TaxTMI 
TaxTMI 
1993 (1) TMI 317
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....ing the machineries and immovables belonging to Kadamba Industries were hypothecated and charged for the said debt and an equitable mortgage was also created by depositing the title deeds in respect of the land and buildings. It appears that the principal debtor and the sureties did not repay the loan in time with the result, the Corporation Bank filed a suit against Kadamba Sugar Industries (instant appellant 1) and all the sureties including the instant appellant 2, in O.S. No. 8/1981 in the Court of Civil Judge, Sirsi for the recovery of the amount towards the loan including the interest accrued thereon from time to time. The said suit at O.S. No. 8, 1981 culminated in passing of a preliminary decree dated 28-6-1986. The decretal terms are as under: "Plaintiff do recover Rs. 4,57,350.85/- ps. with costs of Rs. 71,660.50 ps. and future interest at the rate of 16.50% p.a. from the date of suit till the date of payment from defendants-l to 7. And Rs. 1,97,898.50 ps with future interest at the rate of 17% p.a. from the date of suit till the date of realisation from defendants 1 to 8. Defendants are granted six months time to deposit the amount as aforesaid. In the case, the....
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.... application at I.A. II before him by permitting defendants, 2 4 and 6 to 8 to be transposed as plaintiffs in the place of the original plaintiff-Corporation Bank to recover the amount due to them. It is this order which is challenged before this Court in this appeal. 4. I have heard the arguments of the learned Counsel appearing on either side. 5. In the light of the submissions made at the Bar on either side, the following points arise for consideration: (1) Whether defendants 2, 4 and 6 to 8 (instant respondents 1 to 5) have the right of subrogation? (2) If so whether they can enforce their right in the final decree proceedings itself or whether they have to enforce that right by filing a separate suit? (3) What order? 6. Point No. 1: It is not in dispute that defendant 1 Kadamba Sugar Industries Private Ltd. (instant appellant I) had taken the loan from the Corporation Bank. It is also not in dispute that the assets referred to in the schedule to the preliminary decree were hypothecated and that the movable properties including the buildings were mortgaged to the Bank by the Kadamba Sugar Industries by depositing of tide deeds by way of secur....
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....son acquiring the same is said to be subrogated to the rights of the mortgagee whose mortgaged has been redeemed, if the mortgagor has by a registered instrument agreed that such persons shall be so subrogated. Nothing in this section shall be deemed to confer a right of subrogation on any person unless the mortgage in respect of which the right is claimed has been redeemed in full. A perusal of Section 92 of the T.P. Act would go to show that it deals with the rights of subrogation of two classes of persons. Para 1, relates to the rights of persons referred to in Section 91 of the T.P. Act, whereas para 3 refers to persons who have advanced to a mortgagor money with which the mortgage has been redeemed. At this juncture, it is necessary to refer to the provisions of Section 91 of the T.P. Act. Section 91 of the Act reads as under: "Besides the mortgagor, any of the following persons may redeem, or institute a suit for redemption of, the mortgaged property, namely:-- (a) any person (other than the mortgagee of the interest thought to be redeemed) who has any interest in, or charge upon, the property mortgaged or in or upon the right to redeem the....
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....Section 69 of the Indian Contract Act also will have a bearing with reference to the principal relating to subrogation though, there is a vital distinction between the right of subrogation embodied in Section 92 of the T.P. Act and the right of contribution embodied in Section 69 of the Indian Contract Act. It is pointed out in the decision in Sushil v. Ram pressed into service by Sri Tarakaram, learned Counsel for the respondents that Section 69 of the Indian Contract Act confers a personal right, whereas the right of subrogation involves equitable charge on the property. It is not necessary to dilate on that respect at this stage. I have made a brief reference to Section 69 of the Indian Contract Act since the same, according to me, will have some bearing while dealing with the right of subrogation. At this juncture only, it is necessary to refer the provisions of Order 22, Rule 10 of CPC since the said provision relates to the rights of the persons mentioned therein to continue the suit. O. 22, R. 10 of CPC reads as under: "Procedure in case of assignment before final order in suit- (1) In other cases of an assignment, creation or devolution of any interest dur....
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.... Narain Khanna v. Babu Bansidhar 32 Indian Appeals 123. The learned Counsel further contended relying on the decision in Babu Lal Ray v. Bindhyachal Ry. that when the preliminary decree was passed by the Court in O.S. No. 8/1981 the mortgage merged in the decree and when the decree was satisfied the question of enforcing the charge did not arise at all and that therefore, para 1 of Section 92 of the T.P. Act cannot be called in aid at all. In other words, what Sri K.I. Bhatta, learned Counsel for the appellants submitted is that the payment of money after the decree is passed will make difference to the question relating to subrogation and the matter would have been otherwise had mortgage money been paid earlier to the filing of the decree. Support is also sought from the observations made by the Supreme Court in Prithi Nath Singh v. Suraj Ahir, [1963] 3 SCR 302. 14. In sum, the contention of the learned Counsel with reference to this aspect is the right of subrogation embodied in Section 92 of the T.P. Act is not available to respondents 1 to 5. 15. At this juncture, it is necessary to bear in mind the clear distinction between the substantive right of subrogation and the mo....
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....ft to be done in the execution department. It is true that Gaya Prasad, having made that payment (as he had the right to do), acquired under S. 74 of the Transfer of Property Act all the rights and powers of the mortgagees as such. But this would not have the effect of reviving or giving vitality to a decree which by the terms of it had become discharged. Even if that were not so, their Lordships fail to see how the respective rights of Gaya Prasad, as owner of the first mortgage and half owner of the second mortgage, and the respondent as owner of the other moiety of the second mortgage could have been worked out without additions to the decree which the Court in executing the decree had no power to make. They are, therefore, of opinion that a new decree was required for the purpose, and S. 244 of the Civil Procedure Code was not a bar to the present suit. The learned counsel for the respondent, no doubt, was conscious of this difficulty, and he contended alternatively that Gaya Prasad might have obtained the relief to which he was entitled in the suit of the second mortgagee (No. 122 of 1893). But Bansidhar and Gaya Prasad were co-plaintiffs in that suit, and it is equal....
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.... observed as follows: "When the mortgage money has been paid up, no question of appropriating the rents and profits accruing from the property towards interest or mortgage money can arise. It is clear therefore that on the payment of the mortgage money by the mortgagor to the mortgagee the mortgage comes to an end and the right of the mortgagee to remain in possession also comes to an end." A perusal of the aforesaid observation would go to show that the same does not have bearing on the facts of this case. The Supreme Court was considering the question relating to the effect on mortgage on payment of mortgage money by the mortgagor. The question relating to subrogation obviously did not arise at all, as indeed it could not have arisen. It was a case where the mortgage money was paid by the mortgagor, It is significant to notice here that in terms of S. 92 of the T.P. Act the mortgagor is excepted from the operation of the provision of S. 92 of the T.P. Act. Under these circumstances, it is clear that the decisions in Prithi Nath Singh's case also is not of any assistance to the appellants to contend that respondents 1 to 5 did not acquire the right of subrogation. ....
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....e preliminary decree obtained by the Corporation Bank. Making his submission on the above lines, the learned Counsel contended that the remedy of respondents 1 to 5 if at all is by way of a separate suit. In support of his submission, the learned counsel apart from the decisions already referred to, viz., Gopi Narain Khanna's case 32 Ind Appeal 123, Babu Lal Ray's case, Prithi Nath Singh's case [1963] 3 SCR 302, has also relied on the decisions in Mamillapalli Kotappa v. Raghavayya AIR 1927 Mad 631, Aravamudhu Ayyangar v. Abiramavalli Ayyah, AIR 1934 Madras 353; Alam AH v. Beni Charan AIR 1936 All 33, Sundarreddiar v. Subba Koundan 24 MLJ 28. The learned Counsel has also placed reliance on the observation made in Mulla's Transfer of Property Act (7th Edition) at page 588, to contend that it is well settled that a subrogee has to file a separate suit within the period of limitation prescribed under the Indian Limitation Act. The learned Counsel has also cited a decision in Monmohini Das Gupta v. Basanta Kumar Das Gupta to contend that persons whose title is contradictory to that of the original plaintiff cannot be added in his place or as parties under O. 1, R. 10, C....
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....other side touching upon the bar of inter se dispute between the person who has redeemed the mortgage and the mortgagor, in the execution department has no application to the facts of the instant case at all since according to Sri Tarakaram stage of execution did not commence in the instant case at all. The learned counsel has also placed reliance on the decision in Coorla Spinning and Weaving Mills Company Ltd. v. Vallabhdas Kallanji, in connection with the effect of payment after decree. According to the learned counsel, the effect is as that of assignment without an instrument. Reliance is also placed on certain passage particularly at pages 484 and 486 of "Law of Mortgage" by Rashbehary Ghose. 24. The learned counsel also placed reliance on the decision in C. Lakshmiah Setty v. Guruswamy Aradhya AIR 1964 Mys 157, in support of his contention that respondent 1 5 deserve to be transposed as plaintiffs. He has also placed reliance on certain other decisions which can be conveniently referred to herein below in the course of further discussion. Basing his submissions on these lines, Sri Tarakaram, learned counsel for respondents 1 to 5 contended that the order passed by the lowe....
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.... is therefore necessary to probe as to whether respondents 1 to 5 satisfy all the requirements of O. 22, R. 10, C.P.C. In the instant case, the decree that was passed by the lower Court in O.S. No. 8/81 is a preliminary decree. The suit in question was one for the recovery of the amount by the sale of the mortgage property. By the said decree, the defendants were granted six months time to deposit the amount mentioned in the decree. It further stipulates that in case, the defendants fail to deposit the amount the plaintiff-Bank is entitled to apply for a final decree for the sale of hypothecated machineries shown in Schedule 'A' and Immovable properties shown in Schedules 'C' and 'D' for realisation of the entire suit claim. The question to be considered is as to whether the payment of the amount by respondents 1 to 5 will enable them to continue the suit in FDP or whether the suit whether away on such payment. 27. In Gopi Narain Khanna's case, 32 Ind App 123, the point involved was as to whether the payment made by the puisne incumbrancer the decretal amount decreed in the suit between the mortgagor and the mortgagee would result in the transfer of r....
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....he mortgagor on the other. It is necessary to bear in mind that though a puisne mortgagee redeeming prior mortgage, a co-mortgagor redeeming the mortgage, the mortgagor's surety redeeming the mortgagee and the purchaser of equity redemption are all the persons who are entitled to the right of legal subrogation covered by para 1 of S. 92 of the T.P. Act and though their rights are similar in certain respects, it may not be correct to hold that their rights are the same. It is significant to notice here that the surety under S. 140 of the Contract Act upon payment or performance is invested with all rights of the creditor as against the principal debtor. I will deal with this aspect in greater detail little later. I have referred to the aforesaid aspects at this stage only to point out that as to how the sum total of the facts referred to hereinabove are clearly distinguishable from the facts in Gopi Narain Khanna's case. 29. In Babulal Ray's case, the question for consideration was as to whether a puisne mortgagee paying of a decree on a prior mortgage had the right of subrogation and within what time he is required to bring the suit to enforce his right. It is held t....
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....n however, seem to me hardly to the point in the present instance. At the time the transposition complained of was allowed by the District Judge, it is clear that the mortgage suit was still pending. There was no completed decree in the case, and the preliminary decree might be described as an inchoate one of Digamber v. Ganpat 1916 12 NLR 50 : 33 IC 496. The Privy Council decision quoted above was, needless to say, passed before the present Civil Procedure Code was enacted. and the considerations, on which their Lordships relied in coming to the decision they did in that case seem to me no longer to hold good. With all defence it would appear to me that the Judges of the Madras High Court, who decided the case just quoted, ignored the fact of the all important change of procedure which had been introduced as regards the decree final in mortgage suits by the new Civil Procedure Code. The Privy Council case quoted is, in my opinion, inapposite for the simple reason that their Lordships only held therein that the subsequent mortgagees could not be substituted as decree-holders for the purpose of carrying out the execution of the decree. In the present case, the question is whether....
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....ings, it is observed as under: "Form 9, Appendix D to Schedule I, C.P.C. was not used possibly because Maroti the subsequent mortgagee had not asked for the determination of the sum due in respect of his mortgage." In the context of the aforesaid observations it appears to me that the submission made by the learned counsel for the appellants with reference to Form of decree used in the said case is not tenable. In the said case, it is further observed in para 2 therein as under: "The appellant's counsel relies on the decision of the Privy Council in Gopi Narain v. Bansidhar (1905) 27 All 325 : 32 IA 123 : 8 Sar 799 (PC), Their Lordships there held that, on payment of the sum due into Court and acceptance of that sum by the plaintiffs, the decree was spent and became discharged and satisfied. They added: "There was therefore nothing left to be done in the execution department." But, as remarked by Findlay, JC in Balaji v. Vallabhdas this decision was passed at a time when a mortgage suit was decided by what is now the preliminary decree, and the subsequent procedure was taken in the execution department. Under the present law the Court has to pass a final decre....
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.... 353, their Lordships of the Madras High Court were considering the impact of S. 52 and 100 of the T.P. Act (1882). Among other things, it is pointed out that when the decree was paid off the question of execution does not arise, A careful perusal of the facts of the said case, would indeed go to show that a question like the one which has arisen in the instant case had not arisen for consideration in the said case. The question as to what would happen if the amount is paid after the preliminary decree and before the final decree particularly by those who are entitled to the right of subrogation was not a point which fell for consideration or which was considered. In Sundar Reddiar v. Subbiah Koundan,24 Mad LJ 28, the Madras High Court has held, among other things, as under: "When the plaintiff instituted O.S. No. 412 of 08 he had not discharged Subba Reddi's mortgage. He had then a valid and enforceable mortgage only to the extent of the consideration paid by him for his mortgage bond. When he subsequently paid off Subba Reddi's mortgage he became entitled under S. 74 of the Transfer of Property Act to the rights of Subba Reddi under his mortgage. His cause of act....
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.... which were hypothecated and mortgaged. It is significant to notice that in the objection filed to I.A. No. I on behalf of defendants 1 and 3, which is signed by defendant 3, it is stated that they are not aware of the fact that defendants 2 to 8 stood sureties and guaranteed repayment of loan contracted. I have, therefore, no hesitation to hold that there is no specific denial by defendants 1 to 3 in this behalf. Further, at the time of hearing of this appeal, no arguments were advanced in this behalf. Hence, there should not he any difficulty in holding that defendants 2 to 8 are the sureties to the mortgage debt. It is further seen that the preliminary decree was passed on 29-6-1986. The contents of the decree relevant for consideration are already culled out earlier hereinabove. It is not in dispute that an application for final decree was filed by the Corporation. It is also not disputed before me that defendants 2, 4, 6, 7 and 8 (respondents 1 to 5) paid the amount of Rs. 7.5 lakhs to the plaintiff-Corporation Rank on 14-12-1988, which the Bank accepted towards full discharge. Is is also seen from the order of the lower Court that on 31-7-1989 the learned counsel for plaintif....
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....a sum equal to five per cent of the amount of the purchase-money paid into Court by the purchaser. Where such deposit has been made, the purchaser shall be entitled to an order for repayment of the amount of the purchase-money paid into Court by him, together with a sum equal to five per cent, thereof. (3) Where payment in accordance with sub-rule (1) has not been made, the Court shall, on application made by the plaintiff in this behalf, pass a final decree directing that the mortgaged property or a sufficient part thereof be sold, and that the proceeds of the sale be dealt with in the manner provided in sub-rule (1) of R. 4." From what is stated hereinabove, it is clear that the suit at O.S. No. 8/1981 did not reach its terminal point. It is well settled that a mortgage suit is deemed to be pending till a final decree is passed. As pointed out earlier, the amount under the preliminary decree was paid by the sureties, after the preliminary decree was passed, and during the pendency of the suit. If that be so, whether they are not entitled to continue the suit from the date of the payment of the amount. 38. It is necessary to remember here that the surety st....
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....e as to how the word 'invest' in S. 140 of the Contract Act would make all the difference to the issue in question. It is therefore clear that when the sureties in this case (respondents 1 to 5) paid the amount "during the pendency of the suit", there is by operation of law an assignment in their favour. I have already pointed out earlier that the mortgage debt had not completely ripened into a complete decree. Under these circumstances, I am of the view that there is an assignment by operation of law. The provisions of O. 22, R. 10, C.P.C. are already referred to. Under the said provision assignment is one of the modes by which the assignee or transferee gets the right to continue the suit. There is no reason as to why a restricted meaning should be given to the word "assignment" employed in O. 22, R. 10, C.P.C. if on a proper reasoning it can be held that there is assignment by operation of law. I would observe that the observations made in Balaji's case the observations made in Yamunabai's case will apply on all force to a case of a surety standing in the situation like the one in hand though it is not necessary for this Court to decide as to whether the said log....