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PETITIONER: GOPALAN KRISHNANKUTTY

       Vs.

RESPONDENT: KUNJAMMA PILLAI SAROJINI AMMA & ORS.

DATE OF JUDGMENT:       13/03/1996

BENCH: VERMA, JAGDISH SARAN (J) BENCH: VERMA, JAGDISH SARAN (J) BHARUCHA S.P. (J) VENKATASWAMI K. (J)

CITATION:  1996 AIR 1659            1996 SCC  (3) 424  JT 1996 (3)   383        1996 SCALE  (2)827

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T J.S. VERMA, J.      This appeal by special leave is by the defendant and it arises out  of a  suit for  redemption of  a  mortgage.  The appellant was  the lessee in the premises which is a shop in which he  was carrying on his bakery business from 1965. The plaintiff  later  executed  a  mortgage  in  favour  of  the defendant on  18.7.1974 for  a consideration of Rs.13,000/-. On expiry  of the  period of mortgage, the plaintiff filed a suit for  redemption  and  recovery  of  possession  of  the premises. The  defendant contested the claim for recovery of possession, inter  alia, on  the ground  that his possession was that  of a  lessee, independent of the mortgage and even after redemption  of the mortgage the defendant was entitled to continue  in possession  under the lease. The Trial Court passed  a   preliminary  decree   granting  redemption   and directing recovery  of possession  from the  defendant.  The first appeal by the defendant has been dismissed by the High Court. Hence, this appeal by the defendant.      The High Court has held that there was surrender of the prior lease by the defendant on execution of the mortgage by the plaintiff  in  his  favour;  and  that  the  defendant’s possession of  the premises  at the  time of  mortgage being only as  mortgagee,  the  defendant  was  bound  to  restore possession to the plaintiff on redemption of the mortgage.      In  Shah   Mathuradas  Maganlal   &  Co.   Vs.  Nagappa Sankarappa  Malage   &  Ors.,   [(1976)  3   SCC  660],  the distinction between  the rights  of a lessee and a mortgagee was pointed out and the conditions for the merger of the two rights were indicated. It was held that surrender of a lease takes effect  like a  contract  by  mutual  consent  on  the lessor’s acceptance of the act of the lessee; and that there must be  a taking  of possession, not necessarily a physical taking, but  something amounting  to  a  virtual  taking  of

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possession. Whether  this has  occurred  is  a  question  of fact’. Thus, the mere fact that the owner creates a mortgage in favour  of the  lessee is  not by itself decisive to hold that the  prior lease  was surrendered and the possession of the earlier  lessee is  only that of a mortgagee on creation of the  mortgage. The nature of possession, is a question of fact in each case.      In  Gambangi   Appalaswamy  Naidu  &  Ors.  Vs.  Behara Venkataramanayya Patro  & Ors.,   [(1984) 4 SCC 382], it was reiterated that the answer to the question whether upon redemption of  usufructuary mortgage  a tenant-mortgagee was required to  deliver actual  or physical  possession of  the mortgage property to the lessor-mortgagor must depend upon whether  there was surrender of the lessee’s right when the usufructuary  mortgage was executed in his favour by the lessor-mortgagor; and this depends upon the intention of the parties at the time of execution of the mortgage deed in favour  of the  sitting tenant.  Thus, unless there was a surrender of the lessor’s rights at the time of execution of the mortgage,  the mortgagor would not be entitled to obtain delivery of physical possession upon redemption.      Recently in  Narayan Vishnu  Hendre &  Ors. Vs. Baburao Savalaram Kothawale,  [(1995) 6  SCC 608],  these  decisions have been followed and it has been held that the doctrine of merger does  not apply where tenanted premises are mortgaged in favour  of the  lessee. It  has been  held  that  implied surrender of the lease would not be readily inferred. It was reiterated that  unless surrender  of the  lease was proved, the only effect of the mortgage was that the lessee’s rights were kept in abeyance and it would revive upon redemption of the mortgage.  It is,  therefore, clear  that in a case like this, the  question whether there was surrender of the lease by the  lessee at  the time  of execution of the mortgage in his favour  by the lessor-mortgagor is a question of fact to be answered on the evidence.      The High  Court, in  the present case, proceeded on the erroneous assumption  in law  that surrender of the lease by the lessee  (defendant) must  be implied  from the  fact  of execution of  the usufructuary mortgage in his favour by the lessor (plaintiff).  As  indicated,  this  is  an  erroneous assumption in  law. This  question has  to be decided on the contents of  the deed  since there  is no  other evidence of surrender of  the lease by the defendant on execution of the mortgage. We  find nothing in the mortgage deed (Annexure A- l) dated  18th July,  1974 read with the release deed of the same date to prove either an express or an implied surrender of the  lease by the defendant in favour of the plaintiff on execution of  the mortgage deed. Since there is no automatic merger of  the interest of a lessee with that of a mortgagee when the same person is the lessee as well as the mortgagee, in absence  of proof  of  surrender  of  the  lease  by  the defendant, on  redemption of  the mortgage, the plaintiff is not entitled  automatically to  recover  possession  of  the leased  premises.  The  defendant’s  right  to  continue  in possession as a lessee, therefore, continues to subsist.      Accordingly, the  appeal is  allowed. The judgments and decrees of  the Courts  below  to  the  extent  they  direct restoration of possession by the defendant to the plaintiffs are  set  aside.  The  defendant  appellant  would  get  his corresponding   costs   throughout   from   the   plaintiff- respondents.