Central Bank of India Ltd. vs Sachindra Mohan Ghosh and Others

James, J.—The Central Bank of India held an equitable mortgage on certain leasehold colliery property in the Manbhum district. The superior landlords sued their lessee, who was the mortgagor, for arrears of rent, joining the mortgagees as parties to the suit. By the terms of the lease the landlords'' claim for rent was the first charge on the property and their suit was framed in the form of a suit to enforce this charge, so that the decree which the landlords obtained and put into execution was in the form of mortgage decree for sale based on the charge created by the lease.

After the decree was made final the leasehold property was put up for sale. The Central Bank of India obtained permission to bid at the sale, stipulating at the same time that their rights under their mortgage should not be prejudiced: but although they were permitted to bid at the sale it does not appear that any concession in the matter of their rights under their mortgage was made by the decree-holder. At the sale the property was purchased by the mortgagees. The landlords claimed from the surplus sale proceeds rent which has accrued due from the date of the suit until the date of the sale on the ground that the rent was the first charge on the property. The Bank claimed the whole of the surplus proceeds u/s 73, Transfer of Property Act.

A third claimant appeared who had purchased the interest of the lessee in execution of a money decree while the landlords'' suit was pending. This claimant had attempted unsuccessfully to set aside decree; but he had appealed from this decision and he prayed that the decision on the claims of the respective parties might be postponed until that appeal had been heard. The Subordinate Judge declined to postpone consideration of the claims to the surplus proceeds; and he decided that the landlords'' claim for rent up to the date of the sale subsisted and that the Bank of Central India were entitled to take what remained up to the amount of their mortgage money. The Bank has applied for revision of that order.

Mr. P.R. Das on behalf of the Bank argues that the landlords have no claim to share in the surplus sale proceeds on account of rent which has accrued up to the date of the sale, because the relationship of landlord and tenant had ceased to exist between the proprietors and the original lessee.

He cites the decision of the Judicial Committee of the Privy Council in Forbes v. Maharaja Bahadur Singh AIR 1914 PC 111, relying on the observation of the late Mr. Ameer Ali (at p. 939 of the report), that the right to proceed to sale or in the alternative to eject a tenant for failure to pay arrears of rent is dependent on the existence of the relationship of landlord and tenant at the time when remedy provided by law is to be enforced. The question in that case was of the right to bring a tenure to sale by a zamindar who had parted with his interest; and it is difficult to see how any principle derived from this ruling can be applied to the facts of the present case; when the proprietors had not parted with their interest and they are not seeking to bring the tenure to sale for the second time or to eject anybody from possession of it.

In Jaynal Abedin and Others Vs. Hyder Ali Khan Pani, , it was observed that a suit for rent is primarily a suit for money and that although the right to receive rent may be said to be a first charge on the property, no charge is created until decree, when the rent payable by the patnidar to his zamindar, which has been transformed into a judgment debt, becomes a first charge on the tenure. Mr. Das argues that the landlords cannot treat their arrears of rent as a first charge on the property until they have sued for it and obtained their decree.

But the charge with which the learned Subordinate Judge was dealing in the present case was the charge specifically created by the instrument which brought into existence the tenure which has been sold. The landlords'' right to rent was made the first charge on the property, a present charge to meet a future contingency, which placed the landlords in a position of superiority against the holders of the equitable mortgage which was subsequently created, so that the landlords are prior encumbrancers within the meaning of Clause (3) of Section 73 of the Transfer of Property Act, and they are entitled to enforce their charge in priority to the claim of the Central Bank of India under their mortgage. The relationship of landlord and tenant between the landlords and the original lessees may have ceased to exist.

The property was sold free from encumbrance; and no criticism need be made of the argument of Mr. Das, that the landlords could not after the sale have brought the leasehold interest to sale a second time, on account of arrears of rent which had accrued up to the date of sale. The relationship of landlords and tenant between the landlords and the original lessee continued up to the date of sale; and as the learned Subordinate Judge, applying the general principle of conversion, has pointed out, the surplus sale proceeds represent what is left of the interest of the defaulting tenant. The view of the learned Subordinate Judge on this question is correct and his order should be affirmed. Jhumarmull Marwari who purchased the interest of the mortgagor while the landlords'' suit was pending now intervenes to claim a share in the division of the surplus sale proceeds.

He argues that as the Bank cannot claim any share in the sale proceeds by virtue of the provisions of Section 73(1)(a), Civil P.C., because when they applied for permission to bid, a stipulation was made that the property should be sold without prejudicing their rights under the mortgage. It is suggested on his behalf that the Bank in purchasing the property has reserved the right which is permitted by Section 101, T.P. Act, to acquire the property without thereby causing their mortgage to be merged as between themselves and any subsequent mortgagees.

However that may be, Sir Sultan Ahmed points out that there was no mention of the mortgage in the sale proclamation; and the property was not sold subject to any mortgage or charge in the sense that the mortgagees would have been able to enforce their mortgage right against the purchaser at the auction sale. The landlords'' decree was in form a mortgage decree to which the Bank of Central India as subsequent mortgagees were parties, and when the landlords obtained their preliminary decree, the power to enforce the mortgage of the Bank was limited to a right of redemption, or in the alternative if they suffered that right to be extinguished before the final decree, to receive their mortgage money out of the surplus sale proceeds after the satisfaction of claims of any prior incumbrancers.

Their application for permission to bid without prejudice to their rights under the mortgage certainly could not be regarded as having the effect of restoring their right of redemption which had already been extinguished, and it cannot be held that the property was sold subject to any mortgage or charge, even though the Bank may possibly have reserved the right u/s 101 T.P. Act, to use their mortgage as a shield against a subsequent encumbrancer. Jhumarmull Marwari''s claim therefore to exclude the Bank from a share of surplus sale proceeds cannot succeed.

Another ground is suggested for Jhumarmull Marwari''s claim. The Bank has sued the leaseholders on their mortgage and had obtained a decree shortly before the property was sold in execution of the landlords'' decree. On 27th March 1931, they entered into a compromise with their mortgagor. That compromise is not before me; but I am told that by its terms the Bank was to enter into possession of the mortgaged property; undertaking not to enforce its final decree for sale within 6 years and in the meantime to pay Rs. 600, a month to the mortgagor.

Jhumarmull Marwari had on 28th October 1930, acquired the right, title and interest of the mortgagor, that is to say, he had acquired the equity of redemption; and it is argued that he thereby acquired a right to any benefit which the mortgagor may have obtained by the compromise of 27th March 1931. So far as the landlords'' suit is concerned, the interest was apparently acquired pendente lite, and so subject to the result of that suit, and it would not be proper, in a summary proceeding of this nature to enter into the question of what may be his rights against the Central Bank of India by virtue of the compromise in which they entered with the mortgagor on 27th of March 1931.

I find no ground for interference with the order of the learned Subordinate Judge and dismiss the application. The landlords are entitled to their costs from the Central Bank of India and Jhumarmull Marwari who will each bear an equal share of the landlords'' costs. The Central Bank of India is entitled to its costs from Jhumarmull Marwari. The hearing fee will be fixed at twenty gold mohurs.