http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 6  

PETITIONER: STATE OF KERALA AND OTHERS

       Vs.

RESPONDENT: KOLIYAT ESTATES

DATE OF JUDGMENT:       13/09/1999

BENCH: K.T.Thomas, D.P.Mohapatro

JUDGMENT:

THOMAS, J.

     The  moot question is this:  When a mortgage property, or  any portion of it, is vested in Government by  operation of  law, would it amount to government acquiring the  said property as contemplated in the last paragraph of Section 60 of  the Transfer of Property Act (for short the TP Act).  If the  answer thereof is in the affirmative the next  question is  whether  the mortgagor is entitled to have the  mortgage debt  slashed  down  pro tanto when  the  Government  stands subrogated  as the mortgagee.  If that ancillary question is also to be answered in the affirmative, the appeal preferred by the State of Kerala by special leave has to be dismissed. To  show how the question arose in this case, a brief sketch of the facts is necessary:

     Respondent Koliyat Estates is a firm which possessed extensive  acres of plantation in the northern districts  of Kerala  state.  In 1967 the firm obtained a loan of Rs.46.61 lakhs from the Central Bank of India (the Bank for short). As  the loan was sanctioned under a scheme propounded by the Government   called  Agricultural   Re-financing  Scheme,  a tripartite  agreement was executed on 23.10.1967 between the bank  and  the Koliyat Estate (the plaintiff for short)  and the  State  Government  of  Kerala.  Pursuant  to  the  said agreement  the  plaintiff firm on the same day  executed  B1 mortgage deed in favour of the bank and the State Government stood as the guarantor for the due re-payment of the loan in terms of the agreement.

     While the mortgage was subsisting certain developments took  place  in the socio-political set up in the  State  of Kerala.   The  provisions  relating to land ceiling  in  the Kerala  Land Reforms Act (KLR Act for short) came into force with  effect from 1.1.1970 and consequently the right, title and  interest  of  the firm over an area of more  than  1200 acres  of land covered by the mortgage became vested in  the Government  as  per Section 86(2) of the KLR Act.  This  was sequel  to the decision of a Taluk Land Board dated 1.8.1972 (Ex.A17).   According to the plaintiff more than 2300  acres had  been  taken  possession  of by the  Government  on  the premise  that plaintiff had so much of land in excess of the ceiling limit prescribed under the KLR Act.

     A little later, by virtue of the provisions of another enactment  called  the  Kerala Private Forest  (Vesting  and

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 6  

Assignment)  Act  1971 (hereinafter referred to  as  Private Forest  Vesting  Act) another area of 273.75 acres of  land, included  in  the  mortgage  deed,   stood  vested  in   the government  as private forest.  All those developments  took place long before 1978.

     On  7.9.1978  the State Government paid  the  mortgage debt  to the bank and took assignment of the mortgage  right under  Ex.B1 as per Ex.B11- Assessment Deal.  Armed with  it the   State  Government  threatened   the   plaintiff   with proceedings under the provisions of the Revenue Recovery Act for realisation of the mortgage money.

     It  was in the aforesaid background that the plaintiff filed  the  present  suit for redemption  of  the  mortgage. Plaintiff  claimed in the suit, a pro tanto reduction of the mortgage  debt  on the footing that State Government  became the  mortgagee  when  it took assignment of  Ex.B1  mortgage right  and  the right of the mortgagor over a large area  of mortgaged  land  has now become vested with  the  mortgagee. The  aforesaid  claim  was made presumably  under  the  last paragraph of Section 60 of the TP Act.

     The  State Government resisted the claim for pro tanto reduction  in the mortgage debt by pleading firstly that the vesting  process  under  the aforesaid two  enactments  took place  long  before  Ex.BII assignment  which  the  original mortgagee  made in favour of the Government, secondly, since such  vesting  took place free from all encumbrances, it  is not an acquisition of the said land as mortgagee.  The trial court   repelled  governments  contention   and  passed   a preliminary   decree   for  redemption  in  terms   of   the plaintiffs  plea  for  pro tanto reduction.   The  relevant reliefs granted by the trial court are extracted below:-

     That  the  plaintiff  is entitled  for  reduction  of mortgage  liability  covered by Ex.B1, in proportion to  the value of the properties taken by the Government under Ex.A17 order,  and  also, under the Kerala Private Forest  (Vesting and  Assignment) Act, as on the date or dates of the  taking over of those lands.

     That  the proportionate value, for which the plaintiff is  entitled for reduction, it is left open to be decided in the final decree proceedings, as the materials before me, is not at all sufficient to determine the same.

     The  State  Government preferred an appeal before  the High  Court of Kerala against the aforesaid reliefs  granted in  the  decree.  A Division Bench of the High Court, by  an elaborate judgment, confirmed the judgment and decree passed by  the  trial court.  Hence the present appeal  by  special leave at the instance of the State Government.

     Shri P.  Krishnamurthy, learned Senior Counsel for the State  contended that it was quite unnecessary for the  High Court  to  have  elaborately  gone into the  nature  of  the mortgage  involved in Ext.B-1, as the said aspect would  not help  in  resolving the question determinable in this  case. According  to the learned counsel the question of pro  tanto reduction  of the mortgage debt would never arise in a  case where  the  mortgaged  land  vested  in  the  Government  in accordance  with  the  provisions  of a  statute.   He  also contended  that  since  the  legislature  has  clearly  kept encumbrances  on  the land untouched by the vesting  process

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 6  

there  is  no  need  to countenance the  argument  that  the mortgagors  share in the mortgage property was acquired  by the State Government as a mortgagee.

     Shri C.  Sitaramiah, learned Senior Advocate addressed arguments  in  support  of  the decision  impugned  in  this appeal.   According to him the plaintiff has already lost  a substantial  portion  of  the well planted  landed  area  on account of the vesting operations and therefore equity is in favour  of  the plaintiff entitling him to claim  pro  tanto reduction of the mortgage liability.

     Shri  T.L.  Vishwanatha Iyer, learned Senior  Advocate who  also argued for the plaintiff adopted a different line. He  conceded that plaintiffs right for pro tanto  reduction of  the  mortgaged debt emanates from the last paragraph  of Section  60 of the T.P.  Act and then the word acquired in that paragraph must receive a wider interpretation.  He also strongly  supported  the reasoning adopted by  the  Division Bench of the High Court.

     Before  we proceed to consider the focal points it  is necessary  to point out that under the provisions of the KLR Act the authority to determine the extent of the excess land in the possession of a person beyond the ceiling limit fixed under  that Act is called Taluk Land Board (TLB).  Once that is   determined  the  person   concerned  has  to  surrender possession of the land of the Government.  Section 85 (5) of the  KLR  Act empowers the TLB to determine, by  order  the extent  and  identity of the land to be  surrendered.   The process   of   vesting   of    the   excess   land   becomes contemporaneous  with  such  determination  as  provided  in Section  86(1)  of the said Act.  The sub-section is  quoted below:

     86.   Vesting of excess lands in Government.- (1)  On the determination of the extent and other particulars of the lands,  the  ownership or possession or both of which is  or are  to  be surrendered under section 85, the  ownership  or possession  or both, as the case may be, of the land  shall, subject  to  the  provisions  of   this  Act,  vest  in  the Government  free  from all encumbrances and the  Taluk  Land Board shall issue an order accordingly.

     (emphasis supplied)

     Under  the  Private Forests Vesting Act,  all  private forests  in  the  State would vest in  the  Government  with effect  from  10-5-1971, which is the appointed day, as  per Section  3(1)  of  that Act.  The sub-section  is  extracted below:   3.   Private forests to vest in  Government.-  (1) Notwithstanding  anything contained in any other law for the time  being in force, or in any contract or other  document, but  subject to the provisions of sub-sections (2) and  (3), with effect on and from the appointed day, the ownership and possession  of  all private forests in the State  of  Kerala shall by virtue of this Act, stand transferred to and vested in the Government free from all encumbrances, and the right, title  and interest of the owner or any other person in  any private forest shall stand extinguished.

     So the vesting of land in the Government was free from all  encumbrances.  In other words, Government would have no liability  to  clear any encumbrance on the land so  vested. If  the land is covered by a mortgage the liability  therein

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 6  

would not remain with that part of the land which Government got through the vesting process.

     The question whether the mortgagor can claim pro tanto reduction  of  mortgage  liability can  now  be  considered. Section  60  of  the  T.P.  Act deals with the  right  of  a mortgagor  to redeem, on payment or tender of the  mortgaged money.   The mode of effecting such redemption is prescribed in  the  section.   The last paragraph of Section  60  reads thus:

     Nothing  in  this  section  shall  entitle  a  person interested  in  a  share only of the mortgaged  property  to redeem  his  own share only, on payment of  a  proportionate part  of  the amount remaining due on the  mortgage,  except only  where  a mortgagee, or, if there are  more  mortgagees than  one,  all  such mortgagees, has or have  acquired,  in whole or in part, the share of a mortgagor.

     The   said  paragraph  can  be  vivisected  into   two segments.   The first part contains a negation to the holder of part of equity of redemption to redeem that part alone on payment  of the proportionate debt.  The second limb of  the paragraph  provides the solitary exception to the  aforesaid negativing  edict.   The words in that second  limb  except only  where  are  a pointer that the said  exception  would strictly be confined to the one situation envisaged therein.

     In  order  to  invoke the solitary  exception  to  the disentitling fiat of the last paragraph of Section 60 of the T.P.   Act  there must be a conjunction of  two  postulates. One  is  that share of the mortgagor in the property  should have  been  acquired.   Second is that the person  who  so acquired should have been the mortgagee.

     Shri  T.L.   Vishwanatha Iyer, learned senior  counsel contended  that the word acquired in the last paragraph of Section  60  must be given a very wide import, and  in  that angle even the vesting of part of the mortgage property must be  held sufficient to amount to acquisition of the share of the  mortgage  property.  Learned senior  counsel  contended that  when  the  T.P.   Act   was  enacted  the  legislative innovations  in making provisions for vesting of land in the Government  were  not even in contemplation.   According  to him,  the  interpretation of a word in a statute  should  be attuned  to the current realities and it is not advisable to cling  to  any obsolete thinking.  He cited the decision  of this Court in SIL Import, USA v.  Exim Aides Silk Exporters, Bangalore  {1999  (4) SCC 567} wherein it is held that  for the  need to update legislations the courts have the duty to use interpretative process to the fullest extent permissible by the enactment.

     Francis  Bennion in his Statutory Interpretation  of 1984  edn.   at  page  356   said:   The  ongoing  Act-  In construing  an  ongoing Act, the interpreter is  to  presume that Parliament intended the Act to be applied at any future time  in  such a way as to give effect to the true  original intention.    Accordingly  the  interpreter   is   to   make allowances  for  any  relevant changes that  have  occurred, since   the  Acts  passing,  in  law,  social   conditions, technology, the meaning of words, and other matters.

     Our   attention  was  also   drawn  to  the  following observation  which  the Chancery Division has made in  Royco

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 6  

Homes  Ltd.  v.  Eatonwill Construction Ltd.  {1978 (2)  AER 821}:   (while  construing the word acquired in  Sec.15(1) and 20(1)(b) of English Public Health Act 1936)

     In  my  judgment  the term acquired  in  s.20(I)(b) embraces  all forms of acquisition open to a local authority and is not limited to acquisition by agreement.  It includes acquisitions  by  the operation of the legal maxim  quicquid plantatur  solo,  solo  cedit.  Moreover, if  that  doctrine applies with regard to the intermediate sewer it seems to me to  apply  in  consequence  of an  agreement  between  Hurst Construction  and the local authority that the  intermediate sewer  should  be  constructed in  the  highway,  Batchworth Lane.

     The word acquisition, which according to Blacks Law Dictionary  means  the act of becoming the owner of  certain property.   The statutory process by which the State becomes owner  of  the property cannot, therefore, be understood  as different  from acquisition made by the State.  So there  is nothing  erroneous  in  interpreting   that  the  state  has acquired  possession  of  so much portion  of  the  mortgage property  when  it  vested  in the state  by  the  statutory process envisaged in the two enactments.

     But  the above interpretation is not enough to resolve the  question,  for,  the next limb of the issue has  to  be considered  from a different perspective altogether.  Should the  acquisition of mortgagors share in the property be  by the mortgagee himself when such acquisition was made?

     It must be noticed, when part of the mortgage property vested  in the Government under the provisions of the  above two  enactments,  that the Government was not the  mortgagee because  Ext.B.11   Assignment was taken by the  Government from  the original mortgagee only on 7.9.1978.  Vesting took place  as  early  as 1970 and 1971 respectively.   In  other words,  Government became owner of the part of the  mortgage property  not as a mortgagee, even apart from the fact  that such vesting was through the statutory process.

     The  principle behind the exception to the prohibition clause in the last paragraph of Section 60 of the TP Act is, if the mortgagee is satisfied of a part of the mortgage debt by  becoming the owner of a part of the mortgage property it is  only  equitable to allow the mortgagor to get pro  tanto reduction of the mortgage debt, otherwise it would be unjust to  allow the entire mortgage debt again to be borne by  the remaining  mortgage property.  By becoming the owner of part of  the  mortgage  property  it is not  necessary  that  the mortgage   money   would    have    been   discharged   even proportionately.   It  depends  upon how the  mortgagee  got share in the mortgage property.

     In  an  early  decision  of a Division  Bench  of  the Calcutta  High Court in Jasodha Kumar Dey v.  Kali Kumar Dey &  ors.  (AIR 1930 Calcutta 619) a mortgagor sold one of the items  of the mortgage properties to the plaintiff-mortgagee and  in consideration thereof purchased another property  of the  plaintiff for the same price.  In the suit for recovery of mortgage debt from the remaining properties the mortgagor contended  that he is entitled to proportionate reduction of the   mortgage  debt.   The   Division  Bench  repelled  the contention in the following terms:

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 6  

     The  mortgagor  by  his conduct impliedly  agreed  by receiving  the full value of the property that no portion of the  mortgage  debt would be extinguished by virtue  of  the purchase  by the mortgagee.  That being so the mortgagor  is not  entitled  to claim in this suit that a portion  of  the mortgage debt should be held to be pro tanto extinguished by the purchase of one of the properties by the mortgagee.

     Learned  Judges of the Calcutta High Court relied on a Full  Bench decision of the Bombay High Court in  Lakshmidas Ramdas  v.   Jhumandas Shankar Lal (ILR 22 Bom.   304).   In that  case the mortgagee had purchased one of the properties in an auction sale in execution of a decree.  The Full Bench held  thus:   If  the  mortgagee purchased  the  equity  of redemption  he  must  allow proportionate reduction  of  the value  of  the  property purchased by him;   but  where  the circumstances under which the purchase was made show that it was  purchased free from all encumbrances, the plaintiff can enforce his entire security against the remaining property.

     A  Division  Bench of the Madras High Court in  Eswara Krishna  Iyer  and anr.  v.  Mariya Susai Reddiar  and  ors. (AIR 1940 Madras 498) held:

     The  principle underlying the last clause of  Section 60  applies  only  in  cases  where  the  mortgagee  in  the character  of a mortgagee acquires the equity of  redemption outstanding in the mortgagor.

     We concur with the said views which the High Courts of Calcutta,  Bombay  and Madras have adopted in the  aforesaid decisions,  on  the interpretation of the last paragraph  of Section 60 of the T.P.  Act.

     The  upshot of the above discussion is this:   vesting of portion of the mortgaged property with the government and the  subsequent  assignment of mortgaged right in favour  of the government are not sufficient to formulate the exception provided  in the last paragraph of Section 60 of the TP Act. So  plaintiff is not entitled to pro tanto reduction in  the mortgage money.  Hence the judgment of the trial court which was confirmed by the High Court, would stand modified to the above extent.  Appeal is disposed of accordingly.