Monoj Kumar Mukherjee, J.@mdashThis appeal is at the instance of the defendants and it arises out of a suit for redemption of mortgage and of charge, rendition of accounts, recovery of money over paid and for other consequential reliefs.
2.The case of the plaintiff is as under. The plaintiff was incorporated as a private limited company on March 15, 1951 for exhibition of Cinematographic Films with three directors on Board, namely, Ranatsen Ghose, Birendra Mohan Bhar and Dhanaballav Pal. The plaintiff, therefore, purchased three vacant plots of land at Khardah in the District of 24-Paraganas at a price of Rs. 23,500 with a view to construction a Cinema House thereon and starting a cinema exhibition business of its own under the name and style of "Sandhya Cinema Corporation." Thereafter the plaintiff mortgaged the said land to Smt. Ramarani Pal, wife of its director Dhanaballav Pal, for Rs. 10,000 and at the relevant time the mortgage money along with interest thereon amounted to Rs. 12,700. The plaintiff got a plan for the proposed Cinema House sanctioned by the Titagarh Municipality and started foundation work but for paucity of funds the construction had to be stopped. It was, therefore, decided to raise loan from the market to carry on the construction of the Cinema House and also to pay off Smt. Ramarani Pal. For that purpose, in or about the month of September or October 1955, the plaintiff approached the defendants, who are money lenders by profession, for loan. They agreed to lend and advance Rs. 12,700 at an interest of 8% per annum to the plaintiff to enable it to liquidate the mortgage debt of Smt. Pal on condition that the plaintiff would execute a fresh mortgage in respect of the said plots of land in favour of the defendants as security for the loan.
3. According to the plaintiff, Rama Sankar Singh, the defendant No. 1 at the material time was carrying on business in of purchasing old buildings, structures and selling second-hand building materials collected from them after demolition and at his instance all the four defendants made a further demand that the loan would be advanced only if the contract for construction of the Cinema House was made with them. The defendants further gave out that keeping a profit of 20 % the cost of construction of the entire Cinema House would be Rs. 67,300 with second-hand building materials and they proposed that the said cost would be treated as loan to be offered by the defendants jointly and included in the deed of mortgage of the land so that the cost of construction could be realised with interest of 8%. Due to its financial constraint and helpless condition the directors of the plaintiff agreed to place the contract with the defendants. The defendants then through their Attorney got a deed of mortgage drafted with the condition that the defendants would advance Rs. 80,000 as loan at an interest of 8% per annum to the plaintiff out of which Rs. 12,700 should be paid on the date of execution of the deed to Smt. Pal to redeem the mortgage and Rs. 67,300 would remain with the defendants to construct the Cinema House for the plaintiff as per plan sanctioned. At the time the directors of the plaintiff were negotiating with the defendants for the loan, one of them, namely, Dhanaballav Pal expressed his inability to agree to the terms of the defendants and resigned on October 16, 1955. Taking advantage of the predicament in which the other two directors, namely, Ranatsen Ghose and Birendra Mohan Bhar were placed the defendants got it stipulated in the mortgage deed that the interest on Rs. 80,000 would run from 20.10.1955, the date of execution of the mortgage deed and the plaintiff would have to repay the mortgage amount of Rs. 80,000 with interest within two years though the defendants paid only Rs. 12,700 on 20.10.1955 to liquidate the mortgage debt of the plaintiff to Smt. Pal while the remaining sum of Rs. 67,000 remained with the defendants which was supposed to have been spent in the construction of the Cinema House till 1960 when the construction was completed. According to the plaintiff the defendants thus tried to make a fraudulent gain of Rs. 26,920 as interest for five years on Rs. 67,300.
4. The further case of the plaintiff is that the defendants also represented to them that they were advised by their lawyer to have a separate deed in the nature of partnership executed between the parties. The defendants represented that in case the plaintiff was not agreeable to the same they would not make any advance whatsoever. The plaintiff being in financial difficulty and being unable to continue with the construction of the Cinema House was forced to agree to the aforesaid condition. A deed of partnership was then drafted without approval of the plaintiff and without supplying any copy to it. According to the plaintiff the deed was executed by way of an additional security so that the defendants could have absolute control to realise their dues with interest and with that ulterior object in view, the execution of both the deeds, namely, that of mortgage and partnership was rushed through by the defendants and the signatures of the two directors of the plaintiff were taken without permitting them to know the contents thereof.
5. Narrating its case further the plaintiff averred in the plaint that on October 20, 1955 the deed of mortgage was executed by the plaintiff in favour of the defendants far a loan of Rs. 80,000 coupled with interest 8% per annum. Out of that a sum of Rs. 67,300 was retained by the defendants to be utilised by them for the purpose of construction of the Cinema House for the plaintiff. A purported deed of partnership was executed providing or the first charge over the Cinema House to be constructed, for the further advances to be made by the defendants, inter alia, for the electric installation, and for the supply of machineries, tools, equipments, furniture and other items of goods necessary for running of the Cinema House. Thus though a deed of partnership was executed no partnership was in fact constituted and the partners did not even intend to act, upon the alleged deed of partnership or to act as partners of the alleged partnership firm. In fact, according to the plaintiff, the partnership was never given effect to or acted upon. The defendants also got a power of attorney executed by one of the directors of the plaintiff without disclosing the contents thereof and got the same registered. The plaintiff contends that a bare perusal of the deed of partnership would indicate that it does nut relate to a lawful partnership but is intended to provide security to the defendants or expenses over and above a sum of Rs. 67,300, that was to be incurred by the defendants in connection with the construction of the Cinema House. To prove that the deed of partnership was contrary to law the plaintiff referred to certain terms thereof in the plaint. The plaintiff contends that apart from being contrary to law the deed of partnership is vitiated by fraud and undue influence.
6. According to the plaintiff after the execution of those documents the defendants took possession of the plots of land belonging to the plaintiff and started construction of the Cinema House and since then is in possession thereof in wrongful exclusion of the plaintiff and its directors. The plaintiff states that the defendants incurred expenses only to the extent of about Rs. 1,37,300 for the construction of the Cinema House and installation of machineries, etc. and since the said sum includes the sum of Rs. 67,300 the defendants can claim a charge over the Cinema House to the extent of Rs. 70,000 only. The plaintiff avers that the Cinema House, after it was constructed became the property of the plaintiff and the defendants are only mortgagees in possession and charge-holders. The plaintiff claims that it asked the defendants to render accounts of the money realised and or that matter profits made from the running of the Cinema -House but they failed and neglected to comply with the said demand. The plaintiff came to know that between April, 1964 and March, 1969 the defendants realised a sum of Rs. 13,98,553.69 p. from the said Cinema House but it was not aware of the amount realised from the defendants from 16th December, 1960, on which date the Cinema House started running, till March 31, 1964. The plaintiff asserts that upon proper accounts being taken of the realisations made by the defendants it would appear that the alleged due of the defendants had been paid oft long ago. By filing the suit the plaintiff, therefore, claimed accounts and prayed for redemption of the mortgage and the charge. As the defendants are in possession of the property the plaintiff prayed for recovery of peaceful possession of the Cinema House together with all equipment''s, machinery''s, furniture''s and fittings thereof. The details of the property mortgaged and property charged have been given in the schedule of the plaint.
7. In their written statement the defendants, besides raising preliminary objections as to the maintainability of the suit, denied that they were money lenders by profession and contended that the plaintiff approached them for financial assistance and to be partners in the cinema business. For that purpose the plaintiff first requested them to free the land from the mortgage by paying off the dues or Smt. Romarani Pal as the plaintiff had no money. The plaintiff also requested the defendants to construct the Cinema House on the said land on the understanding that the plaintiff and the defendants would be partners and would share the profits and losses of the cinema business. According to the defendants, it was the plaintiff who approached the defendants and agreed that the defendants would advance of sum of Rs. 67,300 as loan for construction of the Cinema House and also requested them to make further advances to complete the construction of the Cinema House together with electrical fittings, tools, machineries, etc., and the plaintiff agreed to repay the same on certain terms on the understanding that the defendants would be the partners of the business and would enjoy profits and losses thereof. On that clear understanding the defendants agreed to advance on the mortgage and to make further advances. The defendants assert that it is done to the labour and finance of the defendants that the Cinema House has'' been built and the cinema show business is being carried on. According to the defendants the plaintiff did not advance any money in constructing or running the cinema business except the land which is valued at Rs. 10,000. The defendants deny that they intended to keep 20% profits out of construction of the Cinema House and contend that the plaintiff is liable to repay the money advanced by the defendants and for the monies so advanced by the defendants, the property was charged. Regarding the payment of sum of Rs. 80,000 the defendants case is that out of the said sum, Rs. 12,700 was given to Ramarani Pal in repayment of her dues and the remaining sum of Rs. 67,300 which was given by the defendants to the plaintiff was again handed over by the plaintiff try the defendants for the purpose of constructing the Cinema House.
8. The further case of the defendants is that in accordance with the deed of partnership and the deed of mortgage they constructed the Cinema House which was completed in or about 1957. They invested a huge sum of money for completing the construction and for doing other things, namely, electrical fittings, machineries, tools, furniture, etc. According to the defendant they are carrying on the cinema business since December 1960 in accordance with the deed of partnership. They emphatically deny that the plaintiff is the owner of the Cinema House and also deny that they are mortgagees or holders of the charge. The defendants assert that they are the partners of a lawfully constituted partnership firm and they are entitled to carry oh the business in terms thereof. Consequently, they submit that the plaintiff is not entitled to any of the reliefs sought for in the plaint.
9. In the context of the respective cases of the parties the learned Judge confined his attention mainly to the two deeds executed by the parties on October 20, 1955 and held that while one of them was clearly of mortgage, the other though instituted as one of partnership was not in fact such a deed and it was never acted upon as such. In drawing this conclusion the learned Judge was influenced by the various terms of the deed of partnership and according to the learned Judge, the document was executed for creating a charge. On such conclusion the learned Judge held that the same operated as a clog on the equity of redemption of the mortgage which was created by the other deed executed on the same date.
10. Mr. Bhabra, the learned Advocate appearing for the appellants assailed the above finding of the learned Judge and contended that the various terms of the deed of partnership referred to by the learned Judge in arriving at his, conclusion did not militate against the theory of partnership. While on this point Mr. Bhabra contended that the other documents exhibited during trial clearly indicated that the directors o; the plaintiff company deliberated upon and decided to enter into a partnership with the defendants and thereafter executed the deed of partnership for running the cinema business in terms thereof. Mr. Bhabra next contended that the materials on record clearly established that the cinema business was being carried on in terms of the partnership deed. According to Mr. Bhabra the deed of mortgage which was executed by the plaintiffs in favour of the defendants became ineffective and ceased to be a valid document consequent upon the execution of the partnership deed having regard to the fact that the properties secured under the mortgage, namely, the three plots in question became the properties of the partnership firm constituted by the deed of partnership. In other words, Mr. Bhabra''s contention was that as soon as the mortgaged property became the property of the partnership firm the plaintiff became divested of the mortgaged property; and consequently its right of redemption u/s 60 of the Contract Act became extinguished by his own act, namely, execution of the deed of partnership.
11. Mr. Dutt, the learned Advocate appearing for the plaintiffs/ respondents on the other hand contended that the execution of the deeds of '' mortgage and of the partnership was part of the same transaction and was thus indicative of the fact that the partnership document was executed for the purpose of creating a charge on the property and that was evident also from the various recitals in the deed of partnership. According to Mr. Dutt a plain reading of the deed of partnership would unmistakably show that it did not comply with the requirements of the Partnership Act; and on the contrary, Mr. Dutt argued, there could not be any manner of doubt that the terms of the purported partnership deed put fetters on the equity of redemption.
12. In view of the respective contentions of the parties there cannot be any escape from the conclusion that the face of this appeal rests primarily on the interpretation of the two deeds executed on October 20, 1955.
13. Before we go into the merits of the appeal we may however point out that at the time of hearing of the appeal the appellants filed an application of admitting as additional evidence a power of attorney executed by the respondent in their favour. At that time we observed that we would dispose of the application along with the appeal. Since we have found that the document is of no moment the application stands rejected.
14. The preamble of the mortgage deed (Ext. A/1) states that for paying off the outstanding mortgage created in favour of Smt. Ramarani Pal and for constructing a Cinema House at Khardaha the plaintiff approached the defendants to advance money to which they agreed on having the repayment thereof with interest thereon according to the terms agreed upon by the parties. The document then proceeds to say that pursuant to the aforesaid agreement a sum of Rs. 80,000 was paid by the defendants and the mortgagor in his turn granted and conveyed unto the mortgagees the three plots of land at Khardaha to have and to hold the same subject to the provision o redemption contained in the deed. The terms of redemption were that if on the 20th day of October 1957 the mortgagor paid or caused to be paid to the mortgagees the said sum of Rs. 80,000 with interest @ 8% per annum the mortgagees would at any time thereafter (that is after 20th October 1957) recovery the said plots to the mortgagor. In the document the plaintiff made an endorsement that it had received Rs. 80,000 by small notes and cash.
15. The deed of partnership (Ext. A/2) was executed on the self same day, that is on October 20, 1955 and, in fact, both documents were registered one after another on the following day. Since the entire case primarily rests upon the purport and interpretation of its various recitals let us examine them in details. The preamble to the deed states that the plaintiff purchased three vacant plots of land at Khardaha for the purpose of building a Cinema House thereon and the plaintiff being in great need of money for the purpose of building the said Cinema House approached the defendants and they, (the defendants) in terms of an indenture of mortgage executed on that day lent and advanced a sum of Rs. 80,000 to the plaintiff for the aforesaid purpose. Out of the said sum of Rs. 80,000 the plaintiff paid Rs. 12,700 to Smt. Rama Rani Pal to release the said three plots of land from the mortgage dated June 22, 1951 executed by the plaintiff in her favour and the plaintiff agreed to pay the balance sum of Rs. 67,300 to the defendants for the purpose of constructing a cinema house as per sanctioned plan of the Titagarh Municipality on the said three plots of land and to carry on the said cinema business in partnership among themselves. The document then recites the terms, of conditions and stipulations of the partnership which are as under:
(a) the defedants shall, with the above sum of Rs. 67,300 build the Cinema House to be called ''Sandhya Cinema'' on the said plots of vacant land at Khardaha according to the plan sanctioned in the name of the plaintiff, who shall make no objection towards such construction;
(b) the name of the firm shall be ''Sandhya Cinema Corporation'' in which name licenses shall be issued;
(c) the management of the Cinema business shall be exclusively in the hands of two of the defendants, namely, Rama Sankar Singh and Kashi Prosad Shaw;
(d) if the construction of the Cinema House can not be completed with the sum of Rs. 67,300 then the defendants should advance such further sums of money as might be required to complete the construction of the Cinema House together with electric fittings, machinery''s, tools, implements, articles, furniture and other things;
(e) the further amount to be so advanced by the defendants shall form the first charge on the said Cinema House and the same shall be repaid to them with interest thereon at the rate of 12% per annum out of the profit of the Cinema business, in priority of all other claims;
(f) after payment of the amounts with interest as mentioned above the defendants shall out of the profits of the said Cinema business pay firstly, the Government taxes, secondly the ground rent of the Cinema House, thirdly the establishment charges including the salaries of employees, fourthly the repairing charges, fifthly the interests on the mortgage executed by the Silver Screen Corporation Limited (the plaintiff) in favour of the defendants and sixthly, towards part payment of interests and principal amount of the said mortgage;
(g) after payment in full of the principal and interest of the said mortgage and the sum of Rs. 10,000 with interest thereon to be calculated @ 12% per annum to M/s. Silver Screen Corporation Ltd., the profits and losses of the business shall be apportioned in the following manner :
ii. Silver Screen Corporation Ltd.(Plaintiff) 3 annas
iii. Rama Sankar Singh (defendant) 3 annas 1 paise
iv. Kashi Prosad Shaw (defendant) 3 annas 1 paise
v. Lachmi Sankar Shaw (defendant) 3 annas 1 paise
vi. Kali Prosad Shaw (defendant) 3 annas 1 paise
(h) all monies of the partnership which shall not be required for the time being shall be kept deposited in the nearest scheduled Bank in an account to be opened in the name of the firm and to be withdrawn by cheques to be signed by the four defendants;
(i) proper accounts shall be kept of all transactions and such accounts shall be adjusted at the end of every Bengali Year and the books and other documents are to be kept in the safe custody of the firm;
(j) until the full amount of the mortgage deed is paid off no partners shall withdraw any money out of the said partnership business. After payment in full of the said mortgage debt with interests thereon the partners shall be entitled to withdraw money out of the fund of the partnership business but such amount shall not exceed Rs. 100 per month;
(k) the defendants shall jointly from time to time appoint such labourers, servants, clerks and other employees for such period and at such salaries as they shall think fit and proper. They shall also be entitled to dismiss the said employees on such grounds as they shall think fit and proper;
(l) the partners shall not be entitled to borrow money for the purpose of the firm from outsider unless and until the defendants refuse to advance the same in writing;
(m) the plaintiff shall not be entitled to carry on any business competing with the business of the firm or otherwise;
(n) the partnership shall be deemed to have commenced from October 20, 1955 and shall continue until determined by the consent of the partners or by reasonable notice by one partner to the other;
(o) in the event of the partnership proving a losing concern on the adjustment of the account in the manner herein before stated the plaintiff shall be permitted to manage the said business for a period of one year before complete dissolution of the firm;
(p) upon determination of the partnership the Cinema House, the lands, assets, machinery''s, tools, implements, furniture''s and all other properties of the partnership business shall be sold and the sale proceeds thereof shall be allied first in the payment of the said further advance mentioned earlier or so much thereof as shall then remain due to the defendants, secondly in payment of the principal and interest as much thereon as will then remain due under the mortgage executed on the self same day by the plaintiff in favour of the defendants, thirdly, in payment to the plaintiff the sum of Rs. 10,000 which they spent for purchase of the plots of land at Khardah on which the Cinema House was to be constructed, fourthly, if payment of the debts and liabilities of the firm and lastly to be divided and distributed among the partners according to the stipulated shares.
16. In drawing his conclusion that the deed was not one of partnership the learned trial Judge first took into consideration the fact that the partnership business came into being with a capital of Rs. 67,300 and three vacant lots of land, the entirety of which was contributed by the plaintiff and the defendants did not contribute anything and according to the learned Judge such a partnership was unthinkable. The learned Judge next observed that it was surprising that the management of the partnership business was left exclusively in the hands of the defendants and the plaintiff was excluded from the management of the business even though the partnership started with the contribution of the plaintiff alone. Another consideration which weighed with the learned Judge in holding that the document did not create a partnership was that the sum which was to be invested by the defendants subsequently if required, was to be treated as a loan to the partnership and that as partners they could not lend money. The learned Judge also took into consideration the fact that under the deed in question the defendants reserved exclusive right to appoint and dismiss employees and fix their salaries and the plaintiff though, a partner, had no say in the matter.
17. Mr. Bhabra submitted that none of the above 6ndings of the learned Judge could be sustained in law as the Partnership Act nowhere provided that contribution of capital by each partner was essential to a partnership, that some of the partners could not carry business in exclusion of others and that partners could not advance money to the partnership firm against interest.
18. While we are in complete agreement with Mr. Bhabra that contribution of capital by all partners is not an essential term of a partnership that some of the partners are entitled to carry on business in exclusion of others and that a partner may advance money to the partnership against interest, we are of the view that one stipulation in a document read in isolation should not be the criteria for ascertaining the nature of the document and all stipulations in the document as a whole have to be considered to conclude whether the document in question is one of partnership or not. In making this observation we are inspired by the observations of Cotton L. J. in the case of Badeley -vs- Consolidated Bank, reported in Vol. 38 (1988) Ch.D. 238.
But it is said that there are dicta of various Judges in various cases that the participation in the profits may decide the question or that it is prima facie evidence of partnership. Undoubtedly, if one found that two persons were participating in the profits made by a business and knew nothing more, one would say, how is this? If they participate in the profits as being jointly entitled to the profits, that unless explained would lead to the conclusion that the business is the joint business of the two, and this would be partnership. But then the participation in profits arises from a clause in an agreement entered into between the parties, it is wrong to say that this is prima facie evidence of a partnership, because you must look not only t6 that stipulation but to all the other stipulations in the contract and determine whether on the stipulations of the contract taken as a whole you can come to the conclusion that there is a partnership -that there is a joint business carried on behalf of the two - or whether the transaction is one of loan between the debtors and creditors, a loan secured by giving certain interest in the profits.
19. Before however we proceed to consider the document of partnership as a whole it will be advisable to refer to the lap regarding clog on the equity of redemption, as the applicability of the same has to be considered in the context of the deed in question. Various English decisions laying down the principle behind clog on the equity of redemption were cited at the Bar but we need not discuss or deal into those decisions as our Supreme Court has dealt with the principle at length in the case of
The rule against clogs on the equity of redemption no doubt involves that the Courts have the power to relieve a party from his bargain. If he has agreed to forfeit wholly his right to redeem in certain circumstances, that agreement will be avoided. But the Courts have gone beyond this. They have also relieved mortgagors from bargains whereby the right to redeem has not been taken away hut restricted. The question is, is the term now under consideration such that a Court will exercise its power to grant relief against it? That depends on the extent of this power. It is a power evolved in the early English Courts of Equity or a special reason. All through the ages the reasons has remained constant and the Court''s power is therefore limited by that reason. The extent of this power has, therefore, to be ascertained by having regard to its origin. It will be enough for this purpose to refer to two authorities on this questions.
In a very early case, namely, Vernon vs. Rethell, (1762) 2 End. 110 at p. 113: 28 ER 838 at p. 839 (D), Earl of Northington L.C. said,
This Court, as a court of conscience, is very jealous of persons taking securities for a loan, and converting such securities into purchases. And therefore I take it to be an established rule, that a mortgagee can never provide at the time of making the loan for any event or condition on which the equity of redemption shall be discharged, and the conveyance absolute. And there is great reason and justice in this rule, for necessitous men are not, truly speaking, free men, but, to answer a present exigency, will submit to ''any terms that the crafty may impose upon them.
20. After considering a later decision of the English Court the Supreme Court next observed :
The reason then justifying the Court''s power to relieve a mortgagor from the effects of his bargain is its want of conscience. Putting it in more familiar language the Court''s jurisdiction to relieve a mortgagor from his bargain depends on whether it was obtained by taking advantage of any difficulty or embarrassment that he might have been in when he borrowed the moneys on the mortgage. Was the mortgagor oppressed? Was he imposed upon? If he was, then he may be entitled to relief.
We then have to see if there was anything unconscionable in the agreement that the mortgage would not be redeemed for eighty-five years. Is it oppressive? Was he forced to agree to it because of his difficulties? Now this question is essentially one of fact and has to be decided on the circumstances of each case. It would be wholly unprofitable in enquiring into this question to examine the large number of reported cases on the subject, for each turns on its own facts.
21. Let us, therefore, now consider the facts of the instant case in the light of the above principle. Mr. Bhabra drew our attention to some minutes of the meetings held by the directors of the plaintiff prior to the execution of the deed of partnership which indicate that the directors took a decision to enter into a partnership and relying upon the same Mr. Bhabra contended that after much deliberation and keeping in view its own interests the plaintiff company decided to enter into a partnership with the defendants and it could not, therefore, be said that the execution o'' the partnership agreement was not a voluntary act of the plaintiff company. Undoubtedly, the materials on record indicate that the plaintiff passed some resolutions to enter into a partnership but, as has been pointed out by the Supreme Court in the above quoted passages, the Court''s jurisdiction to relieve a mortgagor from his burden depended on whether it was obtained by taking advantage of any difficulty or embarrassment that he might have been in when he borrowed the moneys of the mortgage. In other words, to quote from the self same judgment whether the directors of the company were free men when they decided to enter into the partnership agreement. That they were pot will be evident from the fact that they were badly need of money to construct a cinema hall and also from the various terms of the partnership deed which are patently oppressive and are unconscionable.
22.When the partnership agreement was being executed the defendant did not invest any money whatsoever and in fact except handing over a sum of Rs. 12,700 to the plaintiff for paying off Roma Rani Pal the defendants did not pay any farthing to the plaintiff. The balance payment of Rs. 67,300 out of Rs. 80,000 for which the mortgage was executed was merely paper transaction as the defendants themselves kept the money in their possession to construct the Cinema hall. Against the above payment of Rs. 12,700 the plaintiff not only handed over possession of the land to the defendants but also the right to carry on the entire business. Besides they forfeited all their rights even to carry out business of any nature whatsoever, as the terms of the partnership document indicate. The most eloquent proof of unreasonableness was the fact that the defendant were not to be contribute anything to the business of the partnership but were entitled to run the business in any manner they wanted to do to the exclusion of the plaintiff. Detailed discussions about the unreasonableness of the various terms of the partnership deed need not be gone into as the terms which we have quoted above are ex facie pro of the same. That the partnership deed put fetters on the equity of redemption has been made ineluctably clear by the stipulation that the sums to be advanced by the defendants shall form the first charge and the money shall be repaid to them with interest @12% per annum out of the profit of the said Cinema business in priority of all claims. In fact the payment to Government revenue has been kept in the background in preference to the repayment of the advance made by the defendants; and payment in liquidation of the mortgage comes, according to the priorities the fourth place.
23. It seemed to us that finding it difficult to reconcile the various arms incorporated in the partnership deed with those appearing in the mortgage deed, Mr. Bhabra sought to argue that immediately on the execution of the partnership deed, the deed of mortgage ceased to be a valid document as the deed of partnership supplanted the deed of mortgage. Mr. Bhabra submitted that u/s 60 of the Transfer of Property Act the right of redemption of mortgage could be extinguished by the act of the parties or by a decree of a Court and in the instant case by execution of the deed of partnership, the right of redemption extinguished. According to Mr. Bhabra by executing the deed of partnership the plaintiff transferred its right, in respect of the land in question to the partnership firm and as such the land became the property of the partnership firm. As a corollary thereto, Mr. Bhabra submitted the land thereby ceased to be the property of the plaintiff alone and for that matter to be under any mortgage and therefore all rights and obligations of the parties under the mortgage deed stood extinguished by the execution of the deed of partnership. To put it differently Mr. Bhabra''s submission was that with the execution of the deed of partnership the land, in question became the property of the partnership firm and the rights and obligations of the parties stemmed from the deed of partnership alone and not from the deed of mortgage. We regret our inability to accept the contentions of Mr. Bhabra. It is true that the right of redemption may be extinguished by the act of party or by operation of law but, "act of parties" refer to some transaction subsequent to the mortgage and standing apart from the mortgage transaction; otherwise it would be invalid as a clog on redemption. In the fact of the instant case it cannot be said that the transaction relating to the execution of the partnership deed was subsequent to the mortgage nor can it be said that it was standing apart from the mortgage transaction. In fact as has been noticed earlier the deed of partnership was a part of the same transaction and the deed of partnership specifically refers to the mortgage transaction and seeks to establish claims of the defendants arising out of the mortgage transaction and protects its interest in respect thereof. This apart as has been already stated the deed of partnership clearly stipulates that there will be a first charge in respect of the advances made by the defendants towards construction of the cinema hall.
24. Mr. Bhabra also drew our attention to the fact that the deed of partnership was acted upon and in fact the plaintiff Company through one of its directors admitted in a judicial proceeding that the parties were acting in terms of the partnership deed. It is of course true that one of the plaintiff''s directors admitted that the partnership business was continuing in terms of the partnership deed but then he gave an explanation as to why he made such an admission. The admission referred to by Mr. Bhabra was in a proceeding initiated by the defendants for winding up the plaintiff for non-payment of the dues under the mortgage deed and in that proceeding the plaintiff filed an affidavit wherein it admitted that the parties were functioning in terms of the partnership deed and they were entitled to recover some money in terms of the partnership deed. In explaining the admission, so made it was stated by Mr. Bhar, a director of the plaintiff company who deposed during trial that to save the plaintiff company from liquidation he trade that statement. In our considered view this explanation is a reasonable one particularly in the context of other facts appearing on records.... Besides, the above contention of Mr. Bhabra contradicts his earlier submission that the deed of mortgage ceased to be a valid document consequent upon the execution of the deed of partnership.
25. Even though, the defendants claimed that the business was being carried on in terms of the partnership deed, the records and the admission of one of the defendants during trial clearly prove that from time to time they (the defendants) withdrew more than 3 lakhs of rupees from the capital of the partnership firm. The records further indicate that nothing was paid to the plaintiff company in terms of the partnership deed nor was any sum adjusted towards payment of mortgage dues. On the other hand, the records prove that to the exclusion of the plaintiff the defendants were running the business and manipulating the records of the firm according to their own convenience. In other words, the materials on record firmly establish that the partnership business was being run exclusively by the defendants as a business of their own, detriment to the interest of the plaintiff company. From the materials on record we have therefore no hesitation in concluding that the deed of partnership was created to promote and protect the interest of the defendants alone and the terms thereof put a clog on, the equity of redemption. To quote the words of Sir Montague Smith in the case of Mollwo, March & Co. Vs. The Court of Wards, reported in 1872 4 LR 429 "when the deed of partnership was executed a partnership was not contemplated and the agreement was really founded on the assumption not of community of benefit but of opposition of interests.
26. For the foregoing discussions we uphold the judgment of the trial Court and dismiss the appeal with costs.
Amal Kumar Chatterjee, J. I agree.
