FEDERAL BANK LTD. v. S. K. ROWTHER — 1981 DIGILAW 152 (KER)

Judgment :- 1. Appellant was the plaintiff in a suit for money. The first defendant-first respondent took a loan of Rs. 14,400/- from the Marthandam Commercial Bank Ltd on November 11, 1967 after executing (i) an agreement Ext. Al hypothecating a lorry KLQ. 4441 - described in the plaint schedule - and (ii) a promissory note Ext. A2 along with the 2nd defendant. The loan was to be repaid in 18 instalments at the rate of Rs 800/- a month The Bank had deducted the stipulated interest in full and paid the first defendant only the balance sum of Rs. 12,500/-. All except the last three instalments had been paid off, leaving a balance of Rs.2899 20 (deducting an over paid sum of 80 ps.). The plaint claimed this amount with interest at 12% thereon from the dates of default to the date of suit. The plaint included a further claim of Rs. 1036.65 being the amounts spent by the plaintiff to get possession of the lorry, to insure it and to issue notices to the defendants. The plaintiff asked for a decree in an aggregate amount of Rs. 3999 74 with interest from date of suit till date of realisation from defendants 1 and 2 and charged on the lorry The third defendant was added as a party as he was in possession of the lorry. The Marthandam Commercial Bank Ltd. was amalgamated with the Federal Bank Ltd. and the suit was filed by the latter Bank. 2. In their joint written statement defendants 1 and 2 admitted that Rs. 2399.20 was outstanding but they denied the claim for interest on the ground that interest had already been realised. They also denied the plaintiff's claim for the expenses and the insurance premium. They added that the debt fell within Act 11 of 1970 and they were entitled to all its benefits. By a separate written statement the 3rd defendant substantially adopted these contentions. 3. The plaintiff filed a replication seeking to meet the defence pleas. 4. While rejecting the claim for the insurance premium, the expenses of seizure of the lorry and overdue interest and expenses of notice the trial court granted the plaintiff a decree for the three defaulted instalments with interest at 7% from date of suit and proportionate costs. 5. 3. The plaintiff filed a replication seeking to meet the defence pleas. 4. While rejecting the claim for the insurance premium, the expenses of seizure of the lorry and overdue interest and expenses of notice the trial court granted the plaintiff a decree for the three defaulted instalments with interest at 7% from date of suit and proportionate costs. 5. The plaintiff took an appeal challenging the amounts disallowed but did not contest the finding that Act 11 of 1970 applied to the debt. The appellate court allowed the plaintiff interest at 10% on the defaulted instalments from May 12,1969 (after the date fixed for repayment of the loan) till July 14,1970 (the day prior to the suit) and thereafter at the rate of 7% till realisation. Subject to this modification the court confirmed the decree of the trial court. 6. The plaintiff has preferred the appeal claiming the three heads disallowed - interest, expenses incurred in trying to take possession of the lorry and insurance premium. 7. Starting with interest, I feel that the decision of the appellate Judge is right. Although Exts Aland A2 name the loan as Rs. 14,400, Ext. Alrecites that the stipulated interest for the entire period had been collected by the Bank in advance. pw. 1 who gave evidence for the plaintiff has clarified that out of the Rs. 14,400 sanctioned, Rs. 1900 was collected in advance as interest for the 18 instalments and that the net amount of Rs. 12,500 was alone paid under the loan. This means that the first defendant had already paid interest for the period within which the loan had to be repaid. There is no question of further payment of interest for that period and the plaintiff's claim for interest on the three defaulted instalments was rightly refused. 8. The courts below disallowed the expenses incurred by the plaintiff in trying to secure possession of the lorry on the ground that the claim is not warranted by the terms of the agreement. Ext. 8. The courts below disallowed the expenses incurred by the plaintiff in trying to secure possession of the lorry on the ground that the claim is not warranted by the terms of the agreement. Ext. Alcontains an undertaking that without the knowledge of the Bank defendants 1 and 2 would not remove the lorry or alienate it in any manner or deal with it to the prejudice of the Bank's interest and provides that in the event of breach of any of the conditions including repayment of the advance the Bank would be at liberty to seize the lorry wherever it might be and reduce it to its possession as pledgee with all rights appurtenant under law. The first defendant sold the lorry to the third defendant and in the course of their dispute it was taken into custody by the criminal court. The first defendant thereupon wrote a letter Ext. A13 dated May 13, 1969 informing the Bank about the circumstances in which the lorry went into the possession of the criminal court, warning it not to band over the papers connected with the lorry to any one else and giving his consent to the Bank to seize the lorry and take it into custody. This led the plaintiff to make an application to the criminal court for custody of the lorry. The application however failed and the plaintiff claims Rs. 168.15 under the head of expenses incurred by it in the attempt to get possession of the lorry. The courts below rejected the claim in the view that although the first defendant had committed breach of the conditions of Ext. Aland such breach entitled the Bank to seize and take possession of the lorry, it could do so only through a civil court and not through the criminal court. Ext. Alimports no such restriction and what the Bank did was to approach the Court which had custody of the lorry for its release. Further it made this attempt at the express request of the first defendant in Ext. A13 to which the courts belows do not make so much as a reference. In the face of the provisions of Ext. Aland of the request in Ext A13 the Bank's claim is legitimate. As the amount has not been doubted by the courts below the claim must be allowed. 9. A13 to which the courts belows do not make so much as a reference. In the face of the provisions of Ext. Aland of the request in Ext A13 the Bank's claim is legitimate. As the amount has not been doubted by the courts below the claim must be allowed. 9. What emains to be considered is the plaintiff's right to be reimbursed the amount of Rs. 868.50 which it paid as premium to insure the lorry for the period November 16, 1968 to November 15, 1969 The insurance Policy Ext. 3 is in the name of the first defendant and was obviously issued on his application, though the premium was paid by the plaintiff. The observation of the lower appellate court that the insurance was taken without reference to the defendants or without their consent is against the clear tenor of Ext. A3 Defendants 1 and 2 had no such defence; nor did they give any evidence denying or repudiating Ext. A3. Indeed in the face of Ext. A13, defendants 1 and 2 could not have taken such a defence. In Ext A13, the first defendant starts by saying that he had paid the Bank ail except three instalments under the loan and the insurance premium and ends by saying that he would pay up ail arrears before May 30, 1969 and receive back the agreement and other papers. Ext. A13 proves not only knowledge and consent but even contains an acknowledgment of the liability to reimburse the insurance premium. Despite this I shall consider the liability under this head apart from Ext A13. 10. On this part of the case counsel for the appellant relied upon Para.2 of S.72, Transfer of Property Act which deals with rights of mortgagees. A13 proves not only knowledge and consent but even contains an acknowledgment of the liability to reimburse the insurance premium. Despite this I shall consider the liability under this head apart from Ext A13. 10. On this part of the case counsel for the appellant relied upon Para.2 of S.72, Transfer of Property Act which deals with rights of mortgagees. The paragraph reads thus: "Where the property is by its nature insurable, the mortgagee may also, in the absence of a contract to the contrary, insure and keep insured against loss or damage by fire the whole or any part of such property; and the premiums paid for any such insurance shall be added to the principal money with interest at the same rate as is payable on the principal money or, where no such rate is fixed, at the rate of nine per cent per annum But the amount of such insurance shall not exceed the amount specified in this behalf in the mortgage-deed or (if no such amount is therein specified) two-thirds of the amount that would be required in case of total destruction to reinstate the property insured." There is no dispute that there is no contract to the contrary nor that the amount of insurance exceeds the mortgage money. There is however controversy on the applicability of the provision, the respondents contending that the Section, as indeed the entire Chapter on mortgages, applies only to mortgages of immovable properties and not of movable properties. 11. Now the Transfer of Property Act refers only to mortgages of immovable property and the Contract Act refers only to pledges of movable property and neither Act deals with mortgages of movable property. But mortgages or hypothecations of movables have long been recognised by courts in India, Basivireddi v. Kamaraju, A1R. 1933 Madras 241, Venkatachalam v. Venkatrami, AIR 1940 Madras.929, Mohini Mohan v. Bengal Steam Laundry Co , 50 C.W N. 258, Peoples Bank v F F. Campbell & Co , A1R. 1939 Lahore 398, Jagnnath v. Fatechand, AIR. 1949 Nagpur 368, Md. Sultan v. Firm of Rampratap Kannyalal, AIR. 1964 A. P 201, and Mallayan Chtttiyar v. Krishna Pillai, AIR. 1955 Travancore-Cochin 162 are some of the several relevant cases. 1939 Lahore 398, Jagnnath v. Fatechand, AIR. 1949 Nagpur 368, Md. Sultan v. Firm of Rampratap Kannyalal, AIR. 1964 A. P 201, and Mallayan Chtttiyar v. Krishna Pillai, AIR. 1955 Travancore-Cochin 162 are some of the several relevant cases. In AIR 1964 A. P. 201 it has been pointed out that under the principles of equity, justice and good conscience which is considered to be equivalent to English Law in so far as it is applicable to Indian conditions, hypothecations or mortgages of movable property, although not specifically provided in the Contract Act, are valid and that decrees can be passed in enforcement of such transactions. AIR. 1933 Madras 241, AIR. 1940 Madras 929 and AIR 1939 Lahore 398 have held that a mortgagee of movable property is entitled to sale as such as a mortgagee of immovable property. A mortgagor of movable property is entitled to sue for redemption (AIR. 1949 Nagpur 368); the some decision has recognized that even a remedy by foreclosure may be available to a mortgagee of movable property; so also in Mahamaya Debi v. Haridas, AIR 1915 Calcutta 161. The doctrine of clog on equity of redemption applies to all mortgage transactions including mortgage of movables (Rupchand Dawn v. Kamal Kumari Devi, (1954) 1 Cal. 220). In this context I might refer to Murarilal v. Dey Koran, AIR. 1965 S. C. 225, where the Supreme Court relieved a mortgagor of a clog on the equity of redemption on the principle of justice, equity and good conscience in a case that arose in an area where the Transfer of Property Act was not in force. Their Lordships followed an earlier decision Namdeo v. Narmadabai, AIR. 1953 S. C. 228, which 1 shall notice in more detail in the sequel. 12. In Namdeo v. Narmadabai, AIR 1953 S. C. 228 the Supreme Court observed: "It is axiomatic that the Courts must apply the principles of justice, equity and good conscience to transactions which came up before them for determination even though the statutory provisions of the Transfer of Property Act are not made applicable to these transactions. It follows, therefore, that the provisions of the Act which are but a statutory recognition of the rules of justice, equity and good conscience also govern these transfers." 13. Approving the dictum of Napier J. in Krishna Shetti v. Gilbert Pinto, AIR. It follows, therefore, that the provisions of the Act which are but a statutory recognition of the rules of justice, equity and good conscience also govern these transfers." 13. Approving the dictum of Napier J. in Krishna Shetti v. Gilbert Pinto, AIR. 1919 Madras 12, the Supreme Court pointed out that Courts should be very careful in applying statutory provisions and the assistance of the Transfer of Property Act as a guide on matters which have been excluded from the purview of the Act by express words should not be invoked, unless the provisions of the Act embody principles of general application. 14. The Supreme Court held that the provisions in S 111 (g) as to notice in writing as a preliminary to a suit for ejectment based on forfeiture of a lease are not based on any principle of justice, equity or good conscience and cannot govern leases made prior to the coming into force of the Transfer of Property Act or to leases executed prior to April 1, 1930. 15. In Girdhar Lal v Bhola Nath, I. L. R.10 Allahabad 611, while upholding the right of a usufructuary mortgagee to be reimbursed the arrears of revenue which he had paid and which the mortgagor bad covenanted to pay the mortgagee at the time of redemption, it was held: "It is not necessary to decide whether this particular case is governed by the specific Rules contained in the Transfer of Property Act, because I am of opinion that the rules contained in S.72 of that enactment only reproduce the doctrines which the Courts of justice in India have uniformly adopted, and it reproduces the older law." Another aspect of the principle underlying S.72 was expressed in Henry Alfred v. Karim Bakhsh, AIR. 1924 Lahore 154, where the question arose whether payments made by the puisne mortgagee in possession to satisfy a decree on a prior mortgage fell within the purview of S.72 and were recoverable from the mortgagor at the time of redemption, in Punjab where the Transfer of Property Act was not applicable. Holding that they were, the learned Judges observed: "The rule embodied in the section proceeds upon an equitable principle, and it has Been repeatedly held that the general principles Contained in the Transfer of Property Act are applicable to cases arising in the Punjab." 16. Holding that they were, the learned Judges observed: "The rule embodied in the section proceeds upon an equitable principle, and it has Been repeatedly held that the general principles Contained in the Transfer of Property Act are applicable to cases arising in the Punjab." 16. Mulla has pointed out: "The section represents to a large extent the English rule that the mortgagee is entitled to be indemnified against all expense so long as he acts reasonably as a mortgagee and is allowed all proper 'costs, charges and expenses' incurred by him in relation to the mortgage security. (Transfer of Property Act, Sixth Edition, page 314). 17. Law has recognised mortgages of movable property as also such remedies as sale and foreclosure and retained for the mortgagor the right of redemption freed from clogs on the equity of redemption. These have no statutory sanction as neither the Transfer of Property Act nor the Contract Act applies to mortgages of movables; they have been adopted from the law of mortgages of immovable properties as a matter of justice, equity and good conscience. As for S.72, it is based essentially on principles that pre-date the Transfer of Property Act and these principles have been applied to areas where the Act has no application on grounds of justice, equity and good conscience. AIR. 1953 SC. 228 warrants - indeed their Lordships called it axiomatic - the application of the principles of justice, equity and good conscience to transactions to which the statutory provisions of the Transfer of Property Act do not apply. This proposition was affirmed in AIR. 1965 SC. 225. On principles of justice, equity and good conscience Para.2 of S.72 has to be extended to mortgages of movables. As Para.2 of S.72 comes into play the plaintiff's claim for the insurance premium has to be sustained. The judgments and decrees under appeal are modified and the plaintiff is allowed to recover Rs. 1036 65 in addition to the sums decreed fay the courts below. The appeal is allowed to this extent. The plaintiff-appellant will get the costs in the appeal in proportion to its success.