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Arumugasundara Maharaja Pillai and ors. Vs. K. Narasimha Iyer and ors. - Court Judgment

LegalCrystal Citation
Decided On
Reported in29Ind.Cas.916
AppellantArumugasundara Maharaja Pillai and ors.
RespondentK. Narasimha Iyer and ors.
Cases ReferredSee Syed Ibrahim Sahib v. Arumugathayee
mortgage - equity of redemption purchased by mortgagee--merger--incumbrances in favour of mortgagee, effect on--extinguishment of mortgage--transfer of property act (iv of 1882), section 101, scope of--question of intention in each case--proof of intention. - wallis, c.j.1. in 1882 the 1st defendant executed a mortgage, exhibit a, of the suit properties in favour of one mahalinga aiyar, who transferred it on 15th august 1892 by exhibit b to the father of the 1st plaintiff, whose son, the 1st plaintiff, was married to the 1st defendant's daughter. on 13th february 1893, the plaintiff's father obtained a lease, exhibit e, of the suit properties from the 1st defendant at a rent of rs. 300, which would appear to have been an undervalue. on 9th february 1897 the 1st defendant executed a fresh mortgage, exhibit f, in favour of the 1st plaintiff's father for the amount found due on the mortgage exhibit a. subsequently in december 1899, the 1st defendant's equity of redemption was sold in execution by a decree-holder (see exhibit k) and except as.....

Wallis, C.J.

1. In 1882 the 1st defendant executed a mortgage, Exhibit A, of the suit properties in favour of one Mahalinga Aiyar, who transferred it on 15th August 1892 by Exhibit B to the father of the 1st plaintiff, whose son, the 1st plaintiff, was married to the 1st defendant's daughter. On 13th February 1893, the plaintiff's father obtained a lease, Exhibit E, of the suit properties from the 1st defendant at a rent of Rs. 300, which would appear to have been an undervalue. On 9th February 1897 the 1st defendant executed a fresh mortgage, Exhibit F, in favour of the 1st plaintiff's father for the amount found due on the mortgage Exhibit A. Subsequently in December 1899, the 1st defendant's equity of redemption was sold in execution by a decree-holder (see Exhibit K) and except as regards 9-5/8 f-awnies was purchased at the Court sale for Rs. 182 by one Sundara Raja Aiyangar, who a few days later by Exhibit 3 transferred the interest he had acquired to the 1st plaintiff for the same sum of Rs. 182. Between four and five years later, the 1st plaintiff re-conveyed the suit properties except the 9-5/8 cawnies to the 1st defendant for Rs. 185. The document reads at first sight like an out-and-out sale but beneath the signature of the vendor and his witnesses there is a further statement signed by the 1st plaintiff alone, to the effect that the sale was subject to two mortgages one of which was the suit mortgage. In 1910 the 1st plaintiff and his sons instituted the present suit on the mortgage so reserved and obtained a decree and one of the main contentions raised by the present appellants, who represent subsequent alienees from the 1st defendant, is that the suit mortgage was extinguished when under Exhibit 3 the 1st defendant's equity of redemption in the suit properties was acquired by the 1st plaintiff. This acquisition must be considered to have been made on behalf of his joint family, which included a younger brother since deceased and the 1st plaintiff's sons who are co-plaintiffs with him in this case, and it was treated as joint family property in Exhibits 10 and 11. It may, therefore, be said that by Exhibit 3 the mortgagees acquired the equity of redemption except as regards 9-5/8 cawnies. The owners of these items are not parties to the present suit and though the items acquired by them may be liable for their proportionate share of the mortgage-debt, that does not appear to affect the question whether there has been a merger as regards the items of the mortgaged properties which have been acquired by the mortgagees.

2. This question of merger has recently been considered by the House of Lords in Whiteley v. Delaney (1914) A.C. 132 : 83 L.J. Ch. 349 : 110 L.T. 434 : 58 S.J. 218 and by the Privy Council in Bhawani Kumar v. Mathura Prasad Singh 16 Ind. Cas. 210 : 40 C.P 89 : 16 C.W.N. 985 : 23 M.L.J. 311 : 12 M.L.T. 352 : (1912) M.W.N. 944 : 14 Bom. L.R. 1046 : 16 C.L.J. 606. As pointed out in the former case by the Lord Chancellor, where the mortgagor himself has purchased the interest of the 1st mortgagee he cannot derogate from his own bargain by setting up the mortgage so purchased against the 2nd mortgage created by himself: Otter v. Lord Vault 2 K. & J. 650 affirmed 6 Dec. M. & G. 638 : 26 L.J. Ch. 128 : 3 Jur. (N.S.) 169 : 5 W.R. 188 : 69 K.R. 943 : 106 R.R. 235. Next there is the case of a third party purchasing the mortgaged property and paying off a prior mortgage out of the purchase-money as in Toulmin v. Steere 3 Mer. 210 : 17 R.R. 67 : 36 E.R. 81. The Privy Council have held that decision to be inapplicable to India in Gokaldas Gopaldas v. Puranmal Premsukh Das 11 T.A. 126 : 10 C.P 1035 : 8 Ind. Jur. 396 : 4 Sar. P.C.J. 543 and the Lord Chancellor in the case just cited, whilst refraining from expressing any opinion as to whether or not it was correctly decided, observed that it amounted to no more than this that in such circumstances the presumption was that the purchaser did not intend to keep the mortgage alive. So that even here the question was treated as one of the intention of the purchaser. Lastly we have cases like the present where it is an encumbrancer who acquires the equity of redemption see Hayden v. Kirkpatrick 34 Beav. 645 : 11 Jur. (N.S.) 836 : 55 E.R. 784 : 145 R.R. 717 and to these cases Section 101 Transfer of Property Act, expressly applies. The section is as follows: Where the owner of a charge or other inoumbrance on immoveable property is or becomes absolutely entitled to that property, the charge or incurnbrance shall be extinguished, unless lie declares, by express words or necessary implication, that it shall continue to subsist or such continuance would be for his benefit'. The word 'absolutely' cannot mean that there are no mesne incunibrances outstanding, as the very object of the exception to the section is to protect the prior mortgagee against such incumbrances. When, as in the recent cases of Bhawani Kumar v. Mathura Prasad Singh 16 Ind. Cas. 210 : 14 Bom. L.R. 1046 : 16 C.L.J. 606 and Laxman Uanesh Rajendra v. Mathurabai Narayan Govind 23 Ind. Cas. 121 : 38 B.p 369 : 16 Bom. L.R. 26 there are no such incumbrances, there can scarcely be any room for the exception, and there is a merger under the section. In the former case where under the local revenue law, land was sold for arrears of revenue subject to any mortgage subsisting at the date the arrears fell due, and it appeared that the arrears fell due between the date when the mortgagee purchased the property under his mortgage-decree and the confirmation of the sale to him, it was held that the mortgage-debt was extinguished as from the date of the purchase and that there was consequently no mortgage subsisting at the date when the arrears fell due. The only mortgage of any of the suit properties effected by the 1st defendant subsequently to the suit mortgage and before he parted with his interest in the equity of redemption under Exhibit K was in favour of the father of the 31st defendant of items 53 and 56 for Rs. 160 under Exhibit 19. The 1st defendant whose evidence must be received with caution deposes that subsequently to the original mortgage, Exhibit A, which was renewed by the suit mortgage, Exhibit F, he executed two mortgages in favour of one Ramasami Iyer, a District Registrar, and these mortgages if are still outstanding.on the date of Exhibit 3 would have been postponed to the suit mortgage. It appears, however, from Exhibits 43 and 44 that on the 7th December 1889 the 1st defendant sold two villages for Rs. 30,000 to one Thimma Reddy, who undertook to discharge these mortgages out of the purchase-money and as we find no reference to them either in Exibits F, L or 19--the mortgage-deeds have not been produced--I think it is not shown that these mortgages were outstanding at the date of Exhibit 3 as to afford any ground for supposing that it was the intention of tha 1st plaintiff to keep the suit mortgage alive as a protection against them or to bring the case within the exception to Section 101 of the Transfer of Property Act.

3. The subsequent mortgage of two items only for the small sum of Rs. 160 under Exhibit 19 could not affect the mortgagee's intention as regards the other items. We find the 1st plaintiff and his brother in 1901 pleading in the plaint, Exhibit 11, that by virtue of Exhibit 3, the entire interest in the suit lands, which were included in the properties mortgaged under Exhibit F, belonged exclusively to them and in 1903 by Exhibit 10, they mortgaged the suit properties for Rs. 2,000 without any reference to any subsisting mortgage on them. In these circumstances and apart from Exhibit L, I do not think it is shown that there was not a merger under the terms of Section 101, Transfer of Property Act, when the mortgagees acquired the equity of redemption under Exhibit 3. As to Exhibit L, I cannot agree with the Subordinate Judge that the reservation of the suit mortgage inserted out of its proper place in that document is sufficient evidence of an intention, on the part of the mortgagees at the date of the purchase of the equity of redemption some five years previously, to keep alive the suit mortgage: it might be otherwise if the purchaser of the equity of redemption under Exhibit 3 by the 1st plaintiff was benami for the 1st defendant, but that is not the plaintiffs' case and is negatived by the way in which the plaintiffs subsequently dealt with the property as full owners.

4. If there was a merger under Exhibit 3, the suit mortgage was discharged and the suit as framed must fail. The Subordinate Judge has dismissed the suit as regards some of the subsequent alienees for value from the 1st defendant, on the ground that the 1st plaintiff attested the conveyances under which they claim, but has overruled that plea in the case of the present appellants in the absence of such attestation. Even if the facts do not amount to an estoppel, the conduct of the 1st plaintiff in executing Exhibit L in a form which at first sight represents the 1st defendant as purchasing free from incuinbrances and his subsequent conduct in treating the 1st defendant as full owner and attesting alienations by him to third parties, would appear to have misled the present appellants and having regard to these and to other suspicious circumstances going to the foundations of the plaintiffs' claim, I think it sufficient to say that that claim fails as laid and that the appeal must be allowed and the suit dismissed with costs throughout.

5. Seshagri Aiyar, J.--I entirely agree with my Lord. The 1st defendant was the owner of the properties in Ahe suit. He mortgaged them to the father of the 33rd defendant in 1882 (Exhibit A). The 1st plaintiff's father obtained an assignment of that mortgage (Exhibit B) in 1892. Some payments were made towards the debt. Finally in 1897, the 1st defendant executed Exhibit P for the debt remaining unpaid under Exhibit A to the 1st plaintiff's father. Previous to it a lease (Exhibit E) was granted to the mortgagee for a period of 10 years from 1893. The 1st plaintiff's father was in possession under that lease. The rent reserved was only Rs. 300 a year, which on the evidence was far below what the 1st defendant could have got as income from the mortgaged property. It was suggested that this low rent was paid as the arrangement was that the 1st plaintiff's father should pay himself the amount due under the mortgage from the surplus income. But there is no clear evidence of this agreement. While the 1st plaintiff's father was in possession, a money decree was-obtained against the 1st defendant by a third party, and in execution of that decree the equity of redemption in the mortgaged properties was purchased by one' Sundara Raja Aiyangar for Rs. 185. It was said' that this purchase by Sundara Raja Aiyangar was really benami for the plaintiff. There are recitals in some of the documents which show that Sundara Raja Aiyangar was only a name-lender for the 1st plaintiff; but it is not necessary to pursue this matter further, because nothing turns upon it. Sundara Raja Aiyaugar conveyed the equity of redemption purchased by him to the 1st plaintiff by Exhibit III in 1900. The 1st plaintiff sold to the 1st defendant all his right, title and interest in the properties subject to a reservation, which I shall refer to later on, under Exhibit L on the 30th of June 1905. It is proved that after this purchase by the 1st defendant, he either sold or mortgaged the properties as if he were absolute owner thereof. On the 20th March 1906 he mortgaged to the 6th defendant some of the properties which were covered by Exhibit L for Rs. 1,000 (Exhibit XX). This was attested by the 1st plaintiff. By Exhibit IV on the 27th April 1906 the 1st defendant transferred to his daughter another portion of the property. This again was attested by the 1st plaintiff. By Exhibit II of the 13th May 1906, he transferred to his wife some property. On the 26th November 1906 he mortgaged to certain persons another portion of the property under Exhibit IX. Both these alienations were similarly attested by the 1st plaintiff. I will now refer to transactions which were not attested by the 1st plaintiff. On the 7th April, 1907, the 1st defendant by Exhibit XV mortgaged to the 8th defendant some properties included in Exhibit L. By Exhibit XIII on the 10th May 1907, he mortgaged to the same person, the 8th defendant, another property for Rs. 600. On the 15th August 1907 by Exhibit XVI, he sold other properties to the 12th defendant. In all these documents, whether attested by the 1st plaintiff or not, there are recitals which were calculated to induce the transferee to believe that the 1st defendant was the absolute owner of the properties ho was dealing with. The 1st plaintiff instituted the present suit to enforce his mortgage rights under Exhibits A and F. No claim is put forward in respect of the reservation contained in Exhibit L. The basis of the 1st plaintiff's claim is that the mortgage of 1892 and of 1897 is still subsisting, and that he is entitled to proceed against the properties for the debt duo to him. The 1st defendant is the original mortgager and the transferee of the rights of the 1st plaintiff in the equity of redemption. The other defendants are the alienees of the mortgaged properties from the 1st defendant. The defence of these alienees was, the right of the 1st plaintiff under the mortgages was extinguished by the transfer which he obtained from Sundara Raja Aiyangar of the equity of redemption. The Subordinate Judge came to the conclusion that as against those alienees whose conveyances or mortgages were attested by the 1st plaintiff, the 1st plaintiff is not entitled to rely on his mortgage to bring the properties in their possession to sale, but that the 1st plaintiff was entitled to proceed against the properties of the other defendants whoso alienations were not attested by him (1st plaintiff). These latter defendants have preferred this appeal.

6. Before dealing with the questions of law argued by Mr. K. Srinivasa Aiyangar, it is well to point out that the 1st plaintiff is the son-in-law of the 1st defendant, and that the appellants are strangers to both the 1st plaintiff and the 1st defendant. The result of the 'conclusion at which the Subordinate Judge has arrived is to throw on the property in the hands of these appellants the whole burden of the mortgage-debt amounting to Rs. 23,000 and odd. It is clear that those properties are not worth more than Rs. 16,000 or Rs. 17,000 at the utmost. There is the question that these appellants wore liana fide purchasers for value. I am unable to accept the contention of the appellants that the Ist plaintiff is estopped by his conduct in attesting the sale-deeds in favour of his wife and mother-in-law from now disputing that the 1st defendant had riot an absolute interest in the properties. There is unfortunately no clear evidence that these appellants took the properties on the faith of the conduct of the 1st plaintiff. Although I have come to the conclusion, I feel little hesitation in saying that this is an iniquitous attempt on the part of the 1st defendant to charge the whole mortgage-debt upon properties in the hands of strangers after having secured to his relations with the concurrence of the 1st plaintiff a large slice of the property originally mortgaged.

7. One other circumstance may be mentioned. This suit is not based upon Exhibit L, which is a conveyance from the 1st plaintiff to the 1st defendant and which also contains a reservation in 1st plaintiff's favour in respect of his, mortgage. It was argued by the learned Vakil for the appellants that the clause in this document which says the amount due to the said Visvanatha Aiyar is Rs. 2,000. This sum of rupees two thousand and the hypothecation right which I have and which is mentioned on the first page hereof are not discharged from the deed', can have no effect as against the clear and unambiguous recital in the operative portion of the document. It has to be noticed that, while the-first portion of the document was signed and attested, this latter portion is not attested. It has been suggested that this latter clause was a memorandum made at the time of registration to enable the executant to pay less stamp duty upon the document than he would have been obliged to do if the' property was conveyed free of encumbrances. This suggestion receives support from the fact of the so-called reservation not being attested and also from the fact that subsequently the Collector to whom the document was sent by the Registrar levied the full stamp duty on the document, treating apparently the new clause as of no effect. It has also been argued before us that if in a deed the subsequent clause is inconsistent with the operative portion of it, effect should not be given to it. Norton on Deeds, page 80, and the observations of Tindal, C.J., in Durham and Sunderland Railway Co. v. Walker 2 Q.B. 940 : 2 G. and D. 326 : 11 L.J. Ex. 442 : 114 E.R. 364 : 57 R.R. 842. were quoted for the proposition. It is not necessary to give a decision whether the highly artificial rules of construction regarding deeds drawn up by solicitors fully, conversant with conveyancing can be applied to documents executed in this country. The cardinal principle which should guide Indian Courts in such matters is to ascertain the intention of the parties. Technical rules of construction should as far as possible be avoided. Therefore, I do not rest my decision upon the construction to be placed on Exhibit L. This suit was not based upon that document; it is not necessary in the view I am taking to decide whether by this memorandum, made at the end of the document, the 1st plaintiff reserved to himself the right to proceed against the properties. Exhibit L will be relevant in considering whether the alienees, who must be deemed to have had constructive notice of its contents, understood the document to convey only a limited interest to the 1st defendant. This document and the other evidence bearing on the question will be considered in that connection.

8. The main point for decision is whether, by the purchase of the equity of redemption from Sundara Raja Aiyangar, the 1st plaintiff's mortgage-debt was extinguished. Mr. Srinivasa Aiyangar contended that if there are intervening incumbrances, the purchaser of the equity of redemption may use his mortgage as a shield to protect himself against them, but that he could not sue upon his mortgage. There is no document from the 1st defendant to the 1st plaintiff which secures any right to proceed against the property in the hands of the former. Section 101 of the Transfer of Property Act was relied upon very strongly by Mr. Venkatachariar for the respondent. That section was intended to introduce with some limitations the rule of law enunciated in Toulmin v. Steere 3 Mer. 210 : 17 R.R. 67 : 36 E.R. 81. That decision has been the subject of considerable adverse criticism in the English Courts. Quite recently, the House of Lords in Whiteley v. Detaney (1914) A.C. 132 : 83 L.J. Ch. 349 : 110 L.T. 434 : 58 S.J. 218 discussed that judgment. Some of the observations of the learned Lords who delivered their opinions indicate that this case is no longer a binding authority. However that may be, Courts in India are governed by the statutory provisions contained in Section 101 of the Transfer of Property Act. It is clear that section contemplates the existence of puisne encumbrances. Unless that may be the object, the clause relating to the subsistence of the encumbrance being for the benefit of the purchaser can have no meaning. The person who becomes absolutely entitled to the property cannot reserve in his favour and ss against himself his own mortgage. As I read the section, it leaves untouched the general rule of law that when a mortgagee purchases the equity of redemption the incumbrance in his favour is extinguished. It only enacts that where there are other mortgages on the property, an intention will be imputed to the mortgagee-purchaser that he intended to keep alive his own mortgage as a protection against subsequent claimants. The discussion in the House of Lords in the case already referred to shows that the rule enabling the purchaser to fall back on his mortgage is an infringement of legal rights. Consequently a strict construction should be placed on this provision of law. I am of opinion that the mortgagee-purchaser can use his previous mortgage only as a shield if there are mesne encumbrances, and that also only in respect of the properties which are covered by such encumbrances. I shall deal with the questions whether there were any subsisting encumbrances at the time the equity of redemption was purchased later on. Even if there are such encumbrances, I am of opinion that the mortgagee-purchaser is not entitled to sue upon his mortgage. I am also of opinion that the 1st plaintiff did not intend to keep alive the 1st mortgage for his benefit. The clause in Exhibit L reserving such right is suspicious; The relationship of the parties (son-in-law and father-in-law) suggests that the 1st plaintiff parted with his absolute rights. It is true that the low price for which the sale was effected is an element for consideration. As against this, there is the fact that upon the properties of the value of over Rs. 50,000 the 1st defendant recovered only Rs. 300 a year for 10 years. It may be that the son-in-law-parted with his full rights in view of his having enjoyed the large income from the properties. There is the further fact that after the transfer under Exhibit L absolute conveyances attested by the 1st plaintiff were effected of the properties. The 1st plaintiff could not have intended to reserve his mortgage rights when he knew that these properties were to be sold to his own wife and his mother-in-law. To my mind the relationship of the parties, the enjoyment of a large income by the 1st plaintiff without accounting for it to the 1st defendant and the subsequent conduct in attesting conveyances, all show unmistakably that the 1st plaintiff never intended to keep his mortgage alive. Further, the 1st plaintiff before the sale to the 1st defendant conducted proceedings as absolute owner. See Exhibits XI, S, X and Q 4. It is clear from these documents that it was not for his benefit to regard himself as a mortgagee.

9. The contention that the purchaser has two distinct and separate interests in the property in all cases where there are mesne incumbrances found favour with Mookerjee, J., in the case reported as Bhawani Koer v. Mathura Prasad 7 C.L.J. 1 but the Judicial Committee reversed this decision. See Bhawani Kumar v. Mathura Prasad Singh 16 Ind. Cas. 210 : 14 Bom. L.R. 1046 : 16 C.L.J. 606. The observations of their Lordships leave no room for doubt that where there are no encumbrances, there is an extinguishment of the right under the mortgage when the equity of redemption is acquired. Laxman Ganesh Rajendra v. Mathurabai Narayan Govind 23 Ind. Cas. 121 : 12 A.L.J. 457 are to the same effect. In Ramu Naickan v. Sub-baraya Mudali 7 M.H.C.E. 229, it was decided by this Court that the mortgage right can only be used as a shield against puisne encumbrances. Considerable stress was laid on behalf of the respondent upon the decision of the Full Bench in Mulla Veetil Seethi v. Korumbath Paruthooli Achuthan Nair 9 Ind. Cas. 513 : (1911) 1 M.W.N. 165 : 21 M.L.J. 213 : 9 M.L.T. 431 In that case there was first a simple mortgage, then the mortgagor granted a usufructuary mortgage. The first mortgagee became the owner of the equity of redemption by purchasing it at a sale in execution of a decree in a suit on his mortgage to which the usufructuary mortgagee was not a party; and then brought a suit to recover possession of the property from the usufructuary mortgagee. The learned Judge held that he was not entitled to possession, the ground of decision being that the 1st mortgagee can only claim to stand in the shoes of the mortgagor, and as the mortgagor had given a usufructuary mortgage the first mortgagee-purchaser acquired no right to sue for possession. There can be no question that this conclusion is correct. But the respondent's Vakil relies upon certain observations in the judgment for the position where there are puisne encumbrances, the first mortgagee-purchaser can never get an absolute title to the property. In page 225 it is stated: Merger, on principle, is impossible, for the case of first mortgagee acquiring the equity of redemption, when a second mortgage is still outstanding, is not one of the rights and correlative objection coalescing in the same person, or of a smaller interest getting absorbed by a larger, or of two contiguous interests carved out of property combining to form a larger whole.' No authority is quoted for this broad proposition excepting an extract from Lindley's Jurisprudence, Appendixes 57 and 58 I may mention that the term merger is not appositely used in this connection. The rights of puisne encumbrancers are neither lost nor merged in the title acquired by the mortgagee-purchaser. They would be outstanding--See Section 55, Clause (d) of the Transfer of Property Act. The only question is whether the first mortgage is capable of enforcement as such in a suit founded on it. If it was intended to lay down that it is open to a mortgagee purchaser to sue on his mortgage to foreclose the latter mortgages, I respectfully dissent from the conclusion. In my view the mortgage was extinguished when the 1st plaintiff acquired the equity of redemption and it is not open to him to sue upon it, whatever may be his rights to use the mortgage as a defence against puisne encumbrancers. See Syed Ibrahim Sahib v. Arumugathayee 16 Ind. Cas. 877 : 38 M.P 18. Moreover, there is no satisfactory evidence in this case of any subsequent mortgages having subsisted at the time the ejuity of redemption was purchased from Suudara Raja Aiyangar. This question was not argued before the Subordinate Judge; the documents creating these mortgages have not been exhibited. But reliance is placed upon two judgments in which reference is made to, them. Those judgments do not show that the mortgages were valid and subsisting at the time when the equity of redemption was acquired by the 1st plaintiff and his predecessor. On-the other hand Exhibits 43 and 44 show that the previous encumbrances were intended to be paid off in 1889. Non const at, they have not been discharged.

10. I would, therefore, allow the appeal and dismiss the suit against these defendants with costs here and in the Court of first instance.

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