The Kerala High Court (Ernakulam) explained the essential characteristics of a simple mortgage and ruled that once a mortgage is created, the right of the mortgagee to recover his mortgage money cannot be defeated by the mortgagor by alienating the property. The mortgagor is thus disabled from encumbering the property without the consent of the mortgagee
The Court also explained that the same is not binding on the mortgagee, and he is entitled to ignore the transfer and proceed to enforce his mortgage in accordance with law and in which case, the subsequent transferee is bound by the decree passed in the suit to enforce the mortgage.
On the nature of the Chitty Transaction and Debtor-Creditor relationship, a Single Judge Bench of Justice Easwaran S. addressed the appellants’ contention that no debtor-creditor relationship is established when a subscriber executes a security bond for a chitty, and rejected this argument, clarifying that when a prized subscriber is allowed to draw the chit amount, it is in the nature of a loan. Therefore, a subscriber who bids for a prized chit is bound to repay the amount, and a debtor-creditor relationship is unequivocally established.
On the nature of the Security Documents, the Bench determined that the documents executed by Yohannan in favour of the Chitty Company were not mere security bonds but constituted a deed of simple mortgage. The Bench noted that the defendants themselves had implicitly admitted the nature of the transaction as a mortgage by claiming a right to equity of redemption in their written statement.
As these were registered documents, they operated as constructive notice to any subsequent purchasers under Section 3 of the Transfer of Property Act, 1882, meaning any subsequent alienation by Yohannan would be subservient to the mortgage, added the Bench.
On the applicability of the Chit Funds Act, 1982, the appellants argued that the original suit was barred by Section 64 of the Chit Funds Act, which mandates arbitration. The Bench found this contention to be without merit. It was observed that although the Act was passed in 1982, it was not notified for application in the State of Kerala until 30 April 2012. The Bench held that the provisions of the Act, including the bar on civil suits, do not apply to any chit started in Kerala before this date. Consequently, the jurisdiction of the Civil Court to hear the original suit was not ousted.
On the necessity to implead subsequent Assignees and the validity of the Decree, the Bench held that since the transaction was a simple mortgage, the mortgagee (the chitty company) was not bound by any subsequent transfer of the property by the mortgagor (Yohannan) unless it was done with the mortgagee’s junction. The mortgagee is entitled to ignore such a transfer and enforce the mortgage, and the decree would be binding on the subsequent transferee.
Therefore, the defendants, as subsequent assignees, were not necessary parties to the original suit filed by the Chitty Company. The Bench also rejected the argument that the original suit was improperly framed under Order 34 of the Code of Civil Procedure, clarifying that it was a suit for recovery of money charged on a mortgage, not a pure mortgage suit, and thus the provisions of Order 34 were not applicable.
Finally, the Court dismissed the contention regarding the in-executability of the decree due to an alleged discrepancy in the property schedule, noting that the delivery report confirmed that the correct property had been delivered to the chitty company.
Briefly, the case originates from a suit for recovery of possession and a permanent prohibitory injunction concerning a property initially owned by Karuthedathu Yohannan. Yohannan had mortgaged the property to a chitty company, Thrissivaperoor Social Welfare Centre Kuri Unit, to secure a chitty amount. Following a default, the chitty company filed a suit in 1987 and obtained a decree charged on the said property. In the execution proceedings that followed, the property was auctioned, and the chitty company purchased it, with the sale being confirmed. The company subsequently obtained delivery of the property through fresh proceedings and later sold it to the plaintiff, T.B. Sunil Kumar, via a sale deed.
The defendants contested the plaintiff’s claim, asserting their own title. They contended that Yohannan had sold the property to one Suseela, who in 1989 sold it to the defendants. Subsequently, the property was transferred from the 1st defendant to the 2nd defendant in 1999, and then from the 2nd defendant to the 3rd defendant in 2005. The defendants’ primary argument was that the decree obtained by the Chitty Company was not executable because Suseela, the subsequent purchaser, was not a party to the suit, and the title had already been divested from Yohannan.
The Trial Court ruled in favour of the plaintiff, holding that the documents executed by Yohannan in favour of the chitty company created a mortgage, giving the company a first charge over the property, and any subsequent sale by Yohannan was not binding on the company.
Appearances:
Advocate G. Sreekumar, for the Appellant
Senior Advocate T. Krishnanunni, along with Advocates Thareeq Anwar K., K.C. Kiran, Meena A., P.A. Sheeja, P. Thomas Geeverghese, for the Respondent
