Law Web: Whether mortgagee is under obligation to hand over any advantage he has received from mortgage to mortgagor?

It is well-settled that the right of redemption under a

mortgage deed can come to an end or be extinguished only by a

process known to law, i.e., either by way of a contract between the

parties to such effect, by a merger, or by a statutory provision that

debars the mortgagor from redeeming the mortgage. In other

words, a mortgagee who has entered into possession of the

mortgaged property will have to give up such possession when a

suit for redemption is filed, unless he is able to establish that the

right of redemption has come to an end as per law. This emanates

from the legal principle applicable to all mortgages – “Once a

mortgage, always a mortgage”.

15. In the present case, it is clear that none of the

aforementioned conditions in which the right of redemption comes

to an end exist with respect to the mortgage deed dated

14.05.1947. As regards the impact of the re-grant on such right of

redemption, it must be noted that such re-grant in favour of the

mortgagee could not have been made but for the fact that he was

in actual possession of the property by virtue of his position as a

possessory mortgagee. There is no doubt that had the Mirashi

tenant––mortgagor applied for a re-grant, the suit land would have

certainly been granted in his favour, as the rights of permanent

tenants in watan lands were allowed to subsist even after the

coming into force of the Abolition Act. Thus, in our considered

opinion, the re-grant to the Appellants’ predecessor based on

actual possession as mortgagee cannot be divorced from the

existence of the underlying mortgagor-mortgagee relationship

between the parties. Therefore, any benefit accruing to the

mortgagee must necessarily ensue to the Mirashi tenant––

mortgagor.

16. In this regard, it is apposite to note Section 90 of the

Indian Trusts Act, 1882, which reads as under:

“Section 90. Advantage gained by qualified owner.—

Where a tenant for life, co-owner, mortgagee or other

qualified owner of any property, by availing himself of

his position as such, gains an advantage in derogation

of the rights of the other persons interested in the

property, or where any such owner, as representing all

persons interested in such property, gains any

advantage, he must hold, for the benefit of all persons

so interested, the advantage so gained, but subject to

repayment by such persons of their due share of the

expenses properly incurred, and to an indemnity by the

same persons against liabilities properly contracted, in

gaining such advantage.”

A bare reading of this provision indicates that if a

mortgagee, by availing himself of his position as a mortgagee, gains

an advantage which would be in derogation of the right of the

mortgagor, he must hold such advantage for the benefit of the

mortgagor.

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 4594 OF 2010

SHANKAR SAKHARAM KENJALE Vs NARAYAN KRISHNA GADE

MOHAN M. SHANTANAGOUDAR, J.

Dated: April 17, 2020

1. The instant appeal arises out of the judgment dated

08.06.2009 passed by the High Court of Judicature at Bombay in

Second Appeal No. 439 of 1987. Vide the impugned judgment, the

High Court set aside the findings of the Trial Court and the First

Appellate Court and directed the Trial Court to draw a preliminary

decree of redemption of mortgage in favour of the Respondents

herein.

2. The factual background to this appeal is as follows:

2.1 The land in question was Paragana watan property/Inam

land (hereinafter ‘suit land’). Such watan properties and watans

were governed by the provisions of the Bombay Hereditary Offices

Act, 1874 (hereinafter ‘Watan Act’). Smt. Laxmibai, wife of one

Bhawani Raje Ghadge, was the watandar of the suit land. She had

inducted one Mr. Ramchandra (successor of the Respondents

herein) as a permanent Mirashi tenant of the land. Such tenancy

was hereditary in nature.

2.2 On 14.05.1947, the said Ramchandra (hereinafter

‘Mirashi tenant—mortgagor’) executed a mortgage deed in favour of

one Shankar Sakharam Kenjale (hereinafter ‘mortgagee’)

mortgaging the suit land with a condition of sale for an amount of

Rs. 900/- advanced by Shankar Kenjale for the purpose of

Ramchandra’s household and personal sundry expenses. Per the

terms of this deed, a period of ten years was envisaged for the

repayment of the mortgage money and the mortgagee was placed

in possession of the suit land.

2.3 Meanwhile, the Bombay Paragana and Kulkarni Watans

(Abolition) Act, 1950 (hereinafter ‘the Abolition Act’) came into force

with effect from 25.01.1951 with a view to abolish Paragana and

Kulkarni watans and to make provision for the performance of

functions of some of these offices. Under this Act, Paragana and

Kulkarni watans were abolished and watan lands were resumed to

the Government, subject to Section 4. It is needless to observe that

the suit land, being watan property, was also resumed to the

Government subject to Section 4, which empowered the holder of

the watan to seek re-grant of the land upon payment of the

requisite occupancy price within prescribed period.

2.4 Notably, the original watandar did not seek re-grant of the

suit land. However, relying on a Government Resolution dated

17.05.1956 (not placed on record) permitting persons in actual

possession of the watan lands to seek re-grant, the mortgagee

(successor of the Appellants herein) paid the requisite occupancy

price and obtained a re-grant of the suit land in his favour in the

year 1960.

2.5 The Respondents herein (successors of the mortgagor)

then filed a suit for redemption of mortgage against Shankar

Sakharam Kenjale (mortgagee) in Regular Civil Suit No. 190 of

1978 before the Civil Judge, Junior Division, Vaduj. It was

contended that they had requested the mortgagee to accept the

mortgage money and reconvey the land, but he had failed to do so.

Vide judgment dated 09.12.1983, this suit was dismissed. It was

observed that the deed dated 14.05.1947 was in the nature of a

mortgage by conditional sale and not an outright sale. Further, it

was found that with the coming into force of the Abolition Act and

the failure of the original watandar and the Mirashi tenant––

mortgagor to secure a re-grant of the suit land, the said land stood

resumed to the Government and the relationship of mortgagormortgagee

between the parties ceased to exist. In light of this, it

was held that the mortgagor’s right of redemption had also

extinguished and the subsequent re-grant in favour of the

mortgagee could not be seen as one on behalf of the mortgagor so

as to pass on the benefits of the same to him.

2.6 The Respondents herein then preferred an appeal before

the District Judge, Satara in Civil Appeal No. 25 of 1984. On

24.03.1987, this appeal was dismissed. The District Court

reiterated the reasoning of the Trial Court that by virtue of the

failure of the watandar and the Mirashi tenant—mortgagor to

obtain a re-grant of the suit land in their favour, the said land had

been resumed to the Government under the Abolition Act, thereby

ending the mortgagor-mortgagee relationship between the parties.

Thus, in light of the subsequent re-grant made to the mortgagee, it

was found that the Mirashi tenant––mortgagor’s right to redeem

shall be deemed to have been extinguished.

2.7 Aggrieved, the Respondents filed a second appeal before

the High Court of Judicature at Bombay in Second Appeal No. 439

of 1987. Vide the impugned judgment, the concurrent conclusions

of the Trial Court and the First Appellate Court were set aside and

the suit for redemption was decreed. This was done on the basis

that but for the mortgage, the mortgagee would not have been in

possession of the suit land and could not have obtained the

re-grant order in his favour. Given that such re-grant was premised

on the underlying mortgagor-mortgagee relationship, it was held

that the benefit obtained by the mortgagee by virtue of such

re-grant must accrue to the Mirashi tenant––mortgagor. In this

respect, reliance was placed on Section 90 of the Indian Trusts Act,

1882 as well as the decisions of this Court in Jayasingh Dnyanu

Mhoprekar and Another v. Krishna Babaji Patil and Another,

(1985) 4 SCC 162, and Namdev Shripati Nale v. Bapu Ganapati

Jagtap and Another, (1997) 5 SCC 185. It is against this

judgment that the Appellants have come in appeal before this

Court.

3. Heard the Counsel for the parties.

4. Learned Counsel for the Appellants relied on the decisions

of this Court in Collector of South Satara and Another v.

Laxman Mahadev Deshpande and Others, (1964) 2 SCR 48, and

Malikarjunappa Basavalingappa Mamle Desai v.

Siddalingappa & Others, (1973) 3 SCC 180, to argue that once

the Abolition Act came into force, the suit land vested with the

Government and after its re-grant to the mortgagee, he became the

absolute owner of the land and all rights of the Mirashi tenant––

mortgagor, including the right to redemption, came to an end.

5. Per contra, learned counsel for the Respondents relied on

Section 90 of the Indian Trust Act, 1882 as well as the decisions of

this Court in Jayasingh Dnyanu Mhoprekar (supra) and Namdev

Shripati Nale (supra) to contend that the benefit obtained by the

mortgagee by virtue of the re-grant must accrue to the Mirashi

tenant––mortgagor. He also drew our attention to the proviso to

Section 3 of the Abolition Act coupled with certain provisions of the

Watan Act to argue that the rights of Ramchandra as a Mirashi

tenant survived the resumption of land to the Government under

the Abolition Act, and therefore his rights as a mortgagor (including

the right to redemption) also continued to survive despite the

re-grant in favour of the mortgagee.

6. Upon perusing the record and hearing the arguments

advanced by the parties, we find that the central issue arising for

our consideration in this appeal is as follows:

Whether the permanent Mirashi tenant—mortgagor’s

(Respondents) right of redemption ceased to exist by virtue of the

resumption of the suit land under the Abolition Act and its

subsequent re-grant in favour of the mortgagee (Appellants)?

7. As mentioned supra, it is not disputed that Ramchandra

was a permanent Mirashi tenant of the watandar of the suit land.

Admittedly, such lease was subsisting as on 25.01.1951, i.e., the

day on which the Abolition Act came into force.

8. At this juncture, it may be relevant to note certain

provisions of the Abolition Act as well as the Watan Act:

“Section 3. Abolition of certain watans together with

the right to office and incidents.—With effect from

and on the appointed day, notwithstanding anything

contained in any law, usage, settlement, grant, sanad

or order—

(1) all Parganas and Kulkarni watans shall be deemed

to have been abolished;

(2) all rights to hold office and any liability to render

service appertaining to the said watans are hereby

extinguished;

(3) subject to the provisions of Section 4, all watan land

is hereby resumed and shall be deemed to be subject to

the payment of land revenue under the provisions of the

Code and the rules made thereunder as if it were an

unalienated land:

Provided that such resumption shall not affect the

validity of any alienation of such watan land made in

accordance with the provisions of Section 5 of the Watan

Act or the rights of an alienee thereof or any person

claiming under or through him;

(4) all incidents appertaining to the said watans are

hereby extinguished.”

(emphasis supplied)

Additionally, Section 5 of the Watan Act is notable:

“Section 5. Prohibition of alienation of watan and

watan rights.—(1) Without the sanction of [the [State]

Government], [or in the case of a mortgage, charge,

alienation, or lease of not more than thirty years, of the

Commissioner] it shall not be competent-

(a) to a watandar to mortgage, charge, alienate or

lease, for a period beyond the term of his natural life,

any watan, or any part thereof, or any interest therein,

to or for the benefit of any person who is not a watandar

of the same watan;

(b) to a representative watandar to mortgage, charge,

lease or alienate any right with which he is invested, as

such, under this Act.

(2) In the case of any watan in respect of which a service

commutation settlement has been effected, either under

section 15 or before that section came into force, clause

(a) of this section shall apply to such watan, unless the

right of alienating the watan without the sanction of [the

[State] Government] is conferred upon the watandars by

the terms of such settlement or has been acquired by

them under the said terms.

It is also relevant to note Section 8 of the Abolition Act:

“Section 8. Application of Bombay Tenancy and

Agricultural Lands Act, 1948.–––

If any watan land has been lawfully leased and such

lease is subsisting on the appointed day, the provisions

of the Bombay Tenancy and Agricultural Lands Act,

1948, shall apply to the said lease and the rights and

liabilities of the holder of such land and his tenant or

tenants shall, subject to the provisions of this Act, be

governed by the provisions of the said Act.

Explanation.- For the purposes of this section the

expression ‘land’ shall have the same meaning as is

assigned to it in the Bombay Tenancy and Agricultural

Lands Act, 1948.”

From a reading of the proviso to Section 3(3) of the

Abolition Act, it is clear that the resumption of watan land to the

Government under the Abolition Act does not affect the rights of

an alienee of the watandar or his representative of such land under

the Watan Act or that of any person claiming through or under

him. Further, in respect of watan land that has been lawfully

leased and wherein the lease is subsisting on the day appointed

for the coming into force of the Abolition Act, Section 8 of the

Abolition Act accords primacy to the Bombay Tenancy and

Agricultural Lands Act, 1948 (hereinafter ‘Bombay Tenancy Act’) in

governing the rights and liabilities of the holder of such land and

his tenant(s).

9. In light of this, when we turn to the facts of the present

case, we find that the rights of Ramchandra, who was a lawful

permanent Mirashi tenant, survive resumption of the suit land to

the Government by virtue of the proviso to Section 3(3) as well as

Section 8 of the Abolition Act. This is because the tenancy created

in favour of the Mirashi tenant subsisted as on the day on which

the Abolition Act came into force, thereby implying that his tenancy

rights were protected and continued to be governed by the Bombay

Tenancy Act despite the introduction of the Abolition Act. This is

well-aligned with the general primacy accorded to tenancy laws

over other legislations, as is also reflected in Section 8 of the

Abolition Act. Thus, it is amply clear that the rights of permanent

tenants over watan lands were intended to subsist even after the

coming into force of the Abolition Act.

10. At this juncture, it may be useful to note certain other

provisions of the Abolition Act, which are as follows:

“Section 4. Holder of watan land to be occupant.—

(1) A watan land resumed under the provisions of this

Act shall subject to the provisions of Section 4-A, be

regranted to the holder of the watan to which it

appertained, on payment of the occupancy price equal

to twelve times of the amount of the full assessment of

such land within five years from the date of the coming

into force of this Act and the holder shall be deemed to

be an occupant within the meaning of the Code in

respect of such land and shall primarily be liable to pay

land revenue to the State Government in accordance

with the provisions of the Code and the rules made

thereunder; all the provisions of the Code and rules

relating to unalienated land shall, subject to the

provisions of this Act, apply to the said land:

Provided that in respect of the watan land which has

not been assigned towards the emoluments of the

officiator, occupancy price equal to six times of the

amount of the full assessment of such land shall be paid

by the holder of the land for its regrant:

Provided further that if the holder fails to pay the

occupancy price within the period of five years as

provided in this section, he shall be deemed to be

unauthorisedly occupying the land and shall be liable

to be summarily ejected in accordance with the

provisions of the Code.

(2) The occupancy of the land regranted under subsection

(1) shall not be transferable or partible by metes

and bounds without the previous sanction of the

Collector and except on payment of such amount as the

State Government may by general or special order

determine.

(3) Nothing in sub-sections (1) and (2) shall apply to any

land—

(a) the commutation settlement in respect of which

provides expressly that the land appertaining to the

watan shall be alienable without the sanction of the

State Government; or

(b) which has been validly alienated with the sanction

of the State Government under Section 5 of the

Watan Act.

Explanation.—For the purposes of this section the

expression ‘holder’ shall include—

(i) all persons who on the appointed day are the

watandars of the same watan to which the land

appertained, and

(ii) in the case of a watan the commutation settlement

in respect of which permits the transfer of the land

appertaining thereto, a person in whom the ownership

of such land for the time being vests.”

The above provisions indicate that, with the coming into

force of the Abolition Act, watans were abolished and all watan

lands vested absolutely with the Government, subject to Section 4.

Under Section 4(1), ‘holders’ of the watans were allowed to pay a

certain occupancy price within five years from the date of coming

into force of the Act and obtain a re-grant of the land. However,

according to the second proviso to Section 4(1) of the Abolition Act,

if the holder failed to pay such occupancy price within the five-year

period, he would be deemed to be in unauthorised occupation of

the land and would be liable to be summarily ejected in accordance

with the Bombay Land Revenue Code, 1879.

11. Notably, as mentioned supra, the watandar in the instant

case did not exercise her right to seek re-grant of the land under

Section 4(1) of the Abolition Act. It seems, the State Government

passed orders in G.R.R.D. No. PKA-1056-IV-L dated May 3, 1957

and G.R.R.D. No. 2760-III-48820-L dated November 23, 1960 to

grant the lands in favour of persons who were in actual possession.

By virtue of the aforesaid orders, wherever the holder or watandar

had failed to pay the occupancy price as required by Section 4(1)

of the Act before the prescribed period, the lands in question be

granted in favour of permanent Mirashi tenants who were in actual

possession of lands. But the Mirashi tenant in this matter, namely,

Ramchandra did not apply for re-grant pursuant to the said orders.

On the other hand, the mortgagee applied for re-grant, though he

was not a permanent Mirashi tenant.

12. By an order dated 23.11.1960, the mortgagee

(represented by the Appellants herein) obtained a re-grant of the

suit land upon paying the requisite occupancy price. It is claimed

that this was done on the basis of a Government Resolution dated

17.05.1956 permitting persons in actual possession of the watan

lands to seek re-grant. Notably, this Government Resolution dated

17.05.1956 has not been placed on record and nor has it been

considered by the three Courts. We hasten to note that the effect

of the Government Orders dated 03.05.1957 and 23.11.1960,

mentioned supra, was considered by this Court in para 5 of the

judgment in Jayasingh Dnyanu Mhoprekar (supra). But the

Government Resolution dated 17.05.1956 is not considered by this

Court earlier. Be that as it may, it is not in dispute that a re-grant

order was made in favour of the Appellants’ predecessor and has

not been questioned subsequently. Thus, proceeding on the basis

that the Government Resolution dated 17.05.1956 existed and the

re-grant was made in favour of the mortgagee, we find that the

central question to be considered here is the effect of such re-grant

on the rights of the Mirashi tenant––mortgagor.

13. In our considered opinion, the failure on the part of the

mortgagor to pay the occupancy price and seek a re-grant is not

fatal to his rights as a Mirashi tenant as the tenancy in his favour

continued to subsist despite the introduction of the Abolition Act,

as detailed in our discussion above. Consequently, the mortgage

executed by him also survived the resumption of the suit land

under the Abolition Act, and it cannot be said that the relationship

of mortgagor-mortgagee between the parties ceased to exist by

virtue of such Act.

14. It is well-settled that the right of redemption under a