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K.S. Sundaram Aiyar Vs. Ittichathara Valia Mannadiar, Karnavan and Manager of Vadasseri Tarwad and ors. - Court Judgment

LegalCrystal Citation
SubjectProperty
CourtChennai
Decided On
Reported inAIR1947Mad197; (1946)2MLJ322
AppellantK.S. Sundaram Aiyar
Respondentittichathara Valia Mannadiar, Karnavan and Manager of Vadasseri Tarwad and ors.
Cases ReferredRanganatha Pillai v. Paripurnam
Excerpt:
.....not advanced by the mortgagee are rights personal to him and a purchaser in court auction of the mortgaged property like the plaintiff in the present case, will not automatically become entitled to such rights of the mortgagor. it is quite clear that the learned judges did not purport to decide the case on any question of principle but were trying to work out the equities between the parties in the best manner possible. in any event, we are clearly of opinion that such rights of the mortgagor will not pass to a purchaser of the mortgaged property at a sale in execution of the decree obtained against the mortgagor. we consider that this contention is well-founded. 18. the learned advocate-general next argued that 'a contract to the contrary 'should be implied in the circumstances,..........discharged as alleged by the plaintiff. he also claimed that he had made large improvements to the mortgaged property to the extent of nearly 20,000 and claimed that amount to be paid to him before redemption was decreed. so far as the third defendant's claim to improvements was concerned, the plaintiff denied that the third defendant made any improvements and in any event denied liability to pay their cost.4. the learned subordinate judge found that the mortgage was supported by consideration except to the extent of rs. 500, that the third defendant was not liable to account to the plaintiff for rents and profits from the property and that the third defendant was entitled to make improvements as per the terms of the mortgage deed and to claim the value thereof before redemption. he.....
Judgment:

Rajamannar, J.

1. This appeal arises out of a suit filed by the appellant in the Court of the Subordinate Judge of Coimbatore for redemption of a usufructuary mortgage executed by defendants 1 and 2 in favour of the third defendant on 9th November, 1934 (Ex. D-1). The appellant is the purchaser of a portion of the mortgaged properties in execution of a decree against defendants 1 and 2.

2. The mortgage comprised properties both in Malabar and in Coimbatore. The consideration mentioned in the deed was Rs. 5,700 out of which Rs. 1,100 was received in cash by defendants 1 and 2. The balance was to be advanced by the mortgagee to discharge certain debts mentioned in the B schedule to the mortgage deed. The mortgagee was entitled to be in possession in lieu of interest, but liable to pay the Government cist and the cist due to the Perur Devastanam and to pay the mortgagors one para of paddy and Re. 1 annually. The mortgage amount was payable after four years from the date of the document. The other provisions of the deed will be referred to later on.

3. The case for the plaintiff was that though the consideration as mentioned in the deed was Rs. 5,700, the amount actually advanced was only Rs. 4,414-11-10. He further contended that on the taking of proper account, the consideration actually advanced by the third defendant would have been fully repaid. On this footing, the plaintiff also claimed mesne profits. The mortgagee was the contesting third defendant. He denied that there was any failure of consideration and that the mortgage debt was discharged as alleged by the plaintiff. He also claimed that he had made large improvements to the mortgaged property to the extent of nearly 20,000 and claimed that amount to be paid to him before redemption was decreed. So far as the third defendant's claim to improvements was concerned, the plaintiff denied that the third defendant made any improvements and in any event denied liability to pay their cost.

4. The learned Subordinate Judge found that the mortgage was supported by consideration except to the extent of Rs. 500, that the third defendant was not liable to account to the plaintiff for rents and profits from the property and that the third defendant was entitled to make improvements as per the terms of the mortgage deed and to claim the value thereof before redemption. He assessed the value of the improvements at Rs. 9,399. In the result he passed a preliminary decree in favour of the plaintiff for redemption on deposit of Rs. 5,200 plus Rs. Rs. 9,399, within three months from the date of the decree. The appeal is filed by the plaintiff.

5. Mr. Govindarajachari for the appellant pressed three main grounds before us. They are:

(1) That the consideration was not fully paid; and

(2) That therefore the mortgagee was liable to account for the rents and profits of the land and that in the taking of accounts the mortgagee should be compelled to credit towards the principal a proportionate amount of the rents and profits in excess of the amount which he would be entitled to appropriate towards interest, in which case the mortgage debt would stand discharged; and

(3) The third defendant was not entitled either in law or in fact to any amount as cost of improvements alleged to have been effected by him.

The details of consideration as set out in the document Ex. D-1 are as follows:

6. A sum of Rs. 1,100 was received in cash and the balance of Rs. 4,600 was to be utilised by the mortgagee to discharge tarwad debts shown as items Nos. 1 to 4 in schedule B to the document. According to the plaintiff, the third defendant did not pay the entire amount specified in the schedule in respect of each of the items. His contention as regards item 1 has been accepted by the lower Court. He therefore attacks the findings of the lower Court only in respect of the other three items.

7. Item 2 of schedule B is an amount of Rs. 2,400 to be paid to Kumareswara Nidhi Bank towards principal and interest and cost as per the decree obtained by them on a promissory note executed by the first defendant. There is no dispute between the parties as to the amount actually paid by the third defendant and that is Rs. 1,950. What appears to have happened is that on payment of this sum, at the request of the third defendant, the balance due under the decree was written off and full satisfaction of the decree was entered up. It is contended for the appellant that the third defendant will be entitled to take into account only this sum of Rs. 1,950 and not the full amount of Rs. 2,400 mentioned in the document. The learned Advocate-General for the mortgagee respondent 3 however contends that as the decree mentioned in item 2 of the schedule was fully discharged, he was entitled to claim credit for the full amount. We consider that the appellant's contention is well-founded. Possibly if the consideration of the mortgage was a mere promise to discharge a particular debt, the mortgagee might succeed; but when according to the document the liability was in respect of amounts to be advanced by the third defendant for the discharge of a particular debt, the mortgagee will not be entitled to be repaid anything more than what he had actually paid to discharge the debt. The definition of a mortgage in Section 58 of the Transfer of Property Act is also against the respondent's contention.

A mortgage is the transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt, or the performance of engagement which may give rise to a pecuniary liability.

There can be no doubt that in the present case the mortgage was for securing the payment of money advanced or to be advanced. The mortgagee, can in no sense, be said to have advanced the full amount of Rs. 2,400. We disagree with the learned Subordinate Judge that the benefit of the remission by the bank should go to the third defendant and that the first defendant must be deemed to have received the full consideration of Rs. 2,400 in respect of the decree. We hold that the third defendant is entitled to only Rs. 1,950 in respect of item 2.

8. The third item is an amount of Rs. 500 due as cist to the Perur Devastanam for faslis 1342 and 1343 on item 4 of the properties in schedule A to the mortgage deed. The appellant contends that only a sum of Rs. 306-10-2 was paid to the Devasthanam and the third defendant therefore is not entitled to anything more. The third defendant's case was that in addition to the Rs. 306-10-2 paid by him for which he holds a receipt Ex. D-4, he paid into Court Rs. 260-8-0 to set aside a sale for arrears of revenue and that amount was taken away by the first defendant. The appellant mainly relies on the evidence of P.W. 3, the manager of the Perur Devastanam who produced the accounts for faslis 1348, 1350, and 1352 wherefrom it appears that the arrears of cist for fasli 1343 had not been paid. The lower Court was not disposed to attach much value to the accounts produced and to the evidence of P.W. 3. We see no reason to differ from the conclusion of the learned Subordinate Judge and find that this item of consideration has been fully paid.

9. The fourth item is a sum of Rs. 560 to be paid to the Janopakara Nidhi Bank, Coimbatore, to discharge the principal and interest due under a promissory note executed by the first defendant. The plaintiff admits that a sum of Rs. 500 was paid to the bank because the third defendant produced Ex. D-3, a receipt by the Nidhi for that amount. The case for the third defendant was that besides this amount he paid a further Rs. 100 into Court on behalf of the first defendant. The lower Court accepted the case of the third defendant and we see no reason to differ from it.

10. We may now, for the sake of convenience, dispose of the memorandum of objections filed by the third defendant in respect of the amount of Rs. 500 disallowed by the lower Court. This relates to item 1, an amount of Rs. 1,140 to be paid as per decree in O.S. No. 94 of 1933 in the District Munsiff's Court of Palghat obtained against defendants 1 and 2 by one S.R. Subramania Aiyar. On a consideration of the evidence adduced on both the sides, the lower Court found that the third defendant had paid only Rs. 640 towards this decree and the rest of the amount was paid by the first defendant himself and not by the third defendant. We find no reason to differ from this finding of the lower Court.

11. The result is that the mortgage must be held to be not supported by consideration to the extent of Rs. 500 plus Rs. 450.

12. On the finding that the mortgage is supported by consideration only to the extent of Rs, 4750, the question that now falls to be considered is whether the third defendant is bound to appropriate any portion of the rents and profits towards the principal amount due. The contention of the appellant is that the third defendant not having advanced the full amount of consideration, will not be entitled to appropriate the entire amount of the rents and profits towards interest, but only a proportionate amount, that is an amount in the ratio of Rs. 4750 : 5,700. The balance left after such partial appropriation would be really amount belonging to the mortgagor and this amount has to be applied in discharge of the principal amount. In support of this contention, he relied on the principle enunciated in Section 76(h) of the Transfer of Property Act and on certain decided cases. Section 76(h) of the Transfer of Property Act is in these terms:

his (mortgagee's) receipts from the mortgaged property, shall, after deducting the expenses properly incurred for the management of the property and the collection of rents and profits and the other expenses mentioned in Clauses (c) and (d), and interest thereon, be debited against him in reduction of the amount (if any), from time to time due to him on account of interest and so far as such receipts exceed any interest due, in reducticn or discharge of the mortgage money; the surplus, if any, shall be paid to the mortgagor.

Mr. Govindarajachari argues that the interest lawfully due to the mortgagee in this case must be ascertained by a proportionate reduction from the total amount of rents and profits,--a reduction proportionate to the amount not advanced by the mortgagee. The balance then would be receipts, which exceeded the interest due and would therefore have to be applied in reduction and discharge of the mortgage money. We consider that the principle of Section 76(h) has no application to a case like the present. It is not possible to say that any particular amount is due as interest under the document because no rate of interest is specified. The mortgagee has to pay the cist due on the lands and should deliver one para of paddy and pay Re. 1 to the mortgagors and appropriate the rrst of the receipts towards interest. How the rents and profits should be appropriated depends upon the terms of the mortgage deed and in a case like this ' the mortgagee takes his chance of the rents and profits being greater or less than the interest which might have been reserved by the bond.' (See Partab Bahadur Singh v. Gajadhar Baksh Singh (1902) L.R. 29IndAp 148 : I.L.R. 24 All.521 In our opinion the case is more governed by Section 77 of the Transfer of Property Act which runs as follows :

Nothing in Section 76, Clauses (b), (d), (g) and (h) applies to cases where 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 portions of the principal.

There is no account to be taken between the mortgagor and the mortgagee when the rents and profits are taken in lieu of interest and that is the present case. In such a case, it is obvious that if in a particular year the mortgagee does not realise the full value of the usufruct, it is the mortgagee and not the mortgagor who suffers. Further when no rate of interest is provided it is very difficult, even in practice, to work out the principle for which the appellant contends. Is it the receipts of each year to be taken into account and a proportionate deduction worked out or has a notional assessment of the rent to be made for that purpose In cases where a rate is specified, it is easy to ascertain the exact amount due for interest and to deduct such amount from the total receipts to arrive at a surplus. This obviously cannot be done where no rate is specified.

13. On principle also, we find it difficult to support the contention of the appellant. When a mortgagee fails to advance the full amount of consideration mentioned in the mortgage deed, the rights of the mortgagor are fairly well established. The mortgagor cannot sue to enforce the agreement to lend money. See Sheikh Galim v. Sadarjan Bibi I.L.R.(1915)Cal. 59 and Tadavendra Bhattu v. Srinivasa Babhu : AIR1925Mad62 . He can obtain compensation or damages in a properly framed suit against the mortgagee for breach of the contract. See Abdul Hashim Sahib v. Kadir Batcha Sahib : (1918)35MLJ740 . In the case of a usufructuary mortgage, if the mortgagor has not received full consideration, he cannot, if he has parted with possession, claim a return of the proportionate extent of land and mesne profits for such proportion. See Wahid Ali v. Biptu Chamar A.I.R. 1935 Pat. 125. The mortgage being indivisible, such a course is not open to him and the entire property would stand as security for the amount actually advanced.

14. In any view of the question we are clearly of opinion that the rights of a mortgagor in a case where the entire consideration of the mortgage is not advanced by the mortgagee are rights personal to him and a purchaser in Court auction of the mortgaged property like the plaintiff in the present case, will not automatically become entitled to such rights of the mortgagor. It is even doubtful if the right of the mortgagor which may sound in damages could be transferred or assigned validly. See yadevendra Bhattu v. Srinivasa Babhu : AIR1925Mad62 . No case has been cited before us in which a purchaser has been held to be entitled to such rights.

15. There is nothing in the case relied on by the appellant's learned Counsel to directly support this contention. In Rajai Tirumal Rqju v. Pandla Muthial Naidu : (1911)21MLJ169 what was actually decided was that where only a part of the consideration for the mortgage was paid but the mortgagee remained in possession of the entire property for more than 12 years, he could not by merely claiming to hold for the full amount, acquire by prescription a right to hold as mortgagee for such full amount. There is only one observation in the course of the judgment which is relied on by the appellant's learned Counsel who admits that it was in no way necessary for the decision of that case. The learned Judges say at page 119:

If the consideration for the mortgage became void to the extent of Rs. 17,000, a proportionate amount of the annual interest would not be payable out of the income fixed, but under Section 76 of the Transfer of Property Act, Clause 6, the sum was liable to be debited against the mortgagee in reduction of the principal sum due under the mortgage.

The very next sentence shows that this is only a passing observation, because they say :

But whether this is so or not, the question'as to what becomes of the available surplus does not affect the relation of the mortgagee.

In Muhammad Allahyar Khan v. Muhammad Samiuddin Khan (1886) 7 A.W.N. 365 the point that was decided was that in a suit for redemption of a mortgage instituted by a purchaser of the property where the plaintiffs disputed the amount of money advanced by the mortgagee to the original mortgagor, the burden of proving the non-receipt of such of the items the receipt of which was admitted in the mortgage deed by the mortgagor was on the plaintiffs; but the receipt of such items which had not been paid at the time of the execution should be proved by the defendants. Dealing with the question how an account should be ordered, the learned Judges decided that the provisions of Section 76 of the Transfer of Property Act should be applied and finally directed that profits yearly in excess of the interest from time to time due on the mortgage should go in reduction of the principal due for the time being on that bond. But the important fact to be noticed is that there were two mortgage deeds concerned in that case and under each mortgage there was a definite rate of interest provided (see page 266). As we have pointed out, there could be no difficulty in such a case and the mortgagee would be bound to account for the excess over the interest due to him. The decision in Brahamdeo Narain v.Jaikishun A.I.R. 1941 Pat. 452 cannot obviously have any application because in that case no consideration for the mortgage had teen paid, and therefore no interest was payable. The mortgagee was therefore liable to account for the entire income from the property during the time he was in possession. The only other case relied on was that reported in Ranganatha Pillai v. Paripurnam (1912) 16 I.C. 217. In that case the mortgagor alleged that the debt due on a usufructuary mortgage had been repaid out of the usufruct. The learned Judges thought it desirable that an account should be taken to find if that was true and if on accounts being taken it be found that the whole of the debt had not been paid, a decree should be passed for payment of whatever might be found due to the mortgagee. It was further alleged by the plaintiff-mortgagor therein that the amount due under the mortgage was Rs. 400, and subsequently, two years later, an amount of Rs. 300 was paid to the mortgagee. Dealing with this question on the footing that two years subsequent to the mortgage a sum of Rs. 300 was paid, the learned Judges say:

If a portion of this sum is appropriated towards the principal amount of the debt, then the position is that out of the total amount of Rs. 200 the plaintiff paid and the first defendant received a certain amount. It is not equitable that in those circumstances the first defendant should be entitled to appropriate the whole of the income towards the interest due on the balance of the principal due. Ex. II (the mortgage) does not fix the rate of interest to be paid for the amount of the usufructuary mortgage. The proper course, therefore, would be to appropriate a portion of the rent proportionate to the balance of principal remaining unpaid towards the interest and to hold the first defendant accountable for the balance.

It is quite clear that the learned Judges did not purport to decide the case on any question of principle but were trying to work out the equities between the parties in the best manner possible. The plaintiff in that case was the original mortgagor himself. What the learned Judges actually decided was not that the remaining amount after giving credit to a proportionate amount towards interest should go in discharge of the principal as if that was the only legal consequence. On the other hand what they say is that it is equitable that the mortgagee should account for the surplus. No authority, statutory or of decided cases, is cited and there is no discussion of the point now in issue in the present appeal.

16. We, however, do not think it necessary to finally decide the right of a mortgagor himself in such a case. It may be that the equitable principle applied in Ranganatha Pillai v. Paripurnam 3 may have to be applied and it may be possible to support the claim of the mortgagor as a claim by way of compensation or damages, or it might be that the mortgagee, in such cases, stands in the position of a trustee in respect of the surplus. In any event, we are clearly of opinion that such rights of the mortgagor will not pass to a purchaser of the mortgaged property at a sale in execution of the decree obtained against the mortgagor. The plaintiff is such a purchaser and therefore will not be entitled to demand an account from the mortgagee of the rents and profits of the land.

17. Mr. Govindarajachari's next contention is that the third defendant is not entitled to claim the cost of the alleged improvements to be paid to him before redemption is decreed to the plaintiff. We consider that this contention is well-founded. The statutory provisions with regard to improvements to mortgaged property are contained in Section 63-A (1) of the Transfer of Property Act, which runs as follows :

Where mortgaged property in possession of the mortgagee has, during the continuance of mortgage, been improved, the mortgagor, upon redemption, shall, in the absence of a contract to the contrary, be entitled to the improvement; and the mortgagor shall not, save only in cases provided for in Sub-section (a), be liable to pay the cost thereof.

Prima facie, the mortgagor will be entitled to the improvements made by the mortgagee unless there is a contract to the contrary which presumably means a contract that the improvements shall belong to the mortgagee. The mortgagor will not be liable to pay the costs of the improvements except in cases provided for in Sub-section (2). It has not been suggested before us that the improvements effected to the property in this case fall within Sub-section (2) of Section 63-A. The only question therefore is whether there is a contract to the contrary which entitles the mortgagee to be reimbursed in the expenses incurred by him in making the improvements. No doubt Section 63-A (1) does not speak of a contract to the contrary under which the mortgagor can be compelled to pay the mortgagee the costs of the improvements. But if there is a contract under which the mortgagor will not be entitled to the improvements, it may be reasonably inferred that if the improvements are such that they cannot be severed from the land and taken away by the mortgagee, the mortgagor must be held liable to pay the costs of such improvements, as he will have the benefit of them. The learned Advocate-General sought to rely on the terms of the mortgage deed, Ex. D-1, to support his contention that there is a contract to the contrary within the meaning of Section 63-A (1). The material portion of the mortgage deed for this question is in paragraph 4. It is translated as follows by Court:

It is also settled that you should take care of the Kuzlikkoors (fruit trees) and chamayams (constructions) now existing in the properties without allowing them to be destroyed, that you should keep the water channel running from the Walayar river through the properties always in a state of repair, and that only the surplus water, after utilising as much as is necessary for the nilams (rice fields) now existing in the properties, and such, if any, as may be made therein in future, shall be given to the neighbouring cultivators.

The learned Advocate-General suggested that the words 'Kuzlikkoors' and 'chamayams,' mean improvements including reclamation, relying upon the evidence of D. W. 1. Even assuming that this is the correct translation of those words, it is impossible to read into the paragraph any contract that the improvements that may be made by the mortgagee should be paid for by the mortgagor at the time of redemption. On the other hand, we read that paragraph only as providing that the mortgagee should preserve the trees and the constructions then in existence on the properties and that the mortgagee should keep the water channel already existing in a state of repair. It is more a sort of provision against waste by the mortgagee. It is impossible to read into it, firstly, that the mortgagee was permitted to effect large improvements by way of digging channels and converting dry fields into wet and reclaiming uncultivable land; and secondly, that the mortgagor should be liable to pay the cost of such improvements.

18. The learned Advocate-General next argued that ' a contract to the contrary ' should be implied in the circumstances, namely that the mortgage comprised properties situated both in Coimbatore and in Malabar and that a usufructuary mortgage like the present in Malabar would carry with it, as a customary incident (now also statutory), the mortgagee's right to effect and claim the cost of improvements. He was however unable to cite any authority in support of his contention. The deed is no doubt in Malayalam, presumably because the mortgagors were Malayalees. But no inference can be drawn from the language in which a deed is written. The deed is called a ' Kaivasampanayadharam,' which we take it only means ' a deed of possessory mortgage.' It is very unsafe to infer any implied terms by reason of the fact that the properties are situated in two areas governed by different rules of law. It might well be argued that the parties intended that the law obtaining in Coimbatore should also be applied to the properties in Malabar in the same way as it is now contended for the mortgagee that the law governing tenures in Malabar should be applied to property in Coimbatore.

19. Mr. Govindarajachari attacks the finding of the learned Subordinate Judge on the factum of the execution of the improvements and the finding as to their value. It may be mentioned that the third defendant produced certain account books in proof of the expenses which he incurred for the improvements but the/earned Subordinate Judge was not prepared to believe them. We have only got the oral evidence on behalf of the third defendant in support of his claim. We think that in a case where a mortgagee seeks to make the mortgagor liable for a large amount as cost of improvements, it is the duty of the mortgagee to establish by indubitable evidence the fact of the execution of such improvements and the actual expenses incurred by him for effecting them. The third defendant has failed to do that in this case. So far as the claim for reclamation is concerned, it is not clear exactly what lands were reclaimed after the execution of the mortgage and at what cost. If it were necessary to find, we have no hesitation in finding that the third defendant has not established what improvements were effected by him and the expenses which he incurred for effecting them. We therefore hold that the third defendant is not entitled to any amount on this account.

20. In the result there will be a preliminary decree in favour of the plaintiff for redemption of the suit properties on deposit by him into Court of Rs. 4,750. Time' for payment three months from the date of this decree.

21. The appeal is allowed to this extent. The parties (appellant and third respondent) will pay and receive proportionate costs.

22. The memorandum of objections is dismissed with costs.


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