V.A. Sarangapani Pillai vs The Kumbakonam Bank Ltd. and Others

Venkatadri, J.—This Appeal arises out of a suit filed by the Kumbakonam Bank, Limited, represented by its Managing Director, S. Mahalinga Iyer, for the recovery of Rs. 51,052.50 on an equitable mortgage executed by the first Defendant. The Bank impleaded the other members of the joint family to have the decree binding on them, if it is found that the mortgaged properties are joint family properties. The 12th Defendant in the suit was originally the owner of a major portion of the mortgaged properties covered by plaint A-1 schedule. The 12th Defendant sold the property to the first Defendant on 29th May 1942, for Rs. 95,000. A major portion of the consideration was paid by the first Defendant and for the balance of Rs. 5,000 he executed a promissory note in favour of the 12th Defendant. Subsequently he filed a suit, Original Suit No. 33 of 1953, on the file of the District Court, Nagapattinam, against the first Defendant alone, and obtained a charge decree, in respect of the properties mentioned in plaint A-2 schedule, a part of plaint A-1 schedule. In pursuance of this decree, the 12th Defendant brought the charged properties to sale, and the same was purchased by the 13th Defendant. He obtained delivery of possession of A-2 schedule properties, and he is now in possession of the same. Now, the Plaintiff in this suit, the Bank, attacks the decree obtained by the 12th Defendant against the first Defendant as collusive. They also plead that the decree in Original Suit No. 33 of 1953, is not binding on them, as they were not impleaded as parties in that suit. There are other parties in the suit with whom we are not concerned in this appeal. The learned Subordinate Judge of Mayuram held that the mortgaged properties are the joint} family properties, that they are binding on the first Defendant and other members of the joint family, that the decree obtained against the firsts Defendant by the twelfth Defendant is neither collusive nor fraudulent and that the decree obtained by the twelfth Defendant against the first Defendant is not binding on the Plaintiff in the present suit, but being a valid decree, the Bank, the Plaintiff in the present suit, can proceed to work their claims subject to the rights under the mortgage which has merged in the decree in Original Suit No. 33 of 1953. He has also held that the thirteenth Defendant cannot get any better right than the twelfth Defendant. The learned Judge passed a decree for Rs. 51,000 in favour of the Plaintiff-bank subject to the prior charge in favour of the twelfth Defendant. Accordingly, a decree was passed in the following words:

And it is hereby further ordered and decreed that, in default of payment as aforesaid, the Plaintiff may apply to the Court for a final decree for the sale of the charged property subject to prior charge in favour of the twelfth Defendant and on such application being made, the charged property or a sufficient part-thereof shall be directed to be sold;....

Aggrieved by this decree, the thirteenth Defendant has now filed the present appeal. The Plaintiff in the suit is now taking steps to bring the A 2 schedule properties for sale subject to prior charge. In effect, the thirteenth Defendant will loose possession of the property and his purchase would be of no effect. His case is that he is a bono fide purchaser, that the twelfth Defendant, his vendor, has absolutely no notice of the equitable mortgage and that it is impossible for him to impaled the Bank as a party in Original Suit No. 33 of 1953, as the encumbrance certificate would not disclose the equitable mortgage.

Now, the question for consideration is whether the form of the decree passed by the learned Subordinate Judge is proper under law. For a proper disposal of this case, it is necessary to state some more facts. The entire mortgage property comprised in A 1 schedule is about 170.60 acres of wet land and 112.71 acres of dry land. It is this extent of property which originally belonged to the 12th Defendant was sold to the first Defendant for Rs. 95,000 under exhibit B-54 on 29th May 1942. The first Defendant paid the major portion of the consideration, but there was a balance of Rs. 5,000 for which he executed a promissory note on 30th August 1950. The amount mentioned in the promissory note is the unpaid money of the consideration of sale, and, as such, he is entitled to have a statutory charge in respect of that property. When the 12th Defendant filed the suit, Original Suit No. 33 of 1953, on the file of the District Court, Nagapattinam, he did not impaled the Bank as a party to the suit, because it was not possible for him to know at that time that an equitable mortgage has been created by the first Defendant in the month of April 1953, that is, a few months before the suit Original Suit No. 33 of 1953, was instituted by the twelfth Defendant. He obtained a charge decree, as he is entitled to it, and the charge was created in respect of A 2 schedule property, which is a part of the mortgage property. When this property was brought to sale, it was purchased by the 13th Defendant, who is admittedly a bona fide purchaser. The learned Subordinate Judge held that, though the decree in Original Suit No. 33 of 1953, on the file of the District Court, Nagapattinam, was not binding on the subsequent mortgagee, the Plaintiff, it was a valid decree, and the Plaintiff could proceed to work out his claims only subject to the rights under the mortgage which had merged in the decree Original Suit No. 33 of 1953. It is this direction that has affected the 13th Defendant. This direction was given by the learned Judge on the ground that the twelfth Defendant, when he filed the suit, did not impaled the bank as a party to the proceedings. The bank is in the position of a poise mortgagee, and the twelfth Defendant is a prior mortgagee. It is true when the prior mortgagee filed a suit for recovery of the balance of consideration, he should have impleaded all the parties interested in the suit including the poise mortgagee in his suit. But, the question is whether his failure to implead them as a party is fatal to the charge decree obtained by the twelfth Defendant against the title deeds in the month of April 1953. It is impossible for the twelfth first Defendant. The bank obtained an equitable mortgage by deposit of Defendant to find out either in the books of Registration or in the encumbrance certificate that such an encumbrance was created in this mortgaged property. Equally, there is no material placed on record to show that the twelfth Defendant had notice of this equitable mortgage, when he filed the suit against the first Defendant. In such circumstances, the Court must give relief to the bona fide purchaser, the thirteenth Defendant, as far as his property is concerned, that is A 2 schedule property.

Mr. K.S. Naidu, learned Counsel for the bona fide purchaser (thirteenth Defendant), who is the Appellant before me, pleads that the principle of marshalling as provided in Section 56 of the Transfer of Property Act should be applied to the instant case. It has been held that this principle of marshalling can be applied to a bona fide purchaser for value without notice of a prior mortgage.

In Lachhminarayan Vs. Janmaijai Mahton, , a Division Bench of the Patna High Court held:

Upon a proper interpretation of the section, it is manifest that it covers only the ease of voluntary sale and that it cannot apply to a person who purchases the mortgaged properties in execution of a money decree. But the provision of the sections are not exhaustive....

The real position is that in a case of this description, there are two conflicting principles, the first being the principle that the mortgagee is entitled to have his dues satisfied out of the mortgaged properties in any manner he chooses, and the other principle being that the purchaser for value without notice of the mortgaged property ought not to suffer any detriment due to any mistake, or lack of bona fides on the part of the mortgagor. It is a question of adjustment of equities upon the particular facts of each case. It was conceded by Mr. P.B. Das that the Appellant would be entitled to marshalling of securities only if he makes out a case that he was a bona fide purchaser for value of the property without notice of the prior mortgage.

It is this principle that should be applied to the facts of the present case. The thirteenth Defendant, that is the Appellant herein, is a bona fide purchaser for value of the property. The decree obtained by the twelfth Defendant against the first Defendant is neither collusive nor fraudulent. In such circumstances, I am inclined to agree with Mr. K.S. Naidu that the principle of marshalling should be applied to the instant case. Further, the Plaintiff, that is the bank, would not be prejudiced in any manner, because they have ample and extensive security for their decree amount. The extent of the property mortgaged is about 283 acres of land consisting of about 170 acres of wet land and about 112 acres of dry land, whereas the property purchased by the 13th Defendant in the Court auction is only about 45.83 acres consisting of 16.60 acres of wet land and 29.23 acres of dry land. The Plaintiff can certainly bring A-1 schedule properties excluding the properties purchased by the thirteenth Defendant to sale for satisfying its decree. No reason has been attributed why the bank should bring the A-2 schedule properties in the first instance. The Plaintiff is a public institution. They are interested only in recovering their decree amount and not in bringing a particular property to sale, when they have got other vast extent of property available for satisfaction of the decree. It is useful to refer to the words of Lord Hardwicko in Lancy v. The Duke and Duchess of Athol 26 E.R. 668.

It is the constant equity of this Court that if a creditor has two funds he shall take his satisfaction out of that fund upon which another creditor has no lien.

Reference may also be made to the observation of Pandrang Row J., in In Re: Muthammal and Another, .

Marshalling implies the existence of two sets of properties one of which is subject to both the mortgages and the other is subject only to the earlier mortgage. At the time when the doctrine was sought to be invoked in the present suit, there were no two items of properties liable to be sold but only one item, that is to say the first schedule property. It is impossible for the Plaintiff in the present suit to ask for sale of the second schedule properties and it follows, therefore, that it is not open to the Appellants to ask that they should be sold before the first schedule properties are sold.

It is these principles that should be applied to the facts of the present case. Therefore, the Bank should exhaust all their remedies against the properties mortgaged to them exclusive of A 2 schedule properties in the first instance, and if there is a balance towards the decree amount, they will, then, be entitled to proceed against A 2 schedule properties.

The appeal is allowed, but in the circumstances of the case, there will be no order as to costs.