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Case Summary — Ex parte decree, res judicata and mortgage priority

Factual and Procedural Background

The opinion concerns competing mortgage rights over a property originally mortgaged by Karam Ali. On 16 August 1918 a simple mortgage was executed in favour of the defendants appellants and their mother, Mst. Jaidei. A decree for sale on that mortgage was obtained on 22 August 1922 and ultimately resulted in an auction sale on 21 December 1926, when the defendants (then decree-holders) purchased the property for about Rs. 3,700 against a decree of over Rs. 2,000, leaving a surplus of Rs. 1,065.

The defendants had earlier taken a second mortgage from Karam Ali on 18 July 1923. Before confirmation of the auction sale under the first decree, the defendants (as plaintiffs in a subsequent suit) filed suit on 22 December 1926 based on the second mortgage; in that plaint they expressly admitted the prior mortgage, described the auction purchase and surplus of Rs. 1,065, and sought (a) declaration of their prior mortgagee status and entitlement to the surplus, (b) recovery of amounts outstanding after surplus payment, and (c) in the contingency of the first sale being set aside, a decree for the whole amount due under the second mortgage and sale of the mortgaged property to satisfy it.

On 17 January 1927 the mortgagor executed a usufructuary mortgage in favour of Mst. Chunni Kunwar (the present plaintiff), who deposited money on 20 January 1927 for payment of the first mortgage decree. At some later date the earlier auction sale in favour of the defendants was set aside. On 7 February 1927 the defendants applied in their pending suit to have Chunni Kunwar impleaded as a subsequent transferee; she was added as such, service was effected, but she did not appear or file a written statement. The suit for the amount due on the second mortgage was decreed on 14 April 1927 (ex parte), and that decree did not state that the property would be sold free from previous incumbrances.

The present suit was then instituted by Mst. Chunni Kunwar seeking a declaration that, having discharged the prior mortgage decree, she had the rights of a prior mortgagee. The defendants resisted principally on two grounds: (1) that her failure to set up prior mortgagee rights in the second-mortgage suit meant her claim was barred by res judicata, and (2) that payment did not confer subrogation rights because the prior 1918 mortgage claim was time-barred (the latter point was referred to a Full Bench and not decided herein).

Legal Issues Presented

  1. Whether the ex parte decree obtained by the defendants on 14 April 1927 operates as res judicata so as to bar the plaintiff Chunni Kunwar from claiming rights of a prior mortgagee based on her discharge of the prior mortgage decree.
  2. Whether, by virtue of payment of the amount due under the prior mortgage decree, the plaintiff acquired rights of subrogation when the underlying mortgage claim might be barred by limitation (this second question was not decided by the present bench as it had been considered by a Full Bench in Alam Ali v. Beni Charan).

Arguments of the Parties

Plaintiff's Claim (Mst. Chunni Kunwar)

  • She claimed a declaration that by paying off the prior mortgage decree she had acquired the rights of a prior mortgagee against the property.

Defendants' Arguments (Respondent-Appellants)

  • Res judicata: Because Chunni Kunwar did not set up prior-mortgage rights in the second-mortgage suit (where she had been added as a subsequent transferee and did not appear), the ex parte decree of 14 April 1927 should operate as res judicata and bar her present claim.
  • Subrogation/limitation: Payment of the earlier mortgage decree did not confer rights of subrogation because the underlying 1918 mortgage claim would in any event be barred by time (this point was not decided by this bench).

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Alam Ali v. Beni Charan Consideration of whether payment confers subrogation rights when underlying mortgage claim may be time-barred (Full Bench consideration). The court noted this point had recently been considered by a Full Bench and therefore it was not referred to or decided by the present bench.
Sri Gopal v. Pirthi Singh Omission by a party to set up a prior mortgage in an earlier suit is fatal and subsequent claim may be barred by res judicata where the earlier plaint put the priority of that prior mortgage in issue and the decree ordered sale free from encumbrances. Distinguished: in the present case the prior mortgage was expressly admitted in the earlier plaint and only the surplus was claimed, so the earlier decree did not put the validity of the prior mortgage in controversy as it did in Sri Gopal.
Mahomed Ibrahim Hossain v. Ambika Pershad Singh Where plaintiffs sought sale free from liens and did not admit prior mortgage rights, a defendant who did not set up prior mortgage rights in that suit could be barred by res judicata. Distinguished: that case resembled Sri Gopal and was different from the present case because here the plaintiffs had admitted the prior mortgage in their plaint.
Radha Kishun v. Khurshed Hossein Where a prior mortgagee's priority is not impugned in the earlier suit, res judicata does not prevent the prior mortgagee from asserting his rights later; section 96 Transfer of Property Act implies that without consent a mortgaged property cannot be sold free of a prior mortgage. Followed and applied: the court relied on this authority to hold that because the prior mortgage was not impugned and was in substance admitted, res judicata did not bar the plaintiff's later claim.
Ajudhia Pande v. Inayat-ullah Relevant authority on treatment of prior mortgage rights in subsequent suits (as cited by the court). Regarded as similar and supportive of the court's conclusion that the present plaintiff's claim was not barred by res judicata.
Collector of Moradabad v. Muhammed Hidayat Ali Khan Relevant authority on the court's approach to similar issues involving priority and parties in mortgage suits (as cited). Also cited as a similar case supporting the present decision that res judicata did not bar the claim.
Section 96, Transfer of Property Act Principle that without a prior mortgagee's consent a mortgaged property cannot be sold free from his mortgage. Used in the discussion of Radha Kishun v. Khurshed Hossein to show that a prior mortgagee's rights remain paramount unless expressly impugned; supported court's reasoning that prior mortgagee was outside the controversy unless challenged.

Court's Reasoning and Analysis

The court's central analytical theme was identifying what issues were actually put in controversy by the earlier suit (the second-mortgage suit filed 22 December 1926). The court proceeded stepwise:

  1. Observation of the pleadings: The earlier plaint expressly admitted the existence and validity of the prior (1918) mortgage and recorded that the decree-holders had purchased the property at auction leaving a surplus of Rs. 1,065. The plaintiffs in that suit therefore claimed in the first instance only the surplus amount.
  2. Legal import: Because the prior mortgage's validity was not challenged in the plaint — indeed it was admitted — the binding character of the prior mortgage decree was not a matter "in issue" in the prior suit. The plaintiffs did not attempt to impugn the rights established by that mortgage decree.
  3. Procedural consequence: Chunni Kunwar, who acquired rights during the pendency of the second-mortgage suit and was impleaded as a subsequent transferee, had no occasion to appear in the earlier suit to assert prior-mortgage rights that were not disputed by the plaintiffs. Under the Explanation to Order XXXIV, rule 1, a puisne mortgagee need not implead a prior mortgagee and may claim the property subject to such a prior mortgage.
  4. Conceptual clarification: The court emphasized that a person who holds a subsequent mortgage while also possessing rights as a prior mortgagee occupies a "dual capacity." She is a necessary party insofar as she is a subsequent transferee, but not necessarily a required party in respect of prior-mortgage rights that were neither denied nor sought to be displaced by the plaintiffs.
  5. Distinguishing authorities: The court examined authorities (Sri Gopal v. Pirthi Singh; Mahomed Ibrahim Hossain v. Ambika Pershad Singh) where res judicata was applied against later claims because the earlier plaint had sought to sell property free from encumbrances or otherwise put the priority of the omitted mortgage in issue. The court found those cases distinguishable because in the present case the prior mortgage was expressly admitted by the earlier plaintiffs.
  6. Supporting authority: The court relied on Radha Kishun v. Khurshed Hossein (and other similar local decisions) for the proposition that if a prior mortgagee's title is not expressly impugned in an earlier suit, res judicata cannot be sustained against him; the prior mortgagee remains outside the controversy unless the earlier plaintiff sought to displace that prior title.
  7. Conclusion from analysis: Because the prior mortgage was not put in issue in the earlier ex parte decree and had been admitted in the earlier plaint, the ex parte decree did not operate as res judicata to bar Chunni Kunwar's subsequent claim that she had acquired prior-mortgage rights by discharging the prior decree.

Holding and Implications

Holding: The court held that the plaintiff's claim that she acquired rights by payment of the money due on the prior mortgage decree is not barred by the principle of res judicata. The court answered the referred question(s) in the negative.

Practical implications for the parties:

  • The direct effect is that Mst. Chunni Kunwar is not prevented by the ex parte decree of 14 April 1927 from asserting rights of a prior mortgagee acquired by her payment of the earlier mortgage decree.
  • The court did not decide the separate question concerning subrogation and limitation because that matter had already been considered by a Full Bench (Alam Ali v. Beni Charan) and was not referred for decision by this bench.
  • The decision turns on the particular pleadings and facts: where a prior mortgage is expressly admitted in the earlier suit and not put in issue, res judicata will not automatically bar a later claim by the prior mortgagee or by one who acquired the prior mortgagee's rights pendente lite. The court treated earlier authorities that took a contrary view as distinguishable on their facts.

No wider new precedent is declared beyond the application of established principles to the facts before the court; the ruling rests on distinguishing earlier authorities and applying settled principles relating to what matters are "in issue" and the procedural status of subsequent transferees and prior mortgagees.

    Ram Dhan And Another v. Mt. Chunni Kunwari .

    Sulaiman, C.J and Bennet and Harries, JJ.:— It appears that on the 16th August 1918, a simple mortgage deed was executed by Karam Ali in favour of the defendants appellants and their mother Mst. Jaidei. On the 22nd August, 1922, a decree for, sale was obtained on this mortgage, which was followed by a final decree. The property was put up for sale in execution of this decree and was purchased at auction by the defendants, the then decree-holders, on the 21st December, 1926. The decree was for over Rs. 2,000 and the property was sold for about Rs. 3,700, there being a surplus amount of Rs. 1,065.

    In the meantime the defendants had taken another mortgage from Karam Ali on the 18th July, 1923. Before the auction sale which had been held in execution of the decree in the first mortgage could be confirmed, the defendants brought a second suit on the 22nd December, 1926, on the basis of the second mortgage. In their plaint the present defendants clearly admitted the existence of the previous mortgage and even mentioned that in execution of their mortgage decree they had purchased the mortgaged property at auction and there was a surplus of Rs. 1,065 left over. They did not implead the present plaintiff Mst. Chunni Kunwar as, she had not come on the scene by that time. The reliefs claimed were: (a) a declaration that the plaintiffs were prior mortgagees against the defendants who had then been impleaded and were entitled to receive the entire surplus purchase money at the auction sale held on the 21st December, 1926, in execution of the decree of 1952, (b) a decree for recovery of the amount left outstanding after the payment of the surplus purchase money to be realised; and (c) “if the sale of the mortgaged property be for some reason set aside, the claim with costs be ordered to be paid from the defendant, and in case of default in payment the mortgaged property be sold and the claim be satisfied out of the purchase money”.

    It is therefore obvious that the present defendants who 1936 were plaintiffs at that time were admitting the validity ram of the prior mortgage and the binding character, of the mortgage decree and the propriety of their having purchased the property in satisfaction of the mortgage debt, leaving a surplus of Rs. 1,065 only and asked for the payment of only the surplus purchase money in the first instance, thereby clearly admitting that they were entitled only to this surplus amount under the second mortgage decree. It is also clear that they contemplated the contingency of the sale of the mortgaged property being for some reason set aside, as by that time it had not yet been confirmed, and in that event they asked for a decree for the whole amount due under the second, mortgage. It cannot therefore be contended, for a moment that the defendants in the latter event intended to give up their first mortgage decree altogether. It is impossible to put any such interpretation on the plaint.

    On the 17th January, 1927, the mortgagor executed a usufructuary mortgage in favour of the present plaintiff Chunni Kunwar, leaving money in her hands for payment of the first mortgage decree. She deposited the amount on the 20th January, 1927, and at some later, but unknown, date, the auction sale in favour of the present defendants was set aside. On the 7th February, 1927, the present defendants in their suit filed an application asking that Mst. Chunni Kunwar be impleaded as a subsequent transferee, presumably because she had taken the usufructuary mortgage. There was no allegation that she had paid off the prior mortgage decree and should be impleaded as a prior mortgagee. Of course there was no allegation against her when the plaint was filed, and no amendments were made therein, except, the addition of her name as a subsequent transferee. Service was duly effected on her, but she did not appear to contest the claim, nor filed any written statement. The suit for the amount due on the second mortgage was decreed on the 14th April, 1927. The decree, however, did not say that the property would be sold free from any previous incumbrances.

    The defendants then put their decree in execution and claimed a sale of the mortgaged property. Upon this the present suit was instituted by Mst. Chunni Kunwar for a declaration that she had the rights of a prior mortgagee on account of her discharge of the prior mortgage decree. The present defendants resisted the claim on two main grounds among others: (1) That not having set up her prior mortgagee rights in the suit of the second mortgagee, the defence was barred by the principle of res judicata; and (2) that by payment of the mortgage decree she acquired no rights of subrogation as the claim on the mortgage of 1918 would now be barred by time.

    As the second question has been considered recently by a Full Bench of this Court in Alam Ali v. Beni Charan, it has not been referred to us. But the first question has been referred to us in the following form: “In the circumstances of the present case, does the ex parte decree obtained on the 14th April, 1927, by the defendants appellants operate as res judicata for the purposes of the present suit, and is the declaration now sought for by the plaintiff respondent therefore barred?”

    Prima facie it would appear that when the validity of the prior mortgage decree was in no way disputed by the then plaintiffs, and indeed was expressly admitted inasmuch as only the surplus amount was claimed in the first instance, it cannot be seriously contended that the binding character of that mortgage decree was in any way a matter in issue in the previous suit. The plaintiffs had not attempted to impugn the rights under that mortgage decree. Accordingly even though subsequently during the pendency of that suit those rights devolved upon the present plaintiff, who had then been impleaded as a subsequent transferee, there was no occasion for her to set up the validity of that mortgage decree or the rights acquired by her pendente lite. The matter not 1936 having been put in issue by the plaintiffs on the date Ram on which the plaint was filed on the 22nd December, 1926, the defendant Chunni Kunwar was not called upon to appear and set up her prior rights. Under the explanation to order XXXIV, rule 1 it is not necessary for a puisne mortgagee to implead a prior mortgagee, and he may without impugning such a mortgage claim to sell the property subject to it. A person who has taken a subsequent mortgage and also possesses prior mortgagees' rights has a dual capacity. She is a necessary party in her capacity as a subsequent transferee, but not a necessary party in her capacity as a prior mortgagee. If therefore the validity of the prior mortgage is admitted in the plaint and she has been professedly impleaded, as a subsequent transferee, there seems no reason to require that she must of necessity appear in court and set up rights under the prior mortgage which is not disputed by the plaintiffs.

    The learned advocate for the appellant relies strongly on the case of Sri Gopal v. Pirthi Singh. In that case suits had been brought on mortgages of 1872 and 1874 successively without impleading other mortgagees, and decrees were obtained thereon. Then a suit was brought on a mortgage of 1876 impleading the mortgagees of 1875 and 1874. In the plaint the plaintiff had clearly sought to establish that charge as having priority over the earlier mortgages above referred to, upon the ground that the money thereby secured had been borrowed to pay and had been applied in paying certain other charges on the same property of still earlier date, all being prior to 1871 (see page 435). Thus the plaintiff had put in issue his claim of priority over the mortgages of 1874. The mortgagee Ishur Das set up his prior claim under a mortgage of 21st July, 1871, but he altogether omitted to set up his claim under a mortgage of 7th February, 1874. The plaintiff's suit was decreed for payment of the money due against the defendants and the decree declared that in default of payment the plaintiff would be entitled to sell the mortgaged property “which was free from all encumbrances”, and also the remaining properties in satisfying the amount of certain prior debts detailed at the foot of the judgment. In this list the mortgage of the 7th February, 1874, was not included. It was accordingly held both by this High Court and also by their Lordships of the Privy Council that the omission to set up the rights under the mortgage of 7th February, 1874, was fatal and the claim made in a subsequent suit was barred by the principle of res judicata. That was a case in which the plaintiff had never admitted the priority of the mortgage of the 7th February, 1874, and where the decree had expressly ordered the sale of certain property free from all encumbrances and the sale of the remaining properties subject only to certain specified prior debts and no others. That case is accordingly distinguishable from the present one.

    The learned advocate next relies on the case of Mahomed Ibrahim Hossain v. Ambika Pershad Singh. In that case the heirs of Mst. Alfan were impleaded as puisne mortgagees having the right to redeem. As noted in the judgment of the High Court at page 539, “The plaintiffs asked for sale of the mortgaged properties free from the liens of all the puisne mortgagees.” The prior rights of the heirs of Alfan were never admitted by the plaintiffs in their plaint and in fact they had been impleade exclusively as subsequent transferees. The Calcutta High Court considered that the case was governed by the ruling of their Lordships in the case of Sri Gopal v. Pirthi Singh. Their Lordships of the Privy Council formed the view that the heirs of Alfan having been made defendants to those a suits, and not having set up in those suits such rights as they had under the prior mortgage, their claim in the later suit was barred by the principle of res judicata. As in that case 1936, the plaintiffs had not admitted in the plaint that the prior mortgagee rights were even subsisting and had asked for the sale of the mortgaged properties free from the liens of all the defendants, the case is obviously distinguishable from the present case.

    In a later case, Radha Kishun v. Khurshed Hossein, their Lordships have laid down the law clearly. In a suit brought by the second mortgagees who were certain Sahus, a prior mortgagee Bakhtaur Mull was impleaded as a defendant, “but whether any or what relief was sought against him did not appear” (page 668). Their Lordships, after pointing out that the implications of the terms of section 96 of the Transfer of Property Act were that without the consent of the prior mortgagee the mortgaged property could not be sold free from his mortgage, remarked (page 669): “Bakhtaur Mull's position therefore was that he was a prior morrgagee with a paramount claim outside the controversy of the suit unless his mortgage was impugned. Consequently, to sustain the plea of res judicata it is incumbent on the Sahus in the circumstances of this case to show that they sought in the former suit to displace Bakhtaur Mull's prior title and postpone it to their own. For this it would have been necessary for the Sahus as plaintiffs in the former suit to allege a distinct case in their plaint in derogation of Bakhtaur Mull's priority. But from the records of this suit it does not appear that anything of the kind was done, and, as has been observed, of things that do not appear and things that do not exist the reckoning in a court of law is the same.” Their Lordships accordingly held that Bakhtaur Mull's mortgage not having been impugned expressly, he was not prevented by any principle of res judicata from setting up his rights under that mortgage in a subsequent suit.

    The case before us is much stronger inasmuch as here not only the present plaintiff's rights were not, and could not be, impugned in the plaint when it was filed on the 22nd December, 1936, but it was clearly admitted that the prior mortgage was subsisting and was paramount. The case is similar to the cases decided by this Court in Ajudhia Pande v. Inayat-ullah and Collector of Moradabad v. Muhammed Hidayat Ali Khan.

    In our opinion the claim of the plaintiff that she has acquired rights by payment of the money due on the prior mortgage decree is not barred by the principle of res judicata.

    The answers to both parts of the question referred to us are in the negative.

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    Comments

    Ram Dhan And Another v. Mt. Chunni Kunwari .
    (Apr 21, 1936)