Supreme Court: The 3-Judges Bench of Mehr Chand Mahajan, S.R. Das* and N.H. Bhagwati, JJ., noted that the courts below held that the mortgage transaction and the cash credit transaction constituted two separate and independent transactions, and therefore, the Supreme Court held that unliquidated damages for breach of one could not be set-off against a claim founded on the other, as they did not arise out of the same transaction. Thus, the Supreme Court dismissed the appeal with costs and held that all the pleas taken by appellants were without any substance.
Background
The present appeal arose out of a suit on a mortgage, which was executed on 10-01-1935 by Appellant 1 for himself and as manager and guardian of his minor son, Appellant 2 and as karta of the joint family consisting of himself and his sons and also by his two adult sons, namely, Rameshwar Prasad and Lala Ishwar Prasad in favour of Bhagwan Das Bank Ltd. (‘the Bank’), to secure the repayment of Rs 1,50,000 with interest at 7% p.a. with monthly rests. The mortgagors covenanted to pay the amount due for principal, interest, and charges due under the mortgage within three months from the date of demand made in writing and sent by registered post to the address of Appellant 1.
On 09-05-1938, the mortgagees sent a notice demanding payment of the amount due under the mortgage. The mortgagee however, did not take legal proceedings to enforce the mortgage on the expiry of three months from the date of the notice. By a deed of assignment made on 10-02-1940, the Bank assigned all the benefits arising under the said mortgage to Punjab National Bank Ltd (‘PNB Ltd.’).
On 08-01-1941, PNB Ltd. instituted the suit out of which this appeal arose for the recovery of Rs 1,96,142-11.3 due up to the date of the institution of the suit and further interest pendente lite and until full realization. The suit was defended by mortgagors on a variety of grounds, but the same was repelled by the Trial Court. The mortgagors preferred an appeal to the Allahabad High Court (‘High Court’), but the High Court confirmed the Trial Court’s decree and dismissed the appeal. The mortgagors thereafter came up before the Supreme Court on appeal on a certificate of fitness granted by the High Court under Section 110 of the Civil Procedure Code, 1908.
Analysis, Law, and Decision
The Supreme Court noted that a notice of demand was duly served on mortgagors on 09-05-1938, however, appellants submitted that subsequent to notice’s receipt, the parties entered into a compromise by which mortgagors agreed to pay Rs 1000 every month to respondents and respondents consented to withdraw the notice. The Supreme Court, however, noticed that in mortgagors’ written statement, there was no averment of any agreement to waive the notice.
The Supreme Court noted that although during 1939 and even a few months before that, Rs 1000 was regularly paid every month and that in 1940 also certain payments were made and the Bank, or respondents did not take proceedings pursuant to the notice, such conduct, nevertheless, did not necessarily point to an agreement between the parties. In fact, Appellant 1 in his deposition did not mention that the Bank, or respondents agreed to withdraw the notice of demand or to give him fresh notice before bringing a suit. The Supreme Court opined that the courts below concluded that there was absence of any agreement and thus, it was permissible for appellants to question the correctness thereof.
The Supreme Court noted that after execution of the mortgage, the Bank wrote a letter to mortgagors putting on record that they had repeatedly sent their clerk to mortgagors to ascertain whether they were agriculturists within the meaning of the United Provinces Agriculturists Relief Act, 1934 (‘U.P. Act’), but that the mortgagors had not filled up the form sent through the clerk. A fresh form was enclosed with that letter as a last effort, and it was mentioned that if the mortgagors still withheld the required information, they would do so at their risk, and mortgagees would be compelled to treat them as non-agriculturists if they did not get the form duly filled up within ten days. But no reply was sent to this letter.
The Supreme Court observed that the courts below believed respondents’ submission that the Bank sent their mukhtar-i-am, Darshan Lal to meet Appellant 1 personally. The Supreme Court noted that Appellant 1 admitted that a person come to him to make enquiries on behalf of mortgagees, but he was not sure if the man was Darshan Lal. The Supreme Court noted that Darshan Lal had deposed that Appellant 1 told him that he paid income tax and was not an agriculturist and the courts below found no reason to disbelieve Darshan Lal on this point and thus, the Supreme Court opined that such a finding could not be challenged now.
The Supreme Court opined that there could be no doubt that mortgagees made enquiries to determine whether the transaction should be terminated or should be allowed to continue, and the mortgagees certainly were induced not to take proceedings for realization of the moneys due under the mortgage upon the representation that the mortgagors were not agriculturists.
The Supreme Court rejected appellants’ submission that the U.P. Act was founded on public policy and that there could be no estoppel against such a statute. It was further alleged that there was a contract to make an advance of Rs 2,50,000, out of which Rs 1,50,000 was to be secured by a mortgage and that the balance of Rs 1,00,000 would be advanced on a cash credit account to be opened and the mortgage deed was executed but the cash credit account was never opened, and the mortgagors had suffered damage on account of this breach of agreement by mortgagees. The Supreme Court noted that no objection was ever taken on that score and on the contrary, it appeared that the stamp paper which was purchased for writing out the cash credit bond was returned to Appellant 1 and that he got a refund on it and therefore, Appellant 1 could not complain of any breach of that contract at this stage.
The Supreme Court noted that the courts below held that the mortgage transaction and the cash credit transaction constituted two separate and independent transactions, and therefore, the Supreme Court held that unliquidated damages for breach of one could not be set-off against a claim founded on the other, as they did not arise out of the same transaction. Thus, the Supreme Court dismissed the appeal with costs and held that all the pleas taken by appellants were without any substance.
[Lala Hari Kishen Das v. Punjab National Bank Ltd., (1952) 2 SCC 542, decided on 03-12-1952]
*Judgment authored by: Justice S.R. Das
Note: Mortgage transaction
Mortgage Transaction means a credit transaction (loan or credit sale) that is or will be used by the debtor primarily for personal, family, or household purposes and is secured by a mortgage, or other equivalent consensual security interest on a dwelling or residential real estate. A mortgage transaction includes a credit transaction secured by a mobile home, and a home improvement credit transaction secured by a mortgage or equivalent security interest on the home.
Advocates who appeared in this case :
For the Appellants: Achhru Ram, Ram Lal Anand, Senior Advocates (R.S. Narula, Advocate, with him)
For the Respondents: S.K. Dar, Senior Advocate (K.B. Asthana, Advocate, with him)
