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  • Sulaiman
  • Pullan, JJ.
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  • Pullan, JJ.
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Smart Summary

Summary of Opinion — Sulaiman, J. (Defendants' Appeal)

Factual and Procedural Background

This appeal arises from a suit based on a security bond dated 11 July 1907 executed by the defendant-appellants, Mehdi Ali Khan and Abdullah Khan. Mt. Faiz-ui-nissa had obtained a decree against Mt. Hanif-un-nissa in an earlier appeal (suit No. 37 of 1903) for about Rs. 63,000 and sold that decree to Bansi Dhar for Rs. 40,000. Prior to the sale, the appellants held a decree in suit No. 20 of 1902 for over Rs. 11,500 against Mt. Faiz-un-nissa and, in execution of that decree, attached Faiz-un-nissa’s decree against Hanif-un-nissa; consequently, claims under the sale were subject to that attachment.

The attached decree was ordered to be executed in favour of Bansi Dhar, but sale proceeds were to discharge the attaching creditors first. On auction (26 October 1906) Rs. 14,950 was realized; strangers purchased most property and Bansi Dhar purchased an Indigo Factory. The judgment-debtor later deposited nearly Rs. 6,000 in Court and paid over Rs. 54,000 out of Court, satisfying the decree. Before taking out money from Court, both Bansi Dhar and the attaching creditors were ordered to furnish security (orders dated 4 January 1907 and thereafter). The appellants filed the disputed security bond (11 July 1907) and, on that basis, took out the Rs. 14,950 and parts of subsequent deposits.

Mt. Hanif-un-nissa's appeal to the Privy Council was remanded and ultimately the Court dismissed the suit, reversing the earlier decree. Restitution proceedings ensued: Hanif-un-nissa recovered the Indigo Factory from Bansi Dhar; an application for restitution of sale proceeds against strangers was dismissed; restitution proceedings against Bansi Dhar were remanded by the High Court which held Bansi Dhar personally liable under Section 144 of the Civil Procedure Code (CPC). Ultimately Bansi Dhar and subsequently his heirs paid sums and made restitution to Mt. Hanif-un-nissa and her representatives.

The present suit was instituted by the sons of Bansi Dhar (the plaintiffs) to enforce what they alleged was a charge created by the 11 July 1907 security bond. The appellants defended on the ground that no enforceable charge existed and additionally raised a plea of limitation. The Subordinate Judge held the bond was not a mortgage but created an enforceable charge in favour of Bansi Dhar and decreed the whole claim; this appeal challenges that conclusion.

Legal Issues Presented

  1. Whether the security bond dated 11 July 1907 constituted a mortgage within the meaning of Section 58 of the Transfer of Property Act.
  2. Whether, if not a mortgage, the document nevertheless created a charge on the described property (within the meaning of Section 100 of the Transfer of Property Act) enforceable by the plaintiffs.
  3. Whether the plaintiffs can enforce any security (mortgage or charge) under the bond and, if not, whether they have a remedy in restitution or under the law of obligations (specifically Section 70 of the Contract Act) for amounts paid by Bansi Dhar on behalf of the sureties.
  4. The effect of limitation law on the plaintiffs' various claims (including whether parts of the claim are barred by time and whether Article 132 of the Limitation Act applies).

Arguments of the Parties

Appellants' (Defendants') Arguments

  • The security bond does not create any enforceable charge in favour of the plaintiffs and therefore cannot be enforced as a mortgage or charge against the appellants.
  • There is a plea of limitation against the plaintiffs' claim.

Plaintiffs' (Sons of Bansi Dhar) Position

  • The plaintiffs asserted that the security bond created a charge on the specified zimindari property which they were entitled to enforce to recover sums paid in restitution.
  • They sought to enforce the charge rather than first applying to the court which had required the furnishing of security.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Raj Raghubir Singh v. Jai Indra Bahadur Singh, A.I.R. 1919 P.C. 55 Authority for the proposition that an instrument which does not name any person as beneficiary cannot be treated as a mortgage; the proper mode of enforcement where sureties undertake liability to the Court is to apply to the Court for an order to sell the charged property (i.e., an inter partes application), not to enforce it as a mortgage. The court relied on this precedent to conclude the 11 July 1907 bond is not a mortgage within Section 58 of the Transfer of Property Act because it names no person to whom the security is given and shows an undertaking to the Court rather than to a named creditor.
Janki Kumar v. Sarup Rani, [1895] 17 All. 99 Practice of this High Court in similar cases indicating the remedy and procedure for enforcing securities given in connection with Court proceedings (application in the suit to which the sureties are parties). The court cited this ruling as evidence of local practice and as supporting the principle mentioned in the Privy Council decision that enforcement should proceed by application to the Court in the suit, not by treating the document as a mortgage transferable to a third party.

Court's Reasoning and Analysis

The court proceeded in two main lines of analysis: (A) whether the security bond could be characterized as a mortgage or, alternatively, as a charge; and (B) whether, independently of any proprietary security, the plaintiffs could recover sums paid by Bansi Dhar under restitution/contract principles and whether limitation barred such recovery.

(A) Mortgage versus Charge

  1. The court accepted the Privy Council authority (Raj Raghubir Singh) that an instrument which does not specifically name any person as the beneficiary cannot be treated as a mortgage under Section 58 of the Transfer of Property Act. The bond before the court contained an undertaking by the sureties to be liable "to the Court" and did not expressly undertake to pay Mt. Hanif-un-nissa or her representatives if they succeeded. The Court reasoned that the "Court" is not a juridical person capable of being the mortgagee.
  2. The Subordinate Judge's alternative conclusion — that if not a mortgage the instrument must at least create a charge — was rejected. Section 100 requires that property be made security for payment "to another" person; here Mt. Hanif-un-nissa or her representatives were not named as persons to whom the money was to be paid. Therefore the conditions for a statutory charge under Section 100 were not met.
  3. Consequently, the court concluded the bond is neither a mortgage nor a charge enforceable by the plaintiffs as such, and the plaintiffs could not avail themselves of the 12-year limitation period applicable to remedies for enforcing mortgages or charges.

(B) Restitution / Contractual Liability and Limitation

  1. The court examined the payments made by Bansi Dhar and his representatives in restitution after the decree was reversed. Large payments made in 1914 (over Rs. 71,000) were held to be hopelessly time-barred — Article 132 of the Limitation Act did not apply to save those claims.
  2. However, a discrete set of payments — Rs. 15,955 paid by Bansi Dhar or his heirs between January and July 1923 — fell within three years of the present suit. The court reasoned that when the Court permitted parties to withdraw funds only upon the furnishing of security, and appellants did withdraw funds under that arrangement, appellants remained personally liable to restore those sums when the underlying decree was reversed.
  3. The court applied Section 70 of the Indian Contract Act (obligations for benefit done) to the facts: Bansi Dhar lawfully paid and restored sums which, absent his intervention, were the responsibility of Mehdi Ali Khan and Abdullah Khan. Because Bansi Dhar did not intend the payments to be gratuitous and the appellants benefited, the appellants are bound to make compensation to Bansi Dhar or his representatives for the sums so paid.
  4. The court clarified that although the appellants' personal liability to restore existed from the outset, the plaintiffs' cause of action under Section 70 arose only when Bansi Dhar actually made restoration; therefore the claim for the 1923 payments was timely.

Holding and Implications

Holding: The appeal is allowed in part. The court modified the decree of the Subordinate Judge by (a) rejecting the plaintiffs' claim that the 11 July 1907 bond constituted a mortgage or a charge enforceable as such, and (b) awarding the plaintiffs a reduced monetary decree for the sums paid in 1923.

Specifically, the court granted the plaintiffs a decree for Rs. 15,950 with interest at 6% per annum simple from 23 July 1923 until realization. The remainder of the plaintiffs' claim was dismissed.

Direct consequences: The plaintiffs cannot enforce the security bond as a mortgage or statutory charge; they can, however, recover a specific amount (Rs. 15,950) representing restitution paid by Bansi Dhar in 1923 on the basis of a claim in compensation under principles analogous to Section 70 of the Contract Act. Large earlier payments (circa 1914) are time-barred and not recoverable. The decision modifies the lower-court decree rather than establishing a new legal principle beyond application of existing authorities (Privy Council and local practice).

Order: Decree modified.

Show full summary ...

    Mehdi Ali Khan v. Chunni Lal

    Sulaiman, J.:— This is a defendants' appeal arising out of a suit for sale on the basis of a security bond dated 11th July 1907, executed by the defendant-appellants. It appears that Mt. Faiz-ui-nissa obtained a decree against Mt. Hanif-un-nissa from the High Court in appeal arising out of suit No. 37 of 1903. The decree was for about Rs. 63,000. Mt. Faiz-un-nissa sold her decree to Bansi Dhar, the father of the present plaintiffs for Rs. 40,000 Prior to these proceedings Mehdi Ali Khan and Abdullah Khan the appellants held a decree in suit No. 20 of 1902 for over Rs. 11,500 against Mt. Faiz un-nissa. In execution of their decree they attached the decree held by Mt. Faiz un-nissa against Mt. Hanif-ui-nissa. This sale took place after the attaohment an 1 therefore all claims under it were subject to that attachment.

    2. The attaching creditors sought to execute the decree but the Court ordered that the decree should be executed by Bansi Dhar although when the sale proceeds are realised the decree of the attaching creditors should be discharged first. In execution of this decree some property was sold air auction on 26th October 1906 for Rs. 14,950 and bulk of it was purchased by strangers. One property, viz.: an Indigo Factory was purchased by Bansi Dhar himself. After this the judgment-debtor deposited nearly Rs. 6,000 in Court and later paid out of Court over Rs. 54,000. In this way the whole amount of the decree was paid off. When Bansi Daar wanted to take out the money from the Court he was ordered to furnish security before be took out the money (order dated 4th January 1907, p. 32). Similarly when Mehdi Ali Khan and Abdullah Khan applied to take out the money from the Court in discharge of their decree the Court ordered that without furnishing security they could not be allowed to do so (p. 35). After the passing of this order Mehdi Ali Khan and Abdullah Khan filed in Caurt a security bond dated 11th July 1907, which is printed at p. 41 and is the subject of controversy. On the filing of that security they were allowed to take out the whole of Rs. 14,950 realized by the sale of the property as well as a part of the amounts deposited subsequently.

    3. All this time the appeal of Mt. Hanif-un-nissa was pending before their Lord-ships of the Privy Council. The appeal was remanded to this Court and this Court ultimately dismissed the suit and in this way reversed the decree.

    4. Then followed protracted proceedings for restitution. Mt. Hanif-un-nissa applied for restitution of properties purchased by the strangers as well as by Bausi Dhar but her application as against the strangers was dismissed. We are informed that she recovered the Indigo Factory from Bansi Dhat. Liter she applied for restitution of the amount against Binsi Dhar and to these proceedings she also impleaded Mehdi Ali Khan and Abdullah Khin. The learned Subordinate Judge dismissed her application (p. 79). On appeal the High Court remanded the case holding that Binsi Dhar was liable personally under Section 144 of the CPC to her for restitution. Piggott, J., further remarked:

    “In the event of Baasi Dhar satisfying the claim of the appellants he will be entitled to enforce as against Mehdi Ali Khan and Abdullah Khan the liability undertaken by these gentlemen as sureties on his behalf.”

    5. This remark, however, was not directed to any point which was specifically in dispute at that time.

    6. The result of all these proceedings has been that Baasi Dhar and now his sons have had to pay all the sums taken out of Court and in that way have made complete restitution to Mt. Hanif-un-nissa and her representatives.

    7. The present plaintiffs, viz.: the sons of Bansi Dhar, did not apply to the Court before which the security was furnished for any remedy but instituted the present suit claiming to enforce the charge created by the security bond. The defence raised on behalf of the appellants was that no charge existed and that the bond could not be enforced by the plaintiffs as against them. There was a further plea of limitation.

    8. The learned Subordinate Judge has held that the bond in question does not amount to a mortgage and cannot be enforced as such. But he has held that it created a charge on the property in fivour of Binsi Dhar which would be enforced by the present plaintiffs. He has held that no part of the claim is barrel by limitation and has accordingly decreed the whole claim.

    9. We agree with the Court below that in view of the pronounce pent of their Lordships of the Privy Council in the case of Raj Raghubir Singh v. Jai Indra Bahadur Singh . A.I.R 1919 P.C 55 the security bond in question does not amount to a mortgage, leal. It is printed at p. 41 and under this document Mehdi Ali Khan and Abdullah Khan who described themselves as sureties agreed to be liable to the Court that if Mt. Hanif-un-nissa and others or their heirs be successful in the Privy Council and Me. Faiz-un-nissa or her representatives have to refund the sale proceeds they shall refund Rs. 15,134-11-2 and shall comply with the order which might ultimately be binding upon them. They further agreed that they aid their heirs shall pay the said sum amounting to the figure quoted above and as a security for the payment of the said amount they mortgaged by way of security the zimindari property detailed in the document. The object of furnishing this security was to enable them to take the money out of Court which was lying there and was in dispute. The document does not expressly say that it is a hypotheeation or mortgage in favour of Mt. Hanif-un-niasa or her heirs. The executant did not undertake to pay to Mt. Hanif-un-nissa or her representatives the amount mentioned therein in case they succeeded. There was an undertaking to be liable to the Court for the refund or return of the amount which they were going to take out of Court. As observed by their Lord ships in the case referred to above at p. 167 there is in this instrument no person mentioned to whom the security is given. They undertook liability to the Court, but the Court is not a juridical person and it can neither sue nor take property nor assign it. But on the clear language of the document there was an unquestioned liability on the part of Mehdi Ali Khan and Abdullah Khan to refund the amount and there was clearly both a personal liability to do so as well as that sought to be created by the security. Such unquastioned liability must undoubtedly be capable of being enforced.

    10. In the document before their Lordships there had been no personal liability at all and no question of enforcing it under Section 145 of the CPC, arose. The suit was purely one to enforce the charge said to have been created by the document. Their Lordships remarked that was not the mode of enforcing the liability and the proper curse was to apply to the Court for making an order in the suit upon an application to which the sureties are parties, that the property charged be sold unless before a day named the sureties find the money (p. 167). This was the practice of this High Court in similar cases as is evidenced by the ruling in Janki Kumar v. Sarup Rani . [1895] 17 All. 99. It follows therefore that the document cannot be treated as a mortgage deed within the meaning of Section 58 of the Transfer of Property Act, because there is here no mortgagee to whom the property is transferred.

    11. The learned Subordinate Judge has thought that if it is not a mortgage it must amount to a charge. It is impossible to accept this view. If the document is not a mortgage for want of any mention of a specific person in whose favour it is made it equally does not create a charge. Section 100 requires that where immovable property of one person is by act of parties or operation of law made security for the payment of money to another and the transaction does not amount to a mortgage, the latter person is said to have a charge on the property. Here Mt. Hanif-un-nissa and her representatives are not named as being the persons to whom the money is to be paid. Thus the case does not fulfil the conditions required by S. 100. I am therefore of opinion that the learned Judge is in error in thinking that it creates a charge and can be enforced. No doubt it is not necessary that the beneficiary should be a party to the transaction under which the charge is created. But he must be specifically named as being the person in whose favour the charge exists. This is not the case here. It follows therefore that the plaintiffs' remedy to recover the money by enforcement of any supposed security either in the nature of a mortgage or of a charge must fall to the ground; and they cannot take advantage of the 12 years period of limitation which is allowed for such remedies.

    12. Bansi Dhar had to pay large sums of money by way of restitution in the year 1914. The payments ranged from 1st April 1914 to such April 1914 and amounted to over Rs. 71,000, Unfortunately the claim to recover any part of this amount is hopelessly beyond time because Article 132, Lim. Act, does not apply.

    13. There remains the sum of Rs. 15,955 which was paid by Bansi Dhar or his heirs between January 1923 and July 1923. The present suit is within three years of that payment. When the Court ordered that neither Bansi Dhar nor the attaching creditors could be allowed to take out the money without first furnishing security and they were allowed to take out portions of the amounts lying in Court on furnishing such security it is obvious that when the decree in execution of which the sums had been realised was reversed, they were in duty bound to refund the amount. There can be no doubt that there was the undoubted liability of Mehdi Ali Khan and Abdullah Khan to refund this amount which they had taken out. Similarly Bansi Dhar was bound to restore what he had taken out. This was the express personal undertaking by Mehdi Ali Khan and Abdullah Khan in their bond dated 11th July 1907.

    14. But the attaching creditors were not considered as principal parties to the proceeding relating to restitution, and the High Court in its judgment dated 27th February 1919, held that Bansi Dhar was personally liable under S. 144 though he may have his own remedies against Mehdi Ali Khan and Abdullah Khan. But the fact remains that Bansi Dhar had to pay in Court what had been taken out by Mehdi Ali Khan and Abdullah Khan as well as what had been taken out by himself.

    15. Section 70 of the Contract Act, lays down that when a person lawfully does anything for another person not intending to do so gratuitously and such other person enjoys benefit thereof the latter is bound to make compensation to the former in respect of the thing so done. Now there was a liability on Mehdi Ali Khan and Abdullan Khan to restore the amount which had been taken out by them and that liability was in the first instance discharged by Bansi Dhar. By making good that amount Bansi Dhar undoubtedly did a thing lawfully for Mehdi Ali Khan and Abdullah Khan and there is no doubt that he did not intend to do it gratuitously. Nor can there any doubt that Mehdi Ali Khan and Abdullah Khan to that extent have enjoyed the benefit thereof. They had attached a decree which was subsequently set aside and became a nullity, and yet under colour of it they realized an amount and have appropriated it. It therefore seems to me that the latter are bound to make compensation to the former in respect of the thing so done. It seems only just and fair that Bansi Dhar or his representatives should have the right to claim the amount which they have paid which in reality ought to have been paid by Mehdi Ali Khan and Abdullah Khan because they alone had taken out that sum. The learned advocate for the respondents has strongly contended that the liability of Mehdi Ali Khan and Abdullah Khan could only arise after the amount had been refunded by the representatives of Mt. Hanif-un-nissa. This contention is correct in this sense that the present plaintiffs could not possibly have sued unless they had at first had to refund the amount. But there can also be no doubt that the liability of Mehdi Ali Khan and Abdullah Khan existed all along and they were bound to restore the amount. The cause of action for suing under S. 70 cannot be said to have arisen when the Privy Council decision was given, but only when the restoration was made by Bansi Dhar for it is on that account that he and his representatives can claim compensation. I am therefore of opinion that this appeal should be allowed in part and the decree of the Court below modified in this way that the plaintiffs should be given a decree only for Rs. 15,950 with interest at 6% per annum simple from 23rd July 1923, the last date on which Bansi Dhar made the payment till realization, and the rest of their claim should be dismissed.

    Pullan, J.:— I agree with the views expressed and the order proposed.

    R.M/R.K

    16. Decree modified.

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    Comments

    Mehdi Ali Khan v. Chunni Lal
    (Apr 15, 1929)