Patanjali Sastri, J.
1. This appeal arises out of a suit brought in the Court of the Subordinate Judge at Coimbatore to redeem what was claimed to be a mortgage by conditional sale. A preliminary decree for redemption having been passed in favour of the 1st respondent, this appeal has been preferred by the 6th defendant.
2. The transaction as to the nature of which there was some dispute in the Court below was embodied in three documents, Exs. I, A and B, all executed on the same date, viz., 19th September, 1905. Ex. I purports to be a sale by the 1st respondent of item 1 of the plaint schedule for Rs. 15,000 to one Giria Chetty now represented by respondents 2 to 6 (hereinafter referred to as mortgagees), and Ex. A purports to be an agreement to re-convey the property for the same sum to the 1st respondent after five and within ten years from that date, with a provision that if a reconveyance was claimed after the expiry of that period, an additional sum of Rs. 250 was to be paid for every subsequent year. Ex. B is a security bond between the same parties, and though it relates to items 2-a and 2-b of the plaint schedule, it contains several provisions governing item 1 as well. It provides that if the income received from all these items in any year within the first ten years was less than the amount of annual interest on Rs. 15,000 calculated at twelve annas per cent. per annum, the deficit should be paid by the 1st respondent and be a charge on items 2-a and 2'-b. For this purpose an account of such income was to be sent to the 1st respondent every year during that period. After the period of ten years, the receipts from the properties were to be taken in lieu of interest and the 1st respondent was to pay an additional sum of Rs. 250 every year so long as the principal sum remained unpaid. All the items were placed in the possession of the mortgagee and have admittedly been in the enjoyment of his family. There can be little doubt that Exs. I and A, read in the light of Ex. B, created a mortgage by conditional sale, and the finding of the learned Subordinate judge to that effect has not been questioned before us by the appellant's learned Counsel Mr. Sitarama Rao.
3. The main question argued in the appeal related to the determination of the amount properly payable by the 1st respondent (who is an agriculturist) as scaled down under the Madras Agriculturists' Relief Act. It may be mentioned here that the account of the income of the mortgaged properties sent every year during the period of the first ten. years as provided in Ex. B was accepted by the 1st respondent, and as a result of these periodical settlements, various amounts have been found to be payable to the mortgagees as deficit interest, as the annual income during that period was less than the interest stipulated. There can be no doubt that these arrears of interest have to be wiped out under the provisions of the Act. The 1st respondent, however, claimed that the whole debt should be deemed to have been discharged under Section 8 (2) of the Act as the mortgagees had received in all more than twice the amount of the principal by way of income derived from the mortgaged properties in their possession. For the purpose of giving effect to this contention the learned Subordinate Judge directed an account to be taken of the rents and profits of the mortgaged properties up to the date of the decree. No objection was apparently taken in the Court below to the scaling down of the debt in this manner, and no question was raised as regards the applicability of Section 8 (2) to the facts of this case.
4. In the appeal, however, Mr. Sitarama Rao has contended before us that the provisions of Section 8 are rendered inapplicable to the present case by Section 10(2)(i) as the suit mortgage, so far as it relates to the period subsequent to 1915, is one where no rate of interest can be said to be stipulated as due to the mortgagee, and, secondly that even if Section 10(2)(i) does not cover the case, the income received by the mortgagees after 1915 in respect of which they are not accountable to the mortgagor under the terms of the mortgage, cannot be said to have been 'paid' to the creditor within the meaning of Section 8 (2), no payment having in fact been made by the 1st respondent.
5. As regards the first contention we are unable to agree that there is no rate of interest stipulated in the suit mortgage even as regards the period subsequent to 1915. As observed already the mortgage provides during this period not only that the mortgagee was to take the income of the mortgaged properties in lieu of interest but also that the mortgagor should pay in addition a sum of Rs. 250 every year till redemption. This sum cannot be regarded as anything but interest on the principal money, and the rate per cent. is ascertainable by a simple arithmetical calculation. The section does not require that the rate per cent. should be specified in the instrument of mortgage.
6. Turning to the second contention, direct authority in support of it is to be found in Jagannatha Aiyangar v. Senniveera Chettiar : AIR1941Mad487 . decided by one of us, but as the decision is not binding on this Bench, we have heard full arguments on the point, and we see no reason to depart from the view expressed therein. It was urged by Mr. Srinivasa Aiyar for the 1st respondent that the mortgagees having been placed in possession of the mortgaged properties and asked to appropriate during the period in question the rents and profits in lieu of interest on the mortgage money, such appropriation by them must be regarded as payment made on account of the mortgagor for the purposes of Section 8 (2) of the Act. It may be that a payment need not always involve the actual passing of money or money's worth from one hand to another, and may be made by settlement of account or adjustment of mutual claims between the parties. A constructive payment of that kind, however, involves an agreement between the parties which results in the satisfaction of some subsisting claim or demand. But where, as here during the later period, there can be no question of any claim or demand for interest by the mortgagee who is, under the bond, to take the income of the mortgaged properties in lieu of interest without any liability to account, it is difficult to see how the appropriation by the mortgagee in terms of the bond can be said to be a constructive payment by the mortgagor. No settlement of account or adjustment of claims is involved, and no constructive payment can, it seems to us, be imported, in such cases. The decision of this Court in Mylan v. Annavi Madan (1905) 16 M.L.J. 99 : I.L.R. 29 Mad. 234 relied on by Mr. Srinivasa Aiyar is distinguishable on the facts and can have no application here. The promissory note on which the suit was brought in that case provided for payment of interest in money, but the creditor was placed in possession of certain land under an agreement that he should take the produce as interest. A question of limitation having been raised it was held that there was a payment of interest as such, sufficient to satisfy the requirements of Section 20 of the Limitation Act. It will be seen that the arrangement between the parties created an agency coupled with an interest as regards the receipt of the produce, and its adjustment in satisfaction of the claim for interest under the promissory note was regarded as a constructive payment of such interest. When, however, a mortgagee holds possession of the mortgaged property under an agreement that he should take the receipts from such property in lieu of interest, there can be no question of agency or of settlement of claim for interest and no constructive payment by the mortgagor can be implied in such circumstances. We are therefore of opinion that the decision in Mylan v. Annavi Madan (1905) 16 M.L.J. 99 : I.L.R. 29 Mad. 234. does not assist the 1st respondent. On the other hand, the analogy afforded by Section 20 of the Limitation Act, so far as it goes, supports the contention of the appellant. Sub-section (2) of that section, which enacts that where mortgaged land is in the possession of the mortgagee, the receipt of the rent or produce of such land shall he deemed to be a payment for the purpose of Sub-section (1), implies that, but for such express enactment, such receipt cannot be regarded as a payment. Cf., Commissioner of Income-tax, Bombay Presidency v. Bombay Trust (Corporation, Ltd. (1929) 58 M.L.J. 197 : L.R. 57 IndAp 49 : I.L.R. 54 Bom. 216 (P.C.).
7. It was said that, in this view, the provisions of Section 10(2)(i) would become otiose and that, therefore, Section 8 (2) should be understood as affording relief to a mortgagor even where the mortgagee has received the rents and profits of the property mortgaged without any liability to account for any part of the same, provided the case does not strictly fall within Section 10(2)(i). We see no force in this argument. Section 10(2)(i) may well have been enacted merely to make the intention of the Legislature clear that the rent or produce received by a mortgagee in possession should not be regarded as interest paid by the mortgagor for the purpose of scaling down debts as provided in the Act. Our conclusion accords with and gives effect to this intention. On the other hand, it will, in our view, be illogical and anomalous to hold that, while the rent or produce received by a mortgagee in possession who has not stipulated for any rate of interest is protected, such protection is withdrawn where he is to take the rent and profits in lieu of interest and receive, as in this case, a fixed annual sum from the mortgagor as well. To both cases alike the provisions of Section 76 (h) of the Transfer of Property Act to which reference was made in the course of the argument are inapplicable. We are therefore of opinion that the rents and profits received by the mortgagees from 1915 onwards, when they were under no liability to account to the mortgagor for any part thereof, should not be taken into account as payments received from the 1st respondent in applying Section 8 (2) of the Act. Whether the rents and profits received by the mortgagees during the earlier period, i.e., from the date of the mortgage up to 1915 can, in view of the different terms of Ex. B applicable to that period, be regarded as 'paid' to the mortgagees within the meaning of Section 8 (2) it is unnecessary to decide, as the 1st respondent did not invoke the method of scaling down indicated in that provision if the receipts during the subsequent period were to be excluded from the computation.
8. Mr. Sitarama Rao also raised a subsidiary point regarding the priority allowed by the lower Court in respect of the claim of the 7th respondent who obtained a usufructuary mortgage of items 2-a and 2-b under Ex. XVIII in October, 1918, from the original mortgagee. The appellant purported to purchase item 1 from him in 1930. Mr. Sitarama Rao argued that Ex. B charged items 2-a and 2-b only with the payment of deficit interest and did not create a mortgage on these properties in respect of the principal money advanced, and that, therefore, the 7th respondent could not claim any priority in respect of the principal amount which the mortgagor has been directed to deposit as a condition of redemption. This argument proceeds on a misconstruction of Ex. B. Clause (2) of Ex. B provides that the annual income derived not only from item 1 but also from items 2-a and 2-b should be appropriated by the mortgagee towards the interest and Clause (6) provides that the mortgagee shall retain possession of items 2-a and 2-b also so long as the principal sum of Rs. 15,000 remains unpaid and shall deliver possession of them only on payment of that sum by the mortgagor. These provisions in Ex. B clearly show that the document created a usufructuary mortgage of items 2-a and 2-b in respect of the whole mortgage money and not merely a charge on these items for deficit interest. In this view the 7th respondent as sub-mortgagee is clearly entitled to be paid the amount due to him under his sub-mortgage in priority to the claim of the appellant who can only be regarded as a subsequent assignee of the mortgage right.
9. In the result, the appeal is allowed as against the 1st respondent, the decree of the lower Court will be set aside and a fresh decree will be made for redemption on payment by the 1st respondent within three months from this date the sum of Rs. 15,000 with interest at Rs. 250 per annum from 1st October, 1937, till the date fixed for payment and thereafter at six per cent. per annum. The respondents other than respondents 2 to 9 will pay the costs of the appellant here and in the Court below and bear their own. The appeal is dismissed with costs as against the 7th respondent.