Tripura Modern Bank Ltd. Vs. Khan Bahadur Khalilur Rahman

Tripura Modern Bank Ltd. Pakistan Zone, Chittagong (Appellant)

Vs.

Khan Bahadur Khalilur Rahman being dead repre­sented by his heir Sultamed and ors (Respondent)

Supreme Court

Appellate Jurisdiction

(Civil)

Present:

Hamoodur Rah­man CJ

Abdus Sattar J

M. R. Khan J

Judgment

November 25, 1970.

The Bengal Municipal Act, 1932, section 525

There is no provision in the Bengal Municipal Act that a purchaser in a sale held under section 525 of the Act for realization of municipal tax purchases the property free from all encumbrances. If there is a valid mortgage subsisting at the time of the sale the purchaser purchases the property subject to that mortgage and the right of the mortgagee to put the property to sale for the realization of dues cannot be questioned. ……………(9)

Cases Referred to-

Corporation of Calcutta vs. Kumar Arun Chandra Singha and others 38 CWN 917 ; Rasik Chandra Chakravarti vs. Jagabandhu Chakravarti and others AIR 1929 Cal. 392; Sital Chandra Majhi vs. Parbati Charan Chakravarti AIR 1922 Cal. 32.

Lawyers Involved:

Asrarul Hussain, Senior Advocate, instructed by Muhammad Nurul Huq, Advocate-on-Record—For the Appellant.

Ahmed Sobhan, Senior Advocate, instructed by Abu Bakkar, Advocate-on-Record—For Respondent Nos. 1(a) to 1(c).

Ex parte-Respondent Nos. 2 to 4.

Civil Appeal No. 103D of 1968.

(On ap­peal from the judgment and order of the High Court of East Pakistan Dacca dated the 12th August, 1966 in Appeal from original decree No. 216 of 1959).

Judgement

Abdus Sattar J.—This appeal by special leave, at the ins­tance of the plaintiff, arises out of a suit for realisation of a sum of Rs. 62,265/- and odd on the basis of an equitable mortgage on deposit of title deeds.

2. The case of the plaintiff is that the de­fendant No. 2, M. Sekandar Ahmed, who is a contractor and a land owner, approached the plaintiff bank and wanted financial help by way of overdraft arrangement upto a sum of Rs. 25000/-. The plaintiff bank agreed to the proposal. The said defendant then executed on 11th October, 1944, a security bond and thereby hypothecated all his the then con­tracts, work orders and bills thereunder for the sum of Rs. 25000/- and also undertook to furnish fresh and further security and to deposit all the title deeds with respect to his properties and also agreed to execute proper documents whenever called upon by the plain­tiff bank. In addition to the security bond the defendant also executed on that date a demand promissory note for the sum of Rs. 25000/- as further security. The respondent No. 3, Mohammad Islam, who is brother of respondent No. 1, stood surety for defendant No.1 and granted repayment of the out­standing dues on the above overdraft account by executing a registered letter of guarantee on the 11th of December, 1914. Accordingly the overdraft was allowed in the current ac­count of the defendant No. 1 and he was given financial help whenever necessary. On the 27th September, 1945 the plaintiff demanded further security from defendant No. 1 and accordingly, it is said, the defendant No. 1 executed a fresh security bond on the 27th September, 1945 and thereby deposited the title deeds in respect of the property mention­ed in Schedule ‘A’ to the plaint. Defendant No. 1 also executed a memorandum on the 29th September, 1945 in favour of the plain­tiff acknowledging to have deposited with the, plaintiff bank the title deeds mentioned in schedule ‘B’ to the plaint with the intention of creating a mortgage by deposit of title deeds in connection with the overdraft pay­ment of Rs. 25000/-. Later on the plaintiff, on the 13 May, 1945, gave a further financial assistance of Rs. 5000/- to the defendant No.1 and defendant No. 3, Abdul Samad Sawdagar (now dead), stood surety for the additional liability of Rs. 5000/- by a letter of guarantee. By 13-5-1952, the debt of defendant No.1 rose upto Rs. 37000/-. He executed a promis­sory note for the said amount on that date. No payment having been made a sum of Rs. 62,265/7/6 became due to the plaintiff on the basis of the equitable mortgage created by defendant No. 1 by deposit of the title deeds.

3. The case of the plaintiff further is that since after the execution of the mortgage in plaintiff’s favour the defendant No. 1 with a view to cheat the plaintiff bank brought about a fraudulent, illegal and collusive sale of the mortgaged property by keeping the municipal taxes in arrear in contravention of the terms of the security bond and purchased the said property in the benami of defendant No. 5 and thereafter managed to create a transfer deed in the benami of defendant No. 4 who were his relations.

4. The suit was contested by defendants Nos. 1, 2 and 4. Defendant No. 3 died during the pendency of the suit and as his heirs were not substituted his name was struck off. De­fendant No. 1 did not deny the transaction. His defence mainly was that the suit was not maintainable in view of sections 69 and 70 of the East Bengal State Acquisition and Ten­ancy Act as he was a rent-receiver. Defendant No. 2 admitted that he had stood surety upto a sum of Rs. 25000/- on overdraft. He, however, contended that as defendant No.1 re­paid the above overdraft amount by 27.9.1945, he was not liable for further advance, if any, by the plaintiff bank to the defendant No. 1. The defence of defendant No. 4 was that he was not bona fide purchaser for value without notice of any mortgage in the municipal sale and that he made the purchase in the benami of defendant No. 5. He denied any collusion with defendant No. 1 and claimed that he had acquired the property free from all encumbrances. His defence further was that there was no equitable mortgage of the pro­perty and the property did not belong to de­fendant No. 1.

5. The trial Court decreed the suit against defendants Nos. 1 and 4 on contest and ex parte against defendant No. 5 and dismissed the suit against defendant No. 2. It was found that there was an equitable mortgage by de­fendant No. 1 in favour of the plaintiff bank of the property in question and the sale of it for a sum of Rs. 3700/- was a collusive one. Sikandar Ahmed himself allowed the sale by not paying the municipal dues in contravention of his agreement made in the security bond and that it was he, who actually, purchased the property in the benami of defendant No. 5.

6. Defendant No. 4 appealed against the decree. A Division Bench of the High Court of East Pakistan allowed the appeal. The judgment and decree of the trial Court were modified. It was held that under section 167 of the Bengal Municipal Act the municipal dues being a first charge the plaintiff bank was entitled to a sum of Rs. 3380/- which was the surplus left out of the sale proceeds of the mortgaged property after satisfaction of the municipal dues. The finding of the learned Subordinate Judge that the sale was a collusive one was set aside.

7. Leave to appeal was granted to consi­der whether even if the Municipality had a first charge on the mortgaged property, the sale for its dues could be said to be free from all encumbrances and whether the High Court while reversing the decision of the trial Court did not fully consider the evidence with re­gard to the allegation that the mortgagor brought about a collusive and fraudulent sale by keeping the municipal taxes in arrear and then purchased the property in the benami of his relation.

Section 167 of Bengal Municipal Act, 1932, provides:—

“The sum due on account of any rate under this Act from any person in respect of any holding shall, subject to the prior payment of the land revenue (if any) due to the Government or of the rent (if any) due to a landlord under the Bengal Tenancy Act, 1885, there­upon, be a first charge upon the said holding”.

The sale for arrears of municipal tax was held under section 525 of the Bengal Municipal Act which provides, inter alia, that if money be due under this act in respect of holding from the owner thereof, on account of any tax, and if the owner of such holding is unknown or the ownership thereof is dis­puted, the Commissioners may publish twice at an interval of three months, a notification of sale of such holding and after the expiry of not less than three months from the date of the last publication, unless the amount recoverable be paid may sell such holding to the highest bidder, who shall at the time of sale, deposit the full amount of the purchase money. It is not in dispute that the proce­dure laid down in section 525 was followed in conducting the sale of the disputed pro­perty. Mr. Asrarul Hussain has not also rais­ed any question as to the applicability of the section in holding the sale. The point that remains, however to be considered is what did the purchaser purchase in the sale held under section 525 of the Bengal Muni­cipal Act. It is true that under section 167 of the said act the dues for municipal tax were a first charge subject to the prior pay­ment of the land revenue, if any, due to the Government or of rent due to the land­lord under the Bengal Tenancy Act. There is no provision in the Bengal Municipal Act that a purchaser in a sale held under the said Act for the realisation of municipal tax pur­chases the property free from all encum­brances.

8. The learned Judges of the High Court on an examination of decision in the case of Corporation of Calcutta vs. Kumar Arun Chandra Singha and others, 38 CWN 917, which took into consideration the provisions of section 205 of the Calcutta Municipal Act, which also lays down that dues under the Calcutta Mu­nicipal Act is a first charge, found that the charge mentioned in section 167 of the Ben­gal Municipal Act is not such a charge as is defined in section 100 of the Transfer of Pro­perty Act. The learned Judges thereafter, having found that the plaintiff had failed to substantiate that the sale was a collusive one and the real purchaser was defendant No.1 came to the conclusion that the only amount, to which the plaintiff was entitled, was the sum of Rs. 3380/- which remained in the credit of defendant No. 1. This finding is based on the provisions of section 73(1) of the Transfer of Property Act.

9. Section 73 (1) of the Transfer of Pro­perty Act lays down that where the mortgaged property or any part thereof or any interest therein is sold owing to failure to pay arrears of revenue or other charges of a pub­lic nature or rent due in respect of such pro­perty and such failure did not arise, from any default of the mortgagee, the mortgagee shall be entitled to claim payment of the mort­gage money, in whole or in part, out of any surplus of the sale proceeds remaining after payment of the arrears and of all charges and deduction directed by law. The object of section 73 is only to protect a mortgagee whose security has been diminished. The section does not lay down that if a mortgaged pro­perty is sold owing to failure to pay arrears of revenue or other charges of a public nature or rent due in respect of such property the only remedy of a mortgagee is to claim pay­ment of his money out of any surplus of the sale proceeds remaining after payment of the arrears and of all charges and deductions di­rected by law. The section only permits a mortgage to take recourse to this section only when his security has been diminished on account of a sale as contemplated by section 73. In the present case it has been noticed that under the Bengal Municipal Act a pur­chaser at a sale under section 525 of the Act does not acquire the property free from all encumbrances. If there is a valid mortgage subsisting at the time of the sale the purcha­ser purchases the property subject to that mortgage and the right of the mortgagee to put the property to sale for the realisation of his dues cannot be questioned.

In the case of Rasik Chandra Chakravarti vs. Jugabandhu Chakravarti and others, All 1929 Cal. 392 it has been held that there is nothing in the working of section 73 of the Transfer of Property Act which would indicate that a mortgagee in the case where the mortgaged property is sold for arrears of rent must be confined to the surplus sale-proceeds and cannot follow the mortgaged property. In the case reported as Sital Chandra Majhi vs. Parbati Charan Chakravarti, AIR 1922 Cal. Mukherjee, J. of the Calcutta High Court considered a case where the sale had taken place under the Bengal Tenancy Act for arrears of rent. Section 65 of that Act provides that rent is a first charge on the te­nure or holding. According to section 159 of the said Act where a tenure or holding is sold in execution for a decree for arrears due in respect thereof, the purchaser shall take subject to the interests defined as protected in­terests but with power to annul the interests defined as encumbrances. Section 167 pres­cribes the procedure to be adopted for an­nulling an encumbrance. A purchaser hav­ing power to annul an encumbrance and de­siring to annul the same may, within one year from the date of the sale or the date on which he first has notice of the encumbrance, whichever is later, present to the Collector an application in writing requesting him to serve on his encumbrance a notice declaring that the encumbrance is annulled. This proce­dure was not followed in this case within the time limit prescribed by the section. In these circumstances the learned Judge observed that on the expiry of one year from the date of the rent sale or from the date when the purchaser had notice of the encumbrance the mortgage could not be annulled and from that date onwards the holding in the hands of the purchaser would be subject to the mort­gage no longer liable to be impeached or ex­tinguished. This was the position in a case where the purchaser took with power to annul the encumbrance but it was not annulled within the time limit fixed by the law. There is provision in the Bengal Municipal Act that a purchaser under section 525 purchases the property free from all encumbrances. We are, therefore, unable to uphold the decision of the High Court that the only remedy of the appellant was to proceed against the surplus amount which stood in the credit of defendant No. 1. The plaintiff’s mortgage was subsisting on the date of sale and the purchaser purchased it subject to that mort­gage and therefore the claim of the plaintiff to put the property to sale for the realisation of the mortgage dues cannot be questioned by the purchaser. Mr. Ahmed Subhan has argu­ed that since municipal tax is a first charge, the sale for its realisation gives to the pur­chaser full right in the property and the only remedy of the mortgagee is under section 73(1) of the Transfer of Property Act. We are un­able to accept this contention for the reasons stated earlier. In view of our above findings it is not necessary to consider the question whether the High Court should have at least granted a money decree for the full amount claimed by the plaintiff against defendant No. 1.

10. The learned Subordinate Judge found that by the sale under section 525 of the Municipal Act the ownership and title of the property in question did never vest in defen­dant No. 4 and remained with the defendant No. 1 as the entire sale was a collusive trans­action. In arriving at this finding the learned Judge took into consideration a number of facts and circumstances. It was found that the property was worth Rs. 15000/- when, it was sold for a sum of Rs. 3700/- only. It was then considered that the suit between defen­dant Nos. 4 and 5 appeared to be collusive as it was allowed to be decreed exparte without costs. The Municipality did not execute any document of transfer in favour of the purcha­ser and no ”delivery of possession was given through any legal authority”. Lastly it was found that defendant No. 5 is a relation of defendant No. 1. The High Court in setting aside the finding with regard to collusion has not taken into account these circumstances. It has not been considered that it could not be believed that the defendant No. 1 would allow a property worth Rs. 15000/- to be sold for Rs. 3700/- for his failure to pay the paltry sum of Rs. 300/ and odd which was due on account of Municipal tax. The trial Court observed that “the P. Ws. appeared to be more reliable than the D. Ws. and I accept the evidence of P. Ws. that the defendant No. 1 is still in possession and the defendant No. 4 has no possession”. This finding has also been reversed with giving any cogent reasons thereof. Regard being had to these facts we are unable to sustain the finding of the High Court that the real purchaser was the defendant No. 4, who is still in possession of the property. The trial Court rightly found that the sale was a collusive transaction and defendant No. 1 is still in possession of the property.

In the result this appeal is allowed. The judgment and decree of the High Court are set aside and these of the trial Court resto­red. There will, however, be no order as to costs.

Ed.

Source: 25 DLR (SC) (1973) 34

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