RAM KINKAR BANERJEE vs SATYA CHARAN SRIMANI

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1938 Supreme(SC) 36

PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
LORD ROMER, LORD PORTER, LORD SALVESEN, SIR LANCELOT SANDERSON, AND SIR FRANK MACKINNON.
RAM KINKAR BANERJEE - Appellant
Versus
SATYA CHARAN SRIMANI - Respondents
On appeal from the High Court at Calcutta.
Decided On : Nov. 29. 1938.

Important Points

In Indian law, a mortgage of a lease does not transfer the whole interest of the mortgagor because the mortgagor retains a legal right of redemption. Consequently, no privity of estate is created between the lessor and the mortgagee, and the mortgagee is not liable for rent.

Subject

Property Law - Mortgage and Lease

Act Referred

TRANSFER OF PROPERTY ACT: S.58

Headnote

(A) Transfer of Property Act - Sections 54, 58(a), 58(e), 60, 108(j) - Mortgage of a lease - Privity of estate - Liability for rent - A mortgage is defined as a transfer of an interest in specific immovable property, which is distinct from a sale that involves a transfer of ownership - In an English mortgage, the use of a form involving absolute transfer subject to a proviso for retransfer does not result in the transfer of the whole interest to the mortgagee - The mortgagor retains a legal right of redemption under Section 60. (Paras 11, 14, 16)

(B) Privity of Estate - In a legal system where no distinction exists between legal and equitable estates, the retention of a legal interest by the mortgagor prevents the whole interest from passing to the mortgagee - Consequently, no privity of estate is created between the lessor and the mortgagee of a lease, and the mortgagee is not liable for the burdens of the lease, such as rent, unless they enter into possession. (Paras 13, 17, 21)

Facts of the case:
The successors to the grantees of a long-term mining lease instituted a suit for the performance of the terms of a sub-lease, including the payment of rent arrears. The suit was brought against the sub-lessee and the mortgagees of the leasehold interest. The mortgages were executed in the form of English mortgages, but the mortgagees never entered into possession of the property.

Findings of Court:
The court held that under the applicable statutory framework, the mortgagor of a lease retains a legal interest in the property through the right of redemption.

Issues: Whether a mortgagee of a leasehold interest, particularly under an English mortgage, becomes liable for the rent and covenants of the lease by virtue of privity of estate with the lessor.

Ratio Decidendi: The court reasoned that unlike English law, Indian law does not recognize a distinction between legal and equitable estates. Because the right of redemption is a legal interest and not merely an equitable one, the mortgagor does not transfer the whole interest to the mortgagee. Since the whole interest does not pass, no privity of estate is established between the lessor and the mortgagee, rendering the mortgagee not liable for the lease's burdens.

Result: Appeal dismissed with costs.

Legal Category Hierarchy

Advocates:
Solicitors for the appellant: A. J. Hunter & Co.
Solicitors for the 1st respondent: T. L. Wilson & Co.
Solicitors for the 2nd and 3rd respondents: Callingham, Ormond & Maddox.

Judgement

Appeal (No. 51 of 1937) from two decrees of the High Court (May 20, 1935) reversing a decree of the Additional Subordinate Judge of Asansol (April 20, 1931).

The appellants were the successors in title to the grantees of a patta or lease for 999 years in respect of certain mining rights. This lease contained a clause giving the grantees liberty to alienate the property by making gifts, sales, sub-leases or any other kind of transfer.

The grantees sub-demised their rights to one Martin.

By various subsequent assignments Martins interest under the sub-lease became vested in Patel, one of the present respondents.

Patel executed two mortgages of his leasehold interest, (1.) of an undivided moiety of his underground rights, which mortgage was transferred to the second and third respondents and (2.) of the whole of his underground rights, subject to the first mortgage, to the first respondent. Both the mortgages were in the form of English mortgages.

[The material terms of these mortgages are stated in the judgment of the Board.]

None of the mortgagees entered into possession, but, the rent reserved by the sub-lease to Martin having fallen into arrears and the covenants of the sub-lease remaining unperformed, the present suit was instituted by the predecessors of the appellants against Patel and a receiver of the mine, who had been appointed receiver in another suit for recovery of the sums due under the sub-lease. Patels mortgagees, respondents 1 to 3, were added as defendants and claims were made against all for the performance of the terms of the sub-lease for at any rate such periods as they had interests in the leasehold. The main question in the suit and in the appeal was whether there was any privity between the grantees of the patta as lessors and the mortgagees.

The Subordinate Judge of Asansol, who tried the suit, held there was.

The High Court reversed his judgment.

1938. Oct. 31; Nov. 1. Cyril Radcliffe K.C. and J. M. Pringle for the appellants. In our submission the most important element in the case is that, by the instruments which determine the rights of the parties, there has been in the most unqualified terms a transfer by the mortgagor of a half-share of the lease in the first mortgage and, subject to the first mortgage, the whole interest in the lease in the second mortgage to the mortgagees. The consequence of this would, in English law, be plain the mortgagees would become by assignment the owners of the lease and as such they would be liable for the rent directly to the lessor.

The question is whether there is anything in the Indian law to take the case out of this position. It is, I submit, immaterial whether the mortgages are English mortgages as defined in s. 58 of the Transfer of Property Act or not, if they have the result, whatever they are, of making the mortgagees the owners of the leasehold interest. [Reference was made to ss, 5, 58, 60 to 67, 98, 105, 108 and 109 of the Transfer of Property Act, to Mullas Transfer of Property Act ( 1933 ed.), p. 562, note on s. 108, cl. (j), and the following cases Kunhanujan v. Anjelu (( 1889) I. L. R. 17 Mad. 296.); Monica v. Subraya Hebbara (( 1907) I. L. R. 30 Mad. 410.) ; Kannye Loll Sett v. Nistoriny (( 1884) I. L. R. 10 Cal. 443.); Lala Bharub Chandra Kapur v. Lalit Mohun Singh (( 1885) I. L. R. 12 Cal. 185.); Vithal Narayan v. Shriram Savant (( 1905) I. L. R. 29 Bom. 391.); Tethalan v. The Eralpad Raja (( 1917) I.

L. R. 40 Mad. 1111.); Bengal National Bank, Ld. v. Janaki (( 1927) I. L. R. 54 Cal. 813.); Falakrishna Pal v. Jagannath Marwari (( 1932) I. L. R. 59 Cal. 1314.); Bank of Upper India v. Administrator General of Bengal (( 1917) I. L. R. 45 Cal. 653.) ; Hunsraj v. Bejoy Lal Seal (( 1929)

L. R. 57 I. A 110 ; I. L. R. 57 Cal. 1176.) ; and to Fisher on Mortgage (7th ed.), p. 376.]

Law. Rep. 66 Ind. App. 50 ( 1938- 1939) Ram Kinkar Banerjee V. Satya Charan Srimani

182

One must look for the owner of the lease. The mortgagor here has assigned his