Gyarsi Bai and Others v. Dhansukh Lal and Others

Sobba Rao J. This appeal by special leave is directed against the judgment of a Division Bench of the Rajasthan High Court in S. B. Civil Revision No: 181of1956. The plaint-schedule properties originally belonged to one Noor Mohammad, his wife and son. On September 14, 1936, they mortgaged the said properties with possession to B.F. Marfatia. for a sum of Rs. 25,000. On February 22, 1938, the said mort­ gagors executed a simple mortgage in respect of the same pro­ perties to one Novat Mal for Rs. 5,000. On December 21, 1942, Radha Kishan, Har Prasad and Pokhi Ram acquired the equity of redemption in the said properties in an auction sale held in execu­ tion of a money decree against the mortgagors. On February 14, 1950, and March 13, 1950, Seth Girdhari Lal, the husband of Appellant No. l herein, purchased the mortgagee rights of Novat Mal and Marfatia respectively. On May 1, 1950, Girdhari Lal was put in possession of the mortgaged properties. On July 22, 1950, Respondents 9 to 11 purchased the equity of redemption of the mortgaged properties from Radha Kishan. Har Prasad and Pokhi Ram. On August 10, 1950, Girdhari Lal instituted Civil suit No. 739 of 1950 in the Court of the Senior Subordinate A Judge, Ajmer, for enforcing the ~aid two mortgages. In the suit he claimed Rs. 48,919-12-6 a• the amount due to him under the said two mortgages. On April 25, 1953, the Senior Subordinate Judge, Ajmer, gave a preliminary decree in the suit for the re­ covery of a sum of Rs. 34,003-1-6 with prop9rtionate costs and future interest; he disallowed interest from September 14, 1936, B. to March 13, 1950, on the mortgage of Rs. 25,000. The plain­ tiff-mortgagee preferred an appeal, being Civil Appeal No. 71 of 1953, to the judicial Cominissioner, Ajmer, against the said decree in so far as it disallowed interest to him. The defendants preferred cross-objections in respect of that part of the decree awarding costs against them. On July 25, 1953, the defendants C filed an application under O.XXXIV, r. 5 ( 1), of the Cqde of Civil Procedure, seeking permission to deposit the decretal amount in court and praying that possession of the properties may bo directed to be delivered to them and also for directing the decree­ holder to render accounts of the profits of the mortgaged properties received by him. On July 29, 1953, the respondents deposited Rs. 35,155-2-6 in the Trial Court. On August 17, 1953, the decree-holder filed objections to the said deposit on the ground that it was much less than the decretal amount. On August 27, 1953, the Trial Court made. an oder permitting the decree-holder to withdraw the said amount with the reservation that the question E as to what was due under the decree would be decided later. On August 25, 1954, both the appeal of the decree-holder and the cross-objections of the defendants were dismissed. On December 7, 1954, the defendants filed an applicatio!I in the Trial Court for the determ' nation of the amount due under the decree and for directing the decree-holder to render accounts of all the realiza- F tions from the mortgaged properties. On March 14, 1955, the Supreme Court granted special leave to the decree-holder for pre­ ferring an appeal against the judgment of the Judicial Commis­ sioner dismissing Civil Appeal No. 71 of 1953. On February 15, 1956, the Trial Court dismissed the application filed by the defen­ dants for directions on the ground that the mortgage deed had G · merged in the preliminary decree and that the said decree con­ tained no directions to the plaintiff to render accounts. On Feb­ ruary 29, 1956, the defendants applied to the Judicial Commis­ sioner, Ajmer, under s. 152 of the Code of Civil Procedure for . amending the preliminary decree by including therein a direction against the plaintiff for rendition of account in respect of the profits H received. by him from the mortgaged properties. On April 12, 1956, the Judicial Commissioner dismissed the said application. GYARSI BAI v. DHANSUKH LAL (Subba Rao, J.) 157 A On April 25, 1956, the defendants filed a revision petition against the order of the Trial Court dated February 15, 1956, in the Court of the Judicial Commissioner, Ajmer. As by that time the Supre­ me Court had given special leave to appeal against the decree of the Appellate Court confirming the preliminary decree, the Judicial • Commissioner, on August 1, 1956, made an order adjourning the B hearing of the revision petition till after the decision of the Sup­ reme Court in Civil Appeal No. 383 of 1956. On February 17, 1957, the decree-holder died, and his legal representatives, who are the appellants herein, were brought on record. On December 16, 1960, this Court delivered judgment in the said appeal modi­ fying the preliminary decree made in the suit and directing the C Trial Court to pass a fresh final decree. On April 5, 1961, the High Court accepted the revision petition filed by the defendants, remanded the case to the Trial Court and directed it to take an account of the receipts from the mortgaged properties and expenses properly incurred for the management etc. of the said properties D as contemplated under s. 76(g) and (h) of the Transfer of Pro­ perty Act and to determine what sum remained to be paid to the mortgagees taking into account the decision of this Court. Hence the present appeal. The gist of the arguments of Mr. B. D. Sharma, learned counsel for the appellants may be stated thus : ( i) A preliminary decree settles the rights of parties by deciding all the controversies between them relating to a mortgage transaction and gives all necessary directions for carrying into effect those rights, while a final decree concerns itself with the working out of those rights; further, the mortgage merges into the preliminary decree and therc- F after no relief can be given on the terms of the mortgage; on the basis of the said two principles it must be held that, as the preli­ ntinary decree in the present case did not give a direction to the mortgagee for rendition of an account of the orofits of the mort­ gaged properties, the Court has no jurisdicti~n to direct such a rendition of accounts on an application filed by the mortgagors G after t)le preliminary decree was made. (2) The High Court went wrong in holding that the appellants were estopped from raising the plea that the mortgagee was not liable to render accounts for the period between the date of the filing of the plaint and that of the preliminary decree. And (3) the High Court should have taken into consideration the equities in favol_!r of the mortgagee. The arguments of Mr. A. Viswanatha Sastri, learned counsel for the rei:pondents, may be summarized thus : The relationship of mortgagor and mortgagee continues upto. the date of the final 158 SUPR.BMB COUR. T R.BPOR. TS (1965) 2 S.C.R. decree. The statutory liability of a mortgagee to account for the A profits received by him and credit the same towards the mortgage debt also subsists till that date and, therefore. the fact that the amounts realized by the mortgagee were not given credit to in ascertaining the amount due to him under the mortgage at the time of the making of the prelinlinary decree would not relieve the mortgagee of his liability to account for the same. It is further B contended that though the rents realized could have been taken into account at the tinle the preliminary decree was made, the mortgagee was not bound to appropriate the amount towards the debt before the preliminary decree, for he could do so aiter the decree though the amounts were realized before the decree. In C any view, it is contended, as the mortgagee did not deny his liabi- lity to account for the profits realized by hint from the mortgaged properties before the preliminary decree was made, he could not evade his statutory liability to account for the profits realized and to appropriate the same towards the mortgage debt till the relation- ship of mortgagor and mortgagee came to an end. D The main question in the appeal is whether the preliminary decree passed in the suit debars the mortgagors from clainling that the mortgagee has to account for the profits realized by him from the mortgaged properties in his possession; if he is not so debarred, what is the period for whii;h the mortgagee could be compelled to E render accounts in respect Of'1he said profits? The suit was filed on August 10, 1950; the preliminary decree was made under 0. XXXIV, r. 4, of the Code of Civil Procedure on April 25, 1953. The p:-eliminary decree does not contain any direction directing the mortgagee to account for the profits realized from the mortga­ ged properties in his possession. The contention briefly stated is that, as there is no direction in the prelinlinary decree. the mort­ gagee escapes his statutory liability to render accounts under s. 76 of the Transfer of Property Act. To appreciate this contention the relevant provisions of the Code of Civil Procedure and those of the Transfer of Proper(y Act may be considered. Under 0. XXXIV, r. 4, of the Code of Civil Procedure, in a suit for sale, if the plaintiff succeeds, the Court shall pass a preliminary decree to the effect mentioned in els. (a), (b) and (c)(i) of sub-r. (1) of r. 2; under r. 2, in a suit for foreclosure. if the plaintiff succeeds, the Court shall pass a preliminary decree ordering that an account be taken of what is due to the plaintiff at the date of such decree for (i) principal and interest on the mortgage. Form No. 5 of Appendix D to the First Schedule to the Code prescribed the form for directing the accounts to be taken and Form No. SA thereof GYARS! BAI v. DHANSUKH LAL (Subba Rao, I.) 159 provides for a decree which by itself declares the amount due to the plaintiff on the mortgage. Section 76(h) of the Transfer of Property Act says : "When, during the continuance of the mortgage, the mortgagee takes possession of the mortgaged property, his receipts from the mortgaged property, or, where such property is personally occupied by him, a fair occupa­ tion-rent in respect thereof, shall, after deducting the expenses properly incurred for the management of the property and the collection of rents and profits and the other expenses mentioned in clauses ( c) and ( d), and interest thereon, be debited against h ;m in reduction of the amount, if any, from time to time due to him on account of interest and, so far as such receipts exc~ed any interest due. in reduction or discharge of the mort­ gage-money; the surplus, if any, shall be paid to the mortgagor.". The gist of the said provisions may be stated thus : In a suit on a mortgage for sale the Court may order an account to be taken of what is due to the plaintiff at the date of the preliminary decree and in that case the decree will be made in Form No. 5 in Appen- dix D to the First Schedule to the Code; or it may declare the amount so due on that date, in which case a decree will be made in Form No. 5A in the said Appendix. In a case where a deccee is made in Form No. 5A, it is the duty of the Court to ascertain the amount due to the mortgagee at the date of the preliminary decree. How can the amount due to the mortgagee as on the date F of preliminary decree be declared unless the net profits realized by him from the mortgaged property are debited against him ? The statutory liability of the mortgagee to account upto the date of the preliminary decree would be the subject-matter of dispute in the suit upto the date of the said decree. The Court has to ascertain the amount due under the mortgage in terms of the G mortgage deed and deduct tho net realizations in the manner pres­ cribed in s. 76(h) of the Transfer of Property Act and ascertain the balance due to the mortgagee on the date of the preliminary decree. If the mortgagor did not raise the plea, he would be barred on the principle of res judicata from raising the same as the said matter should be deemed to have been a matter which was directly and substantially in issue in the suit up to that stage. It is settled law that though a mortgage suit would be pending till a final decree was made, the matters decided or ought to have been 160 SUPREME COURT REPORTS (1965] 2 S.C.R. decided by the preliminary decree were final. Suppose the mart- A gagor paid certain amounts to the mortgagee before the prelimi­ nary decree; if these were not given credit to the mortgagor and a larger amount was declared by the preliminary decree as due to the mortgagee, can the mortgagor, after preliminary decree, re­ open the question ? Decidedly he cannot. This is because the preliminary decree had become final in respect of the disputes B that should have been raised before the preliminary decree was made. So too, under s. 76(h) of the Transfer of Property Act, the net receipts of the mortgaged property have to be statutorily debited against the mortgagee in deduction of the amount due under the mortgage from time to time in the manner prescribed thereunder. The principle underlying the said clause is that the C usufruct of the mortgaged property represents the mortgagor's money. On the same analogy of voluntary payment, if a preli­ minary decree, by a wrong decision or by reason of an omission of the requisite plea, ignored the net realization in ascertaining the amount due to the mortgagee, it must be held that the Court refused 0 to give credit to the said receipts. We therefore, bold that in the present case so far as the amounts statutorily debited to the mort­ gagee under s. 76(h) of the Transfer of Property Act before the date of the preliminary decree are concerned, they could not be taken into account as the Court did not take those amounts into consideration at the time it made the said decree. E But the same cannot be said of the net receipts realized by mortgagee subsequent to the preliminary decree. None of the • principles relied upon by the learned counsel for the appellants helps him in this regard. It is true that a preliminary c:tecree is final in respect of the matters to be decided before it is made : see Venkata Reddy v. Pethi Reddy('), ands. 97 of the Code of Civil F Procedure. It is indisputable that in a mortgage suit there will be two decrees, namely, preliminary decree and final decree. and that ordinarily the preliminary decree settles the rights of the parties and the final decree works out those rights : see Talebali v. Abdul Azia( 2 ), and Kausalya v. Kau/eshwar(8 ). It cannot also be disputed that mortgage merges in the preliminary decree G and the rights of parties are thereafter governed by the said decree : see Kusum Kumari V· Debi Prasad Dhandhania('). But we do not see any relevancy of the said principles to the problem that arises in this case in regard to the liability of the mortgagee to account for the net receipts under s. 76 (h) of the Transfer of H Property Act. A preliminary decree is only concerned with dis- (I) (19631 Supp. 2. SC. R. 616. (3) [194S] I. L. R. 2S Pat. 30S. (2) [1930] I. L. R. ~7-Cal. 1013. (4) [193S] L. R. 63 LA. 114. GYARSJ BAJ v. DHANSUKH LAL (S~bba Rao, /.) 161 A putes germane to the suit upto the date of the passing of the said decree. The net receipts of the mortgaged property by the mort­ gagee subsequent to the preliminary decree are outside the scope of the preliminary decree : they are analogoua to amounts paid IO a_ mortgagee by a mortgagor subsequent to the preliminary I decree. Realizing this difficulty, Mr. Sharma contended that it must be held that the question of statutory liability of the mortgagee to account for the receipts must be deemed to have been decided in favour of the mortgagee by the preliminary decree. It is true that the mortgagee may, if he chose, have raised this untenable C contention that for some reason he was not under a statutory' liabi­ lity to account for receipts under s. 7 6 of the Transfer of Property Act; and if the Court wrongly decided in his favour, the finding might have been binding on the mortgagor in respect of the mort­ gagee's liability to account for receipts even fpr the subsequent period subsequent to the preliminary decree was neither expressly D He had conceded his general statutory liability, but, by some mis­ take, it was not quantified upto the date of the preliminary decree and deducted from the mortgage amount. His liability for tho period subsequent to the preliminary decree was neither expressly nor impliedly negatived by the preliminary decree. In thil context, the decision of the Judicial Committee in Madan Thea- 1: · tres, Ltd. v. Dinshaw & Co. Ltd.(') may usefully be cited. There, the question arose whether after the preliminary decree there could be an adjustment of the suit within the meaning of 0.XXIII, r. 3, of the Code of Civil Procedure. The Judicial Committee observed: ' "A decree holder need not, of course, agree to any adjustment or accept payment otherwise than into court, but in their Lordships' opinion it is open to the debtor to allege and prove that an adjustment has taken place or payment in whole or in part has been made and received. . . . . . . Admittedly the suit continues until the final decree is passed, and there is no time limit for recording the agreement arrived at as there is under Or. 21, r. 2· As a suit, notwithstanding the preliminary decree, continued till the passing of the final decree any payment made by the judgment­ debtor to the decree-holder after the preliminary decree would go H in deduction of his mortgage liability. On the same analogy, the net receipts statutorily debited to the mortgagee would equally be {!) (194S) L R. 72 I. A. 277, 286. .• taken into consideration in fixing the mortgagor's ultimate liabi- A lity. This question was considered by Clark, J., in Satyanarayana v. Suryanarayana('). There, the appellant mortgaged certain property to the respondent's father, who went into possession of the same. . In the usual course a preliminary decree was made in favour of the mortgagee. After the preliminary decree the mort­ gagor filed an application for an account to be taken of the profits B ·received by the mortgagee after the date of the preliminary decree and before the passing of the final decree. It was contended that in the absence of any provision in the preliminary decree for taking of any account, no such account could be ordered. Re­ jecting that contention, the learned Judge observed : "That he (the mortgagor) is so entitled is well-settled. law. A mortgage suit continues until the final decree is passed and the relationship of a mortgagor and mort- '.~agee continues until thefi. Accordingly a mortgagee in possession has until the expiry of that period the liabi­ lities imposed on him by s. 76, T.P. Act. It is true that 0. 34, r. 8 does not in terms. provide that a mort­ gagor in a suit for redemption applying for a final decree is entitled to have an account taken of the profits received by the mortgagee in possession between the date of the preliminary decree and the date when posses­ sion is given; but the provisions of 0. 34 read as a whole clearly indicate that such.an account must necessarily be taken. Even if they did not, the right of the mort- gagor to such an account is established beyond question by the provisions of s· 76, T.P. Act. Again it is beyond question that when a suit whether for sale or redemption of a mortgage is filed it is the duty of the Court to decide in that suit all the claims of the mortgagor and mortgagee under the mortgage up to the date when the final decree is given. Such claims can and indeed must be included in the mortgage suit. If they are riot included the person failing to include them is barred thereafter under the pro­ visions of 0. 2, R. 2, Civil P.C. from filing. a suit in respect of them." ~F The learned Judge cited a number of decisions in support of his conclusion. These observations appear to be rather wide and comprehensive enough to take in the liability of a mortgagee to account for the net receipts from the mortgaged property even H for the period before the preliminary decree. But the facts of (I) A. I. R. 1949 Mad. 613, 614. GYARSI BAI v. DHANSUKH LAL (Subba Rao, J.) 163 that case show that the learned Judge was only considering the question of the mortgagee's liability for a period after the preli­ minary decree was made, even though the preliminary decree did not contain a direction that the mortgagee had to account for the said receipts. We agree with these observations with the limita­ tion mentioned above. We, therefore, hold that as regards the net receipts from the mortgaged properties subsequent to the mak­ ing of the preliminary decree the Court was right in giving credit for them to the mortgagor in fixing his liability. Mr. Viswanatha Sastri next argued that the mortgagee is debarred by the doctrine of estoppel from denying his liability to account for the net receipts from the mortgaged properties for the period between the date of the plaint and the date of the prelimi­ nary decree. The plea of estoppel is based upon the foilowing facts : On July 25, 1953, the respondents filed an application in the Court of the Senior Subordinate Judge, Ajmer, wherein they mentioned that under the preliminary decree the amount due was Rs. 958-4-0, that the amount realized by the appellants as rent from the tenants up to the date of the said application was Rs. 4,250, that the costs awarded by the Court against them against which they were going up in appeal was Rs. 2553-1-6 and the balance payable to the appellants after deducting the said E amounts was Rs. 35,155-2-6. The prayer in the petition was that the appellants be directed to deliver possession of the said proper­ ties to them and also be called upon to render true and correct account of the recoveries made by the mortgagee as rent from the date of suit to the date of his handing over possession of the said properties. To that petition the mortgagee filed a counter-afli· F davit wherein he admitted that he had realized only Rs. 4,488-2-0 towards rent from August 10, 1950, to July 28, 1953, and that he had incurred an expenditure of Rs· 1,897 in connection with the management of the said properties during the said period and that the respondents should have deposited Rs. 30,515-10-0 in the Court according to the "present" decree. The sum of G Rs. 39,515-10-0 was arrived at by adding the net receipts of rents from August 10, 1950, to July 28, 1953, to the amount sought to be deposited by the respondents in Court. It is, therefore, clear that the mortgagee admitted that he had to account to the respon­ dents for the receipts of the mortgaged properties. After deposit- ing Rs. 35,515-2-6, the respondents filed on December 7, 1954, an application in the Court of the Subordinate Judge stating that they were prepared to deposit all the remaining amounts which would on settlement of accounts, be found duly payable to the I mortgagee. They also prayed that the mortgagee be directed to produce the accounts of all the rents and profits which he had realized so that the Court, after checking the aforesaid accounts, might decide what amount was exactly due to the mortgagee. To that application the mortgagee filed a counter-affidavit, wherein he stated thus : "That the plaintiff has no objection to give an account as to the amount of rent realised by him and the expenses · incurred by him in the management and preservation of the mortgaged property but he maintains that he has a right to remain in possession of the property and enjoy its usufruct till the last penny due on the mortgage in his favour is paid up to him. The plaintiff is therefore entitled to remain in possession of the property till the amount of Rs. 14,916-11-0 on account of interest wrongly disallowed by thio learned Court is also paid to him alongwith the other dues or till the said interest is finally disallowed by Honourable the Supreme Court of India in appeal." It will be seen again that the mortgagee in clear terms admitted his liability to account for the net receipts from the mortgaged properties; but he claimed that he would be entitled to be in possession till the interest amount due was also paid to him. On August 27, 1953, the Senior Subordinate Judge ordered that the amount deposited by the mortgagors less the amount attached by the Income-tax Officer may be paid to the mortgagee. As by that time the appeal and the cross-objections filed by the mortgagee and the respondents respectively were not disposed of, the learned Subordinate Judge left open the question as to the amount that F would actually be due to the mortgagee till after they were dis­ posed of. It appears that the said amounts were drawn out by the mortgagee. From the aforesaid documents it is clear that the respondents deposited Rs. 35,515-2-6 in the Court after taking the net proceeds alleged to have been realized by the mortgagee from the mortgaged properties and prayed that the mortgagee should G be directed to render true and correct accounts from the daie of the. suit to the date of his handing over possession of the said properties to the respondents. The mortgagee admitted his liabi- lity to account for the receipts and only claimed that he was entitled to be in possession of the properties till the interest dis­ allowed by the Court was paid ·10 him. From the said facts it is argued t)iat the respondents would not have permitted the mort­ gagee to draw out the amount if he had not admitted his liability GYARSI BAI v. DHANSUKH LAL (Subba Rao, I.) ! 6S A to account for the net receipts from the mortgaged properties and that the mortgagee having drawn that amount subject to tha liability, he is now estopped from denying his liability. Under s. 115 of the Evidence Act when one person by his declaration, act or omission intentionally caused another person to believe a thing to be true and to act upon such belief, he cannot deny the B truth of the thing. The doctrine of estoppel embodied in s. 115 of the Evidence Act has been explained by the Judicial Committee in C. D. Sugar Co. v. C. N. Steamship(') in the following terms : "estoppel is a complex legal notion, involving a combi­ nation of several essential elements, the statement to be C acted upon, action on the faith of it, resuling detriment to the actor." To invoke the doctrine of estoppel three conditions must be satis­ fied : (1) representation by a person to another, (2) the other shall have acted upon the said representation, and ( 3) such action o shall have been detrimental to the interests of the person to whom the representation has been made. In the instant case it may be said that the first two conditions are satisfied : the appellant repr_e­ sented to the respondents that he was liable to render accounts to them in regard to the net proceeds of the mortgaged properties from the date of the plaint to the date of the preliminary decree, and on the said representation the respondents agreed to the appellan\ drawing out from the Court about Rs. 35,515 deposited by them. But can it be said that the respondents had in any way acted to their detriment on the basis of the representation made by the appellant ? The respondents had to pay the decretal amount to the appellant if they wanted to get possession of the properties. What they paid was less than what they had to pay under the decree. By paying the said amount they did nothing more than discharging their liability under the decree. The discharge by the respondents of their legal liability under the decree cannot in any sense of the term be described as detrimental to them. Whe­ ther -the representation was made or not they had to pay that G amount and by paying that amount they had secured a benefit in as much as from the date of payment the interest on that amount ceased to run. There is no scope, therefore. in this case to invoke the doctrine of estoppel. We, therefore, hold that the order of the Rajasthan High Court was correct, except in regard to the H direction given by it to the Subordinate Judge to take into account all the receipts of the mortgaged properties from August 10, 1950,. ------------- (I) A. I. R. 1947 P. C. 40. 166 SUPREME COUllT REPORTS [1965] 2_s.c.R. to July 25, 1953. The order of the High Court is accordingly A modified. The parties will pay and receive proportionate costs here and in the High Court. Order modified.