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Judgment
Wort, J.—This is an appeal by the plaintiff in a mortgage action. The Subordinate Judge has dismissed the action on the ground that the mortgage was an anomalous mortgage, that there was no agreement for sale contained therein and that consequently the plaintiff was not entitled to a decree for sale of the property, nor was he entitled to a decree on the personal covenant as according to the conclusion at which the learned Judge has arrived, the plaintiff-mortgagee was in possession and that Section 68(2), T.P. Act, as it at present stands, applied. A number of other questions were decided by the Subordinate Judge, but some of them do not arise in the appeal. On the same date on which the mortgage was executed, a power-of-attorney in favour of the mortgagee was also executed by the mortgagor under which, so far as regards one part of the property, the mortgagee, either by himself or a substitute, was entitled to collect the rents and profits and set them off against the interest, and any balance thereafter remaining against the principal. There was a provision that the mortgagee was to account only for that which he had actually received. This latter provision the learned Judge has characterised as unconscionable, and the same view has been taken of the agreement entered into by the parties after the mortgage moneys had become due, under which in consideration of the mortgagee not enforcing his mortgage the mortgagor was to pay an increased rate of interest being 9 per centum per annum. This as I say has also been characterised by the learned Judge as unconscionable and as a penalty and therefore not recoverable.
But in this appeal Sir Sultan Ahmed who appears on behalf of the respondent agrees that he cannot support the Subordinate Judge''s judgment on this point nor as regards what the Subordinate Judge describes as a penalty. We have therefore to consider only the question of whether the mortgagee is entitled to a decree for sale or on the personal covenant, and whether in the circumstances of the case it can be rightly held that he is a mortgagee in possession with the liabilities of a mortgagee in that position. The first point involves the question of the construction of the mortgage bond and the power-of-attorney. It is said by the respondent that, read together, these documents constitute an anomalous mortgage being a combination of an English and a usufructuary mortgage. The mortgage-deed was dated 28th August 1907, for a sum of Rs. 3,70,000, the due date being 31st August 1912, with interest at the rate of 8 per centum per annum with half-yearly rests. The bond was in the form used in the Presidency towns based on English conveyancing precedents. The power-of-attorney was, as I have said, executed on the same date. On 23rd May 1921, after mortgage moneys had become due, and on the mortgagee, making a demand for payment thereof, the agreement to which reference has already been made was entered into under which the mortgagor agreed to pay interest and compound interest at the rate of nine per centum per annum instead of at the rate of eight per centum per annum as in the indenture provided. Apart from the statement of its existence we are not concerned with this agreement. The terms of the mortgage bond are important, the first of which is to this effect:
Whereas the said mortgagor being heavily, involved in debts and with a view to save his properties from being sold in execution of his creditors hath applied to the said mortgagees to lend and advance to him the sum of rupees three lacs and seventy thousand which they, the said mortgagees, have agreed to do upon having the repayment thereof with interest thereon secured in manner following and upon the said mortgagor executing an irrevocable power-of-attorney in favour of the, said mortgagees authorising thorn or either, of them during the subsistence of this mortgage and until the whole of money hereby secured are fully paid up and liquidated to realise the several rents amounting to Rs. 2, 966-1-0 annually that will henceforth, that is from the month of Kartick 1314 B.S., become due from the several putnidars of the said mortgaged properties whose names are mentioned in the schedule annexed to such power-of-attorney which is to bear even date with these presents and to apply the same pro tanto first towards liquidation of the half-yearly instalment of interest that will become due to the said mortgagees and the balance, if any, towards the principal for the time being due under these presents.
It proceeds to
grant, convey and transfer unto the said mortgagees all those several zamindaries, etc., etc., and the reversion and reversions, remainder and remainders, rents, issues and profits, etc., etc., of lands, messuages, tenements, hereditaments, etc.
And then the habendum clause:
To hold the same and all and singular and other the premises hereby granted and conveyed or otherwise assured and expressed and intended so to be unto and to the use of the said mortgagees for ever subject nevertheless to such proviso for redemption.
There is further a clause under which the mortgagor undertakes to
pay all costs, charges and expenses which the said mortgagee shall or any (of them) be put to or incur in getting in and recovering payment of the moneys and premises hereby secured including the costs of and incidental to these presents and the costs, charges and expenses of deputing men to go to Purnea or recovery of the moneys aforesaid without any deduction or abatement whatsoever.
There is also a personal covenant to repay. The deed also contains a covenant as to title. There is an agreement to allow the mortgagor to redeem within the period of one year from the date of the deed on payment of the principal sum together with interest and there is a further covenant to allow part payment in these terms,
as also to make part payment of the principal money hereby secured after the expiration of one year from date of any sum not less than rupees one thousand at a time provided all interest due at the time is first satisfied and upon such payments being made interest shall ... on the amount so paid provided further and is hereby lastly agreed and declared by and between the parties hereto that in case the said mortgagor pays to the said mortgagees sum of rupees one lac towards part payment of the principal moneys hereby secured provided all interest due at the time of such payment is first paid then the said mortgagees shall allow the said mortgagor a further period of three years over and above the period of five years hereby fixed for repayment of the moneys hereby secured, but subject to the terms and conditions hereinbefore reserved, for repayment of the moneys hereby secured.
In pursuance of the agreement contained in the first part of the mortgage-deed the mortgagor executed a power-of-attorney of the same date, under which the mortgagees were authorized in the name and on behalf of the mortgagor to realise the putni and mokarrari rents, cesses and interest and other dues
due to me in respect of the several zamindaries aforesaid from the several putnidars or tenants or tenure-holders mentioned in the schedule hereto annexed.
The sums so collected were to be set off as against interest, any balance going towards the principal,
without being in any way held accountable as mortgagees in possession and being only accountable for moneys actually received by them and for nothing else.
There was a provision that the mortgagees were
entitled to ask, demand, sue for, recover and receive of any from the tenants mentioned in the schedule ... or any other person or persons who for the time being shall be liable to pay the several patni and mokarrari rents and cesses, etc.
There was the provision that actions might be started by the mortgagee:
for me and in my name and on my behalf to sign and verify plaints, written statements, applications, petitions, etc.
The clause dealing with disposal of the moneys so collected is important and is in these terms:
And I authorise my said attorneys or attorney to apply and dispose of the money which shall from time to time so come to their or his hands by virtue of any of the powers herein contained in the manner following: with and out of the said moneys in the first place to pay and satisfy all the costs, charges and expenses which shall from time to time be incurred or sustained by my said attorneys or attorney in exercise or execution of any of the powers and authorities herein contained including the reasonable salary of an agent to be appointed in Purnea and the travelling charges and other incidental expenses, such charges and expenses being at the absolute discretion of the said attorney or attorneys and to apply the balance pro tanto towards payment and liquidation of the interest which shall from time to time become due to any said attorneys on the Indenture of mortgage aforesaid and to apply the balance (if any) towards payment pro tanto of the said principal sum, etc.
There is also a provision that each mortgagee might act separately and apart from the other, and then an important clause occurs upon which an argument has been addressed to the Court:
And for the further, better and more effectual doing, effecting, executing and performing of the several matters and things aforesaid I hereby give and grant unto my said attorneys and each of them full power and authority from time to time to appoint one or more substitute or substitutes to do, execute and perform all or any such matters and things as aforesaid and to appoint another or others in his or their place or places and all and whatever my said attorney or either of them or their or his substitute or substitutes shall do or cause to be done in or about the premises I do hereby for myself, my heirs, executors and administrators covenant with the said mortgagees (named) their executors and administrators to allow, ratify and confirm, etc.
At this point it might be said that the yearly interest on the mortgage amounted to the sum of Rs. 29,600, the income of the property, the collection of rents of which was allowed by the power-of attorney, was Rs. 29,666-1-0. Apart therefore from any costs of collection, the balance left over after the interest was satisfied was approximately Rs. 66.
The main argument in the case related to the question of whether this was an English mortgage or an anomalous mortgage. It is said by Sir Sultan Ahmad in the first place that as under the mortgage deed the mortgage moneys were advanced and the mortgage executed in consideration of the power-of-attorney being executed by the mortgagor, and the fact that the mortgage deed and the power-of-attorney were to be read together, the form of the mortgage was entirely inconsistent with the nature of an English mortgage in that it granted powers of management over some of the mortgaged properties of such a character as in effect to put the mortgagees in possession. But there is nothing inconsistent with an English mortgage in the mortgagee making provision for the management of the property and thus ensuring the payment of the interest, nor in the fact that the agreement expressly provides that such management of the properties and collection of rents should be as agent for the mortgagor and not of the mortgagee: see Mati Lal Das v. Eastern Mortgage and Agency Co. Ltd. 1921 PC 118 to which reference is made later in this judgment for another purpose.
It is not disputed in this case that the mortgagor transferred the property absolutely to the mortgagees. There is a personal covenant to repay the mortgage moneys as also a covenant to retransfer the property on the repayment of the mortgage money. It is argued however that as there is the clause giving the mortgagor certain options as regards part payment and extension of time for repayment of the principal sums, it is not a deed wherein the mortgagor binds himself "to repay the mortgage money on a certain date" within the meaning of Section 58(e), T.P. Act. Dealing with this argument, it seems to me quite clear that the grace which the mortgagees would grant to the mortgagor in certain circumstances in no way affects the clause which is in the mortgage deed under which the mortgagor undertook to repay mortgage moneys on 31st August 1912. It is also argued--an argument which in my judgment has no more force than the one to which I have referred--that the clause postponing the date of redemption also contravenes the definition in Clause (e), Section 58. Whatever else may be said regarding the mortgage deed and the power-of-attorney, the mortgage deed itself most certainly complies with the definition of an English mortgage contained in Clause (e), Section 58 in the sense that it contains the three necessary constituents therein provided.
The main argument however is directed towards the clauses which it is said place the mortgagees in the position of mortgagees in possession. This has a bearing on both the questions, being the only questions before us: that is to say, it is argued that being in possession--under the conditions provided for in the mortgage and the power-of-attorney, the mortgage was a usufructuary mortgage, and being partly an English mortgage and partly a usufructuary mortgage, the mortgage is what Section 58(g) describes as an anomalous mortgage. The sub-section replaces the old Section 98. The respondent''s alternative argument is that assuming that it is an English mortgage, the appellant-mortgagees are in a position of mortgagees in possession and are liable to account as such, not being entitled to contract themselves out of the statutory liability in that respect. The appellants'' argument on this point depends to some extent on the question of fact. According to them one N.K. Sen was appointed a substitute under the latter clauses of the power-of-attorney. It is said by the respondent that N.K. Sen was not a substitute within the meaning of the power-of-attorney but was an agent of the mortgagees under an earlier clause of the power.
It is argued that no proof was given of any appointment under the clause entitling the mortgages to appoint a substitute or substitutes. On the part of the appellants it is contended that the action proceeded in the Court below on the assumption that the allegations contained in para. 5 of the plaint were true. "There was no specific denial of para 5 in the written statement; paras. 11, 12, 15 and 17 thereof are relied upon by the respondent in support of his contention. The averments in the written statement in my judgment are insufficient to put in issue the question of whether Nishi Kanta Sen was a substitute or not; and this is borne out by what happened subsequently. The paragraphs to which I have referred in the written statement are equivocal. It is true that the defendant asserts that the plaintiffs appointed Nishi Kanta Sen as their agent in Purnea and later it is stated that the plaintiffs were liable for the acts and omissions of their agent; but when the case came before the learned Subordinate Judge for the settlement of issues, no issue was settled on this point and it is said (as I have already stated) that the trial proceeded on the assumption that as a fact the plaintiffs purported to appoint a substitute under the later clauses of the power-of-attorney. ''The most that can be said for the respondent is that he treated his own pleading and so did the Judge, as a question of what inference in law could be drawn from the facts.
The other matters to which reference is made by the respondent on this point do not appear to assist him. There was a letter from the plaintiffs to the defendant, dated 29th May 1923, in which the question of payment of mortgage moneys was referred to and the last paragraph of that letter referred to their agent Babu Tarak Chandra Das "to allow inspection of account-books and other papers relating to the putni rents collected on your behalf," the letters relied upon by the defendant showing not that Nishi Kanta Sen was the agent of the plaintiffs, but that rents were being collected by an agent in the defendant''s behalf. The last part of the sentence, however, is a complete repudiation of this suggestion as the appellants there state "putni rents collected on your behalf" (namely, the defendant-respondent). Nothing it seems to me can be got from the letter which assists either side with regard to this matter.
It would appear from some reference made in the case that the appointment of Mr. N.K. Sen was by a power-of-attorney by the appellants; but this has never been called for and in the circumstances relating to the pleadings to which I have referred, nothing can be assumed against the plaintiff-appellants in this regard. It would, therefore, appear, and this is not denied that the plaintiff-mortgagees did not act under the earlier part of the power-of-attorney in the sense that they collected rents themselves or by their agent in Purnea. On the execution of the mortgage-deed and the power-of-attorney they proceeded to appoint a substitute under the later clause, and this they contend was in substance placing a Receiver in possession on the conditions contained in the deed, that being that the collections should be made on behalf of the mortgagor; in other words, the person collecting was the agent of the mortgagor and not of the mortgagees. On this contention, to some extent, depended the argument that the agreement was obtained by undue influence. This argument was supported by the Subordinate Judge in the Court below; but the argument, as I have said, has been abandoned by the respondent, he agreeing that he cannot support the judgment of the Subordinate Judge in this respect. (The substitute collected rents not of the whole of the property, but of only one portion, the rents in respect of which were approximately equal to the yearly interest.)
The first substantial matter therefore, is whether in the circumstances it can be said that this amounts to a usufructuary mortgage. In my judgment the matter is beyond doubt. The position is not consistent with that of a usufructuary mortgage as defined by Clause (d) of Section 58, Transfer of Property Act. The clause provides that the mortgagor delivers possession of the mortgaged property and authorizes him (the mortgagee) to retain such possession until the payment of the mortgage moneys. Possession is not delivered in this case of the whole of the mortgaged property or any part for that matter; but it does appear that what the section contemplates in any event is that the whole of the mortgaged property should be delivered and retained until the mortgage-debt is paid off. Sir Sultan Ahmed with some reluctance concedes the point that if possession of the nature which was delivered to the mortgagees in this case had been given subsequent to the mortgage-deed and not under a document (the power-of-attorney) which was to be read with the mortgage-deed, then his argument could not be supported. But as it is, it is based very largely, if not entirely, upon the fact that the power-of-attorney and the mortgage-deed were one and the same in this respect and that, therefore, it is tantamount to a delivery of possession under the mortgage-deed itself. A further argument by the respondent was that under the power-of-attorney the rights controlling the management of the properties were in the mortgagees. One of the arguments upon which Sir Sultan Ahmed laid the greatest stress was that the grant of the power-of-attorney was entirely inconsistent with the circumstances of an English mortgage. The argument appears to be that an essential of an English mortgage is the transfer absolutely of the property so that nothing is left in the mortgagor which gives him any right to deal with the property in any way, and that therefore if this were in fact an English mortgage and to be construed as such, there would be nothing left in the mortgagor over which powers of management could be granted; in other words, by the deed itself all the interest in and powers of management over the mortgaged property were already in the mortgagees. This argument in my judgment is fallacious. It could not be suggested that the interest which the mortgagee under an English mortgage in India has is greater than is conferred by a mortgage of a similar character in England. In Heath v. Pugh (1881) 6 QB 345, Lord Selborne has pointed out that so long as a mortgagee does not exercise his right to get into possession, the mortgagor has a right to collect the rents and profits of the mortgaged property. "His possession was rightful and not by wrong." In the absence of the exercise of the mortgagee''s right he is entitled "to sue for possession and for recovery of rents and profits in his own name:"
In equity the conveyance of the legal estate to a mortgagee was regarded as nothing more than a security for a debt. During the subsistence of the equity of redemption the debt together with this benefit of the security, passed to the executor by a will of the personal estate (of the mortgagee), and the legal title to the land did not pass by a general devise of all the mortgagee''s real estate ... because it was not regarded in equity as any part of that estate ... the interest in the land must be somewhere and cannot be in abeyance, but it is not in the mortgagee, and therefore must remain in the mortgagor.
These observations although made in a case in which the question of limitation was the point to be decided, are in point and are a complete answer to the argument. The decision to which I have referred was upheld by the House of Lords reported in Pugh v. Heath (1882) 7 AC 235. If therefore so long as the mortgagee did 1 not get into possession, the mortgagor is entitled to recover possession from a; third party and to recover rents and profits, the power-of-attorney granted by him entitling that person in the grantor''s name to collect the rent and profits cannot be said to be inconsistent with what is known in India as an English mortgage. For the reasons which I have stated, namely, that the deed did not deliver possession to the mortgagee and that the mortgagee was not entitled to retain possession till the payment of the whole of the mortgage moneys and that the agreement between the parties was, hot inconsistent with an English mortgage, it seems to me that the decision of the learned Subordinate Judge that this was an anomalous mortgage being partly English and partly usufructuary cannot be supported.
In that view of the matter the only remaining question is whether, as the learned Subordinate Judge has decided, the mortgagees were liable to account not only for what they have actually received but what the defendant-respondent or what N.K. Sen, the substitute, has received and not accounted for. This raises two questions. The first is whether the mortgagees were in possession, and secondly, whether in any case N.K. Sen could be considered the agent of the mortgagees. The second point I have already decided in coming to the conclusion that N.K. Sen was the substitute and, therefore in the position of the mortgagees themselves had they exercised their rights to collect the rents and profits by an agent in Purnea. His position was that of agent for the mortgagor. With regard to this matter the case of Mati Lal Das v. Eastern Mortgage and Agency Co. Ltd. 1921 PC 118, was referred to In that case the company were the mortgagees of certain properties to secure a payment of the sum of Rs. 2,50,000 and in another case to secure the sum of Rs. 1,20,000. Two different properties were mortgaged under two different deeds. It is true that in those deeds there was a provision that the mortgages were to be construed as English mortgages. The important clause in connexion with the point raised in this case and contained in those mortgages were:
Until the mortgagees shall enter into and take possession of the mortgaged premises such mortgaged premises shall be managed entirely and without any interference whatever by the mortgagor by two persons (named).
Incidentally these persons were connected with the mortgagee company. The managers were given the fullest possible power for the proper management and improvement of the mortgaged premises,
including power to appoint and dismiss all servants and to make settlements with raiyats and farmers, to give leases and to institute and conduct and defend suits and other legal proceedings.
This clause, if anything, was somewhat wider than that contained in the deed under our consideration. There was a provision that out of the rents and profits collected the manager would pay Government revenue
and all Government and municipal cesses, rates; rents for sikmi and putni tenures, to superior landlord and all other charges payable in respect of the mortgaged premises.
Then interest was to be liquidated; and then, in the third place, the proper costs and charges for management were to be paid. There was a clause also that the mortgagees without prejudice to their rights might in certain events appoint a receiver. One argument in that case (as in this case) was that the terms of the mortgage was unconscionable and unenforceable in equity. Their Lordships point out that there was nothing: to suggest or support this contention from the facts proved. The mortgagor understood the agreement and therefore there was nothing to support the view that this part of the mortgage deed was unenforceable. The matter does not arise in the present case for the reasons which I have already stated. But it was contended also in the Privy. Council that the two persons named as managers and who, as I have said and repeat, were connected with the mortgagee company, were agents of the company and by these agents the mortgagees were in possession and were liable to account as mortgagees in possession. Their Lordships held that:
The company never was in possession, nor? was it liable for any default or any waste or management or any negligence. The company was careful not to act in any way as a mortgagee in possession. The company had a perfect right before lending its money to insist upon the mortgagor appointing managers in whom the company had confidence.
As already stated, there were two mortgages in this case. The argument referred to related to the mortgage on 21st September 1890, the other being dated 7th November 1890. It is impossible to draw any distinction between the case before the Judicial Committee and the case which is before us. Whatever might have been said if the mortgagees themselves had exercised their rights under the power of attorney apart from the -appointment of substitutes, the appointment of N.K. Sen as a substitute clearly had not the effect in law of making the mortgagees mortgagees in possession. There is nothing in law to prevent, in the circumstances of the kind with which we are dealing, the mortgagees insisting upon the management of the property or that part of the property in the sense in which it has been agreed upon between the parties in this case; and there is equally no reason why in those circumstances there should not be an agreement as there was in the case cited: the person there managing the property and collecting the rents and profits should manage it on behalf of the mortgagor and as his agent. Reference was made to the decision in Jugjeevun Das Keeka Shah v. Ramdas Brijbookun Das (1837) 2 MIA 487, during the course of the argument. In this case a mortgage of a certain property by some of the partners for the benefit of the firm was executed and under the mortgage the mortgagee placed a clerk (partner) in possession to collect the rents and profits. It was held that so long as the rents and profits were paid over to the mortgagee, the partner was the agent of the mortgagee and, as such, was in possession by the mortgagee so long as the payments continued.
In that case however we have none of the circumstances of the present and it seems to me that it has no application to the point we are deciding. In my judgment therefore the mortgagees here cannot be held to be mortgagees in possession and to account as such and there is therefore no question as to their contracting out of the statutory liability to account as mortgagees in possession. That decision would also dispose of the finding of the Subordinate Judge that the plaintiff''s were not entitled to a decree on personal covenant. Incidentally one of the seasons which the learned Judge has given for his decision on this point is that no such claim was made in the plaint. In the circumstances of the case the question of whether the plaintiffs made a -claim or not is immaterial, it being an English and not an anomalous mortgage. The plaintiffs are entitled to a decree for sales of the property u/s 69, T.P. Act. An account will be prepared on the footing that the sums actually received by the mortgagees will be set off against the interest in the first place and as against the principal in the second. As the decision of the Court below regarding the penal character of the provisions of'' the agreement of 23rd May 1921 is reversed the mortgagees are entitled to interest at the rate provided by the mortgage until 23rd May 1921 and thereafter at the enhanced rate provided by the agreement of that date. The appellants prayed for the appointment of a Receiver. A Receiver was appointed by an interim order of the Court. That order is now discharged and the Receiver will be discharged on the acceptance by the Subordinate Judge of the Receiver''s accounts. In the circumstances of the case I think that it is just and proper that a Receiver should be appointed, but the appointment will be made by the Subordinate Judge. In taking the account such sums as have been advanced by the mortgagees under the various interim orders of this Court will be added to the mortgage debt with interest. The appeal is allowed with costs throughout.
Dhavle, J.
I agree that the appeal should be allowed, and that the plaintiffs should have a decree for sale with costs of both Courts, the accounting being done on the basis of actual receipts. On the face of it the bond in suit contains all the three ingredients of an English mortgage as defined in Section 58(e), T.P. Act: (1) The mortgagor expressly covenants to pay the mortgage debt on 31st August 1912; (2) He transfers the mortgaged property absolutely to the mortgagees by employing the words "grant, convey and transfer" followed by the common-form conveyancer''s wealth of detail what is compendiously described in the covenant for title as "an absolute and indefeasible estate of inheritance in possession;" and (3) there is the proviso for redemption that upon payment of the mortgage money as agreed, the mortgagees will "re-convey and reassure" the mortgaged property to the mortgagor.
The respondent however succeeded in inducing the lower Court to regard the mortgage as anomalous, and as a consequence to refuse the prayer of the mortgagees for a sale as upon an English mortgage, on the footing that there was no absolute transfer of the mortgaged property because under the mortgage bond and the power-of-attorney the mortgagees were to make collections from a portion of the mortgaged properties as agents of the defendant mortgagor with a right to grant rent receipts, and to bring suits for recovery of rent against the patnidars, in the name of the defendants as owner, and apply the moneys to the satisfaction of the interest, etc., due to them.
Sir Sultan Ahmed for the respondent has endeavoured to support the view of the lower Court not only on this but also on several minor grounds. He has urged that the bond does not really stipulate "a certain date" for payment within the definition in Section 58(e) because it contains provisions which Make it optional for the mortgagor to redeem the mortgage on full payment within one year, or after the expiry of one year to make part payments of the principal money in any sums not less than Rs. 1,000 at a time, and further require the mortgagees, in case the mortgagor pays one lakh of rupees out of the principal, to allow in three years over and above the period of five years fixed by the bond for repayment of the moneys secured. The option to pay earlier than the date fixed or to make part payment is however merely an option given to the mortgagor, and does not bind him to pay on any date other than 31st August 1912. The extension of time, in case one lakh is paid out of the principal money, is again only a concession to the mortgagor and depends on his carrying out a condition?which he is not bound to fulfil; it cannot therefore be regarded as fixing an alternative date on which he binds himself to pay the mortgage money.
These provisions do not, thus, really detract from the stipulation that the mortgagor is to repay the mortgage debt on 31st August 1912 and do not make the mortgage anomalous within the meaning of Section 98, T.P. Act, as it stood at the time of the transaction. It has also been suggested that the character of the mortgage is affected by the fact that what the mortgagor binds himself to pay on 31st August 1912 is the principal money only. But the mortgagor also covenants to pay the interest duly (i.e. as it falls due half-yearly), and the definition requires a "certain date" for repayment of the mortgage money (an expression meaning the principal and interest) only in order that it should be known with certainty when the mortgagor may redeem or the mortgagee proceed to foreclosure or sale, an object which is not defeated by providing for earlier payments of interest. Sir Sultan Ahmed has also urged that as the mortgage bond requires the mortgagor to pay, in addition to the mortgage debt and interest thereon, further advances and sums paid by the mortgagees for the protection or preservation of the mortgaged premises, and Government revenue rents, taxes, etc., and costs, charges and expenses, this has the effect of making the mortgage anomalous. These additions however are practically all of them additions which the mortgagees would be entitled to make even without an agreement to that effect; the definition in Section 58(a) includes money to be advanced as well as money advanced, and the mortgagees, if in possession, could make the additions specified in Clauses (b) and (c), Section 72, and if not in possession could do much the same under the general law, as has been held in several cases, while costs, charges and expenses are allowable under Order 34, Civil P.C. Even if it were otherwise, these additions would, as my learned brother pointed out during the argument merely constitute clogs on the equity of redemption, they would clearly not affect the character of the mortgage as an English mortgage within the definition.
The substantial question in the appeal is thus reduced to the effect of the power-of-attorney as to which a two-fold argument has been presented to us on behalf of respondent 1, that it is inconsistent with an English mortgage and renders the mortgage in suit anomalous, and (2) that notwithstanding the recital in the power-of-attorney that the attorney, were not in any way to be held accountable as mortgagees in possession but were to be accountable only for moneys actually received by them and for nothing else, the appellants are liable to account as mortgagees in possession. The mortgage bond itself places the execution of the power-of-attorney by the side of the furnishing of the mortgage security as conditions upon which the mortgagees had agreed to advance the money. The power-of-attorney purports to have been executed:
with a view to ensure punctual payment of interest on the said sum of Rupees three lakhs seventy thousand which comes up to Rupees fourteen thousand and eight hundred every six months.
It appoints the mortgagees jointly and severally to be the mortgagor''s
true and lawful attorney or attorneys irrevocable ... so long as the money secured by the said indenture (i.e., the mortgage bond) or any part thereof remains due and unpaid, to ... recover ... patni ... rents ... And upon non-payment of the same (i.e., by the patnidars) ... to commence, carry on, and prosecute any ... suit ... for the recovery of the said rent ... for me (i.e., the mortgagor) and in my name and on my behalf....
It then authorises the said attorneys with and out of the said moneys in the first place to pay and satisfy all the costs, charges and expenses which shall from time to time be incurred ... by my attorneys or attorney in exercise, ... of any of the powers ... herein contained, including the reasonable salary of an agent to be appointed in Purnea ... such charges and expenses being at the absolute discretion of the said attorney or attorneys, and to apply the balance pro tanto towards, payment and liquidation of the interest which shall from time to time become due to my said attorneys on the indenture of mortgage aforesaid, and to apply the balance (if any) towards payment pro tanto of the said principal sum of Rupees three lakhs and seventy thousand.
And it concludes by giving the attorneys jointly and severally ''full power and authority from time to time to appoint one or more substitute or substitutes'' ''for the better and more effectual'' doing effecting, executing and performing of the several matters and things aforesaid,'' ''to do, execute, and perform all or any such matters and things....
Sir Sultan Ahmed has urged that the power-of-attorney was an integral part of transaction. This may be Conceded. He has next urged that the power had the effect of putting the mortgagees in possession of the patni properties, and that as the rents and profits of the patnis were to be applied to the payment of interest and principal, the mortgage is in reality an usufructuary mortgage. Assuming for the moment that the power must be regarded as putting the mortgagees in possession of the patni properties does the mortgage become usufructuary in addition to being an English mortgage? The essence of an usufructuary mortgage under the definition in Section 58(d) is the delivery of possession of the mortgaged property by the mortgagor to the mortgagee, with authority to the latter to retain such possession until payment of the mortgage money; the mortgagee cannot either foreclose or sell, but is limited to holding possession of the property, and applying the usufruct in the manner agreed upon, until he is paid off. The usufructuary mortgagee has thus no remedy beyond the property delivered to him, and this implies that a mortgage like the present in which the mortgagor certainly did not deliver possession of the entire mortgaged property to the mortgagees while the mortgagees clearly hold a security for their money upon properties not all of which are covered by the power-of-attorney, is not an usufructuary mortgage. The contention was therefore rightly given up. But a mortgage may be anomalous without being made up of two or more of the four types defined in Section 58, and Sir Sultan Ahmed has also argued that the mortgage in suit cannot be regarded as an English mortgage because the power-of-attorney which is an integral part of the mortgage, treats the rents and profits of the patni properties which the mortgagees were empowered to recover as rents and profits due to the mortgagor This, it was Said, shows that there was only an ostensible transfer of the mortgaged property to the mortgagees, whereas an English mortgage unquestionably requires an absolute transfer. The argument further was that not being an English mortgage within the definition in Section 58(e) of the Act-the mortgage must be treated as anomalous and that there being no express stipulation for a sale, the appellants were rightly refused that relief.
It must however be remembered that notwithstanding the absolute transfer (which is subject to redemption) the transaction is only a mortgage and that Section 76 of the Act which lays down the liabilities of a mortgagee in possession and makes him liable to account on the footing of wilful default, applies as to all mortgagees generally including an English mortgagee, while the exception u/s 77 has no application to the present case. It is in order to avoid this liability to account on the footing of wilful default that mortgagees entitled to go into possession hesitate to do so. An English mortgagee is no doubt entitled to take possession of the mortgaged property, unless there is (as there is not in the present case) a covenant for quiet enjoyment by the mortgagor. But he is not as such required to go into possession and until he does so, the mortgagor continues in rightful possession on his own account. This is not disputed, nor is it disputed that a mortgagor so in possession could authorize some one else by a power-of-attorney to collect rents on his behalf during such possession. But it is urged he cannot do so to an English mortgagee, and the reason advanced for this contention is that as the entire legal estate passes under an English mortgage, there is nothing on which a power-of-attorney given by the mortgagor to the mortgagee to realize rents on his behalf could operate and that if the mortgagee chooses to take possession, he must do so on his own account as it is not open to him by any agreement with the mortgagor to get rid of the liability to account as mortgagee in possession. In my opinion, this contention ought not to be accepted. The English mortgagee, though he undoubtedly has the right to go into possession is undisputedly at liberty to leave the mortgagor in possession so as not to incur the liabilities of a mortgagee in possession.
In spite of the absolute transfer of the mortgaged property required under the definition of an English mortgage, the mortgagor has an interest left in the property and this interest is not limited to the right to redeem but extends to the receipt of the rents and profits of the mortgaged property (until the mortgagee chooses to go into possession and thus renders himself liable to account to the mortgagor not only for such rents and profits as he actually receives but also for those which but for his own mismanagement or neglect he might have received). The mortgagor thus has rights in respect of the rents and profits of the mortgaged property even as against the English mortgagee, and it does not appear why the regulation of such rights by an agreement between the parties should be regarded as inconsistent with the definition of an English mortgage. Even if actual possession (as distinguished from the right to take possession) went with the absolute transfer to the English mortgagee and this is contra-indicated by the fact that a covenant for quiet enjoyment by the mortgagor, or for entry by the mortgagee in stated contingencies, is not uncommon in English mortgages--the rents and profits of the property would not be the mortgagee''s rents and profits absolutely, as they would have to be accounted for on the footing of wilful default. As between the parties they would thus, notwithstanding the absolute transfer of the definition, stand on the footing of rents and profits due not to the mortgagee but to the mortgagor though placed at the disposal of the mortgagee on the mortgagor''s account. Even if, as is urged for the respondent the power-of-attorney cannot save the mortgagees from liability to account as mortgagee in possession, it does not by any means follow that this will affect the operation of the three ingredients of the definition which are found in the mortgage in suit and which prima facie make it an English mortgage.
The liability to account on a footing of wilful default attaches to all mortgagees in possession as such, and is no parts of the definition of an English mortgage any more than is the mortgagee''s actual possession itself. Putting aside for a moment the fact that possession under the power-of-attorney, such as it may be, does not purport to be possession by the mortgagees as such, and assuming that the contrary is found, Sir Sultan Ahmed has not been able to point to anything in the Transfer of Property Act precluding a sale at the instance of an English mortgagee merely because he may be in possession of a part or even the whole of the mortgaged property whether with or without freedom from liability to account as mortgagee in possession. Nor is it possible to read the mortgage bond and the power-of-attorney as providing that the mortgagees were to look only to the possible excess of the patni rents realized over the interest for the repayment of the principal money advanced by them. The mortgage bond expressly provides that it shall not be compulsory for the mortgagees to realize rents from the patnidars. Even if, moreover, the rents were fully realized--a contingency of rather rare occurrence in zamindari management--there would only be a minute excess of less than one-fifth per cent. of the principal money, and the provision that this excess or balance if any was to be applied to the payment pro tanto of the principal was on the face of it merely formal.
If this provision about the possible application of the balance to the principal be regarded in any other light, the hypothecation of the property would lose all meaning. But the hypothecation of the property is so much of the essence of the transaction that it is the first of the two conditions upon which the creditor agrees to advance the loan. In Mati Lal Das v. Eastern Mortgage and Agency Co. Ltd. 1921 PC 118 a mortgage was given effect to as an English mortgage within the definition (as agreed between the parties) though the bond provided inter alia that the mortgaged properties should be managed exclusively without any interference by the mortgagors, by two named persons who were to have power to appoint and dismiss servants and make settlements and leases and who could be dismissed only for misconduct proved to the satisfaction of the mortgagees. Provisions of this kind can thus not be regarded as repugnant to the notion of art English mortgage as defined in Section 58 of the Act, though it is true that in the case just referred to, unlike the present case the mortgage bond expressly stated that it should be read and construed as an English mortgage. Such stipulations were so common in mortgages in England that from before the enactment of the Transfer of Property Act in this country, it was implied by statute in every mortgage in default of provision to the contrary that the mortgagee was to have power to appoint a Receiver who was to be an agent of the mortgagor and to revoke such appointment. This Receiver had considerable powers of management, and his duties were to receive the income of the mortgaged property, keep down the interest due to the mortgagee and hold the surplus, if any, for the mortgagor. The appointment thus gave the mortgagee the advantages of possession without the drawback of accountability on the footing of wilful default. The power-of-attorney in the present case places the appellants in much the same position as these receivers except as regards the extent of the liability to account and the power to appoint substitutes--elements which do not affect the essential character of the mortgage as an English mortgage. For all these reasons it seems to me that there is; nothing in the power-of-attorney to detract from the effect of the three provisions which make the mortgage an English mortgage, and to disentitle the appellants to sale as upon such a mortgage.
It has also been argued for the appellants that even if the mortgage be regarded as anomalous, they would still be entitled to a decree for sale in view of the covenant to pay coupled with the hypothecation of the property. The learned Subordinate Judge who regarded the mortgage as anomalous, proceeded to hold that the mortgagees were not entitled to a sale because there is no express provision in the bond giving them such a right. This view was rested on the authority of two decisions, Gajadhar Agarwala v. Shibananda 1924 Cal 592 and Madho Rao v. Gulam Mohiuddin 1919 PC 121. It seems to me that these cases do not support the view of the lower Court. In the former of these cases the mortgage bond was read as entitling the mortgagee to sue for sale if the mortgagor failed to pay the mortgage debt within 8 years, and to sue for the money if during the term the mortgagor created any disturbance of the possession which he was to deliver to the mortgagee. The mortgagor did not deliver possession and the mortgagee sued for sale before the expiry of the term and it was held that though the express provision in the bond entitled him to sue for the money, a relief very much like that u/s 68 this did, not imply as a consequence that he was entitled to a sale u/s 67. The decision turned on the construction of the bond as giving a right to sell only after the expiry of the term. But, as Rankin, J. observed:
It may be that the true construction of a document of mortgage taken by itself would" amount to very much the same thing as is effected by Section 67;
and it seems to me impossible to construe the bond before us (having regard to the hypothecation of the property) in any other way than as authorizing a sal of the mortgaged property on the mortgagor''s failure to pay as agreed. In the second of the two cases referred to by the lower Court it appeared that the parties did not contemplate sale in any event. Neither of the cases is thus any authority for the proposition that no sale can be allowed on an anomalous mortgage unless it is expressly provided for. The rights and liabilities of the parties to such a mortgage are undoubtedly determined by their contract as evidenced'' in the mortgage bond (provided no question of local usage arises), but the provisions of the bond may easily import a sale, and it seems to me that they do-have that effect in the present case. The appellants are, therefore, entitled to a decree for sale.
I now come to the respondent''s contention which was also accepted by the lower Court, that notwithstanding the express provision to the contrary in the power-of-attorney, the appellants are liable to account as mortgagees in possession. The learned Subordinate Judge has held that the liability of the mortgagees to account for the rents and profits cannot, inspite of the terms of the contract between the parties, be limited to the sums actually received by them because (inter alia) the relevant clauses; in the mortgage bond and the power-of-attorney are unconscionable and vitiated by undue influence. Mr. Das for the appellants has had no difficulty in showing on the evidence that notwithstanding the defendant''s pressing need the plaintiffs were not in a position to dominate his will that the parties dealt with each other at arms'' length and that there was nothing per se unconscionable in the mortgagees limiting their liability to account to "moneys actually received by them and ... nothing else" nor in the other provisions to which the learned Subordinate Judge has referred. Sir Sultan Ahmed for the respondent has not endeavoured to support the view of the lower Court regarding the unconscionable character of the arrangements between the parties or regarding the exercise of undue influence by the appellants. He has, however, contended that the power-of-attorney was a mere device to get rid of the appellant''s liability to account u/s 76 of the Act as mortgagees in possession and that it cannot be allowed to do so because the liability so to account cannot be got rid of by agreement. As the properties covered by the power-of-attorney were in the occupation of patnidars, Sir Sultan Ahmed urges that the attorneys ware really empowered to do all that the mortgagor himself could have done and no less, and that, therefore, if the appellants dealt with these properties, they are u/s 76 of the Act liable to account as mortgagees in possession, a liability which it has been held in several decisions cannot (unlike the liability under Clause (c) or (d) of the section) be excluded by a contract to the contrary. He has also referred to Deyes v. Wood (1911) 1 KB 806 in which a Receiver appointed by debenture-holders for satisfying the debentures out of the mortgagor''s assets was held to-be their agent and not the agent of the mortgagor. I may say at once that this case is of no assistance to the respondent; the power-of-attorney before us does not enable the attorneys to realise the security, and the possible application of a very small portion of the rents and profits towards the liquidation of the principal, on which stress was laid by Sir Sultan Ahmed, does not affect the position of the attorneys as mere attorneys. The power-of-attorney enables the mortgagees either to recover rents from the patnidars and for that purpose to employ an agent of" their own in Purnea, if necessary, or to appoint a substitute to recover these rents, and apply them substantially for keeping down the interest. The lower Court has found that the plaintiffs
continued as agents of the defendant although they had the work of collection carried on by Rai Bahadur Nisikant Sen and others,
and that they are, therefore, not absolved from liability to render accounts by Section 194, Contract Act, but are under that liability not only u/s 76, T.P. Act, but also under S. ''213, Contract Act. The appellants have, on the contrary, contended that it should have been held that the patni properties covered by the power-of-attorney, which it is common ground were in fact managed by Rai Bahadur Nisikant Sen of Purnea (and his brother-in-law Babu Tarak Nath Das Gupta of the same place), were managed by him as a substitute for the mortgagor. In para. 5 of the plaint they stated that they had appointed the Rai Bahadur a substitute in terms of the power-of-attorney and that he had worked as such till his death. The respondent in his written statement spoke of the Rai Bahadur as the agent of the mortgagees themselves, but did not specifically deny the allegation that he had been appointed a substitute under the power-of-attorney. No issue was framed on the point, and apparently the matter was left to be decided on arguments especially from the documents. The learned Subordinate Judge has referred to the mortgagor''s repeated demands for accounts and to two letters from or on behalf of the appellants, in one of which (Ex. A, dated 29th May 1923) the respondent was informed that they had directed their agent Babu Tarak Chandra Das "to allow you inspection of account books and other papers relating to the patni rents collected on your behalf," and in the other (not printed), dated 1st September 1924, Rai Bahadur Nisikant Sen was instructed to give full inspection of the accounts to the respondent, after reciting the fact that he had been appointed with the consent of both parties to collect the patni rents, a power-of-attorney being accordingly given to him by the mortgagees, and regretting that inspection of the complete accounts should not have been given to the respondent.
It does not seem to me that these letters show at all conclusively that the Purnea men were in fact the appellant''s agent rather than substitutes appointed by them in pursuance of the power-of-attorney though the word "substitute" is not used. The power-of-attorney said to have been given to the Rai Bahadur by the mortgagees was not called for by the respondent. If the Rai Bahadur were in fact merely an agent of the mortgagees, the question would arise whether the lower Court was not right in the view that it took regarding the liability of the appellants to account on the footing of wilful default notwithstanding the facts that such possession as they took (through the agent) was to be taken in their capacity not of mortgagees but of attorneys, and did not extend to the whole of the mortgaged property, and that the mortgage bond expressly provides that it shall not be compulsory for the mortgagees to realise the several patni rents from the patnidars mentioned in the power-of-attorney, but that if any such patni rent is not realised
it shall be lawful for the ... mortgagees ... to give to the ... mortgagor a registered notice of such default or neglect (of the patnidars) whereupon their liability to account for such rent shall cease.
Prima facie the appellants did not intend to go into possession directly or otherwise. In dealing with the plaintiff''s contention that they were absolved u/s 194, Contract Act, from accounting for the rents and profits as mortgagees in possession, the learned Subordinate Judge observes that the section would only apply if the agent empowered to nominate a substitute "goes out of the field- leaving the business of the agency in the hands of the person nominated." As he overruled the contention, it would appear that in his view the mortgagees kept the management in their own hands notwithstanding the appointment of the Rai Bahadur and the other agents. In my opinion, no support is found for this view in the letters to which the learned Subordinate Judge has referred and which I have already summarised. The power-of-attorney entitled them to receive rents from the agent or substitute. He then goes on to say that.:
There is nothing in the bond in suit and power-of-attorney from which it can be inferred that the defendant authorised the plaintiffs to nominate another person to act for the defendant in the matter of collection of rents, etc.,: from the mortgaged property, nor can the grant of such a power be inferred, because in that case the very purpose of placing the mortgaged property in charge of the plaintiffs, namely the punctual payment of interest from the collections, could be easily frustrated by defendant''s directing the said Rai Bahadur Nisikant Sen and Babu Taraknath Das Gupta as his agents to make over the collections to him and not to the plaintiffs.
It seems to me that this observation is erroneous in both parts. I have already quoted from the power-of-attorney the provision regarding the power to appoint a substitute, which is entirely distinct from the earlier provision under which it was open to the attorneys to appoint an agent in Purnea under themselves and charge a reasonable salary for him in the accounts. Nor can it be rightly said that the appointment of a substitute by the attorneys would fail of its purpose if he were to be a substitute for and on behalf of the mortgagor, for the power-of-attorney in favour of the mortgagees was to be revocable during the subsistence of the mortgage and the mortgagees as attorneys had
full power and authority from time to time to appoint one or more substitute or substitutes to do, execute and perform all or any such matters and things as aforesaid and to appoint another or others in his or their place or places, and all whatever ... substitute or substitutes shall do or cause to be done in or about the premises the mortgagor covenanted to allow, ratify and confirm.
The appellants clearly had power to appoint Rai Bahadur Nisikant Sen as a substitute, and as long as the power-of-attorney stood, it would not have been open to the mortgagor to frustrate the object of punctual payment of the interest by directing the substitute, as his own agent, to make over the collections not to the mortgagees but to him. All the grounds given by the lower Court for holding as it has done in this point fail. It seems to me therefore that the case must be dealt with on the footing that Rai Bahadur Nisikant Sen managed the patni portion of the mortgaged properties in the capacity not of the Purnea agent of the appellants (whether as mortgagees or as mortgagor''s attorneys) but of a substitute appointed by them under the respondent''s power-of-attorney. The appellants cannot therefore be said to have been in possession of this part of the mortgaged properties at all, and are not liable to account for the rents and profits u/s 76, T.P. Act. The respondent will have his remedy against the substitute u/s 194, Contract Act, but with that we are not concerned in the present case. That the appellants must give credit to the mortgagor for sums actually received by them from the substitute is, of course, plain and is not contested by the appellants; but the view of the lower Court that in a properly framed suit they
would have been entitled to a money decree for the principal sum with simple interest at 8 per cent per annum ... less the net amount that would have been left to them after calculating the rent, cess and interest they should have collected, and deducting therefrom the legitimate expenses admissible to them
must be overruled. The appellants cannot be called upon to account for the rents and profits of the patni properties on the footing of wilful default. The learned Subordinate Judge finds that the agreement obtained by the appellants in 1921 from the mortgagor to pay interest at the enhanced rate of 9 per cent per annum (the original rate having been 8 per cent only) cannot be enforced because the enhancement is, in his view, "penal and illegal.'' Mr. Das for the appellants has had no difficulty in showing that the fresh contract to pay interest at an enhanced rate in future was supported by good consideration in the shape of the forbearance to sue on the original mortgage contract and that it is neither penal nor illegal. Sir Sultan Ahmed has not attempted to support the view of the lower Court on this point. It also appears that the lower Court erred in holding that the plaintiffs would be entitled to simple interest, the mortgage bond, no less than the agreement of 1921, entitled them to compound interest. The appellants are plainly entitled to compound interest at 8 per cent per annum with six-monthly rests under the mortgage bond and to compound interest at 9 per cent. per annum, again with half-yearly rests, from 23rd May 1921, the date of the agreement in question.
The prayers in the plaint included a prayer for the appointment of a Receiver to take charge of the mortgaged properties, to collect the rents and profits thereof and to deposit the same in Court. The mortgage bond makes it lawful for the mortgagees, in case they sue for the recovery of the money, to appoint a Receiver with all the powers conferred on a Receiver u/s 503, Civil P.C. We understand that an interim Receiver was appointed during the pendency of this appeal. Mr. Das has urged and is right that the conditions of that appointment cannot, with justice to the appellants, be continued after the disposal of the appeal. The appointment itself will come to an end on the disposal of this appeal. It seems to me that in these circumstances, the appellants ought to be granted their prayer for the appointment of a Receiver. Such sums as have been advanced by the mortgagees under the interim orders of this Court will be added to his credit in the account now to be prepared.