=1= IN IN IN THE THE THE HIGH COURT OF JUDICATURE AT BOMBAY HIGH COURT OF JUDICATURE AT BOMBAY HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORDINARY ORDINARY ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION APPEAL APPEAL APPEAL NO.28 OF 2003 NO.28 OF 2003 NO.28 OF 2003 IN IN IN SUIT SUIT SUIT NO.1551 NO.1551 NO.1551 OF 1979 OF 1979 OF 1979 R.M. Jhaveri and Co. ...Appellants v/s Ms Gunmala Ghendmal Jhaveri and ors. ...Respondents Dr V.V. Tulzapurkar, Sr. Counsel with Mr Girish Desai i/b Mr Vivek Sharma for Appellants. Mr Hiralal Thakkar, Sr. Counsel with Mr Akram i/b M/s Hiralal Thakkar and Co. for Respondent Nos.1 and 2. CORAM CORAM CORAM : D.K. DESHMUKH AND A.A. SAYED JJ. : D.K. DESHMUKH AND A.A. SAYED JJ. : D.K. DESHMUKH AND A.A. SAYED JJ. DATE DATE DATE : 13TH JANUARY 2009 13TH JANUARY 2009 13TH JANUARY 2009 =2= ORAL JUDGMENT (PER D.K. DESHMUKH J.) :- 1. By this appeal, the appellants challenge the judgment and decree passed by the learned Single Judge of this Court dated 14th July 2002 and 24th July 2002 in suit No.1551 of 1979. The original plaintiff filed the suit. The principal prayers in the suit were thus :- "(a) it be declared that the Original Plaintiff and/or Plaintiff Nos.1(a) to 1(b) are entitled to one third share, right, title and interest in respect of the said Chowpatty property described in Exh.’B’ hereto; (b) that the said property, more particularly described in Exh.’B’ hereto be ordered to be partitioned by metes and bounds and the Original Plaintiff and/or Plaintiff Nos.1(a) to 1(b) be put in separate possession of his and/or their one third share;" . The original plaintiff - Ghendamal Ghasilal had two brothers by name Motilal and Dadamchand. The =3= original plaintiff Ghendamal had joined to the suit as defendants his brother Motilal and legal representatives of the other brother. The dispute in the suit relates to property situated at 10, Chowpatty Sea Face, Bombay. Admittedly, Ghendamal, Motilal and Dadamchand were partners of the firm called M/s Ghasilal Poonamchand. They had equal shares in the profit and loss of the partnership business. The land on which the building is situated was purchased in the name of two brothers Dadamchand and Motilal. Thereafter, a building was constructed on the land. Admittedly, three flats in the building were occupied by the families of three brothers. The case of the plaintiff was that though the conveyance by which the property was purchased was in the name of two brothers viz. Dadamchand and Motilal, the property was purchased and the building was constructed by using the funds of the partnership, therefore, all the three partners were owners of the property. The plaintiff claimed that he had 1/3rd share in the property and therefore, he was entitled to seek a declaration to that effect and also a decree for partition of the property by metes and bounds. The original defendant No.1 - Motilal did not file any written statement but after his death written statement was filed by the legal representatives of Motilal opposing the suit. The other defendants, it appears, also opposed the suit. On the basis of the pleadings of =4= the parties, the learned Trial Judge framed following issues :- "1) Do plaintiffs prove that the suit property was purchased out of income of partnership firm M/s Poonamchand Ghasilal of which Ghendamal, Dadamchand and Motilal were partners ? 2) If so, whether each of them has got 1/3rd share in the property ? 3) Do defendants prove that the suit property was purchased out of their personal capital account in the partnership ? 4) Do plaintiffs prove that conveyance was made in the name of Dadamchand and Motilal only for the sake of convenience? 5) Do defendants prove that declaration dated 1.2.1951 and two mortgages, one dated 17.2.1940 in favour of Dayabhai Chhaganlal and another one dated 3.2.1951 in favour of the Trustees of the Bombay Hospital Shri Rameshwar Birla and others, were made in the names of three brothers =5= at the instance of the then Trustees of the Bombay Hospital ? 6) Whether suit is maintainable under the provisions of section 281A of the Income Tax and Benami Prohibition Act 1988 as contended in para 2 of the written statement ? 7) Are plaintiffs entitled to partition and separate possession ? 8) If so, what is their share ? 9) Do plaintiffs prove that they are in possession and enjoyment and use of the suit property as tenants in common alongwith defendant as alleged in para 11 of the plaint ? 10) What decree or order ?" . It appears that thereafter the parties led evidence, both oral and documentary. It further appears that the issue No.6 was decided as a preliminary issue by order dated 18th April 2001 and it was held that the suit is maintainable. Other issues were decided by =6= judgment dated 16th July 2002 and 24th July 2002. The learned Single Judge held that the property was purchased from the income of the firm. The learned Single Judge also held that each brother had 1/3rd share in the property. It was also held that the original plaintiff was entitled to partition of the property and separate possession of his share. The present appeal has been filed only by the legal representatives of original defendant No.1 - Motilal. 2. At the hearing of this appeal, the learned counsel for appellants raised two contentions before us. The first contention was that the learned Single Judge committed an error in recording a finding that the property was purchased from partnership funds and that all the three brothers had equal share in the property. The second contention was that even assuming that the suit property was partnership property, according to the learned counsel, without filing a suit for accounts of the partnership firm, a decree for partition of the property could not have been made. The learned counsel submitted that the learned Single Judge committed an error in the way in which he decided issue No.7. 3. The learned counsel appearing for appellants submitted that the conveyance of the property was in the name of two brothers viz. Motilal and Dadamchand. In =7= the return filed under the Income Tax Act and the Wealth Tax Act, the original plaintiff never showed this property as belonging to him. He further submitted that the declarations that were made by the three brothers while mortgaging the property were made only for the satisfaction of the mortgagees and by virtue of declarations and the mortgage deed, no interest in the property was created in favour of the original plaintiff. The learned counsel therefore submitted that on the basis of evidence on record, it cannot be said that it was a partnership property and all partners were having equal share in the property. The learned counsel further submitted that even assuming that it was a partnership property, the only way to bring about division of the partnership property was by filing a suit for accounts of the partnership. The learned counsel submits that during the continuance of the partnership, no partner has interest in tangible assets of the firm. The learned counsel relies in support of his submission on the judgment of the Full Bench of the Lahore High Court in the case of Ajudhia Pershad Ram Pershad v/s Sham Sunder and others, reported in AIR (34) 1947 Lahore 13 and judgments of other High Courts where law laid down by the Full Bench of Lahore High Court has been followed. The learned counsel appearing for legal representatives of the original plaintiff submitted that the documentary evidence on record clearly establishes =8= that the property was purchased from the partnership funds and that when it was reconveyed by the mortgagee, the reconveyance was in favour of the two brothers who were alive and legal representatives of the third brother. The learned counsel submitted that this documentary evidence leaves no manner of doubt that all three brothers had equal share in the property. The learned counsel then submitted that though the property was an asset of the firm, the firm stood dissolved due to death of one of the partners in 1961. The reconveyance of the property was made in favour of the two brothers who were who were alive and legal representatives of the third brother who was not alive. At the time of reconveyance, partnership itself was not in existence and therefore, persons who were parties to the reconveyance became owners of the property in equal rights and therefore a suit for partition was maintainable. 4. Now if in the light of these rival submissions, the record of the case is perused, it becomes clear that it is an admitted position that three brothers viz. Ghendamal - original plaintiff, Motilal and Dadamchand were carrying on business as partners of the partnership firm. It is also an admitted position that the land on which the suit building stands was purchased in the name of two partners viz. Motilal and =9= Dadamchand. It is also an admitted position that after the building was constructed, all the three brothers occupied one flat each in the building. It has also come on record that in the year 1940, the partnership firm was in financial difficulty and therefore it had to incur loan. At that time, this property was mortgaged for securing the loan advanced to the partnership firm. The property was reconveyed in the month of December 1940. Perusal of the record shows that the mortgage created in favour of the lender Dayabhai Chaganlal was executed by all the three brothers and when the property was reconveyed by the mortgagee by deed dated 18th December 1940, it was reconveyed in favour of all the three brothers. It appears that the firm again needed finance in April 1951 and they approached the Bombay Hospital Trust for finance. For that purpose, a declaration was signed by all the three brothers dated 1st February 1951. Following clauses from that declaration, in our opinion, are relevant :- "6. That the above properties more particularly described firstly, secondly and thirdly in the Exh.’B’ hereto were purchased by us from the profits made by us in the said partnership in the name of one or more or all of us. =10= 7. Though the property at Chowpatty has been purchased by us out of our profits of the partnership business in the name of the said Dadamchand Ghasilal and Motilal Ghasilal, all three of us are equally interested in the said property. 8. We are the sole and absolute owners of the said properties and we make the aforesaid declaration and representations consciously believing the same to be true and knowing full well that the mortgagees are advancing the sum of Rs.4,00,000/- on the faith thereof." . The declaration thus clearly says that all the three brothers were the absolute owners of the property. At no point of time after 1951, Motilal and Dadamchand, the other two brothers made any further declaration saying that Ghendamal is not owner of the property. The property was reconveyed by the mortgagees by reconveyance deed dated 30th October 1969. It is a registered deed. The reconveyance of the property is in favour of Ghendamal, Motilal and legal representatives of the deceased brother Dadamchand. From this documentary evidence, in our opinion, it is quite clear that the property was purchased from the funds of the =11= partnership and it was owned by all the three partners and therefore, in our opinion, the learned Single Judge was perfectly justified in recording the finding that Ghendamal had 1/3rd share in the property. 5. So far as the submission made by the learned counsel appearing for appellants, relying on the judgment of the Full Bench of Lahore High Court referred to above, is concerned, the law appears to be settled that if property is asset of the partnership firm, unless a suit for accounts of the firm is filed, division of the property is not possible. However, in our opinion, that question does not arise in the present case because though the property was purchased by using the partnership funds, the property did not continue to be the property of the firm but became property of three brothers who were partners. Perusal of the reconveyance deed dated 18th December 1940 executed by Dayabhai Chaganlal in favour of original plaintiff and two brothers - Motilal and Dadamchand, shows that the reconveyance was not in favour of three brothers as partners of the firm. Similarly, when the second mortgage was created in the year 1951 by three brothers, again it was not in their capacity as partners but as joint owners of the property. It is an admitted position that the partnership was partnership at will and one of the partners Dadamchand died in the year =12= 1961. Therefore, the partnership stood dissolved in the year 1961. At that time, when the dissolution of the firm came about, the property was mortgaged in favour of the mortgagees. Therefore, at that time, when the dissolution of the firm came about, the partners were not absolute owners of the property, they were merely holding right of reconveyance. This position clearly comes out from the judgment of the Privy Council in the case of Ram Kinkar Banerjee and others v/s Satya Charan Srimani and others, reported in AIR 1939 Privy Council 14. Following observations from that judgment, in our opinion, are relevant which read thus :- "Upto the time of the passing of the Transfer of Property Act the rights of mortgagors and mortgagees of land in India were subject to much controversy, though in general the law of England, subject to such modification as justice, equity and good conscience required was recognised as the law of India also. But whether the English rules of equity were applicable to such cases was not certain. Since the passing of that Act however the distinction drawn in England between law and equity in such cases does not exist in India. As Sir George Rankin says in 54 Cal. 813 at p.822, ’the Transfer of Property Act has left =13= no room for such a distinction’. . The Indian mortgagor however retains some rights though the English rules of equity do not apply. He retains a right to a reconveyance of the land and a right to transfer such right by way of sale or second mortgage (see Ss.81, 82, 91 and 94) and this right in India is a legal right. When therefore the mortgagor transfers his property by way of mortgage can he be said to transfer his whole interest ? Russell J. in 29 Bom 391 answers the question thus :- ’In India there is no equity of redemption in the lessee (mortgagor) and there being no distinction between his legal and equitable estate, his ’whole estate’ is not transferred by the mortgage.’ . The observation is general though in the particular case Russell J. was dealing with a mortgage in a form widely different from that employed in England. Apart from the two cases referred to above, the Indian authorities recognize the principle that the distinction between law and equity has no =14= place in Indian law. For this proposition reference may be made to two of the cases quoted by the appellants in argument viz. 40 Mad. 1111 at p.1114 and 59 Cal. 1314. . The same view is commonly accepted in the Indian text books : see Ghose’s Law of Mortgage in India (5th Edn. 1922) at p.335 and Mulla’s Transfer of Property Act (2nd Edn. 1936) at p.345, and was indeed adopted by the appellants in argument in the present case. Their contention was that the Act was a self/contained Code by which alone the rights of mortgagor and mortgagee were to be ascertained and under which statutory and not equitable rights were brought into existence. Their Lordships agree with this contention and accordingly turn to a consideration of those sections of the Act which deal with mortgages. Sec. 58(a) of the Act enacts that a mortgage is a transfer of an interest in specific immovable property. Upon this definition there follows in the Act as in force at the material date an enumeration of four classes of mortgage, viz. (1) simple mortgage, (2) mortgage by conditional sale, (3) usufructuary mortgage, (4) English mortgage. Two other =15= classes, equitable mortgage and anomalous mortgage, are recognized and dealt with in Ss.59 and 98 respectively. Of these six it is contended that the English mortgage by its terms amounts to, and the anomalous mortgage by its terms may amount to a transfer of the whole interest of the mortgagor and therefore where the subject matter is a lease, create privity of estate between the lessor and the mortgagee of the lease. . No doubt in English law they would do so, but it does not follow that under a system in which equity has no place the same wording which would transfer the whole interest of the mortgagor under the former law would do so under the latter. The outlook is different. By Indian law the interest which remains in the mortgagor is a legal interest and its retention may therefore prevent the whole of the mortgagor’s interest from passing to the mortgagee - a result which would not follow if an equitable interest only were retained. The Act itself contains some suggestions to this effect. Sec. 54, which deals with sale, speaks of a sale as a transfer of ownership as opposed to the transfer of interest spoken of =16= in Sec.58(a) in the case of a mortgage, and though an interest may be absolute the word, particularly when used in opposition to ownership, is more appropriate to a limited right. To this argument the appellants reply that whatever may be the case with other types of mortgage, S.58(e) in defining the term ’English mortgage’ speaks of an absolute transfer of the mortgaged property to the mortgagee. Its terms are : ’Where the mortgagor binds himself to repay the mortgage money on a certain date and transfers the mortgaged property absolutely to the mortgagee, but subject to a proviso that he will retransfer it to the mortgagor upon payment of the mortgage money as agreed, the transaction is called an English mortgage.’ . By such a mortgage they say the mortgagor parts with his whole interest subject only to his statutory right of redemption given by S. 60 of the Act. The working of Sec.58(e) undoubtedly gives rise to some difficulty, but before considering the construction to be put upon it, the soundness of the appellant’s general contention must be =17= considered. Under the English practice adopted before 1925 no difficulty arose; the mortgagor parted with his whole legal estate though he retained an equitable interest in the land itself. The mortgagee to whom the legal interest was transferred by the mortgage deed was accordingly held to have been brought by that transfer into direct relationship with the lessor by privity of estate and to be liable for the rent. . But under the Indian Act no equitable rights exist and therefore unless the mortgagor retains some legal interest in the land he has merely a contractual right to have it reconveyed. If he retains some legal interest it is difficult to say that he has parted with his whole interest. On the other hand, there are strong reasons against holding that he retains merely a contractual right against the mortgagee. If the case arose in England it would be possible to say that the contract for reconveyance gave the mortgagor an equitable interest in the land, but this argument is untenable in India. In the first place, as has been pointed out, equitable estates do not exist in that country, and in =18= the second, under the provisions of Sec.54, T.P. Act, a contract for the sale of immovable property does not create any interest in or charge upon the land sold. Having this provision in view, it is difficult to see how a personal contract to reconvey can create any interest in the land itself. But to regard the mortgagor’s right of redemption as being merely contractual and as creating no interest in the land would make it impossible for him to assign his right of redemption or to create a second mortgage so as to bind the land. Such a state of things is, of course, theoretically possible, but it is inconsistent with the provisions of the Act (which in Ss.81, 82, 91 and 94 recognizes second mortgages) and with the possibility, well established in India, of transferring the right of redemption to a purchaser. . Bearing these considerations in mind it remains to consider the effect of the wording of Sec.58(e) of the Act. That section speaks of the mortgagor transferring the ’mortgaged property absolutely to the mortgagee’. In using those words does it mean that no interest or no legal interest in the =19= property remains in the mortgagor ? Their Lordships cannot think so. If the sub-section stopped at the word ’mortgagee’ it might be necessary to put this construction upon it, but it does not stop there; it adds the proviso that the mortgagee ’will retransfer’ the property ’upon payment of the mortgage money as agreed’. Their Lordships think that with this addition the sub-section upon its true construction does not declare ’ an English mortgage’ to be an absolute transfer of the property. It declares only that such a mortgage would be absolute were it not for the proviso for retransfer. It does not determine what legal effect follows from the use of a particular form of words; it merely prescribes the form of words necessary to constitute what is known in India as an English mortgage. Sec.58(e) deals with form, not substance. The substantial rights are dealt with in Ss.58(a) and 60. Whatever form is used nothing more than an interest is transferred and that interest is subject to the right of redemption. . As has been stated in the case of the first mortgage the contractual date of payment =20= was 18th May 1928, and that date had passed before this action was begun. In the case of the second mortgage the mortgages undertook not to recall the mortgage money until 18th May 1933, if the interest were duly paid. the distinction between a case where the date of payment has elapsed and that in which it has not yet been reached was alluded to in (1819) 1 Brod & B 238 and it was pointed out that in the former case the condition of repayment being unfulfilled the transfer was unquestionably an absolute transfer. The Court however considered that the transfer would have been absolute even though the date of payment had not been reached. . In the present case, as in that, their Lordships think that no distinction in principle exists. In England the mortgagor has an equitable interest in the property both before and after that date has elapsed; before, because he has a contractual right to have the property reconveyed; after, because in equity, time is not of the essence of the transaction. In each case he has an equitable estate though in the former he has not yet an =21= equity of redemption : see (1914) A C 25 per Lord Parker at p.49. In India the same distinction exists between the position before and after the date of payment. Before that date the mortgagor has an interest in the land which for the reasons given above is legal and not equitable. After that date he has the legal right of redemption given him by S. 60 of the statues. In each case he retains a legal interest in the property." . It is clear from these observations that on creation of English mortgage, interest in the property is transferred to the