1. The facts which are relevant to this Second Appeal are as follows: One Chikayi Ammal was the owner of a piece of immovable property. In 1919 she mortgaged it in favour of the deceased husband of the third defendant in the suit. Chikayi Ammal later sold this property, or the equity of redemption to one Chinnathayi, the deceased father of defendants 1 and 2. In 1920 Chinnathayi executed a second mortgage of the same property in favour of the plaintiff. It is convenient to refer to the third defendant as the 1st mortgagee, the plaintiff as the 2nd mortgagee and the first and second defendants as the mortgagor.
2. In 1926 the first mortgagee filed a mortgage suit upon the mortgage of 1919 and in that suit did not implead the second mortgagee as a party. In 1930 a mortgage decree was passed and in due course the mortgaged property was put up for sale by auction and was purchased at the sale by the first mortgagee, who, since that date has been in possession of the mortgaged property. There is no suggestion that the proceeds of the sale amounted to a sum which exceeded the amount due in respect of the first mortgage. In 1934 the present suit was filed; the plaintiff being the second mortgagee, impleading the first mortgagee as the third defendant.
3. In the trial Court the learned District Munsif decreed the suit in favour of the second mortgagee holding that the earlier decree had in no way affected his rights and that as the 12 year period of limitation in respect of the first mortgage had expired by the date of the institution of the second suit, the first mortgagee could not avail herself of its provisions and could not seek to have her mortgage redeemed by the 2nd mortgagee and was not entitled to remain in possession of the property against the decree which was passed in favour of the second mortgagee in the suit. The lower appellate Court reversed the decision of the learned District Munsif. It is against the reversal in the Court below that this appeal has been preferred.
4. Order 34, Rule 1, Civil Procedure Code provides as follows:
Subject to the provisions of this Code, all persons having an interest either in the mortgage security or in the right of redemption shall be joined as parties to any suit relating to the mortgage.
5. As stated above the first mortgagee did not follow the provisions of the above rule and failed to join in the first mortgage suit the second mortgagee. Such a failure to join a subsequent mortgagee does not disturb the rights of the later mortgagee. The decree and the subsequent sale do not affect those rights which a subsequent mortgagee has under his mortgage. What are those rights? The second mortgagee is entitled to sue upon his mortgage and having obtained a decree and the mortgage debt remaining unpaid, the hypotheca can be sold and, subject to the rights of the prior mortgagee, the proceeds utilised to pay off the second mortgage debt. The first mortgagee has a prior right over the second mortgagee in regard to the satisfaction of her mortgage debt out of the mortgaged property. The failure to join the second mortgagee in the suit, by the first mortgagee does not give to the former and further rights which he did not possess so as to entitle the second mortgagee to ignore the existence of the first mortgage.
6. In the present case the first mortgagee, having failed to join the second mortgagee in the suit and having obtained a decree and purchased the property in the subsequent auction sale and now being in possession, sets up her prior mortgage against the claims by the second mortgagee for possession and sale of the mortgaged property. On the other hand, the second mortgagee's contention is that since the period of limitation in respect of the first mortgage expired before the date when the second mortgage suit was filed, the first mortgagee cannot rely upon the first mortgage deed. It must be borne in mind that the first mortgagee is not suing upon or setting up this earlier mortgage by making any claim under it but is attempting to use it only as a shield to the claim put forward by the second mortgagee.
7. The learned Counsel for the appellant has conceded that if at the date of the institution of the present suit the period of limitation in respect of the earlier mortgage had not elapsed, then the first mortgagee could resist the claim by the second mortgagee by relying upon the provisions of the first mortgage. It is contended, however, that since the period of limitation had expired, the first mortgagee is not now entitled to rely upon her mortgage.
8. I have been referred to a number of authorities which appear to some extent to be conflicting. In Kotappa v. Raghavayya (1926) 52 M.L.J. 532 : I.L.R. 50 Mad. 626, a puisne mortgagee paid off a decree on a prior mortgage and was thereby subrogated to the prior mortgagee's rights thereunder. When the period of limitation under the earlier mortgage had expired, the mortgagor filed a suit for redemption of the puisne mortgage. The puisne mortgagee contended that he was entitled not only to the amount due to him under the second mortgage but also to the sum due under the prior mortgage which he personally had discharged and he attempted to resist redemption until both those debts had been fully satisfied. It was held that the rights under the prior mortgage could be enforced only within 12 years from the date on which a suit on that mortgage could have been brought. In his case, although the puisne mortgagee was a defendant and was resisting the claim for redemption, he was also endeavouring to enforce the prior mortgage in respect of which the statutory period of limitation had expired by claiming the monies due under the mortgage and was not merely using ft as a defence to the claim for redemption but in addition was making the same claims as would be put forward if a mortgage suit had been filed upon the mortgage. The matter then under consideration was approached by 'the learned Judges, who decided that case, from the aspect of the right to enforce a mortgage by suit. Madhavan Nair, J. in the course of his judgment at page 635 said:
A subsequent mortgagee has the right to pay off the prior mortgagee. By making such payment he acquires in respect of the property all the rights and powers of the mortgagee whom he has paid off. One of such rights is this power to enforce his charge against the property subject to the law of limitation. If, therefore, at the time when the subsequent mortgagee seeks to enforce the security by virtue of subrogation, a suit by the first mortgagee is barred by time, the subsequent mortgagee's right is also barred.
9. Again at page 638 the learned Judge having referred to Mahomed Ibrahim Hussain Khan v. Ambika Pershad Singh (1912) 22 M.L.J. 468 : L.R. 39 IndAp 68 : I.L.R. 39 Cal. 527 held that the decision applied to the matter before him and said that,
the first defendant's right to claim the additional amount, viewed as a claim to enforce the security, is consequently barred by limitation.
10. This decision was followed in Draviam Chettiar v. Ramayya Chettiar (1934) 68 M.L.J. 362, by a Judge sitting alone and was approved in Aravamudhu Aiyangar v. Zamindarini Srimathi Abhiramavalli Ayah (1933) 66 M.L.J. 566. A decision to the same effect was given in Sibanand Misra v. Jagamohan Lall I.L.R.(1922) 1 Pat. 780. In all these cases the right of either the 1st mortgagee, or of any one who stands in his shoes, is dealt with from the aspect of the mortgage being enforced by way of a suit or by a proceeding comparable to the enforcement of a mortgage by a suit, such as resisting redemption until all the monies are paid under the mortgage. In Mahomed Ibrahim Hussain Khan v. Ambika Pershad Singh (1912) 22 M.L.J. 468 : L.R. 39 IndAp 68 : I.L.R. 39 Cal. 527 , a puisne mortgagee had advanced monies to pay off a prior mortgage and thereby he became subrogated to the prior mortgagee and he failed in the suit for a declaration that the properties were liable in respect of the earlier mortgage which was filed after the limitation period had elapsed. Again, that mortgagee was endeavouring to enforce the provisions of a mortgage deed and was not using it in any way as a defence.
11. In Karuppa Chettiar v. Venkataperumal : AIR1929Mad465 , in the course of the judgment of Odgers, J, with which Phillips, J. agreed at page 467 he stated that if the decision in Kotappa v. Raghavayya (1926) 52 M.L.J. 532 : I.L.R. 50 Mad. 626, meant that a defendant could not set up his paid off mortgage except within 12 years from the date of the mortgage, the learned Judges did not agree with that decision which apparently was based upon the decision in Gopi Narain Khauna v. Bansidhar (1905) 15 M.L.J. 191 : L.R. 32 IndAp 123 : I.L.R. 27 All. 325 , before the Judicial Committee, a case as to a plaintiff and not as to a defendant. It was held in Karuppan Chettiar v. Venkataperumal : AIR1929Mad465 , that the purchaser in a court auction of a mortgage right is entitled to set it up as a shield against the puisne mortgagee who was not made a party to the suit on the mortgage and this right to set up the mortgage as a shield is not defeated by the 12 years rule of limitation. That decision was referred to with approval by Horwill, J. in Halsnad Madappayya v. Mahabala Rao : AIR1937Mad826 , and a decision to a like effect is to be found in Venkataramana Reddi v. Rangiah Chetty : AIR1922Mad249 . In Ram Sanehi Lal v. Janki Prasad I.L.R.(1931)53 All. 1023 , (heard by five Judges) Sir Shah Sulaiman, Acting Chief Justice, in the course of his judgment at page 1045 said:
The question of allowing a prior mortgagee, whose mortgage had long since become barred by time but who was in possession of the property under a decree obtained without impleading the subsequent mortgagee, to set up his prior mortgage as a shield, even though the limitation for the mortgage had run out, was prominently before their Lordships in Sukhi v. Ghulam Safdar Khan (1921) 42 M.L.J. 15 : L.R. 48 IndAp 465 : I.L.R. 43 All. 469 and their Lordships allowed Ghulam Safdar to recover the amount due on his mortgage of 1883. This, to my mind, is a clear authority for the proposition that a prior mortgagee if he is in possession, can set up in defence a prior mortgage as a shield, although in his suit he had not impleaded the subsequent mortgagee and even though a fresh suit to enforce it would now be barred by time.
12. Three of the other learned Judges forming the Court agreed with the Judgment, from which I have just quoted. Whilst this passage may not have been in respect of a matter for decision in the case and is merely obiter, in Sarda Prasad v. Kanhailal : AIR1933All412 , it was quoted with approval. Bennet, J. in the course of his judgment at page 413 said:
This ruling of law is in our opinion, applicable to the present case. In the present case the appellant has been in possession, and although a suit on the original mortgages of 1909 and 1913 would now be time barred, the fact that the appellant is in possession entitles him to set up these mortgages as a' shield.
13. In Sukhi v. Ghulam Safdar Khan (1921) 42 M.L.J. 15 : L.R. 48 IndAp 465 : I.L.R. 43 All. 469 to which Sir Shah Sulaiman referred, Lord Dunedin in the course of their Lordships' judgment, at page 475 said that,
An owner of a property who is in the rights of a first mortgagee aril of the original mortgagor as acquired at a sale under the first mortgage is entitled at the suit of a subsequent mortgagee, who is not bound by the sale or the decree on which it proceeded to set up the first mortgage as a shield.
14. In that case it would seem from the facts that the earlier mortgage might have been time barred at the time of the subsequent suit, but no argument or reference is made in regard to the question of limitation and it is not clear that it is an authority for the matter for decision before me. However, as pointed out earlier, a reference to the case before the Judicial Committee was made in Ram Sanehi Lal v. Janki Prasad I.L.R.(1931) 53 All. 1023 in which it was stated that a time barred mortgage deed could be utilised as a defence or shield.
15. The learned Counsel for the appellant has gone to the length of saying that if a first mortgagee in a mortgage suit failed to implead a second mortgagee, obtained a decree, had the property put up for sale and it was purchased by an innocent stranger, then in a suit filed subsequently by the second mortgagee the innocent stranger could be ejected from the property, if at the date of the second suit the earlier mortgage had become statute barred. This is to my mind a far-reaching proposition. No authority was quoted in support of it.
16. In the line of authorities to which I have referred, of which Kotappa v. Raghavayya (1926) 52 M.L.J. 532 : I.L.R. 50 Mad. 626 is one, it is to be noticed, as I have pointed out, that claims were being made to enforce the mortgage. The other line of cases are authorities in which the first mortgagee, or the persons standing in his shoes, were not asserting or setting up any claim under the mortgage itself but using the provisions of the mortgage deed as a defence and to resist a claim or claims made by a subsequent mortgagee. In my view the latter line of decisions is to be preferred so far as the facts of the present case are concerned. The second mortgagee is not to be in any better position by reason of the failure to join him in the first mortgagee's suit than he was prior to that time, namely, he is entitled to have his rights which existed at the date of the institution of the first suit safeguarded.
17. Coming to the present appeal, the third defendant, as the first mortgagee, exercising her rights under her mortgage, obtained a decree and in the 'subsequent Court auction became the purchaser and is in possession of the mortgaged property. This was effected within the period when the first mortgage could be enforced. The provisions of the first mortgage deed evidence the right under which the first mortgagee purchased and came into possession of the mortgaged property. Following Karuppan Chettiar v. Vekataperumal : AIR1929Mad465 and the authorities to a like effect, I am of opinion that the third defendant is entitled to resist the claim by the plaintiff under his puisne mortgage by relying upon and using the prior mortgage as a defence or a shield although by the date when the plaintiff's mortgage suit was filed the period of limitation of the earlier mortgage had expired and although the plaintiff, as second mortgagee, was not made a party to the third defendant's mortgage suit upon the prior mortgage.
18. Some of the authorities to which I have referred were considered by Wadsworth, J. in Krishna Aiyar v. Subba Reddiar : AIR1939Mad678 . In the light of the facts then before the learned Judge he preferred to adopt the other line of cases. If my decision to day is at variance with his opinion, then I must respectfully say that I do not agree with the conclusion at which he arrived.
19. The result is that the appeal is dismissed with costs.
20. Leave to appeal is granted.