Raja Kamakshyanarayan Singh Bahadur vs Chohan Ram And Another
Rewritten Version Notice: This is a rewritten version of the original judgment.
Court: Supreme Court of India
Case Number: Civil Appeal No. 73 of 1950
Decision Date: 23 October, 1952
Coram: Natwarlal H. Bhagwati, Mehr Chand Mahajan, N. Chandrasekhara Aiyar
The case is titled Raja Kamakshyanarayan Singh Bahadur versus Chohan Ram and Another, and the decision was delivered on the twenty-third day of October, 1952. The matter was heard before the Supreme Court of India. The report of the judgment was prepared by Natwarlal H. Bhagwati. The bench that heard the appeal comprised Justice Natwarlal H. Bhagwati, Justice Mehr Chand Mahajan, and Justice N. Chandrasekhara Aiyar. The petitioner was Raja Kamakshyanarayan Singh Bahadur and the respondents were Chohan Ram and another individual. The judgment date is recorded as 23/10/1952. The bench is identified in the report as Bhagwati, Natwarlal H., with the additional naming of Justices Mahajan, Mehr Chand, and Aiyar, N. Chandrasekhara. The citation for this decision appears in the 1952 All India Reporter at page 401 and also in the 1953 Supreme Court Reports at page 108. The case is indexed under the citation number F 1967 SC1390 (8). The legal provision that forms the basis of the dispute is found in the Transfer of Property Act, 1882, specifically sections 66 and 65-A, dealing respectively with mortgagor possession, the power to lease, the law as it stood before the 1929 amendment, and the validity of a permanent lease granted by a mortgagor.
The headnote explains that, under the legal position that existed before the enactment of section 65-A of the Transfer of Property Act by the Act of 1929, the key question was whether a mortgagor who remained in possession of the mortgaged land possessed the authority to lease that property. The determination of this authority required reference to the mortgagor’s power as a bailiff or agent of the mortgagee when dealing with the property in the ordinary course of its management. The analysis was required to be based on general principles rather than on distinctions between an English mortgage and a simple mortgage, or on considerations related to section 66 of the Transfer of Property Act. The correct position, as stated, was that a mortgagor in possession may create a lease that conforms to ordinary usage and management practices; for example, the mortgagor may grant a tenancy from year to year for agricultural land or a month-to-month tenancy for a house. However, the mortgagor is not authorized to grant a lease that contains unusual terms, alters the character of the land, or authorises a use that differs from the way the mortgagor himself used the property before granting the mortgage. The lessee, if he wishes to challenge the claim of the mortgagee, must demonstrate that the lease was granted on ordinary terms and in the ordinary course of management. The headnote further notes that where a mortgagor granted a permanent lease of the mortgaged property in 1925 and the High Court upheld that lease against a purchaser who acquired the property through a sale in execution of a decree obtained by the mortgagee, the ground relied upon was that the lease did not impair the mortgagee’s security. The Court held that the lease was not binding on the mortgagee or the purchaser at auction because it was not a lease granted in the ordinary course of management, even though it did not prejudice the mortgagee’s security. The decision approved the earlier authority of Madan Mohan Singh v. Raj Kishore Kumari (1916) 21 C.W.N. 88, dissented from the view expressed in Balmukund v. Motilal (1915) 20 C.W.N. 350, and explained the principle set out in Banee Prasad v. Beet Bhunjun Singh (1868) 10 W.R. 325.
The judgment section begins by identifying the matter as a civil appellate jurisdiction case, specifically Civil Appeal No. 73 of 1950. The appeal was filed against the judgment and decree dated the twenty-sixth of January, 1944, which had been rendered by the High Court.
The appeal was heard before the Patna High Court by Chief Justice Fazl Ali and Justice Chatterji, challenging Original Decree No. 4 of 1941 that had arisen from the judgment and decree dated 20 September 1940 of the Additional Subordinate Judge of Hazaribagh in Title Suit No. 45 of 1939. Counsel for the appellant was S. N. Mukherjee, while counsel for the respondents were Gangacharan Mukherjee and A. N. Sinha. The judgment was delivered on 23 October 1952 by Justice Bhagwati.
Justice Bhagwati framed the issue for determination as follows: the appeal required an answer to the question whether, before the Transfer of Property Act was amended by section 65-A in 1929, a mortgagor who was in possession of the mortgaged land possessed the authority to execute a permanent lease of that land in a manner that would bind the mortgagee.
The factual background began with Raja Nilkanth Narain Singh, who owned the estate known as Gadi Sirampur. On 1 August 1914 he executed a simple mortgage of Gadi Sirampur in favour of the Chota Nagpur Banking Association Limited. In 1920 the bank instituted a suit against Raja Singh’s son, Wazir Narain Singh, seeking enforcement of the mortgage security. The bank obtained a mortgage decree on 29 November 1921 and, under that decree, purchased a one-third share in Gadi Sirampur on 28 October 1922.
Proceedings were subsequently initiated to set aside the bank’s sale. While those proceedings were pending, on 5 November 1925 Wazir Narain Singh granted a permanent lease of four villages—Nawadih, Koldih, Pandna and Chihutia—by way of a registered patta to Hiraman Ram, who acted as manager and karta of his joint Hindu family. The lease was taken in the names of Hiraman Ram and his son Chohan Ram.
Later, the bank and Wazir Narain Singh reached an agreement stipulating that, if Wazir Narain Singh paid the bank the sum of Rs 1,10,631-4-0 on or before 16 August 1926, the earlier sale would be set aside. Accordingly, on 14 August 1926 Wazir Narain Singh executed a new mortgage of Gadi Sirampur in favour of the Manager of the Court of Wards, who was then overseeing the plaintiff’s estate during his minority. This mortgage secured repayment of Rs 1,47,000, satisfied the bank’s outstanding dues, and resulted in the cancellation of the sale previously effected in the bank’s favour.
Subsequently, the plaintiff, acting through the Manager of the Court of Wards, instituted a suit on 4 February 1929 to enforce the 1926 mortgage. In that suit the plaintiff named as co-defendants Hiraman Ram (identified as defendant 20) and his father Dilo Ram (identified as defendant 19). A final decree for sale was rendered on 18 September 1931. The plaintiff acquired Gadi Sirampur at the auction held under that decree on 6 April 1935, and possession was formally delivered to the plaintiff by the court on 16 February 1936.
Although Dilo Ram died after the mortgage decree, Hiraman Ram and his son Chohan Ram continued to occupy the disputed villages. Consequently, the plaintiff filed a further suit on 16 …
In November 1939 a suit was instituted before the Additional Subordinate Judge of Hazaribagh, the suit from which the present appeal originates. The suit was brought by the plaintiff against two defendants, identified as Hiraman Ram (defendant 1) and Chohan Ram (defendant 2), seeking khas possession of the villages that were the subject of the dispute. The plaintiff argued that he had stepped into the shoes of the Bank, that the decree issued in the earlier mortgage suit bound the defendants, that he had acquired the property at the auction held under that mortgage decree, and that the Patta, being a grant made after the plaintiff’s mortgage, therefore terminated and gave him a right to recover khas possession from the defendants.
Defendant 2 filed a written statement in which he contested every allegation made by the plaintiff. He denied that the plaintiff had been subrogated to the position of the Bank. He further asserted that the decree from the mortgage suit could not bind him because he had not been a party to that earlier proceeding. In addition, he argued that the Patta could not be extinguished by the auction sale of the mortgaged property. Defendant 1 also filed a separate written statement. He denied that he was the Manager and Karta of the joint Hindu family concerned. Moreover, he claimed that a partition of the joint family had taken place within a year after the family members had taken possession of the properties in dispute, and that at that partition the properties had been allotted to defendant 2.
The trial court held that the plaintiff was indeed subrogated to the position of the Bank. It also found that defendant 1 was the Manager and Karta of the joint family and that defendant 2 was fully represented in the mortgage suit. Accordingly, the trial court concluded that the decree in the mortgage suit bound both defendants and that the plaintiff was entitled to recover possession of the disputed villages as well as mesne profits from them. Both defendants appealed this decree to the Patna High Court. The High Court rejected the plaintiff’s contention that constructive res judicata applied. It then turned to the further issue raised by the plaintiff, namely whether Wazir Narayan Singh, after creating the mortgage in favour of the Bank, possessed any authority to grant the permanent lease that was the subject of the dispute.
After examining all the authorities cited before it, the High Court determined that the question of Wazir Narayan Singh’s power to grant such a lease had to be decided in reference to section 66 of the Transfer of Property Act. The Court identified the crucial test as whether the lease had rendered the mortgagee’s security insufficient. Although the plaintiff’s plaint did not allege that the defendants’ lease had the effect of diminishing the Bank’s security, the High Court nonetheless examined this point. It performed a calculation of the relevant figures and concluded that the lease of the disputed villages in favour of the defendants did not, in any manner, render the Bank’s security insufficient. Consequently, the High Court held that the
The High Court concluded that the lease remained valid, was not disturbed by the plaintiff’s mortgage, the decree, or the execution sale issued under that decree, and consequently dismissed the plaintiff’s suit. The plaintiff subsequently secured leave to appeal the High Court’s decision to the Privy Council, and the appeal was formally admitted on 9 January 1946. Both the trial court and the appellate court held that the plaintiff stood in the position of the bank by virtue of subrogation, and they also determined that Defendant 2 had been adequately represented in the mortgage proceedings. These determinations were not contested before this Court, leaving only a single issue for our consideration: whether Wazir Narayan Singh possessed the authority to grant a permanent lease to the defendants that could bind the plaintiff.
The inquiry into Wazir Narayan Singh’s power must be resolved according to the law that existed before the enactment of section 65-A of the Transfer of Property Act by Act XX of 1929. At the time, the mortgagor’s authority to lease mortgaged land was the subject of divergent judicial opinions. Some authorities, relying on the English common-law rule that a mortgagor lacked any leasing power, held that a mortgagor could not, without the mortgagee’s consent, execute a lease capable of binding the mortgagee. Other decisions drew a distinction between English mortgages and Indian mortgages, reasoning that the Indian mortgagor retained ownership and, while in possession, could prima facie exercise all ownership rights, including the power to grant leases of the mortgaged property. The matter was ultimately decided by reference to section 66 of the Transfer of Property Act, which permits a mortgagor to grant leases so long as they are not wasteful of the mortgagee’s security. This principle was articulated by Jenkins C.J. in Balmukund v. Motilal, drawing from the earlier case of Banee Pershad v. Beet Bhunjun Singh. A contrary line of reasoning, however, was advanced in later cases that limited the mortgagor’s power to leases conforming to ordinary management practices and prohibited leases on unusual terms or for purposes different from those the mortgagor himself had previously employed; this rule was established by Sir Ashutosh Mukherjee J. in Madan Mohan Singh v. Raj Kishore Kumari and subsequently followed by several courts. The resulting conflict of authorities prompted the legislature to enact section 65-A, which expressly addressed the mortgagor’s power to lease while lawfully in possession of the mortgaged property. An elementary rule noted in the commentary on the Act states that, although a mortgagor may assign the mortgaged premises, the assignee takes the assignment subject to existing encumbrances, and any interest created by the mortgagor after the mortgage will be destroyed if the property is sold or foreclosed by the mortgagee (Ghosh Mortgage, Vol. I, p. 212; Corbett v. Plowden, 1915 20 C.W.N. 350).
In this passage the Court explained that when a mortgaged property is either sold or foreclosed by the mortgagee, any interest that the mortgagor created after the mortgage was executed would be destroyed. This principle was cited from Ghosh Mortgage, Volume I, page 212, and was illustrated by a quotation from Lord Selborne in the case of Corbett v. Plowden (1884) 25 Ch. D. 678 at page 681. Lord Selborne observed that if a mortgandor who remained in possession granted a lease without the consent of the mortgagee—whether that lease was an equitable lease created by agreement or a legal lease effected by actual demission—the lessee would obtain a precarious title. The lease would be valid between the lessee and the mortgagor who granted it, but the mortgagee could still assert his paramount title against both parties. The Court clarified, however, that this did not mean that a lessee obtaining a lease from the mortgagor after the mortgage acquired no interest at all in the demised property. Such a lessee did obtain an interest in the equity of redemption and could claim the right to redeem the mortgage. Nevertheless, that right of redemption did not automatically render the lease operative against the mortgagee. The Court therefore situated the correct position between the two extremes, stating that the mortgagee was not ordinarily bound by the mortgagor’s acts concerning the mortgaged land, unless certain conditions were satisfied.
The Court further observed that if the mortgagee took his security with knowledge of the intended use of the land and allowed the mortgagor to remain in possession, the mortgagee would be bound by the acts performed by the mortgagor in accordance with the usual course of management. This view was supported by the observations of Sir James Parke in Pope v. Briggs (1829) 9 Barn. and Cres. 245 at page 258, wherein the mortgagor could be regarded as acting in the capacity of a bailiff or agent for the mortgagee. Consequently, when the mortgagor, after granting the mortgage, dealt with the property in the ordinary course of management, the interest created by him could be deemed operative against the mortgagee. An illustration of this principle was found in the case of Moreland v. Richardson, where a mortgage of a burial ground was examined. The Court held that because the normal purpose of a burial ground was to grant burial rights, and because the mortgagor continued to hold the land in that customary manner, the mortgagee could not disturb the graves of those already interred. Thus, the mortgagor was permitted, in the usual course of management, to create a tenancy from year to year in agricultural land or from month to month in houses, and such arrangements would be effective against the mortgagee.
In situations where the mortgaged property consists of houses, the mortgagor may let the premises from month to month, and any dealings that the mortgagor conducts in the ordinary course of managing the mortgaged property are deemed to operate against the mortgagee. The Court, quoting Mukherjee J in Madan Mohan Singh v. Raj Kishore Kumari, observed that the extent to which a mortgagor possesses broader powers of leasing is highly doubtful. The only reported authority that appears to recognise such a wider power is Banee Pershad v. Beet Bhunjun Singh (1857 24 Beav. 33), although the report in Sutherland is extremely scant and the judgment itself provides no clear, authoritative statement. The report merely suggests that a mortgagor is not barred from managing the property after granting a mortgage, and that, provided nothing occurs which diminishes the value of the mortgagee’s security, the mortgagor does not exceed his authority by granting a lease for a definite term. The learned judges added, perhaps unnecessarily, that their decision must be confined to the specific facts before them, as noted in Ghosh Mortgage, Vol. I, p. 213. This same case, Banee Pershad v. Beet Bhunjun Singh (1868 10 W.R. 325), was later examined by Jenkins C.J. in Balmukund v. Motilal (1915 C.W.N. 350). Jenkins C.J. treated Banee Pershad as an authority for the proposition that, so long as nothing happens to impair the value or hinder the operation of the mortgage, the mortgavor’s creation of a temporary lease remains within his powers. Those observations were subsequently relied upon to support the application of section 66 of the Transfer of Property Act in determining whether leases created by a mortgagor in possession bind the mortgagee.
Later, Mukherjee J. was again called upon to consider the same issue in Madan Mohan Singh v. Raj Kishore Kumari (1916 21 C.W.N. 88 at pp. 91-92). He cited the earlier authority to affirm that an interest generated by a mortgagor while dealing with the mortgaged premises in the ordinary course of management may properly be deemed operative against the mortgagee. Mukherjee J. set out the facts of the case at page 91, noting that the record was imperfectly reported but that the essential questions could still be ascertained. The proprietor of an estate mortgaged the land on 12 March 1861. Subsequently, on 7 July 1862, the mortgagor executed an ijara-potta lease of the property for a ten-year term. The mortgagee then sued the mortgagor alone and obtained a decree. Following the decree, an execution sale was carried out, and the property was sold on 24 December 1863. The purchaser, who acquired the estate on 12 March 1867, sought to eject the lessee on the ground that, because he bought the property in the condition in which it stood when mortgaged, the lease—which would have otherwise continued until 7 July 1872—did not bind him. The court of first instance rejected this broad contention, holding that the mortgagor had, in good faith, granted the lease for a limited term at a fair and reasonable rent, and therefore the lease could not be repudiated by either the mortgagee or the purchaser executing the decree, especially since the mortgage deed did not forbid the grant of temporary leases to middlemen or cultivators.
The Court observed that where a lease was granted for a limited term at a fair and reasonable rent, the mortgagee or a purchaser executing a decree could not repudiate that lease, especially where the mortgage deed did not forbid the granting of temporary leases to middlemen or cultivators. The District Judge affirmed this view and rejected the sweeping argument that all leases granted by a mortgagor were void against the mortgagee. On second appeal, the Court, through Jackson and Mitter JJ., adopted substantially the same stance. (1) (1916) 21 C.W.N. 88. These observations of Mukherjee J. identified the ratio decidendi of the earlier case. While the Court did not examine in depth the question of whether the security was sufficient, it held that the lease, being made in good faith, for a limited period, and at a fair rent, was operative against the mortgagee. The reasoning was grounded in the principle that a mortgagor who deals with the property in the ordinary course of management creates an interest that must be deemed effective against the mortgagee. The decision in Banee Pershxd v. Beet Bhunjan Singh (1) was therefore not a broad authority for the proposition that a mortgagor is unrestricted in managing mortgaged property simply by granting a mortgage, and that, provided nothing occurs to diminish the value or impede the mortgage, the mortgagor may lawfully grant a lease for a term. In the present opinion, Section 66 of the Transfer of Property Act was held to be irrelevant to the mortgagor’s power to lease mortgaged land. Section 66 deals with the mortgagor in possession concerning waste of the mortgaged property. Under English real-property law, the mortgagor in possession is not liable for permissive waste, that is, for failing to repair or prevent natural deterioration, but is liable for destructive waste—acts that cause permanent injury to the property where the security would become insufficient. Consequently, Section 66 does not apply to a lease granted by a mortgagor in possession. The only material question is whether the mortgagor in possession, exercising authority to manage the property in the usual course, can have a lease deemed operative against the mortgagee. Mukherjee, speaking in Madan Mohan Singh v. Baj Kishore Kumar (2) (i) (1868) 10 W.R. 325. (2) (1916) 21 C.W.N. 88 at page 92, articulated that the correct position is that a mortgagor in possession may grant a lease consistent with ordinary management practices, such as a year-to-year tenancy for agricultural land or a month-to-month tenancy for houses.
In the case of houses, the Court observed that a mortgagor may not grant a lease containing unusual terms, may not change the character of the land, and may not authorise its use for a purpose different from the manner in which the mortgagor himself used the property before granting the mortgage. The question whether a mortgagor who remains in possession possesses power to lease the mortgaged property must be decided by examining the authority of the mortgagor as bailiff or agent of the mortgagee to deal with the land in the ordinary course of management. This inquiry must be rooted in general principles of property law rather than in a distinction between an English mortgage and a simple mortgage, and it must not be limited to considerations arising under section 66 of the Transfer of Property Act. Because section 66 does not apply to leases of mortgaged property, the earlier decision of Jenkins C.J. in Balmukund v. Motilal and the subsequent cases that followed that line of reasoning are not controlling for the present point. While addressing this issue, the Court stressed that the burden of proving that a lease was created on ordinary terms in the usual course of management rests on the lessee who wishes to resist the mortgagee’s claim. If the lessee can establish that the lease was ordinary, the mortgagee’s claim would be defeated; if the lessee fails to meet that burden, he would have no defence against an action brought by the mortgagee.
The parties did not produce any allegation on behalf of the defendants that the permanent lease granted by the mortgagor constituted a transaction in the ordinary course of management, and in the absence of any such plea, the Court was of the opinion that there was no answer to the plaintiff’s claim. Accordingly, the permanent lease granted by Wazir Narayan to the defendants could not prevail against the plaintiff. The Court concluded that Wazir Narayan Singh had no authority to execute the permanent lease in question, that the lease was not binding on the plaintiff, and that the defendants had a full opportunity to redeem the mortgage but chose not to exercise that right. Moreover, the execution sale of Gadi Sirampur, together with the four villages that were the subject of the dispute, was binding on the defendants, and the plaintiff was entitled to khas possession of those four villages, which the defendants were holding wrongfully. For these reasons, the appeal was allowed, the decree of the High Court dismissing the plaintiff’s suit was set aside, and the decree of the trial court in favour of the plaintiff was restored with costs awarded throughout. The appeal was thus allowed. The appellant was represented by an agent named Ganpat Bai, and the respondent No. 1 was represented by an agent named B. B. Biswas.