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Dinshaw Dadabhai Italia Vs. Mohamad Mohamad and ors. - Court Judgment

LegalCrystal Citation
SubjectFamily;Property
CourtChennai
Decided On
Reported inAIR1939Mad922; (1940)1MLJ655
AppellantDinshaw Dadabhai Italia
RespondentMohamad Mohamad and ors.
Cases ReferredIn Tarakeswar Das Gupta v. Ambika Charan Bhattacharjee I.L.R.
Excerpt:
- - but the rule does not apply where the executor or trustee is in default to the specific trust estate devoted to the trade ;in such a case, the defaulting executor or trustee not being himself entitled to an indemnity except upon the terms of making good his default, the creditors are in no better position, and are therefore not entitled to have their debts paid out of the specific assets unless the default is made good. the business subsequently failed and the executors were adjudicated insolvents......on the testator's business but nothing further, the executor is confined to the employment of the trade assets. if he is authorised to use the general assets, he can, of course, do so, but there must be express authority for this. see cutbush v. cutbush (1739) 1 beav. 184 : 48 e.r. 910, ex parte garland (1803) 10 ves. jun. 111 : 32 e.r. 786, ex parte richardson (1818) 3 madd. 138 : 56 e.r. 461 and m'neillie v. acton (1853) 4 de g.m. & g. 744 : 43 e.r. 699. in cutbush v. cutbush (1739) 1 beav. 184 : 48 e.r. 910, lord langdale, m.r., observed:it seems to me, that any person dealing with one carrying on trade must be taken to rely upon the personal liability of the party conducting it; but the security is not limited to the personal credit of the party where the testator has directed the.....
Judgment:

Alfred Henry Lionel Leach, C.J.

1. This appeal arises out of a suit filed on the Original Side of this Court by the first, second and third respondents for the administration of the estate of their grandfather, one Hussain Mean, who died in the month of December, 1919, leaving a large estate. The deceased had for many years traded in partnership with his two brothers, Mohammad Jaffar and M. Shamsuddin, and by his will he directed that the business should be carried on by his executors after his death until all his children had attained majority. The executors were Mohammad Jaffar, who is now dead, and his eldest son, Mohammad Yusuf, the fourth respondent, who was the second defendant in the suit. A decree for administration of the estate under the directions of the Court was passed, but before the suit came on for hearing Ananthakrishna Aiyar, J., added as defendants the appellant and the twenty-second respondent who is in the position of an appellant, having filed a memorandum of objections to the decree. The appellant and the twenty-second respondent claimed to be the mortgagees of certain properties belonging to the estate. The validity of the mortgages was challenged and in order that all questions arising out of the administration of the estate might be dealt with by the Court, the mortgagees were added as defendants. I will not pause to consider whether they should have been joined as defendants or whether the questions regarding their mortgages should have been left to be decided in separate proceedings, as all the parties to the suit and the appeal are agreed that, the questions with regard to these mortgages should be decided in the suit.

2. The mortgage in favour of the appellant was executed on the 25th March, 1927, by the surviving sons of the testator, the defendants 2 to 7, and by his widow, Mohammad Bi. There was another heir, a daughter named Hassan Bi, but she did not join in the execution of the deed. The properties mortgaged consisted of five items, two of which were sold before the suit was instituted. It is common ground that the mortgage was created for the purposes of the business, but all the properties charged belonged to the general estate of the testator. Lakshmana Rao, J., who tried the suit held that the executors were not entitled to charge the assets of the testator's general estate for the purposes of carrying on the business and that the mortgage was valid merely to the extent of the respective interests of the executants in the properties charged. The appellant contends that by the will the executors were given full power to mortgage the general assets of the estate for the purposes of the business, and that as the surviving executor had executed the deed, the estate is bound, notwithstanding that he was not described as an executor in the document. The appellant also says that even if the mortgage is invalid so far as the estate is concerned he is entitled to rank as a creditor of the testator to the extent of Rs. 20,000.

3. The mortgage in favour of the twenty-second respondent is dated 16th October, 1928 and embraces 25 items of property. It was executed during the pendency of the suit and the learned Judge held that the doctrine of lis pendens applied. He also held that the mortgage was invalid as against the estate for the reason which applied in the case of the appellant's mortgage. All the properties mortgaged belonged to the general estate and the mortgage has been created for the purposes of the business. These facts are not in dispute. On behalf of the twenty-second respondent it is said that the learned Judge erred in applying the doctrine of lis pendens and that he should have held that the mortgage was binding on the estate and not merely on the interests of the heirs who had signed the deed, namely, the defendants 2 to 7. The only questions raised in the appeal are those relating to the two mortgages.

4. In his will the testator refers to three businesses but we are told that it was the same partnership business carried on at different places under different styles. In his will the testator declared that his estate was to have two shares and his brother Mohammad Jaffar one share in the business. His brother M. Shamsuddin had predeceased him and the testator directed that his share was to be ascertained and was not to be utilized in the business. After further directions with regard to the carrying on of the business the will proceeds:

I expressly authorize and empower my executors to raise money required for the businesses by borrowing from banks, sowcars or other persons as the exigencies of the businesses require and for that purpose to pledge the credit of the several firms.

I hereby authorize my executors to deal with the various items of my estate whether in the businesses or otherwise by way of sale or alienation in any other manner and to invest the proceeds in any other forms of investment which they consider suitable in their discretion. Such investments shall not be limited to forms prescribed by the Indian Trusts Act.

5. The testator constituted his executors the guardians of the properties of his minor children. He bequeathed to Ummu Salima, the daughter of his deceased son, Abdul Aziz, the share to which her father would have been entitled if he had survived the testator, and he bequeathed to the children of Rabia Bi the shares to which she would have been entitled had she lived. Rabia Bi had four children, three of whom were the plaintiffs in the suit. The testator did not make any other dispositions of property. I may mention that neither here nor below has any question been raised as to the validity of the will under the Mohammadan Law. The heirs of the testator have all come of age and they have accepted the will as being valid. What is not accepted is the constructi6n which the appellant and the 22nd respondent would have placed on the provisions of the will relating to the carrying on of the business.

6. In his argument in support of the appellant's case Mr. T.R. Venkatarama Sastriar conceded, as I understand him, that an executor is not entitled to mortgage or charge the general assets of the estate for the purposes of carrying on the testator's business, unless he is so authorized by the will. Mr. Sastriar relied merely on the wording of the will. On behalf of the 22nd respondent Mr. V.V. Srinivasa Aiyangar has, however, contended that an executor is entitled to charge the general assets of the estate for the purposes of carrying on the testator's business without any authority in the will. Except for a decision of a Rangoon High Court to which I shall presently refer, he has quoted no case in support of his contention. There are numerous decisions which negative the proposition; and |s the question has been raised it is necessary to deal with it.

7. Under English Law, unless he is so authorized by the will, an executor has no power to carry on the testator's business, except for the purpose of winding it up; Collinson v. Lister (1855) 20 Beav. 356 : 52 E.R. 639. Where the will contains authority to carry on the testator's business but nothing further, the executor is confined to the employment of the trade assets. If he is authorised to use the general assets, he can, of course, do so, but there must be express authority for this. See Cutbush v. Cutbush (1739) 1 Beav. 184 : 48 E.R. 910, Ex parte Garland (1803) 10 Ves. Jun. 111 : 32 E.R. 786, Ex parte Richardson (1818) 3 Madd. 138 : 56 E.R. 461 and M'Neillie v. Acton (1853) 4 De G.M. & G. 744 : 43 E.R. 699. In Cutbush v. Cutbush (1739) 1 Beav. 184 : 48 E.R. 910, Lord Langdale, M.R., observed:

It seems to me, that any person dealing with one carrying on trade must be taken to rely upon the personal liability of the party conducting it; but the security is not limited to the personal credit of the party where the testator has directed the trade to be carried on with his assets; without authority in the will, executors have no right so to deal with the property of the testator and carry on trade with his assets; a party therefore who relies on the credit of the testator's estate, should look to the will to ascertain the extent to which the testator has authorised his assets to be embarked in the trade; and if any one had looked at this will, he would have seen that it was limited to the 'capital credits, stock and effects which were due, owing or belonging to him in the said trade or business at the time of his decease'.

8. In Ex parte Richardson (1818) 3 Madd. 138 : 56 E.R. 461, Leach, Vice-Chancellor, said:

A trustee under a will, carrying on a trade, pledges the trust property given to him for that purpose, and also his own property; but what is the trust property given to him for that purpose must depend upon the terms of the will....

In this case all that was meant to be left to carry on the trade was the, capital in the trade; and the executrix was not authorised in employing one shilling of the assets beyond the capital. What the executrix has employed in the trade beyond the capital was in breach of her trust.

9. In M'Neillie v. Acton (1853) 4 De G.M. & G. 744 : 43 E.R. 699, Turner, L.J., said:

There appears, therefore, to be no case which has gone to the extent of saying that a mere direction to continue the trade is to operate as a charge of the trade debts contracted in continuing the trade on all the estate of the testator; and the question is whether, upon any fair construction, it can be so considered? The consequence of it would be, that all the other directions which are contained in the will must be suspended during the period for which the trade is to continue. If the debt contracted in the course of the trade, or the right of the executors to be indemnified in respect of the expense incurred in carrying on the trade, is to be a charge on the whole of the estate of the testator, the necessary consequence would be that no part of the estate could in the meantime be applied in payment of any of the legacies, given in the will, and that all administration of the testator's estate must stop until the period when the trade is wound up. That is, a construction so unreasonable that, unless there are words sufficient for the purpose, it is one, in Ay opinion, to which the Court would not resort.

10. In the present case the will provided that the business should be carried on until all the testator's children had attained majority. If the proposition advanced on behalf of the twenty-second respondent were correct it would have meant that no steps could have been taken for the administration of the estate for many years.

11. A lot has been said in the course of the argument with regard to the right of indemnity. This question was dealt with by Jessel, M.R., in In re Johnson : Shearman v. Robinson (1880) 15 Ch. D. 548 and the effect of the decision is concisely stated in the head note to the report which reads as follows:

Where a trader has by his will directed his executor or trustee to carry on his trade and to employ a specific portion of the trust estate for the purpose, the rule is that, though the executor or trustee is personally liable for debts incurred by him in carrying on the trade pursuant to the will, he has the right to resort for his indemnity to the specific assets so directed to be employed, but no further; and consequently, the creditors of the trade are entitled to stand in the place of the executor and trustee, and to claim the benefit of that right so as to obtain payment of their debts; but the rule does not apply where the executor or trustee is in default to the specific trust estate devoted to the trade ; in such a case, the defaulting executor or trustee not being himself entitled to an indemnity except upon the terms of making good his default, the creditors are in no better position, and are therefore not entitled to have their debts paid out of the specific assets unless the default is made good.

12. There is no difference in the law of India from the law of England with regard to these matters. Section 307(1) of the Indian Succession Act says that, subject to the provisions of Sub-section (2), an executor or administrator has power to dispose of the property of the deceased, vested in him under Section 211, either wholly or in part, in such manner as he may think fit. The generality of the words of this sub-section does not, however, imply that the administrator is entitled to alienate the estate properties for purposes which are not consistent with his trust. Sub-section (2) provides that where the deceased is a Hindu, Muhammadan, Buddhist, Sikh or Jaina or an exempted person, the general power given to an executor by Sub-section (1) is subject to any restriction which may be imposed by the will appointing him. In this will there is express restriction, but even if there were not, it would be obviously improper for an executor to utilize the general assets of the estate for the purposes of carrying on a business of the testator.

13. The case to which Mr. Srinivasa Aiyangar referred is that of Ma Sein Bye v. S.R.M.M.R.M. Chetty Firm (1925) I.L.R. 3 Rang. 443, where the executors had created an equitable mortgage for the purposes of carrying on a business in which the testator had been a partner. It was held that by reason of Section 269 of the Succession Act, 1865 (which was then in force) an executor had an unqualified right to mortgage. Section 269 was in these words:

An executor or administrator has power to dispose of the property of the deceased either wholly or in part, in such manner as he may think fit.

14. It was apparently not realised that the section did not extend the powers of an executor beyond those conferred by the law of England, and the principles embodied in the English decisions had application. In Tarakeswar Das Gupta v. Ambika Charan Bhattacharjee I.L.R.(1927) 55 Cal. 892, a Division Bench of the Calcutta High Court held that an executor or administrator has no absolute power to dispose of the property of the deceased if it is not necessary for the purpose of the administration of the estate and that as the section had been taken from English law the English authorities were applicable. The argument that the observations in the Rangoon case correctly state the law cannot be accepted.

15. I have referred to the relevant portions of the will in this case and I have mentioned that in my opinion it imposes a restriction. I will explain what is in my mind. The will gives the executors power to pledge 'the credit' of the business for the purpose of carrying it on. I consider that this clause expressly limits their power of charge, for the purposes of the business, to the trade assets. The general assets of the estate cannot form part of the credit of the business unless there is express power to charge them for the purposes of the business and this there is not. Nor can I see any justification for the suggestion that the clause authorising the executors to deal with 'the various items' of his estate whether in the business' or otherwise should be read as enlarging the powers of the executors. The words 'and to invest the proceeds in any other forms of investment which they consider suitable in their discretion' indicate what was meant. The executors were to have the right of disposing of the assets and re-investing the proceeds in more suitable securities pending the administration of the estate should they so think fit.

16. I hold that the will does not confer upon the executors the power to charge the general assets and inasmuch as these mortgages were created for the purposes of the business, they are invalid in law. In these circumstances it is not necessary to consider whether the fourth respondent's signature in the mortgages meant that he signed as executor. It may be assumed for the purposes of this appeal that he did so sign. His signature even if appended in his capacity of executor would not bind the estate, because he had no power to mortgage the general assets for the purposes of the business.

17. The contention that the appellant is entitled to be regarded as a creditor of the testator in respect of the sum of Rs. 20,000 is based on allegations of fact which have not been proved. At the time of the testator's death the partnership business had a current account with one Harsukhdoss Chowkmull, who held a floating charge on some of the private properties of the testator. This account at the time of the death of the testator was overdrawn to the extent of Rs. 90,000. On 1st April, 1926, the fourth respondent executed two mortgages, one for Rs. 30,000 and the other for Rs. 20,000. The properties covered by these mortgages were subsequently mortgaged to the appellant. It has been contended that the amount raised under the mortgage for Rs. 20,000 was utilized in reduction of the overdraft in the current account with Hursukhdoss Chowkmull. When the appellant's mortgage was executed the two mortgages of 1st April, 1926, were discharged and it is said that it must be taken that the appellant's money to the extent of Rs. 20,000 had been utilized in payment of debts due by the testator. This matter was not raised in the trial Court, and in the judgment it is expressly stated that none of the parties claimed any right under the floating security held by Harsukhdoss Chowkmull. In these circumstances the appellant is not entitled to raise this contention, but it is clear that, even if he were entitled to do so, he would have no right to be regarded as a creditor of the testator. The account books of the business relating to the account with Harsukhdoss Chowkmull have been put in evidence and the amount which was outstanding at the time of the testator's death was paid off by subsequent payments into the account. The account was further drawn upon and at one time the amount owing was Rs. 1,75,000 but this does not alter the; fact that payments in had discharged the liability at the time, of the death of the testator. Therefore, on the facts the appellant is not entitled to rank as a creditor of the testator, even if he had set up that claim in the trial Court.

18. In 1928 the testator's business was transferred by the executors to themselves. The business subsequently failed and the executors were adjudicated insolvents. The appellant asks that he should be allowed to stand in the shoes of the executors for purposes of claiming repayment from out of the business assets of the amounts borrowed from him and shown to have been utilized in the business. This is not objected to and there will be a direction to this effect embodied in the decree. The appellant further asks that certain immovable property, described as item No. 24 in the schedule to the plaint, should be allotted to the fourth respondent in respect of his share of the estate, if this is possible. The reason for the request is that the appellant purchased this property during the pendency of the litigation. There is no objection to a direction to this effect being also included in the decree and this will also be ordered.

19. It is not necessary to consider the contention raised by the twenty-second respondent to the finding of the learned trial Judge that the doctrine of lis pendens applies, because, even if it' does not apply, the mortgage is not one which binds the estate generally, but merely the interests of the respective heirs who signed the document.

20. The appeal and the memorandum of cross-objections wilt be dismissed with costs in favour of the contesting respondents, who are respondents 1 to 3, 8 and 27 to 34. There will be one set of costs in respect of the memorandum of appeal, and one set in respect of the memorandum of objections and a certificate for two counsel will be granted in each case.


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