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Aga Mahammadally Beg Sahib v. Chandragiri Venkatapayya

Madras High Court
Mar 15, 1918
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Judgment Summary — Redemption of Usufructuary Mortgage (Second Appeal)

Factual and Procedural Background

The suit arises from a usufructuary mortgage executed in 1902 under which the mortgagees were given possession of the property and the usufruct (fixed at Rs. 20 per year) was to be applied first to the principal and then to the interest. A calculation under the deed showed that the mortgage amount would be discharged in about 37 years if the usufruct were so applied.

The deed also contained a provision that if payment of the amount then due was made on 12 January 1912 the property was to be handed back to the mortgagor; if payment were not made on that date, the mortgagees' possession would continue on the same terms (i.e., discharge by appropriation of the usufruct). Payment was not made on 12 January 1912. A suit for redemption was brought in 1916, and the lower courts dismissed the claim as premature. This is the second appeal from that dismissal.

Legal Issues Presented

  1. Whether the stipulation for payment on 12 January 1912 constitutes a personal covenant to pay such that, on the expiry of that date, the mortgagor acquired an immediate right to redeem the mortgage.
  2. Whether the provision that the mortgagees should remain in possession until the mortgage money was worked off by the usufruct constitutes an unenforceable "clog" on the equity of redemption.
  3. Whether, for the purposes of the mortgagor's right to redeem, Section 60 of the Transfer of Property Act (the right to redeem "at any time after the principal money has become payable") applies in preference to Section 62 (which recognizes certain stipulations about appropriation of rents), and whether such application would entitle the mortgagor to redeem after 12 January 1912.
  4. Whether, assuming Section 60 applies, a tender or payment was required on the stipulated date (12 January 1912) in order to preserve the mortgagor's right to redeem thereafter, and whether the absence of any tender defeats the 1916 suit.

Arguments of the Parties

Appellant's Arguments

  • The stipulation for payment on 12 January 1912 is in substance a personal covenant to pay, and therefore, once that date had passed, the mortgagor had the right to redeem.
  • The clause allowing the mortgagees to remain in possession until the mortgage was worked off by the usufruct is a clog on the equity of redemption and should be treated as invalid.
  • Reliance was placed on authorities (including Sarbdawan Singh v. Bijai Singh and Srinivasa Aiyangar v. Radhakrishna Pillai and Chakkangal Govinda Menon v. Chakkangal Ohathu Menon) to support the contention that restraints on redemption or postponements can be unenforceable.
  • Alternatively, Section 60 of the Transfer of Property Act was invoked to argue that the mortgagor obtained the right to redeem "at any time after the principal money has become payable", which the appellant said occurred on 12 January 1912.

Respondents' Arguments (as recorded)

  • The deed contains no personal covenant to pay; the 12 January 1912 clause was a concession for the mortgagors' benefit and, in default, the original covenant (that the mortgage should work itself out by appropriation of the usufruct) continued.
  • The stipulation that the mortgage money be worked off by the usufruct is a common and recognized form of covenant in Indian practice and has been upheld by prior decisions and by the statutory provision in Section 62 of the Transfer of Property Act.
  • If there is no personal covenant to pay, the principal does not become "payable" in the sense that a mortgagor has a right to redeem; Section 62 should apply and redemption is only by payment according to the contract terms (i.e., when the usufruct has worked off the debt).
  • No evidence was tendered to show the bargain was unconscionable; the mortgagors had an option to pay earlier and failed to exercise it; moreover, no tender was made on 12 January 1912.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Sarbdawan Singh v. Bijai Singh Illustrates that conditions fettering the equity of redemption may be unenforceable, but no rigid rule exists as to what constitutes an improper restraint. Noted as authority relied on by appellant; court treated it as distinguishable and not establishing a categorical rule to invalidate the present covenant.
Srinivasa Aiyangar v. Radhakrishna Pillai Held that a stipulation whereby a mortgage would work itself out as a sale if not paid on the stipulated date was unenforceable and the right of redemption remained. Distinguished: that case involved a clause effectively terminating the mortgage as a sale. The present case involved only postponement by appropriation of usufruct and was held not to be analogous.
Chakkangal (Chankkangal) Govinda Menon v. Chakkangal (Chokkangal) Chathu/Ohathu Menon Stipulation restricting redemption to certain months held unenforceable in the reported instance; that case involved a personal covenant and Section 60 was applied. Distinguished: in that case a personal covenant existed and S.60 applied; the present deed contains no personal covenant and S.62 is applicable instead.
Rambaran Singh v. Ramker Singh Authority showing courts have allowed postponement of redemption for long periods (example: 26 years). Used to show that lengthy postponements have been permitted and that length alone does not render a postponement unenforceable.
Rama Prasad v. Jagrup Example where a postponement of 58 years was allowed. Relied upon to support view that long terms have been sustained in prior cases.
Dulari v. Lal Bhadur Singh Example where a postponement of 59 years was allowed. Similarly cited to show courts have upheld very long postponements.
Tirugnana Sambandha Pandara Sannadhi v. Nallatambi Recognized the validity of a covenant that the mortgage be worked off by appropriation (i.e., by usufruct) and held that redemption could not be sought before the mortgage was worked out in such a case. Relied on to support application of Section 62 and to hold that the mortgagor could not redeem before the usufruct had worked off the debt.
Gunnam Dorayya v. Vadapalli Ayyamacharyulu Held that a covenant to work out the mortgage by usufruct is not illegal under Indian law. Counted as authority showing the validity of the deed's arrangement; one of its Judges also sat in Srinivasa Aiyangar and stated such covenants are not illegal.
Husaini Begam v. Collector of Cawnpore Principal money becomes payable only when payment becomes obligatory on the mortgagor. Adopted to support the proposition that without a personal covenant the principal is not "payable" in a manner that confers an immediate right to redeem.
Ram Narayan Singh v. Adhindra Nath Mukerji Illustrates that there may be no personal liability in a mortgage despite an apparent loan; if there is no personal covenant there is no liability to pay. Used to reinforce the conclusion that absence of a personal covenant means the debt is not presently payable.
Bakhtawar Begam v. Husaini Khanam (Privy Council) Held that the right to recover possession accrued when the mortgage debt was actually satisfied. Relied on to support the position that recovery of possession follows actual satisfaction rather than merely the passing of a calendar date.
Rose Ammal v. Rajarathnam Contains discussion (Shephad, J.) that money might become payable by the mortgagor even though payment could not be enforced by the mortgagee; that case, however, involved a personal covenant. Distinguished: the present case lacked a personal covenant; the court observed Rose Ammal is not inconsistent with its conclusion because of that factual distinction.
Sri Raja Setrucherla Ramabhadra Raju Bahadur v. Sri Raja Vairicherla Surianarayana Raju Bahadur Cited as authority supporting the enforceability of express covenants that redemption shall occur only at the end of a specified term, where otherwise valid. Relied upon by Krishnan, J. to show an express covenant to postpone redemption should not be set aside if valid on other grounds, and that Section 62 recognizes such covenants.

Court's Reasoning and Analysis

The judgment contains concurrent reasoning by Phillips, J. and Krishnan, J., both of whom reached the same conclusion that the second appeal must fail. Their reasoning can be summarized in the following stepwise legal analysis:

  1. Interpretation of the deed: The courts read the mortgage-deed and concluded there is no personal covenant by the mortgagor to pay the mortgage money. The clause fixing 12 January 1912 as a date for payment was construed as a concession for the mortgagors' benefit (an option), not as a personal obligation that, if unperformed, transformed the arrangements into an immediately payable debt.
  2. Applicability of Section 62 (Transfer of Property Act): Because the deed provides for the mortgage to be worked out by appropriation of the usufruct (a modality expressly recognized by Section 62 and by earlier authorities), the courts treated the contract as one under which redemption arises only when payment is made according to the contractual terms (i.e., when the usufruct has sufficiently discharged the debt).
  3. Distinction between a clog and an unconscionable bargain: The courts accepted that a covenant postponing redemption could, in some circumstances, be an unenforceable clog or an unconscionable bargain. But these are distinct doctrines: (a) a bargain that effectively converts the mortgage into a sale may be an absolute clog; (b) a postponement may be set aside if it is an unconscionable bargain. The present deed did not convert the mortgage into a sale and no evidentiary foundation was placed before the court to show unconscionability.
  4. Precedent analysis: The judges distinguished precedents relied on by the appellant (e.g., Srinivasa Aiyangar and Sarbdawan Singh) on their facts and stressed authorities upholding covenants to work out a mortgage by usufruct (e.g., Tirugnana Sambandha Pandara Sannadhi; Gunnam Dorayya) and examples where very long postponements were permitted (Rambaran Singh; Rama Prasad; Dulari).
  5. Meaning of "payable" under Section 60: The appellant's argument that Section 60 gave the mortgagor a right to redeem "at any time after the principal money has become payable" (i.e., after 12 January 1912) was considered. Krishnan, J. discussed competing constructions—whether "payable" requires an enforceable obligation on the mortgagor or whether it refers to the mortgagor's right to pay—and declined to give a final ruling on that interpretive issue. Even assuming Section 60 applied, the appellant would still fail because no tender was made on the stated date (12 January 1912) and the mortgagor had no subsisting legal right to make the tender thereafter under the contractual scheme.
  6. Factual conclusion and equitable considerations: The courts observed that the mortgagors had an option to pay earlier (which they did not exercise) and entered the contract "with open eyes." There was no evidence in the record to show the bargain was unconscionable or unfair in practice; therefore equitable relief to set aside the covenant was not warranted.
  7. Outcome on prematurity: Applying the foregoing legal reasoning, the courts concluded the mortgagor's suit in 1916 seeking redemption was premature because the mortgage had not yet been worked off in accordance with the contractual mode of discharge by usufruct.

Holding and Implications

APPEAL DISMISSED.

Direct effect on the parties:

  • The plaintiff-appellant's suit for redemption was held to be premature and the second appeal is dismissed.
  • The appellant was ordered to pay the costs of respondent 1 (the courts dismissed the appeal with costs in favour of respondent 1).

Broader implications (as recorded in the opinion):

  • The judgment affirms that a mortgage covenant under which the mortgage is to be worked out by appropriation of the usufruct (a form recognized by Section 62 of the Transfer of Property Act) will, in the absence of a personal covenant or convincing evidence of unconscionability, preclude redemption until the contractual mode of discharge has operated.
  • The court did not set out a new legal principle or overrule existing authorities; it distinguished precedent relied on by the appellant and applied established authorities to the deed's language and facts. The opinion contains no pronouncement purporting to create a novel rule of general application beyond the case's factual matrix.

Disposition: Appeal dismissed (costs of respondent 1 awarded).

Show all summary ...

The Judgment of the Court was delivered by

Phillips, J.:— Plaintiff-appellant sued to redeem an usufructuary mortgage executed in 1902 (Ex. B.). under that document the property was put in possession of the mortgagees, and it was stipulated that the mortgage amount should be worked off by applying the usufruct, Rs. 20 a year, in discharge, fistly, of the principal, and, secondly, of the interest, A calculation shows that the mortgage amount would be discharged in about 37 years. There is another stipulation that if payment of what is then due be made on 12th January 1912 the property should be handed over to the mortgagor, but if such payment were not made the mortgagees' possession was to continue on the same terms as before. The payment was not made on 12th January 1912 and this suit for redemption was brought in 1916 and has been dismissed as premature.

2. It is contended for appellant that the stipulation for payment in January 1912 is a covenant for payment and that consequently the mortgagors are entitled to redeem as the time fixed for payment has expired. A perusal of the document shows that there is no personal covenant to pay and that the stipulation as to payment in 1912 is a provision inserted for the benefit of the mortgagors. They failed to avail themselves of the concession allowed and it is expressly stipulated that in default, the original covenant is to continue in force. On this ground the appellant's contention cannot be supported. It is next urged that the provision in the deed that the mortgagees or to remain in possession until the mortgage money is worked off is a clog on the equity of redemption, and that effect cannot be given to such a provision. In support of this proposition appellant's counsel relies on three cases, Sarbdawan Singh v. Bijai Singh(1), Srinivasa Aiyangar v. Radhakrishna Pillai(2) and Chakkangal Govinda Menon v. Chakkangal Ohathu Menon(3). The first of the cases laid down that the conditions fettering the equity of redemption in that particular case could not be enforced, but the learned Judges observed that it is impossible to lay down a hard and fast rule as to what should and what should not be regarded as an improper restraint on the right of redemption. In Srinivasa Aiyangar v. Radhakrishna Pillai a stipulation that the mortgage was to work itself out as a sale for the principal amount, if the mortgage amount was not paid on the stipulated date, was held to be unenforceable and that the right of redemption remained. The same two Judges in Chahkangal Govinda Menon v. Chakkangal Ohathy Menon held that a stipulation that the property should only be redeemed during certain months of each year was unenforceable but in that case also there was a personal covenant to pay and the provisions of Section 60 of the Transfer of Property Act, (4 of 1882) applied. On the other hand, postponement of redemption for long periods had been allowed by the Courts e.g, 26 years in Rambaran Singh v. Ramker Singh(4) 58 years in Rama Prasad v. Jagrup(5) and 59 years in Dulari v. Lal Bhadur Singh(6). Apart from the question of whether the onerous nature of the restriction is such as to justify a Court in refusing to enforce it, there is in this case a further point in respondents' favour, i.e, that a covenant for the mortgage money to be worked out by the usufruct is one that is not; uncommon in this country and the validity of such a covenant has been recognined in Tirugnana Sambandha Pandara Sannadhi v. Nallatambi(7) and Gunnam Dorayya v. Vadapalli Ayyamacharyulu(8). In the latter case to which one of the Judges in Srinivasa Aiyangar v. Radha krishna Pillai was a party, it was expressly laid down that such a covenant is not illegal according to the Indian law. In fact such a covenant is expressly re-cognized in Section 62 of the Transfer of Property Act, (4 of 1882). The contention that the provisions of S. 60 of that Act must be read apart from S. 62, and that the right to redeem accrues when the money has become payable does not help the appellant for it was held in Tirugnana Sambcmdha Pandara Sannadhi v. Nallatambi that in a mortgage like the present redemption could not be sought before the mortgage was worked out, applying the general principle that the right to redeem and the right to foreclosure are usually co-extensive. It was held in Husaini Begam v. Collector of Cawnpore(9) that the principal money only becomes payable when the payment becomes obligatory on the mortgagor. That this construction is right, in so far as the obligation refers to a debt being payable, would appear from the fact that in a mortgage there may be no personal liability on the part of the borrower, although prima facie a loan involves a personal liability: vide Ram Narayan Singh v. Adhindra Nath Mukerji(10) and if there is no personal covenant, there is no liability to pay and the money has not become payable. The conditions of the suit contract are such that no personal liability arises and therefore it cannot be said, as contended before us, that the money had become payable as soon as the contract was signed. In this particular case the money cannot become payable as there is no personal covenant to pay; Section 62 of the Transfer of Property Act must be applied and the mortgagors are only entitled to recover possession when the money is paid according to the terms of the contract. I may refer also to the decision of the Privy Council in Bakhtawar Begam v. Husaini Khanam(11), where it was held that the right to recover possession accrued when the mortgage debt was actually satisfied. I do not think this view of mine is opposed to Rose Ammal v. Rajarathnam(12), as in that case there was a personal covenant to pay. I would therefore hold that the plaintiff's suit is premature.

3. If it were necessary to decide whether the restriction on redemption is so onerous that effect should not be given to it, I would express my opinion that it is not. The parties entered into the contract with open eyes and the mortgagors were given an opportunity of evading the restriction, but failed to take advantage of it. I can see no reason why they should be given a further equitable relief. I would therefore dismiss this second appeal with costs of respondent 1.

Krishnan, J.:— I agree with my learned brother that this second appeal fails. The language of the mortgage-deed is too plain to admit of any reasonable doubt that the dominant intention of the parties was that the mortgage amount and interest were to be worked off by the usufruct of the property which was agreed to be taken at Rs. 20 a year, the property being retained in the mortgagees' possession for the requisite number of years to enable that to be done. An option is no doubt given to the mortgagors to pay the amount due on 12th January 1912, but the document provides that if the money is not so paid, the “discharge is to take place only as aforesaid,” that is by the appropriation of the rent. The mortgagors, having failed to pay under that option, have lost their right to take advantage of it and their suit can succeed only if they have a right to redeem their mortgage by payment, in spite of the special stipulation to let the mortgagees remain in possession till the mortgage amount and interest are worked off by the usufruct. Admittedly the mortgage amount has not been so worked off yet. In fact a calculation shows that it requires 17 years to pay off the principal which has to be first paid under the terms of the document, and another 18 or 19 years to pay off the accumulated interest.

4. The learned Advocate for the mortgagors' assignee who is the appellant before us, urged that on the construction of the document itself, the mortgagors were entitled to re-pay the mortgage amount due at any time after the 12th January 1912 as they pleased. I agree that this contention is untenable on the language of the document. He then argued that the covenant was a clog on the equity of redemption and should be treated as invalid and that it was no hindrance to the mortgagors' claim to redeem. It is impossible to argue that an express covenant between the parties that redemption shall take place only at the and of a given term should be ignored or set aside as a clog on the equity of redemption if that covenant is otherwise valid, in the face of the rulings in Sri Raja Setrucherla Ramabhadra Raju Bahadur v. Sri Raja Vairicherla Surianarayana Raju Bahadur(13), Tirugnana Sambandha Pandara Sannadhi v. Nallatambi, Rose Ammal v. Rajarathnam and Gunnam Dorayya v. Vadapalli Ayyamacharyulu. Section 62 of the Transfer of Property Act itself recognizes the validity of such covenants.

5. The learned Advocate, however relied on the rulings in Srinivasa Aiyangar v. Radhakrishna Pillai and Sarbdawan Singh v. Bijai Singh as authorities in favour of his argument. In the Madras case the covenant was one whose effect was to put an end to the mortgage itself, the property being treated as sold; and clearly that covenant was an absolute clog on the equity of redemption. In the present case we have only a postponement of the right to redeem for a period. In the Allahabad case, it was no doubt ruled that a postponement of the right to redeem may itself be a clog if it amounts to an unconscionable bargain. A covenant my be bad as a clog or it may be bad as an unconscionable bargain; the two are distinct and independent grounds, and it seems to me that it will lead to confusion of thought to mix them up. Assuming that a covenant to postpone redemption may be refused to be enforced if it is an unconscionable bargain, it is of no use to the appellant, as here the question of the nature of the bargain was not raised or discussed in the lower Courts and no evidence seems to have been given of it. The appellant relies on the facts that the period fixed is about 37 years and that the rent is to be taken at Rs. 20 a year for the whole period, as showing that the arrangement was an unconscionable one. We do not know if the fixing of the rent was not more to the advantage of the mortgagors than that of the mortgagees, as no evidence has been given on the point.

6. As for the length of the period I am not able to say that it is enough in the present case to justify, by itself, an inference that the bargain was an unconscionable one. My learned brother has referred to cases where periods ranging from 28 to 59 years have been allowed. Furthermore, the mortgagors had the option to terminate the period in ten years and their failure to do so is their own fault. The covenant in this case cannot therefore be set aside on the ground of its being an unconscionable one.

7. The last argument urged by the learned Advocate was that under Section 60 of the Transfer of Property Act, if during the continuance of a mortgage the mortgage money becomes payable even for a day, the mortgagor at once got a Tight to redeem, which he could enforce at any time thereafter even though there was a covenant against it. He cited the case of Chakkangal Govinda Menon v. Chakkangal Chatha Menon as an authority for this proposition, which he contended was applicable to the present case as the mortgage money was payable at any rate on 12th January 1912, if not after wards. This argument seems to me to be very curious. It is based on the words “at any time after the principal money has become payable” in S. 60 of the Act. The respondents' vakil has tried to meet this argument by urging that the word “payable” in the section applies only when there is an obligation on the mortgagor to pay, which the mortgagee can enforce against him although I think it is not necessary for me to decide the point as, in my view, the appellant's argument fails on another ground as stated below, I wish to guard myself against being understood as adopting this view. It seems to me to be opposed to the view expressed in Rose Ammal v. Rajarathanam, where Shephad, J held that money might become payable by the mortgagor even though payment could not be enforced-by the mortgagee. The reasons given in that case seem to me to have considerable force. Where a mortgagor stipulates with the mortgagee that, though he should not be called upon for payment for a given time, he should have the option to pay and redeem the mortgage during that time, it appears to me to be difficult to apply the doctrine of the co-extensiveness of the right to redeem and right to foreclose to this case and to refuse to him the very right to redeem that he has stipulated for, on the ground that the mortgagee could not sue him for money seems unreasonable, and a construction of Section 60 of the Transfer of Property Act, which leads to that result seems to be of doubtful correctness. If, in this very case, for example the mortgage money had been tendered on 12th January 1912 and had been refused by the mortgagee, the mortgagor's suit to compel acceptance and to redeem could hardly have been rejected and yet the view put forward will necessitate that result. The word “payable” in S. 60 seems to refer to the mortgagor's right rather than to his obligation and to imply no more than that the mortgagor should have a right to pay, the mortgagee being under a corresponding obligation to receive; the existence of a right in the mortgagee to enforce payment does not appear to me to be really necessary to make the word applicable. I do not however wish to pursue the matter further or give a final opinion on it, for I consider that even assuming S. 60 applies and not S. 62, Cl. (a), and that money was payable on 12th January 1912, the appellant must still fail as no tender was made on that day and as the right to do so and redeem was not subsisting after that date or when the suit was brought. I think that it is a necessary condition under S. 60 that when payment or tender is sought to be made the mortgage must have the right to make it, as the section speaks of the payment or tender of the mortgage money “at a proper time.” For the time to be proper, the tender or payment must be one validly and properly made; and for that, the person making it must have at the time the legal right to make it.

8. I do not consider the ruling in Chankkangal Govinda Menon v. Chokkangal Chathu Menon to be against this view. That decision seems to have proceeded on the ground that after the due date in 1899 the mortgage money was always payable, the arrangement referred to therein apparently not affecting it or the right to sue but only fixing a time for redemption and delivery of possession. It is therefore clearly distinguishable. I do not regard it as an authority for the proposition the appellant contends for. As the appellant's arguments have all failed, his second appeal must be dismissed with costs of respondent 1.

S.N/R.K

9. Appeal dismissed.