AVVARI SUBBA ROW Vs. KONDAMUDI VARADAIAH (DECEASED)

JUDGEMENT

(1.) The appellants who were defendants in the Court below purchased certain immovable properties from the respondents (plaintiffs) for Rs. 11,000 on 10 August, 1934. Some of the properties had been mortgaged to one Venkatappayya to whom a sum of Rs. 5,682-7-0 was found to be payable for principal and interest on the date of the sale. This sum was left in the hands of the appellants for payment to the mortgagee and the balance of the purchase money was adjusted towards the debts due from the vendors to the appellants. The appellants, however, did not pay off the mortgage debt as provided in the sale deed. The Madras Agriculturists Relief Act having been passed in March, 1938, the respondents who are agriculturists within the meaning of that Act issued a notice to the appellants in April, 1938, requiring them not to pay the amount reserved in their hands to the mortgagee, but to pay it with interest as provided in the mortgage bond to the respondents themselves in order that they might pay off the debt after getting it scaled down in accordance with the provisions of the Act. The appellants refused to comply with this demand, claiming that they were also agriculturists and as such were entitled to the benefit of the statutory reduction of the debt which they had undertaken to pay under the terms of the sale deed. Thereupon the respondents brought the suit out of which this appeal arises for directing the appellants to deposit the sum of Rs. 5,682-7-0 left in their hands at the time of the sale, together with Rs. 2,405-9-0 representing interest on the said sum from the date of sale at the rate provided in the mortgage with subsequent interest and costs, and for paying out of the amount thus deposited the sum properly payable to the mortgagee on scaling down the debt and the balance to the respondents as the persons entitled thereto. It may be mentioned here that the mortgagee himself brought a suit (O.S. No. 19 of 1939) to enforce the mortgage, and the two suits were tried together by the Court below which has passed a mortgage decree for Rs. 4,617 in the mortgagee's suit and a decree in favour of the respondents herein for the sum claimed with interest at six per cent. per annum from the date of suit till date of payment with costs, with a direction that the amount decreed in the mortgagee's suit if deposited by the appellants should be adjusted pro tanto towards this decree and that if such amount was not deposited by the appellants or realised in execution of the mortgage decree, the respondents should take out execution of this decree, and, after paying to the mortgagee out of the amount realised the sum declared due, appropriate the balance in satisfaction of the decree herein.

(2.) The main dispute in the appeal relates to the question as to who is entitled to the benefit of the statutory reduction of the mortgage debt--the mortgagors or the purchasers of the hypotheca. Mr. Rangachari for the appellants contended that the latter, having purchased the property subject to the mortgage, came under a liability to pay off the debt and that such liability being a " debt" within the meaning of the Act as held in Perianna V/s. Sellappa , and the appellants being agriculturists, they were entitled to the benefit of the scaling down of the debt, the vendors (mortgagors) having no more than a right to be indemnified against any claims of the mortgagee. Mr. Govindarajachari on the other hand argued for the respondents that the sale as between the vendors and the vendees having been free from encumbrances it was the duty of the vendors to discharge the mortgage in question, and that the amount left in the hands of the vendees for payment to the mortgagee was part of the purchase money which the vendees were directed to pay on their behalf, so that if the debt was subsequently reduced to any extent the benefit of such reduction should go to the vendors to whom the vendees should account for the unpaid balance. The dispute thus turns on the distinction between a sale subject to encumbrances and a sale free from encumbrances which under the Transfer of Property Act have different incidents attached to them as regards encumbrances existing on the property at the time of the sale. So far as the mortgagee is concerned, the respondents as mortgagors and the appellants as purchasers of the hypotheca are both entitled, as agriculturists, to have the debt scaled/down in accordance with the provisions of the Madras Agriculturists Relief Act, and the Act has no bearing on the question as to who is to have the benefit of the scaling down in such circumstances. Before turning/to the sale deed on the proper construction of which the decision must rest, it will be convenient here to refer to the relevant provisions of the Transfer of Property Act. Section 55 so far as it is material, provides: In the absence of a contract to the contrary, the buyer and the seller of immovable property respectively are subject to the liabilities, and have the rights, mentioned in the rules next following, or such of them as are applicable to the property sold: (1) The seller is bound ... (g) to pay all public charges and rent accrued due in respect of the property upto the date of the sale, the interest on all incumbrances on such property due on such date, and, except where the property is sold subject to incumbrances, to discharge all incumbrances on the property then existing; ... (5) The buyer is bound ... (b) to pay or tender, at the time and place of completing the sale, the purchase money to the seller or such person as he directs; provided that, where the property is sold free from encumbrances, the buyer may retain out of the purchase money the amount of any incumbrances on the property existing at the date of the sale, and shall pay the amount so retained to the persons entitled thereto; ... (d) Where the ownership of the property has passed to the buyer, as between himself and the seller, to pay all public charges and rent which may become payable in respect of the property, the principal monies due on any incumbrances subject to which the property is sold, and the interest thereon afterwards accruing due. It will be seen that the rights and liabilities of the buyer and seller in regard to incumbrances on the properties sold are markedly different according as the property is sold subject to incumbrances or free from incumbrances as between the vendor and the vendee. In the one case the vendor is liable to pay only the interest on the incumbrances till the date of the sale and the vendee becomes liable to pay the principal due on the incumbrances as well as the interest thereon accruing after the sale. In the other the duty of discharging all incumbrances existing on the property on the date of the sale is laid on the seller who receives the full value of the property as its price. But as the buyer is interested in the discharge of such incumbrances as he has bargained for a clear title, he is given the right to retain out of the purchase money the amount of the incumbrances on the property for payment to the persons entitled thereto. These provisions make it plain that on the sale of property subject to incumbrances, the bargain relates to the vendor's interest in the property such as it is, that is to say, his equity of redemption, and the discharge of the incumbrances is the sole concern of the purchaser as between himself and the vendor who is only entitled to be indemnified against the incumbrances; while in the case of a sale free from incumbrances, the price is fixed with reference to the full value of the property, the liability to discharge all the incumbrances being thrown on the vendor, the vendee however being given the right to retain out of the price an amount sufficient to clear the ineumbrances. But as the liability to pay them off is that of the vendor who has to implement his sale by providing a clear title, the vendee must be regarded as paying the amount retained to the incumbrancer on behalf of the vendor out of the purchase money payable to the latter under the contract of sale. In other words, the vendee acts as the agent of the vendor as regards the disposal of the sum retained, although the agency is one which cannot be revoked as the vendee has himself an interest in the money being applied in the manner indicated. (See Section 202 of the Indian Contract Act). If this is the position, as we apprehend it is, where immovable property is sold free from incumbrances, it follows that the vendor is entitled to call upon the buyer to account to him for any portion of the purchase money which it has become no longer necessary to apply in accordance with the stipulation in that behalf. We do not think that the observations of the Privy Council in Izzat-Un-nissa Begam V/s. Partab Singh (1909) 19 M.L.J. 682 : L.R. 26 LA. 203 : I.L.R. 31 All. 583 at 589 (P.C.), to which our attention was called by Mr. Rangachari are opposed to this view. Their Lordships were dealing with a case of sale of property subject to incumbrances and the observations which are expressly made with reference to such a transaction should not be taken as laying down the right and liabilities of the parties to a sale free from incumbrances (see the observations on that decision in Raghunatha V/s. Sadagopa .

(3.) The question accordingly arises as to whether the sale to the appellants was free from incumbrances or subject to incumbrances. The sale deed, Ex. A, recites that the property mentioned in the schedules A and B annexed thereto " has been sold to you, this day, after settling the price therefor, for Rs. 11,000. The said sale amount has been received in the following manner." It then refers to the mortgage in favour of Venkatappayya and the various payments made by the vendors towards the debt and states that after deducting those payments a sum of Rs. 5,682-7-0 was the balance due to the mortgagee on the date. Then occurs the following clause which was the subject of considerable discussion before us: By way of your having agreed to pay to the mortgagee, without our having any concern with the same, the said sum together with interest that may accrue in the future according to the terms of the mortgage and get the property released from the mortgage, the said sum of Rs. 5,682-7-0 has been received by us. And after referring to the adjustment of the balance of Rs. 5,317-9-0 towards the debt due to the vendees under a compromise decree, it concludes by stating: Therefore the consideration amount of Rs. 11,000(in words rupees eleven thousand) relating to this deed, has been fully received by us in the aforesaid manner. Therefore, giving up all the rights belonging to us in the said property sold, we have delivered possession of the said property to you this day itself. It may be mentioned here that the sale comprised all the properties mortgaged to Venkatappayya and the vendors had no interest thereafter in any part of the hypotheca. It was argued by Mr. Rangachari that this circumstance taken along with the clause relating to the receipt of Rs. 5,682-7-0 indicated that the sale was one subject to the mortgage, as the vendors had nothing further to do with the payment of the incumbrance, and it was entirely the concern of the appellants to pay the debt charged upon the properties. Stress was laid particularly on the words " without our having any concern with the same " as showing that the intention of the parties was that the discharge of the mortgage should be the sole responsibility of the vendees who took the property subject to the burden attached to it; and reference was made to the observation of the learned Chief Justice in Naima Khatun V/s. Sardar Basant Singh (1933) I.L.R. 56 All. 766 (F.B.). Where the previous encumbrances are a charge exclusively on the property transferred to the vendee, the result is that only the equity of redemption is sold and it is the concern of the vendee whether or not to discharge the previous encumbrances. We are unable to accept this view of the transaction. As will be seen from the terms and recitals in Ex. A referred to above, the price of the properties was fixed on the basis of their full value excluding the encumbrance from consideration, and credit was given, towards the payment of such price, for the amount payable to the mortgagee as the vendees agreed to pay it to him. The phrase " without our having any concern with the same " on which Mr. Rangachari laid so much stress may well have been intended to convey that the vendors looked to the vendees to pay off the debt as sufficient out of the purchase money was left in their hands for the purpose. But the whole clause amounts, in our opinion, to no more than a recognition in express terms of what a vendee is entitled and bound to do under the proviso to Section 55 (5) (b) of the Transfer of Property Act, and is perfectly consistent with the sale being free from encumbrances. Reference was made to the decision in Kaliyammal V/s. Kolandavela Gounder (1916) 5 L.W. 228, as showing that an undertaking by a vendee to pay off a mortgage on the property out of the purchase money left in his hands for the purpose amounts to nothing more than a covenant for indemnity which, according to the Privy Council decision already referred to, would not entitle the vendor to participate in any benefit which the purchaser might derive from his purchase. That was a suit for damages brought by a vendor who had conveyed by way of absolute sale certain property for Rs. 27,000 which sum the vendee undertook to pay in discharge of a debt charged on the property. The vendee failed to pay the amount accordingly and the mortgagee recovered from the vendor the balance of the debt after crediting the sale proceeds of the property which proved insufficient to satisfy the debt in full. The vendor then brought the suit after the lapse of more than six years from the date of the sale but within three years from the date of the payment by the vendor to the mortgagee. It was held that Art. 83 of , the Limitation Act applied and the suit was in time as a covenant to indemnify the vendor should, in the circumstances, be implied from the nature of the transaction The learned Judges observed, No doubt the property conveyed by Ex. A is valued at Rs. 27,000; which is also stated be the consideration for the sale. But it is perfectly clear upon the facts, and it is not disputed, that the real value of the property was more than Rs. 27,000, and that, as a matter of fact, the transfer was made more by way of gift than as an ordinary transaction of sale. It would be unreasonable to hold that, in a transaction of this nature, the transferor expected or contemplated any further liability with respect to the encumbrance . . . No doubt there are cases in which the gist of the transaction is that the vendor leaves part of the sale proceeds in the hands of the vendee with a direction that he shall pay the debts for which the vendor was liable. In such cases of absolute covenant it is open to the vendor to sue the vendee as soon as he fails to pay the debts as they become due and the words of such a covenant may be inconsistent with a covenant to indemnify, properly so called. The case of Raghunatha v Sadagopa appears to have been one of that nature It will thus be seen that the decision was based on the peculiar facts of that case and has not much bearing on the construction of the contract of sale here in question. We are of opinion that the sale under Ex. A was, as between the parties thereto, intended to be free from encumbrances, that the sum of Rs, 5,682-7-0 was part of the purchase money left in the hands of the appellants for the specific purpose of paying off the mortgage of Venkatappayya on behalf of the respondents who were bound to discharge that encumbrance and that the appellants should return the unexpended balance which; as a result of the statutory reduction of the debt, it was subsequently found unnecessary to pay to the mortgagee.