Raja Sailendra Narayan Bhanj Deo vs Kumar Jagat Kishore Prasad Narayan Singh

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 246 of 1959

Decision Date: 13 December 1961

Coram: A.K. Sarkar, P.B. Gajendragadkar, K.C. Das Gupta, N. Rajagopala Ayyangar

In this case the petition was filed by Raja Sailendra Narayan Bhanj Deo against Kumar Jagat Kishore Prasad Narayana Singh, and the judgment was delivered on 13 December 1961 by a bench of the Supreme Court of India composed of Justices A.K. Sarkar, P.B. Gajendragadkar, K.C. Das Gupta, and N. Rajagopala Ayyangar. The matter concerned a suit for redemption of mortgages that had been decreed by a trial court, with accounts ordered, and an appeal from that decree was pending in the High Court at Patna when a statutory change occurred under the Bihar Land Reforms Act, 1950. By virtue of a notification issued under that Act, all the tenures that formed the subject of the mortgages were vested in the State of Bihar and were declared free from all encumbrances; consequently the proprietors, tenure‑holders and all other persons ceased to have any interest in those lands, although they were entitled to compensation for the divestment. Pursuant to section 14 of the Land Reforms Act the appellant, who had succeeded to the interest of the original mortgagee, filed a claim before the officer appointed under the Act seeking to establish the amount due on his mortgage. That claim was adjudicated on notice to the representatives of the mortgagor, the decision later became final under section 18, and the sum awarded was to be deducted from the compensation payable to the former proprietors and tenure‑holders. While the appeal before the High Court was being heard, the appellant argued that, in view of section 35 of the Land Reforms Act, a civil court should be deemed to lack jurisdiction to entertain any claim concerning a mortgage of tenures that had become vested in the Government under the Act. The High Court rejected that contention, holding that the Act expressly barred a suit by a mortgagee but not a suit by a mortgagor, and it affirmed the decree of redemption. The Supreme Court subsequently examined whether the practical effect of the statute was to remove the civil court’s jurisdiction even in a suit brought by a mortgagor, and considered the implications for the mortgage accounts that had been taken over by the proceedings under the Act and had become final.

Section 35 of the Land Reforms Act provides that a civil court must 120 be deemed to have no jurisdiction to decide any question concerning claims under mortgages of tenures that have been vested in the Government under the Act. The Patna High Court rejected the contention that this provision barred the civil court from hearing any such claim, observing that the Act expressly barred a suit by a mortgagee but did not bar a suit by a mortgagor. Accordingly, the High Court confirmed the decree that had been passed in the suit. The Court further held that, although the Act does not expressly prohibit a mortgagor from instituting a suit for redemption, the practical and inevitable result of the statutory scheme is that such a suit cannot succeed. Once the mortgage accounts have been dealt with under the provisions of the Land Reforms Act and a final decision has been rendered in those proceedings, the civil court cannot take the accounts over again. In addition, the Court held that during the proceedings under the Act, which are intended to ascertain the claim of a creditor, the debtor is entitled to show what amounts have been paid to the creditor and what the creditor has realised from the mortgaged property. The Court also held that after a mortgagor has been divested of the mortgaged property by operation of the Act, a decree of redemption would be ineffective because the mortgagor would no longer have the right to have the property reconveyed to him, and the mortgagee would likewise lack the authority to convey the property. In effect, the mortgagor, having been stripped of the property, loses his right of redemption. The Court then posed a query: if the mortgagee had realised from the profits of the mortgaged property an amount greater than that which was due on the mortgage, would a suit by the mortgafor for a refund be maintainable?

The case before this Court is Civil Appeal No. 246 of 1959, an appeal from the judgment and decree dated 4 December 1956 of the Patna High Court in First Appeal No. 429 of 1951. The appeal was argued for the appellant by counsel A. V. Viswanatha Sastri and Mohan Behari Lal, and for respondent No. 1 by counsel B. K. P. Sinha and A. G. Ratnaparkhi, with additional counsel representing respondent No. 6. The judgment was delivered on 13 December 1961 by Justice Sarkar. The appeal arises out of a suit instituted by the respondent, Kumar Jagat Kishore Prasad Narayan Singh, hereafter referred to as the respondent, against the appellant, the Raja of Kanika, seeking redemption of certain mortgages. The suit had been decreed by a learned Subordinate Judge of Gaya, and the decree had been affirmed by the Patna High Court on appeal. The appellant now appealed that High Court judgment to this Court. While numerous points were argued before the High Court, counsel for the appellant, Mr. Sastri, raised only a single point before this Court, and consequently the present narration is limited to the facts relevant to that point. The respondent claimed entitlement to redeem the mortgages in his capacity as executor of the estate of Chandreshwar Prasad, the mortgagor, and also as the receiver appointed in certain execution proceedings later described. It has subsequently been determined, as will be explained, that the will which purported to appoint the respondent as executor was not genuine. Consequently, the respondent no longer holds the office of receiver, and his locus standi to contest the appeal is called into question, although he remained the sole party opposing the appeal before this Court.

It was established that the will by which the respondent claimed to be the executor of Chandreshwar Prasad’s estate was not genuine, and that the respondent no longer held the office of receiver. Consequently, the respondent had no legal standing to contest the appeal, although he remained the sole opponent before the Court. Because the appellant’s counsel did not object to the respondent’s presence in these proceedings, the Court saw no need to examine the respondent’s position further. On 17 February 1924 Chandreshwar Prasad executed a mortgage in favour of the then Raja of Kanika to secure a sum of four hundred thousand rupees. The mortgage covered certain Mokarrari tenures. When the mortgage debt remained unpaid, the Raja of Kanika instituted a suit on the mortgage, obtained preliminary and final decrees, and subsequently enforced the decree in 1938; the enforcement case, however, was never finally disposed of. During those execution proceedings the respondent was appointed receiver of the mortgaged properties. The Mokarrari tenures were held under the jurisdiction of the Tikari Raj, which had itself mortgaged its proprietary interests in those tenures to the Darbhanga Raj by a usufructuary mortgage. Chandreshwar Prasad failed to pay rent on the mortgaged tenures and on other tenures that he held under the Tikari Raj. In response, the Darbhanga Raj, as the usufructuary mortgagee, initiated certificate proceedings to realise the rent and, around 1940, obtained a certificate for eighty‑three thousand two hundred sixty‑seven rupees concerning arrears of rent. The issuance of this certificate jeopardised the security of the Raja of Kanika’s mortgage, prompting the Raja to pay the certificate amount on 28 September 1940. Pursuant to section 171 of the Bihar Tenancy Act, this payment made the Raja the mortgagee of the tenures for which the certificate was issued and entitled him to possession of the villages of those tenures until the amount he paid, together with interest at the prescribed rate, was reimbursed. Accordingly, on 23 November 1940 the Raja took possession of all the tenures related to the rent arrears, thereby dispossessing the receiver appointed in the execution case. Chandreshwar Prasad died on 28 September 1941. The respondent, asserting that he was the executor under the alleged will, obtained probate of that will from the High Court on 10 December 1945 and was appointed receiver in the execution case on 17 February 1949. On 20 September 1949, acting as both receiver and executor, the respondent filed a suit seeking redemption of the mortgages. By that date the Raja of Kanika, in whose favour the mortgage had been executed in 1924, had died, and the suit was consequently brought against the appellant, who had succeeded the Raja and was now the person entitled to the mortgage’s interest.

In the case before the Court the respondent argued that the individual then entitled to receive the mortgage interest was the Raja of Kanika, and that the Raja had obtained sufficient receipts from the tenures he acquired pursuant to section 171 of the Bihar Tenancy Act to discharge both the 1924 mortgage and the later mortgage created under the same statutory provision, and that, in fact, he had collected a surplus which he was obligated to repay. On 19 March 1951 the respondent was removed from his position as receiver. Subsequently, on 22 August 1951 the High Court, hearing a Letters Patent Appeal, set aside the probate that had been granted, holding that the will on which it was based was a forgery. On that same date a decree for redemption was issued by the Sub‑ordinate Judge in the suit, ordering that the accounts be taken and granting the other ordinary directions that accompany a redemption decree. The appellant then appealed the Sub‑ordinate Judge’s judgment to the Patna High Court, filing the appeal in September 1951. While that appeal was pending, four daughters of the late Chandreshwar Prasad were entered on the record as representatives of the mortgagor’s interest. In the meantime, the Bihar Land Reforms Act of 1950 had come into force on 25 September 1950. The Act authorized the State Government, by notification, to declare that certain estates or tenures mentioned therein had passed to and become vested in the State. In 1952 the Bihar Government issued such a notification under the Act, vesting in the State of Bihar the tenures that had come into the possession of the Raja of Kanika under section 171 of the Bihar Tenancy Act. Consequently, the right, title and interest of the mortgagor, Chandreshwar Prasad, and of the superior owner in those tenures vested absolutely in the State, free of all encumbrances, and the former proprietor or tenure‑holder ceased to have any interest therein. In August 1952 the State of Bihar took possession of those tenures from the appellant, who had remained in possession until that time. Thereafter the State of Bihar was joined as a party to the appeal that was still pending before the High Court. Pursuant to section 14 of the Bihar Land Reforms Act, the appellant filed claims before the officer appointed under that Act for the amounts due to him under the mortgage decree of 1924 and under the mortgage created by section 171 of the Bihar Tenancy Act. The four daughters of Chandreshwar Prasad were also made parties to the claim proceedings, although they did not appear to contest the appellant’s claim. On 15 January 1955 the Claims Officer determined that a sum of Rs 5,33,077 was payable to the appellant in respect of the 1924 mortgage and that a sum of Rs 25,034‑¼ was payable in respect of the mortgage arising under section 171 of the Bihar Tenancy Act. No appeal was filed against these decisions, as provided for by the Land Reforms Act, and therefore the decisions became final under section 18(3) of that Act. The appellant’s appeal to the High Court, which had remained pending throughout this period, subsequently proceeded.

The appeal was listed for hearing and the hearing concluded with a dismissal on 4 December 1956. The appellant argued that, on the basis of section 35 of the Land Reforms Act, a civil court should be held to lack jurisdiction to adjudicate any mortgage claim concerning tenures that had become vested in the Government under that Act. The High Court rejected this submission. It held that the statutory bar applied solely to suits instituted by a mortgagee and that the Act contained no provision prohibiting a suit brought by a mortgagor. Relying on that interpretation, the High Court affirmed the decree originally issued by the learned Subordinate Judge. The present appeal challenges the decisions of the High Court. The Court considered the appeal and concluded that it should be allowed.

The Court observed that once the notification under the Land Reforms Act was issued, the mortgaged tenures were transferred to the State of Bihar and were held free of all encumbrances. Consequently, a decree of redemption could no longer be given effect after that date because the underlying tenures no longer existed as private property. With the tenures vested in the State, the mortgagee lost any remaining interest in them and also ceased to be in possession of the property. The mortgagee therefore could not satisfy the redemption decree by reconveying the tenures to the mortgagor or by placing the mortgagor in possession. The security created by the mortgage ceased to exist, as the properties were now owned by the State without any encumbrances. At the same time, the mortgagor also lost all entitlement to the mortgaged property and, accordingly, held no right to redeem it. The Court therefore held that the previously issued redemption decree became ineffective and without practical operation.

The appellant submitted that, if the mortgagee had derived income from the mortgaged properties exceeding the amount due to him, the mortgagor would be entitled to a refund of the excess, and that the portion of the redemption decree directing the account of such income would thus remain operative. The Court could not accept this argument. It turned to the provisions of the Land Reforms Act for guidance. Section 4, on the issuance of the notification, terminates all interests of proprietors and tenure‑holders in the estates and tenures specified and vests those interests in the State, free of any encumbrances. Clause (d) of that section expressly provides that no civil suit may be maintained for the recovery of money due from a proprietor or tenure‑holder on a mortgage of the estate or tenure, and that any such suits or proceedings pending at the time of vesting are to be dismissed. Section 14 further mandates that any creditor whose debt is secured by a mortgage of an estate or tenure now vested in the State must, within the prescribed period, submit a written claim to a Claims Officer for the purpose of ascertaining the amount payable. These provisions make clear that the mortgagee could not recover any amount from the vested tenures except by following the specific procedure laid down in section 14.

The Court observed that, as indicated earlier by section 4(d), a mortgagee could not recover the amount owed from mortgaged tenures that had vested in the Government unless the mortgagee complied with the procedure prescribed in section 14. Section 14 further provides that the Claims Officer responsible for determining the amount of debt payable shall be either a Subordinate Judge or a Munsif, the choice depending upon the size of the claim. Section 16 then lays down the principles for ascertaining a creditor’s claim; although the Court does not repeat the entire provision, it notes that this section authorises the scaling down of interest where appropriate. Section 17 creates a right of appeal against the decisions of the Claims Officer to a Board, one member of which must be either a High Court Judge or a District Judge, again according to the quantum of the claim. Sub‑section (3) of section 18 makes clear that the decision of the Board, and where no appeal is filed, the decision of the Claims Officer, shall be final. These provisions, covering sections 14 through 18, are collected in Chapter 4 of the Act.

Chapter 5 of the Act concerns the assessment of compensation payable to proprietors or tenure‑holders who have been divested of their interests. Section 24, situated within this chapter, deals with determining the amount of compensation that is due in respect of the transfer of property to the State. Sub‑section (5) of that section stipulates that where the interest of a proprietor or tenure‑holder is subject to a mortgage, the compensation must first be paid to the creditor and only thereafter to the proprietor or tenure‑holder; the amount payable to the creditor is the sum fixed under Chapter 4. All amounts payable to proprietors, tenure‑holders or encumbrancers must be entered in the Compensation Assessment‑roll. Section 35 of the Act expressly bars any civil suit challenging any entry in, or omission from, the Compensation Assessment‑roll, or any order made under Chapters II to VI, or any matter that has already been the subject of an application or proceeding under those chapters. Consequently, the decision of the Claims Officer or the Board cannot be contested in an ordinary civil proceeding. Chapter 6, through section 32, provides that when the Compensation Assessment‑roll becomes final as mandated by the Act, the Compensation Officer appointed under the Act shall proceed to make the payment in the manner prescribed. Finally, section 38 confers upon both the Claims Officer and the Compensation Officer the powers of a civil court.

The Court then considered the effect of these statutory provisions on the redemption decree that had directed that mortgage accounts be taken. The Court concluded that the operative effect of sections 14 to 18, together with the bar on civil suits in section 35 and the vested powers of the Officers, rendered that portion of the decree ineffective.

In this case, the Court held that the portion of the redemption decree directing that mortgage accounts be taken was ineffective. The Court explained that the mortgage accounts had already been dealt with under the Act, and the decision of the Claims Officer regarding the status of those accounts was final pursuant to section 18(3). Moreover, section 35 of the Act barred any suit from being instituted concerning the Claims Officer’s decision. Although the present suit had been instituted at a time when the Act did not yet apply, the Court assumed that the Act would now prevent the accounts from being taken under the decree for the purpose of challenging the Claims Officer’s determination. If the Act did not have that effect, the officer tasked with taking the accounts under the decree would be required to accept the Claims Officer’s decision as final, and the parties would have no right to contest it. Consequently, the officer would have to report that the same amount which the Claims Officer had already found to be due to the mortgagee was, in fact, due to the mortgagee again, leading to a subsequent decree that would grant the appellant the amount once more. However, the appellant was already entitled to that sum under section 32(1) of the Act, and a further payment would result in a double recovery for the same mortgage right. The Court could not conceive that the legislature intended such an anomalous outcome, and therefore concluded that, after the enactment of the Act, the redemption decree could not be given effect.

The Court further observed that the High Court had assumed that the officer taking the accounts under the redemption decree would not be bound by the Claims Officer’s decision. The High Court’s view was based on the notion that only those decisions of the Claims Officer made within the scope of his jurisdiction would be binding, and that the Claims Officer lacked jurisdiction to investigate a mortgagor’s claim concerning any surplus realised by the mortgagee from the mortgaged property. The Court disagreed with this reasoning, noting that, under section 16(2)(b), the Claims Officer must determine how much had been paid to the mortgagee or realised by him. Hence, it was incorrect to say that the Act did not confer jurisdiction on the Claims Officer to examine the mortgagee’s realisation. While the Act does not expressly prohibit a mortgagor from filing a suit for redemption, the practical effect of the provisions is that such a suit would be unnecessary. This does not diminish the mortgagor’s rights; the mortgagor may still demonstrate before the Claims Officer that the mortgagee had received more than the amount legitimately due from the income of the mortgaged property. The Court noted that if the mortgagor succeeded, the Claims Officer could hold that nothing was payable to the mortgagee from the compensation and might even find that the mortgagee had been overpaid. The Court, however, refrained from expressing an opinion on the further consequences of such a finding, emphasizing instead that the Act had been carefully drafted to ensure that neither the mortgagor nor the mortgagee would suffer prejudice in the investigation of the mortgagee’s claim.

If the mortgagor succeeded in demonstrating that the mortgagee had received compensation exceeding the amount lawfully due, the Claims Officer would hold that no sum was payable to the mortgagee from that compensation. The Claims Officer might even record, as a matter of fact, that the mortgagee had been overpaid to a certain extent. Whether, in such circumstances, the mortgagor was entitled to institute a suit for recovery of the excess amount was not a question presented for determination in the present appeal. The Court observed that, even assuming such a suit could be filed, that possibility did not lead to the conclusion that the mortgage accounts could be taken under the redemption decree in this case. Consequently, the Court expressed no opinion on the question of a possible recovery suit by the mortgagor. The Court found it appropriate to emphasize that the Act was carefully drafted to ensure that neither the mortgagor nor the mortgagee suffered prejudice in the proceedings investigating the mortgagee’s claim. The Act provided that such investigation would be conducted by experienced judicial officers of high rank and that the proceedings would be treated as though they were civil court proceedings. In the Court’s view, because the mortgage security had vested in the State of Bihar free from any encumbrances under the Land Reforms Act, the redemption decree issued by the learned Subordinate Judge became ineffective. Accordingly, the decree could no longer stand, the accounts that the decree directed to be taken could not be taken, and none of the other directions contained in the decree could be carried out. The Court held that the High Court had erred in confirming the decree, because the decree could not be acted upon any longer. The claim proceedings conducted under the Act ultimately determined the final status of the mortgage accounts. Therefore, the Court allowed the appeal, set aside the High Court’s decree, and directed that the respondent’s suit for redemption be dismissed. The Court further ordered that no costs be awarded to either party in respect of these proceedings. The appeal was thus allowed.