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Mohammad Ishaq Khan and anr. Vs. Rup NaraIn Singh and ors. - Court Judgment

LegalCrystal Citation
SubjectProperty
CourtAllahabad
Decided On
Reported inAIR1931All562; 136Ind.Cas.363
AppellantMohammad Ishaq Khan and anr.
RespondentRup NaraIn Singh and ors.
Excerpt:
- - 591, but it was neither approved nor disapproved. it was contemplated that the mortgage would be redeemed in about nine years' time, and there was the condition for foreclosure that if the mortgagor failed to pay the amount at the stipulated time, the mortgage would be foreclosed. while the mortgagee's representatives disputed this and pleaded that the mortgagor's representatives were bound to make good the balance of rs. the liability of the mortgagee to render accounts was well recognized even before the coming into force of the transfer of property act......the original mortgagees.3. the plaintiffs' case was that owing to an increase in the income of the property mortgaged usufructuarily, the mortgage money has paid itself and there is a surplus of rs. 410-5-2 in favour of the plaintiffs. they accordingly ask for possession and for the said amount of money as surplus due to them. the defence was that there was no increase in the income of the property mortgaged; on the other hand, there was a decrease in it and there was a document of further charge and the plaintiffs could not redeem without paying the amount due on that document also. in the mortgage deed there was a stipulation that a part of the estimated income of the property would be taken towards a part of the interest and the balance of rs. 7 a year would be paid by the mortgagors......
Judgment:
ORDER

Mukerji, J.

1. This is a plaintiffs' appeal and arises out of a suit for redemption of mortgage dated 17th. June 1867.

2. The plaintiffs are the transferees of the defendants second party who were the original mortgagors. The defendants first party represent the original mortgagees.

3. The plaintiffs' case was that owing to an increase in the income of the property mortgaged usufructuarily, the mortgage money has paid itself and there is a surplus of Rs. 410-5-2 in favour of the plaintiffs. They accordingly ask for possession and for the said amount of money as surplus due to them. The defence was that there was no increase in the income of the property mortgaged; on the other hand, there was a decrease in it and there was a document of further charge and the plaintiffs could not redeem without paying the amount due on that document also. In the mortgage deed there was a stipulation that a part of the estimated income of the property would be taken towards a part of the interest and the balance of Rs. 7 a year would be paid by the mortgagors. As to this, the plaintiffs' allegation was that the sum of Rs. 7 a year was paid up to 1290 F, and thereafter it was not necessary to pay this sum because the income from the property increased by more than Rs. 7 a year. The lower appellate Court has held that it is a fact that the mortgagors paid Rs. 7 a year up to 1290 P.

4. The first Court found that there was a considerable increase from time to time in the profits of the mortgaged property and that after paying the stipulated interest there was a surplus which went to liquidate the principal amount and a large amount of surplus money was left in the hands of the mortgagees amounting to Rs. 3,9-13. On these findings, the learned Munsif decreed the suit for possession and for recovery of the surplus amount.

5. Before the learned Subordinate Judge who heard the appeal, it was contended that under the terms of the mortgage the mortgagees were not bound to render an account and that the subsequent deed did amount to a deed of further charge. On both these points the learned Subordinate Judge found in favour of the defendants. The result was that he decreed the claim for redemption of the mortgage money on condition of payment of the principal mortgage money and Rs. 7 a year, the deficiency in the interest every year, from 1291 F to the date fixed for payment and also on payment of the principal amount secured by the deed of further charge and the interest thereon.

6. The plaintiffs have come in second appeal and two points have been urged before us. The first is that the learned Judge of the Court below was wrong in holding that there could be no accounting, that the document for which a further charge is claimed creates no charge on the property and therefore the plaintiffs are not liable to pay the money due on it. By way of a side issue, it was contended on behalf of the respondents that the amount of Rs. 187 stated in the deed of mortgage as the total income per year, was taken by the parties as the income from the property mortgaged for all time. In reply to this, it was argued on behalf of the appellants, that such stipulation would be void under the law.

7. The points that arise for decision in this case therefore are:

1. Whether the parties are agreed that Rs. 187 was to be taken to be the annual income of the property for all time, irrespective of whether there was actually an increase or decrease in the income from the mortgaged property.

2. If the parties did so agree, whether the agreement is binding on them or whether the same is void and contrary to law.

3. Whether the plaintiffs are entitled to claim an account of the income of the property.

4. Whether the deed dated Jait Sudi 15th 1274-F for the amount of Rs. 250 creates a charge on the property mortgaged.

8. It will be noticed that if issue 3 is decided in favour of the plaintiffs, an issue will have to be sent down, as to the account in order that the Court below may find out what was the income from the property during the years of the mortgagee's possession and whether the plaintiffs have to pay anything or whether they are entitled to any surplus?

9. As to the first point, as a true construction of the document in suit, we are of opinion that the parties agreed that Rs. 187 was to be taken as the total annual income of the property. The term of the mortgage was nine years and there is nothing in the document to show that it was contemplated that there might be an increase in the income within this term of the mortgage, or even thereafter.

10. Points 2 and 3 go together. These are the points which are most important in this appeal. The argument on behalf of the appellants is that, except in cases covered by Section 77, T. P, Act, a mortgagee in possession is bound to render an account and if he really acquires from the property a larger amount than was contemplated by the mortgagor at the date of the execution of the mortgage, the mortgagee cannot keep the surplus to himself on the ground that the mortgagor and he had agreed that the income from the property would be a fixed amount. It is pointed out that Section 77 contemplates the cases where the whole of the interest is to be covered by the usufruct or where the usufruct covers the whole of the interest and a defined portion of the principal amount. Section 77 does not contemplate a case in which, by agreement, the usufruct of the mortgaged property is to be taken in lieu of a part only of the entire interest due to the mortgagee.

11. On the other hand, Section 76, T. P. Act, lays down the liabilities of the mortgagee in possession. In the ease of Clauses (c) and (d) of this section, the expression in the absence of a contract to the contrary ' appear.

12. Thus where those clauses apply, it is open to the parties to contract themselves out of those rules and in that case the mortgagee will not be bound to act in the way he would be bound, in the absence of a contract to the contrary. In Cls.(a), '(b), (e), (f), (g), (h) and (i) the words, ' in the absence of contract to the contrary ' do not appear and therefore the liability of the mortgagee would appear to be absolute and he is not entitled to contract out of those liabilities. For example, in the case of Clause (a) which lays down that a mortgagee must manage the property as a person of ordinary prudence would manage it if it were his own, a mortgagee cannot be permitted to agree with the mortgagor that he would manage the property in any way and. as carelessly as he chose and that he would not account for the income of the property or would not be liable for any loss occasioned to the property of the mortgagor by the mortgagee's mismanagement. There can be no doubt that in the case of Clause (a) the liability of the mortgagee is absolute and he cannot contract himself out of it. Similarly in the case of Clause (g), the mortgagee is required to keep clear, full and accurate accounts. This seems to be an absolute liability and the mortgagee cannot agree validly with the mortgagor that any account that he keeps, however slipshod it may be, will have to be accepted by the mortgagor. Similarly in the case of Clause (h) the mortgagee is required to apply the receipts from the mortgaged property, after deducting the expenses and interest thereon, in a certain way. If his income from the property is large, it is contended on behalf of the appellants that it is not open to the mortgagee to agree with the mortgagor that he would keep anything over and above the interest due to him for his own benefit and would not account for the same to the mortgagor.

13. The argument adduced on behalf of the appellants seems to have great force. The omission from Section 77 of the case in which only a part of the interest is to be paid out of the usufruct must have been intentional and not accidental. One can see the reason for it without much difficulty. Where the parties agree on a stipulated amount of interest to be paid by one party and to be received by the other, it is that amount alone to which the mortgagee is entitled and he is entitled to nothing more. The exception is where no interest is stipulated for specifically, and it is agreed that whatever be the interest and whatever be the usufruct one will be set off against the other. There need be no accounting in such a case. But where such is not the case, there must be an accounting.

14. This view which has been strongly urged on behalf of the appellants and which, as at present advised, seems to us to be the correct view, was not accepted in the case of Shafiunnissa v. Fazal Rab [1910] 7 I.C. 293 by two learned Judges of this Court. That case was similar to the present one. Karamat Husain, J., remarked that a usufructuary mortgagee would be liable to render account only and further held that the case before him was covered by Section 77, T. P. Act, though the facts did not fall within the four corners of that section. His learned colleague, Knox, J., contented himself with the remark that on the stipulation contained in the deed of mortgage, he agreed with his brother Karamat Husain, J., This case of Shafiunnisa v. Fazal Rab was cited in a more recent case in this Court, namely Behari Lal v. Shib Lal A.I.R. 1924 All. 591, but it was neither approved nor disapproved. In the Patna High Court, the case in Shafiunnisa v. Fazal Rab, was cited in the case of Kishun Lal v. Hira Lal decided by Das and Kulwant Sahay, A.I.R. 1929 Pat. 571, and the decision on the point of law was dissented from. The judgment however contains a dictum to the effect that the judgment in the Allahabad case was correct, if it was to be based merely on the interpretation of the document. No doubt this dictum was obiter, but it shows, at any rate, that the learned Judges thought that 'it was open to the mortgagees to contract themselves out of the liabilities laid down by the law under Section 76 (h), T. P. Act. This view is controverted before us by Mr. Iqbal Ahmad, who has argued the case for the appellants.

15. Mr. Kamla Kant Verma has drawn our attention on behalf of the respondents to another case decided by the Patna High Court, namely, Baghubar Narain Chaudhuri v. Mohit Narain Jha A.I.R. 1929 Pat. 37 which quotes without disapproval the opinion of Karamat Husain, J., in the case in Shafiunnisa v. Fazal Rab, viz., in the absence of a contract to that effect, a mortgagee with possession is not bound to account for the usufruct of the property. If that is the view which the learned Judges took in the case in Raghubar Narain Chaudhuri v. Mohit Narain A.I.R. 1929 Pat. 37 there is a conflict of views among the Judges of the Patna High Court.

16. We are of opinion that the case in Shafiunnisa v. Fazal Rab requires reconsideration and for this purpose we refer this case to a larger Bench. The point that has to be decided by the Full Bench, such as may be constituted by the learned Chief Justice, will be as follows:

Whether it is open to a mortgageo who has agreed to accept the whole of the usufruct of the mortgaged property in lieu of a portion of the interest due to him, to escape the operation of Section 76 (h), T. P. Act, and a rendition of account of the income of the property, by an agreement to that effect with the mortgagor. 2. Whether, on a true construction of Section 77, T. P. Act, a case where the whole of the usufruct of the mortgaged property is taken in lieu of a part of the interest due on the mortgage money, is covered by it?

17. We have read the document dated Jait Sudi 15th 1274 Fasli for the sum of Rs. 250 and we are of opinion that it creates a charge in clear terms over the property mortgaged by way of conditional sale ' with the mortgagees. The language does not call for a detailed examination. The document itself is called a hypothecation bond and the mortgagors agree that till the amount secured by the deed is paid off, they will not transfer any of the properties mortgaged by way of conditional sale. Further, they agree that in case the property mortgaged by way of conditional sale is foreclosed, the amount for which the foreclosure would take place would include the amount due on the present deed.

18. We direct that the case be laid before the Hon'ble the Chief Justice for constitution of a Bench to decide the two points formulated by us above.

19. On return of findings from the Pull Bench, we shall consider whether a remand of the issue indicated above will be necessary or not.

Sulaiman, Ag. C.J.

20. This is a plaintiff's appeal arising out of a suit for redemption of a mortgage of 17th June 1867, by way of conditional sale, for a sum of Rs. 1,333-5-4. The mortgagor promised to pay interest at the rate of As. 7-6 per mensem which came to Rs. 75 per annum. These figures were expressly recited in the deed. It was further stated that the gross produce of the property was Rs. 187, out of which Rs. 108 had to be paid on account of Government revenue and cesses, Rs. 6-3-6 on account of certain other charges, and Rs. 4-8-0 on account of expenses; in all Rs. 119-2-6. The mortgagee was to utilize the balance of Rs. 68 in lieu of interest and the mortgagor promised to pay Rs. 7 from his pocket on account of deficiency in the interest. It was contemplated that the mortgage would be redeemed in about nine years' time, and there was the condition for foreclosure that if the mortgagor failed to pay the amount at the stipulated time, the mortgage would be foreclosed. It did not provide what was to happen if there was an increase or decrease in the income, nor did it expressly lay down any covenant as to the liability or otherwise of the mortgagee to maintain accounts or to render them at the time of redemption. The deed was silent as to these matters.

21. It is an admitted fact that about 1291 F. there was a fresh settlement, and the income of the property was considerably increased. It is also an admitted fact that the mortgagors were paying Rs. 7 a year up to that year and then stopped paying any further. It is not disputed that the mortgagee did not insist on the payment of this extra amount and on account of the default did not consider it necessary to sue for foreclosure.

22. The plaintiffs claimed that the mortgagee's representatives must give credit for the extra income which accrued after the mortgage; while the mortgagee's representatives disputed this and pleaded that the mortgagor's representatives were bound to make good the balance of Rs. 7 a year. The lower appellate Court passed a decree for redemption in favour of the plaintiffs on payment of the principal sum plus Rs. 7 a year from the time when they stopped payment. The plaintiffs appealed to the High Court, and the Division Bench has referred two questions to a Pull Bench for answers.

23. The Division Bench interpreted the mortgage deed in dispute as containing no contract as to what was to happen if there was an increase or decrease in the income. The learned Judges thought that the contingency that there might be an increase or decrease in the income never occurred to the parties, and they never thought about it, so they did not provide for this contingency, that is to say, it was purely a case of omission and there was no contract against the liability of the mortgagee to account for any surplus income. We must accept this interpretation as the question of interpretation has not been referred to us.

24. The mortgage deed in question was executed before the coming into force of the Transfer of Property Act, and at the time of its execution the parties were bound by the equitable principals governing mortgages and not by the strict language of any section of this enactment. Where the ' parties expressly agree that the entire income, whatever it be, should be set off against the whole of the interest on the amount advanced, there is of course, no necessity for the mortgagee to keep any account. On the other hand where the intention is that the mortgagee should get the interest at an agreed rate, the primary consideration is the payment of the mortgage money with interest at that rate to the mortgagee, even though the income may fluctuate from year to year. It would follow on general equitable principles that where there is a fixed rate of interest there should be a liability on the mortgagee to maintain proper and regular accounts and give credit for all the receipts and claim compensation for deficit or pay for the surplus. The liability of the mortgagee to render accounts was well recognized even before the coming into force of the Transfer of Property Act. Under Section 76 of the Act the liability of the mortgagee in possession to give credit for the receipts, after deducting the expenses and interest, in the account, is absolute. It is significant that although the words 'in the absence of a contract to the contrary' occur in Clauses (c) and (d), those words do not occur in the other clauses particularly in CI. (h), which requires that the receipt from the mortgaged property shall be debited against the mortgagee in reduction of the amount due to him and the surplus if any shall be paid to the mortgagor. It is therefore quite obvious that unless the case comes within the purview of Section 77 of the Act, which in express language excludes the operations of Section 76 (h), the liability of the mortgagee to give credit for the receipts in the account is absolute and the parties would not be at liberty to contract themselves out of the statutory liability.

25. Section 77 however cannot apply unless there is a contract between the mortgagee and the mortgagor that the receipts from the mortgaged property shall, so long as the mortgagee is in possession of the property, be taken in lieu of interest on the principal money or in lieu of such interest and defined portion of the principal. On the interpretation of the mortgage deed made by the Division Bench there was no such contract in the case before us. Section 77 therefore has no application and the mortgage does not come within the purview of the exception. He was therefore liable under Section 76 (h) to render account and give credit for the surplus in-come if any.

26. In this view of the matter it is not necessary to answer the second question. If however the Division Bench are of opinion that they cannot decide the appeal without an answer to that question they may refer it again to us.

27. Our answer to the first question is that where the mortgage is governed by the Transfer of Property Act the mortgagee cannot contract himself out of the 'provisions of Section 76(h) of the Act unless he can bring himself strictly within the -exception provided by Section 77.


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