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Janki Singh v. Debinandan Prosad

Calcutta High Court

Aug 18, 1910

Judgment

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Structured Summary of the Provided Opinion

Factual and Procedural Background

The dispute concerns Mouzah Tikarampur, one anna puttee, Towji No. 5298, with a government revenue assessment of Rs. 256. Of the estate, four annas co-sharer had a separate account and 12 annas constituted the ijmali (residuary) share paying Rs. 192-3 annas per annum. Out of these 12 annas, three annas belonged to Plaintiffs Nos. 17 to 20; Plaintiffs Nos. 1–6 claimed to be assignees of parts of that three annas; Plaintiffs Nos. 7–16 owned the other 9 annas.

On 23 December 1904 Plaintiffs Nos. 17–20 mortgaged their three annas in sudbharna to Defendant No. 1, who agreed to pay Rs. 51-8 annas per annum as government revenue (with cesses). Defendant No. 1 commenced payments from the January kist of 1905. In the June kist of 1905 he paid an excess of Rs. 3-6 annas which was recorded as on account of Ram Padarath Mahton (Plaintiff No. 17). There is no evidence whether that excess was a mistake or intentional.

Defendant No. 1 continued paying kist after kist in full until the September kist of 1906, when he paid Rs. 9 instead of Rs. 12 (i.e., Rs. 3 short). Meanwhile the Rs. 3-6 annas excess stood to credit of the ijmali share and was apparently utilized by some Plaintiffs; the ijmali share was held to be in default in the September kist for Rs. 2-10 annas (accounting for a 6 annas credit in the Collector's back).

The short payment and subsequent sale proceedings followed; Defendant No. 1 purchased the property at sale (through intermediaries and in part in execution of a Small Cause Court decree). The present opinion addresses the contestation of that sale and the rights of the parties arising from the mortgage, payments, possible laches, and the circumstances of the purchase.

Legal Issues Presented

Whether the excess payment of Rs. 3-6 annas made in June 1905 should have been applied to make up the annual contractual obligation of Rs. 51-8 annas and thereby prevent the default for September 1906.
Whether the Plaintiffs were guilty of laches in not discovering or averting the default and sale.
Whether Defendant No. 1, having been mortgagee of the three annas, could purchase the mortgaged share (and/or other co-sharers' shares) at the sale and retain the property or profits arising therefrom.
Whether Defendant No. 1's conduct in effecting the short payment, alleged concealment of notices, and purchase at sale amounted to fraud, making the purchase voidable and entitling Plaintiffs to reconveyance and account of profits.

Arguments of the Parties

Plaintiffs' Contentions

Plaintiffs contend that part of the ijmali share (three annas belonging to Plaintiffs Nos. 17–20) was mortgaged and Defendant No. 1 agreed to pay Rs. 51-8 annas per annum; the default in September 1906 occurred notwithstanding earlier excess payments which should have been used to make up the deficiency.
The Plaintiffs argue that the excess of Rs. 3-6 annas standing to the credit of the ijmali share was used by them or their predecessors and that they had no notice of a default or of sale proceedings.
Plaintiffs assert that Defendant No. 1, as mortgagee in possession of the three annas, occupied a fiduciary/trustee role and therefore could not benefit from acquiring the mortgaged property (or exclude mortgagors) by taking advantage of defaults or imperfect notice service.
Plaintiffs also contend that the sale and purchase were fraudulent because of concealment, payments in a wrong name, use of intermediaries, an undervalued purchase price, and other circumstantial indicia of wrongdoing; therefore they seek reconveyance on repayment of the purchase-money with interest and costs and an account of profits for shares not belonging to the mortgage (the 9 annas of Plaintiffs Nos. 7–16).

Defendant No. 1's Contentions (as reported)

It was contended that the excess payment of 1905 should have been applied to make up the required contractual payment and that the Plaintiffs, by using the credit, were responsible for any shortfall (i.e., implying that Plaintiffs bore responsibility for not monitoring the account).
It was argued (implicitly or by reliance placed on precedent) that, as to the non-mortgagor Plaintiffs (the other co-sharers), Defendant No. 1 was not their mortgagee and thus was not in the same fiduciary relation to them and might be permitted to retain any acquisition of their shares (relying on earlier authority that a co-sharer need not protect co-sharers' shares by paying their quota of revenue and may purchase at sale).
Defendant No. 1 is admitted to have purchased the property at the sale himself (through purchase in another's name and earlier sale in execution of a Small Cause Court decree), and there is no denial of the purchase itself in the record.

Subordinate Judge's Finding (as reported)

The learned Subordinate Judge held that the Plaintiffs were guilty of laches in not watching the accounts and in taking credit for the excess payment of 1905.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Nawab Sidhee Nuzur Ali Khan v. Ojodhyaram	Recognition that a mortgagee in possession occupies certain trustee-like obligations in respect of the mortgagor's rights.	The court relied on this authority to support the proposition that Defendant No. 1, as mortgagee in possession of the three annas, was a trustee for Plaintiffs Nos. 17–20 and bound to reconvey on repayment of the purchase-money with interest.
Doorga Singh v. Sheo Pershad Singh	Authority (as stated) that a co-sharer has no duty to pay his quota of Government Revenue to save co-sharers and may purchase at a revenue sale.	The court noted this authority was relied upon for the proposition that a co-sharer may purchase; however, the court treated the authority as qualified by subsequent decision and did not accept it as establishing a blanket right to defeat co-sharers in all circumstances.
Appeal from original decree No. 545 of 1904 (decided 28 Aug 1907, Brett & Mookerjee, JJ.)	Decision qualifying Doorga Singh: held that between co-sharers in a revenue-paying estate a relation of mutual confidence exists and a co-sharer cannot freely overreach or deceive co-sharers without consequence.	The court accepted this qualification and applied the principle that co-sharers owe mutual confidence to each other; if one co-sharer intentionally causes default and purchases to exclude others, equity will intervene.
Carter v. Home; Lewin on Trusts (referenced)	English authority: if one of two joint purchasers acquires an encumbrance on the property on profitable terms, the acquisition must enure to the benefit of both.	Used to illustrate and support the court's view that acquisitions by one joint owner/co-sharer on profitable terms should benefit the other co-sharers.
Khadim v. Sheomunog	Held that a mortgagee in possession of a portion of a joint undivided estate is bound to pay arrears of revenue due on another portion and must account if the estate is farmed by the Collector to him.	The court cited this case to reinforce the principle that a mortgagee in possession must account and cannot take advantage of defaults on other portions to the detriment of co-owners/mortgagors.
Section 76, Transfer of Property Act (statutory)	Statutory support for the proposition that a mortgagee in possession has duties analogous to a trustee in certain respects.	The court cited Sec. 76 alongside case law to establish the legal foundation for treating the mortgagee in possession as owing fiduciary duties to the mortgagors in relation to the purchase and reconveyance obligations.

Court's Reasoning and Analysis

The court proceeded through a sequence of factual findings and legal analyses:

Contract and payments: The court accepted that the contract to pay Rs. 51-8 annas per annum by Defendant No. 1 was both admitted and proved. The September 1906 default (short payment of Rs. 3) was also proved. The court examined the ledger of payments and concluded that the recorded payments, even if the June 1905 excess of Rs. 3-6 annas were applied, did not make up the contractual annual sum of Rs. 51-8 annas.
Use of credit and the Plaintiffs' conduct: The excess of Rs. 3-6 annas had been utilized by the Plaintiffs (or some of them) as an amount standing to the credit of the ijmali share. The Subordinate Judge had held that Plaintiffs were guilty of laches for not watching the accounts; the appellate court analyzed the concept of laches and emphasized that laches requires knowledge or something amounting to constructive notice. The appellate court found no evidence that Plaintiffs knew of the default before the sunset day, noting that Defendant No. 1 had been paying regularly and there was no reason to suspect non-payment.
Adequacy of notice/service: The court considered whether statutory notices (including notices under sec. 5 of the Sale Law) and attachment processes should be treated as actually warning the Plaintiffs. While accepting that such notices are to be taken as duly served for purposes of setting aside a sale on grounds of irregularity, the court distinguished the formal presumption from the factual question whether the Plaintiffs in fact had notice and could have averted the sale. The court found the evidence of service suspicious and not persuasive; the Plaintiffs resided in a distant place and there was no showing that notices were brought home to them.
On the identity of payments: The court noted there was nothing to show that the Plaintiffs were appropriating moneys paid by Defendant No. 1 when they took advantage of the Rs. 3-6 annas credit; the amount might have arisen from their own prior over-payments.
On Defendant No. 1's default and trustee position: The court found Defendant No. 1 plainly in default for the short payment and observed that he had made the purchase himself. As to the three annas that were mortgaged by Plaintiffs Nos. 17–20, Defendant No. 1 was treated as a trustee for those mortgagees: he was bound to reconvey and to allow recovery on receipt of one quarter of the purchase-money with interest at 6% per annum from the date of purchase. The court anchored this conclusion to prior authority (Nawab Sidhee... and Sec. 76 T.P. Act) establishing duties of a mortgagee in possession.
On co-sharers and fiduciary duties: For the other Plaintiffs (non-mortgagors/co-sharers), the court examined the contention that Defendant No. 1 was not their mortgagee and so owed no fiduciary duty. The court reviewed Doorga Singh v. Sheo Pershad Singh and the subsequent qualification by Brett & Mookerjee JJ. (Aug 28, 1907) and accepted the qualified view that co-sharers do stand in a relation of mutual confidence that prevents a co-sharer from intentionally causing a sale and purchasing to the exclusion of other co-sharers in a way that is unconscionable.
Fraud and equitable considerations: The court found stronger grounds: it concluded that the purchase was fraudulent. It relied on several factual indicia reported in the record: Defendant No. 1 already owned neighboring puttee; payments made in a wrong name (through an unknown person) with no explanation; suspicious service of attachment and sale notices; an execution sale in favour of a purchaser who pocketed proceeds and later the Defendant purchased in the name of his servant; the purchase price (Rs. 425) was grossly disproportionate to the alleged value of the property (evidence suggested value not less than Rs. 8,000), and other pricing comparisons in the record. The court considered there was breach of duty, concealment and consequent profit and therefore held the sale and purchase to be fraudulent.
Remedies: Given the fraudulent purchase and the fiduciary/trust relationship, the court directed equitable restitutionary relief: Plaintiffs were to be allowed to reclaim the property on payment into court of Rs. 425 with interest at 6% per annum from the date of sale within three months; upon such payment Defendant No. 1 (through his certificated guardian) must convey the property to the Plaintiffs by a single deed of sale (without specifying individual shares, but entitling each Plaintiff to what was his at the time of the sale or subsequently acquired by valid title). Plaintiffs must pay costs of reconveyance. The Defendant was ordered to account for profits enjoyed by him in respect of the 9 annas belonging to Plaintiffs Nos. 7–16; the amount of such profit may be determined in execution. Plaintiffs were awarded costs in both Courts against Defendant No. 1.

Holding and Implications

APPEAL ALLOWED.

Core directives and consequences (direct effect on the parties):

The court ordered that on Plaintiffs paying into Court the sum of Rs. 425 with interest at 6% per annum from the date of the sale within three months, Defendant No. 1 (through his certificated guardian) shall convey the disputed property to the Plaintiffs under one deed of sale, without specifying individual shares but entitling each Plaintiff to what was his at the time of the sale or subsequently acquired by valid title.
The Plaintiffs must pay the costs of reconveyance.
Defendant No. 1 must account for the profits he enjoyed in respect of the 9 annas share of Plaintiffs Nos. 7–16; the precise amount of profit may be ascertained in execution proceedings.
Plaintiffs were awarded costs in both Courts against Defendant No. 1.

The opinion does not purport to establish a novel legal precedent beyond applying existing equitable and statutory principles; the court applied recognized authority on duties of mortgagees in possession, the fiduciary-like relation among co-sharers, and principles of equity to set aside and remedy a fraudulent acquisition.

Show all summary ...

Mouzah Tikarampur, one anna Pattee, Towji No. 5298, was assessed with a Government Revenue of 256 rupees. The four annas co-sharer of this opened a separate account and 12 annas remained as the ijmali or the residuary share paying an annual Government Revenue of Rs. 192-3 annas out of this 12 annas belonged to Plaintiffs Nos. 17 to 20. Plaintiffs Nos. 1-6 claim to be assignees of parts of this three annas and Plaintiffs Nos. 7-16 are the owners of the other 9 annas. Plaintiffs Nos. 17-20 mortgaged their three annas in sudbharna to Defendant No. 1 on the 23rd December 1904, the said Defendant agreeing to pay Rs. 51-8 as per annum for the Government Revenue for the said three annas with cesses. The Defendant No. 1 commenced paying the Government Revenue from the January kist of 1905 and in the June kist of 1905 paid 3 Rs. 6 annas in excess of the required amount of 9 Rs. which was entered as on account of Ram Padarath Mahton, Plaintiff No. 17. There is no evidence to show whether this excess was paid by mistake or intentionally but probably it was by mistake. This amount remained to the credit of the ijmali share and Defendant No. 1 went on regularly paying kist after kist in full, until the September kist of 1906, when he paid 9 Rs. in place of 12 Rs., that is, three rupees less than he ought to have paid. The excess amount of 3 Rs. 6 annas standing to the credit of the ijmali share had been in the meantime utilized by the Plaintiffs or some of them as an amount lying to the credit of the ijmali share, and the ijmali share was held to be in default in the September kist for Rs. 2-10 annas, as there was an excess of 6 annas to the credit of the share in the Collector's back.

The contract to pay the Government Revenue and to the extent of 51 Rs. 8 annas is both admitted and proved. The default in the September kist of 1906 is proved but it is contended that the excess payment of 1905 should have been taken to make up the required amount. The payments however that are shown on the record to do not make up a payment of 51 Rs. 8 annas per annum as stipulated in the contract even if the excess of 3 Rs. 6 annas in 1905 be taken into account. On the other hand the excess standing to the credit of the ijmali share had been utilised by some one or other of the Plaintiffs the owners of the ijmali share. The learned Subordinate Judge says the Plaintiffs were guilty of laches in not seeing whether there was a deficit and in taking credit for the excess of 1905. But laches signify knowledge or at least such abstinence from legitimate enquiry as to amount to constructive notice of the risk incurred. There is no evidence that the Plaintiffs or any of them knew of the default before the sunset day. The Defendant No. 1 had been paying regularly and there was no reason to suspect that he would not pay. The Defendant No. 1 was a resident of the District town, and a rich banker and his Amlas are constantly present about the Collectorate especially in the time of sale: there was no reason to fear that there should be even a mistake by Defendant No. 1. It is said that the attachment and the notice under sec. 5 of the Sale Law should be taken as duly served and should have warned them. It is true that the sale having been confirmed and a certificate of sale issued to I he purchaser, the notices under the sale-law must be taken as, duly served: but that is only so far as the setting aside of the sale on the ground of irregularity in the service of the notices is concerned. So far as the actual notice on the parties is concerned, however, for the purpose of ascertaining whether they knew of this proceeding and could have averted the sale, we think we are entitled to see whether the notices were in fact so served as to fix knowledge, of them upon the Plaintiffs, or so as to keep them from all knowledge of the same. Now the Plaintiffs are residents of a distant place and the notices are not shewn to have been brought home to them. The manner of service attempted to be proved is of the most suspicious character. They were, it is said, served at a distance of a mile from the bustee. We cannot for a moment believe that the Plaintiffs had any notice of these proceedings. The other Plaintiffs paid their shares of the kist on the 4th of October under challans Nos. 364, 365 and 366 and had no reason to suspect any foul play. When the Plaintiffs took advantage of the Rs. 3-6 annas lying to their credit, there is nothing to shew they were taking anything paid by Defendant No. 1: the amount may have accumulated by their own over-payments in the past. On the other hand the Defendant No. 1 when making the payment of Rs. 9 instead of 12 did not ask for getting credit for the excess payment. This short payment was made on behalf of Ramjote and the excess if any would be in the name of Ram Padarath so that Defendant No. 1 could not plausibly make the prayer. He was therefore clearly making a default. It is admitted that Defendant No. 1 has made the purchase himself at the sale brought about by the default. As regards the share of the mortgagees, that is the three annas belonging to Plaintiffs Nos. 17 to 20 and their assignees, therefore the Defendant has no case. He is a trustee for them in the matter of the purchase and is bound to recovery on receipt of a fourth of the purchase-money with interest at 6 per cent, per annum from the date of the purchase. This would be so whether there was any fraud or chicane on his part or not, for in certain respects and for certain purposes the mortgagee in possession is a trustee for the mortgagor and cannot take advantage of that position to the detriment of the mortgagor. This position of the mortgagee in possession was recognised in the case of Nawab Sidhee Nuzur Ali Khan v. Ojodhyaram and is also supported by sec. 76 of the Transfer of Property Act.

The shares of the other Plaintiffs however stand upon a somewhat different footing. The Defendant No. 1 was not their mortgagee and it is contended that he was not therefore in the same relation of confidence and trust as regards their shares and ought to be allowed to retain these at least. So far as the non-mortgagor Plaintiffs are concerned the position of Defendant No. 1 was, it has been contended, not worse than that of a co-sharer, and reliance has been placed upon the case of Doorga Singh v. Sheo Pershad Singh(2) where Banerjee, J., is said to have laid down that a co-sharer has no duty to pay up his quota of the Government Revenue for the purpose of saving the shares of his co-sharers and may purchase for himself at the Revenue sale. This opinion however has been qualified by a subsequent decision of Brett and Mookerjee, JJ., in appeal from original decree No. 545 of 1904,* decided on the 28th of August 1907. The learned Judges say “we think that if the term fiduciary character be used in its broadest sense this (case) goes too far, for we consider that it is not possible to hold that between co-sharers in a joint estate all being liable to pay their quota of the Government Revenue according to their respective shares no relation of mutual confidence exists, otherwise the position of co-sharers in a revenue-paying estate if they were always open to be over-reached and deceived by their co-sharers, would be intolerable.” We entirely agree with this view of the position of a co-sharer of a revenue-paying estate in relation to his co-sharers and the importance of this qualification is apparent when a co-sharer by suffering a default intentionally allows the property to be sold and makes the purchase for himself to the exclusion of his co-sharers. It has been held in England that if one of two joint purchasers of an estate acquires an encumbrance upon the property on profitable terms the acquisition must enure to the benefit of both. See Carter v. Home; Lewin on Trusts, p. 303, nth Edition.

In the case of Khadim v. Sheomunog, it was held that a mortgagee in possession of a portion of joint undivided estate is bound to pay up an arrear of revenue due on another portion and if he does not do so and the entire estate is farmed by the Collector to him, he must account as mortgagee in possession for the properties of the farm.

Even, therefore, if the Defendant No. 1 be considered in the light of a co-sharer, he must share the acquisition with his other co-sharers. But he is not a co-sharer: he is a trustee for a co-sharer and can derive no benefit for himself by committing a breach of trust. The property comes to him through a polluted channel and a Court of Equity will not allow him to soil his hands by retaining any portion of the ill-gotten profits.

But there is a stronger ground in this case. We think the purchase was fraudulent. The Defendant No. 1 is himself the owner of a three annas puttee of the mouzah and his puttee is contiguous to the disputed puttee of one anna. It would be very convenient for him if he could acquire the disputed property. So his shrewd agents began to lay their trap. There was, it is true, simple breach of a contractual duly to Plaintiffs Nos. 17-20 in the making of the short payment but the Defendant was bound to give notice to his mortgagors that he was making the short payment and warned them of the risk to which he was exposing them. If he had done so the mortgagors who subsequently paid larger amounts would have easily paid the small amount of arrear and averted the sale. He did not apply to the Collector to give him credit for the excess if any. If he had done so he might have had the credit or been told that he could not get it. He knowingly made the payment in a wrong name through an unknown person: what was the object of this falsehood: there is no explanation why this subterfuge was adopted, no evidence who Raghu Nath Saha was and why the payment was made in the name of a person who had no account with Defendant No. 1. Then the attachment for a Small Cause Court decree against the Plaintiffs or some of them is not shewn to have been duly served and the notice under sec. 5 was so served, if served at all, as to be effectually concealed from the Plaintiffs. Then the property was to be sold on the 25th of March if the arrears were not paid on the 12th January. The Defendant did not pay the January kist but on the 15th of January caused the property to be sold to Chaman Singh, Plaintiff, in execution of the Small Cause Court decree for Rs. 582 and pocketted the money and then on the 25th of March purchased the property in the name of his servant who however disclosed his name after the bid had been accepted. The purchase was made for Rs. 425 only and the value of the property is not less than Rs. 8,000. The mortgage of 3 annas was for 600 rupees therefore the 12 annas could be mortgaged for Rs. 2,400 at least. Then 2 annas was sold for Rs. 1,266 so the 12 annas could be sold for Rs. 7,596 at least. The evidence as to the value is entirely one-sided and no serious attempt was made to gainsay it. There was breach of duty to begin with: there was concealment and there was consequent profit. We have no hesitation in holding that the sale and purchase was fraudulent and the Defendant No. 1 cannot be allowed to retain his illgotten bargain. We therefore order that on the Plaintiffs paying into Court the sum of Rs. 425 with interest at 6 per cent, per annum from the date of sale within 3 months from this date the Defendant No. 1 through his certificated guardian shall convey the disputed property to the Plaintiffs under one deed of sale without stating what the share of each particular Plaintiff is but entitling each to get what was his at the time of the sale or what he subsequently acquired by a valid title. The Plaintiffs must pay the costs of the reconveyance. The Defendant No. 1 must account for the profits enjoyed by him in respect of the 9 annas share of Plaintiffs Nos. 7 to 16: the amount of such profit may be determined in execution. The Plaintiffs are entitled to their costs in both Courts against Defendant No. 1.

Appeal allowed.