PETITIONER: COMMISSIONER OF INCOME-TAX, <NAME> Vs. RESPONDENT: M/s. R. HANUMANTHAPPA AND SON DATE OF JUDGMENT10/08/1971 BENCH: <NAME>, A.N. BENCH: <NAME>, A.N. HEGDE, K.S. CITATION: 1972 AIR 175 1972 SCR (2) 94 1971 SCC (3) 592 ACT: Mysore Income-tax Act , 1923, s. 25(3) -Hindu undivided family carrying on family business-After partition, the same copar- ceners with another formed partnership and was carrying on the same business-Whether discontinuance of the family busi- ness within the meaning of s. 25(3) - Mysore Income-tax Act , 1922- Finance Act , 1950-Whether appeal lay from a judgment of Mysore <ORG> arising out of pre-constitution matter- Interpretation of Art. 136(i) of the Constitution. HEADNOTE: After the partition of a Hindu undivided family the coparceners formed into a partnership and carried on the same business which was being done by the Hindu undivided family. A clause in the deed of partnership was that "the partnership shall ,carry on as a successor to the business originally carried on by the Hindu undivided family". The assessment of the Hindu undivided family for the year 1949- 50 was completed on December 29, 1949. The previous asses sment year was November 30, 1947 to November 1, 1948. This assessment was sought to be reopened under s. 34 of the Mysore Income-tax Act, 1923 and an additional demand was raised by the order of the Income-tax Officer. On behalf of the disrupted Hindu undivided family, an exemption was claimed under s. 25(3) of the Mysore Act of 1923 which provided that where any business etc. was discontinued 'no tax shall be payable in respect of the income, profits and gains of the period between the end date of the previous year and the date of such discontinuance.' The assessee claimed the benefit under s. 25(3) of the Mysore Act on the ground that after partition there was a discontinuance of the business and so no tax was payable. The Income-tax Officer relied on the succession clause which showed that the business which was being carried on by the Hindu undivided family continued to be carried on by the partnership firm and also the cash balance, book account and the stocks of the family business had been transferred from the books of the family to that of the firm. The Appellate Assistant Commissioner and the <ORG> upheld the view of the Income-tax Officer. On reference, <ORG> answered the question in favour of the assessee. In ,appeal to this Court it was contended by the <ORG>, that there was ,discontinuance of the business within the meaning of s. 25(3) of the Mysore Act. The respondent raised a preliminary objection that since the matter related to pre- constitution period and <ORG> being the final authority under the Mysore Act, no appeal lay to any higher ,Court. 95 HELD: (i) The requirement of sub-s. (3) of s. 25 is that the business should be discontinued and not that the person or persons who own the business should cease to be the same; the discontinuity must be real and factual and it has to be of the business and not of its owner or owners of the business. There was no factual cessation of business or its discontinuance in the present case. All that happened was that previously the owner of the business was the Hindu undivided family and subsequently the partnership became the owner. There was merely a change of ownership and the business as such continued. Therefore, there was no discontinuance of the business within the meaning of s. 25(3) of the Act. [102B-C, 101B] (ii) Since the Indian Income-tax Act, 1922 was introduced in the erstwhile State of Mysore and since this Act was amended by s. 3 of the Finance Act, 1950 (by which it was made applicable to whole of India except Jammu & Kashmir), the Mysore Act therefore has ceased to have any effect except for the purposes of levy, assessment etc. mentioned in the section. Further the judgment of Mysore <ORG> was delivered on January 4, 1967 and the appeal was brought by special leave under Art. 136 of the Constitution. The language of Art. 1-36 (i) is very wide to cover any judgment, including the impugned judgment of <ORG>, dealing with a pre-constitution matter. [103B] <CITATION> , 13 I.T.R. 384, <CITATION> , 1946 I.T.R. 191 and S.N.A.S.A. Annamalai Chettiar v. C.LT. Madras, 20 I.T.R. 238, referred to. JUDGMENT:

CIVIL APPELLATE JURISDICTION : Civil appeal No. 704 of 1968. Appeal by special leave from the judgment and order dated January 4, 1967 of <ORG> in I.T.R.C. No. 43 of 1965.

<NAME>, Solicitor General <NAME> and <NAME> for the appellant.

<NAME>, <NAME> and <NAME> for the respondent.

The Judgment of the Court was delivered by <NAME>, J. This is an appeal by special leave and is directed against the judgment of <ORG> rendered in its advisory jurisdiction on a case stated by the Commissioner of Income tax Mysore under S. 66 (2) of the Mysore Income tax Act, 1923, hereinafter called the 'Mysore Act'.

The facts are not in dispute. The family of <NAME> and son was being assessed in the status of Hindu undivided family with late <NAME> as its karta till there was a partition and all the family assets including the cotton business were divided after the disruption of the joint family which took place on November 2, 1948. The division took place among the following three coparceners, (1) <NAME>, <NAME>, (2) <NAME> his son and (3) <NAME> his grandson. After the disruption of the family the partnership firm was formed on November 22, 1948, the partners being the aforesaid erstwhile three coparceners of the Hindu Undivided family, hereinafter referred to as '<ORG>' and <NAME> a widowed daughter of <NAME>. The partnership worked under the name and style of <NAME> & Son, Cotton Merchants. It is common ground that it did the same business which was- being done by the <ORG> The business assets and liabilities falling to each coparcener's share were entered in their personal accounts and then retransferred to the partnership firm as contribution of capital with the exception of a few trade debts. In the deed of partnership it was stated in paras 2 and 3 follows:-

(2) "WHEREAS the aforesaid R. Hanumanthappa, <NAME> and <NAME> were carrying on, as members of a Hindu undivided family, a family business as cotton merchants, till they became divided on 2-11-1948 and the said three parties desire to continue the family business constituting themselves into a partnership.

(3) WHEREAS it is agreed that the aforesaid <NAME> shall also be admitted into the partnership constituted for the purpose of the carrying on the family business after the partition of the family as aforesaid. NOW IT IS AGREED BETWEEN THE FOUR PARTIES HERETO :-

(1)-That the partnership shalt carry on, as successor to the business, originally carried on by the Hindu Undivided Family of Cotton Merchants Ginners and Pressers."

The assessment for the assessment year 1949-50 was completed on December 29, 1949 on the H. U. F. The previous year was the Deepavali year ie. November 30, 1947 to November 1, 1948 This-assessment was sought to be reopened under the provisions of s. 34 of the Mysore Act and an additional demand of Rs. 2,25,942/- was raised by the order of the Income tax Officer dated September 23, 1959. Before the Income tax Officer an exemption had been claimed on behalf of the disrupted H. U. F. under s. 25 (3) of the Mysore Act. This provision which was in the same terms as s. 25 (3) of the Indian Income tax Act, hereinafter called the ' Indian Act ', as it stood before the amendment of 1939 was as follows :-

"Where any business, profession or vocation ... on which tax was at any time charged under the, provisions of the Mysore Income tax Act 1920, is discontinued, no tax shall be payable in respect of the income, profits and gains of the period' between the end date of the previous year and the, date of such discontinuance, and the assessee may further claim that the income, profits and gains of the previous year shall be deemed to have been the income profits and gains of the said period. Where any such claim is made, an assessment shall be made on the basis of the income profits and gains of the said period, and if an amount of tax has already been paid in respect of the income profits and gains the previous year, exceeding the amount payable on the basis of such assessment, a refund shall be given of the difference."

The Mysore Income tax Act 1920 referred to in the above, provision was in pari materia with a similar provision in he earlier Indian Income Tax Act of 1918. Under those Acts the income tax was paid for each income tax year in respect of the income of that year. As pointed out by <ORG> the position was changed with the introduction of the Indian Income tax Act 1922 in British India and the Mysore Act 1923 in the erstwhile State of Mysore according to which during each assessment year tax was )aid in respect of the income earned during the previous ear. A situation, therefore, arose that upon the introduction of the new Act the assessee had to pay tax in respect of the income of the same year both under the earlier Statute and under the later enactment. It was with a view to removing this hardship and saving the assessees from double taxation that provision was made in sub-s. (3) of S. 25 of the new Act to give relief to the assessees to the extent possible. The assessee, in the present case, was being assessed under the Mysore Income tax Act 1922 and it could certainly claim the benefit of S. 25 (3) of the Mysore Act provided it could prove discontinuance of the business within S. 25 (3).

In support of the contention that there had been dis- continuance of the assessee's business as contemplated by S. 25 (3) of the Mysore Act it was urged, inter alia, before the Income tax authorities that on partition the business, had disintegrated into several parts which had been allotted individually to each coparcener thereby connoting discontinuance of the business. The assets which had beer acquired by the firm were of the divided members and did not belong to <ORG> and a fourth partner had joined the partnership. This showed that the partnership ha( not succeeded to the business of <ORG> The Income tax Officer rejected these contentions. Apart from other matters he relied on the clause in the partnership deed which showed that the business which was being carried on by <ORG> continued to be carried on by the partnership firm and that the cash balance, book account and the stocks of the family business had been transferrer from the books of the family to that of the firm.

In appeal the, Appellate Assistant Commissioner upheld the view of the Income tax officer. It may be mentioned that the appellate authority under the Mysore Act was designated as Deputy Commissioner but since that A( was no longer in force the appeal was heard by the Appellant' Assistant Commissioner. He took the view that the case was one of succession and not of discontinuance an affirmed the order of the Income tax Officer. The Con-, missioner agreed with the reasons of the Appellate Assistant Commissioner. On application being made under S. 66 (2) of the Mysore Act the following question was ,referred for the opinion of <ORG> :-

"Whether on the facts and in the circumstances of the case, the assessee is entitled to exemption under Section 25 (3) of the Mysore Income-tax Act ?"

<ORG> answered the question in favour of the assessee and against the <ORG>.

There are numerous decisions relating to the question as to what is meant by business being discontinued as also of there having been a succession with reference to s. 25 (3), of the Indian Act . The language of s. 25 (3) of the Mysore Act was different and was the same as of the Indian Act before its amendment in 1939. We have to ascertain the correct scope and ambit of the words "business is disconti- nued" which Would mean discontinuance of business for: the purpose of s. 25 (3) of the Mysore Act In Commissioner of Income tax <CITATION> ' it was observed as follows:-

"Before the amending Act came into force the words "discontinued" and "discontinuance" in Section 25 of the 1922 Act had been the subject of numerous decisions in <ORG>, among them Commissioner of Income tax, Bombay v. <NAME> & Co. Ltd. (1925) 50 Bom. 87, <NAME> v. Commissioner of Income tax, Punjab (1929) 3 1. T. C. 341 and <CITATION> (1938) 6 I.T.R. 290 and it had been uniformally decided that these words did not cover mere change of ownership but referred only to a complete cessation of the business. Their lordships entertain no doubt of the correctness of these decisions,. which appeal to be in accord with the plain meaning of the section and to be in line with similar decisions upon the English Income Tax Acts. Nor has their correctness been challenged in the judgment under appeal or in the argument before their Lordships."

It was pointed out that under the Indian Act before it was amended in 1939, s. 25 (3) gave relief in the event of.' discontinuance. The amendment only introduced a quali- fication that if there was a succession in respect of which.

(1) 13 I.T.R. 384.

relief was given there should not be any relief upon dis- continuance. It did not enlarge or Alter the meaning of "'discontinuance". In the first case referred to by their Lordships, a company went into voluntary liquidation and the liquidator transferred the business to a new company which continued that business. It was held that the business was not discontinued within the meaning of S. 25 (3) of the Indian Act . (This was 'before the amendment made in 1939). <NAME> analysed the scheme of the Indian Act and emphasised the fact that under its provisions tax was chargeable on the profits of a business and it made no difference if there was any change in the persons who carried on the business so long as the business was continued. In the next case i.e. Kalumal Shorimal there had been a partition of the H. U. F. The assessee got the family business a s its share. The other coparceners relinquished their rights therein and started separate busi- ness of their own. The assessee carried on the business under the old name and style. The assessee's contention was that the family firm had ceased to exist because the family had disrupted. This was rejected by <ORG>Court on the ground that the business of the family could continue in spite of its disruption. The question really was whether the business was discontinued or not in consequence of the breaking up of the family. It is unnecessary to refer to the third case as a similar principle was laid down there <NAME>, and <NAME>, discussed elaborately the case law relating to sub-s. (3) and (4) of s. 25 of the Indian Act in Income tax <CITATION> . The observations made there are pertinent for the purpose of the present ,case. This is what was said :-

"It must be observed that sub-section (3) is ,concerned with business, profession or vocation and sub-s. (4) with person. When an owner of a business dies or transfers his business or when partners dissolve their partnership, there is discontinuance so far as the person dying or transferring or the separating partners are concerned but there may be no discontinuance of the business as such. Thus the word discontinuity is capable of double interpretation according as it is vis-a-vis the (1) (1946) I.T.R. 191.

owners of vis-a-vis the business. In the fromer case, the discontinuity is notional or jural and in the latter case, it is real or factual."

All the above decisions proceed on the footing that the requirement of sub-s. (3) of s. 25 is that the business should be discontinued and not that the person or persons who own the business should cease to be the same. The dis- continuity as pointed out in <NAME> case must be real and factual and it has to be of the business and not of its owner or owners of the business.

A great deal of emphasis has been laid on behalf of the respondent assessee on the integrity of the business carried on by the <ORG> having been broken by the disruption of the family and it is claimed that the business of the family must be deemed to have totally ceased or discontinued on such disruption. Reliance has been placed on a number of decisions out of which mention may be made only of <CITATION> tax, Madras(2) in which a <ORG> consisting of a father and son carried on money lending business under different vilasams. There was a partition in 1939 under which some of the vilasams were allotted to the father and the rest were allotted to the assessee. The Madras High Court held that as the assets of the <ORG> were split up on partition the family business no longer continued its existence but was terminated and there was, therefore, a discontinuance within the meaning of s. 25 (3) of the Indian Act . It was observed by the court that the mere fact that after continuing the same books of account and the customers of the money lending business were to some extent identical, would not make the business of the father a continuation of the old business when once what was a single unit was split up into various component parts. The parts separated were distinct and separate parts of a unified whole but the unity and integrity between parts were no longer possible unless there was a reunion or partnership. It is apparent that the facts of this case were different and clearly distinguishable from those of the present case. Here apart from the circumstances and facts which have been found and established the partner (1) (1946) LT.R. 191.

(2) 20 I.T.R. 238.

ship deemed itself made it clear that the three coparceners who had effected partnership desired to continue the family business as partner after the partition of the family. No- thing could be clearer than the language used in sub-clause (1) of clause (3) of the Partnership deed that the partner- ship shall carry on as successor to the business originally carried on by the <ORG> of cotton ginners and pressers. Thus there was no factual cessation of business or its discontinuance. All that happened was that previously the owner of the business was the <ORG> and subsequently the partnership became the owner. There was merely a change of ownership and the business as such continued. In other words the business was never discontinued so as to attract the provision of S. 25 (3) of the Mysore Act. The judgment of <ORG> cannot thus be sustained. The answer given by it in favour of the assessee will have to be discharged and in its place the question referred is answered in favour of the <ORG>.

We may mention a preliminary objection that was raised on behalf of the respondent. It was argued that the matter related to the pre-Constitution period under the Mysore Act by which <ORG> had been constituted as the highest court and no appeal lay to any higher court. The decision of <ORG>, therefore, was final and no appeal could be entertained by this Court. We find no force in this objection. By S. 3 of the Finance Act 1950, the Indian Act was amended. The following amendment is relevant for our purposes:

S. 3 " Amendment of Act XI of 1922-With effect from 1st day of April, 1950, the following amendments shall be made in the Income tax Act,-

(a) for sub-section (2) of section 1 of the following sub-section shall be substituted, namely :-

(2) It extends to the whole of India, except the 'State of Jammu & Kashmir The effect of S. 13 of the Finance Act dealing with repeals and savings was 'that the Mysore Act ceased to have any effect except to the extent mentioned in the section.

In the present case the judgment of <ORG> was delivered on January 4, 1967 and the appeal which has been brought to this Court is by leave granted under Art. 136 of the Constitution. We are unable to see how under Art. 136 special leave to appeal could not be granted against the judgment of <ORG> when the language of Art. 136 (1) is very wide and expressly covers any judgment etc. passed or made by any court or <ORG> in the territory of India.

In the result the appeal is allowed and the question is answered as mentioned above. Owing to the previous order of this court dated February 2, 1968 the appellant, shall pay the costs of the respondent in this Court.

S.C. Appeal allowed. 8-MI245Sup.CI/71.


ORDER A.M. Khanwilkar, J.

1. By <ORG> the applicants are seeking to challenge the order dated 2.12.2002 passed by the Taxing Master. There is delay of only one day. Affidavit in support of <ORG> has set out sufficient cause for one day's delay. That averment has gone uncontroverted. In the circumstances, delay of one day is condoned.

2. The applicants and opponents were party to Suit No. 2502 of 1988 in which consent terms came to be filed on behalf of the plaintiffs and defendant No. 4 and 5. Learned Single Judge of this Court on 4.3.2002 took the consent terms on record and decreed the suit in terms of the consent terms against defendant Nos. 4 and 5 without prejudice to the rights of other defendants. It is relevant to note that the applicants in this Chamber Summons are defendant Nos. 2 and 3 in that suit. The applicants carried the matter in Appeal against the Order dated 4.3.2002 being Appeal No. 678 of 2002. In the appeal it is clearly mentioned that the applicants were aggrieved by the order dated 4.3.2002 passed by the learned Single Judge in the said suit taking on record consent terms executed between the plaintiffs and defendant Nos. 4 and 5. To put it differently, they have prayed for setting aside only that part of the order dated 4.3.2002. When the said Appeal came up for hearing before <ORG> of this Court on 30.9.2002, objection regarding court fees was raised as the applicants had affixed Court fees of Rs. 200/- whereas according to the registry of this Court the applicants were liable to pay ad-valorem court fees in terms of Article 7 of Schedule I of the Bombay Court Fees Act, 1959. Whereas the applicants paid court fees on the premise that the Appeal was not from a decree or an order having a force of the decree in terms of Article 13 of Schedule II of Bombay Court Fees Act, 1959. <ORG> of this Court by order dated 30.9.2002 thought it appropriate to refer the matter to the Taxing Officer. Pursuant to the said reference, enquiry has been held and the Taxing Officer has rejected the stand taken by the applicants and held that the applicants are liable to pay court fees on ad-valorem basis in terms of Article 7 of Schedule I of the bombay Court Fees Act , 1959.

3. Accordingly, the question that arises for consideration the present case is whether the applicants were liable to pay court fees as per Article 7 of Schedule I or Article 13 of Schedule II of the Bombay Court Fees Act, 1959.

4. According to the applicant since they were challenging only the order taking the consent terms filed by the plaintiff and defendant No. 4 and 5 on record, they were neither challenging the decree of the order having the force of the decree. Besides, according to the applicants, the Appeal preferred before <ORG> of this Court was under Clause 15 of the Letters Patent Appeal. The learned Counsel for the applicants submits that there is perceptible difference between the order passed by the court taking on record the consent terms filed by the parties and the decree founded on those consent terms. He. Therefore, submits that it is open for the applicant to challenge only the order passed by the learned single Judge taking on record the consent terms filed by the plaintiffs and defendant No. 4 and 5 on record.

5. On the other hand Mr. <NAME>, A.G.P. appearing for the <ORG> supports the order passed by the Taxing Officer and contends that the Taxing Officer has rightly applied Article 7 of Schedule I of Bombay Court Fees Act, 1959 and in which case the applicants would be liable to pay the deficit court fees.

6. Having considered the rival submissions, I have no manner of doubt that the applicants have merely challenged that part of the order passed by the learned Single Judge on 4.3.2002 whereby the learned Single Judge has taken on record the consent terms on behalf of the plaintiff and defendant Nos. 4 and 5 whereas the later part of that order proceeds to decree the suit in terms of the consent terms against defendant Nos. 4 and 5 without prejudice to the rights of the other defendants. To my mind, such an appeal would be available to the applicants in terms of Clause 15 of the Letters Patent Appeal. In that case, the applicants are justified in contending that they would be liable to pay court fees as provided under Article 13 of Schedule II of the Bombay Court Fees Act, 1959. The learned Counsel for the applicants has rightly placed reliance on the decision of <ORG> reported in XLVI (1943) Bombay Law Reporter 424 in the case of <NAME> versus <NAME>. In this decision it has been held that the Appeal against Order recording compromise is available. No doubt this decision proceeds on the basis of legal position as it obtained then by virtue of provisions contained in Order XLIII Rule 1 (m). However, deletion of Clause (m) of Rule 1 of Order XLIII C.P.C., would make no difference to the legal position that the order taking on record consent terms filed by the parties could be challenged if permissible in law. Clause 15 of the Letter's Patent Appeal in no way would preclude the applicants from filling Appeal challenging such an order and the Appeal having been filed by the applicant under that provision would therefore be available. A priori the applicant would be liable to pay court fees in terms of Article 13 of Schedule II of the Bombay Court Fees Act, 1959.

7. Therefore the order passed by the Taxing Officer which is impugned in this Chamber Summons dated 2nd December, 2002 is set aside. No order as to costs. Order accordingly.


JUDGMENT

1. The order of reference in this case states the following question for the decision of <ORG>. "Whether a first mortgagee who has purchased the mortgaged property in execution of a decree on his mortgage and sues for possession, or in the alternative for the recovery of his money, is entitled to a decree for possession subject to redemption by a puisne mortgagee with possession who was not a party to the suit by the first mortgagee?"

2. Our answer is in the negative. There are conflicting decisions of this and the other Indian <ORG> on the question which it is impossible to reconcile. The source of the difficulty seems to lie mainly in arriving at a definite conception of the rights of the second mortgagee. Section 60 of the Transfer of Property Act lays down the right of the mortgagor to redeem the mortgage. Section 75 of the Act gives every second or other subsequent mortgagee the same rights as against the prior mortgagee as the mortgagor has against him as regards the redemption, foreclosure or sale of the mortgaged property. As the mortgagor is entitled to redeem the first mortgage, the second mortgagee is likewise entitled to redeem the first. As regards foreclosure and sale, they are the rights of the mortgagee and not of the mortgagor though when a decree for foreclosure or sale is made, any rights that the mortgagor may have in the carrying out of the foreclosure or sale, may also be claimed by the second or other subsequent mortgagee. But has the second mortgagee any other right than that of redemption? The section simply says that whatever rights he may have against the mortgagor he will have them against encumbrancers subsequent to himself in date. But what are the rights of the puisne mortgagee against his mortgagor over and above his right of redemption of the prior mortgage? Has he the right to bring to sale the equity of redemption of his mortgagor and has he the right of foreclosure? Discussing the rights of mortgagees <NAME> says in his Roman Law, page 537: If the same thing has been hypothecated successively to several persons, only the first of them has the power of sale, unless a subsequent creditor has put himself in the place of the first." That is to say, it is open to the second mortgagee to redeem the first mortgage and then ask for the sale of the mortgaged property standing in the shoes of the first mortgagee. But otherwise he has no independent right of sale of the equity of redemption of his mortgagor. Dr. <NAME> in his hand-book of Roman Law says on the authority of the Code and the Digest: "A posterior hypothecatee is generally not permitted to sell the hypotheca without the consent of the prior one, unless the prior one's claim will be satisfied by the sale" Section 354 . In <NAME> v. <NAME> 7 M.H.C.R. 229 <NAME> Officiating Chief Justice, and <NAME>, J., speaking of the second mortgagee say "<NAME> justly observes that the subsequent mortgagee gets all to which he is entitled when he is allowed to redeem the prior mortgagee." This statement of the view of the Continental Jurist is in accordance with the strict English notion of the equity of redemption. The property mortgaged passes absolutely at Common Law to the mortgagee. The legal effect of the forfeiture on breach of the condition could not be altered at Common Law but it was relieved against in equity. Thus, the mortgagor had an equity to redeem. Any transferee of that equity, as a second mortgagee, is entitled to the same equity. But the second mortgage of the mortgagor's equity to redeem with rights of sale and foreclosure must at first sight seem anomalous. But when the equity of the mortgagor is itself recognised as an estate see Lord <NAME> in <NAME> v. <NAME> 2 W.L. and Tud. P. 9 there can be no difficulty in a mortgage of that estate attended with rights in the mortgagee, similar to those of the first mortgagee. A fortiori where both mortgagee and mortgagor have legal estates as in this country. But sale of the mortgaged property even at the instance of the first mortgagee was not ordered in England as a matter of course. See the judgment of Lord <NAME> in <NAME> v. <NAME> 10 Ch. A p. 32 : 44, L.J. Ch. 157 : 31 L.T. 650 : 23 W. 11. 95. He said "it appears to me that under the recent Act of Parliament, 15 and 16 Victoria, Chapter 86, Section 48 , it is within the discretion of the <ORG> in a mortgage-suit, whether a foreclosure or sale shall be ordered. But a sale is not to be ordered as of course." Lower down in the same page he says "I think the <ORG> must rest satisfied with making that which would have been the ordinary form of decree before the statute and decreeing simply foreclosure and not a sale." A sale at the instance of the second mortgagee was a matter of more difficulty. In a suit by a second mortgagee of a moiety who applied for a sale (in his suit for foreclosure) the conduct of the sale was given to the first mortgagee of the entirety as more convenient and less expensive <NAME> v. <NAME> 7 W.R. 5. The suit evidently in that case was not for sale subject to the first mortgage but free of all encumbrances. At the request of the second mortgagee in a suit by the first mortgagee an order was made for sale of the property first mortgaged or foreclosure in case sale should not be effected: See <NAME> v. <NAME> 55 L.J. Ch. 831 : 54 L.T. 670 : 34 W.R. 561. We have not been able to find any instance in England of a suit for sale by the second mortgagee of the mortgagor's equity of redemption merely; leaving the first mortgage unaffected. In Jones on Mortgages American authority is cited ( section 1580 ) for the view that in case the prior mortgage is not due a puisne mortgagee may have a decree for the sale of the equity of redemption subject to the prior mortgage; but if it is due he may redeem and sell the whole estate. A junior mortgagee is entitled to bring in a bill to foreclose the equity of his mortgagor. The statement in Jones, Sections 1395 and 1431 , that after foreclosure or sale by the first mortgagee the second mortgagee who had not been joined in the suit of the first has only the right to redeem is only explicable with reference to the English and American practice of not decreeing sale of the equity of redemption at the suit of the second mortgagee. But Section 25 of the Conveyancing and Law of Property Act, 1881, says "any person entitled to redeem mortgaged property may have a judgment or order for sale instead of for redemption in an action brought by him either for redemption alone or for sale alone or for sale or redemption in the alternative." This section distinctly recognizes the right of a second mortgagee to sue for sale but even this does not seem to warrant the sale of his mortgagor's mere right of redemption. The definition of a mortgage in the Transfer of Property Act includes the transfer of an interest in the equity of redemption to the second or other subsequent mortgagees and such second mortgagee is entitled to the same rights of sale of the interest mortgaged to him as the first mortgagee himself has under Section 67 or 68. Section 96 which speaks of a sale subject to a prior mortgage contemplates a suit for sale by the second mortgagee without his being confined to the mere right to redeem the first mortgage. Whatever doubts there may arise on this question under the Transfer of Property Act , Order XXXIV of the present Code of Civil Procedure sets the matter at rest by the explanation to Rule 1, which runs as follows: "A puisne mortgagee may sue for foreclosure or for sale without making the prior mortgagee a party to the suit." It was held by the Allahabad High <ORG> before the enactment of the present Code by a Full Bench, in <NAME> v. Kazim Husain 13. A. 432 that a second mortgagee's only remedy was a suit for redemption and that he could not sue for sale. It was also held by the Bombay High <ORG> in a series of cases that a sale under a decree on the first mortgage carried with it all' rights of the mortgagor as at the date of the mortgage even though the second mortgagee was no party to the suit (see Jones on Mortgages, Sections 1654 and 1656 ). These two principles are the foundation for many of the later judgments of those <ORG>s as regards the rights of a puisne incumbrancer with reference to the prior mortgagee who had sold in execution of a decree the property of the mortgagor without having made the puisne incumbrancer a party to the suit. But so far as this <ORG> is concerned, the uniform practice has been to recognize the right of the second mortgagee in case there was a personal covenant in his favour to sue for sale notwithstanding the contrary note sounded by the decision in <NAME> v. <NAME> 7 M.H.C.R. 229. In <NAME> v. <NAME> 4 M. 213; <NAME> v. <NAME> 8 M. 246.; <CITATION> 20 M. 120 and in numerous cases unreported, this <ORG> has consistently recognised the right of the second mortgagee to sue for sale subject to the prior mortgage. The Full Bench of the Calcutta High <ORG> has also taken the same view: See <NAME> v. <NAME> 30 C. 599.

3. The question then arises whether the right of the second mortgagee can in any way be affected by proceedings to which he was not a party. On general principles it seems impossible to understand how a person can be affected by proceedings to which he was not a party or in which he was not in some way represented. <ORG> has definitely pronounced upon this point. In <NAME> v. <NAME> 14 M.I.A. 144 : 8 B.L.R. 104 : 16 W.R. 33 where a foreclosure decree was first obtained by the first mortgagee without making the second mortgagee a party, Lord Justice <NAME> delivering the judgment of <ORG> said "it is difficult to see how a right of entry or cause of action against one man, in respect of his property, could be either lost or gained by proceedings against another man in respect of his property. He approved of the decision of <ORG> on the point by saying "it was, of course, held by <ORG> that he was in no wise affected by those proceedings." In <NAME> v. <NAME> 18 C. 164 : 17 I.A. 201, the same tribunal observed with reference to the rights of a subsequent mortgagee, at page 179 as follows: "It was indeed argued by Mr. <NAME> that the sale in 1879 (at the suit of the prior mortgagee) had the effect of shutting out all puisne incumbrances. But their Lordships consider that the right view on this point has been taken in both the Courts below. Persons who have taken transfers of property subject to a mortgage cannot be bound by proceedings in a subsequent suit between the prior mortgagee and the mortgagor to which they are never made parties." These observations are not confined to the mere preservation of the subsequent mortgagee's right to redeem the previous mortgage. If the rights of the puisne incumbrancer who was not made a party to the suit of the prior mortgagee are preserved in every respect, the right to sue for sale of the equity of redemption which existed previous to the suit by the first mortgagee must continue to remain after it. Again, in <NAME> v. <NAME>, 21 C. 70 : 20 I.A. 165, Lord <NAME> says at page 79: "As regards the plaintiffs' title to sue, the learned Counsel for the appellant pointed out that the plaint, on the face of it, showed that the property on which the plaintiffs claimed to have a charge had been sold before the date of the Government sale, under a decree obtained by a prior mortgagee against the mortgagor and they insisted that such a sale has the effect of displacing puisne mortgagees and leaving them with nothing but a claim against the surplus proceeds, if any. That, however, in their Lordships' opinion, is not the necessary consequence of a sale under a decree obtained by a prior mortgagee against the mortgagor in a suit to which the puisne incumbrancers are not parties." Their Lordships recognised the right of the puisne incumbrancer to proceed against the land, though it must be admitted that in that case the purchaser under the prior mortgage decree did not dispute it. <CITATION> 37 C. 239 : 5 Ind. Cas.151 : 14 C.W.N. 214 : 11 C.L.J. 166 : 12 Bom. L.R. 234 : 20 M.L.J. 153, where the dispute was between two sub-mortgagees of a mortgage-interest and the plaintiff was in point of time the second sub-mortgagee (by deposit of title-deeds) <ORG> observed that his rights, whatever they may have been, remained unaffected by the decree" in the suit of the first sub-mortgagee to which the second was not a party: see pages 248 and 250.

4. The authority, therefore, of <ORG> is clear for the position that whatever rights the second mortgagee as such may have at the date of his mortgage whether to possession (if his mortgage be one with possession and the previous mortgage without it) or to sale or foreclosure under Section 67 , such rights remain altogether unaffected by the suit of the first mortgagee without the second being a party to it and the sale in execution of his decree. He has also the right to redeem the prior mortgage if it has not been extinguished by merger in the equity of redemption. Such merger is practically impossible where the prior mortgagee gets in the equity of redemption by private or public sale, for it must always be for his benefit to retain the priority of his incumbrance and shield himself against the puisne incumbrancer, see Section 101 of the Transfer of Property Act. The rule in <NAME> v. <ORG> has been definitely abandoned in India since <NAME>' case <NAME> Gopal Doss v. Rambux Seochand 11 I.A. 126 : 10 C. 1035 and largely discountenanced in England: Stevens v. <ORG> 8 Ch. 1064 at p. 1069 : 42 L.J. Ch. 694 : 29 L.T. 318 : 21 W.R. 858; Thorne v. <NAME> (1895) A.C.11 at p. 16 : 64 L.J. Ch. 1 : 11 R. 67 : 71 L.T. 852 and <ORG> v. <NAME> (1896) 1 Ch. 726 : 65 L.J. Ch. 486 : 74 L.T. 228 : 14 W.R. 612. Merger on principle is impossible, for the case of the first mortgagee acquiring the equity of redemption when a second mortgage is still outstanding is not one of the rights and correlative obligation coalescing in the same person (see <NAME>'s Jurisprudence page 75) or of a smaller interest getting absorbed by a larger (see <NAME>, Appendix LVII) or of two contiguous interests carved out of property combining to form a larger whole. But if merger there should be notwithstanding, according to the older English notion (see Coote on Mortgages Vol. II, page 1467), while it leaves nothing for the second mortgagee to redeem, it elevates the second mortgagee to the position of first mortgagee enlarging his security. It cannot in any sense cut down the rights of the second mortgagee as they stood at the date of the second mortgage. As we have pointed out already, the first mortgagee preserves his priority in spite of his purchase of the equity of redemption behind the back of the second mortgagee. The second mortgagee may, if he chooses, still redeem the first. But redemption is an equitable claim, or in India a legal right, which he may seek to enforce and not a liability which he may be compelled to discharge. If, therefore, the second mortgagee is not willing to redeem the first mortgage after the purchase of the equity of redemption of the mortgagor in <ORG> or private sale by the first mortgagee, he cannot be deprived of his original right to institute proceedings for sale or foreclosure (whatever it was) under Section 67 as second mortgagee.

5. In examining the multitude of cases as regards the rights of first and second mortgagees after suit and sale by the one or the other or by each independently without impleading in the suit the representatives of all interests, carved out of the property, it is necessary to bear in mind certain misconceptions which have arisen in the course of the growth of the law of mortgages in this country, for otherwise we shall run the risk of misunderstanding and misapplying the cases. It was supposed at one time that a first mortgagee, selling in execution of a decree on his mortgage obtained in a suit to which the second mortgagee was not a party, succeeded in putting an end to the second mortgage altogether: See 8, <CITATION> 2 B. 662; <NAME> v. <NAME> 4 A. 518; <NAME> v. <NAME> 8 A. 324 and <CITATION> 4 C. 817. A modification of this view was adopted in later cases, namely, that the second mortgage should not be treated as extinguished at least when the first mortgagee had notice of the second mortgage and deliberately omitted to implead that mortgagee as a party defendant; See <NAME> v. <NAME> 9 A. 125; <NAME> v. <NAME> 10 A. 520 and <NAME> v. <NAME>, <NAME> 13 A. 315. Whatever effect the non-inclusion of the second mortgagee as a party to the suit on the first mortgage might be deemed to have on the maintainability of that suit in case he had notice, it is difficult to see how the second mortgagee could in any wise be affected. And this is the position laid down by the <ORG> cases already referred to.

6. Some of the decisions of <ORG> are coloured by the misconception that a second or subsequent mortgagee has no right to sue for sale or foreclosure but can only claim to redeem the prior mortgage and after such redemption sue for sale or foreclosure according to his rights under Section 67 of the Act. We have also to remember the fact that in particular cases the decision has depended upon the circumstance, sometimes expressly noticed and sometimes not, that the prior or subsequent mortgage was a mortgage with possession and that the right to possession was attached to the mortgage, and did not accompany the purchase of the equity of redemption. Oftentimes, the form of the decree has had reference to the pleadings of the parties, the second mortgagee who was not a party to the first mortgagee's suit being content to redeem the first instead of insisting on his right to bring the equity of redemption to sale. Or, the first mortgagee who has brought the equity of redemption in proceedings to which the second mortgagee was not a party has waived his right to sue a second time upon his first mortgage impleading the second mortgagee and has been content to pay off the second mortgage as the purchaser of the equity of redemption.

7. Bearing the foregoing considerations in mind, let us proceed to examine the decided cases. The following Allahabad cases were relied on in the course of the argument on one side, or the other: <NAME> v. <NAME> 13 A. 315; <CITATION> 19 A 541; <CITATION> 21 A. 235; <NAME> v. <NAME> 23 A. 1 and <NAME> v. <NAME> 26 A. 464. With the exception of the first, the remaining cases will be found to have no bearing on the question under consideration, and the judgment in that case vitiated by the erroneous view that a subsequent mortgagee has only the limited right to redeem the first mortgage as laid down in the <ORG> case in <NAME> v. <NAME> 13. A. 432. The first mortgagee who purchased in execution of his decree on the mortgage sued the second mortgagee in possession under his mortgage in ejectment and the <ORG> gave him a decree subject to redemption within a fixed time by the second mortgagee. It was erroneously assumed that the second mortgagee was only entitled to redeem. The purchaser and first mortgagee did not sue for foreclosure, assuming he had the right to it. He did not as purchaser seek to redeem the second mortgage. The second mortgagee entitled to possession under his mortgage had the right to continue in possession until redeemed by the purchaser and could not be ejected by the first mortgagee or compelled to redeem him. But the decision was the logical result of the view taken by the <ORG> in <NAME> v. <NAME> 13. A. 432. The <ORG> cases in <CITATION> 19 A 541 and <CITATION> 21 A. 235 simply lay down the rule that when there is a mortgage and sale of the equity of redemption by the mortgagor or in execution of a money-decree against him, the mortgagee who in a subsequent suit on his mortgage to which the first purchaser is not a party purchases the mortgaged property cannot affect the rights of the first purchaser. He cannot, on the basis of his purchase, eject the first purchaser. But if he sues to enforce his mortgage again against the first purchaser by foreclosure <NAME> v. <NAME> 23 A. 1 or sale <CITATION> 26 A. 464 he is at liberty to do so. Some of the observations in the last two cases may perhaps be open to exception but the decisions themselves are in accordance with true principle. <NAME> v. <NAME> 26 M. 537 which seems to be a correct decision on the facts of that case, is quoted with approval as warranting the position that the second mortgagee with possession has only the right to redeem.

8. Passing on to Bombay, we find that although it is not in terms anywhere stated that a second mortgagee is only entitled to sue for redemption but not for foreclosure or sale, it is repeatedly affirmed that the first mortgagee is entitled to sell the property as it stood at the date of his mortgage free from all subsequent encumbrances even if the Subsequent mortgagee was not made a party to his suit on the first mortgage. All that is reserved to the subsequent mortgagee in such a case, according to <ORG>, is a mere liberty to redeem subject to which the purchaser under the decree on the first mortgage has full rights in the property purchased. The decisions in <ORG> v. <ORG> 10 B. 224 and <ORG> v. <ORG> 20 B. 390 and the other Bombay cases there cited, clearly express the above view. In both the cases above cited possession was given to the purchaser under the decree on the first mortgage setting aside the right of the second mortgagee to possession under his mortgage and reserving to him a mere liberty to redeem within a time fixed. <NAME> v. <NAME> 28 B. 153 does not touch the question of the rights of the second mortgagee. It merely decides that the first mortgagee who has foreclosed without making the second mortgagee a party to the proceeding may redeem him by virtue of the equity of, redemption acquired under the foreclosure. The decision in <NAME> v. <NAME> 8 B. 168, however, cannot be reconciled with the current of authority in Bombay as pointed out by <NAME>, J. in <NAME> v. <NAME>, 28 B. 153 at page 167 and by <NAME>, J. at page 175. Though it seems to stand alone so far as that <ORG> is concerned, the decision appears to be sound in principle. A stranger who purchased in execution of a decree on the first, mortgage sued in ejectment the second mortgagee with possession who had not been a party to the prior suit but the <ORG> gave him only a decree for redemption of the second mortgage on the footing that he was entitled to possession until redeemed. This case, therefore, is an authority which supports the view indicated in our answer to the reference.

9. The following decisions of <ORG>, namely, <CITATION> 32 C. 891 : 9 C.W.N. 728 : 1 C.L.J. 371; <NAME> v. <NAME> 5 C.L.J. 315 : 11 C.W.N. 403; <NAME> v. <NAME> 6 C.L.J. 612 : 12 C.W.N. 107 were referred to by Mr. <NAME>. They support his contention that the first mortgagee who has bought the property in a suit upon the mortgage to which the second mortgagee was not a party is entitled to possession as against him though he (the second mortgagee) had previously obtained possession by a sale under his mortgage and that the second mortgagee is merely entitled to redeem the prior mortgage. It is not easy to reconcile these cases with the principle of the <ORG> decision in <NAME> v. <NAME> 30 C. 599 which held the right of sale of the second mortgagee to be unaffected by proceedings to which he was not a party. It seems to be fairly deducible from that case that if the second mortgagee had bought in execution of his decree the equity of redemption prior to the sale in execution of the decree on the first mortgage his rights must be equally saved and cannot be cut down to a mere right of redemption. The principle of the <ORG> decisions to which reference has already been made is also opposed to these <NAME> rulings. The dissenting judgment of <NAME>, J., in <CITATION> 32 C. 891 : 9 C.W.N. 728 : 1 C.L.J. 371, refusing possession to the first mortgagee who purchased in execution against the second mortgagee who had previously bought the property under a decree on the second mortgage is in accord with what appears to be the true principle as to the rights of second mortgagees. It is not easy to understand how the purchasers of the mortgagor's equity of redemption under a private sale were held liable to be deprived of possession by the first mortgagee-purchaser who did not implead those purchasers in his suit. See <NAME>, J. in <NAME> v. <NAME> 5 C.L.J. 315 : 11 C.W.N. 403. Such a view would even be opposed to the rulings in <CITATION> . Rai 19 A 541 and <CITATION> 21 A. 235.

10. We pass on now to the Madras cases. In Venkatanarasammah v. Ramiah 2 M. 108 it was held that the first mortgagee who was the first purchaser in execution was entitled to possession against the defendant who bought later under his second mortgage. Both mortgages were simple and the Court held that the second mortgagee bought nothing after the sale of the equity in the first mortgagee's suit. (<NAME>, J. at page 112). The Court further held that the right of the second mortgagee was not affected though effect could not be given to it in that suit having regard to its particular frame. This is entirely in accordance with two decisions of <ORG> in <CITATION> 5 C. 265 : 4 C.L.R. 358 and <CITATION> 5 C. 269 where the mortgagee who became first entitled to possession was adjudged it against the other. <NAME> v. <NAME> 26 M. 486 was a similar decision where the second mortgagee who was the first purchaser was maintained in possession against the later purchaser under the first mortgage. So also was the case of <CITATION> 32 M. 485 : 4 Ind. Cas. 1077 Section 19 M.L.J. 728. In <NAME> v. <NAME> 4 M. 213 there was no sale under the first mortgage and the second mortgage was one with possession. The second mortgagee was held entitled to hold possession against a purchaser of the mortgagor's equity of redemption under a money-decree. The case has no bearing on the particular question now under consideration though the remarks of <ORG>, on the rights of a second mortgagee to sue for sale are instructive. <CITATION> 5 M. 184 the second mortgage was with possession. The purchaser under the decree on the first mortgage which was simple sued to eject the second mortgagee. It was held that the suit was liable to be dismissed, but as the second mortgagee who was respondent in the appeal did not object to the direction of the lower Court to redeem the prior mortgage or be for ever foreclosed that was not disturbed: (See page 188). In Rangasamy Naiken v. Komarammal 26 M. 484 the same decision was pronounced on similar facts. The decision in <CITATION> 13 M.L.J. 72 has no bearing on the present controversy. There the second mortgagee who bought nothing under his subsequent decree and sale against the mortgagor after the first mortgagee had bought in execution of his decree was held entitled to redeem the first mortgage which was treated as still in law subsisting. That was the plaintiff's prayer and it was granted. There are a few more cases which, however, require a more minute examination. <CITATION> 16 M. 121 rests on the view which we cannot accept that a sale under the first mortgage causes a merger of the mortgage in the equity of redemption so that the second mortgagee becomes disentitled to sue for redemption of a mortgage which no longer subsists. This case is against the whole trend of authority in India which repudiates the doctrine of merger, at all events since <NAME>'s case <NAME> Gopaldoss v. Rambux Seochand 11 I.A. 126 : 10 C. 1035. The second mortgagee was usufructuary. The suit brought by him for redemption was dismissed but it was held that he was entitled to remain in possession till he was redeemed. This case is no authority for the respondent's position that the second mortgagee loses his right to possession by the sale under the first mortgagee's decree and has only the privilege of redemption. The learned Judges made no reference to the second mortgagee's right of sale as there was apparently no covenant to pay. The actual decision in <CITATION> 17 M. 17 is not in conflict with the true principles as to the right of a second mortgagee. Both the mortgages were usufructuary. The first mortgagee was entitled to possession but the mortgagor gave possession to the second. The first mortgagee having sued, and obtained a decree for sale and sold the equity of redemption was clearly entitled to possession when he sued the second mortgagee in ejectment apart from the question dealt with in the case as to the effect of the order rejecting his claim under Section 278 . It is, however, observed at page 20 that all that he (defendant) can ask as puisne mortgagee is that he shall be allowed an opportunity of redeeming and the decisions in <NAME> v. <NAME> 6 C. 317; <NAME> v. Galabsing 4 B. 83 and <NAME> v. <NAME> 8 B. 168 are cited in support of the observation. None of those cases negatives the right of a second mortgagee to sue for sale whether before or after the first mortgagee's decree and sale. It may be the second mortgagee had no right of sale under the terms of his mortgage and as a usufructuary mortgagee he could only seek redemption, the right to possession having gone with the first mortgagee. This decision also does not support the respondent. <CITATION> 20 M. 120 has been already referred to as recognising the right of a second mortgagee to sue for sale contrary to the doctrine in Mata Din Kasodhan v. Kazim Hussain 13. A. 432. <CITATION> 24 M. 171 turned on the construction of the decree in the suit of the second mortgagee which was expressed to be subject to the rights of purchase under the first mortgagee's decree. Moreover, the first mortgagee being the first purchaser in possession could not be turned out in execution of his decree by the second mortgagee who had merely bought subject to the rights of the first purchaser. The second mortgagee had not obtained a decree for sale of the equity of redemption that is the interest of his mortgagor which had passed to the purchaser under the first mortgagee's decree. <NAME>, J., quotes with approval <CITATION> 2 M. 108; <CITATION> 5 C. 265 : 4 C.L.R. 358 and <CITATION> 5 M. 184. Having once sued for sale, making the mortgagor and the purchaser under the first mortgagee's decree parties, the second mortgagee could not sue them a second time for sale. The observation, therefore, that the right of redemption and no other was all that remained to the second mortgagee in the circumstances of the case was perfectly right. No general proposition was laid down that a second mortgagee had a mere right to redeem and after redemption to sell, nor that after the first mortgagee's suit and sale without making the second mortgagee a party the right of redemption was all that could remain in him. <NAME> v. <NAME> 20 M. 120 is not dissented from though the language employed in that case is stated to be open to exception. <CITATION> 26 M. 332 decides that a second mortgagee who is not made a party to the first mortgagee's suit for sale cannot apply under Section 310A , Civil Procedure Code, to set aside the sale. It is authority for the position that no interest of his (in which must be included his right to bring the equity of redemption to sale) passes by the sale under the decree of the first mortgagee. Mr. <NAME> relied very strongly on two decisions of this Court, <ORG> Veerasami Chetti 26 M. 537 and <CITATION> 31 M. 425 : 3 M.L.T. 397 : 18 M.L.J. 298. As regards the first, if the facts are carefully examined there is nothing in the decision which can be invoked in support of the respondent though certain observations are not reconcilable with the principle that the second mortgagee who was not a party to the first mortgagee's suit; remained unaffected in every respect. <ORG> v. <NAME> 10 B. 224 and <NAME> v. Mundas Kuberdas 20 B. 390 which we have already pointed out as not in accordance with the true principles as to the rights of second mortgagees are cited in this case with approval and the remarks of <NAME>. J., in <CITATION> 24 M. 171 are treated as laying down a general rule with reference to the rights of second mortgagees without reference to the particular facts of that case. The facts, however, in <ORG> Veerasami Chetti 26 M. 537 fully justified the decision in that case. Both the mortgages were usufructuary. The first mortgagee sued first for sale apparently upon a covenant to pay and purchased in execution of his decree behind the back of the second. He now sued the second mortgagee for the amount of his decree and in default for foreclosure. The second mortgagee had apparently no right of sale under his mortgage. The first mortgagee had the right to possession and it could not, there fore, pass to the second. The only remedy left to the second mortgagee was redemption and this was recognised as unaffected by the prior proceedings. Any observations tending towards a limitation of the second mortgagee's rights in all cases to the mere privilege of redemption must be regarded as unsupported by principle or the general trend, of authority in this Court. The decision in <CITATION> 31 M. 425 : 3 M.L.T. 397 : 18 M.L.J. 298 does not appear to us to help the respondent. Indeed it expressly follows the decision in <CITATION> 20 M. 120. The suit itself was by the second mortgagee and a person who had acquired the rights of the first mortgagee and the mortgagor's equity of redemption behind the back of the second was the defendant in the suit. The plaintiff asked for a decree for sale subject to the first mortgage or in the alternative for redemption of the first mortgage. The decision did not negative the right of sale subject to the first mortgage but in view to the alternative prayer to redeem and the right of the purchaser of the mortgagor's equity of redemption it was thought that the better form of decree was to give the plaintiff redemption and a sale of the mortgaged property after redemption of the prior mortgage on failure of the defendant to redeem the plaintiff in his turn. There can be no doubt that this form of decree effectually disposes- of the claim of all parties interested in the mortgaged property. If, instead, a mere decree for sale of the equity of redemption on failure of the purchaser of it to redeem the plaintiff had been made, it would have left the rights of the same defendant qua first mortgagee undetermined. It is certainly a wise rule as far as possible and consistently with the frame of the suit to adjust the rights of all parties interested in the mortgaged property. One more case deserves to be noticed and that is the decision in <CITATION> 8 M.L.J. 298. There the second mortgagee's suit for sale after the first mortgagee's sale under his decree was dismissed as against the purchaser on failure to redeem the prior mortgage. It seems to us that in case the purchaser of the equity of redemption was not willing to redeem the plaintiff he was entitled to a decree for sale subject to the prior mortgage. There was no reason why that prayer should have been refused when the first mortgagee was not suing the second for foreclosure or sale.

11. On a full review of the decided cases the following propositions appear to be established:

1. A second mortgagee is entitled to the same rights as the first mortgagee with reference to his security having regard to the nature of his mortgage.

2. The purchaser of the equity of redemption after the first mortgage and the second mortgagee both stand on the same footing with reference to their respective rights against the first mortgagee when they have not been impleaded in the suit instituted by him on his mortgage.

3. Those rights are unaffected by the suit of the first mortgagee to which they are not made parties and the decree passed therein and the sale made in pursuance thereof.

4. The purchaser in such a suit, whether it is a first mortgagee or a stranger, does not acquire the rights of the mortgagor as at the date of the first mortgage but only those that subsist in him at the date of the suit.

12. It follows that the question referred must be answered as stated already against the plaintiffs.


CASE NO.: Appeal (civil) 5450-5451 of 1997 PETITIONER: THE COMMISSIONER OF INCOME TAX, BIHAR-II, <NAME> Vs. RESPONDENT: SMT. SANDHYA RANI DUTTA DATE OF JUDGMENT: 22/02/2001 BENCH: Y.K.Sabharwal, S.N.Hegde, <NAME> JUDGMENT:

Bharucha, J.

L.....I.........T.......T.......T.......T.......T.......T..J These appeals arise from a judgment delivered by <ORG> at Patna (Ranchi Bench) on an income tax reference at the instance of the <ORG>. The three questions <ORG> was called upon to consider read thus: (i) Whether on the facts and in the circumstances of the case, female heirs of a Hindu governed by <ORG> dying intestate could form a joint Hindu Family by means of agreement ?

(ii) Whether female heirs of a Hindu governed by the Dayabhaga School of Hindu Law dying intestate could impress upon their inherited property the character of joint family property ?

(iii) Whether on the facts and in the circumstances of the case, one-third of the properties inherited from her husband was assessable in the hands of the assessee in the status of individual?

<ORG> answered the first and second questions in the affirmative and in favour of the assessee and the third question in the negative and against the <ORG>.

The brief facts leading to the reference are these: One <NAME>, a Hindu governed by <ORG>, died intestate on 19th June, 1972, leaving behind his widow (the assessee- respondent) and two daughters, <NAME> and <NAME>. That the assessee and the two daughters inherited the self-acquired properties of the deceased in equal shares is not in dispute. The assessee and the two daughters entered into an agreement on 26th July, 1972. Thereby they claimed to form an Hindu undivided family and the assessee threw her share of the inherited property into the kitty of this Hindu undivided family. Accordingly, for the Assessment Years 1974-75 and 1975-76 the assessee did not disclose in her income tax returns any income from her share of the inherited property.

The Income Tax Officer rejected the assessees contention that her share of the inherited property had been thrown into the kitty of an Hindu undivided family and he held that she was liable to income tax in respect of the income therefrom. Her appeal was rejected by the Appellate Assistant Commissioner. She went up before <ORG>, which reversed the view of the taxing authorities. From out of the judgment of the <ORG> the questions aforestated were referred to <ORG>. <ORG>, relying principally upon the judgment of this Court in <CITATION> (84 I.T.R. 699), came to the conclusion that there was no bar to the constitution of an Hindu undivided family in respect of properties inherited by the heirs, whether female or male, of a Hindu governed by <ORG> dying intestate by throwing an ascertained share into the hotchpot by agreement.

<ORG> was in error in its reading of the judgment of this Court in the case of <NAME> (supra). This Court held, in view of the concession that each one of the heirs of a deceased governed by <ORG> took a definite share in the property left by him, that it was not necessary to decide whether a Dayabhaga Hindu family could be considered a Hindu undivided family within the meaning of Section 3 of the Wealth Tax Act, 1957. It held that, on the facts of the case, the heirs had taken the property of the deceased in separate shares; therefore, in law, each of them was liable to pay wealth-tax as individuals. It could not be said that an individual who inherited some property from someone became a Hindu undivided family merely because he was a member of an Hindu undivided family. There is, therefore, nothing in the judgment in <NAME>s case to support the view taken by <ORG>.

<CITATION> (60 I.T.R. 293) this Court held that there might be a joint Hindu family consisting of a single male member and the widows of deceased coparceners. The plea that there had to be atleast two male members to form a Hindu undivided family as a taxable entity was found to have no force. Implicit in this is the conclusion that atleast one male member is necessary for the purposes of the formation of an Hindu undivided family.

<CITATION> (101 I.T.R. 776) it was held by this Court that a joint Hindu family, with all its incidents, is a creature of law and cannot be created by the act of parties, except to the extent to which a stranger may be affiliated to the family by adoption.

This Court in <CITATION> (109 I.T.R. 730) held that it was a fundamental notion governing a joint Hindu family that a female member of the joint family cannot blend her separate property, even if she is the absolute owner thereof, with joint family property. This judgment covered a case where there was already a joint family in existence and held that, even so, a female cannot blend her absolute property therewith. The ratio applies as much when a female purports to create by agreement with other females an Hindu undivided family and blends the property of her absolute ownership therewith.

The assessee respondent has not put in an appearance. Since a question of law was involved, we had requested Mr. <NAME> to assist us, which he has very kindly done. He has drawn our attention to the judgment of <ORG> in <CITATION> (68 I.T.R. 345), which judgment was considered by this Court in <NAME> case. Mr. <NAME> drew our attention to the observation therein that under <ORG> a joint family amongst brothers was a creation not of law but of a desire to live jointly, it originated in fact and not by legal fiction. He drew our attention also to the observation that a joint family could, in relation to persons governed by <ORG>, come into existence only by an act of volition on the part of the heirs, such as an agreement to live, mess and worship jointly.

The principal question that we are concerned with here is the capacity of Hindu females to form among themselves a Hindu undivided family. No authorities to support this are brought to our notice; indeed they cannot be, for the concept appears to us to be alien to the Hindu personal law which requires the presence of a male for the purposes of the constitution of an Hindu undivided family.

It is appropriate, however, to note the two judgments cited by the <ORG> in its order which it thought supported the assessees case. The <ORG> stated that it had been observed by <ORG> in <CITATION> (13 I.T.R.

361) that there can be a Hindu undivided family consisting of female members only. We have seen that judgment and we find that that is not the conclusion of <ORG>. What it said was, It follows that on the disappearance of the last male member, the other members of the family, though not coparceners, continue to be members of a undivided Hindu family. What was held, therefore, was that on the death of the sole male member of an Hindu undivided family, the ladies who were members thereof could continue with that status. The <ORG> also cited the judgment of this Court in Commissioner of Income-tax, Madras vs. <NAME> (76 I.T.R. 467). The <ORG> rightly noted that this Court had there held that so long as the property which was originally of a joint Hindu family remained in the hands of the widows of the members of the family and was not divided among them, the joint family continued. The conclusion that the <ORG> drew from this was erroneous, namely, Thus according to <ORG> also only females can also form a joint Hindu family.

In the present case, as aforestated, the assessee and her two daughters inherited in their individual capacity a one-third share each in the estate of the deceased. We have no authority before us which can lead us to the conclusion that the assessee and her two daughters were capable of forming a joint Hindu family or of throwing the interest of any one of them in the inherited property therein. As we have stated, the concept of Hindu females forming a joint Hindu family by agreement amongst themselves appears to us to be contrary to a basic tenet of the Hindu personal law.

Accordingly, the questions are answered thus: Question (i) - in the negative and in favour of the <ORG>. Question (ii) in the negative and in favour of the <ORG>. Question (iii) in the affirmative and in favour of the <ORG>.

We repeat our gratitude to Mr. <NAME> for his assistance. The appeals are allowed. No order as to costs.