P.L. Chakrapani Naidu vs T. Gopal Mudaliar and Others

Ramamurti, J.—These two appeals arise out of two suits which were heard and tried together and disposed of by a common judgment of

the City Civil Court, Madras, as the subject-matter in dispute and the points in controversy are the same and identical. The suit property involved

is door no. 78 Paper Mills Road, Perambur and the main question in controversy relates to the truth and validity and the legality of the auction sale

said to have been held by the auctioneer on behalf of the mortgagee exercising the powers u/s 69 of the Transfer of Property Act. The suit, O. S.

No. 2701 of 1959 has been filed by the three plaintiffs the mortgagors impeaching the auction sale. The first defendant, Rajeswari Ammal is the

assignee from the original mortgagee Lokambal, the second defendant Chandramani and Co., is the auctioneer the third defendant Chakrapani

Naidu is the successful bidder and purchaser in the auction and the fourth defendant Natesa Mudaliar is a subsequent mortgagee. The other suit O.

S. 992 of 1959 has been filed by the auction purchaser to establish his rights and to recover possession of the property as the mortgagors would

not surrender possession of the property. The three mortgagors are the three contesting defendants in this suit. The learned City Civil Judge

accepted the contentions of the mortgagors and held that there was really no auction sale on 12-2-1959. The result was that O. S. 2701 of 1959

was decreed as prayed for and O. S. 992 of 1959 was dismissed.

The auction purchaser has preferred the App. No. 737 of 1963 against the decision dismissing the suit O. S. 992 of 1959 and he has also

preferred the appeal no. 132 of 1965 against the decision decreeing the mortgagors suit O. S. 2701 of 1959 aforesaid. For purposes of

convenience in the trial Court, the parties were referred to according to their array in O. S. 2701 of 1959 (the suit by the mortgagors) and we are

adopting the same course in these two appeals. The point for decision lies in a very narrow compass, the only point arising for decision being a

pure question of fact whether any auction was held as a fact on 12-2-1959, and whether the third defendant became the highest and successful

bidder. The trial of both the suits has been very protracted and a lot of useless and irrelevant material had been let in the trial of both the suits. In

the course of the appeal we noticed that the oral evidence is unnecessarily voluminous and the result was that the irrelevant portion of the evidence

has clouded the relevant portion of the evidence resulting in the learned Judge himself getting involved in a discussion of unnecessary details and

irrelevant particulars.

The brief facts which led to this litigation may be stated:--

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(His Lordship discussed the facts and evidence in the case and proceeded).

The only question is whether there was a sale on 12-2-1959 and whether the sale was conducted in a valid and proper manner in accordance with

the provisions of Section 69 of the Transfer of Property Act. The burden of proof of establishing that a sale actually took place on 12-2-1959 is

upon the mortgagee and the auction purchaser. But the burden of proving that the sale is invalid by reason of any infirmity or by reason of any fraud

or collusion is, undoubtedly, on the mortgagors. As we gather from the judgment, the three circumstances on the basis of which the trial judge

mainly held that there was no sale and everything was vitiated by fraud and collusion, are as follows:--

The property is a valuable property worth about Rs. 12,000 to Rupees 13,000. The property has been sold for a grossly inadequate price of

Rs. 5,000/- and that itself is evidence of fraud and collusion.

There is no proof that the 3rd defendant had the means to pay the bid amount of Rs. 5,000/-.

The evidence of the auctioneer and the entries in his records, the day books and the ledger, and the concerned receipts and the concerned

counterfoils indicate that there was really no sale on 12-2-1959, but that later on the auctioneer had made some entries so as to make it appear

that there was an auction sale on 12-2-1959.

On the question of the alleged inadequacy of the price, the learned Judge has completely misdirected himself and he did not draw the proper

interference from a crucial circumstance, though he has adverted to the same in paragraph 44 of his judgment.

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(After dealing with the facts his Lordship proceeded).

The plaintiff having created all the obstacles and having threatened the prospective purchasers, it ill becomes them (and they cannot obviously take

advantage of their own wrong) to make a complaint that the property has been sold for an inadequate price. We have not the slightest hesitation in

holding that the all the reasons mentioned above, the price fetched cannot be said to be so inadequate as to raise any inference of fraud and

collusion. We are also of the opinion that the background of the case does not admit of any theory of fraud and collusion, because even according

to the plaintiff, the third defendant was present in the City Civil Court, and as soon as the application for injunction was dismissed, he too went to

the premises, where the auction was held under his very nose. Nothing is established to show that the first defendant colluded with the third

defendant and held the auction in a clandestine manner. Mere use of the words ""fraud and collusion"" means nothing and there must be positive

proof that there was collusion between the first defendant and the third defendant. On the other hand, everything was done openly and nothing was

done in secrecy. The first defendant had clearly manifested her intention that she was bent upon the auction being held on 12-2-1959. Some

argument was advanced that the mortgagee was actuated by a bad motive and that would also afford some evidence of fraud and collusion. We

see no substance in this contention.

It is settled law that a mortgagee is not a trustee for the mortgagor as regards the exercise of the power of sale, Power of sale is given to the

mortgagee for his own benefit to enable the latter to realise his debt. The court will not interfere merely to prevent its exercise contrary to the

wishes or interests of the mortgagor, or even, if the mortgagee is seeking some collateral objects and not merely the payment of his debt. The

mortgagee is not a trustee for the mortgagor of his power of sale and the court will not enquire into his motives for exercising it, so long as he acts

with bona fields (vide the settlement of the law in Fisher and Lightwood''s Law of Mortgage, 8th Edition page 310 (Edn 1969)--and also the

statement of the law in 27 Halsbury at page 302 Para 567). We may first refer to the decision in Colson v. Williams. (1889) 61 LT 71 in which it

is observed that a mortgagee is not a trustee for the mortgagor of his power of sale, and the Court has nothing to do with the motives of the

mortgagee in exercising it even though he (the mortgagee) is guilty of spite in so doing. In that decision it is observed that the mortgagee was the

sole judge for deciding when it is necessary for him to realise the security and that he can do so without any hesitation after giving a requisite notice

to the mortgagor. In the case of a private sale, the mortgagee must act fairly and with bona fides and reasonable care and try his best to secure the

maximum price, but in the case of an auction sale there is no question of the mortgagee taking any particular care or making special efforts to

secure a good price, because, so long as he does not interfere with the auction and entrusts the sale of the property to an auctioneer and if there is

a free auction, the mortgagor must take the risk of whatever price the property fetches in the auction. We may next refer to the decision in Belton

v. Bass. Ratcliff and Gretton Ltd.1992 2 Ch D 449. The following head-note in that decision brings out that in exercising the power of sale, the

mortgagee can himself advance money to the purchaser to purchase the property on the security of the mortgaged property and that the fact that

the mortgagee was actuated by bad motive, by itself, would not vitiate the sale:--

B. J. B. mortgaged certain shares in a brewery company. The mortgagees, who had full power to sell the shares, were desirous in 1914 of giving

an option to F. R. G. to purchase them at a future date, but were advised by their solicitors that this would not be within their powers. They then

sold the shares to F. R. G. at a fair price, and advanced him the whole of the purchase money without interest, and gave him the right to call on

them to repurchase the shares at the price he gave for them at any time before 1-5-1917. The money so advanced was secured by a deposit of the

share certificate and by a promissory note, which, on the face of it, was expressed to be payable on demand. F. R. G. paid the mortgagees the

purchase money before 1-5-1917. In 1920, he sold the shares at a price considerably in excess of what he had paid for them. B. J. B. then

brought an action, alleging that the transaction was not a valid sale, and claiming that the shares or their proceeds were subject to redemption-

Held, that the Court could not enquire into the motives of the mortgagees, and that the transaction was a valid exercise of their power of sale.

Reference may be made to the following observations of Russell, J. at pages 465 and 466-

At one time there was colour for the suggestion that the motive of the mortgagee in selling might be weighed as an element in considering whether

a mortgagee''s power of sale had been or not validly exercised.

In Robertson v. Norris, (1858) 1 Giff 421 , Stuart V. C. cited Lord Eldon as an authority in favour of the principle that the mortgagee is a trustee

for the benefit of the mortgagor in the exercise of his power of sale, and added that if he used the power for any purpose other than to secure

repayment of the mortgage, to effect other purposes of his own or to serve the purpose of other individuals, that would be a fraud on the exercise

of his power, and the sale would be vitiated against the purchaser.

Sir George Jessel in the Court of Appeal would have none of this. The case is that of Nash v. Eads. (1880) 25 Sol J 95. The Court consisted of

Sir George Jessel, and Cotton and Lush, L. JJ. and held that there was no foundation for this proposition, Sir George Jessel said: ""The mortgagee

was not a trustee of the power of sale for the mortgagor, and if he was entitled to exercise the power, the Court could look into his motives for so

doing. If he had a right to sell on 1st June and he then said. ""The mortgagor is a member of an old county family, and I don''t wish to turn him out of

his property, and will not sell it at present'' and then on 1st July, he said ''I have had a quarrel with the mortgagor, and he has insulted me; I will

show him no more mercy, but will sell him ''up at once'', if all this was proved, the Court could not restrain the mortgagee from exercising his

power of sale, except on the terms of payment of the mortgage debt. The Court could not look at the mortgagee''s motives for exercising his

power. Lord Eldon had never said anything of the kind which Vice Chancellor Stuart supposed him to have said. The Vice Chancellor was entirely

mistaken, and must have been citing the judgments to which he referred from his recollection, without looking at the reports. Of course, there were

some limits to the powers of the mortgagee. He, like a pledgee ''must conduct the sale properly, and must sell at a fair value, and he could not sell

to himself. But he was not bound to abstain from selling because he was not in urgent want of his money, or because he had a spite against the

mortgagor''. I am unable accordingly to enquire into the motives of the defendants Bass, or to hold that the sale is vitiated because they desired to

confer a benefit on the purchaser by selling to him upon terms, which included a fair price''.

In the instant case, the mortgagee is not guilty of any fraudulent conduct. If sufficient number of bidders were not forthcoming, if better offers were

not forthcoming, it is all because of the obstructive tactics pursued by the mortgagors. How can the mortgagors expect bidders to assemble in large

numbers when in the morning of the 12th February 1959, the mortgagors presented a petition for the adjournment of the sale, which was disposed

of only after the lunch interval on the 12th and when side by side, the mortgagors had been distributing pamphlets ? The learned Judge has

overlooked that the mortgagors brought upon themselves all the trouble. It is not the law that the mortgagee and the auctioneers should adjourn the

sale merely because the property does not fetch a price, fair according to the mortgagors, and there are not large number of bidders participating in

the auction. The bidders'' list, Ex. A-43, shows that several persons participated and there were several bids and ultimately the property was

knocked down in favour of the third defendant for the sum of Rs. 5,000/-. The learned Judge was, therefore, not right in so far as he was

influenced by the fact that the relationship between the mortgagors and the mortgagee was not cordial and that the mortgagee was determined to

have the auction held on 12-2-1959.

On the second question about the means of the third defendant. we find it impossible to accept the reasoning of the learned Judge.

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(His Lordship dealt with the evidence and facts and proceeded.) It is meaningless to say that several people met together at the premises at 4:30

p.m. and dispersed without the auction being held. This evidence is too artificial and incredible because the first defendant was determined to have

the auction held on the 12th itself.

For all these reasons, both the appeals are allowed. The suit, O. S. No 992 of 1959, is decreed and the suit, O. S. No. 2701 of 1959, is

dismissed. The plaintiff in O. S. 992 of 1959 will have his costs in the trial Court as well as in the appeal in A. S. 737 of 1963. The appellants in A.

S. 132 of 1965 will be only entitled to the court-fee paid in the memorandum of appeal in this Court. There will be no counsel''s fee in A. S. 132 of

1965 either in this Court or in the trial Court in O. S. 2701 of 1959, where the parties will bear their own costs. In other words, the plaintiff in O.

S. 992 of 1959 will have his costs both in the trial Court and in the appeal in A. S. 737 of 1963, as against the three defendants in O. S. 992 of

1959, who are also respondents in A. S. 737 of 1963. The trial Court will proceed with the enquiry into the mesne profits in O. S. 992 of 1959

and complete the enquiry expeditiously.

Appeals allowed.