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Dawoodbhai Kassamji Matiwalla and anr. Vs. Shaikhali Alibhoy - Court Judgment

LegalCrystal Citation
SubjectProperty;Civil
CourtMumbai High Court
Decided On
Case NumberO.C.J. Appeal No. 64 of 1952
Judge
Reported inAIR1953Bom445; (1953)55BOMLR618; ILR1954Bom29
ActsCode of Civil Procedure (CPC), 1908 - Sections 35 - Order 34, Rules 2, 2(1), 10 and 11; ;Usurious Loans Act, 1918 - Sections 3(2)
AppellantDawoodbhai Kassamji Matiwalla and anr.
RespondentShaikhali Alibhoy
Appellant AdvocateH.D. Banaji, ;M.M. Desai and E.G. Vahanwati, Advs.
Respondent AdvocateJamshedji Kanga and ;N.A. Mody, Advs.
Excerpt:
civil procedure code (act v of 1908), order xxxiv, rules 10, 2 ; section 35 - mortgage suit--rate of interest from date of institution of suit to period fixed for redemption--whether in discretion of court to allow contract rate of interest--civil practice, original side--costs--mortgage suit--whether mortgagee entitled to costs as between attorney and client--court's discretion whether fettered by covenant entitling mortgagee to costs as between attorney and client--usurious loans act (x of 1918), section 3, expl.--rate of interest when affords evidence that transaction substantially unfair.;it is in the discretion of the court under order xxxiv, rule 11, of the civil procedure code, 1908, whether to allow or not to allow the contractual rate of interest in a mortgage suit from the date..........fixed for redemption, & the other is the right to costs as between attorney and client of the mortgage suit. the learned judge below came to the conclusion that the plaintiffs, who are the mortgagees and who filed the suit to enforce their two mortgages, should not get interest on the mortgage money at the contract rate from the date of the suit, but only at the rate of 6 per cent, and he also held that the plaintiffs were entitled to the costs ofthe suit as between party and party and not as between attorney and client, and the appeal of the plaintiffs is confined to these two points decided against them by the learned judge below.2. with regard to the question of interest, the position in law was very different prior to 1929 when order 34 was amended and rule 11 was for the first.....
Judgment:

Chagla, C.J.

1. Two substantial questions have been raised in this appeal. One is as to the right of a mortgagee to the interest provided for in the mortgage deed from the date of the suit filed by him to enforce the mortgage till the period fixed for redemption, & the other is the right to costs as between attorney and client of the mortgage suit. The learned Judge below came to the conclusion that the plaintiffs, who are the mortgagees and who filed the suit to enforce their two mortgages, should not get interest on the mortgage money at the contract rate from the date of the suit, but only at the rate of 6 per cent, and he also held that the plaintiffs were entitled to the costs ofthe suit as between party and party and not as between attorney and client, and the appeal of the plaintiffs is confined to these two points decided against them by the learned Judge below.

2. With regard to the question of interest, the position in law was very different prior to 1929 when Order 34 was amended and Rule 11 was for the first lime inserted. Prior to 1929 we had Order 34, Rule 2, which provided that in a suit for foreclosure, (and the provision also applies to a suit for sale or redemption), if the plaintiff succeeds, the Court shall pass a decree ordering that an account be taken of what would be due to the plaintiff for principal and interest on the mortgage, and for his costs of the suit awarded to him on the day next hereinafter referred to, and it was held that under this provision the Court could not deprive the mortgagee of the interest agreed upon till the date fixed for redemption. This decision was based on the principle that up to the date of the preliminary mortgage decree and also up to the further period of grace which the Court gave to the mortgagor for redeeming the mortgage, interest was in the domain of contract and not in the domain of judgment and the Court had no discretion to vary the rate of interest and award to the mortgagee interest less than what the mortgagor had agreed to pay. But in 1929 Order 34, Rule 2, was amended and Order 34, Rule 11, was inserted. Order 34, Rule 11, dealt with the question of payment of interest and it provided :

'In any decree passed in a suit for foreclosure, sale or redemption, where interest is legally recoverable, the Court may order payment of interest to the mortgagee as follows, namely :

(a) Interest up to the date on or before which payment of the amount found or declared due is under the preliminary decree to be made by the mortgagor or other person redeeming the mortgage- (i) on the principal amount found or declared due on the mortgage, -- at the rate payable on the principal, or, where no such rate is fixed, at such rate as the Court deems reasonable,......'

The Legislature under this rule did not make it obligatory upon the Court to order payment of interest at the rate agreed upon up to the date fixed for redemption, but it gave a discretion to the Court to award that rats of interest. If it gave discretion to the Court to award that rate of interest, impliedly it also gave discretion to the Court to award a lesser rate of interest than agreed upon between the mortgagor and the mortgagee. It is pointed out that under the amended Order 34, Rule 2, it is provided :

'(1) In a suit for foreclosure, if the plaintiff succeeds, the Court shall pass a preliminary decree-

(a) ordering that an account be taken of what was due to the plaintiff at the date of such decree for- (i) principal and interest on the mortgage,...'

and it is urged that when the preliminary decree is passed, the account that has to be taken is what was due to the mortgagee at the date of the decree in respect of the principal underthe mortgage and interest agreed upon underthe mortgage, and it is pointed out that atleast up to the date of the preliminary mort-gage decree the Court has no discretion toaward any other rate of interest than the rateagreed upon. In our opinion Order 34, Rule 2, doesnot deal with the rate of interest that the Courtshould award at the time of passing the preliminary decree. Order 34, Rule 2(1)(a)(i), merelyindicates one of the heads in respect of whichaccount has to be taken, but with regard tothe question of the rate of interest Order 34, Rule11, is a self-contained rule which deals with,payment of interest in a mortgage suit underall circumstances, and Order 34, Rule 11, leavesto the discretion of the Court what interestshould be awarded to the mortgagee in themortgage suit from the date of the suit tillthe date fixed for redemption.

3. Strong reliance was placed by Mr. Banaji on a decision of the Privy Council in -- 'Jagannath Prasad v. Surajmal' . It must be borne in mind that that decision turned on the interpretation of Order 34 before it was amended in 1929. What their Lordship of the Privy Council laid down was that on at preliminary decree for foreclosure or sale under Order 34, Rules 2, 4, Civil P. C., a mortgagee were entitled to interest, at the rate and with the rests stipulated in the mortgage down to the date fixed for redemption by the decree, and in the judgment it is pointed out (p. 2) :

'Up to this point, till the period for redemption has expired, the matter remains in contract and the interest has to be paid at therate and with the rests specified in the contract of mortgage.'

The same view was taken by the PrivyCouncil in -- 'Kusum Kumari v. Debi Prasad',. But the effect of theamendment of Order 34 in 1929 came up for consideration before the Federal Court in -- Jaigobind Singh v. Lachmi Narain', AIR 1940 sic 20 (C) and Mr. Justice Sulaiman clearly statedat p. 23 that

'It is no longer absolutely obligatory on theCourts to decree interest at the contract arate up to the date of redemption in all circumstances.'

The Federal Court was specifically considering the question which had been raised before them whether the Court was bound to allow the contractual rate of interest 'pendente lite'. Mr. Banaji suggests that 'pendente lite' means from the date of the preliminary decree till the date fixed for redemption and not from the date of the filing of the suit till the period fixed (sic) redemption. It is impossible to accept that contention. The expression 'pendente lite' is clear. It means 'during the duration of the suit' and the mortgage suit continues from the date it is instituted till the period fixed for redemption and it was with regard to this period that the Federal Court was considering as to whether it was obligatory upon the Court to award contractual rate of interest to the mortgagee.

4. In our opinion, therefore, the learnedJudge below was right in the view he (sic)that it is in the discretion of the Court whether to allow or not to allow the contractualrate of interest in a mortgage suit from thedate of the institution of the suit till the period fixed for redemption.

5. The next question is the question with regard to costs. The question of costs is dealt with in the Code under Section 35 and that section provides :

Subject to such conditions and limitations as may be prescribed, and to the provisions of any law for the time being in force, the costs of and incident to all suits shall be in the discretion of the Court, and the Court shall have full power to determine by whom or out of what property and to what extent such costs are to be paid, and to give all necessary directions for the purposes afore-said......'

Therefore, unless there are any conditions and limitations which have been prescribed or un-less there is some provision with regard to cots in any law for the time being in force, the discretion of the Court to award Costs is unfettered, and the first question that arises is whether there is any provision in the law relating to mortgages which fetters the discretion of the Court. The only provision with regard to costs that we find in Order 34 is in Rule 10. That rule casts an obligation upon the Court to ward to the mortgagee such costs of the suit as have been properly incurred by him since the date of the preliminary decree for (sic)closure, sale or redemption up to the time of actual payment, unless the conduct of the mortgagee has been such as to disentitle him thereto. This obligation is restricted to the costs which are incurred after the preliminary decree, but there is no provision with regard to the costs of the suit up to the date of the passing of the preliminary decree, and there-fore those costs must be awarded in accordance with the discretion conferred upon the Court by Section 35 of the Code. Although there is a wide discretion conferred upon the Court in the matter of costs under Section 35, it is hardly necessary to state that that discretion must be exercised on judicial principles, and one of the (sic) recognized principles is that a mortgagee is always entitled to the costs of the suit which he has filed to enforce his mortgage unless there is something in his conduct which disentitles him to those costs. In other words, the principle which is embodied in Order 34, Rule 10, with regard to costs of the mortgagee subsequent to the date of the preliminary decree is also the principle on which the Courts have always acted in dealing with the costs of the suit of the mortgagee prior to the date of the preliminary decree. But the question that we have to consider here is not whether the mortgagee is entitled to the cost of the suit thathas been awarded to him, but the question is whether he is entitled not to party and party costs but costs as between attorney and client. For that purpose the mortgagee relies on the covenant in the mortgage deed and that covenant is to the following effect :

'It is hereby further agreed and declared that the mortgagor will pay all costs, charges and expenses between attorney and client in anywise incurred or made by the mortgagees for and incidental to these presents or of and incidental to or in connection with this security as well as for the assertion or defence of the right of the mortgagees as for the protection and security of the premises hereby granted, assigned or expressed or intended so to be and for demand, realisationand recovery of the amount of principal and interest secured by these presents or any part thereof or for the exercise of any of the powers contained in these presents.'

There can be no doubt that if this covenant is to be given effect to, then the mortgagees would be entitled to costs as between attorney and client. In our opinion, it is not open to parties by a contract between them to deprive the Court of the jurisdiction which has been conferred upon it with regard to costs by Section 35 of the Code. Parties cannot agree that the costs of the suit shall be awarded in a particular manner and then insist upon the Court awarding the costs in the manner they have agreed. It would be open to the Court to take into consideration the contract arrived at between the parties, but at the same time the discretion of the Court would remain unfettered. What Mr. Banaji contends for is that if there is such a covenant in a mortgage deed, it is incumbent upon the Court to give effect to that covenant and to award to the mortgagee the costs which the mortgagor has agreed to pay to him. If that contention were to be accepted, a contract between the parties would take the place of the discretion of the Court to be exercised under Section 35. The discretion of the Court under Section 35 can only be taken away by conditions and limitations which may be prescribed by law and not by conditions and limitations which may be prescribed by contract between the parties. In this particular case the learned Judge has exercised his discretion in awarding party and party costs and not giving effect to the covenant entered into by the parties. The learned judge has pointed out that it has been the invariable practice on the Original Side in mortgage suits to award party and party costs to the mortgagee and not costs as between attorney and client, and we entirely agree with the learned Judge that there seems to be no reason why in this particular case that practice should be departed from.

6. It is also significant to note that excepting for one decision of the Calcutta High Court to which reference will be presently made, Mr. Banaji has not been able to draw our attention to any decision of any High Court in India or of the English Court where in a mortgage suit the mortgagee has been awarded costs as between attorney and client. On the contrary, such authorities as are to be found lay down the contrary principle. Turning first to the well known text book on the Law of Mortgage by Fisher and Light wood, 7th edn., at p. 753, the learned author dealing with the costs of a mortgage suit states:

'The mortgagee is entitled to party and Party, not solicitor and client costs.'

7. In -- 'Queen's Hotel Co., Cardiff, Ltd. In re : Vernon Tin Plate Co. Ltd., In re (1900) 1 Ch 792 (D)', Mr. Justice Cozens-Hardy emphatically states (p. 793) :

'...It is quite clear that a mortgagee plaintiff is only entitled to party and party costs of action; there is no vestige of authority to the contrary; .,.......'

Halsbury also in Vol. XXIII, p. 406, para. 609, enunciates the law as follows :

'Costs are taxed as between party and party, and are not in general payable by the mortgagor personally, but the mortgagee adds them to his security.'

The Calcutta case to which reference has been made is - 'Chundercoomar Chatterjee v. Essenchunder Chatterjee', 1 Ind Jur 222 (E). In that case Sir Barnes Peacock, Chief Justice, and Mr. Justice Morgan reversed the decree of the trial Court which had awarded party and party costs to the mortgagee and granted him costs as between attorney and client. But, with respect to these two learned Judges, no reason is given in their judgment as to why the decree of the trial Court was reversed and why costs as between attorney and client were awarded to the mortgagee. Reference was also made to a decision of Mr. Justice Abdur Rahman in -- 'Chidambaram v. Ramaswami', AIR 1939 Mad 654 (F). The view taken by that learned Judge was that the provisions contained in Section 35 of the Civil Procedure Code are inapplicable to mortgage suits to which those stated specifically in Order 34, Rule 10, apply. With respect to the learned Judge, there is nothing in the terms of Section 35 which excludes the discretion of the Court in mortgage suits. We have already dealt with the provisions of Order 34, Rule 10, and we have pointed out that that rule only deals with costs incurred subsequent to the passing of the preliminary decree. With regard to the costs antecedent to that date, they are left unaffected by that rule and they must be dealt with under Section 35 of the Code.

8. Therefore, in our opinion, the correct position in law is that in dealing with the costs of a mortgage suit the Court exercises its discretion under Section 35. In so exercising its discretion, if the mortgagee is not guilty of misconduct, the Court must award to him the costs of the suit. But when the question arises as to whether he is entitled to the costs of the suit on party and party basis or as between attorney and client basis, the Court's discretion is not fettered by any covenant entered into between the mortgagor and the mortgagee, and ordinarily the Court must give effect to the practice prevailing on the Original Side here and which has been judicially recognised in England also, that a mortgagee is only entitled to party and party costs and not costs as between attorney and client.

9. The only question that remains is the question with regard to the rate of interest. The mortgagees' contention is that the contract rate was not an excessive rate and Mr. Justice Shah was not justified in reducing the rate from 13 1/2 per cent, compound interest to 6 per cent, from the date of filing of the suit. On the other hand, the contention of the mortgagor is that the rate is excessive and that it should be reduced under the Usurious Loans Act and that the mortgages should not be allowed the contractual rate of interest even prior to filing of the suit. Now, the learned Judge. Has given very good reason why he thought the rate of interest excessive. He has pointed out that the valuation of the property mentioned in the mortgage deed, which was the moveable property inclusive of machinery, was Rs. 1,38,000. Apart from this the mortgage security consisted of an immoveable property, the tenancy rights and the goodwill of the defendant's business, and on a consideration of all this the learned Judge came to the conclusion that the valueof the property offered as a security was many times the amount advanced which was Rs. 60,000 under the first mortgage and Rs. 15,000 under the second mortgage. Under those circumstances the learned Judge came, to the conclusion that as the mortgagees were fully secured, the rate of interest charged, viz., 13 1/2 per cent, compound interest, was excessive and therefore he reduced it to 6 per cent, from the date of the filing of the suit.

With regard to the mortgagor's contention, an application was made, to the learned Judge to amend the written statement by adding that the transactions of the two mortgagees in the suit were as between the parties substantially unfair and the learned Judge refused to allow the amendment holding that the amendment was applied for at a very late stage. It is pointed out that under the Usurious Loans Act power is given to the Court to reduce the rate of interest even where a suit is being heard 'ex parte', and therefore it is contended that even without the amendment of the written statement the learned Judge should have given effect to the provisions of the Usurious Loans Act. Now, in order that the Court may exercise its discretion under that Act, two conditions are necessary ; one is that the interest is excessive and the other is that the transaction was, as between the parties thereto, substantially unfair. But attention is drawn to the Explanation which provides that interest may by itself be sufficient evidence that the transaction was substantially unfair, and we are asked in this case to look at the rate of interest and to hold from that that the transaction was, as between the parties thereto, substantially unfair. It is true that the learned Judge has held that the rate of interest was excessive, but in holding that, he was not considering the Usurious Loans Act. Although interest may be excessive, yet in a particular case it may not constitute sufficient evidence that the transaction was substantially unfair. In order that the rate of interest should afford that evidence, it must be so grossly excessive that the Court would not require any further evidence to come to the conclusion that the transaction was, as between the parties thereto substantially unfair. In this case counsel for the defendant ought to have asked the Court to raise an issue, notwithstanding the rejection by the Court of his application to amend the written statement. But the learned counsel did not do so and the result was that no issue was raised and no evidence was led on that issue. Therefore, as the record stands, it is impossible for us to uphold the contention of the mortgagor that it has been established that the transaction was as between the parties thereto substantially unfair. We, therefore, cannot ac-cede to the cross-objections filed by the mortgagor with regard to the rate of interest under the mortgage deed.

10. The result, therefore, is that the appeal will be dismissed with costs and the cross objections also will be dismissed with costs.

11. Appeal dismissed.


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