IN THE HIGH COURT OF JUDICATURE OF MADRAS DATED: 24.10.2008 CORAM: THE HONOURABLE MR. JUSTICE K.KANNAN A.S.No.762 of 1991 Neraichelvi ... Appellant/2nd Defendant Vs. 1. K.Ranganatham 2. Devakiammal(deceased) 3. The Tamil Nadu Housing Board Nandanam, Madras 35. 4. A.Mohana (R4 brought on record as Lrs of the deceased 2nd respondent vide order dated 13.08.2003 in CMP Nos.6411 & 6412/93) ... Respondents/Plaintiff and Defendants Appeal filed under Section 96 of the Criminal Procedure Code against the judgment and decree dated 22.08.1989 passed in O.S.No.2203 of 1985 on the file of the XIV Assistant Judge, City Civil Court, Madras. For Appellant :: Mr.G.Anbumani For Respondents:: Mr.K.Chelladurai (R3) R2 died (Steps taken) RR1 & RR4 No appearance JUDGMENT I Facts in brief The second defendant in the suit is the appellant. The suit had been filed by the 1st respondent to enforce a mortgage executed by the 2nd respondent since deceased (1st defendant) for securing a loan of Rs.15,000/- under a registered document dated 30.12.1972. 2. Admittedly, the property which was the subject matter of mortgage had been acquired by the Government for the benefit of the Tamil Nadu Housing Board under the provisions of the Land Acquisition Act. After acquisition, a portion of the property covered under the mortgage, viz., 1 Ground 1402 sq.ft. had been again sold after https://hcservices.ecourts.gov.in/hcservices/ allotment to the mortgagor, the 1st defendant. The Mortgagor in turn sold a portion of the property to the 2nd defendant. It is under these circumstances that the defendants 2 and 3 are also impleaded as parties to secure a binding decree as alleged subsequent encumbers of the property. 3. The 1st defendant (mortgagor) remained ex parte and defendants 2 and 3 filed their respective written statements. 4. The 2nd defendant's contention was that after the acquisition of the property by the Government, all the prior encumber had been completely wiped out and when the property was given by the Housing Board by way of sale to the 1st defendant, the 1st defendant obtained title to the property free of encumbrance including the subject matter of mortgage. The 2nd defendant claimed to be a purchaser of the property to an extent of 1 ground 202 sq.ft. under a registered sale seed dated 26.04.1982 and claimed to be a bona fide purchaser for value without notice of any encumbrance. 5. The 3rd defendant on its part contended that the Housing Board was an unnecessary party and no relief of recovery of money on the security of the property which was acquired could be made against the Housing Board. II Disposition in the Court below 6. The trial Court found that the purchase by the 2nd defendant was not bona fide and observed that the plaintiff was entitled to enforce the mortgage against the property held by her. The Court also found that as regards the 3rd defendant there had been no relief claimed and therefore the decree was being granted only as against defendants 1 and 2 with respect to the property which was the subject of mortgage. Accordingly, a preliminary decree was granted. III Contention in appeal 7. The 2nd defendant has appealed, assailing the finding that he was not a bona fide purchaser and further stating that since the property purchased by the 2nd defendant had been taken after the acquisition by the Government, the right of enforcement of the mortgage was lost and that the plaintiff was not entitled to obtain a preliminary decree for sale of hypotheca, as though it was still subsisting. 8. The counsel further argued that the Court had not taken proper note of the effect of the acquisition proceedings under the Land Acquisition Act, viz., of vesting the property free of all encumbrances and consequently property was un-yoked of the encumbrances of mortgage. According to him, the property which was assigned by the Housing Board to the 1st defendant came back to the 1st defendant free of all encumbrances. The remedy for the plaintiff was https://hcservices.ecourts.gov.in/hcservices/ the enforcement of a substituted security as provided under Section 73 (2) 3rd proviso of recovering money only out of compensation amount determined by the Collector under the provisions of the Land Acquisition Act. On the failure of the plaintiff to enforce his right under Section 73 (2), the plaintiff had lost right of enforcing his mortgage security. 9. As a last string of argument, it was contended by the appellant that in any event, the entire property which had been assigned by the Housing Board had not been sold to the 2nd defendant and 1st defendant has still retained an extent of 1200 sq.ft. in the property which had been originally mortgaged. The plaintiff's enforcement right could be available only against such a property. IV Twin Points: (i) Effect of acquisition on subsisting encumbrance and (ii)Effect of sale by government after acquisition. 10. Even at the outset, it may be pointed that the question of bona fide purchase is always an irrelevant issue when a mortgage is put for enforcement against a person who is made out to be a subsequent encumber. 11. The points for consideration would be:- (i) to examine the effect of acquisition under the Land Acquisition Act on the mortgage that had been executed by the owner 2) the effect of assignment by the Housing Board to the Original owner as to whether the security would survive and capable of being enforced against such property and followed in the hands of the purchaser. 12. Section 73(2) of the Transfer of Property Act reads as follows:- "Where the mortgaged property or any part thereof or any interest therein is acquired under the Land Acquisition Act, 1984 (1 of 1894), or any other enactment for the time being in force providing for the compulsory acquisition of immovable property, the mortgagee shall be entitled to claim payment of the mortgage-money, in whole or in part, out of the amount due to the mortgagor as compensation". 13. This section makes it clear that after the subject of mortgage is acquired by the Government, the remedy of the mortgagee shall be to enforce his claim only in respect of compensation. This https://hcservices.ecourts.gov.in/hcservices/ section shall be read in tandem to the provision of Section 16 and 31 (2) of the Land Acquisition Act, which read as follows:- " Section 16 Power to take possession:- When the Collector has made an award under Section 11, he may take possession of the land which shall thereupon [vest absolutely in the [Government], free from all encumbrances. 16-A Restriction on transfer, etc.-(1) No person or authority (other than the Government), for whom any land is acquired under this Act, for any public purpose as referred to in sub-section (1) of Section 4, shall transfer the said land or any part thereof by way of sale, mortgage, gift, lease or otherwise except the previous sanction of the Government. (2) Where it is noticed or any information has been received that any land has been transferred in contravention of sub-section (1), the Government may, by an order, declare he transfer to be null and void, and on such declaration, the land shall, as penalty, be forfeited to, and vest in, the Government in Revenue Department free from all encumbrances: Provided that no order under this sub- section, shall be made unless such person or authority has had a reasonable opportunity of being heard. 16-B Land to be forfeited in certain cases:- Where the government are satisfied that the land acquired under this Act for any public purpose as referred to in sub-section (1) of Section 4 is not used for the purpose for which it was acquired, they may, by an order, forfeit the land as penalty and the land shall vest in the Government in Revenue Department free from all encumbrances: Provided that no order under this Section, shall be made unless the person or authority aggrieved has had a reasonable opportunity of being heard". "Section 31(2): If they shall not consent to receive it, or if there be no person competent to alienate the land, or if there be any dispute as to the title to receive the compensation or as to the apportionment of it, the Collector shall deposit the amount of the compensation in the Court to which a reference under section 18 would be submitted: https://hcservices.ecourts.gov.in/hcservices/ Provided that any person admitted to be interested may receive such payment under protest as to the sufficiency of the amount: Provided also that no person who has received the amount otherwise than under protest shall be entitled to make any application under section 18: Provided also that nothing herein contained shall affect the liability of any person, who may receive the whole or any part of any compensation awarded under this Act, to pay the same to the person lawfully entitled thereto". (emphasis supplied) 14. The third proviso addresses the right to receive the compensation by the person lawfully entitled, who, for instance, is the creditor protected under Section 72(2) of the Transfer of Property Act. Section 16 makes it clear that the property that is acquired by the Government shall be vested with the Government free of all encumbrances. In other words, the encumbrance that is cast on the property by the contract of mortgage by the 1st defendant will be treated as statutorily discharged and the right of a creditor shall be against the substituted security in the manner provided under Section 73(2) of the Transfer of Property Act. The 'substituted security' is the compensation amount determined under the Land Acquisition Act (see Nallamuthu Pillai and Others U.Aravamudhu Iyengar and another AIR 1952 Mad 263). 15. It has been held by the Constitution Bench of the Supreme Court in Rana Sheo Ambar Singh vs. The Allahabad Bank Ltd., reported in AIR 1961 SC 1790, while examining the provisions of the U.P. Zamindari Abolition and Land Reforms Act that when a statutory vesting takes place under the provisions of the U.P. Zamindari Abolition and Land Reforms Act, sir, ie., Khudkasht rights which are rights of land tenure for cultivation, would stand abolished and when the Government again grants Bhumidari rights to the person who was a cultivator, the mortgage security cannot survive. This, the Supreme Court did by reading the provision along with Sec.73 of the Transfer of Property Act. The Supreme Court held that the remedy of the mortgagee was to follow the compensation money and there was no other way possible for him in view of the statutory passing of the property free of encumbrances under the provisions of the Zamindari Abolition Act. 16. A provision similar to Sec.6 of the U.P.Zamindari Act is the provision under Section 16 of the Land Acquisition Act referred to above. In a similar vein, the statute vacates all encumbrances on the date of acquisition and when the final notification is made, the creditor may not treat himself as having his security available on the property even after the land acquisition. https://hcservices.ecourts.gov.in/hcservices/ 17. Section 43 of the Transfer of Property Act makes it possible, by the theory of estoppel by feeding the grant, to a person acquiring an imperfect title from a person purporting to transfer a property free of any defect, by fraud or misrepresentation, to later perfect the title by acquisition of lawful title subsequently. This doctrine is posited only to examine whether the encumbrances that is effaced by acquisition by government could be likened to a mortgagor offering defective title as security but later obtaining lawful title to feed the grant to the mortgagee. However, this right is to be construed strictly within the four corners of the Transfer of Property Act and the section itself makes a precondition that the transfer must have been made by fraud or misrepresentation. In this case, when the 1st defendant contracted the mortgage, he was the full owner of the property thereof. Therefore, the question of applying the doctrine of estoppel by feeding the grant as provided under Section 43 also would not apply. 18. The counsel for the appellant relied on certain decisions of the Supreme Court relating to the issues of excessive attachment and sale of the property under Order 21 Rule 54 and 66 CPC. I do not propose to examine them since I have found already that the moment the property is acquired, the security does not survive against the acquired property and the creditor could have no remedy against the property in specie. V The extent of right of mortgagee 19. The mortgage would not lose his rights only by reason that he had failed to exercise his right to claim compensation before the Land Acquisition Officer. That this is so, is made clear by the 3rd proviso to Sec.31(2) of the Land Acquisition Act, which states the liability of the person who had received the compensation money. Krishna Prasad and Others vs. Gowri Kumari Devi AIR 1962 SC 1464. In other words, first, it shall be the right to proceed against the substituted security. Next, if it is not recovered, the personal liability that existed will remain unaffected. In URRM.RM.Ramanathan vs. Abdul Hameed AIR 1963 Mad 73, this Court considered the case of a decree by mortgagee that fell to be obsteneted by a subsequent acquisition of the hypotheca by the government under the Land Acquisition Act. A separate suit filed by the mortgagee was found to be barred and the suit itself was treated as Execution Petition for recovery as money claim against the Judgment debtor (mortgagor). VI Conclusion: 20. The trial Court has, in my view, made an error of approach in law by treating the security as still available for the creditor and has granted a preliminary decree for sale of hypotheca. The decree is set aside. However, there shall be a personal decree for the amount claimed in suit against the 1st defendant alone and also https://hcservices.ecourts.gov.in/hcservices/ against the amount, if available, with the Housing Board by the acquisition of property in the manner provided under Section 73(2) of the Transfer of Property Act. The suit against the appellant/2nd defendant is dismissed and the appeal filed by her is allowed to the above extent. There shall be however no order as to costs. Sd/ Asst.Registrar /true copy/ Sub Asst.Registrar rg To 1. The XIV Assistant Judge, City Civil Court, Madras. 2. The Registrar, City Civil Court, Chennai. Copy to The Section Officer, V.R.Section, High Court, Madras. 3 cc To Mr.G.Anbumani, Advocate, SR.59340. 1 cc To Mr.K.Chelladurai, Advocate, SR.59671. A.S.No.762 of 1991 BV(CO) RVL 27.02.2009 https://hcservices.ecourts.gov.in/hcservices/