1. A stakeholder of a kurivari entered into an agreement with the subscribers and created a charge over certain of his properties for the benefit of the subscribers, presumably to afford them some security for such of their moneys as might be in his hands. He later mortgaged the same property to the third defendant, whose rights subsequently devolved on the eleventh defendant, who is the appellant here.
2. The contesting respondents in this appeal are two subscribers, one of whom is the plaintiff, who sued for the return of the money subscribed by him. Some difficulty has been created in this case because of a mistake made by the registration department in recording this mortgage in Book No. IV instead of in Book No. I. Two points have been argued by the learned Counsel for the appellant. The first is that on account of this mistake of the registration department it would have been impossible for him to have obtained any information, had he so applied, of this charge and that it is not therefore binding on him. The second point argued was that it is shown in the plaint itself that the old contract, including the arrangement for the creating of a charge on the land, came to an end and was replaced by another agreement entered into between the stakeholders and the subscribers whereby the subscriptions were terminated and an arrangement made for the return of the moneys due to the various subscribers.
3. There can be no doubt in view of the many decisions referred to in the judgment of the lower appellate Court and the cases quoted before this Court that the fact that the registration department makes a mistake in entering a charge or a mortgage in the wrong book does not invalidate the mortgage. The question, however, is whether a third party, such as the appellant, would be entitled to plead that he was not bound by it because of the mistake made. In Sateendranath Chowdhuri v. Jateendranath Chowdhuri (1935) 69 M.L.J. 503 : L.R, 62 IndAp 265 : I.L.R. 63 Cal. 1 (P.C.) their Lordships of the Privy Council had to consider the question whether despite the mistake made by the registration department the mortgage was nevertheless valid; and they held that the mistake of the registration department was a mere defect in procedure covered by Section 87 of the Registration Act and that therefore the act of registration done in good faith by the registering officer would not render the registration invalid, The learned advocate for the appellant relies on an old case of this Court, Narasamma v. Subbarayudu I.L.R. (1895) Mad. 364 in which the rights of a third party were considered; and it was held that he could not be prejudiced by the negligence of the alienee in not getting the mistake made by the registration department rectified. There is nothing in the judgment, however, to indicate whether the third party in that case applied for an encumbrance certificate or not. This decision was interpreted in a much later case of this Court, Subbalakshmi Ammal v. Narasimiah (1927) 52 M.LJ. 483. The learned Judges there held that the mistake made by the registration department was a mere defect in procedure which did not invalidate the mortgage. They then proceeded to consider whether the decision in Narasamma v. Subbarayudu I.L.R. (1895) Mad. 364 had any bearing on the case under consideration. They held that it did not and said:
The subsequent observations in the judgment also show that one of the main considerations which influenced them (the learned Judges in Narasamma v. Subbarayudu (1927) 52 M.LJ. 483 in arriving at their conclusion was the fact that in that case the property had passed to a third party for consideration and that he should not be made to suffer because the parties to the document did not take sufficient care to get the document entered in the proper book in the registration office.
It was similarly pointed out in the Privy Council decision above referred that it was a transaction which was binding provided it did not injure innocent persons. Can it be said in the present case that the third defendant was injured or suffered by the negligence of the subscribers in not getting rectified the mistake made by the registering officer Under Section 3 of the Transfer of Property Act,
a person is said to have ' notice' of a fact when he actually knows that fact, or when, but for wilful abstention from an enquiry or search which he ought to have made, or gross negligence, he would have known it.
4. Assuming that the third defendant had no actual knowledge of the agreement and of the charge on the property, he admittedly abstained from making any enquiry or search. The documents in the third defendant's favour contained a recital of the mortgagor that these properties were not encumbered; but the third defendant should clearly not have contented himself with the mere asseveration by the stakeholder that there was no encumbrance on the property. He should have made further enquiries; but did not do so. Therefore he must be deemed to have had notice of this alienation. He could not be said to be injured by this negligence of the subscribers when he made no enquiry of any kind. If he had applied for an encumbrance certificate and had been told that there was none and had taken action on that representation by the Registrar, then he would undoubtedly have been injured by the negligence of the subscribers; but he could not be injured if the action taken by him did not arise out of the negligence of the subscribers. I entirely agree with the lower Court in holding that this charge is binding on the appellant.
5. According to the plaint, after thirteen instalments had been paid and only ' three instalments remained to be paid, the stakeholder being dead, his son entered into an agreement with the subscribers whereby they decided that there was no need to auction the last three instalments, and that after certain deductions were made, the sum in hand should be divided amongst the subscribers each according to his share on the instalment dates. It is argued that the old agreement was thereby abandoned and replaced by this new agreement. It does seem as if this was a variation to the original agreement entered into; but even if it was, there is no reason to believe that the subscribers intended to abandon the charge that had been created in their favour to secure money that they had paid. It was in order to protect them against such a contingency as this that the charge was created. Even if the parties entered into a new agreement regarding the remaining instalments, they almost certainly intended that the agreement with regard to the charge on the property should be carried forward and become a part of the new agreement. It is argued by Mr. Ramakrishna Aiyar that the plaint does not say so. It is true that it does not do so in so many words; but there can be no doubt, upon reading the plaint as a whole, that the plaintiffs did claim that they were entitled under the new agreement to a charge that had been created by the original agreement. I am therefore not prepared to say that the security which the subscribers had insisted upon creating for their own protection was abandoned in the new agreement.
6. On both the grounds the appeal fails and is dismissed with costs, one set.