PETITIONER:
ANANDRAM JIVRAJ GAGLE
Vs.
RESPONDENT:
PREMRAJ MUKANDAS & ORS.
DATE OF JUDGMENT:
31/08/1967
BENCH:
SIKRI, S.M.
SHAH, J.C.
SHELAT, J.M.
CITATION:
1968 AIR 250 1968 SCR (1) 424
ACT
Transfer of Property Act (4 of 1882), ss. 76(d) and 76(h)--Priorities laid down in s. 76(h) whether subject to those in s. 76(d).
HEADNOTE
The respondents filed a suit against the appellant for redemption of a mortgage. The suit was decreed subject to payment of a sum of Rs. 9,224-12-0 towards principal and interest within six months. A preliminary decree was directed to be drawn up. The appellant filed an appeal in the Court of the District Judge and inter alia urged that "the court ought to have directed the Commissioner to deduct the rent received (i) first towards taxes, then (ii) towards interest of the amount, of repairs etc., then (iii) towards interest on the principal amount, then towards (iv) amount of repairs and expenses and then towards the principal of the loan." The appeal was dismissed. A second appeal in the High Court also failed. The appellant came to this Court by special leave. It was urged on his behalf that the priorities in s. 76(h) of the Transfer of Property Act were subject to the priorities in s. 76(d) and therefore interest on the principal amount should, in the present case, have been given priority over the payment of the expenditure on maintenance and repairs. Held:The appeal must fail. The object of s. 76(d) is not to fix any priorities but to make it obligatory on the mortgagee, in the absence of a contract to the contrary to carry out necessary repairs to the property but the amount he can spend is limited to the difference between rents and profits and payments mentioned in cl. (c) and the interest on the principal money. It is cl. (h) which directs the mortgagee to apply the receipts from the mortgaged property in a certain manner. The order of application is (1) the expenses properly incurred for the management of the property and the collection of rents and profits and the other expenses mentioned in cls., (c) and (d), (2) interest thereon, (3) the surplus, if any, has to be utilised towards reduction of interest on principal money and (4) the principal money itself. There is no contradiction between s. 76(d) and s. 76(h). The fact that s. 76(d) limits the scope of the liability has no bearing on the question whether it lays down any order of priorities inconsistent with those mentioned in cl. (h) [428B-E]
JUDGMENT
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 8 of 1965. Appeal by special leave from the judgment and decree dated October 5, 1962 of the Bombay High Court in Appeal No. 598 of 1960, from Appellate Decree. S. T. Desai and J. P. Aggarwal, for the appellant. O. P. Malhotra, and P. C. Bhartari, for the respondents. 425 The Judgment of the Court was delivered by Sikri, J. This appeal by special leave is directed against the judgment and decree of the Bombay High Court in Appeal No. 598 of 1960, whereby the High Court confirmed the judgment and decree dated January 30, 1960, passed by the Extra Assistant Judge, District Court, Ahmednagar, in Regular Appeal No. 300 of 1958, confirming the decree dated April 7, 1958, passed by the Joint Civil Judge, Junior Division, Ahmednagar, in Civil Suit No. 609 of 1948. The relevant facts for the determination of the points raised before us by the learned counsel for the appellantmortgagee, are as follows: The respondents before us filed a suit for the redemption of the mortgage of a bungalow at Ahmednagar alleging that the sale-deed in respect of this bungalow for Rs. 5,000 was in fact a possessory mortgage. One of the terms of this deed, dated August 4, 1928, was :
" However, a condition is laid down that if
we pay you within three years from this day
Rupees five thousand relating to this sale-
deed, and (interest) thereon at the rate of 12
twelve annas per cent per mensem at yearly
rests, and the amounts spent by you to meet
the expenses for repairs, constructions,
taxes, etc. together with interest (at the
rate) mentioned above........ you are to
receive the same and allow us to purchase the
aforesaid property back. The transaction was held to be a mortgage and there is no dispute on this point. On April 7, 1958, the suit was finally decreed for redemption of the property subject to a payment of Rs. 9,224-.12-0, Rs. 4,612-6-0 as principal, and Rs. 4,612-6-0 as interest thereon, within six months from that date. A preliminary decree was directed to be drawn up. The appellant filed an appeal in the Court of the District Judge, Ahmednagar, and, among other grounds, alleged that "the Court ought to have directed the Commissioner to deduct the rent received (i) first towards taxes, then (ii) towards interest of the amount of repairs, etc., then (iii) towards interest on the principal amount, then towards (iv) amount of repairs and expenses and then towards the principal of the loan". The Extra Assistant Judge did not agree with this contention, and dismissed the appeal. The appellant filed a second appeal to the High Court. The High Court also disagreed with the above contentions. The High Court held that the priorities had been settled by the courts below in accordance with the provisions of s. 76(h) of the Transfer of Property Act, 1882 (IV of 1882) and were, therefore, proper. The method of accounting followed by the Commissioner appointed in the case, and which was accepted by the courts below, was as follows : Out of the income derived from the property (There is no dispute that the bungalow was fetching rent from 426 month to month) the outgoings were deducted in the following order of priority :
1. Payment of taxes.
2. Payment of interest on the amount of
expenditure on maintenance and repairs.
3. Payment of the expenditure on maintenance
and repairs.
4. Interest on the amount of principal of the
mortgage bond.
5. Amount of principal under dispute. The learned counsel for the appellant, Mr. S. T. Desai, says that item 4 above should be item 3, and to substantiate this has submitted three propositions before us :
(1) Section 76(h) does not lay down any order
of priority inconsistent with the order of
priority mentioned in s. 76(d) and does not
reverse that order. Both the provisions must
be read together and in a harmonious manner;
(2) The liability for repairs under s. 76(d)
is very limited in its scope. This liability
arises only if there is a surplus left after
deducting from the rents and profits of the
property two items, viz.;
(i) expenses mentioned in clause (c), and
(ii) interest on the principal money;
(3) If the mortgagee expends more for repairs
than the surplus left after the last mentioned
deductions, that expense would not be in
pursuance of any liability of his under S.
76(d) but would be claimed under the right
conferred by s. 63A(2) and S. 72(b). Such
expenses would be treated as additions to the
principal money.
Sections 76 (c), (d), (h), 63A and 72(b) read
as follows:
"76. When, during the continuance of the
mortgage, the mortgagee takes possession of
the mortgaged property;-
(c) he must, in the absence of a, contract to
the contrary, out of the income of the
property, pay the Government revenue, all
other charges of a public nature and all rent
accruing due in respect thereof during such
possession, and any arrears of rent in default
of payment.of which the property may be
summarily sold;
(d) he must, in the absence of a contract to
the contrary, make such necessary repairs of
the property as he can pay for out of the
rents and profits thereof after 427
deducting from such rents and profits the
payments mentioned in clause (c) and the
interest on the principal money;
(h) his receipts from the mortgaged property,
or, where such property is personally occupied
by him, a fair occupation-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 him in reduction of the amount
(if any) from time to time due to him on
account of interest and, so far as such
receipts exceed any interest due, in reduction
or discharge of the mortgage-money; the
surplus, if any, shall be paid to the
mortgagee;............
63A. (1) Where mortgaged property in
possession of the mortgagee has, during the
continuance of the mortgage, been improved,
the mortgagor, upon redemption, shall, in the
absence of a contract to the contrary, be
entitled to the improvement; and the mortgagor
shall not, save only in cases provide d for in
sub-section (2), be liable to pay the cost
thereof.
(2) Where any such improvement was effected at
the cost of the mortgagee and was necessary to
preserve the property from destruction or
deterioration or was necessary to prevent the
security from becoming insufficient, or was
made in compliance with the lawful order of
any public servant or public authority, the
mortgagor shall, in the absence of a contract
to the contrary, be liable to pay the proper
cost thereof as an addition to the principal
money with interest at the same rate as is
payable on the principal, or, where no such
rate is fixed, at the rate of nine per cent
per annum, and the profits, if any, accruing
by reason of the improvement shall be credited
to the mortgagor.
72. A mortgagee may spend such money as is
necessary-
(b) for the preservation of the mortgaged
property from destruction, forfeiture or sale;
and may, in the absence of a contract to the
contrary, add such money’ to the principal
money, at the rate of interest payable on the
principal, and where no such rate is fixed, at
the rate of nine per cent per annum; Provided
that the expenditure of money by the mortgagee
under clause (b) or cause (e) shall not be
deemed to be necessary 428
unless the mortgagor has been called upon and
has failed to take proper and timely steps to
preserve the property or to support the
title........." It seems to us clear that. the object of s. 76(d) is not to fix any priorities but to make it obligatory on the mortgagee, in the absence of a contract to the contrary, to carry out necessary repairs to the property but the amount he can spend is limited to the difference between rents and profits and payments mentioned in cl. (c) and the interest on the principal money. When we come to cl. (h), it directs the mortgagee to apply the receipts from the mortgaged property in a, certain manner. The order of application is (1) the expenses properly incurred for the management of the property and the collection of rents and profits and the other expenses mentioned in cls. (c) and (d), (2) interest thereon, (3) the surplus, if any, has to be utilised towards reduction of interest on principal money, and (4) the principal money itself. In our view, there is no contradiction between s. 76(d) and s. 76(h). It is true, as stated in proposition No. 2 of the learned counsel, that the liability for repairs is limited in its scope and arises only if there is a surplus left after deducting from the rents and profits of the property the expenses mentioned in cl. (c), and the interest on the principal money, but the fact that the liability is limited in scope does not bear on the question whether it lays down any order of priorities inconsistent with the priorities mentioned in cl. (h). .This is so because, as we have stated above, s. 76(d) is not concerned with the question of priorities but with limiting the amount which can be spent by the mortgagee in possession for carrying Out necessary repairs. Coming now to the third proposition, it is not necessary to deal with the question of the relationship between S. 63A, S. 72(b) and s. 76, because the plaintiff has neither alleged nor proved that any expenses were incurred by which improvement was effected and the improvement was necessary to preserve the property from destruction or deterioration within S. 63A(2). Similarly, he never alleged or proved that he spent money which was necessary for the preservation of the mortgaged property from destruction, forfeiture or sale within s. 72(b). There is no allegation or evidence that the mortgagor had been called upon and failed to take proper and timely steps to preserve the property. We may mention that the only allegation to which our attention was drawn is contained in para 11 of the written statement, which reads as follows :
"11. The transaction dated 4-8-28 is not one
of security or mortgage. The defendant has
never received rent for the suit property more
than Rs. 65 per month. The defendant has
incurred expenses from time to time for taxes,
expenses, maintenance, repairs, (and) con-
structions. The defendant made constructions
and 429
repairs and spent more, than Rs. 10,000 (ten
thousand) therefor because it was his own
property. I shall produce an extract in that
behalf. For many years the property under
dispute was unoccupied This hardly covers the point now sough to be made. For the aforesaid reasons the appeal fails and is dismissed with costs. G.C. Appeal dismissed. /S5SCI-14 430