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Geetaranee De Vs. Narendrakrishna De - Court Judgment

LegalCrystal Citation
SubjectProperty
CourtKolkata
Decided On
Reported inAIR1933Cal429
AppellantGeetaranee De
RespondentNarendrakrishna De
Cases ReferredBank of Bombay v. Suleman Somji
Excerpt:
- .....as executor; (ii) that the mortgage being clearly to secure advances to the mortgagors, the bank had notice that the executors were not acting for purposes of administration, bringing the case directly within the decision of hill v. simpson (1802) 7 ves 152.9. third.-the third point was the contention (raised by the bank) that notwithstanding the above considerations by reasons of the fact that the mortgagors were not only executors but also residuary legatees, therefore on the principle of graham v. drummond (1896) 1 ch 968, the transaction could not be impeached. the principle of graham v. drummond (1896) 1 ch 968 is shortly stated as rule no. 6 in williams on executors, 12th. edn., 572. as regards this aspect of the case, sir lawrence jenkins, while accepting graham v. drummond.....
Judgment:

Ameer Ali, J.

1. I dismiss the application. Defendant 1 is the executor of the estate of his father, Ambikacharan De, who died on 2nd July 1925, leaving considerable property. He left him surviving defendant 1, Narendrakrishna De, a grandson and a grand-daughter; who by her next friend, her mother, the wife of defendant 1, is the applicant. In his will, the testator mentioned his debts. He also gave the present applicant a legacy of Rs. 8,000 to be spent for her marriage. Defendant 1 was residuary legatee, and also named as executor, in the alternative. He obtained probate in 1926, and according to the allegations in the petition, he has dissipated the property, with the result that even this sum of Rs. 8,000 cannot be found to satisfy the legacy of the applicant. Among other alienations made by the executor, which are set out in para. 8 of the petition, is the transaction, now challenged, viz., a mortgage, made in January 1927, of No. 11/1, Goabagan Street, Calcutta, for Rs. 30,000 in favour of the Co-operative Insurance Society, Ltd., defendant 2, and the sole respondent to this application. The mortgagee obtained preliminary and final decree, and the property was about to be sold when this application to stay the sale was made. I granted ad interim stay on terms. I do not propose to go further into the facts or to deal with the merits of the application, because, in my view, it is based upon a misconception of the law.

2. The mortgage in question (Ex. 'B' to petition) was clearly by Narendrakrishna De, as executor. It is sought to affect the transferee on grounds set out in para. 10 of the petition, the material allegations being that defendant 2 had or ought to have had full knowledge that the said loan was required by Narendrakrishna De for his own personal and private purposes. That is an allegation of actual notice or constructive notice. Counsel for the applicant put his case of notice in the following way: that it was the duty of the mortgagee to scrutinize the will. Had the mortgagee so scrutinized the will he would have noticed that the amount of debts left by the testator, according to his own statement, was small though the estate was large; and, secondly, that there was a legacy or a bequest to the present applicant. It was argued from this that not only must notice be inferred, but also fraud of the mortgagee in accepting the mortgage and in bringing the suit. It was not suggested that the mortgagee had any actual notice. It was argued that, according to law, an executor cannot create a mortgage which is valid so far as outsiders are concerned, unless the amount raised was actually necessary and utilized for the purpose of the estate, and, in support of such argument, counsel relied upon the case of Manindra Nandi v. Sudhirkrishna Banerji : AIR1932Cal182 . Now, I think it necessary to point out that this decision establishes nothing of the kind. The question before the learned Judges was entirely one of unsecured loans to an executor continuing the business of the testator. On this question the judgment contains a most careful and complete summary of the law. The question of transfers by way of mortgage or sale by executors was in no way before them. In two places the learned Judges point that out. At p. 228 (of 59 Cal.) they say:

We are speaking here of simple cases of loans on promissory notes or hatchitas or other contracts, that is to say, cases where no charge has validly been created on the estate;

and, again, at p. 230, they refer to this aspect of an executor's activity, possibly, in language, too restricted. That however was a matter with which they were not dealing. In the case of Shishirkumar Kar v. Direndrachandra Kar OC No. 1838 of 1929, decided on 15th February 1932 by Ameer Ali, J. the two aspects of the matter fell to be dealt with: (a) unsecured loans and (b) transfers by executors. In giving judgment in that case I pointed out that in these two matters the law starts with entirely different considerations: (a). In the case of unsecured loans to an executor the executor is personally liable, and the creditor only obtains a right to proceed against the estate by a circuitous and artificial route, viz., subrogation, for which purpose he has to prove that the loan was necessary, that it was properly applied, and so forth. The mortgagee or transferee has to prove nothing of the sort. (b) In the case of a transfer by an executor one starts with the assumption that the transfer is valid qua the transferee, until and unless it is established that the transferee had notice that the executor was acting in breach of trust. The portion of the judgment in Shishirkumar kar v. Direndrachandra Kar OC No. 1838 of 1929, decided on 15th February 1932 by Ameer Ali, J. dealing with transfers by executors reads as follows:

With regard to mortgages by executors, disclosed as executors, the principles appear to me to be as follows: (i) An executor qua executor may make a mortgage for purposes of administration. He may not do so for any other purpose, i.e., for his private purposes (or for carrying on a business left by the testator); (ii) he is however when mortgaging presumed by law to be mortgaging for purposes of administration, and a mortgagee is not bound to see to the application of the money; (iii) if the mortgagee has notice that the executor is not mortgaging for purposes of administration, i.e., if he has notice that the executor is borrowing for his own private purposes, he becomes a transferee with notice of breach of trust, and he gets no better title.

3. Thereafter the cases in support of those propositions are set out. In this case, no ground for notice is suggested except that the lender should have scrutinized the will, and from that gathered that there was no necessity for this loan. In my view there is no authority for such a proposition, and, that being the state of the law, I must refuse the application. The application must be dismissed with costs.

4. The following will supplement my judgment in this matter delivered on Tuesday last, 26th July 1932. I then dismissed the application of the plaintiff, a legatee under the will of Ambikacharan De, for stay of sale of certain property belonging to the estate mortgaged by the executor, her father. I dismissed the application without going into the merits because, in my opinion, the proposition of law upon which it was based was misconceived. Shortly put, the only ground upon which the transaction vis a vis the transferee was assailed was that the transferee should have considered the will and gathered from it that there were no debts to be discharged, and that therefore the executor was mortgaging for his own private purposes. I was unable to accept this proposition. At the time, counsel for the applicant relied upon the case of Manindra Nandi v. Sudhirkrishna Banerji : AIR1932Cal182 . Subsequently, counsel for the applicant asked for an opportunity to place before me a ruling which in his view was directly in point, viz. Goolam Hoosein Somji v. Bank of Bombay (1905) 7 Bom LR 407, affirmed on appeal to the Privy Council under the name of Bank of Bombay v. Suleman Somji (1909) 33 Bom 1. I will call it Somji's case (1905) 7 Bom LR 407. I had not overlooked this case. In the judgment in Shishirkumar Kar v. Dhirendrachandra Kar OC No. 1838 of 1929, decided on 15th February 1932 by Ameer Ali, J., I treated Somji's case (1905) 7 Bom LR 407 as typical of that class of case where an executor transfers, but is not known to the transferee in the transaction as an executor. The significance of this will, I hope, become apparent from what follows.

5. In the report of the case, before Sir Lawrence Jenkins, there are many passages which, taken by themselves, are undoubtedly encouraging to counsel for the applicant, but I regret that again I must disappoint him in my view of the law. It is only fair however that I should state my reasons in detail. The essential facts of Somji's case (1905) 7 Bom LR 407 were as follows: In 1885 Somji Parpia died leaving a will. To his four sons by his first wife, whom he made executors, he left the whole of his estate subject to a legacy of Rs. 35,000 in favour of his four sons by his second wife. The four executors and residuary legatee continued to carry on the family business under the name of Somji Parpia & Co. Many years later in 1899 they were indebted to the Bank of Bombay in respect of this business on hundis or bills of exchange, in the name of the firm. As security for this indebtedness they deposited with the bank by way of mortgage the title deeds of certain property which had formed part of the estate of the testator. When taking this deposit, the bank were unaware that these four sons, the mortgagors, were executors, and were unaware of the provision of the will. The bank dealt with the mortgagors as being entitled in their own right to the property mortgaged. Therefore three points in Somji's case. (1905) 7 Bom LR 407, viz.:

6. First.-That the mortgage was not made by the mortgagors as executors:

We start with the fact that the bank admittedly did not deal with the first four defendants as executors, but as owners of the property mortgaged.

7. This passage occurs in that portion of the judgment which deals with the question whether the mortgagee took with notice that the executors were acting improperly (see below). It would, in my opinion, have been more logical to treat this fact as a matter dehors the question of notice, by itself constituting a fundamental distinction between such a case and a case when the mortgagee deals with the mortgagor as executor.

8. Second: That, even regarded as a mortgage by an executor, the mortgagee was affected by notice. Sir Lawrence Jenkins held that notice was established on two grounds: (i) the ground already mentioned, viz., that the bank was in point of fact not dealing with the mortgagor as executor; (ii) that the mortgage being clearly to secure advances to the mortgagors, the bank had notice that the executors were not acting for purposes of administration, bringing the case directly within the decision of Hill v. Simpson (1802) 7 Ves 152.

9. Third.-The third point was the contention (raised by the bank) that notwithstanding the above considerations by reasons of the fact that the mortgagors were not only executors but also residuary legatees, therefore on the principle of Graham v. Drummond (1896) 1 Ch 968, the transaction could not be impeached. The principle of Graham v. Drummond (1896) 1 Ch 968 is shortly stated as rule No. 6 in Williams on Executors, 12th. Edn., 572. As regards this aspect of the case, Sir Lawrence Jenkins, while accepting Graham v. Drummond (1896) 1 Ch 968 as good law, distinguished the ease before him on the ground that the claimants were not merely creditors but legatees. In the case before me the claimant is also a legatee, and the executor is also a residuary legatee, but it is not necessary for the transferee to resort to this last line of defence, and I therefore have not to consider the effect or applicability of Graham v. Drummond (1896) 1 Ch 968. The Judicial Committee took the same view of the applicability of Graham v. Drummond (1896) 1 Ch 968. Their Lordships agreed that the bank had constructive notice of the will and of its provisions: vide Bank of Bombay v. Suleman Somji (1909) 33 Bom 1; but the importance of the ruling is that it is based substantially on the Irish case Queale's Estate (1886) 17 Ch D 361, the facts of which they considered to be similar. As the report of this case may not be generally available, I quote the material passage in full:

I will consider, in the first instance, how the position of John William Queale, as executor, independent of his position as residuary legatee, affects the case. The power of an executor to deal with personal estate is, I need hardly say, well known. He has full power to sell and mortgage it, not only as against pecuniary legatees, but also as against specific and residuary legatees; and dealing with the property qua executor, a bona fide purchaser and mortgagee is not under any obligation, and has no right, to require the executor to show that what he is doing is required for the purposes of administration. But the case is different where the purchaser knows that the executor is abusing his position; and if an executor, being merely executor, mortgages for his own private debt, such a transaction, being mala fide, cannot stand. In the present case, I do not see how the bank can be considered as having dealt with John William Queale as executor. If they did, the fact of the debt secured, being the private debt of Queale to the bank, would destroy their title.

10. Then the Judge goes on to say:

But the strength of the argument for the bank was that Queale dealt with them as absolute owner, that as residuary legatee he was such absolute owner

and so forth. In my opinion, the real decision in Somji's case (1905) 7 Bom LR 407 was that a transferee who deals with a transferor (who happens to be an executor) not as executor but as owner, is not entitled to the protection which the law affords to transferees from executors acting qua executors. It is not contended that there is any difference, which would operate in the applicant's favour, between English and Indian law. In my view, Section 307, Succession Act, gives the executor powers at least as extensive as those of an executor in England before 1926. I should have mentioned that the will contains no restriction on the ordinary powers of an executor. Mr. Chatterji, for the applicant, as a last resort, has argued that in the present case the mortgage was not by the executor qua executor. I do not agree. Although the mortgagor is described as:

Narendrakrishna De in his personal capacity and in his capacity as executor,

the rest of the document makes it perfectly clear that he was mortgaging qua executor. I do not again propose to deal with the merits of the application. In too many cases there is devastavit by the executor. This maybe one of those cases. In some cases there is collusion between the executor and the applicant. In still a greater number of cases there is a mixture of devastavit and collusion, a common proportion, I should say, being two of devastavit to one of collusion. But assuming that this is a case solely of devastavit, in my view of the law I must refuse interlocutory relief. This being the case, it is not necessary for me to consider an aspect of the matter which appears to have been overlooked by counsel for the applicant. Even if the plaintiff be right in law, it does not necessarily follow that this mortgage will be set aside. She may have a charge on the property for her legacy of Rupees 8,000. This charge may take precedence on the security of the mortgagee, the latter may be perfectly valid subject to such prior charge. My previous order dismissing the application for stay of sale will therefore stand. In further protection of any possible rights of the plaintiff I direct that the application for payment out by the purchasers will be made on notice to the plaintiff.


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