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Keshavlal Tribhovan Doshi Vs. Maganlal Shivram Adhyaru - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtMumbai
Decided On
Case NumberSecond Appeal No. 472 of 1931
Judge
Reported inAIR1934Bom134; (1934)36BOMLR197
AppellantKeshavlal Tribhovan Doshi
RespondentMaganlal Shivram Adhyaru
DispositionAppeal allowed
Excerpt:
lease - mortgage with possession by lessee-liability of mortgagee to pay rent to lessor-transfer of property act (iv of 1882), sections 108 and 109. ;the plaintiff leased his land to defendants nos. 1-8 for a term of thirty years. the lessees mortgaged the land with possession to defendant no. 9. the plaintiff having sued to recover rent under the lease from defendant no. 9:- ; (1) that it was doubtful if the english doctrine of privity of estate applied in india, in view of the provisions of sections 108 and 109 of the transfer of property act, 1882:- ;monica kitheria saldanha v. subraya hebbara (1907) i.l.r. 30 mad. 410 and ardeshar v. k.d. bros. (1925) 27 bom. l.r. 553, doubted; ; (2) that even assuming that the doctrine of liability by privity of estate applied to india as between.....john beaumont, kt., c.j.1. this is a second appeal from the decision of the district judge of nadiad, the appellant being the original defendant no. 9, and the point which arises is as to whether defendant no. 9 as a mortgagee of leasehold property is liable for the rent under the lease.2. the facts are that the lease in question was granted on may 24, 1920, to defendants nos. 1 to 6 and the father of defendants nos. 7 and 8, the term being thirty years and the rent rs. 324 odd. in 1925 defendants nos. 1 to 6 sold their interest to the father of defendants nos. 7 and 8, and on january 8, 1926, the father of defendants nos. 7 and 8 mortgaged the property to defendant no. 9. that mortgage is exh. 32. it contains an agreement for payment of the mortgage money on demand. then it recites that.....
Judgment:

John Beaumont, Kt., C.J.

1. This is a second appeal from the decision of the District Judge of Nadiad, the appellant being the original defendant No. 9, and the point which arises is as to whether defendant No. 9 as a mortgagee of leasehold property is liable for the rent under the lease.

2. The facts are that the lease in question was granted on May 24, 1920, to defendants Nos. 1 to 6 and the father of defendants Nos. 7 and 8, the term being thirty years and the rent Rs. 324 odd. In 1925 defendants Nos. 1 to 6 sold their interest to the father of defendants Nos. 7 and 8, and on January 8, 1926, the father of defendants Nos. 7 and 8 mortgaged the property to defendant No. 9. That mortgage is Exh. 32. It contains an agreement for payment of the mortgage money on demand. Then it recites that the land in question is in the absolute ownership and enjoyment of the mortgagor and the operative words are : 'Having given up our said possession and enjoyment thereof, we having passed the same in writing to you in san-mortgage with possession today have entrusted the same to your absolute possession.' Then it is provided that the income of the property is to be credited against interest and principal and that the mortgagors are to be responsible for the land revenue. It seems to be a mortgage in the nature of an usufructuary mortgage as defined in Section 58 of the Transfer of Property Act. But in view of the fact that the mortgage money is payable on demand, it is, I think, technically not a usufructuary mortgage but an anomalous mortgage. It is quite clear that it is not an English mortgage as defined in Section 58(e) of the Transfer of Property Act, as has been argued by Mr. Chhatrapati for the respondent, because there is no absolute transfer of the property, nor is there any proviso for retransfer on payment of the mortgage money. Then on the same date as the mortgage, the mortgagee granted a rent-note to the mortgagor thereby restoring him to possession as a tenant. Mr. Shah, for the appellant, has argued that, taking those two documents together, they amount to nothing more than a simple mortgage. I doubt that, and I propose to deal with the case on the footing that Exh. 32 is what it purports to be, namely, a mortgage with possession given to the mortgagee. Then to continue with the facts, on November 22, 1928, the mortgagor sold the property to the mortgagee, the present appellant, and put him into possession, and the appellant does not dispute that as from the date of that sale he became liable for the rent due under the lease. But in this suit the plaintiff who is the lessor, or claims under him, is claiming rent against the appellant in respect of the years 1927, 1928 and part of 1929, that is, for a period in which he was mortgagee and not purchaser. The question, therefore, which we have to consider is whether, under a mortgage in the form of Exh. 32, the mortgagee becomes liable for the rent payable under the lease the subject-matter of the mortgage.

3. Under English law, in the case of a normal lease, the lessee is liable on the covenants in the lease by privity of contract, and in the case of those covenants which run with the land he is also liable by privity of estate. An assignee of the term is liable by privity of estate in respect of the covenants running with the land, but unless he has entered into some special contract with the lessor he is not liable on the personal contract contained in the lease. Privity of estate depends, not upon the assignee being in possession, but upon the whole term granted by the lease being legally vested in him, so that there is direct privity between his estate and the estate of the reversioner seeking to enforce the covenants. Now here no question of liability under contract arises, because the lessor was not a party to the mortgage. But it is suggested that the English doctrine imposing liability by privity of estate applies. In order to succeed in establishing his claim against the mortgagee, the lessor must prove, first, that the doctrine as to privity of estate between lessor and lessee applies in India, and, secondly, if it does, that under the mortgage in question the whole estate of the lessee was transferred. In dealing with this question one has to look at the provisions of the Transfer of Property Act. Section 105 defines a lease of immoveable property as a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity in consideration of a price as therein mentioned. It is to be noticed that that definition does not refer to a transfer of any estate; it refers merely to a transfer of a right to enjoy the property. Having regard to the fact that the definition includes a lease in perpetuity, a thing unknown to the common law of England, it seems to me that the section designedly omitted any reference to the transfer of an estate, since the transfer to the lessee of the estate in perpetuity would amount to a grant of the fee simple. Section 108 also refers both under Sub-clause (c) and Sub-clause (j) to the interest of the lessee in the property, and not to the estate. Sub-clause (j) empowers the lessee to transfer absolutely or by way of mortgage or sub-lease the whole or any part of his interest in the property and provides that the lessee shall not, by reason only of such transfer, cease to be subject to any of the liabilities attaching to the lease; that is to say, it preserves the liability of the lessee under his contract, notwithstanding an assignment. But the section does not say whether or not the transferee is to be liable on the covenants in the lease. Then Section 109 deals with the right of a transferee from the lessor, but there is no section dealing with the liability of a transferee from the lessee, and it is, I apprehend, to cover this omission that some of the Courts in India have sought to introduce the doctrine of privity of estate. As at present advised I have great doubt whether that very technical rule of English real property law can have any application in India, having regard particularly to the definition of 'lease' contained in Section 105. The English law depends on there being, as there always must be, a reversion expectant on the terra of the lease, however long that term may be. But under Indian law this is not necessarily so, and in the case of a lease in perpetuity it is difficult to see how there ever can be any privity of estate. If the estate passes in perpetuity to the lessee, there is no estate in the lessor; if the estate remains in the lessor then there is no estate in the lessee.

4. If I am right in my present view that the doctrine of privity of estate does not apply in India, I should no doubt find myself in conflict with several cases, particularly Monica Kitheria Saldanha v. Subraya Hebbara I.L.R. (1907) Mad. 410 and the decision of Mr. Justice Pratt in Ardeshar v. K.D. and Bros. : AIR1925Bom330 , which I have had to consider more than once. But for the purpose of this appeal it not necessary actually to decide the point, and I am reluctant to do so because it has not been fully argued. The appellant admits that from the time he took the assignment of the lease he is liable on the covenant. That admission may of course be well founded because he may be liable by some contract, express or implied, and at any rate we can accept the admission for the purpose of this appeal. Assuming that the doctrine of liability by privity of estate does apply in India as between lessor and lessee, I am clearly of opinion that the mortgage in this case, Exh. 32, does not transfer the estate of the lessee so as to introduce that doctrine. All it transfers is a right to possession and enjoyment, the income of the property being credited towards the interest and principal due under the mortgage. In my opinion, it is impossible seriously to contend that a document in that form transfers the whole estate which the lessee may possess under the lease, assuming that he possesses any estate.

5. I think that the case of Vithal Narayan v. Shriram Savant I.L.R. (1905) Bom. 391 7 Bom. L.R on which the respondent and both the trial Court and lower appellate Court relied, cannot be supported, at any rate so far as the reasons for the decision go.

6. The mortgage there was in substantially the same form as the mortgage in the present case. The learned Judges seem to have considered that the mortgagee would be liable by privity of estate if he entered into possession of the mortgaged property, but, as I have pointed out, under English law privity of estate does not depend on the assignee being in possession; it depends on the estate having been transferred to him and there being no intervening estate between the estate of the lessee and the estate of the lessor. I agree with the criticism of that case made by Sir John Wallis in Thethalan v. The Eralpad Rajah, Calicut I.L.R. (1917) Mad. 1111

7. For these reasons I think that the appeal must be allowed. The appellant should get costs of the second appeal and proportionate costs in the lower Courts. The cross-objections are dismissed with costs.

Tyabji, J.

8. I agree. The question is, whether, by taking from the lessee the anomalous mortgage (Exh. 34)-Feroz Shah v. Sohbat Khan I.L.R. (1933) IndAp 273 35 Bom. L.R. 877-the mortgagee (defendant No. 9) became liable to the lessor for rent from the date of the mortgage.

9. The mortgage purported to give possession to the mortgagee on January 8, 1926, the date of the mortgage. On the same date a rent-note was executed by the mortgagor (the lessee). In the rent-note the mortgage is recited, transfer of possession from the lessee to the mortgagee is admitted, and then it is stated : 'We, having taken on rent the same from you, have kept the same to-day in possession.' Actual possession was taken by the mortgagee only on November 22, 1928, when the lessee sold his interest to the mortgagee. From the date of the sale the mortgagee admits his liability to pay rent.

10. Liability prior to the sale may arise from a contract between the mortgagee and the lessor, or by reason of something to which the law attributes effects similar to contractual liability, or by which relations resembling those created by contract are created in law.

11. It is not argued that there is any contract, express or implied, between the mortgagee and the lessor. The mortgage cannot be construed as a contract by which the mortgagee (as a transferee from the lessee) became liable to pay rent to the lessor.

12. The lessor relies upon the establishment of a relation between the mortgagee and himself, similar to that by which, under English law, privity of estate is established.

13. Speaking for myself, I feel great hesitation and reluctance in entering into this question in this form. We, in India, are accustomed to take the law from the Transfer of Property Act and the Indian Contract Act. They contain the definitions and the legal results of transactions with which we have to deal. We can correct our notions by reference to these enactments. They contain no definition of ' estate,' nor any guidance as to the circumstances establishing ' privity of estate.' If we import the complicated and technical law of real property into India, I confess to a fear of liability to manifest errors.

14. The question has, however, in some aspects, been argued before us, and some cases refer to privity of estate as creating in India liabilities between the mortgagee (or some promisee of the lessee) and the original lessor.

15. Sir Frederick Pollock and Professor Maitland in their History of English Law (2nd Ed.), Vol. II, p. 11, say that 'estate' is a term which English lawyers

have long been to seek, a term which will serve to bring the various proprietary rights in land under one category, that of duration.

16. The fuller explanation of the term is remarkable for its interest. I am not familiar with the English law of land. But I have not come across a more helpful discussion of some of the fundamental matters with which we have to deal. The notion underlying ' estate' is introduced as a

characteristic which, at all events for six centuries and perhaps for many centuries more, will be the most salient trait of our English land law. Proprietary rights in land are, we may say, projected upon the plane of time. The category of quantity, of duration, is applied to them.' (Vol. II, p. 10) 'An estate for life is, in the language of our records, status ad terminum vide, an estate in fee simple is status in feodo simpilici; but a very curious twist has been given to that word. The process of contortion cannot at this moment be fully explained, since, unless we are mistaken, it is the outcome of a doctrine of possession;' (Vol. II. p. 11).

The fate in England of the word status or estate is very curious. Bracton could still sharply oppose it to rights in land. A favourite maxim of his is that a man's free or villein tenure of a tenement does not affect his free or villein estate. (Foot-note.-racton will occasionally use the word status to stand for the whole mass of a person's rights, even with special reference to his proprietary rights in land, as when. he discusses the maxim that an infant's status is not to be changed; but he chiefly uses the word when discussing personal freedom and personal slavery; these are the two great estates.) But very soon after his death we hear of a man having a status in fee simple or a status for life, and though such a phrase as 'the three estates of the realm' may endure, and our church may bid us pray' for all estates of men,' still the English lawyer when he hears of estates will think first of rights in land, while the English layman will, like enough, think of land itself, of fields and houses. This means that our land law has been vastly more important than our law of ranks.' (Vol. I, p. 408.)

17. The learned authors imply that the present day meaning of estate is the outcome of a doctrine of possession. Does the doctrine of possession and seisin supply the link establishing privity? It does seem to run through the notions underlying such transactions as we have to deal with. Thus mortgage (or dead gage) is originally distinguished from vif gage or live gage. (Vol. II, p. 119.)

Gage, engagement, wage, wages, wager, wed, wedding,...wadset, all spring from one root' (Vol. II, p. 117). 'The specific mark of the mortgage is that the profits of the land received by the creditor are not to reduce the debt.' (Vol. II, p. 119). 'The Jewish 'gage' was among Englishmen a novel and an alien institution, since it broke through the old law by giving rights in land to a creditor who did not take possession' (Vol. I, p. 469).

18. Then as regards leases:

At the end of the twelfth century the law was apparently endeavouring to regard the termor as one who has no ' real' right, no right in the land; he enjoys the benefit of a covenant (conventio); he has a right in personam against the lessor and his heirs. His action is an action of covenant (quod teneat ei conventionem factam), an action which seems to have been invented chiefly for the enforcement of what we should call leases.' (Vol. II, p. 106).

From the thirteenth century onwards English law has on its hands the difficult task of maintaining side by side two different possessions or seisins, or (to adopt the convenient distinction which is slowly established during the fourteenth and later centuries) a seisin and a possession. There is the old seisin protected by the assize, there is the new possession protected by the writ of trespass. Of course one and the same man may have both. The tenant in fee or for life, who occupies his own land, is both seised and possessed of it. But the two may be divided they are divided when there is a termor occupying the land; he is possessed, but the freeholder is seised. Even at the present day, though the old possessory remedies which protected seisin are things of the past, we have still to be always distinguishing between seisin and possession.' (Vol. II, p. 109).

20. I must not pursue the subject further. The notions to which the learned authors refer have no doubt undergone many changes. I do not imply that leases or mortgages now in England are the same as they were at the time of which the authors speak. But it seems obvious that transfers relating to immoveable property in India are essentially different from transactions relating to real property in England. Our transfers are not solely 'projected on the plane of time.' They do not depend on the distinction between seisin and possession. There may be a lease in perpetuity.

21. How can the notion of privity of estate derived from England be applied in regard to a lessor, a lessee and his mortgagee in India? The learned Chief Justice has adverted to the definitions of 'lease' and 'mortgage' in the Transfer of Property Act. I find great difficulty in considering how in regard to a lease as defined in the Transfer of Property Act, and to such a mortgage of the lessee's interest as we have before us, the doctrine of privity in estate or in proprietary rights in the land, as that doctrine prevails in England, has to be applied.

22. By a verbal application of a rule relating to real property in England, rights and liabilities may appear to arise, when the application of the fundamental principles underlying the verbal rules would bring about a totally different result : Hunsraj v. Bejoy Lal Seal

23. I should myself prefer to go direct to the fundamental principles without the mediation of English law,-to proceed on the basis of the provisions of the Transfer of Property Act with reference to the rights that arise under leases and mortgages. In any particular case, where the lessee has purported to transfer his rights or any portion of them, it may then be considered whether by making those provisions bear upon the acts and transactions of the parties, and their mutual relations, any liability can be fixed upon the transferee.

24. The fact that the lessee has the right of transferring his interest under Section 108(j) of the Transfer of Property Act, but that by reason only of such transfer, he does not cease to be subject to the liabilities attaching to the lease, must of course be taken into consideration. Sections 37 and 109 on the other hand refer to cases where the lessor's interest is transferred. The lessee must then perform his duty in favour of the lessor's transferee; but the lessor does not cease to be liable to the lessee, unless the lessee elects to treat the transferee as the person liable to him.

25. These provisions do not refer to a transferee of the lessee, but of the lessor. It seems to me that the absence of any provision for the corresponding case of a transfer from the lessee is not necessarily to be attributed to oversight, as suggested in Ardeshar v. K.D. and Bros (1925) 27 Bom. L.R The lessor's interest in the property was in existence prior to the time when he came into relation with the lessee. The lessor's interest does not rest upon or arise out of the contract between him and his lessee. The law, therefore, contemplates transfer of the lessor's interest independently of the lease, and of the relation that the lease creates between the parties to the lease. The lessee's interest, on the other hand, is a creature of the contract between the lessor and the lessee. That contract was within the control of the parties, and presumably it is expected that the parties will in making the lease provide for the contingency of a transfer by the lessee. In any case, the results imputable to a transfer, which, in regard to the inception of the rights transferred, depends upon contract, must be so immersed in the original contract and in the contract of transfer by the lessee, that the legislature may well have thought it futile to lay down any general provisions.

26. An argument was addressed to us, based on Maung Po Lwin v. Maung Sein Han I.L.R. (1929) Ran. 100 and the Specific Relief Act, Section 27(b), which is rather subtle, but not negligible. It is provided by that clause that specific performance may, in the cases referred to in Section 27, be enforced against a person who is not a party to the contract sought to be enforced, but who claims under a party to the contract, by a title arising subsequently to the contract; and then an exception is stated. Thus, Section 27(b) deals with the liabilities of the transferee : the subject on which we are seeking light : and its bearing on the facts of any particular case must be considered. The third illustration to Clause (b) indicates that in the circumstances there stated, possession of one of the original contracting parties may be sufficient notice of his prior claims if he seeks to enforce the contract against the other original contracting party's transferee. The illustration is intended to explain when it may be considered that there is notice of the transfer, so that the exception does not come into operation, viz., it explains when the original contracting party's possession is notice to the later claimant (the transferee). The argument before us seeks to attain the reverse,-to make possession operate. as a means for enhancing the liability of the possessor. This the illustration does not do. The illustration enhances the privileges not the liabilities of the possessor. In the illustration, A and B are the parties to the original contract (say for the present lessor and lessee). Then A (lessor) transfers to C (mortgagee). B's (lessee's) possession is in that case notice to C; and the contract between A and B can be enforced against C, because though C is a transferee of A for consideration, yet since C has notice of B's claims against A, B's rights are not affected by the transfer to C. The inapplicability of the illustration to the present case thus becomes obvious : the possession is there in the person who is party to the original contract and who seeks to enforce that contract against a transferee of the other contracting party. In the case before us possession is with the transferee ; and he is sought to be fixed with liabilities because he has taken possession.

27. Nevertheless the significance of Section 27(b) and the illustration need not, therefore, be entirely overlooked.

28. The section expressly lays down that the transferee may be fixed with the liabilities of the original contracting party. The illustration shows the importance that possession may have in determining whether he is so fixed. Other such circumstances creating liabilities without direct contractual relations are indicated by such cases as Irving v. Turnbull [1900] 2 Q.B. 129 Blackwell and Co. v. Jones and Co. (1870) 7 B.H.C.R. 144 and Awadh Sarju Prasad Singh v. Sita Ram Singh I.L.R. (1906) All. 37 These cases show-speaking in terms of Section 27(b)-in what circumstances the transferee would be said to be claiming under the lessee, so that the lessee's contract could be enforced against him. In the case before us, as I have already said, the mortgagee did not have possession prior to the sale. As possession is the main purpose of the lease, he cannot, in my opinion, be said to come under the principle of Section 27(b) till the sale took place and he took possession. The lower Courts were misled by the decision in Vithal Narayan v. Shriram Savant I.L.R. (1905) Bom. 391 : 7 Bom. L.R. 313 That decision was erroneous for the reasons pointed out in Thethalan v. The Eralpad Rajah, Calicut I.L.R. (1916) Mad. 1111 the effect of English authorities is not there correctly appreciated.

29. In view of the law laid down in the Indian enactments, the position in each case must be considered in connection with the terms of the lease, and of the mortgage, and all the events that have taken place. I have already referred to some of the circumstances bearing on the question. Possession by the mortgagee is no doubt a very important factor. Here liability after possession is admitted. But no one circumstance can be taken as determinative. The particular transactions considered in the light of the enactments must determine the liabilities of the parties amongst themselves.

30. I come back to the question with which I started,-is there anything in the nature of a contract express or implied or of a relation resembling that created by contract by which defendant No. 9 became liable for rent to the lessor prior to November 22, 1928? In my opinion that question must, in the present case, be answered in the negative. No ground of liability prior to the admission by the mortgagee has been made out.

31. For these reasons, and the reasons stated by the learned Chief Justice, I am of opinion that the appeal should be allowed in the terms stated by him.

N.J. Wadia, J.

32. I agree. The question which we have to consider in this case is what is the nature of the mortgage passed by Bhogilal to defendant No. 9 in 1926. Although it was argued that that mortgage amounted in effect to an English mortgage yet it is clear that none of the requisites of an English mortgage are satisfied. There was clearly in this mortgage no condition binding the mortgagor to repay the money on a certain date, nor was there any provision for a retransfer by the mortgagee on payment of the mortgage money. The transaction, therefore, is clearly not an English mortgage. It does not satisfy all the requirements of an usufructuary mortgage either, as there was a condition in it that the money advanced was repayable on demand, and there was no provision that the mortgagee was entitled to retain possession until the debt had been satisfied from the rents and profits accruing from the property. Looked at by itself, the mortgage is not a simple mortgage since possession was transferred to the mortgagee. But, I think, that there is some force in the argument advanced on behalf of the appellant that if the mortgage deed and the rent-note which was executed on the same day are read together, the transaction as a whole might be regarded as a simple mortgage. The mortgagor in this case transferred all the property to the mortgagee to secure the amount of the loan but by a contemporaneous agreement the property was leased by the mortgagee to the mortgagor. The mortgage deed stipulated that the mortgagor was responsible for the payment of Government assessment on the property. We have been referred to the view taken by the Patna High Court in the case of Rajniti Prasad Singh v. Commissioner of Income-tax, Bihar and Orissa I.L.R. (1929) Pat. 194 in which it was held under somewhat similar circumstances that

Where a borrower, to secure a loan of a large sum of money, executed what purported to be a usufructuary mortgage in favour of the lender, who by a contemporaneous document leased the properties back to the mortgagor, the transaction amounted in effect to a simple mortgage.

33. On this view of the case, there can be no question at all that there was no complete assignment of the interest of the mortgagor to the mortgagee, and that the mortgagee could not be held liable for rent from the date of the mortgage. Even if the mortgage is not treated as a simple mortgage and is regarded as an anomalous one, it is clear that in this case there has been no complete assignment of the mortgagor's interest. The mortgage deed says that only possession of the property had been handed over, that the income realised from the property should be credited towards interest, and that if there be a surplus it should be credited towards the principal. The mortgagee was, therefore, liable to account for the income of the property. As there was no complete assignment of the mortgagee's interest there could, therefore, be no privity of estate between the original lessor and the mortgagee defendant No. 9. I may refer here to the view taken by the Allahabad High Court in Mata Din Kasodhan v. Kazim Husain I.L.R. (1891) All. 342 that (p. 474)-.an Indian mortgage of any kind does not mean the conveyance of ' property absolutely to the mortgagee' so that even if the English technical phrases' legal estate' as distinguished from ' equitable estate' were to be imported into the Indian Law of mortgages, it must be held that notwithstanding the execution of a mortgage of any kind, the' legal estate' vests not in the mortgagee but remains in the hands of the mortgagor, for, he continues to be the owner of the property, entitled to deal with it as he likes, subject, of course, to the incidents of the mortgage which he has already executed.

34. A mere transfer of possession by the mortgagor to the mortgagee cannot create privity of estate between the mortgagee and the original lessor. Both the lower Courts have based their decision on the ruling in Vithal Narayan v. Shriram Savant I.L.R. (1905) Bom. 391 That view has been referred to and dissented from in Thethalan v. The Eralpad Rajah, Calicut I.L.R. (1906) Mad. 1111 I agree with the view taken by my Lord the Chief Justice that the ruling in Vithal Narayan v. Shriram Savant cannot be accepted as good authority. I would, therefore, allow the appeal with costs.


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