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1945 Supreme(SC) 30
PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
LORD PORTER, SIR MADHAVAN NAIR AND SIR JOHN BEAUMONT.
MADAN THEATRES, LIMITED - Appellant
Versus
DINSHAW AND COMPANY, LIMITED - Respondents
On appeal from the Chief Court of Oudh at Lucknow.
Decided On : July. 18. 1945.
Solicitors for appellant: T. L. Wilson & Co.
Order 23, Rule 3 of the CPC allows courts to recognize out-of-court adjustments or satisfaction of a mortgage debt after a preliminary decree but before a final decree. Order 21, Rule 2's certification requirement applies only to execution proceedings, which begin after the final decree.
Headnote:(A) Code of Civil Procedure - Order 23, Rule 3 - Order 34, Rules 2, 4 and 5 - Order 21, Rule 2 - Mortgage suit - Preliminary decree ordering payment into court - Adjustment or satisfaction of debt made out of court after preliminary decree but before final decree - Order 23, Rule 3 provides that where it is proved to the satisfaction of the court that a suit has been adjusted wholly or in part by any lawful agreement or compromise, or where the defendant satisfies the plaintiff, the court shall record such agreement and pass a decree in accordance therewith - This rule is imperative and applies as long as the suit continues until the final decree is passed - Provisions of Order 34, Rule 5, which refer to payment into court, do not override the general application of Order 23, Rule 3 regarding adjustments.
(B) Code of Civil Procedure - Order 21, Rule 2 - Certification of payments - Rule applies only to execution proceedings - Execution does not begin until after a final order for sale has been passed - Therefore, the requirement for certification of payments under this rule has no application when the court is determining whether a final decree for sale should be passed.
Facts of the case:
A mortgagor executed a simple mortgage and was subsequently sued for recovery of the debt. An agreement was reached to transfer exploitation rights of several films to the mortgagee to satisfy the mortgage debt. A preliminary decree was passed ordering the mortgagor to pay the amount due into court. The mortgagee later went into liquidation. The official liquidator applied for a final decree for sale, contending that no payment had been made into court as ordered and that any out-of-court adjustments were unenforceable and uncertified. The lower courts passed a final decree for sale, holding that only payments made into court could be recognized.
Findings of Court:
The court found that the lower courts were incorrect in holding that only payments made into court could be recognized after a preliminary decree. A debtor is entitled to take credit for any payments or adjustments proved to have been made in respect of a mortgage debt before the final decree is passed.
Issues: Whether the provisions of Order 23, Rule 3 are subject to the provisions of Order 34, Rule 5 of the Code of Civil Procedure, and whether uncertified payments made out of court after a preliminary decree for sale can be recognized at the time of the final decree.
Ratio Decidendi: The court ruled that Order 23, Rule 3 is imperative and allows the court to record any lawful adjustment or satisfaction of the suit's subject matter. Since a mortgage suit continues until the final decree is passed, any adjustment or payment made during this interval must be considered. Order 21, Rule 2 regarding certification of payments applies only to execution, which commences only after the final decree for sale. Thus, the court must inquire into allegations of satisfaction before passing a final decree.
Result: Appeal allowed; final decree set aside; Subordinate Court directed to hear evidence and decide whether satisfaction wholly or in part has been made in respect of the mortgage debt and to pass a decree accordingly.
Appeal (No. 6 of 1944) from a judgment and decree of the Chief Court (March 17, 1942) which affirmed a judgment and decree of the Court of the Civil Judge at Lucknow (May 23, 1940).
The following facts are taken from the judgment of the Judicial Committee. On July 2, 1931, the appellant executed a simple mortgage deed for Rs. 1,50,000 in favour of the respondent bank. Some portion of that sum was paid off, but on August 25, 1934, the bank instituted a mortgage suit against the appellant in the Court of the Subordinate Judge of Lucknow to recover Rs.78,542-1-3 by sale of the mortgaged property. The bank also filed an application with the plaint praying for an attachment before judgment and the appointment of a receiver in respect of a portion of the hypothecated property, and on September 11, 1934, the Court of the Civil Judge passed an order granting that application and appointing a receiver.
On September 18, an agreement was entered into between the parties whereby the exploitation rights in four films were to be sold at Rs. 12,500 each and the amounts to be credited to the appellant in part payment of the mortgage debt. By cl. 3 of that agreement the respondent was to credit to the mortgage account of the appellant the sum of Rs.12,500 for each film as soon as two prints of any of the four films should be delivered to the respondent, and the respondent was to enter satisfaction in the decree in the court to that extent immediately on getting delivery. Subsequently, at a date not stated in the record, the appellant sold to the respondent the exploitation rights in another film for Rs. 17,500 of which Rs. 10,000 was paid in cash and Rs.7,500 was to be credited to the mortgage debt, and later still it was agreed that the transfer of the rights in three out of the four original films should be cancelled and that the rights in a sixth film should be transferred in their place, but at a price of Rs.75,000. Those sums were to be in satisfaction of the mortgage debt, and if there should be any excess in the hands of the respondent it was to be handed over to the appellant in cash.
On November 30, 1934, whilst those arrangements were being made, a preliminary decree was passed in favour of the respondent against the appellant for a total sum of Rs.83,359-6-11, with future interest at six per cent, per annum from May 31, 1935. The exact date when the agreements varying that of September 18, 1934, were made did not appear, but from a statement made by the appellant in the Chief Court of Oudh, from the arguments and contentions presented before it and the way in which the matter was dealt with by the court, it would appear that they were entered into after the preliminary decree. In any case it was plain that the delivery of the first and second films took place after that date, and the third still awaited delivery and had not yet been taken over by the respondent.
On October 15, 1935, the respondent went into liquidation and an official liquidator was appointed by the court. On September 29, 1937, the official liquidator filed an application for the passing of the final decree. The appellant resisted that application on the ground that the entire claim of the respondent had been satisfied by the agreements above mentioned and their fulfilment by putting the films referred
Law. Rep. 72 Ind. App. 277 ( 1944- 1945) Madan Theatres, Limited V. Dinshaw and C ompany, Limited
123
to at the disposal of the respondent. In reply the liquidator did not admit knowledge of the agreement of September 18, maintained it was a nullity and unenforceable, and was made during the pendency of the suit and before the final decree was passed, that no payment of the amount due had been made in the manner set out in the preliminary decree, that the alleged payments or adjustments had not been certified as required under Or. 21, r. 2, of the Code of Civil Procedure, that as payment was denied no inquiry as to payment could now be made, and, finally, t
