R.P. Mookerjee, J.
1.The plaintiff-respondent Bank advanced Rupees thirty thousand to the appellant on the security of certain properties and a running business under the name and style of Jaysree Glass Works. One of the terms stipulated was that the interest would be paid monthly and the entire principal would be repaid within one year. Liberty was given in the mortgage bond to the mortgagee entering into possession of the mortgaged properties in default of any one of the several conditions mentioned in that deed.
The mortgage bond was executed on 27-6-1946. The mortgagee entered into possession on 2-7-1947, on the expiry of the period of one year as mentioned in the bond.
2. The plaintiff brought this suit on 20-2-1948, for enforcing the mortgage. On behalf of the defendant various objections were raised but in the present appeal only one point has been urged. It is contended that as the mortgagee has entered into possession, he is liable to render accounts and no final decree can be passed and the amount payable under the mortgage determined until such account have been taken.
In the plaint it has been alleged that the defendant had ceased to run the business and had closed the factory before the plaintiff Bank took possession. The defendant, .however, contested this allegation and attempted to prove that possession had been taker by the plaintiff when the factory was actually working and that the factory was worked even thereafter for some months.
3. The learned Subordinate Judge came to the conclusion on the evidence on the record that the factory was not worked after the mortgagee had taken nosscssion. For the reasons given in the judgment the learned Judge refused to direct the plaintiff to render accounts and a preliminary decree for the amount claimed was passed.
4. The only question raised on behalf of the defendant appellant before us is whether the plaintiff is bound to render accounts on the admitted position that the plaintiff Bank had taken possession of the properties on 2-7-1947. Section 76, T. P. Act imposes upon the mortgagee in possession the duty to render accounts as also certain other liabilitiesmentioned therein. Such statutory duties are imposed both upon the mortgagees in possession as also on usufructuary mortgagees.
A mortgagee in possession is not a trustee in the strict sense of the term, but he holds the property in the fiduciary character. See Sections 90 and 95, Indian Trusts Act, See also -- 'Jagannath v. Sripathibabu Naidu', AIR 1945 Mad 297 (A).
5. It is contended that the liabilities of the mortgagee in possession are only as specified in Clauses (a) and (b) of the said section. The mortgagee in possession must manage the property as a person of ordinary prudence would manage it if itwere his own and must use his best endeavours tocollect the rents and profits thereof. The defendant has contended in the lower Court that the businesswas continued to be run after the mortgagee had taken possession, and if he can satisfy the Court that the business was so continued only then is thedefendant entitled to claim accounts under Clauses (g) and (h) of Section 76, T. P. Act.
The learned Subordinate Judge has found on thematerials before him that the business was not continued and the factory was not worked after themortgagee had taken possession.
6. Before we consider whether the liability of the mortgagee in possession to render accounts is limitcd in the manner as urged on behalf of the respondent we have to consider the evidence in the case as to whether, as a matter of fact, the business was continued even after the mortgagee had taken possession.
7. The principal sheet anchor on behalf of thedefendant appellant is the deposition of the Inspector of Factories, witness No. 2 for the defendant. He has stated in the course of his deposition that the Jaysree Glass Works was registered under the Factories Act and he had inspected it for the last time on 25-9-1947, in connection with non-payment of wages to workers. He had found the factory closed.
He was informed by the Government Statistical Bureau that the said factory remained closed since July, 1947. He did not inspect the factory between 18-3-1947, and 25-9-1947. In June, 1947, the manager of the factory wrote to the department a letter which is Ex, 2.
8. The Ex. 2 -- it appears that the Statistics Authority for the Government of West Bengal was informing the Chief Inspector of Factories on 6-5-1949, that the Jaysree Glass Works had not been working it all since July, 1947. He recommended that as the factory was not operating for more than twenty months the name of the factory should be removed from the register of factories.
There is an office note dated the 21st May, at the bottom of this letter wherein it was stated, 'The factory stopped working for the last 18 months'.Learned Advocate for the appellant calculated backwards and says that from 21-5-1949, eighteen months would take us not to July, 1947, but a few months backwards. Such an interpretation is not a reasonable one, particularly in view of the definite statement made in the body of the letter addressedto the Chief Inspector of Factories that the Glass Works had not been working since July, 1947.
Who the writer of this office note at the bottom of the letter is is unknown, and he has notbeen examined in the suit. That note, therefore,even if admissible, has no evidentiary value.
9. Apart from this the defendant had produced exhibits C series, pay registers for the months of July and August, 1947. It was attempted to be argued from these papers that the Class Works had actually been operating. We are not. however, satisfied as to the custody from which the registers have been produced.
10. Immediately after the suit had been filed the plaintiff made an application for the appointment of a Beceiver stating categorically that the factory was not working and the Bank was not in a position to make further advances as working capital and that only an expert should be put in charge to restart the factory. In the objection petition filed on behalf of the defendant it was stated in para 7 that the factory was being run under the direct supervision of the plaintiff Bank and that the latter was appropriating file income as mortgagee in possession.
When defendant 1 was deposing at the later stage he changed his position. A new case was made that the factory was worked by the Bank keeping the defendant as the man in charge. He continued to run the show till near about October, 1947. All the books of accounts or necessary records, according to the earlier story, would be under the control and custody of the Bank. How would they be removed by the defendant even if the later embellishment attempted to be made be accepted.
How and when were these registers prepared and the circumstances under which they were removed from the factory have not been satisfactorily explained. In these circumstances, we are not in a position to rely upon these registers for coming to the conclusion that the factory was actually run after the mortgagee had taken possession.
11. The oral evidence which was adduced on behalf of the defendant about the working need not detain us long. The story of workmen who are paid either on a weekly basis or on a monthly basis remaining unpaid for a long period and without making any attempt to realise the same from a solvent party like Bank cannot be easily accepted.
11a. Over and above this the defendant himself wrote to the Bank on 10-7-1947, Ex. 2(a), wherein he stated,
'We shall be very grateful if you kindly allow the business to run under you (sic) watch and care so as to enable us to make attempts for repayments of your dues in terms of the agreement,' It is admitted by the defendant that the Bank sent no reply to this letter. We generally agree with the learned Subordinate Judge in his estimate of the evidence on this part of the case, and accept his finding that Jaysree Glass Works had not manufactured any articles and the factory did not work after 2-7-1947.
12. We have now to consider whether on the allegation of the defendant about the working of the factory not being acceptable the plaintiff is still liable to render accounts. It is contended on behalf of the respondent Bank that only if there be some income arising from out of the property that the mortgagee is required to keep accounts -- accounts of all the sums received as also of all items of expenditure.
If there he no income there is no liability on the mortgagee in possession to render accounts. In this connection reference may be made to Clause (g) of Section 76, T. P. Act wherein the liability seems to be restricted to sums received and spent by the mortgagee in possession. We do npt think that this restricted interpretation of the clause is well founded. As we have indicated already, the mortgagee in possession, though not a trustee in the strict sense ofthe terms, holds in a fiduciary character. He is liable for the period from when he enters into possession. He is liable not only for the income which actually arises but such income as might have been received if the properly had been in the custody of an ordinary prudent person and he must utilise all opportunities for getting the income from the property. He is to keep the property in proper condition and is liable for wastes and tor negligence under certain circumstances.
13. What then about the corpus of the property which comes into his hands? He is to see that the corpus is not wasted.
14. The principle under which a creditor is made to bear the loss where he takes from his debtor an assignment of a debt due from a third person as security for his dues and by his wilful default the debt becomes irrecoverable is one which is applicable in the present case -- 'Williams v. Price', (1824) 1 Sim and St. 581 (B).
The test to be applied is this: As soon as a property is taken charge of by a mortgagee, he is entitled to appropriate and be also responsible for the profits- which arise therefrom; in addition thereto, if the property is lost owing to the laches of the mortgagee, the debtor is entitled to the value of the property so lost. See -- 'Ex parte, Mure', (1788) 2 Cox 63 (C).
15. For making the mortgagee in possession liable to, account for the corpus of the estate which comes into his possession, reference may also be made to -- 'Mayer v. Murray', (1878) 8 Ch D 424 (D), wherp the Court held a mortgagee in possession accountable when he had sold one of the items of property and the accounting was. on the footing of wilful default.
16. In the case now before us the facts which have been disclosed are to this effect. When the mortgage was executed, in the schedule to the bond various items of property, some movable ones and some other fixtures or immovable properties were included. There Was a further floating charge on. the business. The items as described in the schedule to the mortgage bond were, at least some of them, in very general terms.
We have not before us the list or schedulewhich had been prepared by the Bank when possession was taken on 2-7-1947. In the body of theplaint, however, the plaintiff stated that the Bankhad taken possession of the entire godown and factory containing all the mortgaged properties inclusive of those described in schedule A to the plaint.In an earlier part of the plaint reference is made tothe same schedule as including the items which werethe subject-matter of the mortgage.
The list appended to the mortgage bond, however, does not exactly tally with the list as appearing in schedule ,A to the plaint. If the Bank had produced the list which should have been prepared (but it is not known whether it was actually preparrd or not) when possession was taken, then the Court could and would have made an estimate after proper accounting as to whether the defendant was entitled to any credit for any item which might have been accounted for.
17. It may be due to the fact that the parties concentrated their principal attention to the allegation and counter-allegation as regards the actual working of the factory after 2-7-1947, the other question was not properly considered by the lower Court.
18. It is to be noticed that in Clause (g) of Section 76,T. P. Act it has been provided that the mortgageemust keep clear, full and accurate accounts and itis not expressed to be subject to a contract to theI contrary and the mortgagee in possession cannotcontract himself out of the duty to account. See --'Md. Ishak v. Rup Narain : AIR1931All562 and -- 'Sarfaraj Ahmad v. Mannilal', AIR 1943Oudh 38 (F).
The liability to keep full and accurate accounts is limited by the provisions contained in Section 77, T. P. Act whereby a particular type of contract betweeo the mortgagor and the mortgagee excludes the operation of some of the clauses appearing in Section 76 of the Act.
19. The concluding paragraph of Section 76 of the Act also makes it clear that the liability of the mortgagee in respect of loss with regard to items in different clauses in Section 76 of the Act is to be enforced by the Court before a decree for definite amount is passed. The loss referred to in the concluding paragraph of Section 76 of the Act has reference not merely to the actual income that might or could have been realised during the period when the mortgagee was in possession, but also to the loss which the mortgagor might have incurred so far as the corpus is concerned.
The respective rights and liabilities of the. mortgagor and the mortgagee, when the mortgagedproperty or any part thereof is taken possession of by the mortgagee, are governed by equitable principles. The provisions contained in Section 76, T. P. Act do, in our view, include the liability of the mortgagee to account for the corpus and not merely the income arising therefrom.
20. No other point has been urged before us and in this view we direct that the suit be decreed in a preliminary form under provisions of Order 34. Rule 4, Clause (1), Civil P, C. and the Court below shall proceed to take accounts and determine the extent and nature of the properties which came into the possession of the plaintiff Bank on the date of possession and how many of those were available when the sale in pursuance of the final decree which had been passed previously had taken place.Such items of property which cannot be accounted for will have to be valued and the defendant, given credit, the mortgage dues' being reduced to that extent. If the defendant claims that any property had deteriorated owing to the carelessness or laches on the part of the plaintiff, the onus will be upon the defendant to prove the same. The plaintiff is not liable for natural decay or deterioration owing to lapse of time, but will be liable only on proof of carelessness or dereliction of duty as an ordinary prudent owner. The plaintiff Bank will be required to file accounts as required under Section 76, T. P. Act.
21. The decree passed by the Court below is set aside and the case sent back to that Court to be dealt with according to law keeping in view the directions given above. The costs of the hearing in this Court will abide the final result. We assess the hearing fee at ten gold mohurs.
22. I agree.