1974 (10) TMI 99 - SC - Indian Laws

Simple mortgagee prevails over prior charge under Transfer of Property Act

DATTATREYA SHANKER MOTE Versus ANAND CHINTAMAN DATAR

The Supreme Court upheld the High Court's decision, ruling in favor of the subsequent simple mortgagee (respondent 14). The Court found that the mortgagee ... - Issues Involved:1. Competing priorities between a charge created by a decree and a subsequent simple mortgage.2. Notice of the prior charge to the subsequent mortgagee.3. Applicability of Section 100 of the Transfer of Property Act to charges created by decree.4. Doctrine of lis pendens.5. Constructive notice under Section 3 of the Transfer of Property Act.6. Interpretation of 'property in the hands of a person' under Section 100 of the Transfer of Property Act.7. Application of equitable principles and legal doctrines to the case.Issue-wise Detailed Analysis:1. Competing Priorities Between a Charge Created by a Decree and a Subsequent Simple Mortgage:The appellants had a charge created by a compromise decree dated March 31, 1941, which was registered but not indexed correctly. The respondents subsequently mortgaged the property in question to the plaintiff without notice of the prior charge. The Court had to determine whether the charge created by the decree had priority over the subsequent simple mortgage.2. Notice of the Prior Charge to the Subsequent Mortgagee:The High Court found that the subsequent mortgagee (respondent 14) had no notice of the prior charge. The charge was not properly indexed in the Sub-Registrar's office, and the search conducted by the mortgagee did not reveal the charge. The Court held that a reasonably prudent person could not be expected to discover the charge under these circumstances.3. Applicability of Section 100 of the Transfer of Property Act to Charges Created by Decree:Section 100 of the Transfer of Property Act states that a charge does not amount to a mortgage but applies provisions of a simple mortgage to such charges. The Court concluded that a charge created by a compromise decree, which was registered, amounts to the creation of a security by act of parties within the meaning of Section 100. The proviso to Section 100 protects a transferee for consideration without notice of the charge.4. Doctrine of Lis Pendens:The High Court held that the doctrine of lis pendens did not apply because the properties charged were not the subject matter of the original suit, and no execution application was pending when the subsequent mortgages were created. The Court agreed with this reasoning, noting that the mere fact that a specific immovable property becomes the subject matter of a decree does not justify a claim for protection under Section 52.5. Constructive Notice Under Section 3 of the Transfer of Property Act:The Court examined whether the subsequent mortgagee had constructive notice of the charge. It was found that the charge was not entered in the relevant indices, and the mortgagee had conducted a reasonable search. The Court concluded that the mortgagee did not have constructive notice of the charge, as the conditions for constructive notice under Section 3 were not met.6. Interpretation of 'Property in the Hands of a Person' Under Section 100 of the Transfer of Property Act:The Court interpreted the phrase 'property in the hands of a person' to include the rights and interests vested in a transferee. The phrase does not necessarily mean physical possession but includes legal control or management of the property. The Court held that a simple mortgagee, as a transferee for consideration without notice of the charge, is protected by the proviso to Section 100.7. Application of Equitable Principles and Legal Doctrines to the Case:The Court discussed the equitable principles underlying the proviso to Section 100, which aims to protect bona fide transferees for value without notice of prior charges. The Court concluded that the proviso applies to simple mortgagees, ensuring that they are not prejudiced by undisclosed prior charges. The Court also noted that the principles of equity, justice, and good conscience support this interpretation.Conclusion:The Supreme Court upheld the High Court's decision, concluding that the subsequent simple mortgagee (respondent 14) had no notice of the prior charge and was protected by the proviso to Section 100 of the Transfer of Property Act. The appeals were dismissed, and the rights of the simple mortgagee were prioritized over the prior charge created by the decree.