1. This is a second appeal from a decision dated 16th August 1933 of the learned Additional Subordinate Judge of Bareilly, by which he allowed an appeal from a decision dated 7th May 1931, of the learned Additional Munsif of Bareilly.
2. The plaintiff is one Mt. Chunni Kunwar, and the defendants are two brothers named Ram Dhan and Tek Chand. On 16th August 1918, one Karam Ali executed a simple mortgage-deed of some zamindari property in favour of the defendants and their mother, Mt. Jai Dei, and on 22nd August 1922, a decree was obtained on the basis of that mortgage. Some years were then allowed to elapse, but on 21st December 1926, the property was sold in execution of the above decree, and it was purchased by the present defendants. In the meantime, on 18th July 1923, Karam Ali had executed another simple mortgage of the property in favour of the defendants, and on 22nd December 1926, they brought a suit on the basis of that mortgage. On 17th January 1927, Karam Ali executed a usufructuary mortgage of the property in favour of the present plaintiff, Mt. Chunni Kunwar, and on 7th February 1927, she was impleaded as a subsequent mortgagee, in the suit brought by the defendants on the basis of their mortgage of 18th July 1923. An ex parte decree, on 14th April 1927, was passed in that suit, and an application to set it aside was afterwards dismissed. Mt. Chunni Kunwar on 20th January 1927, out of the consideration for her mortgage paid off what was due under the first mortgage of 16th August 1918, and the sale that had taken place on 21st December 1926, in execution of the decree that had been obtained on the basis of that mortgage was set aside. The defendants afterwards put into execution the decree that they had obtained on the basis of the second mortgage, and on 15th January 1931, the plaintiff instituted the present suit for a declaration to the following effect:
It may be declared that the plaintiff, as the representative in interest under the document dated 16th August 1918, is in possession of the mortgaged property as a prior mortgagee, and that the sale proceedings, dated 28th January 1931, are subject to the preferential rights of the plaintiff.
3. The learned Additional Munsif dismissed the suit with co3ts, but as a result of an appeal by the plaintiff, the learned Additional Subordinate Judge reversed the decision of the trial Court, and gave the plaintiff a declaration that she was subrogated to the rights of the prior mortgagees under the deed of 16th August 1918, and that the sale in execution of the defendants' decree should be held 'under the superior rights' of the plaintiff. This second appeal is by the defendants. The points urged on behalf of the appellants are as follows:
(1) The decree of 14th April 1927 passed on the basis of the mortgage of 18th July 1923, describes the plaintiff as a subsequent mortgagee, and having regard to the provisions of Expln. 4, Section 11, Civil P.C., she is debarred now by the principles of 'res judicata' from claiming to be subrogated to the position of the mortgagees of the mortgage of 16th August 1918; (2) The present suit is barred by time, since a person seeking priority by the satisfaction of a mortgage cannot claim to be subrogated if at the time of the assertion of that claim a suit on the basis of that mortgage would be time-barred; and (3) Having regard to the provisions of Section 47, Civil P.C., it was not open to the plaintiff to seek relief by means of a separate suit. As to the first point, we were referred by learned Counsel for the appellants to a number of reported decisions, of which we think it sufficient to refer to the following: Sri Gopal v. Pirthi Singh (1902) 24 All 429, Gajadhar Tell v. Bhagwanta (1912) 34 All 599, Brijmohan Singh v. Dukhan Singh 1931 9 Pat 816, Kanhaiya Lal v. Mt. Ikram Fatima 1932 8 Luck 103 and Gopal Lal v. Benarasi Pershad Chowdhry (1904) 31 Cal 428. In the first of the above cases, which was a case decided by their Lordships of the Privy Council, it was held that where, to a suit by a mortgagee on a mortgage bond of certain property, a prior mortgagee of the same property is made a party and omits to set up his prior charge and claim to have it redeemed, a suit subsequently brought by him for that purpose was barred by Expln. 2, Section 13, Civil P.C., as it then stood.
4. In the case reported in Gajadhar Tell v. Bhagwanta (1912) 34 All 599, the facts were that certain puisne mortgagees brought a suit for sale on their mortgage in which, although they impleaded the prior mortgagees, they simply asked for the sale of the property mortgaged, neither claiming, to have their mortgage redeemed nor asking for sale subject to the prior mortgage. The prior mortgagees on their part did not set up their rights under the prior mortgage. It was held that Section 11 of the present Civil P.C., was a bar to the prior mortgagees afterwards suing for sale on their mortgage. In Brijmohan Singh v. Dukhan Singh 1931 9 Pat 816, it was held, inter alia, that when a party impleaded is a puisne mortgagee and, therefore, a necessary party, but claims priority, he must assert and prove his priority, otherwise ha is barred. In Kanhaiya Lal v. Mt. Ikram Fatima 1932 8 Luck 103, it was held that where it is the duty of a person to set up a prior charge in defence to a claim for the recovery of a certain sum of money by sale of a certain property, but no priority is set up, a subsequent suit for declaration that he has a prior charge is barred by Expln. 4, Section 11, Civil P.C. In Gopal Lal v. Benarasi Pershad Chowdhry (1904) 31 Cal 428, it was held that if a prior mortgagee is made a party to a suit brought by a subsequent mortgagee on a mortgage bond of certain property, but omits to enter appearance and sets up his prior right and claims that he should be paid off or that the property should be sold subject to his mortgage, his mortgage lien must be deemed to be extinguished, and a suit subsequently brought by him or his heirs on his mortgage was barred by Expl. 2, Section 13, Civil P.C., as it then stood.
5. The above decisions fully support the first of the arguments addressed to us in this appeal on behalf of the appellants. On the other side, however, a number of rulings were referred to, which, it was contended, are to a contrary effect. Those rulings are as follows, Collector of Moradabad v. Muhammad Hidayat All Khan 1926 48 All 554, Fazal Rab v. Manzoor Ahmad 1930 ALJ 1222, Ram Partap Panday v. Lalu Pandey 1930 All 163: Sadu Behera v. Dibakar Tara 1929 9 Pat 539, Official Assignee, Calcutta v. Jagabandhu Mallik 1984 61 Cal 494, Abdul Wahid Khan v. Ali Husain 1929 4 Luck 250, Diwan Chand v. Punjab and Sind Bank Ltd. 1935 Lah 218 and Badha Kishun v. Khurshed Hossein 1920 47 Cal 662. Of the above decisions we think it necessary now to refer in detail only to those of Sadu Behera v. Dibakar Tara 1929 9 Pat 539, Abdul Wahid Khan v. Ali Husain 1929 4 Luck 250 and Diwan Chand v. Punjab and Sind Bank Ltd. 1935 Lah 218 and the decision in Official Assignee, Calcutta v. Jagabandhu Mallik 1984 61 Cal 494. In Sadu Behera v. Dibakar Tara 1929 9 Pat 539, it was held that there is no rule of law that a defendant being a subsequent incumbrancer or a purchaser of the equity of redemption is bound to set up as a defence that he has a paramount title, and that if in such a suit he does not invite the Court to decide the question of his priority, he will not be precluded from raising the question of his priority in a suit of his own. In the Calcutta case reported in Official Assignee, Calcutta v. Jagabandhu Mallik 1984 61 Cal 494, it was held that where a prior mortgagee who had in execution of his mortgage decree, purchased the mortgaged property was made a defendant by a puisne mortgagee in a subsequent mortgage suit, in the plaint whereof nothing was clearly alleged in derogation of his priority, the prior mortgagee's paramount title was outside the scope of the controversy in the later suit, and the rule of constructive 'res judicata' did not apply. In Kanhaiya Lal v. Mt. Ikram Fatima 1932 8 Luck 103, it was held that if a prior mortgagee with a paramount title is impleaded in a suit brought by the puisne mortgagee, and there is no contest in that suit regarding the prior mortgage, the right of the prior mortgagee would not be lost to him.
6. If, however, there is a controversy, and that controversy is decided against him, whether by actual decision or in default, his remedy would be barred, and the rule of 'res judicata' would stand in his way in asserting his claim under the prior mortgage. In Diwan Chand v. Punjab and Sind Bank Ltd. 1935 Lah 218, the facts were that a person who had a subsequent mortgage over a property had also in addition to this redeemed a prior mortgage, and a puisne mortgagee sued on his mortgage impleading the former only as a subsequent mortgagee, but not as an assignee of the prior mortgagee, and in execution of the decree so obtained, by which it was ordered that the claim of the plaintiff puisne mortgagee was to be satisfied first, the subsequent mortgagee claimed that he was entitled to be paid first his money due as assignee of the prior mortgagee. It was held that as the subsequent mortgagee was not a necessary party to the suit in his capacity as a prior mortgagee, he was under no obligation to defend his claim, which is paramount and outside the controversy of a suit between the subsequent mortgagees, and accordingly the rule of 'res judicata' did not apply. To make the rule applicable it was necessary for the plaintiff puisne mortgagee to attack his rights as assignee of the prior mortgage.
7. There are also in the Allahabad cases certain observations which favour the contention that is raised on behalf of the respondent. As to the second point taken on behalf of the appellants, it was conceded by their learned Counsel that a very recent Full Bench decision of this Court reported in Alam Ali v. Beni Charan 1935 ALJ 1294, is against him, but he contended that a decision of their Lordships of the Privy Council reported in Mt. Sukhi v. Ghulam Safdar 1922 43 All 469, is in his favour, and that that decision was not considered by the learned Judges of this Court who were members of the Full Bench which decided the case above referred to. As there appears to be a certain amount of conflict in the various decisions relating to the above two points, we think it best to refer the two following questions for decision by a Full Bench:
1. In the circumstances of the present case, does the ex parte decree obtained on 14th April 1927, by the defendants-appellants operate as 'res judicata' for the purposes of the present suit, and is the declaration now sought for by the plaintiff-respondent therefore barred? 2. Having regard to the fact that on the date of the present suit (15th January 1931) a suit on the basis of the mortgage of 16th August 1918, would have been time barred, is the plaintiff respondent's claim to be subrogated to the position of the mortgagees under the above deed also barred by time? We accordingly direct that this appeal be laid before the Hon'ble the Chief Justice with a view to the constitution of a Full Bench for the decision of the above questions. As it appears to be desirable that the record of the appellants' Suit No. 819 of 1926 in the Court of the Additional Munsif of Bareilly City should be before the Full Bench with a view to its being ascertained what precisely was the character attributed in that suit to the present plaintiff, we direct that the record of that suit be sent for.
8. It appears that on 16th August 1918, a simple mortgage-deed was executed by Karam Ali in favour of the defendants-appellants and their mother Mt. Jaidei. On 22nd August 1922, a decree for sale was obtained on this mortgage, which was followed by a final decree. The property was put up for sale in execution of this decree and was purchased at auction by the defendants, the then decree-holders, on 21st December 1926. The decree was for over Rs. 2,000 and the property was sold for about Rs. 3,700, there being a surplus amount of Rs 1,065.
9. In the meantime the defendants had taken another mortgage from Karam Ali on 18th July 1923. Before the auction-sale, which had been held in execution of the decree in the first mortgage, could be confirmed, the defendants brought a second suit on 22nd December 1926 on the basis of the second mortgage. In their plaint the present defendants clearly admitted the existence of the previous mortgage and even mentioned that in execution of their mortgage decree they had purchased the mortgaged property at auction and there was a surplus of Rs. 1,065 left over. They did not implead the present plaintiff Mt. Chunni Kunwar, as she had not come on the scene by that time. The reliefs claimed were: (a) a declaration that the plaintiffs were prior mortgagees against the defendants who had then been impleaded and were entitled to receive the entire surplus purchase money at the auction sale held on 21st December 1926, in execution of the decree of 1922; (b) a decree for recovery of the amount left outstanding after the payment of the surplus purchase money to be realised and; (c) 'if the sale of the mortgaged property be for some reason set aside, the claim with costs be ordered to be paid from the defendant, and in case of default in payment the mortgaged property be sold and the claim be satisfied out of the purchase money.'
10. It is, therefore, obvious that the present defendants who were plaintiffs at that time were admitting the validity of the prior mortgage and the binding character of the mortgage decree and the propriety of their having purchased the property in satisfaction of the mortgage debt, leaving a surplus of Rs. 1,065 only, and asked for the payment of only the surplus purchase money in the first instance, thereby clearly admitting that they were entitled only to this surplus amount under the second mortgage decree. It is also clear that they contemplated the contingency of the sale of the mortgaged property being for some reason set aside, as by that time it had not yet been confirmed, and in that event they asked for a decree for the whole amount due under the second mortgage. It cannot, therefore, be contended for a moment that the defendants in the latter event intended to give up their first mortgage decree altogether. It is impossible to put any such interpretation on the plaint.
11. On 17th January 1927 the mortgagor executed a usufructuary mortgage in favour of the present plaintiff, Chunni Kunwar, leaving money in the hands for payment of the first mortgage decree. She deposited the amount on 20th January 1927, and at some later, but unknown date, the auction sale in favour of the present defendants was set aside. On 7th February 1927, the present defendants in their suit filed an application asking that Mt. Chunni Kunwar be impleaded as a subsequent transferee, presumably because she had taken the usufructuary mortgage. There was no allegation that she had paid off the prior mortgage decree and should be impleaded as a prior mortgagee. Of course, there was no allegation against her when the plaint was filed and no amendments were made therein, except the addition of her name as a subsequent transferee. Service was duly effected on her, but she did not appear to contest the claim, nor filed any written statement. The suit for the amount due on the second mortgage was decreed on 14th April 1927. The decree, however, did not say that the property would be sold free from any previous incumbrances.
12. The defendants then put their decree in execution and claimed a sale of the mortgaged property. Upon this the present suit was instituted by Mt. Chunni Kunwar for a declaration that she had the rights of a prior mortgagee on account of her discharge of the prior mortgage decree. The present defendants resisted the claim on two main grounds among others: (1) that not having set up her prior mortgagee rights in the suit of the second mortgage, the defence was barred by the principle of res judicata and; (2) that by payment of the mortgage decree she acquired no rights of subrogation as the claim on the mortgage of 1918 would now be barred by time. As the second question has been considered recently by a Full Bench of this Court in Alam Ali v. Beni Charan 1935 ALJ 1294, it has not been referred to us. But the first question has been referred to us in the following form:
In the circumstances of the present case, does the ex parte decree obtained on 14th April 1927, by the defendants-appellants operate as res judicata for the purposes of the present suit, and is the declaration now sought for by the plaintiff respondent therefore, barred?
13. Prima facie it would appear that when the validity of the prior mortgage decree was in no way disputed by the then plaintiffs, and indeed was expressly admitted Inasmuch as only the surplus amount was claimed in the first instance, it cannot be seriously contended that the binding character of that mortgage decree was in any way a matter in issue in the previous suit. The plaintiff had not attempted to impugn the rights under that mortgage decree. Accordingly even though subsequently during the pendency of that suit tho3e rights devolved upon the present plaintiff, who had then been impleaded as a subsequent transferee, there was no occasion for her to set up the validity of that mortgage decree or the rights acquired by her pendente lite. The matter not having been put in issue by the plaintiffs on the date on which the plaint was filed, on 22nd December 1926 the defendant Chunni Kunwar was not called upon to appear and set up her prior rights. Under the Explanation to Order 34, Rule 1 it is not necessary for a pusine mortgagee to implead a prior mortgagee, and he may without impugning such a mortgagee claim to sell the property subject to it. A person who has taken a subsequent mortgage and also possesses prior mortgagees rights has a dual capacity. She is a necessary party in her capacity as a subsequent transferee, but not a necessary party in her capacity as a prior mortgagee. If therefore the validity of the prior mortgage is admitted in the plaint and she has been professedly impleaded as a subsequent transferee, there seems no reason to require that she must of a necessity appear in Court and set up rights under the prior mortgage which is not disputed by the plaintiffs.
14. The learned advocate for the appellant relies strongly on Sri Gopal v. Pirthi Singh (1902) 24 All 429. In that case suits bad been brought on mortgages of 1872 and 1874 successively without impleading other mortgagees, and decrees were obtained thereon. Then a suit was brought on a mortgage of 1876 impleading the mortgagees of 1872 and 1874. In the plaint the plaintiff had clearly sought to establish that charge as having priority over the earlier mortgages above referred to upon the ground that the money thereby secured had been borrowed to pay and had been applied in paying certain other charges on the same property of still earlier date, all being prior to 1871 . Thus the plaintiff had put in issue his claim of priority over the mortgages of 1874. The mortgagee Ishwar Dutt set up his prior claims under a mortgage of 21st July 1871, but he altogether omitted to set up his claim under a mortgage of 7th February 1874. The plaintiff's suit was decreed for payment of the money due against the defendants and the decree declared that in default of payment the plaintiff would be entitled to sell the mortgaged property 'which was free from all encumbrances' and also the remaining properties in satisfying the amount of certain prior debts detailed at the foot of the judgment. In this list the mortgage of 7th February 1874 was not included. It was accordingly held both by this High Court and also by their Lordships of the Privy Council that the omission to set up the rights under the mortgage of 7th February 1874 was fatal and the claim made in a subsequent suit was barred by the principle of res judicata. That was a case in which the plaintiff had never admitted the priority of the mortgage of 7th February 1874, and where the decree had expressly ordered the sale of certain property free from all encumbrances and the sale of the remaining properties subject only to certain specified prior debts and no other. That case is accordingly distinguishable from the present one.
15. The learned advocate next relies on Mahomed Ibrahim Hossain Khan v. Ambika Pershad Singh (1911) 39 Cal 527. In that case the heirs of Mt. Alfan were impleaded as puisne mortgagees, having the right to redeem. As noted in the judgment of the High Court at p. 539: 'the plaintiffs asked for sale of the mortgaged properties free from the liens of all the puisne mortgagees.' The prior rights of the heirs of Alfan were never admitted by the plaintiffs in their plaint and in fact they had been impleaded exclusively as subsequent transferees. The Calcutta High Court considered that the case was governed by the ruling of their Lordships in Sri Gopal v. Pirthi Singh (1902) 24 All 429. Their Lordships of the Privy Council formed the view that the heirs of Alfan having been made defendants to those suits, and not having set up in those suits such rights as they had under the prior mortgage, their claim in the later suit was barred by the principle of res judicata. As in that case the plaintiffs had not admitted in the plaint that the prior mortgagee rights were even subsisting and had asked for the sale of the mortgaged properties free from the liens of all the defendants, the case is obviously distinguishable from the present case.
16. In a later case Badha Kishun v. Khurshed Hossein 1920 47 Cal 662 their Lordships have laid down the law clearly. In a suit brought by the second mortgagees who were certain Sahus, a prior mortgagee Bakhtaur Mull, was impleaded as a defendant, 'but whether any or what relief was sought against him did not appear' (p. 668). Their Lordships after pointing out that the implications of the terms of Section 96, T.P. Act, were that without the consent of the prior mortgagee the mortgaged property could not be sold free from his mortgage remarked:
Bakhtaur Mull's position therefore was that he was a prior mortgagee with a paramount claim outside the controversy of the suit unless his mortgage was impugned. Consequently to sustain the plea of res judicata it is incumbent on the Sahus in the circumstances of this case to show that they sought in the former suit to displace Bakhtaur Mull's prior title and postpone it to their own. For this it would have been necessary for the Sahus as plaintiffs in the former suit to allege a distinct case in their plaint in derogation of Bakhtaur Mull's priority. But from the records of this suit it does not appear that anything of the kind was done, and, as has been observed, of things that do not appear and things that do not exist the reckoning in a Court of law is the same.
17. Their Lordships accordingly held that Bakhtaur Mull's mortgage not having been impugned expressly, he was not prevented by any principle of res judicata from setting up his rights under that mortgage in a subsequent suit. The case before us is much stronger inasmuch as here not only the present plaintiff's rights were not, and could not be, impugned in the plaint when it was filed on 22nd December 1926, but it was clearly admitted that the prior mortgage was subsisting and was paramount. The case is similar to the cases decided by this Court in Ajudiaia Pande v Inayatullah (1913) 35 All 111 and Collector of Moradabad v. Muhammad Hidayat All Khan 1926 48 All 554. In out opinion the claim of the plaintiff that she has acquired rights by payment of the money due on the prior mortgage decree is not barred by the principle of res judicata. The answers to both parts of the question referred to us are in the negative.