Citation Codes

Equivalent Citations

citation codes

Case Number

Second Appeal No. 1264 of 1934

Judges

Sulaiman, C.J
Bennet, J.

Acts

provisions of Section 76(g).
PROVINCIAL INSOLVENCY ACT
Section 2(d) of that Act
Section 6(e), T.P. Act
Order 34, Rule 7
Order 34, Rule 9

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Smart Summary

Structured Summary of the Court Opinion

Factual and Procedural Background

This is a second appeal by the defendants against concurring decrees of two lower Courts which decreed redemption in favour of the plaintiffs of a usufructuary mortgage and, under Order 34, Rule 9, payment by the defendants to the plaintiffs of Rs. 137 with interest.

The mortgage in question was executed on 24 April 1917 by Umrao Singh in favour of the plaintiffs for a principal sum of Rs. 4,500. The plaint describes the deed as a possessory mortgage under which profits arising from the mortgaged property were agreed to be set off against interest. The plaint alleged that many items in the mortgage deed were fictitious and that the mortgagees had in fact paid only Rs. 2,136-3-6. It was also alleged that although the mortgagees did not pay the entire mortgage money, they realised the profits of the mortgaged property.

The plaintiffs attached a List B to the plaint that treated interest as 8% per annum, a rate not specified in the deed but inferred from an asserted annual profit of Rs. 360. The defence was that the entire amount had been paid. The Courts below found certain items fictitious and identified genuine unpaid items.

After executing the mortgage, Umrao Singh was adjudicated an insolvent. His equity of redemption was put up to auction by the receiver and purchased by the plaintiffs for Rs. 50. On 25 May 1924 the receiver executed a sale deed in favour of the plaintiffs. The plaintiffs sued as transferees of Umrao Singh's equity of redemption. The present appeal arises from the decrees in those suits and the accounting claimed by the plaintiffs against the defendants.

Legal Issues Presented

Whether Section 77 of the (Provincial) Insolvency Act applies so as to preclude inquiry into accounts of profits by the mortgagees in the circumstances of this case.
Whether, because the mortgage deed provided that the mortgagees hold possession in lieu of interest (and no rate of interest was specified), the defendants are liable to account for profits under Section 76(g) (i.e., whether the exemption from accounting survives given the factual allegations).
Whether the plaintiffs (as purchasers of the equity of redemption from the receiver) can deduct from the defendants' profits sums alleged to be unpaid under the mortgage (including interest on certain listed debts), or whether such personal contractual claims remain with the insolvent mortgagor and cannot be set off against profits by the transferees.
Whether the sale deed from the receiver conveyed to the plaintiffs the right to sue for personal breaches of contract that arose for the benefit of Umrao Singh personally.
What amount is payable by the plaintiffs to redeem the mortgaged property on the facts found by the Courts below.

Arguments of the Parties

Defendants' Arguments

The defence maintained that the entire mortgage amount had been paid (i.e., denial of plaintiffs' claim of unpaid principal).
On appeal, in ground No. 4, it was contended that because the mortgage deed provided that the mortgagees were to hold possession in lieu of interest (and no rate of interest was fixed), the defendants were not liable to account for profits.

Plaintiffs-Respondents' Arguments

The plaintiffs alleged that many items in the mortgage deed were fictitious and that the mortgagees had paid only Rs. 2,136-3-6 of the stated Rs. 4,500.
In List B the plaintiffs treated profits as Rs. 360 per annum and thereby assumed a rate of interest of 8% (though that rate is not stated in the deed); this figure underlies their accounting claim.
Learned Counsel for the respondents argued that because genuine items in the mortgage deed had not been paid by the mortgagees, Section 77 would not apply and therefore the defendants would be bound to account for profits and would not be exempt under Section 76(g).

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Chhatku Rai v. Baldeo Shukul (1912) 34 All. 659	Authority on suit for redemption where mortgagee had paid only a small part of the principal and redemption was decreed on payment of the small amount actually paid.	The Court held this ruling was not an authority in favour of the plaintiffs because in that case there was no accounting of profits as claimed here and the point now pressed was not argued in that case.
Seshayya v. Lakshminarasinha Rao Panntulu A.I.R. 1930 Mad. 160	Where the mortgagee had undertaken specific annual payments to the mortgagor (to be made out of profits) and those payments were not made, the court could direct an account of profits.	The Court considered this ruling distinguishable from the present facts because there the mortgagee had a contractual obligation to make payments to the mortgagor; in the present case the plaintiffs (transferees) had not established that Section 77 was inapplicable.
Narasimha Rao Pantulu v. Immani Seshayya A.I.R. 1925 Mad. 825	Similar principle to Seshayya: failure to make stipulated payments out of profits justified taking an account of profits in a suit for redemption.	The Court treated this case as similar to Seshayya and distinguished both from the present case on the ground that the facts here did not demonstrate that Section 77 was displaced.

Court's Reasoning and Analysis

The Court proceeded by applying the pleaded facts and statutory provisions cited in the opinion. Key elements of its reasoning were:

Interest rate and accounting: The Court observed that the mortgage deed did not specify any rate of interest; the plaintiffs' List B ingeniously assumed an 8% rate by treating profits as Rs. 360 per annum on the fictitious total of Rs. 4,500. The Court found this assumption unsound because, given the plaint's own allegation that the mortgagees paid only about half of Rs. 4,500, the correct interest (on the actual paid amount) would be materially higher. The lower Courts had not addressed this point.
Applicability of Section 77 and Section 76(g): The plaintiffs argued that Section 77 would not apply because genuine items had not been paid, and that therefore Section 76(g) would not exempt the defendants from accounting for profits. The Court concluded the plaintiffs had failed to show any ruling that indicated Section 77 would not apply in the present circumstances. The cases relied on by the plaintiffs were distinguishable because they involved direct contractual obligations by the mortgagee to the mortgagor (e.g., fixed annual payments or payments of land revenue).
Treatment of particular unpaid items: For certain decrees (for example the decree of Makund Ram for Rs. 300 and the decree of Ganesh Datt for about Rs. 167), the lower Court found that Umrao Singh had been arrested and had to pay these sums himself. The appellate Court reasoned that Umrao Singh would have had a personal cause of action against the defendants for damages for breach of contract and could have recovered principal and interest in a personal suit. Because the right to sue for such personal contractual damages did not pass to the receiver or the purchasers of the equity of redemption, the plaintiffs (as transferees) could not deduct those items from the defendants' profits; allowing such deduction would result in double recovery (the defendants paying interest twice over).
Nature of rights sold by the receiver: The Court analysed the Provincial Insolvency Act and the T.P. Act. It noted that under Section 28 of the Provincial Insolvency Act the whole of the insolvent's property vests in the Court or receiver, and that "property" is defined (Section 2(d) of that Act) to include disposing powers over property for the person's benefit. However, the Court concluded that the right to sue for breach of contract (personal claims) is not included in that definition of property; further, Section 6(e) of the T.P. Act provided that the mere right to sue is not transfer of property which can be assigned. Consequently, the sale deed from the receiver to the plaintiffs did not convey such personal rights to sue.
Distinguishing precedents: The Court distinguished earlier rulings on which the plaintiffs relied because those rulings involved suits by the original mortgagors (or their heirs) who had distinct contractual rights against the mortgagees. In contrast, the present plaintiffs were purchasers of the equity of redemption and had not acquired personal contractual claims that did not run with the land.
Position of plaintiff 1 as lambardar: The Court noted the factual point (ground No. 6) that plaintiff 1, the lambardar, had been collecting profits since 1924 and paying them to the defendants; as such, the plaintiffs were positioned as persons who had previously made payments and now sought a civil adjudication that those payments should not have been made. This fact contributed to the Court's disposition of the appeal.

Holding and Implications

Holding: The appeal is allowed to the extent indicated: the decrees of the two lower Courts are set aside, and the plaintiffs are granted a decree of redemption on payment of Rs. 2,852-14-6 within six months from the date of the order under Order 34, Rule 7.

The parties are directed to pay their own costs throughout.

Implications:

Direct effect on the parties: The plaintiffs have the right to redeem the mortgaged property upon payment of the specific sum found by the lower Courts to be actually paid by the defendants (Rs. 2,852-14-6) within six months; the prior decrees (which had ordered redemption on other terms and an accounting) are set aside.
Contractual rights vs. property passing in insolvency: The Court confirmed that personal rights to sue for breach of contract (claims for damages or to recover sums paid as a consequence of arrest, etc.) do not pass as "property" to the receiver where such rights are personal and do not run with the land; therefore the transferees of an equity of redemption do not acquire those personal claims by purchase of the equity.
No broad new legal precedent was proclaimed: The Court distinguished existing authorities and applied statutes to the facts; it did not assert a novel legal principle beyond those distinctions. The decision's legal reasoning is fact-specific and confined to the interplay of insolvency transfer rules, personal contractual rights, and the scope of accounting claims in suits for redemption.

Note: All statements above are drawn exclusively from the provided court opinion and do not add facts or inferences beyond that text.

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Ram Dayal v. Mukat Manohar

1. This is a second appeal by the defendants against concurring decrees the two lower Courts decreeing redemption in favour of the plaintiff of a certain usufructuary mortgage and under Order 34, Rule 9 a payment by the defendants to the plaintiffs of Rs. 137 with interest. The mortgage in question was executed on 24th April 1917 by Umrao Singh in favour of the plaintiffs. The principal sum secured under the mortgage was Rs. 4,500 and the plaint states that the mortgage deed in question is a possessory mortgage deed and the profits arising from the mortgaged property have been agreed to be set off against the interest on the mortgage money. In Paras. 4 and 5 it was alleged that most of the items entered in the mortgage deed were fictitious and that for that reason the mortgagees had only paid Rs. 2,136-3-6 of the mortgage money, and in Para. 6:

Although the mortgagees did not pay the entire mortgage money, yet they all along realised the profits arising from the mortgaged property.

2. There was no rate of interest specified in the mortgage but in a tabular statement, List B attached to the plaint, the plaintiffs with some ingenuity have assumed a rate of 8 per cent, interest without stating that figure. This rate of interest is arrived at by calculating the profits as Rs. 360 per annum and ascertaining that that amount of profits on the total mortgage amount of Rs. 4,500 would be 8 per cent. As a matter of fact on the allegations of the plaint that the mortgagees paid only something less than half of the Rs. 4,500 the interest if it was calculated would come to about double 8 per cent, and logically therefore on the plaint the calculation of interest is incorrect. The basis of the claim is that the profits amounted in the first year to Rs. 360 and interest amounted to Rs. 171 and therefore the debt should have gone in reduction of the capital amount. As indicated there is no ground whatever for assuming that 8 per cent, should be the rate of interest and the assumption that a rate of interest should be taken on a fictitious total seems unsound. This point has not been noticed by the Courts below and no attention whatever has been directed by either Court to what is the rate of interest. The defence was that the entire amount had been paid. In this mortgage no cash consideration was paid but about 20 debts were included which totalled Rs. 4,500. In regard to these debts the finding of the Courts below is that items on p. 25 totalling Rs.7,51-6-0 were fictitious and three other items totalling Rs. 895-11-6 were genuine but were not paid. Now the rights of the plaintiffs arose as follows:

Umrao Singh filed a petition in insolvency after executing the mortgage deed in question and in his schedule of debts he mentioned this mortgage. Umrao Singh was adjudicated an insolvent. The equity of redemption of Umrao Singh was put up to auction by the receiver and purchased by the plaintiffs for Rs. 50. This sum appears small but at the time there was a mortgage deed dated 6th January 1914 in favour of plaintiff 1; the original amount of the consideration was Rs. 428-8-0, but at the time of the auction purchase the amount had considerably increased owing to interest. On 25th May 1924 the receiver executed a sale deed in favour of the plaintiffs of the equity of redemption and it is under this sale deed that the present plaintiffs have sued as transferees from Umrao Singh. The position of the plaintiffs therefore is not precisely the same as would be the position of a mortgagor who was suing for redemption. Now the genuine items which have not been paid are as follows:

4. The wording of this section applies to the mortgage deed as it is stated in the plaint that it is a possessory mortgage deed in which the profits arising from the mortgaged property have been agreed to be set off against the interest on the mortgage money, and there is no contest that those terms do not correctly describe the provisions in the deed. As compared with other deeds this deed is peculiar in the fact that no rate of interest is provided for the mortgage money. It is merely stated that the mortgagees are to hold possession in lieu of interest. Now on appeal it has been contended in ground No. 4 that on account of this provision the defendants were not liable to account. On the other hand learned Counsel for the plaintiffs-respondents argues that because all of the genuine items in the mortgage deed have not been paid by the mortgagees therefore Section 77 will not apply. He further develops his argument that because Section 77 does not apply therefore the defendants are bound to account for profits, as they are no longer exempt from the provisions of Section 76(g).

5. Learned Counsel for the respondents has failed to show any ruling which indicates that in the circumstances of the present case Section 77 would not apply. He has shown a number of rulings which are to be distinguished on various grounds. In some of these rulings there is a suit brought by the mortgagor to whom the mortgagee had agreed to pay certain fixed sums and in other cases there are stipulations in the mortgage deed that part of the profits are to be used for the payment of land revenue and those payments either to the mortgagor or of land revenue have not been made. It is under such circumstances that the Courts have held that the accounts of profits and payments can be gone into by the Court in a suit for redemption. There are other cases in which it has been held that where a mortgagee in a mortgage similar to the present has failed to carry out his undertaking to discharge the previous debts, then the mortgagor is permitted to sue for redemption before the period fixed for redemption in the mortgage deed. One of these latter rulings is reported in Chhatku Rai v. Baldeo Shukul (1912) 34 All. 659 and in that case the principal amount was Rs. 599-15-0 and the mortgagee bad paid an amount of Rs. 50-15 only. The plaintiff brought a suit for redemption of the mortgage and redemption was decreed upon payment of the sum of Rs. 50-15-0; that is, there was no such accounting gone into such as the plaintiffs claim in the present case, and that point was not claimed in that particular case. The ruling therefore is no authority in favour of the plaintiffs.

6. In Seshayya v. Lakshminarasinha Rao Panntulu A.I.R. 1930 Mad. 160 there was a case where the mortgagee had under, taken to make a payment of Rs. 60 per annum to the mortgagor and this particular payment was not made. This payment was to be made out of the profits. It was held therefore that if this payment was not made the Court could direct that an account of profits should be taken. The ruling reported in Narasimha Rao Pantulu v. Immani Seshayya A.I.R. 1925 Mad. 825 was similar. It appears to us that in the present case the plaintiffs have failed to show that Section 77 will not apply. A considerable amount of argument has been made in regard to the different items which have not been paid. In the case of the decree of Makund Ram for Rs. 300 the Court below finds that Umrao Singh was arrested and had to pay this money himself. Now under these circumstances we are of opinion that Umrao Singh would have had a right of suit against the defendants for damages for breach of contract and in such a suit he could have claimed not only the personal damages which he suffered on account of the arrest but also the principal amount of Rupees 300 which he had paid and the interest on that amount. Now as Umrao Singh was entitled to bring such a claim it appears to us that the plaintiffs cannot also have a legal right to deduct the interest on this Rs. 300 from the profits due to the defendants; otherwise the defendants would have to pay interest on this sum of Rs. 300 twice over. A similar argument applies to the decree of Ganesh Datt for Rs. 167 odd. Now in regard to the mortgage deed of Mukat Manohar, plaintiff 1, for Rs. 428-8-0, if this mortgage deed is not now time-barred it would be open to the plaintiffs to sue on their mortgage deed, and in such a suit they could claim not only the principal money but also the interest on their mortgage money.

7. Under these circumstances it would not be correct to allow a deduction from the profits of the defendants on account of the interest of this amount. This therefore disposes of these three amounts. We consider therefore that this present suit is to be distinguished from any of the rulings on which the plaintiffs rely because in those rulings the plaintiffs were the mortgagors themselves to whom the mortgagees had contracted to make certain payments, or the heirs of the mortgagors. In the present case the suit is different because under the terms of the mortgage deed the mortgagees have contracted to make certain payments on behalf of the mortgagor. To a certain extent the present case may be stated to be a case in which there is not only a transfer of immovable property by the mortgage deed in suit, but that deed also contains certain provisions by way of contract between the mortgagor and the mortgagees. Now so far as there I was a transfer of property under the Provincial Insolvency Act, there is a provision in section 28 that on the making of an order of adjudication the whole of the property of the insolvent shall vest in the Court or in the receiver. 'Property' is denned by Section 2(d) of that Act as including any property over which or the profits of which any person has a disposing power which he may exercise for his own benefit. It is clear that this definition of property will not include the right to sue for breach of contract and such a right would remain with Umrao Singh and would not pass to the official receiver. Moreover the mere right to sue is not property as provided in Section 6(e), T.P. Act and cannot be transferred and therefore the sale deed from the receiver to the plaintiffs would not convey such a right to sue. These parts of the contract are not contracts which run with the land but they are contracts which were made for the benefit of Umrao Singh personally.

8. Another point which is set forward in ground No. 6 is that plaintiff 1 is the lambardar who has actually been collecting the profits since 1924 and he has been paying those profits to the defendants. The plaintiffs therefore are in the position of a person who has made certain payments and is now in the civil Court claiming an adjudication that the payments which he made should not have been made. For these reasons we allow this appeal to the extent indicated below and we set aside the decrees of the two lower Courts. In our opinion the plaintiffs are entitled to redeem the property on payment of the amount Which the Courts below have found that the defendants have actually paid, that is Rupees 2,852-14-6. Accordingly therefore we grant a decree of redemption for the plaintiffs in the terms of Order 34, Rule 7 on the payment of Rs. 2,852-14-6 within six months from the date of this order. The parties will pay their own costs throughout.

Ram Dayal v. Mukat Manohar

Structured Summary of the Court Opinion

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Defendants' Arguments

Plaintiffs-Respondents' Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Ram Dayal v. Mukat Manohar

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