Brahm Parkash vs Manbir Singh And Others

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

Court: Supreme Court of India

Case Number: Civil Appeals Nos. 76 and 77 of 1961

Decision Date: 14 March 1963

Coram: N. Rajagopala Ayyangar, Bhuvneshwar P. Sinha, J.C. Shah

In this case, the Supreme Court of India delivered a judgment on 14 March 1963 in the matter of Brahm Parkash versus Manbir Singh and others. The opinion was authored by Justice N. Rajagopala Ayyangar, who sat with Justices Bhuvneshwar P. Sinha and J.C. Shah. The petitioner was Brahm Parkash and the respondents were Manbir Singh and several other parties. The case was cited as 1963 AIR 1607 and 1964 SCR (2) 324, and concerned the provisions of the Transfer of Property Act, 1882, specifically section 56 dealing with the rights of a purchaser who is also a mortgagee of another property of the same mortgagor. The headnote recorded that the mortgagor, identified only as “MS”, owned three properties designated A, B and C, and executed several mortgages over them. The appellant was among the mortgagees of properties A and B, while the mortgagee‑banker (MG) held a mortgage over property C and later purchased property B from the mortgagor. A suit for recovery of the mortgage money was filed by one of the mortgagees of properties A and B. MG asserted that the debt should first be satisfied out of property A, which had not been sold to him, invoking the doctrine of marshalling. The lower court allowed MG’s claim to marshalling. The appellant argued that section 56 of the Transfer of Property Act barred marshalling where the purchaser‑mortgagee held a mortgage on another, unrelated property of the same mortgagor, and contended that allowing marshalling would prejudice his interest. The Supreme Court held that MG was entitled to marshalling. It explained that the reference in section 56 to a “subsequent purchaser” does not exclude a purchaser who also holds a mortgage on a different property of the same mortgagor, and that the law does not presume that marshalling inevitably causes prejudice to a later mortgagee. The Court stressed that any allegation of prejudice must be examined on the facts, particularly the value of the property that the mortgagee is initially directed to enforce. Because the appellant did not raise any specific pleading regarding the value of the property or the alleged prejudice, the Court concluded that the appellant could not rely on the latter part of section 56. The judgment originated from civil appeals numbered 76 and 77 of 1961, which were appeals from a Punjab High Court decree dated 19 May 1955 in regular first appeals numbered 28, 12 and 13 of 1948. The respondents were represented by counsel named Gopal Singh for R. S. Narula and others, while the appellant’s sides were represented by counsel Achhru Ram and Naunit Lal. The Court’s order was delivered by Justice Ayyangar.

In this case, the Court noted that the deceased Mohinder Singh was represented in the proceedings by his widow and his son. The deceased had owned as many as eight properties in Delhi, and over the period from September 1943 to July 1944 he created twenty‑four mortgages on one or more of those properties and also executed a sale of one of the properties. The appeals before the Court arose from disputes between some of those mortgagees and, in one instance, the purchaser of a mortgaged property. For the purpose of deciding the issues, it was unnecessary to set out the details of every mortgage or the complete history of each transaction. The Court first considered Appeals 77 and 78, which concerned the same piece of land. The property in dispute was identified as Plot No 1, Pusa Road, Block 34, on which a bungalow stood. By a deed dated 19 October 1943, Mohinder Singh created a mortgage of Rs 10,000 over this plot and certain other properties in favour of a mortgagee named Lajwanti; the additional properties were not material to the present appeals. A few days later, on 7 November 1943, Mohinder Singh executed a second mortgage in Lajwanti’s favour for Rs 16,000, expressly charging Plot No 1, Pusa Road as security. After a number of intermediate transactions that did not affect the matters before the Court, a mortgage was granted on 21 January 1944 to Daulatram Narula, among others, securing a sum of Rs 60,000 against the same plot. Two days thereafter, on 23 January 1944, the appellant, Jagdish Chand, advanced Rs 10,000 to Mohinder Singh and obtained a mortgage on Plot No 1 as security for that loan. Daulatram Narula subsequently obtained two additional mortgages on the same property, the first on 25 February 1944 for Rs 9,500 and the second on 14 March 1944 for Rs 10,000. The Court observed that the consideration for several of the mortgages involved a part cash payment to the mortgagor and a part repayment of earlier mortgages, but the specifics of that consideration were not material and therefore were not detailed. Finally, on 13 July 1944, Mohinder Singh created a usufructuary mortgage in favour of Pandit Sham Sunder for Rs 1,25,000, reserving Rs 84,000 of that amount to be paid to Daulatram Narula as principal and interest due on his three mortgages. It was unanimously accepted that, on the date the mortgage was registered, Pandit Sham Sunder fulfilled his obligation by paying Daulatram the sum of Rs 84,000, while the amount due to Lajwanti remained unpaid, prompting further litigation.

In this case, the plaintiff initiated a suit on 14 June 1945 in the Court of the Senior Sub‑Judge of Delhi seeking recovery of the mortgage sum that remained unpaid to her after crediting the amounts already paid by several subsequent mortgagees; the balance asserted was Rs 11,657 5⁄4. She named as defendants in the suit the various subsequent mortgagees, including the appellant Jagdish Chand, as well as Daulatram and the legal representatives of Pandit Sham Sunder, the latter being deceased at the time the suit was filed. In a similar manner, another mortgagee referred to as Mukhamal, who held two mortgages dated 1 February 1944 and 12 May 1944 for Rs 10,000 and Rs 9,000 respectively, also instituted a suit for recovery of a sum of Rs 15,302 and a fraction. As in the suit filed by the first plaintiff, Mukhamal’s suit likewise impleaded the same subsequent mortgagees—Jagdish Chand, Daulatram and the legal representatives of Pt Sham Sunder—as defendants. In both suits the authenticity of the mortgages was not seriously contested; the sole dispute centered on the inter‑se rights of the various mortgagees. The appeals presently before the Court arise from the claim advanced by the legal representatives of Sham Sunder. They asserted that, because they had discharged the mortgage debt owed to Daulatram by paying him Rs 84,000 out of the total mortgage amount of Rs 1,25,000, they should be sub‑rogated to Daulatram’s rights and priorities under the mortgage dated 21 January 1944 for Rs 60,000, and that this sub‑rogation should take precedence over the later mortgage dated 23 January in favor of Jagdish Chand, even though no written agreement expressly provided for such a right. This contention was raised in both the suit of the first plaintiff and in Mukhamal’s suit. It was argued on their behalf that, although the Transfer of Property Act did not directly apply, the equitable principle embodied in its section 92—the principle that a secured creditor who has redeemed a prior encumbrance may be sub‑rogated to the rights and priorities of the mortgagee whose charge he has discharged—could be invoked under section 6 of the Punjab Laws Act. The trial judge, while agreeing in principle with this equitable view, relied on certain authorities and held that, in the absence of a specific agreement providing for sub‑rogation, the subsequent mortgagee could not claim that equity. Consequently, the trial judge rejected the claim for sub‑rogation made by the legal representatives of Sham Sunder. Following the rejection of that claim in both suits, the representatives of Sham Sunder appealed to the High Court. The learned judges of the High Court allowed the appeal, holding that a written agreement expressly stipulating sub‑rogation was not an essential condition for a creditor who redeems a mortgage to claim the right of sub‑rogation. The present appeals arise from that High Court decision. Counsel for the appellant did not dispute the correctness of the High Court’s view that a written agreement was not a necessary condition for entitlement to sub‑rogation.

The appellant did not dispute the correctness of the view expressed by the learned judges of the High Court that, in order to entitle a creditor to claim a right of sub‑rogation, it was not essential that the creditor had entered into a written agreement expressly stipulating such a right. He then set out his argument in detail. He accepted the legal principle articulated by Sir Richard Couch in Gokuldass Gopaldass v. Ram Bux Scochand, where it was observed that the practice of conveyancing in India was extremely simple and that a formal transfer of a mortgage or an explicit intention to keep the mortgage alive was rarely, if ever, expressed in writing. The essential question, according to that authority, was to determine the intention of the party who paid off the charge: whether he intended merely to extinguish it or intended to preserve it in order to retain the priority that the discharged encumbrance formerly enjoyed. In the absence of express evidence, the ordinary rule was that a person entitled to act in either of two ways would be presumed to act in accordance with his own interest. The classic illustration involved a life‑tenant who, on paying off a charge affecting his inheritance, was presumed, unless evidence showed otherwise, to have intended to keep the charge alive for his own benefit. The authority further explained that this presumption applied irrespective of whether the property interests were divided by life estate and remainder or by successive charges, and that it could be advantageous for the owner of a partial interest to maintain a charge on the corpus that he had paid.

Building on that principle, counsel for the appellant submitted that the law presumes a right of sub‑rogation even where there is no express agreement, on the basis that the payer is assumed to act in the manner most advantageous to himself. However, he emphasized that this presumption was rebuttable and could be displaced by positive proof, either from the conduct of the creditor or from explicit statements indicating a contrary intention. In other words, if it could be shown that the creditor who paid off the charge did not intend to preserve the mortgage that he had discharged, the presumption of sub‑rogation would fail. He argued that, in the present case, the documents to which Sham Sunder was a party clearly demonstrated such an intention not to keep the discharged encumbrance of Daulatram alive. To support this contention, he referred first to the terms of the mortgage executed in favour of Sham Sunder on 13 July 1944, in which the sum of Rs 84,000 left with the mortgagee was described as being held in trust for the payment of the earlier encumbrance of Daulatram.

In the mortgage executed on July 13 1944, the document described the sum of Rs 84,000 as being held by the mortgagee in trust for the payment of the earlier encumbrance of Daulatram. The petitioner then drew attention to the discharge endorsements on Daulatram’s mortgages, which were worded so that they appeared to show the amount being paid by Sham Sunder on behalf of the mortgagor, Mohinder. On this basis the petitioner argued that any intention to claim the benefit of subrogation was clearly denied.

The Court did not intend to examine the merits of that argument, and it was satisfied that the appellant should not be allowed to raise such a point at this stage of the proceedings. In both suits, the legal representatives of Sham Sunder filed written statements expressly declaring that the discharge of Daulatram’s encumbrances was made under circumstances that entitled them to claim subrogation. Whether a prior encumbrance is discharged with a view to retain the priority of the mortgage that has been paid, or for some other purpose, is a question of fact that must be answered by considering the entire set of circumstances of the case.

If the appellant wished to dispute the claim of Sham Sunder’s representatives that the intention behind discharging Daulatram’s mortgages was to retain the benefit of subrogation, the appellant should have raised that issue by proper pleading so that the issue could be framed and evidence could be led for and against it. At the trial, the sole objection to the claim for subrogation was the alleged absence of a written agreement, which the appellant contended was a statutory requirement that had not been fulfilled. That plea implicitly assumed that the party paying off the mortgage intended to obtain subrogation but had failed to put that intention into a written document.

The trial judge accepted this objection and disallowed the claim for subrogation, prompting Sham Sunder’s representatives to appeal to the High Court. On appeal, the only contention again centred on the supposed requirement of a written agreement. When the High Court rejected that plea, it became apparent that, on the pleadings, the right to subrogation was established. Nonetheless, even at the stage of the present appeal, no argument was made that the presumption in favour of a party who acted for his own interest—and therefore could claim subrogation—was displaced by clear evidence of the party’s statements or conduct. Moreover, no such plea appears in the statement of case filed in these appeals, and consequently the Court will not permit the learned counsel to raise that ground now.

The Court observed that no ground raised in the appeals was properly before it and therefore it would not allow counsel to rely on any such argument. The sole point advanced in these appeals was rejected, and the appeals were dismissed with costs, one set of costs being ordered payable to the executors of the will of Pt. Sham Sunder. This judgment concerns Civil Appeal 76 of 1961, which stems from the suit instituted by Lajwanti that has already been referenced. The appellant in the present appeal is Brahm Parkash, in whose favour Mohinder Singh executed a mortgage for fifteen thousand rupees on 2 May 1944. The mortgaged property comprised plot No. 44 in Block 17 A together with its superstructure and plot No. 19 in Block 5. In the earlier suit, Brahm Parkash appeared as the twentieth defendant. Separately, Mohinder transferred plot No. 14 in Block 13 to Mukhamal Gokul Chand by deed dated 28 April 1944; the claim that Mukhamal is entitled to marshalling of the mortgage is the principal controversy before this Court. As previously noted, Lajwanti’s mortgage dated 19 October 1943 for ten thousand rupees included several properties, among them plot No. 14, which had been sold to Mukhamal on 28 April 1944. Mukhamal, having been impleaded as a subsequent transferee in Lajwanti’s suit, asserted that he could claim marshalling under section 56 of the Transfer of Property Act, which provides that where an owner mortgages several properties to one mortgagee and then sells one or more of those properties to another purchaser, the purchaser, unless a contrary agreement exists, may have the mortgage debt satisfied from the unsold properties to the extent that it does not prejudice the mortgagee, his successors, or any other person who has acquired an interest for consideration. The trial judge rejected Mukhamal’s claim, though the reasons for the rejection were not essential to the present discussion. Mukhamal appealed to the High Court, repeating his prayer for marshalling, and the High Court judges upheld his contention, directing that Lajwanti first pursue the mortgage against plot 44 and only after that, and only for any remaining deficiency, against plot 14 which Mukhamal had purchased. Brahm Parkash challenges the correctness of that direction in the present appeal. Mukhamal did not appear, and the appeal was heard ex parte. Before addressing the validity of the marshalling direction, it is necessary to note an additional fact: Mukhamal’s earlier appeal to the High Court—appeal 28 of 1948—was filed out of time, and a petition for condonation of delay under section 5 of the Indian Limitation Act was presented. The High Court judges, after considering the petition, condoned the delay and entertained the appeal. The present appeal therefore also raises the question of the legality and propriety of that condonation, which counsel for the appellant has raised before this Court.

The order that condoned the delay is presently before us, having been urged by counsel for the appellant. The material facts that bear on this point may be summarised as follows. The preliminary decree of the trial judge, from which Appeal No 28 of 1948 arose, was dated 28 April 1947. An application for certified copies of that decree was filed on 16 October 1947 and the certified copies were ready for delivery on 28 October 1947. Nevertheless, the appeal was not actually presented until 10 March 1948, which was after the limitation period had expired. The appellant sought condonation of this delay by filing an application before the High Court, supported by an affidavit sworn by a person named Amar Nath. Before reproducing the contents of that affidavit, it is necessary to note that the legislature, by the East Punjab Act 16 of 1947, excluded the period from 19 September 1947 to 15 November 1947 from the computation of limitation for any purpose under the Limitation Act, including section 5. In the affidavit, it was stated that the firm of Gokul Chand had handed the required papers to their munim about 1 November 1947 with a view to filing an appeal. The munim, who was a Muslim, subsequently left for Pakistan without delivering the certified copies of the judgment to the parties. Those copies were only received from Pakistan on 4 March 1948, a few days before the affidavit was sworn, and the appeal was filed at Simla on 10 March 1948. The learned judges, in considering the application, observed: “In 1947‑48 unprecedented events occurred in Delhi, resulting in the whereabouts of close relations being unknown for months. In the present case there is no record showing that the affidavit of Amar Nath was untrue in any respect. Accordingly, I have no doubt that sufficient cause existed for the failure to file the appeal in time. In these circumstances I condone the delay in filing the appeal—Regular First Appeal No 28 of 1948.” Counsel for the appellant contended that the learned judges had failed to require the petitioner to explain each day's delay, thereby departing from the established tests for condonation under section 5 of the Limitation Act. The Court, however, is not persuaded that the judges were unaware of the principles governing excuse of delay, nor that they erred in exercising the discretion that they rightly possessed. Consequently, the Court does not consider this a suitable case for interference on appeal. Turning to the merits of the appeal, counsel for the appellant vigorously argued that the High Court judges had misapplied the principles underlying the relevant provision.

In the matter before the Court, the issue concerned the application of section 56 of the Transfer of Property Act to the order that Lajwanti should first proceed against the property that had not been sold to Gokul Chand. Counsel for the appellant presented two separate arguments. The first argument asserted that, when section 56 is properly construed together with its underlying principle, a purchaser who also happens to be a mortgagee of some other property belonging to the mortgagor could not claim the benefit of marshalling. Counsel highlighted that Mukhamal Gokul Chand held a mortgage under a deed dated 9 February 1944 over certain properties that were unrelated to the present proceedings. The Court found this allegation to be without merit. It observed that the reference in section 56 to a “subsequent purchaser” does not automatically exclude a purchaser who simultaneously holds a mortgage over a different property of the same mortgagor. The mortgage rights concerning the unrelated property were deemed irrelevant for determining the purchaser’s rights under the opening words of section 56. Consequently, the Court rejected the construction proposed by counsel.

The second argument advanced by counsel was that the High Court judges had failed to give effect to the final clause of section 56, which provides that marshalling should not be permitted if it would prejudice the rights of mortgagees or other persons claiming under the original mortgagor. Counsel contended that, because the appellant had proved the existence and continuation of his mortgage, any direction to marshal the properties would necessarily prejudice him. The Court disagreed, stating that the question of prejudice is a factual matter, not a pure question of law, and must be pleaded and substantiated with evidence. Prejudice would depend on the value of the property against which the mortgagee was directed to proceed first. If, after satisfying the mortgage, sufficient value remained to satisfy the subsequent encumbrancer mentioned in the last part of section 56, no prejudice would arise. The appellant neither pleaded regarding the property’s value nor produced evidence on that point. Moreover, during the High Court appeal, the appellant never argued that allowing marshalling in favor of the subsequent purchaser, Mukhamal, would prejudice his rights. Since the issue hinged on factual adequacy of the mortgaged property to discharge the debt rather than a pure legal principle, the Court found it untimely for the appellant to raise such a plea at this stage.

In its reasoned order, the Court observed that the appellant had failed to present the objection concerning the alleged prejudice at any earlier stage of the proceedings, and consequently the submission was deemed to have been made too late to be considered by this Court. The Court therefore concluded that the appellant could not rely on the argument at this juncture, as the procedural rules require that such pleas be raised as soon as the relevant facts become known and before the matter is advanced to this level of review. On the basis of this finding of untimeliness, the Court held that the appellant’s challenge could not be entertained. As a result, the Court determined that the appeal could not succeed and ordered that it be dismissed. The dismissal was entered with finality, and the Court affirmed that no further remedy lay available to the appellant in the present proceedings. Accordingly, the appeal was dismissed in its entirety.