Prithi Nath Singh And Others vs Suraj Ahir And Others

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

Court: supreme-court

Case Number: C. A. No. 533/60

Decision Date: 4 May 1962

Coram: Raghubar Dayal, K.C. Das Gupta

Prithi Nath Singh and others filed a petition against Suraj Ahir and others, and the case was decided on 4 May 1962 by the Supreme Court of India. The judgment was authored by Justice Raghubar Dayal, with Justice K.C. Das Gupta sitting on the bench. The official citation of the decision is 1963 AIR 1041 and 1963 SCR Suppl. (3) 302, and it is recorded in the citator as RF 1992 SC1135 (3). The matters addressed in the case involved provisions of the Land Reforms statutes relating to the vesting of land in the Government, the effect of payment of mortgage money on the existence of a mortgage, and the consequences of a mortgagee’s failure to perform his statutory duties after receipt of such money. Relevant statutory provisions considered included sections 58 and 60 of the Transfer of Property Act, 1882; Order XXXIV, rule 7 of the Code of Civil Procedure, 1908; sections 3 and 4 of the Bihar Land Reforms Act, 1950; and section 6(1)(c) of the Bihar Land Reforms Act as amended by the Bihar Land Reforms (Amendment) Act, 1959. The headnote of the decision explains that the petitioners had been respondents in Civil Appeal No. 533/60, while the present respondents had been appellants in that appeal. The Court allowed that appeal on the ground that the respondents had lost any right to recover possession of the land because the estate had vested in the State of Bihar under sections 3 and 4 of the 1950 Land Reforms Act, and consequently no subsisting right of possession remained. In addition, the Court held that the respondents could not rely on section 6(1)(c) of the amended Act because no mortgage existed on the date of vesting.

The petition for review challenged the earlier view that the mortgage had ceased to exist on the date of vesting. The petitioners argued that even though the mortgagors had paid the mortgage money, the mortgage should have continued until vesting because the right of redemption provided by section 60 of the Transfer of Property Act had not yet terminated. To support this position, they cited the decision in Thota China Subba Rao v. Mattapalli Raju [1949] F.C.R. 484. The Court, however, rejected this argument. It observed that when the mortgagor pays the mortgage money to the mortgagee, the debt owed by the mortgagor is extinguished, and consequently the mortgage cannot survive after full payment. The Court further explained that the very definition of a usufructuary mortgage implies that the mortgagee’s authority to remain in possession of the mortgaged property ends once the mortgage money has been paid. If the mortgagee, after receiving the money, refuses to perform the duties imposed by law, the mortgagor is entitled to enforce his rights to recover the original mortgage documents, to regain possession of the mortgaged property, and to seek reconveyance of the property through the appropriate court. This right to enforce possession and recover documentation is distinct from, and does not revive, any right of redemption that would otherwise have ceased upon payment of the mortgage money.

The Court explained that the right to obtain reconveyance of the mortgaged property through the court is a distinct right and must not be confused with the right of redemption. The petitions relied upon a case that dealt only with the circumstance under which a mortgage ceases to exist, and that case simply held that the right of redemption continues so long as the mortgage itself remains alive. In Thota China Subba Rao v. Mattapalli Raju, [1949] F.C.R. 484, it was observed that there is nothing to enforce a mortgage once the mortgage money has been paid, and consequently the right to redeem terminates upon payment of the mortgage money. This proposition was approved in several decisions, namely Samar Ali v. Karim‑ul‑lah I.L.R. 8 All. 402, Muhammad Mahmud Ali v. Kalyan Das I.L.R. 18 All. 189, Balkrishna v. Rangnath I.L.R. 1950 Nag. 618 and Ram Prasad v. Bishambhar Singh L.I.R. 1946 All. 400.

The judgment concerned Review Petition No. 26 of 1962, filed for review of the Court’s judgment and order dated 4 May 1962 in Civil Appeal No. 533 of 1960. Counsel for the petitioners and counsel for the respondents were listed, and the judgment was delivered on 10 December 1962 by Justice Raghu Bar Dayal. The Court noted that the earlier appeal had been allowed on the ground that the respondents had lost their right to recover possession of the appellants’ estate after it vested in the State of Bihar under sections 3 and 4 of the Bihar Land Reforms Act, 1950, and that they possessed no surviving right to recover possession. 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, because no mortgage subsisted at the date of vesting. The amended clause (c) read: “(c) 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, seeking review, contended that the mortgage remained subsisting until the right of redemption under section 60 of the Transfer of Property Act ceased, even though they had paid the mortgage money in 1943. They relied on Thota China Subba Rao v. Mattapalli Raju for this view, asserting that the right to demand performance of the mortgagee’s obligations continued. The Court rejected these arguments, reaffirming that payment of the mortgage money extinguishes the mortgage and the associated right of redemption.

In this case the Court examined the contention that the mortgagor’s right to require the mortgagee to perform any of the acts mentioned in section 60 continued until the right of redemption terminated. The respondents supported this argument by relying on the decision reported as Thota China Subba Rao v. Mattapalli Roju (1). The Court indicated that it did not accept these submissions. The Court then turned to the definition of “mortgage” contained in section 58 of the Transfer of Property Act, which describes a mortgage as a transfer of an interest in specific immovable property undertaken 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 give rise to a pecuniary liability. The Act further enumerates various types of mortgage and, in clause (d), defines a “usufructuary mortgage.” The definition reads: “Where the mortgagor delivers possession or expressly or by implication binds himself to deliver possession of the mortgaged property to the mortgagee, and authorizes him to retain such possession until payment of the mortgage‑money, and to receive the rents and profits accruing from the property or any part of such rents and profits and to appropriate the same in lieu of interest, or in payment of the mortgage‑money, or partly in lieu of interest or partly in payment of the mortgage‑money, the transaction is called a usufructuary mortgage and the mortgagee a usufructuary mortgagee.” The Court observed that when the mortgage money is paid by the mortgagor to the mortgagee, no debt remains outstanding, and consequently the mortgage cannot continue after the mortgage money has been discharged. The transfer of interest represented by the mortgage was made for the specific purpose of securing repayment of a loan; a security cannot persist after the loan has been fully repaid. If any interest in the property were to continue vesting in the mortgagee after the repayment, such interest would be of a different nature from a mortgagee’s interest. Accordingly, the mortgage, being a transfer of an interest in immovable property to secure a loan, must terminate upon payment of the mortgage money. Moreover, the definition of usufructuary mortgage itself leads to the conclusion that the authority given to the mortgagee to remain in possession of the mortgaged property ceases when the mortgage money has been paid. By its terms, a usufructuary mortgage authorises the mortgagee to retain possession only until the mortgage money is paid and to appropriate the rents and profits collected therein either as interest, as repayment of the loan, or partially as both. Once the mortgage money is fully paid, there is no longer any question of appropriating the rents and profits accruing from the property towards interest or repayment of the mortgage money.

It was observed that when the mortgagor pays the mortgage money to the mortgagee, the mortgage terminates and the mortgagee’s entitlement to remain in possession of the mortgaged property also ends. The Court then quoted the relevant portion of section 60, which the respondents relied upon. Section 60 provides that, after the principal money has become 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, to deliver possession of the property to the mortgager if the mortgagee is in possession, and, at the mortgagor’s cost, either to re‑transfer the mortgaged property to the mortgagor or to a third person directed by the mortgagor, or to execute a written acknowledgment that any right derogating from the mortgagor’s interest transferred to the mortgagee has been extinguished. The provision further states that this right, called the right to redeem, is not extinguished by the act of the parties or by a court decree, and that a suit to enforce it is a suit for redemption. The Court noted that these provisions do not specify the moment at which a mortgage ceases to exist; they merely describe the mortgagor’s right to redeem.

The Court explained that the right to redeem arises when the principal money secured by the mortgage deed becomes due. Upon paying or tendering the mortgage money, the mortgagor may demand three things: (i) the delivery of the mortgage deed and any other documents relating to the mortgaged property; (ii) the delivery of possession of the property, if the mortgagee is in possession; and (iii) the re‑transfer of the mortgaged property in accordance with the mortgagor’s wishes. The Court considered the situation where the mortgagee receives the payment but fails to perform any of these three obligations. The statutory provisions do not indicate that such non‑compliance causes the mortgage to continue, and the Court found no justification for the mortgage to persist merely because the mortgagee refuses to comply. If the mortgagee declines to comply, the mortgagor is not obliged to pay the amount. However, when the mortgage money has been received and the mortgagee subsequently refuses to execute the required acts, the mortgagor may enforce his right to obtain the mortgage documents, regain possession of the property, and obtain reconveyance through the courts. In that circumstance, a new right arises for the mortgagor to have his demands enforced by a court of law.

In this case the Court explained that the operation of section 60 of the Act means that when the mortgage money has already been paid, a suit filed by the mortgagor to enforce his demands is not an exercise of the right of redemption. The Court clarified that the right to require the mortgagee to perform certain obligations on receipt of the mortgage money is distinct from a suit that seeks to enforce those obligations after the money has been paid. This distinction is reflected in the provisions governing a redemption suit. Order XXXIV, rule 7 of the Code of Civil Procedure provides for a preliminary decree in a redemption suit, which mandates that an account be taken of the amounts due to the defendant‑mortgagee as of the date of the decree, covering principal, interest and other items. Rule 9 further provides that if, after such accounting, any sum is found to be owed to the mortgagor, the decree will direct the mortgagee to pay that amount to the mortgagor. The Court observed that when the mortgage money has already been paid by the mortgager and accepted by the mortgagee as full discharge of the mortgage, there is no occasion for such accounting, and consequently a suit seeking the return of the mortgage deed and possession of the mortgaged property cannot be characterised as a redemption suit. The Court then referred to the decision in Thota China Subba Rao’s case (1), noting that the ruling simply states that the right of redemption continues only while the mortgage remains alive and does not address the situation in which the mortgage ceases to exist. The Court quoted the observation from that case, which explained that a document executed in favour of the mortgagor’s wife as a reward for obtaining the husband’s agreement to convey the mortgaged lands does not extinguish the equity of redemption, because the mortgagor was not a party to that document. It further noted that a later agreement by the mortgagor to convey the lands after three months did not constitute an acceptance by the mortgagees of the lands in full settlement of their claim, nor a promise to pay the stipulated sum, and therefore the question of extinction of the equity of redemption could not arise before the conveyance was actually executed. The Court added that other authorities support this view and counter the respondents’ contention. In Samar Ali v. Karim‑ul‑lah (1) it was held that a mortgage subject to the relevant regulation would be redeemed as soon as the principal money with interest was realised by the mortgagee from the property’s profits. In Mohammed Mahmud Ali v. Kalyan Das (2) it was observed that the right of redemption presupposes the existence of a mortgage on the property at the time of redemption, and that only the property subject to an enforceable first mortgage can be redeemed by a subsequent mortgagee. Consequently, when the mortgage money has been fully paid, there is nothing left to enforce, and the right of redemption ends upon payment. Finally, the Court cited Balakrishna v. Rangnath (1) to reinforce this principle.

In the case of Samar Ali v. Karim‑ul‑lah, the Court observed that the mortgage would have been redeemed at the moment the mortgagee actually realized the principal sum together with twelve percent interest from the profits generated by the mortgaged property. The Court then referred to Muhammad Mahmud Ali v. Kalyan Das, stating that it is indisputable that the right of redemption assumes the existence of a mortgage on a particular piece of property which, at the time of redemption, serves as security for the amount due to the mortgagee. The judgment cited the authorities (1) (1886) I.L.R. 8 All. 402, 405 and (2) (1895) I.L.R. 18 All. 189, 192 to support this proposition. It was further explained that only the property on which the first mortgagee is authorised to enforce his security may be redeemed by any second or subsequent mortgagee. Consequently, the right of redemption can be exercised only with respect to property that remains subject to a mortgage capable of enforcement. The Court added that once the mortgage money has been fully paid, there is nothing left to enforce, and therefore the right to redeem ceases upon payment of the mortgage money.

The judgment then turned to Balakrishna v. Rangnath, wherein it was held that the right to redeem may be extinguished solely 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. When the extinction occurs by act of the parties, the law requires that the act conform to the prescribed formalities; one recognised method is the payment of the due amount in cash, after which no further step is necessary. The Court subsequently examined the issue presented in Ram Prasad v. Bishambhar Singh, namely whether a suit filed to recover possession of mortgaged land after the mortgage money had been discharged was a suit for redemption or a suit for recovery of possession of immovable property. Braund J. clarified that section 60 of the Transfer of Property Act applies only where a mortgagor, while the mortgage is still subsisting, approaches the Court to assert his right to redeem and to obtain appropriate orders effecting that redemption, as reflected in the authorities (1) I.L.R. 1950 Nag. 618, 621 and (2) A.I.R. 1946 All. 400, 402. In other words, section 60 contemplates a situation in which the mortgage remains alive and the mortgagor seeks the return of his property upon repayment of the outstanding amount. By contrast, section 62, which stands in marked contrast to section 60, provides that in a usufructuary mortgage the mortgairor acquires a right to recover possession of the property when the principal money has been paid off, especially where the mortgagee is authorised to draw the mortgage money from the rents and profits of the property. The Court stressed that such a scenario does not involve redemption; rather, at the moment the rents and profits are sufficient to discharge the principal, the mortgage terminates and the mortgagor’s right to recover possession arises.

In this matter, the Court noted that when the rents and profits generated by the mortgaged property were sufficient to discharge the principal amount that had been secured by the mortgage, the legal existence of the mortgage terminated. With the termination of the mortgage, a corresponding right subsequently arose in the mortgagor to recover possession of the property. The Court then reproduced a passage from the Transfer of Property Act, stating that “the framers of the Transfer of Property Act have clearly recognised the distinction between the procedure which follows a mortgagor’s desire to redeem a subsisting mortgage and the procedure which follows the arising of a usufructuary mortgagor’s right to get his property back after the principal has:been paid off.” This observation clarified that the statutory scheme treats the situation of a mortgagor seeking redemption of an existing mortgage differently from the situation where a usufructuary mortgagor’s entitlement to possession arises after the principal debt has been fully satisfied. Applying this principle, the Court held that the mortgage was not subsisting on the date when the property vested because it had already come to an end upon the full payment of the mortgage money in the year 1943. Accordingly, the Court concluded that the respondents could not invoke the benefit of section 6(1)(c) of the Act. On that basis, the Court dismissed the review petition. In view of the surrounding circumstances, the Court ordered that no costs would be awarded to either side and formally recorded the dismissal of the petition.