Goswami Maheshpuri Guru Ramkrishnapuriji v. Ramchandra Sitaramji

1. This is an appeal by defendant 3. It arises out of a suit brought by respondent 1 to enforce a mortgage dated 17th November 1926, executed by Bindapuri in favour of the plaintiff's father and uncle (since deceased) for a consideration of Rs. 50,000. Bindapuri is dead. Defendant 1 who is his chela and legal representative has been joined as a party. Defendant 3 has been joined as a subsequent purchaser of one of the mortgaged properties, viz. 4 annas share in mouza Ubgi, which he purchased in auction on 5th February 1932. He denied the mortgage but admitted that he was a purchaser in auction sale held in execution of a decree in civil Suit No. 14 of 1924. He, however, pleaded that the decree which he had obtained in Civil Suit No. 14 of 1924, was one declaring a charge over this 4 annas share in mouza Ubgi and hence he was a prior charge-holder and the plaintiff on the basis of the mortgage executed subsequent to the charge-decree was not entitled to enforce it as against him. His second contention was that when he wanted to sell the property charged by his decree in Civil Suit No. 14 of 1924, the plaintiff preferred an objection on the basis of the mortgage in suit and wanted the property to be sold subject to the mortgage, that the objection was disallowed but the plaintiff did not file any suit under O. 21, R. 63, for setting aside that order, and that therefore the present suit to enforce the mortgage did not lie.

2. The plaintiff in reply pointed out that Civil Suit No. 14 of 1924 was for recovery of an unsecured debt of Rs. 10,232-11-9; that suit was compromised between the plaintiff and Bindapuri, and a decree in terms of the compromise was passed making the amount due payable in 4 annual instalments; it was further agreed that the debt so made payable would be a charge on the 4 annas share of mouza Ubgi, which could be sold in default of payment as agreed; the charge so created was not effected by a registered instrument, nor was the decree registered; the charge was never disclosed by the mortgagor, and on inquiries the mortgagees were satisfied that the property offered for mortgage was not in any way encumbered and thus they were bona fide transferees for value without notice of the alleged charge; the mere fact that the charge was prior to the mortgage did not in any way affect the rights of the mortgagees to enforce their mortgage against the property covered by the mortgage. It was further contended that a charge does not create any interest in immovable property and that on that ground also defendant 3 as a mere charge-holder was not entitled to claim priority over the mortgagees. It was admitted that an objection had been filed by the plaintiff when defendant 3 wanted to have the charged property sold in execution of his decree and that it had been dismissed; but it was pointed out that the objection was dismissed because the Court held that it was not maintainable under O. 21, R. 58 read with R. 62 of the CPC. Defendant 3, however, admitted in those objection proceedings that it was not necessary to decide the question of priority in those proceedings, and he stated that he had no objection if the Court mentioned the encumbrance in favour 6, of the plaintiff in the sale proclamation so as to give notice to all intending purchasers that the property was mortgaged with the plaintiff for Rs. 50,000. On these pleas, it was stated, a suit under O. 21, R. 63 of the CPC, was not necessary, and the fact that such a suit was not instituted was not fatal to the plaintiff's suit as against this defendant. These pleadings between the plaintiff and defendant 3 gave rise to issues 11, 12 and 13, which are as follows:

“11.(a) Whether a suit under O. 21, R. 63 of the CPC, was necessary for setting aside the order dated 10th February 1930, passed by the executing Court against the mortgagees? (b) What is the effect of/that order on the present claim? 12. Was the charge compulsorily registrable? 13. Did the mortgagees take the mortgage for valuable consideration and bona fide without notice of defendant 3's charge? If so, how would defendant 3's claim to priority be thereby affected?

3. The trial Court after considering the entire case came to the conclusion that suit under O. 21, R. 63 of the CPC, was not necessary for setting aside the order dated 10th February 1930, and that the plaintiff was not in any way prevented from enforcing his mortgage against defendant 3. It also held that the charge was not compulsorily registrable. It further held that the mortgagees took the mortgage for g, valuable consideration bona fide and without notice of the charge in favour of defendant 3. It held that defendant 3 could not claim priority in respect of his charge and that the plaintiff was entitled to enforce his mortgage against defendant 3. After considering the defences of the other defendants in the case the Court passed the usual preliminary decree for sale of the property. It is against this decision that defendant 3 has come up in appeal. The findings given by the Court below against defendant 3 were all challenged in the memorandum of appeal; but at the stage of argument the learned counsel for the appellant did not challenge the finding under issue 11. It was conceded that the plaintiff's suit on the basis of the mortgage was maintainable and that it was not necessary for the plaintiff to have instituted a suit under O. 21, R. 63 of the CPC, for setting aside the order dated 10th February 1930. The respondent-plaintiff did not contend that under the Registration Act as it then stood the decree declaring a charge in favour of defendant 3 required registration. The findings on issues 11 and 12 therefore were not contested before us by any party. The appellant, however, challenged the finding under issue 13 that the mortgagees took the mortgage for valuable consideration bona fide and without notice of defendant 3's charge, and contended that even if it be so held defendant 3 as a holder of a charge created by the decree was entitled to priority irrespective of the question of notice. We take up the question of notice first.

4. It is the plaintiff who contended that the mortgagees were transferees for valuable consideration without notice of the prior charge; and, ordinarily, the burden would lie on him to prove want of notice of the prior charge. In para. 23 of its judgment some emphasis has been laid by the lower Court on the point that defendant 3 had at a late stage raised the plea that the mortgagees were transferees with notice of the charge, and this has been used against defendant 3. The appellant therefore rightly pointed out that as the burden of proof lay on the plaintiff to prove that the mortgagees took the mortgage without notice of the prior charge it was not necessary for him (the appellant) to plead notice. The decision of the Court below, however, is not based mainly on this aspect of the case as was argued before us: it is based on the evidence given by the parties and the circumstances of the case. The mortgagees Sitaram and Tukaram are both dead. The plaintiff is the son of Sitaram and is the sole surviving member of the family. He has no personal knowledge of the transaction. He therefore examined Daulat (P.W 4), who has been in the service of the family from 1925 and who knows about the transaction in dispute. This witness swore that the mortgagor assured the mortgagees that the property covered by the mortgage was not encumbered with anybody, that there was no charge or mortgage against the property, and that none but himself had any interest in the property; all that was mentioned at the time of the mortgage was about an attachment of the villages by Laxmikant Pande. The evidence of Daulat (P.W 4) is corroborated by the recitals in Ex. P-48 (the mortgage deed in dispute). In that deed the mortgagor has made a specific mention of the attachment of the property by Laxmikant Pande. He has then stated:

“Nobody else has any mortgage debt against or any right to and attachment against the mortgaged property. In case, it is so found, I will be responsible therefor. I have not gifted, sold or mortgaged this property to anybody else nor did I make any agreement in respect of sale (thereof),”

5. This recital is in consonance with the evidence given by Daulat (P.W 4) that no charge in favour of defendant 3 was disclosed at that time. The other evidence on record to which our attention was drawn consists of the testimony of Pandurang (3 D.W 1), agent of defendant 3, who stated that Bindapuri had taken him to the mortgagee Tukaram in Nagpur, and that he (the witness) informed the mortgagee that only 4 annas share of mouza Ubgi had been charged in favour of Maheshpuri (defendant 3). One more witness who speaks about it is Nathulal (1 D.W 1). He is an agent of defendant 1; and in his cross-examination by defendant 3's pleader he stated:

“At the time of settling the terms of the mortgage in suit Bindapuri told plaintiff's father that Maheshpuri had obtained a decree against him and there was his charge on the decree which was going to be mortgaged. Sitaram said that he did not mind that and he would pay off the decretal debt.”

6. This witness has thus tried to support defendant 3's plea. The lower Court has not believed these witnesses. It has given cogent reasons for holding that they are not telling the truth. Pandurang (3 D.W 1) stated that the talk took place in the month of Poush or Magh; but the mortgage deed in suit was executed in the month of Kartik, i.e, three months before the alleged talk. It was argued that the witness must have committed a mistake in giving the month of the talk. The witness, however, is positive about the month. He has been in the service of defendant 3 and his father for the last 50 years and is highly interested in defendant 3. He does not give us any reason why information was given to the mortgagee Tukaram. He stated that there was no talk about the villages that were to be mortgaged. If there was no talk, and if it was not made known to him that village Ubgi was to be mortgaged, there was absolutely no point in his giving this information to Tukaram. If he had gone to inform Tukaram about the charge held by his master he would have asked Tukaram either not to take a mortgage of that village or to pay off the charge first before taking the mortgage. He admits that he did not suggest anything of the kind. Nathulal (1 D.W 1) is, as already stated a mukhtyar of defendant 1 and highly interested in defendant 3. Defendant 1 lives with defendant 3, and this is admitted by himself as 1 D.W 4 (in cross-examination). He wants us to believe that this talk took place eight months before the execution of the mortgage deed. He stated that Pandurang (3 D.W 1) was present at the time when this talk took place. Pandurang, however, does not refer to the presence of Nathulal (1 D.W 1) when the talk between him and Tukaram took place. Nathulal speaks of the presence of both the mortgagees while Pandurang speaks of the presence of only one of them. Thus the two witnesses relied on by defendant 3 to prove that the mortgagees had knowledge of the prior charge are not worthy of credence and have been rightly disbelieved by the Court below.

7. Another reason given by the Court below for coming to the conclusion that the mortgagees were transferees for valuable consideration without notice of the prior charge is afforded by the recitals in Ex. P-48. The mortgagees had undertaken to pay off several debts due from the mortgagor. The attachment before judgment effected by Laxmikant Pande has been specifically mentioned, and the mortgagees took hawala to pay off that debt, and it is proved in the case that they actually paid off that debt. The mortgagees had also undertaken to pay off unsecured debts to the extent of Rs. 12,000. It does not stand to reason that they would have undertaken to pay off unsecured debts to the extent of Rs. 12,000 in preference to this prior charge debt due to Maheshpuri had they been aware of it at that time. The probabilities of the case therefore are that the mortgagees were not aware of the prior charge and therefore entered into the transaction in the manner in which they did. Agreeing with the lower Court we hold that the mortgagees took the mortgage bona fide without notice of the prior charge-decree in favour of defendant 3.

8. The next point for determination in this appeal is whether in spite of the fact that the mortgagees were bona fide transferees without notice of the prior charge they were bound by the charge and could not seek to enforce their mortgage against that charge-holder, who had subsequently purchased the property in execution of his charge decree. It was argued that this charge had been created by decree and had been embodied in the decree passed in favour of defendant 3 on 6th September 1924, and that the plaintiff who claimed from a person who was party to such a decree after the creation of the charge was estopped from pleading that he had no notice and that the charge was not binding on him. I.L.R (1938) Nag. 4311 and I.L.R (1941) Nag. 5132 are relied on in support of the proposition. The judgment of the lower Court was delivered on 30th April 1938. The two rulings cited above had not then been published. The Judge of the lower Court therefore decided the case on the law as it was then interpreted and held that inasmuch as a charge is distinct from a mortgage and inasmuch as a charge does not transfer an interest in immovable property but merely creates a right of payment out of the property specified it is good only against subsequent transferees with notice of it. It was contended before us that the view taken in I.L.R (1938) Nag. 4311 and I.L.R (1941) Nag. 513,3 governed the present case, that as the charge had been created by a decree the question of notice did not arise, and that the plaintiff as privy to the mortgagor was estopped from setting up the mortgage against the prior charge. In I.L.R (1938) Nag. 431, it was laid down that when a decree has been passed in a suit the cause of action merges in the decree and thereafter the rights which founded the relief claimed are extinguished and are replaced by the rights created by the decree, and that the rights of a charge-holder, when the charge is created by a decree, are founded, not upon any provisions of the Transfer of Property Act, but upon the law of estoppel by record. It was further laid down that the term ‘privy’ is a term of the law, meaning a partner who is not a party and in the case of a decree creating a charge on land includes a bona fide purchaser for value without notice, who derives title to the land, the subject of the charge, from one who was a party to the suit by the decree in which the land was charged. This case, no doubt, supports the contention of the appellant; but we find that the Division Bench of this Court later on in I.L.R (1941) Nag. 513, distinguished this case and made it applicable only to executable decrees and not to declaratory decrees. Where a charge was merely declared they held that the ordinary incidents of the charge applied and a bona fide transferee without notice of the prior charge was entitled to protection.

9. It was argued for the plaintiff-respondent that inasmuch as the Division Bench has made a distinction between executable decrees and declaratory decrees there is a further distinction to be taken notice of, viz., the distinction between decrees passed by Courts after contest creating a charge against property and decrees passed by Court on the basis of a compromise arrived at by the parties creating a charge on property which was not the subject-matter of the suit, and it was contended that the principle laid down in I.L.R (1938) Nag. 431, did not apply to the facts of such a case. It was also contended that the view taken in I.L.R (1938) Nag. 431, was very widely stated and ought to be reconsidered. A contrary case reported in 20 Pat. 86, was brought to our notice where it was held that a charge created by a decree in pursuance of an agreement between the parties is a charge created by act of parties and consequently one contemplated by Section 100 of the Transfer of Property Act, 1882, as amended by Act 20 of 1929. Our attention was also drawn to a Full Bench case of the Lucknow High. Court, 13 Luck 101,4 wherein it was very clearly laid down: there is no difference in principle between a charge created by a decree and one created by contract; in either case the charge is not a transfer of an interest in the property; where, therefore, a particular right is charged on specific immovable property by a decree of Court, such right cannot be enforced against a subsequent transferee for valuable consideration and without notice of the charge. This Full Bench decision overruled the previous decisions in 5 Luck. 1725 and 8 Luck. 1686 and relied on 13 ALL. 28,7 which is one of the cases relied on by the trial Court. When a similar view was pressed on their Lordships of the Patna High Court one of the Judges deciding the case expressed himself in favour of the view taken in 13 Luck. 101, but stated that in view of the fact that the case before him was one in which the decree creating the charge was based on a compromise it was not necessary to go into that question further inasmuch as a charge created by a decree in pursuance of an agreement between the parties is one created by act of parties and consequently one contemplated by Section 100 of the Transfer of Property Act. Section 100 of the Transfer of Property Act, as it originally stood at the date when this charge was created was as under:

“Where immovable property of one person is by act of parties or operation of law, made security for the payment of money to another, and the transaction does not amount to a mortgage the latter person is said to have a charge on the property; and all the provisions hereinbefore contained as to a mortgagor shall, so far as may be, apply to the owner of such property, and the provisions of Ss. 81 and 82 shall, so far as may be, apply to the person having such charge.

Nothing in this section applies to the charge of a trustee on the trust property for expenses properly incurred in the execution of his trust.”

10. By the amending Act (20 of 1929), which came into force on 1st April 1930, certain words were introduced for the first time, and ‘charge’ was defined as follows:

“Were immovable property of one person is by act of parties or operation of law made security for the payment of money to another, and the transaction does not amount to a mortgage, the latter person is said to have a charge on the property; and all the provisions hereinbefore contained which apply to a simple mortgage shall, so far as may be, apply to such charge.

Nothing in this section applies to the charge of a trustee on the trust-property for expenses properly incurred in the execution of his trust, and, save as otherwise expressly provided by any law for the time being in force, no charge shall be enforced against any property in the hands of a person to whom such property has been transferred for consideration and without notice of the charge.”

11. The main difference to be noticed in the two sections is that the section as amended explicitly states that no charge would be enforced against a person taking the property for consideration and without notice of the charge. The amendment was made in order to set at rest the conflict of decisions that existed before. The view taken by the Judicial Commissioner's Court, Nagpur, before the amendment was that no charge could be enforced against property in the hands of a person to whom such property had been transferred for consideration and without notice of the charge: 15 N.L.J 141.8 This view was approved in 30 N.L.R 3039 at p. 305. The view taken in several other cases was that inasmuch as there is no transfer of interest in property in a charge while there is such a transfer of interest in a mortgage a charge would be good against subsequent transferees such as mortgagees or purchasers only if the subsequent transferees had notice of the prior charge: 33 Cal. 985,10 at p. 993, 38 ALL. 25411 at p. 258 and 42 Cal 625.12 A contrary view was also taken in some cases: 28 ALL. 65513 at p. 660 and 47 ALL. 90.14 It was to set at rest this conflict of view that Section 100 of the Transfer of Property Act, was amended, and as observed by the trial Court it is a settled principle of construction that the Legislature is presumed to know the interpretation put on a statute by judicial decisions; when a statute has received a particular interpretation and the Legislature re-enacts that section in the light of that interpretation such re-enactment must be treated as a legislative recognition of the construction. The Legislature was aware at the time this amendment was made that the interpretation placed by some High Courts was to the effect that bona fide transferees without notice were protected from charge-holders while some High Courts took the view that they were not so protected. The Legislature by amending the section has shown that the view that such transferees are protected is the correct view. As stated by their Lordships of the Patna High Court the amendment of Section 100 of the Transfer of Property Act, by Act 20 of 1929, was made with a view to making the intention of the section as it then stood clearer and not with a view to altering what was already the law on the subject. In I.L.R (1938) Nag. 431 at p. 433 their Lordships stated:

“We find considerable difficulty in the way of treating a charge, however created, under the provisions of the Transfer of Property Act before its amendment, as in some way creating an interest which encumbers the land.”

12. But their Lordships thought that the passing of a decree and creating a charge under the terms of the decree made a difference, and they stated that when the charge is created by a decree the provisions of the Transfer of Property Act do not apply, but the law of estoppel by record applies. They based their decision on the fact that judgments are binding not only on the parties but on their privies, and they held that the term ‘privy’ included ‘all who derive title to the land the subject of the charge from one who was a party to the suit by the decree in which the land was charged.’ But if a charge does not create any interest in immovable property and if the property covered by the charge is not thus the subject-matter of the suit, we find it difficult to understand how an innocent transferee, who had absolutely no notice and had no means of having notice as the charge was not created by a registered document, can be regarded as a privy of the judgment-debtor by the mere fact that the decree as passed mentioned some property as charged. There is no privity of estate between the charge-holder and the judgment-debtor, and therefore the judgment-debtor was free to deal with the property, and a person taking bona fide without notice from such a person ought to be protected. It is for these and similar reasons that their Lordships of the Lucknow High Court in the Full Bench case reported in 13 Luck. 101 held that there was no difference in principle between a charge created by a decree and one created by contract. If a charge does not create any interest in immovable property it should make no difference whether it is created by act of parties or by terms of a decree. The Nagpur rulings referred to above, viz., I.L.R (1938) Nag. 431 and I.L.R (1941) Nag. 513, however, create one more heading—charges created by decrees. We are impressed with the argument that creating of a charge by decree as a new head is not warranted. A charge as defined in Section 100 of the Transfer of Property Act, is either created by act of parties or by operation of law. Its being embodied in a decree does not make it anything but a charge. Accordingly we would have considered, with all respect, that the decisions in I.L.R (1938) Nag. 431 and I.L.R (1941) Nag. 513 might require reconsideration, and would have referred this case to a Full Bench but for the fact that we are able to distinguish these decisions on other grounds.

13. The two Nagpur cases referred to above were cases in which there was no compromise; they were cases of Hindu widows claiming a right of maintenance. There was contest, and decrees were passed by the Courts charging the estate with the right of maintenance. The case before us is of a different type. The suit instituted by defendant 3 was for recovery of an unsecured debt. During the pendency of the case the parties effected a compromise, and as a result of it the amount due was settled and was made payable by instalments, and the debtor agreed that he would have four annas share of mouza Ubgi charged for the realization of that amount. Four annas share of mouza Ubgi was not the subject-matter of the suit. No charge was claimed by the plaintiff against mouza Ubgi. It is the agreement between the parties that gave a charge to the plaintiff against that, property, and the Court merely lent its seal to that agreement by incorporating the terms of that agreement in the decree. The charge is thus for all practical purposes by act of parties. As was observed in 55 ALL. 33415 at p. 340 ‘the result of the compromise decree is that the Court is precluded from coming to any conclusion of its own and it has to accept a lawful compromise arrived at by the parties.’ The decision lays down that the case did not go beyond the domain of contract though it was embodied in a decree.

14. In 56 Bom 231,16 it was observed that a consent decree is a creature of the agreement on which it is founded and may be set aside on any ground on which a contract can be set aside. In A.I.R 1937 Nag. 413,17 it was stated that a decree based on a compromise was all the same a contract in the legal sense. That was also the view taken in A.I.R 1924 Cal. 159.18 We are clearly of the opinion therefore that in cases of decrees based on compromise, and in particular with reference to properties which are not the subject-matter of the suit, the compromise decree is nothing more than a contract between parties and is subject to all the provisions regarding contract. It is such a contract that was entered into between defendant 3 and his judgment-debtor when he obtained a decree in 1924. To such a contract the mortgagees were not parties. That contract did not create any interest in immovable property. It amounted at the most to a charge embodied in the decree. The Registration Act as it stood before the amendment of 1929 did not state that a composition deed whereby property was charged or a decree or order of a Court was compulsorily registrable. It is only by the amendment of 1929 that a decree or order, expressed to be made on a compromise and comprising immovable property other than that which is the subject-matter of the suit or proceeding was made compulsorily registrable. Not being registered the plaintiff had no means of knowing anything about the creation of this charge. Such a charge is one created by act of parties and consequently one contemplated by Section 100 of the Transfer of Property Act. We therefore hold that as against such charges a transferee for value without notice is protected and the charge-holder cannot claim priority. We have already held that in the present case the transferees had no notice and were bona fide transferees. The plaintiff is therefore entitled to enforce his mortgage as against the property in the possession of defendant 3. For the reasons stated above we dismiss the appeal with costs.

15. Appeal dismissed.