1. This is an appeal against the appointment in a suit on a simple mortgage of a receiver of the rents and profits of property covered by the mortgage at the instance of the plaintiff mortgagee. The appellant is defendant 3 who is in possession as purchaser before suit of the mortgaged and other property of the mortgagors (defendants 1 and 2), part of the consideration (Rs. 24,500) being the mortgage debt which he undertook in the sale deed to pay but has not paid. The mortgage debt amounted on 29th September 1930, the date of the preliminary decree, to nearly Rs. 37,000. The property consists of a compound and 20 houses in Tuticorin yielding a gross annual rental of Rs. 2,316 and a net income of about Rs. 1,300. The application for receiver was made on 14th August 1931. I am informed that the final decree was passed in May 1932 pending this appeal.
2. The chief ground on which the receiver was applied for and granted was that having regard to the great fall in the value of property the mortgage debt will not be realized by the sale of the properties and that defendant 3, realizing this, is not only not paying off the debt or even the interest but throwing obstacles and causing delays by vexatious Court proceedings so as to enjoy the property as long as possible and put off the sale. If this appeal depended on the above or similar considerations which affect receiver applications in ordinary simple mortgage suits, I should have no hesitation in confirming the order of the learned Judge:
If the decree is for sale and it is established that the security is not sufficient to satisfy the judgment debt, a receiver will be appointed as a matter of course specially if there has been default in the payment of interest: Khub Surat Koer v. Saroda Charan Guha (1911) 12 IC 165. Whether the mortgagee is or is not entitled to possession he may invite the Court to appoint a receiver if the demands of justice require that the mortgagor should be deprived of possession.
3. Rameshwar Singh v. Chunilal Shaha AIR 1920 Cal 545 cited with approval in Maharajah of Pittapuram v. Gokul Doss Govardhan Doss AIR 1931 Mad. 626. I am satisfied that the likelihood is that the property will not be enough for the mortgage debt and that the appellant realizing this is trying to delay the realization of the debt as long as possible as it is profitable for him to do so. On the merits I am against the appellant. But it is urged that the plaintiffs in this case (mortgagees) have as declared in the preliminary decree given up their right to personal remedies against the mortgagors and are therefore not entitled to proceed against their other property for any deficiency that may arise on the sale and that in such circumstances the Court has no jurisdiction to appoint a receiver, as it amounts to allowing the plaintiffs through the machinery of receiver to take what they have given up and are not legally entitled to get. If the appellant is entitled to succeed on this point my opinion on the merits does not matter. It is admitted before me that the plaintiffs have expressly given up in the lower Court all rights to a personal remedy: see para 5 of the preliminary decree. The learned advocates on both sides stated that they have not been able to find any direct decision. But Venkata Raja Gopala Surya Row v. Bastvi Reddy AIR 1915 Mad 133 appears to me to contain a direct decision, though the opinion of the learned Judges on the point was in conflict. I have therefore to examine the matter on principle. The appellant's argument is that where the mortgagor, as in the case of all simple mortgages in India, is lawfully in possession and is under no personal liability to pay the debt either by the terms of the instrument or otherwise and the decree preliminary or final does not contemplate the enforcement of any personal liability for any deficiency that may arise on the sale, the income of the property till the judicial sale belongs lawfully to the mortgagor and cannot be proceeded against for the decree because it is not part of the security and ex hypothesi the plaintiff is not entitled to go against anything else but the security. To appoint a receiver on the plaintiff's application in such a case is either to enlarge the security or proceed against the other property of the mortgagor, neither of which the Court has any right to do.
4. Since the decision of Kumaraswami Sastri, J., in Ethirajalu Chetti v. Rajagopalachariyar AIR 1929 Mad 138 which he followed the next day in respect of a simple money claim (Nedungadi Bank Ltd., Madras v. Official Assignee, Madras) A.I.R. 1929 Mad. 184 it may be taken to be the view of this Court agreeing with that of the Calcutta, Bombay, Rangoon and Lahore High Courts that at least in a case where the mortgagor is personally bound to pay the debt in a simple mortgage and either he has defaulted to pay the interest while enjoying the property or the property has diminished in value so as not to be sufficient to satisfy the whole debt, the mortgagee may in a suit on the mortgage obtain a receiver for taking the rents and profits of the mortgaged property and paying them into Court for the benefit of the mortgagee and so deprive the mortgagor of possession even before the sale. The same would, of course, be the case if the mortgagor is wasting or damaging or not taking due care of the property. Therefore I am not prepared to follow the view of the Allahabad High Court that execution by way of receiver is totally inadmissible in execution of mortgage decrees: Makhan Lal v. Mushtaq Ali : AIR1927All419 . But can a receiver be appointed and the mortgagor be deprived of possession before the Court sale where there is no personal covenant on his part to pay or where it has become barred or where, as in this case, the plaintiff has deliberately given it up and therefore the decree does not and cannot contemplate a personal decree for any deficiency found at the sale? I can find nothing in principle to support this unless it be held that in a simple mortgage in India the security extends not merely to the corpus of the property but its future income.
5. The future income of property is capable of being mortgaged by a simple mortgage just like the corpus. The mortgage in Sri Raja Papamma Rao v. Vira Pratapa H.V. Ramachandra Raju (1896) 19 Mad 249 was one of this character:
One possessed of land may grant the fruits which shall arise upon it and the property shall pass as soon as the fruits are in being: Fisher on Mortgagee End. 7, p. 49.
6. I know of recent cases where on the ground of the income being included in the mortgage, the simple mortgagee was held entitled to the benefit of decrees obtained by the mortgagor for rent on the property in preference to simple money creditors. Phillips, J., and I so held in A.A. O, No. 418 of 1927.. But where the income is not expressly included in the security, all that a simple mortgage comprises as security is the corpus. In applying English decisions on the appointment of receivers in mortgage suits the great differences between the English and Indian systems of mortgage must not be lost sight of. For Indian lawyers a detailed and thorough knowledge of the old English system and of the great changes in it brought about in theory and practice by the important legislation of 1925 is not easy or indeed necessary to acquire. But the most important differences in the best known forms of mortgage in England are enough to justify the caution. The legal mortgagee's right to possession which followed from his legal ownership according to the old theory and practice of conveyancing is preserved to him under the new Law of Property Act (1925) which however confers the legal ownership on the mortgagor (Section 87) and a similar right now belongs to holders of a legal charge and of a registered charge: see Fisher on Mortgages 7th Edn. 376. It was on the analogy of a legal mortgagee that an equitable mortgagee who as such was not entitled to and had no means of taking possession was accorded a receiver as a means of realizing his security: Kerr on Receivers p. 35. In practice now both kinds of mortgagees are accorded a receiver under the same conditions and almost as a matter of course. Again a personal covenant to pay is either expressed or implied in every mortgage. For every mortgage implies a loan, and every loan implies a debt for which the borrower is personally liable though he has entered into neither bond nor covenant for payment of it: Fisher p. 349. But where there is no personal covenant express or implied as in a mortgage of a public undertaking the lender can only recover from the security mortgaged, i.e., the undertaking and has no right to sue the corporation or proceed against any other property: Fisher p. 350. In India the right to possession is expressly conferred only on usufructuary mortgages and some anomalous mortgages like kanom and may also in theory be exercised by English mortgagees and mortgagees by conditional sale. Neither a simple mortgagee nor mortgagee by deposit of title-deeds has such right; but there is a covenant for payment in both; express in the former, implied in the latter. In all cases of receiver in India which I have come across, either the personal liability of the mortgagor existed or was assumed or the mortgagee was entitled to take or treat the income as part of the security.
7. In the simple mortgage now in question the plaintiff is neither entitled to a charge on the income nor has he reserved his right to a personal decree. Nor has the learned Judge upheld the allegation that the appellant is wasting or damaging the property or not taking due care of it. All that we have is that while the interest is mounting up, the corpus of the property is steadily becoming more and more insufficient to pay off the whole debt and the appellant is enjoying the rents and profits without paying even the sum which he under-took with the mortgagors to pay to the mortgagee. In brief the receiver is not required to preserve the property, as the property is being properly preserved. Nor is he required to realize the security because the security does not comprise the income. Nor can the income become liable to be seized because the mortgagors are not liable to pay the debt except from the security. I fail to see how it is just or convenient to seize a man's property which is not charged for a debt and for the payment of which there being no personal liability that property is not liable. In that respect I see no difference between the income of the mortgaged property and any other property of the mortgagor which the plaintiff cannot proceed against. As for the authorities certain remarks in Khub Surat Koer v. Saroda Charan Guha (1911) 12 IC 165 already referred to are suggestive. That was an appeal from an order for appointment of a receiver in a mortgage suit. The mortgage was either an English mortgage or one by conditional sale as appears from the decree which was for foreclosure. After remarking that where there is a decree for sale a receiver will be appointed the learned Judge points out that in that case the mortgagee has obtained a decree for foreclosure which does not entitle him to recover even the costs of the litigation from the mortgagors personally, and that on the decree as it stands the only right of the mortgagee is to foreclose the mortgagors and to take the property in lieu of his dues on his security and that he is not entitled to the profits of the property. 'Even if a receiver were appointed he could not apply the profits of the property for the benefit of the mortgagee.' It seems to me that for reasons already stated that is the position here.
8. There is a remark in Chockalingam Pillai v. Pichappa Chettiar : AIR1926Mad155 , which though made in other circumstances is not without application here. In that case a receiver had been appointed in a suit for specific performance of an agreement to execute a simple mortgage. It was urged and the Court adopted the contention that the Court will not by way of receivership do what it would not be entitled to do even by way of decree.
9. But the judgments of Oldfield and Sadasiva Iyer, JJ., in Venkata Rajagopala Surya Row Bahadur v. Basivi Reddi AIR 1915 Mad 133 are, though conflicting, directly in point. There had been a compromise decree against a minor oh two-mortgages. The minor brought a subsequent suit questioning the decree alleging fraud of his guardian and obtained an order staying the execution of the former decree. All chance of obtaining a personal decree for any deficiency which might occur at the sale was barred by limitation before the suit. The mortgaged property continued in the enjoyment of the debtor and the decree amount had swelled to about 10 times the value of the property. In these circumstances the mortgagee applied for and obtained an order for a receiver of the mortgaged property to collect the rents and profits. Oldfield, J., took the view that none of the decisions contain any reference to personal liability as the basis of appointment of a receiver. On the ground that the English and Indian decisions do not require the existence of any personal liability he upheld the order. As to this view it is to be observed that in Weatherall v. Eastern Mortgage Agency Co. (1911) 9 IC 985 and Eastern Mortgage and Agency Co. Ltd. v. Rakea Khatun (1912) 17 IC 202 two of the cases which the learned Judge thought to be in favour of the respondent, the former was a case of an English mortgage in the ordinary form and the latter was also a similar mortgage but in the form of conveyance to trustees for payment of interest and principal from the rents and profits. Thus in both cases the income had become part of the security and the receiver was appointed to realize the security for that reason. In Khub Surat Koer v. Saroda Charan Guha (1911) 12 IC 165 which I have already noticed and to which Oldfield, J., also refers, a receiver was refused on the definite ground that according to the decree the profits of the property could not be used for the benefit of the mortgagee. Sadasiva Iyer, J., took the opposite view and held that unless either the income is charged for the debt, or where the income is not so charged there is a personal liability in satisfaction of which it can be seized, or except to preserve the corpus from destruction or waste by the mortgagor, a receiver cannot be appointed in a simple mortgage suit. He understood the decision in Arunachalam Chettiar v. Manicka Varaher Desiker (1909) 3 IC 437 as illustrating his opinion that there must be the possibility of a personal decree before a receiver can be appointed in such a case. Of the above views I prefer that of Sadasiva Iyer, J., though I am free to confess as to the opposite view that it is very difficult to resist the appeal of a creditor in the circumstances of that case. As to that, the mortgagee's difficulty in that case arose from the execution of his decree being stayed and the stay being continued without taking any security for the loss caused by the delay.
10. In a recent decision, A.A. Order 445 of 1928 the present question was left open by Venkatasubba Rao and Reilly, JJ. But the learned Judges expressed doubts about the correctness of Maharajah of Pittapuram v. Gokul Doss Goverdhan Doss AIR 1931 Mad. 626 so far as it held that when a receiver is appointed in a simple mortgage suit the mortgagee gets preferential rights to the income so taken by the receiver over other creditors and the Assignee in Insolvency. The remarks of Reilly, J., about applying English decisions to mortgages in India and his opinion that in the case of a simple mortgage a receiver should not be appointed unless the mortgagee has still a personal remedy in his debt against the mortgagor and that such a mortgagee cannot by getting a receiver appointed in the course of a suit enlarge his security or enlarge his rights to the prejudice of third parties who have acquired rights on the equity of redemption support the view of Sadasiva Iyer, J. On the best consideration I can give, I think the lower Court had no power to appoint a receiver in this case and that appointment must be set aside. In view of a possible appeal which I hope will be taken so that the point may be settled, the possession of the receiver will not be disturbed for one month from this day, and the receiver if he has taken possession must hand over possession after that period subject of course to any orders that may be passed by the appellate Court. The appellant must have his costs in this Court.