Francis W. Maclean, E.C.I.E., C.J.
1. These are appeals from the decision of the Subordinate Judge of Murshidabad. The plaintiffs' claim, put shortly, is one to realize an equitable sub-mortgage, which they allege was created in their favour on the 3rd June 1893 (the terms of the agreement appearing in a letter of the 19th June 1893) by one Dhanpat Singh for a sum of Rs. 70,000, of which apparently a considerable amount has been paid off, as the present claim is for a sum of Rs. 27,000 only.
2. The facts of the case, which are substantilly are these: the first four defendants, or at any rate their predecessors in title, the original mortgagors, whom I will call the Roys some time before June 1893, mortgaged for a large amount by three mortgages, property of considerable value in favour of Dhanpat Singh.
3. On the 3rd June 1893, Dhanpat Singh deposited those mortgages by way, as is, alleged by the plaintiffs, of equitable sub-mortgage to secure the sum I have mentioned, and on the 19th June 1893, wrote the letter 1 have referred to
4. That letter is as follows: .
Babu Bhupendra Nath Bose,Attorney-at-Law.Dear Sir,In reference to the claim of Raja Gtakul Dass Ballav Dass as proprietor of the firm of Sewram Khasal Chand of Calcutta' against myself for Rs. 70,000 principal, besides interest at 6 per cent, per annum I beg to put down in writing, at the request of Babu Srish Chandra Roy Chowdhry, Vakil for the said Raja Crokul Dass, and for your guidance the arrangement arrived at for the payment of the said debt: the arrangement is as follows: that I shall pay him one-fourth of Rs. 70,000 within a fortnight, one-fourth by promissory note payable six months from date, and the remaining half by a promissory note payable within a year. In the meantime and until payment of the claim in full of Raja Gokul Dass, you will hold as agent for him (he mortgage kist-landi, dated 25th Falgun .1292, executed in my favour by Babu Bhagabatty Charan Roy and others as enumerated below, which I have already made over to you as such agent as aforesaid as security for the due payment of the said debt, not to be parted with by you without mutual consent of myself and Raja Gokul Dass or under an order of Court. I shall give directions to the said Bhagabatty Charan Roy and his co-sharers in the said mortgage to pay to you as my Attorney all monies for principal or interest payable on the said kistbandi mortgage, until the debt due to the Raja is fully paid off, and you are authorized to pay to the Raja such sums as you may from time to time realize in payment of the said promissory notes as they fall due. If, however, at any time before the liquidation in full of the debt due to Raja Gokul Dass, it should be necessary to raise money on mortgage of the properties mortgaged to me under the said deeds, I shall be at liberty to do so to the extent of Rs. 1,00,000 (one lakh), out of which the promissory note payable six months from date shall be reserved and provided for, executing at the same time a second mortgage securing the residue of the sale-proceeds of the mortgaged premises to the said Raja Gokul Dass for the payment to him of the amount remaining unpaid on the said promissory notes. Dated the 19th day of June 1893.
List of Mortgages.
From Chandra Moni Dasi and others to myself for Rs. 3 lakhs, dated 25th Falgun 1292, Registration No. 211 for 1886, Book I, Vol. 8, of Berhainpur. (Signature in Nagri.)Rai Dhanpat Singh Bahadur.
5. The plaintiffs say they gave notice of this sub-mortgage in December 1893 to the Roys; that is abundantly clear, though' disputed by the Roys. It cannot be successfully contested that, at the date of the suits to which I am about to refer, the Roys had not clear notice of the existence of the sub-mortgage in favour of the plaintiffs. On the 17th January 1894, Dhanpat Singh, the original mortgagee, instituted a suit to realize one of his mortgage securities, and, on the 16th April 1894, he instituted another suit for the realization of the second and third mortgages. In April 1894 the original mortgagors, the Roys, and Dhanpat Singh settled these suits, and the terms of that settlement are evidenced by the release of the 21st April 1894. Under that settlement, Dhanpat Singh accepted Rs. 1,20,000, a smaller sum than the amount actually due on the mortgages and released, the original mortgagors from the mortgage debi; and released the property mortgaged. The deed of release, however, contains the following covenant by Dhanpat Singh, which is not unimportant: 'That the mortgagee, his heirs, executors, administrators, representatives and assigns shall at all times hereafter keep the mortgagors, their heirs, executors, administrators, representatives and assigns, their and each of their estates and effects harmless and indemnified against all losses, damages, actions, claims, suits, demands and accounts in respect of the said three several hereinbefore recited deeds of mortgage or any money owing or due thereunder or otherwise, however, or for any act done by him, the said mortgagee, with respect to the said deeds.'
6. Decrees in the suits were drawn up in accordance with the terms of the above compromise.
7. The plaintiffs say that they did not hear of the settlement, until June 1896; but the Court below has found that, when the two suits were proceeding, the present plaintiffs were aware of them and also found that the defendants Nos. 1 to 4, that is, the Roys, were aware of the equitable sub-mortgages to the plaintiffs before the compromise of those suits. On the 17th July 1896 the plaintiffs by a letter of that date (Ex. U) appear to have released Dhanpat Singh from his personal liability in respect of his debt due to the plaintiffs, the release being without prejudice to the plaintiffs' right to enforce their lien against the properties comprised in their sub-mortgage. Dhanpat Singh is now dead. The present suit was instituted on the 11th May 1897 with the object that I have stated. Neither Dhanpat Singh nor his representatives were originally made parties to the suit.
8. Various defences were raised in the statement of defence, and amongst them the defendants distinctly raised the issue that the suit was defective for want of parties, inasmuch as the representatives of Dhanpat Singh were not parties to the suit.
9. The Subordinate Judge ultimately dismissed the suit on the ground of want of parties and, apparently, on the ground that the plaintiffs were estopped from bringing the present suit, No question of estoppel has been suggested on the present appeal. There was then an appeal to this Court, and this Court in its judgment of the 10th August 1900 held that the representatives of Dhanpat Singh were necessary parties to the suit, but that the suit ought not to have been dismissed on that ground, but that an opportunity ought to have been given to the plaintiffs to bring in those representatives upon the terms of their paying the costs of the appeal and all costs thrown away in the Court below. This Court discharged the decree of the Subordinate Judge and remanded the case to be tried by the lower Court on the amended plaint in the presence of the representatives of Dhanpat Singh. This has now been done.
10. I will now refer to the position of the defendants, the Eastern Mortgage and Agency Company, Limited. It appears that, to enable the Roys to pay off Dhanpat Singh, and as part of the agreement, which resulted in the release by Dhanpat Singh to the Roys, the Company agreed to advance two lakhs (Rs. 2,00,000) of rupees, of which, however, 1,20,000 (one lakh twenty thousand) only was actually advanced to the Roys to enable the latter to pay off Dhanpat Singh, taking, as they did, from the Roys a mortgage dated the 23rd April 1894 for these Rs. 2,00,000 (two lakhs) upon the property covered by the three mortgages by the Roys to Dhanpat Singh and which three mortgages had been sub-mortgaged to the plaintiffs, the deeds being in the hands of their agents on the 23rd April 1894. The Company, it is obvious, in taking that mortgage, made no enquiry whatever for those deeds. As between the plaintiffs and the Company, the case of the former is that whether the latter had actual or constructive notice of this equitable sub-mortgage, the plaintiffs are entitled to priority over them. The Company's case is they had no notice, that their mortgage was what they call a legal mortgage, and that they are entitled to priority over the plaintiffs.
11. The defence of the Roys is:
(1) that as the plaintiffs had released Dhanpat Singh from all personal liability in respect of the debt, they could not now proceed to realize the security as there was no existing debt;
(2) that in point of fact, there was no concluded mortgage by deposit on the 3rd June 1893, that the real contract of mortgage was entered into by the letter of the 19th June 1893, and that, as this was not registered under Section 17 of the Registration Act, it had no validity and there was no mortgage. These in substance are the relative contentions of the parties.
12. As between the plaintiffs and the Roys, the Court below has found that there was a good equitable sub-mortgage created on the 3rd June 1893, that on that date the deeds were deposited with an agent of the plaintiffs as security for the money due from Dhanpat Singh to them, that it was a perfectly good sub-mortgage, and that the Roys had full notice of it, when they paid off Dhanpat Singh and took a release from him. But, as between the plaintiffs and the Company, the Court below has found that the Company had no notice of the plaintiffs' equitable mortgage when they made their advance in April 1894, and that they are entitled to priority over the plaintiffs.
13. The plaintiffs have appealed against the latter decision, whilst the Roys have appealed against that part of the decree, which is adverse to them, though, considering the covenant of indemnity by Dhanpat Singh to the Roys in the release of 1894, and having regard to the fact that the estate of Dhanpat Singh is, as we are told, amply sufficient to meet any liability tinder that covenant, the Roys can have but little practical interest in the matter, and their appeal is probably more in the interest of Dhanpat Singh than of themselves.
14. Upon the first question, looking to the terms of the release of the 17th July 1896, we think it is quite clear that the rights of the plaintiffs were kept alive as against the property comprised in the mortgages, and the endorsements of the hundies refer explicitly to the terms of the deed of release. We think there is no real substance in this point.
15. We think it is quite clear, from the evidence of Bhupendra Nath Bose, who was Dhanpat Singh's own solicitor, and of Srish Chandra Roy Chowdhury, a, pleader, that these three mortgage-deeds were in fact deposited with Bhupendra as the agent of the plaintiffs to secure the debt then due from Dhanpat Singh to them. There can be very little doubt but that the mortgage was concluded on that day. It was a valid mortgage under Section 59 of the Transfer of Property Act and did not require registration. A valid mortgage had been created before the letter of the 19th. June 1893. The letter of the 19th June speaks of the sub-mortgage as having been already made and was written by Dhanpat Singh at the suggestion of the pleader Srish Chandra Chowdhury as an admission by him that this sub-mortgage had been created. Reliance has been placed upon a passage in the letter that the deeds were not to be parted with without the mutual consent of himself and the plaintiffs or under an order of the Court. It is said that this shows that Dhanpat Singh still retained control over the deeds, but it is clear that this is not what was intended. It was probably only meant that the plaintiffs were not to part with the deeds without giving Dhanpat Singbran opportunity of paying off their debt, and getting them back, as the debt of the Roys to him was so much greater than his debt to the plaintiffs. We entirely agree, therefore, with the Subordinate Judge in holding that a good equitable sub-mortgage-was created in favour of the plaintiffs on the 3rd June 1893, that the object of the letter of the 19th June 1893 was not to constitute the contract between the parties, but was written with the object and for the purpose we have stated, and that, consequently, it did not require registration under Section 17 of the Registration Act. In this connection, we may refer to the judgment of a Division Bench of this Court, of which Chief Justice Couch was a member, in the case of Kedar Nath Butt v. Sham Lall Khettry (1873) 20 W.R. 150, in which the case of Duarka Nath Mitter v. Srimati Sarat Kumari Dasi (1871) 7 B.L.R. 55 (O.J.) upon which the appellants, the Roys, rely, was dealt with. We think the principle of the case before Sir Richard Couch has a direct bearing upon the point now before us. It is also, we think, abundantly clear that, before the Roys paid the Rs. 1,20,000 to Dhanpat Singh, they had notice of the equitable sub-mortgage in favour of the plaintiffs. The words in the covenant of indemnity in the release of the 21st April 1904--' or for any act done by him, the said mortgagee, with respect to the said deeds '--are specially significant in this connection We, therefore, agree with the Subordinate Judge in holding that there was a perfectly good equitable sub-mortgage on the 3rd June, that the transaction was completed on that day, that the sub-mortgage was not created on the 19th June, and that the Roys had the fullest notice of this sub-mortgage before they paid off Dhanpat Singh, and, upon these findings, we think that the appeal of the Roys must be dismissed with costs. This disposes of appeal No. 208 of 1903.
16. We now pass to the appeal of the plaintiffs (Mo. 184 of 1903), which deals with the question of priority as between the Company and themselves. The Company say they claim under a registered mortgage, that they had no notice of the plaintiffs' equitable sub-mortgage, and that they are entitled to priority. The plaintiffs contend that, inasmuch as they are prior in point of time, whether or not the Company had notice of the sub-mortgage, they are entitled to priority, and they put their case in this way. They say that, having regard to the last paragraph of Section 59 of the Transfer of Property Act, the transaction with Dhanpat Singh constituted a perfectly valid mortgage to them, inasmuch as it was a delivery to the creditor's agent of the three mortgages, which constituted the only documents of title of the property in question and that this was done with intent to create a security thereon. A mortgage is defined in Section 58 of the Transfer of Property Act. No registration then was required under Section 59. As stated by the Judicial Committee in the case of Webb v. Macpherson (1903) I.L.R. 31 Calc. 57, 72, 'the law of India, speaking broadly, knows nothing of the distinction between legal and equitable property In 'the sense in which that was understood when equity was administered by the Court of Chancery in England.' The case of the Company, as presented to us, is that they are 'legal' mortgagees and that they are in the same position as a legal mortgagee in England, who has obtained the legal estate without notice of the prior equitable encumbrance. But the reasoning is fallacious, because in India there is no such distinction between legal and equitable estates as is known to the English law. If the Company's claim can be sustained, it can only be sustained under Section 48 of the Indian Registration Act of 1877, and that brings us to the question whether the transaction in the present case, under which these documents of title were deposited with the plaintiffs' agent, was merely an oral agreement within the meaning of that section. Now, it was decided more than 20 years ago by Mr. Justice Pigot, in the case of Coggan v. Pogose (1884) I.L.R. 11 Calc. 158, that a deposit of title-deeds of certain property, under a verbal arrangement to secure payment of a debt, is not an oral agreement or declaration relating to such property within the meaning of Section 48 of the Registration Act.' That decided the precise point. So far as we are aware, that decision has never since been dissented from. We think it is unlikely that during this long series of years the point would not have arisen.. The case is stronger since the passing of the Transfer of Property Act, for Section 59 recognises such a transaction as a valid mortgage, without the necessity of registration, while Section 58 tells us what a mortgage is, and Section 67 what are the rights of the mortgagee. We, therefore, think that, apart from the question of notice, the Company is not entitled to priority over the plaintiffs, as the former are not protected by Section 48 of the Registration Act. This point does not seem to have been argued in the Court below; anyway the judgment does not refer to it. Upon the facts, however, we think the Company must be taken to have had notice of this sub-mortgage, when they advanced the Rs. 1,20,000 to Dhanpat Singh. Notice is defined in Section 3 of the Transfer of Property Act. One Bhupendra Sri Ghose, who was and had been for some years an articled clerk of Sanderson & Co., Solicitors for the Company, was sent down to Murshidabad to complete the transaction of the mortgage to the Company by the Roys. He took the Rs. 1,20,000 with him, and paid it to Dhanpat Singh. He was not called, though we were told that he was in Court during the trial. We think it must be taken that he represented the Company in the transaction of the mortgage to them, and that notice to him would be notice to the Company. It appears from the evidence that he himself wrote out the release by Dhanpat Singh to the Roys, in which occurs the remarkable covenant for indemnity, 'for any act done by him, the said mortgagee, with respect to the said deeds.' It is clear that at this time both Dhanpat Singh and the Boys were perfectly aware of the sub-mortgage to the plaintiffs. Bhupendra Sri Ghose prepared the petitions of compromise in the mortgage suits then going on, and subsequently compromised. He paid the consideration money on behalf of the Company to Dhanpat Singh. He never made any enquiry of Dhanpat Singh as to where the mortgage deeds were, which ought to have been handed over on the completion of the mortgage to the Company. He never enquired why the special covenant as to the deeds was inserted in the release. One would have thought that that part of the covenant of indemnity, which related to the deeds, would at once have put this gentleman on enquiry as to where they were, and what had become of them, and why they were not handed over. The deeds had been put in evidence in the mortgage suits brought by Dhanput Singh; they were produced by Bhupendra Nath Boss as the agent of the plaintiffs, and remained in Court for some time, and were ultimately restored to him with a very significant endorsement upon them That endorsement is to be found at page 85 of the paper-book in appeal No. 176 of 1898. I am not saying, as the Company were not parties to those suits, that they are affected by notice of what took place in them, but still Babu Bhupendra Sri Ghose must have known that there were these three deeds of mortgage. He never enquired for them, and if he had enquired for them, and had enquired whether they had been put in evidence in the suits, he would at once have discovered what the facts really were. Then, again, the mortgage to the Company was for Rs. 2,00,000 (two lakhs), but only one lakh and twenty or thirty thousand was actually paid to Dhanpat Singh, and it is suggested that the Company kept back the balance in order to meet any possible claim of the present plaintiffs in respect of their sub-mortgage. The release was handed over to the Company on completion. We think there is sufficient on these materials to justify the Court in finding that Bhupendra Sri Ghose, who was acting for the Company in the transaction, wilfully abstained from making any enquiry as to the deeds, which he ought to have made, and that consequently he must be taken to have had notice of the sub-mortgage to the plaintiffs, and that notice to him was, in the circumstances, notice to the Company, whose agent he was in the transaction (see Section 229 of the Contract Act). 'We differ, therefore, from the conclusion of the Court below upon this question of notice and think that, for the reasons we have given, this appeal ought to be allowed, and a decree made declaring that the plaintiffs are entitled to a valid equitable charge upon the property covered by the three mortgages in priority to the defendant Company, and that in default of payment either by the Company or by the Roys of what is due upon that security, the mortgaged property or a sufficient portion of it be sold to meet the plaintiff's claim. Unless the parties can agree as to the amount due to the plaintiffs, an account must be taken of what is due. The plaintiffs will have the costs of this appeal and of the suit, which they may add to their security.
17. We give no costs to the representatives of Dhanpat Singh, as we are far from being satisfied with the part which he played in the transaction. It looks very much as if it were a scheme between Dhanpat Singh and the Roys to defraud the plaintiffs, if they could.
18. I am of the same opinion.