This article has been written by Soumyadutta Shyam. This article discusses in detail the background of the case, facts of the case, issues raised in the case, arguments of the parties, laws involved in the case, relevant judgements referred to in the case, judgement of the case and its analysis.

Introduction

A mortgage is the transfer of interest in an immovable property for the purpose of ensuring the payment of money paid or to be paid by a loan, an existing or prospective debt, or the performance of an engagement that may give rise to monetary liability. It is a transfer of interest in specific immovable property as security for the repayment of a debt. But such interest itself is immovable property. The nature of the right transferred depends on the form of the mortgage.

In this case, the main issue was regarding “legal necessity.” Can a sale of immovable property be executed due to legal necessity. This case also dealt with various aspects of the mortgage of immovable property. Here, the Supreme Court weighed the existence of legal necessity. It was held that, when ancestral property is sold for the purpose of discharging the debts incurred by the father, it shall be valid.

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Details of the case

Case Title: Arvind & Abasaheb Ganesh Kulkarni & Ors vs. Anna & Dhanpal Parisa Chougule & Ors

Name of the Petitioner: Arvind & Abasaheb Ganesh Kulkarni & Ors.

Name of the Respondent: Anna & Dhanpal Parisa Chougule & Ors.

Citation: AIR 1980 SC 645; 1980 SCR (2) 816

Date of Judgement: 22nd January, 1980

Court: The Supreme Court of India

Provisions Involved: Sections 54 and 58 of the Transfer of Property Act, 1882

Article 136 of the Constitution of India

Bench: Justice O. Chinappa and Justice N.L Untwalia

Facts of the case

A person named Parisa Chougule signed a mortgage deed in favour of Ganesh Dattatreya Kulkarni for Rs. 1,600 for one item of land in April 1930. Parisa Chougule subsequently entered into a mortgage deed with the same mortgagee for Rs. 1,000 for 10 items of land as well as the land mortgaged earlier. The two mortgages were possessory in nature. Apparently, the plot was granted on lease again to the mortgagor in return for a fixed rent. Parisa Chougule died on June 15, 1934, leaving behind him three sons, Bhupal, an adult and Anna and Dhanpal, minors. In July 1934, Bhupal loaned an additional amount of Rs. 131 and signed a simple mortgage in relation to the ten plots of land under the mortgage deed entered into earlier. On May 1, 1935, Bhupal, claiming to be the representative of the joint family as well as the custodian of his young siblings, signed a sale deed in the name of Ganesh Kulkarni in relation to four of the ten plots in the mortgaged land. 

The total sale consideration was Rs. 3,050. It was paid in three instalments of Rs. 1,600, Rs. 1,000, and Rs. 131 within three mortgages. The remaining amount of Rs. 200 was later paid in cash on the day the sale was executed. Six items were also discharged from mortgages. On September 23, 1946, Anna, the second son of Parisa, became a major. On August 31, 1951, Dhanpal, the third son of Parisa, became a major. In 1953, Anna and Dhanpal instituted a declaratory suit, a declaration that the sale deed signed in 1935 was neither for legal necessity nor for the welfare of the estate and thus not binding on them.

The Trial Court ruled that there existed a legal need for the sale in the range of just Rs. 2,600 and that the price of Rs. 3,050 for the sale was insufficient as the plots were valued at approximately Rs. 4,000. There were no unbearable situations on the estate to explain the sale. Thus, the sale was not for the welfare of the family and was not binding on the two plaintiffs. A decree was allowed on the part of the two plaintiffs for the joint occupancy of a 2/3 share of the lands for the payment of Rs. 133 to the defendant. When the second defendant made an appeal, the Assistant Judge endorsed the view taken by the Trial Court. The Assistant Judge observed that there was no proof to indicate that there was adequate stress on the family, explaining the sale. It was, however, ruled that the suit of the plaintiff was excluded by limitation. Thus, the decree passed by the Trial Court was altered by allowing a decree for the second plaintiff only for the possession of 1/3 share in the plots for the payment of an amount of Rs. 866 to the second defendant.  Thereafter, the first plaintiff and the second defendant made further appeals to the High Court. Afterwards, the heirs of the second defendant made an appeal by special leave as per Article 136 of the Constitution of India.

Issues raised in the case

Whether the intended sale of the property by the plaintiff could be implemented because of legal necessity or benefit to the estate?

Arguments of the parties

The Advocate appearing for the respondents leaned on the judgement in Balmukand vs. Kamla Wati & others (1964). It was a case of specific performance for a contract of sale signed by the representative of the household in the absence of any discussion with the mature members of the household. The purpose of alienating family property was not to release prior monetary liabilities of the household, nor was it for the object of ensuring the well-being of the family. The sole cause for the transfer of the property was that the plaintiff intended to secure his own possession. The court observed that there was neither a legal necessity nor the welfare of the estate in the intended sale or the contract, thus making it unenforceable. However, the Supreme Court did not consider this case relevant in the circumstances of the case.

Laws involved in Arvind @ Abasaheb Ganesh Kulkarni vs. Anna @ Dhanpal Parisa Chougule (1980)

Article 136 of the Constitution: Special leave to appeal by the Supreme Court

As per this provision, the Supreme Court is empowered to allow, at its option, special leave to appeal from (a) any judgement, decree, determination, sentence or order; (b) in any case or matter; and (c) passed or delivered by any court or tribunal in India. The only restriction on this authority of the Supreme Court is in relation to any judgement, determination, etc. of any court or tribunal composed in conformance with any law relating to the armed forces.

This provision bestows especially broad powers upon the Supreme Court. The powers bestowed by this provision are in the form of special residuary powers that are utilised beyond the scope of general law. It endows the Supreme Court with plenary jurisdiction in regard to considering and hearing appeals by allowing special leave against any type of judgement or order given by a court or tribunal. The utilisation of this authority is left fully to the disposition of the court, free from any limitations and this authority cannot be diminished by any law other than amending the Article itself. In this instance, after the High Court rejected the appeal submitted by the second defendant, the legal heirs of the second defendant submitted an appeal by special leave as per Article 136. 

Section 58 of Transfer of Property Act, 1882 

Mortgage is the conveyance of an interest in a particular immovable property for the purpose of ensuring the payment of money paid or to be paid through a loan, an existing or prospective debt, or the execution of an arrangement that may give rise to monetary liability. 

It is distinct from a sale because, in a mortgage, there is no transfer of absolute ownership rights to the property. It is the conveying of limited interest in a particular immovable property. 

Here, Parisa Chougule signed a mortgage deed in favour of Ganesh Dattatreya Kulkarni for Rs. 1,600 for a single piece of land in April 1930. After that, Parisa again entered into a Mortgage deed with Ganesh for Rs. 1,000 for 10 items of land as well as the land mortgaged earlier. However, the plot was leased once again to the mortgagor for a fixed rent. In July 1934, Bhupal loaned an extra amount of Rs. 131 and signed a simple mortgage in relation to the additional plots of land under the mortgage deed entered into earlier. On May 1, 1935, Bhupal, who claimed to be the representative of the family and the custodian of his young siblings, signed a sale deed in favour of Ganesh Kulkarni in relation to four out of ten items on the mortgaged land. Six items were released from the mortgage later. 

The Apex Court said that when the circumstances of the case indicate that from the price of Rs. 3,050 for sale, there was unquestionable legal necessity to the range of Rs. 2,600, the entire sum payable in accordance with the two mortgages entered into by the father of the plaintiffs. From the ten plots of land that were subject to mortgages, just four were transferred and the rest of the six were discharged from the mortgages. Plaintiffs were released from the mortgages. They were released from the obligation to pay rent to the mortgagee in accordance with the lease deed. 

Section 54 of Transfer of Property Act, 1882 

Sale is the conveying of ownership in immovable property in return for price paid or assured or partly paid or partly paid and partly assured. When the transfer relates to a property whose value is more than one hundred rupees, the transfer can be made exclusively by a registered instrument.

“Sale” denotes a complete conveyance of rights in the property sold. No rights over the property are left with the transferor. 

The price or consideration is a precondition of a valid sale. The price is fixed by the contract antecedent to the conveyance. If no price is paid or promised, even a registered sale deed is not valid.

In this case, Bhupal, the son of Parisa Chougule, claiming to function as the representative of the family as well as the custodian of his young siblings, signed a sale deed in favour of Ganesh Kulkarni on May 1, 1935. Later, when Anna and Dhanpal became adults, they instituted a case for declaration that the sale deed signed in 1935 was not binding on them as it was not for legal need nor for the welfare of the family property. 

The Apex Court said that when the circumstances of the case indicate that from the price of Rs. 3,050 for the sale, there was unquestionable legal need to the range of Rs. 2,600, the entire sum payable in accordance with the two mortgages entered into by the father of the plaintiffs. The land is valued at Rs. 4,000. Even if that were so, the price of Rs. 3000 could not be considered inadequate.

The Apex Court further said that when family property is transferred with the aim of releasing debts accumulated by the father and a substantial portion of the returns of the sale is attributed, the issue that a minor portion of the proceeds is not explained will not nullify the transfer.

Relevant judgements referred to in the case

Gauri Shankar vs. Jiwan Singh (1927)

Facts

The case was regarding the sale of family property on account of family necessity. In this case, the sale transaction was unquestioned for eleven years. The sale took place in February 1910 and it was only in July 1921 that the validity of the sale was questioned and the Court was requested to render it void since the sale was not for family necessity.

Issues

Whether the sale of the family property was made due to family necessity?

Judgement

The Judge who dealt with the case at an earlier stage stated his view on the largest item that, “It is therefore clear that the bond of April 17, 1906, was executed by Meherban Singh and his sons for family necessity.” As for the small balance of the amount that was not accounted for, the Judge said that, in regard to the fact that a major part of the consideration for sale had been for legal necessity, there is no doubt that the whole consideration for the sale was for such necessity. The Bombay High Court ruled that if the buyer acted in a bona fide manner, if the fact of family requirement for sale is proved and the cost is not very low, the buyer is not under obligation to explain the application of the cost. Thus, the appeal was sustained.

Niamat Rai vs. Din Dayal (1927)

Facts

The facts of the case are that Din Dayal and Bansari Basil were minors, and their lands in the joint family property were sold by Lacchman Das, the representative of the family, to defendants no. 2 to 6 under a sale deed dated January 1, 1913. Lacchman Das, who was the first defendant, and Mussamat Dhani, the mother of the minor plaintiffs who co-signed the sale deed, were also added as seventh defendant. The suit was filed by Dal Chand, the minor’s brother-in-law. He mentioned in court that he brought the suit at the instructions of the older, who became an adult subsequently. 

The plaintiff mentioned that the property was sold for a minimal amount of Rs. 43,500, that Lacchman Das did not receive the entire consideration, and that the sale was affected in the absence of any legal necessity and was not for the welfare of the minors. The cost of Rs. 43,500 was found to be very reasonable and the District Judge discovered that it was fully paid and the sale was valid because of necessity, as the family debts amounted to Rs. 38,400. This was the only issue contended on the appeal to the High Court, which, relying on the argument of the appellants, said that the family debts did not go beyond Rs. 22,000 or Rs. 23,000 and ruled that the sale was made although there was no legal necessity, and cancelled the decree of the District Judge.

The judges of the High Court were convinced that the entire amount of Rs. 38,400 paid out of the sale consideration was made to extinguish the debts before the deliberation for the sale, and they would have been of the view that the sale should have been upheld. They were of the view that too much significance was attached to the issue of whether some of the payments were made to release the debts accumulated in the interval between the deliberations of the sale and the execution of the sale deed. Although there was no joint family business, evidence that the property had been sold for Rs. 43,500 to extinguish the subsisting debts to the sum of Rs. 38,000 would have been adequate to support the sale without showing how the rest of the amount was applied.

Issue

Whether the sale of the property was made for legal necessity and for the welfare of the minors?

Judgement

The sale deed executed on January 1, 1913, incorporated a recital that mentioned it was essential that the suit lands be sold for trade, business and payment of debt. There was a covenant by Lacchman Das and Mussamat Dhani to indemnify the vendors in full if they incur any loss, in case the minors assert any claim after becoming adults. The Judges of the High Court regarded this clause as a doubtful situation. However, it was just a rational precaution against the undisputed peril that the vendors who were major might subsequently conspire with the minor vendors to set aside the sale. This is exactly what has transpired in this case, where Lacchman Das, the representative of the plaintiff’s family and the actual vendor sought to surpass his statement in the sale deed that it was essential to sell the property for trade, business and payment of debts. He also proved that the joint family business ended prior to the date of sale. Furthermore, the debts that were discharged out of the sale consideration were fabricated or incurred in putative transactions of his own, and there was no adequate stress on creditors to explain the sale. 

If there is a joint family business, the representative has the right to collect money not just for the payment of debt but also for managing the business. It was not evident that loaning money, possibly at a high rate of interest, would have been more advantageous than the sale. It was also an issue for the representative whether it was better to raise more money or shut down the business. However, in this case, the decision to collect more money would seem to have been a rational one, as the business subsequently earned profits with which more land was bought. The Court ruled that it is accepted that the money obtained by the sale was essential for the payment of debts and carrying on the business. Thus, the sale was valid.

Balmukand vs. Kamla Wati & Ors. (1964)

Facts

This case was also cited by the respondents in the present case but was rejected by the Supreme Court. In this instance, the appellant engaged in a contract with the representative of the family to buy the property of the Hindu joint family. The property in question consisted of a constituent share of the family on a large parcel of land. Advanced money was also paid to the representative of the family. As the representative did not sign the sale deed, the appellant brought a lawsuit for specific performance. The other members, who were brothers of the representatives, were adults. The suit was contested for the reason that there was no legal necessity and it was not for the welfare of the family.

Issues

  1.  Whether the contract of sale was a legal necessity?
  2. Was the suit for specific performance valid?

Judgement

The Court held that the objective of the transfer of property was not to release any prior monetary liabilities of the household nor was it for the object of ensuring the welfare of the family. The sole cause of the sale was that the plaintiff intended to secure his own possession. It was observed that there was no legal need nor welfare to the estate from the intended sale and the contract for sale thus could not be enforced.

Judgement in Arvind @ Abasaheb Ganesh Kulkarni vs. Anna @ Dhanpal Parisa Chougule (1980)

The Supreme Court set out that when family property is transferred with the object of releasing debts accumulated by the father, the sale is valid. When a major portion of the returns of the sale are accountable, the fact that a minor portion of the sale consideration is not explained will not nullify the sale. The appeals were therefore allowed.

Rationale behind the judgement

The circumstances of the case indicated that out of the price of Rs. 3,050 for the sale, there was unquestionable legal necessity in the range of Rs. 2,600 of the whole sum payable under the two mortgages entered into by the father of the plaintiffs. Out of the ten plots of land that were mortgaged, just four were sold and the rest of the six plots were released from the burden of mortgages. The plaintiffs were released from the obligation to pay rent to the mortgagee in accordance with the lease deed. The cost of the plot sold under the sale deed was noted to be Rs. 4,000. Although it is so, it cannot probably be held that the price of Rs. 3,000 was insufficient. It has to be further kept in mind that there were regular transactions within the family of the plaintiffs and that of the defendants, over the course of many years. In this situation, it is unfeasible to concur with the decision of the subordinate courts that the sale was not binding on the plaintiffs. The subordinate courts seemed to contemplate that, notwithstanding the situation that there was a legal necessity to a great degree, it was binding on the second defendant to prove that he made scrutiny to convince himself that there was adequate stress on the estate that rationalised the sale.

The Supreme Court did not find any significance in the stand taken by the subordinate courts. Where the mortgagee is himself the buyer and  the larger section of the consideration went into the release of the mortgagors, there is no scope for any inquiry relating to the pressure on the estate. When family property is transferred with the aim of releasing debts accumulated by the father and a large portion of the returns of the sale is so justified, the issue that a minor portion of the price is not explained will not nullify the sale.

Analysis of the case

In this instance, the Apex Court dealt with the matter of the sale of property executed due to legal necessity. Parisa Chougule executed two mortgages in favour of Ganesh Kulkarni. In 1935, Bhupal, acting as the representative and guardian of the joint family, executed a sale deed in the name of Ganesh Kulkarni in relation to four of the ten items on the mortgaged land. The price received for the sale was Rs. 3,050. In 1953, Anna and Dhanpal filed a suit for a declaration that the sale deed signed by Bhupal in favour of Ganesh Kulkarni was not binding on them because it was not for legal necessity nor for the benefit of the estate.

According to Hindu law, the karta (representative) of a Hindu joint family has the prerogative to transfer the property of the Hindu joint family for legal necessity. As the karta has to take care of all the members of the Hindu joint family, Hindu law has given him discretion, and he has to take the decision as to whether there is a legal necessity or not. He also has the prerogative to determine in which way such legal necessity can be attained, either by mortgage or sale. Such use of discretion is, however, subject to the perusal of the Courts.

In Hanooman Persaud vs. Massumat Babooee (1856) 6 MIA 393, the court dealt with the connotation of “Benefit of estate.”One opinion was that a transfer of property cannot be considered unless it does not have a defensive nature, i.e., a transfer made to safeguard the estate from an obvious peril. The other opinion is that to identify the transfer of property under the pretence of benefit of estate, it is adequate that the owner or trustee would have made the transfer with the information that was available to them at the time of the transfer.

In Palaniappa Chettiar vs. Devasikamoney (1917), the Judicial Committee defined the phrase “benefit of the estate”. Fundamental obligations such as protection of the estate from extinction, defence against litigation impacting the property, and safeguarding of a particular section of the property from flooding or destruction could be interpreted as benefits to the estate. Subsequently, in Hemraj Dattubuva Mahnubhao vs. Nathu Ramu Mahajan (1935), the court said that a property cannot be transferred just with the aim of increasing its value. However, it would as well be wrong to assume that no transfer can be for the benefit of the estate, which is not of a defensive nature.

In the present case, the property was transferred for the release of the property from mortgage as well as to discharge the debts accumulated by the father. Therefore, the sale was made for “legal necessity” as well as for the “Benefit of the estate.” 

Conclusion

In this significant case, the Apex Court delved into the question of whether a sale of property is obligatory on the other members of the family when it is carried out for “Legal Necessity” or “Benefit of the estate.” In this case, Parisa, the mortgagor, signed two mortgage deeds in favour of Ganesh Kulkarni, the mortgagee for Rs. 1,600 and Rs. 1,000 for specific lands. Parisa passed away, leaving three heirs; Bhupal, an adult and Anna and Dhanpal, who were minors. In 1935, Bhupal, claiming to act as the representative of the family, signed a sale deed in the name of Ganesh Kulkarni in relation to four of ten items of land formerly mortgaged. The price of the land was Rs. 3,050. When the minor sons of Parisa became adults, they preferred a suit for a declaration that the sale deed that was executed in 1935 was not binding on them since it was not for legal necessity or for the welfare of the estate. The trial court decided that there was a legal necessity of just Rs. 2,600. The consideration received was insufficient, as the land was valued at Rs. 4,000.

The opinion given by the subordinate courts lacked any reasonable justification. In this situation, when family property is sold with the object of releasing debts accumulated by the father, it amounts to a transfer of property for legal necessity and is thus valid. In this case, the Apex Court drew attention to the fact that the representative of a joint family who transferred the property does not have to demonstrate that the whole sale consideration was used for the welfare of the estate.

Frequently Asked Questions (FAQs)

What is a declaratory suit ?

A declaratory suit is a suit for proclamation of a right or title in favour of the plaintiff to a property.

What is a mortgage-deed?

A mortgage deed denotes the instrument or legal document by which the transfer of interest in a property is carried out in the case of a mortgage. It contains the terms and conditions of the mortgage.

What is a simple mortgage?

In a simple mortgage, the mortgagor retains possession of the property and covenants personally to pay the mortgage money. The mortgagor agrees that in the event of default of payment, the mortgagee shall have the right to realising the debt by causing the property to be sold by an order of the court.

References

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