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Abdul Khadir and ors. Vs. V. Subramanya Pattar - Court Judgment

LegalCrystal Citation
SubjectProperty
CourtChennai
Decided On
Reported inAIR1940Mad946; (1940)2MLJ760
AppellantAbdul Khadir and ors.
RespondentV. Subramanya Pattar
Cases ReferredIn Madhwa Sidhanta Onahini Nidhi v. Venkataramanjulu Naidu I.L.R.
Excerpt:
.....that 'for the necessities of our tavazhi tarwad we ourselves have, as per marupat of this day taken back the properties delivered to you under this document as detailed above. the mortgage provided that the profits of the property mortgaged should be enjoyed by the mortgagee in lieu of interest on the mortgage money but the rent reserved under the lease was equivalent to interest at six per cent, per annum on the mortgage money and was less than the annual yield of the properties. the mortgagee may well have preferred to leave the cultivation of the land in the hands of the mortgagor, being entitled to take possession at any time ii the provisions of the lease were not adhered to......mortgaged should be enjoyed by the mortgagee in lieu of interest on the mortgage money but the rent reserved under the lease was equivalent to interest at six per cent, per annum on the mortgage money and was less than the annual yield of the properties. as provided in the lease, the mortgagee entered into possession of the properties mortgaged on the mortgagor's default in paying the rent reserved by the lease. in a subsequent suit for redemption, the question arose whether the mortgagee was accountable for the rents and profits received by him from the mortgaged properties in excess of the rent reserved under the lease. the high court of allahabad held that he was, on the ground that the mortgage was usufructuary only in form and that the security was intended to be a simple.....
Judgment:

Patanjali Sastri, J.

1. This is a petition to revise an Order of the Subordinate Judge of South Kanara dismissing an application by the petitioners (judgment-debtors) to scale down the decree for Rs. 34,291-10-9 in O.S. No 70 of 1932 on of the lower Court. The suit was brought by the respondent on foot of a mortgage bond (Ex. B) dated 5th June 1925 whereby the judgment-debtors purported to mortgage the properties usufructuarily to the respondent's assignor for Rs. 21,000 out of which only Rs. 20,300 was advanced and a marupat (Ex. C) of the same date under which the mortgaged properties were leased back to them at an annual 'purappad' of 10,150 seers of paddy. The mortgage contained only a covenant to repay the principal but no, stipulation for payment of any interest as the profits were to be enjoyed in lieu of interest. It is common ground that the usufructuary mortgage and the lease back were parts of the same transaction and the respondent himself in suing for the amount due under both these instruments described the amount due under Ex. C as 'interest' payable on the amount advanced under Ex. B. The decree was in the form of an ordinary mortgage decree providing for the payment of Rs. 20,300 as principal and the balance as interest and did not mention any rent as payable thereunder, while the judgment referred to the respondent's claim under Ex. C as 'rent or interest' without making any distinction between the two. It is thus clear that at the time when the suit was filed or the decree was passed, it was really immaterial whether the respondent's claim under Ex. C was regarded as one for interest or for rent but after the passing of the Madras as Act IV of 1938 the question as to the true nature and incidents of the transaction represented by Exs. B and C has become one of considerate importance to the parties and as accordingly been the subject of keen debate in these proceedings. In support of their application to scale down the decree the petitioners contend that Exs. B and C together amounted in substance to a simple mortgage providing for interest at the rate of half seer of paddy per rupee per year and that accordingly the interest payable under the decree should be scaled down, while the respondent invokes the exception in Section 10(2)(i) of the Act, urging that he was in possession as mortgagee under Ex. B, through the petitioners as his tenants under the marupat Ex. C, the annual payment reserved thereunder being rent and not interest.

2. Before considering this question, it will be convenient to dispose of a minor point raised by the petitioners' learned Counsel that it is not open to the respondent to raise the contention referred to above. It is argued that the Court must be taken to have decided in the suit itself that the amount payable under Ex. C was interest and not rent. This argument is based on para. 98 of the judgment where dealing with the question whether the stipulation to pay interest on the purappad reserved in Ex. C was penal and unenforceable, the Court held that it was, treating it as interest on interest. We find it however difficult to hold that this amounts to a definite decision concluding the. question now arising for consideration in favour of the petitioners. As already observed, the learned Judge uses the expression 'rent or interest' throughout the judgment in referring to the sum payable under Ex. C, and even for the purpose of his finding on the issue as to penalty, it was immaterial to determine whether such sum was 'rent' or. 'interest', for if, as the learned Judge thought, the rate of interest fixed for unpaid purappad was exorbitant, it could be relieved against as penalty under Section 74 of the Indian Contract Act even if the purappad were to be regarded as 'rent' and not as 'interest' - see Upendra Lal v. Ataulla A.I.R. 1917 Cal. 737 and Lal Gopal v. Biswa Nath A.I.R.N. 1918 Cal. 334. We hold therefore that the respondent is not precluded by anything contained in the judgment or decree in O.S. No. 70 of 1932 from contending that the sum reserved as payable to the mortgagee under Ex. C was 'rent' and not 'interest'.

3. Turning now to the main question, it is no doubt perfectly-clear that the mortgage and the marupat were intended to be parts of one and the same transaction and the mortgage itself recites that 'for the necessities of our tavazhi tarwad we ourselves have, as per marupat of this day taken back the properties delivered to you under this document as detailed above.' Both, the documents must therefore be read together to ascertain the nature and incidents of the transaction and the respective rights and liabilities of the parties thereunder. This indeed has been conceded by the respondent, but the question remains whether the marupat operates to obliterate the possessory character of the mortgage and convert it into a simple mortgage, contrary to its tenor. We are of opinion that it cannot have that effect. It is no doubt permissible, as a matter of construction to look behind the form of a transaction to ascertain its substance and give effect to it according to the intention of the parties but it is a different thing to ignore the form in which the parties have deliberately cast their bargain, when such form is intended to govern their mutual rights and obligations.

4. Learned Counsel for the petitioners cited numerous decisions in support of his contention but none of them can, in our opinion, be said to be an authority on the point now under consideration. On the other hand, we have been shown several authoritative rulings - some of them by the Privy Council - which lend support to the contention of the respondent. In Abdullah Khan v. Basharat Hussain (1912) 25 M.L.J. 91 : L.R. 40 IndAp 31 : I.L.R. 35 All. 48 , there was a usufructuary mortgage with a lease back of the properties mortgaged to the mortgagor. The mortgage provided that the profits of the property mortgaged should be enjoyed by the mortgagee in lieu of interest on the mortgage money but the rent reserved under the lease was equivalent to interest at six per cent, per annum on the mortgage money and was less than the annual yield of the properties. As provided in the lease, the mortgagee entered into possession of the properties mortgaged on the mortgagor's default in paying the rent reserved by the lease. In a subsequent suit for redemption, the question arose whether the mortgagee was accountable for the rents and profits received by him from the mortgaged properties in excess of the rent reserved under the lease. The High Court of Allahabad held that he was, on the ground that the mortgage was usufructuary only in form and that the security was intended to be a simple mortgage carrying interest at the rate of 6 per cent, per annum. On appeal to the Privy Council, this decision was reversed and the mortgagee was held not accountable for receipts over and above the rent reserved in the lease. Lord Macnaghten who delivered the judgment of the Board observed:

Their Lordships agree with the High Court in thinking that the mortgage and the lease were parts of one and the same transaction., But there is no inconsistency between the two instruments. Nor would there have been any inconsistency if the mortgage itself had contained a provision for granting a lease on the terms upon which the lease was actually granted.

5. This, in our opinion, is clear authority for the view that though the mortgage and the lease back can and must, in a case of this kind, be taken to form part of the same transaction, effect must be given to each according to its terms and the Court cannot, by reading the two together, spell out a transaction totally different in character and incidents.

6. To the same effect more or less is the decision of the Privy Council in Feroz Shah v. Sohbat Khan (1933) 65 M.L.J. 150 : L.R. 60 IndAp 273 : I.L.R. 14 Lah. 466 . There was a usufructuary mortgage for a term of ten years accompanied by a lease of the mortgaged property to the mortgagor for the same period at a rent which represented interest at a certain rate per cent, on the mortgage debt. On the expiry of the term, the mortgagee sued for possession of the mortgaged property, the mortgage not having been redeemed. The Courts in India refused a decree for possession holding that the transaction was in reality a simple mortgage of the land. Their Lordships reversed the decision holding that there was no reason to construe the mortgage as other than a possessory mortgage as it purported to be. They observed:

The mortgagee may well have preferred to leave the cultivation of the land in the hands of the mortgagor, being entitled to take possession at any time ii the provisions of the lease were not adhered to. Assuming this to have been one of the conditions upon which the mortgage was agreed to, the mere absence of formal handing over of the land to the mortgagee, and a handing back by him to the mortgagor in the character of lessee, is, they think, of little significance.

7. The principle of these decisions has also been applied in cases under the Income-tax Act relating to the assessability of the income received by the mortgagee-lessor who is a moneylender from the mortgagor-lessee. The contention of the Income-tax authorities was that the so-called 'rent' was, having regard to the substance of such transactions, really interest received in the course of money-lending and assessable to tax as such. This contention was disallowed by a Special Bench of five Judges (Jackson, J., dissenting) in Ibrahimsa Rowther v. Commissioner of Income-tax Madras : AIR1928Mad543 and by their Lordships of the. Privy Council in Commissioner of Income-tax, Bihar and Orissa v. Maharajadhiraj of Darbhdnga (1935) 69 M.L.J. 474 : L.R. 62 IndAp 215 : I.L.R. 14 Pat. 623 , the Court refusing in each case to regard the amount paid by the mortgagor-lessee as other than rent covered by the exemption relating to agricultural income.

8. Learned Counsel for the respondent placed great reliance upon the decision of the Privy Council in Ramarayammgar v. Maharaja of Venkatagiri (1926) 52 M.L.J. 338 : L.R. 54 IndAp 68 : I.L.R. 50 Mad. 180 . The mortgage in that case was a combination of a simple and a usufructuary mortgage and was accompanied as to part of the mortgaged, property by a lease back to the mortgagor. The lease provided that upon default in payment of the rent reserved, the arrears should be charged upon the property included in the mortgage deed. The rent had been allowed to fall into arrears, and the question arose in a suit for redemption and possession whether the arrears of rent should also be paid before redemption could be decreed. Their Lordships held that Section 62 of the Transfer of Property Act did not apply as the mortgage was not purely and simply usufructuary and that Section 61 of the Act by implication entitled the mortgagee to insist on the payment of arrears of rent also charged on the property as a condition of redemption. The passage relied on for the respondent is as follows:

It is contended before this Board on behalf of the defendant appellant that the two deeds, Exs. A and I, should be read together as they form parts of one transaction, the lease being in the nature of machinery for the purpose of realising the interest due on the mortgage...Their Lordships are of opinion that these contentions on behalf of the appellant must prevail. (Page 190.)

9. We are unable to agree that this passage involves the proposition that a possessory mortgage and a lease back should together be taken to be a simple mortgage carrying interest. As observed by their Lordships in Abdullah Khan v. Basharat Hmsain (1912) 25 M.L.J. 91 : L.R. 40 IndAp 31 : I.L.R. 35 All. 48 referred to already, that the mortgage and the lease should be viewed as forming parts of one and the same transaction is by no means inconsistent with effect being given to each according to its terms, and the reference to the lease as being in the nature of machinery for the purpose of realising the interest due on the mortgage' does no more than emphasise the idea of the lease being a component part of the mortgage transaction.

10. In view of the authorities referred to above which, in Our opinion, rule this case, we think it unnecessary to comment in detail upon the other decisions cited in the course of arguments. These decisions are not of much assistance in determining the question now before us, as they relate to other aspects of a possessory mortgage accompanied by a lease of the property to the mortgagor. In Lakshmikutti v. Mariathummal : AIR1925Mad127 , and Chinnappayan v. Narayana Pattar (1939) 50 L.W. 677, for instance, this Court had to consider the question whether a decree obtained for rent under the lease was a claim arising under the mortgage for purposes of Order 34 Rule 14, Civil Procedure Code. Krishna Kurup v. Mammad : (1932)63MLJ672 , Rala Ram v. Diwan Chand A.I.R. 1921 Lah. 225, and Diwan Chand v. Ralla Ram A.I.R. 1926 Lah. 559, are cases where the effect of such transactions had to be considered in connection with Order 2, Rule 2, Civil Procedure Code. In Vasudevan Atisseripad v. Govinda Menon (1915) 2 L.W. 853, the question for consideration was whether the mortgagee's claim for arrears of interest due for more than three years was barred when a claim for rent due for the same period under the lease would be barred. It was held that Article 132, and not Article 110, was applicable because there was an express recital that the mortgage was given as security not only for the principal amount due but also for the interest due thereon. In Madhwa Sidhanta Onahini Nidhi v. Venkataramanjulu Naidu I.L.R.(1903)Mad. 662 the Court held, reading the instruments of mortgage and lease together, that the mortgagee was entitled to maintain a suit for recovery of the mortgage money with interest. In Ex parte Isherwood : In re Knight (1882) 22 Ch. 384, it was observed that where a mortgagor continued in possession of the mortgaged property under an attornment clause in the mortgage, the relation between the parties was not one of landlord and tenant, but one of mortgagor and mortgagee. It was however recognised that when the parties entered into an express agreement for a tenancy, its terms must rule. Jessel, M.R., observed:

In an ordinary case, there being no rent reserved, the tenant at will did not pay any rent, and was not liable to pay any, but you might superadd to that legal relationship an express agreement for a tenancy, as was done in the present case, in which a monthly tenancy was created at a monthly rent.

11. All these decisions relied on by the petitioners' learned Counsel have no direct bearing on the issue before us, and any general observations therein tending to favour the view that a usufructuary mortgage accompanied by a lease back should be regarded as a simple mortgage cannot prevail against the definite pronouncements to the contrary in the decisions cited for the respondent. The Civil Revision Petition therefore fails and is dismissed with costs.


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