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  • Adami, JJ.
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  • Adami, JJ.
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Smart Summary

Structured Summary of the Opinion (As Delivered by Jwala Prasad, J.)

Factual and Procedural Background

On 16 June 1906 the defendant executed a registered mortgage bond in favour of the plaintiffs. Pursuant to a compromise between the parties, a decree was obtained by the plaintiffs on 19 December 1913 for Rs. 1,650 payable in four instalments: Rs. 450 due on Purnamashi Jeth, 1321, and three instalments of Rs. 400 due on the Purnamashi Jeth of 1322, 1323 and 1324 respectively. The compromise decree provided that if the defendant defaulted in payment of two consecutive instalments the plaintiffs could realize the whole decretal amount at 2% per month from the date of the decree to the date of realization, and after having the decree made absolute could sell the mortgaged property and, if necessary, realize any shortfall from the person or other properties of the defendant.

On 12 December 1916 the plaintiffs petitioned the Subordinate Judge to make the decree absolute, alleging default in two consecutive instalments. The defendant filed an objection alleging payment of the mortgage-money. On 19 December 1917, two pleaders were appointed arbitrators on joint application of the parties. The arbitrators failed to make an award and returned the record on 14 May 1918 with a report that one arbitrator knew that the defendant had paid the first two instalments but there was no evidence as to the third and fourth instalments. The parties also petitioned that they did not wish the arbitrators to decide the case. The plaintiffs asked the Court to decide the matter and the hearing of objections was fixed.

After hearing on 31 July (the year given in the opinion), the Subordinate Judge refused to entertain the defendant's objection as to payments alleged to satisfy the decree on the ground that payments had not been made into Court under Order 34, Rule 5 of the CPC nor certified to Court; the Subordinate Judge directed a final decree to be drawn up. On appeal the District Judge set aside that order and directed the Subordinate Judge "to proceed to the making of an order absolute either after duly superseding the arbitration or after receiving an award," holding that the defendant could prove the payments alleged. The plaintiffs (decree-holders) then brought this miscellaneous second appeal contesting the District Judge's view.

Legal Issues Presented

  1. Whether Order 34, Rule 5 of the Code of Civil Procedure applies to the compromise instalment mortgage decree in the present case (i.e., whether non-payment into Court under that rule precludes recognition of out-of-court payments).
  2. Whether payments of decretal sums made out of Court (and not certified under Order 21, Rule 2) can be recognized or proved in proceedings for making a mortgage decree absolute or for a final mortgage decree.
  3. Whether an application by decree-holders for an order absolute (or a final mortgage decree) is an application for execution of the decree, with the consequence that certain rules (e.g., limitations in Order 21) would or would not apply.
  4. Whether the Subordinate Judge erred in proceeding to try the issue without expressly superseding the arbitration (i.e., the jurisdictional effect of not recording a formal supersession of the arbitration).

Arguments of the Parties

Appellants (Decree-holders) — Principal contentions

  • The payments alleged by the judgment-debtor were not made into Court as required by Order 34, Rule 5, CPC; therefore they should not be recognized in the Court's determination.
  • Assuming Order 21, Rule 2 applied, the payments alleged were not certified to Court as required by that rule and hence could not be recognized.

Respondent (Judgment-debtor) — Principal contentions

  • The judgment-debtor alleged that he had paid the mortgage-money (i.e., payments were made towards the decree).
  • The judgment-debtor contended that the application of the decree-holders for a decree absolute was ultra vires (i.e., there was no provision under which the decree could be made absolute as sought).

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Piran Bibi v. Jitendra Mohan Mookerjee Supports recognition of payments made out of Court in respect of a mortgage decree. Cited as authority for the proposition that it is not correct to say that payments out of Court will under no circumstances be recognized; supports the Court's view that such payments can be certified and taken into account.
Hiramony Biswas v. Musa Khan Supports the view that investigations into payments made out of Court can be undertaken in proceedings for an order absolute or final mortgage decree. Relied upon to show that the Court may inquire into and give effect to payments made out of Court when determining the amount to be entered in a final decree or when making a decree absolute.
Jogendra Prasad Narain Singh v. Gouri Sankar Prasad Sahu Supports the principle that payments out of Court may be considered; applied especially to mortgage decrees. Used to reinforce that such principles apply (with greater force, the Court observed, in the present instalment-decree context) and thus support recognition of out-of-court payments in proceedings for a final decree or order absolute.
Bechu Singh v. Bichharam Sahu Authority (decided under Section 89, Transfer of Property Act) supporting that parties' agreed terms in instalment decrees govern enforcement and that an order absolute may be required before sale under certain instalment decrees. Cited to support the District Judge's view (and the present Court's agreement) that Order 34, Rule 5 need not control a consent/instalment mortgage decree that prescribes its own mode of enforcement.
Biswa Nath Prasad Mahata v. Bhagwandin Pandey Authority (also under Section 89, Transfer of Property Act) that parties are governed by the terms of their decree and may proceed to realize the amount by sale of mortgaged properties without recourse to Section 89 in some circumstances. Cited in support of the holding that Order 34, Rule 5 does not apply to the present instalment decree and that the decree-holder may proceed in accordance with the terms of the compromise-decree.
Abir Paramanik v. Jahar Mahmud Mandal Authority cited in the context of the principle that the Court determines how justice should be done between parties where their rights are settled by agreement. Referenced along with Pisani and other authorities to underline that valid agreements between parties determine the mode of enforcement and that the Court must apply justice accordingly.
Pisani v. Attorney-General for Gibraltar Principle: where parties' rights are settled by agreement and the agreement is valid, the Court must determine how justice should be done to the parties. Quoted to support the view that the terms of the compromise-decree govern enforcement and that the Court has discretion to determine the proper mode of giving effect to that agreement.
Datto Atmaram Hasabnis v. Sankar Dattatraya Authority supporting the principle that the Court decides how to enforce valid agreements between parties. Referred to as additional support for the proposition that the parties' agreed terms bind them and the Court should enforce those terms.
Badri Narayan v. Kunj Behari Lal Authority supporting the principle that the Court determines the manner in which justice is to be done in cases settled by agreement. Invoked alongside other authorities to support the Court's approach to enforcement of the compromise-decree.

Court's Reasoning and Analysis

The Court's analysis proceeded in distinct steps strictly grounded in the text of the decree and the relevant rules:

  1. Applicability of Order 34, Rule 5: The Court examined whether O.34, R.5 (CPC) applied. It observed that O.34, R.5 applies to mortgage decrees prepared under R.4 (and in the form indicated by Appendix D). The present decree, however, was a consent/compromise instalment decree that did not direct payment of the entire amount on a fixed date but provided for staged instalments and a right to execute on default of two consecutive instalments. Because the present decree was not prepared under O.34 and was framed according to the parties' terms, O.34 R.4 and R.5 did not apply.
  2. Parties' autonomy and public policy: The Court emphasised that the Code is not exhaustive and that parties to a mortgage suit may dictate the terms and form of their mortgage decree; such terms govern provided they are not opposed to public policy. The compromise terms here were not contrary to public policy and therefore controlled.
  3. Recognition of out-of-court payments: Even if O.34, R.5 were thought to apply, the Court analysed Order 21, Rule 2, which provides the mechanism for recognizing payments made out of Court. The Court concluded that O.21, R.2 applies to all kinds of decrees (including mortgage decrees) and that payments made out of Court can be certified and recognized by the Court provided procedural conditions (such as timely approach to the Court under Cl. (2), R.2) are satisfied. The opinion rejects an absolute rule that out-of-court payments will never be recognized.
  4. Distinction between application for order absolute and application for execution: The Court noted the statutory declaration in R.5, O.34 that an application for making a mortgage decree absolute is not an application for execution but is for obtaining a final decree in the course of the suit. Consequently, the restriction in Cl. (3), R.2, O.21 (which limits the operation of that rule to the Court executing the decree) does not prevent the recognition of out-of-court payments in proceedings for an order absolute or final decree.
  5. Reliance on authority: The Court relied on a line of authorities (named in the opinion) that support the recognition of out-of-court payments and the primacy of the terms of the consent decree in governing enforcement; it concluded that the District Judge's view was correct and supported by precedent.
  6. Jurisdictional question regarding arbitration: The Court reviewed whether the Subordinate Judge could proceed without formally superseding the arbitration. It regarded the Subordinate Judge's failure to record a formal supersession as irregular. The Court stated the governing principle: where a reference has in fact become impossible and the Court by implication has superseded it, the Court's jurisdiction to try the issue remains; but if the arbitration is still pending and no implication of supersession appears, the Court lacks jurisdiction. In the present case, the arbitrators declined to make an award and the parties were unwilling to proceed by arbitration, so the irregularity likely did not vitiate the trial. The Court did not finally decide this point because the District Judge had remanded the case to the Subordinate Judge to proceed in accordance with law, curing any procedural concern.

Holding and Implications

APPEAL DISMISSED — The appeal was dismissed with costs.

Direct effect on the parties:

  • The Court upheld the District Judge's view that the instalment compromise mortgage decree was governed by its own terms and that Order 34, Rule 5 did not apply to that decree.
  • The Court held that the defendant (judgment-debtor) could prove payments made out of Court and seek set-off or certification under the appropriate provisions (notably Order 21, Rule 2) in proceedings for a final decree or order absolute.
  • The Court found that the Subordinate Judge's procedural failure to formally record supersession of arbitration was irregular but, given the circumstances (arbitrators declining to make an award and parties' unwillingness to have arbitration decide the matter) and because the District Judge remanded the case to the Subordinate Judge to proceed in accordance with law, the District Judge's order was correct and the appeal was dismissed.

Broader implications: The opinion does not state that it is laying down a new precedent; rather, it applies and relies upon existing authorities to resolve the questions presented. It emphasizes that where parties validly agree terms for a mortgage decree, those terms govern enforcement provided they are not against public policy.

Outcome recorded in the opinion: Appeal dismissed with costs. (Adami, J. agreed.)

Show full summary ...

    Mangar Sahu v. Bhatoo Singh

    Jwala Prasad, J.:— This appeal is directed against a decision of the District Judge of Gaya, dated 8th May, 1919. The plaintiffs decree-holders are the appellants.

    2. On 16th June, 1906 the defendant executed a registered mortgage bond in favour of the plaintiffs. On the foot of this bond, on 19th December, 1913, the plaintiffs obtained a decree in terms of a compromise between the parties. The decree made the defendant liable for a sum of Rs. 1,650. This sum was stipulatad to be paid in four instalments: the first instalment of Rs. 450 was to be paid on the Purnamashi Jeth, 1321, and the remaining instalments of Rs. 400 each were to be paid on the Purnamashi Jeth of 1322, 1323 and 1324 respectively. One of the conditions in the compromise decree was that if default be made in payment of two consecutive instalments then the plaintiffs would have the right to realize the whole decretal amount at 2 per cent per month from the date of the decree to the date of realization and after having the decree made absolute would have the right to realize the amount by sale of the mortgaged property, and if this be insufficient A to satisfy the entire decree, to realize the balance from the person and other properties of the defendant.

    3. On 12th December, 1916 the plaintiffs put in a petition before the Subordinate Judge for making the decree absolute in respect of the whole mortgage-debt with interest, alleging that the defendant bad defaulted in payment of two consecutive instalments. On this the defendant filed an objection alleging payment of the mortgage-money. On 19th December, 1917, upon a joint application of the parties, two pleaders, named Babu Rameshwar Prasad and Babu Deokinandan Prasad, were appointed arbitrators and the record was sent to them tr submitting their award. The arbitrators, after several extensions of time, did not prepare any award, but returned the record with a report that to the personal knowledge of one of the arbitrators the defendant had paid the first two instalments, but as regards the third and fourth instalments there was no evidence. This was on 14th May, 1918; The parties also had filed a petition before the arbitrators that they were not willing to have the case decided by them. When the record came to Court, the plaintiffs filed a petition praying that the matter be decided by the Court itself.

    4. The case was then adjourned to 25th May for hearing objections.

    5. On 31st July after hearing the parties, the learned Subordinate Judge refused to entertain the objection of the judgment-debtor as to the payments alleged by him in satisfaction of the decree on the ground that the said payments had not been made into Court under O. 34, R. 5, nor were they certified to the Court. The learned Subordinate Judge accordingly directed a final decree to be drawn up.

    6. On appeal by the defendant the District Judge set aside the order of the Subordinate Judge and directed him

    “to proceed to the making of an order absolute either after duly superseding the arbitration or after receiving an award.”

    7. He was of opinion that there was no bar to the defendant proving the payments alleged by him towards the decree.

    8. The decree-holders have come to us in miscellaneous second appeal and dispute the correctness of the view taken by the District Judge.

    9. The first ground urged is that the payments alleged by the judgment-debtor were not made into Court as is required by O. 34, R. 5 of the CPC. That rule applies to a decree prepared under the preceding R. 4. But the decree with which we are concerned in the present case, was not prepared either in terms of R. 4, or in the form of decree provided for in Appendix D to the Code of Civil Procedure. Unlike the decree prepared under that rule, the present decree does not direct the payment of the full amount due thereunder on a fixed date but by four instalments. In a decree prepared under R. 4, no right to execute the decree accrues to the decree-holder until the date fixed for payment of the entire amount has elapsed and a final decree is prepared under R. 5. The decree-holder under the present decree is entitled to execute the decree on failure of payment only of a partial amount of the decree, namely, two consecutive instalments. The mortgage decree in question was not prepared under O. 34 of the Code and therefore Rr. 4 and 5 do not apply to it. It was prepared in accordance with the terms settled between the parties. The Code of Civil Procedure is not exhaustive and the provisions of O. 34, in the Code relating to the preparation of a mortgage decree are also not exhaustive. There is nothing to prevent the parties to a mortgage suit from dictating their own terms and form of the mortgage decree, and when they have done so they will be bound by the terms set forth in such a decree unless they are opposed to public policy. The terms in the present decree not being opposed to public policy, the parties will be governed by them, and not by O. 34, R. 4 or R. 5. We therefore hold that rule has no application to the present decree, and the fact that payment was not made in accordance with that rule into Court, does not preclude the defendant from proving the payments made by him and from obtaining a set-off towards the amount due under the decree.

    10. Even if the said rule did apply, it does not bar the taking into account payments made by the judgment-debtor out of Court for the purpose of determining the amount to be entered in the final decree prepared under Cl. 2, R. 5. No doubt Cl. (1) of that rule, unlike Section 89 of the Transfer of Property Act, which it has displaced, requires the payment to be made into Court of the amount due under the decree with subsequent costs. The object is to discharge the mortgage decree absolutely and to direct the plaintiff to deliver up the documents which under the terms of his preliminary decree he is bound to deliver up and to retransfer the mortgaged properties to the judgment-debtor. This clause is for the benefit of the judgment-debtor and he cannot avail himself of it by splitting up the decretal amount and making payments of the decretal amount by instalments. It does not however declare that payments out of Court will under no circumstances be recognized. O. 21, R. 2, provides the means for having payments made out of Court recognized by the Court; it applies to all kinds of decrees. A mortgage decree is therefore not excluded from the operation of that rule and the holder of a mortgage decree can certify payments made to him out of Court at any time. The judgment-debtor also by paying the decretal amount either in full, or in part out of Court is entitled to have it certified provided that he comes into Court within the time limited by Cl. (2), R. 2, O. 21. It would, therefore be not correct to say that under no circumstances the Court will recognize payments made out of Court of money due under a mortgage decree either in whole or in part. This view finds support in the case of Piran Bibi v. Jitendra Mohan Mookerjee(1).

    11. The learned vakil on behalf of the decree-holder appellant then contends that assuming that the provisions of O. 21, R. 2, apply to a mortgage decree, the payments alleged by the judgment-debtor were not certified to the Court as required by that rule and hence could not be recognized. That contention could only be valid if the application of the decree-holders for an order absolute, or for a final mortgage decree, were an application for execution of the decree. There was at one time conflict in the decisions on the point, but it has now been set at rest by the statutory declaration in R. 5, O. 34, that such an application is not an application for the execution of the decree, but is one for obtaining a final decree in the course of the suit. Cl. (3), R. 2, O. 21, restricts the application of the rule only to the Court executing the decree. Hence payments made out of Court in respect of a mortgage decree can be recognized in a proceeding instituted by the decree-holders for obtaining an order absolute, or a final mortgage decree. This is but just and equitable. The decree-holder is not entitled to a final decree for a higher sum than what is actually due to him at the date of making that decree. This necessarily involves an investigation into allegations of payments out of Court on account of the decree in accordance with the view taken in the case of Hiramony Biswas v. Musa Khan(2) and in the case of Jogendra Prasad Narain Singh v. Gouri Sankar Prasad Sahu(3). In the last case, the decree does not appear to be an instalment decree, but mortgage decree pure and simple, under O. 34, R. 4 of the Code, and hence the principle of that ruling would apply with greater force to the instalment mortgage decree in the present case, which is not in any way controlled by R. 5, O. 34. Thus even if O. 34, R. 5, did apply to the present decree, we do not see any force in the contention of the decree-holders that the payments alleged by the judgment-debtor could not be enforced or be given effect to in the proceeding instituted by the decree-holders praying for an order absolute for the sale of the mortgaged properties.

    12. We have however held that O. 34, R. 5, does not apply to the present decree and we agree with the view taken by the learned District Judge which is supported by authorities: vide Bechu Singh v. Bichharam Sahu(4) and Biswa Nath Prasad Mahata v. Bhagwandin Pandey(5). No doubt these cases were decided under Section 89 of the Transfer of Property Act, but that section does not in any way differ from R. 5, O. 34 of the CPC, which has taken its place on the point in question.

    13. We do not see any force in the contention on behalf of the judgment-debtors that the application of the decree-holders for a decree absolute was ultra vires inasmuch as there is no other provision under which the decree could be made absolute. There is an obvious fallacy in this reasoning. As already observed, R. 5 is not exhaustive and that the rights of the parties are to be governed by the terms of the consent decree; and the mode in which that decree is to be enforced is also to be determined by the said terms. In the case of Biswa Nath Prasad Mahata v. Bhagwandin Pandey it was held that the parties were governed by the terms of the decree, and under those terms it was open to the decree-holder to execute the decree and realize his amount by sale of the mortgaged properties without having recourse to Section 89 of the Transfer of Property Act, which related to the obtaining of an order absolute before proceeding to execute the mortgage-decree. The case of Bechu Singh v. Bichharam Sahu is an instance where the decree-holder under the terms of the instalment decree was required to obtain an order absolute before proceeding against the property of the judgment-debtor. This was also the view taken in the case of Abir Paramanik v. Jahar Mahmud Mandal(6) and was based upon the principle enunciated in the case of Pisani v. Attorney-General for Gibraltar(7), where Sir Montague E. Smith in delivering the judgment of the Judicial Committee observed that:

    “The right of parties as between themselves having been settled by agreement and the agreement not having been void, it is for the Court to determine in what way justice should be done to the parties”: vide also the case of Datto Atmaram Hasabnis v. Sankar Dattatraya(8) and Badri Narayan v. Kunj Behari Lal(9).

    14. In the present case there is a clear stipulation that in default of payment of the instalments mentioned in the compromise decree the decree-holder would first get his decree made absolute and then realize the amount covered by it by sale of the mortgaged properties.

    15. We therefore hold that the application of the decree-holders, dated 12th December, 1916, was not in any way irregular, illegal or ultra vires, and that the Court had jurisdiction to entertain the application and to make the order absolute. The last point to be considered in this case is whether the Subordinate Judge had jurisdiction to proceed with the trial of the issue between the parties which resulted in his order of 1st July 1918, without having previously and expressly superseded the arbitration that was granted by him by his previous order. The facts relating to this point have already been detailed in the earlier part of this judgment. On the date fixed for the arbitration to submit their award, they returned the record without having prepared any award, stating that some of the payments alleged by the judgment-debtor were within the personal knowledge of one of them. The parties expressed their unwillingness to have their cases decided by the arbitrators and the Court accordingly fixed a date for hearing objections. On the date so fixed for hearing objections the Subordinate Judge decided the matter in dispute between the parties. The most; regular and proper thing for him to do was to have an order superseding the arbitration and then to proceed to try the case. The procedure adopted by the Subordinate Judge was no doubt irregular, but the authorties differ as to the effect of this irregularity. The principle seems to be that where in fact, the reference to arbitration has become impossible and by implication the Court has superseded it, the jurisdiction of the Court to try the issue between the parties is not affected; but where the proceeding is still pending before the arbitrators and where from the circumstances it does not appear that it has in fact been superseded, the Court has no jurisdiction to try the case. The arbitrators in this case declined to submit their award and on the date fixed for its submission they intimated to the Court their intention of not going on with the arbitration, and the parties also expressed their Unwillingness to proceed with it. In these circumstances it may be contended that the irregularity of the Court in not having recorded a clear order of supersession of the arbitration perhaps did not vitiate the trial of the case by the Court. There is however no necessity of deciding this point inasmuch as by the order of the District Judge the case has been remanded to the Subordinate Judge and thus an opportunity has been given to him to proceed with the case and dispose of it in accordance with law. We do not therefore feel any hesitation in coming to the conclusion that the order of the District Judge is correct.

    16. The result is that this appeal is dismissed with costs.

    17. Adami, J.:— I agree.

    V.S/R.K

    18. Appeal dismissed.

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    Comments

    Mangar Sahu v. Bhatoo Singh
    (Jun 25, 1920)