Case: Kashinath Bhaskar Datar Vs. Bhaskar Vishweshwar Karve

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.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.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 andIt 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."

Court's reasoning:
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.