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1940 Supreme(SC) 41
PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
LORD RUSSELL OF KILLOWEN, SIR LANCELOT SANDERSON, AND MR. M. R. JAYAKAR.
BABU NISAR AHMAD KHAN - Appellant
Versus
BABU RAJA MOHAN MANUCHA - Respondents
On appeal from the Chief Court of Oudh at Lucknow.
Decided On : July. 18. 1940.
Solicitors for appellant: Nehra & Co.
Solicitors for respondents: Hy. S. L. Polak & Co.
A mortgage executed without required statutory permission is void as a security interest but remains enforceable as a personal covenant for the repayment of the loan amount under Section 65 of the Indian Contract Act.
Headnote:(A) Indian Evidence Act - Section 111 - Burden of proof in transactions between parties where one stands in a position of active confidence - Where a transaction is entered into between a mortgagor and a third party, the fact that the third party is the son of the mortgagor's legal adviser does not automatically create a fiduciary relationship between the actual parties to the contract - If the mortgagee used his own funds and no position of active confidence existed between the mortgagee and mortgagor, the burden of proving the good faith of the transaction does not shift to the mortgagee. (Paras 183-184)
(B) Code of Civil Procedure, 1908 - Third Schedule, Paragraph 11 - Mortgage of estate during execution proceedings - A mortgage deed executed without the written permission of the collector, as required by the statutory provisions governing the execution of decrees, is null and void. (Paras 187-188)
(C) Indian Contract Act - Section 65 - Agreement discovered to be void - A mortgage deed that is void ab initio for lack of statutory permission still creates a personal liability for the repayment of the loan amount actually received, with reasonable interest, as it falls within the scope of agreements discovered to be void. (Paras 182, 188)
(D) Indian Limitation Act, 1908 - Article 116 - The period of limitation for the enforcement of a personal covenant to pay contained in a registered mortgage deed is six years. (Para 182)
Facts of the case:
A mortgagor, facing the sale of his ancestral estate in execution of a bank decree, mortgaged the property to the son of his legal adviser to discharge the debt. The first mortgage was executed with the collector's permission. Subsequently, a second deed of further charge was executed to secure additional funds to save a portion of the estate, but this second deed was executed without the collector's written permission. The mortgagor's successor later challenged the validity of both deeds, alleging undue influence due to the legal adviser's role and asserting that the second deed was void for lack of statutory permission.
Findings of Court:
The court found that the loan was advanced by the son of the legal adviser from his own personal funds and not as a benamidar for his father. Consequently, no fiduciary relationship existed between the mortgagee and the mortgagor. The court further found that the transactions were honest, the terms were not onerous, and the interest rates were reasonable. However, the second mortgage was held to be null and void due to the absence of the collector's permission.
Issues: Whether the mortgage deeds were voidable due to a fiduciary relationship between the legal adviser and the mortgagor; whether the second mortgage was void for lack of the collector's permission; and whether the loan amount under a void mortgage is recoverable.
Ratio Decidendi: The court ruled that the burden of proof under Section 111 of the Evidence Act applies only when the actual parties to the transaction share a relationship of active confidence. Since the mortgagee was the son of the vakil and used his own funds, no such relationship existed. Regarding the void mortgage, while it failed as a security interest due to the absence of the collector's permission, it remained a valid personal covenant for the repayment of the loan under Section 65 of the Contract Act, provided the loan was bona fide and the interest rate reasonable.
Result: Respondents entitled to repayment of money due under both mortgages with compound interest at 8% per annum.
Legal Category Hierarchy
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practice and procedure
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civil procedure
- execution of decrees
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civil procedure
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property law
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mortgages
- validity of mortgage
- equity of redemption
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mortgages
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contract law
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void and voidable contracts
- undue influence
- restitution
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void and voidable contracts
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evidence law
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burden of proof
- fiduciary relationship
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burden of proof
Judgement
Law. Rep. 67 Ind. App. 431 ( 1939- 1940) Babu Nisar Ahmad Khan V. Babu Raja Mohan Manucha
180
Consolidated Appeals (No.88 of 1938) from a decree of the Chief Court of Oudh (August 18, 1936), which modified a decree of the Additional Subordinate Judge of Sultanpur (October 30, 1933).
The questions at issue in these consolidated appeals were, first, whether a certain mortgage deed and a deed of further charge executed in 1919 were void or voidable by reason of undue influence, and, secondly, whether the said deed of further charge was void or voidable by reason of para.11 of the Third Schedule to the Code of Civil Procedure, 1908, because it was executed without the written permission of the collector.
The facts appear fully from the judgment of the Judicial Committee.
The Subordinate Judge held (inter alia) that the deed of further charge, in respect of which the collectors permission had not been obtained, was void ab initio, and that the mortgagor was not liable to make any payment thereunder.
The Chief Court (E. M. Nanavutty and H. G. Smith JJ.) were of opinion that the deed of further charge fell within the words " discovered to be void occurring in s. 65 of the Indian Contract Act; that though the deed failed as a mortgage the mortgagor, as he sought equity, must do equity; and that the deed contained a personal covenant to pay, the enforcement of which was not barred by limitation, and that the mortgagor, who in his action had claimed repayment of the money due in respect of the mortgage and the deed of further charge, was entitled to recover. The appeal is reported at ( 1936) I.
L. R. 12 Luck. 435.
1940. June 4, 5, 6. J. P. Eddy K.C. and H. D. Cornish for the appellant.
R. F. Roxburgh K.C. and L. M. Jopling for the respondents.
July 18. The judgment of their Lordships was delivered by MR. M. R. JAYAKAR. These proceedings arise out of two mortgage deeds, exhibits 3 and 5, executed on January 18, 1919, and August 14, 1919, respectively. The respondents father, Motilal, was the mortgagee, and the appellants father, Yar Mohammad Khan, the mortgagor.
The events which led to the present litigation are as follows By a mortgage deed, dated July 8, 1908, Mohammad Ewaz Ali Khan, the appellants grandfather, who was the Taluqdar of Mahona, District Sultanpur, in Oudh, mortgaged his estate, consisting of twenty-six villages, to the Allahabad Bank, Ld., for securing payment of a sum of Rs. 1,50,000, with compound interest at the rate of 7 per cent, per annum, with half-yearly rests. In 1914, the bank instituted a suit against the mortgagor and certain transferees from him, including his wife, Saifuran Bibi, and on April 12, 1915, a preliminary decree was passed for Rs. 1,77,001-13-9, with interest and costs, to be paid by October 12, 1915, and, in default, the mortgaged property was to be sold. On July 24, 1915, the mortgagor died, and his son, Yar Mohammad Khan, succeeded to the taluqa. On June 17, 1916, a final decree was passed for the amount of Rs.2,05,382-12-6 against Yar Mohammad Khan and others. The bank instituted proceedings for executing the decree in the Court of the Subordinate Judge at Sultanpur, who, on February 5, 1917, transferred the case to the Court of the Deputy Commissioner at Sultanpur for execution under the provisions of s. 68 of the Civil Procedure Code ( 1908). It may be noted that the Deputy Commissioner had the powers of a collector under that section.
On March 6, 1918, Yar Mohammad Khan applied to the Deputy Commissioner for leave to pay the decretal amount by instalments, or under some other arrangement intended to save the estate. Thereupon, a revenue officer, called the sale officer, reported to the Deputy Commissioner on June 11,
Law. Rep. 67 Ind. App. 431 ( 1939- 1940) Babu Nisar Ahmad Khan V. Babu Raja Mohan Manucha
181
1918, that the debt could be discharged either by taking the property into direct management or by mortgaging or letting it in perpetuity. Inquiries about the last two alter
