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1920 Supreme(SC) 17
Privy Council
Ameer Ali, Sir John Edge , Lord Moulton, Justice Viscount Cave, JJ.
B.L. Rai and others -Appellant
Versus
Bhaiyalal and another -Resopndent
Decided On : 03-03-1920
E. Dalgado, J.M. Parikh, DeGruyther
In exceptional cases where a mortgagee in possession acts as a manager in a fiduciary capacity, the burden shifts to the mortgagee to prove the debt remains unsatisfied and to provide accounts of management before enforcing the mortgage.
Headnote:(A) Transfer of Property Act, 1882 - Section 76 - Mortgagee in possession - Duty to keep accounts - Where a mortgagee takes possession of the mortgaged property, whether by agreement or otherwise, they are bound to keep accounts of the income received and expenditures incurred during the continuance of the mortgage. Failure to produce such accounts, particularly when the mortgagee has acted as a manager of the estate, may preclude the enforcement of the mortgage.
(B) Evidence - Burden of Proof - Exceptional cases - While the general rule is that the mortgagor must prove the satisfaction of a mortgage debt, in exceptional cases where the mortgagee has been in possession of the property as a manager and stood in a fiduciary relationship to the mortgagor, the burden shifts to the mortgagee to prove that the mortgage has not been satisfied and to account for the income received before a decree for sale can be granted.
(C) Undue Influence - Fiduciary Relationship - Acknowledgments of debt executed by a person who is completely under the dominating influence of a person in a fiduciary position are of no value and cannot supply the want of proper accounts.
Facts of the case:
The mortgagor of ancestral property appointed the mortgagee as manager and receiver of all his property, putting the mortgagee in possession. The mortgagee subsequently sold several villages, including some of the mortgaged properties, and claimed additional unsecured debts. The mortgagee produced certain acknowledgments signed by the mortgagor to support these claims. However, the mortgagee failed to produce any accounts of the management, the income received from the estate, or the application of the sale proceeds of the villages.
Findings of Court:
The court found that the mortgagee was in a position to dominate the mortgagor's will and was in a fiduciary relationship. The alleged acknowledgments were held to be worthless and the unsecured debts were regarded as fictitious. Because the mortgagee suppressed the accounts of management and failed to show how the income of the property was applied, the plaintiffs failed to prove that any amount remained due under the mortgages.
Issues: Whether the mortgagees could enforce a decree for sale without providing accounts of the management and income received while in possession, and whether the alleged acknowledgments of debt were binding given the fiduciary relationship and the influence exercised by the mortgagee.
Ratio Decidendi: In exceptional circumstances where a mortgagee is in possession of the property as a manager and in a fiduciary relationship with the mortgagor, the burden of proof shifts to the mortgagee to prove that the mortgages have not been satisfied and to render accounts of the stewardship before they can obtain a decree for sale.
Result: Appeals dismissed.
Legal Category Hierarchy
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property law
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mortgages
- mortgagee in possession
- foreclosure and sale
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mortgages
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family law
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hindu law
- mitakshara ancestral property
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hindu law
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equity and trusts
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fiduciary duties
- undue influence
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fiduciary duties
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practice and procedure
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evidence
- burden of proof
- accounting
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evidence
Sir John Edge.:-
These are two consolidated appeals from a decree, dated the 19th April, 1910 of the Court of the Judicial Commissioner of the Central Provinces, which reversed two decrees dated the 8th and 22nd June, 1908, of the District Judge of Saugor, and dismissed two suits for sale which were tried together. The plaintiffs are the appellants.
The suits, No. 1 of 1905, and No. 2 of 1905, in which these appeals have arisen were respectively brought on the 7th January, 1905, in the Court of the District Judge. Suit No. 1 of 1905 was brought on a mortgage of the 2nd July, 1893, by mortgagees or their respresentatives against Bhaiyalal Dube, the mortgagor, and his son Murlidhar Dube to recover Rs. 59,999 including principal, interest and compound interest by the sale of six villages to which the mortgage applied. The principal sum of that mortgage was Rs. 30,000. The particulars of the account as given in the plaint showed Rs. 30,000 as the principal sum, interest and compound interest to the 3rd January, 1905, amounting to Rs. 28,190-5-0 and Rs. 1,462-4-0 charged as having been paid by the mortgagees as Government revenue on the 29th August, 1902, and Rs. 411-14-0 interest on that sum of Rs. 1,462-4-0. By the particulars Rs. 65-7-0 of the total of Rs. 64,064-7-0 was relinquished, leaving as a result the Rs. 59,999 in respect of which a decree for sale was sought. In the particulars no moneys were credited as having been received by the mortgagees.
Suit No. 2 of 1905 was brought on a mortgage of the 30th June, 1892, by the same plaintiffs against Bhaiyalal Dube the mortgagor, his son, Murlidhar Dube, and Bhaiyalal Dube's wife, Latkari Bahu to recover Rs. 59,887-3-6 by sale of five other villages to which that mortgage applied. The principal sum of the mortgage was Rs. 40,000. The particulars of the account as given in the plaint showed Rs. 40,000 as the principal sum, interest and compound interest to the 3rd January, 1905 Rs. 15,101-9-0 and Rs. 3,734-12-6 charged as having been paid by the mortgagees as Government revenue and Rs. 1,050-14-0 interest on that sum of Rs. 3,734-12-6 making a total of Rs. 59,887-3-6 in respect of which a decree for sale was sought. In the particulars no moneys were credited as having been received by the mortgagees.
The principal defence in each suit was substantially that the mortgage had been satisfied, and that there was nothing due.
The defendant Murlidhar Dube was born on the 16th July, 1894, and on his birth he and his father Bhaiyalal Dube constituted, until they separated, a joint Hindu family governed by the law of Mitakshara. The property mortgaged was ancestral property. Bhaiyalal Dube was a young man of defective education and of vicious and immoral habits. He was not a man of business, and he was incompetent to manage the family property which consisted of the villages mortgaged and of several other villages.
The history of the case may be divided into three periods in relation to the rights, powers and liabilities of Bhaiyalal and his son Murlidhar. The periods were from the 30th June, 1892, to the birth of Murlidhar on the 16th July, 1894; from the 16th July, 1894, to January 1895, when Bhaiyalal's wife and her son Murlidhar were obliged to leave his house, and to live separately from him in consequence of the profligate misconduct of Bhaiyalal; and from January, 1895, to the filing of the suits.
The original mortgagees consisted of a joint Hindu family of which Nandkishore, now dead, was the managing member and in the transaction between the parties to which reference will be made he represented the family, and the other members of that family need not be specifically referred to.
On the 1st July, 1892, Bhaiyalal Dube executed an agreement by which he appointed Nandkishore manager and receiver of all his property movable and immovable for 10 years, and put Nandkishore in possession. Under that agreement Nandkishore was to keep accounts and to explain them to Bhaiyalal Dube in July of eac
