1. This is an appeal against a decree of the Subordinate Judge of Hooghly, dated 25th July, 1904, passed in a mortgage suit. The facts are these: The plaintiffs allege that on the 16th May, 1900, the defendants Nos. 1 to 4 deposited with them at Calcutta the title-deeds of a certain putni taluk, which had been advertised for sale, took a loan from them of Rs. 15,000 on a promissory note and paid off the arrears of the putni rent and stopped the sale on the 17th idem. The plaintiffs accordingly prayed for a mortgage decree against the property, as well as a personal decree against the defendants, who had executed the promissory note.
2. The suit was contested by the defendant No. 7, the Receiver of the property appointed by this Court on the 2nd September 1901, and by the defendant No. 8, in whose favour the defendant No. 7 had on the 11th May 1903 executed a mortgage of the property in question as well as of other property. The Subordinate Judge gave the plaintiffs a personal decree against the defendants Nos. 1 to 5 8nd 9, but disallowed their prayer for a mortgage decree. Hence the appeal.
3. The plaintiffs contend that they are entitled to a mortgage decree. I consider that on the evidence they are so entitled. The evidence on the plaintiffs' side is unrebutted. It shows that on the 16th May, 1900, the principal defendants deposited the title-deeds of the putni taluk with the principal plaintiff at his guddi. They executed a promissory note for Rs. 15,000. The parties then adjourned to the plaintiffs' attorney's office, so that there might be evidence of the payment of the loan. The attorney, Babu Gyanendra Narain Dutt, insisted that a fresh promissory note should be executed in his presence. This was done. It was signed by the defendants Nos. 3 and 4 for themselves and as executors of the estate of Chandra Kant Mukherjee.
4. The money was then paid. The very notes so paid were deposited next day in the Burdwan Collectorate and the sale at the putni taluk was stopped.
5. The Subordinate Judge was not satisfied that the deposit of the title-deeds and the loan were simultaneous. It appears to me that they were practically simultaneous, both having taken place within a few hours of each other on the same day. He also says it is. not shown that the title-deeds deposited were the title-deeds of the putni taluk.
6. I feel no doubt on this point. These title-deeds have been produced by the plaintiffs. They were mentioned in certain correspondence that took place afterwards between the plaintiffs attorney and the Receiver, Mr. Mukherjee.
7. They were also shown to Mr. Mukherjee, and the latter, when he subsequently executed a mortgage in favour of the defendant. No. 8, could not make over the title-deeds of the putni taluk in question, evidently because they had been deposited with the plaintiffs on the 16th May, 1900. It has next been contended that he transaction did not amount to an equitable mortgage, and the cases of Dixon v. Mucklston (1872) 8 Ch. App. 155, Ganpat Pandurang v. Adarji Dadabhai (1877) I.L.R. 3 Bom. 312, and Jaitha Bhima v. Haji Abdul Vyad Oasman (1886) I.L.R. 10 Bom. 634 have been relied on. But these cases are in my opinion in no way against the plaintiffs. There is evidence in this case of the contract upon which the provisions of the title-deeds originated, and there is also evidence of an antecedent debt for which the loan was contracted. There was then no other debt on the property except the claim for putni rent, for which the taluk was advertised for sale, and which is proved to have been satisfied by the very notes received by the defendant from the plaintiff. Then it is said that there was a partition-suit pending at the time of the deposit of the title-deeds and the advance of the Rs. 15,000. This was so no doubt, and the mortgage decree must be subject to the final orders in this partition-suit. But the Receiver had not been appointed on the 16th May 1900, so the equitable mortgage is not void, because it is not executed with his sanction and that of the Court. The promissory note of the 5th October, 1901, was evidently executed in renewal of the note of the 16th May, 1900 but this does not concern us in this case.
8. Next, it is contended that the defendant No. 8's mortgage of 1903 was a mortgage of the whole property, and having been executed by the Receiver during the pendency of the partition-suit must have priority over the plaintiff's equitable mortgage of the 16th. May, 1900. The case of Chutter put Singh v. Maharaj Bahadoor Singh (1904) 9 C.W.N. 225 is relied on. In this case it has been said: 'When the estate of a deceased person is under administration by the Court or out of Court, a purchaser from a residuary legatee or heir buys subject to any disposition, which has been or may be made of the deceased's estate in the course of administration.' But in my opinion there is no analogy between an administration-suit and a partition-suit, and the rule laid down by their Lordships of the Privy Council in the above-cited passage from their judgment has no application to the present suit. There appear to me to be no grounds for holding that the defendant No. 8's mortgage should have priority on the plaintiff's equitable mortgage.
9. Lastly, it has been pointed out that on the 29th August, 1905, Mr. Justice Sale in the partition-suit has ordered that the defendant No. 8's mortgage is to be a first mortgage on the property in the hands of the Receiver. But this order was passed in a proceeding, in which there was a contest between certain attaching creditors of the owners of the property and the defendant No. 8. The plaintiff's equitable mortgage was not brought to the notice of Mr. Justice Sale. Indeed, the Receiver, Mr. Mukherjee, had admittedly represented to Mr. Justice Sale that no such equitable mortgage existed. Mr. Justice Sale's order should not, therefore, in my opinion, be held to bind the plaintiffs. Moreover, this order of Mr. Justice Sale's was not produced in the Court below, and the questions raised by it were not discussed there. Mr. Justice Sale's judgment has not been produced before us here. The learned Advocate-General has only referred us to it, and so Mr. Justice Sale's order has been sent for and looked at. I therefore do not think it necessary to consider in this case the effect of Mr. Justice Sale's order. But if it was necessary to do so, I would hold that the plaintiff's mortgage of 1900 must have priority over the defendant No. 8's mortgage of 1903. In the first place, it is three years prior in date. In the second place, Mr. Justice Sale's reasons for holding that the defendant No. 8's mortgage must have priority over the claims of the attaching creditors were (a) that the defendant No. 8's mortgage saved the property in the hands of the Receiver from destruction and (b) that the Court gave the defendant No. 8 an assurance that his mortgage would be a first mortgage. But the plaintiff's mortgage clearly saved the putni taluk over which it extends from destruction. The sale of the taluk lot Saleypur was imminent, and would have taken place next day, if the money received from the plaintiff had not been paid in to stop it. Secondly, the Court's assurance to the defendant No. 8 was made in ignorance of the plaintiff's mortgage. I do not think that the mere fact of the pendency of the partition-suit in May, 1900, can have the effect of postponing the plaintiff's mortgage to a mortgage effected by a Receiver appointed subsequently in that suit under a complete misapprehension as to the nature of the plaintiff's rights.
10. I would therefore decree this appeal with costs and declare that the plaintiffs hare an equitable mortgage over the shares of the defendants Nos. 3 and 4 and of Chandra Kant Mukherjee in the putni taluk lot Saleypur and are entitled to proceed against these shares of this taluk in execution of their decree and in satisfaction of their debt. But as my learned brother Woodroffe does not agree with me as to leaving the question of the priority of the plaintiff's mortgage open or if not, of giving it priority over the defendant No. 8's mortgage, this case must be placed before the Hon'ble Chief Justice for reference to a third Judge.
11. I agree that the evidence (though in parts-somewhat meagre) establishes an equitable mortgage in favour of the plaintiff over the shares of the third and fourth defendants and the share of Chandra Kant Mukherjee in the putni taluk lot Saleypur, as also that the plaintiff is entitled to a decree, which will give effect to this finding.
12. I say nothing as to the execution of the decree, which would justify him in any event in interfering with the possession, of the Receiver without the leave of the Court, where such leave is necessary.
13. I am, however, unable to agree that the appellant's mortgage has, as he contends, priority over the mortgage executed by the Receiver in favour of the eighth defendant.
14. The facts on this point are as follows:--The mortgaged property originally belonged to four persons: Chandra Kant, Tarak Nath, Pran Kissen and Basudeb, whose representatives are defendants in the suit. In 1899 a partition-suit was instituted in this Court, being suit No. 352 of 1899, by certain members of the Mukherjee family against the others in respect of the joint estate, which included the property in suit. The plaintiff's equitable mortgage is dated the 16th May, 1900, and was therefore created during the pendency of the partition-suit. On the 14th March 1901, a Receiver was appointed by this Court of the admitted joint properties of the Mukherjee's, including the property in suit which, as we have found, had been prior to such appointment, mortgaged by certain members of the family to the plaintiff. The Receiver was directed by this Court to borrow from time to time various sums for the benefit and protection and on the security of the joint estate, of which he was Receiver and under orders of this Court he made enquiries as to what the joint estate debts consisted of and as such were chargeable to and payable by the joint estate. During this enquiry the plaintiff's attorney appeared to prove his client's debt. The Receiver by his report of the 3rd May 1902, did not in my opinion report against the existence of the debt, but that the debt was not proved to him to be (as indeed is also the effect of our judgment) a joint-family debt payable out of the joint-estate, of which only he was Receiver. Thereafter and on the completion of the enquiries an order was made by this Court on the 5th May 1902, for the raising of a loan of two lakhs of rupees on the security of the properties in the possession of the Receiver, including the property in suit. This court expressly directed that the intending mortgagee from the Receiver should have a first charge. On the effect of this order the determination of the question now discussed depends. This order was made with the object (which is that of all such orders) of preserving the property in the hands of the Receiver for the benefit of all parties, including any such persons as may claim through the parties. Owing, it is alleged, to obstruction on the part of the plaintiff, the Receiver was unable to raise the loan, which the Court had directed him to do, until the 11th May 1903. A mortgage was then executed of the property in suit and other joint property to the eighth defendant. This mortgage recited the order under which it was made and according to which it was to be a first charge. This defendant contends that on the faith of this order he advanced the sum of two lakhs of rupees, and he claims therefore to have that first charge on the property, which this Court directed should be given him.
15. The question therefore is whether when this Court gave the defendant a first charge, is he entitled to get it or something else; it may be a second, a fifth or a seventh charge according to the state of the encumbrances affecting the property, when he took his mortgage from the Receiver.
16. I am of opinion that he is entitled to what the Court gave him, viz., a first charge on the property.
17. I am unable to agree that this question does not arise in this appeal. Both the Receiver and his mortgagee raised it in their written statements. It is true that neither this matter nor the principles underlying the judgment of our learned brother, Mr. Justice Sale, to which I will refer, were discussed in the lower Court. It was, however, unnecessary to do so; for that Court found that the plaintiff had no equitable mortgage in fact, and upon such a finding it would have been unnecessary to consider what were the priorities, assuming that there was the mortgage which the lower Court's judgment negatived. The matter has, however, been argued before us by the Advocate-General on behalf of the Receiver and I now propose to discuss it.
18. Reference has been made to the case of persons dealing with property, the subject-matter of an administration-suit, and it has been objected that a partition-suit is not the same as an administration-suit. There are, of course, some differences, though it has been held that, where co-sharers mortgage their interests pending partition proceedings, a sale under such mortgage is subject to, and the purchaser will be bound by all the proceedings in the partition-suit: Jogendra Nath Gossain v. Debendra Nath Gossain (1898) I.L.R. 26 Calc. 127, 129.
19. But the determination of the question before us depends not merely upon considerations arising from the fact that the mortgage was effected during the pendency of the partition-suit, but upon Receiver Law and Practice, and ultimately on the effect of the order of Mr. Justice Sale on the 5th May 1902.
20. Upon the appointment of a Receiver the assets which are brought into his possession are in the custody of the Court to be dealt with by it under such orders as it may deem proper to make from time to time. The Receiver's possession is no doubt generally subject to all valid and existing liens upon the property at the time of his appointment, and such appointment does not divest a lien previously acquired in good faith. The Court, however, can deal with the property, which is under its control and authorise the Receiver himself to create liens on the property in his possession. In giving him this power the Court can either declare the charge to be created subject to those already existing on the property or it may declare that it has priority over them. This it generally does in cases where, if it did not do so, the property committed to its charge would be in danger of loss or injury. An order so made is for the benefit of all parties to the litigation and persons claiming under them. It is not necessary to enquire further into the circumstances, which justify such an order. An order having been made in the partition-suit, it must be assumed to have been properly made. It will be enough in this connection (the practice being well known) to refer to the cases cited at p. 213 of the 5th Ed. of Kerr on Receivers. Thus in Greenwood v. Algesiras Ry. Co. (1894) 2. Ch. 205, it was held that in a debenture-holder's action the Court 'might in a case of emergency empower the Receiver to borrow money as a first charge on the undertaking, in priority even to the debentures, for the preservation of the property. In the Court of first instance Mr. Justice Keke-wich was unwilling to make the order, as it would have had the effect of giving priority over all the existing debentures, the holders of which were not all present. The Court of Appeal, however following the general practice granted the application. A similar practice exists on the Original side of this Court. In that case the mortgages of nominal parties executed before the litigation were postponed. Here the order affected the mortgage of a person taking from a party during the litigation in which the Receiver was appointed. But the principle, viz., the power, and duty of the Court to make such orders as are necessary for the preservation of the estate, is the same in both cases. In this connection I may cite the observations of our learned brother Mr. Justice Sale in his judgment of the 29th August 1905 in Hemanta Nath Banerjee v. Satish Chandra Mukherjee Unreported. This decision is a precedent in point upon the question of the priority of Receiver's mortgages, the judgment further being given in respect of the very mortgage in suit. That judgment was rendered upon an application of attaching creditors of the share of certain of the co-parceners of this joint estate. These creditors claimed priority over the mortgage executed by the Receiver, the subject of this suit. These decrees were prior to the order directing the Receiver to mortgage. The attachments were effected subsequent to the order, though before the actual execution of the mortgage. The attaching creditors claimed priority over the Receiver's mortgage. Their application was dismissed, Mr. Justice Sale observing as follows: 'Now it has been urged that the mortgage executed by the Receiver being subsequent to the attachment must be held to be subject to the attachments and would give the attaching creditors priority. The object of the mortgage was apparently for the purpose of preserving the properties, and as to this there is no contention. This suit, in which the order to mortgage was made, is not an administration-suit, but on the other hand it is a. suit in which the Court is asked to partition the joint estate between the different share-holders, and therefore one in which the shares must depend on the Court working out the respective liabilities of the co-sharers in the joint estate. The attaching creditors are in no better position as to the ultimate shares they would be entitled to than the judgment-debtors themselves. They attach shares of joint owners pending a partition-suit and must take subject to all the liabilities and obligations of the joint, members of the family arising in the course of that partition-suit; and if for the purposes of partition the Court directs that the whole of the joint estate should be mortgaged, such order can only be regarded as for the benefit of the sharers in the joint estate and also of their attaching creditors; and under these circumstances it would be impossible to carry out any partition-suit, if particular creditors of particular owners were heard to say they are entitled to priority over persons, who have advanced money for the purpose of the partition and which the Court ordered to be advanced upon particular conditions. The security is not subject to the claims of these sharers and their creditors.
21. Under these circumstances, to my mind it is quite immaterial, what is the date of the order under which the mortgage in question was executed. The point is as to whether the suit for partition of the joint estate was pending at the time of the attachment;. and, if it was, then even if the mortgage executed under the order of Court pending the suit were subsequent to the attachment, the mortgagee would be entitled to priority even in that case. But here by the order of the 5th May 1902, the mortgagee was told that his mortgage was to be a first charge and the Court cannot break faith with him and order the attaching creditors to have priority. I hold that the attaching creditors have no sort of priority to the mortgagee. I therefore dismiss the application with costs, the costs of the Receiver being as between attorney and client.'
22. 'With these observations I entirely agree. The order empowering the Receiver to execute the mortgage in suit, which was thus held to be for the benefit of the sharers in the joint estate and also of their attaching creditors was also similarly for the benefit of the plaintiff, a mortgagee, from some of such co-sharers. It may be the case that the money lent by the plaintiff saved the property in suit, and that, as has been argued, if it had not been lent, the property in suit would have been sold with the result that it would never have come into the Receiver's possession. On the other hand, the Receiver's mortgage was ordered to be effected by the Court for the preservation of the property, and had it not been so effected there might have been no property, against which the plaintiff might proceed in this suit. I cannot agree with my learned brother that there is ground for supposing that either a Receiver was appointed or that the order (which with reference to my learned brother's judgment I may observe was not made in the proceedings which were held on the application of the attaching creditors) authorising the Receiver to mortgage, was passed by our learned brother, Mr. Justice Sale, under a misapprehension of the plaintiff's rights.
23. Nor do I think there is ground for supposing that the Receiver represented to Mr. Justice Sale that the plaintiff's mortgage did not exist or that it was not brought to his notice or that the order declaring the eighth defendant's mortgage to be a first charge, was made in ignorance of the plaintiff's mortgage, though, as I shall point out later, this in my opinion is immaterial. The Authority to the Receiver to mortgage was given on the 5th May 1902, and Mr. Justice Sale's judgment on the application of the attaching creditors was passed on the 29th August, 1905. In appointing a Receiver the Court was in no way concerned with, any rights of the plaintiff. As regards the mortgage, I have already stated that in my opinion what the Receiver represented was not that the mortgage did not exist, but that it was not proved to constitute a joint debt, and as a matter of fact a reference is stated to be now pending before the Official Assistant Referee in order to ascertain whether the plaintiff's debt is payable out of the joint estate. I do not think there was any misapprehension as to the plaintiff's rights. But even if the Court which made the order authorizing the Receiver to raise money were unaware of the plaintiff's mortgage it would not here matter. If, as is the case, the order giving priority to the Receiver's mortgage was necessary for the preservation of the estate, it is quite immaterial in my opinion whether the Court was aware of the plaintiff's mortgage or not, for that circumstance could not here influence its decision. A Court in such cases makes a Receiver's mortgage a first charge not because there are no prior mortgages, for if this were the ground an order that a Receiver's mortgage is to be a first charge would be superfluous, but because, though there are or may be prior mortgages, it is necessary for the preservation of the estate that the Receiver should be empowered to create a charge, which shall, when executed, take precedence of them. The same considerations apply to the contention of the appellant that, because the plaintiff's mortgage was prior in time, it takes precedence. This argument overlooks the reasons of orders such as that before us. If a Receiver's mortgage is first in point of time there is no necessity for any order at all giving precedence. It takes such precedence, because it is in fact first. It is just because the Receiver's mortgage may not be otherwise a first charge that the Court declares it to be so. In short these orders are made to abrogate the priority, which might prevail, unless the Court intervened, and the Court is led to intervene, because the postponement of prior mortgages is for the benefit of the estate in its charge and of all persons interested therein. In my opinion therefore the Receiver's mortgage constitutes a first charge on and takes priority of the plaintiff's mortgage. It would be to me a matter of regret, if those, who on the faith of assurances contained in orders by this Court, have advanced money to the Receiver, were not entitled in all cases to see that those assurances are carried out.
24. If this were so the confidence of those dealing with the Court through the Receiver would be shaken with the result that a Receiver would not be able to borrow money, even though the very existence of the estate in his charge is in peril. Third parties will not easily be found to come forward to lend money on property, which is the subject of litigation, unless they are assured as to the priority to be assigned to the security given them. Any other conclusion than that at which I have arrived would in my opinion affect the practice, which prevails on the Original side of this Court, by which Receiver's mortgages are made first charges; for it is obviously useless to declare that a Receiver's mortgage is a first charge, unless the Court gives effect to its declaration.
25. I would therefore decree this appeal to the extent that the appellants' equitable mortgage over the shares mentioned is declared subject to the mortgage executed by the Receiver in favour of the eighth defendant.
26. As regards costs it is not usual to make the Receiver personally liable, and I would not in any event do so. As regards his own costs he may have them out of the funds in his hands. As to whether the respondents, who have appeared, viz., the Receiver and the eighth defendant, should pay the appellant's costs, the position is this: while the appellants have been successful in establishing their equitable mortgage the respondents have in my judgment succeeded in establishing their claim to priority. I would therefore order that the appellants and the respondents, who have appeared do each respectively bear and pay their own costs.
27. The case was then referred under Section 575 of the Code of Civil Procedure to Harington J.
28. Babu Lal Mohan Dass and Babu Hara Kumar Milter, for the appellants.
29. Mr. Sinha (Officiating Advocate-General) and Babu Baikanta Nath Dass, Babu Baidya Nath Dutt, and Babu Jotindra Nath Sen Gupta, for the respondents.
30. The plaintiff in this case sued for a sum of Rs. 20,110-9-6 due for principal and interest on a sum of money lent to the defendants. A hand-note was executed for the loan and title-deeds of certain property (putni taluk lot Saleypur) were deposited by way of security.
31. The Judge of the Court of first instance gave the plaintiff a money decree for the amount claimed, but dismissed his claim founded on the equitable mortgage by deposit of title deeds on the ground that no such mortgage had been proved.
32. The plaintiff appealed against the refusal of the learned Subordinate Judge to grant him a mortgage decree.
33. The appeal came on for hearing before Rampini and Woodroffe JJ., who agreed that the plaintiff had established the equitable mortgage under which he claimed, but disagreed on the question whether the plaintiff's mortgage did or did not take priority over a mortgage later in date executed by the defendant No. 7, the Receiver appointed by the Court, in favour of defendant No. 8.
34. It appears that in 1899, a suit was instituted (No. 352 of 1899) for partition of the joint-family property of the Mukerjee defendants.
35. In May 1900, the defendants Nos. 1 to 4 on the security of their shares in the property borrowed Rs. 15,000 from the plaintiff on behalf of themselves and the father of defendant No. 5 for the purpose of stopping a sale of the property. The money was applied in paying up the arrears of the putni rent and the sale stopped.
36. In March 1901, the defendant No. 7 was appointed Receiver of the joint property in suit No. 352 of 1899.
37. By an order made in the suit in May, 1902, the Receiver was authorized to raise a sum not exceeding two lakhs of rupees by mortgage of the joint properties, and it was further ordered that such mortgage should form a first charge on the properties belonging to the joint estate.
38. In May 1903, the Receiver, in pursuance of the order, raised the sum of two lakhs by a mortgage in favour of defendant No. 8.
39. The only question argued before me, was, whether the last-mentioned mortgage took priority of the earlier mortgage of the plaintiff, both sides having agreed that this question arose and was the only question to be argued.
40. The question resolves itself into a very short point, viz., had the Court power to order that the Receiver's mortgage should be a first charge on the property?
41. The loan, which the Receiver was authorized to make, was for the purpose of preserving the property for the benefit of all the beneficiaries--it was to save the property.
42. As is pointed out in Fisher on Mortgages, 4th Edition, paragraph 958, there is a notable exception to the general rule 'qui prior est tempore, potior est jure' to be found in advances, made to save the encumbered property from loss or destruction. These advances, says the learned author, are payable in priority to all other charges of earlier date, and amongst themselves have precedence according to the inverse order of their respective dates.
43. If it be taken therefore that both the plaintiff's advance, and the advance made by defendant No. 8 to the Receiver on the authority of the Court, are both advances made to preserve the property, they would take precedence according to the inverse order of their respective dates, i.e., the later in date would obtain priority.
44. It has not been stated whether the order of the Court directing that the mortgage to be made by the Receiver should have priority over all earlier incumbrances, was made after notice to the incumbrancers or not, but it appears from the correspondence that the plaintiff was alleging prior to May, 1902, that the money he claimed was chargeable on the joint-family property. This, however, he failed to establish to the satisfaction of the Referee, whose report was filed in May, 1902.
45. In the written statement of the Receiver, it is alleged that in July, 1902, the plaintiff endeavoured to thwart the loan being effected; and there was produced at the hearing of the cause an advertisement published on July 25th in which the plaintiff warned the public that any one advancing moneys on the security of the property would do so, subject to the plaintiff's mortgage.
46. The plaintiff, therefore, knew that the property was in the custody of the Receiver of the Court. We knew that a loan could only he raised on the property by the Receiver with the sanction of the Court. The publication of the advertisement shows that he anticipated that a loan was about to be raised, and that priority over his charge would be claimed for that: loan. Under these circumstances, I think it was incumbent on him to enquire whether the Court had authorized a loan subject to or in priority of his incumbrance, and, if he was dissatisfied with the order of the Court, to apply to have it set aside. As it is the order was never set aside, and was acted on. I agree with Woodroffe J., that the consequences would be lamentable, if after money had been advanced on the strength of the order of the Court, directing that the loan should be a first charge, that order is to be treated as a nullity, although it has never been set aside.
47. In conclusion, I agree that the judgment should be in the terms proposed by Woodroffe J.--first, because the loan raised by the Receiver was for the purpose of preserving the property, and therefore takes precedence of all other loans, even of any loan raised at an earlier date, for the preservation of the property; secondly, because the mortgage has been made under an order of the Court directing that it should be prior to all other charges and that order has never been set aside.
48. So far as the hearing before me is concerned, the successful party will get his costs.