Case Analysis

Of

A.V. Papayya Sastry and Ors.

Vs.

Government of A.P. and Ors.

Submitted by:

Akash Anurag (Roll No. 1266)

Section-A
 LLYODS BANK, LTD. V P.E. GUZDAR AND CO.

CASE NO.-
Original Suit No. - 1435 of 1928

(Decided on: 10.04.1929)

PARTIES TO THE SUIT

PLAINTIFF- Llyods Bank Ltd. DEFENDANT- P.E. Guzdar And Co.

FORUM AND CORAM OF JUDGES

The case was adjudged and delivered by- Page, J.

WHERE REPORTED
AIR1930Cal22, (1929)ILR 56Cal868, 121Ind. Cas.625, 121Ind. Cas.625

SUBJECT
Transfer of Property Act, 1882

SECTION/ SECTIONS IN QUESTION

Section 78 of TPA.

MAJOR CASE DISCUSSED

Monindra Chandra Nandy vs. Troyluckho Nath Burat and Ors.

HISTORY OF THE CASE

It is an original suit filed before the High Court of Calcutta, thus no prior history available for the
same.

RELIEF SOUGHT

In this case the relief that was sought by the Plaintiff Bank (Llyods Bank, Ltd.) is that they
should have the first right to proceed against the Defendant firm (P.E. Guzdar and Co.) to
recover their debt and not the Defendant Bank (National Bank) on the grounds of gross
negligence by them.

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 FACTS OF THE CASE

Prior to 3rd July, 1928, the defendant bank was regarded as sound and reliable
commercial undertaking, and neither of the two banks where the title deeds were
deposited, was under an impression that the firm would not be able to carry out its
obligations.
In early part of June, 1928 the Defendant approached the plaintiff bank for a grant of Rs.
5 lacs as temporary loan, for the purpose of floating a limited company to acquire their
limited business,
The above mentioned property was offered as a security for the loan so applied for.
However the so offered property was already mortgaged to the National Bank.
The disputed property was mortgaged to the National Bank with respect to an overdraft
obtained by the Defendant amounting to a sum of Rs. 10 lacs.
The Defendant had approached the National Bank to obtain the title deeds stating his
intent to sell the same so that he could settle his loan, however the sale could not
substantiate the first time.
The National Bank was again approached by the Defendant to accommodate the title
deeds for the same reason, so he could procure a large sum by demonstrating that the
property was free from any encumbrances. At that point of time the current account of the
firm was in charge to the degree of around 16 lacs.
After obtaining the title deeds of the property the Defendant firm mortgaged the disputed
property to the Plaintiff Bank, as stated above.

Hence the present Appeal.

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 ISSUES FOR CONSIDERATION

Whether in law the mortgage to the National Bank, which was earlier in date, has lost its
right to priority on account of gross negligence on their part?

ARGUMENTS ON BEHALF OF THE APPELLANT

The main arguments of the Counsel for the Appellant were as follows -

1. It iwas argued from the side of the Plaintiff that, by giving over the title deeds to the
Defendant firm the National Bank had submitted itself to gross carelessness to the degree
that it empowered the Defendant firm to distort to the Plaintiff Bank that the questioned
property was free from any encumbrance..
2. It was further argued that as the advance progressed by the Plaintiff Bank was in
compliance with common decency so they had the principal right to settle the obligation
owed by the Defendant firm.

ARGUMENTS ON BEHALF OF THE DEFENDANTS

The main arguments of the Counsel for the Defendants were as follows,

1. It was contented on behalf of the Defendant Bank that as the Respondent Firm was a
stable business undertaking who had paid their advances beforehand also, they in
compliance with common decency had given the title deeds to P.E. Guzdar for an easy
sale of the questioned property.
2. Further it was also contended by the Defendant Bank that the Plaintiff Bank was at fault
so far as they did not wait or conduct proper search with regard to the disputed property,

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 which would have been the normal course of conduct. Thereby, this directly effects the
rights created by the mortgage created in favour of the Plaintiff Bank.

HOLDING AND REASONING BY THE COURT

It was held by the High Court of Calcutta that the mortgage of the Defendant Bank must
be postponed to that of the Plaintiff Bank and that there will be a declaration in favour of
the Plaintiff Bank towards the same.

The reason provided for the same have been enumerated below:

i. Firstly, it was held by the Honorable Court that, the mere fact that the Plaintiff Bank did
not wait for the search results regarding the disputed property, in no way affects the
course of events. There were no acts or omissions on the part of the Plaintiff Bank which
can deprive it of such rights as accrued to the bank by the creation of mortgage in its
favour.1
ii. The Court further went ahead to refer to Section 78 of the Transfer of Property Act
which provides-
Where, through the fraud, misrepresentation or gross neglect of a prior mortgagee,
another person has been induced to advance money on the security of the mortgaged
property, the prior mortgagee shall be postponed to the subsequent mortgagee.

The above provision of the Transfer of Property Act focuses on the principle of equity
and thereby implying that, a mortgage, though prior in date, should have precedence in
circumstances which rendered it inevitable that injustice would be done if its rights to
priority were sustained.

iii. The Court upheld the view that a mortgagee owes a duty to all persons who in the future
may become mortgagees of the same property to take care that the mortgagor is not

1
Llyods Bank, Ltd. v P.E. Guzdar and Co., 5.

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 enabled to commit a fraud upon subsequent encumbrances by allowing him to be in
possession of the documents of title.2
iv. Interpreting Section 78 of the Transfer of Property Act, the Court was of the view that
gross neglect in the section, means and involves; a failure on the part of the prior
mortgagee to take such reasonable precautions against the risk of a subsequent
encumbrancer being deceived as in the circumstances renders it unjust that the earlier
mortgage should retain its priority.3
v. Applying the above interpretation in the present matter, the Court was of the view that,
by handing over the possession of title deeds to P.E. Guzdar, the Defendant Bank
enabled the Defendant firm to misrepresent to the Plaintiff Bank about the nature of the
disputed property.
vi. Further, the sub-manager of the defendant bank, was guilty of gross and wilful
negligence in surrendering the title deeds to P.E. Guzdar in the circumstances when he
was aware that the Defendant firm were under an obligation to find about six lacs within
less than three weeks (to safeguard their property and satisfy the debt).
vii. Surrendering the title deeds to P.E.Guzdar was departing from the normal and prudent
practice of the defendant bank and of all responsible bankers in Calcutta.4
viii. Thus, by such actions on the part of the Defendant Bank, enabled P.E. Guzdar to obtain a
mortgage from the plaintiff bank upon the security of the property, which is against the
plainest equity.

2
Supra note 2, 22.
3
Supra note 3, 26.
4
Supra note 4, 30.

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 CRITIQUE
In the present case the prime issue dealt with by the court is that of gross negligence on the part
of a mortgagee which in turn facilitates the mortgagor to advance money on the security of
already mortgaged property. When a purchaser for value is deprived due to absence of prior
notice of encumbrance a gross negligence of such nature can be said to have occurred .

The Judgement of the Court is in direct consonance to the position as established by Section 78
of the Transfer of Property Act as well as in leading cases like Oliver v Hinton and Bridge v
Jones. In the present matter the gross negligence is committed on behalf of the Defendant by
their act of providing the title deeds of the disputed property to P.E. Guzdar and thereby
omitting to take necessary steps of ensuring that he could not misrepresent the status of the
property. Being aware that the current account of the firm i.e. Guzdar and Co. was in overdraft to
the limit of about 16 lacs it amounts to gross and wilful negligence on the part of the sub-
manager to hand over the title deeds of the said property to Guzdar,

MY VIEWS:
If I was in Page J.'s shoes, I would have humbly differed from the judgment of the court in the
present case the fact being that it is abundantly clear from the facts of the case that it was due to
the negligence on the part of the Defendant Bank in handing over the title deeds to P.E. Guzdar
without taking into account the fact that the title deeds about the property had already been
mortgaged. It was this gross negligence which provided the Defendant firm with an opportunity
to misrepresent and obtain money consideration on the disputed property from the Plaintiff Bank.

A person who himself is grossly negligent in the first instance cannot claim escape from liability.
A mortgagee owes a duty to all the persons who in future may become possible mortgagees, to
ensure that the mortgagor is not provided an opportunity to commit fraud on the subsequent
encumbrances by giving him access to the title deeds.

Applying the above stated rationale in the present matter, even I would have arrived at the same
decision, giving priority to the right of Plaintiff Bank to recover its debt from the sale of disputed
property before the Defendant Bank.

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