Manimala Devi vs Indu Bala Debya and Ors

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 560 of 1960

Decision Date: 3 December 1963

Coram: J.C. Shah, M. Hidayatullah, Subbarao

In this case the Supreme Court of India, composed of Justices J.C. Shah, M. Hidayatullah and Subbarao, delivered its judgment on 3 December 1963. The petition was filed by Manimala Devi and the respondents were Indu Bala Debya and others. The citation of the decision is 1964 AIR 1295 and 1964 SCR (5) 635. The matters discussed involved the Limitation Act (IX of 1908), section 20 and article 116, together with section 68 of the Transfer of Property Act (IV of 1882). The headnote sets out the factual background and the legal issues that were finally decided.

According to the facts, one Rajkumar Singh—referred to in the judgment as “the mortgagor”—was the proprietor of three separate properties designated A, B and C. He obtained a loan from a lender named Rabindra Nath and, to secure that loan, executed a deed of mortgage over properties A and B. In that deed he also undertook a personal liability to pay the loan and agreed that, if he failed to pay by the stipulated due date, the mortgagee would be entitled to recover the debt by selling properties A, B and C. Subsequently, the mortgagor created a second mortgage to secure another sum borrowed from Sasindra Nath and Indra Nath. That second mortgage stipulated that the loan must be repaid on or before a fixed date and further provided that the mortgagees could receive a royalty arising from the use of property C.

Five years after the first mortgage, the mortgagor assigned his interest in property A to a third party. About three months after that assignment he assigned his interest in another property—identified in the original record as the remaining mortgaged interest—presumably property B. Following this assignment an endorsement indicating a part‑payment was entered on the first mortgage deed. Later the mortgagor’s title to property C was sold at a court auction; the purchaser subsequently took possession of that property. Prior to that auction the mortgagor had made another part‑payment on the loan, and an endorsement reflecting this payment was also entered on the mortgage bond.

Subsequently the appellant—who had obtained assignments of the rights of the mortgagees under both mortgage deeds—filed a suit seeking a decree for the enforcement of the two mortgages by compelling the sale of the mortgage properties. The suit was filed more than twelve years after the date on which the mortgage amounts became payable. The trial court rejected the defendants’ plea that the action was time‑barred and granted a decree in favour of the appellant. On appeal, the fourth defendant challenged the decree and the High Court reversed the trial court’s decision, dismissing the suit on the ground of limitation.

The Supreme Court held that the High Court was erroneous in its view that only the mortgagor’s interest in properties A and B had been mortgaged. The Court explained that when a mortgagor’s equity of redemption is transferred by assignment, sale or any other mode to a person who is not a “person liable to pay the debt” within the meaning of section 20 of the Limitation Act, the limitation period is not extended by that transfer. Consequently, a part‑payment made by the mortgagor or a transfer or assignment of his interest in the mortgaged property does not restart or prolong the limitation period prescribed in section 20. The Court relied on the earlier decision in Pavai v. Palanivela Goundan, I.L.R. [1940] Mad. 872, for this principle. Finally, the Court observed that the right created by section 68 of the Transfer of Property Act is not a right to enforce the mortgage itself; rather, it is a right to sue for the mortgage money on the personal covenant or to claim compensation when the mortgagee is deprived of his security. Accordingly, the suit for enforcement of the mortgage remained subject to the limitation period governed by article 116 of the Limitation Act, and the earlier decree was restored.

The Court observed that the right created by section sixty‑eight of the Transfer of Property Act was not a right to enforce the mortgage itself. Instead, it was a right to bring an action for the repayment of the mortgage money based on the personal covenant, or to claim compensation if the mortgagee was deprived of his security. Accordingly, a suit for enforcing the personal covenant fell under article one hundred sixteen of the Limitation Act, 1908, while a suit for enforcing a claim for compensation was governed by article one hundred twenty of the same Act. The principle was illustrated by reference to Unichaman v. Ahmed, I.L.R. 21 Mad. 242.

The appeal arose under civil appellate jurisdiction as Civil Appeal No. 560 of 1960. It challenged the judgment and decree dated 18 July 1955 rendered by the Patna High Court in appeal from original decree No. 500 of 1947. Counsel for the appellant was identified, as was counsel for respondent No. 1, and the appeal was decided on 3 December 1963. The judgment was delivered by Justice Shah. The appellant, Rajkumar Ran Bahadur Singh, was thereafter referred to as “the mortgagor.” He owned a five‑anna share in Tauzi No. 16 of Mauza Bansjora, an eight‑anna share in Mauza Simitanr, and an undivided interest in Mauza Bahaldih, all situated in District Manbhum. From his holding in Mauza Bahaldih, the mortgagor leased two hundred bighas of coal‑bearing land to lessees for an annual royalty of two thousand rupees, which was payable in two equal instalments: the first in the month of Aswin of the Vikram year and the second in the month of Chaitra.

On 14 June 1922, the mortgagor borrowed five thousand five hundred rupees from Rabindra Nath Chakravarty. In consideration of the loan, he executed a deed of mortgage whereby he undertook personally to repay the amount, and he mortgaged his shares in Mauzas Bansjora and Simitanr to secure repayment together with interest calculated at one eighth of a rupee per month. The deed also stipulated that, in the event of default, the mortgagee could recover the debt by selling the mortgagor’s interest in Mauza Bansjora, Simitanr and Bahaldih. Additionally, the mortgagor agreed that the mortgagee would be entitled to receive the royalty due from the mining‑lease tenants in Mauza Bahaldih for the month of Aswin. Subsequently, by another deed dated 27 August 1922, the mortgagor created a second mortgage in favour of Sasindranath Chakravarty and Indra Nath Chakravarty to secure the same sum of five thousand five hundred rupees and the accompanying interest. The covenants in this later deed were substantially identical to those of the earlier deed, except that the mortgagees were to receive the royalty instalment payable in Chaitra with respect to Mauza Bahaldih. Both mortgage deeds fixed the final date for repayment as 14 April 1925.

Later, on 17 May 1927, the mortgagor assigned his interest in Mauza Bansjora to Mahendra Nath Rai, and on 2 October 1927 he assigned his interest in Mauza Simitanr to Pushpa Moyee Devi. Following the execution of a money decree against the mortgagor, his right, title and interest in Mauza Bahaldih were sold on 16 January 1937. After confirmation of that sale, possession of Mauza Bahaldih was taken by the successful auction‑purchaser on 7 April 1937. The record then notes that two further deeds were dated, the details of which continue beyond the present excerpt.

Manimala Devi obtained assignments of the mortgagees' rights under two deeds dated June 14, 1922, and August 27, 1922, on June 18, 1946. She then instituted a suit on July 12, 1946, in the Subordinate Judge's Court at Dhanbad, seeking a decree for the enforcement of both mortgages by selling the mortgaged properties. The defendants named in the suit included the representatives of the original mortgagees, the heirs of the mortgagor, and several alienees claiming interest in the mortgaged land. Because the suit was filed more than twelve years after the date on which the mortgage principal and interest became due, it appeared at first glance to be barred by the limitation law. Nevertheless, the plaintiff argued that the limitation period should be extended by relying on certain part payments made by the mortgagor toward the mortgage obligations. The deed dated June 14, 1922, bore an endorsement dated April 1, 1937, showing that the mortgagor had paid Rs. 600 as interest, and this endorsement bore his signature. Similarly, the mortgage deed of August 27, 1922, contained an endorsement dated August 16, 1934, indicating a payment of Rs. 100, also signed by the mortgagor. The plaintiff relied on these two endorsements as evidence of part payments to argue that the limitation period for both mortgage claims should be extended. The trial judge rejected the defence raised by the defendants and held that the suit based on the first mortgage was not time‑barred because the mortgage was partly simple and partly usufructuary. The plaintiff could not rely on part payment of principal or interest to extend the limitation, however the judge held that the dispossession of the mortgagee on April 7, 1937, by the auction‑purchaser created a fresh cause of action that fell within the limitation period. Consequently, the trial court concluded that the suit to enforce the first mortgage was timely and could proceed. Regarding the second mortgage dated August 27, 1922, the judge held that the claim was within the limitation period because of the part payment of Rs. 100. He also considered that the dispossession of the mortgagee with respect to the Bahaldih property supplied an additional cause of action inside the limitation.

The fourth defendant, the widow of Mehandra Nath Rai, appealed to the Patna High Court, which set aside the trial court's decree and dismissed the plaintiff's suit. The High Court reasoned that the plaintiff's plaint did not rely on dispossession as a ground for extending the limitation period, and therefore that basis could not be accepted. It further held that Mauza Bahaldih had not been expressly mortgaged to the mortgagees under either of the two mortgage deeds. Consequently, the High Court concluded that the dispossession of the mortgagees from Mauza Bahaldih could not operate to extend the limitation. It also held that any part payments made after the mortgagor had transferred his interest in the other mortgaged properties could not serve to extend the limitation period. The appellate court therefore affirmed that the plaintiff could not base her claim on either the alleged mortgage of Bahaldih or on the subsequent part payments because both were deemed inapplicable to the limitation analysis. Accordingly, the appeal was allowed and the decree of the Subordinate Judge was set aside, leaving the plaintiff without any relief or enforcement of the mortgages. The court emphasized that a mortgage must expressly include the property in question for part payments or dispossession of that property to affect the limitation, a condition it found was not satisfied.

In this case the High Court had concluded that the defendant’s argument could not be used to lengthen the limitation period applicable to the suit. The Court further determined that even if the land known as Mauza Bahaldih was included among the mortgaged properties, the mortgagor had already surrendered his interest in Mauza Bahaldih as well as in Mauzas Bansjora and Simitanr before the payment of six hundred rupees on 1 April 1937, a fact that was demonstrated by an endorsement on the first mortgage deed. Because of this loss of interest, the plaintiff’s action to enforce the mortgage dated 27 August 1922 was held to be barred by the limitation law. The plaintiff subsequently appealed to the Supreme Court, having obtained a certificate of appeal from the High Court. The primary issue for consideration was whether Mauza Bahaldih had in fact been mortgaged under the two mortgage deeds that were the subject of the dispute. Shortly after executing those deeds, the mortgagor transferred his rights in Mauzas Bansjora and Simitanr to others. For the reasons that the Court would later explain, the mortgagor could not, by making partial payments, attempt to extend the limitation period against the person who had received the assigned interest after he himself no longer possessed the mortgaged property. The two partial payments, made on 16 August 1934 and on 1 April 1937, could have operated to extend the limitation period only if the mortgagor still owned the mortgaged land or any part of it on those dates. Consequently, the plaintiff could rely on an extension of limitation by way of part payments only if the mortgagor’s interest in Mauza Bahaldih remained mortgaged at the times of those payments, because the mortgagor’s interest in Mauzas Bansjora and Simitanr had been assigned to strangers many years before those payments were effected. The Court observed that the two mortgage deeds were substantially identical, and that any minor differences in their covenants did not affect the matters that had to be resolved in the appeal. Accordingly, the Court set out the essential recitals and clauses of the mortgage deed dated 14 June 1922 for further analysis.

The deed began with a preamble clause stating that Tauzi No 16 of the collectorate and district of Mandhum comprised the zamindari interest that the mortgagor had acquired upon the death of his father, and that the mortgagor was at liberty to transfer, encumber, or sell the entire property included in Tauzi No 16 at his discretion. Paragraph 4 of the deed recorded the mortgagor’s undertaking to pay interest at the rate of one rupee eight annas per cent per month on the sum of five thousand five hundred rupees that he had borrowed. Paragraph 5 acknowledged that the mortgagor was unable to pay the interest annually on the borrowed amount, and therefore he agreed that the tenants of the coal fields situated in Mauza Bahaldih, with whom he had settled mining operations within the zamindari, would continue to remit one thousand rupees to the mortgagee as part of one installment covering rent, minimum royalty, and commission that were due to the mortgagor according to the terms of their contracts. Paragraph 7 further stipulated that the mortgagor had assigned the amounts due from certain tenants, thereby providing a mechanism for the mortgagee, in the event of default by the tenants, to realize the unpaid sums. The deed also required the mortgagor to issue notices to the tenants demanding payment in accordance with the assignment. These clauses formed the basis for the Court’s subsequent examination of the parties’ rights and obligations under the mortgage agreements.

According to the deed, the instalments listed in the schedule were to be applied as interest in order to secure the peaceful recovery of an annual interest amounting to Rs. 1,000 each year. The mortgagee was given the authority to enforce the recovery of this amount if the tenants failed to make payment. The mortgagor additionally promised to serve notices on the tenants, urging them to pay the sums that had been assigned to the mortgagee. Paragraph 9 stipulated that, should any tenant default, the mortgandor would compensate the mortgagee for the portion of the amount that remained unrealised. Paragraph 12 imposed a prohibition on the mortgagor: until all amounts due were fully repaid, the mortgagor could not gift, sell, transfer, encumber, create a banami, or make any permanent settlement of the mortgaged lands described in Schedule (kha), namely the Mauzas of Bansjora and Simitanr. Any such alienation would be deemed null and void. The mortgagor further declared that those two Mauzas had not been encumbered to any other person and that he was in peaceful possession of the property described in Schedule (ka), which is Mauza Bahaldih, and that he was collecting the rents there without disturbance.

Paragraph 14 affirmed that the lands listed in Schedule (kha) were to remain mortgaged at all times, serving as security for the repayment of both interest and principal owed to the mortgagee, with the amount and interest bearing a first charge over those lands. The deed contained the provision that, “should any cause of action arise,” the mortgagee would be entitled to recover the full outstanding sum together with interest and costs by selling the properties identified in Schedules (ka) and (kha) through a legal action. If the sale of those lands failed to yield the entire debt, the mortgagee could also seek recovery from other movable and immovable property belonging to the mortgagor. Paragraph 13 required the mortgagor to pay the principal and interest that fell due on or after 14 April 1925. The mortgagor acknowledged receipt of an advance of Rs. 5,500 under each of the two deeds and agreed to pay interest at the rate of Rs. 1/8/- per cent per mensem. An arrangement was made for the mortgagee to recover the interest on the debt from the Rs. 1,000 instalments that represented royalty on Mauza Bahaldih. A covenant stipulated that, if the mortgagee could not obtain the royalty from the tenants, the mortgagor would make good the shortfall. The deed also contained a covenant in each of the two documents obligating payment of principal and interest on or after the same date in April 1925. The deed distinguished between the Mauzas of Bansjora and Simitanr on the one hand and Mauza Bahaldih on the other, and paragraph 12 specifically bound the mortgagor not to transfer or assign Bansjora and Simitanr to any other person, while merely assuring the mortgagee of his compliance.

The Court observed that the mortgagor had not transferred the rights in Mauza Bahaldih by any encumbrance to any other person up to the date of the mortgage. However, the Court noted that this distinction was immaterial for determining the character of the instrument. The Court explained that even if there had been no covenant prohibiting the mortgagor from assigning his interest, any transfer of Mauzas Bansjora and Simitanr made while the mortgage remained outstanding would still be subject to that mortgage.

In paragraph fourteen of the deeds, the Court pointed out that the document stated that, as security for the repayment of principal and interest, Mauzas Bansjora and Simitanr were to stand mortgaged. The Court recognized that this wording might, at first glance, suggest that only those two mauzas were mortgaged. Nevertheless, the same paragraph contained a covenant whereby, if any cause of action arose, the mortgagee would be empowered to recover the full amount due, together with interest and costs, by selling Mauzas Bansjora, Simitanr and Bahaldih. The Court held that the mortgagee could not sell the mortgagor’s interest in Bahaldih to satisfy the mortgage claim unless that interest had also been mortgaged. Consequently, the Court concluded that the covenant clearly intended to encumber all three mauzas—Bansjora, Simitanr and Bahaldih. The Court therefore found that the High Court had erred in deciding that only the mortgagor’s interest in Bansjora and Simitanr was mortgaged.

The Court then turned to the question of limitation, holding that the earlier finding regarding the mortgagor’s interest in Bahaldih meant that the later mortgage, executed on 27 August 1992, was subject to the same analysis. The amount due under that mortgage became payable on 14 April 1925. On 16 August 1934, the mortgagor paid Rs 100 and endorsed the mortgage‑bond with his signature. The Court noted that this payment did not extinguish the mortgagor’s interest in Bahaldih. Under Article 132 of the Limitation Act, Schedule 1, a suit to enforce a monetary charge on immovable property must be filed within twelve years from the date the money becomes due. Since the money under the later mortgage became due on 14 April 1925, the suit filed by the plaintiff was within the limitation period.

Finally, the Court considered the effect of the payment under Section 20 of the Limitation Act. That provision provides that if a debtor or his authorized agent makes a payment before the prescribed period expires, a fresh limitation period starts from the time of that payment. The Court observed that the mortgagor had transferred his interest in Bansjora on 17 May 1927 and in Simitanr on 2 October 1927. A mortgagor who has assigned, sold or otherwise transferred his equity of redemption is not the “person liable to pay the debt” within the meaning of Section 20. Consequently, a part payment made by such a mortgagor does not extend the limitation period against the transferee of the equity of redemption. The Court thus held that, because the mortgagor’s interest in Bahaldih remained on the date of the Rs 100 payment, that payment—made within twelve years of 14 April 1925—prevented the plaintiff’s claim under the mortgage dated 27 August 1922 from being barred by limitation.

In this case the Court observed that a part payment made by a mortgagor after he had transferred or assigned his entire interest in the mortgaged property does not restart the limitation period for enforcing the mortgage against the new holder of the equity of redemption. The reason is that, at the time of the payment, the person making it is no longer “the person liable to pay” the mortgage debt because he has relinquished all of his interest in the mortgaged land. The Court agreed with the decision in Pavavi v. Palanivela Goudan that a mortgagor who has completely lost his interest cannot, by paying interest or principal, bind the person who now holds that interest under section twenty of the Limitation Act. However, the Court noted that the mortgagor’s interest in Mauza Bahaldih was still subsisting when he paid Rs 100 towards principal and interest, and that this payment was made within twelve years of the debt becoming due on 14 April 1925. Consequently, the plaintiff’s claim to enforce the mortgage dated 27 August 1922 was not barred at the date the suit was filed. The mortgage dated 14 June 1922 required repayment on 14 April 1925, and on 1 April 1937 the mortgagor paid Rs 600 to the mortgagee; the mortgage deed was endorsed to reflect that payment. At that moment the twelve‑year period starting from 14 April 1925, as provided by Article 132 of the Limitation Act, had not yet expired. Nevertheless, before that date the mortgagor had already lost his interest in all the mortgaged properties: in Mauza Bansjora on 17 May 1927, in Mauza Simitanr on 21 October 1927, and in Mauza Bahaldih by an auction sale that became effective on 16 January 1937. Because the mortgagor’s interest in the first mortgage properties had been extinguished, any part payment made after that loss could not extend the limitation period, a point the Court reiterated from earlier authority. The plaintiff did not rely on any other part payment made before the transfer of the mortgagor’s interest to argue for an extension of the limitation period. Instead, the plaintiff argued that the sale of the mortgagor’s interest at a court auction and his subsequent dispossession constituted a fresh cause of action for enforcing the mortgage.

The plaintiff further contended that the mortgage deed dated 14 June 1922 had created a usufructuary mortgage over the mortgagor’s interest in Mauza Bahaldih, and that, under paragraph 7 of the deed, the mortgagor was deemed to remain in possession until his interest was sold. Relying on section 68(1)(b) of the Transfer of Property Act, the plaintiff asserted that the mortgagee’s dispossession of Mauza Bahaldih, which resulted from the sale effected under the money decree against the mortgagor, gave rise to a new cause of action for the mortgagee to enforce the mortgage. The plaintiff maintained that this cause of action arose at the moment of dispossession and that the suit, having been filed within twelve years of that dispossession, was timely. The Court examined these arguments in light of the limitation provisions and the effect of the mortgagor’s loss of interest, and considered whether the dispossession could indeed restart the limitation clock for a new enforcement action.

In this case, the Court explained that a suit to enforce a mortgage was subject to Article 132 of the Limitation Act, which required that the action be commenced within twelve years from the date on which the money claimed became due, unless the limitation period was lawfully extended under the provisions of Part III of the same Act. The Court noted that the dispossession of the mortgagee was not listed among the statutory reasons that permitted an extension of the prescribed period for filing a suit. The Court then turned to Section 68 of the Transfer of Property Act, observing that this provision granted a mortgagee the right to sue for the mortgage money in only four specific situations and in no other circumstances. The four situations were: (a) where the mortgagor had expressly bound himself to repay the mortgage money; (b) where, for reasons other than any wrongful act or default by either the mortgagor or the mortgagee, the mortgaged property was wholly or partially destroyed or the security became insufficient as defined in Section 66, and the mortgagee had given the mortgager a reasonable opportunity to provide additional security, which the mortgager failed to do; (c) where the mortgagee was deprived of all or part of his security because of a wrongful act or default by the mortgager; and (d) where the mortgagee, being entitled to possession of the mortgaged property, was denied delivery of that possession by the mortgager, or where the mortgager failed to secure possession for the mortgagee without disturbance from the mortgager or any person claiming a superior title. The Court stressed that Section 68 did not address the limitation period for filing a suit, nor did it provide any mechanism for extending the limitation period prescribed by the Limitation Act. Moreover, the Court clarified that the right created by Section 68 was not a right to enforce the mortgage itself; rather, it was a right to sue for the mortgage money based on the personal covenant, or to claim compensation when the mortgagee’s security was wrongfully taken away. Accordingly, when a mortgager had bound himself to repay the debt, a suit to enforce that personal covenant was governed by Article 116 of the Limitation Act. In contrast, where the mortgagee’s security was lost, or where possession was not delivered as agreed, the mortgagee’s claim was one for compensation, and the limitation period for such a claim was governed by Article 120 of the Limitation Act, which began to run from the date of the destruction or deprivation of the security or possession, not from the date when the mortgage money became payable. The Court cited the decision in Unichaman v. Ahmed to illustrate this principle. Finally, the Court assumed, for the purpose of its analysis, that the two deeds in question had placed the mortgagees in possession of the right to recover royalty in respect of Mawza Bahaldih, and that the sale of that property under a civil‑court decree amounted to a deprivation of the security or a disturbance of possession by the mortgagor’s creditors, an act that had occurred in 1937.

In the matter concerning the property in Bahaldih, the Court observed that the sale of that property, which had been carried out to enforce a decree of a Civil Court, amounted to a deprivation of the security and a disturbance of the possession of the creditors of the mortgagor. The dispossession of the property had occurred in the year 1937. Accordingly, a suit that was filed on 12 July 1946, which was presented as an action to enforce a claim for the recovery of the mortgage money under section 68 of the Transfer of Property Act, was held to be barred by the applicable law of limitation.

On the basis of this finding, the Court partially allowed the appeal. It set aside the decree that had been passed by the High Court and directed that a new decree be issued in favour of the plaintiff, but only with respect to the mortgage dated 27 August 1922. The trial Court was instructed to draw up an appropriate decree to that effect. The appeal of the plaintiff concerning the mortgage dated 14 June 1922 was dismissed. The plaintiff was ordered to pay the costs of the fourth defendant, who was the sole party to defend the appeal. Conversely, the plaintiff was awarded her costs in relation to the mortgage dated 27 August 1922, and those costs were to be recovered from the heirs of the original mortgagor and from the transferees‑in‑interest of the property that constituted the subject‑matter of that mortgage. The Court therefore allowed the appeal in part.