1. This is an appeal from a preliminary decree for sale. The appellants are Messrs. H.V. Low & Co., Ltd., who were defendants 3 (ka) in the suit. The following are the facts of the case: The plaintiffs are the landlords. Mauza Chalbalpur belongs to them in zamindari right. The surface of the said mauza had been settled long ago with the proprietors of Searsole estate in mukarrari rights. On the assumption that the subsoil was in the khas possession of the plaintiffs, one Kalikumar Misra, on 17th October 1913, executed a kabuliyat, which was duly registered, in their favour, taking what is commonly known as a coal mining lease of the said mauza for a term of 499 years. It was stipulated that royalty at certain rates would have to be paid monthly for the coal taken and, in default of such payment, interest at the rate of 1 per cent per month would be charged; it was agreed that a minimum royalty of 600 would have to be paid for the first year, of Rs. 3,000 in the second and in the third years, and of Rs. 4,800 for the fourth year and yearly thereafter, and that, in case of default, interest at the rate aforesaid would also have to be paid; and there were other terms and conditions. The kabuliyat also contained the following stipulation:
Further, the right I have got on the basis of this settlement, the machineries of the said kuthi, the engine and the boilers, etc., will all along remain under first charge for the said royalty and minimum royalty,
2. Disputes arose between Misra and the proprietors of the Searsole estate and litigation followed, but into the details thereof we need not enter. On 14th July 1915 a deed of angsanama (partition, or specification of shares) was executed and duly registered between Misra on the one hand and Kumar Pramathanath Malia Bahadur of Searsole on the other, the two parties entering into a partnership for carrying on the coal business of the said mauza and, amongst other terms and conditions, it was provided that Misra shall have a six annas share and Malia shall have a ten annas share in the underground coal of Mauza Chalbalpur and the business relating thereto. It was further provided in this deed that it would remain in force for 499 years and its terms would be binding upon the parties and their respective heirs and successors-in-interest. On 16th January 1919, Malia wrote to the plaintiffs thus:
After having taken settlement from you of the subsoil right of Mauza Chalbalpur the late Kalikumar Misra made me a partner (co-sharer) to the extent of 10 annas of the said property, and I am in separate possession of the same after partition... Now his widow-Sreemati Basanti Debi-has written a letter to you for registering my name in respect of the said 10 annas share. Therefore, you shall register my name in respect of the 10 annas share. I shall continue to pay separately the minimum royalty and the royalty payable in respect of the said 10 annas share to you from the date of settlement.
3. A similar letter, as appears from the words of the letter just set out, had been written two days before by Misra's widow, Sreemati Basanti Debi, to the plaintiffs for mutation of her name in respect of six annas share in the property. The mutation asked for in both the letters was effected and in the plaintiffs' books two separate accounts were opened and royalties and other dues were charged and received separately from the parties in respect of their 10 annas and six annas shares respectively. While this state of things continued, the present suit was instituted on 15th April 1929. The claim in the suit was for recovery of amounts due for the period 1330 B.S. to 1335 B.S. with interest and costs after deduction of certain amounts paid and received on account of the 10 annas share of Malia on declaration:
of a first and preferential charge on the 10 annas share of the principal defendant (i.e. Malia) in the subsoil right settled with him in respect of Mauza Chalbalpur and the kuthi, pits, machineries, pumps, boiler, headgear, engine, tramlines, and the equipment and houses, etc., comprised therein.
4. The ten annas share of the mauza, in respect of which the claim was made as aforesaid, was described in the schedule to the plaint as consisting of underground coal in 1,067 specified bighas of land, some lying on the southern and some on the northern side of the mauza, which Malia had got by amicable partition with Misra. Raja Pramathanath Malia Bahadur and his two sons were the principal defendants, i.e., defendants 1 to 3. On 6th August 1929 the plaintiffs applied that the appellants, Messrs. H.V. Low & Co., be added as defendants. It was alleged that in 1925 the appellants had obtained against Malia a decree on consent for a large sum of money with declaration of a first charge for the decretal amount on the colliery and its appurtenances to the extent of the interest of the Malias therein. The plaintiffs alleged that they had come to know that the said appellants were about to have the property sold in execution of the said decree and they prayed that the appellants might be made party defendants. They were accordingly added as defendants 3ka. In the plaint as originally framed, Sreemati Basanti Debi was joined as pro forma defendant 4, but she was subsequently made a principal defendant by a petition, which the plaintiffs made on 4th August 1930, in which it was stated:
She has been made a pro forma defendant as the plaintiffs have not prayed for any relief against the said defendant personally. The said defendant Basanti Debi has made a full payment for the period in suit, and no money is due. But she has right of redemption. Under the circumstances it is necessary to make the defendant a principal defendant and the plaint should be amended accordingly.
5. This prayer also was granted. Defendant 5 was added as a party on 5th March 1930, he being the receiver appointed by the Court, in respect of the interest of Malia in the aforesaid properties, in the suit in which the aforesaid consent decree had been passed. The Subordinate Judge made a preliminary decree on 5th August 1930 for the entire amount claimed together with interest at the stipulated rate from the date of institution of the suit till the expiry of the period of grace, and declaring the total amount as a first charge on the ten annas share of the leasehold and its fixtures, etc., belonging to defendants 1 to 3, and giving defendants 1 to 3, 3 ka and 5 three weeks' time to pay in the decretal money. From this decree the present appeal has been preferred on 20th September 1930. In the meantime on 27th August 1930, the period of grace having expired and there having been no redemption, a final decree for sale was passed.
6. The first contention urged on behalf of the appellants is that the charge created by the lease, on which the plaintiffs' claim is based is a 'floating charge' whereas their own charge by virtue of the consent decree is a specific one and so the latter charge must have preference. To explain the true nature and characteristics of a 'floating security' a large number of decisions has been cited. Wheatley v. Silkstone and Haigh Moor Coal Co. (1885) 29 Ch 5 715, Tailby v. Official Receiver (1888) 13 AC 523, Driver v. Broad (1893) 1 QB 539, Government's Stock and Other Securities Investment Co. v. Manila Ry. Co. (1897) AC 81, In re Yorkshire Woolcombers Association, Ltd., Houldsworth v. Yorkshire Woolcombers Association, Ltd. (1903) 2 Ch 284, Illingworth v. Houldsworth (1904) AC 355, Evans v. Rival Granite Quarries, Ltd. (1910) 2 KB 979, National Provincial Bank of England, Ltd. v. United Electric Theatres, Ltd. (1916) 1 Ch 132 and Hamer v. London, City and Midland Bank Ltd. (1918) 87 LJK B 973. After, the exhaustive review of the characteristics of a floating security by North, J., in Wheatley v. Silkstone and Haigh Moore Coal Co. (1885) 29 Ch 5 715, and the description of a floating security given by Lord Macnaghten in Tailby v. Official Receiver (1888) 13 AC 523, which was criticized by Vaughan Williams, L.J., in Houldsworth v. Yorkshire Woolcombers Association, Ltd. (1903) 2 Ch 284, and then amplified by Lord Macnaghten himself in Illingworth v. Houldsworth (1904) AC 355, it would be futile to attempt to explain it further. For the purposes of the arguments, that have been addressed to us on behalf of the appellants, some observations from the cases cited will presently have to be referred to. It may however be conceded at once that debentures of companies, though they afford the most ordinary examples of floating security, are not the only instances of it: a floating security may be a security created by an individual and by means other than the issue of debentures. Its essential elements, so far as debentures issued by a company are concerned, were described by Romer, L.J., in the case of Houldsworth v. Yorkshire Woolcombers Association, Ltd. (1903) 2 Ch 284, at pp. 294, 295 and 298 in these words:
The term 'floating' is one that until recently was a mere popular term. It certainly had no distinct legal meaning. It is not a legal term. It has recently been used in more than one statute, but when the Courts have to consider whether the Charge is a floating one within the meaning of the term as used in the Acts of Parliament, and in particular within the meaning of the Companies Act, 1900, one must, I think, deal with the question of substance to be answered according to the circumstances of each particular case. I certainly do not intend to attempt to give an exact definition of the term 'floating charge,' nor am I prepared to say that there will not be a floating charge within the meaning of the Act, which does not contain all the three characteristics that I am about to mention, but 1 certainly think that if a charge has the three characteristics that I am about to mention it is a floating charge: (1) if it is a charge on a class of assets of a company present and future; (2) if that class is one which, in the ordinary course of the business of the company would be changing from time to time; and (3) if you find that by the charge it is contemplated that until some future stop is taken by or on behalf of those interested in the charge the company may carry on its business in the ordinary way, as far as concerns the particular class of assets I am dealing with.
7. In the same case Cozens Hardy, L.J., gave what may be said to be a more positive description of a floating charge. He said:
My view is that the floating charge need not be on the whole undertaking nor on the whole property of the company. It must, I think, embrace both present and future property and property of a particular class. It must, I think, contain expressly or by necessary implication a right to the company to deal with it for a certain time as though the charge had never been executed. When these conditions are found, I think you have a floating charge within the meaning of the Act.
8. These observations may be supplemented by what Buckley, L.J., said in Evans v. Rival Granite Quarries, Limited (1910) 2 KB 979, summarizing the decisions on the point. He said:
A floating security in not a future security; is a present security, which presently affects all the assets of the company expressed to be included in it. On the other hand, it is not a specific security; the holder cannot affirm that the assets are specifically mortgaged to him. The assets are mortgaged in such a way that the mortgagor can deal with them without the concurrence of the mortgagee. A floating security is not a specific mortgage) of the assets, plus a licence to the mortgagor to dispose of them in the course of his business, but is a floating mortgage applying to every item comprised in the security, but not specifically affecting any item until some event occurs or some act on the part of the mortgagee is done which causes it to crystallize into a fixed security.
9. Bearing these observations in mind, if one examines the character of the charge created in the present case, one finds certain elements present or absent. In the case of debentures, it is the company's undertaking that is charged, but the company may deal with any of the assets in the ordinary course of business until the charge crystallizes or becomes a fixed charge, and this happens when there is winding up or when the debenture-holder takes some steps to enforce his security. Mortgages by tradesmen of their stock-in-trade and effects belong to the same class of securities, in so far as the securities attach to the subjects charged by them in the varying condition in which they happen to be from time to time. It may be conceded that, for a floating charge, it is not necessary that the entire book-debts or the entire assets of the business should be charged, but it is nevertheless apparent that the governing idea is to allow a going concern to carry on its business in the ordinary course, the effect of which would be to make the assets liable to constant fluctuation. This element is entirely absent in the present case; what is charged being the leasehold and the machineries, engines, boilers, etc., that is to say, the moveables that would be brought on to the premises. With the charge on them, not a single screw could be removed except perhaps for the purpose of being replaced; and neither the moveables nor any parts of them could be disposed of by the lessee; The element of fluctuation due to ordinary wear and tear that is present here is widely different from what would be consequent on the power of disposal in the ordinary course of business, which marks the outstanding feature of property subject to a floating charge. Then, as Lord Macnaghten observed in Tailly, v. Official Receiver (1888) 13 AC 523 at p. 541:
It belongs to a class of securities of which perhaps the most familiar example is to be found in the debentures of trading companies. It is a floating security reaching over all the trade assets of the mortgagor for the time being and intended to fasten upon and bind the assets in existence at the time when the mortgagee intervenes. In other words, the mortgagor makes himself trustee of his business for the purpose of the security. But the trust is to remain dormant until the mortgagee calls it into operation.
10. And as Buckley, L.J., pointed out in Evans v. Rival Granite Quarries, Limited (1910) 2 KB 979:
It is a floating mortgage applying to every item comprised in the security, but not specifically affecting any item until some event occurs or some act on the part of the mortgagee is done which causes it to crystallize into a fixed security.
11. Now what is the event, on the happening of which, or what is the act or the nature of intervention of the mortgagee, which is required to crystallize the security in the present case? Clearly no act or intervention on the part of the mortgagee is necessary. What however is said is that, until royaty or minimum royalty is due or is in default, the charge will not fasten on the property. This in our opinion, is not the kind of event comtemplated; as soon as the royalty or minimum royalty accrues due, it forms a charge on the assets specified, and no extraneous event is necessary for the charge to fasten itself. This element too is wanting in the present case. It has been argued on behalf of the appellant that there are certain elements of uncertainty which make the charge created of the nature of a floating charge, namely, that it cannot be predicated of a given time as to what the amount of the charge or what the object charged would be. These elements of uncertainty can hardly suffice to satisfy the requirements of a floating charge such as the expression means in law. Were it otherwise, it would be easy to defeat a charge as regards an annuity periodically payable, or a charge as regards interest-simple or compound-accruing in future, by regarding it as a floating charge and creating a specific charge for a fixed amount upon the subject-matter in the meantime. In our judgment, the charge created in the present case is not of the nature of a floating charge, if the expression is to be understood in its recognized meaning
ambulatory and shifting in its nature, hovering over and so to speak floating with the property which it is intended to affect until some event occurs or some act is done which causes it to settle and fasten on the subject of the charge within its reach and grasp,
as Lord Macnaghten observed in Illingworth v. Houldsworth (1904) AC 355. In the case of J.D. Jones & Go., Ltd. v. Ranjit Roy AIR 1927 Cal 682, in which the facts were that the restriction put upon the borrower company in disposing of their stock-in-trade in the ordinary way of business was not very great to all appearances and the articles comprised in the security were not entirely the stock-in-trade, but there were plant, machinery, implements, utensils, furniture and so forth, and the lender company was to continue in possession, but his representative would not prevent the business being carried on in the usual way, Rankin, C.J. observed:
Although in this case the security may not be in the fullest sense a specific security, it is not also entitled to be described as coming within the proper definition of a floating security. It is possible to hold that anything may be regarded as a floating security until the full rights of the mortgagee settle or fasten on or bind the subject-matter finally; but it seems to me that the element of possession which is contemplated by the deed and which according to the evidence was actually given at the time prevents our holding that we have before us a purely equitable charge of the character coming within the description of a floating charge.
12. Mere variability of the amount or the subject of the charge is not the element, the presence of which would make the security a floating security. The first charge created by the kabuliyat attached to the property immediately as the lease began to run, and, though the amount as well as the subject of the charge varied from time to time, it never detached itself and on the other hand always retained its priority over any charge however specific subsequently created. The contention next urged on behalf of the appellants was that the kabuliyat did not in fact create a charge, but merely recorded the possibility of a charge being created in future; and, in support of this contention, reference was made to the decision in the case of Madho Misser v. Sidh Binaik Upadhya (1887) 14 Cal 687. The relevancy of this case, in which, by the terms of the document concerned, no charge was in fact created but it was only provided that on a certain contingency happening certain consequences would follow, from which it might be inferred that, in that event, a charge would arise on the land involved, is not apparent. It may be pointed out that even a floating security, which the appellants contend is all that the kabuliyat creates, is, as observed by Buckley, L.J., in Evans v. Rival Granite Quarries, Ltd. (1910) 2 KB 979 (at p. 999),
not a future security; it is a present security, which presently affects all the assets of the company expressed to be included in it.
13. So far as the leasehold is concerned it was in existence at the date of the kabuliyat. As regards the machineries, etc., there was an element of 'possibility' in the sense that the security would attach to them as and when they would be brought on to the premises. If, on this element of futurity, the charge created by the kabuliyat is to be condemned, then the contention, in order to be effective, must be a contention 'questioning the validity of a charge in respect of moveables not in existence at the date of the kabuliyat and maintaining that the true effect of the transaction was merely to create a lien which, in certain events, may have to give precedence to a specific charge subsequently created. But such a contention has not been definitely urged, and, obviously, for a very good reason. In most modern systems of law, the hypothecation of moveables is either not permitted at all or is fenced in by a multitude of rules, which are absolutely necessary for prevention of fraud: Ghose's Law of Mortgage, 5th Edn., p. 115. Though not accompanied by delivery of possession, the validity of such hypothecation has been recognized in India, and it has sometimes been enforced even against bona fide purchasers without notice: see Deans v. Richardson (1871) 3 NWP 54, Shyam Soondar v. Cheita (1871) 3 NWP 71, Ko Kywetnee v. Ko Koung Bane (1866) 5 WR 189, Shivram v. Dhau (1901) 4 Bom LR 577, Srish Chandra Roy v. Mungri Bewa (1904) 9 CWN 14, Damodar Lakhmidas v. Atmaram Narayan (1905) 8 Bom LR 344, In the matter of Ambrose Summers (1896) 23 Cal 592 and Punithavelu Mudaliar v. Bhashyam Ayyangar (1901) 25 Mad 406. The charge having been not merely of the moveables existing on the premises at the time, but also in respect of moveables which might be subsequently acquired and brought there, may be said to have been in respect of property which had not yet come into being. Though a transaction of this character is not governed by the Transfer of Property Act or by the Contract Act, its validity can hardly be disputed. In the case of Misri Lal v. Mozhar Hossain (1888) 13 AC 523 it was held that a mortgage of indigo crops that may be grown upon a certain plot of land is a valid transaction and is in the nature of an agreement to mortgage moveable property that was to come into existence in future. That such a transaction creates a lien which may be enforced by a suit was held long ago in the case of Tilakdhari Lal v. Furlong (1869) 2 BLR AC 230. In the case of Collyer v. Isaacs (1881) 19 Ch D 342 Sir George Jessel, M.R., observed:
The creditor had a mortgage security on existing chattels and also the benefit of what was in form an assignment of non-existing chattels which might be afterwards brought on the premises. That assignment, in fact, constituted only a contract to give him the after-acquired chattels. A man cannot in equity, any more at law, assign what has no existence. A man can contract to assign property which is to come into existence in future, and when it has come into existence, equity, treating as done that which ought to be done, fastens upon that property, and the contract to assign thus becomes a complete assignment.
14. 'It has long been settled,' said Lord Macnaghten in Tailby v. Official Receiver (1888) 13 AC 523,
that future property, possibilities and expectancies are assignable in equity for value. The mode or form of assignment is absolutely immaterial provided the intention of the parties is clear. To effectuate that intention an assignment for value, in terms present and immediate, has always been regarded in equity as a contract binding on the conscience of the assignor and so binding the subject-matter of the contract when it comes into existence, if it is of such a nature and so described as to be capable of being ascertained and identified.
15. In Holroyd v. Marshall (1862) 10 HC 191 the occupier of certain mill premises had covenanted with his landlord to assign to him all machinery which might thereafter be brought by him (the occupier) into the mill, and the sheriff seized the machinery which he had so brought in and Lord Westbury in one of his classical judgments observed thus:
It is quite true that a deed which professes to convey property which is not in existence at the time is as a conveyance void at law, simply because there is nothing to convey. So in equity a contract which engages to transfer property, which is not in existence, cannot operate as an immediate alienation merely because there is nothing to transfer. But if a vendor or mortgagor agrees to sell or mortgage property, real or personal, of which he is not possessed at the time, and he receives the consideration for the contract, and afterwards becomes possessed of property answering the description in the contract, there is no doubt that a Court of equity would compel him to perform the contract, and that the contract would, in equity, transfer the beneficial interest to the mortgagee or purchaser immediately on the property being acquired. This of course assumes that the supposed contract is one of the class of which a Court of equity would decree the specific performance .... It follows that immediately on the new machinery and effects being fixed or placed in the mill, they became subject to the operation of the contract, and passed in equity to the mortgagees, to whom Taylor was bound to make a legal conveyance, and for whom he in the meantime was a trustee of the property in question.
16. The principle has been adopted in this country in numerous cases amongst which may be mentioned Bansidhar v. Sant Lal (1888) 10 All 133, Palaniappa v. Lakshmanan (1893) 10 Mad 429, Baldeo Parshad Sahu v. Miller (1904) 31 Cal 667, Ram Sarap v. Mohan Lal AIR 1924 All 833 and Babu Ram v. Ram Sarup AIR 1926 All 164. In many of the cases just cited it has been held, following Joseph v. Lyons (1884) 15 QBD 280 and Hallas v. Robinson (1885) 15 QBD 288, that the equitable title arising in a transaction of this kind would not avail against a subsequent transferee without notice of that title. Even assuming that a distinction between equitable and legal titles can or, in any event, should be made in this country, the appellants would, in order to be entitled to preference, have to show that they took the charge created in their favour bona fide and without notice of the charge which accrued in favour of the plaintiffs under the terms of the kabuliyat. The kabuliyat itself having dealt with the leasehold as well as the moveables, it would be impossible for the appellants to establish such a position and it is not a matter of surprise therefore that this precise contention has not been expressly put forward
17. Nextly, it was argued on behalf of the:appellants that the terms of the kabuliyat which created the lease could not be varied by the letters of the 14th and Kith January 1929 to which reference has already been made and which to have such an effect required registration and reliance in this behalf was placed upon the cases of Durga Prasad Singh v. Rajendra Narain Bagchi (1910) 37 Cal 293 and Lalit Mohan Ghosh v. Gopali Chuck Coal Co. Ltd. (1912) 39 Cal 284. This proposition is not disputed on behalf of the plaintiffs respondents, who however do not rely on the letters as varying the terms of the kabuliyat or as creating new leases in respect of 10 annas and six annas respectively of the property, with new conditions as to payment of royalty and other dues in proportion. Their case is that the original lease stood good, but that by the request contained in the letters, which was complied with a new arrangement came into being, under which the proportionate dues of the two sets of co-sharers were to be realized separately. It is not necessary to read the letters as containing more than what they actually purported to say; in our opinion, the true view to take of them is to hold that they purported to intimate to the plaintiffs the fact that there had been a division of the leasehold between Misra and Malia and that they had, as between themselves, agreed to pay the royalty, etc., due on their respective shares separately, and asking the plaintiffs to have that fact recorded in their books and to receive their dues separately from them in accordance with those shares. It was an arrangement, which it was not obligatory on the plaintiffs to agree to, but to which they might as well agree for the sake of convenience of realization, keeping all the essential terms of the lease intact.
18. Similarly, it was also contended, on behalf of the appellants, that the charge that was created by the kabuliyat which was a registered document, would not be varied except by a registered document. Two-decisions were cited, one of which is an authority for the proposition that the terms of a registered mortgage bond-the particular term in that case was as regards interest-cannot be varied except by an instrument duly registered, so as to fetter the equity of redemption: Tika Ram v. Deputy Commissioner of Bara Banki (1899) 26 Cal 707 and the other which has laid down that an express and unambiguous stipulation in a mortgage-deed cannot be varied or contradicted by reference to preliminary negotiations: Abdullah Khan v. Basharat Husain (1918) 35 All 48. These cases have no application here. Under the Transfer of Property Act, charges are not required to be created in writing, but under Section 17, Registration Act, if a charge involving an interest of the value of one hundred rupees and upwards in immovable property is created by an instrument at all, that instrument must be a registered one. If the appellants' argument be that the charge, having been created by a registered instrument and proved by the document itself, its terms could not he varied by proof of any oral agreement or statement in view of S.92, Evidence Act, and its proviso (4) that argument has to be regarded as well founded. And whatever diversity there may have been amongst the Courts in this country on the question whether the words 'oral agreement or statement' in Section 92 include evidence of acts and conduct of the parties from which an agreement may be inferred-it being remembered that, under Section 100, T.P. Act, a charge may be created by act of parties as well-after the decision of the Judicial Committee in Maung Kyin v. Ma Shwe La AIR 1917 PC 207, it is very difficult to support the decisions of the Calcutta High Court, which went in favour of admitting evidence as to acts and conduct of parties in such circumstances. But it is unnecessary to discuss the matter further, because it has been conceded on behalf of the plaintiffs-respondents, that it is on no other charge than what the kabuliyat created on which the plaintiffs rely. In para. 5 of the plaint there is a passage, not very well expressed, which may perhaps suggest what has been contended for on behalf of the appellants, namely, that it was the plaintiffs' case there that when jamas were separately recorded in the plaintiffs' books there was a first charge created afresh for the amounts payable for each of the two shares in respect of the properties respectively appertaining thereto. But even so no such thing has been attempted to be proved and that is not the plaintiffs' case now.
19. The case of the plaintiffs-respondents thus is that under the lease and the charge which were created by the kabuliyat, and notwithstanding that the lease related to the entire property and the charge also extended to the entire property for the entire amount of royalty, etc., payable for it, they are entitled to sue for the 10 annas share of the leasehold which belonged to Malia and to enforce the charge to that extent on the said share only. Their case is that they are entitled to do so by reason of an estoppel which arises in their favour. Now, it cannot be denied that, as observed by Subramania Ayyar, J., in Huthasanan Nambudri v. Parmaeswaran Nambudri (1898) 22 Mad 209 at pp. 211 and 212 'a mortgage for an entire sum is from its very purpose indivisible' and that:
character of indivisibility exists not only with reference to the mortgagee, but also to the mortgagor. And save as a matter of special, arrangement and bargain entered into between all the persons interested, neither the mortgagor nor mortgagee, nor persons acquiring through either a partial interest in the subject, can under the mortgage get relief except in consonance with the principle of indivisibility.
20. It is true therefore that it is not competent to a mortgagee to release the share of an individual mortgagor by receiving from him what he may conceive to be his rateable share, and that any payment made by an individual mortgagor can only be properly treated as made for the whole body of mortgagors and should be credited in reduction of their joint debt. But this rule has its exception in cases where there has been a severance of interest of the mortgagees or of the mortgagors. Section 67, T,. P. Act, in its exception (d), provides for a case where:
the mortgagees have, with the consent of the mortgagor severed their interests under the mortgage.
21. Section 60 of the Act, last paragraph, affords another instance:
where a mortgagee, or, if there are more mortgagees than one, all such mortgagees has or have acquired, in whole or in part, the share of a mortgagor.
22. The effect of the word 'only' introduced into this paragraph by the Amending Act of 1929 need not be considered here, as the amendment came into force after this suit was commenced. But these are not the only instances of severance that may be conceived or allowed. It is true that the provisions of the Act are to be primarily looked to. But the Act does not contain the whole law on the subject of transfer of property: Satyabadi Behara v. Harabati (1907) 34 Cal 223, Shafikul Huq Chowdhry v. Krishna Gobinda Dutt AIR 1919 Cal 607. It certainly does not profess to codify the whole law as to mortgages. There are other exceptions to the rule as to indivisibility of mortgages, which have been recognized in numerous cases, e.g., where the mortgagee recognizes a partition of the mortgaged property amongst the co-mortgagors, or where there has been a severance of the interest of the mortgagors with the consent of the mortgagee, as for example, where a part has been previously redeemed. In the cases to be found in the books, a divergence of opinion appears on the question whether under the Transfer of Property Act in a suit for enforcement of the mortgage on the residue all the owners, in whose hands the equity of redemption was, were to be made parties or not, or in other words, whether the suit would be maintainable without the equity of redemption being fully represented. This question does not arise in the present case in which all interested parties have been made parties to the suit. Another question, on which considerable diversity of judicial opinion is noticeable, is whether as between the mortgagors and the mortgagee the mortgagee is entitled to release a portion of the hypothecated property and impose the whole lien on the residue or whether the whole of the debt being secured by the whole of the property each parcel of the property, as between the different parcels, is equitably subject only to so much of the debt as corresponds to the proportion between its value and the value of the entire property. This question also does not concern us here, because it cannot be urged that what is sought to be charged on the 10 annas share is anything more than 10 annas of the entire debt.
23. If neither of these two special considerations arises, the weight of authority is overwhelming that the debt and the lien can always be split up by consent and in no case has it been held that, where, on such splitting up, a mortgagor has been sued for recovery of nothing more than a proportionate share of the mortgage debt, the mortgagee is not to have relief. In the case of Lakshuman Giriraya Naik v. Madhab Krishna (1890) 15 Bom 186, after a mortgage executed by three mortgagors there was a partition by them of their equity of redemption, by which each became entitled to an undivided one-third in the same; two of the mortgagors then redeemed their two shares on the basis of paying two-thirds of the principal and interest due and two-thirds of a sum said to be due on account of excess assessment and took possession of their shares; and the other mortgagor was allowed to redeem his one-third share on the footing that one-third of the mortgage debt was payable by him, it being said:
The parties had severed their interests, and the mortgagee has chosen to recognize that partition as shown by his allowing two of them to redeem their two-third shares by giving them possession.
24. In Mahadaji Hari v. Ganpatshet (1890) 15 Bom 257 certain mortgagors (co-sharers) having after the mortgage transaction effected a division among themselves and apportioned their liability under the mortgage debt according to their shares with the acquiescence of the mortgagee, it was held that though the mortgagee was not bound to recognize the arrangement made by the mortgagors among themselves, still, as he appropriated the amounts paid by some of the mortgagors in paying off their respective shares of the mortgage debt without there being a special direction to that effect from the mortgagors, he was entitled to recover the remainder of that debt from the share of the mortgagor (co-sharer) by whom it was due. And in Venkatachella Chetty v. Srinivasa Varada Chariar (1905) 28 Mad 555 it was held that where a division of a joint family is effected by consent, an arrangement by some of the members with a mortgagee of the joint family property, by which their shares were to be released on payment of their share of the debt, is binding on members who are not parties to the arrangement, so long as they are not called upon to pay more than their share of the debt as settled by partition. There are cases in which it has been recognized that, if a plaintiff (mortgagee), suing on the basis of his mortgage for either sale or foreclosure, thinks fit to exempt from his suit some portion of the mortgaged property and to sell or to foreclose the mortgage in respect of the remainder, there is nothing in law to prevent his doing so, and that the only thing in such a case is to see that the burden on the mortgagors sued does not increase by the course adopted: Sheo Tahal Ojha v. Sheodan Rai (1905) 28 All 174. Amongst the cases of this Court, which may be cited in this connexion, it would be sufficient to refer to only one, namely, that of Hari Kissen v. Veliat Hossein (1903) 30 Cal 755 which has been frequently followed ever since and never dissented from.
25. As already observed, this is not a case in which any question arises as regards the burden having increased in any way. It is a perfectly simple case, in which the two co-sharers effecting a division amongst themselves apportioned their liability under the lease, which was the subject of the charge, with the consent or acquiescence of the plaintiffs, the holders of that charge. The liability was originally a joint one, but by severance separate liabilities were created, and the result of this severance was that each item of debt, as it accrued, was to be discharged in two parts by the two co-sharers separately. It was at the request of the co-sharers themselves, that the debts were allowed to be separately discharged. So far as the liability for the period in suit is concerned the plaintiffs, acting under the aforesaid arrangement, received the entire amount of the dues of defendant 4 and appropriated it in discharge of her liability (vide plaintiffs' petition of 4th August 1930) and thus placed themselves in a position, in which it became impossible for them to proceed against the two co-sharers conjointly on the basis of their original undivided security. The Malias, therefore cannot be heard to say either that the amount claimed is not recoverable from them or that their share of the property should not be sold for its recovery.
26. But it is not enough to deal with the question as one between the mortgagors on the one hand and the mortgagee on the other, because the case before us is one in which the rights of a third party, namely, the appellants, have intervened and these rights would certainly require protection. The matters which have to be considered in this connexion are: firstly, whether the splitting up, to which the appellants were not parties, can be regarded as valid as against them; and secondly, whether the appellants' right to redeem has been prejudiced by the mode in which the charge has been sought to be enforced. So far as these matters are concerned there is again some divergence of judicial opinion, but upon a question which does not arise in the present case. This conflict has been pointed out by Mookerjee, J., in the case of Mir Eusuff Ali Haji v. Panchanan Chatterjee (1910) 15 CWN 800 at pp. 805-6 in the following words:
To put the matter in another way, as between the mortgagor and mortgagee, the latter is entitled to release a portion of the hypothecated property and diminish his own security to that extent It is not obligatory upon him to proceed against all the properties or to exhaust them for the satisfaction of his debt. This principle is recognized in the cases of Raghu Nath Pershad v. Harlal Sadhu (1891) 18 Cal 320, Hara Kumari v. Eastern Mortgage and Agency Co. Ltd. (1907) 7 CLJ 274 and Krishna Ayyar v. Muthukumarasawmiya Pillai (1905) 29 Mad 217. While therefore we adhere to the view taken in the cases of Imam Ali v. Baij Nath (1906) 33 Cal 613 and Hakim Lal v. Ram Lal (1907) 6 CLJ 46, namely, that a mortgagor who has a security upon two or more properties, which he knows belong to different persons, cannot release his lien upon one so as to increase the burden upon the others without the privity and consent of the persons affected: Kettlewell v. Watson (1882) 21 Ch D. 685, we are of opinion that this doctrine has no application to the present case, where the release took place at a time when the appellants had not purchased any interest in the mortgaged premises, and the mortgagors alone were the persons affected by the release. We must not however be assumed to adopt the rule laid down by the learned Judges of the Allahabad High Court that such release may be granted even to the prejudice of persons, who had previously acquired an interest in the mortgaged properties. That view is clearly opposed to principles of equity, justice and good conscience, and though recognized in Sheo Prasad v. Behari Lal (1902) 25 All 79, Sheo Tahal Ojha v. Sheodan Rai (1905) 28 All 174, Ghafur Hasan Khan v. Muhammad Kifayatullah Khan (1905) 28 All 19 and Prbhu Narain Singh v. Amir Singh (1907) 29 All 369, was not adopted in Ram Ranjan v. Indra Narain (1906) 33 Cal 890 and the case of Krishna Ayyar v. Muthukumarasawmiya Pillai (1905) 29 Mad 217, if it lays down a similar principle, cannot to that extent be supported. The contrary view, which accords with the rule adopted by this Court, was followed in Ponnusami Mudaliar v. Srinivasa Naickan (1908) 31 Mad 333.
27. In the present case, this diversity of judicial opinion does not matter, for it cannot be said that the burden has in any way been increased. The burden imposed is exactly proportionate in view of the terms of the lease. There may be difficulty in regarding the appellants as subsequent transferees, so as to treat them as standing in the shoes of the mortgagor and to bind them by the estoppel, which arises against their transferor, Malia, because, although at the request of the two cosharers, royalties, etc., were being separately received from them, the debt for the period sued for in the present suit was not split up until after the appellants came on the field and took a second charge. The position is that at the date of the suit the plaintiffs had not received their dues for the period in suit from any of the two parties (vide para. 6 of the plaint), but they chose to split up the debt in conformity with the arrangement which the parties had entered into inter se and, acquiescing in it instituted the suit, to which they made the appellants party defendants, on 6th August 1929 and thereafter accepted the six annas share of the dues from defendant 4 (vide the plaintiffs' petition of 4th August 1930). The splitting up, having been subsequent to the charge created in appellants' favour, the general rule which has been applied to many similar cases will apply, namely, that the rights of persons who have acquired an interest in the mortgaged estate, since the making of the mortgage, of which the mortgagee has notice, cannot be defeated or impaired by any subsequent arrangement to which they are not parties; in other words, if a mortgagee with notice that the equity of redemption in a part of the mortgaged property has been conveyed, releases any part of the mortgaged estate, he must abate a proportionate part of the mortgage debt against such purchaser. Amongst the cases, that may be referred to in this connexion, may be cited the following: Hari Kissen Bhagat v. Veliat Hossein (1903) 30 Cal 755, Surjiram Marwari v. Barhamdeo Persad (1905) 1 CLJ 337, Surjiram Marwari v. Barhamdeo Persad (1905) 2 CLJ 202, Imam Ali v. Baij Nath Ram Sahu (1906) 33 Cal 613, Hakim Lal v. Ram Lal (1907) 6 CLJ 46 and Venkatachella Chetty v. Srinivasa Varada Chariar (1905) 28 Mad 555.
28. But then, it was contended, on behalf of the appellants, that, though they are entitled to a part only of the equity of redemption, they have an absolute right to redeem the whole estate. It was argued that, though they are owners of the equity of redemption of only a share in the mortgaged estate, they cannot be compelled to redeem their share only, their right and obligation being to redeem the whole. In support of this proposition, passages from text-books have been cited and reliance has been placed on several cases, amongst which it is necessary to refer to three. One of these cases is Pearce v. Morris (1869) 5 Ch 227, in which it was said that it cannot be disputed that the owner of the equity of redemption of one of two estates comprised in the same mortgage cannot insist on redeeming the estate separately, and cannot be compelled to redeem it separately his right being to redeem the whole subject to the equities of other persons interested. Another case is Hall v. Heward (1886) 32 Ch D 430, in which it was observed further that such partial redemption cannot be allowed except as a matter of arrangement or unless there is a special bargain. The third case is that of Huthasanan Nambudriv. Parameswaran Nambudri (1898) 22 Mad 209, in which it was held that a person entitled to a part only of the equity of redemption had the right to redeem the whole, notwithstanding the mortgagee's objection that he should not be permitted to redeem more than his share of the equity.
29. The last mentioned decision has been adversely commented on in Rathna Mudali v. Perumal Reddy (1912) 38 Mad 310, and was not considered to be supported by Pearce v. Morris (1869) 5 Ch 227 and Hall v. Heward (1886) 32 Ch D 430, upon which it purported to be based. The decision has been followed in two cases of this Court, namely, Baikantha Nath Dey v. Mohesh Chandra Dey (1918)44 IC 77 and Protap Chandra v. Peary Mohan (1918) 48 IC 669, in which it was held that, in an ordinary case, the partial owner of the equity of redemption is entitled to redeem the whole mortgage and there was no question in these cases of the other partial owner or owners having discharged their liability under the mortgage. So far as the English law on the point is concerned, it is not necessary to consider it at any length, because there is a pronouncement of the Judicial Committee in the case of Yadalli Beg v. Tukaram AIR 1921 PC 125, which states what that law is. In that case 16 fields had been mortgaged, of which one was subsequently sold to the respondents and later on, under a consent decree passed between the mortgagee and the mortgagor, it was provided that, unless within a year certain payments were made, 9 out of the 16 fields including the one sold to the respondents should be given to the possession of the mortgagee; the respondents were no parties to the consent decree or the suit, in which it was passed and they sued, claiming to redeem the 9 fields. Their Lordships said:
The only question that arises is whether they (i.e., the respondents) are entitled to redeem the whole of the 9 fields, or only the field conveyed to them subject to the mortgage over the whole. According to the English law the respondents would have been entitled to redeem the mortgage in its entirety subject only to the safeguarding of the equal title to redeem if any other person who had a right of redemption, a point which has not arisen so far in the present case. The respondents, being transferees of part of the security by English law, if it applied, would on the one hand be entitled to redeem the entire mortgage on the properties generally, and correlatively could not compel the mortgagee to allow them to redeem their part by itself. This would be so as the result of principle unless something had happened which extinguished the mortgage in whole or in part, such as an exercise of a power of sale originally confirmed on the mortgagee by his security or such conduct on the part of the transferees as would estop them from asserting what normally would have been their right.
30. There being nothing in the Transfer of Property Act to the contrary, the right Of the appellants, ordinarily, no doubt, would be to redeem the whole, but that would only be so, subject to the equities of the persons interested. The position being that the owner of the six annas share had satisfied her dues in respect of her share, the practical effect of which was to extinguish the charge to that extent, and the plaintiffs having, in effect, released that share from the burden of the charge and kept it out of the suit, the appellants cannot, in our judgment, ask for liberty to redeem that share. We think we should agree in the view expressed in case of Rathna Mudali v. Perumal Reddy (1912) 38 Mad 310, in which it was said that the question whether the Court will allow redemption on the whole of the mortgage, at the instance of a person entitled to a part only of the equity of redemption, must depend on the circumstances of each case and the rights acquired by the mortgagee or by third parties subsequent to the mortgage and we must respectfully dissent from those cases in which it has been suggested that in all circumstances and irrespective of any considerations, the right as well as the liability of the owner of a part of the equity of redemption is to redeem the whole. And we agree with the observations of Sadasiva Ayyar, J., in that case to this extent: that, in our opinion, no distinction in this respect need necessarily be made between cases where the mortgage is split up: (a) by the mortgagee releasing certain of the properties or a certain share of the properties comprised in the mortgage; (b) by himself purchasing a portion of the joint property; and (c) by the joint owners of the equity of redemption effecting a partition of their properties either by metes and bounds or by agreeing to hold the property in common in definite shares instead of jointly.
31. Lastly, it has been contended that the plaintiffs are not entitled to a personal decree against the appellants. The judgment of the Court below is explicit that the plaintiffs did not claim such a decree and we do not see that any such decree has been passed. But the Subordinate Judge appears to have made defendants 1 to 3, 3 ka, i.e., the appellants and No. 5, liable for Rs. 2,010-2-0 as costs payable to the plaintiffs. We see no justification for this order in so far as it is against the appellants and defendant 5. This portion of the decree therefore will be set aside. The result is that the appeal will succeed only to the extent indicated above and the rest of the decree passed by the Court below will stand. The appellants will get their costs from the plaintiffs-respondents, the whole of their costs for the paper book and a hearing fee as on the amount of their success, the same being assessed at 10 gold mohurs. Other parties will bear their own costs in the appeal.