1. This is an appeal by the plaintiff-mortgagees arising out of a suit for sale of the mortgaged property. The plaintiffs had sued for recovery of principal and interest for reasons which will hereafter appear. The lower Court decreed their claim for principal but not for interest.
2. The facts are that the defendant-respondent Mumtaz Ahmad executed a mortgage deed on 6th January 1931 in favour of Babu Ram, the predecessor-in-interest of the plaintiff-appellants. The sum advanced by the mortgagee was Rs. 5,000. The property hypothecated consisted of two houses in the occupation of the mortgagor. The deed purports to be usufructuary mortgage deed, but it contains a distinct stipulation that the mortgagor would be liable to pay interest at the rate of 15 annas per cent, per month and that the mortgagee would set off the usufruct of the mortgaged property against the interest payable to him. By a deed of even date, mortgagee let the mortgaged property to the mortgagor at the annual rent of Rs. 562, which is equal to one year's interest at the rate stipulated in the mortgage deed. The lease was for three years. The mortgagor remained in possession of the house, but never paid any rent. The suit, which has given rise to this appeal, was brought on 27th May 1933 for Rs, 5,000 principal, and Rs. 1,305, interest. The defence was that the mortgagee was not entitled to recover any interest, his only remedy being to sue the mortgagor for rent in terms of the lease. This contention found favour with the lower Court, and the plaintiffs' suit was decreed for principal only. They have preferred the present appeal, in which the sole question to be decided is whether the plaintiffs are entitled to recover interest, like the principal, by sale of the mortgaged property.
3. The case does not present any difficulty to our minds. The deed in suit purports to be a deed of usufructuary mortgage. Both the parties and the lower Court have treated it as such. It is likewise conceded that the mortgagee, who was assumed to be in possession at the time when the lease was executed, let the mortgagor into possession as a tenant. In this view, the mortgagee is entitled to recover, in terms of the mortgage deed, the principal amount and such interest as remains unpaid without any fault of his. It cannot be suggested that the mortgagee did not use ordinary diligence in collecting the rent, because it was the mortgagor himself who occupied the property as tenant and failed to pay the rent which he was liable to pay under the lease. The mortgage deed expressly entitles the mortgagee to sue for his mortgage money, which includes principal and such interest as was left unpaid. Under Section 76(h), T.P. Act, the mortgagee is bound to apply his receipts from the mortgaged property in reduction of interest, and if there is any surplus, in reduction of the principal. In the present case, the mortgagee received nothing from the mortgagor, who was liable to pay rent to the mortgagee. The obvious result is that the entire mortgage money, including the whole of the interest, is due, and the mortgagee is entitled to enforce the covenant contained in the mortgage deed and to recover not only the principal but also the interest.
4. The contention, which the mortgagor's learned Counsel put forward in this Court, is substantially the same as that on which decision of the lower Court rests. It is argued that the parties having entered into the transaction of lease simultaneously with, or immediately after, the execution of the mortgage deed, the right of the mortgagee to recover interest, given in mortgage deed, was substituted by his right to recover interest in the shape of rent under the lease, so that the mortgagee was not entitled to sue for sale of the mortgaged property for recovery of the interest. We are wholly unable to accept this view. The stipulation in the mortgage deed which entitles the mortgagee to recover principal and interest by sale of the mortgaged property is in no way affected by his right as lessor to recover from the mortgagor lessee the rent due to him under a separate transaction. There is nothing either in the mortgage deed or in the lease to suggest that the mortgagee's right under the mortgage deed has been abrogated or cut down by the lease.
5. Reference was made in the course of the arguments to a case reported as a foot note at p. 341 of Second Appeal No. 1112 of 1894. The only similarity between that case and the present one is that the mortgagee in both cases let the mortgaged property to the mortgagor at a certain rent. The important distinguishing feature is that the mortgagor in the reported case had not agreed to pay interest apart from the usufruct of the property which was handed over to the mortgagee. No rate of interest was stipulated in the deed, nor did the mortgagor undertake to pay it, except by allowing the mortgagee to appropriate the usufruct. The case in Mohammad Karamat Ali Khan v. Ganeshi Lal : AIR1927All552 is not at all applicable to the circumstances of this case, nor is there anything in the judgment of Ashworth, J. which is relied on by the respondents which supports the contention put forward in the present case.
6. We are dearly of opinion that the plaintiff mortgagees are entitled to a decree for principal and interest, as claimed by them. Accordingly we allow the appeal, modify the decree of the lower Court and decree the plaintiffs' claim in full. A fresh preliminary decree shall be prepared, giving six months' time for payment. Interest at the contractual rate on the principal amount shall run up to the date fixed for payment, and thereafter at the rate of six per cent, per annum. The plaintiffs shall have their costs in both Courts. The decree of the lower Court prescribing the order in which the two houses will be sold will stand.