Sukh Ram vs Rattan Chand and Others

Rajiv Sharma, J.—This Regular Second Appeal has been instituted against the judgment 3.3.2005 rendered by learned District Judge, Hamirpur, Himachal Pradesh in Civil Appeal No. 41 of 2002.

"Key facts" necessary for adjudication of the present appeal are that the appellants-plaintiffs (hereinafter referred to as ''plaintiffs'' for convenience sake) have instituted a suit for injunction against the respondents-defendants (hereinafter referred to as ''defendants'' for convenience sake). Case of the plaintiffs is that the suit land was owned by one Nihalu. He has mortgaged the suit land alongwith other land vide mutation No. 257 dated 26.5.1895 for a consideration of Rs. 148-12 anna - 3 paise in favour of Shri Chaudhary son of Kanyanu to the extent of half share. Remaining half was mortgaged by Nihalu with Gurmukh and Ganesh sons of Shri Sidhu. According to mutation No. 67 dated 4.2.1924, original owner Nihalu sold the suit property alongwith other land and share in Shamlat-Deh to Shri Shivu and Chuhru sons of Shri Gurmukh (two shares) and Birju, Gaddi, Munshi and Kanshi sons of Shri Gulaba (1 share). Plaintiffs are the successors-in-interest of the original mortgagees. Disputed land is in their possession since the time of mortgage. The mortgage was not redeemed by the defendants or their ancestors. More than 30 years have lapsed, the defendants have lost their title over the disputed land. Plaintiffs have become the owners of the suit land with the afflux of time. During the course of consolidation and settlement, possession of the plaintiffs was found over the suit land. The defendants even got their Khata separated from other co-sharers.

The suit was contested by the defendants. According to them, plaintiffs or their predecessor-in-interest were never mortgagees in possession of the suit land, rather they were mortgagors and suit land was mortgaged with the defendants and their ancestors. They have become owners with the afflux of time and they have every right to utilize the suit land No sale was effected. Revenue record was altered by the consolidation authorities without following due process at their back. Entries were wrong.

Issues were framed by the learned trial Court on 18.10.2000. He dismissed the suit on 1.2.2002. Plaintiffs preferred appeal before the District Judge. He dismissed the same on 3.3.2005. Hence, this appeal.

The Regular Second Appeal, was admitted on 5.9.2008, on the following substantial question of law:

"1. Whether the lower appellate court has committed grave error of law in holding the mortgage to have ceased, on account of merger of interest of mortgagor and the mortgagee? Are not such findings opposed to law, which have been rendered without considering as to whether there was complete vesting of such right in one person?

Whether both the courts below have exceeded their jurisdiction in not putting reliance on the revenue entries made during the consolidation operations, which attained finality for want of challenge? Was it not beyond the jurisdiction of the civil court to entertain the claim of defendants assailing such entries, especially in view of the statutory bar contained in H.P. Consolidation of Holdings and Prevention of Fragmentation Act?"

Mr. Bhupender Gupta, learned Senior Advocate, on the basis of substantial questions of law framed, has vehemently argued that the first appellate Court has committed grave error of law in holding that mortgage has ceased on account of merger of interests of the mortgagee and mortgagor. He also contended that the civil court had no jurisdiction to decide the lis due to specific bar contained in H.P. Consolidation of Holdings and Prevention of Fragmentation Act.

Mr. Rajnish K. Lall, Advocate, has supported the judgments and decrees passed by both the Courts below.

I have heard the learned counsel for the parties and also gone through the record carefully.

Sukh Ram (Plaintiff No. 1) has appeared as PW-1. According to him, suit land was mortgaged with them and they were in possession of the same. Their possession was recorded during settlement. Defendants have never filed any appeal against the record of rights. Defendants threatened to cultivate the suit land in the month of September 1995. According to him, settlement has taken place in the village in 1985-86. Defendants were the owners of the suit land. It was mortgaged with them 60/70 years back. He denied the suggestion that land was in fact mortgaged by his ancestors. He did not know Ganesha and Gurmukh. According to him, they might be ancestors of the defendants. He denied that wrong entry was incorporated in the revenue record.

Mehar Singh PW-2 and Sita Ram PW-3 have supported the versions of PW-1. According to them, dispute has taken place between the parties during the course of consolidation. Mehar Singh PW-2, in his cross-examination, has admitted that Shri Gurmukh and Ganesha were the ancestors of the parties. He has not seen the disputed land.

Rattan Chand DW-1 has placed on record the copy of Power of Attorney Ext. DW-1/A. According to him, disputed land was in their possession from the very beginning. Plaintiffs never remained in possession. The land was mortgaged by predecessor-in-interest of the plaintiffs with their ancestors. Consolidation has taken place in the year 1985-86. In his cross-examination, he has admitted that Shri Gurmukh and Ganesha were their ancestors. Jagdish DW-2 and Bakshi Ram DW-3 have corroborated the statement of DW-1.

It has come in para-3 of the plaint that the land was mortgaged by Nihalu with Ganesha and Gurmukh to the extent of half share. Mehar Singh PW-2 has admitted that Gurmukh and Ganesha were ancestors of the parties. According to Ext. A-1, copy of mutation No. 257 dated 6.9.95, Nihalu mortgaged the suit land and other land in favour of Choudhary one share, Gurmukh two shares and Ganesha one share. It is evident from Ext. A-6, pedigree table that Gurmukh was succeeded by Shivu, Gulaba and Chuhru. Plaintiffs are grandsons of Chuhru. Defendant No. 1 Arjun is grand son of Shibu. Vide mutation No. 67 Nihalu mortgagor, sold ownership rights in favour of Shivu, Chuhru sons of Gurmukh. Thus, merger of interests of mortgagee and mortgagor took place consequent to such purchase vide mutation No. 67. In fact, mortgagees have also purchased the rights of mortgagors vide mutation No. 67. Thus, entries made in the revenue record were contrary to mutation No. 67. Original mortgagees were Choudhary, Gurmukh and Ganesha and Shibu predecessor-in-interest of defendant No. 1, Chuhru predecessor-in-interest of plaintiff as such were mortgagees. Purchase of mortgage rights vide mutation No. 67 had amounted to merger. No tangible evidence has been placed on record how plaintiffs alone were recorded as mortgagors. Moreover, ouster of defendants was not proved.

Their Lordships of the Hon''ble Supreme Court in Soni Lalji Jetha and Others Vs. Soni Kalidas Devchand and Others, , have held that that a mortgagor can sell the mortgaged property to his mortgagee and thus put the mortgagee''s estate to an end and thereafter all the right, title and interest in the property would vest in the mortgagee. Such a sale would be valid and binding as between them and henceforth the character of possession as a mortgagee would be converted into possession as an absolute owner. Their lordships have held as under:

[8] Mr. Sarjooprasad for the appellants criticised the judgment of the Division Bench as erroneous and, in our view his criticism has some justification. For, while observing that possession of Kanji and Lalji could at no point of time be adverse the Division Bench slipped into an error in failing to take into account the loyal effect of the sale, dated September 10, 1930. It is true that as mortgagees-in-possession Kanji and Lalji derived their title to possession through the mortgagors and by virtue of their rights under the said mortgage. They were entitled, therefore, to continue to be in possession under the said mortgage and so long as it subsisted. By merely asserting rights of ownership in the said shops they could not convert their possession as mortgages and unilaterally alter their lawful possession as mortgagees into possession hostile to the mortgagors. But it is a well proposition that a mortgagor can sell the mortgaged property to his mortgagee and thus put the mortgagee''s estate to an end and thereafter all the right, title and interest in the property would vest in the mortgagee. Such a sale would be valid and binding as between them and henceforth the character of possession as a mortgagee would be converted into possession as an absolute owner. Even if such a sale is held to be voidable and not binding on a subsequent purchaser the character of possession based on assertion of absolute ownership by the mortgagee does not alter, and if that possession continues throughout the statutory period it ripens into a title to the property. In Subbaiya Pandaram vs. Mahamad Mustapha Maracayar (sinceAIR 1923 175 (Privy Council) a suit was brought by the appellant in 1918 against the respondents for possession of immovable property which had been dedicated to the endowment of a chattaram by creeds of trust executed in 1890 by the appellant''s grandfather. In 1898 the first respondent purchased part of the property at a sale in execution of a decree against the appellant''s father and the purchaser and the other respondents who claimed under him had since been in possession. In 1904, in a suit to which the first respondent had been joined as a party at his own request, a decree was passed declaring the validity of the said trust but no steps had been taken in consequence of that decree prior to tire instant suit. The Privy Council observed that though the real argument in favour of the appellant was that in the presence of the purchaser it was declared that the said trust was valid and that the said property was trust property the contention that the said declaration operated as res judicata against the respondents and prevented them from asserting that the property was theirs was not tenable:

"At the moment when it was passed the possession of the purchaser was adverse and the declaration that the property had been made subject to a trust disposition, and therefore ought not to have been seized, did not disturb or affect the quality of his possession it merely emphasised the fact that it was adverse. No further step was taken in consequence of that declaration until the present proceedings were instituted, when it was too late."

This decision was followed in Subbaiya Pandaram vs. Mahamad Mustapha Maracayar (sinceAIR 1923 175 (Privy Council) where the High Court of Bombay held that if a decree for possession in plaintiff''s favour does not in fact result in the defendant giving up possession of the property or having possession of the property taken from him, it cannot be said that it had interrupted possession; nor can it in law affect the nature of the possession unless it does so in fact. On this basis the High Court held that the possession of the defendant must be deemed to have been adverse throughout and could not be said to have been interrupted by the mortgage decree. (See also Subbaiya Pandaram vs. Mahamad Mustapha Maracayar (sinceAIR 1923 175 (Privy Council) ). The observation made by the High Court that possession of Kanji and Lalji was at no point of time adverse is clearly contrary to the decision of the Privy Council and the two decisions of the High Court of Bombay which were binding on them. The fact that a decree for specific performance was passed in suit No. 263 of S.Y. 1987 would not affect the character of possession of Kanji and Lalji nor would the declaration therein made that the sale deed in their favour was not valid and binding on respondents 1 and 2 would have the effect of altering the character of their possession. Therefore, except for the rights and equities in favour of respondents 1 and 2 by virtue of the agreement of sale of August 1930, the sale in favour of Kanji and Lalji by the mortgagors was a valid sale and conveyed title in the shops in their favour. So far there would be no difficulty in the way of Mr. Sarjooprasad.

A Division Bench of Mysore High Court in Subbaiya Pandaram vs. Mahamad Mustapha Maracayar (sinceAIR 1923 175 (Privy Council) , has held that the effect of the purchase is to bring about a merger of rights as mortgagee with those of purchaser except in relation to a puisne mortgagee under section 101 . When the mortgagee purchases the equity of redemption and acquires ownership he may keep the mortgage alive for his own defence as against a puisne encumbrance but the mortgage is nevertheless extinguished as, between the mortgagor and mortgagee or as between the mortgagee and a stranger The Division Bench has held as under:

2(b). There is no prohibition for a mortgagee being the purchaser of the property mortgaged to him see -- ''Nimma Subba Rao v. Shame Gowda'', 10 Mys LJ 478 (A) and the effect of the purchase is to bring about a merger of rights as mortgagee with those of purchaser except in relation to a puisne mortgagee under section 101 , Transfer of Property Act. As stated in Mulla''s Transfer of Property Act at page 559

"When the mortgagee purchases the equity of redemption and acquires ownership he may keep the mortgage alive for his own defence as against a puisne encumbrancer but the mortgage is nevertheless extinguished as, between the mortgagor and mortgagee or as between the mortgagee and a stranger."

The provision is intended for the benefit of the mortgagee. Plaintiff''s not either a puisne mortgagee or a stranger and cannot in spite of the sale contend that the equity of redemption is not lost.

[3] In -- ''Bhawani Kumar v. Mathura Pra-sad Singh'', , 40 Cal 89 (PC) (B) it was held

"When a charge-holder acquired the ownership of the property charged and there were no intermediate incumbrances and no other circumstances showing that if would be for his benefits to keep the charge alive, the charge was extinguished by merger."

It is not apparent how the mortgagee can be considered to be trustee in any sense by be coming the purchaser of the property. No case or statutory provision in support of this was referred to. As the appellant is not shown to have any right or interest in the property which entitles him under law to seek redemption and the mortgage is extinguished by the mortgagee becoming owner of the property the suit was rightly dismissed. Consequently, the appeal fails and is dismissed with costs.

Hon''ble Single Judge of Mysore High Court in B.T. Kempanna Vs. T. Krishnappa and Others, , has held that after the mortgage there is a sale of equity of redemption or the purchase of the property by the mortgagee himself, it would be clear that there will be an extinguishment of the mortgage or mortgage will be treated to have merged in the sale, with the result that the mortgage is extinguished. This would be the position unless any contrary intention is proved. The Hon''ble Single Judge has held as under:

[16] It is also necessary to set out the provisions of Section 101 of the Transfer of Property Act as it existed prior to its amendment in the year 1929 and it reads as under:

"Where the owner of a charge or other incumbrance on immoveable property is or becomes absolutely entitled to that property, the charge or incumbrance shall be extinguished, unless he declares, by express words or necessary implication, that it shall continue to subsist, or such continuance would be for his benefit."

The position, therefore, is that when the mortgagee purchased the equity of redemption, then the mortgage becomes merged with the sale and the result is that there is extinguishment of the mortgage. It is also established that unless the mortgagee declares either by express words or by necessary implication that the mortgagee shall continue to subsist it will not continue. It is also necessary to remember that the provision for continuation was made for the benefit of the mortgagee and not for the benefit of others. The result, therefore, would be that if after the mortgage there is a sale of equity of redemption or the purchase of the property by the mortgagee himself, it would be clear that there will be an extinguishment of the mortgage or mortgage will be treated to have merged in the sale, with the result that the mortgage is extinguished. This would be the position unless any contrary intention is proved.

Courts below have correctly appreciated the evidence on record. The substantial questions of law are answered accordingly.

Accordingly, there is no merit in the present appeal and the same is dismissed, so also the pending applications, if any.