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PETITIONER: ANANDRAM JIVRAJ GAGLE

       Vs.

RESPONDENT: PREMRAJ MUKANDAS & ORS.

DATE OF JUDGMENT: 31/08/1967

BENCH: SIKRI, S.M. BENCH: SIKRI, S.M. SHAH, J.C. SHELAT, J.M.

CITATION:  1968 AIR  250            1968 SCR  (1) 424

ACT: Transfer  of  Property  Act  (4  of  1882),  ss.  76(d)  and 76(h)--Priorities  laid down in s. 76(h) whether subject  to those in s. 76(d).

HEADNOTE: The  respondents  filed  a suit against  the  appellant  for redemption  of a mortgage.  The suit was decreed subject  to payment  of  a sum of Rs. 9,224-12-0 towards  principal  and interest  within  six  months.   A  preliminary  decree  was directed  to be drawn up.  The appellant filed an appeal  in the  Court of the District Judge and inter alia  urged  that "the court ought to have directed the Commissioner to deduct the rent received (i) first towards taxes, then (ii) towards interest of the amount, of repairs etc., then (iii)  towards interest  on the principal amount, then towards (iv)  amount of  repairs and expenses and then towards the  principal  of the loan." The appeal was dismissed.  A second appeal in the High Court also failed.  The appellant came to this Court by special  leave.   It  was  urged  on  his  behalf  that  the priorities in s. 76(h) of the Transfer of Property Act  were subject to the priorities in s. 76(d) and therefore interest on  the principal amount should, in the present  case,  have been  given priority over the payment of the expenditure  on maintenance and repairs. Held:The appeal must fail. The  object of s. 76(d) is not to fix any priorities but  to make  it  obligatory on the mortgagee, in the absence  of  a contract  to the contrary to carry out necessary repairs  to the  property but the amount he can spend is limited to  the difference between rents and profits and payments  mentioned in  cl. (c) and the interest on the principal money.  It  is cl.  (h) which directs the mortgagee to apply  the  receipts from the mortgaged property in a certain manner.  The  order of application is (1) the expenses properly incurred for the management  of the property and the collection of rents  and profits  and the other expenses mentioned in cls.,  (c)  and (d),  (2) interest thereon, (3) the surplus, if any, has  to be utilised towards reduction of interest on principal money and   (4)   the  principal  money  itself.   There   is   no contradiction between s. 76(d) and s. 76(h).  The fact  that

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s. 76(d) limits the scope of the liability has no bearing on the  question whether it lays down any order  of  priorities inconsistent with those mentioned in cl. (h) [428B-E]

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 8 of 1965. Appeal  by special leave from the judgment and decree  dated October  5, 1962 of the Bombay High Court in Appeal No.  598 of 1960, from Appellate Decree. S. T. Desai and J. P. Aggarwal, for the appellant. O. P. Malhotra, and P. C. Bhartari, for the respondents. 425 The Judgment of the Court was delivered by Sikri,  J. This appeal by special leave is directed  against the  judgment and decree of the Bombay High Court in  Appeal No.  598  of  1960, whereby the  High  Court  confirmed  the judgment  and decree dated January 30, 1960, passed  by  the Extra  Assistant  Judge,  District  Court,  Ahmednagar,   in Regular Appeal No. 300 of 1958, confirming the decree  dated April  7,  1958,  passed by the Joint  Civil  Judge,  Junior Division, Ahmednagar, in Civil Suit No. 609 of 1948. The  relevant  facts  for the determination  of  the  points raised  before us by the learned counsel for the  appellant- mortgagee, are as follows: The respondents before us filed a suit  for  the redemption of the mortgage of a  bungalow  at Ahmednagar  alleging that the sale-deed in respect  of  this bungalow  for Rs. 5,000 was in fact a  possessory  mortgage. One of the terms of this deed, dated August 4, 1928, was :               "   However, a condition is laid down  that if               we  pay you within three years from  this  day               Rupees  five thousand relating to  this  sale-               deed, and (interest) thereon at the rate of 12               twelve  annas  per cent per mensem  at  yearly               rests,  and the amounts spent by you  to  meet               the   expenses  for  repairs,   constructions,               taxes,  etc.  together with interest  (at  the               rate)  mentioned  above........  you  are   to               receive the same and allow us to purchase  the               aforesaid property back. The  transaction was held to be a mortgage and there  is  no dispute  on  this  point.  On April 7, 1958,  the  suit  was finally decreed for redemption of the property subject to  a payment of Rs. 9,224-.12-0, Rs. 4,612-6-0 as principal,  and Rs.  4,612-6-0 as interest thereon, within six  months  from that  date.  A preliminary decree was directed to  be  drawn up.   The  appellant  filed an appeal in the  Court  of  the District  Judge,  Ahmednagar,  and,  among  other   grounds, alleged   that  "the  Court  ought  to  have  directed   the Commissioner  to deduct the rent received (i) first  towards taxes, then (ii) towards interest of the amount of  repairs, etc.,  then (iii) towards interest on the principal  amount, then  towards (iv) amount of repairs and expenses  and  then towards  the  principal of the loan".  The  Extra  Assistant Judge did not agree with this contention, and dismissed  the appeal.   The  appellant filed a second appeal to  the  High Court.   The  High  Court  also  disagreed  with  the  above contentions.   The High Court held that the  priorities  had been  settled  by the courts below in  accordance  with  the provisions of s. 76(h) of the Transfer of Property Act, 1882 (IV of 1882) and were, therefore, proper. The  method of accounting followed by the  Commissioner  ap- pointed  in the case, and which was accepted by  the  courts below,  was as follows : Out of the income derived from  the

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property (There is no dispute that the bungalow was fetching rent from 426 month to month) the outgoings were deducted in the following order of priority :               1. Payment of taxes.               2.  Payment  of  interest  on  the  amount  of               expenditure on maintenance and repairs.               3.  Payment of the expenditure on  maintenance               and repairs.               4. Interest on the amount of principal of  the               mortgage bond.               5. Amount of principal under dispute. The learned counsel for the appellant, Mr. S. T. Desai, says that item 4 above should be item 3, and to substantiate this has submitted three propositions before us :               (1) Section 76(h) does not lay down any  order               of  priority  inconsistent with the  order  of               priority  mentioned in s. 76(d) and  does  not               reverse that order.  Both the provisions  must               be read together and in a harmonious manner;               (2)  The liability for repairs under s.  76(d)               is very limited in its scope.  This  liability               arises  only if there is a surplus left  after               deducting  from the rents and profits  of  the               property two items, viz.;               (i)   expenses mentioned in clause (c), and               (ii)  interest on the principal money;               (3) If the mortgagee expends more for  repairs               than the surplus left after the last mentioned               deductions,  that  expense  would  not  be  in               pursuance  of  any liability of his  under  S.               76(d)  but  would be claimed under  the  right               conferred  by  s. 63A(2) and S.  72(b).   Such               expenses would be treated as additions to  the               principal money.               Sections 76 (c), (d), (h), 63A and 72(b)  read               as follows:               "76.   When,  during the  continuance  of  the               mortgage,  the mortgagee takes  possession  of               the mortgaged property;-               (c) he must, in the absence of a, contract  to               the  contrary,  out  of  the  income  of   the               property,  pay  the  Government  revenue,  all               other charges of a public nature and all  rent               accruing  due in respect thereof  during  such               possession, and any arrears of rent in default               of  payment.of  which  the  property  may   be               summarily sold;               (d)  he must, in the absence of a contract  to               the  contrary, make such necessary repairs  of               the  property  as he can pay for  out  of  the               rents and profits thereof after 427               deducting  from  such rents  and  profits  the               payments  mentioned  in  clause  (c)  and  the               interest on the principal money;               (h) his receipts from the mortgaged  property,               or, where such property is personally occupied               by  him,  a fair  occupation-rent  in  respect               thereof,  shall, after deducting the  expenses               properly  incurred for the management  of  the               property  and  the  collection  of  rents  and               profits  and the other expenses  mentioned  in               clauses (c) and (d), and interest thereon,  be

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             debited against him in reduction of the amount               (if  any)  from  time to time due  to  him  on               account  of  interest  and,  so  far  as  such               receipts exceed any interest due, in reduction               or   discharge  of  the  mortgage-money;   the               surplus,   if  any,  shall  be  paid  to   the               mortgagee;............               63A.   (1)   Where   mortgaged   property   in               possession  of the mortgagee has,  during  the               continuance  of the mortgage,  been  improved,               the mortgagor, upon redemption, shall, in  the               absence  of  a contract to  the  contrary,  be               entitled to the improvement; and the mortgagor                             shall  not, save only in cases provide d for  in               sub-section  (2),  be liable to pay  the  cost               thereof.               (2) Where any such improvement was effected at               the cost of the mortgagee and was necessary to               preserve  the  property  from  destruction  or               deterioration or was necessary to prevent  the               security  from becoming insufficient,  or  was               made  in compliance with the lawful  order  of               any  public servant or public  authority,  the               mortgagor shall, in the absence of a  contract               to  the contrary, be liable to pay the  proper               cost  thereof as an addition to the  principal               money  with  interest at the same rate  as  is               payable  on the principal, or, where  no  such               rate  is fixed, at the rate of nine  per  cent               per  annum, and the profits, if any,  accruing               by reason of the improvement shall be credited               to the mortgagor.               72.   A  mortgagee may spend such money as  is               necessary-               (b)  for  the preservation  of  the  mortgaged               property from destruction, forfeiture or sale;               and  may, in the absence of a contract to  the               contrary,  add  such money’ to  the  principal               money, at the rate of interest payable on  the               principal, and where no such rate is fixed, at               the rate of nine per cent per annum;  Provided               that the expenditure of money by the mortgagee               under  clause  (b) or cause (e) shall  not  be               deemed to be necessary 428               unless the mortgagor has been called upon  and               has failed to take proper and timely steps  to               preserve  the  property  or  to  support   the               title........." It seems to us clear that. the object of s. 76(d) is not  to fix  any  priorities  but  to  make  it  obligatory  on  the mortgagee, in the absence of a contract to the contrary,  to carry  out necessary repairs to the property but the  amount he can spend is limited to the difference between rents  and profits  and payments mentioned in cl. (c) and the  interest on the principal money.  When we come to cl. (h), it directs the  mortgagee  to  apply the receipts  from  the  mortgaged property in a, certain manner.  The order of application  is (1) the expenses properly incurred for the management of the property  and  the collection of rents and profits  and  the other  expenses mentioned in cls. (c) and (d), (2)  interest thereon, (3) the surplus, if any, has to be utilised towards reduction  of  interest  on principal  money,  and  (4)  the principal   money  itself.   In  our  view,  there   is   no

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contradiction between s. 76(d) and s. 76(h).  It is true, as stated in proposition No. 2 of the learned counsel, that the liability  for  repairs is limited in its scope  and  arises only  if  there is a surplus left after deducting  from  the rents and profits of the property the expenses mentioned  in cl.  (c), and the interest on the principal money,  but  the fact that the liability is limited in scope does not bear on the  question whether it lays down any order  of  priorities inconsistent with the priorities mentioned in cl. (h). .This is so because, as we have stated above, s. 76(d) is not con- cerned with the question of priorities but with limiting the amount which can be spent by the mortgagee in possession for carrying Out necessary repairs. Coming now to the third proposition, it is not necessary  to deal  with the question of the relationship between S.  63A, S.  72(b)  and  s. 76, because  the  plaintiff  has  neither alleged nor proved that any expenses were incurred by  which improvement  was effected and the improvement was  necessary to  preserve the property from destruction or  deterioration within  S.  63A(2).  Similarly, he never alleged  or  proved that he spent money which was necessary for the preservation of  the mortgaged property from destruction,  forfeiture  or sale  within s. 72(b).  There is no allegation  or  evidence that  the mortgagor had been called upon and failed to  take proper and timely steps to preserve the property. We may mention that the only allegation to which our  atten- tion  was  drawn  is contained in para  11  of  the  written statement, which reads as follows :               "11.  The transaction dated 4-8-28 is not  one               of  security or mortgage.  The  defendant  has               never received rent for the suit property more               than  Rs.  65 per month.   The  defendant  has               incurred expenses from time to time for taxes,               expenses,  maintenance,  repairs,  (and)  con-               structions.  The defendant made  constructions               and 429               repairs  and spent more, than Rs. 10,000  (ten               thousand)  therefor  because it  was  his  own               property.  I shall produce an extract in  that               behalf.   For  many years the  property  under               dispute was unoccupied This hardly covers the point now sough to be made. For the aforesaid reasons the appeal fails and is  dismissed with costs. G.C.                            Appeal dismissed. /S5SCI-14 430