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Case Number

Appeal Against Order No. 118 of 1924.

Attorney(S)

Mr. T. M. Krishnaswami Aiyar for the Appellant.
Messrs. V. Rajagopala Aiyar and S. Jagadisa Aiyar for the Respondents.

Judges

Ramesam
Jackson, JJ.

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Smart Summary

Structured Summary of the Opinion

Factual and Procedural Background

This is an appeal against an order of remand. The preliminary procedural objection raised by the respondents' counsel was that no appeal lies because the remand order was not made on account of the reversal of a Subordinate Judge's finding on a preliminary point. The Court overruled that objection, treating the dispute as involving a preliminary question under the Full Bench decision in Raman Nayor v. Krishnan Nambudripad (A.I.R. 1922 Mad. 505).

The material facts (as set out in the opinion) are:

Defendants 1 to 3 owned three sets of properties, referred to as A, B and C (with A-B grouped together for convenience).
On 17-5-02 they created a first mortgage in favour of the 4th defendant and on 22-5-02 a second mortgage in favour of the plaintiff (the present second mortgagee).
The first mortgagee purchased properties A-B in execution of a Small Cause decree on 9-11-1905, subject to both mortgages, and subsequently sued in O.S. No. 42 of 1915 to recover the balance due, giving credit for amounts by reason of that purchase and making the second mortgagee a party.
The dispute before the Courts below (and on this appeal) concerns whether the trial of the present suit (between the plaintiffs and contesting defendants 4 to 9) is barred by the events and findings in the earlier suit (O.S. No. 42 of 1915).

Legal Issues Presented

Whether the order of remand was appealable in the circumstances, given that the question in issue was whether the trial was barred by events in an earlier suit (i.e., whether the point was a preliminary question within the meaning of the authorities relied upon).
Whether, where a first mortgagee sues and purchases mortgaged properties (or offers credit for full value) and the second mortgagee was a party to that suit and had the opportunity to redeem but did not, the second mortgagee's rights in respect of properties common to both mortgages are extinguished (other than rights to the surplus and personal remedies).

Arguments of the Parties

Respondents' Preliminary Objection

The learned vakil for the respondents argued that no appeal lies against the remand order because the remand was not made on account of the reversal of the Subordinate Judge's finding on a preliminary point.
The respondents' position relied on the conventional limitations on appeals from remand orders unless a preliminary point requiring appellate determination had been reversed.

Contentions Advanced on Behalf of the Second Mortgagee (mentioned in the opinion)

Mr. Balasubramania Aiyar (counsel for the second mortgagee) contended that the second mortgagee could still redeem the first mortgage or sell the properties subject to the first mortgage "exactly as if it was not a party to the former suit."
In the prior suit the second mortgagee had argued that the value allowed for properties A-B was inadequate; additionally, the second mortgagee (joined with the mortgagor) raised the contention that the first mortgagee's purchase in execution of the Small Cause decree wiped out the whole of the first mortgage—contentions which the Full Bench rejected.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court in This Case
Raman Nayor v. Krishnan Nambudripad, A.I.R. 1922 Mad. 505	Authority treating the dispute as a preliminary point allowing appeal from an order of remand in appropriate circumstances.	The Court relied on this Full Bench decision to treat the issue as a preliminary question and overruled the respondents' objection that no appeal lay.
Eisheshur Dial v. Ram Sarup (1900) 22 All. 284	As between a purchaser (first mortgagee) and the mortgagor, a proportionate part of the mortgage-debt is wiped out upon purchase; the mortgage is split and the purchaser may retain the bought properties as absolute owner vis-à-vis the mortgagor, recovering the balance from remaining properties.	The Court applied this principle to explain the effect of the first mortgagee's purchase vis-à-vis the mortgagor: proportionate debt wiped out and the first mortgagee's rights against the mortgagor adjusted accordingly.
Surjiram Marwari v. Barhamdeo Persad (1905) 1 C.L.J. 337	Strips down the notion that a suit strictly against a portion of property only is maintainable; explanatory authority about parties and suits involving multiple mortgages.	The Court observed that strictly a suit limited to one property only is not maintainable, but by offering to credit the full value of property A-B the first mortgagee's suit was in substance a suit against all the properties—thus invoking the principle discussed in this authority.
Chinnu Pillai v. Venkatasami Chettiar (1916) 40 Mad. 77	Discusses rights when all mortgagees are known and the consequences where a first mortgagee sues making the second mortgagee a party; the second mortgagee has a right to redeem and upon being a party and failing to exercise that right may be prevented from subsequent suits in respect of common items.	The Court expressly agreed with the remarks in this case and used them to hold that once the second mortgagee was a party to the prior suit and had an opportunity to redeem but did not, his rights in respect of properties common to both mortgages were extinguished (subject to exceptions).
Sri Gopal v. Pirthi Singh (1902) 24 All. 429	Authoritative principle concerning the relative rights of first and second mortgagees and the consequences of suits involving both.	The Court applied the principles in Sri Gopal to bar the second mortgagee from pursuing remedies against properties mortgaged in both mortgages when he had been a party to the first mortgagee's suit and failed to redeem.
Narayana Rao v. Venkayya (1918) M.W.N. 902	Decision touching on reservations and the scope of a first mortgagee's suit; contains observations on what suits by a second mortgagee may be barred from pursuing.	The Court distinguished this decision on its facts and recorded disagreement with certain observations in it regarding the broader rule, though acknowledging parts of it were right on the facts; accordingly the Court declined to follow those particular observations.
L.J. Mackintosh v. N.S. Watkins (1904) 1 C.L.J. 31	Holds that in a suit by a first mortgagee against mortgagor and second mortgagee, the mortgagor cannot be called upon to redeem the second mortgagee.	The Court said this authority had no bearing on the present facts beyond confirming that a mortgagor cannot be required to redeem the second mortgagee in such a suit.
Vedavyasa Aiyar v. Madura Hindu Labha Nidhi Co. Ltd. (1918) 42 Mad. 90	Holds that where the first mortgagee obtains a decree with a clause for payment of surplus to the second mortgagee but does not proceed to sale, the second mortgagee cannot execute the decree for the surplus until sale is actually held.	The Court agreed with this principle, observing that until a sale is held and properties pass to a purchaser free of encumbrances, the second mortgagee's rights are not extinguished; but where the first mortgagee credited full value (equivalent to sale), the same result follows as if sale had occurred.

Court's Reasoning and Analysis

The Court proceeded in a series of logical steps, applying established equitable and mortgage principles to the facts of the earlier suit and the present dispute:

Preliminary procedural point: The Court first addressed the respondents' objection that no appeal lay against the remand order. Relying on the Full Bench decision in Raman Nayor v. Krishnan Nambudripad, the Court treated the dispute as involving a preliminary question and overruled the objection, permitting the appeal to be heard.
Factual matrix and effect of purchase by first mortgagee: The Court recited the mortgage chronology (first mortgage, then second mortgage, then first mortgagee's purchase on execution, then first mortgagee's suit O.S. No. 42 of 1915). It applied Eisheshur Dial v. Ram Sarup to explain that as between purchaser and mortgagor a proportionate part of the mortgage debt is wiped out and the purchaser may retain the purchased property vis-à-vis the mortgagor, recovering the balance from remaining properties.
Different consequences inter se between first and second mortgagee: The Court distinguished the position inter se of first and second mortgagees. It reasoned that a first mortgagee's purchase (or crediting full value) does not automatically enable him to retain the property as a full owner against the second mortgagee unless he gives credit for the full value of the property towards his mortgage; otherwise the second mortgagee retains the right to redeem or to look to proceeds on sale. The first mortgagee in the prior suit offered to credit the full value of A-B, which in substance was equivalent to a court sale followed by crediting of proceeds.
Effect of the first suit where the second mortgagee was a party: Because the second mortgagee was impleaded in O.S. No. 42 of 1915 and had an opportunity to exercise his right of redemption but did not (and his challenge to the valuation was rejected), the Court held that the second mortgagee was left only with a right against any surplus from sale of other properties (property C) and had no rights against property A-B. The Court invoked the reasoning in Chinnu Pillai and Sri Gopal to conclude that once the second mortgagee was a party and the first mortgagee either caused or obtained the effect of a sale (here by crediting full value), the second mortgagee's rights in respect of the common properties were extinguished except for claims to surplus or personal remedies not comprised in the common mortgage.
Distinguishing contrary authority and limits: The Court considered and distinguished Narayana Rao v. Venkayya (dissenting from some of its observations), and observed that L.J. Mackintosh v. N.S. Watkins and Vedavyasa Aiyar v. Madura Hindu Labha Nidhi Co. Ltd. supported the specific propositions that a mortgagor cannot be made to redeem the second mortgagee and that a second mortgagee cannot enforce a surplus clause until sale occurs. The Court reconciled these authorities by emphasizing that where the first mortgagee has effectively obtained the full-value credit for the purchased property (equivalent to sale), the second mortgagee's rights against the common items are extinguished.
Application of res judicata and equity on the facts: The Court further observed that the application of res judicata, given that the second mortgagee had an opportunity to litigate and failed to prevail as to valuation or to redeem, did not result in injustice on the facts, particularly because the total value of all properties was insufficient even to satisfy the first mortgage.

Holding and Implications

Core Holding: The Court allowed the appeal and restored the judgment of the Subordinate Judge. The Court ordered that costs in this Court and in the Lower Appellate Court be paid by the first respondent (the second mortgagee) to the appellants.

Direct consequences and implications (as stated in the opinion):

On the facts of this case, because the first mortgagee offered and was allowed credit for the full value of properties A-B in O.S. No. 42 of 1915 (effectively equivalent to sale), and because the second mortgagee was a party to that suit and failed to exercise the right of redemption, the second mortgagee's rights in respect of the properties common to both mortgages were extinguished, leaving him only with a right to any surplus and with remedies in relation to items not comprised in the common mortgage.
The Court expressly applied existing precedents and equitable principles (res judicata, rights of redemption, effect of sale or credit of full value) to reach the result; the decision restores the Subordinate Judge's judgment without purporting to create a novel rule beyond those established principles.

Concurrence: Jackson, J. recorded agreement and added nothing further.

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A.L.V.R.S.T Periya Karuppan Chettiar (Objecting Creditor). v. D.R Angappa Chettiar And Others S (1St , Receiver And 1St Petitioner).

1. This is an appeal against an order of remand. A preliminary objection is taken by the learned vakil for the respondents that no appeal lies as the order of remand was not made on account of the reversal of the Subordinate Judge's finding on a preliminary point. As will be seen from the statement of facts lower down, the question in the case on which the Courts below have differed is whether the trial of the suit, (as between plaintiffs and the contesting defendants 4 to 9) is barred by the events in an earlier suit. Following the Full Bench decision in Raman Nay or v. Krishnan Nambudripad A.I.R. 1922 Mad. 505 we think this is a preliminary point and overrule the objection.

2. The facts are as follows : - The defendants 1 to 3 were the owners of three sets of properties A, B and C. For convenience I will refer to the first two as property A-B. They created over all the three a first mortgage in favour of the 4th defendant (17-5-02) and a second mortgage in favour of plaintiff (22-5-02). The first mortgagee purchased the property A-B in execution of a Small Cause decree on 9th November, 1905 subject to the two mortgages. He then filed a suit (O.S. No. 42 of 1915) to recover the balance after giving credit to a certain amount by reason of his purchase by sale of property G. In that suit the second mortgagee was impleaded. The array of parties in both the suits is as follows:

3. It will be convenient to pause hero and to consider the effect of the purchase by the first mortgagee in execution of the Small Cause decree. As between him and the mortgagor, a proportionate part of the mortgage debt was wiped out, the mortgage becoming split up, as it were, and the mortgagee has to recover the balance from the mortgagor from the remaining property C and he has the right to retain property A-B as absolute owner. This was decided in Eisheshur Dial v. Ram Sarup (1900) 22 All. 284 followed in the Full Bench decision in Appeal from O.S. No. 42 of 1915 itself (A. section no. 190 of 1917).

2. But, as between the 1st mortgagee and the 2nd mortgagee the result is not the same. The purchase by the former of property A-B does not enable him to retain it as full owner as against the latter and throw the burden of the balance of the debt on property C after deducting only the proportionate part of the debt. The 1st mortgagee can insist on the 2nd mortgagee redeeming the former and, in default of redemption, the property will be sold free of both mortgages. The whole proceeds of the sale will then be credited towards the 1st mortgagee. Thus, it is obvious that the 1st mortgagee cannot retain possession of the property A-B unless he gives credit to the whole value of the property towards his mortgage and is willing to proceed against property C for only the balance after deducting the whole value. This is exactly what the 1st mortgagee did in his former suit (O.S. No. 42 of 1915). Strictly a suit against property O only is not maintainable : Surjiram Marwari v. Barhamdeo Persad (1905) 1 C.L.J. 337. But by the offer to credit the whole value of property A-B, it was in substance a suit against all.

3. When all the mortgagees are known, all the other mortgagees ought to be parties to a mortgage suit. In the present case we are not concerned with a suit by a first mortgagee without making a second mortgagee party. The rights in such a case are discussed in Chinnu Pillai v. Venkatasami Chettiar (1916) 40 Mad. 77. Nor are we concerned with suits by a second mortgagee with or without making the first mortgagee a party Chinnu Pillai v. Venkatasami Chettiar (1916) 40 Mad. 77; Surjiram Marwari v. Barhamdeo Persad (1905) 1 C.L.J. 337 explaining Sri Gopal v. Pirthi Singh (1902) 24 All. 429. We have here a suit by the first mortgagee making the second mortgagee a party. In such a suit the second mortgagee has the right to redeem the first mortgagee. It is to give him such an opportunity that the first mortgagee made the second mortgagee a party in O.S. No. 42 of 1915. If the second mortgagee paid off the whole debt of the first mortgagee, property A-B as well as C would be entirely available to the second mortgagee who would then stand in the position of the two mortgagees. For obvious reasons, he never made such an offer in O.S. No. 42 of 1915. The values of all the properties are insufficient to pay off the whole of the first mortgage and leave a surplus available for the second mortgagee. In default of his claim to redeem, the only other legal course is to sell property A-B as well as property C free of the mortgages. If in such a sale property A-B realises a certain price, the proceeds will be credited towards the first mortgage. The first mortgagee, plaintiff in O.S. No. 42 of 1915, instead of actually allowing the property to be bold, offered to Credit the full price towards his mortgage. The result of such credit is exactly the same as if all the long-drawn-out proceedings in execution of a decree of Court took place. If, in making the credit, lie made an under-estimate of its value, the second mortgagee could attack the estimate. The Courts found in the former case that the value of the property A-B was Rs. 4,950 and of property C was Rs. 2,639-4-0. The first mortgagee in his plaint gave credit for Rs. 3,750 plus Rs. 1,000 plus Rs. 269-5-6, i.e., a total of Rs. 5,019-5-6, that is, somewhat slightly more than the value of property A-B and sued only for the balance. That is, the second mortgagee was placed in a position exactly the same as (or better than) if the property A-B was actually sold in Court-auction and the proceeds credited towards the first mortgagee and only the balance was thrown on the property C which is the utmost that the second mortgagee could ever claim.

4. It is thus seen that the second mortgagee had really no plea to raise in the former ease. His plea that the value allowed for the property A-B was inadequate was found against. After the said finding, he had nothing to do except asking for a decree against any surplus on the sale of -property C. Having nothing to do, he joined the mortgagor in raising the extravagant plea that, by reason of the first mortgagee's purchase in the Small Cause decree, the whole of the first mortgage was wiped out. This contention was rightly negatived by the Pull Bench. The mortgagor being the only appellant before the High Court, this was the only point argued before the High Court and referred to a Full Bench. There was no question raised for the purpose of settling the rights between first and second mortgagees. The second mortgagee filed a Memorandum of Objections asking for executing the decree against the surplus. This was refused on the ground that he did not claim it in the Court below Even if he wished to raise any question between himself and the first mortgagee, there could have been no other decision than that the full value of the property, A-B should have been credited towards the first mortgage if the first mortgagee wish to retain that property as absolute owner; and on the findings this was the course taken by the first mortgagee. Thus the result of the findings of O.S. No. 42 of 1915 is that the first mortgagee retained the property A-B free of all encumbrances and the second mortgagee's only right was against any surplus after the sale of property C. It is impossible to understand how the second mortgagee (the present plaintiff) has any rights available against the property A-B. Mr. Balasubramania Aiyar contends that he can still redeem the first mortgage or sell the properties subject to the first mortgage exactly as if I to was not a party to the former suit. This is a very extravagant and fallacious proposition.

5. The reason why the second mortgagee's rights are not lost by reason of a decree for sale in a suit by a first mortgagee in which he was not a party is that ho was not given an opportunity to exercise his right to redeem the first mortgagee (which undoubtedly existed) and such right cannot be destroyed by proceedings behind his back. But the whole reason disappears when ho was a party to the first mortgagee's suit and had an opportunity to exercise his right of redemption. After such a suit, all his rights over the properties common to both mortgages, unless they have been expressly preserved, are extinguished and he can maintain a suit on his mortgage only in respect of items which are not comprised in the first mortgage and for personal relief against the mortgagor. I entirely agree with the remarks in Chinnu Pillai v. Venkatasami Jhelliar (1916) 40 Mad. 77.

"If the first mortgagee sues first making the second mortgagee a party as he ought to, there cannot be a trial of a further action,"

i.e., a further action in respect of properties common to both mortgages. This is all that the learned Judge meant. He could not have meant that there can be no further action against the mortgagor in respect of other items, or for personal remedies, or for the surplus of the proceeds of the common items, in this sense, that these reservations were not expressly stated though intended, the proposition is broadly stated as remarked in Narayana Rao v. Venkayya (1918) M.W.N. 902. In this last decision, the properties were privately sold after the first suit and the decree in the first mortgage was never carried out. It does not appear that the value realised by the private sale was reported to Court, that a surplus was or was not available for the second mortgagee. On these grounds, the decision may be distinguished. But the reasoning in the judgment is different and I dissent from it. In my opinion, the principles laid down in Sri Gopal v. Pirthi Singh ( 1902) 24 All. 429 apply and bar a second mortgagee from pursuing for any remedy against the properties mortgaged in both the mortgages equally whether the second suit is one for sale or one for redemption. When the second mortgagee was a party to the first suit by the first mortgagee and failed to exercise his right of redemption, he can have no rights against such properties which pass away to the purchaser in execution of the first decree, free of both the mortgages. A fortiori when, instead of an actual Court sale, full credits given for the value towards the first mortgage the same result is attained as if they are sold, I am unable to agree with the observations in Narayana Rao v. Venkoyya (1918) M.W.N. 902, though the decision is right on the facts and also in so far as it lays down that a suit against the mortgagor for reliefs not connected with the common item is maintainable. The effect of the first suit is not that a suit by the second mortgagee against the mortgagor is not maintainable but that he has no rights to pursue against the common mortgaged items.

6. The case L.J. Mackintosh v. N.S. Watkins (1904) 1 C.L.J. 31 referred to by Mr. Balasubramania Aiyar has no bearing on the case before us. All that it lays down is that in the suit by a first mortgagee against mortgagor and second mortgagee, the mortgagor cannot be called upon to redeem the second mortgagee. So also Vedavyasa Aiyar v. Madura Hindu Labha Nidhi Co. Ltd. (1918) 42 Mad. 90, which laid down that the second mortgagee cannot, in such a suit, execute the decree obtained by the first mortgagee containing a clause for payment of the surplus to the second mortgagee, if the first mortgagee did not proceed to sell. I agree with this. Not until the sale is held and the properties pass to a purchaser free of the encumbrances can the second mortgagee's rights on the properties be extinguished. When the decree remained unexecuted, the rights remain as before the suit. The first mortgagee's suit in all such cases does not decide that the second mortgagee has no rights. It only provides for sale free of encumbrances, and on such a sale, the second mortgagee ceases to have any rights except against the surplus.

7. In the present case, it is true there is no actual sale, but the same result is attained by selling the properties to the first mortgagee for their full value and the value being credited towards his mortgage. It is also clear that, by the application of the principle of res judicata, no injustice is done on the facts of this case, as the value of all the properties is not enough to pay off even the first mortgager I allow the appeal and restore the judgment of the Subordinate Judge with costs here and in the Lower Appellate Court to be paid by first respondent (second mortgagee) to the appellants.

Jackson, J.

8. I agree and have nothing to add.

A.L.V.R.S.T Periya K... v. D.R Angappa Chettiar...