Devatha Pullayya and Another vs Jaldu Manikyala Rao and Others

Seshachalapati, J.—This appeal is directed against the judgment and decree of the Subordinate Judge, Masulipatam in O. S. No. 5 of 1957 on his file. The circumstances leading upto the filing of that suit are briefly as follows;

The 1st defendant to the action Divi Ramakrishnama Charyulu executed as instrument of mortgage (Ex. A-1) dated 21-6-1935 in favour of the plaintiff Jaldu Manikyala Rao, for securing the repayment of Rs. 6,000 together with compound interest at 6% with annual rests. The mortgage covered nine items. Items 1, 2 and 3 are a house and sites respectively in the municipal town of Masulipatam. Items 4 to 9 are agricultural properties situate in various villages. Between the years 1938 to 1949 some of the items mortgaged under Ex. A-1 were sold and payments made towards the discharge of the sum due under Ex. A-1. While, so, the 1st defendant Divi Ramakrishnamacharyulu and his mother Vedavalli Tayaramma executed a mortgage (Ex, B-5) in favour of Devatha Gangaiah, the father of the 2nd defendant and the deceased husband of the 3rd defendant for a sum of Rs. 6,999. Ex. B-5 contains four items, of which items 1, 2 and 4 correspond to items 1, 2 and 5 of Ex. A-1.

Defendants 2 and 3 as the legal representatives of Devatha Gangaiah instituted O. S. No. 130 of 1952, on the file of Sub Court, Masulipatam for the recovery of the money due under Ex. B-5. To that action, in addition to the two mortgagors, the Official Receiver, Krishna, was also impleaded as a party, as by that time Divi Ramakrishna Charyulu was adjudicated an insolvent in I. P. No. 1 of 1949, on the file of the Sub Court, Masulipatam. Jaldu Manikyala Rao the mortgagee under Ex. A-1 and one Y. Ramachandra Rao, was also added as defendants. On 25-3-1953 a preliminary mortgage decree was passed by the Court. A final decree was duly passed and the properties were sold in court auction on 29-1-1957, and the properties so brought to sale were purchased by one Devatha Subbarao.

In the meantime on 16-1-1957, the present suit (O. S. No. 5 of 1957) was launched by Jaldu Manikyala Rao the mortgagee under Ex. A-1 for an account being taken of the amounts due towards the principal and interest on the suit mortgage bond (Ex. A-1) and for the enforcement of the mortgage by foreclosure or sale. Neither the 1st defendant Divi Ramakrishnamacharyulu, nor the 4th defendant the Official Receiver, Krishna, contested the suit, Defendants 2 and 3 the son and widow of Devatha Gangaiah filed a written statement pleading that the suit mortgage (Ex. A-1) was not supported by consideration to the extent of Rs. 1,000/-, that the alleged payments endorsed on the mortgage bond in the year 1948 were untrue, that the 1st defendant is an agriculturist entitled to have the debt scaled down in accordance with the provisions of Act IV of 1938 (Madras), that the present suit confined only to some of the items in the plaint schedule to Ex. A-1 is not maintainable, that the 3rd defendant is an agriculturist and entitled to the benefits of Act IV of 1938, and that in any event defendants 2 and 3 are entitled in law and equity to claim that the items under court sale on 20-1-1959 proceeded against only if the plaintiff is not able to recover the amount due to him otherwise.

The learned Subordinate Judge after framing the relevant issues arising out of the pleadings held that the mortgage (Ex. A-1) was fully supported by consideration, that the payments of discharge in 1948 were true, that the interest claimed by the plaintiffs was not usurious, that in the circumstances of this case the suit confined only to the present schedule items is maintainable, that the 1st defendant is not an agriculturist, and the 3rd defendant cannot claim the benefit of Act IV of 1938. He also repelled the claim of defendants 2 and 3 that the plaintiff should first proceed against the other items of the hypotheca before enforcing his claim against the properties sold in the court auction.

Upon those findings, he passed a preliminary mortgage decree fixing four months for redemption.

In this appeal Mr. V. Parthasarathi, the learned counsel for the appellants has raised before us four principal contentions (1) that the mortgage deed, Ex. A-1 Is not supported by consideration to the extent of Rs. 1,000/-(2) that the debt is liable to be scaled down in accordance with the provisions of Madras Act IV of 1938 on the ground that the debt was contracted by one who was an agriculturist at the commencement of the Act; (iii) that, in any event, the 3rd defendant was an agriculturist and entitled to relief under Act IV of 1938; and (iv) that the trial court should have applied the principle of Sec. 81 of the Transfer of Property Act and the plaintiff should have been directed to proceed against items of property other than those covered by Ex. B-5. These contentions will have to be examined in the above order.

We may at the very outset observe that no dispute has been raised before us as to the truth, due execution and attestation of Ex. A-1, or to the consideration, except with respect to a sum of Rs. 1,000/-. Ex. A-1 is the suit mortgage. It was executed by the 1st defendant on 21-6-1935. In it, it is recited that the mortgagor has to discharge some binding debts, and that the consideration of Rs. 6,000 was made up as follows : Rs. 2,000 paid by the mortgagee to Thatawarthi Nagapotha Rao in respect of a debt due by the mortgagor; Rs. 700 paid to Jaldu Venkatasubba Rao, Rs. 1,590 paid to Pusupavalli Thayaramma, and Rs. 710 for the costs of stamps and family expenses, and the balance of Rs. 1,000/- be kept with the mortgagee for discharging the sundry debts contracted by the mortgagor''s father as and when the mortgagor requests the mortgagee to do so. The case of the contesting defendants 2 and 3 is that the sum of Rs. 1,000 kept with the mortgagee was not paid to the mortgagor, nor to his creditors and therefore, Ex. A-1 is wanting in consideration to the extent of Rs. 1,000.

The plaintiff mortgagee has stated in his evidence that he paid Rs. 1,000 kept with him to the mortgagor himself within five to seven months after the execution of Ex. A-1 and obtained a receipt from him therefor. The receipt was not produced, nor the accounts books of the plaintiff for the relevant period. The plaintiff has sought to explain away the failure to produce the receipt and the account-books by alleging that all his papers including the receipts for payments admittedly made under Ex. A-1 were stored in a room in Akellavari godowns, and that they were all destroyed by white ants.

In proof of that allegation reliance was placed upon Ex. A-3, which is a report by the Commissioner appointed in O. S. 46 of 1956. That was a suit filed by the plaintiff against one K. V. Parthasarathi and others. In that suit the plaintiff Jaldu Manikayala Rao requested in I. A. 1268 of 1956 for the appointment of a Commissioner to inspect the room in Akkelavari buildings, Kojjilipeta, Masulipatam, in which his documents and accounts books were kept. In pursuance of that warrant of commission, an advocate was appointed as Commissioner who made a report stating that barring certain documents, all the papers and accounts-books from 1926 to 1947 were destroyed by white-ants. Mr. Parthasarathi, contends that there is no specific provision in the Civil Procedure Code, where at the instance of the plaintiff a Commissioner can be appointed to take inventory of the accounts books in his own possession. We are not impressed with this contention, because it seems to us that the language of O. 26, R. 9 C. P. C. is of sufficient amplitude to take in a case like this.

Be that as it may, we have no reason to disbelieve the statement of an Advocate-Commissioner that the books and documents, as a matter of fact, were destroyed. The question whether the books and documents of the plaintiff were really destroyed or not has only an indirect bearing upon the question that we have to decide in this case. The circumstances upon which the trial court strongly relied on this part of the case is the endorsement made by the 1st defendant on 21-3-1948, marked as Ex. A-1(d). It shows that on that date the amount due under Ex. A-1 was calculated by ascertaining the interest accruing on the principal of Rs. 6,000. So ascertained and giving credit to payments already made, the endorsement shows that a sum of Rs. 5,500 was found due on Ex. A-1. The point about this endorsement is that there is an express admission by the 1st defendant, that he received the consideration of Rs. 6,000 under Ex. A-1.

It is contended by Mr. V. Parthasarathi that the endorsement is very suspicious and must have been the result of collusion between the 1st defendant and the plaintiff, more so, because the accounts books of the plaintiff for the year 1948 were not produced and the explanation tendered by the plaintiff in his evidence that his advocate considered their production unnecessary is fantastic and futile. It is also contended that whereas the earlier endorsement on Ex. A-1, were attested by witnesses, Ex. A-1(d) is not so attested. All this, according to the learned counsel, point to a collusion between the 1st defendant and the plaintiff. The 1st defendant himself has not been examined on either side. It is stated that he has become an insolvent. It is easy to suggest that there should have been a collusion between him and the plaintiff.

That Ex. A-1(d) bears the signature of the 1st defendant is beyond dispute. That being so, it goes a long way to prove that the 1st defendant received the entire consideration under Ex. A-1, and the case of the contesting defendants that the suit mortgage bond is wanting in consideration to the extent of Rs. 1,000 has not been made out. Further, in O. S. 130 of 1952 the present defendants 2 and 3 as plaintiffs did not allege that the suit mortgage is wanting in consideration to the extent of Rs. 1,000/-. Taking all the circumstances into consideration, we are unable to dissent from the view of the trial court that the defendants 2 and 3 have failed to prove that Ex. A-1 is deficient in consideration to the extent of Rs. 1,000.

The second contention of Mr. Parthasarathi is that the mortgage debt is liable to be scaled down in accordance with the provisions of Act IV of 1938. Issue 3 and the additional issue framed on 9-10-1957, are as follows :

Issue 3 : "Whether the 1st defendant is not entitled to the benefits of Madras Act IV of 1938.

Addl. Issue : "Whether the defendants 2 and 3 are agriculturists entitled to the benefits of Madras Act IV of 1938.

On these issues, the learned Subordinate Judge found that the 1st defendant is not entitled to the benefits of Madras Act IV of 1938, and that defendants 2 and 3 are not agriculturists. It remains to consider whether in the instant case defendants 2 and 3 can claim to have the debts scaled down. Before successfully establishing that right, the contesting defendants will have to make out affirmatively that the 1st defendant is an agriculturist.

In Velugubantla Narayya Vs. Kona Venkanna and Others, a Bench of the Madras High Court held as follows.

It has been well established by decisions of this Court that if the mortgagor is entitled to the benefit of scaling down the debt under Act IV of 1938, that benefit would also enure to the alienee of the hypotheca, in whole or part whether he is an agriculturist or not......... If however, the mortgagor is not an agriculturist and the question arises between purchasers of different portions of hypotheca, the fact that one of such purchasers is an agriculturist, who is entitled to the benefit of the provisions of the Act would not enable the other non-agriculturist purchaser to claim the benefit of such scaling down." The learned Judges cited with approval the principle of the decision of the Madras High Court in Sree Rajah Vadrevu Viswa Sundara Row Bahadur Vs. Vadlamannati Kusalaramayya (died) and Others, The relevant passage in the decision may be here extracted :

We have no doubt, held that when the mortgagors are given relief under Madras Act (IV of 1938) and the burden upon the property is thereby lightened the fortuitous benefit of that relief will be enjoyed by a subsequent purchaser, though the latter is not himself entitled to claim the benefits of the Act. This fortuitous benefit, however, cannot be claimed as of right by the purchaser who is not an agriculturist. It is the accidental result of a claim successfully advanced by the mortgagors. In the present case, the mortgagors, have not claimed such benefit nor have they adduced any evidence to show that they are agriculturists. We, therefore, cannot accede to the request of the 6th defendant that the right of the mortgagors to relief should be investigated merely with the object of giving an accidental relief to the non-agriculturist purchaser.

Quite apart altogether from the question whether defendants 2 and 3 are agriculturists or not, they have, before they can successfully invoke the benefit of Act IV of 1938, to make out affirmatively that the 1st defendant mortgagor is an agriculturist entitled to have the debts scaled down in accordance with the provisions of the Act.

We have, therefore, to address ourselves to that question. The learned Subordinate Judge held, in our view, rightly that the 1st defendant is not an agriculturist and has given good and cogent reasons for that finding. In the first place, it may be mentioned that though a party to this suit, the 1st defendant had remained ex parte. He has adduced no evidence whatever to claim that he is an agriculturist. In the second place, as pointed out by the learned Subordinate Judge the statutory period for enforcing the personal remedy by the 1st defendant had expired, and the personal remedy had, therefore, become barred.

In the third place, the 1st defendant had become an insolvent, he having been adjudged as such in I. P. No. 1 of 1940. Further, there seems to be almost a conclusive reason why defendants 2 and 3 in the present suit cannot contend that the 1st defendant is an agriculturist. As stated already defendants 2 and 3 in the present suit instituted O. S. 130 of 1952 on the file of the Sub Court, Masulipatam for the realisation of the money due under a mortgage executed in favour of Gangayya by the 1st defendant and another under Ex. 8. 5. The present plaintiff Jaldu Manikyala Rao was impleaded as the 4th defendant to that action. In the plaint filed in that suit, it is expressly stated as follows:

The mortgagors had no saleable interest in any land either at the time of the mortgage or even now and hence are not agriculturists within the meaning of Madras Act IV of 1938 and are not entitled to claim the benefits of the said Act.

On the pleadings of the parties, a specific issue was framed whether the debt is liable to be scaled down. On that issue, the learned Subordinate Judge recorded the following finding :

There is no evidence to show that the debt is liable to be scaled down. We have the evidence of the 1st plaintiff to show that the lands included in the suit mortgage bond no longer belong to the mortgagor and they have been sold away several years before the date of the suit mortgage bond. The debt is, therefore, not liable to be scaled down.

From the above it is clear that on the date of the institution of O. S. 130 of 1952, the 1st defendant Divi Ramakrishnama Charyulu had no saleable interest in the agricultural lands as Ex. A-1 (a) to A. 1(d) indicate that they had been sold away between the years 1937 to 1948. In view of the specific case put forward by the present appellants, as plaintiffs in O. S. 130 of 1952 that the 1st defendant Divi Ramakrishnama Charyulu is not an agriculturist entitled to claim the benefit of the scaling down provisions of Act IV of 1938, and the express finding of the trial court upon that issue that Divi Ramakrishnama Charyulu is not an agriculturist entitled to invoke the benefit of the provisions of the said Act, it is not now open to the appellants to contend that the 1st defendant is an agriculturist. We see, therefore, no reason to differ from the conclusion of the learned Subordinate Judge on this part of the case.

If, therefore, the 1st defendant is not an agriculturist entitled to the benefits of Act IV of 1938, it really becomes unnecessary to consider the question whether defendants 2 and 3 are agriculturists entitled to claim the benefits of Act IV of 1938. However, since the point has been raised, we propose to examine it very briefly. In the plaint it is stated that defendants 2 and 3 are not agriculturists within the meaning of Act IV of 1938. In paragraph 8 of the written statement filed on behalf of defendants 2 and 3, it is claimed that the 3rd defendant is an agriculturist entitled to the benefits of Act IV of 1938, and that, therefore, the suit claim has to be scaled down in conformity with the provisions of that Act. It is significant that there is no claim that the 2nd defendant is an agriculturist. Mr. Krishnamurthy the learned counsel for the respondents, had urged, not without reason, that if the 2nd defendant is not an agriculturist-as on the facts of the case it is manifest that he is not-the plaintiff is entitled to a decree certainly as against him for the entirety of the sum claimed, and, therefore, it becomes a matter of no importance whatever to consider whether the 3rd defendant is an agriculturist, or not. Be that as it may, since the question has been raised, we propose to deal with it within as brief a compass as possible.

The 2nd defendant is admittedly not an agriculturist and the only question is whether the 3rd defendant is an agriculturist. She is the widow of the late Gangayya and the mother of the 2nd defendant. She became entitled to her husband''s share in the family property in accordance with the provisions of the Hindu Women''s Right to Property Act (Act XVIII of 1937). Gangayya admittedly was not an agriculturist. He had no doubt large extent of lands, but he certainly had a money lending business, in respect of which he was assessed to income tax. It is also obvious that he was paying municipal tax on the date on which Act IV of 1938 had come into force. D. W. 3 the present clerk of the 2nd defendant has stated in his evidence that the 2nd defendant was the only son of Gangayya, that Gangayya died undivided from his son, and that Gangayya and the third defendant were realising monthly rents in a sum of Rs. 2,000 from their houses, presumably in Masulipatam. He also stated that Gangayya and his son had money-lending business and the second defendant and the third defendant did not divide their family properties or family outstandings. That Gangayya was an income tax assessee is borne out by Ex. B-2. Ex. B-4 is the assessment order passed by the income tax Officer, Masulipatam circle on 27-9-1950. By that time Gangayya was dead. The assessment was, therefore, made on Devatha Pullayya the 2nd defendant as representing the Hindu undivided family, it is obvious that the Hindu undivided family was composed of not only the 2nd defendant, but the 3rd defendant as well. Some attempt has been made to show that the widow succeeding to her husband''s share under S. 3(ii) of the Hindu Women''s Right to Property Act, is not a coparcener in the full sense of that expression and that, therefore, it cannot be said that she is a member of a Hindu undivided family paying income tax. In Manorama Bai Vs. Rama Bai and Others, a Bench of the Madras High Court consisting of Govinda Menon and Ramaswami JJ., held that there is no justification for saying that the widow is not a full coparcener. It may be contended that the proposition has been somewhat too broadly stated by the learned Judges. We do not however think it necessary in this case to determine the question whether a widow succeeding to her husband''s property under S. 3(ii) of Act XVIII of 1937, is a ''coparcener'' in the strict sense of the term. We may, however, observe that though the Hindu Women''s Right to Property Act does not make a widow a coparcener under the Hindu law in the strict sense of the term, the Act does confer upon her subject to certain limitations, the same interest in the joint family as her husband had. The Madras High Court in Lakshmi Ammal and Others Vs. Ramachandra Reddiar, , has expressed a similar opinion with which we are in respectful agreement. The learned Subordinate Judge has, in our view, correctly field that defendants 2 and 3 are not agriculturists. That being so, we think that conclusion of the learned Subordinate Judge on issue No. 3 as originally framed, and the additional issue framed on 9-10-1957 are correct, and there is no substance in the contention contra.

The last point which Mr. Parthasarathi pressed upon us is that the plaintiff should first be directed to proceed against the items of the hypotheca other than the items of Ex. B. 5 and that he should have recourse against those items only after exhausting his remedy against the other items of hypotheca set out in Ex. A-1. In this connection Section 81 of the Transfer of Property Act is invoked. That section as substituted by the emending Act 20 of 1929 is as follows :

Section 81: If the owner of two or more properties mortgages them to one person and then mortgages one or more of the properties to another person, the subsequent mortgagee is, in the absence of a contract to the contrary, entitled to have the prior mortgage debt satisfied out of the property or properties not mortgaged to him, so far as the same will extend, but not so as to prejudice the rights of the prior mortgagee or of any other person who has for consideration acquired an interest in any of the properties.

The above section is the statutory recognition of the principle of marshalling which has been described by Lord Chancellor, Lord Hardwicke in Lanoy v. Duke of Athol, (1742) 2 Atk. 444 in these oft quoted words.

Suppose a person, who has two real estates mortgages both to one person and afterwards only one estate to a second mortgage who had no notice of the first, the Courts in order to relieve the second mortgagee have directed the first to take his satisfaction out of that estate only which is not in mortgage to the second mortgagee". In Flint v. Howard, (1893) 2 Ch. 54 at p. 72 Kay L. J. observed :

If a person having two estates mortgaged both to A and then one only to B who had no notice of A''s mortgage, B might, as against the mortgagor, compel the payment of the first mortgage cut of the estate on which he had no charge.

The learned Subordinate Judge following the decision of Manoher Pershad J. in Lakshmi Narayana Somayajulu v. Punna Sidhanti, (1957)2 Andh W. R. 385 held that defendants 2 and 3 are not entitled to invoke the aid of Section 81 of the Transfer of Property Act. He observed that (i) the puisne mortgagee cannot interdict the unfettered right of the prior mortgagee to proceed against whichever of the item of the hypotheca he chooses in that behalf; and (ii) that inasmuch as the plaint schedule in the instant case consists of only two items, the plaintiff cannot be compelled to proceed against the property not in suit.

Mr. Parthasarathi contends that if the prior mortgagee has under all conceivable situations an absolute and unfettered right to elect to proceed against whichever of the mortgaged property he chooses, then the principle of S. 81 of the Transfer of Property Act, and the equitable doctrine of marshalling would be bereft of all life and meaning. In this connection reference has been made to a decision of the Madras High Court in Thanmul Sowcar Vs. Nattu Ramadoss Reddiar and Another, where in interpreting Section 81 of the Transfer of Property Act prior to the amendment a bench of the Madras High Court held that the subsequent mortgage of one of the properties has no right under Sec. 81 of the Transfer of Property Act, to compel the prior mortgage to proceed in the first instance against the property not mortgaged to the former. Mr. Parthasarathi points out that the effect of the decision is considerably abridged by reference to Section 56 of the Transfer of Property Act. We are not impressed with this contention, for Wallace J. who was party to Thanmul Sowcar Vs. Nattu Ramadoss Reddiar and Another, ) referred to Section 56 only by way of an analogy and we are unable to accede to the contention that a reference to Section 56 of the Act has by any means invalidated the authority of that decision. We are of opinion that the changes that have been introduced in Section 81 of the Transfer of Property Act also make no difference to the legal position.

The section as amended posits two essential conditions : (i) that there should not be a contract to the contrary; and (ii) in any case no prejudice should be caused to the rights of the prior mortgagee. It seems to us that the contesting defendants 2 and 3 cannot call in aid S. 81 of the Transfer of Property Act. In the first place, items 2, 3, 4 and 7 to 9 of Ex. A-1 would appear to have been sold. In the second place, the puisne mortgagee in this case has not paid the sum of Rs. 2,000 which he undertook to pay to the first mortgagee in accordance with the terms of Ex. B-5.

A portion of item 2 was admittedly sold in 1939 as is clear from Ex A. 1 (b). Item 3 had been sold as per Ex. A 1 (a). Item 4 was sold in 1948. Apart from Ex. A 1 (d) which refers to the sale, P. W. 1 has spoken to it. Items 7, 8 and 9 were sold in 1937 as is clear from Ex. A 1 (b) and the evidence of P. W. 1. Mr. Parthasarathi, however, contends that there is no evidence of the sale of items 5 and 6 of Ex. A. 1. But it must be remembered that in the plaint in O. S. 130 of 1952 the specific case of the present defendants as plaintiffs in that suit was that the mortgagors had no saleable interest in any land at the time of the mortgage in favour of the defendants. P. W. 1 in his evidence has stated that the 1st defendant has sold all the items in Ex. A-1, other than the suit items prior to 1948. D. W. 3 has stated that the 1st defendant had sold the Dokiparru lands by the date of Ex. B-5, On the state of the evidence, there is no force in the contention of the learned counsel that there is no proof as to the sale of items 5 and 6 of Ex. A-1. It is, therefore, clear to us that the prior mortgagee cannot proceed against items 2 to 9.

It may also be noticed that under Ex. B-5, it is expressly provided that out of the consideration of Rs. 6,000 the mortgagee Gangayya should pay on behalf of the mortgagors a sum of Rs. 2,000 to Jaldu Manikyala Rao the plaintiff in the present suit. There is no evidence that Gangayya or defendants 2 and 3 paid the amount. In this case, therefore, the puisne incumbrancer has taken the mortgage expressly on condition of discharging the sum of Rs. 2,000 due on Ex. A-1. That term he has not fulfilled. In re Mower''s Trusts (1869) 8 Eq 110, Lord Romilly, M. R. held that where a subsequent mortgage of 1819 was on condition of paying in full a prior mortgage of 1817 and was not fulfilled, the prior mortgage should be paid in full. In this case to hold otherwise would be a manifest prejudice to the first mortgagee and for that reason only Section 81 of the Transfer of Property Act cannot to be invoked at the instance of the defaulting puisne incumbrancer. We, therefore, think that the conclusions of the learned Subordinate Judge that there is no substance in the plea based upon Section 81 of the Transfer of Property Act, are correct.

In the result, the appeal fails and is accordingly dismissed with costs.