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Report No. 54

Order 34, rule 10

34.6. There is another point concerning Order 34, rule 10. The present rule says-

"10. In finally adjusting the amount to be paid to a mortgagee in case of a foreclosure, sale or redemption, the Court shall, unless in the case of costs of the suit the conduct of the mortgagee has been such as to disentitle him thereto, and to the mortgage-money such costs of the suit and other costs, charges and expenses as have been properly incurred by him since the date of the preliminary decree for foreclosure, sale or redemption upto the time of actual payment."

A question which falls to be considered with reference to this rule is that of costs of the suit. The rule requires the court to award these costs to the mortgagee, "unless the conduct of the mortgagee has been such as to disentitle him thereto." We considered it desirable to examine the operation of the rule, with special reference to cases where the mortgagor has offered the amount due on the mortgage and also where improvements made by the mortgagee are involved.

34.7. A Madhya Pradesh case1 related to a mortgage where the plaintiff-respondents were the mortgagors, and the defendant-appellant the mortgagee. The mortgagors had been awarded the costs of the suit by the District Judge, and this was contested on appeal. The High Court held:

"The general rule is that a successful party is entitled to costs, unless he is found guilty of misconduct, negligence or omission, or unless there is some other good cause for denial of costs to him. It is true that the learned Judge came to the conclusion that the plaintiff-respondent had not proved the tender of the mortgage-money. But the plaintiff had given a timely notice expressing his offer to redeem the mortgage. Further, when the matter was taken to court the defendant, by contesting the claim of the plaintiff with respect to possession, (after having given the mortgaged property on rent to his own relatives), tried to deprive him of the use of the property; the court could not but award the costs of the suit to the plaintiffs. It cannot be urged that the discretion has not been exercised by the Judge properly."

1. Purshottam v. Ramacharanlal, AIR 1967 MP 237 (239)(DB).

34.8. In the Patna case,1 it was held by the Patna High Court that:

"in a redemption suit the mortgagee is entitled to costs, unless he has been guilty of misconduct or has refused a valid tender of the amount due to him."

In the present case, the first court found that the deposit of the mortgage money under section 83 of the Transfer of Property Act was insufficient and that there was no misconduct on the part of the mortgagor in contesting the suit and that there was no maid fides on the part of the mortgagee, the mortgagee was entitled to his costs. But, where the court does not give him his costs, the appellate court would be exercising its discretion properly if it reverses the order for costs allowed to the plaintiff-mortgagor against the mortgagee.

1. Ram Bilash v. Radhakrishna Prasad, AIR 1958 Pat 557.

34.9. The facts in one Madras case1 were as follows: There was a suit for redemption of a mortgage executed by defendants 2-5 in favour of defendant 1 under a deed executed in 1934. Defendants 2-5 executed a subsequent mortgage in favour of the plaintiffs in 1937, and the plaintiffs filed the suit out of which the appeals arose for redeeming the prior mortgage in favour of defendant 1. Before filing the suit, the plaintiffs deposited the amount due under the mortgage. The respondent, prior mortgagee, refused to accept the amount on the ground that the mortgagors who executed the deed in 1934 to him and the deed in 1937 to the plaintiff petitioners and, therefore, it would be unsafe for him to receive the amount and hand over possession in the absence of the mortgagors. It was held that the conduct of the prior mortgagor in taking the objection was neither vexatious nor unreasonable, and that he should not be made to pay the costs of the subsequent mortgagee.

1. Minakshi Ayyar v. Janaki Achalier, AIR 1943 Mad 592 (DB).

34.10. In one Patna case,1 the mortgagor sent a telegram to the mortgagee, asking him to refrain from filing a suit, and promised to pay by a fixed date. Then he sent a subsequent telegram, expressing willingness "to pay and informing that amount was ready". This the court held, did not of itself constitute a valid tender. But the latter was immediately followed up by the mortgagor actually going to the mortgagee's place and offering the money which the court held constituted a valid tender.

In this case where a valid tender of the entire amount due under a mortgage was made and a request was made that the mortgagee should accept what was just on accounts being taken, and the mortgagee not merely disputed the accounts but refused the settlement of accounts altogether and the mortgagee rushed to the court without justification, it was held that the conduct was such as not to entitle him to the interest accruing after the date of tender and the costs of the suit. The mortgagee was also not allowed the costs in these appeals.

1. Joti Lal v. Fateh Bahadur, AIR 1929 Pat 397 (DB).

34.11. One of the points raised in a Madras case in an appeal1 against a redemption decree, by the defendants mortgagees was regarding costs, which the lower court had not awarded. The Madras High Court held:

"Ordinarily a mortgagee would be entitled to his costs but this is subject to the discretion of the court where he raises questions which involve a denial of the mortgagor's right to redeem. Here there was a denial that a portion of the property was mortgaged: there was also an excessive claim for improvements and also a claim for enhanced revenue."

In these circumstances the High Court refused to hold that the lower court had exercised its discretion wrongly in this matter.

1. Vastena Holla v. Mahabala Rao, AIR 1926 Mad 405.

34.12. The facts in one Punjab case1 were as follows: A mortgage was effected on the land in suit by the plaintiff in favour of the defendant/appellant. The lower court had passed a decree for the possession of land on deposit of the amount payable to the defendant and costs. With regard to improvements, the trial court had held that only part of the amount claimed had been proved. On appeal, counsel for appellant submitted that in order to increase the yield from the land so as to recompense himself in lieu of the interest due on the principal money, the mortgagee had to effect these improvements. Dua J. held, that the mortgagee in possession cannot be permitted to lay money in increasing the value of the estate except in circumstances which strictly fail within the four corners of section 63A of the Transfer of Property Act. The Court held:

"The interpretation of this section, as suggested on behalf of the appellant, is obviously calculated to give to the mortgagee a handle to so increase the value of the estate as to cripple the mortgagor's power of redemption. This obviously could not be the intention of the legislature."

With regard to costs, the court held:

"The general rule is that costs follow the event. In the present case, the mortgagee resisted the claim of redemption both before the Collector and in the civil courts, and indeed it has been very seriously opposed right up to this court. The mortgagee has in fact persisted in claiming title to the land in suit. It was in these circumstances open to the court below to pass the impugned order as to costs. There is no question of principle involved in the order which must, therefore, be upheld."

1. Rup Ram v. Munshi Chillu, AIR 1960 Punj 480 (DB).

34.13. In a Patna case,1 the plaintiff had prayed for a decree for redemption of certain lands, which were the subject of usufructuary mortgage executed by one M in favour of the defendants. The plaintiff claimed to have purchased the equity of redemption. The trial court gave a decree for redemption in favour of the plaintiff, and also granted the plaintiff costs of the suit. On appeal, the Patna High Court held that "in the written statement the defendant challenged the title of the plaintiff to redeem the property, and we see no reason why the plaintiff should not be given the costs he has incurred in the suit."

1. Rajballam v. Ram Autar, AIR 1962 Pat 203 (204) (DB).

34.14. In a suit for redemption which went up to the High Court of Travancore-Cochin, the trial court had granted a decree, but on terms which did not satisfy the plaintiff or the contesting defendants. The High Court held1 that normally, in a redemption suit, the mortgagee is entitled to his costs unless he is guilty of misconduct. Putting excessive value on improvements is not misconduct so as to disentitle a mortgagee to his costs. The question involved was, whether the mortgagee could claim anything more than what he bargained for in the mortgage deed. Further, the contesting defendants also put the mortgagor to prove her title to redeem, when there was no doubt about her title. In these circumstances, the court declined to interfere with the lower court's decision awarding the mortgagee only one-fourth of the costs.

1. Pakwathi Neelakantan v. Ummini Pillai, AIR 1942 Tray-Co 295 (DB).

34.15. In another Travancore-Cochin case1 in a suit for redemption, the defendant mortgagee raised untenable contentions regarding part of the mortgaged property, and also claimed full value of the building which had been erected by him contrary to the terms of the deed. The plaintiff offered to pay only one-fourth of the value of the improvements to the mortgagee and also claimed an exaggerated amount by way of damages on account of waste. It was held that the conduct of the parties was such as to disallow them their costs, and each party was, therefore, to bear its costs.

1. Narayana Falai v. G. Kesawan, AIR 1955 NUC (Tray-Co) 3483 (DB).

34.16. The above examination of sample judicial decisions shows that the rule fairly well. In particular, if the mortgagor deposits the full amount, he would not be liable for costs of the suit.

34.17. It may be of interest to note the corresponding English rule quoted below:1

"Where a person is or has been a party to any proceedings in the capacity of a trustee, personal representative or mortgagee, he shall, unless the Court otherwise orders, be entitled to the costs of those proceedings, in so far as they are not recovered from or paid by any other person out of the fund held by the trustee or personal representative or the mortgaged property, as the case may be; and the Court may otherwise order only on the ground that the trustee, personal representative or mortgagee has acted unreasonably or, in the case of a trustee or personal representative, has in substance acted for his own benefit rather than for the benefit of the fund."

1. Supreme Court Costs Rules, (1959) rule 6(2).

34.18. It has been stated that "a mortgagee has an absolute right to costs, unless they are forfeited by misconduct; if they are forfeited by misconduct, then they are within the discretion of the Judge."1

1. Charles v. Jones, (1880) 33 Ch D 80 (84) per Lopes L.J. (Case under old Order 65, rule 1 RSC).

34.19. The English rule was thus explained1 by Lord Selborne L.C.:

"The right of a mortgagee in a suit for redemption or foreclosure to his general costs of suit, unless he has forfeited them by some improper defence or other misconduct, is well established and does not rest upon the exercise of that discretion of the Court which, in litigious causes, is generally not subject to review. The contract between mortgagor and mortgagee, as it is understood in this Court, makes the mortgage a security, not only for principal and interest, and such ordinary charges and expenses as are usually provided for by the instrument creating the security, but also for the costs properly incident to a suit for foreclosure or redemption. In like manner, the contract between the author of a trust and his trustees entitles the trustees as between themselves and their cestuis que trust, to receive out of the trust estate all their proper costs incident to the execution of the trust.

These rights, resting substantially upon contract, can only be lost or curtailed by such inequitable conduct on the part of a mortgagee or trustee as may amount to a violation or culpable neglect of his duty under the contract. Any departure from these principles in the general course of the administration of justice in this Court would tend to destroy, or at least very materially to shake and impair, the security of mortgage transactions and the safety of trustees. In fact, such a departure, instead of being beneficial to those who may have occasion to borrow money on security, or to repose confidence as to property in their friends or neighbours, would, in the result, throw the former class of persons into the hands of those who indemnify themselves against extraordinary risks by extraordinary exactions, and would deprive the latter class of the assistance of all who cannot afford, or are not inclined, to bestow upon the affairs of other persons their money as well as their trouble and time."

1. Cotterell v. Stratton, (1872) 8 Ch 295 (296, 302), (Lord Selborne L.C.).

34.20. Since the right of a mortgagee to his costs of a redemption or foreclosure suit is a matter of contract, and not in the discretion of the Court, costs cannot be denied except where he has "unreasonably instituted or carried on or resisted any proceedings" within the above Rule.1 e.g., where he has declined to hand over reconveyance in exchange for the principal and interest.2 Mortgagees failing on a fairly arguable point in a foreclosure suit may, however, be allowed to add their costs to suit their security.3 Eve J. summed up the position thus:4

1. (a) Cotterell v. Stratton, 1872 LR 8 Ch 295. (b) Turner v. Haycock, (1882) 20 Ch D 303.

"I think the various authorities to which my attention was called in the course of the exhaustive arguments addressed to me in this case establish three propositions: (1) that a mortgagee has an absolute right to costs unless they are forfeited by misconduct; (2) that, if the absolute right is forfeited by misconduct, the costs are in the discretion of the judge; and (3) that the raising of an tenable defence, or a claim of a balance due after the mortgage has been fully paid off, both constitute misconduct by which the absolute right to costs is forfeited. Authority for these propositions is to be found in the cases of Charles v. Jones, (No. 2) 56 LTR 543; Hall v. Howard, 54 LTR 810: 32 Ch Div 430; and Ashworth v. Lord, 58 LTR 18".

2. Rourke v. Robinson, (1911) 1 Ch 480.

3. Stamford (ex parte) v. Keeble, (1913) 2 Ch 102.

4. Heath v. Chinn, 1908 Law Times Reports 855 (856-858).

34.21. It would, thus, appear, that, in substance, the position in England does not differ from that in India. Moreover, the rule gives a discretion which appears to have been soundly exercised. However, it would, in our view, be desirable to provide expressly that where the mortgagor pays or deposits the full amount before or at the time of institution of the suit, ordinarily he shall get his costs. This does not really change the law, but only makes it more explicit.

Recommendation as to Order 34, rule 10

34.22. Accordingly, we recommended that to Order 34, rule 10, the following proviso should be added:-

"Provided that where the mortgagor, before or at the time of institution of the suit, tenders or deposits the amount due on the mortgage, or such amount as is not substantially deficient in the opinion of the court, he shall not be ordered to pay the costs of the suit to the mortgagee and the mortgagor shall be entitled to recover his own costs of the suit from the mortgagee, unless the court for reasons to be recorded, otherwise directs.

Order 34, rule 10A (New) (Mesne profits to be paid by the mortgagee)

34.23. Where the mortgagor has deposited the sum due on the mortgage, mesne profits should be paid by the mortgagee, if the amount tendered or deposited by the mortgagor is not substantially deficient. We are of the view that an express provision on the subject is desirable.

Recommendation

34.24. Accordingly, we recommend the insertion of the following new rule in Order 34:

"10A. Where the mortgagor has, before or at the institution of the suit, tendered or deposited the sum due on the mortgage, or such amount as is not substantially deficient in the opinion of the Court, the Court shall direct the mortgagee to pay to the mortgagor mesne profits for the period beginning with the institution of the suit."



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