PETITIONER: MANGRU MAHTO & ORS. Vs. RESPONDENT: SHRI THAKUR TARAKNATHJI TARAKESHWAR MATH & ORS. DATE OF JUDGMENT: 08/03/1967 BENCH: BACHAWAT, R.S. BENCH: BACHAWAT, R.S. WANCHOO, K.N. RAMASWAMI, V. CITATION: 1967 AIR 2390 1967 SCR (3) 125 ACT: Code of Civil Procedure (Act 5 of 1908), O.XXI, rr. 58 and 63--Order on claim petition against decree-holder--No suit filed for setting aside order--Res judicata, to what extent. Mortgage-Suit by mortgagee--Lessees of mortgaged property not parties--Property sold in execution of mortgage decree--Effect on lessees' right of redemption. HEADNOTE: The owner of certain properties over which K had a mortgage granted leases to certain persons. The lands were sold in execution of the mortgage decree of K, and were, purchased by K at the auction The lessees allowed the property to be sold and did not apply for being joined as parties. K obtained a money decree against one of the lessees and in execution attached the lands. The lessees filed claim peti- tions objecting to the attachment under 0.21 r. 28 C.P.C. The claim petitions were allowed and the executing court found that the leases were genuine. K did not file any suit under O.21 r. 63 C.P.C. But later, K filed a suit against the mortgagor and the lessees for recovery of possession of the lands alleging that the leases were collusive transactions and were otherwise not binding on him. The trial court dismissed the suit holding that leases were genuine,, but the High Court decreed the suit holding that the leases were sham transactions and made in contravention of s. 65A of the Transfer of Property Act. In appeal to this Court, the appellants contended that (i) as K did not file any suit under Order 21 r. 63 C.P.C. the adverse Orders passed against him in the proceedings under 0.21 r. 58 C.P.C. operated as res judicata and he was precluded from alleging that the leases were not binding on him; and (ii) the leases granted by the mortgagor were binding on K. HELD: In view of the orders passed against K in the claim proceedings and his failure to institute suits under 0.21, r. 63 C.P.C., K was precluded from claiming that he had the right to attach the suit lands in execution of his money decree, but he was not precluded from claiming that he had the right to sell the lands in execution of his mortgage decree. [128 E] A claim proceeding tinder 0.21 r. 58 C.P.C. is not a suit or a proceeding analogous to a suit. An order in the claim proceeding does not operate as res judicata. It is because of 0.21 r. 63 that the order becomes conclusive. The effect of r. 63 is that unless a suit is brought provided by the rule, the party against whom the order in the claim proceeding is made or any person claiming through him cannot reagitate in any other suit or proceeding against the other party or any person claiming through him the question whether the property was or no, liable to attachment and sale in execution of the decree out of which the claim proceeding arose but the bar of rule 63 extends no further. [129 A-C] Kandadai Narasimhachariar v. Raghava Pedayachi & Ors I.L.R. 1946 Mad. 79; approved. 126 Subbier v. Moideen Pitchai, A.I.R. 1923 Mad. 562, and Sarju Prasad Missir and Ors. v. Maksudan Choudhuri & Ors. A.I.R. 1922 P.C. 341; referred to. (ii) 'The validity of the leases granted by the mortgagor was not affected by s. 65A of the Transfer of Property Act as the leases were granted before the enactment of s. 65A. [131 A-B] The leases were not in the ordinary course of management of the mortgagor as the agent or bailiff of the mortgagee and were not binding of the mortgagee. [132 A-B] A lease granted by the mortgagor,, out of the ordinary course of management, though not binding on the mortgagee, is binding as between the mortgagor and the lessee. Such a lessee acquires an interest in the right of redemption and is entitled to redeem. If such a lease is created before the institution of a suit relating to the mortgage, the lessee must be joined as a party to the suit under 0.34, r. 1. C.P.C.; otherwise he will not be bound by the decree passed in the suit and will continue to retain his right of redemption. But in view of s. 52 of the Transfer of Property Act, if the mortgagor grants such a lease during the pendency of a suit for sale by the mortgagee, the lessee is bound by the result of the litigation. If the property is sold in execution of the decree passed in the suit, the lessee cannot resist a claim for possession by the auction- purchaser. The lessee could apply for being joined as a party to the suit and ask for an opportunity to redeem the property. But if he allows the property to be sold in execution of the decree., he loses his right of redemption. In the present case, the lessees allowed the suit lands to be sold in execution of the mortgage decree and they have now lost the right of redemption. They can of resist the claim of the auction-purchaser for 'recovery of possession of the lands. [132 D-G] Raja Kamakshya Narayan Singh Bahadur v. Chohan Ram and Anr. [1953] S.C.R. 108; followed. Madan Mohan Singh v. Raj Kishori Kumari , 21 C.W.N. 88, 92; Gobinda Chandra Saha & Ors. v. Sasadhar Mandal, A.I.R. 1947 Cal. 73, 75 and Rust v. Goodale, [1957] 1 Ch. 33, 42 and 43; referred to. JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 988 and 989
of 1964.
Appeals from the judgment and decree dated February 16, 1961
of the Patna High Court in Appeal from Original Decree No.
390 of 1953.
D. Goburdhun, for the appellants (in C.A. No. 899 of
1964).
S. C. Agarwal and R. K. Garg, for the appellants (in C.A.
No. 989 of 1964).
D. N. Mukherjee and S. Mustafi, for respondent No. 1 (in
both the appeals).
The Judgment of the Court was delivered by
Bachawat, J. One Harbans Narain Singh was the proprietor of
villages Seha and Dhobaha and other villages. He created
several encumbrances over these villages including a
mortgage
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dated February 10, 1886 in favour of Basanti Bibi, two
mortgages dated September 9, 1907 and February 5, 1910, in
favour of Harprasad Das and a mortgage dated August 2, 1911
in favour of defendant No. I Ramanandan Lal. On June 23,
1915, Harbans Narain sold the villages to Mahabir Missir
subject to the above mortgages. Mahabir Missir redeemed the
mortgages in favour of Basanti Bibi and Harprasad Das and
became subrogated to their rights. Ramanandan Lal
instituted a suit to enforce his mortgage, obtained a final
decree for sale, put the decree into execution, at the
execution sale purchased villages Seha and Dhobaha and
obtained possession of the villages in 1919 and 1920. In
1924, Mahabir instituted suit No. 17 of 1924 to enforce his
mortgage lien praying for ratable contribution of his dues
in respect of villages Seha and Dhobaha from Ramanandan Lal
and obtained a final decree on August 22, 1931. Mahabir
died leaving his son Kashinath as his legal representative.
Kashinath put the decree in suit No. 17 of 1924 into
execution. On July 13, 1934, Ramanandan Lal paid the
decreetal dues in respect of village Seha. On November 4,
1935, village Dhobaha was sold in execution of the decree in
suit No. 17 of 1924 and was purchased by Kashinath. In
June, 1934, Ramanandan Lal through his constituted attorney,
Munshi Sheobaran Lal granted five leases in respect of the
suit lands in the village to defendants 2 to 7. At the time
when the leases were created, Ramanandan Lal was the
mortgagor in possession of the suit lands over which
Kashinath had a mortgage lien. One of the questions in
issue in these appeals is whether the leases were binding on
Kashinath.
It appears that Kashinath obtained a money decree against
Ramatahal Pandey, husband of defendant No. 3 and in
execution of the money decree attached the suit lands.
Defendants 2 to 7 filed claim petitions objecting to the
attachment under 0.21, r. 58, CPC. The claim petitions were
allowed and the lands were released from attachment by
orders of the executing court dated November 20, 1942 and
February 26, 1944. The executing court found that the
leases were genuine. Kashinath did not file any suit under
0.21, r. 63, CPC. One of the questions in these appeals is
whether the orders passed in the claim proceedings under
0.21, r. 58 precluded Kashinath from setting up his claim in
the present suit.
On June 11, 1946, Kashinath instituted the suit out of which
these appeals arise against Ramanandan Lal and the lessees
for recovery of possession of the suit lands and mesne
profits alleging that the leases were collusive transactions
and were otherwise not binding on him. The defendants
contested the suit. In the meantime, in other proceedings,
it was declared that Mahabir was a benamidar for Shri Thakur
Taraknathji and the deity was the real owner of the
villages. In view of this adjudication, Kashinath lost
128
all interest in the present suit. By order dated August 25,
1952, the deity was added as a coplaintiff in the suit.
The subordinate Judge, Arrah, held that the leases were
genuine, were granted by Ramanandan Lal in due course of
management and were binding on the plaintiffs. On this
finding, he dismissed the suit. The deity preferred an
appeal to the High Court of Patna. The High Court allowed
the appeal and decreed the suit. It held that the leases
were sham transactions were made in contravention of s. 65A
of the Transfer of Property Act and were not binding upon
‘the plaintiffs. Before the High Court, it was contended on
behalf of the defendants that the plaintiffs were precluded
from challenging the leases in view of the orders passed
against Kashinath in the proceedings under 0. 21, r. 58,
CPC, but the High Court rejected this contention.
Defendants Nos. 2, 6 and 7 and the widow of defendant No. 5
have filed C. A. No. 988 of 1964 and defendants 1 and 4 have
filed C. A. No. 989 of 1964 under certificates granted by
the High Court,
The appellants contend that as Kashinath did not file any
suit under O. 21, r. 63, CPC, the adverse orders passed
against him in the proceedings under O. 21, r. 58, CPC
operated as res judicata, and lie and the deity who now
stands in his shoes, were precluded from alleging that the
leases were not binding on them. We think that this
contention should be rejected. In view of the orders passed
against Kashinath in the claim proceedings and his failure
to institute suits under O. 21, r. 63, CPC, Kashinath was
precluded from claiming that he had the right to attach the
suit lands in execution of his money decree, but he was not
precluded from claiming that he had the right to sell the
lands in execution of his mortgage decree. Rules 58 to 62
of Order 21, CPC, provide for a summary investigation of the
claims and objections to the attachment of any property
attached in execution of a decree. The issue in the
proceeding is whether “such property is liable to such
attachment”. If the claim is allowed, the property is
released from attachment (r. 60). If the claim is
disallowed, the attachment continues (r. 61). If the
property is subject to mortgage or charge in favour of some
person not in possession, the attachment may be continued
subject to such mortgage or charge (r. 62). The party
against whom an order is made in the claim proceeding may
institute a suit to establish the right which he claims to
the property in dispute, but subject to the result of such
suit, if any the order is conclusive (r. 63). If no suit is
brought under r. 63 within the prescribed period of
limitation, the order in the claim proceeding is conclusive
on the question whether the property was or was not liable
to attachment and sale in execution of the particular
decree. But the order is not conclusive for all purposes,
see Kandai Narasimhachariar v. Raghava Padayachi
129
and others(). A claim proceeding under r. 58 is not a suit
or a proceeding analogous to a suit. An order in the claim
proceeding does not operate as res judicata. It is because
of rule 63 that the order becomes conclusive. The effect of
r. 63 is that unless a suit is brought as provided by the
rule, the party against whom the order in the claim
proceeding is made or any person claiming through him cannot
re-agitate in any other suit or proceeding against the other
party or any person claiming through him the question
whether the property was or was no,- liable to attachment
and sale in execution of the decree out of which the claim
proceeding arose, but the bar of rule 63 extends no further.
In support of the contention that the orders in the claim
proceedings operated as res indicate, counsel for the
appellant relied on several decisions. In Subbier v.
Moideen Pitchai(2), the decree-holder in execution of a
money decree attached a debt alleged to be due to the
judgment-debtor. The garnishee objected to the attachment
on the ground that the debt was not due to the judgment-
debtor, it had been assigned and he had premised to pay to
the assignee and the amount of the debt was Rs. 300 and not
Rs. 350. The objection was disallowed. The attached debt
was sold in execution of the decree and was purchased by the
decree-holder. The decree-holder purchaser then sued to
recover the debt. As the garnishee did not file a suit
under 0. 21, r. 63, the order passed against him in the
claim proceeding became conclusive, and he was precluded
from re-agitating his objections in the suit. In the course
of his judgment, Schwabe, C .J. referred to s. 11 of the
Code of Civil Procedure and his observations give some
support to the contention of the appellants in the present
case that the order in the proceeding under r. 58 operates
as Yes judicata. But we cannot agree with those
observations. The order in the summary proceeding under r.
58 does not operate as res judicata. The reason why the
garnishee could not reagitate his objections was that in
view of r. 63 he was precluded from asserting that the
decree-holder was entitled to attach and sell the particular
debt on the footing that it was due to the judgment-debtor.
In Sarju Prasad Missir and others v. Maksudan Choudhuri and
others(3), one Lalji Lal obtained a decree for sale of the
property mortgaged to him. In execution of the decree Lalji
Lal attached ‘the property. One Karoal Narian Choudhary
filed a petition objecting to the attachment. ‘By an order
dated September 14, 1886 passed under s. 278, CPC of 1992,
corresponding to 0. 21 58 CPC of 1908. file executing
court directed that the property should not be sold under
the decree obtained by Lalji Lal. Sarju Prasad, an assignee
of the decree executed the decree, at the execution sale
purchased the property and subse-
(1) I.L.R. 1946 Mad. 79.
(2) A.I.R. 1923 Mad. 562.
(3) A.I.R. 1922 P.C. 341.
130
quently instituted a suit against the heir of Kamal Narain
for recovery of possession of the property. The Privy
Council held that the order dated September 14, 1886 became
final and binding upon Lalji Lal and all persons claiming
title under him. Sir John Edge observed :-
“The petition of objection was a petition
which the Subordinate Judge had to consider
and dispose of and any party to that
proceeding who was dissatisfied with the order
which the Subordinate Judge might make could
have appealed from it. Lalji Lal was a party
to that proceeding and he did not appeal, and
the order became final and binding upon Lalji
Lal and upon those who claim title under him.”
The observation that the party dissatisfied with the order
made under S. 278 of the Code of Civil Procedure, 1882,
could have appealed from the order, seems to have been made
per incuriam. It seems that no appeal lay from such an
order. The reason why Lalji Lal was precluded from
contending that the property was liable to be attached and
sold in execution of the decree obtained by him was that in
the absence of a suit under s. 283 of CPC of 1882, he and
Sarju Prasad claiming title under him, could not
subsequently contend that the property was liable to be sold
in execution of the decree. In the two cases discussed
above, the adverse orders in the claim proceeding became
conclusive on the question whether the property was liable
to attachment and sale in execution of the particular decree
then sought to be executed. Equally, in the absence of any
suit under O. 21, r. 63, CPC, the adverse orders passed
against Kashinath conclusively decided that the suit lands
were not liable to be sold in execution of the money decree
obtained by him against Ramtahal Pandey. But those orders
were not conclusive on the question whether the lands were
liable to be sold in execution of the mortgage decree
obtained by Kashinath against Ramanandan Lal.
On the merits, the question is whether the leases granted by
Ramanandan La]. while he was the mortgagor, in possession of
the suit lands were binding on the mortgagee Kashinath. The
High Court held that the leases were in contravention of s.
65A of the Transfer of Property Act, 1882. Section 65A was
inserted in the Transfer of Property Act, 1882 by s. 30 of
the Transfer of Property (Amendment) Act, 1929, which came
into force on April 1, 1930 Section 63 of the Transfer of
Property (Amendment) Act 1929 provided that nothing in the
provisions of s. 30 of the amending Act would be deemed if
any to affect the “terms or incidents of any of property
made or effected before the 1st day of April, 1930”. Now
Kashinath was entitled to the rights of the mortgagees under
the mortgages dated February 10,
131
1886, September 9, 1907, February 5, 1910. All these mort-
gages were executed before April 1, 1930 and nothing in s.
65A affected their incidents. The power of the lessor to
make leases binding on the mortgagee-, was an incident of
the mortgages and was not affected by s. 65A. The validity
of the leases granted by the mortgagor in June 1934 must be
determined with reference to the law as it stood before the
enactment of s. 65A.
In Madan Mohan Singh v. Raj Kishori Kumari(1) Mookerjee, J,
held that a mortgagor in possession may grant a lease
conformable to usage in the ordinary course of management,
for instance lie may create a tenancy from year to year in
the case of agricultural lands or from month to month in the
case of houses. But he is not competent to grant a lease on
unusual terms or to alter the character of the land or to
authorise its use in a manner or for a purpose different
from the mode in which he himself had used before he granted
the mortgage. This view of the law as it stood before the
enactment of s. 65A was approved in Raja Kamakshya Narayan
Singh Bahadur v. Chohan Ram and Another(2) and this court
held that the question whether the mortgagor in possession
has power to lease the mortgaged property must be determined
with reference to the authority of the mortgagor as the
bailiff or agent for the mortgagee to deal with the property
in the usual course of management. In Gobinda Chandra Saha
and others v. Sasadhar Mandal(3), B. K. Mukherjea, J.,
pointed out that normally a permanent lease with rent fixed
in perpetuity is not sanctioned by the ordinary course of
management. He observed —
“The mortgagor might be within his rights to
create a lease which is from month to month or
from year to year as the case might be, but he
cannot grant a permanent lease with a rent
fixed in perpetuity. This amounts to an
alienation of his right to increase the rent
in future and is as good as the sale of the
property itself. This is not sanctioned by
the ordinary course of management as has been
mentioned above nor is it warranted by the
previous user of this particular property.”
In the present case, defendants 2-7 were lessees under five
leases granted by the mortgagor in June 1934. All ‘these
defendants claimed to be Permanent lessees with rent fixed
in perpetuity. Four of the leases were granted by
registered pattas.In respect of four leases the mortgagor
received nazrana or premium.All the leases were created
after the property was advertised for sale in execution of
the mortgage decree. The High Court has found
(1) 21 C.W.N. 88, 92. (2) [1953] S.C.R. 118,118.
(3) A.I.R.1947Cal.73,75.
132
that the leases were created by the mortgagor in bad faith
with a view to cause loss to the mortgagee-decree-holder.
The leases were not in the ordinary course of management of
the mortgagor as the agent or bailiff of the mortgagee, and
were not binding on the mortgagee.
On behalf of the appellants it was argued that the leases
might not be binding on Kashinath while he was the
mortgagee, but after- he purchased the property he ceased to
be a mortgagee, and he could not thereafter assert that the
leases were not binding on him. This novel argument is
ingenious but unsound. An auction-purchaser at a sale held
in execution of a mortgage decree buys not only the interest
of the mortgagor but also the interest of the mortgagee. If
the lease does not ‘bind the mortgagee, it does not equally
bind the auction-purchaser. It is interesting to notice
that in Rust v. Goodale(1), Harman, J. held that the right
of the mortgagee to treat a tenant of the mortgagor as a
trespasser was a right which passed on sale or foreclosure
to his assignee.A lease granted by the mortgagor, out of the
ordinary course of management, though not binding on the
mortgagee, is binding as between the mortgagor and the
lessee. Such a lessee acquires an interest in the right of
redemption and is entitled to redeem. If such a lease is
created before the institution of a suit relating to the
mortgage, the lessee must be joined as a party lo the suit
under 0 34, r. 1, CPC; otherwise he will not be bound by the
decree passed in the suit and will continue to retain his
right of redemption. But in view of s. 52 of the Transfer
of Property Act, if the mortgagor grants such a lease during
the pendency of a suit for sale by the mortgagee, the lessee
is bound by the result of the litigation. If the property
is sold in execution of the decree passed in the suit, the
lessee cannot resist a claim for possession by the auction-
purchaser. The lessee could apply for being joined as a
party to the suit and ask for an opportunity to redeem the
property. But if he allows the property to be sold in
execution of the mortgage decree and they have now lost the
present case, the lessees allowed the suit lands to be sold
in execution of the mortgage decree and they have now lost
the right of redemption. They cannot resist the claim of
the auction purchaser of recovery of possession of the
lands.
If a mortgagor in possession of the mortgaged property exe-
cutes a lease of the property in the ordinary course of
management as the agent or bailiff of the mortgagee during
the pendency of a suit by the mortgagee to enforce the
mortgage, a question may arise whether such a lease is in
the eye of the law a lease granted by the mortgagee through
his agent and therefore binding on him. But in the present
case, that question does not arise
(1) [1957] 1 Ch 33,42,43.
133
as the leases were not granted by the mortgagor in the
ordinary course of management as the bailiff or agent of the
mortgagee.
The High Court held that the leases were sham transactions.
We do not think it necessary to decide this question. Even
assuming that the leases were not sham transactions they
were not binding on Kashinath and the deity. The High Court
rightly decreed the suit.
The appeals are dismissed with costs. There will be one
hearing fee.
Y. P. Appeals dismissed.
134