Muthialpet Benefit Fund Ltd. vs V. Devarajulu Chetty and Others

Ramaswami, J.—This is an application for appointing public auctioneers as commissioners to sell the mortgaged property after due

advertisement and wide publicity with a note in bold lines in sale notices that the property would be sold free from all claims of all parties to the suit

and free from all encumbrances and that vacant possession would be given on payment of the full purchase price and that the sale will be subject to

confirmation by the High Court.

The facts are: The applicant is the Honorary Secretary of the Muthialpet Benefit Fund Ltd., which is a reliable and well known Nidhi in the city

of Madras doing useful work. Defendant 1 V.K. Govindarajulu Chetty for himself and on behalf of his three minor sons who are now the plaintiffs

in the pauper suit C. S. 7 of 1953 as manager of a joint Hindu trading family executed in favour of defendant 2, the Muthialpet Benefit Fund Ltd.,

two simple mortgages"" dated 1-4-1948 and 7-5-1949 for Rs. 15,000/- and Rs. 4000/- respectively mortgaging as security for the repayment of

the said sums with interest at Re. 0-9-5 per cent '' per mensem and Re. 0-12-6 per cent per mensem respectively the house Nos. 11 & 11-A,

Venkatachala Mudali Street, Choolai, Madras. The sum of Rs. 15000 was lent by the Fund after proper and bona fide enquiries for the purpose

of discharging an antecedent mortgage debt over the said property due to the Triplicane Fund Ltd., which is another respectable well known Nidhi

in Madras and for investing as additional capital in the family ancestral business in gunnies which was the mainstay of the family.

The further sum of Rs. 4000 was lent after diligent and honest enquiries to discharge the debts incurred for constructing an additional wing in the

backyard of the mortgaged property which was necessary for the more beneficial enjoyment of the house. Under the said mortgage deeds a power

of sale u/s 69, T. P. Act has been conferred on the mortgagee, the Muthialpet Benefit Fund Ltd., who can exercise the said power in the event of

default committed in the repayment of the mortgage dues as per terms and conditions provided in the deeds. - Defendant 1 mortgagor committed

default in payment and thereafter the Fund began to press for repayment from June 1951 and waited till June 1952, on defendants 1''s promise and

assurances of repayment. As no payments were forthcoming the Fund fixed the sale of the mortgaged property on 27-7-1952 after notice.

Thereupon defendant 1, as is usual in these cases, set up his wife to institute a pauper suit, C. S. 7 of 1953, on behalf of his minor sons impleading

himself and other creditors along with himself euphemistically demanding partition and in reality to defeat and delay, if possible, the mortgages

executed in favour of the Fund. In the suit an application No. 1900 of 1952 was filed for an injunction to restrain the sale of the property by the

Fund, On 5-9-1952 Panchapakesa Ayyar J. made an order that an injunction restraining the sale by the Fund would issue on condition that the

plaintiffs paid to the fund directly Rs. 120/- to cover interest every month commencing from 5-10-1952 and that in default of payment in any one

month, the sale would take place. The plaintiffs after paying three monthly instalments of Rs. 120/-, defaulted in paying the monthly instalments of

interest thereafter.

The plaintiffs'' later application No. 465 of 1953 for reducing the monthly instalments to Rs. 80/- Was dismissed. The Fund brought the property

to sale on 8-2-1953 after due publication. But there were no bidders as defendant 1 and his wife, the next friend of the plaintiffs, scared away the

intending bidders by notifying them orally that the above suit was pending and that they would be buying at their peril. It is in the circumstances that

the present application has been filed.

The case for the Fund is that the principal and interest had accumulated to Rs. 24,558-13-1, that the property is not properly looked after with

regard to its'' maintenance and repairs because the mortgagors have neither the interest nor the means for doing so, that unless extensive repairs are

carried out at once the value of the property would be seriously affected, that defendant 1 has been collecting the rent without the least thought of

paying even the interest due on the mortgages, that the value of the immovable properties in Madras has been steadily going down owing to

increasing economic depression and separation of Andhra Province resulting in mass exodus of well-to-do middle class people from Madras. It is

imperative therefore that in order to secure the most advantageous price the property should be sold through public auctioneers after wide publicity

free of all encumbrances.

The applicant further contends that the pendency of the suit need be no impediment to the sale which is always open to the mortgagee u/s 69

even without the intervention of Court because'' ""prima facie'' the recitals in the mortgage deeds show that a public institution after careful enquiries

had ''bona fide'' advanced moneys for obviously binding purposes on the sons of defendant 1. The house is not capable of division by metes and

bounds into 2/3rd share for both the plaintiffs together and an l/3rd share for defendant 1. If the debts are binding on the minor plaintiffs the whole

house would have to be sold as the plaintiffs and, defendant 1 have not got the means to pay and redeem the mortgages. If the debts are binding

on defendant 1''s share only even then the house will have to be sold for realising the same. .

The plaintiffs admit their liability to the extent of Rs. 5843-0-0 and even. this amount they are not in a position to pay and therefore the property

has to be sold in any event. After the disposal of the suit either in favour of the plaintiff or against them, the house will have to be sold to work out

the rights of all the parties. Therefore, it would be in the interests of all parties to dispose of the property for the best possible price at the present

moment without any delay and to bring the sale proceeds into Court so that it may abide the result of the suit.

The applicant finally contends that as the present suit would possibly prevent intending purchasers from bidding at the sale and paying the best

price, it would be in the interests of all parties if the property is directed to be sold free from the claims of the plaintiffs or any other party to the suit

and free from the encumbrances of defendant 2 mortgagee so that the purchaser might get a free, clear, absolute and unimpeachable title so that he

would be induced to pay the best price possible leaving the plaintiffs and the creditors to work out their rights against the sale proceeds in

accordance with the decree that might be passed in the suit.

This would be a further incentive to the purchaser paying a higher price than he would ordinarily pay as otherwise he would have to pay heavy

court-fee to file a"" suit for possession and wait for some years to get possession. In the event of the sale which would be subject to confirmation by

this Court, the plaintiffs and defendant 1 should be directed to give vacant possession of the property.

This application is opposed by the mortgagors on the usual type-design grounds that they are positive of winning the suit, that in the meanwhile

the corpus should be kept intact and that this Court has no jurisdiction to comply with the reliefs asked for.

To my mind, neither of the first two points is convincing because the first is based on the rather over-optimistic and facile profession of faith

made in every minor''s suit that he the minor is going to win and to which the statistics of our Courts do not unfortunately lend any support and

especially so in this case and in the circumstances set out above, which make out ''prima facie'' that the mortgagee public institution made proper

and bona fide enquiry as to the existence of necessity and did all that was reasonable to satisfy itself as to the existence of such necessity. In such a

case even if there was no necessity in fact or even if the money borrowed was not applied to meet the necessity, the alienation will be upheld. The

recitals of necessity in the deed are admissible in evidence as admissions of the Manager or father and also amount to representation of necessity

though in the case of recent transactions evidence ''aliunde'' 0.............................would be normally expected. These elementary propositions

require no buttressing by citations (See Mulla, Hindu Law, Edn. 10, p. 285; Raghavachari : Hindu Law, Edn. 3, p. 335 and following; Mayne:

Hindu Law, Edn. 11, Re-print pp. 474-475). Secondly, it is in the best interest of the mortgagors themselves to prevent the deterioration of the

value of the corpus and market it into cash and keep the sale proceeds in Court pending and abiding the result of the suit.

It is quite true that u/s 69, T. P. Act when an express power to sell is conferred upon the mortgagee, he need not seek the intervention of Court.

But this does not mean that it may not be done. Section 69 regulates the procedure for private sale of mortgaged property. (See the unreported

decision of this Court in -- ""T. S. Ramaswamy v. Gangadhar Bhutt'', W. P, No. 308 of 1953, D/-24-4-1953: AIR 1955 NUC 1828 (A), by T.L.

Venkatiama Iyer J.). But Courts are not to act upon the principle that every procedure has to be taken as prohibited unless it is expressly provided

for, but are to act on the converse principle that every procedure is to be understood as permissible till it is shown to be prohibited by the law. As

a matter of general principle, prohibitions cannot be presumed. Every Court must, in the absence of an express provision to the contrary, be

deemed to possess inherent in itself such powers as are necessary to do right and to undo wrongs in the course of administration of justice.

Conversely, though a mortgagee is empowered to sell the property by private sale, there is no prohibition against his seeking the intervention of the

Court when it is to the interests of the mortgagor and himself. It is settled law that he is not bound to advertise the sale (''Chabildas v, Dayal

Mowji'', 31 Bom 566 (B)) and that he can sell by private treaty or by public auction unless there are express stipulations in the mortgage deed to

the contrary, that he may sell under special circumstances even of a stringent character, if not unreasonably depreciatory, (''Kennedy v. De

Trafford'', 1397 AC 180 (C); -- ''Dance v. Goldingham'', (1873) 8 Ch A 902- (D); -- ''Falkner v. Equitable Reversionary Society'', (1838) 62

ER 136 (E); -- ''Peter Brouard v. Dumeresque'', (1841) 3 Moore PC 457 (F)). That if he exercises his power bona fide without corruption or

collusion with the purchaser, the Court will not interfere even though the sale is very disadvantageous unless indeed the price is so low as in itself to

be evidence of fraud (''Warner v. Jacob'', (1882) 20 Ch D 220 (G); -- Haddington Island Quarry Co. Ltd. v. Huson'', (1911) 81 LJPC 94 (H)).

But at the same time, it is incumbent on the mortgagee exercising his power of sale to act in good faith and he must sell as a prudent owner,

intending to sell his own properly with reasonable conditions and if the state of the title justifies, to offer a marketable title, and that the power has

to be regarded as a sacred thing, for it is only a security. He is not at liberty to look after his own interests alone and it is not right or proper or legal

for him either fraudulently or wilfully or recklessly to sacrifice the property -of the mortgagor and he must secure the best possible price in the

circumstances, and mast see that in sub serving his own interest, he does not sacrifice the interests of those equally interested in the property and

does nothing to care away the bidders. (''Jenkins v. Jones'', (1860) 66 ER 43 (I); -- ''Chabildas Lallubhai v. Dayal Mowji'', 26 Bom 82 (J);

(1897) AC 180 (C); (IS73) 8 Ch 902 (D); -- ''National Bank of Australia v. United Hand in Hand etc. Co.'', (1879) 4 AC 391 (K); see for an

exhaustive discussion of the rights and obligations of the mortgagee u/s 69, Darrashaw Vakil Commentaries on the Transfer of Property Act 1938,

pp. 632-641; E. Vinayaka Rao and Appu Rao''s Transfer of Property Act, 1930, Law'' Publishing Co., Mylapore, at p. 438; Mulla''s Transfer of

Property Act, Edn. 3, 1949, pp. 478-479; Rash Behary Ghose (Tagore Law Lectures, 4th Edn,, 1914). (Thacker Spink and Co., Calcutta), Vol.

II, p. 777 and foll; Chitaley and Annaji Rao''s Transfer of Property Act, AIR Publications, Edn. 3 (Section 69); Gour''s Law of Transfer in British

India, Edn. 6, Vol. II, Section 69; and the well-known standard works on mortgages in England, namely, Fisher and Lightwood''s Law of

Mortgages, 7th Edn. and Coote''s Law of Mortgages, 9th Edn., Vol. II, S. H, p. 911 and foll,; Halsbury''s Laws of England (Hailsham Edn.), Vol.

16 on Mortgages; and the, American publication in two volumes of Jones on Mortgages under the section, Rights and Liabilities of Mortgagee).

Therefore, when a mortgagee seeks the intervention of the Civil Court in, order to sell the mortgaged property in a manner most advantageous

for both himself and the mortgagor, not only has the Civil Court jurisdiction to go to his assistance but it is also its duty in the interests of justice to

do so.

9a. It is interesting in this connection to examine the English practice under the general jurisdiction. The owner of an equitable charge or lien on

property as a security for money which is due and payable lias the right to a judicial sale of the property in order to satisfy the charge ''or lien; --

''Neatc v. Marlborough'', (1838) 3 My & Cr.407 (L); -- ''Sampson v. Pattison'', (1842) 1 Hare 333 (M); -- ''Tennant v. Trencahnd'', (1869) 4

Ch A 537 (N); -- ''In re Owen'', (1894) 3 Ch 220 (O); -- ''Marshall v. South Straffordshire Tramways Co.'', (1895) 2 Ch 36 (P). The necessity

of applying to Court is superseded in the case of instruments coming into operation after 31-12-1881, by Section 44 , Conveyancing Act, 1881.--

But even under the Conveyancing Act on which our Section 69, T. P. Act is based, the Court will order a sale at the instance of the mortgagee

after notice to mortgagor, if the property is likely to fetch more than the amount secured, if the mortgagor interested to obtain the best price sells,

the conduct of the sale will be given to him. ''Woolley v. Cohman'', (1882) 21 Ch D 169 (Q); -- ''Davics v. Wright'', (1886) 32 Ch D 220 (R); --

''Brewer v. Square'', (1892) 2 Ch 111 (S) (Ashburner on Mortgages, Indian Edn. by Right Hon''ble Ameer Ali P. C., pp. 419-422). It will be

seen how the English practice is in conformity with our own conclusion.

The practice of this Court, which will naturally guide the subordinate Courts, has uniformly been in favour of adopting such a course and it is

enough if I cite four instances. In -- ''C. S. No. 740 of 1920 (Mad) (T)'', Kumaraswami Sastri J. passed the following order;

In these circumstances, I think the best thing will be to direct the houses in Madras be sold by the Offl. Referee free from encumbrances at the

earliest possible date and that the sale proceeds be brought into Court, the mortgagees and plaintiff (plaintiff in C. S. No. 740 of 1920 (T) was a

minor represented by his mother as next friend and the suit was for partition against the father, defendant 1, and defendants 2 to 4 who were

mortgagees from defendant 1) having the same rights over the monies as they now have on the properties. The question of the binding nature of the

mortgagee will be determined later on. Defendant 1 will bring the sale proclamation at once, and have the conduct of the sale, and bear the

necessary expenses in respect of the same. The Receiver will pay the necessary funds to defendant 1 for bearing the Court expenses in connection

with the sale.

In C. S. No. 201 of 1938 (Mad) (U), Venkataramana Rao J. passed the following orders:

''12-1-1939. I give leave to the Egmore Benefit Fund to invite offers for the sale of Houses and Ground Nos. 37, 38 and 40 Venkatesa Bathan

St., Purasawakkam, and submit them for the consideration of the Court. I also give them leave to publish advertisements inviting offers, for sale in

two issues of ""The Hindu"" and ""Swadesamitran"" with an interval of two weeks. This application will be posted after four weeks.

9-2-1939. I direct house and ground Nos. 37, 38 and 40 to be sold by Murray and Co. The sale proceeds will be deposited into Court. The sale

proclamation shall be settled by the 1st Asst. Regr. and the Egmore Benefit Fund will be in charge of the sale. They will furnish necessary material

to the 1st Asst. Registrar and have the sale proclamation settled after giving notice to all parties. The sale shall be subject to the confirmation by the

Court and Murray and Co. shall indicate to the intending purchaser that the sale is subject to the confirmation by Court. I leave it to the 1st Asst.

Regr. to settle a reserve price of the property but in spite of the reservation of the price, it will be open to the Court to reject the sale without

assigning any reasons.

3-3-1939. The sale will be free from the claims of all parties to the suit without prejudice to their claims in the sale proceeds.

Gentle J. on 14-12-1939, confirmed the sale of lot No. 1 for Rs. 3,350/- and direct, the issue of a sale certificate to the purchaser.

In C. S. No. 85 of 1950 (Mad) (V), Krishnaswami Nayudu J., passed the following order:

The applicant is the mortgagee of the suit property. The suit has been instituted for partition by the minor son of defendant 1 who died after the

institution of the suit and the subsequently born son has been added as a party plaintiff. Though it is a suit for partition, it is really, in effect, a suit for

a declaration that the alienation by way of a mortgage made by defendant 1 is not valid and binding on the plaintiff, on the ground that the debts

were incurred for illegal and immoral purposes. Defendant 7 is the mortgagee under a deed dated 22-12-1947. Admittedly, that is a mortgage

executed for purposes of discharging antecedent debts in respect of a number of mortgages, the earliest of them being 8-11-1941,

On the materials placed before me, I am not satisfied that the plaintiff has got a prima facie case. However, I need not go into the merits of the case

at this stage. The question now is as to whether it is in the interests of all parties that the property should be sold and the sale proceeds realised.

Arrears of interest are accumulating and the Society has not been paid. If they are allowed to accumulate, it will be causing great loss to all the

parties interested in the property. I therefore consider that the best course is to see that the property is sold and the sale proceeds brought into

Court and to await further orders of Court. The property will be sold free from the mortgages and claims of all parties, by public auction by the

Receiver who is already in possession of the property after due advertisement and publicity. The sale will be held after a month from this date, and

it will be subject to confirmation by this Court.

In Appln. No. 4940 of 1954 (Mad) (W) in O. P. No. 195 of 1954, arising from liquidation action relating to Subhodaya Publications wherein

there. were three mortgagees, I directed the sale of the property free from all encumbrances by the Liquidators, directing the amount to be

deposited into Court to which the contending claims were made to attach. The First Bench refused to interfere with my order. --

In the result, I allow this application in the terms prayed for and appoint M/s. Murray and Co. as auctioneers and add thereto with necessary

changes the terms set out in the order of Venkataramana Rao J., dated 9-2-1939. If the 1st Asst. Registrar, in consultation with the auctioneers,

finds that the hypotheca, namely, two adjoining door numbers, can be conveniently and without affecting reasonable bids, sold separately in two

lots, let this be done. Let the bigger unit be sold first. If the price fetched ""covers the mortgage amount, etc., let the sale be stopped. If not, at the

same time and place, let the sale of the smaller unit go on. The Nidhi is interested only in recovering its principal and interest and wants to help the

debtors as much as possible and has no objection to this course suggested on behalf of the debtors.

The costs of this application will be provided for when the sale conies up for confirmation.