Skip to content

The Hope Mills Limited Vs. Sir Cowasji J. Readymoney - Court Judgment

LegalCrystal Citation
Decided On
Case NumberO.C.J. Suit No. 65o of 1908
Reported in(1911)13BOMLR162
AppellantThe Hope Mills Limited
RespondentSir Cowasji J. Readymoney
mortgage--redemption--maxim--redeem up and foreclose down--deeree nisi--res judicata--civil procedure code (act v of 1908), section 11--registration act (xvi of 1908), sections 17, 49--document severable in parts--some parts not requiring registration--document can so far he used in evidence---com-pony--directors de facto--notice to strangers--mortgagee in possession-agreement empowering him to charge for his personal services--agreement valid--clog on the equity of redemption--once a mortgage always a mortgage --manager of a mill--acquiescence-- elements of--fraud, what constitute.;when there is more than one mortgage upon a property, then the rule is, redeem up and fore close down, which, in fact, means that the first mortgagee suing for foreclosure must make all subsequent mortgagees.....beaman, j. 1. this is a suit by the plaintiffs, the hope mills company, to redeem three mortgages of the year 1900 should it be found that the second and third of these have been bona fide purchased by the first mortgagee for himself, and incidentally to have the two agreements of the years 1901 and 1905, respectively, should defendant no. 1 rely upon them, declared invalid and not binding on the plaintiff company.2. on the 5th of april 1900, the plaintiff company mortgaged the hope mills to the defendant no. 1 for five lakhs rupees. the second and third mortgages were effected by one and the same instrument on the 31st of may 1900, and these two . mortgages have been referred to throughout the case as tokersey's and ichharam's mortgages.3. on failure to pay the first installment of.....

Beaman, J.

1. This is a suit by the plaintiffs, the Hope Mills Company, to redeem three mortgages of the year 1900 should it be found that the second and third of these have been bona fide purchased by the first mortgagee for himself, and incidentally to have the two agreements of the years 1901 and 1905, respectively, should defendant No. 1 rely upon them, declared invalid and not binding on the plaintiff Company.

2. On the 5th of April 1900, the plaintiff Company mortgaged the Hope Mills to the defendant No. 1 for five lakhs rupees. The second and third mortgages were effected by one and the same instrument on the 31st of May 1900, and these two . mortgages have been referred to throughout the case as Tokersey's and Ichharam's mortgages.

3. On failure to pay the first installment of interest, the defendant No. 1 entered into possession on the 14th December 1900. In March, 1901 the defendant No. 1 put the mortgaged property up for sale, but as the reserved price was not reached, it was withdrawn and no sale effected.

4. On the 30th of May 1901, the first agreement, set up by the defendant No. 1 and challenged by the plaintiffs, was entered into. By the terms of this agreement the defendant No. 1 was to work and finance the Mill, reimbursing himself by way of salary to the extent of an annual sura not exceeding Rs. 16,000. In August 1903, defendant No. 1 filed a foreclosure suit, annexing to his plaint a copy of the agreement of the 30th of May 1901. The suit came on before Mr. Justice Crowe ex parte and a decree nisi purports to have been passed in January 1904. In August 1904 defendant No. 1 applied to have the decree made absolute. But as he had not passed his accounts the application was rejected.

5. On the 5th of October 1905, a second agreement was entered into between the Company and the defendant No. 1,by which the earlier agreement of May 1901 was modified in some particulars. Under this agreement defendant No. 1,in consideration of working and financing the Mill, was to receive a monthly salary of Rs. 1,500 to be paid out of the Agent's commission.

6. On the 23rd of January 1906, the Directors of the Company passed a resolution approving of the defendant No. 1'S management of the Mill and requesting him to obtain a transfer of Tokersey's mortgage out of the profits of three lakhs which the Mill was shown to have made during that year. Before this Tokersey's mortgage had been purchased nominally by one Motilal Canji for Rs. 55,000. On the 20th April 1906 the defendant No. 1 bought in this mortgage from Motilal Canji at its full value Rs. 1,67,000 odd. In the meanwhile the third mortgage owing to the insolvency of the mortgagee had come into the hands of the Official Assignee, from whom it had been bought by Ibrahim Rahimtoola for Rs. 13,000. At a Directors' meeting of the 1st of November 1906 I find the record of a letter in the following terms:--' In consideration of your having at our request saved the Hope Mills from going into the hands of the Hon'ble Mr. Ibrahim Rahimtoola,' &c.; written by the Agents to defendant No. 1. On the 21st of December 1906, defendant No. 1 obtained a transfer of the said mortgage from Ibrahim Rahimtoola for a sum of Rs. 2,30,000, Rs. 50,000 of which was contributed by the second defendant Permanandas. In 1907, the new Agents, as they are called throughout this case, became the active members of the old Agency firm of Rangildas Bhukandas & Company and very shortly afterwards the plaintiffs moved before Davar J. to compel the defendant No. 1 to pass his accounts before the Commissioner under the decree nisi of 1904. Defendant No. 1 resisted this application on the ground that Crowe J.'s decree did not direct him to pass his accounts before the Commissioner and further that the decree had been superseded by the subsequent agreement of October 1905. Davar J. directed the defendant No. 1 to pass his accounts in the usual way before the Commissioner. Defendant No. 1 being dissatisfied with this order s appealed and a Division Bench consisting of Chandavarkar and Batchelor JJ. reversed Davar J.'s order, and in effect left the plaintiffs to obtain what remedy they could or that they may be advised by way of a separate suit. The plaintiffs made one further attempt to have the decree of Crowe J. executed, but as matters stood after the decree of the appeal Court, it was inevitable that Macleod J. should reject this application holding that Crowe J.'s decree was defective and could no longer be executed. The result of these proceedings was what I cannot help feeling a very strange and unfortunate position of affairs. Two Judges, Davar J. and Macleod J., had in effect declared that the decree nisi of 1904 was so defective that without the addition of some further direction it could not be executed, while the appeal Court had declined to allow any such further directions to be added. So that, although in form existing, this decree nisi remained, and it seems to me must ever remain, a dead letter, unless defendant No. 1 should consent to supply its deficiency by voluntarily passing his accounts before the Commissioner. So far as the plaintiff Company was concerned the contemplated redemption was brought to a dead-lock, for they could obtain no further relief whatever under the decree of 1904, while it seems that in the view of the appeal Court their proper course was to file a suit to have the agreements, upon which defendant No. 1 relied, set aside. In this dilemma no other course was open to the Company than to file a redemption suit, incidentally asking, should need arise, for a declaration that the agreements of 1901 and 1905 were not binding upon them. The obvious difficulty in their way was the existence of the decree nisi of 1904, which had all the appearance of being, if not actually res judicata, a sufficient bar on the ground of avoiding multiplicity in litigation to another suit by the mortgagors for redemption.

7. The plaintiffs have accordingly filed this suit No. 650 of 1908, and their claim has been resisted upon a variety of grounds, many of which give rise to questions of much difficulty. In the first place the defendants contend that this suit is res iudieata by the decree nisi of 1904 and specially with reference to the objections now taken by the plaintiffs to the agreement of 1901. On a first view it would certainly appear that so long as there is a decree nisi for fore- closure outstanding, under which a mortgagor as well as the mortgagee can obtain full relief in respect of all causes of action arising out of a mortgage, it would be supererogatory on the part of the mortgagor to bring a separate and independent suit for redemption. On the general principle that the same cause of action cannot be agitated twice synchronously in Courts of equal jurisdiction, such a procedure would be looked upon with disfavour, if indeed it could technically be allowed. Yet, as I have already intimated, the state of affairs here is so peculiar that it is difficult to apply general principles disregarding the actual facts; nor indeed on the authority of the text book writers, can it be safely said that an independent suit to redeem is invariably barred by reason of an outstanding decree nisi for foreclosure. See Coote, page 1063, Fisher, page, 664; and I cannot refrain from observing here if the defendant's contentions in this respect were sound it would in the events that have happened bring about a very curious, I believe I might say an almost unprecedented result. I tried to make the learned counsel for the defendant No. 1 understand the difficulty which I felt, but I am not sure that I quite succeeded in doing so, possibly because the difficulty is not so real as it seemed to me. It comes about in this way. When the defendant No. 1. brought his foreclosure suit in 1903, the mesne mortgagees as well as the mortgagor were made parties. Where there is more than one mortgage upon a property, the rule is compendiously expressed in the formula: redeem up, foreclose down, which in fact means that the first mortgagee suing for foreclosure must make all subsequent mortgagees parties to the suit and so afford each in turn the chance of redeeming before being foreclosed. Now, if we suppose that the decree nisi of 1904 could be made absolute in its present form it would come to this that both the second and third mortgagees would be foreclosed or squeezed out, while the original mortgagor would obtain the whole property on redemption of the first mortgage alone, for I take it to be a part of this principle that the first mortgagee can neither foreclose nor be redeemed by the original mortgagor without taking into account intermediate encumbrances. If the intermediate encumbrances who are parties to the suit did not choose to exercise their rights to redeem, each in turn would be foreclosed before the 1st mortgagee could come into touch with the mortgagor. Mr. Inverarity saw no difficulty in allowing the mortgagor to redeem the first mortgagee directly without making the mesne mortgagees parties to the suit, and so far as reason and common sense go that might very, well be so; but the question is surely materially affected when in fact the mesne mortgagees are parties to the suit. No one disputes the proposition upon which Mr. Inverarity seemed to rely that a mortgagor can redeem each of the mortgagees above him separately and in their turn, but that is quite a different thing from the mortgagor skipping all the mesne mortgagees and redeeming his first mortgagee. Still more widely does it differ from the case of the first mortgagee foreclosing down the whole line of mesne encumbrances to the original mortgagor. In the first case suggested there would apparently be a violation of the rule that in a redemption suit all persons intermediately interested must be joined as parties. In the second case they have been joined as parties and therefore if they failed to exercise their rights and allow the mortgagor to redeem them, it means only this that before the mortgagor's right to redeem can come into play, they, the mesne mortgagees, must have been foreclosed. I was referred upon this point to Kinnaird v. Trollope (1888) 89 Ch. D. 636. But that is a very different case and does not even raise, much less, remove, the difficulty I am indicating. There the mortgagor had assigned his equity of redemption absolutely. The mortgagee then sued him on the personal covenant and it was held on the analogy of the well-recognised rule that even after foreclosure the right to redeem revives if the mortgagee pursues his remedy on the personal covenant, that here also the mortgagor's right to redeem survived, and that the mortgagee could only recover on executing the conveyance to the mortgagor subject to any other existing equity of redemption. It is to be observed that in such a suit assuming that there were an outstanding equity somewhere, that the person' having it would not be a party to the suit, could not enforce it and, therefore, as against him the decision would not be res jndicata. But I have been referred to no such case as this in which the mesne mortgagees having been parties to the suit, having had a chance of enforcing their equities yet not having done so, would certainly be foreclosed finally. What makes this so peculiar in the events that have happened, is that the first mortgagee has himself after obtaining a decree nisi for foreclosure bought in the mesne mortgages, so that if that decree were capable of execution as it stands and were res judicata in respect of future suits for redemption as the defendant No. I contends, it would appear to have this startling result that he would have foreclosed himself in respect of the two mortgages for which he has paid in the aggregate Rs. 3,97,000. It is unnecessary to go further into this complication, because I do not think that there is anything substantial in the defendants' contention that the present suit is res judicata by the decree nisi of 1904. The shortest and simplest way of reaching that conclusion is by a syllogism. Only that which is finally decided can be res judicata. A decree nisi is ex vi termini not a final decision. Therefore, no decree nisi can in strictness constitute a res judicata. Numerous cases from the Indian law looks were cited upon this point by the learned counsel on both sides. So far as the general contention goes, none of these cases seem to me to be of much value or assistance; as, for example, Malkdrjun v. Narhari ILR (1900) 25 Bom. 337. The question there turned upon whether a Court sale was a nullity or not, and it appears to have been cited for no other purpose than the dictum contained in the judgment of their Lordships of the Privy Council that the Judges have jurisdiction to decide wrong as well as right. That dictum is constantly used in arguments touching the exercise of the High Court's powers of control and superintendence, but neither it nor the case as a whole have much bearing upon the question I am considering. The case of Maloji v. Sagaji ILR (1888) 13 Bom. 567 deals with a mofussil decree for redemption which was not a decree nisi. The learned Judges, founding that decision on the case of Gan Savant v. Narayan Dhond Savant ILR (1883) 7 Bom. 467, held that after the passing of the decree for redemption in which no time was specified, the plaintiff mortgagor will be for ever foreclosed if he does not execute the decree within three years; and I suppose that it is intended to argue from this that a decree nisi under the Transfer of Property Act will automatically operate so as to become a decree absolute after some time; so while it is in the process of becoming so, it is a bar to any other suit by either party to it either for redemption or foreclosure. Now, the case of Gan Savant v. Narayan Dhond Savant (3) is by far the most interesting of all the cases cited upon this topic from the Indian law books. That very learned and eminent Judge, West J., in holding that a redemption decree, if not enforced within three years, operated as a foreclosure against a mortgagor, dwelt upon the apparent contradiction involved in using a decree in favour of the plaintiff as ultimately res judicata against him. Res secundum se judicata ought not, in strictness, one would think, to be used against the decree-holder. But, as that learned Judge pointed out, in all decrees of this kind there is implied the assertion of the contrary right, namely, where the decree is procured by a mortgagor of the mortgagee to be paid within the time specified or prescribed by law, or failing that to be for ever freed from the liability to be redeemed. I am not, however, much concerned to inquire further whether that decision would still be good law in the mofussil, for it certainly cannot be applied to a decree nisi under the Transfer of Property Act A decree nisi in itself from its nature is provisional and requires the party seeking to have it enforced to move it absolute. Whether the decree be procured by the mortgagor or the mortgagee, it is in the option of either party to enforce it and have it converted into a decree absolute, but until one or the other party docs so, it never can be a final decision or constitute res judicata.

8. While, however, it is easy to dispose of this contention as generally covering the whole ground and barring the present suit it has special reference to the agreement of May 1901 and so considered may occasion some difficulty. From the very outset of the case, defendant No. 1 has made desperate efforts to get the agreements of 1901 and 1905 on the record, although unregistered, as sufficient proof of the contract of service between the Company and the defendant No. 1, which they contained, on the ground that that contract is not a transaction in any way affecting immoveable property. One of the ways in which this was sought to be done was bringing it in along with the plaint in the suit of 1903 and the decree nisi of 1904, and thereupon contending that it was res judicata against the plaintiffs who could not now be heard to dispute either its admissibility or its binding effect upon them. It is strenuously argued on behalf of the plaintiffs that only the pleadings and decree in a suit are properly res judicata, and that a mere annexure to the plaint ought not to be included, notwithstanding the wide and general language of Section 11 of the Civil Procedure Code, under that technical bar. I should have inclined strongly to adopt that conclusion had I not felt myself much oppressed by the decision of their Lordships of the Privy Council in Amriteswari Debi v. Secretary of State ILR (1897) Cal. 504, where it was held that where a decree is couched in general terms and a question of res judicata arises upon it, the Court may look at all the intrinsic evidence before it and the materials of the case as a whole even going so far as statements in the depositions of witnesses. After carefully studying that judgment, I did not feel myself at liberty to exclude the agreement, while at the same time I intimated that, in this connection at any rate, I should confine its use strictly to the issue of res judicata. Having gone so far towards enlarging and extending the application of the principle, which is ordinarily much restricted, the learned counsel for the plaintiffs asked me to go further still and admit the Judge's notes. I doubt, however, whether in strictness even the agreement, which is annexed to the plaint, but in respect of which no relief is claimed, ought to make part of the res judicata, if any res judicata there had been, arising out of the ex parte decree. See the case of Modhusudun Shaha Mundul v. Brae ILR (1889) Cal. 300, in which the mere statement of the landlord's rent-rate annexed to the plaint in a rent suit in which an ex parte decree was obtained was held not to be a statement in issue within the meaning of Section II of the Civil Procedure Code. Since, however, I have explained already why, in my opinion, the decree nisi of 1904 cannot be res judicata generally for the present suit, it follows that none of the materials upon which that decree was based can be res judicata either. It certainly would appear to be verging upon the absurd to ask a Court to hold that a suit of this kind was res judicata by the decree which two learned Judges of this Court have since held to be such as to be incapable of execution, a view which, by a different process of reasoning, also seemed to have commended itself to a Division Appeal Bench of two Judges more. Considering that since that decree was passed the mortgagee, who obtained it, has himself as he alleges purchased for his sole use and benefit the intermediate mortgages, I doubt whether he or anybody else could now hope to obtain a substitution of the decree absolute for that decree nisi. And this is the same as saying that so far as that decree nisi goes, not having finally decided any question, it has subsequently, by reason of intrinsic defects, become a dead letter. I, therefore, hold that this suit is not res judicata.

9. But I am not to be understood as acceding, on account of that finding, to the defendant No. 1'S contention, that the decree nisi of 1904 has been superseded by, and become merged in, the agreement of 1905. There are many difficulties in the way of reaching that conclusion; the chief of these is, that the agreement was never certified to the Court, nor do I think that since the mortgagee had gone into possession under the mortgage, he can divest himself of the liabilities and duties of a mortgagee in possession and claim to hold the property from October 1905 merely under and upon the terms of the agreement.

10. I now come to the question of the agreements of 1901 and 1905. As to the first of these, it cannot be disputed that if it really lies upon the plaintiffs to ask for a declaration to have that agreement set aside, such a prayer would be time-barred. So much the plaintiff Company admits but the learned counsel for the plaintiffs puts his case differently. This, he says, is an ordinary suit for redemption in which no questions, such as those arising out of the agreement, could ordinarily call for decision. It is the defendant who sets up the agreements and on the strength of them wishes to evade the requirements of a normal account as between the mortgagee in possession and the mortgagor. It is, therefore, for him to establish if he can that the agreements are valid and binding upon the plaintiff Company and in such a state of affairs the plaintiff Company is not to be put out of Court upon a mere plea of limitation. For the plaintiffs' case touching these agreements is in effect that they are absolutely void by reason of being first contrary to public policy and such as the law prohibits the mortgagee in possession making with the mortgagor. Next, by reason of various defects, such as want of qualification in the directors, the numerical insufficiency of the board, excess of powers, and the like. Should it, however, appear that the agreements are not void for any of the foregoing reasons ab initio and should it further appear that notwithstanding the want of registration they can be proved in the present suit, then no doubt the plaintiffs would be precluded from impugning the agreement of 1901 merely as a voidable agreement by the law of limitation. By far the most difficult part of a difficult case is concerned with the examination of the arguments for and against (1) the proof of, (2) the validity and binding effect of, these two agreements. Although when Mr. Inverarity opened his concluding address to the Court, Mr. Raikes for the plaintiffs very candidly informed him that he intended to rely upon the want of registration, I was surprised that the defendant's learned and eminent counsel wholly declined to go into that point. Apparently he thought it enough that the Court had admitted the agreements in evidence so that no further argument was needed to show to what use they might legally be: put. When these agreements were first offered, I was very strongly of opinion that they could not be received in evidence of this particular transaction as being a transaction which indirectly affected immoveable property for want of registration. The question of nicety is whether the contracts to prove which the agreements had been admitted do in fact affect immoveable property which is the subject of the mortgage, and that is a question which is by no means concluded by admitting the agreements upon the record subject to their use being restricted in compliance with the statutes of registration. I said first I thought they ought not to be admitted at all as proof of the contract of personal service between the Company of the one part, the agents of the other part, and defendant No. I of the third part. As a whole both these agreements indubitably require registration. But a long course of decisions, I suppose, has settled the rule that where a document which as a whole requires registration, contains separable parts which do not require registration, those parts may be admitted in evidence to prove transactions which ex hypothesi do not affect immoveable property of the value of Rs. 100 or upwards. The common case is of a mortgage deed with the usual personal covenant. Although the mortgage deed as a whole requires registration, and if unregistered will not be admitted as proof affecting immoveable property, it has always been allowed to be used in a suit on the personal covenant as proof of debt. Cases, however, arise in which this broad and intelligible distinction is drawn so fine as to become almost imperceptible. The strongest perhaps of these cases to be found in our books is that of Maniram v. Bapu (1887) P. J. 267 where Sir Charles Sargent held that a document in which the mortgagor consented to the mortgagee spending money on improvements, the said outlay to become a part of the mortgage debt, was good evidence, although unregistered, of the mortgagor's consent. The ground of that decision appears to have been that it is part of the ordinary contract of mortgage that a mortgagee in possession is entitled to be reimbursed for proper outlays of this kind. So that all the paper was required to prove was the consent of the mortgagor. If, however, proof of that consent were an indispensable preliminary to the outlay becoming part of the mortgage debt, I confess I still feel very great difficulty in saying that indirectly the use of the paper for that purpose did not affect the immoveable property. Yet it is clear that a distinction might be drawn between a case of that kind and a case like the present in which the agreement sought to be proved by the paper is not one ordinarily incidental, or ancillary to the mortgage contract. In the former case, even without the mortgagor's consent, the mortagee might well have shown that the outlay he incurred upon improvements or repairs were just and lawful and within the contemplation of the ordinary mortgage contract. Nothing of that kind could possibly be attempted here. What the defendant No. I wishes to prove by these agreements is that while mortgagee in possession he was employed as a salaried manager by the mortgagor. Nothing perhaps is better established than that the mortgagee in possession cannot, in the absence of an agreement or stipulation, charge the mortgagor for personal service, so that up to this point at least it is abundantly clear that if defendant No. I is to be allowed to retain his salary or remuneration, it can only be in virtue of the agreement and not arising in any way out of the mortgage contract. Then the question arises: Does an agreement of that kind directly or indirectly affect the immoveable property charged with the mortgage. In my first ruling upon this question, I put what appeared to me to be an ineluctable dilemma. This I said is either money which by bringing into the mortgage account you seek indirectly to make a charge upon the real estate, or it is something entirely outside the mortgage account and, therefore, irrelevant in the present suit. If we read the clauses in the agreement, it certainly appears that they do not in terms charge this remuneration upon the land and that, in some of the recent English cases, seems to have been held almost enough in itself to justify agreements of this kind and take them out of the old rule that the mortgagee might not stipulate for collateral advantages. To some of those decisions I shall have to advert presently in more detail. But I must observe here, what had been entirely overlooked in the whole of the argument for the defendant No. I, that the chief difficulty with which I am confronted in dealing with these agreements and confining them to their proper uses is a difficulty which does not arise in England. None of the English cases, therefore, throw any light upon it, nor can be of any assistance to me. There are numerous cases in which separate agreements have been entered into between the parties to a mortgage and the Courts have frequently held that there was no reasonable objection to enforcing such agreements. It is only, however, .' in connection with the equity rule against allowing any clog or fetter upon the equity of redemption that we even approximate to such a difficulty as is occasioned in this country by the provisions of the Registration Act. For while an agreement might be in itself unobjectionable and reasonable, so that the Courts in England would not hesitate to give effect to it, it might nevertheless indirectly affect the immoveable property. But unless it did so in such a way as to become a clog upon the equity of redemption, the Courts apparently would be free from all such hampering considerations as those which gather about want of registration. If upon analysis it should be found that such an agreement as that entered into between the plaintiff Company and the defendant No. I, though in terms a mere contract of personal service, works out in the result to a heavy additional charge upon the mortgaged property, then although in England, since it was an agreement subsequent to the mortgage, in all probability the hard and fast equity rule would not be applied, in this country it would indubitably require registration and, if unregistered, could not be proved. Mr. Raikes saw this clearly enough; and notwithstanding the previous rulings of the Court, terminating in the admission of the agreements or so much of them as did not clearly require registration, he, at the conclusion of the case urged, and I think quite rightly urged, his objection to the use, to which the defendant No. I now sought to put them. It was contended by Mr. Inverarity that the defendant No. 1's remuneration could not possibly be a charge upon the land inasmuch as he put it in his own pocket from month to month, and it was open at any time to the plaintiff Company to redeem him without any regard to his salary as a Manager. But this appears to me to overlook, or partly at any rate to overlook, the point. The argument so stated really comes to this, that the agreement could only be given in evidence if it were required to prove that which indeed needed no proof. For if the Company had redeemed the defendant No. I before he had earned his first month's salary, it might very truly be said that no additional charge had been imposed upon the land by the agreement, and it might, therefore, be used to prove that, had the Company pot redeemed him, Sir Cowasji might have earned the month's salary, but as the Company had redeemed him, and he had not earned the month's salary, the need for proof of this kind seems to disappear. But what defendant No. I really means, and what has been substantially in controversy from the moment these agreements were tendered in evidence, is that neither directly nor indirectly do they, to use the language of Section 17 of the Registration Act, 'purport or operate to create, declare, assign, limit or extinguish whether in present or in future any right, title or interest whether vested or contingent of the value of Rs. 100 and upwards to or in immoveable property'; for if that were so, then Section 49 provides that no documents required by Section 17 to be registered, 'shall be received as evidence of any transaction affecting such property or conferring such power unless it has been registered'. When I, on further consideration, decided to admit so much of the agreements of 1901 and 1905 as contained the contract of employment, doubts had occurred to me whether the defendant No. 1 might not avail himself of the terms of that contract in rendering his account as mortgagee in possession to justify his appropriation of Rs. 16,000 a year up to 1905 and Rs. 18,000 a year thereafter. I set forth various considerations which had occurred to me affording a possible escape from the dilemma upon which my first ruling proceeded; but I had not then finally decided, nor I think could I decide before the case concluded, whether this agreement of service could be used as defendant No. 1 wishes to use it, without contravening Sections 17 and 49 of the Registration Act. I am quite clear that if I am now satisfied that those clauses of those agreements do operate even indirectly to limit any right of the value of Rs. 100 or upwards in the immoveable property pledged, then they must not be taken to be evidence of any such transaction and as no other evidence would be admissible, the result would be that the defendant No. 1 would be precluded from relying upon that contract of service, and the Court in this suit would have to treat it as non-existent. I have felt the greatest difficulty in coming to a conclusion upon this important point. I have given it my most careful and best consideration. From the first I have felt strongly oppressed by what is a fairly obvious train of reasoning. I would state it simply thus:--Under these agreements the mortgagee in possession is entitled to withdraw first Rs. 16,000 a year and then Rs. 18,000 a year from the profits of the property he was managing. But for that subtraction the whole of those profits would have gone in reduction of the mortgage debt. Now that the mortgagor seeks to redeem, the mortgagee in possession claims to be entitled to deduct from the profits which have come to his hands the sums I have mentioned and 1 to leave the balance of the mortgage debt thus proportionately increased a charge upon the property. Say that the sum roughly is a lakh of rupees, the actual result thus arrived at is before the mortgagor can redeem, he has to pay a lakh of rupees, more than he would have done, had that sum not been appropriated under the agreements. So that it appeared difficult to escape from the conclusion that indirectly the agreements have operated, though they certainly did not purport, to limit the mortgagor's right to redeem to the extent expressed in terms of money of a lakh of rupees. Further searching analysis has led me to doubt the soundness of that reasoning. It cannot, I think, be denied that the clauses of the agreement in question do not on the face of them purport to create, extinguish, etc., any right in immoveable property. If this contract of service had been made independently of . other matters, contained in the agreement as a whole, there can, I think, be no question that on the face of them they would not have required registration. It is only when they are sought to be put to a certain use in a suit of this kind, that it becomes possible for the mortgagor to contend that, notwithstanding their language and original intention, they are found finally to operate indirectly and unexpectedly to limit rights in immoveable property. But that is tantamount to saying that the agreement is of such a kind as when enforced, to become a clog upon the equity of redemption. So that viewed in that light, I might derive some assistance from the decisions of the English Courts upon this subject. But the reasoning which leads to this conclusion is, I am now disposed to think, somewhat artificial. Apparently its whole foundation would be cut away, but for the fact that a person entitled to a salary under the agreement is also the mortgagee in possession; but that fact I should say involves such legal consequences as belong rather to a distinct province of the law regulating rights and liabilities of the mortgagor and mortgagee inter se than to what was contemplated and intended by Sections 17 and 49 of the Registration Act. For let us suppose that the agreement had been that the defendant No. 1 was to employ a competent Manager instead of doing the work himself on the same salary. As a bare agreement that would certainly not have been exposed to any objection for want of registration, but that objection has been ingeniously grafted upon it in view of its ultimate result merely upon the fact that the salary of such competent Manager would have been paid out of the profits of the concern, for there we shall have an almost exact parallel to the case decided by Sir Charles Sargent and the principle of that decision would most certainly have covered it. Yet so far as the mortgagor was concerned the result would have been exactly the same. That is to say, when he came to redeem now he would still have had to pay that sum in addition which has gone as salary into the Manager's pocket. Yet had the mortgagee in possession even without any special agreement employed upon his own responsibility a competent Manager on this salary, I think it quite likely that he would have been allowed the money so paid out of the profits in the interest and for the welfare of the Mill, as a going concern, under the head of 'just and lawful expenditure.' Now, I will put a third case. Suppose that the mortgagee defendant No. I had not gone into possession at all, but the mortgagors had entered into this agreement with him to manage and finance the mill how could it be said that the salary which they then paid him voluntarily, month after mouth, out of their profits (they being in possession and having control) could possibly be treated as an additional charge upon the land? Yet again the result would have been exactly the same, for to the extent of the salary they chose to pay the mortgagee, the fund available for the reduction of his mortgage debt would have been reduced, and the sum of that mortgage debt, still chargeable on the land, increased. It is only when the mortgagee is himself in possession and makes a contract of this kind with the mortgagors out of possession that the logic of the first line of reasoning appears to be unanswerable, but as soon as it is shown to depend for its validity upon a distinct and inseparable fact, namely, that the person to be paid the salary is the mortgagee in possession, then it is really to the legal consequences, if any, following upon that fact, that we must look for a sufficient objection to the agreement and not to any objections taken under the sections of the Registration Act merely for want of registration. For, as soon as it can be shown that where all the consequences of the agreement are absolutely identical so far as its effects upon the property and the mortgagor's rights hereunder are concerned, in various cases in which want of registration could not possibly be urged against it and that it was only in the single case before me now that those objections could be maintained, the conclusion is plain that whatever force they derive is derived from the peculiar feature of the special case and is not founded on the general law of registration. This is the view which I have adopted after long and anxious thought, and if I am right it is a complete answer to the plaintiffs' objection to receiving the agreements in proof of the contract of service. I hold that they ought not to be excluded when sought to be used for that purpose for want of registration.

11. I now proceed to deal with other objections to these agreements. The first of these is that there was no sufficient Board of directors, and that, therefore, agreements into which those directors purported to enter were null and void. When the agreement of 1901 was entered into the ostensible directors were Rangildas, Hargowandas, Dharamdas, Sir Cowasji and Dadabhoy. Rangildas and Hargowandas were admittedly qualified. The plaintiffs contend that Dadabhoy was never appointed and use the admission of the Advocate-General for the defendant No. 1 during his de bene esse examination that Dadabhoy never acted as a director. According to Article 91 of the Articles of Association the number of the directors shall be not less than four, etc. The minutes of the meeting at which the agreement was ratified, Exhibit 53, showed that only four directors were present, viz., Rangildas, Hargowandas, Sir Cowasji and Dharamdas. Defendant No. 1 relies upon Exhibit 75 to show that Dadabhoy was appointed a director, That, however, only shows that on the 31st of May 1900 Dadabhoy was appointed a director at Sir Cowasji's request during his six month's absence. There is no other evidence of his ever having been a Director or having been qualified, while there is the admission I have mentioned that he in fact never acted as a director. So that it might be that by the end of November 1900, if Dadabhoy ever was appointed, he had ceased to be a director. Of the four directors, who were present at the meeting of May 1901, the plaintiffs contend, Sir Cowasji was disqualified, because he did not hold 10 shares in his own name and for his sole benefit, as required by Article 94 of the Articles of Association. Now, it is admitted that when Sir Cowasji became mortgagee of the mill both he and Oomrigar were placed upon the Board of directors and Rangildas assigned to each of them 10 shares, Oomrigar had, however. resigned at the end of 1900 or beginning of 1901, and whether he had resigned or not, the same objection applies to him as to Sir Cowasji. Defendant No. 1 admits, as also does Oomrigar, that neither of them held these 10 shares for his sole benefit, that is to say, beneficially. Defendant No. 1 has contended, however, on the authority of the English law that as between the directors and the Company at any rate, a director, who has been given shares to hold in his own name, holds them technically and effectually for all legal purposes in his own right. Whether the words 'in his own right,' which occur in the English cases, are synonymous with 'for his sole benefit,' may be doubted. It was held in Pulbrook v. Richmond Consolidated Mining Company (1878) 9 Ch. 610 that if a director holds the shares as trustee, he is none the less duly qualified and holds them in his own right. This case was considered to settle the law, although Palmer on Company Law points out that it is a decision which goes far to defeat the object of the clause that a director shall have a substantial stake in the Company. And in the later case of Boschoek Proprietary Company, Limited v. Fuke (1906) 1 Ch. 148 the opinion of the English Courts seems to have veered in that direction. To show that the words 'in his own right' are in law equivalent to 'for his sole benefit, 'the defendant cited the case of Attorney-General v. Duke of Richmond and Gordon [1909] A. C.466. The point at issue there was totally different, and the reasoning upon which the decision was based would not necessarily apply to such a case as this. Here Article 94 is explicit and emphatic, containing the words 'in his own name and for his sole benefit.' And I feel considerable doubt whether the requirements of that Article can be said to be complied with when a director, although he holds the shares in his own name, has paid nothing for them and merely holds them as a trustee. Howard v. Sadler [1893] 1 Q. B. 1. shows that a director might have possession of the shares in his own right without being the beneficial owner and that there was nothing illegal in his selling the shares. This case carries out the principle of the case of Pulbrook v. Richmond Consolidated Mining Company. On the whole, I think, that the defendant's answer to this technical objection is on this point sufficient. It was further contended, upon the general argument about this agreement and that of 1905, that whatever defects there might be in the qualification of the directors, they were de facto directors and as such to all intents and purposes, in discharge of their duties, as good as de jure directors. In support of this proposition, which is tersely stated in Buckley, page 168, thus endangering accuracy for the sake of brevity, it may be said that the effect of this section is that, as between the Company and persons having no notice to the contrary, the directors, etc., de facto are as good as directors de jure, various cases were cited: Mahoney v. East Holy ford Mining Company (1875) L.R. 7 H.L. 869, Bigger staff v. Rowatt's Wharf Limited (1896) 2 Ch. 93. The effect of these cases is briefly that outsiders dealing with the Company are bound to acquaint themselves with its external position which can usually be gathered from the papers of their constitution, the Memorandum of Association and the Articles of Association; but are not bound to inquire into and satisfy themselves upon all the details of the Company's indoor management. Plainly, however, this principle would require modification, where the persons sought to be affected with notice are themselves within the Company and, therefore, presumably responsible for its indoor management, a distinction so obvious that it would hardly, I should have thought, require judicial authority. Were any such needed, however, the manner in which Courts have explained and applied that distinction is well brought out by contrasting the case of Howard v. Patent Ivory Manufacturing Company (1888) 38 Ch. D. 156 with Mahoney v. East Holyford Mining Company (1875) L. E. 7 H.L. 869. But I do not think that the distinction need be pushed so far as to compel directors to be satisfied of the propriety and adequacy of their qualifications in so nice a point as the meaning of terms like 'in his own right' or 'for his sole benefit.' So far as this objection reaches, I do not think that it will invalidate the proceedings of the de facto directors, who purported to enter into the agreement of 1901. As to defendant No. 1 himself, it admittedly does not apply to the agreement of 1905, for long before that time Sir Cowasji had ceased to be a director and was, therefore, in the position of an outsider entitled to treat de facto as being as good as de jure directors. It is, however, further contended that Sir Cowasji had relinquished his shares before the meeting of 1901 and, therefore, he was wanting in that essential qualification quite apart from the character in which he had held those shares. Upon this point there is some uncertainty. It is, however, admitted that Sir Cowasji's name remained on the list of shareholders up to the year 1907--(see A6)--when the directors asked Sir Cowasji whether he really owned these shares and Sir Cowasji declined to allow them to be transferred to the name of any other person. Subsequently, however, Sir Cowasji's name was struck off the list of shareholders as from the year 1900. It was also objected that Sir Cowasji was disqualified under Article 104, because under this agreement he held a place of profit under the Company. That, however, obviously would not disqualify him prior to the agreement coming into force and it appears to be certain that defendant No. 1 never signed the transfer of his shares to any other person, until long after the agreements were completed, and that in the meantime the shares remained standing in his name. So that technically I think he must be held to have had a proper qualification.

12. I do not think it necessary to go with greater minuteness into the objections raised against Sir Cowasji (defendant No. 1) and Dharamdas for want of share qualification. At the time of the agreement of 1901 there were (if we count Dadabhai, and although he may not have been in reality a director at that time, he had been appointed in 1900 and for all Sir Cowasji knew might have remained on the board) five de facto directors. I have already said that I do not think that the principle of Howard v. Patent Ivory Manufacturing Company would make it incumbent on each director to know whether his fellow de facto directors, were also de jure directors, or even to be satisfied that his own share holding was in law what the terms of Article 94 required. All that was necessary was that there should be at least four directors of the Company and to all outward seeming there were then five. When the agreement of 1905 was made, there were again a sufficient number of de facto directors, and it is almost admitted that this objection does not apply in the case of that agreement.

13. Nor do I think there is any force in the other objections that the agreements were beyond the powers--(a) of the Company as a whole; (b) of the directors. As to (a), it was a late thought, and cannot I think be maintained. As to (b) it appears to me that the very comprehensive language of Article 109 may, without any undue stretching, amply cover these agreements.

14. This brings me to the last substantial contention of the plaintiff Company that the agreements are in their nature such as the law prohibits a mortgagee in possession to make with a mortgagor, and so against public policy and void.

15. This rests principally upon the well established rule of the English Equity Courts, which remained apparently virtually unbroken and unchallenged up to the repeal of the Usury Laws in 1854. A long series of decisions, of which the most significant and important are Chambers v. Goldwin (1804) 9 Ves. 254 and Leith v. Irvine (1833) 1 My. & K. 277 forbade a mortgagee in possession to charge the mortgagor for any personal services. It is not strictly correct to say, as one of the learned Lords said in Noakes v. Rice (1902) A. C. 24 that all these cases were referable to the Usury Law, and lost their authority when those laws were repealed. For Leith v. Irvine is certainly an exception. That case was de' tided in 1833 and Lord Brougham put the decision partly at least on the broad ground that a mortgagee in possession was quasi-owner, or quasi-trustee, and as such could not obtain any remuneration for managing his own property, which in any event he was bound to do. Biggs v. Hodinott (1898) 2 Ch. 307 and Reeve v. Lisle (1902) A.C. 461 both after the repeal of the Usury Laws, go far to support the defendant's contention that at present an agreement of that kind would no longer be treated in England as necessarily against public policy and void. The true criterion, adopted in most of the later cases, appears to be (a) that the agreement should not constitute a clog on the equity of redemption. This arises out of the maxim once a mortgage always a mortgage, which means that there can be no additional contract in the mortgage deed which would alter the essential nature of the mortgage contract, so as to preclude the mortgagor from redeeming. But it does not appear to have been stretched always to include previous or post agreements independent of the mortgage, unless (b) these were unconscionable, (c) or clearly obtained by undue influence or the abuse of fiduciary relations. To the latter rule must be specially referred all cases between solicitor and client, such as, for example, James v. Kerr (1888) 40 Ch. D. 449, In re Wynn Mackenzie (which is also an authority on the subject of ratification). While on the other hand we have to consider such cases as Salt v. Northampton (1892) A.C.1. the two Irish cases of Comyns v. Comyns (1871) Ir. R. 5 Eq. 583 and In re McKinley (1873) L R. 7 E 467. Reeve v. Lisle shows that a mortgagee might make a stipulation to buy the mortgaged property out and out, while Samuel v. Jarrah Wood Company (1904) A.C. 323 is cited to show that this was not accepted as a universal settled principle. Later cases to which I have referred are Bradley v. Carritt (1903) A. C. 253 and Stanley v. Wilde (1899) 2 Ch. 474 There is no case to be found in the English books, none at least to which I have been referred, or which I have been able to find, like this case. The nearest to it perhaps is the Irish case of In re J. McKinley. The defendant contends broadly and generally that there is nothing in the statute or case-law to preclude a mortgagee in possession from making a fair bargain to do what he is not otherwise bound to do; and that a mortgagee in possession is certainly not bound to work a mill, or to finance it. Looking to the terms of Sections 72 and 76 of the Transfer' of Property Act, and some of the cases which have been decided under them it may be doubted whether this proposition is quite correct. It has been held, for example, that a mortgagee taking possession of culturable land, is bound to cultivate it, and raise the best crops he can upon it. By a parity of reasoning it might be contended that a mortgagee who takes possession of such a property as a mill is bound to work and finance it. Either that, or bring it to sale. For if he deprives the mortgagor of possession, yet will not work the mill himself, in a very short while the concern might fall out of all local competition, the reactionary become rusty and useless, and the value of the property as a whole be seriously depreciated. So that what is really to be considered is the question whether (a) the defendant No. 1 was bound to do all that he has done under the agreements by the law regulating the rights and duties of mortgagees in possession, (b) and whether if so he can contract to receive remuneration for doing that which the law makes it compulsory for him to do? Or if the law does not impose these duties upon him then whether the contract is on the face of it unconscionable or can be shown to have been obtained by undue influence or fraud or oppression. And whether in fact there has been any consideration for it.

16. Further the plaintiff impugns these agreements on the ground, which indeed underlies the whole of his reasoning upon this part of the case, that their effect is to place the mortgagee in possession, in a situation in which his interest must conflict with his duty, which the law would never do. Let me here look at the facts. The defendant No. 1 had gone into possession, in December 1900. The Company and its Agents were then much embarrassed. Early in 1901 the defendant No. 1 tried to sell the mill but as he could get no good offer, he withdrew it from sale. What was he now to '. do? It did not suit him to sell, for the price he could realize would not have repaid his loan on the mortgage. It is alleged for the defendant, and I see no reason to doubt the truth of the allegation, that the Agent Rangildas solicited him to work and finance the mill, rather than persist in selling it. He, the defendant, might of course have put up the property for sale again and again, in the hope of obtaining a good offer. I do not think he could have remained in possession indefinitely without working the Mill. But was he bound also to finance it? Obviously a large concern of that kind could not be worked without considerable funds. And the evidence of defendant No. 1 and his man Oomrigar is that he, the defendant No. 1, only entered into this agreement at the earnest request of Rangildas, who said that this was the only way to save the property and himself and the other shareholders from ruin.

17. If I accept that state of facts, and I think I safely may, then it would appear that the agreement was pressed upon the defendant No. 1 not so much for his own benefit, as for that of the mortgagors and that it imposed on him duties and outlay that he was not in strictness bound by law to undertake or make.

18. Before proceeding further I may incidentally notice, with special reference to the second agreement of 1905, two points: (1) that long before that agreement was made both Rangildas and Hargowandas had taken the benefit of the Insolvency Act. (2) That referring back to the argument against the admissibility of these agreements for want of registration the latter is distinguishable from the former in this that it purports to pay the defendant No. 1 salary of Rs. 1,500 a month out of the Agents' commission. I should have gone into that more fully had my final conclusion been that these contracts of service could not be proved for want of registration, for from the defendant's point of view this distinction constitutes a strong ground against the validity of that objection so far as it was brought against the second agreement. Assuming, however, that both the agreements had operated indirectly to limit a right in immoveable property, I think that considerations arising out of this distinction would rather have enforced than weakened that conclusion, for supposing that it was the duty of the mortgagee in possession to pay the Agents' commission he might have done that without any agreement and charged it in his account. As then between him and the mortgagor this agreement would certainly not have affected the immoveable property either directly or indirectly, nor would it have needed to be proved; but supposing the Agents' commission during the currency of the agreement had amounted say to Rs. 25,000 a year and the defendant had deducted therefrom Rs. 18,000 a year for himself, then while the whole sum would have been passed as just and proper expenditure in the mortgage account the Agents themselves might have complained that they had only received Rs. 7,000 a year instead of Rs. 25,000. In answer to that, there can be no doubt that the mortgagee in possession might have set up the agreement as between himself and the Agents without registration, and it would have been a complete answer. This is indeed a pointed illustration of the distinction which under our law ought always, I think, to be kept in view when unregistered documents are sought to be used for purposes which are alleged indirectly to affect immoveable property. As, however, I have held that even were the mortgagee's remuneration taken straight out of the profits and not confined to a separate head of expenditure such as the Agents' commission, the agreement would still not require registration, this interesting point is no longer of importance. As to the insolvency of the Agents, nothing, I think, turns upon it. In their relation to the Company they stood upon a contract of personal service which would not vest in the Official Assignee. So too even if Rangildas had been disqualified by reason of his insolvency, he would have immediately again become an ex-officio director in virtue of his agency. In the agreement of 1905 Rangildas has alone signed for the Agents' firm and the names of the remaining members do not appear on the document. Whether Rangildas could in this way bind his firm, again loses all its importance as a practical question since any difficulty so arising would fall to be decided between the Agents and defendant No. 1, and I am not concerned here with them.

19. Turning back now to the general question, I will briefly review the most important cases.

20. In re Wallis (1890) 25 Q. B. P. 176 decided that a solicitor who acts on his behalf in proceedings relating to the mortgage debt or the mortgage security, cannot (in the absence of express contract) charge against the mortgagor, as part of his costs, charges and expenses incurred as mortgagee, etc. Sembie that he could have done so if there were an express contract. Lord '. Escher M.R. said:

It has been settled for many years that the rights of mortgagor and mortgagee inter se depend upon the contract between them, and that, when there is no express contract, but only the ordinary contract which arises out of the relation of mortgagor and mortgagee, the mortgagee cannot charge the mortgagor with remuneration for his own personal services in relation to the mortgage debt or the mortgage security.

21. Fisher on Mortgages, says:--

In the absence, however, of express agreement, a mortgagee cannot under just allowances or costs charges and expenses include remuneration for work done by himself except a Solicitor coming within the provisions of the Mortgagees' Costs Act, 1895.' (p. 896).

Contra Coote:

A mortgagee cannot as a general rule charge for his personal trouble, even though there be a special stipulation to that effect.' (p. 1211).

22. I apprehend that what the learned author means is a special stipulation in the mortgage deed. The case might be different if it were a distinct agreement made before or after the mortgage or separable from it. So in In re Roberts (1889) 43 Ch. D. 52 it was held that a Solicitor cannot charge his client with private costs for the preparation of a mortgage from the client to himself. But that, like most of the cases cited on this head, seems to have dealt with a charge of this kind not founded on an express and separable agreement. French v. Baron (1740) 2 Atk. 120, Scott v. Brest (1788) 2 T. R. 238, Bonithon v. Hockmore (1685) 1 Vern. 316, Godfrey v. Watson (1747) 3 Atk. 517, were all cases decided while the usury laws were in force and although Leith v. Irvine (1833) M & k. 277 also belongs to the same period, the ground of the decision is, as I have pointed out, different, much broader, and might survive the repeal of the usury laws Chambers v. Goldwin (1804) 9 Ves. 224 was really made the ground of decision in In re M Kinley (1873) 7 I. R. E 467. In the latter case the facts of which, although it was decided after the usury laws were repealed, all took place while those laws were still in force there was a special agreement between the mortgagee and the mortgagor under which the former was to go into possession and inter alia to receive 4 a year remuneration for collecting rents and profits. After commenting on Parkinson v. Hanbury (1867) L.R. 2. H. L. 19 Flanagan J. said of that case:

It does not establish the proposition that a mortgagee can, by contract with his mortgagor; go into possession as agent and escape the liabilities of a mortgagee in possession.... In the case before me Bonsall was a mortgagee of M Kinley under a deed of 1840, under which he could have gone into possession; but a device was resorted to, by which he in effect said: 'I will make it a condition that you shall secure me by a bond and warrant for confessing judgment, and also by a Power of Attorney authorizing him to receive the rents, and the 4 per annum for receiver's fees'; and by thus doing Bonsall thought he could escape the liabilities of a mortgagee in possession. In my opinion he cannot. Mr. Richey has argued that the terms of the Power of Attorney excluded the relation of mortgagor and mortgagees, and that McKinley could at any time have proceeded against Bonsall to make him account as agent for the surplus. But I cannot distinguish this case from that of Chambers v. Goldwin (1804) 9 Ves. 254 in which the same argument was urged, and not considered a sound one either by the Master of the Rolls (Sir R. P. Arden) or by Lord Eldon; and the defendant was charged as a mortgagee in possession, notwithstanding the special provisions in the deed directing a special application, of the receipts.

23. Now, turning to Chambers v. Goldwin I find that Lord Eldon said:

It (the bill) distinctly alleges that he was not entitled to commission while he resided here. First, is it the law that he was not entitled, while in possession, and in the island Secondly, supposing the law to be so, is this the time, considering the form of the bill, in which that ought to be declared? Considering him as a mortgagee independent of the usage and law of the island, Courts of justice here apply to the relation of mortgagor and mortgagee upon West India mortgages, all the principles that exist as to that relation here. It is clear, the mortgagee cannot originally covenant for a collateral advantage: also, if upon the true effect of the instrument there is nothing more than that the mortgage shall do what a mortgagee ought to do as a trustee, there is no pretence to say, the trust is distinct from the mortgage. There is nothing unfair or perhaps illegal, in taking a covenant originally, that, if interest is not paid at the end of the year, it shall be converted into principal. But this Court will not permit that, as tending to usury, though it is not usury. So, a mortgagee cannot stipulate to be receiver of the rents and profits with a commission. In one case that has been considered by the Court of King's Bench usurious: Scott v. Brest (1788) 2 T. R. 238. But it has been long determined here, that though a mortgagee may stipulate for a Receiver, to be paid by the mortgagor, and may appoint a bailiff, etc., he cannot himself stipulate for any advantage beyond the interest; and though it seems to make little difference to the mortgagor, who is Receiver, yet this Court considers it as tending to usury and oppression, and collateral advantage, which a man contracting for a loan of money shall not make.

24. In Leith v. Irvine (1833) 1 M.& K. 277 Lord Brougham says:

If the only ground of this doctrine were that the allowance of such stipulations or of such charges opened a door to usury, the argument would be much be stronger for extending to the case of mortgagee in possession the exception which has been made in favour of West Indian mortgagees. But there is another ground; the mortgagee, by taking possession, changes the relation in which he stands to the estate, he becomes quasi owner. He is in some sort likened to a trustee ; not that he can with any correctness of speech be called a trustee.' (p. 286.)

25. The distinction is well and forcibly expounded in Gholmondeley v. Clinton (1820)2 J. & W. 1 by Sir Thomas Plummer in his able and elaborate judgment, and his honor's exposition is adopted generally by Lord Eldon in moving the affirmance of the judgment. In truth, till the debt is paid off, the mortgagee in possession cannot be considered at all as a trustee. Nevertheless, all the authorities place him in the same predicament with a trustee as far as incapacity to charge for his trouble is concerned. Thus Lord Keeper North in the case referred to (Bonithon v. Hockmore (1685) 1 Vern. 316 observes, where mortgagees or trustees manage the estate themselves, there is no allowance to be made them for their care or pains; and Lord Eldon was so much impressed with the similarity of their situations in some respects, that both in Chambers v. Goldwin and Cholmondely v. Clinton, while he refers to that resemblance, he seems hardly to think himself safe in considering them to be different. In Biggs v. Hoddinott [1898] 2 Ch. 307, the case upon which the defendant principally relies, decided in 1898, it was held that a mortgagee may stipulate for a collateral advantage at the time and as a term of the advance, provided the equity of redemption is not thereby fettered, and the bargain is a fair and reasonable one, entered into between the parties while on equal terms, without any improper pressure and unfair dealing, or undue influence. The facts there were that the plaintiff was a brewer and the defendant an hotel-keeper. The plain-' tiff advanced 7,654 to defendant on a morgage. This deed contained a joint and several covenant by the defendant to the effect that they would deal with them and would purchase all their beer, etc., from the plaintiff. On these facts the defendant contended that the stipulation upon which the plaintiff relied was for a collateral advantage and therefore could not be enforced. This contention was over-ruled by Romer J. upon the grounds which I have just indicated. No consideration either relating to the usury law or such as were expressed by Lord Brougham in Leith v. Irvine found favour with that learned Judge. What in effect this decision lays down is that no fair stipulation for a collateral advantage made by the mortgagee is to be set aside unless it can be shown to be a clog upon the equity of redemption. As the case of Salt v. Marquis of Northampton (1) has also been relied upon here by the plaintiff, it is interesting to note how Romer J. deals with it. He says:

Lastly, the case before the House of Lords, Salt v. Marquis of Northampton [1892] A. C. 1, had nothing whatever really to do with the point I have to decide here. That was merely a question whether a certain policy was mortgaged ; and when the House of Lords held that the policy was mortgaged, it of ourse followed that in equity a bargain seeking to prevent the mortgagor from having the right to redeem it could not be enforced. I need scarcely point out, therefore, that that has no bearing really upon the question before me.

26. Then he goes on:

Finding, therefore, as I do, in the result, an honest bargain entered into the benefit of which has been obtained by the mortgagors, and finding, as I am glad to say and as I think, no principle or authority which prevents me from enforcing this contract on the mortgagors' part, I enforce it accordingly.

27. Now, the principle of that decision certainly does appear to me to be applicable to the present case although the facts here are widely different and do no doubt afford ground for the contention that if effect is given to this agreement it would place the mortgagee in a situation in which his interest and duty conflict, a consideration which did not arise in Biggs v. Hoddinott. If that is not the ground of many dicta of the learned Judges in such cases as Chambers v. Goldwin, and Leith v. Irvine, something very like it, is; so that it is worth while considering whether in fact the terms of this agreement, if carried out, would bring about that result. Mr. Raikes has argued this point very ingeniously, but I am not satisfied that reading the agreement in its natural sense and stripping it of those special difficulties which are attributable to the fact that the mortgagee means to use it to justify expenditure in the mortgage account, there is anything, in it which really would place the mortgagee in such a situation. It is said that as under this agreement he draws a handsome annual salary it is clearly to his interest to pay himself as slowly as possible. But that would only mean that it would be to his interest to work the mills at the lowest margin of profits which would suffice to pay his salary leaving no surplus to reduce the mortgage debt. I think, however, looking at the disproportion between the salary and the mortgage debt, the mortgagee's real interest would still be to work the mills to the best: advantage and make them as valuable property as possible. And this in fact appears to have been done. For not only has the mortgagee succeeded in paying off the greater part of his mortgage debt but has brought the mills into a state of such prosperity that other mortgages which were sold for Rs. 55,000 and Rs. 13,000 respectively two or three years ago are now probably worth more than five times that amount. I do not think that for this reason alone the Court would be justified in declaring such an agreement as this void and not binding upon the mortgagor. Nor do I think that it can be fairly said to be a clog upon the equity of redemption. My reasons . for that conclusion in effect are the same that I have given for holding that the agreements did not need registration before they can be proved. No one could seriously argue that the payment of fair remuneration to the Manager of a large concern like the Spinning and Weaving Mills to keep it in a high state of efficiency would be a clog upon the equity of redemption and in principle for the purpose of that argument only, it seems to me to make no difference whether the manager is the mortgagee in possession or a third party. Then guiding myself by the conditions prescribed by Romer J. and since then I think generally approved in England, I have to enquire whether this agreement was a fair. agreement or whether it was open to exception as having been obtained by undue influence or is in itself unconscionable and oppressive. It has been contended that at the time the defendant No. 1 obtained the agreement from Rangildas, he was in a position to dominate the will of the plaintiff company; and specially it is pleaded that he exercised undue influence and oppression upon Rangildas himself by threats of exposing his malpractices in the capacity of Agent to the Mills. The plaintiffs' case here is this. That Oomrigar and B. J. Lam, who both were directors at that time, discovered various acts of misconduct on the part of Rangildas and that they deliberately used this knowledge as an engine of oppression to intimidate him into making this agreement with defendant No. 1. Now, it is certainly true that Oomrigar had taxed Rangildas with misconduct and that he adopted a very hostile attitude towards him in the meeting of the directors in December 1900. Shortly afterwards both Oomrigar and Lam resigned their seats on the Board of directors. Oomrigar at any rate assigning as his reason the very unsatisfactory way in which the affairs of the Company were being conducted, and it is suggested that all this was done to coerce Rangildas into persuading the Company to give Sir Cowasji the agreement of May 1901. To strengthen that argument it is pointed out that no sooner was that agreement made then nothing whatever more is said about Rangildas's alleged misdemeanor. I do not for a moment believe that this was the reason which induced Rangildas to offer the agreement to the defendant No. 1. Of the testimony we have on the point, both Oomrigar and Sir Cowasji are very positive that Rangildas was eager and pressing and it seems very natural that he should have wished to prevent the sale of the mills and to obtain the benefit of the defendant No. 1'S reputation and experience, and above all his purse to tide the mills over this crisis. Then, there is the argument that from the very nature of the relations subsisting between the parties, defendant No. 1 was in a position to dominate the will of the plaintiff Company. He was the mortgagee in possession and was threatening to sell their property out and out. By means of such threat, it is alleged, he forced them into an unconscionable agreement under which he was to reap excessive advantages. Again, I am unable to accede to this argument. So far as the evidence before me and the probabilities of the case go, I do not think the agreement unconscionable, or that there is any solid reason for disbelieving Oomrigar's statement that it was the Company rather than Sir Cowasji who were desirous of making it. Then there is the question of consideration, which is closely allied with the broader and general question whether the mortgagee is permitted by law to make any agreement of this kind, for if he was bound by law to do all that he contracted to do under this agreement, then where would be the consideration In my opinion, however, that argument goes too far. I must confine myself to the actual consideration stated in the agreement and say whether it is real or merely nominal. The plaintiffs complain that Sir Cowasji neither did nor could do anything to help the mills in the way of personal management and so merit the salary of Rs. 16,000 or afterwards Rs. 18,000 a year. It is pointed out that by his own confession he was constantly away and really took no practical part in the management. All this devolved on his factotum Oomrigar, to whom he paid an additional salary.

28. He also employed salaried clerks and bestowed upon Oomrigar and others bonuses. So that, so far as the mills benefited at all, they benefited by the services of these underlings who were not paid in conformity with the terms of the agreement but over and above the salary which that agreement gave the Manager. The answer to all this is that if Sir Cowasji should be unable to justify the expenditure of monies upon Oomrigar and other subordinates, those sums will be struck out of the accounts. But that really has nothing to do with the consideration of the agreement. It may be argued that Rs. 1,200 or Rs. 1,500 a month was far beyond the deserts of Sir Cowasji regarded merely as a Manager. But I think that we must consider the Company to have been paying in this way for several things, partly no doubt for defendant 1'S forbearance to sell the mills. I am not quite sure whether that would be in strict law good consideration. It savors rather too closely of oppression and menace, still, if the mortgagee has the right to 'dispose of his property and those who hold the equity of redemption are extremely desirous that he should not exercise that right for a time at least, it is quite conceivable that they Might be willing to pay him for his forbearance, and that in so doing the consideration moved from them voluntarily and was not induced by threats or undue influence. Partly, again, no doubt they were paying for Sir Cowasji's name and reputation as an experienced financier and Manager of Mills. Partly, too, and I dare say in a large measure, for his financial backing, and lastly, his position and standing is not to be wholly ignored. A man of Sir Cowasji's rank and wealth could hardly be expected to accept remuneration except upon a fairly liberal scale. So that I do not think that there is sufficient ground in any of these contentions of the plaintiffs for annulling the agreement. It appears to me to have been on the whole a fair and reasonable agreement, such as business men like the plaintiff Company might very well have entered into with their eyes open and uninfluenced by any consideration peculiar to the possibility of their will being dominated by that of Sir Cowasji in the relations existing between them.

29. Before concluding my examination of this part of the subject I must refer to another term in these agreements by which the Company binds itself to accept all the mortgagee's accounts, when they have been passed before a firm of Accountants. I have admitted those parts of the agreement merely as an admission by the Company of the sum at the time due upon the mortgage but I do not certainly intend to admit them as precluding the plaintiff Company from exercising its legitimate rights against Sir Cowasji in surcharging and falsifying. If the point is to be carried to that length, I think that would be extremely oppressive and might really operate to create a heavy additional charge upon the mortgaged property. In this connection, as well as in dealing with the agreement generally, the defendant has strenuously contended that whatever defects may have existed in the directors, who made those agreements, and whatever exceptions the plaintiffs may now have been advised to take to those agreements as originally made, all have since been condoned and ratified. It is said that these agreements have been acted upon and accepted by the Company for many years, so that they are now estopped from impugning their validity and binding effect. I am not inclined to adopt that view. Such ratification, as is sought to be established by culling passages from the letters of the present Agents, appears to me to amount to nothing. First, I do not read those passages as really intended to ratify the agreements, as some of them at least occur long after the Agents had openly repudiated them, nor in any event could I treat a casual phrase of that kind used by the. Agents as a ratification binding and estopping the Company. Another ground upon which the defendant contends that the Company have ratified the agreement as a whole is that accounts purporting to have been submitted under the clauses of these agreements have been passed at the general meetings of the Company. That goes a good deal nearer. I have consulted several cases upon the point, such as, Langstaffe v. Fenwick (1805) 10 V J 405; Eyre v. Wynn-Mackenzie (1894) 1 Ch. D 218; Wilmot v. Barber (1880) 15 Ch. D. 105; Blackburn and District. Benefit Building Society v. Cunliffe, Brooks & Co. (1885) 29 Ch. D. 902; Irvine v. Union Bank of Australia (1877) 2 A C 366. The strongest and most instructive of these cases is Wilmot v. Barber. In that case Fry J. said:

It has been said that the acquiescence which will deprive a man of his legal rights must amount to fraud, and in my view that is an abbreviated statement of a very true proposition. A man is not to be deprived of his legal rights unless he has acted in such a way as to make it fraudulent for him to set up those rights. What, then, are the elements or requisites necessary to constitute fraud of that description In the first place the plaintiff must have made a mistake as to his legal rights. Secondly, the plaintiffs must have ex pended some money or must have done some act (not necessarily upon the defendant's land) on the faith of his mistaken belief, Thirdly, the defendant the possessor of the legal right, must know of the existence of his own right which is inconsistent with the right claimed by the plaintiff. If he does not know of it he is in the same position as the plaintiff, and the doctrine of acquiescence is founded upon conduct with a knowledge of your legal rights. Fourthly, the defendant, the possessor of the legal right, must know of the plaintiff's mistaken belief of his rights. If he does not know, there is nothing which calls upon him to assert his own rights. Lastly, the defendant, the possessor of the legal right, must have encouraged the plaintiff in his expenditure of money or in the other acts which he has done, either directly or by abstaining from asserting his legal right. Where all these elements exist, there is fraud of such a nature as will entitle the Court to restrain the possessor of the legal right from exercising it, but, in my judgment, nothing short of this will do.

30. Applying that principle, no acquiescence of a shareholders' meeting would be of any legal effect to destroy the shareholders' right unless it is given with full knowledge of that right; and such, I think, could not possibly have been the case at any of the meetings of this company. For even now it is very doubtful what the precise legal rights of the contracting parties to this part of the agreement are. In my opinion however, the defendant cannot contract himself out of his --statutory liability as the mortgagee in possession to render proper accounts nor deprive the plaintiff of his right to examine into and challenge any of their details.

31. I have now concluded my examination of this part of the case and the result is that I find both the agreements of 1901 and 1905 so far as they constitute a contract of service between defendant No. 1 and the Company are valid and binding upon the Company.

32. There is one other point which remains over and that is whether Sir Cowasji can as and from the date of both the agreements claim to be in possession solely in virtue of them and not as mortgagee in possession. The effect of holding that he could might affect the nature of the accounts he will have to render. But I am of opinion that notwithstanding those agreements he is not absolved from his duty to account from December 1900 as mortgagee in possession. The only use to which in my opinion he may put those agreements is to justify his appropriation of salary under them, or to explain in so far as they can legitimately explain any other items of expenditure in his working account.

33. I come now to the last point in the case which is whether the defendant No. 1 holds the second mortgage called Tokersey's mortgage in his own right and for himself or as Agent of the Company; and whether he and the defendant No. 2 jointly hold in partnership the third mortgage called Ichharam's mortgage for themselves and in their own right or as Agents of the Company. A very great deal of time was spent during the hearing over this part of the plaintiff's case but it really resolves itself into a question of comparative simplicity. As to the second or Tokersey's mortgage, it is cnnceded that it makes now no difference to the plaintiff Company whether Sir Cowasji bought it for himself or as their Agent since he appears to have paid the full value of it. Briefly, the story of this mortgage is as follows: It was effected in May 1900 and when the affairs of the Mill were going from bad to worse it was purchased nominally by one Motilal Canji for Rs. 55,000. In reality it is only too plain that the real buyers were Rangildas, Parmanandas, defendant No. 2, and Chandulal Divan. It is impossible perhaps now to say with certainty which of these three really advanced the money. Motilal Canji's share in the transaction was insignificant. The sinister feature of these and the same persons, that is to say Rangildas, Parmanandas and Divan trafficking in the third mortgage is, there can be little doubt, that Rangildas, as Agent of the Company, was thus endeavoring to make a great profit for himself out of the Company. He and Parmanandas and Divan were all hand in glove in these underhand and tortuous dealings. Unfortunately they proved only too successful, for having obtained Tokersey's mortgage for Rs. 55,000, Rangildas either persuaded defendant No. 1 to buy in the said mortgage for Rs. 1,67,000 on his own account or as the plaintiffs allege persuaded the directors of the Company to ask him to do so as their Agent. In 1906, the defendant No. 1 bought this mortgage from its nominal owner Motilal Canji for its full value Rs. 1,67,000. So that Rangildas, Parmanandas and Divan between them cleared over a lakh, and this money, whether, as alleged by the Company in the first instance is their own or whether Sir Cowasji's money, would in the result have to be paid by the Company. On the 23rd of January 1906, there is the resolution of the directors (Exhibit 1) approving of Sir Cowasji's working the Mill referring to the balance of over 3 lakhs of rupees, and inviting Sir Cowasji to buy in Motilal Canji's mortgage. Both Oomrigar and Sir Cowasji swear that that resolution was never communicated to either of them. I may observe generally that Sir Cowasji's evidence as evidence is quite valueless. Owing to a severe accident he for many years completely lost his memory and even now appears to be quite incapable of remembering the details of his transactions with the Mill. If it were worthwhile going further into this question, I should be obliged to say that all the probabilities point to Sir Cowasji having acted in this instance upon the request of the directors. It seems unlikely that so prudent and cautious a speculator would have, without question, paid the full value of this mortgage out of his own pocket. But it is not worthwhile, except as affording a ground of inference in dealing with the other mortgage, to pursue this topic further. Whether Sir Cowasji bought this mortgage for himself or for the Company, the Company would have to pay the same amount or virtually the same amount to get rid of it, unless indeed it could be shown that the price was actually paid out of the Company's money and that certainly cannot be done. The story of the third mortgage is that when the original mortgagees became insolvents, the Official Assignee sold this mortgage for the beggarly sum of Rs. 13,000 to Ibrahim Rahimtoola. It is difficult to understand how the Official Assignee could have been persuaded that that was a fair price for it. It was probably represented to him that owing to depression in the mill industry and owing to the existence of two prior mortgages, there would be no chance of realizing anything on this mortgage. But things have turned out very differently. In 1906 Ibrahim Rahimtoola was threatening to redeem Sir Cowasji. The defendants' case is that Rangildas again applied to Sir Cowasji and said that if the management of the Mill passed from his hands into those of Ibrahim Rahimtoola, the Company would be ruined, and implored him to buy this third mortgage. At that time Ibrahim Rahimtoola was asking over 3 lakhs for it, but after some negotiations with Oomrigar and Sir Cowasji he consented to take Rs. 2,30,000.

34. Here we come upon the extraordinary arrangement made between Sir Cowasji and the second defendant Parmanandas. I cannot entertain the least doubt but that this was Rangildas's doing, and that he and Divan working in concert and in secret saw their way to making another huge profit out of Rangildas's own Company. Sir Cowasji's fears appear to have been worked upon to such an extent that he refused to buy Ibrahim Rahimtoola's mortgage unless he could obtain a partner, and naturally Rangildas produced a partner in the person of his own man Parmanandas, defendant No. 2. The terms of the partnership were that Permanandas was to contribute Rs. 50,000, in return for which he was to have half the profits; and to be indemnified against all possible litigation and loss occasioned by attacks upon the validity of Ibrahim Rahimtoola's title. This Rs. 50,000 were promptly paid out of the proceeds of the nefarious transaction in the second mortgage, and almost coincidently with the resolution of the 1st of November 1906, in which the directors speak of Sir Cowasji having saved the Hope Mills at their request from going into the hands of the Honourable Mr. Ibrahim Rahimtoola, Sir Cowasji and Parmanandas bought the third mortgage for Rs.2,30,000. Now there can be no doubt that defendant No. 1 himself was very uncertain about his position in this transaction. While negotiations for the settlement of the Suit were proceeding, Sir Cowasji wrote to Parmanandas a very significant letter. Had it not been for defendant No. 2's obstinacy in holding out for his share of the profits of this third mortgage, a settlement would undoubtedly have been effected and this heavy and expensive litigation averted. Sir Cowasji was at that time willing and anxious to settle and he says he wrote this letter to the second defendant not as expressing his opinion but by way of threat hoping to persuade him to relinquish his claim under the mortgage. In that letter Ex. 94 of the 19th January 1909, Sir Cowasji admits that in view of the wording of the resolution of the first of November 1906 their position was very doubtful. Further, when we consider the very extraordinary terms upon which Sir Cowasji took Parmanandas into partnership in this transaction, it is very hard to believe that he was acting entirely independently and for himself alone. On the other hand there is nothing really in the director's resolution to show that they had empowered Sir Cowasji to act as their agent. Taken literally it amounts to no more than acknowledging that he had done them great service at their request, and it certainly seems to me that if Sir Cowasji had been dealing with this matter not with his own but with the Company's money he would not have been so alarmed at the possibility of loss as to take Parmanandas into partnership on terms so favourable to the latter and unfavorable to himself. His and Gomrigar's explanation of this is that they did not expect that there would be any profit on the mortgage, while they feared that there would be some loss, so that they were quite willing to supplement their own contribution of Rs. 1,80,000 by Rs. 50,000 of Parmanandas's on terms of giving him half the profits, if any. Whatever I may think about this transaction, there is really nothing in evidence to support the Company's allegation that the money was theirs or that Sir Cowasji was acting as their Agent. The defendant argues that if Sir Cowasji had been acting as the Company's Agent, he could not possibly have taken a partner in the transaction, and I think there is some force in that contention. Then, assuming as the letter states that the directors had asked Sir Cowasji to relieve them of the risk of Ibrahim Rahimtoola redeeming Sir Cowasji and becoming mortgagee in possession and had Sir Cowasji complied with that request, I do not see that any relation of agency is necessarily established. An attempt was made to show that some part of the money at least which Sir Cowasji paid Ibrahim Rahimtoola for this mortgage was taken from the balance to the Company's credit in the working account. I do not think that the attempt was very successful, and I have to observe generally on this and like arguments that until Sir Cowasji's first mortgage was completely paid off, all profit balance of the Company were available to him to apply for that purpose and in that sense his own money. Although it is with some regret that I come to this conclusion since it is probable that it will result in putting further large profits into the pockets of Parmanandas and Chandulal Divan, I feel that I must hold on the evidence that the Company has failed to establish its allegation that Sir Cowasji bought in Ibrahim Rahimtoola's mortgage as the Company's Agent or out of the Company's money.

Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //