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Case Number

Second Appeal No. 1490 of 1926, from a decree of M.O Karney, Second Additional Subordinate Judge of Aligarh, dated the 13th of July, 1926, modifying a decree of Zamirul Islam Khan, Munsif of Koil, dated the 5th of March, 1926

Attorney(S)

Mr. Shambhu Nath Seth, for the appellant.
Mr. S.K Dar, for the respondents.

Judges

Mukerji
Niamat-ullah, JJ.

Acts

Order 34, Rule 4, Civil P.C.,

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Smart Summary

Structured Summary of the Provided Opinion

Factual and Procedural Background

The dispute arises out of two mortgages on the same property. The prior mortgage was in favour of Ram Charan and Ganga Sahai (the prior mortgagees). The second mortgage was in favour of Nannu Mal, although the mortgage deed was in the name of Kundan Lal; it was agreed that Nannu Mal was the real mortgagee and Kundan Lal could be left out of account.

Ram Charan and Ganga Sahai brought a suit for recovery on the footing of their prior mortgage but did not implead the subsequent mortgagee (Nannu Mal/Kundan Lal). Following a decree for sale, the property was sold in execution and purchased by the prior mortgagees themselves. Thereafter Nannu Mal brought a suit for recovery, impleading Ram Charan and Ganga Sahai as subsequent purchasers. The prior mortgagees pleaded that they were prior mortgagees and should be allowed to hold their prior mortgage as a shield. Nannu Mal offered to redeem the prior mortgage.

The present proceedings consist of an appeal and a cross-objection arising from the question of what amount the prior mortgagees (Ram Charan and Ganga Sahai) should receive to effect redemption and how long interest should run.

Legal Issues Presented

What is the amount of the mortgage money to which a prior mortgagee is entitled in these circumstances — specifically, whether the prior mortgagee is entitled to interest at the contractual (stipulated) rate up to the date of redemption, or only to the interest which was allowed by the prior decree?
Whether the prior mortgagee is entitled to interest up to the date of delivery of possession to him (actual taking of possession) or only up to the date of the sale (auction)?

Arguments of the Parties

Appellant's Arguments

The appellant (who was the plaintiff in the Court of first instance) contends that the prior mortgagees are not entitled to interest on the mortgage money at the stipulated contractual rate; instead they should only receive the interest as decreed in the prior suit. In other words, the appellant seeks to take advantage of any reduction of interest made by the prior decree after the date of institution of the prior suit.

Respondents / Cross-Objectors' Arguments (Ram Charan and Ganga Sahai)

By cross-objection the prior mortgagees contend they are entitled to interest up to the date of their taking possession of the property (i.e., longer than merely up to the date of sale).

Representative Argument Noted in Opinion

On behalf of the subsequent mortgagee (as argued by Mr. Seth) it was contended that, on authority, a subsequent mortgagee who was not made a party to an earlier suit should be placed in the same position as if he had been a party and could take advantage of a prior decree if it was advantageous to him. Mr. Seth admitted, however, that if the prior decree awarded higher interest owing to error, the subsequent mortgagee would be entitled to impeach that decree and seek reduction of interest.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Hukum Singh v. Lallanjee, A.I.R. 1921 All. 339	Authority said to establish that a subsequent transferee not made a party to an earlier suit should be in the same position as if he had been made a party to the decree.	The court observed that in that decision the Privy Council did not discuss the precise principle at issue here and that there is no express finding that a subsequent mortgagee may both take advantage of a reduction in a prior decree and at the same time discard that decree when it suits him. The court declined to treat that case as an authoritative statement of the principle relied upon by Mr. Seth.
Sukhi v. Ghulam Safdar Khan, A.I.R. 1922 P.C. 11	Similarly cited as authority for the proposition that a subsequent transferee not made a party should be placed in the same position as if he had been made a party to the earlier decree.	The court noted that the Privy Council in that case did not lay down that a second mortgagee could both accept and reject a prior decree; the decision does not expressly support the double-faced approach contended for by Mr. Seth.
Muthammal v. Razu Pillai, [1918] 41 Mad. 513	Held that the prior mortgagee would receive interest at the contractual rate till the date of redemption and would account for the profits (rents and profits) of the property which he purchased at auction.	The court cited this case as stating the strict rule: contractual interest until redemption with an accounting for profits. The opinion explains that, for convenience, interest is commonly allowed to cease from the date of taking possession, but the strict rule is as stated in this precedent.

Court's Reasoning and Analysis

The court addressed the two stated points in turn.

On the first point (entitlement to interest rate):

The court held, on principle, that a prior mortgagee is entitled to the principal amount and interest at the stipulated contractual rate up to the date of redemption. The subsequent mortgagee's right of redemption cannot be taken away by the prior mortgagee's suit simply because the subsequent mortgagee was not impleaded in that suit.
However, the court rejected the contention that a subsequent mortgagee who was not made a party may selectively accept advantages from the prior decree while disclaiming disadvantages — summarized by the court as: the subsequent mortgagee "cannot blow both hot and cold in the same breath."
The court examined the authorities relied upon (Hukum Singh and Sukhi) and concluded that those decisions do not justify the double-faced approach because the Privy Council did not discuss the principle now in issue and did not expressly hold that the subsequent mortgagee could both accept and reject the prior decree depending on convenience.
On that basis the court concluded that the prior mortgagees should receive the contractual interest up to redemption rather than being restricted to the interest as decreed in the prior suit when that would be less favourable to them.

On the second point (till sale or till possession):

The first opinion (Niamatullah, J.) reasoned that logically the mortgagee is entitled to interest up to the date of redemption, but the mortgagor's payment of mortgage money (even if not voluntary) is not treated as commencing until the prior mortgagee begins to receive payment from the mortgagor — which occurs when the prior mortgagee obtains possession after purchase at auction.
The court explained the principle that interest payable to the prior mortgagee ceases only because he begins to receive payment (i.e., by receiving usufruct/profits or possession). The first opinion relied on the statement of rule in Muthammal v. Razu Pillai that, strictly speaking, contractual interest runs until redemption and the prior mortgagee must account for profits of the property purchased at auction; but for convenience interest is often treated as ceasing from the date of taking possession.
The first opinion therefore allowed the cross-objection and awarded the prior mortgagees an additional sum (Rs. 239-12-3) as part of their mortgage money, holding they were entitled to interest at the contractual rate until the date of their actual taking possession.
The second opinion agreed in dismissing the main appeal but differed on the cross-objection. The second judge considered the lower appellate court's approach equitable and in consonance with law, and emphasised that where a prior mortgagee (as auction purchaser) could have taken possession but failed to do so, he may be charged with the consequences: profits which he could have appropriated should be debited against him. On that view, the second judge would dismiss the cross-objection.
Because the two judges were split as to the cross-objection, the court recorded that there was no majority allowing the cross-objection.

Procedural directions given in the opinion:

The court extended the period of payment to be made by defendants 2 to 7 by six months from the date of the opinion.
If defendants 2 to 7 fail to redeem plaintiff 1 within that period, plaintiff 1 will have a further six months from the expiry of that period to pay the prior mortgage money (as found by the lower appellate court) to defendants 2 to 7; failure by plaintiffs to do so will result in dismissal of the suit with costs.
Upon payment, plaintiff 1 will be entitled to add the decreed amount and the amount paid to defendants 2 to 7 and recover the entire amount by sale of the mortgaged property. A fresh decree in terms of Order 34, Rule 4, Civil P.C. is to be prepared.

Holding and Implications

Holding: The court DISMISSED THE APPEAL. Because there was no majority in favour of the cross-objection, the cross-objection was DISMISSED as well.

Implications and direct effects:

The court reaffirmed the principle (as articulated in the opinion) that a prior mortgagee is entitled to principal and contractual interest up to redemption; a subsequent mortgagee who was not party to a prior suit cannot have his right of redemption taken away by that suit, but he also cannot selectively accept or reject the prior decree to his benefit.
The determinate procedural consequences specified by the court are: an extension of the period for defendants 2 to 7 to redeem by six months; conditional further time for plaintiff 1 to pay and the consequences of failure; and preparation of a fresh decree under Order 34, Rule 4, Civil P.C.
The immediate practical outcome for the parties is the dismissal of the appeal and dismissal of the cross-objection (no majority), together with the payment and redemption timetable and the direction to prepare a fresh decree reflecting the court's orders.

This summary was prepared strictly from the content of the provided opinion and does not add or infer facts beyond those expressly stated in the text.

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Nannu Mal v. Ram Charan Lal

1. The appellant before us was the plaintiff in the Court of first instance: There was an additional plaintiff in the person of Kundan Lal who was originally in the array of defendants but was made a co-plaintiff with Nannu Mal, because the mortgage deed stands in the name of Kundan Lal, while the real owner is Nannu Mal. It being agreed that Nannu Mal is the real mortgagee, Kundan Lal may be left out of account.

2. The facts so far as this appeal is concerned are these. There were two mortgages. The prior one was in favour of the defendants Ram Charan and Ganga Sahai and the second one was in favour of Nannu Mal, although, as stated, the deed stood in the name of Kundan Lal. Ram Charan and Ganga Sahai brought a suit for recovery of their money on foot of their mortgage, but did not implead either Nannu Mal or Kundan Lal as a party to the suit. The result was that after the usual decree for sale, the property was sold in execution of the decree and was purchased by the mortgagees themselves. After all this had happened, Nannu Mal had brought a suit for recovery of his money. He impleaded Ram Charan and Ganga Sahai as subsequent purchasers of the property, They pleaded that they were also prior mortgagees and they should be allowed to hold their prior mortgage as a shield against Nannu Mal's suit. Thereupon Nannu Mal offered to redeem the prior mortgage in favour of Ram Charan and Ganga Sahai. The question that has arisen for our decision is: What is the amount which Ram Charan and Ganga Sahai should get in order to effect redemption?

3. The Court below has held that Ram Charan and Ganga Sahai are entitled to their principal amount and interest at the stipulated rate up to the date of the auction purchase. The contention of the appellant before us is that the prior mortgagees are not entitled to interest on the mortgage money on the stipulated rate, but that they should get only what was decreed to them in the prior suit. In other words, the appellant's contention is that the appellant should have the advantage of the reduction of interest made by the decree after the date of the institution of the suit.

4. On behalf of Ram Charan and Ganga Sahai a cross-objection has been filed and the contention on their behalf is that they should have been allowed interest up to the taking over possession of the property purchased by them.

5. The points that we have to determine in this appeal and cross objection therefore, are as follows:

1. What is the amount of the mortgage money to which a prior mortgagee is entitled in the circumstances of the case, that is to say, whether he is entitled to the stipulated rate of interest or only to the interest which has been allowed by the prior decree?

2. Whether the prior mortgagee is entitled to interest up to the date of delivery of possession to him or only to the date of the sale?

6. On the first point, on principle, there can be no doubt that the prior mortgagee is entitled to the principal amount and the interest at the stipulated rate up to the date of redemption. The fact that the subsequent mortgagee was not made a party to the prior mortgagee's suit gives the subsequent mortgagee the right to redeem the prior mortgage. As the second mortgagee was not a party to the prior suit, his right of redemption cannot be taken away. But Mr. Seth has contended that on the authorities of this Court the subsequent mortgagee is entitled to take advantage of the decree passed in the prior suit, if that decree is advantageous to him. In the course of the argument he had to admit that if the decree awarded a higher interest owing to some error, he would be entitled to impeach that decree and to contend that the interest awarded should be reduced.

7. We are of opinion that the subsequent mortgagee cannot blow both hot and cold in the same breath. The authorities on which Mr. Seth has relied are said to be Hukum Singh v. Lallanjee A.I.R. 1921 All. 339 and Sukhi v. Ghulam Safdar Khan A.I.R. 1922 P.C. 11 decided by the Privy Council. In none of the casas do their Lordships discuss this principle. They content themselves with saying that the subsequent transferee who was not made a party to the earlier suit should be in the same position in which he would have been if he had been made a party to the decree. We take it that their Lordships simply meant to say that the right of redemption which belonged to the subsequent mortgagee cannot be taken away by the proceedings in the previous suit. In none of the two cases there is any express finding that the subsequent mortgagee is entitled to take advantage of the reduction of interest in the prior decree and is also entitled to throw away that decree and to claim a reduction of interest if that decree by some error, has made larger interest payable. In Hukum Singh v. Lallanjee A.I.R. 1921 All. 339 their Lordships did direct payment of the amount due on the prior decree. But as we have pointed out, this may have been done by the consent of the parties or for some reason which has not been disclosed. Unless the point was actually raised and considered, we cannot take what the learned Judges did in that case, as expressing a definite opinion as to what should be done as a matter of principle. Similar remarks apply to the other case in Sukhi v. Ghulam Safdar A.I.R. 1922 P.C. 11. Their Lordships of the Privy Council do not anywhere lay down that although a second mortgagee is to be allowed to disregard the decree on the ground that he was not a party to it, he can take advantage of the decree if it suits him and disregard it if it does not suit him.

8. In the result, the appeal should be dismissed.

9. Coming to the cross objection, the question is whether the accrual of interest in favour of the prior mortgagees should cease at the date of the sale as the Court below has ordered or at the date of taking possession.

10. I am of opinion that the prior mortgagees are entitled to interest at the contractual rate till the date of their actual taking possession. My reasons are these. On logical grounds the mortgagees are entitled to the interest up to the date of redemption. But if any portion of their mortgage money happens to have been paid up by the mortgagor, the prior mortgagees would not be entitled to claim the portion that has been paid to them. The payment to the prior mortgagees does not commence till they obtain possession of the property. It may be said that the mortgagees, in their capacity as auction-purchasers, could take possession as soon as the sale took place. In the same way it may be said, that it was the duty of the mortgagee, whose property has been sold, to hand over to the auction-purchaser, the prior mortgagee, the property as soon as the sale took place. But neither argument takes note of the fact that the interest payable to the prior mortgagee ceases only because he begins to receive payment from the mortgagor. The mortgagor pays up the mortgage money (although not voluntarily) by the fact that his property has gone to the mortgagees in satisfaction of the mortgage decree. That is the principle and that is the only principle, in my opinion, on which the mortgagee has not been allowed any interest at the stipulated rate after the date of his taking possession. Strictly speaking, the rule should be, as was held in the Madras case in Muthammal v. Razu Pillai [1918] 41 Mad. 513, that the prior mortgagee would receive his interest at the contractual rate till the date of redemption and would account for the profits of the property which he has purchased at auction. It is only for the sake of convenience that the interest is allowed to cease from the date of the mortgagee's taking possession.

11. In my view, therefore, the cross-objection should succeed and respondents 1 and 2 should be awarded the additional amount of Rs. 239-12-3 as claimed by them in their cross-objection as a part of their mortgage money.

12. I would, therefore, dismiss the appeal with costs and allow the cross-objection also with costs.

Niamatullah, J.

13. I agree with my learned colleague in dismissing the appeal. As regards the cross-objection, 1 am of opinion that the view taken by the lower appellate Court is equitable and also in consonance with law. It is true that under the circumstances of the present case the usual and right course would be to allow, principal and interst up to date, to the prior mortgagee who should account for the rents and profits during the time that he has been in possession of the mortgaged property as auction-purchaser in execution of a decree passed on foot of his own mortgage. But having regard to the attitude of the parties before this Court, this course is to be dispensed with. It has been contended on behalf of the respondents before us that the usufruct of the mortgaged property from the date the prior mortgagee, auction-purchaser, obtained possession, should be considered as taken by him in satisfaction of the interest due on his prior mortgage. The appellant agrees so far with the respondent that the method of adjusting equities between the parties should be by allowing the prior mortgagee, auction-purchaser, to appropriate the usufruct in lieu of his interest, but that the usufruct, from the date he could have taken possession, should be taken into account and not merely from the date that he actually chose to take possession. This being the principle on which the rights and obligations of the parties ought to be adjusted, the question narrows itself down to this: whether profits from the date when the prior mortgagee, auction-purchaser could have taken possession, but for reasons best known to himself, failed to take possession, should be considered to have been appropriated by him in lieu of interest? I am inclined to agree with the lower appellate Court that in the absence of any justification for the auction-purchaser for delaying taking delivery of possession, we must saddle him with the consequences of the mortgagor being allowed to retain possession of the mortgaged property after confirmation of sale. The respondents are the representatives of the mortgagor and of the prior mortgagee. If it was in consequence of their action that the profits were taken by their predecessor-in-title, the mortgagor, they must bear the consequences and the puisne mortgagee should not be made to pay the interest for that period. If a party having the means to appropriate profits as a return on his investment, fails to avail of such means and allows another to appropriate them, he should be debited with that amount as against a person who could not prevent a wrong party ap propriating those profits. For these reasons I would dismiss the cross objection also.

14. The appeal is dismissed with costs. As there is no majority allowing the cross-objection the cross-objection is also dismissed with costs.

15. We extend the period of payment to be made by defendants 2 to 7 by six months from this date. In the case of failure on the part of defendants 2 to 7 to redeem plaintiff 1, plaintiff 1 will have six months' time from the expiry of six months allowed to the defendants, within which to pay the prior mortgage money, as found by the lower appellate Court, to defendants 2 to 7. In case the plaintiffs fail to pay defendants 2 to 7 the suit will stand dismissed with costs. In case of payment, plaintiff 1 will be entitled to add the two sums of money, viz., the amount decreed to him and the amount paid by him to defendants 2 to 7 and recover the entire amount by sale of the mortgaged property. A fresh decree in terms of Order 34, Rule 4, Civil P.C., will be prepared.

Nannu Mal v. Ram Charan Lal

Structured Summary of the Provided Opinion

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's Arguments

Respondents / Cross-Objectors' Arguments (Ram Charan and Ganga Sahai)

Representative Argument Noted in Opinion

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Nannu Mal v. Ram Charan Lal

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