Kommineni Appayya vs Mangala Rangayya and Others

The plaintiff, mortgagee, sues to recover his money by sale of the properties mortgaged, which consist of two parcels of land of which item No.

1 is in the possession of the 3rd defendant, a bona fide purchaser for value without notice of the plaintiff''s prior mortgage. The 3rd defendant,

appellant, contends that the plaintiff is bound to proceed first against the property, item No. 2, not sold to him and his property No. 1 should be

sold only for the balance, if any.

u/s 67 of the Transfer of Property Act the plaintiff is entitled to an order that the properties mortgaged be sold and Section 88 of the same Act

provides that the Court shall pass a decree that in default of the defendant paying the mortgage amount, the mortgaged property or a sufficient part

be sold and the proceeds applied in discharge of the plaintiff''s claim.

A second mortgagee of one of the properties mortgaged without notice of the 1st mortgage is entitled u/s 81 of the Transfer of Property Act to

have the first mortgage debt paid, so far as it is possible, out of the other properties, but not so as to prejudice the rights of the first mortgagee or

of any other person having acquired for valuable consideration an interest in either property. It thus appears that the 1st mortgage is the dominant

right to be enforced. The 3rd defendant is not a second mortgagee. It is not therefore a case for marshalling securities and does not fall ""within this

section.

The right of a purchaser is defined by Section 56 of the Transfer of Property Act, which gives him a right to have the first mortgage satisfied out

of the other property. But this right is given only ""as against the seller"" and it makes no difference whether or not he had any notice of the mortgage.

If the 3rd defendant is right in his contention, then the words ""as against the seller"" in the above section, have no effect.

On reading the two Sections 56 and 81 of the Transfer of Property Act we are of opinion that a purchaser in the position of the 3rd defendant

has not the right claimed on his behalf.

Of the authorities cited, there are only two -cases bearing on the question which are governed by the Transfer of Property Act Of these, the

decision in Bhikari Das v. Dalip Singh ILR (1885) A. 435 supports the view indicated by us. In Krishna v. Muthu ILR (1905) M. 217 it, no

doubt, is broadly stated, quoting from Dr. Ghose on Mortgage ""that in such a case, the purchaser (of a part of the property) may insist upon the

mortgagee proceeding in the first instance against the mortgaged property which is in the mortgagor''s hands would seem to be consonant alike

with sound principle and the weight or authority."" We are not prepared to accept this statement without some qualification. According to English

authorities, the right cannot be exercised so as to prejudice the first mortgagee in any way whatever, and we are not aware of any Indian case in

which it has been held that it can be so exercised.

According to Story''s Equity Jurisprudence, Vol. I, Section 633, the right is given to the 2nd mortgagee only: ""Whenever it will not trench upon

the rights, or operate to the prejudice, of the party entitled to the double fund."" * * * ""If A has a mortgage upon two different estates for the same

debt, and B has a mortgage upon one only of the estates for another debt, B has the right to throw A, in the first instance, for satisfaction upon the

security, which he, B, cannot touch; at least, where it will not prejudice A''s rights, or improperly control his remedies"" * * * ""no injustice is done to

him in point of security or payment.

In White and Tudor''s Leading Cases, 7th Edn. Vol. I, notes to Aldrich v. Cooper (1803) 7 R.R. 86 it is stated: ""But the right of a 2nd

mortgagee of one of the estates mortgaged to marshall - that is, to throw the prior charge which exists on both estates, upon that which is not

mortgaged to him - is an equity which is not enforced against third parties, that is against any one except the mortgagor and his legal representatives

claiming as volunteers under him.

It is to be observed that the learned Judges in Krishna Ayyar v. Muthu ILR (1905) M. 217 quote with approval Jones on Mortgages, 6th

Edition, Section 1628, that as a rule ""Marshalling cannot be enforced against a prior mortgagee where there is any doubt of the sufficiency of the

fund upon which the junior creditor has no claim; or where the prior creditor is not willing to run the risk of obtaining satisfaction out of that fund, or

where that fund is of a dubious character or is one which may involve him in litigation to realise."" The 3rd defendant can scarcely be said to possess

the right claimed when it cannot be exercised against the will of the plaintiff; and considering the difficulties of a judgment-creditor to realise his debt

the delay must ordinarily prejudice him. The conclusion of the learned Judges in Krishna v. Muthu ILR (1905) M. 217 is that as long as the right of

contribution as between the mortgagor and the purchaser is unaffected by any act of the mortgagee ""the latter''s right to be paid the whole of his

debt from whatever portion of the mortgaged properties he wishes to comprise in his suit cannot be questioned."" With this we entirely agree.

Read as a whole, the judgment in Krishna v. Muthu ILR (1905) M. 217 is not an. authority in favour of the 3rd defendant.

We are, therefore, of opinion that the 3rd defendant is not entitled to have the property marshalled and to insist that parcel No. 2 should be

first sold before recourse is had to parcel No. 1.

We may, however, point out that u/s 88 of the Transfer of Property Act the Court may order that a portion sufficient to discharge the plaintiff''s

debt be sold and if parcel No. 2 is sufficient and if the plaintiff cannot possibly be prejudiced by such sale, it may be open to the Court to direct in

the decree itself its sale before the other property.

Further, in execution of a decree for the sale of both parcels, parcel No. 1 may be sold first, and if the sale proceeds are sufficient to discharge

the plaintiff''s debt, the sale of No. 2 may be stopped.

Whether the 3rd defendant''s claim u/s 56 of the Transfer of Property Act may not be enforced in this suit by passing a decree which will

enable the 3rd defendant to sell item No. 2 and have the sale proceeds appropriated by the Court in discharge of the plaintiff''s claim before the

expiry of the period for the payment of the plaintiff''s debt, after which alone the plaintiff could apply for sale, is a question which has not been

referred to us or argued before us. The more limited question whether the District Judge was right in passing a decree directing item No. 1, the

parcel purchased by the 3rd defendant, to be sold before item No. 2, has also not been referred to us or argued before us.

Our answer to the question referred is in the negative.