Karnataka High Court
T Venkatachalam vs Karnataka State Industrial Investment ... on 18 November, 2013
Bench: N.Kumar, Rathnakala
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IN THE HIGH COURT OF KARNATAKA AT BANGALORE
DATED THIS THE 18TH DAY OF NOVEMBER 2013
P RESENT
THE HON'BLE MR. JUSTICE N. KUMAR
AND
THE HON'BLE MRS. JUSTICE RATHNAKALA
MISC. FIRST APPEAL No.2089/ 2005
BETWEEN:
SRI T. VENKATACHALAM
S/O.THIRUPALAPPA
HINDU, AGED ABOUT 56 YEARS,
RESIDING AT NO.523, GAVIPURAM,
1ST MAIN, 3RD CROSS,
SUNKENAHALLI LAYOUT,
BANGALORE-560 019. ...APPELLANT
(BY SRI S GANGADHAR AITHAL, ADV.)
AND:
1.KARNATAKA STATE INDUSTRIAL INVESTMENT &
DEVELOPMENT CORPORATION LTD.,
REPRESENTED BY ITS LAW OFFICER CUM ASSISTANT
GENERAL MANAGER AND DULY AUTHORIZED OFFICER
SRI A. V. PATEL,
S/O SRI Y.V.PATEL,
BANGALORE
2. M/S. OM PRINT SUPPLIES PVT LTD
PLOT NO.33, ANTHARASANA HALLI,
INDUSTRIAL AREA, TUMKUR DISTRICT
REG. OFFICE AT NO.328, 17TH CROSS
SADASHIVA NAGAR,
BANGALORE-560 080.
REPRESENTED BY ITS DIRECTORS
AS R5, R6 & R7
3.SRI S. TULSIRAM
S/O.LATE S. SAJAUSE
AGED ABOUT 75 YEARS
R/A.NO.3, CHICKPET CROSS
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S.V.LANE, BANGALORE-560 053.
4.SMT. LEELA BAI
W/O.TULSIRAM
HINDU, AGED ABOUT 69 YEARS
R/A.NO.3, CHICKPET CROSS
S V LANE, BANGALORE-560 053.
5.SRI B S SHYLENDRA
S/O.B.V.SOMASHEKAR
AGED ABOUT 51 YEARS
R/A.NO.244, IST FLOOR
15TH MAIN, RAJAMAHAL VILAS EXTENSION,
BANGALORE-560 080.
6.SRI B S MANJUNATHA
S/O.B.S.SOMASEKHAR
AGED ABOUT 51 YEARS
R/A.NO.244, IST FLOOR
15TH MAIN, RAJAMAHAL VILAS EXTENSION,
BANGALORE-560 080.
7.SRI S T VINAYAKA
S/O.B.V. SOMASHEKAR
AGED ABOUT 51 YEARS
R/A.NO.3, CHICKPET CROSS
S.V.LANE,
BANGALORE-560 053. ... RESPONDENTS.
(BY SRI V F KUMBAR, ADV. FOR R1;
R-2, R-3, R-4, R-5, R-6 & R-7 service held sufficient)
THIS MFA FILED U/S.32(9) OF STATE FINANCIAL
CORPORATION'S ACT, AGAINST THE ORDER DT.9.2.05
PASSED IN MISC. NO.992/92 ON THE FILE OF THE VI
ADDL. CITY CIVIL JUDGE, BANGALORE CITY (CCCH-11),
ALLOWING THE PETITION FILED BY THE 1ST
RESPONDENT HEREIN U/S. 31(1), 31(1)(aa) AND 32 OF
SFC ACT, TO ISSUE RECOVERY CERTIFICATE BY
ENTITLING THE 1ST RESPONDENT HEREIN TO RECOVER
THE CLAIMED AMOUNT BY SALE OF MORTGAGED
PROPERTIES MENTIONED IN PETITION 'B' AND 'C'
SCHEDULE.
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THIS APPEAL COMING ON FOR ADMISSION THIS
DAY, KUMAR J., DELIVERED THE FOLLOWING: -
JUDGMENT
This appeal is filed by the 8th respondent challenging the order passed by the 6th Additional City Civil Judge, Bangalore City, directing to sell 'B' and 'C' schedule properties to recover the money due from respondent Nos.1 to 7 by the Karnataka State Industrial Investment and Development Corporation Limited.
2. For the purpose of convenience, parties are referred to as they are referred to in Misc.Case.No.992/1992.
3. The petitioner - Karnataka Industrial Investment and Development Corporation Limited (hereinafter referred to as 'the Corporation' for brevity) is a Company registered under the Indian Companies Act, 1956, for providing financial accommodation to the industrialists.
4. First respondent - Company approached the Corporation for financial accommodation for the purpose of setting up an offset printing unit at Antharasanahalli Industrial Area, Tumkur District. First respondent - Company availed a sum of Rs.60,00,000/- from the Corporation. Respondent Nos.2 to 5 being the directors of -4- the first respondent - Company along with respondent Nos.2 to 4 have executed necessary loan agreements in favour of the petitioner agreeing to repay the loan amount together with agreed interest within stipulated period on 13.07.1988. First respondent has duly created an equitable mortgage in respect of the immovable property set out in 'A' schedule by depositing the title deeds pertaining to that property and respondent Nos.2 and 3 have also created equitable mortgage in respect of 'B' and 'C' schedule properties by depositing title deeds of the said properties with the petitioner at Bangalore. The particulars of the title deeds deposited with the petitioner by respondent Nos.2 and 3 are set out separately at schedule 'D' and 'E' to the petition.
5. First respondent committed default in payment of the amount. Therefore, the petitioner was constrained to exercise the powers conferred under Section 29 of the State Financial Corporation Act. They took possession of the factory premises at 'A' schedule and machineries were sold by public auction and recovered a sum of Rs.16,40,000/- and the same was adjusted to the part satisfaction of the amount due to the petitioner. Thereafter, the petitioner issued notice dated 01.08.1992, to respondent Nos.2 to 7 invoking their personal guarantee. Respondent Nos.2 to 7 -5- did not repay the amount. Thereafter, they sought for a recovery certificate against them by filing a petition under Section 31(1(a)(aa) of the State Financial Corporation Act (hereinafter referred to as 'the Act' for brevity). During the pendency of the said Misc.Case, 8th respondent T.Venkatachalam was impleaded as he had purchased the 'B' schedule property from respondent No.2. Their case is that he purchased the property being fully aware of the charge created by respondent No.2 in respect of the 'B' schedule property. Therefore, the said alienation is not binding on the petitioner and they are entitled to recover money from the sale of 'B' schedule property.
6. After service of notice, respondent Nos.1, 2, 5 and 6 entered appearance but did not file objections. Respondent Nos.3, 4 and 7 have filed objections, contesting the claim and they wanted the petition to be dismissed. They raised several grounds, they denied the execution of the mortgage etc. Eighth respondent denied all the allegations made in the petition as false and frivolous. He contended that he is the bona fide purchaser of the 'B' schedule property from the respondent under a sale deed dated 27.11.1991. He had no notice of the additional security offered by the respondent No.2 to the petitioner. After purchase, he has invested funds -6- heavily and constructed a house on the 'B' schedule property and residing peacefully in it. But BDA has withdrawn the permission to alienate the property to the petitioner. Under these circumstances, the 'B' schedule property is not liabe for adjudication in realization of the claimed amount. Petitioner has no right to recover the loan amount by selling 'B' schedule property, which is belonging to the respondent. Respondent No.8 also filed additional statement of objections contending that there is no mortgage created by the respondent No.2 in favour of the petitioner in respect of the 'B' schedule property. The same is not binding on the eighth respondent who is in possession and enjoyment of the 'B' schedule property as a bona fide purchaser. Therefore, he sought for dismissal of the application as against him.
7. The trial Court framed the following points for its consideration:-
1. Whether the petitioner proves that the 1st respondent company availed financial assistant of Rs.60.00 lakhs for the purpose of setting up an offset printing Unit at Antharasanahalli Industrial Area in Tumkur district, by furnishing the guarantee and security of respondents 2 to 7 agreeing to repay the loan amount together with interest at 17% p.a.?
2. Whether the petitioner proves that respondents 2 and 3 have created an equitable mortgagee in respect of petition -7- 'b' and 'c' schedule properties by deposit of title deeds with the intention of securing the loan on 13.07.1988?
3. Whether the petitioner proves that A.M.Patel, Asst. General Manager, Legal Section is duly authorized to verify, sign and file the petition against the respondents?
4. Whether the petitioner is entitled for Recovery Certificate as prayed for?
5. What order?
8. On behalf of the petitioner, two witnesses were examined as PWs.1 and 2 and got marked 20 documents as Exs.P.1 to P.20. On behalf of the respondents, 8th respondent - T.Venkatachalam was examined as RW.1, 3rd respondent - S.Tulasiram was examined as RW.2 and 7th respondent - S.T.Vinayaks was examined as RW.3 and they also produced 22 documents which were got marked as Exs.R.1 to R.22. The trial Court on consideration of the aforesaid oral and documentary evidence on record held that the petitioner has established the financial assistance of Rs.60,00,000/- given to the first respondent for setting up a offset printing unit and respondent Nos.2 to 7 stood as guarantors. Further it held, respondent Nos.2 and 3 have created an equitable mortgage in respect of the 'B' and 'C' schedule properties by depositing title deeds and securing -8- loan on 13.07.1988. A.M.Patel, Assistant General Manager, Legal Section is duly authorized to verify, sign and file the petition against respondents and therefore, it held that the petitioner is entitled to recover the amounts claimed. Aggrieved by the judgment and order of the trial Court, it is only the respondent No.8 who has preferred misc. petition.
9. Sri.S.Gangadhar Aithal, learned Counsel for the appellant assailing the impugned order contended that, though the 8th respondent was impleaded as the owner of the 'B' schedule property, to have his say in the matter before the said property is brought to sale, he filed his statement of objections contending that there was no equitable mortgage at all. Even if there is one, it is void and he being the bonafide purchaser of the 'B' schedule property for valuable consideration having constructed a house thereon and living there, his property is not liable to be sold to discharge the debt due to the petitioner, from respondent Nos.1 to 7. The said contention is not considered by the trial court; no issues were framed; no finding is recorded inspite of elaborate evidence being adduced in the case. Therefore, he submits that a case for interference is made out insofar as 'B' schedule property only and the finding recorded by the trial court requires to be set aside.
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10. Per contra, learned Counsel appearing for the respondent - Corporation submitted that, the lease hold rights acquired by the second respondent under a registered lease deed constitutes a title in the lease hold rights, which could be mortgaged in favour of the Corporation, which they did and subsequent to execution of sale deed in favour of the second respondent by the Bangalore Development Authority, it amounts to accession to the 'B' schedule property and therefore, the petitioner was justified in bringing the 'B' schedule property for sale. As the original lease deed was with the B.D.A. and only a copy was given to the second respondent, the second respondent has handed over the said title deed, the original possession certificate and has created an equitable mortgage, which is in accordance with law and the petitioner was justified in bringing the security for sale for non-payment of amounts, which are legally due to them and he submits that no case for interference is made out.
11. In view of the aforesaid facts and the rival contentions, what is clear is that the subject matter in this appeal is only 'B' schedule property and therefore, the judgment and order passed by the trial court in respect of other matters is not under challenge. In respect of 'B'
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schedule property, the questions that arise for our consideration are:
(1) Whether the second respondent created a valid equitable mortgage by way of title deeds in favour of the petitioner?
(2) When, what is mortgaged is only a lease hold rights, does it constitute a mortgage of title deeds?
(3) When subsequently a sale deed is executed in favour of the second respondent, who in turn, has sold the property to 8th respondent, is the petitioner entitled to bring 'B' schedule property for sale?
12. Section 58(f) of the Transfer of Property Act, 1882 (hereinafter referred to as 'the Act') deals with mortgage of deposit of title deeds, which reads as under:
"58. "Mortgage", "mortgagor", "mortgagee", "mortgage-money" and "mortgage deed"
defined.-(a). . . . . . . . . .
(f) Mortgage by deposit of title-deeds.- Where a person in any of the following towns, namely, the towns of Calcutta, Madras, and Bombay, and in any other town which the State Government concerned may, by notification in the Official Gazette, specify in this behalf, delivers to a creditor or his agent documents of title to immoveable property, with intent to create a security thereon, the transaction is called a mortgage by deposit of title-deeds."
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Therefore, law recognizes a mortgage by deposit of title deeds, if a person delivers to a creditor, the documents of title to immovable property with intent to create a security thereon, the transaction is called a mortgage by deposit of title deeds. To constitute such a deposit, two things are important.
(1) Delivery of documents of title;
(2) An intention to create a security on the basis of the property, which is the subject matter of said document of title.
If these two things exist, then in law, a valid mortgage by deposit of title deeds is created. The Section does not refer to any original document being deposited. All that it says is document of title. However, in practice, it is fairly well accepted as a rule, it is the delivery of original documents of title, which alone can create a valid mortgage. But it is not an invariable rule. In a given case, where the original title deed is lost or original title deed is validly accounted for, it is permissible to create a mortgage by deposit of a copy of the title deed. The law on the point is fairly well settled. In the case of G.R.Krishna -vs- S.K.Venkatachalam & Ors. reported in (1990) 2 MLJ 260, the Madras High Court dealing with the question what is the document of title, held
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that ordinarily any deed that vests title in a person is a document of title. Obviously, that deed is original deed. Therefore, when the section says documents of title, it must be understood to mean original documents of title and not copies of original documents of title. It must be remembered that as per Section 58(f), a mortgage by deposit of title deeds can be created only in certain towns specified therein. Thus, it is a special provision for particular places. It appears to be intended for raising loans urgently to meet urgent requirements especially by commercial people. Therefore, they relied on the judgment of the Madras High Court in the case of Adaikappa Chettiar -vs- Official Assignee reported in 1972 T.L.N.J. 589 wherein it was observed that, a mortgage by deposit of title deeds cannot be created by depositing copy of a title deed. However, when the originals are not available in stated circumstances, such as, when it is lost or when it is not readily available to produce, the copies, can be accepted for the time being. It was further observed that, if it is to be held that with a copy of a title deed a mortgage can be created then there is no doubt that it may lead to fraudulent transactions. With many copies one can create many mortgages with many different people without the knowledge of one of the mortgages with the other persons. Thereafter it was observed that, if the original deed
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is lost, one will not be able to create a mortgage, if it is held that a copy of the title deed is not sufficient. When the original is lost, the person who has lost it, may have to suffer.
13. In Syndicate Bank -vs- Modern tile and Clay Works reported in 1980 K.L.T. 550, a Division Bench has observed that, to hold that a copy of a deed of transfer is also a document of title for purposes of Section 58(f) of the Transfer of Property Act, would amount to giving facilities to the owner to misuse the provision. A copy of the deed of transfer is not ordinarily a document of title for the purposes of an equitable mortgage. However, when the original is lost, with sufficient safeguards a certified copy of document can be received as a document of title. Therefore, the contention as the original lease deed is not produced and delivery is not delivered with the mortgagor at the time of creating mortgage, there is no valid mortgage in the eye of law, is concerned, that can be accepted only if the petitioner in this case is unable to make out where the original title deed exists. In that context, it was submitted that, in all cases where Bangalore Development Authority allots a site, executes a lease-cum-sale agreement, the original lease deed is retained by them and only a certified copy of the same is
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given to the lessee is concerned, if it is so, that could constitute a sufficient cause for not handing over the original deed, on that aspect, no evidence is adduced before the trial court and the trial court has not gone into that question at all.
14. Insofar as the contention that, the Bangalore Development Authority after expiry of the lease period, executed a registered sale deed in favour of the second respondent on 22.11.1991 as per Ex.R4 and on 27.11.1991, the second respondent executed a sale deed in favour of respondent No.8 as per Ex.R1, subsequently, a rectification deed came to be executed on 7.4.1992 as per Ex.R5 and thus, the second respondent could not have created a mortgage on the basis of a leasehold right is concerned, it is without any substance.
15. A Division Bench of Andhra Pradesh High Court in the case of M.K.Ramesh Kumar -vs- Asset Reconstruction Company (India) Limited. Rep by its Manager reported in AIR 2008 AP 45 dealing with the question whether the leasehold right could be the subject matter of the mortgage held that, where the mortgagor created an equitable mortgage in favour of Bank in respect of leasehold rights in property and subsequently leasehold rights were converted
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into full ownership rights by view of conveyance deed issued in her favour by the Government during currency of mortgage, it would amount to accession to mortgaged property within the meaning of Section 70 of the T.P.Act. Therefore, in law, it is permissible to create a mortgage by deposit of title deeds by mortgaging the leasehold rights in an immovable property.
16. Insofar as accession made to the mortgaged property by way of a subsequent sale deed, in case of what is mortgaged is a leasehold right is concerned, Section 70 of the Transfer of Property Act, 1882 deals with accession, which reads as under:
"70. Accession to mortgaged property.- If, after the date of a mortgage, any accession is made to the mortgaged property, the mortgagee, in the absence of a contract to the contrary, shall, for the purposes of the security, be entitled to such accession."
17. In the case of M.K.Ramesh Kumar (supra), this provision fell for consideration and it has been held as under:
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"13. The word "accession" used in the above reproduced provision has not been defined in the 1882 Act. Therefore, it will be useful to notice the dictionary meaning of the word. In Advanced Law Lexicon by P. Ramanatha Aiyar (3rd Edition), the author has extracted the meaning of the word "accession" from some of the judgments. The same read as under:
"Accession is a mode of acquiring property as an addition to existing property by natural growth or by application of human labour. In this broadest sense it may be defined to be the means by which title to the increments to one's property movable or immovable is acquired, whether by natural or artificial means (as) accession of a province to an empire. In the restricted sense, in which it is generally used in law, it applies to the acquisition of generally used in law, it applies to the acquisition of title to the increments to one's movable property, brought about by artificial means, such as labour or the addition of material other than the intermixture of goods or things of the same kind."
14. As per Black's Law Dictionary (7th Edition), the word "accession" means:
"1. The act of acceding or agreeing (the family's accession to the kidnapper's demands). 2. A coming into possession of a right or office (as promised, the state's budget was balanced within
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two years after the governor's accession). 3. (International Law) The process by which a nation becomes a party to a treaty that has already been agreed on by other nations (Italy became a party to the nuclear-arms treaty by accession). - Also termed adherence; adhesion. 4. The acquisition of title to personal property by bestowing labour on a raw material to convert it to another thing (the owner's accession to the lumber produced from his land). - Also termed (in Roman Law) accession. 5.
A property owner's right to all that is added to the land, naturally or by labour, including land left by floods and improvements made by others (the newly poured concrete driveway became the homeowner's property by accession)."
15. In Motilal v. Bai Mani (supra), the Privy Council held that where after shares, in a company, were pledged, the company issued fresh shares and allotted them to the old share-holders taking the call money from the yearly divided payable on the old shares, on which they had resolved to pay a fixed interest of 6 per centum per annum, the new shares were "increase or profit"
and the pledge must return them to the pledgor along with the old shares. These additional shares were, in the opinion of their Lordships of Privy Council, accessions to the shares expressly pledged or hypothecated, and the pledgor was entitled to recover them.
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16. The ratio of the above noted judgment was applied by the Supreme Court in Standard Chartered Bank v. Custodian. In that case, the Supreme Court considered the question whether bonus shares, dividend and interest accrued on the pledged shares and debentures were accretions to the pledged stocks and formed part of the pledged property, which is to be returned by the pledgee only when the pledged goods are to be returned and answered the same in affirmative. Their Lordships distinguished two earlier judgments in CIT v. Dalmia Investment Co. Ltd. and Hunsur Plywood Works Ltd. v. CIT and held:
"In our opinion the Court rightly came to the conclusion that bonus share is an accretion. A bonus share is issued when the company capitalises its profits by transferring an amount equal to the face value of the share from its reserve to the nominal capital. In other words the undistributed profit of the company is retained by the company under the head of capital against the issue of further shares to its shareholders. Bonus shares have, therefore, been described as a distribution of capitalised undivided profit. Section 94 of the Companies Act refers to the power of a limited company to alter its share capital. Under Section 94(1)(a) it has power to increase its capital share while under clause (d) it can sub-divide its share into shares of smaller amount. Whereas in a case of sub-division an existing share is simply divided or split and it may be argued that no new
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share or capital is created, but there can be little doubt that in the case of issue of bonus share there is an increase in the capital of the company by transferring of an amount from its reserve to the capital account and thereby resulting in additional shares being issued to the shareholders. A bonus share is a property which comes into existence with an identity and value of its own and capable of being bought and sold as such. Neither in Dalmia Investment nor in Hunsur Plywood case was this Court concerned with a question whether the bonus share could be regarded as an accretion or not. This Court in those cases was only concerned with a question relating to the valuation of the bonus share for tax purposes.
On the other hand the Privy Council in Motilal Hirabhai v. Bai Mani had to consider as to whether the pledgee was required to return to the pledgor, on redemption, bonus shares which had been issued. The plea taken by the pledgee in that case was that the pledgee was only required to return the original shares which were pledged and not the bonus shares which were received. Rejecting this contention it was held that the bonus shares were received as arising out of and appertaining to the original shares and that it was impossible to contend that the right to these shares could be differentiated from the right to the original shares. Referring to Section 163 of the Contract Act the Privy Council held that:
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"These shares (bonus shares) are clearly accessions to the shares expressly pledged or hypothecated, and the pledgor or his representative, the present plaintiff, is entitled to recover the same."
Applying the same logic it must follow that the dividend and interest which was received by the plaintiffs and which was relatable to the pledged stocks must also be regarded as accretions thereto."
17. In Prathap Chand v. Ram Narayan, the Supreme Court considered the question whether the 'Sir' land, which came into possession of the appellant on the extinction of the ex-proprietary tenancy of the landholder, can be regarded as accession to the mortgage and the mortgagee is entitled to half share of the lands. The facts of that case were that one Ramchandar Jat originally owned Annas - 10/8 share in Mauza Tamalawadi, while the rest belonged to others. Ramchandar executed a simple mortgage deed on July 27, 1920 in favour of Seth Ram Jiwan and two minors Ram Narain and Radhey Sham. On August 27, 1926, the appellant purchased Annas - 5/4 share belonging to the other shareholders in the village. Thereafter, he brought a suit against Ramchandar for profits. The same was decreed. In execution of the decree, the appellant purchased the entire Annas - 10/8 share of Ramchandar in the village.
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Thus, he became the owner of the entire village subject be the mortgage of the respondents on Annas - 5/4 share therein. On July 27, 1932, the respondents sued Ramchandar on the basis of the mortgage deed. The appellant was a party to the suit. A preliminary decree for sale was passed in March, 1937. This was followed by a final decree. Thereafter, the property was put to sale and purchased by the respondents. The sale was confirmed on April 12, 1940. Ramchandar Jat held 'Sir' land in certain khasras with a total area of 252.49 acres. On the sale of Ramchandar's share to the appellant, Ramchandar became an ex- proprietary tenant of his 'Sir' land. Thereafter Ramchandar was ejected from his ex-proprietary tenancy sometime in 1936 and the lands came into possession of the appellant. There were certain other lands which were nominally recorded as Muafi Khairati in the name of Ramchandar's mother but were actually in the possession of Ramchandar. It appears that Ramchandar was ejected from these lands also and they came into the possession of the appellant. Further the appellant as a lambardar came into possession of certain other lands by surrender or otherwise. In 1942, the respondents filed a suit for partition and claimed half share in the lands of Ramchandar and others, which came into the possession of the appellant. Their case was that these lands were accession to the mortgage in their favour. The Sub- Divisional Officer rejected the plea of the
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respondents. Thereupon, the respondents filed a suit for declaration in the civil court. The trial court partly decreed the suit. Consequently, the respondents went up in appeal to the High Court, which was allowed to the extent of the respondents' claim to one- half share in the 'Sir' lands held by Ramchandar. On appeal, the Supreme Court noted that the mortgage covered 'Sir' lands and held:
"..............We have already pointed out that the mortgage covered the sir plots also so far as the proprietary rights in them were concerned. Therefore, when Ramchandar's ex-proprietary rights came to an end and the land came into the possession of the appellant and became khudkashat, the mortgage would cover this khudkashat land to the extent of the mortgagees' share therein. It is true that if Ramchandar's ex- proprietary tenancy had continued, the mortgagee would have no right to ask for half share in it; but when the ex- proprietary tenancy was extinguished and this land came in the possession of the lambardar (mortgagor) it was an accession to the mortgage under Section 70 of the Transfer of Property Act and the mortgagees could claim a share in it. It was however urged that accession to be available to the mortgage must be a legal accession. We however see no illegality in the accession which took place. There is also no doubt that the accession took place when the mortgage was still subsisting. Therefore, we agree with the
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High Court that on the ex-proprietary tenancy being extinguished, the sir land which would otherwise have remained in the exclusive possession of Ramchandar as an ex-proprietary tenant became an accession to the mortgaged property and the respondents would be entitled to half of it on their purchasing the - 5/4 share in execution of the decree on the mortgage. The fact that the rent of an ex-proprietary tenant is due to the person whose ex-proprietary tenant he becomes by virtue of the sale or mortgage with possession would make no difference after ex-proprietary tenancy is extinguished, for on such extinction the land would go to the entire proprietary body and would thus in this case be an accession to the mortgage to the extent of the share mortgaged."
18. In Chapsibhai Dhanjibhai Danad v.
Purushottam, the Supreme Court interpreted Section 108(d) of the 1882 Act and held:
"...............if any accession is made to the leased property during the continuance of a lease, such accession is deemed to be comprised in the lease. If the accession is by encroachment by the lessee, and the lessee acquires title thereto by prescription, he must surrender such accession together with the leased land to the lessor at the expiry of the term. The presumption is that the land so encroached upon is added to the tenure and forms part thereof for the benefit of the tenant so
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long as the lease continues and afterwards for the benefit of the landlord."
19. In Sidheshwar Prasad v. Ram Saroop (supra), the Full Bench of Patna High Court interpreted Section 70 of the 1882 Act and held that there is no reason to restrict the word "accession" to physical additions to the mortgaged property and exclude incorporeal accession i.e. acquisition of an interest in the property. Some of the observations made in that judgment, which are useful for deciding the issue raised by the petitioner, are extracted below:
".................Accretion to the mortgaged property and improvements upon it by construction of building or electric installations are obvious cases of accession. Property, however, is a bundle of rights, and enlargement or diminution of some of the rights which constitute property will be tantamount to accession within the meaning of Section 70 or, for the matter of that, Section 63. Whatever tends to increase the value of the security, either by additions made to the mortgaged property or by enlargement of the right in it, would constitute accession. On the same principle, if after the mortgage the mortgaged property is lost to the mortgagor by operation of law or otherwise and the mortgagor thereafter acquires some interest therein, though not the whole interest he owned at the time of mortgage, it is, in my opinion, an accession to the mortgaged
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property, so as to be available to the mortgagee. I do not see any principle or logic to deprive the mortgagee of his right to recover the mortgage debt by sale of the limited right of the mortgagor in such bakasht lands...................
Identity of interest in the mortgaged property and the accreted lands is not the foundation of the principle of accession. Wherever there is an alteration in the interests of the mortgaged property, the mortgagee will be entitled to the interest left with the mortgagor, be it an enhanced interest or diminished interest."
17. In the light of the aforesaid judgments of the Apex Court as well as the various High Courts, the enlargement of a right in an immovable property by way of an absolute sale deed as against the leasehold rights fall within the definition of "accession" and that mortgagee would be entitled to the benefit of such accession. Therefore, it is not open to the 8th respondent in this case to contend that, merely because he has purchased the property after execution of a sale deed in favour of his vendor is concerned, the mortgage would not be binding on him. If there was a valid mortgage during the subsistence of the equitable mortgage and any right possessed by the mortgagor by a lessee before the expiration of the period if the leasehold rights get enlarged into an
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absolute title in favour of the lessor, the lessee shall be entitled to the benefit of such accession and he can recover the amount due to him and recover the same by bringing the property with accession for sale in a manner known to law.
18. It was next contended that, the stipulation under the lease deed makes it mandatory for the lessor to obtain the permission of the Bangalore Development Authority before mortgaging the property and such permission would be granted only if the lessee requires financial assistance for putting up a residential construction thereon. There is no permission granted by the B.D.A. to mortgage his property as a collateral security and therefore, the mortgage in contravention of the aforesaid stipulation renders the transaction void. Though this point was raised by the 8th respondent in the statement of objections, the trial court does not apply its mind, not considered this aspect and therefore, it requires to be considered by the trial court based on the material that both parties have placed in support of their contention.
19. Further, it was submitted that, the mortgagor - second respondent has also made available to the Corporation, an original possession certificate, which is marked as Ex.P17 dated 6.9.1982. 8th respondent contends
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that the original was handed over to him at the time of purchase, which he has produced in the case as Ex.R3. He submits that there were two originals. So the question is, out of those originals, which is a genuine document and which is a fabricated document. Though both the documents are produced, and arguments are canvassed, the trial court has not applied its mind and recorded a finding on this aspect. Under these circumstances, we are of the view that when the 8th respondent raised this specific pleading by placing evidence in support of his objection, the trial court committed an error in not raising necessary points or issues for consideration nor adjudicating the said dispute by looking into the evidence on record. Therefore, to that extent i.e., a finding recorded by the trial court in respect of 'B' schedule property, requires to be set aside and the matter has to be remanded back to the trial court for fresh disposal and in accordance with law, only insofar as 'B' schedule property is concerned. In our view, that would meet the ends of justice. Hence, we pass the following order:
The appeal is partly allowed. The judgment and decree of the trial court insofar as 'B' schedule property is concerned, is hereby set aside. The matter is remanded back to the trial court for formulating the requisite points for
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consideration, to provide opportunity to both the parties to adduce evidence on those points and look into the evidence, which is already on record and decide the said issues on merits and in accordance with law.
Ordered accordingly.
The High Court Registry is directed to send back the original records received, to the trial court, forthwith.
Sd/-
JUDGE Sd/-
JUDGE NVJ/KNM/-