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CASE NO.: Appeal (civil)  4122 of 1999

PETITIONER: Kaveripatnam Subbaraya Setty Annaiah Setty Charities Trust

RESPONDENT: S. K. Viswanatha Setty

DATE OF JUDGMENT: 22/07/2004

BENCH: ASHOK BHAN & S.H. KAPADIA.

JUDGMENT: J U D G M E N T

KAPADIA, J.

       This is an appeal by special leave filed by  appellant-plaintiff against the judgment dated 4th August,  1998 of the High Court of Karnataka confirming the  judgment and order dated 6th February, 1993 passed by  the District Judge, Mysore dismissing the suit filed by the  appellant\026plaintiff holding inter alia that Ex.P5 dated  1.10.1976 was only a device to get over the provisions of  the Karnataka Rent Control Act, 1961 (hereinafter  referred to for the sake of brevity as "the said Act,  1961").  

       The undisputed facts are as follows:

       Appellant\026Kaveripatnam Subbaraya Setty Annaiah  Setty Charities Trust was the owner of an old building in  which there were 8 to 9 shops situated in Rave Beedi.  In  1950 one of the shops was let out to the respondent- defendant as a tenant.  In the year 1969, the appellant  conveyed to the respondent and other tenants of the old  building its desire to demolish the old building and in its  place to erect modern shops so that higher rent could be  fetched.  Respondent herein surrendered his shop in the  old building on 27.8.1969 after receiving notice from the  appellant indicating its intention to demolish the old  building and to construct a new building.  Some of the  tenants refused to surrender.  Appellant filed eviction  petitions against those tenants under the said Act, 1961.   They were evicted under the orders of the Court.   Respondent herein and the trustees belonged to the same  community and, therefore, he surrendered possession of  his shop pursuant to the above mentioned notice.  The old  building was demolished in 1969 and the construction of  the new building was completed by 1975.  On  10.10.1975, the respondent called upon the appellant to  re-let the shop in the new building as he was a tenant in  the old building to which no reply was given by the  appellant.

       On 1.10.1976, Ex.P5 was entered into between the  appellant and the respondent.  In Ex.P5, it was recited  that the appellant was in need of money and, therefore, a  redeemable mortgage for three years had to be executed  for Rs.16,200/- in favour of respondent.  Under Ex.P5,

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the said sum of Rs.16,200/- was to be repaid in full by  virtue of respondent being in possession and enjoyment  of the shop for three years.  On 4.10.1976, the respondent  paid Rs.16,200/- to the appellant against delivery of  possession.  The mortgage period expired on 1.10.1979.         On 12.3.1980, suit no.41 of 1980 was instituted by  the appellant in the court of Principal Civil Judge,  Mysore for possession, damages and mesne profits.  The  above facts were stated in the plaint.  By his written  statement, the respondent pleaded  that he was a tenant  from 1950 of the shop in the old building.  In 1969, the  trustees expressed their desire to demolish the old  building and to construct a new building.  He did not  resist the eviction as he belonged to the same community  as the trustees and as he was orally assured by the  trustees that the shop in the new building would be re-let  to him.  He further pointed out that on 10.10.1975, he had  called upon the trustees to re-let the shop in the new  building to him as a tenant, to which no reply was  received.  He further alleged that he had offered to pay  Rs.6000/- and that he had also offered to pay rent @  Rs.335/- per month, to which no reply was given.    According to the written statement, in 1976, a suggestion  came from the trustees that they were ready and willing  to consider his offer if he was ready to advance  Rs.16,200/- and if he was ready to pay increased rent of  Rs.450/- to the appellant.  The respondent pleaded his  inability to raise Rs.16,200/- upon which he was assured  by PW2 that one Anjaneya Gupta (father-in-law of PW2)  would advance a loan of Rs.10,000/- against the  promissory note.  PW2 was the managing trustee.  On  4.10.1976, Anjaneya Gupta advanced the said amount to  the respondent.  On the same day, the respondent paid  Rs.16,200/- to the appellant against delivery of  possession.  The respondent, therefore, submitted in his  written statement that he had taken the possession of the  shop in the new building as a tenant and not as a  mortgagee.  According to the written statement,  Rs.16,200/- represented advance rent for three years @  Rs.450/- per month.  In the written statement, the  respondent submitted that he was entitled to protection  under the said Act, 1961.  In the alternative, it was  pleaded that Ex.P5 violated the provisions of the said  Act, 1961 and consequently, it was void.

       The trial Court found that the respondent was a  tenant of the shop in the old building from 1950; that in  1969 the respondent was asked to vacate the premises as  the trustees desired to demolish the old building; that the  respondent had voluntarily vacated the premises and  consequently, the relationship of landlord and tenant  ended on 27.8.1969, as there was no intention to continue  the tenancy or to re-let the premises in the new building.   The trial Court further found that after 1.10.1976, the  respondent did not pay rent; that no rent was fixed and,  therefore, the respondent was in occupation of the shop  as a mortgagee and not as a tenant.  The trial Court in this  connection placed reliance on the returns filed by the  respondent under the Income Tax Act for the years 1977- 78 up to 1980-81.  The trial Court concluded that the  respondent was not entitled to protection under the said  Act, 1961.  Consequently, the trial Court decreed the suit  filed by the appellant.

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       Being aggrieved by the judgment and decree  passed by the trial Court, the respondent preferred  Regular Appeal No.15 of 1985 before the District Judge,  Mysore (hereinafter referred to for the sake of brevity as  "the lower appellate Court").  By judgment and order  dated 6.2.1993, the lower appellate Court concluded that  the respondent was a tenant of the shop in the old  building from 1950 and in 1969 the respondent vacated  the shop in the old building when he was assured by the  appellant that the shop in the new building would be re- let to him after construction.  The lower appellate Court  believed the case of the respondent as the respondent had  categorically called upon the trustees to re-let the shop in  the new building vide notice dated 10.10.1975 to which  no reply was given by the trustees.  In this connection the  lower appellate Court placed reliance on the evidence of  PW2. The lower appellate Court also came to the  conclusion that Rs.16,200/- represented advance rent  calculated @ Rs.450/- per month.  The lower appellate  Court on going through the entire evidence on record,  both oral and documentary, concluded that the  respondent had taken the premises after the construction  as a tenant and not as a mortgagee.  In the circumstances,  the lower appellate Court allowed the appeal; set aside  the judgment and decree passed by the trial Court and  dismissed the suit instituted by the appellant.

       Being aggrieved by the decision of the lower  appellate Court dated 6.2.1993, the appellant carried the  matter in the second appeal to the High Court under  section 100 CPC.   

       At the time of admission, the following question of  law was framed:\027         "Whether the finding of the appellate  Court that the self redeeming mortgage deed  executed by respondent in favour of the  appellant, as a void document, as being  opposed to the provisions of Rent Control  Act, is sustainable without a plea and an  issue in that behalf?"

       On reading the terms and conditions mentioned in  Ex.P5 in the light of the above-mentioned circumstances,  including the conduct of the parties, the High Court held  that the Ex.P5 was only a device to defeat the provisions  of the said Act, 1961.  Consequently, the High Court  dismissed the appeal filed by the appellant.  Hence, this  civil appeal.

       Shri S.N. Bhat, learned counsel for the appellant  submitted that the High Court had erred in holding that  Ex.P5 was void.  He submitted that in 1969, the  respondent had voluntarily surrendered the shop in the  old building and with the surrender, his tenancy came to  an end.  It was submitted that after 1969, the respondent  was not a tenant.  He submitted that the surrender was

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voluntary and consequently, the provisions of the said  Act, 1961 were not applicable.  He contended that Ex.P5  in the light of the above circumstances conclusively  proves that the respondent was in possession of the shop  as a mortgagee and on expiry of the mortgage period, he  was required to vacate and hand over vacant possession  of the shop to the trustees.  He submitted that Ex.P5 was  a self-redeeming mortgage.  He further contended that  the High Court erred in holding that the respondent  continued to be a tenant after 1969 duly protected under  the Rent Act, 1961.  Lastly, he submitted that in view of  the amendment to section 2(7)(bb)(iii) vide Amending  Act No.32 of 1994, respondent herein  was not entitled to  protection as the suit premises belonged to a charitable  institution and under the said Amending Act, the  protection available to tenants of such institutions stood  withdrawn on and from 18.5.1994.

       We do not find any merit in this civil appeal for  the following reasons: firstly, the evidence on record  proves that the respondent was a tenant of the shop in the  old building from 1950.  He continued to be a tenant of  that shop till 1969, which is not disputed.  The evidence  brought on record further shows that the old building was  demolished around 1969 and by 1975 the new building  stood constructed.  The appellant as plaintiff has not  brought on record the circumstances under which they  claim that the original shop was voluntarily surrendered  by the respondent.  On the contrary, after reconstruction,  the respondent had specifically called upon the appellant  to re-let the shop in the new building to him.  He offered  Rs.6000/-.  He also offered enhanced rent.  However, no  reply was given by the appellant to his letter dated  10.10.1975.  This circumstance proves that the  respondent had not voluntarily surrendered his shop in  the old building as alleged by the appellant.  Secondly,  the respondent has proved that in 1976, PW2 offered to  re-let the shop in the new building on the respondent’s  advancing Rs.16,200/- to the trustees for three years.  In  this connection, PW2 has admitted, in his evidence,  receipt of the letter dated 10.10.1975 from the respondent  calling upon the trustees to re-let the premises.  Further,  in his evidence, PW2, has admitted that the respondent  herein had raised a loan of Rs.10,000/- from his father-in- law as suggested by him (PW2).  Thirdly, as found by the  Courts below, Rs.16,200/- represented three years  advance rent calculated @ Rs.450/- per month.   Fourthly, as rightly held by the High Court, there was no  reason for voluntarily surrendering the tenancy by the  respondent.  Lastly, the entries in the Income-tax returns  of the respondent, brought on record by the appellant,  proves that the amount paid by the respondent was on  account of rent.  It is relevant to point out that the  appellant has not produced its own accounts to show how  they have accounted for Rs.16,200/- in their books.

       The guidelines for deciding \026 whether a  transaction is a lease or a mortgage contemplate that the  name given to the document is not conclusive.  The  question has to be decided with reference to the  predominant intention of the parties as gathered from the  recitals and the terms of the documents and the  surrounding circumstances including conduct of the  parties.  In the case of a mortgage, there is a transfer of  interest to secure repayment of debt and in the case of a

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lease, there is a transfer of a right to enjoy the property  [See: T.P. Act by Mulla \026 9th Edn. Page 621].  In the  case of Fuzhakkal Kuttappu v. C. Bhargavi & Ors.  reported in [AIR 1977 SC 105], it has been observed that  the nomenclature given to a document by the writer or  even by the parties is not always conclusive.  In  construing a document, it is necessary to find out the  intention of the parties executing such document.  Such  intention has to be gathered from the recital, the terms in  the document and from surrounding circumstances.   When there is a document of a composite character  disclosing features of mortgage and lease, the Court will  have to find out the pre-dominant intention of the parties  executing the document viewed from the essential aspect  of the reality of the transaction.  In that case, it was  further observed that the mortgages are not always  simple, English, usufructuary as defined in T.P. Act.   They may be anomalous.  Even so, the essential feature  of a mortgage, which is not there in a lease, is that the  property transferred is a security for repayment of a debt  in a mortgage whereas in a lease, it is transfer of a right  to enjoy the property.   In the instant case, the suit  property is a shop; the transferee was put in possession as  he was to carry on his business; however, he had no  power to lease or sell; no rate of interest was fixed; there  is nothing to indicate as to how Rs.16,200/- was to be  appropriated.  In the present matter there is no evidence  to show that Ex.P5 was executed as security for the  alleged loan.  As stated above, the tenancy of the  respondent continued even after 1969 and in the above  circumstances the High Court was right in holding that  Ex.P5 was a device to defeat the said Act. The judgment  of the Supreme Court in the case of Shah Mathuradas  Maganlal & Co. v. Nagappa Shankarappa Malaga &  Ors.  reported in [AIR 1976 SC 1565] has no application  to the facts of the present case.  In that matter, the  respondent\026landlord executed a mortgage deed in favour  of the appellant\026tenant.  The period for redeeming the  mortgage was fixed for 10-years.  The appellant claimed  that after redemption he was entitled to retain possession  because his previous tenancy right subsisted.  On facts, it  was found by this Court that the delivery of possession  by the tenant to the landlord was immediately followed  by re-delivery of possession to the appellant as  mortgagee.  In the present case re-delivery is after almost  five years. In the case cited, the deed of mortgage was  executed on 21.5.1953 and it recited that the erstwhile  tenancy shall continue only till 7.11.1953.  That under  the deed the possession of the appellant was confirmed as  a mortgagee on and from 7.11.1953. Further, under the  mortgage deed it was provided that if the mortgagor was  not able to redeem the mortgage, the mortgagee was  entitled to sell the property for recovery of debts.  In  view of the above terms and conditions, it was held that  on redemption of the mortgage, the respondent had a  right to recover possession. None of such terms exist in  Ex.P5.  In the circumstances, the judgment of this Court  in Shah Mathuradas Maganlal & Co.(supra) has no  application to the present case.                  Lastly, it may be pointed out that in the present  case, the suit was filed in 1980.  Section 2(7)(bb)(iii) was  amended in 1994.  Under the said Amendment, the  expression "under the management of the State  Government" stood deleted.  Therefore, it was argued on

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behalf of the appellant that the Karnataka Rent Control  Act, 1961 has no application.  As held by the High Court,  this plea was not taken by the appellant in the Courts  below.  Further, section 2(7)(bb)(iii) states that the Act  will not apply to any premises belonging to a religious or  charitable institution.  However, there is no material  placed on record by way of pleadings to show whether  the appellant is a religious or charitable institution.  The  plaint was never amended.  The appellant seeks  exemption.  Exemption needs to be alleged and proved.   Opportunity is required to be given to the respondent to  meet the plea of exemption.  In the circumstances, we are  in agreement with the view expressed by the High Court  that the said plea was not open to the appellant at the  stage of second appeal, particularly in the absence of any  material available to substantiate such plea.  

       For the aforestated reasons, we do not find any  merit in this civil appeal and the same is dismissed,  accordingly, with no order as to costs.