Case Note & Summary
The dispute arose from a usufructuary mortgage executed on June 2, 1928 by Priyanath Sasmal in favour of Lakshminarayan Pani, father of the appellants, for Rs. 1,500 over land originally purchased from Bhagaban Parida. Under the mortgage deed, possession was handed to the mortgagee, and a specific term required the mortgagee to pay rent arrears to the landlord if the mortgagor failed to do so. The mortgagee defaulted on this obligation, leading to a rent sale in which he purchased the property for Rs. 300 on September 22, 1936; the sale was confirmed on November 4, 1936, and possession through court was taken on December 21, 1938. The mortgagor filed a suit for redemption and possession in the Court of the Subordinate Judge, Balasore. After the mortgagor died, his widow and son were brought on record as legal representatives. The trial court and appellate District Judge concurrently found that possession had been delivered under the mortgage deed and that the plea of discharge was false, but diverged on the legal effect of the sale. The Subordinate Judge held the mortgagee held the property on behalf of the mortgagor; the District Judge held the mortgagor-mortgagee relationship ended; the High Court in second appeal restored the trial court's decree. The legal issue was whether the mortgage was extinguished by the mortgagee's purchase at the rent sale and whether the mortgagor could sue for redemption without setting aside the sale. The appellant mortgagee's legal representatives argued that the purchase of the equity of redemption ended the relationship and the mortgagor's remedy was to set aside the sale. The respondent mortgagor's legal representatives contended that the sale was the result of the mortgagee's manifest dereliction of duty and therefore the purchase was in trust for the mortgagor. The Supreme Court relied on Section 90 of the Indian Trusts Act, 1882, and its illustration (c), holding that a mortgagee who avails himself of his position to gain an advantage in derogation of the mortgagor's rights must hold that advantage for the mortgagor's benefit. The Court reaffirmed the principle 'once a mortgage always a mortgage' and distinguished a purchase in execution of a decree obtained by a third party or with leave of court from a purchase brought about by the mortgagee's own default. In the latter case, the mortgage is not extinguished and the relationship continues, with the purchase deemed in trust for the mortgagor. Accordingly, the Supreme Court dismissed the appeal and upheld the High Court's judgment restoring the trial court's decree for redemption and possession.
Headnote
A) Trusts and Fiduciary Relationship - Mortgagee's Advantage - Indian Trusts Act, 1882, Section 90 - A mortgagee in possession failed to pay rent arrears as obligated, leading to auction sale and his own purchase of the property; court held this was gaining an advantage in derogation of the mortgagor's rights and that the mortgagee held the property in trust for the mortgagor; suit for redemption was maintainable without setting aside the sale. Held that the purchase was only in trust for the mortgagor and the right to redeem was not extinguished. B) Mortgage - Right of Redemption - Once a Mortgage Always a Mortgage - General Principles - The mortgage is not extinguished unless terminated by act of parties, merger, or order of court; where a mortgagee purchases the mortgaged property by reason of his own default, the relationship of mortgagor and mortgagee continues to subsist and the equity of redemption is not extinguished; the mortgagor can sue for redemption without first getting the sale set aside. Held that the appeal was dismissed and the High Court's restoration of the trial court's decree was upheld.
Issue of Consideration
Whether a suit for redemption is maintainable when the mortgagee purchased the mortgaged property in execution of a rent decree due to his own default in paying rent, or whether the mortgage stood extinguished and the mortgagor's remedy was limited to setting aside the sale
Final Decision
Supreme Court dismissed the appeal and upheld the High Court judgment restoring the trial court decree for redemption and possession; held that mortgagee's purchase of property in rent sale due to his own default did not extinguish mortgage and he held property in trust for mortgagor under Section 90 of Indian Trusts Act, 1882.
Law Points
- Once a mortgage always a mortgage
- mortgage terminated only by act of parties
- merger
- or court order
- mortgagee cannot benefit from own default
- purchase of equity of redemption by defaulting mortgagee is in trust for mortgagor under Section 90 Indian Trusts Act
- 1882
- equity of redemption not extinguished
- suit for redemption maintainable without setting aside sale
