1. The facts giving rise to this application by the Imperial Bank of India Ltd., briefly are as follows : On 3rd April 1925, J.C. Galstaun transferred certain property by way of 'English mortgage' to the Prudential Assurance Co. Ltd., to secure a loan of 500,000. Thereafter there were two other mortgages and a sub-mortgage affecting the same property with which I shall deal presently. On 7th June 1928 the Prudential Assurance Co. Ltd., brought a suit for foreclosure being Suit No. 1178 of 1928 and on 18th December 1928 certain persons were appointed receivers in this suit. On 16th April 1929 a preliminary decree was passed directing that the mortgaged properties or portions thereof be sold and that the proceeds of the sale be applied towards the liquidation of the mortgage dues from time to time by the receivers and that if on 31st March 1931 the mortgage dues were still unpaid and any portion of the mortgaged properties were left unsold, the defendants would be absolutely foreclosed from redeeming such property. Liberty was given to the parties to apply for extension of the period of redemption. Extension of time was granted on several occasions, 7th August 1938 being the last date fixed for redemption. On that date by far the major portion of the mortgage dues were still outstanding. On 12th December 1938, the plaintiff took out notice of motion for a final decree for foreclosure and on 10th January 1939 a final decree for foreclosure was passed. Now, the receivers had made certain collections of rent and there is lying at the Bank a sum of Rs. 37,697-13-8 representing the sum collected by them as rent for the mortgaged premises. There are also arrears of rent due with respect to the mortgaged premises which have not been realized. These arrears according to the petitioner amount to Rs. 1,99,135-4-7. Lastly there are certain properties lying in Or about the mortgaged premises which are listed in an inventory which is annexure A to the petition.
2. The petitioner, the Imperial Bank of India, claims (1) the money collected by the receiver as rent for the mortgaged premises, (2) the arrears of rent due and (3) the properties of annexure A. Certain facts will have to be stated for the proper appreciation of the petitioner's claim. After the mortgage in favour of the Prudential Assurance Company Ltd., Galstaun on 2nd February 1927 executed a mortgage in favour of Aratoon Stephen since deceased. This comprised a second mortgage with respect to the properties already mortgaged to the Prudential Assurance Company and a first mortgage with respect to other immovable and certain moveable properties. The properties mentioned in annexure A of the petition also formed the subject-matter of this mortgage. On 14th February 1927 Stephen transferred to the petitioner by way of sub-mortgage the mortgage executed in his favour by Galstaun. On the same date by agreement in writing between Galstaun and Stephen it was agreed that Galstaun would appoint the Dalhousie properties Limited, the Chowringhee properties Limited and Arratoon & Co., as joint receivers of the moveable properties comprised in the mortgage in favour of Stephen, and on 15th February 1927 by an indenture in writing Galstaun so appointed them. On 14th February 1927 Galstaun effected a third mortgage in respect of the properties mortgaged to the Prudential Assurance Company Ltd., in favour of the petitioner. On 15th April 1929 the executors and trustees of the estate of Stephen brought a suit, being Suit No. 664 of 1929, on the mortgage executed in favour of Stephen, and on 12th May 1931 a preliminary decree was passed. On 28fch November 1932 the final decree was passed. On 22nd May 1933 there was an order in Suit No. 664 of 1929 directing the Registrar to take an account of the amount due to the petitioner, the Imperial Bank of India, on the sub-mortgage executed in its favour by Stephen and directing that in the event of the mortgaged properties being sold under the final decree of 28th November 1932 in favour of Stephen's estate, the sale proceeds should be applied towards the satisfaction of the dues under the sub-mortgage. On 18th December 1933 the Registrar reported that a sum of Rs. 36 lakhs odd.was due to the petitioner under the sub-mortgage on 15th November 1933. This is the present position of the parties.
3. The petitioner's case so far as the properties specified in annexure A is concerned is that they never formed part of the property mortgaged to the Prudential Assurance Co. Ltd., and that therefore the Prudential Assurance Co. Ltd., can have no right thereto by virtue of the decree for foreclosure. The argument is that by the mortgage of 3rd April 1925 Galstaun mortgaged only immovable properties and the fixtures thereto. The properties listed in annexure A according to the petitioner are not fixtures and are therefore not affected by the mortgage or by the final decree for foreclosure in favour of the Prudential Assurance Co. Ltd. The petitioner prays that these properties should be sold by the receivers appointed in Suit No. 664 of 1929 and the proceeds placed to the credits of that suit. The contention of the Assurance Company is (1) that the properties mentioned in annexure A of the petition are fixtures and (2) that whether they are fixtures or not they fall within the description of the properties mortgaged to it by the deed of 3rd April 1925. On these grounds the Assurance Company claims these articles. The description of some of the items of Schedule A was somewhat obscure and learned Counsel for the petitioner was not able to say what they were. Again it was not possible for him to say if and how they were attached to the premises wherein they were to be found. Both sides agreed therefore that so far as the items in annexure A of the petition are concerned, there should be a reference. By consent I refer the matter to the Master to enquire and report whether the articles mentioned in annexure A are the subject-matter of the mortgage dated 3rd April 1925 executed by J.C. Galstaun in favour of the Prudential Assurance Co. Ltd. He will in making his report state if and how each article or group of articles is affixed to the premises in which they are found.
4. There remains the controversy regarding the two other items, viz. (1) the money in the hands of the Receivers appointed in Suit No. 1178 of 1928, and (2) the arrears of rent of the mortgaged premises which are still unrealized. The petitioner's case is that the Prudential Assurance Co. Ltd., acquired no right to these items under the mortgage, and that in any event the terms of the final decree for foreclosure were such that it debarred the Prudential Assurance Co. Ltd., from claiming these amounts. The petitioner prays that the amount in the hands of the receivers should be paid in to the credit of Suit No. 664 of 1929. As regards the arrears the suggestion is that the receivers in Suit No. 1178 of 1928 should sell the claim for arrears and credit the amount of the sale proceeds to Suit No. 664 of 1929 or that the receivers appointed in Suit No. 664 of 1929 should be directed to realize these arrears and pay the sum realized to the credit of that suit.
5. The argument urged on behalf of the petitioner in support of its claim is this : By the decree for foreclosure, passed on 10th January 1939, all the liability of the mortgagor up to the date of the decree has been extinguished and therefore the mortgagee cannot claim either the rents collected by the receiver prior to the date of the final decree or the arrears of rent due prior to that date. Next it is contended that in any event the mortgagee is not entitled to appropriate the amount collected by the receiver prior to 5th August 1938, i.e. prior to the date fixed for redemption. It is argued that if the mortgagee wishes to get the benefit of this sum the foreclosure must be re-opened, a fresh account must be taken, the sum must be taken into account as reducing the mortgagor s dues and a fresh date for redemption must be fixed. For this view reliance is placed on the decision in Jenner Fust v. Needham (1886) 31 Ch. D. 500.
6. The argument urged on behalf of the Prudential Assurance Co., may be stated thus : The mortgage is an 'English mortgage' and therefore there has been an absolute transfer of the property mortgaged to the mortgagee subject to this, that the mortgagee shall re-convey the property upon the mortgage dues being paid. 'Property' includes the rents and profits thereof. By the mortgage therefore the right to receive rents and profits has also been transferred. True, this transfer was subject to a re-conveyance on payment of the mortgage dues, but these dues have not been paid and the title of the mortgagee to the property as well as to the rents and profits thereof both realized and in arrears has become perfected by the decree for foreclosure. The mortgagee is therefore entitled to the money in the hands of the receiver and also to the rents which are in arrear. Next it is argued that whatever may have been the rights of the mortgagor with respect to these amounts prior to the decree for foreclosure, those rights no longer exist after the decree and the property together with its rents, both collected by the receiver and in arrear, is now the property of the mortgagee. I may mention here that Mr. Sarat Chandra Bose appearing for the mortgagee respondent stated that although he felt that his client had a right to all the rents and profits collected by the receiver, he would not press his case with respect to the rents and profits collected before 5th August 1938 which was the last date fixed for redemption and that he would confine his claim to the sums collected after that date. As regards the arrears however he pressed his claim to all arrears which fell due after the date of appointment of the receiver, i.e. after 18th December 1928.
7. In order to decide the questions which have been raised one should ascertain with precision the rights of a mortgagee under an 'English mortgage' with respect to the property mortgaged. I realize that the English law regarding mortgages is not always a safe guide for the determination of all questions regarding the respective rights of mortgagors and mortgagees in this country, and that wherever rights have been regulated by the statute law of this country there can be no scope for a reference to the English law regarding those rights. I realize also that the relative rights of the mortgagor and mortgagee in England have to a very large extent been in fluenced and regulated by the principles which flow from the distinction which prevails there between the legal and equitable estate and that in this country there being no such distinction the respective rights of the mortgagor and mortgagee would not be affected by those principles. Although there exists a difference between the English and Indian law on the subject in many respects inevertheless, where the Indian statute law is silent on the subject and where the point for decision is not affected by principles which are peculiar to the English law alone, the English decisions are a valuable source of elucidation on the problems arising out of a mortgage which is in a form prevalent in England and which has been borrowed from there.
8. The exact question which has to be decided in this motion has not, as far as I am aware, been the subject of decision of this Court before. It will therefore be necessary for me to refer to certain English decisions. I shall first endeavour to ascertain what the position of the mortgagee would be under the English law and then decide whether the position is any different under the Indian law. The mortgage deed shows that it is a mortgage in the 'English' form, that is, a mortgage of the type defined in Section 58(e), T.P. Act. The mortgagor by the deed conveyed absolutely to the mortgagee certain property in order to secure the mortgage debt subject to this reservation that the property would be re-conveyed upon the mortgage debt being paid up under the English law. By such a [mortgage the whole of the estate of the mortgagor vests in the mortgagee notwithstanding that the equity of redemption remains in the mortgagor : Williams v. Bosanquet (1819) 1 Brod & Bing 238. See also Halsbury's Laws of England, Hailsham Edition, Vol. 23, p. 335, para. 449. The right of a mortgagee to the rents of the property mortgaged has been clearly set forth by Sir E. Malins V.C. in Wilson v. Wilson (1872) 14 Eq. 32 at p. 40 where he says:
We know perfectly well that a mortgagee of land has a right from the very day of his mortgage to receive the rents. We also know that if he does not choose to enter into possession or give notice to the tenants, but regards his security as sufficient and allows the mortgagor to receive the rents, those rents can never be received back again as rents.
9. This same view is to be found expressed in Halsbury's Laws of England (Hailsham Edition) Vol. 23, p. 363, para. 543. Thus, under the English law the property together with the right to collect the rents arising out of the property is vested in the mortgagee. It is true that the mortgagee has to account for the rents received by him and that these rents have to be applied in the reduction of the mortgage dues, but this makes no difference to the position that the mortgagee has the right to the rents from the date of the mortgage. The rents are treated as forming part of the property mortgaged. The reason why the rents are taken into account in reduction of the mortgage dues is this. The mortgagee is bound td reconvey the property mortgaged on payment of the mortgage dues. As the property mortgaged includes the rents accruing therefrom the mortgagee must re-convey also the rents which have come into his hands on the mortgage dues being paid up. The same result is effected by an account being taken and by the rents received by the mortgagee being applied towards the reduction of the mortgagor's dues. The fact that the rents collected by the mortgagee have to be so accounted for and applied does not in any way detract from the soundness of the proposition that the right to the rents is in the mortgagee. The mortgagee's position with regard to the rents is exactly the same as his position with respect to the property. If he is in possession of the property he must return it on the mortgage dues being paid up. If he is in possession of the rents he must refund them on the mortgage dues being paid up. If the mortgage is not redeemed and a decree for foreclosure is passed the property becomes the mortgagee's absolutely and if he has collected rents they also belong to him absolutely. If instead of going into possession himself the mortgagee has a Receiver appointed by the Court the respective rights of the mortgagor and the mortgagee as regards the rents do not undergo any essential change. The Receiver holds the property for the person who can eventually make out title thereto. His appointment prima facie is for the benefit of the mortgagee. When a decree for fore-closure is passed the title of the mortgagee to the property and to the rents thereof becomes absolute and any money in the hands of the Reoeiver representing the rents of the mortgaged property would belong to the mortgagee. In this connexion I would refer to a passage at p. 365, para. 544 of Halsbury's Laws of England, Vol. 23:
Where a Receiver has been appointed, the mortgagee obtains possession by applying for his discharge : Whether rents then received by and remaining in the hands of the receiver belong to the mortgagee or not depends on the object of the appointment of the Receiver. If he has been appointed in proceedings only affecting the title to the equity of redemption, for example, in proceedings to administer the trusts of the will of the mortgagor; or in other proceedings in which the title of the mortgagee is not in question, the mortgagee is not entitled to past rents, but only to rents paid after he applied to discharge the receiver. But if the Receiver is appointed on behalf of incumbrancers on the property generally, or to settle a dispute as to title in which the mortgagee is interested, the mortgagee is entitled to rents in the hands of the Receiver.
10. On behalf of the petitioner my attention has been drawn to the decision in (1886) 31 Ch. D. 500 which was confirmed on appeal by the judgment reported in Jenner Fust v. Needham (1886) 31 Ch. D. 500. Belying on this decision, it was argued that even under the English law the mortgagee would not be entitled to the rents in the hands of the Receiver or to the arrears of rent. In my opinion, this case lays down nothing which would support this argument. What happened in the case was this : The action was for foreclosure and a preliminary decree had been passed. The Master took accounts and made a certificate stating what would be due on the date fixed for payment. Between the date of making the certificate and the date fixed for payment the Receiver realized a certain sum as rent for the mortgaged premises. Default was made on the date fixed for payment and the mortgagee applied for a foreclosure order absolute. The mortgagor objected. The Court held that when a Receiver received rents between the date of the Master's certificate and the date fixed for payment such receipt reopens the account and a fresh certificate must be made and a fresh date appointed for payment. Now this case does not specifically deal -with the question as to what would happen to the rents received by the Receiver after the default of the mortgagor; it deals with the manner of disposal of rents collected between the date of the certificate and the date of default of payment by the mortgagor on the date fixed for payment. In the present case Mr. Bose for the mortgagee says that he does not press his claim for the rents collected by the receiver before default of payment by the mortgagor on the date fixed for redemption. This case therefore is not of direct assistance in deciding the question of what is to become of the money collected after the date of default. It is well settled law in England that if the mortgagee or the receiver receives rents after default is committed by the mortgagor to make payment on the date fixed for redemption the foreclosure will not be reopened, a fresh account will not be taken and a fresh period will not be allowed for redemption. An expression of this view is to be found in the very case relied upon by the petitioner although that was not the point for decision. In the case in Constable v. Howick (1858) 5 Jur. (N.S.) 331 it was held that when a mortgagee receives rent after default is made in payment of the principal and interest on the day fixed by the chief clerk's certificate but before the affidavit of such default is made an order for final foreclosure will be granted without a further account. This case was followed in a later decision, viz. National Permanent Mutual Benefit Building Scciety v. Raper (1892) 1 Ch. 54. I would also refer in this connexion to the observations contained in para. 719 of page 487 of the Hailsham edition of Halsbury's Laws of England, Vol. 23, wherein this view has been supported.
11. It is quite clear, therefore, that under the English law if the mortgagor makes default in paying the mortgage dues on the day fixed for redemption the rents collected by the mortgagee or the receiver after the date of default will go to the mortgagee and that the mortgagor will not be allowed to contend that the account should be reopened or that a further period for redemption should be granted. The position of the mortgagee would be stronger after the final decree for foreclosure has been passed without any objection being taken at the time when the final decree was applied for. In such a case I would hold that the mortgagee would be entitled to all rents collected by the receiver since the date of his appointment both before and after the date of default; but as Mr. Bose has given up his claims to the rents collected before the date finally fixed for redemption, i.e. before 7th August 1938, I shall confine my decision on this point to the rents collected since that date. Under the English law the mortgagee would in the circumstance of the present case be entitled to these rents. As regards the arrears due, in my opinion, the position would be this. The right to the arrears would be in the person who was entitled to collect the arrears when they fell due. Thus the arrears which fell due when the mortgagor was in possession would go to him and the arrears which fell due when the receiver was appointed would go to the receiver and ultimately to the mortgagee upon a decree for foreclosure being made.
12. This would, I think, be the position under the English law. The terms of the mortgage bond expressly support this view. In para. 4 it is stated that if default is made by the mortgagor to pay the principal or interest the mortgagee will be entitled to go into possession and to enjoy and receive the rents, issues and profits. In para. 6(1) it is provided that the mortgagee may in similar circumstances appoint a receiver over the mortgaged premises, that the receiver shall apply the rents and profits towards the satisfaction of the mortgage dues and that the mortgagor will get the benefit only of the surplus, if any. The provisions of this mortgage deed indicate that once the mortgagee goes into possession or gets a receiver appointed the mortgagor loses all right to the rents and profits unless there is a surplus left over after satisfying the mortgage dues. In the present case there is no question of there being any surplus left over after satisfying the mortgage dues. The mortgage dues are far in excess of the rents collected and the arrears of rent due.
13. I am supported in the view that I have taken by two decisions of the High Court at Rangoon. In Ma Joo Tean v. Collector of Rangoon (1934) 12 A.I.R. Rang. 321, Page C.J. held that in an English mortgage the rents and profits arising out of the land mortgaged formed part of the mortgage which was created to secure repayment of the loan and that the mortgagee was entitled to the rents and profits collected by the receiver appointed in the mortgage suit. He held that this was so not only because of the terms of the mortgage which was in the form of an English mortgage but also by reason of the provisions of Section 8, T.P. Act. He stated further that the money in the hands of the receiver was in 'custodia legis' for the person who can make title thereto and that as the rents and profits of the land formed part of the mortgaged property it belonged to the mortgagee and as such should be paid to the mortgagee. I may mention that the terms of the mortgage in this Bangoon case Ma Joo Tean v. Collector of Rangoon (1934) 12 A.I.R. Rang. 321 were essentially the same as the terms of the mortgage in suit. The next case is Ally Ramzan v. Balthazar & Son Ltd. (1936) 23 A.I.R. Rang. 290. This was a case of a mortgage by deposit of title deeds. Page C.J. held that where the mortgagee had a receiver appointed by the Court he was entitled to the rents and profits collected by the receiver from the date of his appointment upon a final decree being passed. At p. 303 he says:
For more than a century it has never been doubted in England that when a receiver is so appointed the mortgagee if successful in the suit, will be given the accruing rents and profits in the hands of the receiver, the only question that was argued being the date from which the rants and profits ought to be given to him.
14. He then went on to say that this equitable doctrine ought to hold good in India as being in accordance with equity, justice and good conscience and he held that the mortgagee was entitled to the rents and profits in the hands of the receiver from the date of his appointment. If the view of Page C.J. is correct, then the petitioner's claim must fail. It was argued on behalf of the petitioner that this view is no longer good law and reliance is placed on the recent decision of the Judicial Committee in Ram Kinkar v. Satya Charan . I shall have to deal in some detail with this case as learned Counsel for the petitioner relied on it very strongly for the contention that the mortgagee has no right to the rents and profits collected by the Beceiver or to the arrears of rent. The facts of that case briefly were these : a lessee mortgaged his leasehold interest by conveying it to his mortgagees, subject to the proviso that on payment of the mortgage dues on fixed dates they would reconvey it to him. The mortgagees did not go into possession. Thereafter the rent reserved under the lease fell into arrears and certain covenants in the lease remained unperformed; the lessor instituted a suit against the mortgagees and the lessee claiming that the mortgagees were liable to pay the rent and perform the covenants of the lease on the footing that the entire interest of the lessee had been transferred to the mortgagees by the mortgage and that thereby a privity of estate had been created between the lessors and the mortgagees. The question for determination was whether such privity of estate was created by a mortgage in the 'English form' in India. Their Lordships held that under the system of English law as interpreted in Williams v. Bosanquet (1819) 1 Brod. & Bubg. 238 such a mortgage would create a privity of estate and render the mortgagees liable, but they held that the position was different under the Indian law. The grounds for this difference given by their Lordships as I understand them are as follows: Under the English law before 1925 a mortgage, whether of a fee simple or of a lease, was effected by an assignment of the mortgagor's interest with a proviso for reconveyance upon payment of the mortgage money by a particular date. It was held in England that by the transfer the mortgagor parted with his whole legal estate and that the interest he retained, viz. the right to redeem the mortgage, was an equitable right only. Thus, the mortgagee was considered by that transfer to have been brought into direct relationship with the lessor by privity of estate and to be liable for the rent. Next their Lordships pointed out that in India, since the passing of the Transfer of Property Act, the distinction between law and equity in such cases does not exist. The right of the mortgagor to redeem was not an equitable right but a statutory right given by Section 60, T.P. Act. It was a legal right which the mortgagor could transfer by way of sale or second mortgage. Thus the mortgagee did not get all the legal rights of the mortgagor in the property even though the mortgage was an ' English mortgage' in the form as defined in Section 58(e), T.P. Act. Their Lordships also referred to the definition of a mortgage contained in Section 58(a) of the said Act which says that it is a transfer of an interest in property and contrasted it with the definition of a sale in Section 54 which speaks of a sale as being a transfer of ownership. They held that the entire legal rights of the mortgagor did not pass to the mortgagee by the mortgage inasmuch as there was a proviso for retransfer which constituted a reservation of a legal right in the mortgagor, and inasmuch as a mortgage was a transfer of only an interest in the property and not of the entire ownership of the property. They went on to say that as the mortgagee did not possess the entire legal interest of the lessee, there could be no privity of estate between the mortgagee and the lessor. This is what was decided by the Judicial Committee.
15. Their Lordships do not specify what rights are vested in the mortgagee holding under a mortgage in the 'English' form. All that they decide is that the mortgagee does not get all the legal rights of the mortgagor. They say that the transfer by way of an 'English' mortgage would amount to an absolute transfer but for the proviso for redemption. They do not say that the proviso for redemption has this effect : that the mortgagee cannot realize the rents or that the rents realized by the receiver appointed in the mortgagee's suit are not payable to the mortgagee. These questions are not contemplated or considered. The question for decision was whether there was privity of estate between the mortgagee and the lessor of the mortgagor, and their Lordships held that there was no such privity as the mortgagee had not acquired the entire legal estate of the mortgagor's lessee. The decision does not in my opinion throw any light on the point which has to be determined. It does not indicate that the principles of English law will not apply in the solution of the question which has to be determined in this motion, nor that the mortgagee has no rights to the rents. Learned Counsel for the petitioner argued that as the mortgagee did not get the entire legal estate of the mortgagor, he could not acquire the right to the rents. I am unable to agree with this view. The right to collect and appropriate the rents is not inextricably bound up with the entire legal estate. It is detachable from the other rights of ownership, and a person may acquire this right without necessarily having to acquire all the other rights of ownership, whether in this case there has been this detachment, and acquisition will depend ultimately on the construction of the terms of the mortgage deed. I think that the position of the mortgagee in this case so far as the right to the rents and arrears of rent is concerned is the same as that of a mortgagee under the English law, and that the fact that in India there is no distinction between the legal and equitable estate does not in any way make his position different so far as this right is concerned. The view of Page C.J. in the Rangoon cases referred to above is good law, and there is nothing in the decision of the Judicial Committee in the case mentioned above which in any way indicates that this view is not a correct one. In my opinion the petitioner is not entitled either to the arrears of rents due since the appointment of the receivers in this suit, i.e. since 18th December 1928, or to the rants collected by the receivers since the date last fixed for redemption, i.e. since 7th August 1938. The receivers shall pay to the Prudential Assurance Co. Ltd., all such rents and the Prudential Assurance Co. Ltd., shall be entitled to collect all arrears of rant due since 18th December 1928. As regards the rents collected before 7th August 1938, they will be paid to the petitioner who will also be entitled to any arrears prior to 18th December 1928, if they are recoverable. There remains the question of costs. As part of the subject matter of this application has been referred to the Master, I consider that the question of costs should be reserved until the report of the Master is disposed of. Let the reference be marked as an urgent reference.