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Judgment
Alfred Henry Lionel Leach, C.J.—The appellant is a money-lender. On the 27th August, 1935, the respondent executed in the appellant''s
favour a mortgage to secure the sum of Rs. 32,000 bearing interest at 15 per cent, per annum. The properties covered by the mortgage were lands
and buildings in the City of Madras. The mortgagor had previously charged these properties. At the date of the mortgage to the appellant, there
was due to four prior mortgagees and to other creditors a total sum of Rs. 31,000. The appellant undertook to discharge all these debts and pay
the respondent Rs. 1,000 in cash to pake up the agreed c6nsideration of Rs. 32,000. In the month of January, 1936, the appellant, with the
consent of the respondent, went into possession of the mortgaged properties. The arrangement was that he should collect the rents and profits, pay
all taxes and maintenance charges out of his collections and appropriate the surplus to the amount due under his mortgage.
On the and February, 1942, the respondent wrote to the appellant asking for an account of his appropriations and referred to the fact that he
repeatedly asked to be furnished with a statement of account. The appellant ignored this letter. The consequence was that on the 25th February,
1943, the respondent filed a suit on the Original Side of this Court for redemption of the mortgage. On the 16th July, 1943, a preliminary decree
for redemption was passed. The appellant had only discharged one of the four prior mortgages out of his own funds and it was agreed that the
consideration for the mortgage was limited to Rs. 131,500 up to the 30th October, 1935. The Court ordered accounts to be taken on this basis.
The accounts were taken by the Official Referee, who reported to the Court that the moneys collected by the appellant under the arrangement
made in January, 1936, when he went into possession were more than sufficient to meet all expenses and to pay the appellant the amount due
under his mortgage. He found tha? the balance due to the respondent was Rs. 20,412-10-10, but this figure included interest at 15 per cent, per
annum on all moneys which the appellant had, to the detriment of the respondent, retained in his own hands.
The appellant filed objections to the Official Referee''s report. The hearing9 before the learned Judge (Chandrasekhara Aiyar, J.) resulted in the
amount of Rs. 20,412-10-10 being reduced to Rs. 18,667-14-0 which included the sum of Rs. 7,724-8-7, interest at 15 per cent, on the
collections which the appellant had wrongly failed to pay over to the respondent. The appeal is from the judgment of the learned Judge in the
objections to the Official Referee''s report.
The appellant says that the learned Judge erred in law in allowing the respondent any sum by way of interest. In all other respects he accepts the
learned Judge''s findings. Before Chandrasekhara Aiyar, J., the appellant contended that he could only be made liable to interest on the collections
wrongly retained by him at therate of six percent, per annum. The learned Judge rejected this contentionand held that the appellant should pay
interest at the rate of 15 per cent, that being the rate which he had charged the respondent for moneys lent to him under the mortgage. Mr.
Narasimha Aiyar on behalf of the appellant stated in the course of his argument that his client did not object to interest being charged at the rate of
six per cent., but he maintained that the Court had no power to grant a higher rate.
In Valia Maliyakkal Sayid Muhammad Jiffiri Attakoya Thangal and Others Vs. Sayid Muhammad Bin Alabi Ayidross Kunhikoya Thangal, , this
Court held that the proviso to the Interest Act leaves it open to the Court to award interest where a Court of Equity would recognise the claim.
This decision was based on the judgment of the Privy Council in Maine and Mew Brunswick Electrical Power Co. v. Hart (1929) A.C. 631, and
Bengal Nagpur Railway Co., Ltd. v. Ratanji Ramji ILR (1938) 2 Cal. 72. The cases in which a Court of Equity will grant interest are set out in
Halsbury, Volume XXIII, page 176 (Hailsham edition). The list includes cases where the relationship is that of a mortgagor and mortgagee and
where the debtor is in a fiduciary position to the creditor.
Section 76 of the Transfer of Property Act defines the duties which devolve upon a mortgagee when he takes possession of the mortgaged
property during the continuance of the mortgage. He is required to keep full and accurate accounts of all sums received and spent by him as
mortgagee and to pay over to the mortgagor any surplus which may be left in his hands. The section states that if a mortgagee fails to perform any
of the duties imposed upon him by the section, he may, when the accounts are taken in pursuarlce of a decree, be debited with the loss, if any,
occasioned by his failure.'' A mortgagee in possession is not a trustee in the strict sense of the term, but he holds a fiduciary character. See sections
- 90 and 95 of the Trusts Act. We consider that a Court of Equity has full power to direct interest-to be paid on collections which have been
wrongly withheld by a mortgagee in possession.
That the respondent failed in a marked degree to fulfil his duties as a mortgagee in possession is not open to dispute. As Chandrasekhara Aiyar,
J., has pointed out, the accounts kept by the appellant have been entirely discredited by the Official Referee on adequate grounds. Moreover, the
appellant failed to discharge three of the prior mortgages when he had money in his hands sufficient to pay them off. The second and third
mortgages were not discharged until the 31st March, 1939. The fourth mortgage is still outstanding and from 1935 to date, has been carrying
interest at the rate of 15 percent, per annum. In these circumstances, we have no hesitation in holding that the appellant is liable to pay interest to
the respondent on the collections which he wrongly retained in his hands.
Mr. Narasimha Aiyar has drawn our attention to the decision of the Allahabad High Court in Ismail Hasan v. Mehdi Hasan ILR (1924)All. 897,
where it was held that in a case of the redemption of a usufructuary mortgage no interest can be allowed, either by way of damages or otherwise,
on the surplus profits received by the mortgagee until the date of the institution of the suit for redemption. It follows from what we have said that we
do not accept this as embodying a correct statement of the law. The learned Judges who decided that case seem to have regarded the
indebtedness on the part of the mortgagee to his mortgagor as a debt at common law. They did not consider the special relationship which exists
between a mortgagee in possession and the mortgagor, nor did they consider in what cases a Court of Equity would grant interest on a debt which
falls within the proviso inserted in the Interest Act.
The learned advocate for the appellant has suggested that the Court is precluded from granting at a rate higher than six per cent, because of the
provisions of Section 23 of the Trusts Act. That section says that a trustee committing a breach of trust is not liable to pay interest except (a) where
he has actually received interest; (b) where the breach consists in unreasonable delay in paying trust money to the beneficiary; (c) where the trustee
ought to have received interest, but has not done so; and (d) where he may be fairly presumed to have received interest. The. - section says that he
is liable in case (a) to account for the interest actually received, and in cases (b), (c) and (d) to account for simple interest at the rate of six per
cent, per annum unless the Court otherwise directs. The words ""unless the Court otherwise directs"" allow the Court to grant a higher rate of
interest if it considers it proper to do so. Section 34 of the CPC says that where and in so far as a decree is for the payment of money, the Court
may order interest at such rate as it deems reasonable. It cannot grant interest on costs at a higher rate than six per cent, but with this exception,
the discretion of the Court is entirely unfettered.
Now, has the learned Judge failed to exercise his discretion wisely? We think not. In the first place, the appellant charged the respondent 15
per cent, on the money lent to him. In the second place, the appellant failed to discharge the fourth prior mortgage which carried interest at 15 per
cent, per annum, notwithstanding that he had over a long period sufficient money in his hands to pay off this debt as well as his own. In these
circumstances, we are not prepared to say that a lesser rate of interest should be allowed.
The appeal is dismissed with costs.