Ujagar Lal v. Bahadur Lokendra Singh

Braund, J.:— This is a first appeal arising out of a mortgage suit of a quite simple character. The suit was by certain plaintiffs suing as mortgagees to enforce their security against two defendants, who were mortgagors. The result of the suit was that the plaintiffs were given the usual preliminary mortgage decree for sale, and the only contest in this appeal is whether, instead of having a preliminary decree for sale, they are entitled to have, as they desire, a decree for foreclosure.

I find that this very simple suit has been pending for over seven years. The mortgagees started their endeavours to get their money back by instituting this suit on the 7th September, 1933, and they paid, as the price of the justice that they hoped to get, a not inconsiderable court fee of Rs. 1,470. They obtained their decree for sale on the 3rd February, 1935, and it has taken till now-a period of nearly six years—for the matter to come in first appeal to this Court.

The facts are that, on the 31st August, 1925, the defendants executed the mortgage in question. In view of the fact that the principal question in this appeal is whether this document constitutes a mortgage by conditional sale, as the plaintiffs contend, or an anomalous mortgage, as the defendants contend. I must look closely at its terms.

The mortgage begins by reciting the title of the mortgagors, and then goes on to say: “Now we have, of our own accord and free will while in a sound state of mind and without any undue influence mortgaged without possession the entire zamindari property specified below to the extent of one-half, for a period of five years, for Rs. 30,000 of the King's coin….”

There then follow certain covenants, the first covenant to pay interest, then a covenant to pay the principal and the accumulated compound interest “at the stipulated period”—that is to say, at the end of the period of five years—, thirdly, a provision that the mortgagors were not to be entitled to redeem earlier than at the expiration of the five years, and finally it goes on in these terms: “…that in case of non-payment of the entire amount of principal, interest, and compound interest the mortgagees shall, after the expiry of the stipulated period, have power to obtain proprietary possession of the entire property mortgaged by bringing a suit for a decree for foreclosure and that we shall not have any; objection thereto….”

The document then concludes with an attestation clause in these words: “We have, therefore, executed this simple mortgage deed carrying interest by conditional sale so that it may serve as evidence and be of use when needed.”

I should say that the word “simple” does not appear in the original before the words “mortgage deed”.

The amount due for principal and interest, at the date of the institution of the suit, was apparently Rs. 42,000, and at the date of judgment—as the learned Judge says—was approximately Rs. 45,000. There is no contest upon the facts, and the point—which has taken nearly six years to bring to an appeal to this Court—is a very simple one, whether the plaintiffs are entitled to insist upon a decree for foreclosure, instead of the decree for sale which they have obtained. This question turns-primarily upon whether the mortgage is a mortgage by conditional sale, or whether it is an anomalous mortgage. If it is a mortgage by conditional sale, then it must be conceded that the plaintiffs are entitled to insist upon a decree for foreclosure and that they cannot by any means, be prevented from obtaining it. If, however, this is not a mortgage by conditional sale but an anomalous mortgage, then it would appear, for reasons with which shall deal in a moment, that it is open to the court in its discretion to give a mortgagee plaintiff either a decree for foreclosure or a decree for sale. In this case, the learned Judge in the court below has found that the mortgage was an anomalous mortgage, and, in the exercise of his discretion, he has further determined that the plaintiffs' proper remedy is by a decree for sale and not by a decree-for foreclosure. The first thing to consider, therefore is whether the learned Judge is right in the conclusion he has arrived at that this is an anomalous mortgage.

A mortgage by conditional sale is described in section 58(c) of the Transfer of Property Act, 1882. That section says: “(c) Where the mortgagor ostensibly sells the mortgaged property, on condition that on default of payment of the mortgage money on a certain date the sale shall become absolute, or on condition that on such payment being made the sale shall become void, or on condition that on such payment being made the buyer shall transfer the property to the seller, the transaction is called a mortgage by conditional sale and the mortgagee a mortgagee by conditional sale.”

An anomalous mortgage is defined by section 58(g) as a mortgage which it not a simple mortgage, a mortgage by conditional sale, a usufructuary mortgage, an English mortgage or a mortgage by deposit of title deeds within the meaning of that section.

I agree with the learned Judge in thinking that this upon the face of the mortgage, has not the characteristics of a mortgage by conditional sale. The first question we have to ask in the terms of section 58(c) is, whether by the deed the mortgagor “ostensibly sells” the mortgaged property. Looking at this deed, there is not, to my mind, a trace of a sale about it from beginning to end. The word “sale” is not mentioned, but, on the contrary, it is said that the property is “mortgaged without possession”. There is, to my mind, nothing, and a fortiori, nothing “ostensible”, in this deed to indicate that there is in contemplation a sale of any kind, whether conditional or not, to the mortgagees. Nor is there any single one of the three conditions set out in section 58(c) to be found in this mortgage. The only condition covering the event of default of payment of the mortgage money, which is one of the events contemplated by section 58(c), is that the mortgagee shall have power to obtain proprietary possession of the entire property by bringing a suit for a decree for foreclosure. That is, I think, a long way from a condition that, to use the words of section 58(c)—“the sale shall become absolute”. In my view, on the face of this deed it is not a mortgage by conditional sale.

But then two things are said by the appellants. It is said that the court is not entitled to go behind the description of the deed, which the patties themselves have provided in what I have described as the attestation clause, which is set out above. The parties themselves have described it as a “mortgage deed… by conditional sale….” This is perfectly true and is a perfectly legitimate comment. But, in my view, the test whether a particular document is a mortgage by conditional sale or is some other kind of mortgage is not what the parties have said it is, but is rather whether it fulfils those statutory requirements which the legislature has laid down. The parties can call it by whatever name they like, but that will not make it a mortgage of a particular kind, unless it complies with the requirements of such a mortgage as defined by the Act. The second thing that is said is that the provision, to which I have already drawn attention, allowing the mortgagee, upon a default his payment of the principal and interest at the expiration of the stipulated period, to obtain proprietary possession by bringing a suit for foreclosure points strongly to the conclusion that the mortgage is a mortgage by conditional sale. I do not think that is so. The remedy by way of foreclosure is not exclusive to a mortgage by conditional sale. It is equally applicable to an anomalous mortgage, and, indeed, if we turn to section 67 of the Transfer of Property Act we find it is stipulated that an anomalous mortgage must contain a provision for foreclosure in order to allow a mortgagee under such a mortgage to obtain a decree for foreclosure. That shows, quite clearly, that the remedy by way of foreclosure well known in the case of an anomalous mortgage, and is, in no way, peculiar to a mortgage by conditional sale. It seems to me, therefore, that the force of this second contention is greatly lessened.

It is not suggested that, if this mortgage is not a mortgage by conditional sale, it can be any other form of mortgage than an anomalous mortgage. I have come to the conclusion that it is not a mortgage by conditional sale, and it must, therefore, be an anomalous mortgage. That disposes of the first point in the case.

But even upon this finding, it was well within the rights of the plaintiffs to come to the court and ask for a decree for foreclosure. They possessed an anomalous mortgage, and that mortgage, by its very terms, gave them the power to foreclose. They were, therefore, under section 67(a) of the Transfer of Property Act, 1882, entitled to institute a suit for foreclosure. And that they did. That, however, is not the end of the matter, because of order XXXIV, rule 4, sub-rule (3). By this it is provided as follows: “(3) In a suit for foreclosure in the case of an anomalous mortgage”—that is, this case—“if the plaintiff succeeds, the court may, at the instance of any party to the suit or of any other person interested in the mortgage-security or the right of redemption; pass a like decree (in lieu of a decree for foreclosure)”—that is to say, a decree for sale—“on such terms as it thinks fit, including the deposit in court of a reasonable sum fixed by the court to meet the expenses of the sale and to secure the performance of the terms.”

The learned Judge, in reliance upon that rule, has declined to give a decree for foreclosure. He says, in effect, that the value of the security is at least Rs. 65,000, and that the amount charged on it is only Rs. 45,000, at the most. He considers, therefore, that if the plaintiffs are allowed, as they want to do, to foreclose, they will “get an unfair advantage”, and, therefore, he gives them a decree for sale. The appellants say before me that, in any case, this is wrong, because they were entitled to have the form of relief which they themselves chose, and the learned Judge ought not to have interfered with that right.

The only difficulty in this case which I have experienced is upon this aspect of the matter. I am a strong believer in the principle that if a man lends money to another upon a particular security he is entitled to the full fruits of that security, and all the remedies under it, whatever they may be, and that it is not, as a rule, for the defendant to be heard to complain of the very bargain which he was willing to submit to at the time he was in need of, and borrowed, the money. But that general view of the sanctity of contract must yield to any statutory provision to the contrary, and we find, I think, in order XXXIV, rule 4(3), a perfectly clear statutory provision that in the case of an anomalous mortgage the mortgagee's choice of remedy, between a sale and foreclosure, is to be subject to the discretion of the court. That is a statutory limitation upon what I should otherwise have regarded as a salutary principle. The only difficulty is to determine upon what principles the court should exercise the discretion with which it is vested. It goes without saying that this discretion, as every other discretion vested in a court, must be exercised judicially and not arbitrarily. The question is upon what judicial principles a discretion such as this should be exercised.

Now, it, is possibly worth observing that order XXXIV, rule 4, sub-rule (3) is, so far as this discretion is concerned, in very much the same terms as section 25 of the English Conveyancing Act of 1881. The relevant sub-section of that section says: “(2)… in any action… the court… may, if it thinks fit, direct a sale of the mortgaged property, on such terms as it thinks fit, including, if it thinks fit, deposit in court of a reasonable sum fixed by the court, to meet the expenses of sale and secure performance of the terms.”

It is possibly, therefore, relevant to look and see upon-what principles English Courts of Equity have chosen between the remedy by way of foreclosure and the remedy by way of sale. In Hurst v. Hurst(1) the Master of the Rolls, Sir John Romilly, says: “The next question is with respect to the sale of the estate. I apprehend that the statute enabling the court to direct a sale intended to give the court a very considerable discretion, in order to avoid the great delay and expense which is occasioned by foreclosure and redemption in a case where there is a great number of successive mortgages; and the court will, upon the terms and according to the directions contained in the section, exercise that power in such a manner as not to operate injuriously or oppressively on any person interested….” And he goes on to point out that in a case in which a sale could take place as beneficially and profitably to the parties concerned as a foreclosure it would be a proper thing to exercise the discretionary power to order a sale.

In Heath v. Crealock Lord Cairns says: “The next objection made to the decree was on the score that in place of ordering a foreclosure it ordered a sale. It appears to me that under the recent Act of Parliament it is within the discretion of the court in a mortgage suit whether a foreclosure or a sale shall be ordered; but a sale is not to be ordered as of course. There may be cases of complication where a sale is eminently desirable, and there may be cases where, by reason of there being little or no complication, or for other reasons, a sale ought not to be ordered by this Court. It is sufficient for me to say that in this case there appear to be no special reasons on the one hand why a sale ought to be ordered, and on the other hand there is at least one very special reason why it ought not.”

It has always been recognized. I think, that where the security is deficient, or where it is a matter of speculation whether it is sufficient or deficient, a mortgagee will not be deprived of his remedy by way of foreclosure if he prefers it. That is a principle to be found, I think, in Merchant Banking Company v. London and Hanseatic Bank(2). There Mr. Justice Chitty says: “Section 25, sub-section 2, of the Conveyancing Act, 1881. no doubt confers upon the court a discretionary power but it is a discretion which must be exercised judicially. Where the question of value is merely speculative, it is not just that the rights of first mortgagees should be postponed to a speculative sale at the instance of second mortgagees.” It appears to me that it makes no difference in principle whether it is a second mortgagee, or a mortgagor, who objects to the foreclosure. “If a sale were ordered, the reserved price would be fixed at an amount which would cover the first mortgage and costs; and if no bid were made, the market value of the property would be depreciated by the knowledge that there had been an abortive attempt to sell it. Therefore, were the court to direct a sale, the plaintiffs' rights, might be seriously prejudiced. The plaintiffs have satisfied me as to the insufficiency of their security.” And he goes on to say that a mere speculation that in a year or two the property may increase in value is no reason for depriving a mortgagee of his right to foreclose.

Those are the principles, I think, so far as the English law goes. I They may be summarised, possibly very simply, by saying that the court has a wide discretion, that it must be exercised judicially, and that it will be exercised in any case in which for a proper reason for closure is not in the interests of the parties or in which as a matter of practical business a sale is clearly indicated, as the more desirable course.

I have been a little tempted to take the view in the: present case that, had I been dealing with the matter the first instance, I should have hesitated to deprive the mortgagee of what after all is one of his prima facie rights, merely because there is a margin—and not an overwhelming margin—between what is due on the mortgage and the estimated value of the security. But there is. I think, one further consideration to be borne in mind, which is peculiar to India. That is, that it is open to a mortgagee, where a sale is ordered, to bid for it and purchase it himself. That, of course, is not open to an English mortgagee. And, it Appears to me to make a considerable difference. One of two things must happen on a sale; either the property will be sold for sufficient or more than sufficient to cover the principal, interest and costs due on the mortgage, or else it will be sold for less than is sufficient to do so. In the former case the mortgagee will have nothing to complain of because he will get back everything that is due to him. In the latter case it is always open to him to purchase himself, and to set off, pro tanto, the amount of the purchase money against what is due to him on the mortgage. In other words, he could, in that event, get the very thing that he is seeking by foreclosure, the only difference being that he gets it at a cheaper price. It appears to me, therefore, that this is a consideration which a good deal enlarges the scope of a Judge's discretion in this country. It appears to me to deprive a mortgagee of an argument, that he might otherwise have had, to the effect that he was not entirely satisfied that he would get his money back by means of a sale, and preferred not to take the risk, but to endeavour to get his money back over a longer period by taking possession of the property by foreclosure.

The learned Judge appears to have exercised his discretion in this case, and to have exercised it judicially. He has based it upon the ground that there is every probability that the mortgagee will get his money back by means of the sale. It is true that there is no actual professional evidence as to what the value of the property is, and that it is merely estimated upon a conservative basis. It would have been better, perhaps, if there had been actual evidence of the market value of the property. But the estimate that the learned Judge has made has not been challenged in this Court.

For all these reasons, I do not think it right to interfere with the exercise by the learned Judge of his discretion, and I shall, accordingly, dismiss this appeal with costs.