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1923 Supreme(SC) 16
PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
VISCOUNT FINLAY, LORD DUNEDIN, LORD ATKINSON, SIR JOHN EDGE, AND MR. AMEER ALI.
KANHAYA LAL - Appellant
Versus
NATIONAL BANK OF INDIA, LIMITED - Respondents
On Appeal from the Chief Court of the Punjab.
Decided On : April 23. 1923.
Solicitors for appellant: T. L. Wilson & Co.
Solicitors, for respondents: Sandersons & Orr Dignams.
A statutory right to recover money paid under coercion under Section 72 of the Indian Contract Act cannot be defeated by equitable defenses. Additionally, a debenture holder may validly purchase mortgaged property sold by trustees if no conflict of interest exists between the seller and buyer.
Headnote:(A) Indian Contract Act, 1872 - Section 72 - Recovery of money paid under coercion - Statutory right - Equities and counterclaims - Whether a statutory right to recover money paid under coercion can be defeated by equitable considerations or counterclaims - A statutory right expressed in terms of Section 72 cannot be appended with considerations of the relation of parties inter se, as this would amount to allowing a counterclaim which is not admissible in the relevant jurisdiction.
(B) Transfer of Property Act, 1882 - Section 69 - Power of sale in mortgage deed - Applicability to limited companies - Where the Act is not extended to a particular region, a stipulation in a mortgage deed allowing sale without court intervention is valid, especially in the case of limited companies issuing debentures in the English form.
(C) Mortgage - Sale of mortgaged property - Purchase by debenture holder - Whether a debenture holder is incompetent to purchase property sold by trustees - No prohibition exists if the seller acts on behalf of the company to secure the highest price, ensuring no merging of the seller's interest (to maximize price) and the buyer's interest (to minimize price) in the same person.
(D) Registration Act - Sections 33, 34, 35 and 87 - Presumption of regularity - Registration of a deed is presumed to be valid, and any act done in good faith by a registering officer shall not be deemed invalid merely due to defects in appointment or procedure.
Facts of the case:
A company issued debentures secured by a mortgage of immovable property. The company owed debts to a bank. A party advanced funds to the company, became its managing agent, and held the debentures. Under the mortgage deed, trustees were empowered to sell the property upon attachment. Following an attempted attachment by the bank, the trustees sold the property to the debenture holder. The bank subsequently attached the property, and the new owner paid the debt under protest to release the attachment, subsequently suing for recovery of the sum.
Findings of Court:
The payment was made under coercion, triggering a statutory right of recovery. The sale of the property was valid as the power of sale was legally permissible for a limited company's debenture mortgage in that jurisdiction. The purchase by the debenture holder was not prohibited as there was no conflict of interest between the seller and buyer. The registration of the transfer was presumed valid.
Issues: (i) Whether a statutory right to recover money paid under coercion under Section 72 of the Contract Act can be defeated by equitable defenses; (ii) whether a mortgage deed for a limited company can validly provide for sale without court intervention; (iii) whether a debenture holder can purchase the mortgaged property sold by trustees; and (iv) whether registration defects invalidate the transfer.
Ratio Decidendi: A statutory right to recover money paid under coercion is absolute and cannot be defeated by equitable considerations regarding the parties' relationship. In the absence of a prohibiting enactment, a power of sale in a mortgage deed is valid for limited companies. A debenture holder may purchase the property if the seller's duty is to the company to obtain the highest price, preventing the merging of buyer and seller interests. Registration is presumed regular under the law.
Result: Appeal allowed.
Legal Category Hierarchy
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civil law
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contract law
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recovery of money
- payment under coercion
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recovery of money
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property law
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mortgages
- power of sale
- debenture mortgages
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mortgages
-
contract law
-
practice and procedure
-
registration
- registration act
-
registration
Judgement
Appeal (No. 92 of 1922) from a judgment and decree of the Chief Court of the Punjab (January 15, 1919) reversing a decree of the Subordinate Judge, Delhi.
The suit was brought in 1902 by the appellant (since deceased) against the respondents to recover money which he had paid to them under protest to release an attachment of immovable property, which he alleged belonged to him, under a decree obtained by the respondents against the Delhi Cotton Mills Co., Ld.
The circumstances in which the suit was brought appear from the judgment of the Judicial Committee. There had been two previous appeals to the Privy Council in the suit. In the first (reported at L. R. 37
I. A. 80), the Chief Court having dismissed the suit by an error of procedure, it was remitted for trial. In the second (reported at L. R. 40 I. A. 56) it was held, reversing the Chief Court, that the plaint showed a good cause of action; the suit was again remitted for trial.
The debentures held by the deceased appellant were issued on April 6, 1901, and were secured by a trust deed in favour of new trustees containing identically the same terms and conditions as those in the trust deed securing debentures originally issued by the company in 1891.
By that deed the company conveyed the property to the trustees on the usual trusts to be found in favour of trustees for debenture holders. One of the conditions was that if " an execution or attachment be issued out upon or against any of the property of the Company," the trustees were especially and fully empowered to enter upon and take possession of the mortgaged premises, and to sell the same at their discretion for the benefit of the debenture holders. The deed also empowered the trustees to delegate, by a general or special power of attorney or otherwise, all or any of their powers.
The new trial ordered by the Privy Council took place "before the Subordinate Judge, first class, of Delhi, who made a decree for the sum paid and interest.
Upon appeal to the Chief Court that decision was set aside. The learned judges held that the sale of the mortgaged property to the plaintiff was valid, and that consequently the attached property was his, and not the companys, at the time of the attachment. They found, however, that he had express knowledge of the companys debt to the bank before he made any advance. In their view he had improperly used his dual position as financier and controller of the company to defeat the banks rights as creditors, and the principles of s. 88 of the Indian Trusts Act, 1882, applied so as to preclude him from recovering in the suit.
1923. Feb. 27; March 1, 2, 5. De Gruyther K.C. and Parikh for the representatives of the appellant. It was established by the previous decision of the Board (L. R. 40 I. A. 56.) that the plaintiff had a good cause of action under s. 72 of the Indian Contract Act. The circumstances raised no equities in favour of the respondents, but in any case the plaintiffs right to recover being given by statute those equities were no defence to the suit.
Tomlin K.C., Dunne K.C. and E. B. Raikes for the respondents. At the date of the attachment the property still remained that of the company. The appellant was incompetent to buy, on the principle that a mortgagee cannot buy from himself Farrar v. Farrars, Ld. (( 1888) 40 Ch. D. 395, 409.); Hodson v. Deans . ([ 1903] 2 Ch. 647.) A sale involves a consensus of two minds, consequently the appellant could not be at once seller and buyer Henderson v.
Attwood([ 1894] A. C. 150.); National Bank of Australia v. United Hand in Hand, etc., Co. (( 1879) 4 App. Cas. 391, 404.) Secondly, the power of sale was invalid. In India generally a mortgagee cannot sell the mortgaged property, except by a sale under a decree of the Court. The Transfer of Property Act, 1882, s. 69, merely stated what was previously the law in India Balkishen Das v. Legge (( 1899)
L. R. 27 I. A. 58, 67.); Punjab Laws Act, 1872, s. 5. That the previously existing
