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PETITIONER: ALL INDIA FILM CORPORATION LTD. & ORS.

       Vs.

RESPONDENT: SHRI RAJA GYAN NATH AND ORS.

DATE OF JUDGMENT: 26/09/1969

BENCH:

ACT: Mortgage--Tenancy  created by mortgagee in  possession  does not Survive the termination of mortgage   interest--Landlord and    tenant--East  Punjab  Urban  Rent  Restriction   Act, 1949,  applicability  of--Evacuee Interest (Separation) Act, 1951.

HEADNOTE:     The  mortgagee of a property in which a cinema was  run. leased it to the first appellant on a monthly rental of  Rs. 250/-  for  a period of 5 years renewable for  10  years  by yearly renewals on the same terms.  The lessee was given the full right to use the property whether by itself or through. agents  or  in partnership or by  sub-leasing.   The  lessee sublet  the premises after equipping the house  with  cinema machinery on a monthly rental of Rs. 1,250/-.  The  property had  been declared evacuee property, and the lessee  applied under  the  Evacuee Interest (Separation)  Act,  1951    for separation  of his interest.  The Competent Officer  ordered sale  of the property, which was purchased for Rs.  65,000/- by  the respondent.  Then (before the expiry of the term  of the  lease)  the respondent filed a suit against  the  head- lessee and the sub-lessee for possession of the property. On the  questions  (i) whether the respondent was  entitled  to possession before the expiry of the full term of the  lease; and (ii) whether the subleases were protected under the East Punjab Urban Rent Restriction Act, 1949.     HELD: (i) No person can confer on another a better title than he himself has. A mortgage is a transfer of an interest in  specific immovable property for the purpose of  securing repayment  of a loan.  A mortgagee’s interest lasts only  as long  as the mortgage has not been paid off.   Therefore  on redemption of the mortgage the title of the mortgagee  comes to an end.  A derivative title from him must ordinarily come to  an  end with the termination of the  mortgagee’s  title. The  mortgagee by creating a tenancy becomes the  lessor  of the property, but his interest as lessor is coterminous with his  mortgage  interest.   The relationship  of  lessor  and lessee cannot subsist beyond the mortgagee’s interest unless the  relationship is agreed to by the mortgagor or  a  fresh relationship is recreated. This the mortgagor or the  person succeeding to the mortgagor’s interest may elect to do.  But if  he does not, the lessee cannot claim any  rights  beyond the term of his original lessor’s interest. [584 F]     The exception to the above propositions is the one  that flows  from  s.  76(a)  which lays  down  liabilities  of  a mortgagee  in  possession.  It is provided there  that  when during the continuance of the mortgage, the mortgagee  takes possession  of  the mortgaged property, he must  manage  the

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property as a person of ordinary prudence would manage it if it  were his own.  From this it is inferred that  acts  done bona   fide  and  prudently  in  the  ordinary   course   of management, may bind even after the termination of the title of  the  mortgagee  in possession.  This  principle  applies ordinarily  to the management of agricultural lands and  has seldom been extended to urban property so as to tie it up in the  hands  of  lessees or to confer on  them  rights  under special statutes.  To this again there is an exception.  The base will continue to bind the mortgagor or persons deriving interest  from him if the mortgagor had concurred  to  grant it. [585 C] 582     The  present  case  was not  covered  by  the  exception because such a long lease on a small rent could not be  said to be an act of prudence, whether it was a bona fide act  or not, and whether the exemption can apply to urban property.     Mahabir  Gope and Ors. v. Harbans Narain  Singh,  [1952] S.C.F. 775 and Asaram & Ors. v. Mst. Ram Kali, [1958] S.C.R: 986, followed.     (ii) A landlord means a person entitled to receive  rent and  a tenant means any person by whom or on  whose  account rent  is payable.  These definitions apply if  the  tenancy, either real or statutory, could be said to survive after the termination  of  the mortgage.  The scheme of s. 10  of  the Evacuee Interest (Separation) Act, 1951 is that in the  case of a mortgagor or a mortgagee, (a) the Competent Officer may pay  to  the Custodian or the claimant  the  amount  payable under  the mortgage debt and redeem the property or (b)  the Competent  Officer  may  sell  the  mortgaged  property  for satisfaction  of the mortgage debt and distribute  the  sale proceeds thereof, or (c) the Competent Officer may partition the  property  between  the  mortgagor  and  the   mortgagee proportionate to their shares, or (d) adopt a combination of any  of these measures.  It is obvious that method  (b)  was followed.   The  property  was sold  and  the  mortgage  was satisfied.   This led to the extinction of  the  mortgagee’s interest  and  the  purchaser acquired  full  title  to  the property.    The  termination  of  the  mortgagee   interest terminated  the relationship of landlord and tenant  and  it could  not,  in the circumstances, be said to run  with  the land.  There being no landlord and no tenant, the provisions of  the  Rent Restriction Act could not apply  any  further. Nor could it be said that  when  the mortgagor cancelled the rent  note  and authorised the mortgagee to find  any  other tenant,  the  intention  was to allow  expressly  a  tenancy beyond the term of the mortgage. [586 E]

JUDGMENT: CIVIL  APPELLATE JURISDICTION: Civil Appeals Nos.  2416  and 2417 of 1966.     Appeals from the judgment and order dated March 19, 1963 of the Punjab High Court in Regular First Appeal No. 281  of 1960.     Rameshwar Nath  and  Mahinder Narain, for the appellants (in C.A. No. 2416/1966) and Respondents Nos. 1, 2 and 4  (in C.A. No. 2417 of 1966).     N.C. Chatterjee and H.P. Wanchoo, for the respondent No. 1 (in C.A. No. 2416 of 1966) and the appellant (in C.A.  No. 2417 of 1966). The Judgment of the Court was delivered by     Hidayatullah,  C.J.   These are appeals  by  certificate granted  by the Punjab High Court against the  judgment  and

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decree  dated March 19, 1963.  The property in dispute is  a building  in  Jullundur  City in which there  is  located  a cinema.  It was formerly’ called ’Chitra Talkies’ and now is known  as  ’Odeon Cinema’. The building was  constructed  in 1933 on land measuring 3 kanals and 17 marlas.  The original owner-one Azim Baksh--migrated to 583 Pakistan  in  1947 and this property  was  declared  evacuee property.  Before migration Azim Baksh had dealt  with  this property  in  several  ways.  On January 21,   1946  he  had mortgaged the building with possession for Rs. 70,000/- with Malawa  Ram and Gamda Mal.  On January 22, 1946  Azim  Baksh took  the building on leaseon a rent of Rs. 162.8 annas  for 11 months from the mortgagees.  He executed a rent note.  On February   8,  1946  this  rent  note  was  cancelled.    An endorsement  was  made  on the rent note  to  the  following effect:                   "With  the consent of Lal Gainda  Ram  and               Malawa  Ram,  the  said  rent-deed  has   been               cancelled.  Rent for one month may be included               in  the  mortgage amount. The  mortgagees  are               entitled  to carry on the aforesaid cinema  in               any  way  they like or may give  the  same  on               lease  to  any  body else.  I  shall  have  no               objection".     Previously  Azim Baksh had rented this building to  Sant Ram and Sita Ram on Rs. 150/- per month.  After the  release of  the  property the mortgagees leased it to Sita  Ram  and Sohan Lal on Rs. 200/- per month.  This lease was terminated on July 26, 1950.  On August, 1951 the mortgagees leased  it to  ’the  All India Film Corporation Ltd., appellant  No.  1 (defendant  No.  2),  on Rs. 250/- per month  vide  Ex.  D.2 W.2/1.  The lease was for 5 years in the first instance from September 15, 1951 to September 14, 1956.  It was,  however, renewable  for  10 years by yearly renewals.   There  was  a condition  that  renewal  on the same terms was  not  to  be refused.  By this lease, the lessee was given full right  to use  the property whether by itself or through agents or  in partnership or by sub-leasing.     Malawa Ram and Gainda Mal partitioned their property and this  house  fell to the share of Gainda  Mal.   The  lessee company in its turn sub-let the premises to defendants 3  to 9  on  a monthly rent of Rs. 1,250/-.  This was on  May  16, 1952.   Before  subleasing  the premises,  the  head  lessee company  had equipped the house with cinema  machinery  etc. and the sub-lease included the use of machinery etc.     Gainda  Mal  applied under Evacuee  Interest  Separation Act,  1951  for separation of his interest.   The  Competent Officer  by  his  order, August  25,  1955,  determined  the mortgage  charge as Rs. 90,807.4 annas and ordered  sale  of the  building  and  land together with  another  plot.   The respondent  in  this  appeal Raja Gyan  Nath  purchased  the cinema  with the land (3 kanals 17 marlas) for Rs.  65,000/- on  December  3, 1955.  The sale certificate was  issued  on March  3, 1956.  The mortgage charge was paid off  on  April 19, 1958. 584     The  purchaser  Raja  Gyan Nath then filed  a  suit  for possession  of  this property from the head lessee  and  the sub-lessees  on August 5, 1959 and for mesne profits at  the rate  of Rs. 1,250/- per month. The sub-lessees claimed  the benefit of the East Punjab Urban Rent Restriction Act (3  of 1949).  Later the plaintiff gave up his claim to the  cinema machinery, furniture and fittings.  The trial Judge  decreed the claim in full except that mesne profits were reduced  to

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Rs.  500/- per month and half of the costs were  disallowed. Defendants  2, 4, 10 and 11 appealed against the  decree  to the  High  Court.  The plaintiff cross-objected  asking  for mesne  profits at Rs. 1,250/- with interest at 6%  per  year and the remaining costs. The High Court affirmed the decree, but  reduced  mesne profits further from Rs.  500/-  to  Rs. 250/-  per  month.  The mesne profits were to run  from  the date of suit till possession with interest at 6% per  annum. The High Court granted a certificate to both sides and  they have filed their respective appeals.               In  the  High  Court only  three  points  were               urged:                   (1) Whether the defendants were  protected               by the East Punjab Urban Rent Restriction  Act               (3 of 1949) ?               (2) What were the mesne profits ?  and                   (3)  Whether  plaintiff  was  entitled  to               possession before the expiry of the full  term               of the lease with right to renewals ?     These  are the only points which have been urged  before us in these appeals.     The first question to consider is this:  Did the tenancy created   by  the  mortgagee  in  possession   survive   the termination of the mortgagee interest so as to be binding on the  purchaser  ?  A general proposition of law is  that  no person can confer on another a better title than he  himself has.   A mortgage is a transfer of an interest  in  specific immovable property for the purpose of securing repayment  of a  loan.  A mortgagee’s interest lasts only as long  as  the mortgage has not been paid off.  Therefore on redemption  of the mortgage the title of the mortgagee comes to an end.   A derivative  title  from him must ordinarily come to  an  end with   the  termination  of  the  mortgagee’s  title.    The mortgagee  by creating a tenancy becomes the lessor  of  the property but his interest as lessor is coterminous with  his mortgagee  interest.  Section  111 (c) of  the  Transfer  of Property  Act  provides that a lease of  immovable  property determines where the interest of the lessor in the  property terminates on, or his power to dispose of the same,  extends only to the happening of any event  by the happening of such 585 event.  The duration of the mortgagee’s interest  determines his position as the lessor.  The relationship of lessor  and lessee cannot subsist beyond the mortgagee’s interest unless the  relationship is agreed to by the mortgagor or  a  fresh relationship is recreated. This the mortgagor or the  person succeeding to the mortgagor’s interest may elect to do.  But if he does not, the  lessee  cannot claim any rights  beyond the   term   of  his  original  lessor’s   interest.   These propositions  are  well-understood and find support  in  two rulings  of  this  Court  in Mahabir  Gope  and  others   v. Hatbans  Narain Singh(1) and Asaram and others v.  Mst.  Ram Kali(2).     To  the  above  propositions  there  is,  however,   one exception.  That  flows  from  s.  76(a)  which  lays   down liabilities  of a mortgagee in possession.  It  is  provided there that when during the continuance of the mortgage,  the mortgagee  takes  possession of the mortgaged  property,  he must  manage the property as a person of  ordinary  prudence would  manage  it  if  it were his own.   From  this  it  is inferred  that  acts  done bona fide and  prudently  in  the ordinary  course  of  management, may bind  even  after  the termination  of  the title of the mortgagee  in  possession. This  principle  applies  ordinarily to  the  management  of agricultural  lands  and has seldom been extended  to  urban

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property  so as to tie it up in the hands of lessees  or  to confer on them rights under special statutes.  To this again there is an exception.  The lease will continue to bind  the mortgagor  or  persons  deriving interest from  him  if  the mortgagor had concurred to grant it.     Applying these principles to the facts of this case,  we find  that  the property, the subject of the  lease,  was  a house  in  the  city  of Jullundur  suitable  for  a  cinema theatre.   This was leased for five years on a rent  of  Rs. 250/- p.m.  This sum included the use of a passage for which the  rent  was  Rs. 100/- p.m.  In effect the  rent  of  the building  was Rs. 150/-.  This was lower rent than the  rent it  had  fetched before.  The mortgagee  further  agreed  to renewal of the lease on the same terms for a further  period of  10 years.  It is in evidence that a plot only  8  marlas formed  the passage and the rent was Rs. 100/- and  on  that basis land of 3 kanals and 17 marlas with a building fit for cinema ought to have fetched much more.  Such a building  in a growing city ought not to have been tied down for a period of  fifteen years, to a rent of Rs. 150/- or even Rs.  250/- p.m.   The  learned subordinate Judge pointed out  that  the annual rent of the building was assessed at Rs. 10,800/- for the years 1950--55.  This shows how low was the actual rent. The history of the building in the hands of the head  lessee shows that after an investment of Rs. 60,000/- the rent went upto Rs. 1,250 p.m. with additional rights (1) [1952] S.C.R. 775.            (2) [1958] S.C.R. 986. 586 to  the head lessee.  The building without the fittings  and the  land of the passage fetched Rs. 65,000/-.  Therefore  a tenant  willing to pay a better rent could easily have  been found.   The  case  is thus not  covered  by  the  exception because  we  cannot hold that such a long lease  on  such  a small  rent  was an act of prudence, whether it was  a  bona fide  act  or not, and whether the exception  can  apply  to urban property.     This brings us to the next question.  It is whether  the tenants  could take advantage of the provisions of the  East Punjab  Urban  Rent Restriction Act, 1949 ?  The  answer  to this question deFends on whether we can say that there was a tenancy to protect. We have shown above that the lease  came to  an  end with the mortgagee’s interest in  the  property. Although  this  was not a ,case of a  redemption  plain  and simple  because  a  straight  redemption  was  refused,  the property  was  put to sale and the purchaser  paid  off  the mortgage  in  full.   The interests  of  the  mortgagor  and mortgagee  united  in the person of the purchaser  anti  the mortgage ceased to subsist.  In this view of the matter  the purchaser, ,speaking in his character as a mortgagor,  could claim  that the mortgagee’s action came to an end and  there did  not  subsist  any  relationship  between  him  and  the tenants.     The  respondents  attempted  to  argue  that  the   Rent Restriction  Act defines landlord and tenant with  reference to the payment of rent.  A landlord means a person  entitled to receive rent and a tenant means any person by whom or  on whose  account rent is payable.  These definitions apply  if the  tenancy,  either real or statutory, could  be  said  to survive  after the termination of the mortgage.  The  scheme of  s. 10 of the Evacuee Interest (Separation) Act, 1951  is that  in  the case of a mortgagor or a  mortgagee,  (a)  the Competent  Officer may pay to the Custodian or the  claimant the  amount payable under the mortgage debt and  redeem  the property,  or  (b)  the  Competent  Officer  may  sell   the mortgaged property for satisfaction of the mortgage debt and

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distribute  the sale proceeds thereof, or (c) the  Competent Officer may partition the property between the mortgagor and the mortgagee proportionate to their shares, or (d) adopt  a combination  of any of these measures.  It is  obvious  that method  Co)  was followed.  The property was  sold  and  the mortgage  was satisfied.  This led to the extinction of  the mortgagees’  interest and the purchaser acquired full  title to the property.  The termination of the mortgagee  interest terminated  the relationship of landlord and tenant  and  it could  not,  in the circumstances, be said to run  with  the land. There being no landlord and no tenant, the  provisions of  the  Rent Restriction Act could not apply  any  further. Nor  could it be said that when the mortgagor cancelled  the rent note and autho- 587 rised the mortgagee to find any other tenant, the  intention was  to  allow expressly a tenancy beyond the  term  of  the mortgage.  In  this view of the matter the decision  of  the High  Court  and  the  court below  cannot  be  said  to  be erroneous.     There remains to consider the question of mesne profits. The  High Court reduced the mesne profits to Rs. 250/-  p.m. which  was  the actual rent paid for the  building  and  the passage.   There  is  some  doubt as  to  whether  this  sum included Rs. 100/- for the use of the passage.  However,  we think that the matter is between the purchaser and the  head lessee.  The rent of Rs. 250/-, although on a low side,  was the  actual rent on which the premises were held.  The  High Court was, therefore, not wrong in limiting mesne profits to that figure.     The  result  is that both the appeals fail and  will  be dismissed with costs.  There will be a right to set off  the costs and the resulting difference alone will be payable. Y.P. Appeals dismissed. SupCl/70--7 588