20 February 1970
Supreme Court


Bench: MITTER,G.K.
Case number: Appeal Civil 774 of 1967






DATE OF JUDGMENT: 20/02/1970


CITATION:  1971 AIR  310            1970 SCR  (3) 724  1970 SCC  (1) 454  CITATOR INFO :  F          1989 SC 553  (7)

ACT:      Mortgage-Mortgagee  given   possession   of   mortgaged house--Leasing  house to mortgagor under rent note  executed simultaneously with mortgage deed--Preliminary decree passed in  suit for enforcement of mortgage--Application for  final decree   time  barred--Subsequent  suit  for  ejectment   of mortgagor filed by mortgagee whether maintainable--Rights of mortgagee whether merged in preliminary decree--Relevance of limitation Act, 1908, s. 28.

HEADNOTE:       On  July 29, 1945 the predecessor-in-interest  of  the appellant  mortgaged his house in Ratlam to K for a  sum  of Rs.  3,100  with  possession.   According  to  the  deed  of mortgage  interest would run on the said sum at  Rs.  0-10-0 per  cent  per  annum  till  realisation.   The  period   of redemption was two years.  Simultaneously with the  mortgage a  rent note was executed by and between the  parties  under which the mortgagor was to continue to Occupy the  premises, at  a rental of Rs. 20/- per month.  The rent note  provided inter  alia  that  if the executant  (i.e.  mortgagor)  made default  in payment of two months’ rent the mortgagee  would be  entitled  to get him evicted.  The  mortgagee  was  also entitled to increase or decrease the rent and the  executant was to vacate the. house whenever asked to do so.  K filed a suit  on his mortgage in 1954 and a preliminary  decree  was passed   in   his   favour.   On   his   death   his   legal representatives  were  substituted in his place  on  record. For some reason -no application for a final decree for  sale of  the property was made within the period fixed under  the Limitation  Act.  The application for this purpose  made  by the  executors to the estate of K was dismissed on July  29, 1960 as barred by limitation.  On December 27, 1960 the said executors  filed  a  suit for  ejectment  of  the  appellant alleging that the ’rent for the premises had remained unpaid from  September 19, 1957 till November 28, 1960.  The  trial judge  dismissed the suit.  In first appeal  the  plaintiffs claim was allowed in full.  The High Court in second  appeal



maintained  the  decree  of the  appellate  court.Appeal  by special  leave  was  filed in this Court  against  the  High Court’s judgment.  It was contended by the appellants that : (i) The rent note executed simultaneously with the  mortgage was a mere device to secure payment of interest and did  not represent  an independent transaction.  Further it  did  not create  any  relationship of landlord and tenant;  (ii)  The plaintiffs’  right  as mortgagee merged in  the  decree  and execution thereof being barred by the laws of limitation the plaintiffs  had  lost all their rights; (iii)  The  mortgage being extinguished the mortgagor could not bring a suit  for redemption on account of s. 28 of the Limitation Act, 1908.     HELD : The appeal must be dismissed.     (1)  The  contents  of the  documents  executed  by  the parties showed that the relationship between the parties was not  simply that of a mortgagee and  mortgagor-the  creditor also  had  the rights of a landlord qua his  tenant  besides other rights conferred on him which were greater than  those possessed by an ordinary landlord. [728 F]      In  all  such cases the leasing back  of  the  property arises  because of the mortgage with possession.  It  cannot however be held that the mortgagee 724 does  not  secure to himself any rights under  the  deed  of lease  but must proceed on his mortgage in case  the  amount secured to him under the deed of lease is not paid.  If  the security  is  good and considered to be  sufficient  by  the mortgagee there is no reason why be should be driven to file a  suit  an  his  mortgage  when be  can  file  a  suit  for realisation  of  the moneys due under the  rent  note.   The position  of  the creditor is strengthened where as  in  the present case, the interest on the amount of the mortgagee is not  the same as the rent fixed.  If during the  continuance of,  the security the mortgagee wanted to sue the  mortgagor on the basis of the rent note and take possession himself or to induct some other tenant thereby securing to himself  the amount  which  the mortgagor had covenanted  to  pay,  there could be no legal objection to it.  Under the provisions  of 0.34  r. 4 of the Code of Civil Procedure he  could  deprive the mortgagor of his right to redeem excepting by proceeding on  his mortgage.  It may be (without a final opinion  being expressed on the point) that a mortgagee who secured  decree for  payment  of rent cannot put the property  to  sale  for realisation  of  the -amount decreed, but there  cas  be  no objection  to  his  suing for possession if  the  rent  note entitles him to do so.  So long as the mortgagor has a right to redeem the mortgage fie can always pay off the  mortgagee -and  get back possession.  This position would continue  so long  as the property is not sold under a final  decree  for sale under the provisions of 0. 34 C.P.C. [732 D-G]     Lalchand v. Nenuram, I.L.R. 12 Rajasthan, 947, approved.     Harilal  Bhagwanji v. Hemshanker, A.I.R. 1958 Bombay  8, Ramnarain v. Sukhi, A.I.R. 1957 Patna 24, Umeshwar Prasad v. Dwarika  Prasad,  A.I.R. 1944 Patna 5, Ganpat Ruri  v.  Mad. Asraf   Ali,   A.I.R.  1961  Patna  133  and   Jankidas   v. Laxminarain, I.L.R. 7 Rajasthan 268, ’referred to.     (ii)  Since  the mortgagee had only lost his  ’right  to recover  the  money by sale of the mortgaged  property,  his security otherwise remaining intact, and the mortgagor  also continued  to  have his right to redeem  the  property,  the contention on behalf of the appellant that the rights of the mortgagee  merged  in the preliminary decree  could  not  be accepted. [732 H]     (iii) If  the mortgagee had an independent right on  the strength  of  the rent note which continued to be  in  force



notwithstanding that the period for a final decree for  sale had  expired, there could be no extinction of his  right  to sue  for possession because of s. 28 of the Limitation  Act. [733 C]

JUDGMENT:      CIVIL  APPELLATE JURISDICTION: Civil Appeal No. 774  of 1967.      Appeal  by  special leave from the judgment  and  order dated  February 6, 1970 of the Madhya Pradesh High Court  in Second Appeal No. 327 of 1963.      D. N. Mukherjee, for the appellant.      Janardan Sharma, for the respondents.      The Judgment of the Court was delivered by      Mitter,  J. This is an appeal by special leave  from  a judgment of the Madhya Pradesh High Court dated 6th February 1967 dismissing a Second Appeal by the appellant before this Court against 726 a  decree passed by the Additional District Judge of  Ratlam for ejectment of the appellant from a house mortgaged by the predecessor-in-interest  of the appellant to one  Kesharimal for Rs. 3, 1 00 and further decreeing a claim for arrears of rent  amounting to Rs. 731-35 and mesne profits at the  rate of Rs. 20 per month until eviction.      The  relevant facts are as follows.  On July  29,  1945 Mathuralal,   predecessor-in-interest  of   the   appellant, mortgaged his house in Ratlam to Kesharimal for a sum of Rs. 3,100  with possession.  The deed of mortgage contained  the following terms :-       1.  That interest would run on Rs. 3, 100 at Rs. 0-  1 0-0 per cent per mensem till realization.       2.  The period of redemption would be two years.       3.  During  the period of mortgage "the tenant as  may be  shall execute the rent notes in favour of the  mortgagee and whatever rent shall be realised will be credited in lieu of  interest  and  it the amount of rent  shall  exceed  the amount  of interest, the difference shall be  deducted  from the  original sum due,, but if the amount of interest  shall exceed  the  amount  of interest  the  difference  shall  be deducted  from the original sum due." But if the  amount  of interest shall exceed the amount of rent, then the mortgagor shall pay it.       4.  Notwithstanding  any vacancy during the period  of the mortgage   the rent would continue.       5.  During the period. of the mortgage an  account  of the  rent  and  interest shall be settled  after  every  six months.       6.  The  mortgagor  undertook  to keep  the  house  in repairs during the period of the mortgage and in default  of repairs  by him the mortgagee was to be entitled to  execute the necessary repairs and add the cost to his dues.       7.  "The burden of the mortgage money shall be on  the mortgaged  house.  In case the amount is not  realised  from the house, the moragagee shall have a right to take steps to realise  his money" from the mortgagor and his  property  of every kind.       On  the  same  day  the  mortgagor  executed   another document in favour of the mortgagee reciting that his  house in Ratlam was mortgaged with possession to the creditor  who was "having its possession" and the mortgagor had taken  the same on rent at Rs. 20 per month on the following terms :-        1. The  executant  would  pay the  rent  every  month



regularly and in default of payment of two months’ rent, the mortgagee would be entitled to get him evicted. 727    2.  The executant would white-wash and repair  the  house and keep it in good condition.    3.  Kesharimal would be entitled to increase or  decrease the rent.    4. The executant would vacate the house whenever asked to do so.    5. The executant would hand over possession of the  house in,the same condition in which he had received it.    Kesharimal  filed  a suit on his mortgage in 1954  and  a preliminary decree for sale for the amount of Rs.  5,637-6-0 besides  interest  at, the rate of Rs. 0-10-0 per  cent  per mensem  for  six months. on the sum of Rs.  3,600  was  duly passed.  The defendant was, directed to pay the full  amount of  the decree before the 24th May 1955 and in case  of  his doing  so the property was to be released from the  mortgage and the plaintiffs were to hand over all the documents which they had in their possession, but in case of failure to  pay the plaintiffs would be entitled to file an application  for the execution of the decree and get the property  auctioned; and in case of non-satisfaction of the decree ’by the  sale, the plaintiffs were to be at liberty to recover the  balance of  the  decretal  claim by a personal  decree  against  the defendant.     It appears that Kesharimal had died during the  pendency of  the suit and his legal representatives were  brought  on record  and the preliminary decree passed in  their  favour. Whatever be the reason no application for a final decree for sale of the property was made within the period fixed  under the  Limitation Act.  The application for this purpose  made by  the executors to the estate of Kesharimal was  dismissed on  July 29, 1960 as barred by limitation.  On December  27, 1960  the said executors filed a suit for ejectment  against the  appellant alleging that the rent for the  premises  had remained  unpaid from September 29, 1957 till  November  28, 1960.   An amount of Rs. 731-75 was arrived at by  totalling the  rent  for the period mentioned and mesne  profits  from 29th  November 1960 to 26th December 1960 at the  same  rate and incidental charges and expenses and deducting  therefrom the  rent  for two months which was barred by the  lapse  of time  the  plaintiffs asked for a decree for  ejectment  and further mesne profits.  The trial Judge dismissed the  suit. But  on -appeal this was set aside and the plaintiffs  claim allowed in full.  The High Court in Second Appeal maintained the decree of the appellate court.      The points urged by counsel for the appellant before us were      1.  The  rent  note executed  simultaneously  with  the mortgage was a mere device to secure payment of interest and did not record 728 an  independent transaction.  Further it did not create  any relationship of landlord and tenant.      2.  The  plaintiffs’ right as mortgagee merged  in  the decree  and ,execution thereof being ’barred by the laws  of limitation the plaintiffs had lost all their rights.      3.   The  mortgage  being  extinguished  the  mortgagor could not bring a suit for redemption.      Before  examining the contentions urged we  propose  to note    the  substance  of the two documents  and  what  the parties  sought to achieve thereby.  It is, clear  that  the mortgage  was  with  possession of the house  and  that  the mortgagee   wanted  to  make  sure  of  Rs.  20  per   month



irrespective of the fact as to whether the mortgagor or some other  person  occupied the house  and  notwithstanding  any vacancy  during the period of the mortgage.  The sum of  Rs. 20 per month which the mortgagee wanted to ensure payment of every  month  exceeded the interest stipulated  for  by  Rs. 0-10-0  per  month.   There was to be no  decrease  in  this amount even if the mortgagor were to repay a portion of  the principal.  The mortgagee had further the right to  increase or decrease the rent and the mortgagor covenanted to  vacate the  property whenever the mortgagee asked  for  possession. In other words if the mortgagee chose to go into  possession himself, the mortgagor would be entitled to have Rs. 20 p.m. credited  towards  -the dues on the mortgage so long  as  he continued   in  possession.   Even  during  the  period   of redemption  when the mortgagee could not have sued  for  the mortgage  money he still had a right to evict the  mortgagor in  case the latter defaulted in payment of Rs. 20  a  month for two months.      It  would  appear  that the  relationship  between  the parties  was not simply that of a mortgagee and mortgagor  : the  creditor  also  had the rights of a  landlord  qua  his tenant  besides  other rights conferred on  him  which  were greater than those possessed by an ordinary landlord.  There can  be  no doubt that by leasing the property back  to  the mortgagor in the way mentioned above the mortgagee tried  to ensure  the regular payment of interest but his rights  were not  limited to that alone.  In case he decided to  go  into possession himself the only remedy left to the mortgagor was to sue for redemption.  This right under the Limitation  Act of  1908  was  to enure for 60 years from the  date  of  the mortgage and the mortgagor had not lost his right to  redeem notwithstanding the passing of the preliminary decree in the mortgage  suit.  The mortgage security continued even  after the  passing  of  the said decree :  if  the  mortgagee  had continued in possession of the property after the passing of the preliminary decree and did not apply for a final decree, he would only lose his right to recover the mortgage money 729 by  sale of the property unless he applied for that  purpose within the period of limitation fixed by the Limitation Act. After the mortgagee had lost his right to apply for a  final decree for sale, he did not lose his status as a mortgagee : he  only  lost his remedy to recover the mortgage  money  by sale.  The mortgagor did not lose his right to redeem.     We  may now examine the authorities which were cited  at the Bar in aid of the respective contentions.  In aid of his first  proposition Mr. Mukherjee relied principally  on  the decisions  of the Bombay High Court in Harilal Bhagwanji  v. Hemshanker(1)  and Ramnarain v. Sukhi(2).  The facts of  the Bombay  case  were  as  follows.   The   defendant-appellant mortgaged with possession the house in suit for Rs.  7,500/- on  August  23,  1952.   Under  the  deed  of  mortgage  the principal  amount  was  to carry interest  at  9%  and  both principal  and  interest  were  charged  on  the   mortgaged property.   A  portion  of  the house  was  already  in  the occupation  of the plaintiff as the defendant’s tenant on  a monthly rental of Rs. 15 and another portion was let out  to one  Mansukhlal  at the rate of Rs. 17 p.m.,  the  defendant himself   occupying  the  remaining  part  of   the   house. Simultaneously with the mortgage a rent note was executed on the  same day in respect of the portion of the house in  the defendant’s  occupation which was leased back to him by  the plaintiff for a term of six months at the rate of Rs. 24-4-0 per-month.  The plaintiff sued the defendant for  possession of the said portion and for arrears of rent on the  strength



of the rent note.  The defence was that the rent note was  a nominal  document executed for securing payment of  interest and that no relationship of landlord and tenant was created. It was contended that the principal money and interest  were to  be realised from the mortgaged property and a  suit  for rent  alone which was in reality interest would not he.   It was  held  by  the High Court that the  fact  that  the  two documents  had varying periods of operation would  not  make any  difference in the determination of the question  as  to whether  they  formed part of the same transaction  or  not. Further  the rent to be realised from the tenant  Mansukhlal was  to  be credited towards interest  and  the  significant circumstance  was  that the rent payable  by  the  defendant under  the rent note was fixed with a view to making up  the interest  on the mortgage sum at 9%.  Although the  mortgage deed  recited that the plaintiff could let out the  property to  anyone he liked but as the property was  already  wholly occupied, the High Court took the view that the question  of leasing it out to another tenant was not in contemplation of the  parties.  As a result of the above findings  the  court held  that  the  rent note was a mere  device  for  securing payment  of interest.  Reliance was placed on  Ramnarain  v. Sukhi(2)  and  it  was held that -although  the  decree  for eviction of (1) A.I. R. 1958 Bombay 8. (2) A.T.R.1957 Patna 24. SupCI(NP)/70-2 730 the  defendant from the suit property could not stand,  that awarding arrears of rent was to be maintained.     In Ramnarain v. Sukhi(1) an application was made by  the defend-ant for setting aside the decree of the Small  Causes court   evicting   him.   The  defendant  had   executed   a usufructuary  mortgage in favour of the plaintiff and  by  a kerayanama executed on the same day had taken back the house on a rent of Rs. 6 per month from the plaintiff.  He had not paid any rent for over three years and the suit was  brought for recovery of arrears of rent for the said period.  It was his  contention that the agreement between the  parties  was not  for execution-of a usufructuary mortgage but one  of  a simple  mortgage.   It was further contended on  his  behalf that  the mortgage and the kerayanama were one and the  same transaction  and no relationship of landlord and tenant  was created  and the ijara term having expired  the  plaintiff’s remedy  to  recover  the house rent  which  represented  the interest  the mortgage money could only lie under S.  68  of the  Transfer of Property Act.  The High Court  referred  to several  decisions  and  came to  the  conclusion  that  the intention  of the parties was that the mortgagee  would  not get possession of the mortgaged property but would only  get interest on the amount advanced in the shape of rent so long as  the  lease continued and the amount  payable  under  the kerayanama  was interest on the mortgage money and not  rent for  use  and  occupation of the  mortgaged  property.   The mortgage  bond  and the kerayanama being part  of  the  same transaction  the  mortgagee in execution of his  decree  for money obtained in respect of the so-called rent of the house against  the mortgagor would not be entitled to execute  the decree for arrears of rent by sale of the property, as  such a  case  would be governed by 0. 34 R.  14  Civil  Procedure Code.  In the result the claim of the creditor in excess  of 9  %  p.a.  was rejected but as the defendant  had  been  in occupation of the house, although under an invalid lease, he was  directed to pay, compensation to the plaintiff for  use and   occupation  of  the  house  for  the  period  of   his



occupation.     Reference  may  also  be made to the  case  of  Umeshwar Prasad  v.  Dwarika Prasad(2).  In this case  the  mortgagor executed  a usufructuary mortgage of certain properties  for Rs. 14,400 for a period of seven years.  Soon thereafter the mortgagee  leased back the entire property to the  mortgagor for a period of about seven years at the annual rent of  Rs. 432 which was equal to the interest on the sum advanced.  It was held by the Patna High Court that the mortgage bond  and the  lease deed were parts of the same transaction  and  the fact  that the periods of the two deeds were  not  identical was immaterial and the case was governed by 0. 34 r. 14 (1) A.I.R. 1957 Patna 24. (2) A.I.R. 1944 Patna 5. 731 and  as such the mortgagee could not execute the decree  for arrear of rent by sale of equity of redemption.     In  Ganpat Ruri v. Md.  Asraf Ali(’) the  plaintiff  had filed a suit claiming arrears of rent at the rate of Rs.  20 per month in respect of a house which had been given to  him by  the defendant in usufructuary mortgage by  a  registered document,  the  property being let out to the  defendant  on lease  on  the  same  day at the monthly  rent  of  Rs.  20. Applying the test as to whether on a reasonable construction of the two documents the property given in security was  not only  for  the principal amount secured under the  bond  but also  for  the interest accruing thereupon, the  court  held that  the transactions were two different  transactions  and for  this  reliance was placed on the fact that no  rate  of interest  was prescribed in the bond and Rs. 20  p.m.  could not  possibly  be treated as interest due on  the  principal amount of Rs. 500.      In contrast with the above cases reference may be  made to the case of Jankidas v. Laxminarain(2).  In this case the plaintiffs who were usufructuary mortgagees of a house  gave a lease of it to the defendant mortgagor on rent and put the lessee  in  possession thereof on the same  day.   The  rent remaining  unpaid the plaintiff filed a suit for arrears  of rent  and ejectment.  Ultimately however the High  Court  of the  former State of Marwar granted a decree for arrears  of rent  but refused the prayer for ejectment.   The  plaintiff thereupon  filed the suit in 1953 claiming arrears  of  rent amounting to Rs. 126/- for three years preceding the date of the suit.  The suit was resisted by the defendant who, among other pleas, contended that the suit was barred by 0. II  r. 2  C.P.C. There was said that although the mortgage and  the deed  of  lease represented one transaction that  would  not mean that no tenancy came into existence by the execution of the  deed of lease.  It was held that the right which  arose to  the  mortgagees  to  sue for  rent  was  an  independent obligation  though it might be part of the same  transaction in  the  sense  that it was brought  into  existence  by  an arrangement made at the same time for a common purpose.      In Lalchand v. Nenuram(3) the defendants had executed a mortgage  in  favour  of  the  plaintiffs  agreeing  to  pay interest  at  8 % p.a. which came to Rs. 27-8-0  per  month. The  mortgagors had delivered possession to  the  mortgagees and a registered qabuliat reciting that they were taking  on lease  the  property described at a monthly  rental  of  Rs. 27-8-0.   The lower courts took the view that  the  mortgage deed  was  a  rent  note and part and  parcel  of  the  same transaction  and the plaintiffs were not entitled to  get  a decree for (1)   A.I.R. 1961 Patna 133.   (2) I.L.R. 7 Rajasthan 268. (3)  I.L.R. 12 Rajasthan 947.



732 ejectment on the basis of the rent note.  Rejecting this the Rajasthan High Court observed at p. 952 :                  "Whether  the two documents  represent  one               transaction  or two different transactions,  a               court of law should be anxious to give  effect               to the terms in both the documents instead  of               being unduly critical about them.  . .  Having                             secured  the  possession of the  mortg age,  the               mortgagee is further entitled to lease it  out               even to the mortgagor.  It is in the  interest               of the mortgagor that the property is;  leased               out  to  him as he can better look  after  it.               There is nothing objectionable-in this, nor is               there  any  statutory  prohibition  for  ’such               transactions.   Now if the parties do this  by               executing proper documents, it is the duty  of               the court of law to give effect to them."     The  reasoning  of the Rajasthan judgment  seems  to  be logical  and commends itself to us.  In all such  cases  the leasing back of the property arises because of the  mortgage with  possession but we find ourselves unable to  hold  that the  mortgagee does not secure to himself any  rights  under the  deed of lease but must proceed on his mortgage in  case the  -amount secured to him under the deed of lease  is  not paid.   If  the  security  is  good  and  considered  to  be sufficient by the mortgagee there is no reason why he should be driven to file a suit on his mortgage when he can file  a suit for realisation of the moneys due under the rent  note. The  position  of the creditor is strengthened where  as  in this case the interest on the amount of the mortgage is  not the same as the rental fixed.  If during the continuance  of the security the mortgagee wants to sue the mortgagor on the basis  of  the rent note and take possession himself  or  to induct  some  other tenant thereby securing to  himself  the amount which the mortgagor had covenanted to pay, there  can be no legal objection to it.  Under the provisions of 0.  34 r. 4 he cannot deprive the mortgagor of his right to  redeem excepting  by  proceeding  on  his  mortgage.   Although  we express  no  final opinion on this point it may  be  that  a mortgagee  who  secures a decree for payment of  arrears  of rent cannot put the property to sale for realisation of  the amount  decreed but there can be no objection to  his  suing for  possession if the rent note entitles him to do so.   So long as the mortgagor had a right to redeem the mortgage  he can  always pay off the mortgagee and get  back  possession. This position would continue so long as the property is  not sold  under a final decree for Sale under the provisions  of 0. 34 C.P.C.     In  our  opinion the second contention  put  forward  on behalf  of  the  appellant has no force.  The  rights  of  a mortgagee  do not merge in his rights under the  preliminary decree  for sale.  As already mentioned, the mortgagee  lost his right to recover the money 733 by  sale of the mortgaged property; otherwise  his  security remained  intact  and the mortgagor continued  to  have  his right to redeem the property.      As regards the third point the only statutory provision to  which  ,a  reference  was made was  section  28  of  the Limitation Act of 1908 which provided that :               "At  the  determination of the  period  hereby               limited  to any person for instituting a  suit               for  possession of any property, his right  to



             such property shall be extinguished." If  the right of the mortgagee arose on the strength of  the rent  note  which continued to be in  force  notwithstanding that the period for applying for a final decree for sale had expired there could be no extinction of his right to sue for possession because of s. 28 of the Limitation Act.      In  the result the appeal fails and is  dismissed  with costs. G.C.                          Appeal dismissed. 734