Krishna Aiyar vs Subba Reddiar and Others

Wadsworth, J.—This appeal arises out of a suit on a mortgage, the appellant being the third defendant who claimed priority by, reason of his

having discharged a decree on an earlier mortgage. The following are the essential facts : On 26th December, 1917, the first defendant along with

one Ramaswami mortgaged 10 items (of which each of the mortgagors owned five) to Janaki for Rs. 300 with interest at 11 1/2 per cent, the deed

of mortgage being Ex. I. On 9th September, 1919, the first defendant charged 4 of the 5 items to which he was entitled under a security bond Ex.

A in favour of the second defendant in a sum of Rs. 400. This security bond was assigned to the plaintiff under Ex. B in 1927. On 31st August,

1924, the first defendant mortgaged the four items covered by the security bond Ex. A and 14 other items not covered by either of the prior deeds

to the third defendant for a sum of Rs. 800 with interest at 15 per cent. The deed, Ex. III, does not refer to the security bond Ex. A, but it recites

that out of the consideration-a sum of Rs. 550 is retained with the mortgagee to discharge the decree on the first mortgage, Ex. I. A sum of Rs.

100 was retained to pay off an usufructuary mortgage with which we are not now concerned and a sum of Rs. 150 was stated to have been paid

on the day of the deed to the mortgagor in cash. Now the evidence is that the amount recited as having been paid in cash was not so paid; but that

on 5th November, 1924, the third defendant paid a sum of Rs. 707 to discharge Ex. I, this payment being evidenced by Ex. II. The third defendant

subsequently purchased the equity of redemption in the 4 items covered by Ex. A from the Official Receiver in the insolvency of the first defendant.

The present suit on the basis of Ex. A filed by the Assignee plaintiff was launched on 6th October, 1931. The third defendant is interested in the

hypotheca in three capacities. He is the purchaser of the equity of redemption from the Official Receiver. He has rights under his puisne mortgage

Ex. III and he claimed priority by reason of his having discharged the earlier mortgage Ex. I.

Both the Courts below have held that the third defendant''s right to subrogation does not exist because he cannot be held to have had any

intention to keep the original mortgage Ex. I alive. They rely on three considerations in arriving at this conclusion, firstly, on the fact that he was

ignorant of the existence of the intermediate charge, Ex. A, secondly on the facts that Ex. I was a joint mortgage binding other properties as well as

those mortgaged by the succeeding documents and that Ex. III covered not only all the items bound by Ex. I but also 14 other items and carried a

higher rate of interest. Thirdly, the consideration which weighed most with the Courts below was that at the time of Ex. III, the third defendant

made no enquiries as to the amount due under the decree on the first mortgage. It has been held in Krishnamurthy Cheitiar v. Sathappa Chettiar

(1932) 64 M.L.J. 523 : ILR 56 Mad. 517 and Andi Thevan v. Nagayasami Chettiar (1927) 55 M.L.J. 369, that ignorance of the existence of an

intermediate mortgage is no'' ground for refusing to draw in favour of the person who discharges the first encumbrance the presumption that he

intended to act for his own benefit and keep alive the original mortgage as a shield against any danger which might threaten his puisne mortgage. As

to the addition of other properties in the later mortgage and the substitution of a different rate of interest two cases have been cited Velayuda Reddi

v. Narasimha Reddi (1916) 32 M.L.J. 263 and Gopal Chunder Sreemany v. Herembo Chunder Holdar ILR (1889) 16 Cal. 523 as authority for

the position that such variations do not affect the presumption which would be drawn in favour of the person who discharges the earlier

encumbrance. I have not been referred to any case in which there was the added complication of the first mortgage being a mortgage by two

persons covering properties other than those mortgaged to the person who claimed priority. But I cannot see that this factor should logically affect

the position; for the right of subrogation arises out of the removal of a danger which threatened the hypotheca, which removal is to the benefit not

only of the person who discharges the first mortgage, but also of any intermediate encumbrancer. The third defendant having discharged the decree

which, though it was passed on a mortgage by two persons binding other properties than those in which the third defendant was interested, was in

fact a danger to the hypotheca both under Ex. A and under Ex. III to the full amount of the decree, I see no reason why a person who discharges

that decree should not get the benefit of the removal of the danger. The legal position seems to be clear. When a puisne encumbrancer discharges

an earlier mortgage he is presumed to act for his own benefit, the presumption being applied whether he does or does not know of the existence of

an intermediate mortgage benefited by his act which might possibly threaten his own security. The presumption is not affected by the addition of

other properties in the final charge nor by variations in the rate of interest. It is not an irrebuttable presumption, but it is one which will be drawn

unless there are in the evidence positive indications that no such intention could have been held. The only indication not covered by the authorities

which I have quoted lies in the fact that at the time of Ex. III no enquiry appears to have been made regarding the amount of the mortgage Ex. I. I

do not think that this affects the question. At the time of Ex. III the third defendant intended to pay a sum of Rs. 550 towards the discharge of the

prior decree. In fact he paid a greater sum after he had found out the precise amount due. Surely he should be presumed to have the intention to

act for his own benefit and to keep the earlier mortgage alive to the extent to which he had been required to pay money for its discharge. I

therefore disagree with the lower Court as to the applicability of the presumption on the basis of which the third defendant would be entitled to

subrogation.

There remains the question of limitation. The trial Court, relying on Kotappa v. Raghavayya (1926) 52 M.L.J. 532 : ILR 50 Mad. 626, held that

the right of subrogation could not be urged in defence at a time when the mortgage which had been discharged, was itself barred by limitation. The

learned Subordinate Judge disapproves of this conclusion, but gives no reasons for doing so and quotes no authorities. There is a certain conflict in

the authorities on this question. The Privy Council in Mahomed Ibrahim Hossein Khan v. Ambika Pershad Singh (1912) 22 M.L.J. 468 : L.R. 39

IndAp 68 : ILR 39 Cal. 527 held that when a right of subrogation is claimed by a plaintiff in a mortgage suit on a puisne mortgage, it could not be

upheld when the prior mortgage which had been discharged was barred at the time of the suit. There is, so far as I am aware, no decision of the

Privy Council to the effect that a defendant cannot claim priority on the basis of the time-barred mortgage suit, but there are conflicting decisions of

this Court. Velayuda Reddi v. Narasimha Reddi (1916) 32 M.L.J. 263 and Pingali Venkataramana Reddi by his authorised agent Brahmanda

Narasimha Rau Vs. Kotigari M. Rangiah Chetti and Others, are cases in which it was held that limitation did not affect the right to use the prior

mortgage as a shield. Subsequent to these decisions, however, there is a series of decisions in which the contrary view was held. Kotappa v.

Raghavayya (1926) 52 M.L.J. 532 : ILR 50 Mad. 626 is a case referred to by the learned District Munsif, in which it was held that a claim to

subrogation to a time-barred mortgage could not be urged by way of defence in a suit to redeem a puisne mortgage. The decision was followed by

a single Judge in a case in Draviam Chettiar v. Ramaiya Chettiar (1934) 68 M.L.J. 362 and it was recognised as good law by a Bench which had

to deal with a similar matter in Aravamudhu Aiyangar v. Zamindarini Srimath Abiramavalli Ayah (1933) 66 M.L.J. 566. There is, however, one

decision of a Bench in A.R.M. Karuppan Chettiar and Another Vs. Venkata Perumal and Others, , in which the correctness of the decision in

Kotappa v. Raghavayya (1926) 52 M.L.J. 532 : ILR 50 Mad. 626 was doubted and it was held that the right of a person claiming by subrogation

to use the discharged mortgage as a shield was not defeated by 12 years'' limitation. This view has been referred to with approval in an obiter

dictum of Horwill, J., in Halsnad Madappaya Vs. P. Mahabala Rao and Another, . It is pointed out that the decision on this question in A.R.M.

Karuppan Chettiar and Another Vs. Venkata Perumal and Others, was based on an apparently subsidiary argument and was not the main reason

for deciding the appeal. It cannot in my opinion be treated as an obiter dictum, but it must be noted, with all respect to the learned Judges who

decided that case that the matter does not appear to have been discussed at great length. It seems to me that the balance of authority is in favour of

the view taken by the Bench which decided Kotappa v. Raghavayya (1926) 52 M.L.J. 532 : ILR 50 Mad. 626 and I may be permitted to say

with all respect that that is the view which commends itself to me as based on logic. It is not the law that limitation can never affect a plea used in

defence. Certainly when the plea rests on a right which the defendant had no occasion to agitate until his position was attacked, limitation would

not ordinarily affect his defence; but when his defence raises a plea of some inchoate or imperfect right, the establishment of which depended on a

suit within a particular time, I see no reason why he should be allowed to urge that defence if the suit which has not been brought would, at the time

when he urged the defence, have been time barred. That is the reasoning underlying the cases which prohibit the defendant from pleading a title

based on part performance when a suit for specific performance of the contract relied upon would have been barred. Similarly in the case of

subrogation, when a man has discharged an earlier mortgage with a view to protecting a later mortgage, there is no real justification for his being

put into any better position than the person whom he discharged and there is no real justification for the intermediate mortgagee being put in any

worse position than he would have been as against the original mortgagee. If a suit on the original mortgage is time barred, I see no reason why the

person who claims subrogation should be allowed to urge a right higher than that of the mortgagee whom he has discharged, to the detriment of the

intermediate mortgage. In this view, I respectfully follow the decision in Kotappa v. Raghavayya (1926) 52 M.L.J. 532 : ILR 50 Mad. 626 and

hold that the right to priority claimed by the third defendant is not open to him if the suit on the original mortgage, Ex. I, is time barred.

It is contended that such a suit would not be time barred by reason of the acknowledgment contained in Ex. III. That acknowledgment is merely

an acknowledgment of the existence of a decree. It does not even recite that the decree is a decree on a mortgage and it does not certainly purport

to acknowledge the subsistence of the debt which has become merged in the decree. I see no parallel between this position and that arising out of

the acknowledgment contained in an endorsement on a promissory note, which on the authorities can be treated as an acknowledgment of the

subsistence of the original debt. This is a case in which the original mortgage debt had ceased to exist by reason of the decree and the

acknowledgment of the existence of the decree cannot in my opinion be taken to be an acknowledgment of the subsistence of the debt which that

decree extinguished, so as to save limitation. In the result, therefore, I hold that the third defendant''s claim to priority is barred by limitation and I

dismiss the appeal with costs of the first respondent.

Leave to appeal is granted.