A.N. Ramaswami Pillai and Others vs Narayanaswami Pillai and Others

Ramesam, J.—This is an appeal against an order of remand. A preliminary objection is taken by the learned vakil for the respondents that

no appeal lies as the order of remand was not made on account of the reversal of the Subordinate Judge''s finding on a preliminary point. As will

be seen from the statement of facts lower down, the question in the case on which the Courts below have differed is whether the trial of the suit,

(as between plaintiffs and the contesting defendants 4 to 9) is barred by the events in an earlier suit. Following the Full Bench decision in Raman

Nay or v. Krishnan Nambudripad AIR 1922 Mad. 505 we think this is a preliminary point and overrule the objection.

The facts are as follows : - The defendants 1 to 3 were the owners of three sets of properties A, B and C. For convenience I will refer to the

first two as property A-B. They created over all the three a first mortgage in favour of the 4th defendant (17-5-02) and a second mortgage in

favour of plaintiff (22-5-02). The first mortgagee purchased the property A-B in execution of a Small Cause decree on 9th November, 1905

subject to the two mortgages. He then filed a suit (O.S. No. 42 of 1915) to recover the balance after giving credit to a certain amount by reason of

his purchase by sale of property G. In that suit the second mortgagee was impleaded. The array of parties in both the suits is as follows:

O.S. No. 42 of 1915 Present Suit O.

S. No. 119 of 1920.

1st mortgagee - Piff. 4th defendant.

Mortgagor - Defs. 1 to 3. 1 to 3 defts.

2nd mortgagee - Deft. 4. Plaintiff-

5 to 8 Purchasers from

defts. 1st mortgagee

of property

A & B.

9th deft. Do. C.

It will be convenient to pause hero and to consider the effect of the purchase by the first mortgagee in execution of the Small Cause decree. As

between him and the mortgagor, a proportionate part of the mortgage debt was wiped out, the mortgage becoming split up, as it were, and the

mortgagee has to recover the balance from the mortgagor from the remaining property C and he has the right to retain property A-B as absolute

owner. This was decided in Eisheshur Dial v. Ram Sarup (1900) 22 All. 284 followed in the Full Bench decision in Appeal from O.S. No. 42 of

1915 itself (A. Section No. 190 of 1917).

But, as between the 1st mortgagee and the 2nd mortgagee the result is not the same. The purchase by the former of property A-B does not

enable him to retain it as full owner as against the latter and throw the burden of the balance of the debt on property C after deducting only the

proportionate part of the debt. The 1st mortgagee can insist on the 2nd mortgagee redeeming the former and, in default of redemption, the

property will be sold free of both mortgages. The whole proceeds of the sale will then be credited towards the 1st mortgagee. Thus, it is obvious

that the 1st mortgagee cannot retain possession of the property A-B unless he gives credit to the whole value of the property towards his mortgage

and is willing to proceed against property C for only the balance after deducting the whole value. This is exactly what the 1st mortgagee did in his

former suit (O.S. No. 42 of 1915). Strictly a suit against property O only is not maintainable : Surjiram Marwari v. Barhamdeo Persad (1905) 1

C.L.J. 337. But by the offer to credit the whole value of property A-B, it was in substance a suit against all.

When all the mortgagees are known, all the other mortgagees ought to be parties to a mortgage suit. In the present case we are not concerned

with a suit by a first mortgagee without making a second mortgagee party. The rights in such a case are discussed in Chinnu Pillai v. Venkatasami

Chettiar (1916) 40 Mad. 77. Nor are we concerned with suits by a second mortgagee with or without making the first mortgagee a party Chinnu

Pillai v. Venkatasami Chettiar (1916) 40 Mad. 77; Surjiram Marwari v. Barhamdeo Persad (1905) 1 C.L.J. 337 explaining Sri Gopal v. Pirthi

Singh (1902) 24 All. 429. We have here a suit by the first mortgagee making the second mortgagee a party. In such a suit the second mortgagee

has the right to redeem the first mortgagee. It is to give him such an opportunity that the first mortgagee made the second mortgagee a party in O.S.

No. 42 of 1915. If the second mortgagee paid off the whole debt of the first mortgagee, property A-B as well as C would be entirely available to

the second mortgagee who would then stand in the position of the two mortgagees. For obvious reasons, he never made such an offer in O.S. No.

42 of 1915. The values of all the properties are insufficient to pay off the whole of the first mortgage and leave a surplus available for the second

mortgagee. In default of his claim to redeem, the only other legal course is to sell property A-B as well as property C free of the mortgages. If in

such a sale property A-B realises a certain price, the proceeds will be credited towards the first mortgage. The first mortgagee, plaintiff in O.S.

No. 42 of 1915, instead of actually allowing the property to be bold, offered to Credit the full price towards his mortgage. The result of such credit

is exactly the same as if all the long-drawn-out proceedings in execution of a decree of Court took place. If, in making the credit, lie made an

under-estimate of its value, the second mortgagee could attack the estimate. The Courts found in the former case that the value of the property A-

B was Rs. 4,950 and of property C was Rs. 2,639-4-0. The first mortgagee in his plaint gave credit for Rs. 3,750 plus Rs. 1,000 plus Rs. 269-5-

6, i.e., a total of Rs. 5,019-5-6, that is, somewhat slightly more than the value of property A-B and sued only for the balance. That is, the second

mortgagee was placed in a position exactly the same as (or better than) if the property A-B was actually sold in Court-auction and the proceeds

credited towards the first mortgagee and only the balance was thrown on the property C which is the utmost that the second mortgagee could ever

claim.

It is thus seen that the second mortgagee had really no plea to raise in the former ease. His plea that the value allowed for the property A-B was

inadequate was found against. After the said finding, he had nothing to do except asking for a decree against any surplus on the sale of -property

C. Having nothing to do, he joined the mortgagor in raising the extravagant plea that, by reason of the first mortgagee''s purchase in the Small

Cause decree, the whole of the first mortgage was wiped out. This contention was rightly negatived by the Pull Bench. The mortgagor being the

only appellant before the High Court, this was the only point argued before the High Court and referred to a Full Bench. There was no question

raised for the purpose of settling the rights between first and second mortgagees. The second mortgagee filed a Memorandum of Objections asking

for executing the decree against the surplus. This was refused on the ground that he did not claim it in the Court below Even if he wished to raise

any question between himself and the first mortgagee, there could have been no other decision than that the full value of the property, A-B should

have been credited towards the first mortgage if the first mortgagee wish to retain that property as absolute owner; and on the findings this was the

course taken by the first mortgagee. Thus the result of the findings of O.S. No. 42 of 1915 is that the first mortgagee retained the property A-B

free of all encumbrances and the second mortgagee''s only right was against any surplus after the sale of property C. It is impossible to understand

how the second mortgagee (the present plaintiff) has any rights available against the property A-B. Mr. Balasubramania Aiyar contends that he can

still redeem the first mortgage or sell the properties subject to the first mortgage exactly as if I to was not a party to the former suit. This is a very

extravagant and fallacious proposition.

The reason why the second mortgagee''s rights are not lost by reason of a decree for sale in a suit by a first mortgagee in which he was not a

party is that ho was not given an opportunity to exercise his right to redeem the first mortgagee (which undoubtedly existed) and such right cannot

be destroyed by proceedings behind his back. But the whole reason disappears when ho was a party to the first mortgagee''s suit and had an

opportunity to exercise his right of redemption. After such a suit, all his rights over the properties common to both mortgages, unless they have

been expressly preserved, are extinguished and he can maintain a suit on his mortgage only in respect of items which are not comprised in the first

mortgage and for personal relief against the mortgagor. I entirely agree with the remarks in Chinnu Pillai v. Venkatasami Jhelliar (1916) 40 Mad.

""If the first mortgagee sues first making the second mortgagee a party as he ought to, there cannot be a trial of a further action,"" i.e., a further

action in respect of properties common to both mortgages. This is all that the learned Judge meant. He could not have meant that there can be no

further action against the mortgagor in respect of other items, or for personal remedies, or for the surplus of the proceeds of the common items, in

this sense, that these reservations were not expressly stated though intended, the proposition is broadly stated as remarked in Narayana Rao v.

Venkayya (1918) M.W.N. 902. In this last decision, the properties were privately sold after the first suit and the decree in the first mortgage was

never carried out. It does not appear that the value realised by the private sale was reported to Court, that a surplus was or was not available for

the second mortgagee. On these grounds, the decision may be distinguished. But the reasoning in the judgment is different and I dissent from it. In

my opinion, the principles laid down in Sri Gopal v. Pirthi Singh (1902) 24 All. 429 apply and bar a second mortgagee from pursuing for any

remedy against the properties mortgaged in both the mortgages equally whether the second suit is one for sale or one for redemption. When the

second mortgagee was a party to the first suit by the first mortgagee and failed to exercise his right of redemption, he can have no rights against

such properties which pass away to the purchaser in execution of the first decree, free of both the mortgages. A fortiori when, instead of an actual

Court sale, full credits given for the value towards the first mortgage the same result is attained as if they are sold, I am unable to agree with the

observations in Narayana Rao v. Venkoyya (1918) M.W.N. 902 though the decision is right on the facts and also in so far as it lays down that a

suit against the mortgagor for reliefs not connected with the common item is maintainable. The effect of the first suit is not that a suit by the second

mortgagee against the mortgagor is not maintainable but that he has no rights to pursue against the common mortgaged items.

The case L.J. Mackintosh v. N.S. Watkins (1904) 1 C.L.J. 31 referred to by Mr. Balasubramania Aiyar has no bearing on the case before us.

All that it lays down is that in the suit by a first mortgagee against mortgagor and second mortgagee, the mortgagor cannot be called upon to

redeem the second mortgagee. So also Vedavyasa Aiyar v. Madura Hindu Labha Nidhi Co. Ltd. (1918) 42 Mad. 90 which laid down that the

second mortgagee cannot, in such a suit, execute the decree obtained by the first mortgagee containing a clause for payment of the surplus to the

second mortgagee, if the first mortgagee did not proceed to sell. I agree with this. Not until the sale is held and the properties pass to a purchaser

free of the encumbrances can the second mortgagee''s rights on the properties be extinguished. When the decree remained unexecuted, the rights

remain as before the suit. The first mortgagee''s suit in all such cases does not decide that the second mortgagee has no rights. It only provides for

sale free of encumbrances, and on such a sale, the second mortgagee ceases to have any rights except against the surplus.

In the present case, it is true there is no actual sale, but the same result is attained by selling the properties to the first mortgagee for their full

value and the value being credited towards his mortgage. It is also clear that, by the application of the principle of res judicata, no injustice is done

on the facts of this case, as the value of all the properties is not enough to pay off even the first mortgager I allow the appeal and restore the

judgment of the Subordinate Judge with costs here and in the Lower Appellate Court to be paid by first respondent (second mortgagee) to the

appellants.

Jackson, J.

I agree and have nothing to add.