(Babu) Kanhai Lal Khemka and others vs (Babu) Thakur Prasad Singh and others

Das, J.—This was a suit by the appellants to enforce a mortgage bond as against the respondents. The mortgage bond was executed on the 30th October 1916 by defendant No. 1, who was and still is a minor, through his father and natural guardian defendant No. 7 as principal and by defendants 2 to 6 (of whom defendants 4, 5 and 6 are minors) as sureties to secure an advance of Rs. 34,000 made by the plaintiffs to defendant 1 to enable him to pay the balance of the consideration money due in respect of a property purchased by defendant No. 1 from the defendants 2 to 6. The learned Subordinate Judge has given the plaintiff''s a personal decree as against defendants 2 and 3 and has dismissed the suit as against the defendants other than defendants 2 and 3.

The facts are these: On the 11th September, 1916 certain properties belonging to the defendants second party, (defendants 2 to 6) were sold at a sale held in pursuance of a mortgage decree that had been obtained by Tilakdhari Lal and another against the defendants second party. The mortgage claim was for Rs.1,02,330, and the properties were sold to the decree holders for Rs. 73,200. It was open to the defendants second party to apply, under O.21, R. 89, to have the sale set aside on depositing in Court a sum equal to five per cent. of the purchase money and the amount specified in the proclamation of sale as that for the recovery of which the sale was ordered; but it was necessary for them to make the application on or before the 30th October, after which date no application for setting aside the sale could be entertained by the Court. The defendants second party set about to obtain a loan of Rs. 1,06,011-8-9, the amount which it was necessary for them to deposit in Court under O. 21, R. 89 of the Code. It so happened that the Bani of Jheria, the aunt of defendant 1, had made a promise to defendant 7, the father of defendant 1, to make a gift of money to enable defendant 1 to purchase immovable properties. Defendant No. 7 entered into negotiation with the defendants second party for the purchase of the properties which had already been sold to Tilakdhari Lal, and the defendants second party agreed to sell those properties to defendant 1 for Rs. 1,06,011-8-9. Rani of Jheria approved of the transaction, and sent Rs. 79,000 to defendant 7, Rs. 75,000 for the purchase of the properties in question, and Rs. 4,000 for the expenses of the family. It is the case of defendant 1 that the Bani never agreed to pay anything more than Rs. 76,000 for the purchase of the properties; but the learned Subordinate Judge has found, and, I think, rightly that defendant 7 expected to procure the balance of the consideration money from the Rani. The sale-deed was executed by the defendants second party in favour of defendant 1 on the 24th October 1916, but the consideration money was not paid that day, as the full consideration money had not been received by defendant 7. The parties, however, had complete faith in the promise of the Rani, and they believed that Rs. 32,000, the balance of the consideration money, would be sent by the Rani in time to enable defendant 7 on behalf of defendant 1 to pay off the defendants second party, and the defendants second party to make the deposit on the 30th October. They waited till the 27th October, and, then, realizing that it was dangerous to wait any longer, since the sale in favour of the decree holder would stand confirmed if the deposit was not made on or before the 30th October, approached the plaintiffs, who happened to have been the bankers of the defendants, second party, for a loan for Rs. 32,000 for the short period of three months. The suggestion was made that the plaintiffs should advance Rs. 32,000 to defendant 1 on the security of the properties purchased by him from the defendants second party; but the plaintiffs, who knew the defendants, second party, and did not know the defendant No. 1, agreed to advance the money provided the defendants second party joined in the transaction and mortgaged some of their exclusive properties to answer for the claim of the plaintiffs in case the securities offered by defendant 1 proved insufficient. The defendants, second party, readily agreed, and on the 30th October 1916, the plaintiffs advanced Rs. 32,000 to defendant 1 on the mortgage executed by defendant 1 and by the defendants second party. It was to enforce this mortgage that the suit, out of which this appeal arises, was brought by the plaintiffs in the Court of the Subordinate Judge of Bhagalpur on the 21st December, 1917.

The learned Subordinate Judge came to the conclusion that there was no legal necessity which justified the adult defendants to enter into the transaction of the 30th October 1916; and, as he thought that the transaction did not benefit the minor defendants, he declined to give the plaintiffs a mortgage decree on the foot of the mortgage of the 30th October. He thought, however, that the adult defendants 2 and 3 were clearly bound by their promise, and he has given the plaintiffs a personal decree for Rs. 32,000 with interest as against the defendants 2 and 3.

It will be convenient, first, to consider the liability of defendant 1. In starting the enquiry, the learned Subordinate Judge asked himself the question whether the plaintiffs enquired into the necessities for the loan and satisfied themselves, to the best of their ability, in relation to the person with whom they were dealing, that the guardian (it will be convenient to refer to the defendant 7 throughout as the guardian and to defendant 1 as the minor) was acting in the particular instance for the benefit of the minors. He thought that no enquiry was, or could ha, made by the plaintiffs. He thought also that, had the plaintiffs made any enquiry, they would have seen that the transaction was not for the benefit of the minor as the income from the parties purchased by him did not exceed Rs. 3,500 per year, whereas the interest payable on the loan (at Re. 1-4. as per cent. per month) was Rs. 4,800 per year. The conclusion at which the learned Subordinate Judge arrived may be stated in his own words:-

The minor would not at all have been prejudiced had the proposal of the sale fallen through, for he would have at least got back to him the sum of Rs. 74,000 odd belonging to him and the circumstance that the purchase was made for him by his guardian on payment of an improper price cannot deprive the minor of the benefit of his own money and also legalise an improvident act of the manager.

Speaking with all respect, I think, there is a confusion in the train of reasoning employed by the learned Subordinate Judge. The transaction before him was the transaction of the 30th October or rather the transaction of the 30th October read with the transaction of the 24th October; but he was throughout dealing with the transaction of the 24th October. There was no question of the "proposal of sale" "falling through either on the 28th October when the proposal was first made to the plaintiffs for the loan, or on the 29th October, when the negotiation for the loan was concluded, or on the 30th October when the loan was made and the mortgage executed. The sale was concluded on the 24th October 1916, and the position on the 24th October was this: the title in the properties conveyed had passed to the minor subject to the minor paying into Court the sum of Rs. 1,06,011-8-9 on or before the 30th October. This was the legal position on the 24th October, and what the plaintiffs had to consider when the proposal for the mortgage was made to them on the 28th October, was, not the propriety of the sale, for the sale had been concluded on the 24th October, but the propriety of advancing Rs. 32,000 to the minor on the security of the properties purchased by him.

Now, in dealing with this question, it is necessary first to see what part the Rani of Jheria has played in the matter. It is the case of the minor that he purchased the properties in question from the defendant second party for Rs. 75,000 and not for Rs. 1,06,011-8-9, that the Rani of Jheria having paid Rs. 75,000 to him had done all that she had undertaken to do, that the recital in the conveyance to the effect that he had purchased the properties for Rs. 1,06,011-8-9 was an untrue recital and that, not requiring any money, he declined to execute the mortgage bond which was presented to him for his signature, and was ultimately coerced into executing it. The learned Subordinate Judge has found that the story told by the guardian on behalf of the minor is an untrue one and that he bought the properties for Rs. 1,06,011-8-9, and not for Rs. 75,000, and that his execution of the mortgage bond was a voluntary one.

It now becomes material to consider what exactly the Rani of Jheria had undertaken to do for the minor. The guardian describes himself in his evidence in Court as dependent on his sister-in-law, by which he means the Rani of Jheria, and on other relations. The Rani of Jheria is the sister of the wife of the guardian, and undoubtedly maintained the family of the guardian. It is easy to see that either the guardian or his wife must have pressed the Rani to make a permanent provision for their infant son. The evidence both of the guardian and of Rajani Kanta, makes it perfectly clear that the Rani promised to supply the funds for the purchase of a property for the minor. If the story of the guardian that the defendants second party agreed to sell the property for Rs. 75,000 is, as it has been, disbelieved, then it must follow that the Rani was perfectly willing to find the entire capital for the transaction. The evidence shows that the guardian duly informed the Rani of what he had done in the matter, and the Rani sent Rs. 79,000 to defendant 7. The evidence of Narendra Narain, one of the plaintiffs, shows that the guardian "expected almost every day that the balance of the purchase money would reach from Jheria," (P. 157 paper book), and that it was on the 29th (I think the 29 th is a mistake for the 28th) that the parties approached the plaintiffs for a short time loan.

Now in order to determine whether the security is enforceable as against the minor, it is necessary to see what were the representations made to the plaintiffs and whether the plaintiffs could safely have acted on these representations. These representations were, 1st, that the Rani of Jheria, who was the mother''s sister of the minor, had agreed to purchase the properties in question for the minor for Rs. 1,06,011-8-9, secondly, that she had already sent him Rs. 75,000 and had promised to send the balance soon; thirdly, that the properties which the minor had purchased from the defendants second party had already passed to Tilakdhari Lal at the sale held in pursuance of Tilakdhari''s mortgage-decree; and, fourthly, that unless the purchase-money was deposited in Court on or before the 30th October, the sale in favour of Tilakdhari would be confirmed and Tilakdhari Lal would still have a claim against the defendant second party for a large sum of money. Now there is no doubt that each of these representations was true, and the question which we have to determine is, whether any question of legal necessity arises, and, if it does arise, whether it has been made out.

Now we may look at the conveyance of the 24th October and the mortgage of the 30th October, either as one transaction or as two different transactions. If we look at them as one transaction, then, in my opinion, no question of legal necessity arises. As I understand the doctrine, it has application only when the minor has an estate or a fund which it is the duty of the Court of equity to protect as against the improvident act of the guardian. Now what was the estate of which the minor was in possession? Clearly none, unless it was the estate which his father purchased for him. But then that estate came to him by the very transaction which he is now seeking to challenge, and the question is whether he can be allowed to approbate the transaction in so far as it has given an estate to him and to repudiate the liability that arises from the transaction. Now, in my opinion we cannot deny validity to the mortgage unless we are able to set aside the transaction as a whole and restore the parties to the position which they respectively occupied prior to the conveyance of the 24th October. But that is manifestly impossible, for Tilakdhari Lal is not a party to the present suit. In my opinion, once it is realized that the minor was not in possession of any estate independently of the transaction which he is now seeking to challenge, it becomes manifest that the Court cannot extend its protection to the minor by denying validity to the transaction which has brought the estate into existence.

But it was urged that the infant was in possession of a fund,-Rs. 75,000 in all-which it is the duty of this Court to protect as against the improvident act of the guardian. The argument assumes that the infant was in possession of the fund independently of the transaction which he is now seeking to challenge. But, in truth, there is no substance for the assumption. The Rani did not make a gift of any money to the infant. What she did was to make a gift of this identical estate to him. It is only necessary to carefully read the evidence of the guardian to see what the position really was. The family was in a destitute condition and had entirely to depend on the bounty of the Rani. The Rani had agreed in Chait 1323 to provide funds for the purchase of a property for the infant and had asked the guardian to see if there were any properties available for sale. Subsequently the guardian met defendant 2, (one of the defendants second party) and ascertained from him that he had some properties to sell. He thereupon went to Jheria and told the Rani all that he had ascertained and gave her all the details. The Rani asked him to conclude the transaction and promised to send the necessary fund. He concluded the transaction with the defendants second party and sent a message to the Rani to say that he had done so. Thereupon the Rani sent him Rs. 75,000. The evidence of the guardian establishes beyond doubt that the Rani sent Rs. 75,000 to the guardian in order to enable him to buy for the minor the properties which he had agreed to buy from the defendants second party. It follows, therefore, that the minor became possessed of the fund, not independently of the transaction, which he is now seeking to repudiate, but as a necessary part of it. In my opinion, no question of legal necessity arises in this case.

But, then, it may be contended, that the conveyance of the 24th October was one transaction, and the mortgage of the 30th October was another, and that there is no foundation for the argument that the two ought to be considered as one transaction only. The contention, in my opinion, does not improve the position of the minor. If we look upon the transaction of the 30th October as distinct and apart from the transaction of the 24th October, then it must follow that the sale was concluded on the 24th October and that there is no warrant for the view of the learned Subordinate Judge that "the minor would not at all have been prejudiced, had the proposal of the sale fallen through". There was no question on the 30th October of "the proposal of the sale" falling through. The sale was an accomplished fact, and the problem which the plaintiffs had to solve on the 30th October was, not whether the transaction of the 24th October was for the benefit of the minor, but whether the transaction of the 30th October would be for the benefit of the minor. I know of authorities which lay down that in dealing with a guardian of a minor, the lender is bound to enquire into the necessities for the transaction into which he is invited by the guardian to enter and to satisfy himself that the guardian is acting, in the particular instance, for the benefit of the ward. But I know of no authority which imposes upon the lender the further duty of enquiring into the necessity for an. altogether different transaction which perhaps has made the proposed transaction invitable. If the law did impose such a duty upon the lender, then it might be said that he is bound to enquire into the antecedent management of the estate. But it is settled law, that, provided the necessity for the loan has not arisen from any misconduct to which the lander is or has been a party, he is not affected by the precedent mismanagement of the estate. As the Judicial Committee has said, "the actual pressure on the estate, the danger to be averted, or the benefit to be conferred upon it, in the particular instance, is the thing to be regarded". In my opinion, if we look at the transaction of the 80th October as distinct and separate from the transaction of the 24th October, the question of the propriety of the transaction of the 24th October was not one which the plaintiffs had to consider in entering into the transaction of the 30th October. The actual pressure on the estate, the danger to be averted, or the benefit to be conferred upon it, was the thing to be regarded.

Now, when the facts are properly appreciated there can be no doubt that the actual pressure on the estate on the 30th October was undoubted, the danger imminent. The failure to find Rs. 32,000 by the 30th October would have involved, not "the proposal of the sale" falling through, as the learned Subordinate Judge has supposed, but the coming into existence of a large claim against the minor. For what are the facts? The execution-sale which had given the properties to Tilakdhari Lal, had not wiped out the debt of the defendants second party. The total debt, for the recovery of which the properties were sold, was Rs. 1,02,330, and the properties were actually knocked down at the auction for Rs. 73,500. The position then was this: that unless the defendants second party could deposit in Court by the 30th October the sum of Rs. 1,06,011-8-9, which included, for the payment to be purchaser, a sum equal to five per cent. of the purchase-money, not only would the sale be confirmed, but the defendants second party would still be liable to pay to Tilakdhari Lal the sum of Rs. 29,130. At this stage the minor came on the scene through his guardian. He agreed to buy the properties for Rs. 1,06,011-8-9, and actually took a conveyance of the properties on the 24th October. The position on the 24th October was this: that the properties had passed to the minor, subject to his paying to the defendants second party on or before the 30th October the sum of Rs. 1,05,011-8-9. But the minor had only something like Rs. 74,000 in his hand on the 24th October. In order, not only to save the properties but to avoid a claim being made against him by the defendants second party, it was essentially necessary for him to find on or before the 30th October the sum of Rs. 32,000. There was, therefore, not only an actual pressure on the estate, but an imminent danger, and, in my opinion, the plaintiffs were justified in lending the money to him without enquiring into the question whether the transaction of the 24th October was, or was not, beneficial to him.

In the view which I take of the case, it is unnecessary to enter into the question of the value of the properties purchased by defendant I; but I shall deal with it, as the conclusion of the learned Subordinate Judge is largely based on it. The learned Subordinate Judge was greatly impressed by the fact that the properties were knocked down at the auction-sale for Rs. 73,200. But it is notorious that the price fetohed at a forced sale is not a true criterion for determining the real value of the properties sold and that it forms a most fallacious basis for assured conclusions. It is more to the point, as Narendra Narain says, that the Rajah of Nawaggar offered to purchase the properties for Rs. 1,10,000. Narendra Narain explains in his evidence that, as the officer of the Rajah wanted a commission of Rs. 10,000 he declined to sell the properties to the Rajah of Nawaggar. There is no reason to disbelieve his evidence, for it seems that he filed the actual letter received by him from the Private Secretary of the Rajah in Tilakdhari Lal''s execution case.

Now, as to the income. The evidence of Narendra Narain is that the income from the properties at the time of the sale was about Rs. 6,000 per year. The learned Subordinate Judge thinks that the net income could not have exoeeded Rs. 3,550. The learned Subordinate Judge concedes that the best evidence on this part of the case would be the collection papers and especially the jinsi papers of the estate, but he is under the impression that it was the duty of the plaintiffs to call upon the defendants second party to produce the jinsi papers. But Narendra Narain says definitely that he made over the jinsi papers to defendant No. 7. This evidence is inherently probable, for it is usual to make over all papers and documents connected with an estate at the time of the sale thereof. In my opinion, since the question of the income of the estate was an important question for the consideration of the learned Subordinate Judge, according to the case of the minor as it was presented, on his behalf, to the Court, it was the duty of the guardian who was in possession of the materials necessary to enable the Court to come to a conclusion on this point, to have produced those materials before the Court, and his failure to do so, should have induced the Court to accept the evidence of Narendra Narain.

We are, in the absence of those materials, unable to say definitely what the income of the estate was at the time of the transaction of the 24th October. But there are materials in the record which establish conclusively that the calculation made by the learned Subordinate Judge is untrustworthy and ought not to be accepted.

[After carefully examining each item his Lordship concluded as follows:-]

The income from the different classes of land conveyed does not fall far short of Rs. 6,000 per year which, according to the evidence of Narendra Narain is the income of the estate. It is impossible to say that an investment of 1,06,011-8-9 which brought an income of Rs. 6,000 per year was an improvident investment. I hold that the mortgage-bond is binding on the minor and is enforceable as against him.

I now come to the question of the liability of the defendants second party. There is, in my opinion, no escape from the conclusion that the transaction of the 30th October was for the benefit of the entire joint family, and that the mortgage-bond is enforceable against them. It will be remembered that, at the auction-sale, held in execution of Tilakdhari Lal''s decree, the properties which were the subject-matter of that mortgage and which are substantially the same as those sold to defendant 1, were knocked down for Rs. 73,200. The sale did not wipe out the liability of the defendants second party and there was every prospect of what other properties they had, passing into the hands of Tilakdhari Lal. It was, therefore urgently necessary for them to pay the decretal amount into Court on or before the 30th October not only to rescue the properties which had already passed into the hands of Tilakdhari Lal, but to save what other properties they had. It is quite true that the effect of the transactions of the 24th October and 30th October was to rescue these properties from the hands of Tilakdhari Lal and to vest them in defendant 1. But it was important for them to save the remaining properties which they had, and this they did by entering into the transaction of the 30th October.

The argument of the learned Subordinate Judge is this: "The family properties were not all saved, but the upshot was in effect that the properties which would have gone into the hands of the auction-purchasers passed into those of a private purchaser and that the liability under the decree came to an end only to emerge in another form, to fasten the family estate with the liability of Rs. 32,000 at an exorbitant rate of interest by virtue of the bond in suit". And then he comes to this conclusion, "the benefits, if any which accrued to them", that is to say, to the minor defendants 4, 5 and 6, "by the acts of the defendants Nos. 2 and 3 followed not from the contracting of the loan under the bond, but from the sale in favour of defendant 1".

With all respect, I am wholly unable to appreciate the argument. The sale in favour of defendant 1 would have availed them nothing, if the decretal amount could not be brought into Court on or before the 30th October. The defendant No. 1 could not pay the purchase-money, and the decretal amount could not be deposited in Court on or before the 30th October. It may be that the defendants second party could proceed against defendant 1; but meanwhile the auction-sale would be confirmed, and their remaining properties would be proceeded against. I think the mistake is in insisting on looking at the sale of the 24th October and the mortgage of the 30th October as separate transactions, whereas in substance they constitute one transaction. The problem which the managing members of the joint family had to solve on the 30th October was this:-which course was more beneficial to the interests of the joint family: to refuse to join in the mortgage of the 30th October and to submit to the auction sale being confirmed and their remaining properties being immediately sold to answer for Tilakdhari''s claim against them, or to join in the mortgage and immediately save the properties and take upon themselves a contingent liability which might never arise? I have no doubt whatever that they acted prudently in entering into the transaction of the 30th October.

"But then", says the Subordinate Judge, "What have you gained? Your liability under the decree is gone but your liability under the mortgage has emerged". If the argument of the learned Subordinate Judge were at all admissible, the managing member of a joint family would be legally incompetent to borrow money to discharge a prior obligation. The immediate necessity was to save the properties, the properties which were not the subject-matter of the conveyance. The necessity was urgent, and the danger to these properties imminent. Can it be argued for a single moment that the liability which they took upon themselves under the mortgage was merely a substitute for the liability which they had under the mortgage decree? In the first place, they had no reason to doubt that the Rani of Jheria would send the balance of the consideration money to defendant 1. They were told so by defendant 7, and they believed it, and they had good reasons to believe it, since the Rani had already given the defendant No. 1 no less than Rs. 79,000. In the second place, under the mortgage-bond, their liability would only arise on a certain event, that is to say, in the event of the security offered by defendant 1 being insufficient to discharge the mortgage-debt. Their liability under Tilakdhari''s decree was certain; their liability under the mortgage is a contingent one. Their liability under the decree was for the sum of Rs. 29,130; their liability under the mortgage, if it arises at all, will only be for a very small sum of money; for it is inconceivable that the properties which have been mortgaged by defendant 1, which have an annual income of Rs. 6,000 and which were knocked down for Rs. 73,200 at Tilakdhan Lal''s auction-sale, can possibly sell for much below the price necessary to satisfy the plaintiffs'' claim in the action. I am of opinion that the mortgage-bond is enforceable against the defendants second party.

I would allow the appeal, set aside the judgment and decree passed by the Court below, and give the plaintiffs a decree in terms of the reliefs claimed by them. The plaintiffs are entitled to interest at the bond rate up to the date of the decree and also to interest at 6 per cent. on the decree. The defendants will have six months for redemption from the date of this judgment.

The plaintiffs are entitled to their costs throughout.

Adami, J.

I agree.