Kashinath Bhaskar Datar vs Bhaskar Vishweshwar Karve

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 140 of 1951

Decision Date: 22 February 1952

Coram: Vivian Bose, Saiyid Fazal Ali

In the matter titled Kashinath Bhaskar Datar versus Bhaskar Vishweshwar Karve, decided on 22 February 1952, the Supreme Court of India delivered its judgment through a bench composed of Justice Vivian Bose and Justice Saiyid Fazal Ali. The citation for this decision is reported as 1952 AIR 153 and 1952 SCR 491. The dispute concerned the Indian Registration Act of 1908, specifically section 17(1)(b), which deals with documents that vary the terms of a previous instrument by limiting or extinguishing an “interest” in immoveable property, and also raised the question of whether the equitable doctrine of part performance applied. The factual background involved a suit to recover money on the basis of two mortgages. The defendant argued that the mortgages had been satisfied because the assignor of those mortgages to the plaintiff had executed an unregistered agreement in the defendant’s favour that purported to demonstrate full satisfaction. The core issue before the Court was whether this agreement required registration under the Act and, if registration were required, whether the document could be employed for the collateral purpose of proving that the mortgage debt had been fully paid. The agreement, as recorded, contained several substantive provisions: first, a declaration that the parties were settling and formulating new terms while confirming certain previously declared terms; second, an acknowledgment that although the mortgage deeds mentioned an interest rate of fourteen annas, the parties had mutually agreed that the actual rate would be eight annas; third, an arrangement that a lump-sum payment of Rs 1,800 would be deemed full settlement, but because the payor lacked sufficient funds, a monthly instalment of Rs 80 was to be paid; fourth, a statement that no interest of any kind remained claimable and that, accordingly, the entire principal was understood to be fully discharged; and fifth, an offer that the agreement could be prepared on stamp paper and, if the party so desired or if necessity arose, it could be registered. The Court held that the agreement was not exempt from registration because it itself limited and extinguished an interest in immoveable property, thereby falling squarely within the meaning of section 17(1)(b) of the Indian Registration Act, and it was not covered by the exemption in section 17(2)(v). Moreover, the Court concluded that the document could not be invoked under the proviso to section 49 of the Act, as the suit did not seek specific performance, no question of part performance existed, and the document was not being used for a collateral transaction but rather to prove the very agreement that it created. The judgment also referred to earlier authorities, namely U. Po Thin v. Official Assignee (AIR 1938 Rang 285), Tikaram v. Deputy Commissioner of Bara Banki (26 IA 97), and Mahim Chandra Dey v. Ram Dayal Dutta (AIR 1926 Cal 170).

The Court recorded that the present appeal was filed under Civil Appeal No. 140 of 1951, arising out of a judgment and decree dated 22 September 1947 of the High Court of Judicature at Bombay, rendered by Justices Sen and Bavdekar in Appeal No. 41 of 1943. That appeal, in turn, stemmed from a decree dated 4 September 1942 issued by the Court of the First Class Subordinate Judge at Poona in Civil Suit No. 808 of 1941. The appellant was represented by counsel Roshan Lal and B.S. Shastri, while the respondent was represented by counsel Hardyal Hardy. The judgment of the appellate court was delivered on 22 February 1952 by Justice Bose. The matter before the Court concerned a defendant’s challenge to a decree that had been entered in favour of a plaintiff on the basis of two mortgages. The first mortgage had been executed on 7 April 1931 by the defendant together with his father and secured a sum of rupees 9,500. The second mortgage had been executed on 17 December 1935 by the defendant alone and secured a sum of rupees 3,500. Both mortgages dealt with the same immovable property and were made in favour of one Narayan Gopal Sathe. On 28 March 1940 the mortgagee, Narayan Gopal Sathe, assigned both mortgages to the plaintiff, who subsequently sued on the assigned securities. The defendant’s defence was that the two mortgages had been fully satisfied. To prove satisfaction, the defendant relied principally on an agreement dated 17 October 1937, signed by the mortgagee in the defendant’s favour. Both the trial court and the High Court on appeal excluded that agreement from evidence on the ground that it required registration under the applicable registration statutes. Because the agreement was excluded, both courts made a concurrent finding of fact that the remaining evidence was insufficient to establish satisfaction, and consequently they rejected the defence and awarded the plaintiff the full claim of rupees 20,774-3-0. The only questions that the Court needed to consider were (1) whether the 1937 agreement was required to be registered, and (2) assuming that registration was required, whether the document could nevertheless be admitted for a collateral purpose – specifically, to demonstrate that the mortgage amounts had been fully paid.

The Court then explained the circumstances in which the contested agreement had been prepared. Narayan Gopal Sathe, the mortgagee, had been appointed as Receiver of two cinemas in Poona, and the appointing court had mandated that he furnish a surety of rupees 10,000. The defendant offered to provide that surety, and as consideration for undertaking this responsibility the mortgagee executed the 1937 agreement in the defendant’s favour. The relevant portions of that document described the mortgages as “transactions of give and take.” The agreement began by stating, “It is extremely necessary to explain beforehand the transaction of give and take outstanding between both of us …,” and continued, “Whereas two transactions have been done between you and me … therefore you have agreed to stand surety … and only for that reason I am executing this agreement and giving it to you in writing.” These passages were highlighted by the Court as the operative extracts that the defendant sought to rely upon to prove that the mortgage sums had been completely discharged.

In the agreement the mortgagor stated, “thereunder I am settling and formulating some new terms and I am confirming some very terms which were declared before.” Clause 5 of the document then dealt with the interest rate applicable to the two mortgage deeds. Although the deeds originally specified an interest rate of fourteen annas per cent per month, the clause declared that the parties had mutually agreed that the actual rate to be received would be eight annas per cent per month, and that this lower rate had already been applied and would continue to be applied in the future. Clause 6 concerned the second mortgage deed. It provided that if the mortgagor were able to pay a lump sum of Rs 1,800, the transaction of give-and-take between the parties would be considered fully completed and fully paid. Because the mortgagor lacked sufficient funds to make the lump-sum payment, the agreement stipulated that the mortgagor would instead pay Rs 80 per month, thereby satisfying the obligation in full. The clause further noted that, in accordance with the agreement reached after the second mortgage deed, all related documents, papers and written receipts concerning interest paid by the mortgagor on the first transaction dated 7-4-31 were retained by the mortgagee. Paragraph 8 affirmed that no interest of any kind remained claimable by the mortgagee from the mortgagor from the date of the suretyship onward, and that the principal had been fully discharged. Paragraph 10 added that, should the mortgagor desire or require it, the agreement could be provided on stamped paper and be registered at any time.

The Court observed that the document operated as a limitation and extinguishment of interests in immoveable property within the meaning of section 17(1)(b) of the Indian Registration Act. The Court specifically pointed to clause 4, which states, “I am settling and formulating some new terms,” indicating that the changes were intended to be operative at the present time rather than merely reciting past arrangements. The Court further noted that the clause continued, “and I am confirming some very terms which were declared before,” thereby acknowledging the affirmation of earlier terms while introducing new ones. Among the new terms, the reduction of the interest rate from fourteen annas per cent per month to eight annas per cent per month was highlighted. The Court recognized that, although only eight annas had actually been paid under the original rate, the essential issue was not the amount historically paid but the rate that the mortgagee was entitled to enforce under the bond. Consequently, the Court concluded that the agreement itself effected the alteration of the interest rate, and that this alteration constituted a substantive change to the mortgagee’s interest in the property, thereby limiting the interest in immoveable property as contemplated by the statute.

The court observed that, although only eight annas had actually been paid under clause five, the amount paid was of little significance because the matter before it was not the sum that had been disbursed but the sum that was legally due and the extent of the mortgagee’s right to enforce the bond. It was clear from clause four that the agreement embodied in the instrument itself effected the alteration of the terms, and consequently the instrument was the source that brought the altered terms into existence. The next issue for determination was whether the instrument limited an interest in immovable property. The court held that it did. In reaching this conclusion, the court concurred with the learned Rangoon judges in U. Po Thin v. Official Assignee (1) that a part of the “interest” a mortgagee possesses in mortgaged property consists of the right to receive interest at a stipulated rate when the document provides for such interest. If that rate is varied, whether to the mortgagee’s advantage or otherwise, the mortgagee’s “interest” in the property is affected. When a subsequent agreement substitutes a higher rate, the difference creates a fresh interest that did not previously exist; when the rate is lowered, the mortgagee’s original interest is correspondingly limited. The court referred to the decision of the Privy Council in Tika Ram v. Deputy Commissioner of Bara Banki (2), where the mortgagors gave the mortgagees an unregistered rukka or written promise at the same time as the registered mortgage, promising to pay an additional six per cent per annum over the fifteen per cent already stipulated. Their Lordships held that such rukkas could not be used to fetter the equity of redemption. Although the Privy Council did not decide whether the personal covenant in the rukkas could be enforced, because that point was not raised in the pleadings, the court noted that the words “an unregistered instrument which the statute declares is not to affect the mortgaged property” can only refer to the Registration Act.

The counsel for the defendant relied upon the decisions in Mahim Chandra Dey v. Ram Dayal Dutta (1), Ram Ranjan v. Jayanti Lal (2) and Collector of Etah v. Kishori Lal (3), arguing that a mortgagee is always free to release or remit part of the debt and that such a release does not limit or extinguish an interest in immovable property any more than a receipt acknowledging payment of the whole or part of the money. While the effect of a payment or a release may be to extinguish the mortgage, the court held that those acts, by themselves, do not limit the interest. Extending this line of argument, the learned counsel for the defendant contended that when a mortgagee agrees to accept a lower rate of interest, he merely releases the portion of the debt corresponding to the difference in rate. The court disagreed with this submission, distinguishing a receipt from a remission or release, and emphasizing that the extinguishment or diminution of liability arises from the agreement itself, not from any external document.

In this case the Court did not accept the argument that a receipt, a remission, or a release are equivalent. It explained that a receipt is merely evidence of payment and is not itself a payment; therefore a receipt does not extinguish the mortgage or limit the mortgagor’s liability. Extinguishment or reduction of liability occurs only when the payment of money is made, and the receipt merely records that fact. In contrast, a release operates differently. The Court held that the extinguishment or diminution of liability is effected by the release agreement itself, not by any external document. If the release agreement is oral, it is caught by proviso 4 to section 92 of the Evidence Act because such an oral agreement rescinds or modifies the mortgage contract. If the agreement is in writing, it is subject to section 17(1)(b) of the Registration Act, which provides that a written instrument that limits or extinguishes the mortgage liability is itself the operative document. The Court further observed that when the mortgagor pays money due under the mortgage, whether in whole or in part, he is performing the terms of the original bond and is not altering the bond. Even though such payment may limit or extinguish the mortgagee’s interest, that result follows from the bond’s own terms, not from a new agreement intended to modify or terminate the interest. The Court articulated a simple test, citing earlier cases, to determine whether a subsequent agreement has modified the mortgage: examine whether, after the agreement, the mortgagee can still enforce the original bond. If the mortgagee cannot enforce the bond, the subsequent undertaking has clearly modified the contract, and if that modification limits or extinguishes the mortgagee’s interest, the agreement is struck down under either section 17(1)(b) of the Registration Act or proviso 4 of section 92 of the Evidence Act. However, a mere payment of money made under the bond does not constitute a new agreement. The mortgage contract itself stipulates that the mortgagor must repay the borrowed sum, and upon repayment the mortgagee’s interest becomes limited to the amount repaid, or is wholly extinguished if the whole debt is discharged. The Court noted that such repayment does not need to be documented by a written or registered instrument; the contractual terms operate automatically. Clause (xi) to section 17(2) of the Registration Act reflects this principle, distinguishing between a document whose terms themselves extinguish the mortgage and a document that merely evidences an external fact that leads to extinguishment. Applying the test to the present facts, the Court observed that the mortgage loans stipulate an interest rate of fourteen annas per cent per month, but the mortgagor claims he cannot be charged that rate because a later agreement supposedly reduced the rate to eight annas.

In this case the Court observed that the later agreement, irrespective of whether it was described as a release or a remission, altered the original bond by reducing the mortgagor’s liability to eight annas per cent. The terminology used for the agreement was considered irrelevant, as was the question of whether the mortgagee possessed a right to remit or release part of the debt. What mattered, the Court held, was that the mortgagor’s assent to the reduced rate constituted a modification of the original contract and, by the terms of that modification, either limited or extinguished the mortgagee’s interest. The Court explained that even if the mortgagor were to pay the entire interest at the reduced rate together with the whole principal, such payments would not, by themselves, discharge the mortgage unless the subsequent agreement were invoked, because the original bond would still entitle the mortgagee to a higher rate of interest. Thus, the agreement—not the mere payment at the reduced rate—was the instrument that limited the mortgagee’s interest and brought about the extinguishment of the mortgage. The Court then turned to clause (6) of the agreement, which recited a prior arrangement in which the mortgagor had promised to pay a lump sum of Rs 1,800, apparently to discharge the mortgage. The Court noted that if that earlier arrangement were intended to extinguish the mortgage, it would fall within the prohibitions of section 92, proviso 4 of the Evidence Act or section 17(1)(b) of the Registration Act. However, the present document superseded that earlier arrangement by substituting a third agreement, whereby the Rs 1,800 would be paid in instalments of Rs 80 per month, and this instalment scheme was expressly stated to constitute “payment in full” and to extinguish the mortgage. Clause (8) was found to merely refer back to clauses (5) and (6), stating that no interest of any kind remained claimable and that the whole principal had been fully paid. Having already examined clauses (5) and (6), the Court concluded that clause (8) added nothing new; it simply reiterated that, because of the earlier clauses, neither interest nor principal could now be claimed, and consequently the mortgage was extinguished—not by the act of payment under the original bond, but by the fresh agreement. Finally, the Court considered clause (10), which had been argued to bring the matter within section 17(2)(v) of the Registration Act because it purported to give the defendant the right to obtain another document effecting extinguishment. The Court disagreed, observing that subsection (2)(v) requires that a document “shall not of itself create, declare, assign, limit, extinguish any right” and merely create a right to obtain another document. Since the present document itself limits and extinguishes interests in the mortgaged property, it does not fall within that exception. Moreover, the document confers an additional right only in certain contingencies—“if you so wish” or “if necessity may arise”—and its primary purpose is to cause an immediate alteration of the terms of the two bonds and, by that alteration, to bring about an immediate extinguishment and limitation of the mortgagee’s interest.

In considering clause (10) the Court examined whether the document falls within the exemption in section 17(2)(v) of the Registration Act. That provision states that a document shall not of itself create, declare, assign, limit or extinguish any right, and that it shall merely create a right to obtain another document. The emphasis is on the words “itself” and “merely”. The Court accepted the observation of Sir Dinsha Mulla at page 86 of the fifth edition of his Indian Registration Act that if a document itself creates an interest in immovable property, the mere anticipation of a further document does not relieve it from registration under the clause. The present document, as the Court found, does in fact limit and extinguish certain interests in the mortgaged property; therefore it is not a document that only creates a contingent right to a later instrument. The additional clause merely provides a further right that may be exercised “if you so wish” or “if necessity may arise”. Its purpose is to bring about an immediate alteration of the terms of the two bonds and, by that alteration, an immediate extinguishment and limitation of the mortgages. Unlike an agreement to sell or a future transfer, which merely embodies a present intention to execute a later deed, the present instrument does not postpone the effect of extinguishment to a future date. It does not state that its operation will be deferred; instead it purports to limit and extinguish the liabilities at once, adding only that, should a registered agreement become necessary, the parties may repeat the present agreement in such a document. By implication, if no further registration is required, the instrument itself is effective. Consequently, the Court concluded that the document cannot be said to merely create a right to obtain another document and therefore does not fall within the exemption of section 17(2)(v). The Court further noted that deeming the document ineffective would leave the mortgagor without an enforceable agreement, potentially giving rise to a claim for specific performance, but such speculation was unnecessary because the document is not exempt from registration. The Court then turned to the question of whether the document could be admitted as evidence under the proviso to section 49 of the Registration Act and indicated that its position on that issue was clear.

The Court held that the document could not be admitted as evidence. It observed that the present proceeding was neither a suit for specific performance nor did any issue of part performance under section 53A of the Transfer of Property Act arise. The Court then considered whether the document was being relied upon to prove a collateral transaction that would not have to be evidenced by a registered instrument. It questioned what transaction was sought to be proved, pointing out that the very agreement embodied in the document was not merely evidenced by the document but was created by the document’s own force. Consequently, the Court concluded that the agreement was not a collateral transaction; even if it were, a registered instrument would still be required for the reasons already explained. Although section 53A of the Transfer of Property Act had been mentioned, the Court found that it did not apply because the agreement in question was not a transfer of property. The Court noted that the document contained no words of conveyance and that the mortgagor was not remaining in possession under part performance of any contract. Both mortgages involved were simple mortgages, and the right of possession never belonged to the mortgagee. The Court explained that the mortgagee might later acquire possession by legal process if a decree were obtained and the property purchased at sale, but alternatively a stranger could purchase the property, in which case the right of possession would pass to that stranger. Importantly, the mortgagee had no right to possession at the date of the agreement, and lacking such a right, could not have transferred it. Accordingly, the mortgagor’s possession could not be linked to the agreement. On these grounds, the appeal was dismissed with costs. The appeal was therefore dismissed. The agents appearing for the parties were identified as Ganpat Rai for the appellant and A.C. Dave for the respondent.