Posted On by &filed under High Court, Madras High Court.

Madras High Court
Erusappa Mudaliar vs The Commercial And Land Mortgage … on 6 November, 1899
Equivalent citations: (1900) 10 MLJ 91


1. The facts of this case are as follows;–The respondent before this Court, the Commercial and Land Mortgage Bank, Limited, India, in O.S. No. 27 of 1896 on the file of the District Court: of Trichinopoly, sued the now appellant before this Court on a mortgage of certain properties for over Rs. 1,20,000 of which he was the owner and obtained a decree under Section 88 of the Transfer of Property Act for sale of those properties. Subseqnently a portion of those properties was sold in execution of a simple money decree for Rs. 1339 and interest thereon and ‘ costs obtained by one A. Srinivasa Aiyar against the appellant in Regular suit No. 239,of 1896 on the file of the District Munsif of Trichinopoly. and was purchased by the Bank. The property so sold was sold subject to the decree debt under the abovementioned decree held by the Bank. Thereupon the appellant presented a petition to the District Court of Trichinopoly purporting to be made under Section 258 of the Civil Procedure Code, claiming that, under the circumstances above stated, the Bank was bound to discharge their mortgage debt and praying that they might be called upon to certify satisfaction of the decree in O.S. No, 27 of 1896.

2. The District Judge was of opinion that the Bank’s mortgagedebt was not extinguished by reason of their having purchased the property sold “in execution of the decree in Suit No. 239 of 1896, and that they could not be held liable for more than the actual value of that property, supposing it to be sold free of incumbrance, ” even though the sale proclamation did not declare that that property was liable only for a portion of the mortgage-debt.” He therefore dismissed the petition.

3. Against this order of the District Judge the petitioner appeals on the ground (1) that the respondents having purchased the property sold in execution of the decree in Suit No. 239 of 1896 subject to the whole mortgage, the lower Court ought to have directed them to certify satisfaction of their whole decree; and (2) that even on the view taken by the lower Court it ought to have directed the ascertainment of the real value of that property and directed the Bank to certify satisfaction of their decree to the extent of such value.

4. Before dealing with the merits of the case, we will dispose of a preliminary objection which was raised by the learned Vakil for the respondents to the entertainment by the lower Court of the petition of the appellant, on the ground that the alleged extingush-ment of the respondents’ mortgage debt, by their purchase of the portion of the mortgaged property at the execution sale, assuming such purchase to have had that effect; was not an “adjustment” of the decree within the meaning of Section 258 of the Civil Procedure Code. We should hesitate before we hold that what occurred was such an “adjustment” of the decree, but we do not consider it necessary to decide this question, because we are of opinion that apart from Section 258, the Court had power to entertain the petition under Section 244 of the Civil Procedure Code. We are unable to accede to the contention of the learned Vakil for the respondents that, with reference to the terms of Section 244, the question raised by the petition could only be raised in answer to a claim made by the respondents on an application by them for execution. That section simply provides that questions arising between the parties to the suit and relating to the execution, discharge or satisfaction of the decree shall be determined by order of the Court executing the decree and not by separate suit. We cannot construe the words “a Court executing a decree” as meaning, as contended on behalf of the respondents, that the section only covers cases of proceedings initiated by the decree-holder and does not include applications (relating to the execution, discharge or satisfaction of the decree) made by the judgment-debtor.

5. Turning now to the merits of the case, in none of the cases cited in argument by the learned Vakils on either side, as they admit, nor in any reported case, so far as we are aware, does precisely the same question which we have now to determine appear to have been decided. The question before us resolves itself, we think, mainly into this, whether the purchase by the Bank at the Court-sale in execution of the money decree of the third party of a portion of the properties mortgaged to the Bank and in respect of which they had obtained their decree for sale, involved a taking advantage by them of their fiduciary position as mortgagees, and, if so, what are the legal consequences in regard to the respective rights and liabilities of the, mortgagor and mortgagees under the mortgage. It is contended for the Bank that as they did not purchase under a decree obtained by themselves, and as leave to bid at the Court auction was, therefore, not necessary, and as there is no ground apart from the mere fact of their being mortgagees of the property for regarding them as having purchased collusively or otherwise than bonafide, the purchase cannot be considered to have involved any undue advantage taken by them of their fiduciary position as mortgagees.

6. In Martand v. Dhondo (1898) I.L.E. 22 B. 624 it was held that a mortgagee, who had attached the mortgaged property in execution of a money decree obtained by him against the mortgagor for a debt other than the mortgage debt, and had himself purchased the property at the sale in execution of that decree without obtaining the leave of the Court to bid at the auction, had not thereby freed himself from his liability to be redeemed by the mortgagor, not because the had purchased without obtaining leave but because of ” the impossibility of a mortgagee by such sales and purchases as these freeing himself from his liability to be redeemed.” That case was decided under the law as it existed before the Transfer of Property Act came into force in the Bombay Presidency, but upon the same principle as that embodied in Section 99 of the Transfer of Property Act. It’ was pointed out in the judgment, that that section extends to attachments under personal decrees for any debts, whether the mortgage debtor any other debt, the principle which had been held, in cases there referred to, to apply to attachments under personal decrees obtained on the consent or contract by the mortgagor to pay the mortgage-debt. The Court was of opinion that “the same reasoning applies to a mortgagee buying the equity of redemption under a decree obtained upon a claim independent of the mortgage as applies to a decree obtained upon a collateral instrument to secure the mortgage debt,” This decision of the Bombay High Court was concurred with by this Court in Mayan Pathuti v. Pakuran (1899) I.L.E., 22 M. 347 in which the facts were similar, and in which, after holding that the execution sale of the mortgaged property to the mortgagee having been confirmed, the mortgagors were precluded from obtaining the relief to which they would otherwise have been entitled under Section 99 of the Transfer of Property Act, viz., the setting aside of the sale. Mr. Justice Subrahmania Aiyar said that” this decisions to the finality of the order confirming the sale was not to be understood to imply that the mortgagors were precluded from redeeming the property, which they might still be entitled to do “owing to the impossibility of the respondent, as the mortgagee, freeing himself, by such a sale and purchase from the liability to be redeemed (Martand v. Dhondo.”) (1898) I.L.R., 22 B. 624, It appears to us. that the same principle which was affirmed in those cases requires that we should go yet a step further and hold that it applies also to a case, which the present case is, when a mortgagee buys the equity of redemption at a Court auction in execution of a personal decree for money obtained by a third person against the mortgagor, even though there be no fraud or collusion between him and the third party. It appears to us that the advantage which his position as mortgagee gives him over competing or would be competing bidders, in respect of his presumably superior knowledge or better opportunities of knowledge of the mortgaged property and its value and otherwise exists equally in such a case as it does in a case when the personal decree in execution of which he purchases is a decree obtained by himself, and that therefore in both easel alike he must be looked upon as availing himself of his position as mortgagee to obtain an undue advantage over the mortgagor or otherwise to be acting mala fide in the eye of the law (whether there be actual fraud or collusion or not), and in contravention of the principle which underlies Section 99 of the Transfer of Property Act and which is given expression to in Section 88 of the Indian Trust Act.

7. The learned Vakil for the respondents relied on (among other cases) the case of Shaw v. Bunny 2 DeGex, Jones and Smith, 468, in which it was held that when a first mortgagee having power of sale duly exercises it, and a subsequent mortgagee becomes the purchaser, the latter, in the absence of special circumstances showing want of bona fides on his part, acquire the same irredeemable title as a stranger purchasing would have acquired. Even in that case, however, one of the two Lords Justices who decided the case, Lord Justice Turner was prepared to dissent from the view taken by Lord Justice Knight Bruce, and to hold that the mortgagor had not lost his right of redemption, if he could have found authority to support this view, and he expressed himself as submitting with much reluctance to the judgment of the Master of the Rolls upon this point, which took the view which was taken by Lord Justice Knight Bruce, being affirmed. Assuming that the law laid down in that case would be the law to be followed in a similar case arising in this country, viz., a case in which the question is one between a second mortgagee purchasing in a sale under the first mortgage, and the mortgagor, a point on which it is not necessary for us to express an opinion–such a case is materially distinguishable from the present case, inasmuch as in the former the purchase is in law free from the mortgage held by the purchaser (it becoming extinguished thereby), whereas in the latter the purchase is subject to the mortgage. In the former case it is the interest of the second mortgagee to offer a price which would cover both the mortgage debts, whereas in the latter, on the other hand, it is the interest of the mortgagee whose mortgage is unaffected by the sale, to buy at the lowest price.

8. In one point of view, the principle which was affirmed in Martand v. Dhondo (1898) I.L.R. 22 B. 624 appears to us to apply even more forcibly in a case like the present, where the decree in execution of which mortgaged property is sold and bought by the mortgagee is a decree obtained by a stranger than in a case where such decree is one obtained by the mortgagee. For whereas in the latter case the mortgagee is required to obtain the leave of the Court to bid, in the former case there is no such check against his purchasing.

9. It was contended for the appellant that the advantage unduly gained by the mortgagee and corresponding loss sustained by the mortgagor,in such a case as the present,if his purchase of the mortgaged property, or part of it, is to hold good just as it had been a ‘ purchase by a third party, consists in the difference between the market value of the property free from the mortgage and the price for which the equity of redemption was bought by the mortgagee. We think this is not the true view. What constitutes the substantial advantage which would be gained by the mortgagee and the substantial prejudice to the mortgagor, in our opinion, is the fact that the mortgagor would be deprived of the right of redemption and of the time and opportunities which the law allows to a mortgagor for redemption. There might or might not be a loss to the mortgagor and advantage to the mortgagee by reason of the latter purchasing the property for less than its market value; that would depend upon the price paid. But in all cases there would result, to use the words of Lord Justice Tirner in Shaw v. Bunny 2 DeGex, Jones and Smith, 468 “an entire change of character in the person who has made the purchase,” and a corresponding change of character in the mortgagor resulting in the latter being deprived of his right, and the former being set free from his liability, to redemption. This, therefore, in our opinion, is the loss of the mortgagor which must be made good, and this is the advantage gained by the mortgagee which must be accounted for by him, upon the principle above considered. This view is not, we think, inconsistent with the provisions of the last paragraph of Section 60 of the Transfer of Property Act, because those provisions though they would apply to a case, where a purchase by a mortgagee of part of the mortgaged property was effectual to extinguish the equity of redemption in respect of that part fas e.g., when it was sold to him by the mortgagor by a voluntary sale), do not touch a case where the-question,”is whether such a purchase by the mortgagee can have the effect of depriving the mortgagor of his right to redeem.

10. The other authorities referred to in the argument do not, in our opinion, require to be noticed, except perhaps Moro Baghunath V. Balaji Trimbak (1898) I.L.R. 22 B. 624. There, it is to be observed, the mortgagor, for some reason or other not appearing in? the report, proceeded on the assumption that the equity of redemption in respect of the portion of the property which had been sold under the decree obtained on the second mortgage had been extinguished. In that view, no doubt, the utmost that he could claim was that credit should be given to him for a portion of the mortgage-debt proportionate to the full value of the portion of the property which was treated as having been so absolutely vested in the mortgagee.

11. In the view we have taken, the appellant must be held to have misconceived his rights and we must accordingly confirm the order dismissing his petition, on the ground that he is not entitled to the relief he seeks, but only to proceed on the footing that the portion of the property which has been purchased by the Bank is, notwithstanding such purchase, redeemable by him together with the remainder of the property. Under the circumstances we think each party should bear his own costs of this appeal.

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