Case: Kashinath Bhaskar Datar Vs. Bhaskar Vishweshwar Karve

Bose, J.1. This is a defendants appeal in a suit on two mortgages. The first was executed on 7th April 1931 by the defendant and his father. The second was dated 17th December 1935 and was executed by the defendant alone. The first was for a sum of Rs. 9,500, the second for Rs. 3,500. The same property was mortgaged each time. The claim on the two deeds together was for Rs. 20,774-3-0.2. These mortgages were in favour of one Narayan Gopal Sathe. On 28th March 1940, the mortgagee assigned them both to the plaintiff who now sues on them.3. The defence was that both mortgages were satisfied. The main evidence on which the defendant relied to prove satisfaction was an agreement dated 17th October 1937 executed by the mortgagee Narayan Gopal Sathe in favour of the defendant. The document has been excluded from evidence by the trial Court as well as by the High Court on appeal on the ground that it required registration. If this document is excluded, then there is a concurrent finding of fact by both the Courts that the rest of the evidence is not good enough to prove satisfaction. They have disbelieved it and decreed the plaintiffs claim in full. The only questions before us are (1) whether this document required registration and (2) whether, if it did, it cannot still be used for what the defendant claims is a collateral purpose, namely proving full payment of the mortgage amount.4. The agreement came about in this fashion. The mortgagee, Narayan Sathe, was appointed Receiver of two Cinemas in Poona. The Court appointing him required him to produce a surety in the sum of Rs. 10,000. The defendant agreed to undertake the responsibility and as a consideration for that the mortgagee executed the agreement in question. The portions of the document relevant for the present purpose are as follows. The mortgages are there described as the"transactions of give and take.""(3) It is extremely necessary to explain beforehand the transaction of give and take outstanding between both of us.(4) Whereas to transactions have been done between you and me.. Therefore you have agreed to stand surety ... And only for that reason I am executing this agreement and giving it to you in writing and thereunder. I am settling and formulating some new terms and I am confirming some very terms which were declared before.(5) Although in the matter of the transaction relating to the aforesaid mortgage deeds the rate of interest mentioned in the documents purporting to be the mortgage deeds is 14 annas per mensem per centum, still the actual interest is to be received only at the rate of annas per mensem per centum, so it is settled between you and me and I have also agreed to the same. And even at the rate I have also been receiving the interest and I shall also receive hereafter...(6) As regards the transaction of the second mortgage deed ... if as agreed at that time between you and me you pay me Rs. 1,800 in the lump the nit well be understood that the transaction of give and take subsisting between you and me has been wholly completed and fully paid up. As you have no sufficiency of funds to make up and pay in full the above sum at once it is settled that you are to pay to me Rs. 80 per month and thus you are to make payment in full. In accordance with the agreement arrived at between us both subsequent to the document purporting to be the second mortgage deed the said documents and papers ... and the written receipts in respect of interest given to you by me relating to the payment in full made by you in respect of interest and principal on account of the first transaction dated 7-4-31 have been kept with me ...* * * *(8) As mentioned above (vide paras 5 and 6) no interest of any nature whatever has remained claimable by me from you in accordance with the agreement arrived at between us both from the date of your Surety ship onward and prior to it and in like manner I understand that the whole of the principal has been fully paid.* * * *(10) If you so wish or if necessity may arise then at any time you may ask for it and I shall give you this agreement on being written out on stamped paper and on being registered."5. In our opinion, this is a document which limits any extinguishes interests in immoveable property in the present within the meaning of S. 17 (1) (b), Registration Act. Clause (4) of the agreement expressly says so. Referring to the two mortgages it says -"I am settling and formulating some new terms."This speaks from the present. It does not say that this was some past agreement, and that fact is underlined (here italicised) in the next sentence which reads -"and I am confirming some very terms which were declared before."6. Among the new terms is the following. The rate of interest agreed upon in the two mortgage deeds was 14 annas per cent per month. Clause (5) reduces this to 8 annas. It is true that according to cl. (5) only 8 annas had actually been paid all along but that hardly matters because the question is not what was paid but what was due and what the mortgagee could have enforced under his bond. It is evident from Cl. 4 that it was the agreement embodied in the document which effected the change and therefore it was the document itself which brought the altered terms into being.7. The next question is whether this limits an interest in immoveable property. We are of opinion it does. We agree with the learned Rangoon Judges inU. P. Thin v. Official Assignee, 1938 Rang. L. R. 293 : A. I. R. R. 1938 Rang 285 that one part of the "interest" which a mortgagee has in mortgaged property is the right to receive interest at a certain rate when the document provides for interest. If that rate is varied, whether to his advantage or otherwise, then, in our judgment his "interest" in the property is affected. If the subsequent agreement substitutes a higher rate, then to the extent of the difference it "creates" a fresh "interest" which was not there before. If the rate is lowered, then his original "interest" is limited.8. The question of a higher rate was considered by their Lordships of the Privy Council in Tika Ram v. Deputy Commissioner of Bara Banki26 Ind. App. 97, at p. 100. There the mortgagors gave the mortgagees an unregistered rukka or written promise simultaneously with the registered mortgage stipulating that they would pay an extra 6 per cent. per annum over and above the 15 per cent. entered in the mortgage. Their Lordships held that these rukkas could not be used to fetter the equity of redemption. They did not decide whether the personal covenant in the rukkas could be enforced because that point had not been raised in the plaint and pleadings, nor did they refer to the Registration Act, but we think the words."an unregistered instrument which the statute declares is not to affect the mortgaged property" can only have reference to that Act.9. It was argued, on the strength of Mahim Chandra v. Ram Dayal, A. I. R. 1926. Cal 170, Ram Ranjan v. Jayantilal, A. I. R. 1926 Cal. 906 and Collector of Etah v. Kishori Lal, A. I. R. 1930 All 721 at p. 725 F. B. that it is always open to a mortgagee to release or remit a part of the debt, and when he does so he does not limit or extinguish an interest in immovable property any more than when he passes a receipt acknowledging payment of the whole or part of the money. The effect of the payment, or of the release, may be to extinguish the mortgage but in themselves they do not limit the interest. Extending this, the learned counsel for the defendant contended that when a mortgagee agrees to accept a lower rate of interest he does no more then release that part of the debt which would be covered by the difference in rate.10. We do not agree. There is a difference between a receipt and a remission or a release. A receipt is not the payment, nor does the document in such a case serve to extinguish the mortgage or limit the liability. It is the payment of the money which does that and the receipt does no more than evidence the fact. Not so a release. The extinguishment or diminution of liability is in that event effected by the agreement itself and not by something external to it. If the agreement is oral, it is hit by proviso 4 to S. 92, Evidence Act, for it "rescinds" or "modifies" the contract of mortgage. If it is in writing, it is hit by S. 17 (1) (b), Registration Act, for in that case the writing itself "limits" or "extinguishes" the liability under the mortgage.11. It is to be observed that when the mortgagor pays money due on the mortgage, in whole or in part, he is carrying out the terms of the bond and is not making any alteration in it, and even though the fact of payment may limit or extinguish the mortgagees interest that is only because the bond is working itself out by the force of its own terms and not by reason of some new agreement which seeks to modify it or limit or extinguish the interest which it creates. A simple test is this : see whether the mortgagee can, in the face of the subsequent agreement, enforce the terms of his bond. If he cannot, then it is plain that the subsequent undertaking has effected a modification, and if that has the effect of limiting or extinguishing the mortgagees interest it is at once hit either by S. 17 (1) (b) or S. 92 proviso4. But when there is a mere payment of money, that is done under the terms of the bond, for the contract of mortgage postulates that the mortgagor should repay the money borrowed and that when he does so the mortgagees interest in the property shall be "limited" to the extent of the repayment or, when all is repaid, be wholly extinguished; nor of course, does a payment have to be made by a written or registered instrument or even evidenced by one. Clause (xi) to S. 17 (2), Registration Act is based on this principle. It draws a distinction between a document which, by the force of its terms, effects the extinguishment, or purports to do so, and one which merely evidences an external fact which brings about that result.12. Now apply the test just given to the present case. Under the mortgages the mortgagee is entitled to interest at 14 annas per cent. per month but the mortgagor says be cannot claim that. Why? Because, according to him, the subsequent agreement altered the terms of the bond and reduced his liability to only 8 annas. It hardly matters what the agreement is called, whether a release or a remission, nor is it germane to the question that the mortgagee is entitled to remit or release the whole or a part of the debt; the fact remains that his agreement to do so effects and alteration in the original contract and by the force of its terms limits or extinguishes his interest. Assume that the mortgagor repaid the whole of the interest at the altered rate and the whole of the principal, would those repayments by themselves effect an extinguishment of the mortgage? Clearly not, because unless the subsequent agreement is called in aid, more would be due under the terms of the bond on account of the higher rate of interest. It is evident then that it is the agreement which limits the mortgagees interest and serves to extinguish the mortgage and not mere payment at the reduced rate.13. Similar observations apply to clause (6) of the agreement. It begins by reciting a past agreement in which the mortgagor had promised to pay Rs. 1,800 in a lump sum. We are left to infer that this was to extinguish the mortgage. If it was, then it would be hit by either S. 92 proviso 4 of the Evidence Act or S. 17 (1) (b) of the Registration Act, but that does not matter because the present document varies even that agreement and substitutes a third agreement in its place, namely that payment of Rs. 1,800 by instalments at the rate of Rs. 80 a month will effect "payment in full", that is to say, will extinguish the mortgage. This speaks from the date of the document for it says, referring to this agreement that "it is settled" etc.14. Next we come to Cl. (3). That refers us back to clauses (5) and (6) and says that"as mentioned there no interest of any nature whatever has remained claimable by me."and speaking of the principal says"and in lake manner I understand the whole of the principal has been fully paid."We have already dealt with clauses (5) and (6). Clause (8) carries us no further an merely states that because of clauses (5) and (6) neither interest nor principal is now claimable; and of course if neither interest nor principal is claimable that extinguishes the mortgage, and in this case the extinguishment is brought about not by mere payment in accordance with the terms of the bond, but because of the fresh agreement.15. Clause (10) remains for consideration. It was urged that this brings the matter within S. 17 (2) (v), Registration Act, because it gives the defendant the right to obtain another document which will effect the extinguishment. We do not agree because clause (v) of sub-s. (2) of S. 17 of the Act postulates that the document shall not of itself create, declare, assign, limit, extinguish any right etc., and that it shall merely create a right to obtain another document etc.(The stress is on the words "itself" and "merely".)16. We agree with Sir Dinsha Mulla at p. 86 of the 5th edition of his Indian Registration Act that"If the document itself creates an interest in immovable property, the fact that it contemplates the execution of another document will not exempt it from registration under this clause."As we have seen, this document of itself limits or extinguishes certain interests in the mortgaged property. The operative words are reasonably clear. Consequently, the document is not one which merely confers a right to obtain another document. If confers the right only in certain contingencies, namely, "if you so wish" or "if necessity may arise." Its purport is to effect an immediate alteration in the terms of the two bonds and because of that alteration to effect an immediate extinguishment an limitation. Clause 10 merely confers an additional right, namely the right to obtain another document "if you so wish" or "if necessity may arise." Therefore, the document in question is now one which merely creates a right to obtain another.17. An agreement to sell, or an agreement to transfer as some future date, is to be distinguished because that sort of document does not of itself purport to effect the transfer. It merely embodies a present agreement to execute another document in the future which will, when executed, have that effect. The document in hand is not of that type. It does not postpone the effect of extinguishment or limitation of the mortgages to a future date. It does not say that the agreement it embodies shall take effect in the future. It purports to limit and extinguish the liabilities on the mortgages at once by virtue of the document itself and merely adds that "if it is necessary or should you want another document. I will repeat the present agreement in a registered agreement." By implication it means that if it is not necessary or if the mortgagor does not want a registered instrument the document itself will have effect. Incidentally, one effect of holding that this document does not limit or extinguish the mortgagors liability would be that there is no agreement to that effect yet in force. This may or may not give the mortgagor a right to obtain specific performance of his right to obtain such an agreement but until he does that there would be no bar to the mortgagees claim in this suit. However, it is not necessary to go as far as that because we are of opinion that thus document is not exempt from registration under S. 17 (2) (v), and we so hold.18. The next question is whether the document can be used in evidence under the proviso to S. 49. Registration Act. We are clear it cannot. This is not a suit for specific performance nor does any question of part performance under S. 53A, T. P. Act. arise. It remains then to be seen whether the use now sought to be made of the document is to evidence of collateral transaction no required to be evidenced by a registered instrument. But what is the transaction sought to be proved but the very agreement which the document not merely evidences but, by reason of its own force, creates? That is not a collateral transaction and even if it were a transaction of that type, it would require a registered instrument for the reasons we have already given.19. Section 53A, T. P. Act was referred to but it has no application for the agreement we are concerned with is not a transfer. There are no words of conveyance in it also the mortgagor is not continuing in possession in part performance of the contract. Both mortgages were simple and the right to possession never resided in the mortgagee. He might in due course have acquired it by process of law, if he obtained a decree and purchased at the sale; on the other hand, a stranger might have purchased and the right to possession would in that event have passed elsewhere. But he had no right to possession at the date of the agreement and having none he could not have transferred it. The mortgagors possession was consequently not referable to the agreement.

Decision:
0[ds]We are of opinion it does. We agree with the learned Rangoon Judges inU. P. Thin v. Official Assignee, 1938 Rang. L. R. 293 : A. I. R. R. 1938 Rang 285 that one part of the "interest" which a mortgagee has in mortgaged property is the right to receive interest at a certain rate when the document provides for interest. If that rate is varied, whether to his advantage or otherwise, then, in our judgment his "interest" in the property is affected. If the subsequent agreement substitutes a higher rate, then to the extent of the difference it "creates" a fresh "interest" which was not there before. If the rate is lowered, then his original "interest" is limited.We do not agree. There is a difference between a receipt and a remission or a release. A receipt is not the payment, nor does the document in such a case serve to extinguish the mortgage or limit the liability. It is the payment of the money which does that and the receipt does no more than evidence the fact. Not so a release. The extinguishment or diminution of liability is in that event effected by the agreement itself and not by something external to it. If the agreement is oral, it is hit by proviso 4 to S. 92, Evidence Act, for it "rescinds" or "modifies" the contract of mortgage. If it is in writing, it is hit by S. 17 (1) (b), Registration Act, for in that case the writing itself "limits" or "extinguishes" the liability under theis to be observed that when the mortgagor pays money due on the mortgage, in whole or in part, he is carrying out the terms of the bond and is not making any alteration in it, and even though the fact of payment may limit or extinguish the mortgagees interest that is only because the bond is working itself out by the force of its own terms and not by reason of some new agreement which seeks to modify it or limit or extinguish the interest which it creates. A simple test is this : see whether the mortgagee can, in the face of the subsequent agreement, enforce the terms of his bond. If he cannot, then it is plain that the subsequent undertaking has effected a modification, and if that has the effect of limiting or extinguishing the mortgagees interest it is at once hit either by S. 17 (1) (b) or S. 92But when there is a mere payment of money, that is done under the terms of the bond, for the contract of mortgage postulates that the mortgagor should repay the money borrowed and that when he does so the mortgagees interest in the property shall be "limited" to the extent of the repayment or, when all is repaid, be wholly extinguished; nor of course, does a payment have to be made by a written or registered instrument or even evidenced by one. Clause (xi) to S. 17 (2), Registration Act is based on this principle. It draws a distinction between a document which, by the force of its terms, effects the extinguishment, or purports to do so, and one which merely evidences an external fact which brings about that resultNow apply the test just given to the present case. Under the mortgages the mortgagee is entitled to interest at 14 annas per cent. per month but the mortgagor says be cannot claim that. Why? Because, according to him, the subsequent agreement altered the terms of the bond and reduced his liability to only 8 annas. It hardly matters what the agreement is called, whether a release or a remission, nor is it germane to the question that the mortgagee is entitled to remit or release the whole or a part of the debt; the fact remains that his agreement to do so effects and alteration in the original contract and by the force of its terms limits or extinguishes his interest. Assume that the mortgagor repaid the whole of the interest at the altered rate and the whole of the principal, would those repayments by themselves effect an extinguishment of the mortgage? Clearly not, because unless the subsequent agreement is called in aid, more would be due under the terms of the bond on account of the higher rate of interest. It is evident then that it is the agreement which limits the mortgagees interest and serves to extinguish the mortgage and not mere payment at the reduced rate.13. Similar observations apply to clause (6) of the agreement. It begins by reciting a past agreement in which the mortgagor had promised to pay Rs. 1,800 in a lump sum. We are left to infer that this was to extinguish the mortgage. If it was, then it would be hit by either S. 92 proviso 4 of the Evidence Act or S. 17 (1) (b) of the Registration Act, but that does not matter because the present document varies even that agreement and substitutes a third agreement in its place, namely that payment of Rs. 1,800 by instalments at the rate of Rs. 80 a month will effect "payment in full", that is to say, will extinguish the mortgage. This speaks from the date of the document for it says, referring to this agreement that "it is settled"do not agree because clause (v) of sub-s. (2) of S. 17 of the Act postulates that the document shall not of itself create, declare, assign, limit, extinguish any right etc., and that it shall merely create a right to obtain another documentare clear it cannot. This is not a suit for specific performance nor does any question of part performance under S. 53A, T. P. Act. arise. It remains then to be seen whether the use now sought to be made of the document is to evidence of collateral transaction no required to be evidenced by a registered instrument. But what is the transaction sought to be proved but the very agreement which the document not merely evidences but, by reason of its own force, creates? That is not a collateral transaction and even if it were a transaction of that type, it would require a registered instrument for the reasons we have already given.Section 53A, T. P. Act was referred to but it has no application for the agreement we are concerned with is not a transfer. There are no words of conveyance in it also the mortgagor is not continuing in possession in part performance of the contract. Both mortgages were simple and the right to possession never resided in the mortgagee. He might in due course have acquired it by process of law, if he obtained a decree and purchased at the sale; on the other hand, a stranger might have purchased and the right to possession would in that event have passed elsewhere. But he had no right to possession at the date of the agreement and having none he could not have transferred it. The mortgagors possession was consequently not referable to the agreement.