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PETITIONER: SOLI PESTONJI MAJOO & ORS.

       Vs.

RESPONDENT: GANGADHAR KHEMKA

DATE OF JUDGMENT: 06/12/1968

BENCH: RAMASWAMI, V. BENCH: RAMASWAMI, V. SHAH, J.C. GROVER, A.N.

CITATION:  1969 AIR  600            1969 SCR  (3)  33  1969 SCC  (1) 220

ACT: Practice  and Procedure-Mortgage ’-Suit by first  mortgagee- Puisne  mortgagee a party--Decree passed but  no  sale-Prior mortgagee paid off by mortgagor-Suit by puisne mortgagee  on his mortgage-Prayer for decree in Form 5A Appendix D, C.P.C. If suit maintainable. Code  of  Civil  Procedure (Act 5 of 1908), O.  34,  r.  11- Interest  subsequent  to date of  suit-Contractual  rate  if should be decreed.

HEADNOTE: The  owner of a property executed three mortgages in  favour of  three  persons  on three  different  dates.   The  first mortgagee  filed  a  suit to which he made  the  two  puisne mortgagees  also parties.  A decree was passed  against  the mortgagor  in  Form 9, Appendix ’D’, Civil  Procedure  Code, 1908.   As  the mortgagor did not pay the  amount,  a  final decree  for sale of the mortgaged property was passed.   The mortgagor, however, paid off the decretal amount due to  the first  mortgagee and the property was not brought  to  sale. Thereafter,  the second puisne mortgagee brought a  suit  on his  mortgage and prayed for a mortgage decree in Form  5-A. It was contended on behalf of the mortgagor, that the pusine mortgagee  was  not entitled to file the suit and  the  only course  open to him was to apply for a decree for  sale  and realise  his  dues  from the surplus sale  proceeds  of  the mortgaged property.  The suit was decreed by the trial judge and in appeal, the Appellate Bench of the High Court  varied the decree by reducing the amount declared due.  The  decree however granted interest at the contractual rate of 12%  per annum with monthly rests even after the date of suit. In appeal to this Court, On  the  questions (1) whether, in  the  circumstances,  the puisne  mortgagee was entitled to institute a separate  suit in respect of his mortgage; and (2) whether interest on  the amount adjudged should be at the contractual rate even after the date of suit. HELD : (1) Under the Transfer of Property Act, 1882, and  0. 34 of the Code of Civil Procedure, 1908, a puisne  mortgagee is made a party to the suit by the first mortgagee in  order

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that  the  puisne  mortgagee might have  an  opportunity  of redeeming  if he wished, and in order that he might  receive his mortgage money, or part of it, out of the surplus  sale- proceeds after satisfaction of the first mortgage.  But  the decree is not really in his favour and he cannot insist upon a sale nor get a personal decree in his favour if the  first mortgagee  is  satisfied by the mortgagor before  the  sale. Therefore,  the  puisne mortgagee was entitled to  file  the suit on his mortgage. [37 D-E] Chandra Roy Chowdhry v. M. M. Nahapiet, I.L.R. 37 Cal.  907, Vedavyasa  Ayyar  v. The Madura Hindu Labha Nidhi  Co,  Ltd. I.L. R. 42 Mad. 90 and Shiv Kumar Prosad v. The Trustees for the Improvement of Calcutta, 51 C.W.N. 798, approved 34 (2)  Under O. 34 r. It Civil Procedure Code, 1908, (inserted by Act 21 of 1928), the Court may order payment of  interest to the mortgagee upto the date fixed for payment at the rate payable  on the principal.  Hence, the Court has  discretion not  to  decree  the contractual rate  so  far  as  interest pendente lite and subsequent interest up to date of  redemp- tion is concerned, even if the rate was not penal, excessive or  substantially unfair within the meaning of the  Usurious Loans  Act, 1918.  In the circumstances of the present  case simple  interest  at  6%’per  annum  on  the  principal  sum adjudged  from  date  of suit-till  date  of  redemption  is appropriate. [39 C-F] Jaigobind  Singh  v. Lachmi Narain Ram,  [1940]  F.C.R.  61; A.I.R. 1940 F.C. 20, applied.

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil appeal No.24 of 1966. Appeal  by special leave from the judgment and decree  dated January 17, 1962 of the Calcutta High Court in Appeal No. 82 of 1959. Rameshwar Nath and Mahinder Narain, for the appellant. J.   P. Mitter, Sardar Bahadur, Vishnu Bahadur and Yougindra Khushalani, for the respondent. The Judgment of the Court was delivered by Ramaswami.   J. The appellant is the executor of the  estate of Pestonji Sorabji Majoo deceased, hereinafter referred  to as  the ,mortgagor’.  During his lifetime the mortgagor  was the   owner   of  one-third  share  in  premises   no.   50, Chittaranjan  Avenue, Calcutta.  On November 21,  1938,  the mortgagor  executed a deed of mortgage in respect    of  his one-third  share  in  favour of Shew Balak  Pandey  for  Rs. 7,500.   On  December 3, 1945 he executed  another  deed  of mortgage in respect of his one-third share in favour of  one Sudhinder  Nath  Mitter for Rs. 8,350.  On May 6,  1947,  he executed  the third deed of mortgage in respect of his  one- third  share  of the premises in favour  of  the  respondent Gangadhar  Khemka  for Rs. 12,000 carrying interest  at  the rate  of  12  per cent per annum  with  monthly  rests.   On January  11,  1948  Shew Balak Pandey filed a  suit  on  his mortgage, being Suit no. 135 of 1948, impleading the  puisne mortgagees as parties to the Suit.  On December 12, 1949,  a preliminary  mortgage ’decree in Form 9 of Appendix  ’D’  in the First Schedule to the Code of Civil Procedure was passed in the said suit.  Since the mortgagor did not pay, a  final decree  was  passed on December 4, 1952 in  the  suit.   The decree directed that the mortgaged property should be  sold. It contained a further direction for the disbursement of the sale proceeds and it was stated that if any balance was left after payment of the amounts due to Pandey and Mitter, "that

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shall  be  applied in payment of the amount payable  to  the defendant Ganga Dhar Khen a under the aforesaid preli- 35 minary  decree  and in payment of any amount  which  may  be adjudged  due  to the said defendant Ganga Dhar  Khemka  for such  costs of the suit".  On July 4, 1954,  the  mortgagor, without  having  the  property  put to  sale  paid  off  the decretal dues of Pandey.  On August 5, 1955, the  respondent filed the suit out of which this appeal arises, being  Suit- no.  2218  of  1955 jointly against the  appellant  and  his mother  Mrs. Majoo for a mortgage decree in Form  5-A.   The appellant  and Mrs. Majoo filed a joint  written  statement. The suit ultimately came for hearing before Law, J. on  June 2, 1958.  Several issues were raised in the suit and Law, J. decreed the suit and passed a preliminary decree in Form 5-A of  Appendix ’D’ in the First Schedule to the Code of  Civil Procedure and declared that a sum of Rs. 41,172/6/- was  due to  the respondent on June 2, 1958.  The appellant and  Mrs. Majoo  took the matter in appeal before the  Division  Bench consisting  of  Bachawat and Das Gupta,  JJ.  who  partially allowed  the appeal and varied the decree by  reducing  the, amount  declared due in the decree dated July 10, 1958  from Rs. 41,172/6/- to Rs. 3 8,207. This appeal is brought, by special leave, from the  judgment of  the  Division  Bench of the Calcutta  High  Court  dated January 17, 1962. The  first  question  presented for  determination  in  this appeal  is  whether a puisne mortgagee in respect  of  whose mortgage  a  decree  has  already  been  made  in  a   prior mortgagee’s suit to which he is made a party, is entitled to institute.  a separate suit in respect of his  mortgage  and ask  for  a decree in Form 5-A when the claim of  the  prior mortgagee  made  in  the prior  mortgagee’s  suit  has  been satisfied by payments made by the mortgagor-defendant and as a  result thereof no sale takes place in the suit.   It  was argued  on behalf of the appellant that the  respondent  was not  entitled  to file the suit because of  the  preliminary decree  passed  in  Suit no. 135 of 1948 in which  he  as  a puisne  mortgagee  was made a party-defendant and  the  only course open to him as such puisne mortgagee was to apply for a  final decree for sale and thereby realise his  dues  from the surplus sale proceeds of the mortgaged property.  It was submitted  that  the  appellant  was  not  entitled  in  the circumstances to bring a fresh suit on his mortgage.  We are unable  to accept this argument.  Clause 5 of the decree  in Form  9 clearly states that "if the defendant no. 2  (Puisne mortgage)  pays  into Court to the, credit of the  suit  the amount  adjudged due to the plaintiff (prior mortgagee)  but the defendant no. 1 (mortgagor) makes default in the payment of  the  said  amount,  then the  defendant  no.  2  (puisne mortgagee) shall be at liberty to apply to the Court to keep the plaintiff’s (prior mortgagee’s) " mortgage alive for his benefit and to apply for a final decree.  In other words, if the puisne mortgagee redeems the prior mortgage then he  can step into the shoes of the prior 36 mortgagee and apply for final decree.  The puisne  mortgagee cannot  apply  for  the sale unless he pays  off  the  prior mortgage.  It is manifest that the puisne mortgagee is added as  a defendant in a suit of this description only with  the purpose  of redeeming the prior mortgage, if he  wished  and proving  his mortgage and having the accounts  taken.   Such account of the puisne mortgagee is taken because if there is any surplus sale proceeds after meeting the prior mortgagee- plaintiff’s  claim, he can participate in such surplus  sale

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proceeds  as  may be available for the satisfaction  of  the claim  of the puisne mortgagee.  Essentially  therefore  the rights of puisne mortgagee-defendant in a prior  mortgagee’s suit  are,  first, the right-to redeem the  prior  mortgage. and, secondly, the right to participate in the surplus  sale proceeds.   This  view is borne out by the decision  of  the Madras  High  Court in Vedavyasa Ayyar v. The  Madura  Hindu Labha Nidhi Co. Ltd.(1)in which it was held that the  rights of the subsequent mortgagees are contingent on the  property being brought to sale for non-payment of the sum due to  the plaintiff-mortgagee  and  a  decree drawn up in  Form  7  of Appendix D of the Code of Civil Procedure cannot be read  as a  decree  directing the mortgagor to, redeem  each  of  the puisne  encumbrance,; within the time limited for  redeeming the  first  mortgagee.   It was accordingly  held  that  the puisne mortgagee was not entitled to execute the decree  for the  amount  due  to  him when no  sale  was  held  for  the realisation of the amount due to the prior mortgagee and the remedy  of the puisne mortgagee was a suit for sale  and  s. 47,  Civil Procedure Code was no bar to the suit.  The  same view has been taken in Shiv Kumar Prosad v. The Trustees for the  Improvement  of Calcutta(2) in which  Chakravartti,  J. observed at page 802 as follows               "It is true that he (puisne mortgagee) gets  a               free  adjudication of his rights but the  only               practical relief which the decree gives him is               that   he  is  declared  entitled  to   obtain               satisfaction  of his dues out of  the  surplus               sale proceeds if any be left after  satisfying               the  plaintiffs  dues (see Form no.  9).   The               puisne  mortgagee  cannot apply  for  a  final               decree  unless he himself pays off  the  prior               mortgagee  and the right to apply for  a  sale               arises  only  if the plaintiffs dues  are  not               paid  but not if the puisne  mortgagee’s  dues               are not."               The learned Judge proceeded to observe:               "When  be  is impleaded as a  defendant  in  a               prior  mortgagee’s suit he is  brought  before               the Court whether he wishes to come or not and               his  rights  are adjudicated on by  the  Court               under the compulsion of Order" 34 Rule 4(5)." (1) I.L.R. 42 Mad. 90. (2) 51 C W,N. 798,                              37 Some  uncertainty in this branch of law has been  caused  by the  English practice as mentioned in Platt  v.   Mendel,(1) and  Daniel’s Chancery Practice.  But having regard  to  the provisions  of the Transfer of Property Act and the  present Civil   Procedure  Code  the,  Indian  practice   is   quite different.  The distinction has been pointed out by Pugh, J. ’in  Sarat Chandra Roy Chowdhry v. M. N. Nahapiet. (2  )  It was observed by the learned Judge that prior to the Code  of Civil Procedure, 1908 there was a recognised practice on the original  side  of  the Calcutta High  Court  to  treat  the preliminary  mortgage decree as being in favour not only  of the  first  mortgagee,  but also in  favour  of  the  second mortgagee.(See the decision of Sale, J. in Kissory Mohan Roy v.  Kally Churn Ghose(8) and in Kissory Mohan Roy  v.  Kally Churn  Ghose(3).   But  in a later case, in  the  matter  of Kissory  Mohan  Roy  v. Kally  Charan  Ghose,(5)  Sale,,  J. allowed  a second mortgagee, who was a defendant, under  the liberty  retained to him by the preliminary decree, to  come in  and  obtain an order for sale of  the  property  outside Calcutta, which was subject only to the second mortgage, not

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to the first.  This practice of treating the suit as one for the benefit of the second mortgagee was based on the English practice as it appears from the case of Platt v.  Mendel(1). But under the Transfer of Property Act the proper  procedure is different and the effect of incorporation of the relevant sections in the Transfer of Property Act under 0. 34 of  the new  Code  of  Civil  Procedure was to put  an  end  to  any independent  practice on the original side of  the  Calcutta High  Court based on the old procedure.  The legal  position therefore  is  that the second mortgagee is  merely  made  a party to the suit in order that he might have an opportunity of  redeeming  if  he wished, and in  order  that  he  might receive  his  mortgage  money, or part of  it,  out  of  the surplus  sale-proceeds  after  satisfaction  of  the first mortgage,  but  the decree was not really a  decree  in  his favour,  and  he  could not insist upon a  sale  nor  get  a personal  decree  in his favour if the first  mortgagee  was satisfied by the mortgagor before the this aspect of the case. We  pass  on  to consider the second  contention  raised  on behalf   of  the  appellants,  namely,  that  even  if   the respondent  is entitled to institute a second mortgage  suit the  High  Court ought not to have granted interest  to  the respondent  at  the rate of 12 per cent  p.a.  with  monthly rests  even  after  the date of the  suit  and  the  maximum interest which should have been allowed was not more than  6 per cent p.a. simple on the principal sum adjudged.  In  our opinion  this  argument  is well-founded and  there  was  no justifi- (1) [1884]  27 Ch.D.246.  (2) I.L.R. 37 Cal. 907. (3) I.L.R. 22 Cal. 100.             (4) IC.W.N. 106. 38 cation  for  the  High  Court  to  allow  interest  at   the contractual  rate  from the date of the suit on  the  amount adjudged.   Prior to 1929 the legal position was that  under s. 34 of, the Civil Procedure Code in granting a decree  for payment  of  money the Court had full  discretion  to  order interest at such rate as it deemed reasonable to be paid  on the  principal  sum  adjudged  from the  date  of  the  suit onwards.   But O.34. rr.2 and 4 which applied to a  mortgage suit, enjoined the Court to order an account to be taken  of what was due to the plaintiff at the date of such decree for principal  and  "interest  on the  mortgage".   The  special provision in 0.34 had therefore to be applied in  preference to  the  general provision in S. 34.  Till  the  period  for redemption  expired therefore the matter was  considered  to remain in the domain of contract and interest had to be paid at the rate and with the rests specified in the contract  of mortgage but after the period for redemption had expired the matter  passed  from  the  domain of  contract  to  that  of judgment.   The  right  of the  mortgagee  would  henceforth depend not on the contents of his bond but on the directions of  the decree.-(See the decision in Jagannath Prosad  Singh Chowdhury v. Surajmul Jalal. (1) By Act 21 of 1929, 0.34  of Civil  Procedure  Code  was  amended and a  new  r.  II  was inserted  which  deals  specially with  interest  and  which states :                "  11.  In any decree passed in  a  suit  for               foreclosure,   sale   or   redemption,   where               interest is legally recoverable, the Court may               order payment of interest to the mortgagee  as               follows, namely:               (a)   interest  up  to the date on  or  before               which payment of the amount found or  declared               due is under the preliminary decree to be made

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             by the mortgagor or other person redeeming the               mortgage-               (i)   on   the  principal  amount   found   or               declared  due  on  the  mortgage-at  the  rate               payable  on  the principal or, where  no  such               rate is fixed, at such rate as the Court deems               reasonable,                (ii)  on the amount of the costs of the  suit               awarded  to the mortgagee-at such rate as  the               Court  deems reasonable from the date  of  the               preliminary decree, and               (iii) on  the  amount  adjudged  due  to   the               mortgagee  for  costs,  charges  and  expenses               property incurred by the mortgagee in  respect               of  the mortgages security up to the  date  of               the preliminary decree and added to the  mort-               gage-money-at  the  rate  agreed  between  the               parties,  or, failings such rate (at the  same               rate  as  is  payable  on  the  principal,  or               failing both such rates, at nine per cent  per               annum), and (1)  A.T.R. 1927 P.C. 1.                              39               (b)   subsequent  interest up to the  date  of               realisation or actual payment at such rate  as               the Court deems reasonable-               (i)   on  the aggregate of the principal  sums               specified  in clause (a) and of  the  interest               thereon as calculated in accordance with  that               clause; and               (ii)  on  the  amount  adjudged  due  to   the               mortgagee  in respect of such  further  costs,               charges  and expenses as may be payable  under               rule 10." This rule was further amended by the Code of Civil Procedure Amendment  Act,  1956  but we are not  concerned  with  this further amendment in the present case.  It is apparent  that the  new rule 11 as inserted by the Amending Act 21 of  1929 provides  that the Court "may" order payment of interest  to the  mortgagee upto the date fixed for payment at  the  rate payable on the principal.  It was held by the Federal  Court in Jaigobind Singh v. Lachmi Narain Ram(1) that the language of  the  rule gives a certain amount of  discretion  to  the Court  so  far  as interest  pendente  lite  and  subsequent interest  is  concerned  and it  was  no  longer  absolutely obligatory   on  the  Courts  to  decree  interest  at   the contractual  rates  upto  the  date  of  redemption  in  all circumstances even if there is no question of the rate being penal, excessive or substantially unfair within the  meaning of  the Usurious Loans Act, 1918.  In view of the  principle laid  down by the Federal Court in this decision we  are  of opinion  that in the circumstances of the present  case  the respondent  should be granted interest on the principal  sum due  at the contractual rate till the date of the  suit  and simple  interest  at 6 per cent p.a. on  the  principal  sum adjudged  from  the date of the suit till the  date  of  the preliminary  decree and also at the same rate till the  date of realisation. We  accordingly  allow this appeal to the  extent  indicated above and modify the decree of the Calcutta High Court.  The plaintiff-respondent will be awarded costs proportionate  to his  success  in the present suit as  between  attorney  and client.  He is not entitled to the costs he has incurred  in the previous suit i.e., suit no. 135 of 1948 in which be was made  a party.  The order of the High Court with  regard  to

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costs  is  also modified to this extent.  There will  be  no order as to costs of this ’appeal. V.P.S.                                  Appeal allowed. (i) [1940] F.C.R. 61, A.T.R. 1940 F.C. 20. 40