Muramlal vs Dev Karan

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 484 of 1961

Decision Date: 8 May, 1964

Coram: P.B. Gajendragadkar, M. Hidayatullah, K.C. Das Gupta, J.C. Shah, Raghubar Dayal

In this case the Supreme Court of India recorded that the dispute concerned a mortgage executed in the State of Alwar in 1919. The mortgagor, Muramlal, had conveyed a shop to the mortgagee, Dev Karan, and the mortgage deed contained a stipulation that if the debt of Rs 6,500 was not repaid within fifteen years, the mortgagee would become the absolute owner of the shop. The respondent, Dev Karan, contended that the transaction was a mortgage and that he retained the right to redeem the property even after the fifteen‑year period had expired. The appellant, Muramlal, opposed the suit on the ground that the arrangement amounted to a sale rather than a mortgage, thereby precluding any right of redemption. The trial judge dismissed the redemption suit, holding that the claim could not be maintained after the stipulated period had elapsed. On appeal, the Rajasthan High Court reversed the trial judge’s decision, describing the fifteen‑year stipulation as a clog on the equity of redemption and remanding the suit for further consideration. The contested clause read: “After the expiry of the stipulated period of 15 years this shop would be deemed as an absolute transfer ‘Mala Kalam’ for this amount. Till the mortgage money is paid, I shall have no concern with the shop.” The Supreme Court observed that, if the stipulation were given effect, the phrase ‘Mala Kalam’—meaning there would be no scope for the mortgagor to object—would render the mortgagee the absolute owner. However, because the stipulation clearly operated as a clog on the equity of redemption, it could not be upheld and the suit for redemption should succeed. The Court further held that the equitable principle of justice, equity and good conscience, long applied by civil courts in India, was applicable in Alwar even though the Transfer of Property Act did not govern the territory at the time the mortgage was executed or when the period expired. Rigid provisions of Hindu law were deemed irrelevant. The judgment relied on several authorities, including Namdeo Lokman Lodhi v. Narmadabai, [1953] S.C.R. 1009; Pattabhiramier v. Vencatarow Naicken and Narasimha Naicken, (1870) 13 M.I.A. 560; Thumbusaway Moodelly v. Hossain Rowthen, I.L.R. I Mad. 1; Venkata Reddy v. Parvati Ammal, I Mad. H.C. Rep. 460; Ramji bin Tukaram v. Chinto Sakharam, I Bom. H.C. Rep. 199 (1864); Bapuji Apaji v. Senavaraji Marvadi, I.L.R. 11 Bom. 231; Ramasami Sastrigal v. Samiyappanayakan, I.L.R. 4 Mad. 179; Amba Lal v. Amba Lal, I.L.R. 1957 Raj. 964; Seleh Raj v. Chandan Mal, I.L.R. 1960 Raj. 88; and Nainu v. Kishan Singh, A.I.R. 1957. The citation for the case is 1965 AIR 225 and 1964 S.C.R. (8) 239, and the bench comprised Chief Justice P.B. Gajendragadkar, Justice M. Hidayatullah, Justice K.C. Das Gupta, Justice J.C. Shah, and Justice Raghubar Dayal.

In this matter, the Supreme Court exercised its civil appellate jurisdiction to hear Civil Appeal No 484 of 1961, which was taken by special leave from a judgment and decree dated 28 March 1958 rendered by the Rajasthan High Court, Jaipur Bench, in the first appeal numbered 64 of 1951. The appeal was argued by counsel for the appellants, while counsel for the respondents presented their case. The judgment was delivered on 8 May 1964 by Chief Justice Gajendragadkar.

The appeal arose out of a suit for redemption filed by the respondent, Dev Karan, against the appellant, Murarilal. The contested mortgage had been executed on 19 March 1919 for a principal sum of Rs 6,500. Under the terms of the mortgage deed, the mortgaged property, which was a shop, was handed over to the mortgagee for possession at the time the deed was executed. The deed stipulated that the mortgagor must repay the amount within fifteen years, after which the property would be redeemed by the mortgagor. It further provided that if the repayment was not made within the fifteen‑year period, the mortgagee would become the owner of the property.

The original mortgagor was Mangal Ram, who had died before the suit was instituted. The respondent claimed to be the heir and legal representative of the deceased mortgagor. In the plaint, the respondent alleged that the transaction was, in substance, a mortgage and that the mortgagor’s right to redeem remained alive even though the fifteen‑year period prescribed for repayment had elapsed. Accordingly, the respondent sought a decree for redemption of the mortgage upon payment of the principal sum of Rs 6,500.

The original mortgagee, Gangadhar, had also died prior to the filing of the suit. Consequently, the appellant, Murarilal, was impleaded as defendant on the basis that he was the sole heir and legal representative of the deceased mortgagee. The appellant opposed the claim for redemption on several grounds. Primarily, he contended that after the expiration of the fifteen‑year period the property had vested absolutely in the mortgagee, and therefore the mortgagor could no longer claim redemption. He further argued that the original transaction was, in reality, a sale rather than a mortgage. Although additional pleas were raised by the appellant, the record notes that they are not essential for the present discussion.

The trial judge identified and framed the issues that arose from the pleadings of the parties. In substance, the judge held that a claim for redemption made long after the fifteen‑year period had expired could not be sustained. The judge also made findings on other matters, all of which were adverse to the respondent. As a result, the trial court dismissed the respondent’s suit.

Following the dismissal, the respondent appealed to the Rajasthan High Court. In his appeal, the respondent urged that the trial court’s view—that the stipulation requiring repayment within fifteen years did not bar his suit because it amounted to a clog on the equity of redemption—was erroneous. He maintained that the transaction was a mortgage, not a sale, and that his right to redeem remained enforceable. The High Court accepted the respondent’s first contention, holding that the provision of Section 16 of the S.C. Act, which prescribed the repayment period, constituted a clog on the equity of redemption and could not be used as a bar to the suit. However, on the question of the character of the original transaction, the High Court appeared inclined to hold that the clause relied upon to assert a bar did not clearly demonstrate that the mortgagee was intended to become the absolute owner of the property after the fifteen‑year period elapsed.

In this appeal, the appellant argued that the stipulation requiring repayment of the loan within fifteen years functioned as a clog on the equity of redemption and therefore could not defeat the mortgagor’s right to redeem the property. The appellant further maintained that the transaction, in substance, was a mortgage rather than a sale, and consequently his right to redeem remained viable and could be enforced through the present suit. The Rajasthan High Court accepted the appellant’s first contention, holding that the provision of Section 51 of the S.C.-16 concerning the repayment period was indeed a clog on the equity of redemption and could not be taken as a bar to the suit. However, on the issue of the nature of the original transaction, the High Court seemed inclined to hold that the clause relied upon to raise the bar did not clearly indicate that, after the expiry of fifteen years, the mortgagee would become the absolute owner of the property. On that basis, the High Court set aside the trial Court’s decree dismissing the respondent’s suit and remanded the matter to the trial Court for disposal in accordance with law. The appellant then approached this Court by way of a special leave petition. While the appeal was pending, both the appellant and the respondent died, and their respective heirs were entered as parties on the record.

The principal question before this Court was whether the clause relied upon by the appellant conferred ownership of the mortgaged property upon the mortgagee at the end of the stipulated fifteen‑year period. The mortgage deed provided, among other things, that after the house serving as mortgage property was handed over to the mortgagee, the mortgagee could either occupy the house or let it out to tenants. The mortgagee was also permitted to spend up to rupees thirty‑five for repairing the house, and any additional expenditure would be incurred through the mortgagor. The mortgagor was required to pay interest on such expenditure at the rate of As. 0‑6‑0 per cent per month. The deed further stipulated that the mortgagor would obtain redemption of the property upon payment of the mortgage amount together with the cost of the patta, if any, and the repair expenses, all within the fifteen‑year period. The critical clause read: “After the expiry of the stipulated period of fifteen years, this shop would be deemed as an absolute transfer ‘Mala Kalam’ for this very amount. Till the mortgage money is paid, I shall have no concern with the shop.” The High Court appeared to hold that the expression “Mala Kalam,” which concluded the clause, did not necessarily convey that the mortgage property would become the absolute property of the mortgagee.

The Court noted that the expression “Mala Kalam” did not automatically convey that the mortgaged property would become the absolute property of the mortgagee. According to the High Court, the words were to be understood in their literal sense as meaning “where there is no scope for having any say.” The Court found that if this literal meaning were accepted, it would be difficult to sustain the view that the document failed to intend that the mortgagee become the owner of the property after fifteen years when the debt remained unpaid. When the document stated that there would be no scope for the mortgagor to say anything, the Court held that, in the surrounding context, this necessarily meant that the mortgagor would lose his title to the property, and consequently the mortgagee would acquire absolute ownership. On that basis the Court saw no difficulty in concluding that, if the terms of the deed were given effect, the appellant’s contention that the present suit for redemption was barred would succeed. Both parties agreed that the amount due under the mortgage deed had not been paid by the mortgagor or his heir within the stipulated period, and that such non‑payment would extinguish the mortgagor’s title and render the mortgagee the owner of the property. The remaining issue, the Court observed, was whether such a stipulation could be pleaded as a complete bar to the respondent’s claim for redemption. The Court acknowledged that it was equally undisputed that, if the document’s terms were enforced, the suit would be barred, while at the same time it was undisputed that, if the doctrine that a clog on the equity of redemption could not be enforced applied, the respondent’s action for redemption would succeed. The Court affirmed that the stipulation in question undeniably amounted to a clog on the equity of redemption and that this fact could not be contested. Consequently, the principal question before the appeal was whether the equitable doctrine protecting the mortgagor’s equity of redemption, even in the presence of a clog created by contractual stipulations, applied to the present case. This question arose because the Transfer of Property Act was not in force in Alwar at the time the mortgage was executed nor at the time the fifteen‑year period ended. Counsel for the appellant argued that the High Court erred in applying the equitable principle, contending that the principle could not be invoked where the Transfer of Property Act did not apply. In support of this argument, counsel relied heavily on a 1870 decision of the Privy Council in Pattabhiramier v. Vencatarow Naicken and Narasimha Naicken, wherein the Privy Council examined a Bye‑bil‑wuffa, or mortgage and conditional sale usufructuary, executed in 1806, which placed the mortgagees in possession and contained a condition that if the mortgagor failed to redeem within five years the conditional sale would become absolute.

In the case being discussed, the mortgage deed provided that if the mortgagor failed to redeem the mortgage within five years, the conditional sale would become absolute. The mortgagor indeed failed to redeem within the time limited by the deed, and the mortgagee, without first foreclosing the mortgage, proceeded to sell the mortgaged property. Following the sale, a representative of the mortgagor instituted legal proceedings seeking redemption of the mortgage relying on section eight of the Madras Regulation thirty‑four of the year 1802. The Privy Council examined the matter and concluded that, after the expiry of the stipulated five‑year period, the mortgagee’s interest had turned into an absolute ownership interest. While delivering the opinion of the Board, Lord Chelmsford observed that the type of security involved had long been a common feature throughout India, and he noted that the stipulations contained in such contracts were historically recognised and enforced according to their literal terms by both ancient Hindu law and by Mohammedan law. To support this observation, he referred to passages in Colebrooke’s Digest on Hindu Law and to Baillie’s introductory commentary on his work concerning Mohammedan law of sale. Lord Chelmsford further explained that if the ancient law of the country had been altered by a later rule possessing the force of law, such a rule would have to originate either from positive legislation or from an established custom, and he pointed out that no specific statutory provision had been presented before the Board, nor had any established practice on the issue been proved. Consequently, the Privy Council upheld the mortgagee’s claim that he became the absolute owner of the property upon the termination of the stipulated period. Nevertheless, Lord Chelmsford added a precautionary remark, stating that in granting the appeal, the Board did not intend to disturb any property rule that had been established by judicial decisions forming part of the law of the forum wherever that law might apply, nor to affect any title founded upon such decisions. It is worthy of note that the appeal of Pattabhiramier remained pending before the Privy Council for as many as ten years. During that interval, Indian High Courts were applying the equitable principle that any stipulation in a mortgage deed that acted as a clog on the mortgagor’s equity of redemption could not be enforced, thereby mirroring the equitable jurisdiction exercised in England to refuse enforcement of such clogs. Before turning to those High Court decisions, the judgment also cites another Privy Council decision, Thumbusawmy Moodelly v. Hossain Rowthen & Ors(1). In that case, the Board held that a mortgage by conditional sale constituted a form of security known throughout India, and that, in the absence of modification by statute or established custom, the ancient law required that such contracts be enforced according to their literal terms. In delivering that opinion, Sir James W. Colvile, who spoke for the Board, referred back to the earlier decision of

In the decision of the Privy Council in Pattabhiramiers case, the Board observed that while the appeal was pending before the Council, the Indian High Courts continued to issue judgments that attempted to apply equitable principles to stipulations contained in mortgage deeds. The Council noted with disapproval that the case had remained dormant for nine years, during which time the Sudar Court and subsequently the High Court that succeeded it persisted in following the course of decision originally given in 1858. The Privy Council then cited the relevant judgments of the Madras and Bombay High Courts and expressed the view that, by endeavouring to enforce equity in relation to such stipulations, the High Courts were in effect assuming the role of the Legislature. The Council emphatically declared that, in the absence of a contrary legislative enactment or an established practice, the terms of a contract of mortgage by conditional sale must be regarded as prevailing throughout India and must be enforced strictly according to their literal wording. Counsel for the petitioner, relying on these pronouncements, argued that for the State of Alwar there existed no statutory provision nor any established custom that would permit the respondent to invoke the equitable doctrine to sustain a claim that his right of redemption survived after fifteen years.

A further two decisions of the Privy Council were then discussed. In Kader Moideen v. Nepean, the Council dealt with a dispute arising in Burma and observed that, where no specific statutory law regulated the taking of accounts against a mortgagee in possession, the Burmese courts were directed to follow the guidance of justice, equity and good conscience. Acting on this principle, the Council accepted the submission that there was no abstract rule of justice governing the taking of such accounts and that the Indian provision contained in section 76 of the Transfer of Property Act should be applied, even though the Act had not been extended to Burma, in preference to the English common‑law practice. Accordingly, the equitable principle underlying section 76 was extended to Burma on the ground that the applicable statutory provision required courts to resort to justice, equity and good conscience in the absence of any specific legislation. In a similar vein, the decision in Mehrban Khan v. Makhna examined a clause in a mortgage deed that purported to give the mortgagee an interest in the mortgaged property upon redemption, and the Privy Council held that such a clause amounted to a prohibition under the equitable doctrine.

In this case, the Court held that a clause which operated as a clog or fetter on the equity of redemption was void not only against the mortgagor but also against any purchaser of the mortgagor’s interest, citing the authorities (1) 25 I.A. 241 and (2) 57 I.A. 168, because such clauses were inconsistent with the very nature and essence of a mortgage. The Court further noted that Section 28 of Regulation No. VII, which applied to the North‑West Frontier Province, expressly required judges, in matters not otherwise specifically provided for, to decide according to justice, equity and good conscience; consequently, recourse to the equitable doctrine was permissible because the statute mandated the application of that doctrine where no specific legislative provision existed on the matter before them. Although the Privy Council’s decisions were clear and consistent on this point, the High Courts in India continued to follow the same pattern that had been established by the Madras High Court in Venkata Reddi v. Parvati Ammal(1) and adopted by the Bombay High Court in Ramji bin Tukaram v. Chinto Sakharam(2). The issue had been argued at length before those High Courts, and the earlier Privy Council decisions in Pattabhiramier(3) and Thumbuswamy Moodelly(4) were cited, yet the High Courts consistently adhered to the view that when mortgage transactions contained unfair, unjust or oppressive stipulations that unreasonably restricted the mortgagor’s right to redeem, the court was justified in refusing to enforce such stipulations and in recognising the paramount character of the equity of redemption. In Bapuji Apaji v. Sonavaraji Marvati(5), the learned Chief Justice Westropp considered the relevant aspects of this question in detail. He referred to the two Privy Council decisions and observed that the doctrine articulated in Ramji v. Chinto(2) had been uniformly followed in the Bombay Presidency in numerous cases, and he found no reason to depart from that decision. Expressing firm adherence to the legal pattern prescribed by the Bombay High Court’s decision in Ramji v. Chinto, the Chief Justice examined all precedents on the point, the trend of authorities, scholarly opinions, and concluded that he was inclined (1) Mad. H.C. Rep. 460 (2) 1 Bom. H.C. Rep. 199 [1864] (3) [1870] 13 M.I.A. 560 (4) I.L.R. 1 Mad. 1. (5) I.L.R. 11 Bom. 231 to accept the law as settled in Ramji v. Chinto(1) and to give effect to it. Accordingly, in the Bombay High Court, the practice had consistently been to follow Westropp’s ruling until the Transfer of Property Act was extended to Bombay. A similar position persisted in Madras, where the Full Bench in Ramasami Sastrigal v. Samivappanayakan(2) affirmed that, in the Madras Presidency, contracts of mortgage by way of conditional sale entered into after 1858 required redemption after the expiry of the term expressly limited by the contract.

In matters concerning mortgages that were created by way of a conditional sale after the year 1858, the Court stated that redemption must be permitted even after the contractual term had expired. This point was the subject of extensive argument before the Madras High Court, where counsel cited the decisive opinion of the Privy Council. The learned Chief Justice, Turner, C.J., whose view was concurred by Muttusami Ayyar, J., made a substantial observation after a thorough examination of the issues. He declared that, for the reasons he set out, the Court would not be failing to give proper respect to the distinguished tribunal whose decisions were binding, if it followed the course they had established, especially where there were strong reasons for adopting and applying the rules that had been introduced, however erroneously, by judicial decisions in the various provinces. That observation has guided the Madras High Court ever since.

The cited decisions demonstrate that the High Courts in India have uniformly adhered to the principle that, whether or not a statutory provision explicitly commands judges to apply the principles of justice, equity and good conscience, it remains the duty of the courts to enforce those principles when they encounter stipulations within mortgage transactions that appear unreasonable, oppressive or unjust. The Court noted that, according to the literal terms of the ancient Hindu law, a stipulation requiring the mortgagor to repay the amount advanced within a specified period was intended to be enforceable. The ancient Hindu law texts employ the term “Adhi” to denote a pledge of a movable or a mortgage of immovable property. Nar. IV 124 classifies Adhi into two categories: one that must be redeemed within a certain time fixed by agreement at the time of contracting the debt, and another that is to be retained until the debt is fully discharged.

With respect to the first category of mortgages, the Court explained that if the money is not repaid at the fixed time, the pledged or mortgaged thing would become the property of the creditor, as indicated in Yajñavalkya 11.58 and as explained by the Mitakshara commentary. It also appears that, even if the debt has doubled because of non‑payment of the agreed interest, the mortgagor would lose his title over the mortgaged property. Consequently, under the strict literal reading of the Hindu law texts, a mortgage deed containing a clause that mandates repayment within a specified period can result in the mortgagor losing title to the property at the expiration of that period. The underlying principle of this provision, the Court observed, is that the ancient Hindu law placed great importance on a person keeping his promise.

Nevertheless, the Court added that, according to Sir R. B. Ghose, time was not ordinarily considered the essence of a mortgage contract in Hindu law, and the learned author supported this view by quoting Colebrooke’s opinion. This qualification was presented to balance the strict textual rule with the broader equitable considerations that have traditionally guided Indian courts in preventing the enforcement of mortgage stipulations that unreasonably restrict the mortgagor’s rights.

In addressing the issue of whether the Hindu law applicable in Alwar imposed a strict obligation on a mortgagor to repay a mortgage debt within a stipulated period, the Court noted that the learned author had relied upon the opinion of Colebrooke to support the view that time was of the essence in a Hindu mortgage contract, as indicated by the citation to Dr. Kane’s History of Dharmasastra and to Ghose’s Tagore Law Lectures. On this basis, counsel for the petitioner argued that the Hindu law recognized the importance of compelling the mortgagor to fulfil his promise of repayment within the agreed time and that failure to do so would cause the mortgagor to lose his title over the mortgaged property. The petitioner further urged that the present dispute should be decided in accordance with that position of Hindu law and also in line with the principles articulated by the Privy Council in the cases of Pattabhiramier ([1870] 13 M.I.A. 560) and Thumbusawmy Moodelly (I.L.R. 1 Mad. 1). The Court observed that traditionally Indian courts had consistently applied equitable principles to prevent the enforcement of mortgage‑deed stipulations that unreasonably restricted the mortgagor’s rights. It referred to statutory provisions that directed judges to act according to justice, equity and good conscience where no specific rule existed, such as section 21 of the Bengal Regulation III of 1793, section 17 of the Madras Regulation II of 1802, and analogous provisions in the Bengal Civil Courts Act 1887 (section 37) and the Madras Civil Courts Act 1873 (section 16). The Court also highlighted that the Bombay Regulation IV of 1827, by way of section 26, mandated that the law to be applied in suits should be the relevant Acts of Parliament, Government Regulations, local usage, or, in their absence, the law of the defendant, and ultimately, equity and good conscience. Citing the decision in Namdeo Lokman Lodhi v. Narmadabai, the Court reiterated that it is axiomatic for courts to apply principles of justice, equity and good conscience to transactions even when the Transfer of Property Act was not expressly applicable. These observations, the Court explained, reflected the long‑standing judicial approach of refusing to enforce oppressive or unreasonable restrictions imposed by mortgagees on vulnerable mortgagors at the time of executing mortgage documents. Finally, the Court noted that the true position of Hindu law in the State of Alwar at the relevant period was unknown, as was the precise content of the Contract Act in that State, but it was reasonable to assume that civil courts in Alwar, like those elsewhere in the country, were required to administer justice and equity in the absence of specific statutory guidance.

In the facts before the Court, the Court observed that the precise provisions of the Contract Act as they existed in the former State of Alwar at the relevant time were unknown. Nevertheless, the Court considered it reasonable to assume that the civil courts that operated in Alwar functioned in the same manner as civil courts elsewhere in India, meaning that they were required to dispense justice and to apply principles of equity whenever there was no specific statutory rule controlling the issue before them. The Court noted that no evidence had been produced to show whether the Hindu law practiced in Alwar corresponded with the ancient Hindu Sanskrit texts. The Court further observed that, just as the High Courts of Bombay and Madras had consistently declined to enforce a mortgagee’s stipulation of a fixed time for repayment, despite any ancient Hindu legal provisions that might have permitted such a stipulation, it was possible that the courts of Alwar had adopted a similar approach. Because the record contained no material on this point, the Court was reluctant to accept the argument advanced by counsel for the petitioner that the doctrines of equity and justice were irrelevant to the dispute. In support of its view, the Court referred to recent judgments of the Rajasthan High Court that had affirmed the applicability of equitable principles in mortgage matters. In Amba Lal v. Amba Lal, the Rajasthan High Court held that Section 60 of the Transfer of Property Act and its proviso embodied a general law principle for mortgages that should be applied even in territories where the Act itself was not formally in force, noting that the mortgaged property lay in the State of Udaipur. Similarly, in Seleh Raj v. Chandan Mal, the High Court described the principle underlying Section 60 as salutary and in harmony with equity, justice and good conscience, and it held that although the Transfer of Property Act was not operative in the territory concerned, it was not unreasonable to decide the case according to the underlying principles of that section; the property in that case was situated in the State of Jodhpur. The Court also cited the decision in Nainu v. Kishan Singh from the Himachal Pradesh High Court, which applied the same equitable principle. From these authorities, the Court concluded that the equitable principle of justice, equity and good conscience had been consistently applied by civil courts in a substantial part of Rajasthan when dealing with mortgage transactions.

The Court observed that the principle concerning mortgages had been applied in a substantial part of Rajasthan and that this practice supported the respondent’s argument that even in Alwar the courts had recognized that when a mortgage deed contained a clause that unreasonably restrained or limited the mortgagor’s equity of redemption, the judiciary possessed the authority to disregard such a clause and to enforce the mortgagor’s right to redeem, subject, of course, to the ordinary law of limitation that governed such matters. The Court further stated that it was satisfied that the appellant had not established any case that would warrant interference with the decision of the Rajasthan High Court. The High Court had held that the particular stipulation on which the appellant relied should be enforced despite the fact that it created a clog on the equity of redemption. Accordingly, the Court concluded that the appeal could not succeed. As a result, the appeal was dismissed and the appellant was ordered to bear the costs of the proceedings. The appeal was therefore dismissed.