violate or interfere with the law of the Baroda State. The law of that State does not prohibit a sale by the defendants of their land in the territories of his Highness the Maharaja of Baroda in Bombay. If the defendants had agreed to sell the property in Bombay this Court could have i enforced specific performance of that agreement. Because the transaction is a mortgage in the present case, I do not see how it can be distinguished except on the ground that by the mortgage itself there is a transfer of interest. For granting the relief by way of sale that contention is untenable in view of the decision in Hatimbhai'a case. I do not think that I should be justified in giving the plaintiff the declaration in terms of prayer (6) of the plaint. But that does not prevent me from granting the relief by way of sale in the event of the defendants failing to pay the money within the time provided in the decree. I, therefore, think that the plaintiff is entitled to a decree for sale of the mortgaged premises.

16. There will be a decree in favour of the plaintiff against the defendants in terms of prayer (a) and the usual preliminary mortgage decree for sale with six months time for redemption.


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