Murarilal vs Dev Karan on 8 May, 1964

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

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: 8 May, 1964

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

In this matter, a special leave appeal was filed against a redemption suit that had been instituted by the respondent, Dev Karan, against the appellant, Murarilal. The suit concerned a mortgage that had been executed on 19 March 1919 for a principal sum of Rs 6,500. Under the terms of the mortgage, the mortgaged asset was a shop that had been handed over to the mortgagee for possession after the deed was executed. The mortgage instrument required the borrower to repay the entire amount to the mortgagee within a period of fifteen years; upon repayment the property would be redeemed. The same deed also contained a clause stating that if the borrower failed to make repayment within the fifteen‑year term, the mortgagee would become the outright owner of the shop. The original borrower, named as Mangal Ram, had died, and the respondent claimed to be the heir and legal representative of the deceased mortgagor. In the plaint, the respondent asserted that, despite the lapse of the fifteen‑year period, the transaction remained a mortgage in substance and that the mortgagor’s equity of redemption continued to exist. Accordingly, the respondent prayed for a decree of redemption requiring the appellant to pay Rs 6,500. It also emerged that the original mortgagee, Gangadhar, had died before the suit was filed; consequently, 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 respondent’s claim for redemption on several grounds. He contended that, once the fifteen‑year period had expired, the shop had become the absolute property of the mortgagee, and he further asserted that the original transaction was in reality a sale rather than a mortgage. Although the appellant raised additional pleas, those are not detailed here because they are not essential to the Court’s reasoning. The trial judge identified the issues raised by the parties and, after examining the pleadings, held that a claim for redemption could not be sustained when it was made after the statutory fifteen‑year period had elapsed. The judge also made findings on other contested points, all of which were adverse to the respondent, and accordingly dismissed the suit. Unsatisfied with this result, the respondent appealed to the Rajasthan High Court, arguing that the clause requiring repayment within fifteen years operated as a clog on the equity of redemption and therefore could not defeat his right to redeem. He further maintained that the underlying transaction was a mortgage and not a sale, and that his right to redemption remained enforceable despite the passage of time.

The Court observed that the transaction was, in substance, a mortgage rather than a sale, and therefore the mortgagor’s right of redemption remained alive and could be effectively enforced by the present suit. The High Court affirmed the appellant’s first contention that the provision fixing the period for repayment of the mortgage amount created a clog on the equity of redemption and could not be used as a bar to the present suit. However, on the issue of the true character of the original transaction, the High Court was inclined to hold that the clause on which the bar was based did not actually support that plea, because it was not clear that, even after the fifteen‑year period had expired, the mortgagee was intended to become the absolute owner of the property. On the basis of these findings, the decree of the trial Court that had dismissed the respondent’s suit was set aside, and the suit was remanded to the trial Court for disposal in accordance with law. The appellant challenged this order before this Court by way of special leave. During the pendency of the appeal, both the appellant and the respondent died, and their respective heirs were entered on the record as parties.

The first question for determination was whether the clause relied upon by the appellant made the mortgagee the owner of the property at the end of the stipulated fifteen‑year period. The mortgage document provided, inter alia, that after the mortgaged house was delivered to the mortgagee, the mortgagee was entitled either to reside in the house or to let it out to tenants. The mortgagee was also given permission to spend up to Rs 35 on repairing the house, and any expenditure exceeding that amount was to be incurred through the mortgagor. The mortgagor, for such expenditure, was liable to pay interest at the rate of As 0‑6‑0 per cent per month. The document further stated that the mortgagor would obtain redemption of the property upon payment of the mortgage amount together with the cost of the Patta, if any, incurred by the mortgagee and the repairing expenses, all within a period of fifteen years. Then the relevant 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 interpreted the words “Mala Kalam” not as an expression that automatically gave the mortgagee absolute ownership of the property. According to the High Court, those words literally meant “where there is no scope for having any say”. If that

In interpreting the expression “Mala Kalam,” the Court observed that the words indicate that, after the expiry of the fifteen‑year period, the mortgagor would have no further right to assert any claim to the property. Consequently, the mortgagor would lose his title and the mortgagee would become the absolute owner of the shop. On that basis the Court found no difficulty in concluding that, if the terms of the deed are given effect, the appellant’s contention that the present suit for redemption is barred must succeed. Both parties accepted as a matter of common ground that the amount due under the mortgage deed was not paid by the mortgagor or his heir within the stipulated period, and that such non‑payment would extinguish the mortgagor’s title and vest ownership in the mortgagee.

Having established that factual backdrop, the Court turned to the legal question of whether the stipulation that the mortgage becomes an absolute transfer after fifteen years may be pleaded as a bar to the respondent’s claim for redemption. It was also undisputed that, if the equitable doctrine that a clog on the equity of redemption cannot be enforced were applied, the respondent’s action for redemption would succeed. The Court noted that the existence of a clog on the equity of redemption in the present case was not and could not be denied. Accordingly, the principal issue for determination was whether the equitable principle protecting the mortgagor’s equity of redemption, notwithstanding a clog created by a contractual stipulation, applied in the present circumstances. This issue 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 expired.

Counsel for the appellant argued that the High Court erred in applying the equitable principle, asserting that the principle could not be invoked where the Transfer of Property Act did not apply. To support this argument, counsel heavily relied on an early Privy Council decision, Pattabhiramier v. Vencatarow Naicken and Narasimha Naicken, reported in (1890) 13 Moore’s I.A. 560. In that case the Privy Council considered a mortgage and conditional sale deed dated 1806, which provided that if the mortgagor failed to redeem within five years the sale would become absolute. The mortgagor failed to redeem, and the mortgagee, without formally foreclosing, sold the mortgaged property. The mortgagor’s representative then sued to redeem the mortgage under section 8 of the Madras Regulation XXXIV of 1802. The Privy Council held that the mortgagee’s interest after the expiry of the stipulated period had become absolute. Lord Chelmsford, delivering the judgment, observed that such forms of security were long‑standing in India and were recognised and enforced by ancient Hindu law as well as by Mohammedan law. He added that any modification of the ancient law must be founded on positive legislation or on established practice, and noted that no specific statutory provision had been cited before the Board.

After the mortgagee sold the mortgaged property, the mortgagor’s representative instituted a suit to redeem the mortgage under section 8 of the Madras Regulation XXXIV of 1802. The Privy Council ruled that, once the stipulated period had elapsed, the mortgagee’s interest became absolute. In delivering the opinion of the Board, Lord Chelmsford observed that the type of security involved had long been common throughout India. He stated that the stipulations contained in such contracts were recognised and enforced according to their exact terms by the ancient Hindu law as well as by Mohammedan law, supporting his observation with references to passages from Colebrooke’s Digest on Hindu Law and Baillie’s introduction to his book on 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, that rule would have to arise either from positive legislation or from an established practice. He noted that the Board had received no specific statutory provision and that no established practice in this regard had been proved. Consequently, the Privy Council upheld the mortgagee’s claim that he became the absolute owner of the property at the end of the stipulated period. While delivering this decision, Lord Chelmsford added a precautionary remark, indicating that the Board’s allowance of the appeal should not be interpreted as an intention to disturb any property rule established by judicial decisions that formed part of the law of the forum, nor to affect any title founded upon such rulings.

The appeal of Pattabhiramier remained pending before the Privy Council for as long as ten years. During that interval, Indian High Courts were applying an equitable principle that prohibited the enforcement of stipulations in mortgage deeds that amounted to a clog on the equity of redemption. In effect, the jurisdiction exercised by English courts of equity in refusing to enforce such clogs was being exercised by Indian High Courts as well. Before turning to those decisions, the Court found it useful to refer to another Privy Council decision, Thumbusawmy Moodelly v. Hossain Rowthen & Ors, reported in I.L.R. 1 Mad. 1. In that case, the Privy Council held that a mortgage by conditional sale constituted a form of security known throughout India and that, by the ancient law of India, it must prevail in every part of the country unless it had been modified by actual legislation or an established practice, and therefore must be enforced according to its literal terms. The opinion of the Board was delivered by Sir James W. Colvile, who cited the earlier Privy Council decision in Pattabhiramier’s case (1870 13 M.I.A.) and observed the trend of judicial pronouncements made by Indian High Courts while Pattabhiramier’s appeal was pending. Sir James strongly reiterated the view that the High Courts were effectively assuming legislative functions by attempting to enforce principles of equity in relation to stipulations contained in mortgage documents.

The Privy Council expressed the view that the decisions of the High Courts were fundamentally unsound. It pointed out that Pattabhiramier’s case had remained inactive for nine years, and during that dormant period the Sudar Court—and subsequently the High Court that replaced it—continued to follow the decision originally rendered in 1858. The Council then cited the relevant judgments of the Madras and Bombay High Courts and argued that, by attempting to apply principles of equity to the stipulations contained in mortgage documents, those High Courts were effectively assuming the role of the Legislature. Consequently, the Privy Council emphatically declared in 1875 that, in the absence of any legislative enactment or established custom to the contrary, the terms of a contract of mortgage by conditional sale must be regarded as operative throughout India and must be enforced strictly according to their literal wording.

Relying on these authorities, Mr. Sarjoo Prasad contended that, with respect to the State of Alwar, there exists no legislative enactment that overrides the contractual terms, nor any established practice that would permit the equitable doctrine to be invoked by the respondent to claim that his right of redemption survives after fifteen years. The discussion then turned to two further Privy Council decisions. In Kader Moideen v. Nepean (25 I.A. 241), which concerned a case from Burma, the Council observed that Burmese courts, lacking any statutory provision governing accounts against a mortgagee in possession, were directed to follow the guidance of justice, equity, and good conscience. Acting on that principle, the Council accepted Mr. Haldane’s argument that there was no rule of abstract justice requiring the taking of such accounts, and that the Indian rule embodied in section 76 of the Transfer of Property Act should be applied in Burma, even though the Act had not been extended there, because it represented a more appropriate standard than the English practice. This extension of the equitable principle underlying section 76 was based on the specific direction that Burmese courts should follow justice, equity, and good conscience where no statute existed, thereby aligning the decision with the earlier Privy Council rulings.

The Council’s reasoning was further illustrated in Mehrban Khan v. Makhna (57 I.A. 168). In that case, the Privy Council examined provisions within a mortgage deed that granted the mortgagee, upon redemption, an interest in the mortgaged property. The Council held that such provisions constituted a clog or fetter on the equity of redemption and were therefore void not only against the original mortgagor but also against any purchaser of the mortgagor’s interest, because they conflicted with the very nature and essence of a mortgage.

In this matter, section 28 of Regulation No VII, which applied to the North‑West Frontier Province, explicitly stated that where no specific legislative rule existed, judges must decide according to justice, equity and good conscience. Consequently, the court was authorised to employ the equitable doctrine because the statute required judges to apply that doctrine whenever a particular legislative provision was absent for the issue before them. Although the Privy Council decisions on the subject were clear and consistent, the Indian High Courts continued to follow the same approach that had been established by the Madras High Court in Venkata Reddi v. Parvati Ammal and later adopted by the Bombay High Court in Ramji bin Tukaram v. Chinto Sakharam. The question was argued in detail on several occasions before those High Courts, and the earlier Privy Council rulings in Pattabhiramier and Thumbusawmy Moodelly were cited, yet the High Courts repeatedly held that when mortgage agreements contained unfair, unjust or oppressive clauses that unreasonably limited the mortgagor’s right to redeem, the court was justified in refusing to enforce such clauses and in upholding the paramount importance of the equity of redemption. In the case of Bapuji Apaji v. Sonavaraji Marvati, Chief Justice Westropp examined the relevant aspects of the issue, referred to the two Privy Council decisions, and observed that the doctrine articulated in Ramji v. Chinto had been uniformly applied throughout the Bombay Presidency in numerous cases. He found no reason to depart from that precedent. By expressly adhering to the legal pattern prescribed by the Bombay High Court decision in Ramji v. Chinto, the learned Chief Justice considered all relevant precedents, the trends in authority, and scholarly opinion, and concluded that the law should be regarded as settled in Ramji v. Chinto and therefore should be given effect. Accordingly, the practice of the Bombay High Court remained consistently to follow Chief Justice Westropp’s decision until the Transfer of Property Act was extended to Bombay. A similar position existed in Madras. In Ramasami Sastrigal v. Samivappanayakan, the majority of the Full Bench held that in the Madras Presidency, where mortgage contracts executed as conditional sales were entered into after 1858, a mortgagor’s right to redeem after the expiry of the contractual term must be allowed.

The matter before the Court arose from a detailed argument presented to the Madras High Court. Counsel cited the opinion of the Privy Council with great emphasis, but the learned Chief Justice Turner, whose view was concurred by Justice Muttusami Ayyar, made a pivotal observation after a thorough examination of the merits. He stated, “For these reasons, we conceive that we shall not be wanting in due respect for the distinguished tribunal by whose decisions we are bound, if we follow the course they have pronounced there were strong reasons for adopting and apply the rules introduced, however erroneous, by judicial decisions in these provinces.” The Court noted that this observation has guided the Madras High Court consistently ever since.

The Court observed that the decisions of the various High Courts demonstrate a common approach: irrespective of whether a statutory provision expressly commands judges to enforce the principles of justice, equity and good conscience, the courts consider it their duty to apply those principles whenever they encounter stipulations in mortgage transactions that appear unreasonable, oppressive or unjust. The Court then turned to the ancient Hindu law on the subject of mortgage. According to the strict letter of that law, a clause requiring the mortgagor to repay the amount advanced by the mortgagee within a specified time was intended to be enforceable. The ancient texts employ the term “Adhi” to refer to a pledge of a movable or a mortgage of immovable property. Narada IV 124 classifies Adhi into two categories: one that must be redeemed within a fixed period agreed upon at the time of the debt, and another that may be retained until the debt is fully discharged. In the first category, if the mortgagor fails to pay at the appointed time, the pledged property passes to the creditor, as explained in Yajnavalkya II.58 and further clarified by the Mitakshara commentary (see Dr. Kane’s History of Dharmasastra Vol. III, p. 428). It also appears that where the debt has doubled because of non‑payment of agreed interest, the mortgagor loses title to the mortgaged property. Consequently, under the literal reading of the Hindu law texts, a mortgage deed that stipulates repayment within a fixed period may operate to deprive the mortgagor of his title at the expiry of that period. The underlying principle, as the Court noted, is the strong emphasis placed by ancient Hindu law on keeping one’s promise. Nevertheless, the Court added that Sir R. B. Ghose has observed that, in Hindu law, time was ordinarily not the essence of a mortgage contract (see Ghose on “The Law of Mortgage in India,” Tagore Law Lectures 1875‑6, 5th Ed., Vol. I, p. 56). The Court indicated that this observation would be considered in the subsequent analysis.

In this case, the Court noted that a learned author had quoted, with approval, the opinion of Colebrooke. Relying on that statement of Hindu law, counsel for the petitioner argued that it should be presumed that the Hindu law applicable in Alwar recognised the necessity of compelling a mortgagor to fulfil his promise to repay the debt within a designated period, and that failure to do so would cause the mortgagor to lose his title over the mortgaged property. He further urged that the present dispute should be resolved by applying that position of Hindu law together with the principles laid down by the Privy Council in the cases of Pattabhiramier [(1870) 13 M.I.A. 560] and Thumbusawmy Moodelly [I.L.R. 1 Mad. 1]. In addressing these submissions, the Court observed that, historically, Indian courts have consistently enforced equitable principles that prohibit the enforcement of mortgage‑deed stipulations that unreasonably restrain or restrict the mortgagor’s right to redeem. The Court referred to several statutes that embodied this approach. The old Bengal Regulation III of 1793, section 21, directed district and city judges, where no specific rule existed, to act in accordance with justice, equity and good conscience. A comparable provision appeared in section 17 of the Madras Regulation II of 1802. The Bengal Civil Courts Act, 1887, and the Madras Civil Courts Act, 1873, contained analogous provisions in sections 37 and 16 respectively. Likewise, for courts in the Mufassal of Bombay, Bombay Regulation IV of 1827, section 26, stipulated that the law to be applied in a suit should be the Acts of Parliament and Government Regulations applicable to the case; in their absence, the local usage; if none, the law of the defendant; and, failing any specific law or usage, equity and good conscience. The Court further cited the decision in Namdeo Lokman Lodhi v. Narmadabai [(1953) S.C.R. 1009], where it was emphatically held that it is a fundamental principle that courts must apply justice, equity and good conscience to transactions before them even when the Transfer of Property Act is not directly applicable. Those observations illustrate the traditional judicial stance of rejecting oppressive, unjust or unreasonable restrictions imposed by mortgagees on needy mortgagors at the time of executing mortgage documents. The Court then noted another circumstance. It admitted that the true position of Hindu law in Alwar at the relevant time was unknown, and that the provisions of the Contract Act in Alwar were also uncertain. Nevertheless, the Court considered it reasonable to presume that the civil courts established in Alwar were comparable to civil courts elsewhere in the country, which were required to administer justice and equity where no specific statutory rule existed.

The Court observed that courts throughout India are obliged to administer justice and equity whenever there is no specific statutory provision governing the question presented before them. The Court noted that no material had been placed before it to show whether the Hindu law that prevailed in Alwar at the relevant time was the same as that set out in ancient Hindu Sanskrit texts. It was therefore possible that, similar to the practice in Bombay and Madras, the ancient Hindu law provisions that appear to permit a mortgagee to demand strict compliance with a time‑limit for repayment might have been disregarded by the High Courts in those provinces, which consistently refused to enforce such time stipulations. The Court suggested that the courts in Alwar could have followed the same approach, but because the record contained no evidence on this point, the Court was reluctant to accept the argument advanced by counsel that the doctrine of equity and justice should be treated as irrelevant to the present dispute. In this regard, the Court found it appropriate to refer to recent decisions of the Rajasthan High Court which have upheld the applicability of equitable principles to mortgage transactions either because the parties conceded the point or because the High Court expressly held that equity could be enforced in such cases. In Amba Lal v. Amba Lal [I.L.R. 1957 Raj. 964.] the Rajasthan High Court held that Section 60 of the Transfer of Property Act and its proviso embody a general principle of law that applies to mortgages throughout the country and that the principle should operate even in territories where the Act itself is not in force, provided its underlying principles are recognised; the mortgage‑related property in that case lay in the State of Udaipur. Likewise, in Seleh Raj v. Chandan Mal [I.L.R. 1960 Raj. 88.] the Rajasthan High Court described the principle underlying Section 60 as salutary and consistent with the doctrines of equity, justice and good conscience, and it held that although the Transfer of Property Act was not operative in the territory concerned, it would not be unreasonable to decide the matter according to the principles embodied in that section; the property involved was located in the State of Jodhpur. The Court further noted that the same equitable principle had been applied in Himachal Pradesh in the case Nainu v. Kishan Singh. Consequently, the Court concluded that the equitable principle of justice, equity and good conscience has been consistently applied by civil courts in a substantial part of Rajasthan when dealing with mortgages. This consistent application supports the respondent’s contention that even in Alwar, when a mortgage deed contains a clause that unreasonably restrains or restricts the mortgagor’s equity of redemption, courts are empowered to disregard that clause and to enforce the mortgagor’s right to redeem.

In this case the Court explained that any order it issued would be subject, of course, to the general law of limitation that applied to the matter. After reviewing the arguments and material placed before it, the Court said that it was satisfied that the appellant had not shown any reason for the Court to interfere with the decision of the Rajasthan High Court. The High Court had held that the particular stipulation relied upon by the appellant should be enforced even though that stipulation created a clog on the mortgagor’s equity of redemption. The Court noted that although a clog on the equity of redemption may ordinarily be examined for reasonableness, the High Court had concluded that the stipulation, while creating a clog, did not amount to an unreasonable restraint under the law. The appellant did not succeed in demonstrating that the stipulation was unreasonable, nor did it establish any error or abuse of process in the High Court’s reasoning. Consequently the Court found no ground on which it could set aside that conclusion. In the result the Court ordered that the appeal fail, that it be dismissed, and that the costs of the proceedings be awarded against the appellant. The dismissal of the appeal was recorded as final and the order was entered accordingly.