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Structured Summary of the Opinion (Fazl Ali, J.)

Factual and Procedural Background

The suit arises from a mortgage bond executed by Basdeo Prasad Singh on 9 August 1909 to secure a loan of Rs. 2,000 by mortgaging certain properties. Basdeo died in 1910 leaving two minor sons, Bishun Prasad Singh and Pasupat Prasad Singh, who became defendants 1 and 2 in subsequent proceedings. During their minority the District Judge appointed their mother, Deolochan Kuer, as guardian. On 1 August 1918 Deolochan Kuer and Jagdeo Prasad Singh executed a sale deed (Ex. F) in respect of certain properties, including the mortgaged properties, after obtaining the District Judge's sanction; the deed recorded that Rs. 5,594-4-0 was due under the mortgage and formed part of the consideration.

On 28 April 1928 Bishun Prasad (then of age) sued for cancellation of the sale deed on behalf of himself and his minor brother. The Subordinate Judge decreed cancellation and made findings adverse to the plaintiffs in the present appeal (e.g., improper compliance with District Judge directions, debts incurred by Jagdeo after Basdeo's death, fraud by Jagdeo, many debts recited in Ex. F not appearing in the schedule on which sanction was granted, and that the appointment of the guardian and sanction were obtained at plaintiffs' instance). These findings were largely upheld on appeal.

After the appeal decision the present plaintiffs brought the current suit on 16 June 1936. The learned Subordinate Judge dismissed that suit on the ground of limitation. The central procedural posture on appeal concerns whether that suit is barred by limitation and, relatedly, what relief (if any) the plaintiffs are entitled to.

Legal Issues Presented

  1. Whether the plaintiffs' suit (filed in 1936) is barred by limitation.
  2. Whether the decree in the earlier suit cancelling the sale deed (Ex. F) operated to revive the plaintiffs' mortgage rights under the mortgage bond.
  3. Whether the plaintiffs' rights under the mortgage bond were kept alive by alleged repeated acknowledgments of the debt.
  4. What relief, if any, the plaintiffs are entitled to (specifically, whether they can enforce the mortgage or are limited to a money decree for the sum set off in Ex. F and interest), and the proper form of decree including treatment of mesne profits and set-off.

Arguments of the Parties

Plaintiffs' Arguments

  • The decree in the suit brought by Bishun Prasad (to cancel Ex. F) revived the rights and liabilities under the original mortgage bond, so the mortgage can be enforced despite the intervening sale deed.
  • The plaintiffs' rights under the mortgage bond were kept alive by repeated acknowledgments of the debt due under the bond.

Defendants' Arguments

  • The plaintiffs, having knowingly entered into the 1 August 1918 transaction that purported to discharge the mortgage bond, cannot now assert that the mortgage remains alive—especially since they were, if not parties, at least privy to the fraud practised by Jagdeo on the minors.
  • Any alleged acknowledgments of debt are not binding upon the minor.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Judgment of Courtney-Terrell C.J. (quoted from previous litigation) Equity will not restore the position of mortgagees who abandoned their security under circumstances that afford them no protection; only a bona fide purchaser is entitled to equitable consideration. The Court relied on this passage to hold that the plaintiffs, having abandoned their mortgage security by participating in the sale transaction, could not be permitted to enforce the mortgage; they could, however, pursue a legal remedy for the money due.
46 Cal. 670 (Privy Council decision quoted) When the consideration fails, the starting point for limitation may be the date of the first Court's decree (subject to exceptions); an original decree is not suspended by the presentation of an appeal under Indian law and procedure. The Court cited this to explain the ordinary rule for when limitation begins to run and then considered recognized exceptions to that rule relevant to the present facts.
46 Mad. 402 (Odgers, J.) Explains and qualifies 46 Cal. 670, noting exceptions and that in some circumstances loss of possession may be the date from which limitation runs. The Court adopted the reasoning distinguishing cases where the purchaser was truly in possession and later dispossessed; it found that where actual possession was delivered and later disturbed, limitation may begin on dispossession.
19 Cal. 127 Recognition that certain transactions may be voidable rather than void ab initio and may be capable of confirmation by successors. The Court referenced this to support the characterization of the deed as voidable (not void ab initio), making the failure of consideration coextensive with deprivation of possession in this context.
52 All. 604; 55 Bom. 565; 9 Lah. 191 Decisions expressing the view that where a purchaser was put in possession and later dispossessed, limitation runs from the disturbance of possession rather than from the earlier decree. The Court cited these authorities as supporting the same view it adopted: since dispossession occurred within three years of the suit, limitation did not bar the plaintiffs' claim for the monetary remedy.

Court's Reasoning and Analysis

The Court proceeded in a series of analytical steps, applying equitable and limitation principles to the facts established by earlier proceedings.

  1. Revival of the mortgage by the prior decree:
    • The Court accepted the view that the plaintiffs had acted with knowledge and that, by participating in the 1 August 1918 sale transaction, they had effectively abandoned their mortgage security.
    • The quoted passage from Courtney-Terrell C.J. was used to support the proposition that equity will not restore a mortgagee's position where the mortgagee abandoned security under circumstances affording no protection (i.e., not a bona fide purchaser).
    • Accordingly the Court held that the plaintiffs could not enforce the mortgage bond itself; allowing them to do so would permit them to take advantage of their own wrong or recklessness.
  2. Availability of an alternative remedy under Section 65, Contract Act:
    • The Court observed S.65's general rule that a person who has received an advantage under a contract which becomes void must restore it or make compensation.
    • Applying S.65, the Court held that plaintiffs who used the mortgage debt as part payment under Ex. F could, instead of enforcing the mortgage, obtain a money decree to restore the specific sum that was lost to them by the sale being set aside (i.e., the Rs. 5,594-4-0 recited in Ex. F).
  3. Limitation (Article 97, Limitation Act) analysis:
    • The Court accepted that the present suit is governed by Article 97 (money paid on an existing consideration which afterwards fails — three-year limitation).
    • The Court reviewed the Privy Council decision in 46 Cal. 670 but noted that its rule is subject to exceptions: where decree reversals change the relevant date, and importantly where possession (actual) was acquired by the purchaser and later disturbed, limitation may run from dispossession.
    • Examining the facts, the Court found that actual possession had been delivered to the purchaser (under Ex. B) and that the deed was voidable rather than void ab initio; thus the consideration failed only when the purchaser was deprived of possession.
    • Because it was admitted that the plaintiff was dispossessed within three years of the present suit, the Court held the suit was not barred by limitation for recovery of the specific monetary sum.
  4. Relief, mesne profits and set-off:
    • Although defendants 1 and 2 obtained a decree for mesne profits in the earlier litigation, they never had those mesne profits ascertained. The Court would not bar them from asking for a set-off of mesne profits against any sum found due to the plaintiffs in the present suit.
    • The Court rejected the plaintiffs' contention that the defendants' failure to prosecute mesne profits barred their recovery; it allowed that the defendants could seek mesne profits up to the date on which plaintiffs were dispossessed and that the lower court should ascertain those amounts for set-off purposes.
    • Hence the Court framed precise directions to the lower court to determine the date of dispossession, calculate mesne profits recoverable by defendants up to that date, and calculate interest at six percent per annum on Rs. 5,594-4-0 from the defendants to the date of the suit.

Holding and Implications

Core Ruling: The Court held that the plaintiffs cannot enforce the mortgage bond itself, but they are entitled to recover the specific sum stated in the sale deed (Ex. F) which was applied in part payment (Rs. 5,594-4-0) together with interest; the present suit is not barred by limitation. The matter is remanded to the Court below with directions to ascertain dispossession date, mesne profits, and the appropriate set-off calculations.

Direct consequences for the parties:

  • The plaintiffs' claim to enforce the mortgage instrument is dismissed on equitable grounds (they abandoned the security by participating in the sale transaction).
  • The plaintiffs remain entitled to a money remedy for the specific sum set off in Ex. F (Rs. 5,594-4-0) and interest at six percent per annum, subject to set-off by mesne profits recoverable by defendants up to the dispossession date.
  • The lower court is directed to determine: (1) the date on which the plaintiffs were dispossessed; (2) the amount of mesne profits recoverable by defendants 1 and 2 up to that date; and (3) the interest due to plaintiffs on Rs. 5,594-4-0 up to the date of the suit, and to enter decree accordingly (either for the plaintiffs if the net is in their favour, or dismissing the plaintiffs' suit if the defendants' set-off exceeds the plaintiffs' claim).

Broader implications: The opinion applies established equitable principles and limitation jurisprudence to the specific factual context; the Court did not announce a novel precedent beyond applying and distinguishing existing authorities on when limitation begins to run in cases involving sale, possession and subsequent setting aside of conveyances.

    Dhani Sahu v. Bishun Prasad Singh

    Fazl Ali, J.:— This is an appeal by the plaintiffs in a mortgage suit which has been dismissed by the learned Subordinate Judge of Gaya. The mortgage bond which was the subject matter of the suit had been executed by one Basdeo Prasad Singh on 9th August 1909 to secure a loan of Rs. 2000 by mortgaging certain properties. Basdeo Prasad Singh died in 1910 leaving two minor sons Bishun Prasad Singh and Pasupat Prasad Singh who have been impleaded as defendants 1 and 2 in the suit. During the minority of these defendants, their mother Deolochan Kuer was appointed their guardian by the District Judge. On 1st August 1918 Mt. Deolochan Kuer and Jagdeo Prasad Singh, a separated brother of the deceased Basdeo Prasad, executed a sale deed (Ex. F) in respect of certain properties including the properties mortgaged under the bond in suit to the plaintiffs and another creditor of theirs, after obtaining the sanction of the District Judge. On the date of the sale deed the amount due under the mortgage was calculated to be Rs. 5594-4-0 and this was stated in the deed to be part of the consideration.

    2. On 28th April 1928 Bishun Prasad Singh who had now attained majority brought a suit for the cancellation of the sale deed on behalf of himself and his minor brother defendant 2. The suit was decreed by the Subordinate Judge who held among other things (1) that the directions of the District Judge with regard to the sale had not been strictly followed; (2) that many of the debts for the payment of which the sale deed was executed had been incurred by Jagdeo after the death of Basdeo and some of them had been incurred after the appointment of Deolochan as the guardian of the minor eons of Basdeo and so they could not possibly bind the estate of the minors; (3) that Jagdeo had acted fraudulently towards the minors by saddling the estate with his personal debts; (4) that most of the debts, recited in the sale deed (Ex. F) did not appear in the schedule of debts on which the sanction of the District Judge was based and (5) that the order of the District Judge appointing Mt. Deolochan as guardian of the minor and sanctioning the sale had been obtained at the instance of the plaintiffs. These findings were virtually upheld on appeal which came before the late Chief Justice and myself. The learned Chief Justice who delivered the judgment in the appeal pointed out that these plaintiffs were old creditors of Jagdeo and in view of the fact that they had themselves insisted on the appointment of the guardian they were, if not parties to the fraud by Jagdeo on the minors, certainly possessed of information which should have put them on their guard. After the decision of the appeal the plaintiff on 16th June 1936, brought the present suit which has been dismissed by the learned Subordinate Judge on the ground of limitation. The main question which hag therefore to be decided in the present appeal is whether the suit is barred by limitation. The plaintiffs have put forward two grounds to show that the suit is not barred by limitation, notwithstanding the fact that it was brought nearly 27 years after the execution of the mortgage bond. It is said in the first place that the effect of the decree in the suit brought by Bishun Prasad for the cancellation of the sale deed Ex. F was that the rights of the plaintiffs as well as the liabilities of the defendants under the mortgage bond were revived, and secondly, that the plaintiff's rights under the mortgage bond had been kept alive by repeated acknowledgments of the debt due under the bond. The defendants on the other hand contend that the plaintiffs having with their eyes open entered into a transaction which purported to discharge the mortgage bond, cannot be allowed to say that the mortgage bond is still alive specially as they were, if not party, at least privy to the fraud practised by Jagdeo upon the minior; and further that the alleged acknowledgments are not binding upon the minor.

    3. I will first deal with the important question as to whether the mortgage bond can be said to have been revived as a result of the decree in the suit brought by defendant 1 for setting aside the sale deed of 1st August 1918. Now, as the learned Subordinate Judge has pointed out, on the findings arrived at in the previous litigation, the plaintiffs cannot be said to have acted in good faith in concluding the transaction of 1st August 1918. They were undoubtedly old creditors of the family and as such they knew many facts. The utmost that can be said in their favour is that in their anxiety to realise their own money they paid no heed to the interest of the minors. But that is only another way of saying that they deliberately took the risk of entering into a transaction which was not entirely for the benefit of the minor. If this view is correct, then I do not see how they can ask the Court to treat their mortgage as alive in spite of the fact that they had put an end to it by their own act. To allow them to do so, would be to allow them to take advantage of their own wrong or reckless behaviour. This point seems to have been made clear in the judgment delivered by Courtney-Terrell C.J, in the previous litigation as will appear from the following extract from that judgment:

    “It is argued on behalf of the defendants that equity demanded that if we should be disposed to set aside the sale we should restore the position of the defendants mortgagees in respect of the debt which the sale was intended to discharge, and it was contended that as the mortgagor had sold a portion of the security, such equitable consideration was no longer possible. To this contention the answer, in my opinion, is that it is only a bona fide purchaser who is entitled to equitable consideration. The defendants abandoned their security under circumstances which entitled them to no protection. If they should have any remedy in respect of the mortgage money they may pursue in such manner as they may be advised but we cannot restore their position as mortgagees, nor are they entitled to any equitable consideration upon an order which we must make setting aside the transaction.”

    4. I have no doubt that what this passage means is that as the present plaintiffs had abandoned their mortgage security, they could not enforce their mortgage, but they are entitled to pursue any legal remedy in respect of the money due under the mortgage bond. It was urged on behalf of the plaintiffs-appellants that in view of Section 65 of the Contract Act, the mortgage deed should be deemed to have revived automatically and the plaintiffs should be allowed to pursue their remedy under the mortgage. But the difficulty which confronts them is that the point has been already decided against them in the previous litigation. Besides S. 65 is very general and all that it says is that when the contract becomes void, any person who has received any advantage under it is bound to restore it or make compensation for it to the person from whom he received it. In the present case since the plaintiffs chose at the time of the sale to abandon their mortgage security and use the money due under the mortgage in part payment of the price of the vended property, the requirements of S. 65 will, in my judgment, be fully satisfied if they get a money decree for that specific sum which has been lost to them by the sale being set aside. Thus, the conclusions which I have arrived at are (1) that the plaintiffs cannot enforce the mortgage bond; the question whether it is barred by limitation does not arise; (2) that the plaintiffs are entitled to recover the specific sum of money which was mentioned in the Bale deed (Ex. F) as having been due under the mortgage of that date and which was set-off as part of the purchase money. It was contended on behalf of the respondent that as there is no specific prayer in the plaint for the recovery of this money, no relief can be granted to the plaintiffs, but in my opinion the plaintiffs ought to get such relief as they are entitled to get on the facts established upon the evidence in the case.

    5. I will now deal with the respondent's second contention that the plaintiffs' right to recover the specific sum of money is also barred by limitation. There can be no doubt on the authorities cited to us that the present suit will be governed by Article 97, Limitation Act, which provides that for money paid on an existing consideration which afterwards fails, the period of limitation is three years from the date of the failure. But the question, as to when time began to run in the present case, is not free from difficulty. In 46 Cal. 670,1 their Lordships of the Privy Council observed as follows:

    “The only question is whether time began to run, as the plaint alleges, from 3rd August 1906 the date of the appellate decree, or as the defendant-respondent contends from 24th August 1905 the date of the original decree in Suit No. 248 of 1904. Both Courts have held that the failure of consideration was at the date of the first Court's decree. Their Lordships feel no doubt that as between these two decrees this is the correct view, for, whatever may be the theory under other system of law, under the Indian law and procedure an original decree is not suspended by presentation of an appeal nor is its operation interrupted where the decree on appeal is one of dismissal.”

    6. This decision has been explained in a number of cases wherein it has been pointed out that the rule laid down by the Privy Council is subject to certain exceptions. For example, when the first Court decides against the plaintiff and the second Court reverses the decree and the decree of the second Court is in its turn reversed by the High Court, the starting point must be the date of the later decree, for it is then that there can be said to be a failure of the consideration. Again, if the first Court holds in the plaintiff's favour and the second Court against him, the starting point will be the date of the latter decision. A third exception, which is more material for our purposes is to be found in a line of decisions in which a distinction has been drawn between cases in which the vendee was never in possession and those where he was in possession and afterwards dispossessed. Dealing with this matter Odgers, J. observes as follows in 46 Mad. 402:

    “Had their Lordships laid down in 46 Cal. 670 a general principle which would govern all cases of this nature, we should of course be bound by it. They, however, say that the plea that the period of limitation began to run when possession was lost was ‘belated’ and proceed to hold that the decree of the first Court is the starting point of limitation, qualifying this, however, by this passage, ‘there may be circumstances in which a failure to get or retain possession may justly be regarded as the time from which the limitation period should run, but that is not the case here. The quality of the possession acquired by the present purchaser excludes the idea that the starting point is to be sought in a disturbance of possession or in any event other than the challenge to the sale and the negation of the purchaser's title to the entirety of what he bought involved in the decree of 24th August 1905. If further support of this view be required, it may be found in the express provision of S. 14 of the Regulation which directs that in the suit for reversal itself the purchaser is to be indemnified against all loss.’ (P. 679).”

    7. What was the quality of the possession in the case before them. Apparently, the purchaser received an amaldastak or order for possession under S. 15 of Bengal Regulation, 8 of 1819. This does not seem to have put him in actual physical possession of the property but to have been an order to the ryots to attorn to him as the purchaser. I think the possession was different in the case before us and that actual possession was delivered to the respondent under Ex. B. Further the deed (Ex. B) would appear to be not void ab initio but only voidable. It would have been open to the succeeding Thamburatty to have confirmed the transaction, cf. 19 Cal. 127,3 and it seems reasonable to hold that the consideration did not fail till respondent was deprived of the possession of the property which he had acquired under Ex. B.

    8. The same view has been expressed in 52 All. 604,4 55 Bom. 5655 and 9 Lah 191.6

    9. In the present case it is admitted that the plaintiff was dispossessed within three years of the suit and, therefore, the suit cannot be held to be barred by limitation. The only question which now remains to be dealt with is as to what should be the form of the decree in this case. Now it appears that though in the previous litigation in which the sale deed of 1st August 1918 was set aside, defendants 1 and 2 got a decree for mesne profits, yet they never took any steps to have the mesne profits ascertained. It was contended on behalf of the appellant that the right of defendants 1 and 2 to recover mesne profits is barred by limitation and, therefore, the appellant should get a decree for the entire sum of Rs. 5594-4-0 with interest up to date. I am, unable to agree with this contention. The plaintiffs were admittedly in possession of the property till some date in 1935 or 1936 and if defendants 1 and 2 had taken the necessary steps to recover mesne profits they would have been entitled to recover it up to that date. Their failure to institute proceedings to recover the mesne profits cannot, in my opinion, debar them from asking the Court to set-off the mesne profits as against the sum claimed by the plaintiffs which may be found to be recoverable from them in the present suit. It is quite conceivable that they did not take any steps to recover mesne profits because they anticipated a suit like the present. In these circumstances, I would remand this suit to the Court below and direct that Court (1) to ascertain the date on which the plaintiffs were dispossessed; (2) to calculate the amount recoverable by way of mesne profits by defendants 1 and 2 from the plaintiffs up to that date and (3) to calculate the amount of interest at six per cent per annum which in our opinion the plaintiffs ought to get upon Rs. 5594-4-0 from the defendants up to the date of the suit and add it to that sum. If the sum which is thus found to be due to the plaintiffs, exceeds the sum due to the defendants from the plaintiffs, there will be a decree for that sum. If the former sum is found to be less than the latter then evidently nothing will be payable by the defendants to the plaintiffs and the plaintiffs' suit must be dismissed. This appeal will be finally disposed of when the Court below will submit the findings to this Court which should be done as expeditiously as possible.

    Shearer, J.:— I agree.

    G.N/R.K

    10. Order accordingly.

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    Comments

    Dhani Sahu v. Bishun Prasad Singh
    (Sep 3, 1941)