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PETITIONER: MRITUNJOY PANI AND ANOTHER

       Vs.

RESPONDENT: NARMANDA BALA SASMAL AND ANOTHER

DATE OF JUDGMENT: 14/03/1961

BENCH: SUBBARAO, K. BENCH: SUBBARAO, K. DAYAL, RAGHUBAR

CITATION:  1961 AIR 1353            1962 SCR  (1) 290

ACT: Mortgage--Right  of  redemption--Suit,  when   maintainable- --Mortgagor  and  Mortgagee--Legal  position--Indian  Trusts Act, 1882 (II of 1882), S. 90.

HEADNOTE: Usufructuary  mortgage  bond was executed in favour  of  the father  of  the appellant who was put in possession  of  the mortgaged  property.  One of the terms of  the  usufructuary mortgage  was that in case of failure of payment of rent  by the  mortgagor, the mortgagee was to pay off the arrears  of rent to the landlord, which obligation the mortgagee did not honour as a result of which the property was brought to sale and ultimately purchased by the mortgagee. The mortgagor filed a suit against the mortgagee, the appel- lant’s  father,  for  redemption of  the  mortgage  and  !or possession.,  The defence inter alia was that the  mortgagee had purchased equity of redemption in execution of the  rent decree and that the mortgagor had no longer any right to sue him for redemption and their remedy, if any, was to sue  for setting aside the sale on the ground of fraud or otherwise. Held,   that  s.  go  of  the  Trusts  Act  read  with   the illustration (c)    lays down the principle that no one  can be allowed to benefit for     his own wrongful act. Held, further, that the legal position with regard to mort- gagor and mortgagee was that:- (1)  the governing principle is that "once mortgagee 291 always  a mortgagee" till the mortgage is terminated by  the act of the parties themselves, by merger or by order of  the Court; (2)where a mortgagee purchases the equity of redemption in execution of his mortgage decree with the leave of court  or in  execution  of a mortgage or money decree obtained  by  a third  party, the equity of redemption may be  extinguished; and, in that event, the mortgagor cannot sue for  redemption   without getting the sale set aside; and (3)where  a mortgagee purchases the mortgaged property  by reason  of  a default committed by him the mortgage  is  not extinguished and the relationship of Mortgagor and mortgagee continues  to subsist even thereafter, for his  purchase  of the equity of redemption is only in trust for the mortgagor.

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In the instant case the right to redeem the mortgage was not extinguished  and  in the eyes of law, the purchase  in  the rent  sale  was deemed to have been made in  trust  for  the mortgagor and the suit for redemption was maintainable. Sidhakamal Nayan v. Bira Naik, A.I.R. 1954 S.C. 336, relied on.   Malkarjun  Bin  Shidramappa  Pasare  v.  Narhari   Bin Shivappa, (1900) L.R. 27 I.A. 216, distinguished.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 119 of 1957. Appeal  by special leave from the judgment and decree  dated March 3, 1955, of the Orissa High Court in Appeal No. 593 of 1950. B.   Patnaik, for the appellants. D.   N. Mukherjee, for the respondents. 1961.  March 14.  The Judgment of the Court was delivered by SUBBA RAO, J.-This is an appeal by special leave against the judgment  of the High Court of Judicature for  Orissa  dated March  3, 1955, setting aside the judgment of the  Court  of the  District Judge, Mayurbhanj, and restoring that  of  the Subordinate Judge, Baladore. The  facts leading up to this appeal may be briefly  stated. The  land  in dispute originally belonged  to  one  Bhagaban Parida.   On  July  16,  1924,  he  executed  a   registered kabala’for  a’ consideration of Rs. 2,000 in favour  of  one Priyanath  Sasmal.   On  June  2,  1928,  Priyanath   Sasmal executed a usufructuary mortgage bond (Ex.  B) for Rs. 1,500 in  favour of 292 Lakshminarayan  Pani, the father of the  appellants  herein. Under  the  terms  of the said  usufructuary  mortgage,  the mortgaged  property was put in possession of the  mortgagee. One  of the terms of the mortgage deed was that the  initial responsibility  for  the  payment of rent was  that  of  the mortgagor  and  that, if for any reason he did not  pay  the arrears  of rent, the mortgagee was under an  obligation  to pay off the arrears to the landlord and to obtain a  receipt acknowledging  the payment.  The mortgagee did not  pay  the arrears  of rent, with the result that for arrears  of  rent the  said  property  was  brought  to  sale  and  ultimately purchased by the mortgagee for a sum of Rs. 300 on September 22,  1936.  The sale was confirmed on November 4, 1936,  and the mortgagee took possession through Court on December  21, 1938.   The mortgagor filed a suit against the mortgagee  in the Court of the Subordinate Judge, Balasore, for redemption of  the mortgage and for possession.  As the mortgagor  died after the filing of the suit, his widow and son were brought on record as his legal representatives.  The defence of  the appellants  to  that  suit  was  that  possession  was   not delivered to their father, the mortgagee, under the terms of the mortgage deed, that the debt was discharged, that  their father  had purchased the equity of redemption in  execution of the rent decree, and that the mortgagor had no longer any right  to sue him for redemption.  The  learned  Subordinate Judge and, on appeal, the District Judge concurrently  found that  in fact possession was delivered to the  mortgagee  on the  basis  of  the  mortgage deed  and  that  the  plea  of discharge was not true; but, while the trial court held that after  the  purchase  of the property by  the  mortgagee  in execution  of  the  decree  for rent  he  was  holding  the, property  only  on behalf of the  mortgagor,  the  appellate court  came to the conclusion that after the  said  purchase the relationship of mortgagor and mortgagee came to an  end;

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with  the  result the trial court decreed the suit  and  the appellate  court, setting aside that decree,  dismissed  the suit.  The legal representatives of the mortgagor  preferred a second appeal to the High Court against the judgment and 293 decree of the District Judge.  A division bench of the  High Court  agreed  with the conclusion of the trial  court,  set aside the decree of the District Court and restored that  of the trial court.  Hence the present appeal. Learned   counsel  for  the  appellants  i.e.,   the   legal representatives   of  the  mortgagee,  contended   that   in execution  of  the  rent decree  the  mortgagee  became  the purchaser of the equity of redemption, with the result  that the  relationship of mortagor and mortgagee ceased to  exist and, therefore, the respondents could not sue for redemption and  their remedy, if any, was to sue for setting aside  the sale on the ground of fraud or otherwise. On  the  other  hand, learned counsel  for  the  respondents contended  that,  as  the sale was the  result  of  manifest dereliction of duty imposed upon the mortgagee by the  terms of the transaction, the purchase by the mortgagee would only be  in trust for the mortgagor and, therefore, the suit  for redemption was maintainable. To  appreciate  the  rival contentions it  is  necessary  to notice briefly the law on the subject.  The relevant section governing  the  facts  of the case is s. 90  of  the  Indian Trusts  Act, 1882 (2 of 1882).  The material portion of  the section reads,               "Where a mortgagee by availing him,self of his               position  as  such,  gains  an  advantage   in               derogation of the rights of the other  persons               interested  in the property he must hold,  for               the benefit of all persons so interested,  the               advantage  so  gained,  but  subject  to   the               repayment  by such persons of their due  share               of  the expenses properly incurred, and to  an               indemnity   by   the  same   persons   against               liabilities  properly contracted,  in  gaining               such advantage."               Illustration (c) to that section says,               "A  mortgages  land  to  B,  who  enters  into               possession.   B allows the Government  revenue               to  fall into arrears with a View to the  land               being put up for sale and his becoming himself               the purchaser of it.  The land is  accordingly               sold to B. Subject to the               294                repayment  of the amount due on the  mortgage               and  of  his  expenses  properly  incurred  as               mortgagee, B holds the land for the benefit of               A." The following three conditions shall be satisfied before  s. 90  of the Indian Trusts Act can be applied to a  case:  (1) the  mortgagee  shall  avail  himself  of  his  position  as mortgagee;  (2)  he  shall gain an advantage;  and  (3)  the gaining  should be in derogation of the right of  the  other persons interested in the property.  The section, read  with illustration (c), clearly lays down that where an obligation is  cast  on  the  mortgagee  and  in  breach  of  the  said obligation he purchases the property for himself, he  stands in a fiduciary relations ship in respect of the property  so purchased  for  the benefit of the owner  of  the  property. This  is  only  another illustration  of  the  well  settled principle that a trustee ought not to be permitted to make a profit out of the trust.  The same principle is comprised in

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the  latin maxim commodum ex injuria sua nemo habere  debet, that  is,,convenience cannot accrue to a party from his  own wrong.   To put it in other words, no one can be allowed  to benefit from his own wrongful act.  This Court had  occasion to  deal with a similar problem in Sidhakamal Nayan v.  Bira Naik  (1).  There, as here, a mortgagee in possession  of  a tenant’s  interest purchased the said interest in  execution of  a decree for arrears of rent obtained by  the  landlord. It  was contended there, as it is contended here,  that  the defendant, being a mortgagee in possession, was bound to pay the rent and so cannot take advantage of his own default and deprive  the  mortgagors  of  their  interest.   Bose,   J., speaking for the Court, observed at p. 337 thus:               "The  position, in our opinion, is very  clear               and  in the absence of any  special  statutory               provision  to the contrary is governed  by  s.               90, Trusts Act.  The defendant is a  mortgagee               and, apart from special statutes, the only way               in  which  a  mortgage can  be  terminated  as               between the parties to it is by the act of the               parties  themselves, by merger or by an  order               of  the  Court.  The maxim  "once  a  mortgage               always               (1)   A.I.R. 1954 S.C. 336.               295               a  mortgage"  applies.   Therefore,  when  the               defendant entered upon possession he was there               as  a  mortgagee  and being  a  mortgagee  the               plaintiffs have a right to redeem unless there               is either a contract between the parties or  a               merger or a special statute to debar them." These  observations  must have been made on  the  assumption that  it was the duty of the mortgagee to pay the  rent  and that  he  made a default in doing so and brought  about  the auction  sale of the holding which ended in the purchase  by him.   The  reference  to s. 90 of  the  Indian  Trusts  Act supports this assumption. Learned counsel for the appellants relied upon the  decision of  the  Judicial  Committee in  Malkarjun  Bin  Shidramappa Padare  v.  Narhari  Bin  Shivappa (1)  in  support  of  his contention  that  a  mortgagor cannot  seek  the  relief  of redemption without first getting the sale set aside.  There, a  mortgaged  property  was sold in execution  of  a  decree against the mortgagor and the plaintiff neglected or refused to pray that it might be set aside.  The Judicial  Committee held  that  an  execution sale could not  be  treated  as  a nullity  if the court which sold it had jurisdiction  to  do so;  and it could not be set aside as irregular  without  an issue  raised for that purpose and investigation  made  with the  judgment creditor as a party thereto.  That was  not  a case where the mortgagee who had an obligation to  discharge under the mortgage deed made a default with the result  the. property  was sold and purchased by the  mortgagee  himself. The  proposition enunciated by the Judicial Committee  would apply to a case where the equity of redemption was extingui- shed by the court sale.  This may apply to a case, where the mortgagee,  after  obtaining leave to bid., purchases  at  a sale  in execution of his decree or a decree obtained  by  a third  party.   In such a case there may be  scope  for  the argument that the equity of redemption is extinguished  and, therefore, the mortgagor cannot get relief till the sale  is set aside in the manner known to law.  But when the sale is (1)  (1900) L.R. 27 I.A. 216. 296 brought   about  by  the  default  of  the  mortgagee,   the

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mortgage  is  not  extinguished  and  the  relationship   of mortgagor  and mortgagee continues to exist and,  therefore, there will not be any necessity for setting aside the sale. The  legal  position may be stated thus: (1)  The  governing principle  is "once a mortgage always a mortgage"  till  the mortgage is terminated by the act of the parties themselves, by  merger or by order of the court. (2) Where  a  mortgagee purchases  the  equity  of redemption in  execution  of  his mortgage decree with the leave of court or in execution of a mortgage  or  money decree obtained by a  third  party,  the equity  of  redemption  may be extinguished;  and,  in  that event,  the  mortgagor  cannot sue  for  redemption  without getting the sale set aside. (3) Where a mortgagee  purchases the  mortgaged property by reason of a default committed  by him the mortgage is not extinguished and the relationship of mortgagor   and   mortgagee  continues   to   subsist   even thereafter, for his purchase of the equity of redemption  is only in trust for the mortgagor. Let us now apply the aforesaid principles to the  concurrent findings  arrived  at by the courts below.  All  the  courts concurrently found that in fact possession was delivered  to the  mortgagee  on the basis of the mortgage deed,  Ex.   B. They have also found that the plea of discharge taken by the appellants  was not true.  The High Court found  that  under the  mortgage  deed  the mortgagee had a  duty  to  pay  the arrears  of rent to the landlord, but he made a  default  in paying  the said arrears.  The High Court farther held  that the sale was the result of manifest dereliction of the  duty imposed  upon  the  mortgagee  by  the  very  terms  of  the transaction.    The  said  findings  clearly   attract   the provisions  of s. 90 of the Indian Trusts Act.  In  view  of the  aforesaid principles, the right to redeem the  mortgage is  not extinguished and in the eye of law the  purchase  in the rent sale must be deemed to have been made in trust  for the mortgagor.  In the promises, the High Court was right in holding that the suit for redemption was maintainable. 297 No  other point was raised before us.  The appeal fails  and is dismissed with costs.                                  Appeal dismissed.