Madras High Court · 2003

!For appellants :: Mr.G.Anbumani for M/s.Devadasan and Sagar & S.Dharmakkan. ^For respondents :: Mr.R.N.Kothandaraman for R2 - 7 N.A. for R8 to 12. :JUDGMENT N.V.BALASUBRAMANIAN,J. Defendants 2 and 3 are in appeal before us. They have filed the appeal challenging the judgment and decree in O.S.No.197 of 1985 dated 13.9.1988 by the learned Subordinate Judge, Poonamallee in a suit for recovery of money due on a mortgage. The plaintiffs are the legal representatives of one Murugaiya Thevar, the mortgagee of the suit property.

According to the plaintiffs, the first defendant, R.Kannan had borrowed a sum of Rs.43,000/- from Murugaiya Thevar and executed a registered second mortgage deed dated 20.7.1978 in his favour agreeing to repay both principal and interest at the rate of 18% per annum on demand. The first defendant agreed to repay the amount with interest on or before 10th of every month and the default clause is also provided in the mortgage deed. In the deed it is provided that the mortgagee was empowered to recover the amount due under the mortgage after the loan under the first mortgage dated 23.1.1973 was discharged and a reconveyance deed was obtained thereof. The original mortgagee Murugaiya Thevar died on 14.5.1981 leaving behind the plaintiffs as his legal representatives.

According to the plaintiffs, the first defendant/ mortgagor has not paid to the original mortgagee either principal or interest during his lifetime, nor has he paid any amount after the demise of Murugaiya Thevar. According to the plaintiffs, on the date of institution of the suit, the first defendant was liable to pay a sum of Rs.43,000 /- towards principal and a sum of Rs.54,180/- towards interest totalling a sum of Rs.97,180/-. According to the plaintiffs, they are entitled to recover the money from the first defendant personally as well as by enforcing the suit mortgage.

It is also stated that subsequent to the second mortgage created in favour of Murugaiya Thevar, the first defendant discharged the first mortgage executed in favour of the State Bank of India Staff Cooperative House Construction Society, Chennai (hereinafter referred to as 'the SBI Co-operative Society') and got a reconveyance deed registered on 26.3.1984. It is stated that the first defendant sold the property in favour of the defendants 2 and 3 by a deed of sale dated 9 .4.1984 for valid consideration and the defendants 2 and 3 are also liable to pay the amount under the suit mortgage and the plaintiffs are entitled to recover the money from all the defendants who are jointly and severally liable to pay the suit amount. Hence, the suit has been instituted for recovery of the money due under the mortgage along with interest and costs.

The first defendant in his written statement raised several contentions, but it is not necessary to refer to all of them as the first defendant has not preferred any appeal against the judgment and decree granted against him by the learned Subordinate Judge, Poonamallee. His main defence was that there was no mortgage of the suit property in favour of Murugaiya Thevar and Murugaiya Thevar's son-in-law lent some money to a colleague of the first defendant and since the borrower did not pay the money, the son-in-law of Murugaiya Thevar compelled and coerced the first defendant to sign a stamp paper and hence, there was no mortgage on the suit property in favour of Murugaiya Thevar. However, the first defendant has not let in any evidence to substantiate his plea raised in the written statement and hence, it is not necessary to consider the defence raised by the first defendant in the appeal.

The defendants 2 and 3 who are appellants herein have raised a defence that the first defendant had no subsisting interest on the date of alleged mortgage deed as the first defendant had already conveyed the suit property to the SBI Co-operative Society on 23.1.1973 and it is also stated that only subsequent to the suit mortgage, the said SBI Co-operative Society reconveyed the property to the first defendant on 26.3.1984 and on 9.4.1984 the first defendant sold the property to the defendants 2 and 3. One other contention raised was that the sale in favour of the appellants was free from encumbrance and there is no personal liability as against the appellants herein. The defendants 2 and 3 also referred to the suit notices exchanged between the parties. The other plea of the defendants 2 and 3 was that the cause of action said to have arisen on the basis of the alleged mortgage of the suit property which did not exist and hence, the claim made therein as against the defendants 2 and 3 is not maintainable.

The trial Court, on the basis of the above pleadings, framed necessary issues for consideration and after considering the evidence, both oral and documentary, passed a preliminary decree as prayed for. It is against the judgment and decree, the present appeal has been preferred.

Mr.G.Anbumani, learned counsel for the appellants submitted that before the date of the mortgage, viz., 20.7.1978 the first defendant had conveyed all his interests in the suit land in favour of the SBI Co-operative Society by virtue of a deed of sale dated 23.1.1973 and on the date of mortgage, the suit land was the property of a third party and therefore the first defendant had no interest to transfer by way of mortgage of the suit property in favour of Murugaiya Thevar. He also referred to the deed of reconveyance dated 26.3.1984 executed by the SBI Co-operative Society and submitted that only on 26.3.19 84 the first defendant became the owner of the property and from the first defendant, the appellants have purchased the property on 9.4.19 84. He also submitted that by the deed of reconveyance, the SBI Cooperative Society has not only conveyed the suit land, but also the building thereon and only thereafter, the first defendant became the owner of the suit property. His main submission is that the first defendant had no interest at all to mortgage the property in favour of Murugaiya Thevar on the date of the mortgage and hence, the mortgage in his favour was inoperative. The second submission of Mr.Anbumani, learned counsel is that even assuming that the first defendant mortgaged the property in favour of the SBI Co-operative Society by the deed dated 23.1.1973, the subsequent mortgage effected by him in favour of Murugaiya Thevar is null and void under the provisions of Section41 of the Tamil Nadu Co-operative Societies Act, 1983 (hereinafter referred to as 'the Co-operative Societies Act') and therefore, the plaintiffs are not entitled to file the suit on mortgage. The third submission of the learned counsel is that the appellants are subsequent transferees and they are not personally liable for the suit amount.

Mr.R.N.Kothandaraman, learned counsel for the respondents 2 to 7 /plaintiffs submitted that the deed dated 231.1973 executed by the first defendant in favour of the SBI Co-operative Society is really a deed creating a mortgage by conditional sale and there was no absolute sale of the suit property by the fist defendant in favour of the SBI Co-operative Society. His submission is that the property was mortgaged in favour of the SBI Co-operative Society as security for the loan advanced to the first defendant and therefore there was no outright sale and the mortgagor continued to be the owner of the property when the second mortgage was created in favour of Murugaiya Thevar. Learned counsel also submitted that the appellants have not raised a plea that the second mortgage in favour of Murugaiya Thevar is invalid under the provisions of section 41 of the Co-operative Societies Act and therefore it is not open to the counsel for the appellants to raise such a plea before this Court. Learned counsel also submitted that even otherwise the Section 41 of the Co-operative Societies Act has no application as it applies only to Co-operative Society and its members and has no application to third parties. Learned counsel further submitted that since it is a suit for recovery of money due on a mortgage, the Court has granted decree in the form prescribed for passing of preliminary decree and the decree passed in conformity with the form prescribed in the Code of Civil Procedure cannot be regarded as illegal or invalid.

We have carefully considered the submissions of Mr.G.Anbumani, learned counsel for the appellants and Mr.R.N.Kothandaraman, learned counsel for the respondents/ plaintiffs. The points that arise for consideration are as under: 1. Whether the deed dated 23.1.1973 executed by the first defendant in favour of the SBI Co-operative Society is a document conveying absolute right of the first defendant in favour of the said Cooperative Society or it is only a deed of mortgage by conditional sale?

2. Whether the deed of mortgage dated 20.7.1978 is regarded as null and void by virtue of the provisions of section 41 of the Cooperative Societies Act?

3. Whether the appellants/defendants 2 and 3 are personally liable to pay the amount decreed by the trial Court?

POINT NO.1:- In order to appreciate the point No.1, it is necessary to mention that the first defendant, R.Kannan was the absolute owner of the suit property, both the land and the building thereon. He purchased the suit land on 30.8.1972 and it is stated that he was in possession and enjoyment of the land. H e became a member of the SBI Co-operative Society on 11.6.1966 and approached the SBI Cooperative Society for the sanction of loan to put up a construction on the suit land. In the deed dated 23.1.1973 (Ex.B-1) it is stated that under the rules and regulations governing the SBI Co-operative Society it was necessary that the property should be transferred to the Cooperative Society before the loan was granted. As the first defendant had applied for a loan for a sum of Rs.27,500/- for the purpose of construction of a residential house and the loan was also sanctioned, the transaction was entered into. The first defendant had transferred the suit land in favour of the SBI Co-operative Society. The deed contains the usual covenants which are normally found in a deed of sale. There is a relevant clause which is important to decide the question that arises in the appeal and that clause is one which provides for reconveyance of the property on the discharge of the liability under the mortgage to the SBI Co-operative Society and the said clause reads as under:- "Provided always that if the vendor repays the loan to the Society and duly fulfils his obligations as per the Schemes of Repayment of the loan to the Society thereon such repayment of the loan to the Society retransfers the Schedule Property to the Vendor. "

The expression, 'sale' is defined in section 54 of the Transfer of Property Act,1882 to mean a transfer of ownership in exchange for a price paid or promised or part-paid or part-promised. The relevant provision dealing with a mortgage by conditional sale is section 58 (c) of the Transfer of Property Act and the expression, 'mortgage by conditional sale' is defined in that section as under:- " Mortgage by conditional sale - Where, the mortgagor ostensibly sells the mortgage property - on condition that on default of payment of the mortgage-money on a certain date the sale shall become absolute, or on condition that on such payment being made the buyer shall transfer the property to the seller, the transaction is called mortgage by conditional sale and the mortgagee a mortgagee by conditional sale: Provided that no such transaction shall be deemed to be a mortgage, unless the condition is embodied in the document which effects or purports to effect the sale. "

Admittedly, the condition that on repayment of the mortgage loan to the SBI Co-operative Society by the first defendant, the Cooperative Society shall transfer the property back to the defendant is embodied in the deed itself and the clause indicates that though the deed purports to effect a sale of the suit property, it is a mortgage by conditional sale. When a document could be regarded as a deed of sale or when it could be regarded as a mortgage by conditional sale has been the subject matter of consideration by the Supreme Court as well as by this Court. The Supreme Court in CHUNCHUN JHA v. EBADAT ALI (AIR 1954 SC 345) has held that the question whether a given transaction is a mortgage by conditional sale or a sale outright with a condition to repurchase is a vexed one and must be decided on its own facts and in such cases the intention of the parties is the determining factor. The Supreme Court has laid down the following tests to determine the question whether a transaction is a mortgage by conditional sale or an absolute sale:- " The first is that the intention of the parties is the determining factor: see - "Balkrishen Das v.