Nirankar Nath v. Board of Revenue, Allahabad, — 1961 DIGILAW 133 (ALL)

JUDGMENT Srivastava, J. - This is a petition under Article 226 of the Constitution. A writ in the nature of certiorari is prayed for to quash the orders of the Commissioner and the Board of Revenue dated the 11th of November, 1960, and the 29th of April, 1961. 2. The Petitioners were landlords who had applied u/s 4 of the U.P. Encumbered Estates Act. They had a residential bungalow in Faizabad which on the date of the application was subject to a mortgage. In the Encumbered Estates Act proceedings, claims were filed by the creditors including the creditor to whom the residential house was mortgaged. Decrees were passed by the Special Judge and were sent for liquidation to the Collector. Before the Collector the Petitioners made an application u/s 24 of the Encumbered Estates Act praying that the residential house be released. The application was opposed, inter alia, on the ground that as this residential house was subject to a mortgage when the application u/s 4 of the Encumbered Estates Act was made, it could not be released in view of Cl. (b) of the second proviso to Sub-section (1) of S. 24. This plea found favour with the Additional Commissioner as well as with the Board of Revenue and the application made u/s 24 of the Encumbered Estates Act for the release of the house was rejected. By the present petition the Petitioners seek the quashing of the orders of the Commissioner and the Board of Revenue on the ground that they suffer from an apparent error of law. The error pointed out is that a wrong interpretation has been put on the words of Cl. (b) of the second proviso to Sub-section (1) of S. 24. 3. The relevant portion of S. 24 reads like this: The Collector shall first realise the value of such of the debtor's property other than proprietary rights in land as shall have been reported by the Special Judge under the provisions of Sub-section (2) of S. 19 to be liable to attachment and sale.... Provided also that the Collector shall leave to the debtor at least one residential house and the necessary furniture thereof it: (a) the debtor owns such house and furniture and desires to retain it, and (b) such house and furniture is free from any mortgage or charge. 4. Provided also that the Collector shall leave to the debtor at least one residential house and the necessary furniture thereof it: (a) the debtor owns such house and furniture and desires to retain it, and (b) such house and furniture is free from any mortgage or charge. 4. The contention is that as the verb "is" is used in Cl. (b) quoted above in the present tense, what the Collector has to do is to see whether on the date on which he is considering the question of release the residential house sought to be released is free from any mortgage or charge. It is not open to him to refuse to release the residential house on the ground that at an earlier stage on the date on which the application u/s 4 of the Encumbered Estates Act was made or on which the decrees u/s 14 were passed the house was subject to a mortgage or charge. It is stressed on behalf of the Petitioners that a claim having been submitted to the Special Judge by the mortgagee in whose favour the house stood mortgaged and the claim having been decreed, the mortgage stood extinguished u/s 18 of the Encumbered Estates Act. Thereafter the house became free from any mortgage or charge and could, therefore, be released in favour of the debtor in spite of the fact that at an earlier date it was subject to a mortgage. Learned Counsel also pointed out that the mortgage or charge mentioned in Cl. (b) of the second proviso in all probability referred to the mortgage or charge created with the sanction of the Collector u/s 7(2) of the Encumbered Estates Act and not to the mortgage or charge with which the property was originally encumbered before the application u/s 4 of the Encumbered Estates Act was filed. 5. We have given our best consideration to the contention put forward but are unable to accept it. We are not satisfied that the impugned orders of the Commissioner and the Board of Revenue suffer from any apparent error of law on account of which they can attract a writ of certiorari. 6. Cl. (b) of the second proviso to S. 24 has to be interpreted keeping in view the other provisions of the Encumbered Estates Act. We are not satisfied that the impugned orders of the Commissioner and the Board of Revenue suffer from any apparent error of law on account of which they can attract a writ of certiorari. 6. Cl. (b) of the second proviso to S. 24 has to be interpreted keeping in view the other provisions of the Encumbered Estates Act. A reference to the other provisions of the Act will show that while it is true that the effect of a decree of the Special Judge passed u/s 14 is to extinguish the previously existing rights together with all rights of mortgage or lien by which the debt is secured, the mortgage or lien is not brought to an end for all purposes. It is extinguished only for certain purposes. Thus under the proviso to S. 18 added by the U.P. Act No. XIII of 1954 in spite of the extinguishment of the mortgage or charge the debt, if zamindari property was mortgaged to secure it, continued to be treated as a secured debt recoverable from the compensation received in respect of the mortgaged property. It also has to be ranked as a secured debt u/s 16. Under S. 19 of the Act the Special Judge has to inform the Collector about the order in which the debt has been ranked and whether it is recoverable otherwise than out of compensation and rehabilitation grant payable to the landlord in respect of the mortgaged estate. Even after a simple money decree has been passed the debtor can take advantage of he provisions of the U.P. Zamindar's Debt Redemption Act which applies only to secured debt and get the amount of the decree reduced. After such reduction the Special Judge has to amend the decree he has already passed u/s 14. Under S. 23-B of the Act the amount of compensation and rehabilitation grant has to be utilised for the liquidation of the amount of that secured debt which was secured on the proprietary rights in land. The intention thus appears to be that though the mortgage on the property is to be deemed to be extinguished in the sense that only a simple money decree has to be passed in favour of the mortgagee he is still expected to retain for certain purposes his privileged position as a secured creditor. The intention thus appears to be that though the mortgage on the property is to be deemed to be extinguished in the sense that only a simple money decree has to be passed in favour of the mortgagee he is still expected to retain for certain purposes his privileged position as a secured creditor. The relation between the debt and the property with which it was secured is, therefore, not altogether obliterated. 7. Under the scheme of liquidation which was contained in Ch. v. of the Encumbered Estates Act as it stood before its amendment in 1954 all the debts to be liquidated if they were not satisfied out of payments made by the debtor had to be satisfied out of the amount realized by the sale of his non-zamindari property first. The intention was to save the zamindari property of the debtor as far as possible. As, however, the sale of all the properties of the debtor other than zamindari was likely to create hardships on persons who had been accustomed to live in a particular style it was found necessary to exempt from sale at least one residential house and the necessary furniture for the use of the debtor. Provision was made for this in S. 54 and the condition that was imposed on the power of the Collector to release such house and furniture was that the house and furniture should be owned by the debtor, that he should desire to retain it and that it should be free from any mortgage or charge. 8. R. 33 of the Encumbered Estates Act which was framed with reference to S. 24 reads; The Collector shall in no case sell u/s 24 such personal property of the debtor and his family, as is in his opinion, reasonable for persons of the debtor's position to possess, unless such property is pledged as security for a loan. Unless the debts can be liquidated u/s 27, the Collector shall sell any immovable property, other than agricultural land, which is subject to a mortgage and any movable property which has been pledged as security for a loan. 9. Unless the debts can be liquidated u/s 27, the Collector shall sell any immovable property, other than agricultural land, which is subject to a mortgage and any movable property which has been pledged as security for a loan. 9. The intention with which S. 24 was enacted therefore clearly was that in case the debts could not be liquidated u/s 37 the properties other than agricultural land which were to be sold first were the immovable properties which were subject to mortgage or the movable which had been pledged as security for a loan. Unencumbered properties were to be proceeded with only in case the proceeds of the encumbered properties were not sufficient to discharge the debts. As the encumbered properties were to be sold first it became necessary to provide in S. 24 that even if the debtor wanted that such property to be released in his favour he should not be entitled to such a release. The property which could be released in his favour was the property which was not subject to a mortgage or charge. In the circumstances the mortgage or charge referred to in the second proviso to S. 24 appears to be the mortgage or charge to which the property sought to be released was subject on the date of the application u/s 4 and not to which it became subject after date. 10. It is true that a mortgage or charge could be created by the debtor on his properties even after the date on which he had applied u/s 4 with the sanction of the Collector u/s 7(2). A claim on the basis of such a mortgage or charge, however, stood wholly outside the purview of the Encumbered Estates Act. No decree could be passed in respect of it u/s 14 of the Act. Nor could the Collector take steps for liquidating the debt under Ch. V. The question whether the property sought to be released u/s 24 was subject to such a mortgage or charge, therefore, became entirely immaterial. If it was to be sold it could be sold subject to that mortgage or charge. If it was to be released it could also be released and left subject to the mortgage or charge. Its being subject to a mortgage or charge could not, therefore, disentitle the debtor from getting it released. The words 'mortgage or charge' used in Cl. If it was to be released it could also be released and left subject to the mortgage or charge. Its being subject to a mortgage or charge could not, therefore, disentitle the debtor from getting it released. The words 'mortgage or charge' used in Cl. (b) of the second proviso to S. 24 could not, therefore, refer to the mortgage or charge created after the application u/s 4 had been made with sanction of the Collector. They could only refer to the mortgage or charge existing on the property on the date of the application u/s 4. The debtor could not be allowed to retain a property and to get it exempted from sale even though he had specially pawned it for a loan if it was a piece of furniture or specifically mortgaged it to secure a loan if it was his residential house. 11. We are unable to attach any importance to the fact that the word 'is' is used in Cl. (b) in the present tense. If for certain purposes the mortgage or charge on the property was to be treated as alive there could be no valid objection to the use of the word in the present tense in the proviso. 12. The view taken by the Additional Commissioner and the Board of Revenue in the present case therefore, appears to be correct and we find no valid grounds for quashing the impugned orders. 13. The petition, therefore, fails and is dismissed.