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1942 Supreme(SC) 28
PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
LORD MACMILLAN, LORD WRIGHT, LORD PORTER, SIR GEORGE RANKIN, AND SIR MADHAVAN NAIR.
BABU RAJA MOHAN MANUCHA - Appellant
Versus
BABU MANZOOR AHMAD KHAN - Respondents
On appeal from the Chief Court of Oudh at Lucknow.
Decided On : Dec. 14. 1942.
Solicitors for appellants: Hy. S. L. Polak & Co.
If a mortgage is void due to the mortgagor's legal incompetence to charge the property, the lender may rescind the contract and claim restitution under Section 65 of the Indian Contract Act, provided the "discovery" of the voidness is established, which may be deferred in special circumstances.
Headnote:(A) Code of Civil Procedure, Third Schedule, para 11 - Indian Contract Act, Section 65 - Incompetence of judgment-debtor to mortgage property during execution proceedings - If the Collector can still exercise powers or duties over the property, the judgment-debtor is incompetent to mortgage it without written permission - Such a mortgage is void as a charge but does not necessarily void the personal covenant to repay the loan. (Paras 73-74)
(B) Indian Contract Act, Section 65 - Restitution - A lender who agrees to a loan on security is not obliged to continue the loan as an unsecured advance if the security is found invalid - The lender may avoid the contract and seek restitution of the money advanced. (Paras 75-76)
(C) Indian Contract Act, Section 65 - Meaning of "discovered to be void" - While normally the date of the agreement, in special circumstances, such as an open and honest transaction where interest was paid for many years, the discovery may occur only when the court decides the question or a plea is taken. (Paras 76-77)
(D) Pleading - Relief under Section 65 of the Indian Contract Act may be granted even if not specifically pleaded in the original plaint, as it is a matter of restitution and not an injustice to the defendant. (Para 77)
Facts of the case:
A registered mortgage was executed for a principal sum with a personal covenant to repay. The property was subject to execution proceedings by a Collector. It was found that at the time of the mortgage, the Collector still possessed powers and duties regarding the property, rendering the mortgagor incompetent to create a charge without written permission. The mortgage was held void as a security, and the claim on the personal covenant was found to be barred by limitation. The lender sought restitution of the principal sum under the law of contract.
Findings of Court:
The mortgage was void as a charge because the Collector's duties had not ceased on the date of execution. The lender was entitled to avoid the contract and recover the money under the principle of restitution. The agreement was discovered to be void only after the institution of the suit due to the honest nature of the transaction and long-term payment of interest.
Issues: Whether the mortgagor was incompetent to mortgage the property under the Code of Civil Procedure; whether the lender could claim restitution under Section 65 of the Indian Contract Act if the security was void; and whether the claim was barred by limitation or lack of pleading.
Ratio Decidendi: The court held that while the incapacity to mortgage property does not void a personal covenant to repay, a lender is not bound to maintain an unsecured loan and may rescind the contract. Restitution under Section 65 is a right arising from the failure of a contract. "Discovery" of voidness can be deferred in special circumstances, and the court should not be unduly rigid regarding the pleading of restitution.
Result: Appeal allowed.
Legal Category Hierarchy
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practice and procedure
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execution of decrees
- alienation of property by judgment-debtor
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execution of decrees
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contract law
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void agreements
- restitution
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void agreements
Judgement
Appeal (No. 68 of 1939) from a decree of the Chief Court (May 5, 1937) which affirmed a decree of the Additional Subordinate Judge, Sultanpur (August 2, 1935).
Law. Rep. 70 Ind. App. 1 ( 1942- 1943) Babu Raja Mohan Manucha V. Babu Manzoor Ahmad Khan 71
This was an appeal by the plaintiffs in a suit to enforce a registered mortgage, dated August 12, 1919, whereby a village called Mahona Poorab, in the district of Sultanpur in Oudh, was made security for the sum of Rs. 10,000, with interest at nine per cent, with half-yearly rests. The grantor of the mortgage was Iltifat Ahmad Khan, the defendants father, and the grantee was the plaintiffs father, Moti Lal Manucha. The deed contained a personal covenant to pay the interest half-yearly and to repay the principal at the end of three years. The suit was brought in the Subordinate Judges Court at Sultanpur on August 9, 1934, by which time both of the original parties to the deed had died. The plaint sought relief, both by sale of the mortgaged property and by enforcement of the covenant.
The defendants by their written statement of November 30, 1934, maintained, among other defences, that the mortgage sued upon was void, having been made in circumstances which brought into operation para. 11 of the Third Schedule to the Code of Civil Procedure " 11.—(1.) So long as the Collector "can exercise or perform in respect of the judgment-debtors "immovable property, or any part thereof, any of the powers "or duties conferred or imposed on him by paragraphs 1 to 10, "the judgment-debtor or his representative in interest shall "be incompetent to mortgage, charge, lease or alienate such "property or part except with the written permission of the "Collector
The facts appear from the judgment of the Judicial Committee.
The trial judge sustained the defendants contention. He refused the plaintiffs a money decree on the covenant on the ground that that cause of action had become barred by limitation. By his decree he dismissed the suit, with costs. An appeal by the plaintiffs to the Chief Court was dismissed, the learned judges (Thomas and Zia-ul-Hasan JJ.) agreeing with the trial court on both of the grounds of his decision. They were asked to give the plaintiffs relief under s. 65 of the Indian Contract Act. By that section " When an " agreement is discovered to be void, or when a contract "becomes void, any person who has received any advantage "under such agreement or contract is bound to restore it, or "to make compensation for it, to the person from whom he "received it.1
The Chief Court, however, refused to entertain that ground of claim because it had not been pleaded and was not taken in the memorandum of appeal. Accordingly they left the plaintiffs to seek that remedy by a separate suit.
The plaintiffs now appealed to His Majesty in Council. By their petition of appeal under O. 45, rr. 2 and 3, and by their case, they contested the findings of the courts in India both as regards the invalidity of the mortgage and as to their claim on the personal covenant being statute-barred they also insisted on their right to relief under s. 65 of the Indian Contract Act.
1942. Nov. 3, 5, 6. Roxburgh K.C. and L. M. Jopling for the appellants. The first question, whether the mortgage is void as a mortgage, depends first on whether at the date of the mortgage the Collector was in a position to exercise over the property certain powers and duties imposed by paras. 1 to 10 of the Third Schedule to the Code of Civil Procedure. If he was, then the mortgage would be void as a mortgage unless he gave written permission. At the date of the mortgage of August 12, 1919, there were no powers or duties conferred on the Collector in respect of village Mahona Poorab which he could exercise or perform. In any case, the order of the Collector of July 21, 1919, discharging or exempting the village from sale was sufficient written permission within the meaning of para. 11 (1.) of the Third Schedule to the Code
