Prithi Nath Singh And Ors. vs Suraj Ahir And Ors.

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

Court: supreme-court

Case Number: Civil Appeal No. 533 of 1960

Decision Date: 10 December, 1962

Coram: K.C. Das Gupta, Raghubar Dayal

In this matter, the Supreme Court of India recorded that the case titled Prithi Nath Singh And Ors. versus Suraj Ahir And Ors. was decided on 10 December 1962. The judgment was authored by Justice Raghubar Dayal, who sat on a bench together with Justice K.C. Das Gupta. The Court began by noting that it had already allowed Civil Appeal No. 533 of 1960 on 4 May 1962, having previously set out the factual background and the reasons for its opinion; therefore, those earlier findings were not repeated. The appeal had been permitted because the respondents had lost any legal right to recover possession of the land from the appellants after the estate in question vested in the State of Bihar pursuant to sections 3 and 4 of the Bihar Land Reforms Act, 1950 (Bihar Act XXX of 1950), hereinafter referred to as “the Act.” The Court also held that the respondents could not invoke clause (c) of sub‑section (1) of section 6 of the Act, as amended by the Bihar Land Reforms (Amendment) Act, 1959 (Act XVI of 1959), because no mortgage subsisted at the time of vesting. The amended clause (c) was quoted to read: “lands used for agricultural or horticultural purposes forming the subject matter of a subsisting mortgage on the redemption of which the intermediary is entitled to recover khas possession thereof.”

The respondents, who subsequently sought a review of the judgment, contended that the Court’s view that no mortgage existed on the vesting date was erroneous. They argued that, although the respondents‑mortgagors had discharged the mortgage debt in 1943, the mortgage nevertheless continued to exist until the date of vesting because the right of redemption provided by section 60 of the Transfer of Property Act had not yet terminated. According to their position, the right of redemption would persist for as long as the mortgagors retained the ability to require the mortgagee to perform any of the acts listed in section 60. To support this argument, the respondents relied upon the decision in Thota China Subba Rao v. Mattapalli Raju [(1949) F.C.R. 484, 498], which they said endorsed the view that a mortgage endures until the redemption right expires. The Court, however, rejected these submissions. It turned to section 58 of the Transfer of Property Act, which defines a mortgage as a transfer of an interest in a specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt, or the performance of an engagement that may create a pecuniary liability. Section 58 also enumerates various types of mortgages and, in clause (d), defines a “usufructuary mortgage” as a transaction in which the mortgagor delivers possession of the mortgaged property to the mortgagee, or binds himself expressly or by implication to deliver such possession, and authorizes the mortgagee to retain possession until the mortgage money is paid, allowing the mortgagee to receive rents and profits from the property in lieu of interest, payment of the mortgage money, or a combination of both.

The statute defines a usufructuary mortgage as a transaction in which the mortgagor delivers possession of the mortgaged property to the mortgagee, authorising the mortgagee to retain such possession until the mortgage‑money is paid. The mortgagee is also authorised to receive the rents and profits that accrue from the property, or any portion of those rents and profits, and to appropriate those amounts either in lieu of interest, in payment of the mortgage‑money, or partly as interest and partly as repayment of the mortgage‑money. This arrangement, as described by the provision, is termed an usufructuary mortgage and creates the relationship of an usufructuary mortgagee.

When the mortgagor fulfills the obligation by paying the mortgage‑money to the mortgagee, the underlying debt disappears, and consequently the mortgage cannot continue after that payment. The mortgage was created solely to secure the loan, and a security cannot exist once the loan has been fully repaid. Any continuation of the mortgagee’s interest in the property after payment would represent a different kind of interest, not the mortgagee’s original mortgage interest. Therefore, the transfer of an interest in immovable property undertaken for the purpose of securing loan repayment must cease at the moment the mortgage‑money is discharged. Moreover, because the definition of an usufructuary mortgage expressly limits the mortgagee’s right to retain possession only until the mortgage‑money is paid, that right also terminates upon payment. Once the loan is repaid, there is no longer any basis for the mortgagee to appropriate rents or profits as interest or repayment, and the mortgagee’s entitlement to remain in possession ends together with the mortgage itself.

Section 60, which respondents rely upon, provides that after the principal amount becomes due, the mortgagor, upon payment or tender of the mortgage‑money at a proper time and place, may require the mortgagee to deliver the mortgage deed and all documents relating to the mortgaged property that are in the mortgagee’s possession. The mortgagor may also demand that the mortgagee deliver possession of the property back to him, and at the mortgagor’s cost, either re‑transfer the property to the mortgagor or to any third person the mortgagor directs, or to execute any necessary documents where the mortgage has been effected by a registered instrument. This statutory provision delineates the mortgagor’s right of redemption but does not itself determine the moment when the mortgage terminates.

The provision requires that any transaction effected by a registered instrument must include a written acknowledgment that any right in derogation of the mortgagor’s interest transferred to the mortgagee has been extinguished, provided that such right has not already been extinguished by the parties’ act or by a court decree. The right created by this provision is termed a right to redeem, and a suit intended to enforce that right is known as a suit for redemption. It is important to observe that these statutory provisions do not specify the moment at which a mortgage ceases to exist; rather, they merely describe the mortgagor’s right to redeem. This right arises when the principal money, which is secured by the mortgage deed, becomes due for payment. Upon paying or tendering the mortgage money to the mortgagee, the mortgagor acquires the entitlement to demand three specific performances: first, the delivery of the mortgage deed and all related documents concerning the mortgaged property; second, the delivery of possession of the property to the mortgagor if the mortgagee is currently in possession; and third, the re‑transfer of the mortgaged property in accordance with the mortgagor’s directions. Should the mortgagee receive the money but fail to carry out any of these three mandatory acts, a question arises as to whether such non‑compliance causes the mortgage to continue. The statute does not provide for such a continuation, and there is no logical basis for the mortgage to persist under those circumstances. Consequently, if the mortgagee refuses to perform the required acts, the mortgagor is not obliged to pay the amount. Conversely, when the mortgage money has been received by the mortgagee and the mortgagee subsequently refuses to perform his statutory duties, the mortgagor may seek judicial enforcement of his right to obtain the mortgage documents, regain possession of the property, and secure reconveyance of the property. In this situation, a new right to enforce these demands through the court emerges, derived from section sixty of the Act. If the mortgagor, after having paid the mortgage money, approaches the court to enforce his demands, such a suit does not constitute enforcement of the original redemption right, which was the right to make those demands at the time of payment. The right to demand performance upon payment is distinct from the enforcement of those demands after payment has been made. This distinction is reflected in the decree for redemption, where Order XXXIV, rule seven of the Code of Civil Procedure provides for a preliminary decree in a redemption suit, directing that an account be taken of the sum due to the defendant, namely the mortgagee, as of the date of the decree, covering principal, interest, and other pertinent matters. Rule nine further stipulates that if, upon such accounting, any sum is found to be due to the mortgagor, the decree will direct the mortgagee to pay that amount to the mortgagor.

When an accounting determines that a sum is due to the mortgagor, the decree issued by the court must order the mortgagee to pay that amount to the mortgagor. However, if the mortgagor has already paid the full mortgage money and the mortgagee has accepted that payment as complete discharge of the mortgage deed, there is no longer any occasion for such an accounting. Consequently, any suit filed to compel the return of the mortgage deed and to regain possession of the mortgaged property cannot be characterised as a suit for redemption.

The Court examined the decision in Thota China Subba Rao’s case (1949 F.C.R. 484, 498), which had been cited by counsel for the respondents. That decision simply states that the right of redemption continues for as long as the mortgage remains alive, and it does not address the situation in which the mortgage ceases to exist. The Court relied on several observations from that judgment to support its own view. The Court noted that the document executed in favour of the mortgagor’s wife was merely a reward promised to her for persuading her husband to agree to convey the mortgaged lands to the mortgagees, and that such a document could not in any event extinguish the equity of redemption. It was further observed that the mortgagor himself was not a party to that document. The second document, executed by the mortgagor, was an agreement to convey the lands after three months; however, there was no documentary evidence or any indication that the mortgagees had agreed to accept those lands as full satisfaction of their claims or had promised to pay the sum of Rs 100 mentioned therein. The Court held that this was merely an agreement to convey the lands after three months, and that any question of extinguishing the equity of redemption could arise only upon execution of the conveyance, not before.

The Court also referred to other authorities that illuminate the issue and counter the respondents’ contention. In Samar Ali v. Karim‑ul‑Lah (1886 I.L.R. 8 All. 402, 405), the Court stated that the contract of mortgage, being subject to the relevant regulation, would be deemed redeemed as soon as the principal mortgage money together with twelve percent interest had been realised by the mortgagee from the profits of the property. Similarly, in Muhammed Mahmud Ali v. Kalyan Das (1895 I.L.R. 18 All. 189, 192), the Court observed that the right of redemption presupposes the continued existence of a mortgage on the property, which at the time of redemption must still serve as security for the money owed to the mortgagee. Accordingly, the Court explained that a subsequent mortgagee may only redeem the property to the extent that the first mortgagee’s security can be enforced, and that the right of redemption may be exercised only with respect to property that remains subject to an enforceable mortgage.

From these authorities, the Court concluded that there is no basis for enforcing a mortgage when the mortgage money has already been paid. Once the payment is made and accepted, the right to redeem ceases, and any suit seeking possession or the return of the mortgage deed must be treated as a different kind of proceeding, not as a suit for redemption.

In this case the Court observed that the right to redeem a mortgage terminates once the mortgage money has been paid, and therefore the right to redeem ceases on payment of the mortgage money. The Court then referred to the decision in Balakrishna v. Rangnath reported in I.L.R. 1950 Nag. 618 at page 621, where it was held that the right to redeem can be extinguished only by an act of the parties or by a decree of a Court, as provided in the proviso to section 60 of the Transfer of Property Act. The Court explained that when the extinguishment is effected by an act of the parties, the act must comply with the legal form prescribed by the statute. One permissible method, according to the judgment, is the payment of cash, and in such a case no additional formalities are required beyond the payment itself. Next, the Court considered the earlier case of Ram Prasad v. Bishambhar Singh, in which the issue was whether a suit filed to recover possession of mortgaged property after the mortgage money had been paid was a suit “against the mortgagee to redeem” or a suit “to recover possession of immovable property mortgaged.” The judgment of Braund J. was quoted in full. He explained that section 60 of the Transfer of Property Act applies only where a mortgagor with a subsisting mortgage approaches the Court to establish a right to redeem and to have the redemption carried out through the Court’s declarations and orders. In other words, section 60 contemplates a situation in which the mortgage still exists and the mortgagor seeks the return of his property by repaying the amount that remains due. By contrast, section 62 is expressly distinct from section 60. Section 62 provides that in a usufructuary mortgage the mortgagor acquires a right to “recover possession” of the property when, in a case where the mortgagee is authorized to receive the mortgage money from the rents and profits of the property, the principal sum has been discharged. The Court stressed that this scenario does not represent redemption. At the moment when the rents and profits of the mortgaged property are sufficient to discharge the principal secured by the mortgage, the mortgage terminates and the mortgagor obtains the correlative right to recover possession of the property. The framers of the Transfer of Property Act, the Court observed, clearly recognised the distinction between the procedure that follows a mortgagor’s desire to redeem a subsisting mortgage and the procedure that follows the emergence of a usufructuary mortgagor’s right to regain his property after the principal has been paid. Applying these principles, the Court held that the mortgage in the present matter was not subsisting on the date of vesting because it had come to an end upon payment of the mortgage money in 1943. Consequently, the respondents could not rely on section 6(1)(c) of the Act. The Court therefore dismissed the review petition, ordered that no costs be awarded, and recorded that the petition was dismissed.