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B.R. Sawmy Rao Vs. the Official Assignee of Madras - Court Judgment

LegalCrystal Citation
SubjectProperty;Civil
CourtChennai
Decided On
Judge
Reported in(1925)ILR38Mad703
AppellantB.R. Sawmy Rao
RespondentThe Official Assignee of Madras
Cases Referred and Muhammad Hafiz v. Muhammad Zakariya
Excerpt:
civil procedure code (act v of 1908), order ii, rule 2 - mortgage bond--independent covenant to pay interest--provision for payment of principal and interest on demand--suit on independent covenant for payment of interest, only--petition by official assignee of mortgagor against mortgagee in - .....do in this country, for an independent obligation to pay the principal and the interest, that in a suit brought to obtain a personal judgment in respect 6f the interest alone the rule would have prevented a subsequent claim for payment of the principal.that is the guiding principle that the board has laid down for us. now, what of this instrument it seems to me perfectly clear that there is an independent covenant for the payment of interest and that the principal actually becomes payable not on failure to pay a current instalment of interest but on failure to comply with the demand to pay the interest and principal due together. there is no proviso here, which, i quite agree, might make all the difference, that the failure to pay an instalment of interest shall make the whole principal.....
Judgment:

Murray Coutts Trotter, C.J.

1. This raises a matter of some little interest. The learned Judge came to the conclusion to which he felt himself constrained to come with obvious and natural reluctance. I confess that I do not see any particular difficulty about this case when the documents are looked at carefully.

2. The case gives rise to a question as to the construction of Order II, Rule 2, an enactment peculiar to Indian Law and an enactment the supposed benefit of which I have never been able even to guess at or to make the slightest suggestion of what benefit it would be to anybody at all. The effect of it is said to be that the mortgagee in this suit having sued for an instalment, of unpaid interest on his mortgage was to be held thereafter debarred from recovering the principal. That would not carry the respondent all the way because what he has done here is not to raise this matter by way of defence to a suit on the mortgage or anything of the kind but to go boldly to the Court of Insolvency and ask for a declaration that the mortgage is dead-cancelled. In any event, whatever be the true effect of Order II, Rule 2, he cannot go to that length and, if it were necessary to decide on that ground alone, I should be prepared to allow this appeal on the ground that the learned Judge had no jurisdiction, on an application of the Official Assignee, to make any such declaration. However, I think it can be decided on a better ground than that.

3. The line of demarcation between the two classes of cases that arise is clearly drawn by the judgment of the Privy Council in the case of Kishen Narain v. Paid Mal I.L.R., (1923) Lah., 32; 60 I.A., 115, and what the Board says is this ;

'If the plaint originally brought came to be properly interpreted as claiming only a personal relief in respect of the unpaid interest, the appellant's case would be on surer ground'; and further

It does not appear to their Lordships that if the mortgage had provided, as mortgages always do in this country, for an independent obligation to pay the principal and the interest, that in a suit brought to obtain a personal judgment in respect 6f the interest alone the rule would have prevented a subsequent claim for payment of the principal.

That is the guiding principle that the Board has laid down for us. Now, what of this instrument It seems to me perfectly clear that there is an independent covenant for the payment of interest and that the principal actually becomes payable not on failure to pay a current instalment of interest but on failure to comply with the demand to pay the interest and principal due together. There is no proviso here, which, I quite agree, might make all the difference, that the failure to pay an instalment of interest shall make the whole principal amount due. I take it, though it is not necessary to decide the point, that in such a case very likely Order II, Rule 2, might apply. But, as I say, here there is au independent covenant to pay interest and it is on that, I have scrutinized the pleading in the Small Cause Court suit very carefully and it is quite obvious, that the suit was brought on a personal covenant and a personal covenant alone to pay interest and the plaint carefully abstains from asking for any sort of charge upon or other remedy against the mortgaged property; and the defence was an unsuccessful attempt to force the plaintiff into the position of saying that he was claiming in a matter which involved an adjudication as to immovable property, an attempt which properly failed.

4. Then the next thing--and it is apparently the ground on which the learned Judge went in making this order--is that the letter of the 28th of December 1921 which demanded the interest was of itself also a demand for the principal. That argument is one that I fail to appreciate. It is no use setting out the letter. These is an unquestioned demand for the interest and what follows is a warning that, if that demand is not complied with, the Vakil will be instructed to recover not only the interest but the principal. Now a threat to make a demand cannot be construed as being in itself a demand. I do not understand and I am free to say on that part of Mr. Aingar's argument that I have been totally unable to follow it.

5. On these grounds I think that the learned Judge's order is wrong and must be reversed with costs here and below on the Original Side scale.

Krishnan, J.

6. This is an appeal against an order passed by Waller, J., sitting in the Insolvency Court, on an application made by the Official Assignee to have a mortgage in favour of the appellant before us, declared invalid.

7. The learned Judge has passed an order in those terms. The reason given for the order is this : The mortgagee, it seems, brought a suit in the Small Cause Court, Madras, for the interest due under the mortgage bond for some months. It is claimed that because of that circumstance, the mortgagee's right to sue for the principal is barred by Order II, Rule 2 of the Code of Civil Procedure, and therefore the Official Assignee is entitled to be given a declaration that the mortgage is defunct. To start with, there is the difficulty in the way of this application, that Order II, Rule 2, does not apply unless the mortgagee brings a suit to enforce his mortgage, as the rale merely bars a second suit. The question will arise only in a second suit brought by the mortgagee and not in an application brought by the Official Assignee in the Insolvency Court as representing the insolvent mortgagor. In the second place, if we look at the mortgage bond, it clearly contains separate covenants as regards payment of interest and of principal. It provides that the mortgagors 'shall pay the interest of the said debt, every month, within the fifth of that month, commencing from the fifth of the current month May 1921.' It then goes on to provide that the mortgagors and their heirs shall pay the principal amount, Rs. 5,000, and the interest due there for to the mortgagee or his heirs whenever demanded. It is quite clear that here we have two independent covenants; and it leaves it open to the mortgagee to call in his mortgage money whenever he likes or to leave it under mortgage with the mortgagors; but the right to get the interest every month is specifically provided for and requires no demand whatsoever, for interest is payable independently of demand on the fifth of every month. The sentence that follows these two clauses in this mortgage deed is this:

In default of our paying so, you and your heirs shall legally proceed upon us and on our heirs and on the mortgaged properties mentioned in the Schedule A below and on our other properties and shall realize the amount.

8. It is contended that the words 'in default of our paying so' should be taken to mean 'in default of our paying either the interest in the first clause or the principal amount and interest as in the second clause on demand. I am unable to agree with this contention. I think the words ' in default of our paying so' clearly has reference only to the second clause, namely, on the failure to pay the amount of the principal and interest after demand. No demand was necessary to bring a suit for the interest. A suit for interest was brought by the mortgagee in the Small Cause Court not against the property itself but to get a personal decree against the mortgagors. The fact that he brought that suit before demanding the principal cannot prevent a subsequent suit being brought for the principal amount after demand. If, as held by Waller, J., a demand had already been made for the principal money before the suit in the Small Cause Court had been brought and the principal amount and interest had both become payable by the time, Order II, Rule 2, would apply to the second suit by the mortgagee ; but that contention fails in this ease because I agree with the learned Chief Justice that Exhibit B does not amount to a demand for the payment of the principal amount at all. It is as explained by His Lordship only a threat that proceedings would be taken through a vakil for the purpose of recovering the principal as well, if the interest is not paid ; the vakil, if he is instructed, will have to take the necessary steps under the bond to realize the money and the first step which he would have to take would be to make the necessary demand under the deed; so that with all respect to Waller J., Exhibit B cannot be construed, in ray opinion, as tantamount to a demand for the principal. In this view, at the date when the Small Cause suit was brought the principal amount of the mortgage money had not become payable, the mortgagee not having exercised his option of calling it in. Order II, Rule 2, then would not apply even in the case of a second suit on the mortgage.

9. The point whether Order XXXIV, Rule 14, has not got a bearing on this question has not been argued and, therefore, I do not wish to express any opinion on that point.

10. The law as to the applicability of Order II, Rule 2, has been laid down by the Privy Council in the cases referred to before us, namely, Kishen Narain v. Pala Mal I.L.R. (1923) Lah., 32, 50 I.A., 115 and Muhammad Hafiz v. Muhammad Zakariya (1922) I.L.R., 44 All., 121 (P.C.) ; S.C. 49 I.A., 9. In the latter case, as Lord Buckmaster explained, where there is a provision in the mortgage deed for the payment of interest different from that as to the payment of the principal, making two independent covenants, if a personal action is brought on the covenant for the payment of interest and a decree is obtained, that would not prevent a subsequent suit being brought for the mortgage money and Order II, Rule 2, would have no application. That is exactly the case here. Order II, Rule 2, will apply only if at the date of suit both the principal and interest had become payable.

11. In these circumstances, I agree with the learned Chief Justice that this appeal must be allowed with costs against the Official Assignee.


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