Arthur J.H. Collins, Kt., C.J.
1. The question referred to the Full Bench is whether, when it is proved that a subsequent encumbrancer under a registered conveyance had notice of a valid prior unregistered encumbrance and of possession by such encumbrancer, or of such conveyance without possession, the Courts are bound to interpret Section 50 of the present Registration Act so as to defeat the title of the prior encumbrancer.
2. The first attempt to compel the registration of deeds, etc., in Madras was by Regulation XVII of 1802, a regulation for establishing a registry for wills and deeds for the transfer or mortgage of real property, and it was enacted by Section 6, Clause 3, that ' it being the object, however, of the rules in the two preceding clauses, to prevent persons being defrauded by purchasing, or receiving in gift, or taking in mortgage, real property which may have been before sold, given, or mortgaged, subsequent to the period fixed for the operation of this regulation; and as persons can never suffer such imposition when they are apprized of the previous transfer or mortgage of the property; it is to be understood, that if any person shall purchase, receive in gift., or take in mortgage, any real property, knowing such property to have been previously sold, given, or mortgaged, to any other person subsequent to the above period; and that the deed of sale, gift, or mortgage, has not been registered; and shall register his own deed, in such case the deed of sale, gift, or mortgage of such subsequent purchaser, donee, or mortgagee, which may have been registered, shall not, from the registry of it, invalidate, or be discharged, in preference to the unregistered deed of sale, gift, or mortgage, first executed, provided the authenticity of the latter be established to the satisfaction of the Court.
3. Act I of 1843 repeals all provisions in any regulation touching knowledge or notice of unregistered conveyances, and enacts that unregistered titles shall be void as against any person claiming under a subsequent registered title, notwithstanding notice of a prior unregistered title.
4. Act XIX of 1843 repeals Act I of 1843 except so far as it repeals provisions touching knowledge or notice of the existence of unregistered instruments, and enacts that deeds of sale or gift of real property, if registered, shall invalidate other deeds of sale or gift which have not been registered, and registered deeds of mortgage, and certificates of discharge of encumbrances shall be satisfied in preference to any other, and that no conveyance, etc., affecting title to land other than such deed or certificate as aforesaid shall be void for want of registration.
5. Act XVI of 1864 repeals Regulation XVII of 1802 and Acts I and XIX of 1843 and enacts by Section 68 that registered instruments described in Clauses 1 and 2 of Section 16 of the Act shall have priority over unregistered instrument Section
6. Act XX of 1866, a Consolidation Act, recites the expediency of consolidating the law relating to the registration of assurances, and by Section 50 enacts that instruments of the kind mentioned in Clauses 1, 2 and 3 of Section 18 shall, if registered, take effect against every unregistered instrument relating to the same property.
7. Act VIII of 1871 repeals Act XX of 1866 and is repealed by Act III of 1877, the Registration Act now in force, but Section 50 of Act VIII of 1871 is re-enacted, and is as follows: ' Every document of the kinds mentioned in clauses (1) and (2) of Section 18 shall, if duly registered, take effect as regards the property comprised therein, against every unregistered document relating to the same property, and not being a decree or order, whether such unregistered document be of the same nature as the registered document or not.'
8. The first reported case under Act III of 1877, Nallappa v. Ibram I.L.R. 5 Mad. 73 was decided in 1881 by turner, C.J., and innes, J., who held that ' Section 50 affects alike documents which it is optional, as well as those which it is compulsory, to register, and its effect is not modified by the fact that the subsequent registered purchaser buys with full notice of a prior unregistered encumbrance,' that transactions evidenced by documents of either description are rendered of no effect by the subsequent execution and registration of a document relating to the same property, that Act XIX of 1843 'did away' with the doctrine of notice which has never since been expressly revived. There is nothing about notice to be found in the Acts of 1864, 1866, 1871 and 1873. ' Have we any right,' say the learned Judges, ' to import this doctrine? Were we to do so, notice would, it cannot be doubted, be set up in every case and the Act would be rendered to a great extent inoperative. The plain words of the Act are--' shall, if duly registered, take effect as regards the property comprised therein against every unregistered document relating to the same property.' The words are used without any qualification, and we think we should not be giving effect to the Act if we treated the circumstance of defendants, having notice of plaintiffs' unregistered instrument as one which bars the operation of Section 50 of the Registration Act.'
9. This decision appears to have been accepted by the Judges of the High Court of Madras as decisive, for, in Kondayya v. Guruvappa I.L.R. 5 Mad. 139. innes and Muttusami Ayyar, JJ., treated it as conclusive and held that although the plaintiff had entered into possession of land under an unregistered agreement executed by S, and N. in 1872 and remained in possession from 1872 to 1880, but was ousted in 1880 by one who claimed the land under a subsequent registered sale-deed from SECTION and N. yet the plaintiff could not recover the land from the subsequent purchaser.
10. In Narasimuluv. Somanna I.L.R. 8 Mad. 167, Turner, C.J., and Muttusami Ayyar, J., held that fraud in the subsequent registered purchaser would defeat his claim, They also held that, although where the prior instrument is optionally registrable, mere notice may not deprive a person claiming under an instrument subsequently executed and registered, of the priority given him by the Act, inasmuch as the prior instrument was effectual to create a title, they were at liberty to hold that a participation in fraud by the person claiming under the subsequent instrument will deprive him of the benefit of the provision which was aimed at the prevention of fraud.
11. The fraud alleged, as appears from the report, was that the vendor of the land having first sold it to the respondent in the appeal afterwards sold it to the appellant, the appellant being aware of the prior sale to the respondent. ' They thus,' says the report, ' colluded.' It is not clear what difference this can make if the words used in Section 50 ' are without any qualification,' as was said in Nallappa v. Ibram I.L.R. 5 Mad. 73. In every case in which a vendor sells to a person property which both he and the subsequent purchaser know that he has sold previously, I should say that the vendor and second purchaser ' colluded ' to deprive the prior purchaser of his property.
12. With the greatest respect to Sir charles TURNER and Mr. Justice INNES it appears to me that they have placed a wrong construction on Act XIX of 1843. It is therein enacted that unregistered titles shall be void as against any person claiming under a subsequent registered title 'any alleged notice or knowledge of such prior conveyance or instrument notwithstanding.' Act XVI of 1864 repealed Act XIX of 1843; but the Judges in Nallappa v. Ibram I.L.R. 5 Mad. 73 appear to have thought that, as the Act XIX of 1843 ' did away ' with the doctrine of notice, it would be required, to be operative, to be expressly revived. The words 'did away' are somewhat ambiguou Section The learned Judges must have seen the difficulty that existed if the doctrine of notice was held to apply and, taking the view of Section 50 that they did, they were constrained to hold that the doctrine of notice was abolished by Act XIX of 1843 and not having been expressly revived bad, therefore, no operation. It is difficult to imagine that if a statute enacts that, under certain circumstances, 'notice' shall not be a defence the equitable doctrine of notice is for ever after extinguished, even after the statute itself is repealed; yet apparently that was the opinion of the learned Judges, and the second reason the same learned Judges give, namely, that, if notice was admitted to be a good defence, the Act would to a great extent be inoperative as that defence would be set up in every case, does not commend itself to me as any reason at all for refusing to recognize the doctrine of notice. It does not seem to have attracted the attention of the learned Judges who decided Nallappa v. Ibram I.L.R. 5 Mad. 73 that, if the legislature desired that the doctrine of notice should not be a defence in cases under Section 50 of Act III of 1877, it would have been easy to incorporate in that section the words relating to notice in Act XIX of 1843.
13. I have dealt at some length with Nallappa v. Ibram I.L.R. 5 Mad. 73 and Narasimulu v. Somanna I.L.R. 8 Mad. 167, as those cases are the leading ones on this subject, and have been considered to have declared the effect of Section 50 of Act III of 1877 on the rights of subsequent purchasers who have notice of prior unregistered instruments in this presidency. The High Court of Calcutta differs from Madras on this subject. In Nani Bibee v. Hafizullah I.L.R. 10 Cal. 1073 decided in 1884 Garth, C.J., says, ' that, where a registered purchaser had notice that his vendor had previously conveyed away the property to some third person by an unregistered conveyance, it was contrary to equity and good conscience that his title though under a registered deed) should be allowed to prevail.'
14. The High Court of Bombay also differs from Madras in the construction of Section 50 of the Registration Act of 1877. It was held in Shivram v. Genu I.L.R. 6 Bom. 515, under Act XX of 1866, Section 50, that a subsequent registered purchaser or mortgagee cannot avail himself of the registration of his deed against a prior unregistered purchase of which he had notice, and in Dundaya v. Chenbasapa I.L.R. 9 Bom. 427, Sargent, C.J., and Melvill, J., held that, although Shivram v. Genu I.L.R. 6 Bom. 515 was decided under Act XX of 1866, as the language employed in Section 50 of the Acts of 1871 and 1877 by which preference is given to registered documents is the same as that used in Section 50 of Act XX of 1866, the principle of those decisions is equally applicable and that 'if the defendant was in possession when the mortgage-deed was executed to plaintiff or plaintiff had otherwise notice of defendant's purchase, then the plaintiff could derive no advantage from the registration of his mortgage.'
15. The Allahabad High Court agrees with the decisions of the Calcutta and Bombay High Courts on this point, see Bam Autar v. Dhanauri I.L.R. 8 All. 540 and thus the rulings of the High Courts of the other three presidencies are in conflict with the Madras decision Section The English cases are dealt with very fully in the notes on Le Neve v. Le Neve II White & Tudor, p. 35. The judgment of Lord Cairns in the case of the Agra Bank (Limited) v. Barry L.E. 7 E. & Ir. App. 135 quoted in this reference is a decision of the House of Lords to the effect that notwithstanding the apparent stringency of the words contained in the Act, still if a person registers a deed and if at the time he registers it he has notice of an earlier deed, which though executed is not registered, the registration which he actually effected will not give him priority over the earlier deed. In Blades v. Blades, 1 Eq. C. Ab. pi. 12, (decided so long ago as 1727 by Lord Chancellor King), it was held that a person having notice of a prior purchase (though it was not registered) was bound thereby, and that getting his own purchase first registered was a fraud and that the transaction was collusive. It must be borne in mind that I am only considering the cases in which the registration of the instruments is optional, and the case referred and the cases decided by the several High Courts and already cited, relate only to cases in which the value is under R Section 100.
16. I will now consider the several Registration Acts passed in this country and give my reasons for differing from Nallappa v. Ibram I.L.R. 5 Mad. 73 and thus overruling a series of decisions of this High Court since 1881.
17. The first Madras Registration Act was the Regulation of 1802, and the reason for passing such a regulation is declared to be to prevent persons being defrauded by purchasing real property which may have been before sold, and I assume that the intention of the other Registration Acts was also to secure subsequent purchasers against prior secret conveyances and fraudulent encumbrance Section It is clear that from the passing of Act I of 1843 until it was repealed by Act XVI of 1864, notice of a prior sale unregistered would not affect a subsequent purchaser who had registered his instrument of title, but when that Act I of 1843 was repealed the doctrine of notice affected all subsequent transaction Section By Section 17 of Act III of 1877 it is enacted that any document conveying any right, title or interest of the value of R Section 100 in immoveable property shall be registered, and by Section 18 any document of the same nature as above of a value of less than R Section 100 may be registered. By Section 49 no document required by Section 17 to be registered shall be received as evidence of any transaction affecting such property if unregistered, but the section is silent as to instruments under Section 18. Section 50 has been already quoted.
18. The effect therefore of Sections 17, 18, 49 and 50 is that if a man purchases immoveable property of the value of R Section 100 and does not register his sale-deed, that document shall not be received as evidence of the transaction. If the property purchased is of a less value than R Section 100, the purchaser may register or not as he thinks fit, but if the former owner sells the same property subsequently to another who registers his sale-deed, the registered sale-deed shall have priority over the unregistered, subject, however, to any equitable rights the prior purchaser ha Section It is impossible to believe that the Legislature intended that the doctrine of notice should not apply to the provisions of an Act which is silent on the point.
19. It appears to mo that the case of Nallappa v. Ibram I.L.R. 5 Mad. 73 cannot be supported. First, the Judges were wrong when they held that all transactions evidenced by documents, the registration of which is optional, are rendered of no effect by the subsequent execution and registration of a document relating to the same property; and, secondly, in holding that the doctrine of notice was done away with and required to be expressly revived, and that the fact that the subsequent registered purchaser bought with full notice of a prior unregistered encumbrance did not modify Section 50 of Act III of 1877. I am of opinion that if the subsequent purchaser had notice of a prior sale, and agreed with the former owner to buy that which he knows to have been already sold, that this is a fraud and dolus malus itself. I agree with so much of the decision in Narasimulu v. Somanna I.L.R. 8 Mad. 167 as says that fraud may be successfully pleaded against the holder of a subsequent registered instrument by the holder of a prior unregistered instrument, but I go further and hold that if a subsequent purchaser buys after notice of a prior valid sale even if possession has not been taken by the prior purchaser, such subsequent purchase is evidence of fraud and collusion between the former owner and the subsequent purchaser to cheat the prior purchaser, and that the subsequent purchaser's title should not be allowed to prevail. With reference to these observations I would answer the question referred in the negative.
Muttusami Ayyar, J.
20. The question referred for the decision of the Full Bench is whether, when it is proved that a subsequent encumbrancer under a registered conveyance had notice of a valid prior unregistered conveyance and of possession by such encumbrancer, or of such conveyance without possession, the Courts are bound to interpret Section 50 of the Registration Act strictly so as to defeat the title of the prior encumbrancer. The facts of the case in which the question arises are stated in the order of reference, and I do not think it is necessary to recapitulate them.
21. The leading case on the question in this Presidency is that of Nallappa v. Ibram I.L.R. 5 Mad. 73 in which it was held that the effect of registration was independent of notice. In all the subsequent decisions, it was either expressly acknowledged or tacitly assumed that such was the general rule. see Kondayya v. Guruvappa I.L.R. 5 Mad. 139, Madar v. Subbarayalu I.L.R. 6 Mad. 88, Muthanna v. Alibeg I.L.R. 6 Mad. 174, Ramaraja V. Arunachala I.L.R. 7 Mad. 248, Narasimulu v. Somanna I.L.R. 8 Mad. 167, Kadar v. Ismail I.L.R. 9 Mad. 119, Ramachandra v, Krishna I.L.R. 9 Mad. 495. Three exceptions were, however, recognized by them, viz., (i) that fraud as contradistinguished from mere notice defeats the claim to priority under Section 50, (ii) that notice is material in a suit for specific performance under Section 27 of the Specific Relief Act, and (iii) that when the registered purchase or mortgage is made or taken subject to the prior unregistered mortgage which is optionally registrable, no question of priority arises and there is no real competition between the two transaction Section
22. The question as to the effect of notice upon the claim to priority as based on registration is one of construction. It was never doubted in this Presidency that the competition contemplated by Section 50 is between two valid transactions evidenced by the documents mentioned therein and not between transactions either of which is invalid either for fraud, coercion, illegality or other good and sufficient cause. The principle that mere registration cannot operate to validate a transaction which is not legally enforcible has been invariably recognized.
23. Another proposition of law mentioned in the leading case is that though the transaction evidenced by the prior unregistered document is valid in itself, yet the title or interest created by it is liable to be defeated under the rule of priority by a valid later sale or mortgage evidenced by a duly registered document, The reason is that, otherwise, no effect can be given to the rule which implies that a later registered title is intended to prevail against an earlier unregistered title. No weight can, therefore, be attached to the contention that by a valid unregistered sale for less than R Section 100 the vendor's title is exhausted, he has, afterwards, nothing to sell, and the later registered sale gives nothing to the purchaser. Suppose that the subsequent purchase is made without notice of the prior sale; it cannot then be denied that the former prevails against the latter. The fallacy in the contention lies in ignoring the reason of the rule, viz., that as between registered and unregistered transactions, the registered transaction creates the dominant right or title.
24. The substantial question then is whether the doctrine of notice ought to have been treated as part of Section 50. It is patent that nothing is said of notice in any of the Registration Acts commencing with the Act of 1864. It is also clear from Acts I and XIX of 1843 that in order to avert the danger arising to registered titles and interests in immoveable property from perjury committed in this country during investigations touching the facts of notice or knowledge, and to give stability to such titles and interests, the Legislature declared in 1843 in express terms that notice was immaterial. It was then known that according to the practice of the Court of Chancery under the Registration Acts in England, a registered purchase or mortgage concluded with notice of a prior unregistered title or interest was a species of fraud. It is also obvious that the Acts of 1843 were passed to supersede the Regulation of 1802 which had expressly recognized the doctrine of notice on the ground of fraud, and that this was done with the knowledge, how that doctrine had worked in this country during the previous 40 year Section [See section VI, clause 3, Regulation XVII, of 1802 and compare with the preamble of Act 1 of 1843]. Again, the law that was enacted in 1843 was kept alive till 1863, and this raised a presumption that the mischief contemplated by the Acts of 1843 continued to exist. The course of legislation then in this country up to 1863 was thi Section It was the Regulation of 1802 that prescribed the rule of equity and good conscience as the law to be administered in matters to which the Hindu or Mahomedan law was not declared applicable; Regulation XVII of 1802 introduced the doctrine of notice as part of that rule in connection with the registration of documents on the ground of fraud. Acts I and XIX of 1843 declared that the practical application of that doctrine in India resulted in much perjury and seriously impaired the stability of registered titles and interests and enacted on that ground that notice was immaterial. Moreover, it was considered in the leading case that the general policy of the later Registration Acts was more stringent than that of the Acts of 1843 and in furtherance of the policy initiated by the earlier enactment Section If the unregistered document was one of which registration was compulsory, notice was immaterial, as it would then amount only to a notice of what was not a legal transaction. The policy consisted in constituting registration into a pre-requisite of a valid sale or mortgage of immoveable property, unless such sale and mortgage were petty transactions for or of less than R Section 100 in value and into a ground of priority even in regard to those transaction Section Hence it was considered by the learned Judges, who took part in the leading case, that they were not at liberty to import into the Registration Act the doctrine of notice and thereby to re-open to any extent the door for perjury closed by the Legislature in 1843. Under Act IV of 1882 notice was likewise immaterial, though a document was optionally registrable, if it fell under Section 54 of that Act and if there was no delivery of the property affected by it. When the unregistered document is compulsorily registrable, its registration is of the essence of the transaction and when it falls under Section 54 of Act IV of 1882, a registered sale-deed or delivery of the property sold is the only recognized mode of transfer. Again, Sections 59, 107 and 127 of Act IV of 1882 prescribed rules for determining how far registration is a pre-requisite in the case of valid mortgages, leases and gifts, while Section 107 declared in what cases an oral agreement is permitted. These sections were declared by Act III of 1885 to form part of the Registration Act. The policy indicated by them consisted in abolishing optional registration in cases falling under Section 54, and declaring that an oral agreement is no evidence of a valid transaction, except as specified in section ' 107. That policy is explained with reference to Section 59 in these terms in the third Report of the Select Committee, dated 11th March 1881. 'We agree with the Law Commissioners that the requirement of registration will not only discourage fraud and facilitate investigations of title, but that it will also preclude some difficult questions of priority. A majority of us, however, think that where the principal money secured is less than R Section 100 the assurance need not be registered and we have altered the bill accordingly. Our colleague, Mr. Stokes, dissents from this alteration, as in his opinion all encumbrances should appear on the Register, those who mortgage their property for small amounts, as a rule, require protection from fraud more than those who mortgage for large amounts, and the changes impending on the working of the law will deprive the requirement of registration of all hardship even in the pettiest case Section' On the other hand, the equitable doctrine that the taking of a legal estate after notice of a prior right is a species of fraud, rests on the basis that unregistered conveyances are sufficient of themselves to create titles and that they are invalid as secret conveyances only as against those who are not aware of their existence. There is thus this essential difference in the mode in which registration is enforced in this country, viz., that notice is immaterial wherever compulsory registration is prescribed or an unregistered document is declared insufficient to create a valid transfer. Hence it was also presumed in the later cases that the Legislature would have expressly revived the doctrine of notice if they had intended to revive it or referred to notice as they have done in the Specific Relief Act and the Indian Trusts Act.
25. The course of decisions is, however, open to this objection, viz., that transactions resting on documents which are optionally registrable and which are accompanied with or followed by possession are held liable to be superseded by a registered transaction, whilst oral agreements followed by possession are expressly saved by Section 48 of the Registration Act. It is also open to the remark that, by prescribing compulsory registration and thereby rendering notice immaterial, the Legislature denoted the class of transactions in which alone the temptation to the commission of forgery and perjury was strong, and it was intended that the effect of registration should be independent of notice. This view receives corroboration from the distinction made by Section 54 and Section 59 of Act IV of 1882 in the case of optionally registrable instruments, and it may well be that as regards small transactions creating limited interests in immoveable  property the temptation to perjury was not considered to be strong, and registration was left to be enforced regarding them in the same way in which it is enforced in England. On reconsideration, it seems to me that the principle laid down in Wyatt v. Bariwell 19 Ve Section, 439, and approved by the House of Lords in the case of the Agra Bank (Limited) v. Barry I.L.R. 7 E. & Ir. App. 135, was not intended to be ignored in the case of transactions in which the requirement of compulsory registration was deemed to be a hardship, and it was considered sufficient to permit optional registration subject to the rule of priority. For, it is not correct to say in the absence of express provision to the contrary that an Act of the Legislature designed to prevent one species of fraud was designed to let in another. As pointed out in the last-mentioned case, the authoritative canon of interpretation with reference to the rule of priority is that the object of the Registration Act, so far as it relates to priority, ' is to take care that, by the fact of deeds being placed upon a register, those who come to register a subsequent deed shall be informed of the earlier title, and the end and the object of the Act is accomplished if the person coming to register the deed has, aliunde, though not by means of the register, notice of a deed affecting the property executed before his own.' This is consistent with the intention of Section 48 to respect titles completed by transfer of possession, although such titles might rest on mere oral agreements and with the intention to confine the policy of the Acts of 1843 to important transactions by repealing those Acts and substituting therefor a system of compulsory registration. In the light thrown by the decisions of the other High Courts referred to by Mr. Justice Parker and of the English decisions already cited, I think that the sound rule of interpretation is that indicated in the Agra Bank (Limited) v. Barry L.R. 7 E. & Ir. App. 135).
26. I am, therefore, of opinion that the doctrine of notice is applicable in all those cases in which its operation is not excluded by a special provision of the Indian Legislature to the effect that an unregistered document shall not generate a right. Here I may observe that all the decisions of the other High Courts, to which our attention has been drawn, are decisions on documents which were optionally registrable and sufficient, when they were executed, to create a title or a right. They were all executed prior to 1882 and before Section 54 of Act IV of 1882 virtually abolished optional registration in the case of sales of immoveable property for less than R Section 100. see Dinonath Ghose v. Attluck Moni Dabee I.L.R. 7 Cal. 753, Narain Chunder Chuckerbutty v. Dataram Roy I.L.R. 8 Cal. 597, Nani Bibee v. Hafizullah I.L.R. 10 Cal. 1073, Bhatu Roy v. Jakhu Roy I.L.R. 11 Cal. 667, Abool Hossein v.Raghu Nath Sahu I.L.R. 13 Cal. 70, Shivram v. Genu I.L.R. 6 Bom. 515, Dundaya v. Chenbasapa I.L.R. 9 Bom. 427, Ram Autar v. Dhanauri I.L.R. 8 All. 540. In most of these cases, the title under the unregistered documents was also completed by transfer of possession. Moreover, the recognition of the doctrine affords a basis for reconciling Section 48 with Section 50, for, in most cases, possession is very cogent evidence of notice, if not notice of itself. The result is that, when the prior unregistered document was sufficient at the date of its execution, to create a title to or interest in immoveable property or when possession was transferred under it, notice would be material as disclosing an intention to defeat a pre-existing right, and that when such is not the case, notice would not be material, because there was no prior title nor right to defeat.
27. I would, therefore, answer the first part of the question referred to us in the negative and say that notice saves the prior title or interest.
28. As regards the second part of the question, it is not clear that it arises from the facts of the case as stated in the order of reference. If it is, however, desirable to answer it, I would answer it also in the negative, provided, as stated in the question, that the prior unregistered document was at the date of its execution valid, that is to say, sufficient to create an interest in immoveable property.
29. The facts found in the present case are that defendants No Section 1 and 2 executed to the plaintiffs' father on November 3rd, 1877, an usufructuary mortgage bond for R Section 99 and placed him in possession. The bond was not registered. Subsequently on February 25th, 1883, defendants No Section 1 and 2 executed to third defendant an hypothecation bond upon the same property which deed was registered. In execution of a decree obtained upon this bond, the third defendant brought the property to sale. The plaintiffs sued to establish their rights under the usufructuary mortgage of 1877, but the District Munsif held that their deed had been defeated by the subsequent registered hypothecation under Section 50 of the Registration Act. The District Judge reversed this decision, holding that, as third defendant had notice of the previous mortgage to plaintiffs' father and possession thereunder, his acceptance of the subsequent hypothecation deed was tainted with fraud.
30. The question now referred for the decision of the Full Bench is whether when it is proved that a subsequent encumbrancer under a registered conveyance had notice of a vaild prior unregistered encumbrance and of possession thereunder, or had notice of such conveyance without possession, the Courts are bound to interpret Section 50 of the Registration Act so as to defeat the title of the prior encumbrancer. By the expression 'valid unregistered encumbrance' I understand the learned referring Judges to mean an encumbrance which by law is optionally registrable.
31. It is conceded that the course of decisions in the Madras Presidency since 1882 has been adverse to the prior unregistered encumbrancer. It has been held [Nallappa v. Ibram I.L.R. 5 Mad. 73, Kondayyav. Guruvappa I.L.R. 5 Mad. 139] that it was the deliberate intention of the Legislature to allow a subsequent registered conveyance to defeat a prior unregistered one,--although such prior conveyance was in itself a perfectly valid deed--and that the fact that the subsequent encumbrancer had notice of the earlier unregistered deed was immaterial and did not affect the question of priority. It has further been held that even notice and knowledge of possession under the earlier deed were not sufficient grounds for holding the subsequent deed fraudulent [Narasimulu v. Somanna I.L.R. 8 Mad. 167].
32. I do not think it necessary to examine in detail the different Madras cases in which the above doctrines have been laid down. They are set out in the order of reference, and there is no dispute as to their general tenor and effect. But these decisions all refer to and follow the leading case of Nallappa v. Ibram I.L.R. 5 Mad. 73 and the contention which has led to this reference to the Full Bench is that the ratio decidendi in Nallappa v. Ibram I.L.R. 5 Mad. 73 has been based upon a misapprehension. It is, therefore, necessary to examine that decision to see whether this contention can be supported.
33. The conclusion arrived at in Nallappa, v. Ibram I.L.R. 5 Mad. 73 was that Section 50 of the Registration Act rendered the effect of registration altogether independent of notice. The ground of decision was that whereas the earliest registration law in this Presidency (Regulation XVII of 1802) expressly recognized the doctrine of notice (Section 6, clause 3) such doctrine had been expressly abolished by legislation in 1843 (see Act 1 and Act XIX of 1843) and had never since been expressly revived. The doctrine is not referred to in the later Registration Acts XVI of 1864, XX of 1866, VIII of 1871, and the present Act III of 1877; hence it was held that the Courts could not import a doctrine which the Legislature had once prohibited and had never revived, and the effect of which might he to render the policy of the Legislature to a great extent inoperative.
34. Against this it is urged that the doctrine of notice is an equitable doctrine which exists altogether independently of statutory sanction, and will continue to exist so long as it is not expressly prohibited by law. Acts I and XIX of 1843 which contained the prohibition were repealed by Act XVI of 1864; hence the doctrine revived of itself, being no longer held in abeyance by a statutory prohibition.
35. It appears to me there is considerable force in this contention. It is true, no doubt, that the repeal of the Acts of 1843 will not revive Section 6, clause 3, of Regulation XVII of 1802 (see Section 3, Madras General Clauses Act I of 1867), so that the doctrine of notice will no longer rest upon specific enactment, but the doctrine may well be justified upon grounds of justice, equity and good conscience according to which the Courts are enjoined by the Legislature to act.
If Section 50, Registration Act, were to be construed as a categorical direction to give prior effect to a registered document in all cases, it would follow that a registered document obtained by fraud, coercion, or from a minor or insane person would have to be given effect to in preference to a perfectly valid prior deed though unregistered. The Courts can hardly presume that the Legislature would have enacted a direction so unreasonable, and I cannot but believe that, in enacting Section 50, it was intended to provide for cases of competition between innocent and bond fide purchasers, of whom the one had taken the precaution to register his conveyance, while the other had neglected that precaution. The whole object of registration is to give security to enable intending purchasers and mortgagees to ascertain whether property is already encumbered, It is not unfair that a person who by omission to register, neglects to give warning of his claim shall be liable to find that claim defeated in favour of a, subsequent innocent purchaser who has presumably been induced to give valuable consideration through the neglect of the first encumbrancer to give public notice of his claim.
36. That the Legislature does not regard the equitable doctrine of notice as altogether defunct is apparent from the Specific Relief Act I of 1877, Section 27, and the Indian Trusts Act II of 1882, Section 91, the former Act having been passed in the same year as the present Registration Act. The effect of the doctrine in a case arising under Section 50 of the Registration Act was referred to in Kadar v. Ismail I.L.R. 9 Mad. 119, in which I took p Article The Legislature must be credited with consistency and unity of design and we can hardly suppose that an equitable doctrine was deliberately recognized in the Specific Relief Act and Indian Trusts Act,--but treated as defunct in the Registration Act, because not expressly mentioned therein. The effect of holding otherwise would lead to the curious result that as against a subsequent registered purchaser a person in possession under an oral agreement would, under Section 48 of the Registration Act, be in a better position than a person in possession under an unregistered conveyance. The policy of Sections 48 and 50 of the Registration Act may, however, be reconciled by giving effect to the doctrine of notice, since actual possession--if not itself notice--is at all events cogent evidence of notice. see Narain Chunder Chuckerbutty v. Dataram Roy I.L.R. 8 Cal, 597. This view is not inconsistent with Section 4, clause (c) of the Specific Relief Act, which only deals with the operation of the Registration Act on documents independently of the intention and mind of the person. I am sensible of the gravity of overruling a long course of decision Section But in the present case it not only appears that the leading case which those decisions followed was based upon a misapprehension, but the case is in conflict with the course of decisions in England, in the other High Courts in India, and also (it appears to me) with that justice and equity which the Courts are bound to administer. With the greatest respect, therefore, for the learned Judges who decided Nallappa v. Ibram I.L.R. 5 Mad. 73, I am of opinion that that decision should be overruled and that our answer to the questions referred by the Division Bench should be in the negative, Agra Bank (Limited) v. Barry L.R. 7 E. &. Ir. App. 135, Wyatt v. Barwell 10 Ve Section, 438, Dinonath Ghosev. AuluckMoni Dabee I.L.R. 7 Cal. 753, Narain Chunder Chuckerbutty v. Dataram Roy I.L.R. Cal. 597, Nani Bibee v. Hafizullah I.L.R. 10 Cal. 1073, Bhalu Roy v. Jakhu Roy I.L.R. 11 Cal, 667, Abool Hossein v. Raghu Nath Sahu I.L.R. 13 Cal. 70, Woman Ramchandra v. Dhondiba Krishnaji I.L.R. 4 Bom. 126, Shivram v. Genu I.L.R., 6 Bom., 515, Dundaya v. Chenbasapa I.L.R. 9 Bom. 427, Ram Autar v. Dhanauri I.L.R. 8 All. 540.
37. The question referred to the Full Bench for determination is whether, when it is proved that a subsequent encumbrancer under a registered conveyance had notice of a valid prior unregistered conveyance, and of possession by such encumbrancer, or of such conveyance without possession, the Courts are bound to interpret Section 50 of the Registration Act strictly so as to defeat the title of the prior encumbrancer.
38. Section 50 of the Registration Act is as follows: ' Every document of the kinds mentioned in clauses (a), (b), (c). and (d) of Section 17, and clauses (a) and (b) of Section 18, shall, if duly registered, take effect as regards the property comprised therein, against every unregistered document relating to the same property, and not being a decree or order, whether such unregistered document be of the same nature as the registered document or not.
39. In the present case the conflict is between two deeds of mortgage, the earlier deed of November 1877, the registration of which was optional, being unregistered and the latter deed of February 1883 being registered. The earlier deed was followed by possession, and the District Judge found that the second mortgagee was at the time when he took his mortgage aware of the prior mortgage, and on the authority of Narasimulu v. Somanna I.L.R. 8 Mad. 167 he held that such knowledge amounted to fraud which deprived a registered deed of priority.
40. In second appeal it was argued that such knowledge as the second mortgagee had of the prior encumbrance would not, according to the course of decisions in this Court, deprive the registered deed of the priority conferred upon it by Section 50 of the Registration Act.
41. The leading case upon the point is that of Nallappa v. Ibram I.L.R. 5 Mad. 73. In that case it was held that transactions evidenced by unregistered instruments which it is optional, a,s well as those which it is compulsory to register, are rendered of no effect, by the subsequent execution and registration of a document relating to the same property; that Act XIX of 1843 did away with the doctrine of notice, which has never since been expressly revived, and that, therefore, knowledge or notice of a prior encumbrance did not bar the operation of Section 50 of the Registration Act.
42. The first legislative enactment on the subject of registration in this Presidency was Regulation XVII of 1802, which enacted that registered conveyances and other instruments affecting titles to land should take precedence of unregistered instruments in all cases, except those in which the party registering had knowledge that the property had been previously sold or mortgaged under an unregistered deed. By Act I of 1843, however, the Governor-General in Council repealed all the provisions in Regulation XVII of 1802, touching knowledge or notice of previous unregistered conveyances, and it was enacted that unregistered titles should be void as against any person claiming under a subsequent registered title, notwithstanding notice of the prior unregistered title.
43. This Act was repealed by Act XIX of 1843, except so far as it repealed the provisions in Regulation XVII of 1802 touching knowledge or notice of the existence of unregistered instruments, and the provision that knowledge or notice of a prior unregistered encumbrance by a party to a registered deed should not invalidate the priority of the registered deed was re-enacted.
44. From that year (1843) down to 1864 the equitable doctrine of notice was not available as a ground of defence. But in the latter year Act XVI was passed, which repealed Regulation XVII of 1802, Act I of 1843 and Act XIX of 1843 without re-enacting the provisions of the two latter Acts as to the inefficacy of notice. While, therefore, it is true, as remarked by the learned Judges in Nallappa v. Ibram I.L.R. 5 Mad. 73, that the doctrine of notice has never been expressly revived, it must not be overlooked that the Legislature have not, since Act XIX of 1843 was repealed, expressly enacted that a registered instrument shall take effect against an unregistered instrument, notwithstanding that the party to the registered deed had notice or knowledge of the prior unregistered conveyance. If it had been the intention of the Legislature that Section 50 should have the effect of conferring absolute priority on a registered instrument, knowledge or notice of a prior title notwithstanding, it must be presumed that the Legislature would have said so; and in the absence of any express enactment I cannot see why we should import into the section words which are not to be found there. Moreover, it was held by the Privy Council in Sreenanth Bhuttacharjee v. Ramcomul Gungopadya 10 M.I.A. 220, that even under Act XIX of 1843 a registered deed was liable to be deprived of its priority if tainted with fraud.
45. Now, as remarked by Story (Equity Jurisprudence), it would be gross injustice to allow a person who takes a transfer of property, with full notice of the legal or equitable title of other persons to the same property to defeat the just rights of others by his own iniquitous bargain. He becomes particeps criminis with the fraudulent grantor, and it is a rule of equity as well as of law. Dolus et.fraus nemini patrocinari debent.
46. This principle was acted on by this Court in the case of Narasimulu v. Somanna I.L.R. 8 Mad. 167. In that case the conflict was between two documents, the registration of which was optional. The Court (turner, C.J., and Muttusami Ayyar, J.) held that the plaintiffs' instrument which was followed by possession conferred a complete title, that the defendant's instrument which was executed collusively and fraudulently could not prevail over it, and that participation in fraud by the person claiming under the registered instrument will deprive him of the benefit of Section 50. It having been thus admitted that fraud will deprive a person of the benefit of Section 50, I do not see how the decisions that registration protects an encumbrancer who takes with notice or knowledge of a prior title can be maintained; for, as remarked by Lord Hardwicke in the leading case of Le Neve v. Le Neve II White & Tudor, p. 35 fraud or mala fides is the true ground on which the Court is governed in cases of notice. 'The design of a Registration Act is,' the learned Judge observed 'to give parties notice who might otherwise without such registry be in danger of being imposed on by a prior purchase or mortgage which they are in no danger of when they have notice thereof in any manner, though not by the registry. The taking of a legal estate after notice of a prior right makes a person a mala fide purchaser. It is a species of fraud and dolus malus itself.' The judgment of the House of Lords in the case of the Agra Bank (set out in the order of reference) is to the same effect.
47. The Courts of this country are required, in cases where no specific rule of law exists, to act according to justice, equity and good conscience [Act III of 1873, Section 16] (c), and so long as the principles of equity are not declared by express legislative enactment (as in the years 1813-1864) to be of no avail as a defence to an action, the Courts are bound not to decide cases on inequitable principle Section
48. The principles of equity which apply to cases like those under consideration were very clearly stated by Wood, V.C., in Benham v. Keane of J. & H., 702. He said: 'The whole doctrine of notice proceeds on this: Where a man has created a charge affecting his estate, he is not at liberty to enter into any new contract in derogation of the interest which he has created. The Court will not allow him to do the wrong himself, nor will it suffer any third person to help him to do it. No one will be permitted to enter knowingly into a contract with a person so situated, which would redound to his benefit at the expense of the prior encumbrancer. The conscience of a purchaser is affected through the conscience of the person through whom he buys; that person is precluded by his previous acts from honestly entering into a contract to sell; and therefore any one who purchases with the knowledge that his vendor is precluded from selling is subject to the same prohibition as the vendor himself.'
49. It cannot be contended that registration can confer validity upon an instrument which is ultra vires, or illegal or fraudulent. The law of registration was designed to prevent and not to aid fraud, but if the true construction of Section 50 is that a person by registering his document, whether such document is optionally or compulsorily registrable, shall be entitled to oust the title of a prior encumbrancer, notwithstanding that he took with knowledge or notice of such prior encumbrancer's title and possession, then the law is in my opinion a direct incentive to fraud.
50. I think Section 50 must be interpreted as having been intended to apply to the case of two innocent purchasers or mortgagees, and as giving the preference to the one who took the precaution to secure his title by registration, but not as intended to apply to the case of a subsequent registered purchaser or mortgagee who, at the date of his purchase or mortgage, had notice of a prior unregistered purchase or mortgage. The words of Lord redesdale in Latouche v. Lord Dunsany 1 Section & L., 159 are directly in point. He said: 'The intention was to make priority of registration the criterion of title to all intents and purposes whatever, but this does not exclude anything which affects the conscience of the party himself who claims under the registered deed; it never was the intention of the Legislature to give priority of right to commit a fraud, but its meaning was that, parties dealing fairly, priority should be given to him who had the registered instrument.'
51. That it was not the intention of the legislature in this country to do away with the doctrine of notice and to encourage fraud is apparent from other legislative enactments subsequent to the Registration Act. Section 27 of the Specific Relief Act, which came into force in the month following Act III of 1877, provides that specific performance of a contract shall not be enforced against a transferee for value, who has paid his money in good faith and without notice of the original contract. In one of the illustrations to that section possession is represented as sufficient to affect the subsequent purchaser with notice of the interest of the person in possession. In Section 91, Act II of 1882, it is enacted that where a person acquires property with notice that another person has entered into an existing contract affecting the property, the former shall hold the property for the benefit of the latter, and finally in Section 53, Act IV of 1882, it is enacted that every transfer of immoveable property made with intent to defraud prior transferees is voidable at the option of the person defrauded.
But, before answering the questions (there are really two) referred to us, it is necessary to take into account the provisions of Section 49 of the Registration Act as well as of Section 54 of the Transfer of Property Act. According to the former no document, the registration of which is compulsory, shall affect any immoveable property comprised therein, or be received as evidence of any transaction affecting such property unless duly registered. Section 54 of the Transfer of Property Act virtually abolishes optional registration so far as deeds of sale are concerned, for it enacts that no transfer can be made by an instrument of sale in writing unless it is registered; but it also provides that in the case of tangible immoveable property of a value less than R Section 100, a valid transfer by way of sale may be made by delivery of possession. The answer, therefore, seems to me to be this:
52. (a) In the case of sales of immoveable property no conflict can arise under Section 50 of the Registration Act, because by an unregistered instrument no conveyance is effected.
53. (b) As in the case of mortgages registration still remains optional, the title of the registered purchaser or mortgagee prevails notwithstanding the priority in time of the unregistered instrument, provided there is no notice of the prior title from which fraud can be inferred.
54. I would point out that the question referred is not of so much importance as would appear at first sight, because all transfers of immoveable property by way of sale or mortgage executed since 1st July 1882, the date on which the Transfer of Property Act came into force, if by writing, must be by a registered instrument whether the value of the property or amount of the mortgage be or he not less than R Section 100. (Sections 54 and 59, Transfer of Property Act). In fact the Transfer of Property Act has, as observed by
55. Sir Richard Garth in Narain Chunder Chuckerbutty v. Dataram Boy I.L.R. 8 Cal. 597 virtually abolished optional registration. When therefore the prior unregistered mortgage was executed since 1st July 1882 the question referred cannot arise, for there can be no valid encumbrance created by unregistered deed, and an encumbrance created only by transfer of possession is protected by the exception to Section 48 of the Registration Act. The question referred must, however, be answered as to cases like the present when the prior unregistered mortgage was executed before the 1st July 1882. I agree to its being answered in the negative on the understanding that it relates only to cases when the prior instrument of mortgage is one, the registration of which is optional. The question implies this by the use of the words ''valid prior unregistered encumbrance.' But our answer should, I think, make the matter quite clear.
56. All the Madras decisions relate to cases when the registration of the first document was optional. When the registration of the prior instrument is compulsory no valid encumbrance is created, for by Section 49 of the Registration Act, the instrument being unregistered does not affect, nor can be received as evidence of any transaction affecting the immoveable property comprised in it.
57. Subject to the foregoing remarks I agree to the question referred being answered in the negative. It appears to me that when once this Court admitted, as the later Madras decisions have done, that fraud would disentitle the subsequent purchaser or mortgagee by registered document to the priority given him by the Registration Act, it practically abandoned the principle of the decision in Nallappa v. Ibram I.L.R. 5 Mad. 73. For the doctrine of notice, which that decision declared to be inapplicable to the case of a contest between a registered and an unregistered instrument is founded, as I understand it, upon the principle that Courts of equity will not allow fraud to be perpetrated under cover of a statute if they can help it. And it is difficult to conceive how it can be anything else but a fraud for a person with knowledge that another has advanced money on the faith of having a security upon certain property, to seek in collusion with the person who has received the money, to make use of the Registration Act to deprive the lender of his security. In Le Neve v. Le Neve. II White & Tudor, p. 35, Lord habdwicke expressly puts the right to relief in such cases on the ground of fraud. He says, after discussing the cases, 'consider, therefore, what is the ground of all this and particularly of those cases which went on the foundation of notice to the agent. The ground of it is plainly this: That the taking of a legal estate, after notice of a prior right makes a person a mala fide purchaser; and not that be is not a purchaser for valuable consideration in every other respect. This is a species of fraud and dolus malus itself: for he knows that the first purchaser had the clear right of the estate, and after knowing that he takes away the right of another person by getting the legal estate.' And after quoting the Roman law of dolus malus he goes on 'Fraud or mala fides therefore is the true ground on which the Court is governed in the cases of notice.' And the language of Sir william grant in the case of Wyatt v. Barwell 19 Ve Section, 438 referred to in the order of reference shows that he also considered the doctrine of notice to rest on fraud. I take the explanation of the decisions upon this question by Lord Cairns in the case of The Agra Bank (Limited) v. Barry L.R. 7 E. & Ir. App. 135 quotedin the order of reference to mean that such was the way in which the Courts considered that they were able to give relief in cases of notice without contravening the Registration Act. But the foundation of the decisions was the determination not to allow fraud to prevail if the Court could prevent it. And in my opinion the Courts of this country, which are bound to decide according to equity and good conscience, cannot do otherwise than follow the long series of decisions wherein the most eminent of English Judges have expounded the principles upon which Courts of equity should so administer the registration laws as not to allow them to be made the instrument of fraud. The case would be different if the legislature had expressly declared by positive enactment that the principle of the English decisions upon this question was not to be followed by the Courts here. But I am not prepared to follow Nallappa v. Ibram I.L.R. 5 Mad. 73 in holding that the mere repeal by Act XIX of 1843 of the provision of Regulation. XVII of 1802 relating to notice and the silence of subsequent Registration Acts upon the question of notice are sufficient on the part of the legislature to sweep away the doctrine of notice as far as the Courts of this country are concerned. That doctrine has been well established by a long series of decisions of the Courts of highest authority in Great Britain as an integral part of the principles of equity, and ought therefore still to be maintained by Courts judging according to equity and good conscience, even though it has lost the sanction it once possessed of legislative enactment. I am fully conscious of the inconvenience of overruling a long course of decisions of this Court beginning with Nallappa v. Ibram I.L.R. 5 Mad. 73, but, looking at the much longer series of decisions of the highest tribunals in Great Britain, and to the fact that the Registration Acts in respect of which those decisions were passed were in their terms as stringent as, or more stringent than the Indian Registration Acts, I think the time has come to place this Court in accord with the other High Courts of India upon this question. I would put the decision upon the ground that Section 50 of the Registration Act contemplates a conflict between two bond fide transactions relating to the same property, and not a case where a subsequent purchaser or mortgagee having notice that there is a bond fide and valid encumbrance on the property seeks to make use of the Registration Act to avoid it, thus making an enactment intended to prevent fraud an instrument of fraud.
58. This second appeal then came on for final disposal before Collins, C.J., and Wilkinson, J., and the Court delivered the following judgment.
59. It having been decided by the Full Bench that the second mortgagee, taking with notice of a prior mortgage, is not entitled to priority, the second appeal fails and is dismissed, but without cost Section