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1932 Supreme(SC) 3
Privy Council At Patna
George Lowndes, Lord Tomlin , Justice Lord Blanesburgh, JJ.
Raja Baghunandan Prasad Singh and another -Appellant
Versus
Raja Kirtyanand Singh Bahadur -Resopndent
Privy Council Appeal No. 93 of 1930 : Patna Appeal No. 59 of 1928
Decided On : 12-02-1932
Hyam, A.M. Dunne , W. Wallach, L. De Gruyther
A security bond provided for a stay of execution of a mortgage decree, intended to protect the decree-holder from loss due to delay, secures the deficit remaining after the sale of the mortgaged property; liability arises only after such sale.
Headnote:(A) Civil Procedure Code - Order 34 - Limitation Act - Mortgage decree - Security bond for stay of execution - Construction of bond - Whether a bond provided as security for a stay of execution of a mortgage decree creates an immediate liability on a specific date or secures the deficit after sale of mortgaged property - If the bond is intended to ensure the decree-holder is not worse off due to delay, it is a security for the balance remaining unpaid after the mortgage property is realized - Liability of the surety arises only after the sale of the property and determination of the deficit - Application to enforce such bond is within limitation if made after the sale.
(B) Limitation - Application to enforce security bond - If the liability is contingent upon the sale of the mortgaged property, the period of limitation begins from the date the liability becomes enforceable, not from the date the stay of execution expired.
Facts of the case:
A mortgage decree was obtained, and a stay of execution was granted by the appellate court upon the furnishing of solvent security to cover one year's interest. A surety executed a bond for a portion of this amount. The mortgage property was subsequently sold, but the proceeds were insufficient to satisfy the total amount due. The decree-holders then applied to enforce the surety's bond to recover the deficit.
Findings of Court:
The bond was not an obligation for immediate cash payment upon the expiry of the stay period. Instead, it was a security to ensure the decree-holders were not disadvantaged by the delay. The surety's liability was for the balance unprovided for by the proceeds of the sale of the mortgaged property, up to the specified limit.
Issues: Whether the sum mentioned in the security bond became an absolute debt payable on the date the stay expired, or whether it was a security for the deficit remaining after the sale of the mortgaged property.
Ratio Decidendi: The construction of the bond, read in light of the court order requiring security, indicates that the bond was intended to put the decree-holders in a position no worse than if the stay had not been granted. Thus, the bond secures the deficit after the realization of the mortgaged property. The liability of the surety cannot be enforced until the property is sold and the shortfall is determined.
Result: Appeal allowed.
On 22nd December 1917, a decree was obtained in a suit to enforce a mortgage against the mortgagor and a puisne mortgagee, who is respondent here. The decree was in the ordinary form of such decrees in India ; that is, six months were given for redemption, and at the end of that time in default of redemption the property was to be sold. The decree did not contain, and having regard to O. 34, Civil P. C., could not contain, a personal judgment against the mortgagor for the mortgage money. An appeal to the High Court against the decree was duly taken by the mortgagor.
On 31st August 1918, the decree was made absolute. On 25th October 1918 an application was made to the Subordinate Judge by the decree-holders to bring the property to sale.
On 2nd April 1919, an order of the High Court was made by consent for a stay, and the order was in these terms : Let the respondents' petition for execution"-the respondents means the decree-holders :
"now pending be stayed for the period of one year as and from 1st April 1919, upon the appellant"
(meaning thereby the mortgagor)
"furnishing solvent security in the lower Court to the satisfaction of the Subordinate Judge by 1st May 1919, for the sum of Rs. 1,12,000. In the event of the appellant's appeal to this Court not being disposed of within the period of one year calculated from 1st April 1919, let a further stay be granted for a period of one more year from 1st April 1920,upon the defendant's [sic] furnishing solvent security in the lower Court to the satisfaction of the Subordinate Judge for a further sum of Rs. 1,12,000 such last mentioned security to be furnished on or before 1st April 1920, in the event of such further or additional stay being necessary."
Pursuant to that order there was executed by the respondent here (he being as already indicated a puisne encumbrancer and as such defendant 2 to the suit) a bond by way of security to satisfy in part the solvent security required by the High Court for the sum of Rs. 1,12,000. The sum of Rs 1,12,000 seems to have been fixed because it represented one year's interest on the mortgage money, and the object was to put the decree-holders ultimately in the position of being no worse off by reason of one year's delay in enforcing their security.
The bond so executed by the respondent, was in this form : It recited the suit and the decree of 22nd December 1917, in favour of the plaintiffs in the suit and that the defendants in the suit had preferred appeals to the High Court, and it further recited that the decree-holders had applied to execute the decree and that the defendants had made an application for a stay and that they had been called upon to furnish security by the order of 2nd April 1919, to which reference has already been made. Then it proceeds as follows :
"Accordingly I of my own free will stand security, to the extent of Rs. 77,000 out of Rs. 1,12,000 as therein ordered and covenant that if the decree of the first Court be confirmed or varied by the appellate Courts within one year from 1st April 1919, the said defendants shall duly act in accordance with the decree of the said appellate Court and they shall pay the sum of Rs. 77,000 or whatever may be payable under the said High Court order not exceeding Rs. 77,000, but if they should fail to pay the sum of Rs.77,000 ; then any amount so payable as aforesaid shall be realized from my person and my legal representatives shall be personally liable to pay the same."
Up-to this point the document provides for the case of the decree of the first Court being confirmed or varied by the appellate Court within one year from 1st April 1919-an event which did not happen. The next clause however deals with events which did happen in the following terms :
"Be it known that if the judgment debtors fail to furnish security to the extent of rupees one lakh and twelve thousand on 1st April 1920 in case the appeals be not decided within that date then the decree-holders according to the orde
