The Official Assignee of Bombay Vs. Chimniram Motilal and Sir Hukumchand Sarupchand - Court Judgment

John Beaumont, Kt., C.J.

1. This is an appeal by the Official Assignee as representing the estates of defendants Nos. 2 and 3, who are insolvents, from a decree passed by Mr. Justice Rangnekar, but as it was an ex parte decree the matters which have been argued before us were not discussed before the learned Judge. Two objections are taken by the appellant to the decree; the first is against the plaintiffs in the suit, and the second is against defendant No. 6 in the suit who was a subsequent mortgagee. I will deal with the case against the plaintiffs first.

2. On April 11, 1930, the plaintiffs were given a pledge to secure Rs. 50,000 on the machinery, types and other articles appertaining to a, printing press known as Shri Venkateshvar Press, the pledgora being a firm called Khemraj Shrikissondas, who were the original defendants to the suit. On August 1, the plaintiffs commenced this suit to enforce their pledge. On August 19, another suit was commenced by the person who afterwards became defendant No. 4 in this suit-Murlidhar Shrimvas, who was an infant, the relief in his suit including a claim that the plaintiffs' mortgage was not binding on him. I will refer to that suit as defendant No. 4's suit. On August 25, an order was made in the present suit appointing one of the plaintiffs receiver and manager of the press, The order included a provision that the receiver was not to act as long as the defendants paid Interest and instalments of principal as therein provided. I may point out in passing that the order seems to have been wrong in appointing a manager, because the plaintiffs' pledge did not include the business of the press, it only included certain assets of that business, and there was, I think, no case for the appointment of a manager. On September 9, the Court Receiver was appointed receiver of the press in defendant No. 4's suit, that order being made by consent. On the same day defendants Nos. 2 and 3 in the present suit were adjudicated insolvent. Shortly after that, the plaint in this suit was amended by leave of the Court, and defendants Nos. 2, 3, 4 and 6 were added, and also the Official Assignee defendant No. 5 as claiming through the insolvent defendants Nos. 2 and 3. On October 7, an order was made in this suit that the receiver appointed in defendant No. 4's suit should, among other things, pay Rs. 1,500 a month to the plaintiffs. Those payments were to be made out of the funds standing to the credit of the Shri Venkateshvar Press. That order again appears to be an order made without jurisdiction. I gather from the form of the order that it was a consent order made without any summons having been taken out, and I think that these consent orders in chambers ought not to be made unless a summons is taken out. If a summons bad been taken out in this case, the learned Judge's attention would have been drawn to the fact that he was being asked to order a receiver in another suit to pay certain moneys to the plaintiffs in this suit, and he would have appreciated that he could not do that without having the persons interested in the other suit before the Court, However, that order was made, and no great harm was done, because on November 11, an order was made in defendant No. 4's suit which confirmed the payments directed to be made by the order in this suit of October 7, and directed such payments to be continued. There was another order made by consent in defendant No. 4's suit on February 12, 1931, which is not, I think, material, and then on April 9, the decree appealed from was made in this suit By that decree it was declared that a sum of Rs. 11,497 odd was due to the plaintiff's together with certain costs, and then there was a declaration as to the amount due to defendant No. 6-I will refer to the facts relating to his position presently- and then there was provision for redemption by the plaintiffs and defendant No. 6 and a provision that the payments of Ra. 1,500 per month by the receiver appointed in defendant No. 4's suit should continue. Then there are provisions for the redemption of the charge in favour of defendant No. 6 and for sale at the instance of the plaintiffs if not redeemed, or of defendant No. 6 if not redeemed.

3. Now, so far as the plaintiffs are concerned, the objection taken to the order is that these sums of Rs. 1,500 per month paid under orders of the Court out of moneys in the hands of the receiver in defendant No. 4's suit ought not to have been deducted, as they were from the amount due to the plaintiffs, and that therefore the sum of Rs. 11,497 odd declared to be due to the plaintiffs' should in fact have been a greater sum. At first sight it is difficult to see why it is to the appellant's interest that the plaintiffs should have a greater sum found due to them than the sum they admit to be due, but the contention of the appellant, representing the unsecured creditors of defendants Nos. 2 and 3, is that in fact these sums of Ra 1,500 per month have been paid out of properties not subject to the plaintiffs' charge, and that they have really benefited the second incumbrancer, namely, defendant No. 6, and that in the result the unsecured creditors have lost by those payments. Therefore the appellant claims that the plaintiffs should be ordered to repay a part at any rate of these payments, and that although thereby their debt will increase, still they can only prove for any balance which may remain after realising their security. To my mind that claim is wholly untenable. The plaintiffs were paid these sums of Rs. 1,500 per month because they had a charge upon the machinery and assets which were being used by the receiver in defendant No. 4's suit to carry on the business, and if the plaintiffs had insisted on their legal rights, and obtained a receiver of that machinery and those assets, the business would have been paralysed; therefore, the receiver in defendant No. 4's suit, no doubt with the concurrence of the parties in that suit, was prepared to pay this sum of Rs. 1,500 a month to the plaintiff's in reduction of their debt, and, the plaintiffs having received that sum, not from the insolvents, but from an officer of the Court who made the payments under orders of the Court, it seems to me quite impossible for this Court to order the plaintiffs to repayanything.

4. The only criticism I have to make on the decree, in so far as it affects the plaintiffs, in respect of the provision that the receiver in defendant No. 4's suit is to continue to make payments with prejudice (whatever that means) out of the net income of the press towards satisfaction of the decretal amount and costs pursuant to the order of October 7, 1930. As I have already pointed out, I think the Court in this suit has no jurisdiction to order a receiver in another suit to make payments to the plaintiffs in the Suit, and a fortiori to order those payments to be made out of the income of the press which is no part of the plaintiffs' charge. That part of the order, I think, is wrong, and must be struckout.

5. I now come to the position of defendant No. 6, the point against him being quite distinct from that against the plaintiffs, On May 29, 1930, defendant No. 6 was given a form of charge, which is Ex, No. 1, on the Shri Venkateshvar Printing Press (such charge being subject to the plaintiffs' charge) in order to secure a sum of a lac of rupees which defendant No. 6 had guaranteed to the bank of the defendant firm, It is not disputed that that sum was subsequently paid by defendant No. 6, and there fore his security became effective, On September 12, 1930, defendant No. 6 obtained a decree in a summary suit for payment of one lac of rupees odd, being in respect of the amount paid by him under the guarantee, I have already stated that defendant No. 6 was joined as a defendant in this suit in October 1930, and on January 7, 1931, he put in a counter-claim in this suit. In that counter-claim he mentions the decree obtained in the summary suit on September 12, 1930, and he craves leave to rely on the proceedings in the said suit and on the decree when produced; and his counter claim then asks that his security against the press may be enforced.

6. Now the first point taken against the sixth defendant by the appellant is that, having regard to the fact that he obtained a personal judgment for the amount of his debt, he cannot sue to enforce his security, having regard to Order II, Rule 2, of the Civil Procedure Code. So far as material that Order provides that every suit shall include the whole of the claim which the plaintiff' is entitled to make in respect of the cause of action, and then in sub-rule (3) it is provided that a person entitled to more than one relief in respect of the same cause of action may sue for all or any of such reliefs; but if he omits, except with the leave of the Court, to sue for all suchreliefs, he shall not afterwards sue for any relief so omitted ; and then the explanation provides that for the purposes of this rule an obligation and a collateral security for its performance and successive claims arising under the same obligation shall be deemed respectively to constitute one cause of action. Having regard to that explanation it is, I think, clear that, (if the rule applies at all), defendant No. 6, having obtained a personal judgment for his debt, cannot, without the leave of the Court, sue to enforce his mortgage security.

7. The first point taken by Mr. Coltman on behalf of defendant No. 6 is that we ought to assume that the leave of the Court was obtained under Order II, Rule 2, sub-rule (3). But, in my opinion, we cannot make any such assumption, The defendant has himself pleaded the personal judgment, and not only that, but when he went into the witness-box he gave evidence that he had obtained a personal judgment. He craves leave to rely on the proceedings in the summary suit, which entitles this Court to look at the plaint in the summary suit, and the plaint contains no record of leave having been given. It is not disputed that the normal practice is to endorse such leave on the plaint. It seems to me that defendant No. 6 having pleaded that he has obtained a personal judgment, it is then a condition precedent to his enforcing his mortgage (if Order II, Rule 2, applies) that he should show that leave has been obtained, and as he has not shown it, we must assume that it was not obtained,

8. The next point taken by Mr. Coltman is that Order II, Rule 2, does not apply because he is entitled under Order XXXIV, Rule 14 (1), to claim a sale of the mortgaged property, notwithstanding the personal judgment. That rule provides:-

Where a mortgagee has obtained a decree for the payment of money in satisfaction of a claim arising under the mortgage, he shall not be entitled to bring the mortgaged property to sale otherwise than by instituting a suit for sale in enforcement of the mortgage, and he may institute such suit notwithstanding anything contained in Order II, Rule 2.

If that rule applies it takes this case out of Order II, Rule 2, and justifies defendant No. 6's counter-claim. But the answer made by Mr. Engineer on behalf of the appellants is that Order XXXIV is confined to mortgages on immoveable property, a point upon which, curiously enough, there appears to be no authority. If one reads Rule 14 of Order XXXIV alone in the absence of any context, there would certainly seem to be no reason for confining it to mortgages of immoveable property. The words used are 'mortgagee' ' mortgage' and ' mortgaged property' all of which are applicable, as much to moveable as to itnmoveable property. Nor do I myself see any sufficient reason in the nature of things why the prohibition contained in Rule 14 against bringing the mortgaged property to sale otherwise than in a suit for sale in enforcement of the mortgage should not apply as much to a mortgagee of moveable property us to a mortgagee of immoveable property, But in construing this rule we must have regard to the context in which itappears. and I think also to its historical origin. Order XXXIV was incorporated in the Civil Procedure Code in 1908, and the provisions of the Order were taken from the Transfer of Property Act. Rule 14 was Section 99 of the Transfer of Property Act and that section appears in Chapter IV of the Act which is headed 'Of Mortgages of Immoveable Property and Charges '. ' Charge' is defined in Section 100 of the Act and applies only to charges of immoveable property. So that, Order XXXIV was substituted for sections in the Transfer of Property Act which dealt only with mortgages of immoveable property, and I think a presumption arises that in taking these provisions out of an Act relating to property and incorporating them in an Act relating to procedure the legislature did not intend to extend the scope of the provisions, although, no doubt, that presumption would be rebutted if the legislature had used language to show that it did intend to extend the scope of the provisions. Now, not only is there no reference in Order XXXIV to moveable property, but the Order is headed ' Suits relating to Mortgages of Immoveable Property,' Then the substantive provisions of the Order use such words as ' mortgagee,' 'mortgage security' and 'mortgage property' without any distinction being drawn between mortgages of moveable and immoveable property, and it seems to me that in those circumstances we must read the heading as in effect defining those general words and limiting their operation to mortgages on immoveable property. We were referred to a certain number of cases as to the effect of headings in an Act of Parliament, and Mr. Coltman contends, relying particularly on the case of Fletcher v. Birkenhead Corporation (1907) 1 K.B. 205 that the Court can only look at a heading in order to assist in the construction of some word or phrase which is doubtful or ambiguous, and he says that the words of Order XXXIV, 'mortgage', 'mortgage security' and so forth are not ambiguous, but it seems to me that that is putting the case on too narrow a ground and that we are entitled to look at the heading in order to confine the generality of the language used in the body of the Order. Reading Order XXXIV in the light of the heading, and having regard to the history of the Order, we must, in my judgment, construe it as confined entirely to mortgagee of immoveable property. That being so, 1 think that the counterclaim of defendant No. 6 necessarilyfails.

9. But then Mr. Coltman says that even if that be so, Order II, Rule 2, does not destroy the rights of defendant No. 6 under his mortgage; all that it does is to prevent him from suing to enforce those rights, and in so far as he may have rights which he can obtain without suing to enforce them Order II, Rule 2, is no bar. I agree with that contention. I think that the mortgage of defendant No. 6 is still alive and that defendant No. 6 is entitled to all rights thereunder which he can obtain without suing to enforce them. So that the question really comes to this: what rights has defendant No. 6 as a defendant in the plaintiffs' suit, treating his counter-claim as gone? Now, the plaintiffs are suing to enforce what is in substance a first mortgage, and they are bound, therefore, to make defendant No. 6 a defendant as a person claiming to be entitled to a subsequent mortgage, Defendant No. 6 is, in my opinion, entitled in the plaintiff's suit to prove his mortgage, and, having proved his mortgage, I think that the Court is bound to decree to defendant No. 6 the first right to redeem the plaintiffs' mortgage. I think further that if the property is sold in the plaintiffs' suit, and the proceeds are brought into Court, and those proceeds are more than sufficient to pay the plaintiffs what is due to them, then the balance will have to be paid to defendant No. 6 as the person having a first charge on the equity of redemption, to the extent of course of his charge, and I think the order must so provide. The English cases cited by Mr. Coltman, and particularly the case of Lloyd, In re, Lloyd v. Moyd (1903) 1 Ch. 385 support that view. But, has he any further right? Mr. Coltman Bays that if Order XXXIV does not apply, then there are no rule's as to the methods of enforcing a mortgage on personal property or as to the parties who should be brought before the Court, and that being so, he says we should follow the English practice in similar cases. Undoubtedly the English practice, where there are several mortgages, is to work out the rights of the parties by one order, that is to say, by giving successive rights of redemption and making successive orders for foreclosure. The general practice is stated in the third volume of Seton'e Judgments and Orders (7th Ed,) at page 1909 in these terms:--

Where there are more incumbrancers than one, the mesne incumbrancers must successively redeem all prior to them, or be foreclosed ; and must be redeemed by, or will be entitled to foreclose, all subsequent to them : and Section first mortgagee seeking to foreclose must therefore necessarily make all persona interested in the equity of redemption parties to the action.' That undoubtedly is the practice of the English Courts, but the question which we have to determine is whether a puisne mortgagee whose right to enforce his mortgage is gone is entitled as of right merely in his capacity as a defendant in the first mortgagee's action to claim to foreclose the mortgagor. I am not aware myself of any authority on the point, and the industry of counsel has failed to produce one. I should have thought that the point must have arisen in the somewhat analogous case of a second mortgage which is time-barred. I do not know of any case in which an order has been made giving a defendant, second mortgagee whose mortgage has become unenforceable, a right to foreclose subsequent mortgagees or the mortgagor, and in the absence of authority it seems to me that it is not a right which the defendant can claim in his capacity as a defendant. As long as defendant No. 6 confines himself to his rights as a defendant he is on safe ground, but directly he puts himself into what is substantially the position of a plaintiff, then he must fail having regard to Order II, Rule 2. It seems to me that as soon as a puisne mortgagee claims to foreclose he is really suing to enforce his mortgage, and that we ought not to allow him to take advantage of his position as defendant in the prior mortgagee's suit to obtain something which the legislature has denied him the right to claim as a plaintiff. That being so, 1 think that we must modify the decree made by the learned Judge by confining the rights of defendant No. 6 to a right to redeem the plaintiffs' mortgage and a right to receive any balance of the proceeds of sub derived from the sale of the property if the plaintiffs' mortgage is not redeemed. Mr. Engineer was prepared to go further than that and take an order in the terms of Form 9 in Appendix D to the Civil Procedure Cede, but I think that form goes too far in a case such as this. In particular I think that a defendant whose right to enforce his mortgage is barred under Order II, Rule 2, is not entitled to insist on provision 5(a) in that form, namely, that if the defendant-mortgagee pays into Court to the credit of this suit the amount adjudged due to the plaintiff but defendant No. 1 (the mortgagor) makes default in the payment of the said amount, defendant-mortgagee shall be at liberty to apply to the Court to keep the plaintiff's mortgage alive for his benefit and to apply for a final decree. In view of Order II, Rule 2, we cannot say that defendant No. 6 is entitled to apply for a final decree.

10. As regards costs, defendant No. 6 shall pay half of the costs of the appellant and there will be no order as regards the costs of the other half.

Blackwell, J.

11. It has been contended by the appellant, the Official Assignee of the estate and effects of defendants Nos. 2 and 3, that the learned trial Judge was wrong in allowing the plaintiffs to get credit for certain interim payments that were made by the receiver in another suit out of the unsecured assets of the insolvents. But by an order dated November 11, 1930, which was made in the other suit, namely, Suit 1808 of 1930, an order which was opposed by the Official Assignee, the appellant in the present suit, it was ordered that the receiver out of the funds in his hands should pay Rs. 1,500 to the plaintiffs per month under a consent order dated October 7, 1930, which had been passed in the present suit. It is to be observed that the appellant was not a party to that order, and in my judgment it was an order which ought not to have been made. It was an order directing a receiver in another suit to make the payments therein provided. Not only were the parties in the other suit not before the Court but all the parties to the present suit were not before the Court either, and that order was made merely upon the affidavit of one of the partners of the plaintiff firm, it not being opposed by one Murlidhar Shrinivas who without being a party to the present suit had previously made an application in it. That is unfortunately the kind of order which is constantly made on the Original Side. Those orders come to be made because there is no summons taken out before the order is made. What happens is that attorneys go into the chambers of the learned Chamber Judge, present an order which they say is consented to, and the learned Judge makes the order. He is not in a position to know whether the parties who ought to have been served have been served or whether it is otherwise a proper order, I hope that this practice will cease. However, the payment which was ordered to be made under that order of October 7, 1930, was later ordered to be made under the order dated November 11, 1930, to which I have already referred, in a suit to which the appellant was a party. It has been contended by Mr Engineer for the appellant that that order of November 11 was expressed to be made without prejudice to the rights and contentions of the parties, and he contends that those words give to the appellant the right to challenge the payments made by the receiver. There are, however, no words in the order itself which expressly reserves such a right. The order for those payments as it seems to me would have been useless if they could have been challenged later, and but for an order directing such payments to be made, the plaintiffs might have insisted upon their right to a receiver and have paralysed the working of the press. In my opinion the words ' without prejudice to the rights and contentions of the parties', whatever they may mean, cannot mean that the appellant was to be at liberty to challenge the payments mader under those orders at a later date, The appellant did not appeal against the order of November 11,1930, and, in my opinion, he is bound by it.

12. It is next to be observed that the appellant consented to an order dated February 12, 1631, under which the payments by the receiver were continued upon the terms of the order of Novem-11, 1930, with certain immaterial variations. In my opinion the appellant is precluded by those orders from challenging now the payments which were ordered to be made and were made by the receiver in the other suit, In any event I fail to see how the appellant can seek in this suit to compel the plaintiffs to abandon the amounts paid to them by a receiver under orders of the Court for which they have given credit and to ask in this suit for a decree for a larger amount than Rs. 11,497 odd which they say is due to them. Accordingly, in my opinion, this contention of the appellantfails.

13. On the other hand, in my view, the appellant does rightly complain of that part of the decree which orders the receiver in the other suit to make payments in the future out of assets not covered by the security on which the plaintiffs sue. That part of the order is, in my opinion, wholly bad not only because it directs payments out of assets not covered by the plaintiffs' security, but also because it directs a receiver in another suit, all the parties to which are not before the Court in this suit, to make the payments therein set out. To that extent, therefore, it seems to me that the present decree must be varied.

14. As regards defendant No. 6, this case has been argued upon the footing that when defendant No. 6 brought a summary suit for the amount due to him by the mortgagors he did not obtain the leave of the Court to omit to sue in that suit on the mortgage as required by Order II, Rule 2, sub-rule (8), of the Civil Procedure Code, if he wished to reserve his rights to enforce his mortgage in a Court of law. Mr. Coltman has argued that this is immaterial having regard to Order XXXIV, Rule 14, of the Civil Procedure Code, which entitles a mortgagee to institute a mortgage suit notwithstanding anything contained in Order II, Rule 2. Mr. Coltman contends that Order XXXIV extends to mortgages of moveable property. He submits that the word 'property' throughout the Code means any kind of property and that that is its plain meaning in Rule 14 and in the other rules of Order XXXIV where the word ' property' occurs. Accordingly, Mr. Coltman contends that you are not entitled to read the heading of Order XXXIV which is ' Suits relating to Mortgages of Immoveable Property' into each of the rules of that Order, because, as he contends, the words ' mortgaged property' appearing therein plainly and unambiguously mean any kind of mortgaged property. In this connection he relies on the class of cases of which Union Steamship Company of New Zealand v. Melbourne Harbour Trust Commissioners (1884) 9 App. Cas. 365 and Fletcher v. Birkenhead Corporation (1907) 1 K.B. 205 are instances, On the other hand, Mr. Engineer relies on another line of cases of which Eastern Counties, etc., Companies v. Marriage (1860) 9 H.L.C. 32 is an instance. In my opinion, in order to determine this question we must have some regard to the history of this matter and to circumstances under which the provisions of Order XXXIV came to inserted in the Civil Procedure Code, The learned Chief Justice in his judgment has set out the history and I need not again refer to it. In Maxwell on the Interpretation of Statutes, 7th Edn. at p. 44, the question what effect is to be given to headings in a statute is dealt with as follows:-

The headings prefixed to sections or sets of sections in some modern statutes are regarded as preambles to those sections.

and a number of authorities are cited in support of that proposition. Then at p. 37 it is stated:-

The preamble of a statute has been said to be a good means of finding out its meaning, and, as it were, a key to the understanding of it; and, as it usually states, or professes to state, the general object and intention of the Legislature in passing the enactment, it may legitimately be consulted to solve any ambiguity, or to fix the meaning of words which may have more than one, or to keep the effect of the Act within its real scope, whenever the enacting part is in any of these respects open to doubt.

15. Then at page 39 it is said :-

But the preamble cannot either restrict or extend the enacting parti, when the language and the object and scope of the Act are not open to doubt.' I think the observations made in Maxwell on the Interpretation of Statutes, to which I have referred, summarise the law on the matter accurately. Applying them to the present cases it seems to me that you are entitled to read the heading of Order XXXIV into the various rules of that Order having regard to the history of the Order for the purpose of fixing the meaning of words which may have more than one meaning and for the purpose of keeping the effect of the Act within its real scope. That being my view of the matter, it seems to me that defendant No. 6 in this case is not entitled to rely upon his counter claim, which is in the nature of a cross-suit, and that Order II, Rule 2, is a bar to that counter-claim.

16. The question then next arises as to what are the rights of defendant No. 6 apart from his counter-claim. Mr. Coltman submits that if Order XXXIV does not apply to mortgages of moveable property, the English practice of ascertaining the rights of the parties by one order where there are several mortgages should be applied. I agree with Mr. Coltman that the effect of the explanation to Order II, Rule 2, of the Civil Procedure Code, is not to extinguish the charge of defendant No. 6. I think that it merely prevents him from exercising in a Court of law any right to relief under that charge. Mr.Coltman says that Order II, Rule 2, is inapplicable to the position of defendant No. 6 in the present suit because he has not himself brought a suit but is before the Court as a defendant. Itseems to me, however, that, when it was brought to the notice of the Court in evidence as it was in the present case, that defendant No. 6 brought a summary suit and recovered a decree, it was then the duty of the Court to ascertain whether defendant No. 6 had reserved his rights to ask a Court of law subsequently to enforce his mortgage. It is plain that he did not ask the Court to reserve him any such right. That being so, in my opinion, having regard to the explanation to Order II, Rule 2, and the provisions of that Order the Court ought not to allow defendant No. 6 to obtain as a defendant any relief which he would not have been entitled to obtain as a plaintiff. Accordingly, I think that the rights of defendant No. 6 must be restricted to a right to redeem the plaintiffs' mortgage and a right to receive the balance of the proceeds of sale resulting from the sale of the property should the plaintiffs' mortgage not be redeemed, I agree that thedecree must be modified in the manner indicated hy the learned Chief Justice.