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PETITIONER: NARAYAN VISHNU HENDRE AND ORS.

       Vs.

RESPONDENT: BABURAO SAVALARAM KOTHAWALESINCE DECEASED BY HIS HEIRANANT B

DATE OF JUDGMENT13/10/1995

BENCH: KIRPAL B.N. (J) BENCH: KIRPAL B.N. (J) BHARUCHA S.P. (J)

CITATION:  1996 AIR  368            1995 SCC  (6) 608  JT 1995 (7)   393        1995 SCALE  (5)763

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T KIRPAL.J.      This is an appeal by special leave against the judgment and order  of the  High Court of judicature at Bombay, dated 11.12.1987 in Second Appeal No. 643/81 and the main question which arises  for consideration  is  whether  there  was  an implied  surrender   of  the   tenancy  by  the  appellants- defendants in favour of the respondent-plaintiff at the time when the  respondent-plaintiff executed  a mortgage  of  the premises in favour of the appellants.      The father  of the appellants-defendants, namely Vishnu Malba Hendre  (hereinafter referred  to as  ’Vishnu’) was  a tenant in  respect of  the front  portion of  House No. 115, Rawiwar Path,  Phaltan. The  said house was owned by Baburao Savalaram Kothawale, the original plaintiff, now represented by his  legal heir.  The said  house was  mortgaged  by  the respondent-plaintiff in  favour of Vishnu by three different deeds which  were styled  as conditional  sale-deeds. By the first deed  dated  16.4.1952  for  a  consideration  of  Rs. 2,000/-, the  front portion of the house was transferred and by the  other two  deeds, possession  of the  rear  and  the middle portions  were transferred  for Rs.  1,200/- and  Rs. 2,000/- respectively.  The documents,  inter-alia,  provided that in  case the  respondent-plaintiff returned the amounts within six,  seven and  nine years  respetively, then Vishnu was to  re-convey the  property and in case the said amounts were not  paid within  the stipulated period, then the deeds were to  be treated as sale out and out. After the execution of the third document, Vishnu created a tenancy in favour of the respondent-plaintiff in respect of the middle portion of the house  and a  rent note  was executed on March 18, 1953. The respondent-plaintiff  failed to  pay the rent and Vishnu filed a  suit for recovery of the said rent and the same was decreed in March, 1956.      In the  year 1957,  Vishnu  died  and  thereafter,  the

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apellants, who  were his  legal heirs,  filed a suit in 1958 against the  respondent-plaintiff for recovery of possession of the  middle portion  of the  said house on the ground  of default of  payment of  rent. The  said suit  was decreed in 1959. The  result of this was that the appellants-defendants secured the  possession of  the entire  house consisting  of three different portions.      On 23.12.1959, the respondent-plaintiff served a notice claiming redemption  in respect  of  front  portion  of  the property  only,   covered  by   the  first   document.   The appellants-defendants sent  a reply  pointing out  that  the period of five years which was fixed by the document for re- payment  was   over,  and,   therefore,  the  right  of  the respondent-plaintiff to  recover possession stood exhausted. This was  followed by  notice dated  7.3.1962  sent  by  the appellants -plaintiff  that the time in the three sale deeds having expired,  the right  to re-conveyance  had come to an end.      After a  lapse of  time,  the  respondent-plaintiff  on 17.6.1974 filed  a suit  for redemption  of the mortgage and recovery of  possession.  This  suit  was  resisted  by  the appellants-defendants by raising various contentions. It was claimed that  the suit was barred by limitation as the right to get  back the property was lost due to the failure of the respondent-plaintiff  to   re-pay  the   amount  within  the stipulated period  set out  in the  document.  It  was  also claimed that  the appellants-defendants had become owners of the suit  property by adverse possession. Another plea which was raised  and with  which we  are concerned in this appeal was that  the appellants-defendants  were tenants in respect of the  front portion  of the house and in case it was found that the  nature of  the transaction  was that  of mortgage, then, on redemption, the tenancy would stand revived and the respondent-plaintiff  would   not  be   entitled  to  actual possession of the front portion of the house.      The Trial Court decreed the suit on 3.5.1979 by holding that the  suit transactions  were mortgages  by  conditional sale and  not  sales  with  a  condition  to  repurchase.  A preliminary  decree   for  redemption   on  the  respondent- plaintiff depositing  Rs. 5,200/- within six months from the date of decree was, accordingly passed.      The appellants-defendants  challanged  the  decree  and contended that  they had  become owners of the said property by adverse  possession; there  was in any event a revival of tenancy in  respect of  the front  portion of the house and, lastly, they  were  entitled  to  claim  the  value  of  the improvements which  had been  made in  the house  while they were in  possession. The  lower  appellate  court,  however, turned down all the contentions and dismissed the appeal.      Second appeal  was filed  before the  Bombay High Court wherein the  aforesaid contentions  were  reiterated.  While dismissing  the   appeal,  the  High  Court  held  that  the transactions in  question were  mortgages and that the right of the  appellants-defendants as lessee of the front portion had merged  in the  right of the mortgage in possession and, therefore, the  tenancy rights  did  not  survive  when  the lesseee obtained  possesory mortgage  from the  landlord. It was, therefore, held that on redemption of the mortgage, the appellants-defendants   could   not   resist   delivery   of possession in respect of the front portion of the house.      As the  present appeal  arises on  the grant of special leave against  the aforesaid judgment of the High Court, the leave so  granted was confined only to the question of front portion of the premises in question.      It was  submitted by  Mr. V.M. Tarkunde, learned Senior

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Counsel for  the appellants-defendants  than on the facts of the present  case, the  Doctrine of Merger did not apply. He submitted that  the High  Court was wrong in concluding that by virtue  of ratio of decision of this Court in the case of Shah Mathuradas Maganlal & Co. Vs. Nagappa Shankarppa Malage & Ors.,  (1976) 3  S.C.R. 789,  the tenancy rights could not survive when  the lessee  obtained possessory  mortgage from the landlord.  Proceeding on  the basis that the document in question was  a mortgage-deed,  as held by the courts below, Mr. Tarkunde,  learned  Senior  Counsel  contended  that  no express or implied surrender of tenancy of the front portion of the house could be inferred from the same and, as held in Shah Mathuradas’s  case (supra), there could be no automatic merger of  the lease  and mortgage  in respect  of the  same property. He,  therefore, submitted that with the redemption of mortgage, the tenancy rights stood revived.      Mr.  Raju   Ramachandran,  learned   Counsel  for   the respondent-plaintiff, while  supporting the  judgment of the High Court  very fairly  submitted that he could not support the theory  of automatic  merger when a tenanted premises is mortgaged in  favour of  the lessee.  He, however, submitted that the  three documents should be read together and in the present case, there was a implied surrender of tenancy.      The determination  of lease  is provided by Section 111 of the  Transfer of Property Act (hereinafter referred to as ’the Act’).  The Trial  Court, the  first Appellate Court as well as  the High  Court were  of the opinion that the lease stood determined  by virtue  of the  applicability of clause (d) of Section 111 of the Act which provides that a lease of immovable property is determined in case the interest of the lessee and  the lessor  in the whole of the property becomes vested at  the same  time in  one person  in the same right. This proposition  has been  expressly repelled by this Court in following cases.      In the  case of  Shah Mathuradas’s  case  (supra),  the appellant was  a mortgagee  in possession of the property by virtue of a deed of mortgage. No interest was to be paid but instead, possession  of the  property was  agreed to  remain with the  mortgagee. Though,  the mortgage  deed  was  dated 21.5.1953, the  period for  redeeming the mortgage was fixed for ten  years from 7.11.1953. The mortgagor issued a notice after ten  years to the effect that he was ready and willing to redeem  the mortgage.  But, the  appellant,  inter  alia, claimed that  even after  redemption,  he  was  entitled  to retain the  possession because  his previous  tenancy  right subsisted. While  the Trial  Court held  that the tenancy of the appellant  would revive  on redemption  of the mortgage, the District  Judge, on  appeal, came to the conclusion that under the  mortgage deed,  the appellant  had ceased  to  be tenant with effect from 7.11.1963 and, thereafter, he was in possession only  as a  possessory mortgagee  and  not  as  a tenant. The  High Court  dismissed the  second  appeal.  The question with regard to the revival of the tenancy was again raised in this Court. Referring to clause (d) of Section 111 of the Act, it was observed as follows:           "For  a  merger  to  arise,  it  is      necessary that  a lesser  estate  and  a      higher estate should merge in one person      at one and the same time and in the same      right, and  no interest  in the property      should remain  outside. In the case of a      lease the  estate that is outstanding is      the  equity   of   redemption   of   the      mortgagor. Therefore,  there cannot be a      merger of  lease and mortgage in respect

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    of the  same property  since neither  of      them is  a higher  or lesser estate than      the other."      On the  facts of that case, however, this Court came to the conclusion  upholding the  findings of  High  Court  and first Appellate Court that the mortgage deed showed that the appellant had  surrendered the  tenancy from  7.11.1953 and, therefore, the  mortgagor was  entitled to  the dilivery  of possession of the property.      IN  Sambangi   Applaswamy  Naidu   &  Ors.  Vs.  Behara Venkataramanayya Patro  and  others, 1985 (1) SCR 651, while following the  ratio of  decision in  Shah Mathuradas’s case (supra) to the effect that there could be no merger of lease and a  mortgage, even  where the  two  transactions  are  in respect of  the same property, it was held that the question whether upon  redemption of  usufructuary mortgage, a tenant mortgagee could  be directed  to deliver  actual or physical possession of  the  mortgaged  property  would  depend  upon whether there was an implied surrender of the lessee’s right when the  mortgage was  executed in his favour by the lessor mortgagor. In order to find an answer to this question, this Court observed that the intention of the parties at the time of execution  of the  mortgage deed in favour of the sitting tenant had  to be gathered ’from the terms and conditions of the mortgage  transaction in  the light  of the  surrounding circumstances of  the case".  After seeing  the terms of the terms of  the mortgage  deed and  the other circumstances of the case,  it was  concluded that the effect of the mortgage deed in  that case was that the lessee’s rights were kept in abeyance  and  they  revived  upon  the  redemption  of  the mortgage because  there was  no  implied  surrender  of  the tenancy.      On examining the mortgage deed in Nand Lal Vs. Sukhdev, 1987 (Supl.)  SCC 87, where there was an merger in favour of the lessee, this Court after perusing the mortgage deed came to the  conclusion that  there was  nothing  to  warrant  an inference of  relingushment of  the rights of the tenants by obtaining the  mortgage deed.  Similarly, in  Nemi Chand Vs. Onkar Lal,  AIR 1991  SC  2046,  this  Court  construed  the mortgage deed  and  concluded  that  there  was  no  implied surrender of the lease in favour of the landlord-mortgagor.      In the  present case, the mortgage deed dated 16.4.1952 recited that  in  order  to  discharge  the  debts  for  the construction of  the  house,  the  respondent-plaintiff  had received and  had executed the conditional sale deed. It was further stated in the said deed that:           "I have  sold the  said property by      this conditional sale-deed and delivered      possession   thereof    to   you    (the      purchaser). The period of this sale deed      is five  years and thereafter I will get      released  the   said  property  for  Rs.      2,000/- according  to this  deed. In the      event I  fail to  pay  the  said  amount      within the  said period,  this sale-deed      shall  be   presumed  and   treated   as      perpetual  property   and  make  vahiwat      thereof  without  interruption.  That  I      will remove  the  objection  if  any  in      respect of  the said  property if  taken      without sustaining any loss to you."      It is  not in  dispute that  the second  and the  third mortgage deeds were similarly worded.      It was  submitted by  Mr. Ramachandran, learned Counsel that by stating that the mortgagor had "delivered possession

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thereof to  you (the  purchaser)" clearly  showed that there was  an  implied  surrender  of  the  tenancy.  We  find  it difficult to accept this submission. The mortgage deed makes no mention with  regard to the delivery of the possession of the mortgagor  in the  event of  his redeeming the mortgage. Secondly, the  principal  amount  which  was  taken  by  the mortgagor was  Rs. 2,000/-  and the deed did not provide for payment of  interest and  the  property  could  be  and  was redeemed on  the re-payment  of the  principal amount of Rs. 2,000/- itself.  With the execution of the mortgage deed, no rent was  paid for  the front  portion of  the house and the mortgagee did  not charge  any  interest  on  the  mortgaged amount of Rs. 2.000/-. Redemption of the mortgage for paying at the  same amount  of Rs.  2,000/- showed that the parties had agreed  that during  the subsistence  of  the  mortgage, neither any  rent would  be payable  nor interest  would  be charged. Thirdly, it is difficult to imagine that the tenant who had  a valid tenancy since the year 1942, would agree to surrender his  tenancy right  on the  mortgage  deed  having executed  while   being  conscious  of  the  fact  that  the mortgagor had  a right  to redeem  the mortgage.  Lease of a property is a very valuable right and it’s implied surrender would not  be readily  inferred. Had  the parties  wanted to terminate their  earlier relationship of landlord and tenant on the  execution of  a mortgage,  then one  would expect  a clear statement  or an  indication to  that  effect  in  the document itself.  Neither the conduct of the parties nor the said document  in the  present case  indicates  that  Vishnu intended to surrender his tenancy rights. This being so, the redemption of  the mortgage  would revive the tenancy of the appellants-defendants.      Accordingly, we are of the opinion that the only effect of the  mortgage was  that the  lessee’s rights were kept in abeyance and  they stood  revived upon the redemption of the mortgage. We,  therefore, allow  the appeal,  set-aside  the impugned judgments  of the  High Court  and the courts below and we hold that the respondent-plaintiff is not entitled to delivery or  physical possession of the front portion of the house in  question. There  will be,  however, no order as to costs.