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Eastern Mortgage And Agency Company Limited v. Rakea Khatun
Concise Analytical Summary of the Opinion
Factual and Procedural Background
These two appeals (Nos. 355 and 356 of 1912) arise from two mortgage suits instituted by the Eastern Mortgage and Agency Co., Ltd. (the Appellants) against Rakea Khatun (widow of Tajamal Ali Choudhury) and others (the mortgagors/Respondents) to recover principal and interest due under two mortgage bonds dated 18 September 1896 and 9 September 1897. The earlier bond covered a loan of Rs. 8,800 and the later a loan of Rs. 350,000; the mortgages included a proviso for an additional advance of Rs. 1,00,000 upon compliance with conditions. The mortgage deeds required that Messrs. Garth and Weatherall be appointed as managers of the mortgaged properties to collect profits, pay the mortgage debt and interest, and take commission. Messrs. Garth and Weatherall were appointed managers, and the additional Rs. 1,00,000 was advanced.
Obstruction by the mortgagors allegedly prevented the managers from collecting rents or making payments on the mortgage. Disputes among co-owners led Garth and Weatherall to apply on 14 December 1901 to the Collector of Backergunge, which resulted in District Judge proceedings (Misc. Case No. 74 of 1901). The District Judge (on 1 May 1902) directed that management be taken over by the Court of Wards under Sec. 95, cl. 2 of the Bengal Tenancy Act; a temporary common manager was appointed and later replaced; ultimately the Court of Wards took over management from 17 September 1903 to 15 May 1912, subject to conditions (including the Company remitting Rs. 1,50,000).
No payments to discharge the mortgage debt or interest had been made by 11 September 1911, and the Eastern Mortgage and Agency Co., Ltd. instituted the two suits on the mortgages (Nos. 442 and 444 of 1911) and a further suit on a promissory note for money advanced to pay Government revenue on the mortgaged properties. After the Court of Wards gave notice of intending to relinquish management (15 March 1912), the District Judge on 7 May 1912 appointed Babu Debendra Nath Dutt as common manager. The Appellants applied on 5 June 1912 to set aside that appointment on the ground of lack of notice; the District Judge refused that application on the same date.
On 5 June 1912 the Appellants also applied in each mortgage suit for the appointment of a Receiver pendente lite; the Subordinate Judge disallowed those applications by two orders recorded 10 June 1912 (Orders Nos. 355 and 356 of 1912). The Appellants appealed from those orders. A Rule (No. 4081 of 1912) was also obtained from the higher Court to show cause why the District Judge's 5 June order appointing the common manager should not be set aside. The appeals and the Rule were expedited and were heard together for disposal in this judgment.
Legal Issues Presented
- Whether the Subordinate Judge erred in refusing to appoint a Receiver pendente lite over the properties covered by the mortgage bonds in the suits brought by the mortgagee.
- Whether, in the exercise of judicial discretion, a Receiver should be appointed in the particular circumstances of these mortgage suits (given the alleged arrears, obstructed management, and advances by the mortgagee to pay Government revenue).
- Whether the District Judge's order of 7 May / 5 June 1912 appointing Babu Debendra Nath Dutt as common manager should be set aside for want of adequacy of appointment and apparent lack of sufficient notice or suitability.
Arguments of the Parties
Appellant's Arguments (Eastern Mortgage and Agency Co., Ltd.)
- The original mortgage debt of Rs. 4,50,000 has trebled and risen to over Rs. 12,00,000 (statement made by learned Counsel for the Appellants as recited by the Court).
- No interest had been paid to the mortgagees; instead, mortgagees had been compelled to advance money to pay Government revenue on the mortgaged properties to save them from sale for arrears and had sued on a promissory note to recover such advances.
- The Appellants applied for a Receiver pendente lite to protect their security and to ensure collection and appropriation of profits from the mortgaged properties.
- They also applied to set aside the District Judge's appointment of a common manager on the ground that it had been made without notice to them, despite their being co-proprietors.
- For selection of a Receiver, the Appellants proposed Mr. Thomas Cunliffe Tweadie — presented as having considerable experience of zemindari management and supported by testimonials filed in court.
Respondent's Arguments
- The learned pleader for the Respondent did not attempt to support the grounds of the Subordinate Judge's order refusing the appointment of a Receiver; the Court records that those grounds were not defended in argument.
- Both parties (mortgagees and mortgagors) agreed that it was desirable the person appointed Receiver/common manager should be experienced in estate management and that a member of the bar without such experience should not be appointed.
- On behalf of the mortgagors an objection was taken to Mr. Tweadie on the ground that he was managing other estates on behalf of the mortgagees. The Court recorded that this did not appear to be a valid objection to his appointment as Receiver in the present suits.
- In relation to the common managership, the learned pleader representing the Respondents in Appeal No. 356 submitted a list of four gentlemen (M. Najimuddin Ahmed; Babu Benoy Bhusan Gupta; Upendra Nath Sen; Basanta Kumar Guha) as suitable candidates for appointment as common manager; the Appellants' counsel did not object to the second-named (Benoy Bhusan Gupta).
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Coote, Law of Mortgages (page 946 and page 958) |
- (p.946) The general rule that the appointment of a Receiver will be made as a matter of course on the application of a mortgagee if the interest payable under the security is in arrear. - (p.958) The principle that the right to propose a person for appointment as Receiver belongs to the party seeking the appointment, but the Court exercises discretion to appoint the person best suited to the interests of both mortgagee and mortgagor. |
The Court relied on these principles to hold that (i) the mortgagees were entitled to the appointment of a Receiver pendente lite in the present case because interest was in arrear and other facts justified intervention, and (ii) while the mortgagee may propose a nominee, the Court retains discretion to appoint the person it considers best for the interests of both parties (hence its appointment of Mr. Tweadie). |
Court's Reasoning and Analysis
The Court proceeded step-by-step as follows, limiting itself to the facts and law recited in the opinion:
- The Court found the Subordinate Judge's reasons for refusing the applications for a Receiver (10 June 1912 orders) to be unsound and not maintainable. The Court observed the learned pleader for the Respondent had not defended those grounds in argument and described many of the Subordinate Judge's suggestions as without factual foundation.
- The Court recited key factual circumstances: the mortgage debt had increased substantially (from Rs. 4,50,000 to over Rs. 12,00,000 as stated by Appellants' counsel), no interest had been paid, and the mortgagees had advanced funds to pay Government revenue on the properties and had sued on a promissory note to recover such advances. There was also alleged obstruction by mortgagors preventing managers from collecting rents.
- The Court stated the governing legal principle: appointment of a Receiver pendente lite is within the Court's discretion but must be guided by the circumstances of each case; and the well‑recognized general rule (as cited from Coote) is that a Receiver will, as a matter of course, be appointed on the application of a mortgagee when interest under the security is in arrear.
- Applying that principle to the concrete circumstances before it — arrears of interest, substantial increase in indebtedness, alleged obstruction to management, and mortgagees' advancing funds to protect the security — the Court concluded the mortgagees were entitled to the appointment of a Receiver pending disposal of the suits.
- On the question of who should be Receiver, the Court explained that although the proposing party has a right to nominate, the Court exercises its discretion to appoint the person it thinks best for the combined interests of mortgagee and mortgagor. Both sides agreed an experienced estate manager was desirable and that combining the offices of common manager and Receiver in one person was preferable in the interests of both parties.
- The Court considered the Appellants' proposed nominee, Mr. Thomas Cunliffe Tweadie, and, on the basis of testimonials filed, found him suitable. An objection by the mortgagors (that he managed other estates for the mortgagees) was considered but rejected by the Court as not amounting to a valid impediment to his appointment given the alignment of interests in securing careful management and proper appropriation of profits.
- With respect to the Rule against the District Judge's appointment of Babu Debendra Nath Dutt as common manager, the Court found both parties agreed that a person of greater estate-management experience should be appointed. The Court therefore made the Rule absolute and set aside the District Judge's appointment, while noting that the District Judge should select a suitable person (from the candidates suggested and Mr. Tweadie) in the best interests of the estate and both parties.
- The Court addressed costs and directions: it allowed both appeals, set aside the Subordinate Judge's orders refusing receivership, ordered the appointment of Mr. Tweadie as Receiver pending disposal of the suits, made the Rule absolute and set aside the District Judge's appointment of Debendra Nath Dutt, provided guidance on selection of the common manager, awarded costs of the appeals to the Appellants (fixing hearing fees at three good mohurs in each appeal), and directed that each party bear their own costs in the Rule. The records were ordered sent down to the lower Court without delay.
Holding and Implications
APPEALS ALLOWED.
Direct consequences and immediate implications as set out in the opinion:
- The two orders of the Subordinate Judge dated 10 June 1912 (which had disallowed the applications for appointment of a Receiver in the two mortgage suits) were set aside.
- The Court ordered that the mortgagees were entitled to have a Receiver of the properties covered by the mortgage bonds appointed pendente lite, and the Court appointed Mr. Thomas Cunliffe Tweadie as Receiver of those properties pending the disposal of the suits.
- The Rule No. 4081 of 1912 (challenging the District Judge's appointment of Babu Debendra Nath Dutt as common manager) was made absolute and the District Judge's appointment of Debendra Nath Dutt was set aside.
- The Court received a list of four suggested gentlemen (M. Najimuddin Ahmed; Babu Benoy Bhusan Gupta; Upendra Nath Sen; Basanta Kumar Guha) and directed that the District Judge should make his own selection from those candidates and Mr. Tweadie, endeavouring to appoint the person best for the interests of the estate and both parties.
- Costs: the Appellants were awarded their costs in the two Appeals, with hearing fees fixed at three good mohurs in each appeal. Each party was to bear their own costs in the Rule proceeding. The records were to be sent down without delay.
The opinion states and applies well‑established discretionary principles regarding receivership in mortgage cases (as cited from Coote). The Court's decision is expressly tied to the facts recited (arrears, obstruction, advances by the mortgagee to protect the security) and to the exercise of judicial discretion; the opinion does not purport to announce a new legal principle beyond applying the cited authorities and established practice to these facts.
These two Appeals, Nos. 355 and 356 of ??? are directed against two orders passed by the Subordinate Judge of Backergunge in two mortgage suits brought by the present Appellants, the Eastern Mortgage and Agency. Co., Ld., against the Defendants Respondents, Rakea Khatun, widow of the late Tajamal Ali Choudhury and others, to recover the principal and interest due on two mortgage bonds executed by Tajamal Ali Choiidhury and others on the 18th September, 1896 and the 9th September, 1897 respectively. The former bond covered a loan of Rs. 8,800 and the latter a loan of Rs. 350,000 and contained a proviso that Rs. 1,00,000 should be afterwards lent if the conditions under which the original loan was made were complied with. One of the conditions imposed in the mortgage deeds was that Messrs Garth and Weatherall were to be appointed managers on behalf of the mortgagors of the mortgaged properties and that they were to pay off the mortgage debt with interest out of the profits of the mortgaged properties and also to take their own commission. These two gentlemen were duly appointed managers and the additional Rs. 1,00,000 was afterwards advanced Obstruction to the management is said, to have been offered by the mortgagors with the result that the managers were unable to collect the rents from the mortgaged properties or to pay to the mortgagees any portion of the mortgage debt or of the interest.
Meanwhile in cousequence of quarrels between the mortgagors and their co-sharers in the properties covered by the mortgages as well as in other properties belonging to the family, on the 14th December, 1901, Messrs Garth and Weatherall applied to the Collector of Backergunge asking that steps should be taken to prevent a breach of the peace and to enable them to obtain possession of the properties covered by the mortgages. The Collector sent on the application to the District Judge in whose Court it was numbered as Misc. Case No. 74 of 1901. The result of the proceedings taken on this application in the Court of the District Judge was that on 27th March, 1902, he called on the co-owners in the estate to appoint a common manager. They failed to do so and, on the 1st May 1902, the District Judge passed an order under Sec. 95, cl. 2 of the Bengal Tenancy Act directing that the management of the estate should be taken over by the Court of Wards; and as a temporary arrangement he appointed, on the 12th August, 1902, Abdul Ali Chowdhury as common manager of the estate. On the 23rd December, 1902, the Court of Wards declined to take over the management and Abdul Ali Chowdhury was allowed to remain on as common manager. On the 8th May, 1903, the District judge removed Abdul Ali Chowdhury from the managership as his management was not satisfactory and as he was related to same of the co-owners. The Judge on the application of Messrs Garth and Weatherall then appointed Babu Nibaran Charan Dass as common manager but, on the 9th September, 1903, another application was made by Messrs Garth and Westherall that the state should be placed under the management of the Court of Wards.
On the 16th September, 1903, the Court of Wards agreed to take over the management subject to the condition that the Eastern Mortgage and Agency Co., Ld., would remit the sum of Rs. 1,50,000 froth their debt subject to the condition that the loan was paid off within a certain time. This was agreed to and the estate was under the management of the Court of Wards from the 17th September, 1903 of the 15th May, 1912. The Court of Wards on the 15th March, 1912 gave notice that they would give up the management on that date.
Meanwhile, on the nth September 1911, no payments having been made up to that date in discharge of the mortgage debt or the interest, the Eastern Mortgage and Agency Co., Ld., instituted the two suits to recover the whole sum due on the mortgage bonds with interest to date and also another suit on a promissory note for money advanced by the company to pay the Government revenue which bad fallen due on the mortgaged properties.
After receipt from the Court of Wards of the intimation that it proposed to give up the management on the 15th May, 1912, notices were issued by the District Judge to the co-owners of the estate to show cause why a common manager should not be appointed and no cause having, been shewn the District Judge on the 7th May, 1912 appointed Babu Debendra Nath Dutt, a pleader of his Court, as common manager of the Estate.
On the 5th June, 1912, application was made by the Eastern Mortgage and Agency Co., Ld., to the District Judge to set aside the order appointing the manager on the ground that it had been made without notice to them though they were co-proprietors having purchased 87 items of property in the estate but on the same date the District Judge passed an order refusing the application.
On the 28th June, 1912, a Rule was obtained from this Court on the mortgagors and other co owners of the estate to show cause why the order of the District Judge of the 5th June should not be set aside on the ground that it appeared to have been passed without sufficient evidence and without any notice to the Petitioners. This Rule is Rule No. 4081 of 1912.
On the 5th June, 1912, applications were made to the District Judge in both of the suits (Nos. 442 and 444 of 1911) brought on the mortgages, for the appointment of a Receiver pending the disposal of the two suits. These, applications were disallowed by the Subordinate Judge in a long order recorded on the 10th June, 1912.
Appeals from Orders Nos. 355 and 356 of 1912 are against these two orders.
At the request of the parties the hearing of these two Appeals and of the Rule No. 4081 of 1912 have been expedited and all these will be disposed of in this judgment.
Dealing first with the two Appeals we are of opinion, that the grounds given by the Subordinate Judge in his order of the 10th June, 1912 are not sound and cannot be maintained. It appears from the statements of the learned Counsel for the Appellants that the original mortgage debt of Rs. 4,50,000 has trebled and has now risen to over Rs. 12,00,000. Meanwhile no interest whatever appears to have been paid to the mortgagees and on the contrary the mortgagees appear, to have been compelled to advance money to pay the Government revenue on the mortgaged properties in order to save them from sale for arrears, and to recover the sums so advanced they have been compelled to bring another suit on the promissory note.
Though the appointment of a Receiver pendente lite is a matter entirely within the discretion of the Court it must in the exorcise of that discretion be guided by the circumstances of each particular case; and it has been laid down as a general rule that the appointment of a Receiver will be made, as a matter of course on the application of a mortgagee, if the interest payable under the security is in arrear (see Coote, Law of Mortgages, page 946, and the leading cases referred to therein).
Disagreeing therefore with the Subordinate Judge we hold that in the case of the applications with regard to which these two appeals have been brought the mortgagees are entitled to have Receiver of the properties covered by the mortgage appointed pending the disposal of the two suits.
We understand that the Subordinate Judge who recorded the judgment in which the order was passed disallowing the application has retired. It is therefore not necessary for us, to express at any length our opinion on the language and substance, of his judgment. We need only observe that the learned pleader for the Respondent has not attempted to support the grounds on which the Subordinate Judge has based his order and in our opinion they are altogether insufficient, and many of the suggestions made in his judgment appear to have no foundation in any facts.
We therefore decree both the Appeals and set aside the order passed by the Subordinate Judge refusing the applications made by the mortgagees.
As to the selection of a Receiver the parties before us have differed in opinion. Dealing with this question we have to observe that as a general rule the right to propose a person for the appointment of a Receiver belongs to the party interested in obtaining the appointment, and effect will be given to his nomination. Also if the Court appoints a Receiver at the instance of a mortgagee, the mortgagee not having without the assistance of the Court power to appoint a Receiver, then the Court exercises its discretion as to who shall be appointed Receiver, and appoints the Receiver whom it thinks best to appoint for the interest of the mortgagee and of the mortgagor, a person whom having regard to the interests of both the Court considers the best person:—(Coote, Law of Mortgage, page 958).
Before us both parties are agreed that it is desirable that the gentleman appointed as Receiver should be one fully acquainted with and experienced in the management of Estates, and that the selection of a member of the bar who has no such experience or knowledge should not be approved. They are also agreed that in the interest of both parties it is much to be desired that the offices of common manager and Receiver should be united in one individual.
The learned Counsel for the Appellant has suggested on behalf of his clients that Mr. Thomas Cunliffe Tweadie, who has considerable experience and knowledge of zemindari management, should be selected as Receiver of the properties covered by the mortgages, and from the testimonials which have been filed we agree that gentleman would be a suitable selection.
On behalf of the mortgagors exception to his appointment is taken on the ground that Mr. Tweadie is managing other Estates on behalf of the mortgagees. This however does not appear to us to constitute any valid objection to his being appointed as Receiver in the present suits. Certainly he would be the person best suited for the appointment in the interest of the mortgagees and in these suits the interests of both parties are in fact identical, namely, to secure a careful and firm management of the property and a proper collection and appropriation of the profits.
In our opinion therefore the application of the mortgagees should be granted and Mr. Tweadie should be appointed Receiver of the properties covered by the mortgage bonds pending the disposal of the suits.
We have now to deal with the Rule No. 4081 of 1912 which is directed against the order of the District Judge appointing Babu Debendra Nath Dutt as common manager. Neither party have expressed any opinion against the character and probity of this gentleman but both are agreed that it is desirable in the interests of the Estate that a gentleman, having greater knowledge and experience of the management of Estates than he has, should be appointed as common manager. In these circumstances we think that the Rule should be made absolute and the order of the District Judge appointing him as common manager should be set aside. We have received from the learned pleader who represents the Respondents in Appeal No. 356 of 1912 a list containing the names of four gentlemen who are suggested for the appointment of common manager. They are M. Najimuddin Ahmed, Babus Benoy Bhusan Gupta, Upendra Nath Sen, Basanta Kumar Guha.
The learned Counsel for the Appellants has not offered any objection to the second-named. It must however be left to the District Judge to make his own selection from these gentlemen and Mr. Tweadie and in doing so we think he should endeavour to make such an appointment as will be best for the interests of the Estate and of both parties.
The Appellants are entitled to their costs in these two Appeals. We fix the hearing fees at three good mohurs in each. Each party will bear their own costs in the Rule.
Let the records be sent down to the lower. Court without delay.
Appeals allowed.
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