Judgement
This is an appeal by the defendant from the decree of the Court of the Subordinate Judge, Kurnool, in O. S. No. 9 of 1950, filed for the recovery of the amount due to the plaintiff on a mortgage Exhibit A-1, dated 4th November, 1930, for Rs. 8,000 executed by the defendant. The learned Subordinate Judge, who tried the suit, decreed the suit in favour of the mortgagee for a sum of Rs. 5,962-1-10 with proportionate costs and subsequent interest. The defendant-mortgagor has preferred this appeal and contends that the suit was barred by limitation and, secondly, that the amount due to the mortgagee was less than the amount decreed by the learned Subordinate Judge.
2. The facts necessary to appreciate the contentions of the appellant are these. The defendant executed the mortgage Exhibit A-1 for Rs. 8,000 on 4th November, 1930. This was relied upon as an act of insolvency committed by the defendant and he was adjudged insolvent on 29th December, 1931, in I. P. No. 73 of 1931. The Insolvency Petition was filed on 2nd February, 1931. After the order of adjudication, the Official Receiver, in whom the estate of the insolvent vested, applied to the Court and got the mortgage debt scaled down to Rs. 6,220 as on 1st October, 1937 with interest at 6 per cent. thereafter. The Official Receiver applied to the Insolvency Court in M. P. No. 204 of 1940 for permission to sell a house in Dhone in order to pay off the mortgage debt due to the plaintiff. The requisite permission having been granted, the Official Receiver sold the property and paid a sum of Rs. 2932-6-8 towards the mortgage debt on 2nd July, 1940. He also made an endorsement of part payment on the mortgage deed Exhibit A-1 in these terms :
"As ordered by the District Court in Dis. No. 2256, dated 29th June, 1940, in I. P. No. 73 of 1931 (I. P. No. 20 of 1932, O. R.) in M. P. No. 204 of 1940 District Court (a sum of rupees two thousand, nine hundred and thirty-two, annas six and pies eight) Rs. 2,932-6-8 was paid by cheque No. 156563, Book No. 1566, dated 2nd July, 1940, to Gunda Subbayya Chetti, the mortgagee."
The adjudication of the defendant was annulled on 17th February, 1948, he having paid all his simple money creditors by that date. No further payment than the one made by the Official Receiver was made towards the mortgage and the mortgagee brought the present suit on 9th January, 1950, to enforce his mortgage.
3. It was argued by Sri S. V. Venugopalachari, learned advocate for the appellant, that the payment made to the mortgagee on 2nd July, 1940 and the endorsement of payment made by the Official Receiver was an open payment and not a payment towards interest as such and having been made before S. 20 was amended, it did not give a fresh starting point of limitation for a suit on the mortgage. In Mangapathi Naidu v. Krishnaswami Naidu, 1950-1 MLJ 107 : (AIR 1950 Mad 762) (A), I had occasion to consider the effect of the amendment of S. 20 in 1942 and I was of the opinion that the amendment of S. 20 of the Limitation Act operated retrospectively upon payments and endorsements made before it came into force, though such payments and endorsements were of no avail on the date when they were made. This view was accepted by a Bench of the Madras High Court in Ramanathan Chettiar v. Kandappa Goundan, 1950-2 Mad LJ 624 : (AIR 1951 Mad 314) (B), where it was held that the law of limitation being procedural law, its provisions operated retrospectively in the sense that they applied to causes of action which arose before their enactment and that open payments made towards debt prior to the amendment of S. 20 of the Limitation Act by the Amending Act 16 of 1942, would save the debt from the bar of limitation if its recovery had not become barred prior to the coming into force of the amendment. Following these two decisions, I am of the opinion that the payment and endorsement made by the Official Receiver in the present case though ineffective under S. 20 of the Limitation Act as it stood at the time when the payment was made would save the suit from the bar of limitation.
4. The next contention of the learned advocate for the appellant was that part payment by the Official Receiver was inoperative to save limitation under S. 20 (1) of the Limitation Act inasmuch as the Official Receiver was not "a person liable to paay" the mortgage debt and was not a duly authorised agent of the mortgagor who alone was the person liable to pay the mortgage debt. In my opinion, this contention is also untenable. The words "a person liable to pay" in S. 20 (1) of the Limitation Act are words of wide import, not necessarily confined to a person who is personally liable under his covenant or promise to pay the debt.
The words are wide enough to cover property liability also. In Askaram Sowkar v. Venkataswami Naidu, ILR 44 Mad 544 : (AIR 1921 Mad 102) (C), it was held by the Madras High Court that the purchaser of the equity of redemption was a person liable to pay the mortgage debt within the meaning of S. 20 of the Limitation Act and that, though he was under no personal liability to pay the mortgage debt still if he did make a payment of interest as such, such payment gave a fresh period of limitation for enforcing the mortgage. This decision was followed by the Calcutta High Court in Bhuan Mohan Singh v. Ram Gobinda Goswami, ILR 54 Cal 179 : (AIR 1926 Cal 1218) (D).
In both the decisions cited above, reliance was placed on the decision in Chinnery v. Evans, (1864) 11 HLC 115 (E), and it was held that the words "the person by whom the debt is payable" occurring in the corresponding English statute were words of extensive meaning and would comprehend not only the mortgagor and his personal representatives upon whom the mortgage would be personally binding, but would also include second and third mortgagees who took subject to the first mortgage and who might therefore, with propriety, be described as persons by whom the debt was payable.
Under S. 28 of the Provincial Insolvency Act, on the making of an order of adjudication the whole of the property of the insolvent vests in the Official Receiver who has power under S. 59 of the Act to sell, mortgage or pledge the whole or any part of the property of the insolvent, raising money for the payment of his debts and do all other acts as may be necessary for the purpose of realising the property of the debtor and distributing the net assets among the creditors. The position of the Official Receiver is not analogous to that of a de facto guardian or a mere manager or custodian of the proparty but is that of a person in whom the title to the property of the insolvent vests. In my opinion, the Official Receiver in whom the estate of the mortgagor vested on his adjudication comes within the description of "a person liable to pay" the mortgage debt within the meaning of S. 20 (1) of the Limitation Act.
5. In Krishnayya v. Seetaramayya, AIR 1937 Mad 764 (F), Venkataramana Rao J., held that a Receiver appointed in a suit for dissolution of partnership for collecting the assets of the partnership and payment of the debts due to the creditors, of the firm, has power to make part payments of the debts due by the firm so as to give a fresh starting point for enforcing the debts under the law of limitation. The case related to an acknowledgment made by the Receiver and it was held that it was valid under S. 19 of the Limitation Act.
The appellants learned Advocate referred to the decision of the Bombay High Court in Currimbhai Abdulhussain v. Ahmedali Lukmanji, ILR 58 Bom 505 : (AIR 1933 Bom 91) (G), where it was held that the admission of proof of a debt and payment of a part thereof by the Official Assignee during the insolvency of the debtor did not operate to extend the period of limitation against the debtor. It was held by the Court that the Official Assignee was not the agent of the debtor within the meaning of S. 19, Explanation II of the Limitation Act. The Bombay High Court had not to consider the position of the Official Receiver as a person liable to pay the mortgage debt contracted by the insolvent within the meaning of S. 20 (1) of the Limitation Act.
In fact, the question whether the payment would fall within S. 20 of the Limitation Act was not considered by the learned Judges. I am therefore of the opinion that the payment of Rs. 2,932-6-8 by the Official Receiver, on 2nd July, 1940, endorsed on the mortgage document and signed by the Official Receiver, is operative to give a fresh starting point of limitation for the suit on the mortgage under S. 20(1) of the Limitation Act.
6. The further contention of the learned advocate for the appellant is that the personal remedy of the mortgagee is barred by limitation under Art. 116 of the Limitation Act. It would be barred if S. 78 (2) of the Provincial Insolvency Act had no application to the case. On this question, the learned Subordinate Judge expressed himself as follows :
"The personal liability of the debtor is not a debt provable in insolvency. Therefore, in view of the decision in Eacharan Nair v. Chinnayya Rowther, 1948-2 Mad LJ 256 : (AIR 1949 Mad 273) (H), it must be held that the personal liability of the defendant is not barred by limitation as, if the period between the adjudication of the defendant and the annulment of adjudication is excluded from reckoning, then the suit even regarding the personal liability of the defendant will be within six years from the date of the mortgage bond.
7. In my opinion, the reasoning of the Court below is erroneous. In the present case, the order of adjudication was made on 29th December, 1931 and the adjudication was annulled on 17th February, 1948. The mortgagee seeks to deduct this period of over 16 years, during which the insolvency proceedings were pending, in computing the period of limitation available to him for enforcing the personal lability of the mortgagor. Reliance is placed by the respondent on S. 78 of the Provincial Insolvency Act and a decision of a single Judge of the Madras High Court in 1948-2 Mad LJ 256 : (AIR 1949 Mad 273) (H).
Under S. 28 (2) of the Provincial Insolvency Act, when an order of adjudication is made against a debtor, no creditor to whom the insolvent is indebted in respect of any debt provable under the Act has, during the pendency of the insolvency proceedings, any remedy against the property of the insolvent in respect of the debt nor could the creditor commence any suit or other proceeding except with the leave of the Court. When the insolvency terminates by the grant of an order of discharge, the debts provable in insolvency stand extinguished so far as the insolvents liability is concerned under S. 44 (2) of the Act.
If the insolvency proceedings terminate by an order of annulment of the adjudication, the claims that were unenforceable by a suit or other proceeding during and by reason of the pendency of the insolvency proceedings by virtue of S. 28 (2), are revived and the creditors are reinstated to their original position and allowed to pursue the remedies which they had before the order of adjudication was made. In such cases, the period during which the hands of the creditor were stayed by reason of S. 28 (2) of the Act, is allowed to be deducted in computing the time limited for a suit or other proceeding under the law of limitation.
This is provided for in S. 78 (2) of the Act, which allows a deduction of the period from the date of the order of adjudication to the date of the order of annulment, in computing the period of limitation for a suit for recovery of the debt due by the erstwhile insolvent to the creditor. If, however, the ban on a suit or execution proceeding imposed by S. 28 (2) of the Insolvency Act did not apply or the debt due to the creditor was not a debt provable in the insolvency of the debtor, the creditor was free to pursue his ordinary legal remedies for realising the debt.
Under S. 28 (6) of the Act, a secured creditor is entitled to realise his security without being affected in any way by the bar imposed by S. 28 (2) on creditors whose debts were provable in insolvency. It stands to reason therefore that a mortgagee suing to enforce his mortgage should not be entitled to the deduction of the time allowed by S. 78 (2) of the Act to creditors whose debts were provable in insolvency and who were subject to the disability imposed by S. 28 (2).
8. There is a decision of the Madras High Court in Chockalinga Mudali v. Manicka Mudali, ILR (1942) Mad 448 : (AIR 1942 Mad 273) (I) to which reference may be made in this connection. The learned Judges held that where a mortgagee had not, during the insolvency proceedings, realised the security or surrendered or valued it as provided in S. 47 of the Provincial Insolvency Act, no portion of the debt due to him could be considered to be a debt provable in insolvency. The decision had reference to the effect of an order of discharge on the rights of a mortgagee, who had not realised the security or surrendered or valued it during the pendency of the insolvency proceedings, to obtain a personal decree against the mortgagor after an order of discharge has been made under S. 44 of the Act.
The Court held that the mortgagee was entitled to a personal decree against the mortgagor after his discharge, as he was not a creditor whose debt was provable in insolvency and as S. 44 (2) operated only to extinguish such debts. The position of the mortgagee in the present case is similar to that of the mortgagee in ILR (1942) Mad 448 : (AIR 1942 Mad 273) (I), for he had not realised the security or surrendered or valued it during the pendency of the insolvency proceedings. If the mortgagee had no debt provable in insolvency, then the ban on the institution of suits or proceedings for the realisation of debts imposed by S. 28 (2) did not operate and the mortgagee could not avail himself of the provisions of S. 78 (2) of the Act and claim to deduct the time between the date of the adjudication and the date of the order of annulment in computing the period of limitation for a suit to enforce the mortgage.
9. In the present case, the suit is by the mortgagee to enforce his mortgage and in the course of the suit, the mortgagee would be entitled to a personal decree for the balance, if any, due to him after the sale of the hypotheca, if the personal remedy against the mortgagor had not become barred on the date of the suit. I am unable to accept the contention of the learned advocate for the respondent that though in so far as the relief for the sale of the hypotheca was concerned, the mortgagee was not entitled to the benefit of S. 78 (2) of the Provincial Insolvency Act he was entitled to invoke the aid of that provision in respect of his claiming a personal decree against the mortgagor.
10. The application by the mortgagee under O. 34, R. 6, Civil Procedure Code, is an application in the mortgage suit itself and the personal remedy would be available only if the suit had been filed within six years of the date due for the payment of the mortgage money, subject to any acknowledgment or part payment extending the period of limitation. As already stated, secured creditors are not affected by proceedings in insolvency and unless they realise the security or surrender or value it under S. 47 of the Provincial Insolvency Act, it could not be said that their debts are provable in insolvency.
Here, the mortgagee did not realise or surrender or value his security during the pendency of the insolvency proceedings and his position is that of a secured creditor, who must enforce the security subject to the ordinary law of limitation without the benefit of the deduction of the period from the date of the order of adjudication to the date of the order of annulment conferred by S. 78 (2) of the Provincial Insolvency Act. The decision of Govindarajachari, J., in 1948-2 Mad LJ 256 : (AIR 1949 Mad 273) (H), relied upon by the respondent related to a case where the legatee of mortgagee gave up his security and sued for the recovery of the amount due praying only for a money decree. He had not realised or surrendered or valued his security under S. 47 of the Act.
The learned Judge held that the plaintiff was entitled to have an exclusion of the period from the date of the adjudication to the date of the order of annulment in computing the period of limitation for the suit. It was not a case where the mortgagee sued to enforce the mortgage and it is unnecessary for me to canvass the correctness of the conclusion of the learned Judge. I must, however, confess that I am unable to follow in its entirety the reasoning of the learned Judge. The result of the foregoing discussion is that the prayer for a personal decree against the mortgagor must be disallowed as barred by limitation.
11. The last question relates to the amount maining due to the mortgagee tinder the mortgage. There has been a series of transactions between the parties before the date of the suit mortgage Exhibit A-l. Exhibit A-2, dated 2nd August, 1925, a promissory note for Rs. 2,000 was executed by the defendant in favour of the plaintiff carrying interest at 12 per cent. Exhibits A-4 and A-5, dated 25th January, 1926, were promissory notes for Rs. 1000 and Rs. 300 respectively executed by the defendant in favour of the plaintiff. Exhibit A-7, dated 20th December, 1926, for Rs. 4,000 was a renewal of Exhibits A-2, A-4 and A-5 coupled with a fresh cash advance of Rs. 260. Exhibit A-9, date 31st My, 1928, was another promissory note executed by the defendant in favour of the plaintiff for Rs. 5,000 the consideration being the discharge of Exhibit A-7 and a fresh advance of Rs. 800 according to the recitals in the promissory note. It has been found that, though a sum of Rs. 800 was recited to have been paid in cash on 31st May, 1928, for the promissory note Exhibit A-9, the amount actually advanced in cash was only Rs. 300.
The alterations of the entries in Exhibit A-9, the account book of the creditor, led the Subordinate Judge to suspect the truth of the recital in Exhibit A-9 about the cash advance Rs. 800. The finding of the learned Judge that only Rs. 300 was advanced and not Rs. 800 as recited in the promissory note Exhibit A-9 has not been challenged before me. The next document was a promissory note for Rs. 6,500 executed on 23rd June, 1929, by the defendant in favour of the plaintiff. The consideration is made up of the amount due under the prior promissory note Exhibit A-9 with a cash advance of Rs. 900. This promissory note is stated to have been lost but the suggestion of the debtor is that no such promissory sory note was executed by him.
This suggestion is unacceptable because the subsequent mortgage Exhibit A-1, dated 4th November, 1930, for Rs. 8000, recites that part of the consideration for the mortgage was the amount due under the last promissory note, dated 23rd June, 1929, for Rs. 6,500. In view of the admission of the debtor in Exhibit A-1, I hold agreeing with the Court below, that there must have been a promissory note for Rs. 6,500 which preceded Exhibit A-1. The consideration for the mortgage Exhibit A-1 is the principal and interest due under the promissory note for Rs. 6,500 executed on 23rd June, 1929 and a cash advance of Rs. 960 making up a total advance of Rs. 8000.
It is contended by Sri S. V. Venugopalachari, the learned Advocate for the appellant, that these two cash payments of Rs. 900 for the promissory note, dated 23rd June, 1929 and the cash payment of Rs. 960 for the mortgage Exhibit A-1 are not true and no such cash payments were made. There is an admission of the debtor that a cash payment was received under Exhibit A-1 and the promissory note, dated 23rd June, 1929 and the onus is upon him to show that he did not in fact receive the cash admitted by him to have been borrowed. The learned Judge on a computation of the interest due under the promissory note Exhibit A-9, came to the conclusion that no part of the interest due under Exhibit A-9 could have been included in the cash advance of Rs. 900 recited to have been made to the defendant on 23rd June, 1929.
As regards the cash payment of Rs. 960 under Exhibit A-1, there was no demand in writing by the debtor for payment of the cash alleged to have been withheld by the creditor. He speaks to having paid personal visit to the creditor for demanding payment but the learned Judge does not accept his version and I see no reason to differ from him. I, therefore, agree with the learned Judge as regards the amount due to the mortgagee and with his direction for payment of the debt with interest as stated in his judgment.
12. The result is that the appeal is partly allowed and Cl. 5 of the decree as drawn up by the lower Court should be deleted. Since the appellant has substantially failed in the appeal, I direct that he shall pay 2/3rd of the costs of the appeal to the respondent and bear his own costs.
Appeal partly allowed.