Charan Dass and others vs Shadiram

Chopra, J.—These cross-appeals arise out of a suit for redemption of a mortgage made on 28th Poh, 1955 Bk., by one Mst. Utami, now represented by Shadi Ram, plaintiff. The principal amount secured by the mortgage was Rs. 2,000/- and interest at Rs. 1/- per cent, per mensem was stipulated. Towards the interest the mortgagor was to be credited with an aggregate amount of Rs. 55/- per annum as rent for mortgagee''s possession. The property mortgaged comprised three shops situate near Arya Smaj, Patiala. The deed further provided that the mortgagor would pay for the costs of ''shakasht rekhat'' to the property together with Interest at annas 12/- per cent, per mensem at the time of redemption, and also that the mortgagees would be entitled to make improvements by way of raising ''Chobaras etc'' on the shops.

In his suit for redemption brought on 12th Sawan, 2003, the mortgagor claimed possession of the shops only on payment of the principal i.e., Rs. 2000/-. The defendants, who are the sons of one and nephews of the other mortgagee, denied the mortgage and alleged that they were the owners of the suit property and were dealing with it since long past and had rebuilt it as such. An alternate plea was also taken that in case the mortgage be proved they, according to the terms of the mortgage, were entitled to Rs. 13,000/- for cost of improvements and interest thereon, in addition to the principal amount secured together with interest. The additional amount by way of costs on improvements that they thus claimed in the alternative was Rs. 42,175/-.

The District Judge, Patiala, to whose court the case was transferred as it exceeded the pecuniary jurisdiction of the Sub-Judge before whom it was initially instituted, decided the preliminary issues in favour of the plaintiff, found the mortgage proved and passed a preliminary decree for redemption on 21-7-1950. By the final decree the learned District Judge has now allowed the plaintiff to get possession of the suit property on payment of Rs. 6936,8/-. The stipulated rate of interest on the principal has been reduced to Rs. 7� percent, per annum, that being the maximum fixed for secured loans by the Patiala Relief of Indebtedness Act (No. 5 of 1939). Calculated at this rate the amount of interest comes to Rs. 7,741/8/-. Deducting therefrom Rs. 2,805/- for rent due to the mortgagor at the rate of Rs. 55/- per annum, the amount of interest due to the mortgagees was reduced to Rs. 4,936/8/-, and adding the principal to it, the learned District Judge arrived at the figure of Rs. 6,936/8/-. The mortgagees claim for cost of improvements has been rejected on the ground that neither under the terms of the mortgage nor under the law they were entitled to demolish and rebuild the shops.

It is this final decree against which the parties have appealed. The plaintiff-mortgagor appeals for the reduction of interest by Rs. 1,786/8/- on grounds which I need not reiterate, as they are not pressed. The mortgagees in their appeal pray for the amount payable to them to be enhanced by Rs. 38,350/- ; Rs. 13,000/- as cost of improvements and Rs. 25,350/- interest thereon at Rs. 7� per cent, per annum.

The case of the mortgagees-appellants is that by the terms of the mortgage they were given a free choice to reconstruct the shops as they desired, and since the shops were in a dilapidated condition on the date of mortgage they demolished and rebuilt one of them at a cost of Rs. 3,000-in 1960 Bk. and the others in 1977 Bk. at an expense of Rs. 10,000/-. On behalf of the appellants their Learned Counsel. Shri Atma Ram, contends that the improvements, which are permanent in nature, had greatly increased the rental as well as the saleable value of the shops and hence the mortgagor before getting possession thereof must pay for their cost. As regards the mortgagees right to effect improvements counsel relies on the stipulation in the mortgage-deed and in the alternative on the provisions contained in Ss. 63A and 72(b), Transfer of Property Act. The relevant portion of the mortgage-deed is as follows:

Shakasht rekhat bazimma murtehnan hogi- Jis qadar lagat lagegi barwaqt waguzari mai sood bashrah -/12/- per cent babat lagat murtehnan ko ada ki jawegi...... Murtehnan ko ikhtiar hai keh dukanat marhuna par hasb khahish tamir karen, yani chobara waghaira jo kuchh chahen bana lain.

This is sought to be interpreted to mean that the mortgagees had full and unrestricted authority to raise any structure they pleased, and even to demolish and rebuild the shops according to their own design and requirements. Reliance in support of the argument is placed on - ''Kharati Ram v. Dina Nath'', AIR 1927 Lah 815 (2) (A). The facts of that case, however, were very much different. There, the mortgaged property was found by the local Municipal Committee to be in a dangerous condition and, therefore, a notice under the Punjab Municipal Act was served on the mortgagees to demolish it within six hours. Part of the house fell down before the rest was demolished. The mortgage was for Rs. 600/- end it provided that the mortgagee would be entitled to do ''muramat shakasht rekhat'' to the house and add the expenses incurred thereon'', with interest at the stipulated rate, to the amount due under the mortgage. The house, as rebuilt at a cost of Rs. 1,120/-, was not larger than the one that existed at the time of mortgage, though it was better constructed.

The mortgagor did not contend that when the house was pulled down it was not necessary to do so and to reconstruct it, but urged that the ruinous condition of the house was due to the action of the mortgagee in not keeping it in good condition by doing ordinary repairs, and, therefore, even if the mortgagee was otherwise entitled to claim the expenses of rebuilding, he was not entitled in the particular case by virtue of his default. This plea of the mortgagor was rejected as the same was urged for the first time in the second appeal before the High Court and there was no evidence on record to enable the Court to come to the conclusion that the mortgagee neglected to repair the house and thus allowed it to fall into a state of disrepair. It was, therefore, held that under the terms of the mortgage-deed the mortgagee was entitled to the cost of rebuilding the house and also to interest thereon. Particular stress is being laid on the following observation of Jai Lal J. in his judgment:

We think that the condition that the mortgagor shall pay the cost of ''muramat shakasht rekhat'' with interest, means that he shall pay not only for the ordinary repairs but also the expenses Reasonably incurred in rebuilding the whole or a portion of the house mortgaged.

But this has to be read and interpreted in the flight of the facts of the particular case. It cannot, in my view, be regarded to mean that the phrase ''muramat shakasht rekhat'' includes destruction of the mortgaged property by the mortgagee himself and at his own sweet will, irrespective of its nature and condition. The stipulation that the mortgagor shall pay the cost of ''shakasht'' (breakage) and ''rekhat'' (destruction) cannot be taken to mean that the mortgagor thereby binds himself to pay the expenses which the mortgagee may incur in breaking or demolishing the mortgaged property and then in rebuilding the same.

Reasonably interpreted the stipulation only means that the mortgagor takes upon himself to pay the cost of repairs or rebuilding in case of breakage or destruction. The breakage or destruction ought to be due to natural deterioration or by some other act of nature beyond the control of the mortgagee, and not undertaken by him at his own initiative and out of his own sweet will. By the use of these or such like words, the mortgagor cannot be taken to have authorized the mortgagee to pull down the entire mortgaged property whenever he (mortgagee) pleases and rebuild it in the manner he desires. That would be authorizing the mortgagee to improve out the mortgagor of his estate and thus clog the right of redemption, which is not permissible under the law or the principles of justice, equity and good conscience. Reading the document as a whole I am not inclined to place any such interpretation on the first condition in the mortgage deed.

The contention that the shops at the time of the mortgage were dilapidated and in a ruinous condition, which necessitated their demolition and construction of the new building, is devoid of force. No such plea was taken by the mortgagees in their written statement. As already observed, there, the defendants denied the mortgage and alleged themselves to be the owners of the suit property and to have demolished and rebuilt them in that capacity. At the trial, they did lead some evidence to show that the shops were dilapidated when they took the mortgage. Oral testimony of a few of the defendants'' witnesses on the point was not relied upon by the learned trial Judge, and the same being of an ordinary type has failed to inspire confidence. The mortgage deed does in no way give support to their assertion. Nothing of the kind is to be found mentioned in it, nor is it deducible from its contents. On the other hand, it authorized the mortgagees to raise Chobaras on the shops; which could be possible only if the original structure on the ground floor was strong enough to stand the additional weight of first-floor buildings on it. The contention has, therefore, to be rejected.

Even in the case of natural decay or destruction of the mortgaged property by some unforeseen calamity, the expenditure on its repairs or rebuilding should be reasonable. What constitutes a proper and necessary expenditure is a question of fact depending upon the circumstances of each case. Amongst other things, regard must be had to the nature, situation and value of the property mortgaged, financial condition and position of the mortgagor, the amount that he could and would have himself spent under the circumstances and the bona fide intentions of the mortgagee. For instance, to build a palace or a spacious modernized building in place of an old-fashioned and un-important structure of small value which may be beyond the means of the mortgagor and thus to make it impossible for him ever to redeem it on payment of the expenditure incurred by the mortgagee can never be regarded as reasonable or justifiable. That would again be nothing but improving the mortgagor out of his estate and intentionally putting a clog to the right of redemption. Any such action would be permissible only with the express and previous consent of the mortgagor when due knowledge of the nature and approximate cost of the building intended to be constructed.

In the present case, as already observed, demolition of the shops was not due to or necessitated by any act of nature, nor can the huge expenditure on the new construction be regarded reasonable. The ensure thing was demolished from its very foundation and a new double-storeyed building was raised in us place at the alleged expenditure of Rs. 13,000/-, that is more than six times the mortgage-cent. With the addition of interest claimed thereon (Rs. 29,176/- ) the liability of the mortgagor goes up to more than twenty times that debt. It would be perversity of justice and fair-play to treat it as reasonable or justifiable.

The second condition of the mortgage, on which some stress has also been laid, is equally of not much help to the mortgagees-appellants. It authorizes the mortgagees "to build ''on the shops'' as they desire." The phrase that follows clarifies the intention of the executants and limits the generality of the preceding one, as it entitles the mortgagee to construct ''Chobaras etc.'' The word "waghaira" added to ''Chobaras'' can only mean some such other structure on the first floor. The general and the illustrative parts of the condition read together make it clear that the total demolition of the shops or wholesale reconstruction with Chobaras on the new building was never stipulated.

Provisions of the Transfer of property Act an this connection do not in any way improve the mortgagees'' case either. Annihilation of the mortgagee; property and substituting in its place, at the sweet will of the mortgagee, an entirely new building is not supported by any of these provisions. Section 63 relates to ''accessions''. Accessions which have been acquired at the expense of the mortgagee and separate possession and enjoyment of which is not possible, have to be delivered with the mortgaged properly to the mortgagor at the time of redemption, and the latter in such a case is required to pay the proper cost thereof only if the acquisition is necessary to preserve the property from destruction, forfeiture or sale, or is made with his assent. Obviously the section has no application as the building in question is not merely an addition to the building which already existed, but is entirely a new building substituted for it; nor is the section in any way helpful to the mortgagees.

Next it is to be seen if the case falls under S. 63A, Transfer of Property Act. That section was introduced by the Amending Act (20 of 1929), and is as follows:

63-A(1). Where mortgaged property in possession of the mortgagee has, during the continuance of the mortgage, been improved, the mortgagor, upon redemption, shall, in the absence of a contract to the contrary, be entitled to the improvement; and the mortgagor shall not, save only in cases provided for in sub s. (2), be liable to pay the cost thereof.

(2) Where any such improvement was effected at the cost of the mortgagee and was necessary to preserve the property from destruction or deterioration or was necessary to prevent the security from becoming insufficient, or was made in compliance with the lawful order of any public servant or public authority, the mortgagor shall, in the absence of a contract to the contrary, be name to pay the proper cost thereof as an addition to the principal money with interest at the same rate as is payable on the principal, or, where no such rate as fixed, at the rate of nine per cent, per annum, and the profits, if any, accruing by reason of the improvement shall be credited to the mortgagor.

In the first place, it will be noticed that the section can be applicable only to those cases; Where there is no condition between the parties, with regard to improvements made by the mortgagee. Where there is A stipulation between the parties to a mortgage that certain specific and; no other improvements can be made and that they shall be subject to such terms as are agreed upon, the section does not apply. In such cases the right of the mortgagor to improvements and the right of the mortgagees to cost thereof are subject to the contract into which the parties have entered in respect thereof. If, on the other hand, there is no such stipulation between the parties, the case is governed by S. 63-A. The present case clearly tails under the first category and, therefore, the section would have no application.

Otherwise, too, the section does in no way advance the mortgagee''s case. This is for the simple reason that, under the section, in order to entitle the mortgagee to the cost of improvements made by him en the mortgaged property, it has to be shown that

They were necessary ''to preserve'' This property from destruction or deterioration, or

They were necessary to prevent the security from becoming insufficient, or

They were made in compliance with the lawful order of any public servant or public authority.

Obviously the mortgagees case here does not fulfil any of these conditions. Again, the mortgagor & liable to pay only those costs of improvements which have been properly and reasonably incurred. As already observed, the mortgagees case suffers from that defect as well.

A mortgagee cannot claim the cost of additions to, or new constructions upon or in place of, the mortgaged property even under cl. (b) of S. 72, Transfer of Property Act. Moreover, according to the proviso appended to this section in 1929 the expenditure under its cl. (b) will not be deemed ''necessary'' unless the mortgagee has called upon the mortgagor to take proper and timely steps to preserve the property and the latter has failed to take those steps. Nothing of the sort was done in the present case.

It is thus manifestly clear that neither under the contract nor according to law the mortgagees had the right to pull down the mortgaged property and rebuild it at their own pleasure and according to their own plan and design. The wholesale alteration, by removal of the original building from its very foundation end raising a new building in its stead, was never stipulated or contemplated by the parties to the mortgage; nor is the same permissible under the law. That could only be done with the prior permission or consent of the mortgagor. As the mortgagees acted without the required assent they cud so at their own risk and, therefore, they cannot affix any liability on the mortgagor for the cost incurred by them.

Another difficulty in the way of the mortgagees is that they have not produced or proved any account or vouchers concerning the expenditure. One of the defendants'' own statement that the outlay amounted to Rs. 13,000/- cannot be readily accepted. The allegation is that once they spent Rs. 3,000/- for the construction of a portion of one of the shops in the year 1960 Bk. and then Rs. 10,000/- to complete the rest of the building in 1977 Bk. The round figures are themselves indicative of approximation; since the defendants do not appear to hare kept any regular accounts they were not in a position to state the actual figures. A mortgagee in possession is not only expected but is explicitly required by law to keep

clear, full and accurate accounts of all sums received and spent by him as mortgagee.

and also to give the mortgagor, at his request, true copies of such accounts and of the vouchers by which they are supported. No oral or documentary evidence whatsoever regarding details of the expenditure has been brought on record by the mortgagees.

Reliance in this connection is placed on the solitary entry in the defendants'' ledger for tha year 1978. Exhibit P.W. 14 is its copy and it recites payment of Rs. 9,832/- to one Attar Chand for the construction of a shop''. The entry is dated Assoj Badi 7, 1978, and makes reference to Rokar page 21. Attar Chand is said to be the defendants mukhtiar and also a close relation of theirs. It is alleged that the amount was paid, to him in lump sum for the expenses he incurred in constructing the shops in question for and on behalf of the defendants. Attar Chand must have kept some accounts of the day to day expenditure, but none has been produced; nor has he been examined. Copy of the Rokar reference to which is found to be made in the above entry, has also not been produced. The entry is not signed by Attar Chand or any one else. No receipt on behalf of Attar Chand relating to this amount is forthcoming. No mention of the payment of this amount to Attar Chand, or even of the existence of this entry in the Khata, was made by the defendants in their written statement. Copy of it was produced at a later stage. As the entry is not supported by any other accounts or vouchers not only is it insufficient to fix the opposite party with liability, but its genuineness also becomes very much doubtful.

Defendants'' case with respect to the cost of ''Chobara'' however, stands on a different footing. It is to be remembered that the mortgage-deed authorized the mortgagee to construct Chobaras, etc., on the shops. It is a lasting improvement and it was made with the consent of the mortgagor. To that extent, therefore, the expenditure incurred by the defendants cannot be denied to them. As already observed, the defendants have not produced any accounts, and we are not in a position to arrive at the actual expenses on this part of the building. The court in such a case is justified to make every presumption against the defendants. That, however, does not mean that nothing was actually spent.

Shri Atma Ram has crown our attention to an estimate of the cost on the entire building prepared by Shri Gurdial Singh, an Overseer examined by the plaintiff as his witness, and has therefrom calculated the estimated cost of the ''Chobaras'' as Rs. 1924/-. The figure is not disputed by Shri Dalip Chand, Learned Counsel for the plaintiff. The evidence of Shri Gurdial Singh and the estimates prepared by him may not be very much satisfactory or convincing, but he appears to have erred more in favour of the plaintiff by whom he was examined. A similar estimate prepared by a witness produced by the defendants appears to be a good deal exaggerated and is also liable to be discarded because of the defendants'' failure to produce their account books Rs. 1,924/- can, therefore, be safely regarded, as the lowest estimate of cost on the Chobaras, to which the defendants are entitled.

No interest on this amount can, however be allowed to the mortgagees. They have been in possession of the Chobaras all along and making profits out of them. They have not kept any accounts of the rents they received. It can, therefore, be safely presumed that the rent recovered by the mortgagees was equal to the amount of interest due to them on this amount. According to the mortgage-deed the mortgagor was no doubt entitled only to a fixed sum of Rs. 55/- as rent for the mortgagees possession, but that was with respect to the shops as they then existed. If the mortgagees are held entitled to the cost of any improvements and interest thereon, they shall also be liable to give credit to the mortgagor for the excess profits made by them because of those improvements.

In the result, the mortgagees appeal (No. 28 of 1950) partly succeeds and is accepted to the extent that the amount held to be due to the mortgagees is increased by Rs. 1924/- thus the plaintiff shall be entitled to possession of the shops in dispute on payment of Rs. 8860-8-0 and not on the payment of Rs. 6936-8-0 as directed by the District Judge. The decree of the trial court shall, to that extent, be modified. In view of all the circumstances of the case, the parties are left to bear their own costs in tins appeal.

Appeal No. 37 of 1950 on behalf of the plaintiff-mortgagor has not been pressed by Shri Dalip Chand, and the same is, therefore, dismissed with costs.

Passey C.J.:

I concur.