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Case Number

First Appeal No. 44 of 1922

Judges

Das
Adami, JJ.

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Smart Summary

Structured Summary of the Opinion (Das, J.; Adami, J. concurring)

Factual and Procedural Background

The principal object of the suit that gave rise to this appeal was a declaration that the second mortgagee, or the person representing the interest of the second mortgagee, was entitled to priority over the first mortgagee.

The material transactions and procedural steps, as stated in the opinion, are:

9 June 1902: The mortgagors (defendants 11–16) mortgaged an 8 annas share of a mokarrari property to Harbans Narain Singh (represented by defendants 7–10).
29 September 1902: The mortgagors mortgaged 16 annas of the same property to Rai Bahadur Harihar Prasad Singh (defendant No. 5).
23 December 1907: The mortgagors borrowed Rs. 71,000 from Ram Narain Singh (represented by defendants 2–4) and gave a usufructuary mortgage of the entire 16 annas and other property to him; this mortgage was executed to enable Ram Narain Singh to pay off, among others, Harbans Narain Singh. A large portion of the consideration was left with Ram Narain Singh for that purpose, but Harbans Narain was not paid.
11 June 1909: Harbans Narain instituted suit No. 27 of 1909 to enforce the security dated 9 June 1902 and joined Rai Bahadur Harihar Prasad Singh as a party defendant. Rai Bahadur had earlier obtained a decree (4 February 1905) in respect of his 29 September 1902 mortgage, the decree being subject to the prior mortgage of Harbans Narain Singh; execution under that decree led to a sale at which the plaintiffs purchased (17 September 1917).
2 July 1912: The heirs of Harbans Narain Singh (defendants 7–10) assigned the security of 9 June 1902 to Bahadur Singh (first defendant in the action). Bahadur Singh was substituted as plaintiff in suit No. 27 of 1909. A final decree in suit No. 27 was passed on 8 November 1918, execution followed, and Bahadur Singh purchased the mortgaged properties on 21 August 1920.
Plaintiffs' case (as summarised by the court): Bahadur Singh was the benamidar of Ram Narain Singh, the assignment was a fraud on Rai Bahadur Harihar Prasad Singh, and the assignment operated to extinguish the prior mortgage of 9 June 1902.
The learned Subordinate Judge found that Bahadur Singh was the benamidar of Ram Narain Singh; the appellate court assumed that finding to be correct for the purposes of its reasoning but proceeded to dispose of the appeal on other grounds.

Legal Issues Presented

Whether the second mortgagee (or the person now representing the second mortgagee) is entitled to priority over the first mortgagee.
Whether an assignment of the prior mortgage (the 9 June 1902 security) to Bahadur Singh (who may be benamidar of Ram Narain Singh) operated as an extinguishment of that prior mortgage or was subject to subrogation principles.
What effect the purchaser's notice of prior encumbrances at an execution sale has on any claim to priority over earlier mortgagees.
Whether delay or failure by Ram Narain Singh to pay off Harbans Narain Singh on or about 23 December 1907 created an additional burden affecting the plaintiffs' rights (and, relatedly, whether such delay is a matter for the court in this litigation given the procedural history).

Arguments of the Parties

Appellants' Arguments

The plaintiffs (appellants) contended that Bahadur Singh was the benamidar (nominee or shill) of Ram Narain Singh and that the deed of assignment from the heirs of Harbans Narain Singh to Bahadur Singh was a fraud on Rai Bahadur Harihar Prasad Singh.
The appellants argued that the assignment operated to extinguish the prior mortgage dated 9 June 1902, thereby giving plaintiffs a superior claim.
Through counsel (Mr. Naresh Chandra Sinha) it was asserted that Ram Narain Singh’s taking of the assignment on 2 July 1912 placed an additional burden on the plaintiffs; specifically, that if Ram Narain Singh had paid off the prior mortgage when he bargained to do so, Rai Bahadur would have stepped into the position of first mortgagee and the burden on Harihar Prasad (and hence on subsequent purchasers) would have been limited to the outstanding sum then due to Harbans Narain Singh.

Respondents' Arguments (as reflected in the court's account)

The respondents (and the court's assessment of the matter) argued that the plaintiffs purchased the property at an execution sale under the decree obtained by Rai Bahadur Harihar Prasad Singh with full notice of the prior mortgage in favour of Harbans Narain Singh—the sale proclamation itself recited Harbans Narain’s mortgage and fixed Re. 1 as the value in view of prior encumbrances.
The court records that Ram Narain Singh, by virtue of the mortgage bond of 23 December 1907 and the surrounding circumstances, was in a position to be subrogated to Harbans Narain Singh’s security had he paid off that mortgage; the parties’ intention (as expressed by the mortgage bond) was to preserve the earlier bonds and make them over to Ram Narain Singh if they were discharged, indicating protection of Ram Narain's security rather than extinguishment of the prior mortgage.
The respondents relied on the proposition that plaintiffs cannot be in a better position than they would have been had Ram Narain Singh performed his bargain; because the prior mortgage was enforceable against the property and the plaintiffs bought with notice, they cannot claim priority over the holder of the prior security.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The court's reasoning proceeds in a series of connected legal findings and applications of principle to the facts as stated in the record:

Nature of the dispute: The court first restates that the core dispute is whether the second mortgagee (or the person representing the second mortgagee) has priority over the first mortgagee.
Notice and effect of the execution sale: The court emphasizes that the plaintiffs purchased the property at an execution sale pursuant to the decree obtained by Rai Bahadur Harihar Prasad Singh and that the sale proclamation expressly recited the prior mortgage in favour of Harbans Narain Singh. The court treats this as establishing that the plaintiffs purchased with "complete notice" of the prior mortgage, undermining any claim to priority over the prior mortgagee.
Subrogation and intention: The court analyses the effect of Ram Narain Singh's advanced money and the mortgage bond of 23 December 1907. It applies the principle that a person who pays off an existing mortgage may be subrogated to that security, but whether payment extinguishes the old mortgage or keeps it alive for the payer’s benefit is a question of the parties' intention. The court invokes the presumption that a person intends what is manifestly for his benefit and examines surrounding circumstances to infer intention.
Application to the bond language and circumstances: The court notes that when Ram Narain took the mortgage he was aware of both earlier mortgages (9 June and 29 September 1902). The bond expressly contemplated that the prior bonds would be delivered back and "should make them over to us along with this deed" upon discharge. The court interprets this provision as evidence that the parties intended, if the prior mortgage were discharged by Ram Narain, that he should be subrogated to the prior security rather than that the prior security should be extinguished for all purposes.
Consequences of delay in payment by Ram Narain Singh: The court treats the delay or failure of Ram Narain to pay off Harbans Narain as primarily an issue between Ram Narain and the mortgagors (and possibly between the mortgagors and Harbans Narain). While the court concedes that Rai Bahadur Harihar Prasad Singh, if he had chosen to redeem, might have sought appropriate adjustments (such as opening accounts) to place him where he would have stood had Ram Narain paid promptly, the court points out that Rai Bahadur never exercised his right to redeem. Moreover, the right to redeem (insofar as it could have been exercised in suit No. 27 of 1909) has been lost by virtue of the decree in that suit.
Benami finding held irrelevant to plaintiffs' claim: Although the court (for the sake of argument) assumes the Subordinate Judge's finding that Bahadur Singh was the benamidar of Ram Narain Singh to be correct, it holds that this fact does not alter the outcome because the plaintiffs (as purchasers at the execution sale) are not in a better position than Ram Narain would have been had he performed his bargain. The court finds that the assignment taken by or for Ram Narain on 2 July 1912 was simply a mode of performing his obligation under the mortgage bond rather than an act that extinguished the prior mortgage's force against subsequent purchasers with notice.
Conclusion of analysis: Taking the facts and documents together (the mortgage bond language, the parties' knowledge of multiple mortgages, the sale with notice of prior encumbrances, and Rai Bahadur's failure to redeem), the court concludes that the plaintiffs cannot claim priority over the holder of the prior security and that the decree below was correctly entered.

Holding and Implications

Holding: The appeal is dismissed and the decree of the learned Subordinate Judge is affirmed. Costs are awarded to respondents 1 to 4.

Implications:

The direct practical effect is that the plaintiffs (purchasers at the execution sale) do not obtain priority over the prior mortgagee; the prior mortgagee’s security is preserved as against the purchasers who had notice of that encumbrance.
The court treats the assignment to Bahadur Singh (even if he were benamidar of Ram Narain Singh) as not operating to extinguish the prior mortgage rights vis-à-vis the purchasers in execution sale who had notice.
No broader or novel precedent is articulated in the opinion; the decision rests on application of established principles (subrogation, intention of parties, purchaser's notice at sale) to the facts. The opinion does not state that it is laying down a new principle of law.

Judges: Das, J. delivered the judgment and Adami, J. agreed. Final notation in the opinion: "Appeal dismissed."

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Gauri Shankar v. Bahadur Singh

Das, J.:— It is somewhat difficult to understand the nature of the suit which has given rise to this appeal; but the object seems to be to obtain a declaration that the second mortgagee or the person who now represents the interest of the second mortgagee is entitled to priority over the first mortgagee.

2. In order to understand the point which has been argued before us by the plaintiffs who are the appellants in this Court, it is necessary to remember the following transactions. On the 9th June, 1902, defendants 11-16 who will henceforth be referred to as the mortgagaors, mortgaged an 8 annas share of a certain mokarrari property to Harbans Narain Singh represented in this action by defendants 7-10. On the 29th September, 1902, the mortgagors mortgaged 16 annas of the same property to Rai Bahadur Harihar Prasad Singh, cited as defendant No. 5 in this action.

3. On the 23rd December, 1907, the mortgagors borrowed Rs. 71,000 from Ram Narain Singh, represented in this action by defendants 2-4 and gave a usufructuary mortgage of the entire 16 annas of the mokarrari property as well as other property to him. This usufructuary mortgage was executed in order to enable the mortgagee to pay off, amongst others, Harbans Narain Singh. A large portion of the consideration money was left with Ram Narain Singh to enable him to pay off Harbans Narain. It appears that Harbans Narain was not paid by Ram Narain and on the 11th June, 1909 Harbans Narain instituted a suit being suit No. 27 of 1909 against the mortgagors, to enforce the security of the 9th June, 1902 as against them. He took the precaution of joining Rai Bahadur Harihar Prasad Singh as a party defendant in this action. This suit as I have said, was instituted on the 11th June, 1909; but it appears that Rai Bahadur Harihar Prasad Singh himself instituted a suit to enforce his security of the 29th September, 1902 sometime in 1904 and on the 4th February, 1905 he obtained the usual mortgage decree subject to the prior mortgage of Harbans Narain Singh, He took out execution proceedings and in due course the property was put up for sale and on the 17th September, 1917, the plaintiffs purchased the property at that sale. Meanwhile, as I have said, Harbans Narain instituted his suit to enforce the security of the 9th June, 1902, and, as I have said, he cited Rai Bahadur Harihar Prasad Singh as a party defendant in his suit. On the 2nd July, 1912 the heirs of Harbans Narain Singh, cited as defendants 7-10 in this action, assigned the security of the 9th June, 1902 to Bahadur Singh for valuable consideration. Bahadur Singh is the first defendant in this action and is contesting the claim of the plaintiffs. Bahadur Singh applied for substitution and in due course was substituted in the record of suit No. 27 of 1909 as plaintiff in the place of Harbans Narain Singh. On the 7th June, 1909, Bahadur Singh obtained a preliminary decree which gave Rai Bahadur Harihar Prasad Singh the right to redeem his mortgage. It will be remembered that, although the Rai Bahadur had obtained his decree on the 4th February, 1905 the property had not passed to the plaintiffs until the 17th September, 1917. The Rai Bahadur's decree to subject to the prior security created in favour of Harbins Narain Singh, and it may be pointed out that he did not choose to exercise his right of redemption in suit No. 27 of 1909. The final decree in suit No. 27 of 1909 was passed on the 8th November, 1918. Execution proceedings followed, and in due course the mortgaged properties were pas up for sale and were purchased by Bahadur Singh on the 21st August, 1920.

4. The case of the plaintiffs is that Bahadur Singh is the benamidar of Earn Narain Singh and that the deed of assignment was a fraud upon Rai Bahadur Harihar Prasad Singh and that it operated as an extinguishment of the prior mortgage of the 9th June, 1902. The learned Subordinate Judge has come to the conclusion that Bahadur Singh is the benamidar of Earn Narain Singh. I will assume, though I do not decide, that the finding of the learned Subordinate Judge on this point is right; but even then, I do not see how it is possible for the plaintiffs to succeed in the action. The decree of Rai Bahadur Harihar Prasad Singh expressly provided that the sale to be held in his suit should be subject to the mortgage lien of defendants 6-14, the prior mortgagees. The plaintiffs purchased the mortgaged property at the sale held in execution of the decree obtained by the Rai Bahadur and the sale proclamation itself recited Harbans Narain Singh's mortgage, and it stated that having regard to the prior encumbrances, the decree-holder fixed Re. 1 to be the value of the property. There is no doubt whatever that the plaintiffs purchased the property with complete notice of the prior mortgage in favour of Harbans Narain Singh and it is difficult to understand on what principle they should claim to have priority over the principal defendant.

5. Mr. Naresh Chandra Sinha contends that the effect of Ram Narain Singh taking an assignment of the mortgage on the 2nd July, 1912 was that an additional burden was placed on him. His first contention is that, had Ram Narain Singh carried out his bargain with the mortgagors and discharged the mortgage of the 9th June, 1902, Rai Bahadur Harihar Prasad would naturally have stepped into the position of the first mortgagee. With this contention Lam unable to agree. Ram Narain Singh would undoubtedly have been entitled to be subrogated to the securities held by Harbans Narain Singh had he paid off Harbans Narain Singh out of the money advanced by him on the 23rd December, 1907 to the mortgagors. It is quite true that the question whether the mortgage which is paid off is to be considered as extinguished or kept alive for the benefit of the person who makes the payment, is a question of intention; but, as has been pointed out, every one is presumed to intend that which is manifestly for his benefit. Now, what are the surrounding circumstances? On the 23rd December, 1907, when Ram Narain Singh took a mortgage of the property, there were two outstanding mortgages, one of the 9th June, 1902, the other of the 29th September, 1902. It cannot for a moment be contended that Ram Narain Singh was not aware of the mortgage of the 29th September and 1902, for his mortgage bond gave him an opportunity to pay off Rai Bahadur Harihar Prasad Singh for his own protection. Now, if that be so clearly it was to his manifest advantage to keep on foot the security of the 9th June, 1902 and not to extinguish it. I quite agree that, if it could be shown that Ram Narain Singh was not aware of any other mortgage except that of the 9th June, 1902, it could be argued with some show of reasoning that there would be no object in Ram Narain keeping alive the security of the 9th June, 1902, since there was no other intermediate security to imperil his security; but obviously that is not the position in this case. It was for him to discharge the mortgage bond of the 9th June, 1902. Having discharged that mortgage bond, clearly he would have been entitled to keep alive the security of the 9th June, 1902 for his own benefit and a perusal of the mortgage bond executed by the mortgagors in favour of Ram Narain Singh supports this conclusion. That mortgage bond provides that Earn Narain Singh should discharge the security of the 9th June, 1902 and

“on taking back the bonds they should keep them with themselves and should make them over to us along with this deed.”

6. Now, there was no object in preserving the mortgage bond of the 9th June, 1902 if the intention was to extinguish the security of that date. Clearly the intention of the parties was that on discharging the mortgage bond of Harbans Narain and others, Ram Narain Singh should step into the shoes of Harbans Narain and hold the mortgage of the 9th June, 1902 as a shield against the mortgage bonds that might have been executed by the mortgagors subsequent to the 9th June, 1902. In my opinion there is no doubt whatever that, had Earn Narain Singh carried out his undertaking the plaintiffs would have been is no better position than that which the occupy to-day.

7. It is next contended that Ham Narain Singh should have paid off Harbans Narain Singh on or about the 23rd of December 1907 and that the effect of not paying off Harbans Narain Singh has been to throw an additional burden upon the plaintiffs. I do not see-how this question arises. The argument is founded upon the fact that on the 23rd December, 1907 Harbans Narain was entitled to receive Rs. 16,064-15-6 from the mortgagors and that the amount swelled to a very large sum of money when Bahadur Singh ultimately obtained his final decree as against the mortgagors. The question that arises from the failure of Ram Narain Singh to pay off the mortgage on or about the 23rd December, 1907, is a question between Ram Narain Singh and the mortgagors. It may be that Harihar Prasad, if he had claimed the right to redeem, might have asked the Court to open the accounts as between the mortgagors and Harbans Narain Singh in order to enable the Court to determine the terms upon which he should be allowed to redeem the mortgage. The question is put in this form by Mr. Naresh Chandra. Sinha, had Ram Narain Singh plantiff Harbans Narain Singh, the burden upon; Harihar Prasad Singh would not have exceeded the sum of Ra. 16,064-15-6. Ram Narain Singh did not pay off Harbans Narain Singh, but, in fraud both of the mortgagors and of Harihar Prasad Singh, took an assignment of security iron the heirs of Harbans on the 2nd July, 1912. No doubt the usufructuary mortgage bond at the 23rd December, 1907 provided that Harbans Narain Singh should be paid off at once. As I have said, the delay in paying off Harbans Narain Singh is a question as between Ram Narain Singh and the mortgagors; but I am quite willing to concede that had Rai Bahadur Harihar Prasad Singh claimed the right to redeem the property he might have asked the Court to place him in the position which he would have occupied had Ram Narain Singh carried out his bargain; hut Rai Bahadur Harihar Prasad Singh never claimed the right to redeem the mortgage. In my opinion the question does not fall to be considered since Harihar Prasad Singh never claimed the right to redeem and since his right to redeem is, by virtue of the decree in suit No. 27 of 1909, gone for ever.

8. The position is a very simple one and may be re stated. The plaintiffs cannot claim to be in a better position than that which they would have occupied had Ram Narain Singh carried out his bargain. If Ram Narain Singh had carried out his bargain, he would have been entitled to enforce the security of the 9th Jane, 1902. It makes no difference to the plaintiffs whether that security is enforced by Harbans Narain Singb or by Ram Narain Singh. Harihar Prasad Singh had an opportunity to redeem the prior mortgage at any time he chose and it can make no difference either to him or to the plaintiffs who have purchased the property ab the execution sale held pursuant to the decree obtained by Harihar; Prasad Kanin Singh whether the security of the 9th June, 1902, is enforced by Harbans Narain Singh or by Ram Narain Singh. In my opinion the question whether Bahadur Singh is the benamidar of Ram Narain Singh has nothing whatever fro do with the question. In the next place, it seems to me that the assignment taken by Ram Narain Singh in the name of Bahadur Singh on the 2nd June, 1912 was a mode of performing his obligation under the mortgage bond of the 23rd December, 1907. There is of course the question of delay in performing his obligation. As I have said that question could have been raised either by the martgagors or by Harihar Prasad Singh had he claimed the right to redeem; but the question no longer arises. In my opinion the decree passed by the Learned Subordinate Judge is right and must be affirmed. I would dismiss this appeal with costs payable to the respondents 1 to 4.

9. Adami, J.:— I agree.

10. Appeal dismissed.

Gauri Shankar v. Bahadur Singh

Structured Summary of the Opinion (Das, J.; Adami, J. concurring)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellants' Arguments

Respondents' Arguments (as reflected in the court's account)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Gauri Shankar v. Bahadur Singh

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