RAO BAHADUR K SAMBASIVA CHETTIAR Vs. RIGHT HON BLE THE SECRETARY OF STATE FOR INDIA IN COUNCIL REPRESENTED BY THE COLLECTOR OF CHINGLEPUT

JUDGEMENT

(1.) THIS appeal arises out of an order giving directions to the receiver appointed at the instance of the plaintiff in a suit on a simple mortgage to pay to the Collector a sum of money due by the mortgagor by way of the value of labour known as kudimaramath for which the mortgagor was obliged to pay under the Madras Compulsory Labour Act. The amount due from the mortgagor in respect of kudimaramath had accrued due before the appointment of the receiver. The Collector was, of course, not a party to the suit on the mortgage and he filed an application under Order 40, Rule 1, Civil Procedure Code, praying the Court to pay the money due to the Government out c f the amount in deposit or to direct the receiver to pay it. A preliminary objection was taken that no appeal lies. It is contended that this is not in fact an order to the receiver under Order 40, Rule 1 but a mere order under Section 151 for payment out of Court at the instance of the Government. The answer to this contention is that the Collector's application was framed under Order 40, Rule 1 and that in fact the payment was directed by means of an order to the receiver which clearly falls under Order 40, Rule 1 and is therefore appealable.

(2.) THE question therefore is whether the debt due to the Crown is entitled to priority over the debt due to the mortgagee in respect of the amount recoverable from the income of the mortgaged property. THE appellant contends that the appointment of a receiver in a suit on a simple mortgage creates what is practically a charge in favour of the mortgagee for the rents and profits of the land. He relies on certain observations in Maharaja of Pithapuram v. Gokuldoss Goverdhana Doss , on a passage in the judgment of Ramesam, J., in the Full Bench ruling in Paramasivan Pillai V/s. Ramasami Chettiar and on the observations of Madhavan Nair, J., in Khader Mohideen Sahib V/s. Nagu Bai . It is true that there are in these judgments phrases which give some colour to the theory that when a receiver has been appointed the right of the mortgagee to a preferential lien over the rents in respect of his mortgage-debt to the extent to which it is not covered by the hypotheca, is based on the theory that the rents are regarded as being added to the security for the mortgage-debt. But it seems to me that this view is clearly erroneous and that it was not in fact the basis of the decisions in the three cases above referred to. In India at any rate a simple mortgage does not bind the rents and profits of the hypotheca. THE appointment of a receiver in a suit on a simple mortgage does not really enlarge the scope of the mortgage. THE true nature of the proceeding is that the Court creates a machinery whereby the mortgagor is prevented from dissipating the funds which would normally be used to defray the interest on the mortgage, the object of the machinery being simply to prevent the mortgagor from profiting by the law's delays. THE receiver collects the rents in the first instance for the benefit of the mortgagee against the contingency of the hypotheca being insufficient. If the hypotheca satisfies the mortgage-debt then the receiver holds the rents for the mortgagor. THE theory that these rents are charged in favour of the mortgagee seems to have arisen out of the difficulty of finding a legal basis for the rule that the mortgagee at whose instance a receiver has been appointed is entitled to priority as against the. simple creditors of the mortgagor in claiming the funds in the hands of the receiver, should the hypotheca fail to satisfy his debt. THE true basis of this rule is not, I think, that there is any charge in favour of the mortgagee but that the Court gives preference to the mortgagee over the simple creditors in respect of those moneys merely by way of justice and equity in order to ensure that the mortgagee shall not be damnified by the protraction of the suit. THE decision in S.C. Venkanna V/s. Mangammal (1936) I.L.R. 14 Rang. 308 (F.B.), lays it down that the preferential claim of the mortgagee to the profits in the hands of the receiver is not based on any substantive rights to those profits which the terms of the mortgage do not warrant, but is merely granted by way of an equitable relief to the mortgagee against the consequences of the delay in enforcing his legal remedy. If it is conceded that a mortgagee has no charge over the rents in the hands of the receiver, it is difficult to see how he can have a preferential claim as against the Crown. His preferential claim as against the simple creditors has been recognized, but not, so far as I am aware, on any other grounds than as an equity which is recognised in his favour as a diligent creditor trying to enforce his legal remedy. As against all the unsecured creditors the claim of the Crown is paramount. Manikkam Chettiar v. Income-tax Officer, Madura South . THE lower Court has relied on a decision in Soniram Rameshur V/s. Mary Pinto (1933) I.L.R. 11 Rang. 467 which at page 474 quotes with approval an unreported decision of the Rangoon High Court to the effect that a receiver appointed in a mortgage suit can be directed at the instance of the Crown to pay out of the rents and profits collected from the mortgaged land income-tax due by the mortgagor. One might be chary of treating a brief summary of an unreported decision as an authority in the absence of the full text of the judgment, but I am of opinion that the decision which appears to have been given in that case is based on correct principles. If there is no charge in favour of the mortgagee and if the mortgagee is merely in the position of a simple creditor in whose favour the Court recognises an equity over other simple creditors, there is no reason why the ordinary rule that a debt due to the Crown has preference over all other unsecured debts should not be enforced in this case. THE circumstances of the present case give an additional weight to the claim of the Crown. It is true that money due from a ryot who has defaulted in his duty to perform the customary labour for the protection of the irrigation source of his land is not charged on the land, though it may be recovered as an arrear of land revenue. At the same time the payment of these dues is a legitimate expense which the holder of the land ought to incur for the protection of the land. And although in the present case the amount became payable before the receiver was appointed it is in my opinion a legitimate expense which the receiver should pay as an incident of his management of the property, quite apart from the fact that it is also a debt due to the Crown and so entitled to priority. Whichever way therefore one regards this claim, it is one which must be preferred to the claim of the mortgagee. I therefore dismiss the appeal with costs.