Case: K. Muthuswami Gounder Vs. N. Palaniappa Gounder

These appeals arise out of dispute between two competing court auction purchasers on the basis that the rights derived by each of them is superior to the other emerging out of alleged hypothecation of such property. Respondent filed a suit in O.S. 12 of 1967 on the files of II Subordinate Judge, Tiruchirappalli to restrain the appellant herein from interfering with respondents possession of the suit property. The appellant filed in the same court a suit in O.S. 211 of 1967 for redemption of the suit land, and recovery of possession thereof. The undisputed facts leading to the two suits are as under:The suit land belonged to one Ganesan who executed a registered security bond on 18.12.1950 for a sum of Rs. 3,000/hypothecating the suit property and also executed a promissory note in favour of one Vairavan Chettiar and borrowed moneys. Vairavan Chettiar obtained a decree on the foot of the Security Bond and in execution thereof brought the suit property to sale. Respondent purchased the suit property in the said court auction sale on 6.2.1957 and the same was confirmed on 15.3.1957. Respondent took delivery of the property through court. Sandanam MudaliarCompany filed O.S. No. 108 of 1950 for recovery of a sum of Rs. 6,493.10 against Genesan. In that suit the plaintiffs got certain amounts due to Ganesan from the South India Railway attached before judgment. Ganesan filed A.I. No. 811 of 1950 in the said suit seeking for raising the attachment before judgment of the amount and it was ordered subject to his furnishing of security. Ganesan executed on 12.4.1950 a registered deed in respect of the said property for Rs.costs of the suit and subsequent interest. In this said deed recitals were made referring to the security bond dated 18.2.1950, executed in favour of Vairavan Chettiar as a prior encumbrance. O.S. No. 108 of 1950 filed by Sandanam MudaliarCompany was decreed on 25.1.1956. Sandanam MudaliarCompany in execution of the decree obtained by them brought the property to sale on 15.9.1962 and the original Appellant Muthuswami Gounder purchased the property in 14.12.1966 for Rs. 12,250/which sale was confirmed on 19.1.1967.2. The suit filed by appellant and the suit filed by Respondent were ordered to be tried jointly. One of the questions raised in the suit is whether the deed dated 12.4.1950 executed by Ganesan in O.S. 108/50 on the file of the court of Subordinate Judge Coimbatore original of Exhibitcreates any charge or was it only an undertaking not to alienate the suit property. On this question the trial court held at paras 13 and 14 as followsAs said already, the document is named as a security deed. Exhibit A6 shows thatstamps for the value of Rs. 105 had been affixed. If it was merely a document for giving an undertaking not to alienate there was no necessity to affix stamps for Rs. 105, which is the correct value of stamps for the sum of Rs.In the document a specific immovable property (i.e.,) suit property, is noted. It is specifically stated that for Rs. 7,000/and subsequent interest and costs this security bond is written. Even the prior encumbrance in favour of Vairavan Chettiar in respect of this property is noted. It is signed by Ganesan and attested by two witnesses. Taking all these factors found in Exhibit A6, taken along with the fact that the security was given as per order of Court in a petition to raise the attachment of the amount of Ganesan in the South Indian Railway, it is evident that the suit property was intended to be, and was as a matter of fact, given as a security for the payment of the sum of Rs.costs and interest in the case.14. It is thus evident that under Exhibit A6 a charge of a peculiar nature is created and "that here is an unquestioned liability and there must be some mode of enforcing it (in the words of their Lordships of the Privy Council in the ruling quoted supra). Exhibit A6 is therefore not a mere undertaking not to alienate but it creates a charge and a liability which could be forced as per law."The trail court by its judgment dated 27.11.1967 held that the Respondent is the ultimate owner of the final equity of redemption subject to the right of the appellant to redeem the first mortgage. The trial court also held that the appellant was not entitled to redeem entire property including the final equity of redemption and, therefore, passed a decree for redemption of the first mortgage in favour of the appellant, but held that he was not entitled to claim possession of the property and granted the respondent the relief of injunction in suit O.S. No. 12 of 1967 filed by him.3. The appeals filed by the appellant against the said decrees were dismissed by the First Appellate Court holding that the relief of injunction was correctly granted to the respondent. The appellate court also confirmed the decree for redemption but enhanced the amount payable from Rs. 1501/The appeal of the respondent againstof costs in the injunction suit by the trial court was dismissed. The appellate court on the nature of document at Exhibit A6 observed as follows :"The lower court in paragraphs 12 to 15 has clearly explained that Exhibit A6 contains all the characteristics of a mortgage. I agree with the conclusion. Further, as pointed out by the lower court merely because the petitionerin E.P. No. 305/62 (Exhibit A9) altered the prayer into one of attachment and sale from one of pure sale at the instance of the court, it cannot be said thehad given up his charge. Therefore, the attachment of charged property does not invalidate claim in pursuance of the charge. Therefore, the purchaser in such a sale gets the rights of the mortgage."On second appeal preferred to the High Court by the Appellant, the matter was referred to a Division Bench of the High Court in view of the important questions of law arising for determination. The High Court considered several questions but ultimately held that the facts available in the case would run counter to the conclusion that the appellant is a puisne mortgages. It was observed that :"The claim of the appellant that he holds the status of a second mortgagee is based on security bond Ex. A6 coupled with theheld on 14th December, 1966. That sale is no doubt there, but then the security bond does not amount to a mortgage. By it no property was conveyed to the court in whose favour it was executed nor was any charge created on the land in suit. All that Ganesan undertook by it was not to alienate the land till the discharge of the decree passed in suit No. 108 of 1950. As soon as that decree was passed the security bond became void and of nowas also held by the High Court that Muthuswami Grounder could possibly claim the status of a puisne mortgagee only if he had purchased the property in a sale arising out of execution of a decree based on a mortgage. No such degree was passed in suit No. 108 of 1950. On the other hand, the decree was a simplein execution of which the land in suit was first attached and then sold. In this view of the matter also the High Court concluded against the claim of Muthuswami Gounder that he held the status of a puisne mortgagee.4. Having negatived the claim that the appellant ever became a mortgagee the sheet anchor of his case was lost. The High Court having noticed that there was no appeal by respondent against the decree passed in favour of the appellant considered that it was an appropriate case where powers under Order XLI Rule 33 of the Code of Civil Procedure should be exercised and thus dismissed the suit filed by him in the trial court.5. Aggrieved by the order made by the High Court, these appeals have been preferred before this court by special leave.

Court's reasoning:
14. The document ExhibitSecurity Bond does not in substance offer suit property by way of security. Even giving the most liberal construction to the document we cannot say that a charge as such has been created in respect of the suit property for money to be decreed in the suit. All that it states is that in the event of decrees being passed not to alienate the property till the decree is discharged, which is a mere undertaking without creating a charge. Therefore, we agree with the finding of the High Court that the document at Exhibitis not a charge. If that is so the suit filed by the appellant has got to be dismissed.15. There is yet another reason as to why the High Court held that the appellant cannot claim any rights under Exhibit A.6 the alleged Security Bond executed in O.S. 108/50. The decree obtained in that suit was a simple money decree and not a decree on a charge or mortgage with the result the appellant who purchased the property in execution of that decree did not acquire the rights under the said document Ex. A.6. This finding appears to be correct. The decree holder sought to execute the decree in E.P. 305/62 to order sale of the suit property stating that the same is secured in the bond Ex. P.6. However, the executing court did not proceed on that basis and raised objections thereto. Thereafter, the decree holder sought for attachment of the suit property independent of thecharge under Ex. A.6. If really the decree holder in the proceedings wanted to proceed on the basis of the security arising out of charge under Ex. A.6., the requirement of attachment was superfluous. Whether the claim under Ex. A.6 arising out of charge was given up or not, what was pursued in the execution proceeding was only to attach the suit property without recourse to charge under Ex. A.6. Therefore, the appellant could not have acquired any rights of mortgagee under Ex A.6, the security bond. For this reason also appellants suit is liable to be dismissed and the finding of the High Court, therefore, stands affirmed.