Case ID: 2264

Judgment:
Appeal No. 8 of 1965. Appeal by special leave from the judgment and decree dated October 5	 1962 of the Bombay High Court in Appeal No. 598 of 1960	 from Appellate Decree. section T. Desai and J. P. Aggarwal	 for the appellant. O. P. Malhotra	 and P. C. Bhartari	 for the respondents. 425 The Judgment of the Court was delivered by Sikri	 J. This appeal by special leave is directed against the judgment and decree of the Bombay High Court in Appeal No. 598 of 1960	 whereby the High Court confirmed the judgment and decree dated January 30	 1960	 passed by the Extra Assistant Judge	 District Court	 Ahmednagar	 in Regular Appeal No. 300 of 1958	 confirming the decree dated April 7	 1958	 passed by the Joint Civil Judge	 Junior Division	 Ahmednagar	 in Civil Suit No. 609 of 1948. The relevant facts for the determination of the points raised before us by the learned counsel for the appellant mortgagee	 are as follows: The respondents before us filed a suit for the redemption of the mortgage of a bungalow at Ahmednagar alleging that the sale deed in respect of this bungalow for Rs. 5	000 was in fact a possessory mortgage. One of the terms of this deed	 dated August 4	 1928	 was : " However	 a condition is laid down that if we pay you within three years from this day Rupees five thousand relating to this sale deed	 and (interest) thereon at the rate of 12 twelve annas per cent per mensem at yearly rests	 and the amounts spent by you to meet the expenses for repairs	 constructions	 taxes	 etc. together with interest (at the rate) mentioned above. . you are to receive the same and allow us to purchase the aforesaid property back. The transaction was held to be a mortgage and there is no dispute on this point. On April 7	 1958	 the suit was finally decreed for redemption of the property subject to a payment of Rs. 9	224 .12 0	 Rs. 4	612 6 0 as principal	 and Rs. 4	612 6 0 as interest thereon	 within six months from that date. A preliminary decree was directed to be drawn up. The appellant filed an appeal in the Court of the District Judge	 Ahmednagar	 and	 among other grounds	 alleged that "the Court ought to have directed the Commissioner to deduct the rent received (i) first towards taxes	 then (ii) towards interest of the amount of repairs	 etc. 	 then (iii) towards interest on the principal amount	 then towards (iv) amount of repairs and expenses and then towards the principal of the loan". The Extra Assistant Judge did not agree with this contention	 and dismissed the appeal. The appellant filed a second appeal to the High Court. The High Court also disagreed with the above contentions. The High Court held that the priorities had been settled by the courts below in accordance with the provisions of section 76(h) of the (IV of 1882) and were	 therefore	 proper. The method of accounting followed by the Commissioner ap pointed in the case	 and which was accepted by the courts below	 was as follows : Out of the income derived from the property (There is no dispute that the bungalow was fetching rent from 426 month to month) the outgoings were deducted in the following order of priority : 1. Payment of taxes. Payment of interest on the amount of expenditure on maintenance and repairs. Payment of the expenditure on maintenance and repairs. Interest on the amount of principal of the mortgage bond. Amount of principal under dispute. The learned counsel for the appellant	 Mr. section T. Desai	 says that item 4 above should be item 3	 and to substantiate this has submitted three propositions before us : (1) Section 76(h) does not lay down any order of priority inconsistent with the order of priority mentioned in section 76(d) and does not reverse that order. Both the provisions must be read together and in a harmonious manner; (2) The liability for repairs under section 76(d) is very limited in its scope. This liability arises only if there is a surplus left after deducting from the rents and profits of the property two items	 viz.; (i) expenses mentioned in clause (c)	 and (ii) interest on the principal money; (3) If the mortgagee expends more for repairs than the surplus left after the last mentioned deductions	 that expense would not be in pursuance of any liability of his under section 76(d) but would be claimed under the right conferred by section 63A(2) and section 72(b). Such expenses would be treated as additions to the principal money. Sections 76 (c)	 (d)	 (h)	 63A and 72(b) read as follows: "76. When	 during the continuance of the mortgage	 the mortgagee takes possession of the mortgaged property; (c) he must	 in the absence of a	 contract to the contrary	 out of the income of the property	 pay the Government revenue	 all other charges of a public nature and all rent accruing due in respect thereof during such possession	 and any arrears of rent in default of payment.of which the property may be summarily sold; (d) he must	 in the absence of a contract to the contrary	 make such necessary repairs of the property as he can pay for out of the rents and profits thereof after 427 deducting from such rents and profits the payments mentioned in clause (c) and the interest on the principal money; (h) his receipts from the mortgaged property	 or	 where such property is personally occupied by him	 a fair occupation rent in respect thereof	 shall	 after deducting the expenses properly incurred for the management of the property and the collection of rents and profits and the other expenses mentioned in clauses (c) and (d)	 and interest thereon	 be debited against him in reduction of the amount (if any) from time to time due to him on account of interest and	 so far as such receipts exceed any interest due	 in reduction or discharge of the mortgage money; the surplus	 if any	 shall be paid to the mortgagee;. . 63A. (1) Where mortgaged property in possession of the mortgagee has	 during the continuance of the mortgage	 been improved	 the mortgagor	 upon redemption	 shall	 in the absence of a contract to the contrary	 be entitled to the improvement; and the mortgagor shall not	 save only in cases provide d for in sub section (2)	 be liable to pay the cost thereof. (2) Where any such improvement was effected at the cost of the mortgagee and was necessary to preserve the property from destruction or deterioration or was necessary to prevent the security from becoming insufficient	 or was made in compliance with the lawful order of any public servant or public authority	 the mortgagor shall	 in the absence of a contract to the contrary	 be liable to pay the proper cost thereof as an addition to the principal money with interest at the same rate as is payable on the principal	 or	 where no such rate is fixed	 at the rate of nine per cent per annum	 and the profits	 if any	 accruing by reason of the improvement shall be credited to the mortgagor. A mortgagee may spend such money as is necessary (b) for the preservation of the mortgaged property from destruction	 forfeiture or sale; and may	 in the absence of a contract to the contrary	 add such money ' to the principal money	 at the rate of interest payable on the principal	 and where no such rate is fixed	 at the rate of nine per cent per annum; Provided that the expenditure of money by the mortgagee under clause (b) or cause (e) shall not be deemed to be necessary 428 unless the mortgagor has been called upon and has failed to take proper and timely steps to preserve the property or to support the title. . " It seems to us clear that. the object of section 76(d) is not to fix any priorities but to make it obligatory on the mortgagee	 in the absence of a contract to the contrary	 to carry out necessary repairs to the property but the amount he can spend is limited to the difference between rents and profits and payments mentioned in cl. (c) and the interest on the principal money. When we come to cl. (h)	 it directs the mortgagee to apply the receipts from the mortgaged property in a	 certain manner. The order of application is (1) the expenses properly incurred for the management of the property and the collection of rents and profits and the other expenses mentioned in cls. (c) and (d)	 (2) interest thereon	 (3) the surplus	 if any	 has to be utilised towards reduction of interest on principal money	 and (4) the principal money itself. In our view	 there is no contradiction between section 76(d) and section 76(h). It is true	 as stated in proposition No. 2 of the learned counsel	 that the liability for repairs is limited in its scope and arises only if there is a surplus left after deducting from the rents and profits of the property the expenses mentioned in cl. (c)	 and the interest on the principal money	 but the fact that the liability is limited in scope does not bear on the question whether it lays down any order of priorities inconsistent with the priorities mentioned in cl. .This is so because	 as we have stated above	 section 76(d) is not con cerned with the question of priorities but with limiting the amount which can be spent by the mortgagee in possession for carrying Out necessary repairs. Coming now to the third proposition	 it is not necessary to deal with the question of the relationship between section 63A	 section 72(b) and section 76	 because the plaintiff has neither alleged nor proved that any expenses were incurred by which improvement was effected and the improvement was necessary to preserve the property from destruction or deterioration within section 63A(2). Similarly	 he never alleged or proved that he spent money which was necessary for the preservation of the mortgaged property from destruction	 forfeiture or sale within section 72(b). There is no allegation or evidence that the mortgagor had been called upon and failed to take proper and timely steps to preserve the property. We may mention that the only allegation to which our atten tion was drawn is contained in para 11 of the written statement	 which reads as follows : "11. The transaction dated 4 8 28 is not one of security or mortgage. The defendant has never received rent for the suit property more than Rs. 65 per month. The defendant has incurred expenses from time to time for taxes	 expenses	 maintenance	 repairs	 (and) con structions. The defendant made constructions and 429 repairs and spent more	 than Rs. 10	000 (ten thousand) therefor because it was his own property. I shall produce an extract in that behalf. For many years the property under dispute was unoccupied This hardly covers the point now sough to be made. For the aforesaid reasons the appeal fails and is dismissed with costs. G.C. Appeal dismissed.

Summary:
The respondents filed a suit against the appellant for redemption of a mortgage. The suit was decreed subject to payment of a sum of Rs. 9	224 12 0 towards principal and interest within six months. A preliminary decree was directed to be drawn up. The appellant filed an appeal in the Court of the District Judge and inter alia urged that "the court ought to have directed the Commissioner to deduct the rent received (i) first towards taxes	 then (ii) towards interest of the amount	 of repairs etc.	 then (iii) towards interest on the principal amount	 then towards (iv) amount of repairs and expenses and then towards the principal of the loan. " The appeal was dismissed. A second appeal in the High Court also failed. The appellant came to this Court by special leave. It was urged on his behalf that the priorities in section 76(h) of the Transfer of Property Act were subject to the priorities in section 76(d) and therefore interest on the principal amount should	 in the present case	 have been given priority over the payment of the expenditure on maintenance and repairs. Held:The appeal must fail. The object of section 76(d) is not to fix any priorities but to make it obligatory on the mortgagee	 in the absence of a contract to the contrary to carry out necessary repairs to the property but the amount he can spend is limited to the difference between rents and profits and payments mentioned in cl. (c) and the interest on the principal money. It is cl. (h) which directs the mortgagee to apply the receipts from the mortgaged property in a certain manner. The order of application is (1) the expenses properly incurred for the management of the property and the collection of rents and profits and the other expenses mentioned in cls.	 (c) and (d)	 (2) interest thereon	 (3) the surplus	 if any	 has to be utilised towards reduction of interest on principal money and (4) the principal money itself. There is no contradiction between section 76(d) and section 76(h). The fact that section 76(d) limits the scope of the liability has no bearing on the question whether it lays down any order of priorities inconsistent with those mentioned in cl. (h) [428B E]