Holding

Vesting of part of the mortgaged property in the Government by statutory process does not constitute acquisition by the mortgagee, so the exception in Section 60 of the Transfer of Property Act does not apply and the mortgagor is not entitled to pro tanto reduction of the mortgage debt.

Summary

The respondent, KokiYat Estates, had mortgaged extensive plantation land to a bank, with the State of Kerala acting as guarantor. Subsequent land‑ceiling and private‑forest statutes vested large portions of the mortgaged land in the State free of encumbrances, and later the State paid off the loan and obtained an assignment of the mortgage right. The mortgagor sued for redemption and claimed a pro tanto reduction of the mortgage debt, invoking the exception clause in the last paragraph of Section 60 of the Transfer of Property Act, arguing that the State, as the new mortgagee, had acquired its share of the property. The Court examined the meaning of "acquired" and the phrase "except only where", holding that acquisition must be by the mortgagee himself and that vesting by operation of law does not satisfy this requirement. Consequently, the exception in Section 60 does not apply and the mortgagor is not entitled to any reduction of the mortgage debt. The appeal by the State was dismissed and the trial court decree was upheld.

Issues considered

Whether vesting of mortgaged land in the Government by statutory enactments amounts to "acquisition" of the mortgagor's share by the mortgagee within the meaning of Section 60 of the Transfer of Property Act.
Whether the State, after acquiring the mortgage right by assignment, can be treated as the mortgagee for the purpose of invoking the pro tanto reduction exception.
Whether the mortgagor is entitled to a proportionate reduction of the mortgage debt when part of the mortgaged property has been vested in the State free of encumbrances.

Legislation cited

Subjects

Transfer of Property ActSection 60pro tanto reductionmortgage redemptionvestinggovernment acquisitionstatutory interpretationKerala Land Reforms Actprivate forest vestingmortgageemortgagor

Judgment

STATE OF KERALA AND ORS. A
v.
KOKIYAT ESTATES

SEPTEMBER 13, 1999

[K.T. THOMAS AND D.P. MOHAPATRA, JJ.] B

Transfer of Property Act, I 882:

Section 60 last paragraph-Exception clause-Applicabi/ity-
Mortgage-Redemption of-Pro tanto reduction in mortgage money-Claim C
of-By mortgagor-Conditions to be fulfilled- Mortgagor obtained loan
from Bank by executing a mortgage deed-But by operation of the Kera/a
Land Reforms Act and Kera/a Private Forest (Vesting and Assignment) Act,
a part of the mortgaged property vested in the State Government free from
afl encumbrances-Several years later Government paid mortgage debt to D
the Bank and took assignment of mortgage right-Held: To invoke the
exception clause two conditions must be fulfilled-One is share of mortgagor
in the property should have been "acquired" and second is person who so
acquires should have been the mortgagee-Jn such a situation mortgagor
entitled to redeem his own share only on payment of a proportionate amount
remaining due on the mortgage-"Acquired" in this context includes vesting E
of the property in the Government by statutory process-When government
acquired a part of the property it was not a mortgagee and, therefore,
mortgagor not entitled to pro tanto reduction in mortgage money on
redemption-Kera/a Land Reforms Act, 1960, S. 86(2)-Kerala Private Forest
(Vesting and Assignment) Act, 1971.
F
Words and Phrases

"Except only where" and "acquired"-Meaning of-Jn the context of
S. 60 last paragraph of the Transfer of Property Act, I 882.

... "Acquisition"-Meaning of G
The respondent-firm obtained loan from a Bank under the Agricultural
Re-financing Scheme and a tripartite agreement between the Bank, the
respondent and the appellant-State was executed. Pursuant to the said
agreement the respondent executed a mortgage deed in favour of the bank
3W H
SUPREME COURT REPORTS [1999] SUPP. 2 S.C.R.
...
308
A and the State Government stood as the guarantor for the due re-payment of
the loan in terms of the agreement.

While the mortgage was subsisting a part of the mortgaged property
vested in the State Government in 1970 free from all encumbrances under
the Kerala Land Reforms Act, 1970. In 1971 another area of the mortgaged
B property stood vested in the Government free from all encumbrances under
the Kerala Private Forest (Vesting and Assignment) Act, 1971. On 7-9-1978
the State Government paid the mortgage debt to the Bank and took assignment
of the mortgage right. Armed with it the State Government threatened the
respondent with proceedings under the Revenue Recovery Act for realisation
c of the mortgage money.

The respondent filed a suit for redemption of the mortgage and claimed
a pro tanto reduction of the mortgage debt on the footing that the State
Government had become the mortgagee when it took assignment of mortgage
right and the right of the respondent-mortgagor over a large area of
D mortgaged land had now become vested with the mortgagee. The aforesaid
claim was presumably made under the last paragraph of Section 60 of the
Transfer of Property Act, 1882.

The State Government resisted the claim for pro tanto reduction in the
mortgage debt by pleading firstly that the vesting process under the\ aforesaid
E two enactment took place long before assignment of mortgage right which
the original mortgagee made in favour of the Government secondly, since
such vesting took place free from all encumbrances, it is not an acquisition
of the said land as mortgagee. The trial court repelled the Government's
contention and passed a preliminary decree for redemption in terms of the
respondent's plea for pro tanto reduction. The High Court, in appeal confirmed
F
the judgment and decree passed by the trial court. Hence this appeal:

Disposing of the appeal, the Court

HELD: 1.1. The vesting of land in the Government was free from all
G encumbrances. In other words, Government would have no liability to clear
any encumbrance on the land so vested. If the lands were covered by a
mortgage the liability therein would not remain with that part of the land
which the Government got through the vesting process. [313-H; 314-A]

1.2. The last paragraph of Section 60 of the Transfer of the Property
H Act, 1882 can be vivisected into two segments. The first part contains
STATE v. KOKIYATESTATES 309
neg11tion to the holder of part of equity of redemption to redeem that part A
alone on payment of the proportionate debt. The second limb of the paragraph
provides the solitary exception to the aforesaid negativing edict. The words
in that second limb "except only where" are a pointer that the said exception
would strictly be confined to the one situation envisaged therein.[314-D-E]
I

1.3. In order to invoke the solitary exception to the disentitling fiat of B
the last paragraph of Section 60 of the T.P. Act there must be a conjunction
of two postulates. One is that the share of the mortgagor in the property
should have been "acquired". Second is that the person who so acquired
should have been the mortgagee. "Acquired" in this context includes the
vesting of the property in the Government by statutory process. However, the C
question is, should the acquisition of mortgager's share in the property be
by the mortgagee himself when such acquisition was made.
(314-E-F; 315-D-GJ

SIL Import USA v. Exim Aides Silk Exporters, Bangalore, [1990] 4
SCC, 567 and Royco Homes Ltd v. Eatonwill Construction Lid., [1978] 2 D
AER 921, referred to.

Francis Bennion: "Statutory Interpretation" 1984 Edn. P.356 and
Black's Law Dictionary, referred to.

2. The principle behind the exception to the prohibition clause in the E
last paragraph of Section 60 of the T.P. Act is, ifthe mortgagee is satisfied
of a part of the mortgage debt by becoming the owner of a part of the
mortgaged property it is only equitable to allow the mortgagor to get pro
tanto reduction of the mortgage debt, otherwise it would be unjust to allow
the entire mortgage debt again to be borne by the remaining mortgaged
property. By becoming the owner of a part of the mortgaged property it is F
not necessary that the mortgage money would have been discharged even
proportionately. It depends upon how the mortgagee got the share in the
mortgaged property. [316-B-C]
- '

3.1. In the instant case, when part of the mortgaged property vested in G
the Government under the provisions of the Kerala Land Reforms Act, 1970
and the Kerala Private Forest (Vesting and Assignment) Act, 1971, the
Government was not the mortgagee because the assignment of mortgage
right was taken by the Government from the original mortgagee only on
7-9-1978. Vesting took place as early as in 1970 and 1971. In other words
Government became the owner of the part of the mortgaged property not as H
...
SUPREME COURT REPORTS [1999) SUPP. 2 S.C.R.

A a mortgagee, even apart from the fact that such vesting was through the
statutory process. [315-H; 316-A]

3.2. Vesting of a portion of the mortgaged property with the Government
and the subsequent assignment of mortgaged right in favour of the
" Government are not sufficient to formulate the exception provided in the last
B paragraph of Section 60 of the T.P. Act. So the respondent is not entitled to
pro tan to reduction in the mortgage money. Hence the judgment of the trial
court which was confirmed by the High Court, would stand modified to the
above extent. (317-C-D]

Jasodha Kumar Dey v. Kali Kumar Dey, AIR (1930) Cal 619;
C Lakshmidas Ramdas v.. Jhumandas Shankar Lal, ILR 22 Born 304 and
Eswara Krishna Iyer v. Mariya Susai Reddiar, AIR(1940) Mad. 498, approved.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2502 of
1994.
D From the Judgment and order dated 23.9.93 of the Kerala High Court in
A.S. No. 279of1986.

P. Krishnamurthy, G. Prakash and Ms. Rahana, V.M. for the Appelllants.

T.L. Viswanatha Iyer and K.M. Nambiar for the Respondent.

The Judgment of the Court was delivered by

THOMAS, J. The moot question is this: When a mortgage property, or
any portion of it, is vested in Government by operation of law, would it
F amount to government "acquiring" the said property as contemplated in the
last paragraph of Section 60 of the Transfer of Property Act (for short the TP
Act). If the answer thereof is in the affirmative the next question is whether
the mortgagor is entitled to have the mortgage debt slashed down pro tanto
when the Government stands subrogated as the mortgagee. If that ancillary
question is also to be answered in the affirmative, the appeal preferred by the
G State of Kerala by special leave has to be dismissed. To show how the
question arose in this case, a brief sketch of the facts is necessary:

Respondent 'Koliyat Estates' is a firm which possessed extensive acres
of plantation in the northern districts ofKerala State. In 1967 the firm obtained
a loan of Rs. 46.61 lakhs from the Central Bank oflndia (the 'Bank' for short).
H As the loan was sanctioned under a scheme propounded by the Government
STATE v. KOKIYATESTATES [THOMAS.].) 311
called Agricultural Re-financing Scheme, a tripartite agreement was executed A
on 23.10.1967 between the bank and the Koliyat Estate (the plaintiff for short)
and the State Government of Kerala. Pursuant to the said agreement the
plaintiff firm on the same day executed Bl mortgage deed in favour of the
bank and the State Government stood as the guarantor for the due re-payment
of the loan in terms of the agreement.
B
While the mortgage was subsisting certain developments took place in
the socio-political set up in the State of Kerala. The provisions relating to land
ceiling in the Kerala Land Reforms Act (KLR Act for short) came into force
with effect from 1.1.1970 and consequently the right, title and interest of the
firm over an area of more than 1200 acres of land covered by the mortgage
became vested in the Government as per Section 86(2) of the KLR Act. This C
was sequel to the decision of a Taluk Land Board dated l. 8.1972 (Ex.A 17).
According to the plaintiff more than 2300 acres had been taken possession
of by the Government on the premise that plaintiff had so much of land in
excess of the ceiling limit prescribed under the KLR Act.

A little later, by virtue of the provisions of another enactment called the D
Kerala Private Forest (Vesting and Assignment) Act 1971 (hereinafter referred
to as Private Forest Vesting Act) another area of273.75 acres of land, included
in the mortgage deed, stood vested in the government as private forest. All
those developments took place long before 1978.

On 7.9.1978 the State Government paid the mortgage debt to the bank
E
and took assignment of the mortgage right under Ex.B 1 as per Ex.B 11-
Assessment Deal. Armed with it the State Government threatened the plaintiff
with proceedings under the provisions of the Revenue Recovery Act for
realisation of the mortgage money.

It was in the aforesaid background that the plaintiff filed the present
F
suit for redemption of the mortgage. Plaintiff claimed in the suit, a pro tanto
reduction of the mortgage debt on the footing that State Government became
the mortgagee when it took assignment of Ex. B 1 mortgage right and the right
of the mortgagor over a large area of mortgaged land has now become vested
with the mortgagee. The aforesaid claim was made presumably under the last G
paragraph of Section 60 of the TP Act.

The State Government resisted the claim for pro tanto reduction in the
mortgage debt by pleading firstly that the vesting process under the aforesaid
two enactments took place long before Ex.Bii assignment which the original
mortgagee made in favour of the Government. Secondly, since such vesting H
312 SUPREME COURT REPORTS [1999] SUPP. 2 S.C.R.

A/ took place free from all encumbrances, it is not an acquisition of the said land
as mortgagee. The trial court repelled government's contention and passed a
preliminary decree for redemption in terms of the plaintiffs plea for pro tanto
.
reduction. The relevant reliefs granted by the trial court are extracted below:

"That the plaintiff is entitled for reduction of mortgage liability covered
B by Ex.B 1, in proportion to the value of the properties taken by the
Government under Ex.Al? order, and also, under the Kerala Private
Forest (Vesting and Assignment) Act, as on the date or dates of the
taking over of those lands.

That the proportionate value, for which the plaintiff is entitled for
c reduction, it is left open to be decided in the final decree proceedings,
as the materials before me, is not at all sufficient to determine the
same."

The State Government preferred an appeal before the High Court of
Kerala against the aforesaid reliefs granted in the decree. A Division Bench
D of the High Court, by an elaborate judgment, confirmed the judgment and
decree passed by the trial court. Hence the present appeal by special leave
at the instance of the State Government.

Shri P. Krishnamurthy, learned Senior Counsel for the State contended
E that it was quite unnecessary for the High Court to have elaborately gone into
the nature of the mortgage involved in Ext.B-1, as the said aspect would not
help in resolving the question determinable in this case. According to the
learned counsel the question of pro tanto reduction of the mortgage debt
would never arise in a case where the mortgaged land vested in the Government
in accordance with the provisions of a statute. He also contended that since
F the legislature has clearly kept encumbrances on the land untouched by the
vesting process there is no need to countenance the argument that the
mortgagor's share in the mortgage property was acquired by the State
Government as a mortgagee.

G Shri C. Sitaramiah, learned Senior Advocate addressed arguments in
support of the decision impugned in this appeal. According 'to ·him the
plaintiff has already lost a substantial portion of the well planted landed area
on account of the vesting operations and therefore equity is in favour of the
plaintiff entitling him to claim pro tanto reduction of the mortgage liability.

H Shri T.L. Vishwanatha Iyer, learned Senior Advocate who also argued
STATE v. KOKIYAT ESTATES [THOMAS, J.] 313
·.
for the plaintiff adopted a different line. He conceded that plaintiffs right for A
pro tanto reduction of the mortgaged debt emanates from the last paragraph
of Section 60 of the T.P. Act and then the word "acquired" in that paragraph
must receive a wider interpretation. He also strongly supported the reasoning
adopted by the Division Bench of the High Court.

Before we proceed to consider the focal points it is necessary to point B
out that under the provisions of the KLR Act the authority to determine the
extent of the excess land in the .possession of a person beyond the ceiling
limit fixed under that Act is called Taluk Land Board (TLB). Once that is
determined the person concerned has to surrender possession of the land of
the Government. Section 85 (5) of the KLR Act empowers the TLB to determine, C
by order "the extent and identity" of the land to be surrendered. The process
of vesting of the excess land becomes contemporaneous with such
determination as provided in Section 86( 1) of the said Act. The sub-section
is quoted below:

"86. Vesting ofexcess lands in Government.- (1) On the determination D
of the extent and other particulars of the lands, the ownership ·or
possession or both of which is cir are to be surrendered under section
85, the ownership or possession or both, as the case may be, of the
land shall, subject to the provisions of this Act, vest in the Governme.nt
free from all encumbrances and the Taluk Land Board shall issue an
order accordingly." (emphasis supplied} . E

Under the Private Forests Vesting Act, all private forests in the State
would vest in the Government with effect from 10-5-1971, which is the appointed
day, as per Section 3(1) of that Act. The sub-section is extracted below:

"3. Private forests to vest in Government.- (1) Notwithstanding F
anything contained in any other law for the time being in force, or in
arty contract or other document, but subject to the provisions of sub-
sections (2) and (3), with effect on and from the appointed day, the
ownership and possession of all private forests in the State of Kerala
shall by virtue of this Act, stand transferred to and vested in the G
Government free from all encumbrances, and the right, title and interest
of the owner or any other person in any private forest shall stand
extinguished."

. So the vesting of land in the Government was free from all encumbrances.
In other words, Government would have no liability to clear any encumbrance H
314 SUPREME COURT REPORTS [1999] SUPP. 2 S.C.R

A on the land so vested. If the land is covered by a mortgage the liability therein
would not remain with that part of the land which Government got through
the vesting process.

The question whether the mortgagor can claim pro tanto reduction of
mortgage liability can now be considered. Section 60 of the T.P. Act deals with
B the right of a mortgagor to redeem, on payment or tender of the mortgaged
money. The mode of effecting such redemption is prescribed in the Section.
The last paragraph of Section 60 reads thus:

"Nothing in this section shall entitle a person interested in a share
only of the mortgaged property to redeem his own share only, on
c payment ofa proportionate part of the amount remaining due on the
mortgage, except only where a mortgagee, or, if there are more
mortgagees than one, all such mortgagees, has or have acquired, in
whole or in part, the share of a mortgagor."

D The said paragraph can be vivisected into two segments. The first part
contains a negation to the holder of part of equity of redemption to redeem
that part alone on payment of the proportionate debt. The second limb of the
paragraph provides the solitary exception to the aforesaid negativing edict.
The words in that second limb "except only where" are a pointer that the said
exception would strictly be confined to the one situation envisaged therein.
E
In order to invoke the solitary exception to the disentitling fiat of the
last paragraph of Section 60 of the T.P. Act there must be a conjunction of
two postulates. One is that share of the mortgagor in the property should
have been "acquired". Second is that the person who so acquired should
have been the mortgagee.
F
Shri T.L. Vishwanatha Iyer, learned senior counsel contended that the
word "acquired" in the last paragraph of Section 60 must be given a very wide
import, and in that angle even the vesting of part of the mortgage property
must be held sufficient to amount to acquisition of the share of the mortgage
G property. Learned senior counsel contended that when the T.P. Act was
enacted the legislative innovations in making provisions for vesting of land
in the Government were not even in contemplation. According to him, the
interpretation of a word in a statute should be attuned to the current realities
and it is not advisable to cling to any obsolete thinking. He cited the decision
of this Court in SIL Import, USA v. Exim Aides Silk Exporters, Bangalore,
H [I 999] 4 sec 567 wherein it is held that "for the need to update legislations
STATE v. KOKIYAT ESTATES [THOMAS, J.] 315
the courts have the duty to use interpretative process to the fullest extent A
pennissible by the enactment."

Francis Bennion in his "Statutory Interpretation" of 1984 edn. at page
356 said: "The ongoing Act-In construing an ongoing Act, the interpreter is
to presume that Parliament intended the Act to be applied at any future time
in such a way as to give effect to the true original intention. Accordingly the B
interpreter is to make allowances for any relevant changes that have occurred,
since the Act's passing, in law, social conditions, technology, the meaning of
words, and other matters."

Our attention was also drawn to the following observation which the C
Chancery Division has made in Royco Homes Ltd. v. Eatonwill Construction
Ltd., (1978) 2 AER 821: (while construing the word "acquired" in Sec.15(1) and
20(l)(b) of English Public Health Act 1936)

"In my judgment the term 'acquired' in s.20(l)(b) embraces all forms of
acquisition open to a local authority and is not limited to acquisition D
by agreement. It includes acquisitions by the operation of the legal
maxim quicquid plantatur solo, solo cedit. Moreover, if that doctrine
applies with regard to the intennediate sewer it seems to me to apply
in consequence of an agreement between Hurst Construction and the
local authority that the intermediate sewer should be constructed in
the highway, Batchworth Lane." E

The word "acquisition'', which according to Black's Law Dictionary
means the act of becoming the owner of certain property. The statutory
process by which the State becomes owner of the property cannot, therefore,
be understood as different from acquisition made by the State. So there is
nothing erroneous in interpreting that the state has acquired possession of F
so much portion of the mortgage property when it vested in the state by the
statutory process envisaged in the two enactments.

But the above interpretation is not enough to resolve the question, for,
the. next limb of the issue has to be considered from a different perspective G
altogether. Should the· acquisition of mortgagor's share in the property be by
the mortgagee himself 'when such acquisition was made?

lt must be noticed, when part of the mortgage property vested in the
Government under the provisions of the above two enactments, that the
Government was not the mortgagee because Ext.B.11-Assignment was taken H
316 SUPREME COURT REPORTS [1999] SUPP. 2 S.C.R.

A by the Government from the original mortgagee only on 7.9.1978. Vesting took
place as early as 1970 and 1971 respectively. In other words, Government
became owner of the part of the mortgage property not as a mortgagee, even
apart from the fact that such vesting was through the statutory process.

The principle behind the exception to the prohibition clause in the last
B paragraph of Section 60 of the TP Act is, if the mortgagee is satisfied of a
part of the mortgage debt by becoming the owner of a part of the mortgage
property it is only equitable to allow the mortgagor to get pro tanto reduction
of the mortgage debt, otherwise it would be unjust to allow the entire mortgage
debt again to be borne by the remaining mortgage property. By becoming the
C owner of part of the mortgage property it is not necessary that the mortgage
money would have been discharged even proportionately. It depends upon
how the mortgagee got share in the mortgage property .
•
In an early decision of a Division Bench of the Calcutta High Court in
Ja"Sodha Kumar Dey v. Kali Kumar Dey & Ors., AIR {1930) Calcutta 619 a
n· mortgagor sold one of the items of the mortgage properties to the plaintiff-
mortgagee and in consideration thereof purchased another property of the
plaintiff for the same price. In the suit for recovery of mortgage debt from the
remaining properties the mortgagor contended that he is entitled to
proportionate reduction of the mortgage debt. The Division Bench repelled
the contention in the following terms:
E
"The mortgagor by his conduct impliedly agreed by receiving the full
value of the property that no portion of the mortgage debt would be
extinguished by virtue of the purchase by the mortgagee. That being
so the mortgagor is not entitled to claim in this suit that a portion of
the mortgage debt should be held to be pro tanto extinguished by the
F purchase of one of the properties by the mortgagee."

Learned Judges of the Calcutta High Court relied on a Full Bench
decision of the Bombay High Court in Lakshmidas Ramdas v. Jhumandas
Shan/car Lal, (ILR 22 Born. 304). In that case the mortgagee had purchased
G one of the properties in an auction sale in execution of a decree. The Full
Bench held thus: ·

"If the mortgagee purchased the equity of redemption he must allow
proportionate reduction of the value of the property purchased by
him; but where the circumstances under which the purchase was made
H show that it was purchased free' from all encumbrances, the plaintiff
STATE v. KOKIYATESTATES [THOMAS, J.] 317
~-' : ·~·· n
can enforce his entire security against the remaining property." A
A Division Bench of the Madras High Court in Eswara Krishna Iyer
and Anr. v. Mariya Susai Reddiar and Ors., AIR (1940) Madras 498 held:

"The principle underlying the last clause of Section 60 applies only
in cases where .the mortgagee in the character of a mortgagee acquires B
the equity of redemption outstanding in the mortgagor."

We concur with the said views which the High Courts of Calcutta,
Bombay and Madras have adopted in the aforesaid decisions, on the
interpretation of the last paragraph of Section 60 of the T.P. Act.

The upshot of the above discussion is this: vesting of portion of the
c
mortgaged property with the government and the subsequent assignment of
mortgaged right in favour of the government are not sufficient to formulate
the exception provided in the last paragraph of Section 60 of the TP Act So
plaintiff is not entitled to pro tap.to reduction in the mortgage money. Hence
the judgment of the trial court which was confirmed by the High Court, would D
stand modified to the above extent. Appeal is disposed of accordingly.

v.s.s. Appeal disposed.