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PETITIONER: KASHINATH BHASKAR DATAR

       Vs.

RESPONDENT: BHASKAR VISHWESHWAR KARVE

DATE OF JUDGMENT: 22/02/1952

BENCH: BOSE, VIVIAN BENCH: BOSE, VIVIAN FAZAL ALI, SAIYID

CITATION:  1952 AIR  153            1952 SCR  491

ACT:     Indian   Registration   Act  (XVI  of   1908),   s.   17 (1)(b)--Subsequent document varying terms of previous  docu- ment--Limiting  and extinguishing "interest"  in  immoveable property--Equitable  doctrine of  part  performance--Whether applicable.

HEADNOTE:   A suit to recover money based on two mortgages was resist- ed   by  the defendant on the plea that the  mortgages  were satisfied as the assignor of the mortgages to the  plaintiff had  executed an agreement in favour of the defendant  which proved  satisfaction. This agreement was not registered  and the  question  for  determination was  whether  it  required registration and whether if it did, it could not be used for the collateral purpose of proving full payment of the  mort- gage  amount.   The  agreement contained,  inter  alia,  the following  terms:   "(i) I am settling and  formulating  new terms  and  I am confirming some very terms which  were  de- clared before; (iii Although the rate of interest  mentioned in  the mortgage deeds is 14 annas still the actual rate  is to  be received at the rate of 8 annas and so it is  settled between  the original parties; (iii) It was agreed  that  if you  pay me Rs. 1,800 in a lump it will be  understood  that the  transaction has been wholly completed and paid  up.  As you  have no sufficiency of funds..................   it  is settled  that you are to pay me Rs. 80 per month;   (iv)  As mentioned  above  no  interest of any  nature  whatever  has remained  claimable by me............  and in like manner  I understand  whole of the principal has been fully paid;  (v) If  you so wish or if necessity may arise then at  any  time you  may ask for it I shall give you this agreement  written out on stamp paper and on being registered."       Held, that the agreement was not exempt from registra- tion because the document itself limited and extinguished an "interest’’   in immoveable  property in the present  within the meaning of s. 17 (1)(b) of the Indian Registration  Act, and it was not exempt under s. 17 (2) (v).     Held, also that the document could not be used under the proviso to s. 49 of the Registration Act as the suit was not for specific performance and no question of part performance arose in the case and also no question of using the document

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for a collateral transaction arose because the document  was to  be  used to prove the very agreement  which  it  created itself.      U. Po Thin v. Official Assignee (A.I.R. 1938 Rang. 285) and  Tikaram  v. Deputy Commissioner of Bara Banki  (26  I.A 97), Mahim Chandra Dey v. Ram Dayal Dutta (A.I,R. 1926  Cal. 170). 492 Ram Ranjan v. Jayantilal (A.I.R. 1926 Cal. 906) and  Collec- tor  of Etah v. Kishori Lal (A.I.R. 1930 All. 721)  referred to.

JUDGMENT:     CIVIL APPELLATE  JURISDICTION:  Civil  Appeal No. 140 of 1951.  Appeal from a Judgment and Decree dated 22nd  Septem- ber,  1947, of the High Court of Judicature at  Bombay  (Sen and  Bavdekar JJ.) in Appeal No. 41 of 1943 arising  out  of decree dated 4th September, 1942, of the Court of the  First Class  Subordinate Judge at Poona in Civil Suit No.  808  of 1941.  Roshan  Lal  and B.S. Shastri for  the  appellant.  Hardyal  Hardy for the respondent.     1952. February 22. The Judgment of the Court was  deliv- ered by     BOSE  J.--This is a defendant’s appeal in a suit on  two mortgages.   The  first was executed on the  7th  of  April, 1931, by the defendant and his father.  The second was dated the 17th of December, 1935, and was executed by the  defend- ant alone.  The first was for a sum of Rs, 9,500, the second for  Rs. 3,500.  The same property was mortgaged each  time. The claim on the two deeds together was for Rs. 20,774-3-0.     These  mortgages  were in favour of  one  Narayan  Gopal Sathe.   On the 28th of March, 1940, the mortgagee  assigned them both to the plaintiff who now sues on them.       The  defence was that both mortgages  were  satisfied. The  main  evidence on which the defendant relied  to  prove satisfaction  was  an agreement dated the 17th  of  October, 1937,  executed  by  the mortgagee Narayan  Gopal  Sathe  in favour of the defendant. The document has been excluded from evidence by the trial Court as well as by the High Court  on appeal on the ground that it required registration.  If this document is excluded, then there is a concurrent finding  of fact by both the Courts that the rest of the evidence is not good enough to prove satisfaction.  They have disbelieved it and  decreed the plaintiff’s claim in full.  The only  ques- tions  before  us  are (1) whether  this  document  required registration and (2) whether, if it did, it 493 cannot  still  be used for what the defendant  claims  is  a collateral  purpose,  namely  proving full  payment  of  the mortgage amount.     The agreement came about in this fashion.  The  mortga- gee, Narayan Sathe, was appointed Receiver of two Cinemas in Poona.   The Court appointing him required him to produce  a surety   in the sum of Rs. 10,000. The defendant  agreed  to undertake  this  responsibility and as a  consideration  for that the mortgagee executed the agreement in question.   The portions  of the document relevant for the  present  purpose are  as follows.  The mortgages are there described  as  the "transactions of give and take."      "(3)  It is extremely necessary to  explain  beforehand the transaction of give and take outstanding between both of us...

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   (4) Whereas two transactions have been done between  you and  me...Therefore  you have agreed to  stand  surety...And only  for  that  reason I am executing  this  agreement  and giving it to you in writing and thereunder I am settling and formulating  some  new terms and I am confirming  some  very terms which were declared before.     (5)  Although in the matter of the transaction  relating to  the aforesaid mortgage deeds the rate of  interest  men- tioned in the documents purporting to be the mortgage  deeds is 14 annas per mensem per centum, still the actual interest is to be received only at the rate of 8 annas per mensem per centum; so it is settled between you and me and I have  also agreed to the same.  And even at that rate I have also  been receiving the interest and I shall also receive hereafter...     (6)  As regards the transaction of the  second  mortgage deed...if as agreed at that time between you and me you  pay me Rs. 1,800 in the lump then it will be understood that the transaction  of give and take subsisting between you and  me has been wholly completed and fully paid up.  As you have no sufficiency  of funds to make up and pay in full  the  above sum  at once it is settled that you are to pay to me Rs.  80 per 64 494 month and thus you are to make payment in full...In  accord- ance  with the agreement arrived at between us  both  subse- quent  to the document purporting to be the second  mortgage deed the said documents and papers and the written  receipts in  respect of interest given to you by me relating  to  the payment  in  full  made by you in respect  of  interest  and principal  on account of the first transaction dated  7-4-31 have been kept with me. *                     *     (8) As mentioned above (vide paras 5 and 6) no  interest of any nature whatever has remained claimable by me from you in accordance with the agreement arrived at between us  both from the date of your suretyship onward and prior to it  and in like manner I understand that the whole of the  principal has been fully paid.     (10)  If you so wish or if necessity may arise  then  at any time you may ask for it and I shall give you this agree- ment  on  being written out on stamped paper  and  on  being registered."     In  our  opinion, this is a document  which  limits  and extinguishes interests in immoveable property in the present within the meaning of section 17(1) (b) of the Indian Regis- tration Act. Clause (4) of the agreement expressly says  so. Referring to the two mortgages it says     "I  am  settling and formulating some new  terms."  This speaks from the present.  It does not say that this was some past  agreement,  and that fact is underlined  in  the  next sentence which reads--     "and I am confirming some very terms which were declared before."     Among the new terms is the following. The rate of inter- est  agreed upon in the two mortgage deeds was 14 annas  per cent  per month. Clause (5) reduces this to 8 annas.  It  is true that according to clause (5) only 8 annas had  actually been paid all along but that hardly 495 matters  because the question is not what was paid but  what was due and what the mortgagee could have enforced under his bond.  It is evident from clause (4) that it was the  agree- ment embodied in the document which effected the change  and therefore  it  was  the document itself  which  brought  the

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altered terms into being.     The next question is whether this limits an interest  in immoveable  property.  We are of opinion it does.  We  agree with  the learned Rangoon Judges in U. Po Thin  v.  Official Assignee(1)  that one part of the "interest" which a mortga- gee has in mortgaged property is the right to receive inter- est at a certain rate when the document provides for  inter- est.  If  that rate is varied, whether to his  advantage  or otherwise,  then,  in our judgment, his  "interest"  in  the property  is affected.  If the subsequent agreement  substi- tutes a higher rate, then to the extent of the difference it "creates" a fresh "interest" which was not there before.  If the  rate  is   lowered,  then his  original  "interest"  is limited.      The  question of a higher rate was considered by  their Lordships of the Privy Council in Tika Ram v. Deputy Commis- sioner  of  Bara Banki(2).  There, the mortgagors  gave  the mortgagees an unregistered rukka or written promise simulta- neously  with the registered mortgage stipulating that  they would  pay an extra 6 per cent per annum over and above  the 15  per cent entered in the mortgage.  their Lordships  held that these rukkas could not be used to fetter the equity  of redemption.  They did not decide whether the personal  cove- nant in the rukkas could be enforced because that point  had not  been raised in the plaint and pleadings, nor  did  they refer to the Registration Act, but we think the words     "an  unregistered instrument which the statute  declares is  not  to  affect the mortgaged property"  can  only  have reference to that Act.  (1)  (1938) R.L.R. 293: A.I.R. 1938 R. 285. (2) (1899) 26 I.A. 97 at 100. 496     It  was argued, on the strength of Mahim Chandra Dey  v. Ram Dayal Dutta,(1) Ram Ranjan v. Jayanti lal(2) and Collec- tor  of Etah v. Kishori Lal(3), that it is always open to  a mortgagee  to release or remit a part of the debt, and  when he  does so he does not limit or extinguish an  interest  in immovable  property any more than when he passes  a  receipt acknowledging payment of the whole or part of the money. The effect  of the payment, or of the release, may be to  extin- guish  the mortgage but in themselves they do not limit  the interest.   Extending  this,  the learned  counsel  for  the defendant contended that when a mortgagee agrees to accept a lower  rate  of interest he does no more than  release  that part of the debt which would be covered by the difference in rate.      We  do not agree.  There is a difference between a  re- ceipt  and a remission or a release.  A receipt is  not  the payment,  nor  does  the document in such a  case  serve  to extinguish  the mortgage or limit the liability. It  is  the payment of the money which does that and the receipt does no more than evidence the fact.  Not so a release.  The  extin- guishment  or diminution of liability is in that  event  ef- fected by the agreement itself and not by something external to it.  If the agreement is oral, it is hit by proviso 4  to section 92 of the Evidence Act, for it "rescinds" or  "modi- fies" the contract of mortgage.  If it is in writing, it  is hit  by section 17 (1) (b) of the Registration Act,  for  in that case the writing itself "limits" or "extinguishes"  the liability under the mortgage.     It is to be observed that when the mortgagor pays  money due on the mortgage, in whole or in part, he is carrying out the  terms of the bond and is not making any  alteration  in it, and even though the fact of payment may limit or  extin- guish the mortgagee’s interest that is only because the bond

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is working itself out by the force of its own terms and  not by reason of some new agreement which seeks to modify it  or limit or extinguish the interest which it creates. A  simple test (1)A.I.R. 1996 Cal. 170.        (3) A.I.R. 1930 All. 721  at 725 F.B. (2) A.I.R. 1926 Cal. 906. 497 is  this: see whether the mortgagee can, in the face of  the subsequent agreement, enforce the terms of his bond.  If  he cannot, then it is plain that the subsequent undertaking has effected  a  modification,  and if that has  the  effect  of limiting or extinguishing the mortgagee’s interest, it is at once hit either by section 17 (1) (b) or section 92  proviso 4.  But when there is a mere payment of money, that is  done under  the terms of the bond, for the contract  of  mortgage postulates  that the mortgagor should repay the  money  bor- rowed  and that when he does so the mortgagee’s interest  in the property shall be "limited" to the extent of the  repay- ment or, when all is repaid, be wholly extinguished; nor, of course,  does  a  payment have to be made by  a  written  or registered instrument, or even evidenced by one. Clause (xi) to  section 17 (2) of the Registration Act is based on  this principle.  It draws a distinction between a document which, by  the force of its terms. effects the  extinguishment,  or purports to do so, and one which merely evidences an  exter- nal fact which brings about that result.     Now apply the test just given to the present case. Under the  mortgages the mortgagee is entitled to interest  at  14 annas  per cent. per month but the mortgagor says he  cannot claim that.  Why ? Because, according to him, the subsequent agreement  altered  the terms of the bond  and  reduced  his liability  to  only  8 annas.  It hardly  matters  what  the agreement  is called, whether a release or a remission,  nor is   it germane to the question that the mortgagee is  enti- tled  to remit or release the whole or a part of  the  debt; the  fact  remains that his agreement to do  so  effects  an alteration in the original contract and by the force of  its terms or extinguishes his interest, Assume that the  mortga- gor repaid the whole of the interest at the altered rate and the whole of the principaL, would those repayments by  them- selves  effect an extinguishment of the mortgage ?   Clearly not,  because unless the subsequent agreement is  called  in aid,  more would be due under the terms of the bond  on  ac- count  of the higher rate of interest.  It is  evident  then that it is the 498 agreement which limits the mortgagee’s interest’ and  serves to  extinguish  the  mortgage and not mere  payment  at  the reduced rate.       Similar observations apply to clause (6) of the agree- ment.  It begins by reciting a past agreement in  which  the mortgagor  had promised to pay Rs. 1,800 in a lump sum.   We are left to infer that this was to extinguish the  mortgage. If it was, then it would be hit by either section 92, provi- so 4, of the Evidence Act or section 17(1)(b) of the  Regis- tration  Act, but that does not matter because  the  present document varies even that agreement and substitutes a  third agreement in its place, namely that payment of Rs. 1,800  by instalments  at the rate of Rs 80 a month will effect  "pay- ment in full", that is to say, will extinguish the mortgage. This  speaks  from the date of the document,  for  it  says, referring to this agreement, that ’ it is settled" etc.     Next  we  come to clause (8).  That refers  us  back  to clauses (5) and (6) and says that

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      "as mentioned there no interest of any nature whatever  has remained claimable by me" and speaking of  the principal says    "and in like manner I understand the whole of the  prin- cipal  has  been  fully paid". We have  already  dealt  with clauses  (5) and (6). Clause (8) carries us no  further  and merely  states that because of clauses (5) and  (6)  neither interest  nor principal is now claimable; and of  course  if neither interest nor principal is claimable that extinguish- es  the  mortgage, and in this case  the  extinguishment  is brought  about, not by mere payment in accordance  with  the terms of the bond, but because of the fresh agreement.      Clause  (10) remains for consideration. It  was  argued that this brings the matter within section 17(2) (v) of  the Registration Act because it gives the defendant the right to obtain  another document which will effect  the  extinguish- ment. We do not agree because clause (v) of sub-section  (2) of section 17 of the Act postulates that the document  shall not of itself create, declare, 499 assign, limit, extinguish any right etc., and that it  shall merely create a right to obtain another document etc.   (The stress  is  on  the words  "itself" and "merely ". )      We  agree with Sir Dinsha Mulla at page 86 of  the  5th edition of his Indian Registration Act that     "If  the document itself creates an interest in  immove- able  property, the fact that it contemplates the  execution of  another  document will not exempt it  from  registration under this clause."     As  we  have  seen, this document of  itself  limits  or extinguishes certain interests in the mortgaged  property),. The operative words are reasonably clear. Consequently,  the document  is not one which merely confers a right to  obtain another  document.  It  confers the right  only  in  certain contingencies, namely, "if you so wish" or "if necessity may arise." Its purport is to effect an immediate alteration  in the terms of the two bonds and because of that alteration to effect  an immediate extinguishment and  limitation.  Clause (10) merely confers an additional right, namely the right to obtain  another document "if you so wish" or  "if  necessity may arise."  Therefore, the document in question is not  one which merely creates a right to obtain another.     An  agreement  to sell, or an agreement to  transfer  at some  future date, is to be distinguished because that  sort of document does not of itself purport to effect the  trans- fer.  It  merely  embodies a present  agreement  to  execute another  document in the future which will,  when  executed, have that effect.  The document in hand is not of that type. It does not postpone the effect of extinguishment or limita- tion  of  the mortgages to a future date.  It does  not  say that  the  agreement it embodies shall take  effect  in  the future. It purports to limit and extinguish the  liabilities on  the  two  mortgages at once by virtue  of  the  document itself  and merely adds that "if it is necessary  or  should you want another document, I will repeat the present 500 agreement  in  a registered agreement."  By  implication  it means that if it is not necessary, or if the mortgagor  does not  want a registered instrument, the document itself  will have  effect. Incidentally, one effect of holding that  this document  does not limit or extinguish the  mortgagor’s  li- ability  would be that there is no agreement to that  effect yet in force, This may or may not give the mortgagor a right to  obtain specific performance of his right to obtain  such an agreement but until he does that there would be no bar to

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the  mortgagee’s  claim  in this suit. However,  it  is  not necessary  to  go as far as that because we are  of  opinion that  this document  is not exempt from  registration  under section 17(2) (v), and we so hold.     The next question is whether the document can be used in evidence under the proviso to section 49 of the Registration Act.  We are clear it cannot. This is not a suit for specif- ic  performance  nor does any question of  part  performance under section 53A of the Transfer of Property Act arise.  It remains  then  to be seen whether the use now sought  to  be made of the document is to evidence a collateral transaction not  required  to be evidenced by a  registered  instrument. But  what  is the ’transaction sought to be proved  but  the very agreement which the document not merely evidences  but, by reason of its own force, creates ? That is not a  collat- eral  transaction and even if it were a transaction of  that type,  it  would  require a registered  instrument  for  the reasons we have already given.      Section  53A  of the Transfer of Property Act  was  re- ferred  to but it has no application, for the  agreement  we are concerned with is not a transfer. There are no words  of conveyance  in it; also the mortgagor is not  continuing  in possession in part performance of the contract.  Both  mort- gages were simple and the right to possession never  resided in the mortgagee. He might in due course have acquired it by process of law if he obtained a decree and purchased at  the sale; on the other hand, a stranger might have purchased and the  right  to possession would ’in that event  have  passed elsewhere,  But he had no right to possession at the 501 date  of  the agreement and having none he  could  not  have transferred it.  The mortgagor’s possession was consequently not  referable  to the agreement. The appeal  fails  and  is dismissed with costs.                                    Appeal dismissed. Agent for the appellant: Ganpat Rai. Agent for the respondent: A.C. Dave.