9911796707
TMI Blog1910 (12) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... the mortgaged property up for sale, but as the reserved price was not reached, it was withdrawn and no sale effected. 4. On the 30th of May 1901, the first agreement, set up by the defendant No. 1 and challenged by the plaintiffs, was entered into. By the terms of this agreement the defendant No. 1 was to work and finance the Mill, reimbursing himself by way of salary to the extent of an annual sura not exceeding ₹ 16,000. In August 1903, defendant No. 1 filed a foreclosure suit, annexing to his plaint a copy of the agreement of the 30th of May 1901. The suit came on before Mr. Justice Crowe ex parte and a decree nisi purports to have been passed in January 1904. In August 1904 defendant No. 1 applied to have the decree made absolute. But as he had not passed his accounts the application was rejected. 5. On the 5th of October 1905, a second agreement was entered into between the Company and the defendant No. 1,by which the earlier agreement of May 1901 was modified in some particulars. Under this agreement defendant No. 1,in consideration of working and financing the Mill, was to receive a monthly salary of ₹ 1,500 to be paid out of the Agent's commission. 6. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding that Crowe J.'s decree was defective and could no longer be executed. The result of these proceedings was what I cannot help feeling a very strange and unfortunate position of affairs. Two Judges, Davar J. and Macleod J., had in effect declared that the decree nisi of 1904 was so defective that without the addition of some further direction it could not be executed, while the appeal Court had declined to allow any such further directions to be added. So that, although in form existing, this decree nisi remained, and it seems to me must ever remain, a dead letter, unless defendant No. 1 should consent to supply its deficiency by voluntarily passing his accounts before the Commissioner. So far as the plaintiff Company was concerned the contemplated redemption was brought to a dead-lock, for they could obtain no further relief whatever under the decree of 1904, while it seems that in the view of the appeal Court their proper course was to file a suit to have the agreements, upon which defendant No. 1 relied, set aside. In this dilemma no other course was open to the Company than to file a redemption suit, incidentally asking, should need arise, for a declaration that the agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , foreclose down, which in fact means that the first mortgagee suing for foreclosure must make all subsequent mortgagees parties to the suit and so afford each in turn the chance of redeeming before being foreclosed. Now, if we suppose that the decree nisi of 1904 could be made absolute in its present form it would come to this that both the second and third mortgagees would be foreclosed or squeezed out, while the original mortgagor would obtain the whole property on redemption of the first mortgage alone, for I take it to be a part of this principle that the first mortgagee can neither foreclose nor be redeemed by the original mortgagor without taking into account intermediate encumbrances. If the intermediate encumbrances who are parties to the suit did not choose to exercise their rights to redeem, each in turn would be foreclosed before the 1st mortgagee could come into touch with the mortgagor. Mr. Inverarity saw no difficulty in allowing the mortgagor to redeem the first mortgagee directly without making the mesne mortgagees parties to the suit, and so far as reason and common sense go that might very, well be so; but the question is surely materially affected when in fact t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redemption as the defendant No. I contends, it would appear to have this startling result that he would have foreclosed himself in respect of the two mortgages for which he has paid in the aggregate ₹ 3,97,000. It is unnecessary to go further into this complication, because I do not think that there is anything substantial in the defendants' contention that the present suit is res judicata by the decree nisi of 1904. The shortest and simplest way of reaching that conclusion is by a syllogism. Only that which is finally decided can be res judicata. A decree nisi is ex vi termini not a final decision. Therefore, no decree nisi can in strictness constitute a res judicata. Numerous cases from the Indian law looks were cited upon this point by the learned counsel on both sides. So far as the general contention goes, none of these cases seem to me to be of much value or assistance; as, for example, Malkdrjun v. Narhari ILR (1900) 25 Bom. 337. The question there turned upon whether a Court sale was a nullity or not, and it appears to have been cited for no other purpose than the dictum contained in the judgment of their Lordships of the Privy Council that the Judges have jurisd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l one or the other party docs so, it never can be a final decision or constitute res judicata. 8. While, however, it is easy to dispose of this contention as generally covering the whole ground and barring the present suit it has special reference to the agreement of May 1901 and so considered may occasion some difficulty. From the very outset of the case, defendant No. 1 has made desperate efforts to get the agreements of 1901 and 1905 on the record, although unregistered, as sufficient proof of the contract of service between the Company and the defendant No. 1, which they contained, on the ground that that contract is not a transaction in any way affecting Immovable property. One of the ways in which this was sought to be done was bringing it in along with the plaint in the suit of 1903 and the decree nisi of 1904, and thereupon contending that it was res judicata against the plaintiffs who could not now be heard to dispute either its admissibility or its binding effect upon them. It is strenuously argued on behalf of the plaintiffs that only the pleadings and decree in a suit are properly res judicata, and that a mere annexure to the plaint ought not to be included, notwithsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether he or anybody else could now hope to obtain a substitution of the decree absolute for that decree nisi. And this is the same as saying that so far as that decree nisi goes, not having finally decided any question, it has subsequently, by reason of intrinsic defects, become a dead letter. I, therefore, hold that this suit is not res judicata. 9. But I am not to be understood as acceding, on account of that finding, to the defendant No. 1'S contention, that the decree nisi of 1904 has been superseded by, and become merged in, the agreement of 1905. There are many difficulties in the way of reaching that conclusion; the chief of these is, that the agreement was never certified to the Court, nor do I think that since the mortgagee had gone into possession under the mortgage, he can divest himself of the liabilities and duties of a mortgagee in possession and claim to hold the property from October 1905 merely under and upon the terms of the agreement. 10. I now come to the question of the agreements of 1901 and 1905. As to the first of these, it cannot be disputed that if it really lies upon the plaintiffs to ask for a declaration to have that agreement set aside, such a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the contracts to prove which the agreements had been admitted do in fact affect Immovable property which is the subject of the mortgage, and that is a question which is by no means concluded by admitting the agreements upon the record subject to their use being restricted in compliance with the statutes of registration. I said first I thought they ought not to be admitted at all as proof of the contract of personal service between the Company of the one part, the agents of the other part, and defendant No. I of the third part. As a whole both these agreements indubitably require registration. But a long course of decisions, I suppose, has settled the rule that where a document which as a whole requires registration, contains separable parts which do not require registration, those parts may be admitted in evidence to prove transactions which ex hypothesis do not affect Immovable property of the value of ₹ 100 or upwards. The common case is of a mortgage deed with the usual personal covenant. Although the mortgage deed as a whole requires registration, and if unregistered will not be admitted as proof affecting Immovable property, it has always been allowed to be used in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This I said is either money which by bringing into the mortgage account you seek indirectly to make a charge upon the real estate, or it is something entirely outside the mortgage account and, therefore, irrelevant in the present suit. If we read the clauses in the agreement, it certainly appears that they do not in terms charge this remuneration upon the land and that, in some of the recent English cases, seems to have been held almost enough in itself to justify agreements of this kind and take them out of the old rule that the mortgagee might not stipulate for collateral advantages. To some of those decisions I shall have to advert presently in more detail. But I must observe here, what had been entirely overlooked in the whole of the argument for the defendant No. I, that the chief difficulty with which I am confronted in dealing with these agreements and confining them to their proper uses is a difficulty which does not arise in England. None of the English cases, therefore, throw any light upon it, nor can be of any assistance to me. There are numerous cases in which separate agreements have been entered into between the parties to a mortgage and the Courts have frequently h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to prove that, had the Company pot redeemed him, Sir Cowasji might have earned the month's salary, but as the Company had redeemed him, and he had not earned the month's salary, the need for proof of this kind seems to disappear. But what defendant No. I really means, and what has been substantially in controversy from the moment these agreements were tendered in evidence, is that neither directly nor indirectly do they, to use the language of Section 17 of the Registration Act, "purport or operate to create, declare, assign, limit or extinguish whether in present or in future any right, title or interest whether vested or contingent of the value of ₹ 100 and upwards to or in Immovable property"; for if that were so, then Section 49 provides that no documents required by Section 17 to be registered, "shall be received as evidence of any transaction affecting such property or conferring such power unless it has been registered". When I, on further consideration, decided to admit so much of the agreements of 1901 and 1905 as contained the contract of employment, doubts had occurred to me whether the defendant No. 1 might not avail himself of the term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as led me to doubt the soundness of that reasoning. It cannot, I think, be denied that the clauses of the agreement in question do not on the face of them purport to create, extinguish, etc., any right in Immovable property. If this contract of service had been made independently of . other matters, contained in the agreement as a whole, there can, I think, be no question that on the face of them they would not have required registration. It is only when they are sought to be put to a certain use in a suit of this kind, that it becomes possible for the mortgagor to contend that, notwithstanding their language and original intention, they are found finally to operate indirectly and unexpectedly to limit rights in Immovable property. But that is tantamount to saying that the agreement is of such a kind as when enforced, to become a clog upon the equity of redemption. So that viewed in that light, I might derive some assistance from the decisions of the English Courts upon this subject. But the reasoning which leads to this conclusion is, I am now disposed to think, somewhat artificial. Apparently its whole foundation would be cut away, but for the fact that a person entitled to a sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion that the logic of the first line of reasoning appears to be unanswerable, but as soon as it is shown to depend for its validity upon a distinct and inseparable fact, namely, that the person to be paid the salary is the mortgagee in possession, then it is really to the legal consequences, if any, following upon that fact, that we must look for a sufficient objection to the agreement and not to any objections taken under the sections of the Registration Act merely for want of registration. For, as soon as it can be shown that where all the consequences of the agreement are absolutely identical so far as its effects upon the property and the mortgagor's rights hereunder are concerned, in various cases in which want of registration could not possibly be urged against it and that it was only in the single case before me now that those objections could be maintained, the conclusion is plain that whatever force they derive is derived from the peculiar feature of the special case and is not founded on the general law of registration. This is the view which I have adopted after long and anxious thought, and if I am right it is a complete answer to the plaintiffs' objection to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded, however, on the authority of the English law that as between the directors and the Company at any rate, a director, who has been given shares to hold in his own name, holds them technically and effectually for all legal purposes in his own right. Whether the words "in his own right," which occur in the English cases, are synonymous with "for his sole benefit," may be doubted. It was held in Pulbrook v. Richmond Consolidated Mining Company (1878) 9 Ch. 610 that if a director holds the shares as trustee, he is none the less duly qualified and holds them in his own right. This case was considered to settle the law, although Palmer on Company Law points out that it is a decision which goes far to defeat the object of the clause that a director shall have a substantial stake in the Company. And in the later case of Boschoek Proprietary Company, Limited v. Fuke (1906) 1 Ch. 148 the opinion of the English Courts seems to have veered in that direction. To show that the words "in his own right" are in law equivalent to "for his sole benefit, "the defendant cited the case of Attorney-General v. Duke of Richmond and Gordon [1909] A. C.466. The poin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, the manner in which Courts have explained and applied that distinction is well brought out by contrasting the case of Howard v. Patent Ivory Manufacturing Company (1888) 38 Ch. D. 156 with Mahoney v. East Holyford Mining Company (1875) L. E. 7 H.L. 869. But I do not think that the distinction need be pushed so far as to compel directors to be satisfied of the propriety and adequacy of their qualifications in so nice a point as the meaning of terms like "in his own right" or "for his sole benefit." So far as this objection reaches, I do not think that it will invalidate the proceedings of the de facto directors, who purported to enter into the agreement of 1901. As to defendant No. 1 himself, it admittedly does not apply to the agreement of 1905, for long before that time Sir Cowasji had ceased to be a director and was, therefore, in the position of an outsider entitled to treat de facto as being as good as de jure directors. It is, however, further contended that Sir Cowasji had relinquished his shares before the meeting of 1901 and, therefore, he was wanting in that essential qualification quite apart from the character in which he had held those shares. Up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hing, amply cover these agreements. 14. This brings me to the last substantial contention of the plaintiff Company that the agreements are in their nature such as the law prohibits a mortgagee in possession to make with a mortgagor, and so against public policy and void. 15. This rests principally upon the well established rule of the English Equity Courts, which remained apparently virtually unbroken and unchallenged up to the repeal of the Usury Laws in 1854. A long series of decisions, of which the most significant and important are Chambers v. Goldwin (1804) 9 Ves. 254 and Leith v. Irvine (1833) 1 My. & K. 277 forbade a mortgagee in possession to charge the mortgagor for any personal services. It is not strictly correct to say, as one of the learned Lords said in Noakes v. Rice (1902) A. C. 24 that all these cases were referable to the Usury Law, and lost their authority when those laws were repealed. For Leith v. Irvine is certainly an exception. That case was de" tided in 1833 and Lord Brougham put the decision partly at least on the broad ground that a mortgagee in possession was quasi-owner, or quasi-trustee, and as such could not obtain any remuneration for managing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them it may be doubted whether this proposition is quite correct. It has been held, for example, that a mortgagee taking possession of culturable land, is bound to cultivate it, and raise the best crops he can upon it. By a parity of reasoning it might be contended that a mortgagee who takes possession of such a property as a mill is bound to work and finance it. Either that, or bring it to sale. For if he deprives the mortgagor of possession, yet will not work the mill himself, in a very short while the concern might fall out of all local competition, the reactionary become rusty and useless, and the value of the property as a whole be seriously depreciated. So that what is really to be considered is the question whether (a) the defendant No. 1 was bound to do all that he has done under the agreements by the law regulating the rights and duties of mortgagees in possession, (b) and whether if so he can contract to receive remuneration for doing that which the law makes it compulsory for him to do? Or if the law does not impose these duties upon him then whether the contract is on the face of it unconscionable or can be shown to have been obtained by undue influence or fraud or opp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9; commission. I should have gone into that more fully had my final conclusion been that these contracts of service could not be proved for want of registration, for from the defendant's point of view this distinction constitutes a strong ground against the validity of that objection so far as it was brought against the second agreement. Assuming, however, that both the agreements had operated indirectly to limit a right in Immovable property, I think that considerations arising out of this distinction would rather have enforced than weakened that conclusion, for supposing that it was the duty of the mortgagee in possession to pay the Agents' commission he might have done that without any agreement and charged it in his account. As then between him and the mortgagor this agreement would certainly not have affected the Immovable property either directly or indirectly, nor would it have needed to be proved; but supposing the Agents' commission during the currency of the agreement had amounted say to ₹ 25,000 a year and the defendant had deducted therefrom ₹ 18,000 a year for himself, then while the whole sum would have been passed as just and proper expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he mortgagee cannot charge the mortgagor with remuneration for his own personal services in relation to the mortgage debt or the mortgage security. 21. Fisher on Mortgages, says:-- In the absence, however, of express agreement, a mortgagee cannot under just allowances or costs charges and expenses include remuneration for work done by himself except a Solicitor coming within the provisions of the Mortgagees' Costs Act, 1895." (p. 896). Contra Coote: A mortgagee cannot as a general rule charge for his personal trouble, even though there be a special stipulation to that effect." (p. 1211). 22. I apprehend that what the learned author means is a special stipulation in the mortgage deed. The case might be different if it were a distinct agreement made before or after the mortgage or separable from it. So in In re Roberts (1889) 43 Ch. D. 52 it was held that a Solicitor cannot charge his client with private costs for the preparation of a mortgage from the client to himself. But that, like most of the cases cited on this head, seems to have dealt with a charge of this kind not founded on an express and separable agreement. French v. Baron (1740) 2 Atk. 120, Scott v. Br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n while he resided here. First, is it the law that he was not entitled, while in possession, and in the island ? Secondly, supposing the law to be so, is this the time, considering the form of the bill, in which that ought to be declared? Considering him as a mortgagee independent of the usage and law of the island, Courts of justice here apply to the relation of mortgagor and mortgagee upon West India mortgages, all the principles that exist as to that relation here. It is clear, the mortgagee cannot originally covenant for a collateral advantage: also, if upon the true effect of the instrument there is nothing more than that the mortgage shall do what a mortgagee ought to do as a trustee, there is no pretence to say, the trust is distinct from the mortgage. There is nothing unfair or perhaps illegal, in taking a covenant originally, that, if interest is not paid at the end of the year, it shall be converted into principal. But this Court will not permit that, as tending to usury, though it is not usury. So, a mortgagee cannot stipulate to be receiver of the rents and profits with a commission. In one case that has been considered by the Court of King's Bench usurious: Scott v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in is a fair and reasonable one, entered into between the parties while on equal terms, without any improper pressure and unfair dealing, or undue influence. The facts there were that the plaintiff was a brewer and the defendant an hotel-keeper. The plain-' tiff advanced # 7,654 to defendant on a morgage. This deed contained a joint and several covenant by the defendant to the effect that they would deal with them and would purchase all their beer, etc., from the plaintiff. On these facts the defendant contended that the stipulation upon which the plaintiff relied was for a collateral advantage and therefore could not be enforced. This contention was over-ruled by Romer J. upon the grounds which I have just indicated. No consideration either relating to the usury law or such as were expressed by Lord Brougham in Leith v. Irvine found favour with that learned Judge. What in effect this decision lays down is that no fair stipulation for a collateral advantage made by the mortgagee is to be set aside unless it can be shown to be a clog upon the equity of redemption. As the case of Salt v. Marquis of Northampton (1) has also been relied upon here by the plaintiff, it is interesting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest would still be to work the mills to the best: advantage and make them as valuable property as possible. And this in fact appears to have been done. For not only has the mortgagee succeeded in paying off the greater part of his mortgage debt but has brought the mills into a state of such prosperity that other mortgages which were sold for ₹ 55,000 and ₹ 13,000 respectively two or three years ago are now probably worth more than five times that amount. I do not think that for this reason alone the Court would be justified in declaring such an agreement as this void and not binding upon the mortgagor. Nor do I think that it can be fairly said to be a clog upon the equity of redemption. My reasons . for that conclusion in effect are the same that I have given for holding that the agreements did not need registration before they can be proved. No one could seriously argue that the payment of fair remuneration to the Manager of a large concern like the Spinning and Weaving Mills to keep it in a high state of efficiency would be a clog upon the equity of redemption and in principle for the purpose of that argument only, it seems to me to make no difference whether the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in possession and was threatening to sell their property out and out. By means of such threat, it is alleged, he forced them into an unconscionable agreement under which he was to reap excessive advantages. Again, I am unable to accede to this argument. So far as the evidence before me and the probabilities of the case go, I do not think the agreement unconscionable, or that there is any solid reason for disbelieving Oomrigar's statement that it was the Company rather than Sir Cowasji who were desirous of making it. Then there is the question of consideration, which is closely allied with the broader and general question whether the mortgagee is permitted by law to make any agreement of this kind, for if he was bound by law to do all that he contracted to do under this agreement, then where would be the consideration ? In my opinion, however, that argument goes too far. I must confine myself to the actual consideration stated in the agreement and say whether it is real or merely nominal. The plaintiffs complain that Sir Cowasji neither did nor could do anything to help the mills in the way of personal management and so merit the salary of ₹ 16,000 or afterwards ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of their will being dominated by that of Sir Cowasji in the relations existing between them. 29. Before concluding my examination of this part of the subject I must refer to another term in these agreements by which the Company binds itself to accept all the mortgagee's accounts, when they have been passed before a firm of Accountants. I have admitted those parts of the agreement merely as an admission by the Company of the sum at the time due upon the mortgage but I do not certainly intend to admit them as precluding the plaintiff Company from exercising its legitimate rights against Sir Cowasji in surcharging and falsifying. If the point is to be carried to that length, I think that would be extremely oppressive and might really operate to create a heavy additional charge upon the mortgaged property. In this connection, as well as in dealing with the agreement generally, the defendant has strenuously contended that whatever defects may have existed in the directors, who made those agreements, and whatever exceptions the plaintiffs may now have been advised to take to those agreements as originally made, all have since been condoned and ratified. It is said that these agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the plaintiff's mistaken belief of his rights. If he does not know, there is nothing which calls upon him to assert his own rights. Lastly, the defendant, the possessor of the legal right, must have encouraged the plaintiff in his expenditure of money or in the other acts which he has done, either directly or by abstaining from asserting his legal right. Where all these elements exist, there is fraud of such a nature as will entitle the Court to restrain the possessor of the legal right from exercising it, but, in my judgment, nothing short of this will do. 30. Applying that principle, no acquiescence of a shareholders' meeting would be of any legal effect to destroy the shareholders' right unless it is given with full knowledge of that right; and such, I think, could not possibly have been the case at any of the meetings of this company. For even now it is very doubtful what the precise legal rights of the contracting parties to this part of the agreement are. In my opinion however, the defendant cannot contract himself out of his --statutory liability as the mortgagee in possession to render proper accounts nor deprive the plaintiff of his right to examine into an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is, there can be little doubt, that Rangildas, as Agent of the Company, was thus endeavoring to make a great profit for himself out of the Company. He and Parmanandas and Divan were all hand in glove in these underhand and tortuous dealings. Unfortunately they proved only too successful, for having obtained Tokersey's mortgage for ₹ 55,000, Rangildas either persuaded defendant No. 1 to buy in the said mortgage for ₹ 1,67,000 on his own account or as the plaintiffs allege persuaded the directors of the Company to ask him to do so as their Agent. In 1906, the defendant No. 1 bought this mortgage from its nominal owner Motilal Canji for its full value ₹ 1,67,000. So that Rangildas, Parmanandas and Divan between them cleared over a lakh, and this money, whether, as alleged by the Company in the first instance is their own or whether Sir Cowasji's money, would in the result have to be paid by the Company. On the 23rd of January 1906, there is the resolution of the directors (Exhibit 1) approving of Sir Cowasji's working the Mill referring to the balance of over 3 lakhs of rupees, and inviting Sir Cowasji to buy in Motilal Canji's mortgage. Both Oomriga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw their way to making another huge profit out of Rangildas's own Company. Sir Cowasji's fears appear to have been worked upon to such an extent that he refused to buy Ibrahim Rahimtoola's mortgage unless he could obtain a partner, and naturally Rangildas produced a partner in the person of his own man Parmanandas, defendant No. 2. The terms of the partnership were that Permanandas was to contribute ₹ 50,000, in return for which he was to have half the profits; and to be indemnified against all possible litigation and loss occasioned by attacks upon the validity of Ibrahim Rahimtoola's title. This ₹ 50,000 were promptly paid out of the proceeds of the nefarious transaction in the second mortgage, and almost coincidently with the resolution of the 1st of November 1906, in which the directors speak of Sir Cowasji having saved the Hope Mills at their request from going into the hands of the Honourable Mr. Ibrahim Rahimtoola, Sir Cowasji and Parmanandas bought the third mortgage for ₹ 2,30,000. Now there can be no doubt that defendant No. 1 himself was very uncertain about his position in this transaction. While negotiations for the settlement of the S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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