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Narayani Amma Vilasini Amma Vs. Eyo Poulose of Vattathara - Court Judgment

LegalCrystal Citation
SubjectProperty
CourtKerala High Court
Decided On
Case NumberC.R.P. No. 646 of 1980
Judge
Reported inAIR1982Ker198
ActsKerala Debt Relief Act, 1977 - Sections 2(3); Trust Act, 1882 - Sections 3
AppellantNarayani Amma Vilasini Amma
RespondentEyo Poulose of Vattathara
Appellant Advocate Panicker and; Potti, Advs.
Respondent Advocate V.N. Swaminathan, Adv.
Cases ReferredMariyamma v. Thressiamma
Excerpt:
.....decree or order of any court or otherwise - tortious liabilities and liabilities arising out of breach of trust are exempted from purview of definition by section 2 (3) (c) - 'breach of trust' defined in section 3 as breach of duties imposed on trustee by law - in present case liability not excluded by section 2 (3) (c) - matter remitted back to court below to consider whether petitioner is 'debtor' entitled to protection of section 3. - - tor-tious liabilities, and liabilities 'arising out of breach of trust''are however exempted from the purview of the definition, by clause (c). the court below held that the observation in the judgment (extracted earlier) that parameswaran nair and his successors were holding the properties in trust for the owners of the equity of redemption..........understood in its popular sense also.12. in moottai meera v. abdul kadar (air 1939 mad 471) a co-owner in possession of common funds had invested the same and earned interest. varada-chariar j. held that the relation between co-owners where one of them was in possession of common funds was not that of creditor and debtor but that he would be liable to account for interest, if the common funds are invested and interest realised. it was observed that a co-owner is entitled to a share in the common property as it stood at the time of division, and that if the common properly consisted of not only original realisation but also of interest, he could claim a share in the interest as well. 'another possible view' was that the co-owner realising interest by investment of common funds would be.....
Judgment:
ORDER

M.P. Menon, J.

1. O. S. No. 383/68 was a suit for recovery of possession with mesne profits. There was a family partition in 1103 M. E. Plaint A Schedule was the A Schedule to the partition deed llotted to the A group. Plaint B Schedule was the C Schedule to the deed, allotted to the C group. Both the plaint items were subject to a mortgage and were in the possession of one Parames-waran Nair. Under the partition deed, the C Schedule sharers were liable to discharge the entire mortgage liability. The rights of the C Schedule sharers were subsequently acquired by Para-meswaran Nair. The suit was filed on the basis that the mortgage had come to an end when Parameswaran Nair acquired the C Schedule rights along with the obligation to discharge the mortgage.

2. Issue No. (3) in the suit was whether the mortgage had come to an end as alleged, and whether the plaintiff was entitled to recover. Issue No. (7) raised the question of adverse possession and limitation. The court held in favour of the plaintiff on issue No. (3). On issue No. (7), the finding was that Parameswaran Nair's possession was permissive and not adverse to the owners of the A Schedule properties. Following the observations in Madhava Pillai v. Sankararu (1950 Ker LT 356) that a mortgagee was bound to deliver up the property after satisfaction of the mortgage debt, as his position was 'that of a trustee for the owner,' the trial Court said:--

'.....the possession of Parameswaran Nair, and the defendants under him, after Ext. D-2 is in trust for the owner of the equity of redemption .....' A decree was therefore passed for recovery of the A Schedule property with mesne profits from the date of deposit of value of improvements.

3. The question thereafter arose whether the liability to pay mesne profits in accordance with the decree was a liability exempted from the definition of 'debt' in the Kerala Debt Relief Act, 17 of 1977. Section 2 (3) of the Act defines 'debt' as any liability in cash or kind incurred by a debtor, whether payable under a contract, or under a decree or order of any court, or otherwise. Tor-tious liabilities, and liabilities 'arising out of breach of trust'' are however exempted from the purview of the definition, by Clause (c). The court below held that the observation in the judgment (extracted earlier) that Parameswaran Nair and his successors were holding the properties in trust for the owners of the equity of redemption was conclusive, that the defendants were bound to account for the mesne profits, and that their failure to do so amounted to a breach of trust thus taking the liability out of the definition in Section 2 (3). The revision petitioner herein, one of the defendants in the suit, was therefore held ineligible to claim the benefit of Act 17/77.

4. It appears to me that the approach made by the court below is not very satisfactory. The trial court's observation that Parameswaran Nair was holding the property in trust for the owners of the equity of redemption, was made in connection with issue No. (7) relating to adverse possession. The finding on that issue was conclusive, but not everything said in the course of dealing with it. Even if the effect of the observation could be stretched a little, all that was said was that Parameswaran Nair and those claiming under him were liable to deliver up the property to the plaintiff, as they had not perfected title thereto by adverse possession and limitation; they were trustees so far as their obligation to return the property was concerned. No question relating to mesne profits was decided under issue No. (7); in fact, that was separately considered and decided under issue No. (8). In my opinion, the question had to be decided by looking at the character or nature of the liability, irrespective of what had been observed at the trial stage in some other context.

5. The question then is this : where a person continues to occupy property notwithstanding the extinguishment of the mortgage under which he is inducted into it, and is held liable for mesne profits for the period of such occupation, is his liablity one arising out of breach of trust A number of decisions have been cited, but most of them do not directly answer the point. They are of course of some assistance in considering whether a mortgagee could be equated to a trustee, and what the terms 'trust' and 'breach of trust' in the context could mean.

6. Section 3 of the Trusts Act, 1882 defines 'trust' as an obligation annexed to the ownership of property, and arising out of confidence reposed in and accepted by the owner or declared and accepted by him, for the benefit of another, or of another and the owner. The word 'trust' in its popular sense is often employed to connote duties, relationships and responsibilities in all cases where confidence is reposed; but in law 'trust' is a right, enforceable in equity, to the beneficial enjoyment of property the legal title to which is vested in another. It arises from the relationship between two persons by virtue of which one of them holds property for the benefit of the other. It imposes an obligation on the trustee i. e. the person who has control over the property, to deal with it for the benefit of another called the beneficiary. A trustee is a person holding the legal title to property under an express or implied agreement to apply it and the income arising from it to the use and for the benefit of another person. The definition in Section 3 conceives of:--

(i) a person in whom the legal ownership of property vests:

(ii) an obligation on the part of such owner, annexed to such ownership, and arising out of confidence reposed in him; and

(iii) a person (other than such owner) for whose benefit the obligation operates.

The person in whom the confidence is reposed and who is the legal owner of the property is the trustee. The person who reposes such confidence is the creater or settlor of the trust. And the person for whose benefit the confidence is reposed is the beneficiary, while the person first mentioned (i e. the trustee) is the legal owner of the property, the person last mentioned (i. e. the beneficiary) is said to have a beneficial interest in, or beneficial ownership of the property. The existence of legal interest in one person and of an equitable interest in another is the main feature of a trust. As text-book writers say whenever the beneficial interest in property is dissociated from the legal title, the holder of the legal title is a trustee for the possessor of the beneficial interest.

7. Sections 81 to 94 of the Trusts Act deal with obligations 'in the nature of trusts.' they are not strictly trusts as defined in Section 3, but are instances of fiduciary obligations founded either on implied intention, or on construction of law to meet the requirements of equity irrespective of implied intention. Section 90 is particularly instructive here, because it takes in the case of qualified owners like mortgagees. Where a mortgagee of property gains an advantage in derogation of the rights of other persons interested in the property, by availing himself of his position as a mortgagee, he must hold the advantage so gained for the benefit of all persons so interested. The principle is that no person who is in a fiduciary position can make a profit out of that position to the detriment of persons who are actually interested in the property along with him.

Section 63 of the T. P. Act which recognises the mortgagor's rights to accession made by the mortgagee, is an illustration of the rule in Section 90 of the Trusts Act. What is important to notice however is that a mortgagee is not a trustee for all purposes, and has no fiduciary duties in general, under Section 3 of the Act, though he may be a constructive trustee for the purposes of Section 90. For the application of Section 90, it is not enough to show that some advantage has accrued to a mortgagee; it must further be shown that it has been obtained by availing himself of his position as a mortgagee and that the advantage is in derogation of the rights of others interested in the property. As Leach. C. J. pointed out in Jagannath v. Sri-pathi Babu (AIR 1945 Mad 297), a mortgagee in possession is not a trustee in the strict sense of the term, but he holds a fiduciary character in certain respects, as in cases governed by Sections 90 and 95 of the Trusts Act.

8. Turning to the decisions cited, the main attempt of counsel for the decrea holder is to suggest that a mortgagee stands in a fiduciary position during the subsistence of the mortgage and even thereafter, till the property is delivered up. Reliance is placed on Madhava Pillai v. Sankararu (1950 Ker LT 356) noticed earlier. The suit there was for redemption. The mortgagee had not paid any michavaram during the 30 years he was in possession. The plaintiff claimed the entire michavaram so due, and also mesne profits from the date of suit The defendant contended that michavaram could be claimed only for six years prior to the date of suit. The question thus arose whether the rest of the claim was barred by limitation. This Court held that the liability of a mortgagee under Section 76(h) of the Transfer of Property Act was not limited to any period of time. Article 105 of the Limitation Act was also referred to, to hold that time would not ran till the mortgagor secured possession. No doubt, a observation was made that:

'The general rule relating to all possessory mortgages is that as soon as the money due under the mortgages has been fully satisfied out of the rents and profits received by the mortgagee as a mortgagee, his duty is to deliver up the property to the person entitled to the possession of it, his position being that of a trustee for the owner.' But the very next sentence in the judgment shows in what context it was made. Their Lordships said - 'The accounting period is not limited by time except when relinquishment of possession taken place and so long as possession continues so long does the liability continue.'

Thus, the real question decided was that a mortgagee in possession would be accountable for the profits, notwithstanding extinguishment of the mortgage, till possession was reconveyed. It is true that in certain respects, a mortgagee in possession has certain obligations similar to those of a trustee. Thus, he must manage the property as a person of ordinary prudence would do. This obligation recognised by Section 76(a) of the Transfer of Property Act is similar to that of a trustee under Section 15 of the Trusts Act. In fact, the other duties enumerated in Clauses (b) to (e) of Section 76 are corollary to the directions in Clause (a). The liability of a mortgagee to keep accounts, under Section 76(g) of the T. P. Act, is similar to that of a trustee under Section 19 of the Trusts Act. Section 63 of the T. P. Act, as already seen, is another instance where an obligation in the nature of trust is imposed on a mortgagee. But these instances by thesmselves are insufficient to conclude that a mortgagee, is a trustee in every circumstance and for all purposes.

9. Reference has also been made to certain passages from the decision of Eradi J. (as he then was) in Kunjayam-ma v. Kunchali (AIR 1970 Ker 289). The real question considered in those passages was whether the mortgage would come to an end the moment the debt was wiped off by adjustment against arrears of michavaram, or whether it would be extinguished only on the passing of a decree allowing such set-off. His Lordship extracted with approval the following, from the 'Law of Mortgages of Real and Personal Property' by Francis Hilliard :--

'.....A mortgage is but a security for the payment of the debt and when that is paid or extinguished, it can never be resuscitated. By payment the whole mortgage is extinct; as much so as if released or paid and cancelled on record. It ceases to operate either at law or in equity, and the whole title vests in the mortgagor.....'

Reference was also made to Coote's Treatise on the Law of Mortgages to point out that before the Law of Property Act, 1925 the position of a mortgagee, after he was paid off, was that of a trustee holding the legal estate for the benefit of the mortgagor: but from 1926, the position was that the mortgagee had no legal estate or interest in the land after 'payment off'. As I understand the above passages, a mortgagee who has been paid off has no legal estate, interest or ownership in the property to which an obligation could be annexed for the benefit of the mortgagor. The whole title thereafter is in the mortgagor; there is no dissociation of the beneficial interest from the legal title so as to postulate the continued existence of a trust.

10. In Saithu Muhammad v. Abdur Rehman (1958 Ker LT 436), a surety who was entrusted with a lorry pending enquiry into a claim regarding its possession failed to produce it in court and became liable to pay the decree amount. Varadaraja Iyengar J. held that his liability was one arising out of breach of trust, as his obligation was fiduciary. An observation was also made that the word 'trust' in the context had to be understood in its popular sense and that it would cover all situations where confidence was reposed in a person and the same was betrayed. It appears to me, however, that the case was one where the dichotomy between legal ownership and beneficial interest could be clearly spelt out, in order to found a trust even in the legal sense of the term.

11. Amina Oomma v. Methiankutty (1970 Ker LT 1006) was a case where the liability involved was that of a party receiver to pay to court the income realised from the property committed to his charge; and the court held that the liability was one arising out of breach of trust Raman Nayar J. said that a receiver appointed by court is a trustee even within the meaning of Section 3 of the Trusts Act, in respect of the income realised by him; but added that the term trust could probably he understood in its popular sense also.

12. In Moottai Meera v. Abdul Kadar (AIR 1939 Mad 471) a co-owner in possession of common funds had invested the same and earned interest. Varada-chariar J. held that the relation between co-owners where one of them was in possession of common funds was not that of creditor and debtor but that he would be liable to account for interest, if the common funds are invested and interest realised. It was observed that a co-owner is entitled to a share in the common property as it stood at the time of division, and that if the common properly consisted of not only original realisation but also of interest, he could claim a share in the interest as well. 'Another possible view' was that the co-owner realising interest by investment of common funds would be governed by Section 90 of the Trusts Act, The contention that Section 4 (f) of Madras Act 4/38 would not govern obligations in the nature of trust, as distinct from obligations arising under Section 3 of the Trusts Act, was not accepted. The term 'trust' was not understood in its popular sense.

13. The scope of Section 4 (f) of Madras Act 4/38 again came up for consideration in Linga Reddi v. Subbarami Reddy (AIR 1942 Mad 202). A next friend of certain minors realised over Rs. 6000/-in a suit filed on their behalf and draw the money from court on the strength of a security bond executed by a surety. The minors, when they came of age, instituted a suit against their guardians impleading the surety also as a party. When that suit was decreed, the surety claimed the benefit of Section 4 (f), but the claim was rejected by the District Court on the ground that his liability had arisen out of breach of trust. Disagreeing with this view, the High Court said that the surety's liability was primarily based on contract. That contract was enforceable if the next friend who had drawn the money from the court committed breach of trust, but still, the proximate or immediate basis of the surety's liability was the contract. Their Lordships observed:--

'It seems to us that the words of this clause 'arising out of a breach of trust' should not be read so as to cover any liability which is in any way connected with a breach of trust. As we read this clause, its object is not to place creditors who have lost money owing to breach of trust in a more favourable position than creditors who have merely placed excessive confidence in their debtors. The object of this section must be to prevent dishonest trustees from pleading the Act in order to retain the fruits of their dishonesty, that is to say, this exception, just like the other exceptions enumerated in Section 4, is based on grounds of public policy, not on a desire to benefit one class of creditors as compared with another class of creditors'.

14. K. Viswashwara v. K. Krishna-muthy (AIR 1957 Andh Pra 337) in another case where the scope of Section 4 (f) of the Madras Act came up for consideration. The judgment debtors were co-owners in possession and enjoyment of not only their shares of the property, but also of the shares of other co-owners. Their Lordships held that a co-owner doe's not ordinarily stand in a fiduciary position to another co-owner, and that Section 90 of the Trusts Act could operate only when it is shown that the co-owner by his dealings derived an advantage to himself, in derogation of the rights of the other. The liability of one co-owner is only to make over the shares of the profits to others, he has no further duty to project the interests of others. He is accountable only for rents and profits actually derived, and not for what he ought to have received. Moottai Meera v. Abdul Khadar (AIR 1939 Mad 471) was noticed with approval. This seems to be another case where 'trust' in Section 4 (f) was not understood in its popular sense so as to cover every instance of one person reposing confidence in another.

15. Where a co-owner sued for par-tition and obtained a decree for mesne profits also, this Court held, in Mari-yamma v. Thresiamma (1959 Ker LT 989) that the liability of the judgment-debtor was not one arising out of breach of trust. A co-owner in possession would be accountable for the profits obtained but the accountability was not based on fiduciary relationship, and without anything more, there could be no question of breach of trust. The court also said:

'What is excluded under that sub-clause is a liability arising out of a breach of trust. Plaintiff can invoke the aid of this sub-clause only if it is made out that her claim as against the first defendant arose out of a breach of trust. The pleadings in the case do not lend any support to such a contention. When the suit was instituted, the plaintiff had no case that the first defendant was holding the properties in trust for the benefit of the plaintiff also and that the first defendant had committed a breach of her obligations arising out of a fiduciary relationship. On the other hand, the suit proceeded on the basis that the first defendant was unauthorisedly retaining possession of the properties and that she should be made answerable for mesne profits for her wrongful possession of the properties. In view of such a stand taken by the plaintiff, it is not now open to her to take up an entirely different position and to contend that rhe first defendant was holding the plaintiff's share of the properties as a trustee for the plaintiff, (Pp. 990-991).

If this be the approach to be made in the present case also, I should say that O. S. 383/63 was a simple suit for recovery with mesne profits on the basis that the mortgage had been extinguished; there was no whisper about any fiduciary relationship or breach of trust or of confidence, either in relation to the claim for recovery or in relation to the claim for mesne profits.

16. That apart, the preponderance of judicial opinion disclosed by the cases cited seems to be, that the word 'trust' in the context of an enactment like Act 17/77 should be understood in the legal sense, and not in the popular sense. Even the decisions which refer to the popular sense could easily re?t on the legal sense of the terms, if the facts are analysed. Clause (c) of Section 2 (3) of the Act excludes.

'any liability arising out of a breach of trust or any tortious liability.'

From the definition of debt. Is it possible to understand 'tortious liability' in a popular sense? At any rate, it was understood only in the legal sense by the decisions of this Court reported in Kunhamina v. Umooty Mariam (1979 Ker LT 73) and in Prabhakaran Pillai v. Subbashani Amma (1980 Ker LT 777). If this be the position, it is difficult to see why 'trust' in 'breach of trust' appearing the same clause should be understood in its popular sense. Section 2 (3) (k) excludes liabilities arising under chit fund schemes, but only if the chit had not terminated two years before the commencement of the Act. Other chit liabilities are thus not excluded, and they qualify for being treated as debts under Section 2 (3). Such liabilities certainly arise from contexts where confidence is reposed; and in my opinion, this is another clue to suggest that the legislature does not want to exclude all liabilities merely because confidence is involved. As pointed out by the Madras High Court in Linga Reddi's case (AIR 1942 Mad 202), the legislative intention is not to prefer one class of creditors over another, but only to prevent dishonest trustees from seeking protection of the Act to retain the fruits of their dishonesty. The policy behind the Act is to protect all creditors whose annual income does not exceed Rs. 3000 and whose total indebtedness also does not exceed the said figure. Clauses (a) to (n) of Section 2 (3) carves out certain exclusions based on public policy. Thus amounts payable to Governments, the Reserve Bank, the Tea Board, Co-operative Societies and the like are excluded by Clause (a), the public policy being that such bodies or institutions shall not suffer. Amounts payable as maintenance and wages, and debts due to certain classes of widows or excluded under Clauses (d), (a) and (j), apparently with the intention of safeguarding the interests of weaker section of the society. Banking and commercial activities are attempted to be preserved by Clauses (f), (l) and (m), Agricultural finance is the subject matter of Clause (n). A close examination of these exemptions disclose a variety of policy considerations. Viewed in this background, it is possible to think that the policy behind Clause (c) is only to ensure that tort-feasors and persons responsible for breach of trust do not get away with the fruits of their wrongs. Trusts have always been considered as something sacred. Sections 11 to 20 of the Trusts Act impose stringent duties and liabilities on trustees, Sections 46 to 54 impose some disabilities also. 'Breach of trust' is defined in Section 3 as breach of duties imposed on trustees by law. It appears to me that what is attempted to be excluded by Clause (c) of Section 2 (3) of Act 17/77 is only a liability arising out of breach of trust as understood in law. If reposing of confidence alone is sufficient, a bailee of goods will also be a trustee. There are also many other contracts based on confidence. If the term 'trust' is understood in that popular sense, many types of contractual liabilities will stand excluded from the definition of debt; and it is not easy to assume that the legislature wants to take away by the left hand what it gives by the right. To enlarge the scope of 'Trust' in Section 2 (3) (c) would be to deny the benefit of Act 17/77 to more and more people. A piece of beneficial legislation cannot be so interpreted unless there are other compelling reasons.

17. I am therefore of the view that the liability in this case is not a liability excluded by Section 2 (3) (c) of Act 17/ 77. At any rate, that is the conclusion to be reached if the pleadings are examined in the same manner as was done in Mariyamma v. Thressiamma (1959 Ker LT 989). In this view I set aside the order impugned and remit the matter back to the court below to consider whether the petitioner herein is a 'debtor' entitled to the protection of Sec-tion 3 of the Act. No costs.


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