F.X.D. Pinto and Another vs Sheenappa Malli and Others

Rajamannar, C.J.—This appeal arises out of a suit for redemption of a usufructuary mortgage for Rs. 7600 executed on 20-3-1941 by

plaintiffs 2 to 4 and defendants 8 and 4 along with others who formed an undivided Aliyasanthana family in favour of defendants 1 and 2. Plaintiff l

claims under a deed of simple mortgage executed on 1-3-1943 by the mortgagors under the first deed for Rs. 8000 reserving thereunder a sum of

Rs. 7300 to be paid to defendants 1 and 2 in satisfaction of the amount due under the mortgage in their favour. The learned Subordinate Judge of

South Kanara passed a decree for redemption and mesne profits substantially as prayed for by the plaintiffs. Defendants 1 and 2 are the

appellants-before us. This appeal, however, relates mainly to the claim made by the appellants-mortgagees based on some of the clauses in the

mortgage deed to the clay in the mortgaged lands. As the decision of the appeal depends entirely on a construction of the material clauses of the

mortgage deed, it is necessary to extract them :

This deed of conditional sale is executed by us under the terms that the clay contained in the said property will be given to you alone and

therefore, if the clay contained in the said property becomes useful to you, you shall obtain all the clay contained in the said property for Rs. 3000

(rupees three thousand) and the said amount of Rs. 3000 shall be adjusted by you. towards the payment of the portion of this mortgage amount

payable to you. If you do not want the said clay, the said clay shall be sold to others jointly by us and yourself within two years from this date and

that amount shall be paid to you towards the payment of the portion of this mortgage amount. In case we fail to sell the said clay jointly along with

you to others within two years from this date, by the end of the two years from this date, if we pay this mortgage amount of Rs. 7500 to you, you

shall obtain that amount and the said property shall be returned to us with a reconveyance executed with our expenses. In that manner, if we do not

pay the said mortgage amount, you shall after two years from this date sell the said clay to others by public auction, and the amount obtained in that

manner shall be kept by you towards the payment of the portion of this mortgage amount. In that manner, for selling the clay, you shall be fully

entitled. As mentioned above, in case we fail to pay the mortgage amount relating to this, if, at the end of March 1946, we pay to you in ''one lump

sum the mortgage amount found due to you as mentioned above, the said property shall be returned to us after executing a reconveyance with our

expense.

It was not seriously contended by the learned Advocate-General who appeared for the appellants that there was a completed sale of the clay in

favour of the appellants for Rs. 3000 on the date of the mortgage itself. Such a contention would be in the teeth of the express provisions which

follow which clearly contemplate that the sale has not been concluded. There then remain two alternative constructions which can plausibly be

placed on the recitals. One is that the mortgagors shall sell the clay to the mortgagees for the fixed sum of RS. 3000 whenever the mortgagees

required them to do so. The. other construction is that the mortgagees should have a right of preemption, i.e., the right of a first refusal but with the

super-added condition that the price shall be Rs. 3000. In other words, if the mortgagors chose to sell the clay, they should first offer it to the

mortgagees at the fixed price of Rs. 3000.

In our opinion, if the first construction is adopted, then the clause will be in the nature of a clog on the equity of redemption. In Rangayya Chetti

v. Raghavacharlu, 52 Mad. 300 : AIR 1929 Mad. 243 on a consideration of the leading English cases on the subject Ramesam and Eeilly JJ. held

that if a mortgagee as a term of the mortgage enters into a contract to purchase or stipulates for an option to purchase any part of or interest in the

mortgaged premises, there would be a clog on redemption. This view is supported by the observations of Lord McNaughten in Samuel v. Jarrah

Timber & Wood Paving Corporation, 1904 A. c. 323 : 73 L. J. Ch. 526 and an earlier decision in Noakes & Co. v. Rice, 1902 A. C. 24 :71 L.

J. Ch. 139 as well as the later decision in Kreglinger v. New Patagonia Meat & Cold Storage Co., 1914 A. C. 25 : 83 L.J.Ch. 79). The rule that

a mortgagee is not allowed at the time of the loan to enter into a contract; for the purchase of a portion of the mortgaged property or a part thereof

is absolute.

If, on the other hand, the clause is treated as embodying a contract for pre-emption, it is not a case of absolute option. There is some divergence

of judicial opinion whether such a contract would in all circumstances amount to a clog on redemption. But in the present case, it is not necessary

to finally pronounce on this question, because unless the mortgagors make up their minds to sell, the right of pre-emption does not arise. It was not

alleged in this case that the mortgagors attempted to or did sell the clay to any one else. The first plaintiff by the notice dated 3-3-1943 offered to

pay the entire amount of Rs. 7500 and obtain redemption. In our opinion, though something may be said for a contract of pre-emption under which

the mortgagees would have the right of first refusal, but the price is that which is either agreed upon between the parties or the market price, here

we have a contract of preemption one of the terms of which is that the mortgagors shall not only give the mortgagees the first right of refusal, but

they are further bound, to sell in case the mortgagees require at a fixed price even though it be not the proper price on the date of the sale. Such a

contract for pre-emption would be clearly a clog on the equity of redemption.

Apart from this objection on the ground that this clause offends the rule against clogs on the equity of redemption, on the facts and

circumstances in the case, we consider that the appellants not having at any time intimated to the mortgagors the decision to treat the sale of clay as

concluded before the issue of the notice by the first plaintiff offering to redeem, they are precluded thereafter from pleading this clause to resist the

demand for redemption. This is a suit for redemption and to that suit there is really no defence on the part of the appellant. Their claim in the written

statement is virtually a claim for specific performance of an agreement contained in the mortgage. It will be highly inequitable to direct specific

performance of this agreement after the mortgagors have exercised their right of obtaining redemption on payment of the full amount of the

mortgage money.

For all these reasons, we agree with the Court below that the plaintiffs were perfectly right in tendering the sum of Rs. 7500 to redeem the

mortgage. No other question was raised before us. The appeal, therefore, is dismissed with the costs of the plaintiffs and defendants 3 and 4.