The main legal point established in the judgment is that the vesting of the mortgaged property with the government and the subsequent assignment of the mortgage right in favor of the government were not sufficient to invoke the exception provided in the last paragraph of S.60 of the T.P. Act, and thus the plaintiff was not entitled to pro tanto reduction in the mortgage debt.

1. The moot question is this: When a mortgage property, or any portion of it, is vested in Government by operation of law, would it amount to government "acquiring" the said property as contemplated in the last paragraph of S.60 of the Transfer of Property Act (for short the T.P. Act). If the answer thereof is in the affirmative the next question is whether the mortgagor is entitled to have the mortgage debt slashed down pro tanto when the Government stands subrogated as the mortgagee. If that ancillary question is

also to be answered in the affirmative, the appeal preferred by the State of Kerala by special leave has to be dismissed. To show how the question arose in this case, a brief sketch of the facts is necessary:

2. Respondent "Koliyat Estates" is a firm which possessed extensive acres of plantation in the northern districts of Kerala State. In 1967 the firm obtained a loan of Rs. 46.61 lakhs from the Central Bank of India (the 'Bank' for short). As the loan was sanctioned under a scheme propounded by the Government called Agricultural Refinancing Scheme, a tripartite agreement was executed on 23.10.1967 between the bank and the Koliyat Estate (the plaintiff for short) and the State Government of Kerala. Pursuant to the said agreement the plaintiff firm on the same day executed B1 mortgage deed in favour of the bank and the State Government stood as the guarantor for the due re-payment of the loan in terms of the agreement.

3. While the mortgage was subsisting certain developments took place in the socio-political set up in the State of Kerala. The provisions relating to land ceiling in the Kerala Land Reforms Act (KLR Act for short) came into force with effect from 1.1.1970 and consequently the right, title and interest of the firm over an area of more than 1200 acres of land covered by the mortgage became vested in the Government as per S.86(2) of the KLR Act. This was sequel to the decision of a Taluk Land Board dated 1.8.1972 (Ex. A17). According to the plaintiff more that 2300 acres had been taken possession of by the Government on the premise that plaintiff had so much of land in excess of the ceiling limit prescribed under the KLR Act.

4. A little later, by virtue of the provisions of another enactment called the Kerala Private Forest (Vesting and Assignment) Act 1970 (hereinafter referred to as Private Forest Vesting Act) another area of 273.75 acres of land, included in the mortgage deed, stood vested in the government as private forest. All those developments took place long before 1978.

5. On 7.9.1978 the State Government paid the mortgage debt to the bank and took assignment of the mortgage right under Ex. B1 as per as Ex. B11- Assessment Deal. Armed with it the State Government threatened the plaintiff with proceedings under the provisions of the Revenue Recovery Act for realisation of the mortgage money.

6. It was in the aforesaid background that the plaintiff filed the present suit for redemption of the mortgage. Plaintiff claimed in the suit, a pro tanto reduction of the mortgage debt on the footing that State Government became the mortgagee when it took assignment of Ex. B1 mortgage right and the right of the mortgagor over a large area of mortgaged land has now become vested with the mortgagee. The aforesaid claim was made presumably under the last paragraph of S.60 of the T.P. Act.

7. The State Government resisted the claim for pro tanto reduction in the mortgage debt by pleading firstly that the vesting process under the aforesaid two enactments took place long before Ex. B11 assignment which the original mortgagee made in favour of the Government, secondly, since such vesting took place free from all encumbrances, it is not an acquisition of the said land as mortgagee. The trial court repelled government's contention and passed a preliminary decree for redemption in terms of the plaintiff's plea for pro tanto reduction. The relevant reliefs granted by the trial court are extracted below:

"That