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IN THE HIGH COURT OF KARNATAKA AT BANGALORE

DATED THIS THE 18TH DAY OF NOVEMBER 2013

P R E S E N T

THE HON’BLE MR. JUSTICE N. KUMAR

A N D

THE HON’BLE MRS. JUSTICE RATHNAKALA

MISC. FIRST APPEAL No.2089/ 2005

BETWEEN: SRI T. VENKATACHALAM S/O.THIRUPALAPPA HINDU, AGED ABOUT 56 YEARS, RESIDING AT NO.523, GAVIPURAM, 1ST MAIN, 3RD CROSS, SUNKENAHALLI LAYOUT, BANGALORE-560 019. ...APPELLANT

(BY SRI S GANGADHAR AITHAL, ADV.) AND: 1.KARNATAKA STATE INDUSTRIAL INVESTMENT & DEVELOPMENT CORPORATION LTD., REPRESENTED BY ITS LAW OFFICER CUM ASSISTANT GENERAL MANAGER AND DULY AUTHORIZED OFFICER SRI A. V. PATEL, S/O SRI Y.V.PATEL, BANGALORE 2. M/S. OM PRINT SUPPLIES PVT LTD PLOT NO.33, ANTHARASANA HALLI, INDUSTRIAL AREA, TUMKUR DISTRICT REG. OFFICE AT NO.328, 17TH CROSS SADASHIVA NAGAR, BANGALORE-560 080. REPRESENTED BY ITS DIRECTORS AS R5, R6 & R7 3.SRI S. TULSIRAM S/O.LATE S. SAJAUSE AGED ABOUT 75 YEARS R/A.NO.3, CHICKPET CROSS

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S.V.LANE, BANGALORE-560 053. 4.SMT. LEELA BAI W/O.TULSIRAM HINDU, AGED ABOUT 69 YEARS R/A.NO.3, CHICKPET CROSS S V LANE, BANGALORE-560 053. 5.SRI B S SHYLENDRA S/O.B.V.SOMASHEKAR AGED ABOUT 51 YEARS R/A.NO.244, IST FLOOR 15TH MAIN, RAJAMAHAL VILAS EXTENSION, BANGALORE-560 080. 6.SRI B S MANJUNATHA S/O.B.S.SOMASEKHAR AGED ABOUT 51 YEARS R/A.NO.244, IST FLOOR 15TH MAIN, RAJAMAHAL VILAS EXTENSION, BANGALORE-560 080. 7.SRI S T VINAYAKA S/O.B.V. SOMASHEKAR AGED ABOUT 51 YEARS R/A.NO.3, CHICKPET CROSS S.V.LANE, BANGALORE-560 053. ... RESPONDENTS.

(BY SRI V F KUMBAR, ADV. FOR R1; R-2, R-3, R-4, R-5, R-6 & R-7 service held sufficient)

THIS MFA FILED U/S.32(9) OF STATE FINANCIAL CORPORATION'S ACT, AGAINST THE ORDER DT.9.2.05 PASSED IN MISC. NO.992/92 ON THE FILE OF THE VI ADDL. CITY CIVIL JUDGE, BANGALORE CITY (CCCH-11), ALLOWING THE PETITION FILED BY THE 1ST RESPONDENT HEREIN U/S. 31(1), 31(1)(aa) AND 32 OF SFC ACT, TO ISSUE RECOVERY CERTIFICATE BY ENTITLING THE 1ST RESPONDENT HEREIN TO RECOVER THE CLAIMED AMOUNT BY SALE OF MORTGAGED PROPERTIES MENTIONED IN PETITION 'B' AND 'C' SCHEDULE.

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THIS APPEAL COMING ON FOR ADMISSION THIS DAY, KUMAR J., DELIVERED THE FOLLOWING: -

J U D G M E N T

This appeal is filed by the 8th respondent challenging

the order passed by the 6th Additional City Civil Judge,

Bangalore City, directing to sell ‘B’ and ‘C’ schedule

properties to recover the money due from respondent Nos.1

to 7 by the Karnataka State Industrial Investment and

Development Corporation Limited.

2. For the purpose of convenience, parties are referred

to as they are referred to in Misc.Case.No.992/1992.

3. The petitioner - Karnataka Industrial Investment

and Development Corporation Limited (hereinafter referred

to as ‘the Corporation’ for brevity) is a Company registered

under the Indian Companies Act, 1956, for providing

financial accommodation to the industrialists.

4. First respondent - Company approached the

Corporation for financial accommodation for the purpose of

setting up an offset printing unit at Antharasanahalli

Industrial Area, Tumkur District. First respondent -

Company availed a sum of Rs.60,00,000/- from the

Corporation. Respondent Nos.2 to 5 being the directors of

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the first respondent - Company along with respondent Nos.2

to 4 have executed necessary loan agreements in favour of

the petitioner agreeing to repay the loan amount together

with agreed interest within stipulated period on 13.07.1988.

First respondent has duly created an equitable mortgage in

respect of the immovable property set out in ‘A’ schedule by

depositing the title deeds pertaining to that property and

respondent Nos.2 and 3 have also created equitable

mortgage in respect of ‘B’ and ‘C’ schedule properties by

depositing title deeds of the said properties with the

petitioner at Bangalore. The particulars of the title deeds

deposited with the petitioner by respondent Nos.2 and 3 are

set out separately at schedule ‘D’ and ‘E’ to the petition.

5. First respondent committed default in payment of

the amount. Therefore, the petitioner was constrained to

exercise the powers conferred under Section 29 of the State

Financial Corporation Act. They took possession of the

factory premises at ‘A’ schedule and machineries were sold

by public auction and recovered a sum of Rs.16,40,000/-

and the same was adjusted to the part satisfaction of the

amount due to the petitioner. Thereafter, the petitioner

issued notice dated 01.08.1992, to respondent Nos.2 to 7

invoking their personal guarantee. Respondent Nos.2 to 7

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did not repay the amount. Thereafter, they sought for a

recovery certificate against them by filing a petition under

Section 31(1(a)(aa) of the State Financial Corporation Act

(hereinafter referred to as ‘the Act’ for brevity). During the

pendency of the said Misc.Case, 8th respondent

T.Venkatachalam was impleaded as he had purchased the

‘B’ schedule property from respondent No.2. Their case is

that he purchased the property being fully aware of the

charge created by respondent No.2 in respect of the ‘B’

schedule property. Therefore, the said alienation is not

binding on the petitioner and they are entitled to recover

money from the sale of ‘B’ schedule property.

6. After service of notice, respondent Nos.1, 2, 5 and 6

entered appearance but did not file objections. Respondent

Nos.3, 4 and 7 have filed objections, contesting the claim

and they wanted the petition to be dismissed. They raised

several grounds, they denied the execution of the mortgage

etc. Eighth respondent denied all the allegations made in

the petition as false and frivolous. He contended that he is

the bona fide purchaser of the ‘B’ schedule property from the

respondent under a sale deed dated 27.11.1991. He had no

notice of the additional security offered by the respondent

No.2 to the petitioner. After purchase, he has invested funds

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heavily and constructed a house on the ‘B’ schedule property

and residing peacefully in it. But BDA has withdrawn the

permission to alienate the property to the petitioner. Under

these circumstances, the ‘B’ schedule property is not liabe

for adjudication in realization of the claimed amount.

Petitioner has no right to recover the loan amount by selling

‘B’ schedule property, which is belonging to the respondent.

Respondent No.8 also filed additional statement of objections

contending that there is no mortgage created by the

respondent No.2 in favour of the petitioner in respect of the

‘B’ schedule property. The same is not binding on the eighth

respondent who is in possession and enjoyment of the ‘B’

schedule property as a bona fide purchaser. Therefore, he

sought for dismissal of the application as against him.

7. The trial Court framed the following points for its

consideration:-

1. Whether the petitioner proves that the 1st respondent company availed financial assistant of Rs.60.00 lakhs for the purpose of setting up an offset printing Unit at Antharasanahalli Industrial Area in Tumkur district, by furnishing the guarantee and security of respondents 2 to 7 agreeing to repay the loan amount together with interest at 17% p.a.?

2. Whether the petitioner proves that

respondents 2 and 3 have created an equitable mortgagee in respect of petition

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‘b’ and ‘c’ schedule properties by deposit of title deeds with the intention of securing the loan on 13.07.1988?

3. Whether the petitioner proves that

A.M.Patel, Asst. General Manager, Legal Section is duly authorized to verify, sign and file the petition against the respondents?

4. Whether the petitioner is entitled for

Recovery Certificate as prayed for?

5. What order?

8. On behalf of the petitioner, two witnesses were

examined as PWs.1 and 2 and got marked 20 documents as

Exs.P.1 to P.20. On behalf of the respondents, 8th

respondent – T.Venkatachalam was examined as RW.1, 3rd

respondent – S.Tulasiram was examined as RW.2 and 7th

respondent - S.T.Vinayaks was examined as RW.3 and they

also produced 22 documents which were got marked as

Exs.R.1 to R.22. The trial Court on consideration of the

aforesaid oral and documentary evidence on record held that

the petitioner has established the financial assistance of

Rs.60,00,000/- given to the first respondent for setting up a

offset printing unit and respondent Nos.2 to 7 stood as

guarantors. Further it held, respondent Nos.2 and 3 have

created an equitable mortgage in respect of the ‘B’ and ‘C’

schedule properties by depositing title deeds and securing

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loan on 13.07.1988. A.M.Patel, Assistant General Manager,

Legal Section is duly authorized to verify, sign and file the

petition against respondents and therefore, it held that the

petitioner is entitled to recover the amounts claimed.

Aggrieved by the judgment and order of the trial Court, it is

only the respondent No.8 who has preferred misc. petition.

9. Sri.S.Gangadhar Aithal, learned Counsel for the

appellant assailing the impugned order contended that,

though the 8th respondent was impleaded as the owner of

the ‘B’ schedule property, to have his say in the matter

before the said property is brought to sale, he filed his

statement of objections contending that there was no

equitable mortgage at all. Even if there is one, it is void and

he being the bonafide purchaser of the ‘B’ schedule property

for valuable consideration having constructed a house

thereon and living there, his property is not liable to be sold

to discharge the debt due to the petitioner, from respondent

Nos.1 to 7. The said contention is not considered by the trial

court; no issues were framed; no finding is recorded inspite

of elaborate evidence being adduced in the case. Therefore,

he submits that a case for interference is made out insofar

as ‘B’ schedule property only and the finding recorded by the

trial court requires to be set aside.

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10. Per contra, learned Counsel appearing for the

respondent – Corporation submitted that, the lease hold

rights acquired by the second respondent under a registered

lease deed constitutes a title in the lease hold rights, which

could be mortgaged in favour of the Corporation, which they

did and subsequent to execution of sale deed in favour of the

second respondent by the Bangalore Development Authority,

it amounts to accession to the ‘B’ schedule property and

therefore, the petitioner was justified in bringing the ‘B’

schedule property for sale. As the original lease deed was

with the B.D.A. and only a copy was given to the second

respondent, the second respondent has handed over the said

title deed, the original possession certificate and has created

an equitable mortgage, which is in accordance with law and

the petitioner was justified in bringing the security for sale

for non-payment of amounts, which are legally due to them

and he submits that no case for interference is made out.

11. In view of the aforesaid facts and the rival

contentions, what is clear is that the subject matter in this

appeal is only ‘B’ schedule property and therefore, the

judgment and order passed by the trial court in respect of

other matters is not under challenge. In respect of ‘B’

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schedule property, the questions that arise for our

consideration are:

(1) Whether the second respondent created a

valid equitable mortgage by way of title deeds

in favour of the petitioner?

(2) When, what is mortgaged is only a lease hold

rights, does it constitute a mortgage of title

deeds?

(3) When subsequently a sale deed is executed

in favour of the second respondent, who in

turn, has sold the property to 8th respondent,

is the petitioner entitled to bring ‘B’ schedule

property for sale?

12. Section 58(f) of the Transfer of Property Act, 1882

(hereinafter referred to as ‘the Act’) deals with mortgage of

deposit of title deeds, which reads as under:

“58. “Mortgage”, “mortgagor”, “mortgagee”, “mortgage-money” and “mortgage deed” defined.-(a). . . . . . . . . .

(f) Mortgage by deposit of title-deeds.- Where a

person in any of the following towns, namely, the towns of Calcutta, Madras, and Bombay, and in any other town which the State Government concerned may, by notification in the Official Gazette, specify in this behalf, delivers to a creditor or his agent documents of title to immoveable property, with intent to create a security thereon, the transaction is called a mortgage by deposit of title-deeds.”

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Therefore, law recognizes a mortgage by deposit of title

deeds, if a person delivers to a creditor, the documents of

title to immovable property with intent to create a security

thereon, the transaction is called a mortgage by deposit of

title deeds. To constitute such a deposit, two things are

important.

(1) Delivery of documents of title;

(2) An intention to create a security on the basis of the

property, which is the subject matter of said document

of title.

If these two things exist, then in law, a valid mortgage by

deposit of title deeds is created. The Section does not refer

to any original document being deposited. All that it says is

document of title. However, in practice, it is fairly well

accepted as a rule, it is the delivery of original documents of

title, which alone can create a valid mortgage. But it is not

an invariable rule. In a given case, where the original title

deed is lost or original title deed is validly accounted for, it is

permissible to create a mortgage by deposit of a copy of the

title deed. The law on the point is fairly well settled. In the

case of G.R.Krishna –vs- S.K.Venkatachalam & Ors.

reported in (1990) 2 MLJ 260, the Madras High Court

dealing with the question what is the document of title, held

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that ordinarily any deed that vests title in a person is a

document of title. Obviously, that deed is original deed.

Therefore, when the section says documents of title, it must

be understood to mean original documents of title and not

copies of original documents of title. It must be remembered

that as per Section 58(f), a mortgage by deposit of title deeds

can be created only in certain towns specified therein. Thus,

it is a special provision for particular places. It appears to be

intended for raising loans urgently to meet urgent

requirements especially by commercial people. Therefore,

they relied on the judgment of the Madras High Court in the

case of Adaikappa Chettiar –vs- Official Assignee reported

in 1972 T.L.N.J. 589 wherein it was observed that, a

mortgage by deposit of title deeds cannot be created by

depositing copy of a title deed. However, when the originals

are not available in stated circumstances, such as, when it is

lost or when it is not readily available to produce, the copies,

can be accepted for the time being. It was further observed

that, if it is to be held that with a copy of a title deed a

mortgage can be created then there is no doubt that it may

lead to fraudulent transactions. With many copies one can

create many mortgages with many different people without

the knowledge of one of the mortgages with the other

persons. Thereafter it was observed that, if the original deed

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is lost, one will not be able to create a mortgage, if it is held

that a copy of the title deed is not sufficient. When the

original is lost, the person who has lost it, may have to

suffer.

13. In Syndicate Bank –vs- Modern tile and Clay

Works reported in 1980 K.L.T. 550, a Division Bench has

observed that, to hold that a copy of a deed of transfer is also

a document of title for purposes of Section 58(f) of the

Transfer of Property Act, would amount to giving facilities to

the owner to misuse the provision. A copy of the deed of

transfer is not ordinarily a document of title for the purposes

of an equitable mortgage. However, when the original is lost,

with sufficient safeguards a certified copy of document can

be received as a document of title. Therefore, the contention

as the original lease deed is not produced and delivery is not

delivered with the mortgagor at the time of creating

mortgage, there is no valid mortgage in the eye of law, is

concerned, that can be accepted only if the petitioner in this

case is unable to make out where the original title deed

exists. In that context, it was submitted that, in all cases

where Bangalore Development Authority allots a site,

executes a lease-cum-sale agreement, the original lease deed

is retained by them and only a certified copy of the same is

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given to the lessee is concerned, if it is so, that could

constitute a sufficient cause for not handing over the original

deed, on that aspect, no evidence is adduced before the trial

court and the trial court has not gone into that question at

all.

14. Insofar as the contention that, the Bangalore

Development Authority after expiry of the lease period,

executed a registered sale deed in favour of the second

respondent on 22.11.1991 as per Ex.R4 and on 27.11.1991,

the second respondent executed a sale deed in favour of

respondent No.8 as per Ex.R1, subsequently, a rectification

deed came to be executed on 7.4.1992 as per Ex.R5 and

thus, the second respondent could not have created a

mortgage on the basis of a leasehold right is concerned, it is

without any substance.

15. A Division Bench of Andhra Pradesh High Court in

the case of M.K.Ramesh Kumar –vs- Asset Reconstruction

Company (India) Limited. Rep by its Manager reported in

AIR 2008 AP 45 dealing with the question whether the

leasehold right could be the subject matter of the mortgage

held that, where the mortgagor created an equitable

mortgage in favour of Bank in respect of leasehold rights in

property and subsequently leasehold rights were converted

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into full ownership rights by view of conveyance deed issued

in her favour by the Government during currency of

mortgage, it would amount to accession to mortgaged

property within the meaning of Section 70 of the T.P.Act.

Therefore, in law, it is permissible to create a mortgage by

deposit of title deeds by mortgaging the leasehold rights in

an immovable property.

16. Insofar as accession made to the mortgaged

property by way of a subsequent sale deed, in case of what is

mortgaged is a leasehold right is concerned, Section 70 of

the Transfer of Property Act, 1882 deals with accession,

which reads as under:

“70. Accession to mortgaged property.- If,

after the date of a mortgage, any accession is

made to the mortgaged property, the mortgagee,

in the absence of a contract to the contrary, shall,

for the purposes of the security, be entitled to

such accession.”

17. In the case of M.K.Ramesh Kumar (supra), this

provision fell for consideration and it has been held as

under:

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“13. The word “accession” used in the above

reproduced provision has not been defined in the

1882 Act. Therefore, it will be useful to notice the

dictionary meaning of the word. In Advanced Law

Lexicon by P. Ramanatha Aiyar (3rd Edition), the

author has extracted the meaning of the word

“accession” from some of the judgments. The same

read as under:

“Accession is a mode of acquiring property

as an addition to existing property by natural

growth or by application of human labour. In this

broadest sense it may be defined to be the means

by which title to the increments to one’s property

movable or immovable is acquired, whether by

natural or artificial means (as) accession of a

province to an empire. In the restricted sense, in

which it is generally used in law, it applies to the

acquisition of generally used in law, it applies to

the acquisition of title to the increments to one’s

movable property, brought about by artificial

means, such as labour or the addition of material

other than the intermixture of goods or things of the

same kind.”

14. As per Black’s Law Dictionary (7th

Edition), the word “accession” means:

“1. The act of acceding or agreeing (the family’s

accession to the kidnapper’s demands). 2. A

coming into possession of a right or office (as

promised, the state’s budget was balanced within

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two years after the governor’s accession). 3.

(International Law) The process by which a nation

becomes a party to a treaty that has already been

agreed on by other nations (Italy became a party to

the nuclear-arms treaty by accession). – Also

termed adherence; adhesion. 4. The acquisition of

title to personal property by bestowing labour on a

raw material to convert it to another thing (the

owner’s accession to the lumber produced from his

land). – Also termed (in Roman Law) accession. 5.

A property owner’s right to all that is added to the

land, naturally or by labour, including land left by

floods and improvements made by others (the

newly poured concrete driveway became the

homeowner’s property by accession).”

15. In Motilal v. Bai Mani (supra), the Privy

Council held that where after shares, in a

company, were pledged, the company issued fresh

shares and allotted them to the old share-holders

taking the call money from the yearly divided

payable on the old shares, on which they had

resolved to pay a fixed interest of 6 per centum per

annum, the new shares were “increase or profit”

and the pledge must return them to the pledgor

along with the old shares. These additional

shares were, in the opinion of their Lordships of

Privy Council, accessions to the shares expressly

pledged or hypothecated, and the pledgor was

entitled to recover them.

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16. The ratio of the above noted judgment

was applied by the Supreme Court in Standard

Chartered Bank v. Custodian. In that case, the

Supreme Court considered the question whether

bonus shares, dividend and interest accrued on the

pledged shares and debentures were accretions to

the pledged stocks and formed part of the pledged

property, which is to be returned by the pledgee

only when the pledged goods are to be returned

and answered the same in affirmative. Their

Lordships distinguished two earlier judgments in

CIT v. Dalmia Investment Co. Ltd. and Hunsur

Plywood Works Ltd. v. CIT and held:

"In our opinion the Court rightly came to the

conclusion that bonus share is an accretion. A

bonus share is issued when the company

capitalises its profits by transferring an amount

equal to the face value of the share from its reserve

to the nominal capital. In other words the

undistributed profit of the company is retained by

the company under the head of capital against the

issue of further shares to its shareholders. Bonus

shares have, therefore, been described as a

distribution of capitalised undivided profit. Section

94 of the Companies Act refers to the power of a

limited company to alter its share capital. Under

Section 94(1)(a) it has power to increase its capital

share while under clause (d) it can sub-divide its

share into shares of smaller amount. Whereas in a

case of sub-division an existing share is simply

divided or split and it may be argued that no new

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share or capital is created, but there can be little

doubt that in the case of issue of bonus share there

is an increase in the capital of the company by

transferring of an amount from its reserve to the

capital account and thereby resulting in additional

shares being issued to the shareholders. A bonus

share is a property which comes into existence

with an identity and value of its own and capable

of being bought and sold as such. Neither in

Dalmia Investment nor in Hunsur Plywood case

was this Court concerned with a question whether

the bonus share could be regarded as an accretion

or not. This Court in those cases was only

concerned with a question relating to the valuation

of the bonus share for tax purposes.

On the other hand the Privy Council in

Motilal Hirabhai v. Bai Mani had to consider as to

whether the pledgee was required to return to the

pledgor, on redemption, bonus shares which had

been issued. The plea taken by the pledgee in that

case was that the pledgee was only required to

return the original shares which were pledged and

not the bonus shares which were received.

Rejecting this contention it was held that the bonus

shares were received as arising out of and

appertaining to the original shares and that it was

impossible to contend that the right to these shares

could be differentiated from the right to the original

shares. Referring to Section 163 of the Contract Act

the Privy Council held that:

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"These shares (bonus shares) are clearly

accessions to the shares expressly pledged or

hypothecated, and the pledgor or his

representative, the present plaintiff, is entitled to

recover the same."

Applying the same logic it must follow that

the dividend and interest which was received by

the plaintiffs and which was relatable to the

pledged stocks must also be regarded as

accretions thereto."

17. In Prathap Chand v. Ram Narayan, the

Supreme Court considered the question whether

the 'Sir' land, which came into possession of the

appellant on the extinction of the ex-proprietary

tenancy of the landholder, can be regarded as

accession to the mortgage and the mortgagee is

entitled to half share of the lands. The facts of that

case were that one Ramchandar Jat originally

owned Annas - 10/8 share in Mauza Tamalawadi,

while the rest belonged to others. Ramchandar

executed a simple mortgage deed on July 27, 1920

in favour of Seth Ram Jiwan and two minors Ram

Narain and Radhey Sham. On August 27, 1926,

the appellant purchased Annas - 5/4 share

belonging to the other shareholders in the village.

Thereafter, he brought a suit against Ramchandar

for profits. The same was decreed. In execution of

the decree, the appellant purchased the entire

Annas - 10/8 share of Ramchandar in the village.

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Thus, he became the owner of the entire village

subject be the mortgage of the respondents on

Annas - 5/4 share therein. On July 27, 1932, the

respondents sued Ramchandar on the basis of the

mortgage deed. The appellant was a party to the

suit. A preliminary decree for sale was passed in

March, 1937. This was followed by a final decree.

Thereafter, the property was put to sale and

purchased by the respondents. The sale was

confirmed on April 12, 1940. Ramchandar Jat held

'Sir' land in certain khasras with a total area of

252.49 acres. On the sale of Ramchandar's share

to the appellant, Ramchandar became an ex-

proprietary tenant of his 'Sir' land. Thereafter

Ramchandar was ejected from his ex-proprietary

tenancy sometime in 1936 and the lands came into

possession of the appellant. There were certain

other lands which were nominally recorded as

Muafi Khairati in the name of Ramchandar's

mother but were actually in the possession of

Ramchandar. It appears that Ramchandar was

ejected from these lands also and they came into

the possession of the appellant. Further the

appellant as a lambardar came into possession of

certain other lands by surrender or otherwise. In

1942, the respondents filed a suit for partition and

claimed half share in the lands of Ramchandar

and others, which came into the possession of the

appellant. Their case was that these lands were

accession to the mortgage in their favour. The Sub-

Divisional Officer rejected the plea of the

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respondents. Thereupon, the respondents filed a

suit for declaration in the civil court. The trial court

partly decreed the suit. Consequently, the

respondents went up in appeal to the High Court,

which was allowed to the extent of the

respondents' claim to one- half share in the 'Sir'

lands held by Ramchandar. On appeal, the

Supreme Court noted that the mortgage covered

'Sir' lands and held:

"..............We have already pointed out that

the mortgage covered the sir plots also so far as the

proprietary rights in them were concerned.

Therefore, when Ramchandar's ex-proprietary

rights came to an end and the land came into the

possession of the appellant and became

khudkashat, the mortgage would cover this

khudkashat land to the extent of the mortgagees'

share therein. It is true that if Ramchandar's ex-

proprietary tenancy had continued, the mortgagee

would have no right to ask for half share in it; but

when the ex- proprietary tenancy was extinguished

and this land came in the possession of the

lambardar (mortgagor) it was an accession to the

mortgage under Section 70 of the Transfer of

Property Act and the mortgagees could claim a

share in it. It was however urged that accession to

be available to the mortgage must be a legal

accession. We however see no illegality in the

accession which took place. There is also no doubt

that the accession took place when the mortgage

was still subsisting. Therefore, we agree with the

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High Court that on the ex-proprietary tenancy being

extinguished, the sir land which would otherwise

have remained in the exclusive possession of

Ramchandar as an ex-proprietary tenant became

an accession to the mortgaged property and the

respondents would be entitled to half of it on their

purchasing the - 5/4 share in execution of the

decree on the mortgage. The fact that the rent of an

ex-proprietary tenant is due to the person whose

ex-proprietary tenant he becomes by virtue of the

sale or mortgage with possession would make no

difference after ex-proprietary tenancy is

extinguished, for on such extinction the land would

go to the entire proprietary body and would thus in

this case be an accession to the mortgage to the

extent of the share mortgaged.”

18. In Chapsibhai Dhanjibhai Danad v.

Purushottam, the Supreme Court interpreted

Section 108(d) of the 1882 Act and held:

"...............if any accession is made to the

leased property during the continuance of a lease,

such accession is deemed to be comprised in the

lease. If the accession is by encroachment by the

lessee, and the lessee acquires title thereto by

prescription, he must surrender such accession

together with the leased land to the lessor at the

expiry of the term. The presumption is that the land

so encroached upon is added to the tenure and

forms part thereof for the benefit of the tenant so

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long as the lease continues and afterwards for the

benefit of the landlord."

19. In Sidheshwar Prasad v. Ram Saroop

(supra), the Full Bench of Patna High Court

interpreted Section 70 of the 1882 Act and held

that there is no reason to restrict the word

"accession" to physical additions to the mortgaged

property and exclude incorporeal accession i.e.

acquisition of an interest in the property. Some of

the observations made in that judgment, which are

useful for deciding the issue raised by the

petitioner, are extracted below:

".................Accretion to the mortgaged

property and improvements upon it by construction

of building or electric installations are obvious

cases of accession. Property, however, is a bundle

of rights, and enlargement or diminution of some of

the rights which constitute property will be

tantamount to accession within the meaning of

Section 70 or, for the matter of that, Section 63.

Whatever tends to increase the value of the

security, either by additions made to the

mortgaged property or by enlargement of the right

in it, would constitute accession. On the same

principle, if after the mortgage the mortgaged

property is lost to the mortgagor by operation of

law or otherwise and the mortgagor thereafter

acquires some interest therein, though not the

whole interest he owned at the time of mortgage, it

is, in my opinion, an accession to the mortgaged

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property, so as to be available to the mortgagee. I

do not see any principle or logic to deprive the

mortgagee of his right to recover the mortgage debt

by sale of the limited right of the mortgagor in such

bakasht lands...................

Identity of interest in the mortgaged property

and the accreted lands is not the foundation of the

principle of accession. Wherever there is an

alteration in the interests of the mortgaged

property, the mortgagee will be entitled to the

interest left with the mortgagor, be it an enhanced

interest or diminished interest."

17. In the light of the aforesaid judgments of the Apex

Court as well as the various High Courts, the enlargement of

a right in an immovable property by way of an absolute sale

deed as against the leasehold rights fall within the definition

of “accession” and that mortgagee would be entitled to the

benefit of such accession. Therefore, it is not open to the 8th

respondent in this case to contend that, merely because he

has purchased the property after execution of a sale deed in

favour of his vendor is concerned, the mortgage would not be

binding on him. If there was a valid mortgage during the

subsistence of the equitable mortgage and any right

possessed by the mortgagor by a lessee before the expiration

of the period if the leasehold rights get enlarged into an

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absolute title in favour of the lessor, the lessee shall be

entitled to the benefit of such accession and he can recover

the amount due to him and recover the same by bringing the

property with accession for sale in a manner known to law.

18. It was next contended that, the stipulation under

the lease deed makes it mandatory for the lessor to obtain

the permission of the Bangalore Development Authority

before mortgaging the property and such permission would

be granted only if the lessee requires financial assistance for

putting up a residential construction thereon. There is no

permission granted by the B.D.A. to mortgage his property

as a collateral security and therefore, the mortgage in

contravention of the aforesaid stipulation renders the

transaction void. Though this point was raised by the 8th

respondent in the statement of objections, the trial court

does not apply its mind, not considered this aspect and

therefore, it requires to be considered by the trial court

based on the material that both parties have placed in

support of their contention.

19. Further, it was submitted that, the mortgagor –

second respondent has also made available to the

Corporation, an original possession certificate, which is

marked as Ex.P17 dated 6.9.1982. 8th respondent contends

- 27 -

that the original was handed over to him at the time of

purchase, which he has produced in the case as Ex.R3. He

submits that there were two originals. So the question is,

out of those originals, which is a genuine document and

which is a fabricated document. Though both the

documents are produced, and arguments are canvassed, the

trial court has not applied its mind and recorded a finding

on this aspect. Under these circumstances, we are of the

view that when the 8th respondent raised this specific

pleading by placing evidence in support of his objection, the

trial court committed an error in not raising necessary

points or issues for consideration nor adjudicating the said

dispute by looking into the evidence on record. Therefore, to

that extent i.e., a finding recorded by the trial court in

respect of ‘B’ schedule property, requires to be set aside and

the matter has to be remanded back to the trial court for

fresh disposal and in accordance with law, only insofar as ‘B’

schedule property is concerned. In our view, that would

meet the ends of justice. Hence, we pass the following order:

The appeal is partly allowed. The judgment and decree

of the trial court insofar as ‘B’ schedule property is

concerned, is hereby set aside. The matter is remanded

back to the trial court for formulating the requisite points for

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consideration, to provide opportunity to both the parties to

adduce evidence on those points and look into the evidence,

which is already on record and decide the said issues on

merits and in accordance with law.

Ordered accordingly.

The High Court Registry is directed to send back the

original records received, to the trial court, forthwith.

Sd/- JUDGE Sd/- JUDGE NVJ/KNM/-