Babamiya v. Jahangir Dinshaw Belgaumwalla

B.J Wadia, J.:—

Plaintiffs have filed this suit as mortgagors against the defendant who is the present mortgagee of an immoveable property situate at Chimna Butcher Street, Bombay, to restrain the defendant by an order and injunction of the Court from selling the property on the ground that the proposed sale which was advertised for September 18 last was wrongful and not in accordance with the terms of the mortgage. The original mortgage deed dated May 31, 1935, was made between plaintiff No. 1 as the sole executor of his father's will along with plaintiffs Nos. 1 and 2 and one Bai Zohrabai, the heirs of plaintiff No. 1's father, as mortgagors on the one hand and Rahim Premji Parpia and Habib Rahim Parpia as mortgagees to secure repayment of the sum of Rs. 7,500 lent and advanced by the mortgagees. Zohrabai died about March 3, 1936, and the plaintiffs are her only heirs and legal representatives according to the Mahomedan law. By an indenture of transfer of mortgage dated January 22, 1940, the mortgage debt, which then amounted to Rs. 11,200, was transferred by the original mortgagees to the defendant, who was to have under the deed of transfer the full benefit of the covenants, power of sale and other powers and provisions contained in the mortgage deed for securing the repayment of the sum of Rs. 11,200. The due date for repayment was extended under the deed of transfer to January 22, 1941, with a further option to the mortgagors to extend the same to January 22, 1942, provided they paid interest regularly and otherwise observed and performed all the provisions and conditions of the mortgage. The rate of interest agreed upon was annas ten per cent per month. After the deed of transfer the plaintiffs paid to the defendant Rs. 70 for interest on February 20, 1940, for the month ending February 19, and on May 13, 1940, they paid a further sum of Rs. 70 for interest for the month ending March 19, 1940. Thereafter the plaintiffs in spite of demands from the defendant failed to pay the interest agreed upon.

It is contended on behalf of the plaintiffs that the defendant was not entitled to have the property sold on two grounds: (1) that even if the due date of payment which was January 22, 1941, had been, under the circumstances contemplated by a clause in the mortgage deed which I will hereafter refer to, accelerated, the defendant had not intimated to the plaintiffs the exercise of his option to call in the mortgage amount, and (2) because no notice of sale in writing as required by s. 69(2)(a) of the Transfer of Property Act, and as also provided for in the mortgage deed, was given to the plaintiffs. Defendant on the other hand contends that the plaintiffs were not entitled to any intimation of the exercise of the option. In paragraph 13 of his written statement he further contended that he was entitled to put up the mortgaged property for sale without the notice in writing required by s. 69, but that contention was given up at the hearing by his counsel. Defendant also contends in paragraph 16 of his written statement that the plaintiffs are not entitled to claim any relief in this suit by reason of the order passed by the Court on the notice of motion for interim injunction on September 18 last.

The application for interim injunction was made in terms of prayer (b) of the plaint on September 18 before recess, but as the sale was advertised for the afternoon of the same day, I ordered that notice of the application should be given immediately to the mortgagee i.e the defendant. After the recess both parties appeared by counsel, and a consent order was taken under which on the plaintiffs paying Rs. 500 to the defendant within two days the sale was to be adjourned for two months, but if the sum was not paid as ordered, the notice of motion was to be dismissed with costs. The words in the order “and the sale to proceed” set out in para. 15 of the written statement do not form part of the final order made by the Court on that date. They were at first written down by me after the substance of the consent order arrived at by the parties was mentioned to the Court, but a little later, either upon some discussion in Court or at the Court's own suggestion, the words which in my order ran as fellows “and defendant to be at liberty to proceed with the sale” were struck out, presumably because it was not the Court's intention to decide the whole suit on an application for an interim injunction. Those words were at first written and even read out by the Court to the parties, but as I have already stated, after some discussion or at the Court's instance, they were struck out. Defendant's counsel argued that even without the addition of these words the implied effect of the order of the Court was that on failure to pay Rs. 500 within two days not only the notice of motion was to stand dismissed, but that the plaintiffs also were to lose their right to apply for and claim permanent injunction. This means in other words that by the order the Court practically decided the whole suit. If that was so, there was no meaning in ordering the written statement to be filed within ten days and expediting the suit without stating in so many words that the written statement was to be filed and the suit was to be expedited only if the sum of Rs. 500 was paid within two days. There would have been no need for a written statement, nor for expediting the suit, if on the failure to pay within two days the whole suit of the plaintiffs was to go by the board.

It is alleged in para. 1 of the written statement that the plaintiffs' suit is “misconceived” on the ground that under the terms of the mortgage and transfer of mortgage the plaintiffs could not restrain the exercise of the mortgagee's power of sale. At the hearing it was further argued that the suit as framed was not maintainable, because no suit can lie only for an injunction without at the same time claiming other relief. That is nowhere alleged in the written statement, and although as a point of procedure it can be taken at any time, counsel for the defendant has not even raised an issue upon it. He argued that as soon as the mortgagee became entitled to call in his moneys by reason of the acceleration of the date of payment, the mortgagors' right to redeem accrued simultaneously to them, and as there was no prayer for redemption, the whole suit was bad. On the other hand plaintiffs' counsel argued that ordinarily a mortgagor's suit for redemption could not be brought before the expiry of the stipulated period, that is, before the due date, and that if in the event of the due date being accelerated defendant as mortgagee became entitled at his option to call in the mortgage amount, he had not exercised that option by calling in the amount upon which the mortgagor's right to redeem would accrue. It has been held both in England and in India that the mortgagee cannot be restrained from exercising his power of sale merely by reason of the mortgagor filing a suit for redemption, unless he pays the mortgage amount to the mortgagee or tenders the same. There is, however, nothing to prevent a mortgagor from seeking to restrain the exercise of the mortgagee's power of sale if the power is exercised in a wrong and improper manner, contrary to the terms, of the contract: see Jagjivan Nanabhai v. Shridhar Balkrishna Nagarkar and Jerup Teja & Co. v. Peerbhoy. No case was cited before me to show that if the right to redeem had not accrued to the mortgagor he could not bring in a suit for an injunction restraining a wrongful sale, but that his only remedy was either to pay or tender the moneys and allow the property to be sold, and then pursue his remedy in damages if any. In my opinion the plaintiffs could not at the particular stage and under the circumstances of the case have asked for any other relief except an injunction, and they could only succeed if they showed that the proposed sale was wrongful in the sense that it was against the terms of the mortgage. I do not think it can be said that in such a case a suit merely for an injunction is incompetent. Suits in passing off actions and for infringement of trade mark for instance are often filed only for injunction and costs.

It is not in dispute that under the terms of the transfer of mortgage the due date was extended to January 22, 1941, with the further option I have mentioned before. Counsel, however, referred to the clause in the mortgage deed which provides that it is agreed that in the event of any damage happening to the mortgaged property in the manner specified whereby the security was impaired, or in the event of interests for any three months being in arrears and remaining unpaid for three weeks after being due, or if the mortgagors or any of them were adjudged insolvent, or committed a breach of any one the covenants, provisions, terms and conditions in the mortgage, then notwithstanding anything contained in the mortgage to the contrary

“the whole of the mortgage debt shall at once at the option of the mortgagees become immediately payable as if the due date had then elapsed and in such eases all such rights and remedies shall be available to the mortgagees as would be available to them under the terms of these presents or by law upon default being made in payment of the principal money and interest thereby secured.”

It is not in dispute that interest was in arrears for three months and unpaid. It is also not disputed that the plaintiffs had failed to insure the mortgaged property and to pay the insurance premium. Under the circumstances the due date which was January 22, 1941, was accelerated, and the option to call in his moneys and all the rights of the mortgagee accrued to him. The mortgagee could under the terms of the mortgage deed apply for a receiver of the mortgaged property, or enter into possession, or file a suit for sale, or by exercising the option reserved to him he could proceed to realise his mortgage debt without filing a suit. It has been pointed out by the Privy Council in Lasa Din v. Gulab Kunwar that a proviso or clause in the mortgage deed of the nature which I have referred to above is “exclusively for the benefit of the mortgagees” and “purports to give them an option either to enforce their security at once, or if the security is ample, to stand by their investment for the full term of the mortgage”. In an earlier Privy Council case, Pancham v. Ansar Husain, the question was one of limitation under art. 132 of the Limitation Act for an action by a mortgagee upon a breach of the clause which gave the mortgagee the power to enforce the mortgage by sale even if the time for repayment had not arrived. It was pointed out by Lord Blanesburgh at p. 194 that such a default on the part of the mortgagor gave to the mortgagee “a right by appropriate action to make the mortgage moneys immediately due”. As pointed out by Sir Dinshah Mulla in his Commentary on the Transfer of Property Act, 2nd edn., at p. 419, such appropriate action may be by a notice of demand as in Raghubir Singh Raja v. Kunwar Rajendra Bahadur Singh, or by the mere filing of a suit as in Abdul Rahman v. Sheo Dayal. In order that the mortgage moneys may become immediately payable on the exercise of the mortgagee's option there must be an action indicating to the mortgagor the exercise of that option, so as to enable the mortgagor to realise his position and save his equity of redemption if possible.

What was the appropriate action taken by the defendant as mortgagee? On April 25, 1940, the mortgagee called upon the mortgagors to pay up the arrears of interest failing which he threatened to take proceedings at their risk as to costs. He followed this up with a reminder on July 15 and again on July 24. As no reply was forthcoming, the mortgagee by his attorneys' letter dated August 12, 1940, intimated to the plaintiffs that the defendant had no other alternative but to enter into possession of the mortgaged property and recover the rents and profits, but that he would give the mortgagors one more chance to pay off the arrears failing which he would “exercise his rights under the mortgage herein as indicated above”, meaning thereby that he would enter into possession of the mortgaged property. Thereafter the defendant seems to have changed his mind. He advertised the property for sale once in the issue of the Bombay Samachar of August 26 and once in the issue of the Bombay Chronicle of August 30, 1940. The sale was advertised for September 18, 1940. No intimation was given to the plaintiffs. The plaintiffs themselves came to know of the intended sale on September 2, 1940, as alleged by them in para. 7 of the plaint, and that is admitted by the defendant in para. 9 of his written statement. The question therefore that arises is, is an advertisement for sale by public auction without any intimation to the mortgagor an appropriate action by the mortgagee under the terms of the Privy Council judgment to make the mortgage amount immediately payable at his option? In para. 13 of his written statement the defendant alleges that the plaintiffs were “apprised” by correspondence annexed to the plaint that the defendant was proceeding to exercise his power of sale. But even that was only by way of answer to the plaintiffs' letter of September 17, in which they pointed out inter alia that they had not received even the notice required by s. 69 of the Transfer of Property Act. It is not alleged in the written statement that such advetisement amounted to an intimation of the mortgagee's exercise of his option. In fact the only contention taken up by the defendant in the written statement was that the plaintiffs were not entitled to any intimation at all. In my opinion the mere fact that the defendant became entitled to call in the mortgage moneys immediately is not an exercise of the option given to him under the mortgage deed. The mortgage moneys can only become due and payable as soon as the option is exercised upon an intimation on which the mortgagors could come to know their position, for unless the mortgagee calls in the moneys the mortgagor cannot know that the due date has been accelerated. He should also know which of the rights under the mortgage the mortgagee wishes to exercise.

Further, or in any event, it is admitted on behalf of the defendant that no notice was given to the mortgagors as required by s. 69(2)(a). Section 69(2) provides that the power of sale without the Intervention of the Court shall not be exercised unless and until (a) notice in writing requiring payment of the principal money has been served on the mortgagor, or on one of several mortgagors, and default has been made in payment of the principal money, or of part thereof, for three months after such service; or (b) some interest under the mortgage amounting at least to Rs. 500 is in arrear and unpaid for three months after becoming due. Both these clauses seem to be based on s. 20 of the English Conveyancing Act of 1881 now corresponding to s. 103 of the Law of Property Act of 1925. This power of sale in the mortgage deed is really an authority given to the mortgagee to defeat the mortgagor's equity of redemption, but it could only be exercised on the fulfilment of either of the two conditions mentioned in s. 69(2). These conditions are also reproduced in the mortgage deed. In the case of default of payment of interest amounting at least to Rs. 500 no notice is necessary, but in the case of default of any payment of the principal notice in writing is necessary unless the mortgagor has waived it or consented to dispense with it. It is necessary because without such notice the exercise of the power of sale would be oppressive. As pointed out by the Privy Council in Rajah Kishendatt Ram v. Rajah Mumtaz Ali Khan, the effect of a power of sale is “to destroy the equity of redemption” and “the estate, if purchased by a stranger, passes into his hands free from all the incumbrances”. The object of the notice, as pointed out by our Court in Doolabhdas v. Chhabildas, is also to enable the mortgagor to collect the amount of moneys payable by him if he can, and to pay the same before the time for exercising the power of sale arrives.

Defendant's counsel admits that such notice is necessary, but he relies on the clause in the mortgage deed which provides in substance that notwithstanding any irregularity impropriety or want of necessity of a sale by the mortgagee under his power the sale will be valid and effectual and the remedy of the mortgagor shall be in damages only. The clause is a long one, but I have merely set out its substance. Counsel referred to Prichard v. Wilson In that case there was a covenant in a mortgage deed not to exercise the power of sale except after three months' notice. The covenant was followed by a proviso that the purchaser should not be affected by the absence of such notice, and that the remedy of the mortgagor should be by an action for damages. Sir J. Romilly M.R was of opinion that the construction of the covenant appeared to him to be one of some difficulty, but upon consideration he was of opinion “that the express proviso as to the remedy of the plaintiff by action for damages, takes away the jurisdiction of this Court”, the jurisdiction being the jurisdiction to grant an injunction. No reason whatsoever is given for this opinion. It was a case decided in 1864 before even the Conveyancing Act of 1881 came into force. It was followed by Starling J. in Munchurji Furdoonji Mehta v. Noor Mahomedbhoy Jairajbhoy Pirbhoy. No reason is given for his judgment. He merely reproduces the clause about the remedy being in damages and then goes on to say that the case of Prichard v. Wilson “lays down the rule that in such a case a Court of Equity will not grant an injunction to stop a sale.” This case was decided, as pointed out by Sir Dinshah Mulla, before the Transfer of Property Act was applied to Bombay. Counsel argued that this Court was bound to follow the case. It is the judgment of a Court of co-ordinate jurisdiction, and I believe counsel was referring to the decision of the Appeal Court in Tyabji Dayalbhai & Co. v. Jetha Devji & Co.,(5) where Marten C.J pointed out that a decision of a single Judge of this Court was binding upon another Judge on the Original Side, if it was a decision “which really followed the practice of this Court which had existed for a great number of years”. The ruling embodied in Prichard's case and followed in Muncherji Furdoonji's case has not been mentioned in any case in Bombay either before Muncherji Furdoonji's case or after it. I should like also to point out that the clause in the mortgage deed on which counsel relies begins by saying “without prejudice to all rights conferred on the mortgagees by s. 69 of the Transfer of Property Act” etc. Now the right conferred by s. 69(2) on the mortgagee is the right to exercise his power of sale only upon fulfilment of one of the two conditions; and as I have stated before, giving the notice required by s. 69(2)(a) is not only necessary but is imperative, and even the period of three months cannot be curtailed by agreement of the parties. I should like to point out the observation made in Lasa Din v. Gulab Kunwar by Sir George Lowndes at p. 385 that it is always dangerous to apply English decisions to the construction of an Indian Act. No doubt the two cases which I have referred to before do not bear upon the construction of any provision of the Transfer of Property Act, but I am reluctant to interpret s. 69(2)(a), even if it is followed by the clause as to the remedy in damages, on the basis of the decision in Prichard v. Wilson followed in Muncherji Furdoonji Mehta's case for which no reason has been assigned.

It was lastly argued that it did not appear on the facts of this case that the plaintiffs would ever be able, even if they were willing, to redeem this property, and that they were not even able to pay Rs. 500 within a couple of days as ordered by the Court. It was further contended that any relief in this suit would be futile because the mortgagee can any day sell under s. 69(2)(b) without notice. That may be so, but the fact that the mortgagee can hereafter take the right action cannot in my opinion legalise an action already taken which was not right and proper according to the law. It is true that granting an injunction is an equitable remedy. It is equally true that it is in the discretion of the Court. But the exercise of the discretion must always be based upon judicial principles; in other words, it can only be exercised according to the provisions and requirements of the law. I do not see why sitting as a Court of Equity I should refuse the equitable relief by way of injunction merely because the mortgagors were unable to pay in the past and might be unable to pay even in the future. I also do not see why I should refuse to grant the relief because the mortgagors can later come forward and claim damages, if any, by reason of an improper sale. Here there are two conditions which have not been fulfilled. There is no intimation of the exercise of the mortgagee's option, and there is no notice in writing as required by the statute; and the parties wish to stand upon their strict rights regardless of the consequences of any future action which may be taken by the mortgagee. I cannot say that conditions exist in this case which entitle the mortgagee to exercise his power of sale or which prevent the mortgagors from applying to the Court to restrain the exercise of that power.

There will be a decree for the plaintiffs in terms of prayer (a) of the plaint.

Defendant to pay the plaintiffs' costs of the suit and interest on costs at six per cent, per annum.

Attorneys for plaintiffs: Messrs Benjamin, Chhatrapati & Co.

Attorneys for defendant: Messrs Kharas & Co.

Suit decreed.

N.K.A