Krishnaswami Ayyangar, J - (1.) The appellant, a puisne mortgagee, holds a simple mortgage executed in his favour on 21 April 1922 by respondent 2 over his house and ground No. 43, Veeraraghava Mudali Street, Triplicane. In this the sons of respondent 2 also joined. The principal amount secured by the mortgage is stated to be Rs. 7000. But in fact, the appellant had advanced only Rs. 3400. The earlier mortgage was a possessory one and also contained a power of sale. This mortgage had been executed on 31 October 1920, the mortgagee being the Mylapore Hindu Permanent Fund Limited. The principal amount secured by the mortgage was Rs. 4000. Default having been made in the due payment of the mortgage money as stipulated in the deed, the Fund exercised its power of sale and sold the property at an auction held on 5th June 1926. The sale fetched Rs. 5750 out of which Rs. 120 went towards the expenses of the auction, Rs. 84-10-0 towards the municipal tax and quit rent due on the property. A sum of Rs. 5473-15-0 was appropriated in satisfaction of the principal and interest due to the mortgagee. There remained only a balance of Rs. 71-12-2 which respondent 1 has always been ready and willing to pay over to the appellant. The appellant instituted the suit out of which this appeal has arisen praying for a decree directing the Fund to render an account of the various sums of money which had or should have been realised by it by way of rents, profits and incomes when the mortgaged property was in its possession and for the recovery of the surplus amount in its possession to, be ascertained on such accounts being taken. According to the plaint, the liability of the Fund to render accounts arose on account of its having, during the continuance of the mortgage, taken possession of the property within the meaning of Section 76, T.P. Act, 1882. The learned City Civil Judge has declined to grant this relief, but has given a decree for Rs. 71-12-2 which is the only surplus amount in the hands of respondent 1 according to its case. The main question raised in the appeal is whether respondent 1, the Fund, who is the first mortgagee is liable to render an account of the rents and profits of the mortgaged property which it should have collected but did not, in fact, collect during the period of its alleged possession: in other words, whether the Fund is liable to render accounts on the footing of wilful default in respect of the rents which could have been, but were not collected by it. A few more facts are necessary to appreciate the contentions raised. The mortgage in favour of respondent 1, the Fund, was termed a possessory mortgage in the deed and contains the statement that by mortgaging the property with possession and on his own personal liability as well, the mortgagor received a loan of Rs. 4000 and bound himself according to the rules of the Fund to pay interest on the principal sum at the rate of Rs. 0-8-4 per cent, per mensem, amounting to Rs. 20-13-4 before the end of each month. Clause 2 of the deed provides the machinery by which the interest was to be paid and received. The clause is as follows: As I myself have to pay the interest on the said loan as aforesaid, the said Fund shall let out the mortgaged properties for rent and credit the rent received every month towards the interest payable every month. In the event of the said rent being insufficient to cover the interest or the said house not being occupied by any tenant, or the said house being let out to me, and the rent not having been paid by me, I shall be bound to pay the interest accrued due on the principal amount together with interest thereon, at the rate of two pies per rupee per mensem. The mortgaged properties have been given as security by means of this bond even for the repayment of the said monies.
(2.) This provision leaves the mortgagee free to let the house on rent either to the mortgagor or to any other stranger of its choice. In the event of the property being leased to a stranger and the rent being insufficient to cover the interest the mortgagor bound himself to make good the deficiency together with interest on interest at the rate of two pies per rupee per mensem. The mortgagor also undertook a similar liability even in the event of the property not being tenanted or in case it was leased to himself and he neglected to pay the rent. In Clause (3) the mortgagor bound himself to pay the principal amount before 30th. April 1927 or such other date as may be fixed by the directors under Rule 41 of the Fund. If, on the date of payment, the interest remained in arrears, the same was to be paid together with interest at the rate of two pies per rupee per mensem. The mortgagor further undertook to pay out of his own monies the municipal tax, quit rent and all other taxes payable in respect of the mortgaged property irrespective of the property being in the possession of the fund or in the possession of the mortgagor himself. It is obvious from these clauses as well as from what appears in Clause (4) of the mortgage deed that the parties contemplated the mortgagor himself being allowed to occupy the property as a lessee from the fund. Accordingly a rental agreement was executed by the mortgagor in favour of the mortgagee simultaneously with the execution of the mortgage instrument itself. It would be remembered that the sum of Rs. 20-13-4 is the monthly interest payable by the mortgagor at the rate of Rs. 0-8-4 as per the stipulations of the mortgage deed. The lease deed recites that the property was taken on lease by the mortgagor from the mortgagee, the rent being settled at Rs. 20-13-4 per mensem which is precisely the interest due on the mortgage. The mortgagor also undertook to vacate and deliver possession of the property to the fund on one month's notice being given. It may at once be stated that it is common ground that the mortgagee failed and neglected to enforce due payment of the rent stipulated.
(3.) The contention of the appellant, based on the two transactions, namely the mortgage and the lease, is that the mortgagee must be deemed to have taken possession of the mortgaged property within the meaning of Section 76, T.P. Act, 1882, and the fund was accordingly bound to use its best endeavours to collect the rents and profits, its default in this respect carrying with it, the consequence set out at the end of the section, namely that when accounts are taken under the mortgage decree the fund should be debited with the loss occasioned by the omission. The Fund answers by stating (1) that the liability of a mortgagee to account on the footing of wilful default, which is of course in consequence of the duty placed on it by Clause (b) of the section, arises only in a case where the mortgagee takes actual possession and control over the property and intercepts the rents from going to the mortgagor; but this is not the case if the mortgagor is himself allowed to remain in possession as a tenant under a lease or an attornment clause in favour of the mortgagee; (2) that the section only governs the relationship between the mortgagor and the mortgagee and not between a prior and puisne encumbrancer, the latter having no higher rights than the mortgagor himself; that is to say, where the mortgagor has no right to call upon the mortgagee to render accounts on the footing of a wilful default, the puisne encumbrancer deriving his title from him is subject to the same disability.;