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Deo Rai and ors. Vs. Arti Rai and ors. - Court Judgment

LegalCrystal Citation
SubjectPorperty
CourtAllahabad
Decided On
Reported inAIR1945All174
AppellantDeo Rai and ors.
RespondentArti Rai and ors.
Excerpt:
.....it is evident that the transaction with which we are concerned in the present case must be governed by the provisions of section 9. 5. the court below has found upon entering into an account between the parties that on 1st may 1914, the principal as well as the interest payable by the respondents under the three previous mortgages had been fully discharged out of the usufruct of the property in the possession of the mortgagees. we are, therefore, satisfied that the court below was right in holding that on 1st may 1914, nothing was due from the respondents in respect of the three previous mortgages and the principal money due under the mortgage of 1st may 1914, must, therefore, be deemed to be the sum of rs. calculating upon that basis, it would appear that the principal as well..........all sums paid by or on behalf of the debtor and in the case of a mortgage with possession the net profits realized by the mortgagee or which with the exercise of ordinary diligence might have been realized by him, and shall determine the amount, if any, due by the debtor in accordance with the provisions of the following sub-sections:provided that for the purpose of determining the principal, the court shall treat as principal any accumulated interest which has been converted into principal at any statement or settlement of account or by any contract in the course of the transaction made before the first day of january 1917, but shall treat as interest any accumulated interest which has been converted as aforesaid at any such statement, settlement or contract made on or after that.....
Judgment:

Mulla, J.

1. This is an appeal by the defendants in a suit for redemption of a usufructuary mortgage brought under the provisions of Section 12, Agriculturists' Relief Act, 27 of 1934. The suit was instituted on 29th July 1941. The mortgage in question is dated 1st May 1914. The principal money mentioned in the deed is Rs. 8824-10-0. It is made up of a sum of Rs. 4866-10-0 payable by the mortgagors on account of their shares in three previous mortgages and a sum of Rs. 3958 borrowed in cash by the mortgagors on the date on which the mortgage deed in question was executed. The mortgagors were, Arti Rai, Shyam Rathi Rai and Sahdeo Rai, who are respondents 1 to 3 in this appeal, and three others named Lachhmi Rai, Bishundhari Rai and Mt. Lagmani Kunwar, who are now represented by respondents 4 to 6 in this appeal.

2. One of these mortgagors and the predecessors-in-interest of the rest had executed three previous mortgages, the first one on 7th May 1889, the second on 28th May 1901, and the third on 29th May 1901. All these were usufructuary mortgages. The principal amount in the first of these three mortgages was Rs. 4499-15-6. The second mortgage was for RS. 2499-15-0 and the third for Rs. 299-15-0. In these three mortgages the respondents in the present appeal had a two-third share and they were consequently liable to pay Rupees 4866-10-0. In each one of these three mortgages the mortgagees were the predecessors-in-interest of the present appellants. The mortgage deed in suit, which is dated 1st May 1914, was executed in favour of the present appellants. As stated above, a sum of RS. 4866-10-0, which represented the two-third share of the respondents in the three mortgages prior to the one in suit, formed part of the consideration of the latter mortgage. In each one of the three prior mortgages the mortgagees were put in possession of certain lands in lieu of interest. No rate of interest was settled between the parties, but it was agreed that the mortgagees would enjoy the usufruct of the property in lieu of interest and there shall be no accounting between the parties. On the date of the mortgage in suit the mortgagees were in possession of 51 bighas odd of land. When the mortgage in suit was executed, only 22 bighas odd of land was left in their possession, the rest being redeemed by the mortgagors. The suit out of which the appeal arises was instituted by the respondents on 29th July 1941. They claimed the benefit of Section 9, U.P. Debt Redemption Act, 13 of 1940, and pleaded that upon a calculation being made in accordance with the provisions of that section no money remained due under the mortgage in suit and hence they were entitled to have it redeemed without any payment.

3. The appellants pleaded in their defence that the mortgage in suit was a settlement of account between the parties and that settlement having been made before 1st January 1917, Section 9 did not authorise the reopening of the whole transaction as claimed by the respondents. They contended that the principal amount mentioned in the mortgage deed in suit must be taken to be the principal for the purposes of the calculation in accordance with the provisions of Section 9, U.P. Debt Redemption Act. They also raised some other'' pleas, but they have not been pressed in this appeal and the only question for consideration, therefore, is : What is the result of the application of Section 9, U.P. Debt Redemption Act, so far as the rights of the parties are concerned? The Court below has accepted the contention of the respondents and holding that the principal as well as the interest to which the appellants were entitled in view of the provisions of Section 9, U.P. Debt Redemption Act, has been discharged out of the usufruct of the property which remained in the possession of the appellant it has allowed redemption without any payment, hence the present appeal. Section 9, U.P. Debt Redemption Act, runs as follows:

(1) In a suit to which this Act applies or in amending a decree under the provisions of Section 8, the Court shall, notwithstanding anything to the contrary in any law, decree or contract or in any agreement purporting to close past transactions, determine the principal and take into account all sums paid by or on behalf of the debtor and in the case of a mortgage with possession the net profits realized by the mortgagee or which with the exercise of ordinary diligence might have been realized by him, and shall determine the amount, if any, due by the debtor in accordance with the provisions of the following sub-sections:

Provided that for the purpose of determining the principal, the Court shall treat as principal any accumulated interest which has been converted into principal at any statement or settlement of account or by any contract in the course of the transaction made before the first day of January 1917, but shall treat as interest any accumulated interest which has been converted as aforesaid at any such statement, settlement or contract made on or after that date.

(2) The amount due by the debtor shall not exceed the amount that would have been due if the rate of interest had been, in the case of a secured loan, four and a half per cent. per annum simple interest and in the case of an unsecured loan six per cent. per annum simple interest.

(3) The amount due by the debtor as interest shall not exceed the amount of the principal outstanding on the date on which the amount due by the debtor is determined.

(4) Nothing in this section shall entitle the debtor to a refund of any sum already paid by him.

4. Upon a careful analysis of the section, it would appear that Sub-section (1) contemplates four distinct steps to be taken by the Court : firstly, the determination of the principal; secondly, the taking into account all sums paid by or on behalf of the debtor; thirdly, in the case of a mortgage with possession the taking into account the net profits realized by the mortgagee or which with the exercise of ordinary diligence might have been realized by him and fourthly, the determination of the amount, if any, due by the debtor in accordance with the provisions of the following sub-sections. It will be noticed that the provisions of the section apply in specific terms to a mortgage with possession and they lay upon the Court the duty in the case of such a mortgage to take into account the net profits realized by the mortgagee or which with exercise of ordinary diligence might have been realized by him for the purposes of determining the amount, if any, due by the debtor. It is clear, therefore, that Section 9 makes it incumbent upon the Court to make an accounting between a mortgagor and a mortgagee for the purpose of determining the amount, if any, due by the mortgagor and this duty has to be performed notwithstanding anything to the contrary in any contract between the parties or in any agreement between them purporting to close past transactions. In the case before us we are concerned primarily with the mortgage with possession made by the respondents in favour of the appellants on 1st May 1914, but, as pointed out above, a part of the consideration of that mortgage, namely, a sum of Rs. 4866-10-0, represented the liability of the mortgagors under three previous mortgages, one of 7th May 1889, another of 28th May 1901, and the third of 29th May 1901. The sum of Rs. 4866-10-0, included as a part of the consideration of the mortgage of 1st May 1914, was nothing but two-thirds of the principal amount in the three previous mortgages. It follows, therefore, that so far as this amount of Rs. 4866-10-0 is concerned, there must be an accounting between the parties with reference to the three previous mortgages and that accounting has to be done in accordance with the provisions of Section 9, U.P. Debt Redemption Act. The Court below has found upon the evidence on the record that Rs. 15 per bigha was a fair rate of profits which the mortgagees must be taken to have realized from the land in their possession. It has calculated the net profits realized by the mortgagees after deducting the revenue payable by them in respect of the land and has found that these profits exceeded the amount of interest to which the mortgagees were entitled in view of Sub-section (2) of Section 9. The finding of fact recorded by the Court below as to the rate of profits has not been challenged before us in appeal, but it is contended that it was not open to the Court to enter into any account with reference to the three previous mortgages. This contention was sought to be supported by reference to the proviso to Sub-section (1) of Section 9. Upon a careful consideration of the proviso, we find that it has no application to the point raised by the appellants. The proviso relates only to one of the four steps mentioned in Sub-section (1), namely, the determination of the principal. For that purpose the proviso directs that the Court shall treat as principal any accumulated interest which has been converted into principal at any statement or settlement of account or by any contract in the course of the transaction made before the first day of January 1917, but shall treat as interest any accumulated interest which has been converted as aforesaid at any such statement, settlement or contract made on or after that date. It is evident in the present case that the mortgage of 1st May 1914, cannot be treated as a contract or settlement of account before the first day of January 1917, as contemplated by the proviso. There was indeed no contract or settlement of account between the parties by which any accumulated interest was converted into principal. In every one of the three mortgages prior to 1st May 1914, there was a clear stipulation that there shall be no accounting between the parties and the mortgagees were to remain in possession of the mortgaged land in lieu of interest. There was consequently no occasion for any accumulation of interest and its conversion into principal. The proviso being inapplicable, it is evident that the transaction with which we are concerned in the present case must be governed by the provisions of Section 9.

5. The Court below has found upon entering into an account between the parties that on 1st May 1914, the principal as well as the interest payable by the respondents under the three previous mortgages had been fully discharged out of the usufruct of the property in the possession of the mortgagees. It is not denied that if an accounting is made between the parties that would not be the result. What was contended by the appellants was that there should have been no accounting, but in our judgment that contention is not sound. It was argued that there are no specific words in Section 9 which authorise the reduction of the principal amount due under a mortgage by taking into account the excess of the profits realized by the mortgagee over the interest to which he is entitled under Sub-section (2). We find, however, that taken as a whole the provisions of Section 9 necessarily imply that there should be an accounting between a mortgagor and mortgagee in the case of a mortgage with possession and the Court must take into account the net profits realized by the mortgagee or which with the exercise of ordinary diligence might have been realized by him for the purpose of reducing the principal money due under the mortgage by the amount of the excess realized by the mortgagee and thus determine the amount, if any, which remains due by the mortgagor. If the appellants' contention is accepted, the necessary result would be that in the case of a mortgage with possession the principal money mentioned in the mortgage will always be the amount due by the mortgagor and consequently the whole process of taking into account the net profits realized by the mortgagee or which with the exercise of ordinary diligence might have been realized by him would be utterly futile. There can be no sense in taking into account the profits realized by the mortgagee if the principal money due under the mortgage is not reduced to the extent of the excess of the profits over the interest to which the mortgagee is entitled under the statute. There can be no other basis of accounting between the parties which is made incumbent by the statute. In the case of any debt the excess of the realization made by the creditor over the, amount of interest due to him must always! go towards the reduction of the principal amount of the debt. There can be no other principle upon which an accounting between a debtor and a creditor can be based. We are, therefore, satisfied that the Court below was right in holding that on 1st May 1914, nothing was due from the respondents in respect of the three previous mortgages and the principal money due under the mortgage of 1st May 1914, must, therefore, be deemed to be the sum of Rs. 3958 only which was borrowed in cash on that very date by the respondents.

6. The next question for consideration is: whether this amount of Rs. 3958 together with the interest thereon to which the mortgagees were entitled under the law was fully discharged by the usufruct of the property which remained in possession of the mortgagees from 1st May 1914, to the date of the institution of the suit, that is, 29th July 1941. Profits have to be calculated on the basis of Rs. 15 per bigha as found by the Court below and a deduction has to be made therefrom on account of the revenue payable by the mortgagees at the rate of Rs. 2-5-0 per bigha. The property covered by the mortgage of 1st May 1914, was 22 bighas 1 biswa and 3 dhurs of land. Leaving the small fraction out of consideration, the annual profits of this land at the rate fixed by the Court below would be Rs. 330 and the revenue payable by the mortgagees would be Rs. 50-14-0. The net profits of the mortgagees on that basis would be Rs. 279-2-0. The rate of interest payable by the mortgagors under Sub-section (2) of Section 9 was only four and a half per cent. simple and the annual amount in the first year would be Rs. 178-2-0. Thus, at the end of one year after the date of the mortgage the mortgagees realized Rs. 101 over and above the amount due to them and if an accounting is to be made between the parties, this excess must go towards the reduction of the principal for the next year. Calculating upon that basis, it would appear that the principal as well as the interest due thereon was fully discharged in year 1937 and indeed on 1st May 1937, the mortgagees made an excess realization of Rs. 253. The Court below has found that the mortgage was fully discharged in the year 1936 and upon the calculation referred to above that finding is correct. The result, there, is that we see no reason to interfere with the judgment and decree of the Court below and dismiss this appeal with costs.


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