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PETITIONER: SHAH MATHURADAS MAGANLAL & CO.

       Vs.

RESPONDENT: NAGAPPA SHANKARAPPA MALAGE & ORS.

DATE OF JUDGMENT23/03/1976

BENCH: RAY, A.N. (CJ) BENCH: RAY, A.N. (CJ) SINGH, JASWANT

CITATION:  1976 AIR 1565            1976 SCR  (3) 789  1976 SCC  (3) 660  CITATOR INFO :  R          1984 SC1728  (5)  RF         1988 SC 375  (24)  F          1991 SC2046  (6)

ACT:      Mortgage-Tenant  in   occupation  taking  a  possessory mortgage of  the building with powers to sublet w.e.f. 7-11- 1953 by  a Deed  of mortgage  dt. May  21st 1953-Whether the tenancy revives on redemption of mortgage-Interpretation of- The Transfer of Property Act, 1882 Ss. 62, 11(d)(e) and (f)- Doctrine of surrender and Doctrine of Merger distinguished.

HEADNOTE:      In the suit, for redemption of mortgage and recovery of possession, the  appellant mortgagee  in possession  of  the suit house  w.e.f.  7-11-1953  by  virtue  of  the  Deed  of Possessory mortgage  dt. 21-5-1953  contested on  the ground that, in  view of the fact that he was a tenant prior to the mortgage, he  was entitled  to retain  the  possession  even after  the   redemption.  The   trial  court  accepting  the contention decreed  only symbolical possession. On appeal by respondent No.  1 the  mortgagor, the  first appellate court reversed the  decree and  ordered recovery  of possession of the property  on deposit  of the  expenses  towards  repairs being a  "clog on  redemption". The  High  Court  on  Second Appeal confirmed  the said  orders holding  that the Deed of Mortgage shows  that the  relationship between the appellant and the respondent was that of a mortgagee and mortgagor.      Affirming the judgment of the High Court and dismissing the appeal by special leave, the court ^ HELD :  (i) Ordinarily  the doctrine  of merger  applies  to extinction of  mortgage security occuring by the merger of a lower in  a higher  security and  by the  merger of a lesser estate in  a greater  estate. Where  the capacity in which a person in  possession of the mortgagee’s rights is something quite  different  from  the  capacity  in  which  he  is  in possession of  the equity  of redemption, the mere fact that the two  capacities are  united in  the same physical person cannot result  in a  merger. 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

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right,  and  no  interest  in  the  property  should  remain outside. In  the case  of a  lease the estate that is in the lessor is  the reversion.  In the  case of  a  mortgage  the estate that is outstanding being the equity of redemption of the mortgagor,  there  cannot  be  a  merger  of  lease  and mortgage in  respect of  the same  property since neither of them is a higher or lesser estate. [793B-D]      Narayan v. Ramchandra 65 Bom. L.R. p. 449 (approved)      (ii) A  surrender under  clauses (e)  and  (f)  of  the Transfer of  Property Act  is an  yielding up of the term of the lessee’s interest to him who has the immediate reversion or the  lessor’s interest. Implied surrender by operation of law  occurs  by  the  creation  of  a  new  relationshin  or relinquishment of  possession, if  the lessee  accepts a new lease that  in itself  is a surrender. Surrender can also be implied from  the consent  of the parties or from such facts as the relinquishment of possession by the lessee and taking over possession  by the lessor. Relinquishment of possession operates as  an implied  surrender. There  must be taking of possession, not necessarily a physical taking, but something amounting to  a virtual  taking of  possession. Whether this has occurred is a question of fact. [793H, 794A-B]      (iii) (a) In the instant case, on the redemption of the mortgage the  respondent had  a right  to record  possession both on  the terms  of the  mortgage deed  and u/s 62 of the Transfer of Property Act (b) The provision for subletting in the Mortgage  Deed, contrary  to section  15 of  the Bombay, Rents, Hotel  and Lodging  House. Rates Control Act, 1957 as it stood in 1953 shows that the character of tenant is lost; (c) Continuing the tenancy till 7-11-1953 790 and confirming  the possession of the appellant as mortgagee w.e.f. that  date is  an unequivocal conduct showing that no tenancy was  to exist  from 7-11-1953,  but the relationship was that of a mortgagor and mortgagee and (d) there would be no question  of the  tenancy being  kept in  abeyance or the tenancy  reviving   on  the  expiration  of  the  period  of mortgage. [792F, G, 793A-B, & 794D]

JUDGMENT:      CIVIL APPELATE  JURISDICTION :  Civil Appeal No. 450 of 1970      Appeal by  Special Leave  from the  Judgment and  Order dated the  6th February,  1970 of  the Bombay  High Court in Second Appeal      S. T.  Desai, K.  Raj Choudhary and Veena Sharma (Mrs.) for the Appellant.      M. V. Tarkunde, V. N. Ganpule for the Respondents.      The Judgment of the Court was delivered by      RAY, C.J.-This  appeal by  special leave  is  from  the judgment dated 6 February, 1970 of the High Court at Bombay. The Respondent  No. 1  obtained a  decree for  redemption of mortgage dated  21 May,  1953 for  possession  of  mortgaged property consisting of a shop and house premises at Sangli.      The  appellant  was  mortgagee  in  possession  of  the property by  a Deed  of Mortgage  dated 21  May,  1953.  The property was  mortgaged for Rs. 10,000/-. No interest was to be paid.  Instead possession  of the  property was agreed to remain with  the mortgagee.  The period  for  redeeming  the mortgage was fixed for 10 years from 7 November, 1953.      The respondent  mortgagor by  notice dated  1  October, 1963 informed the appellant that he was ready and willing to redeem the mortgage. The appellant replied that he should be

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paid Rs.  30,000/- being  the expenses for repairs and other incidental expenses.  The appellant  also claimed  that even after the  redemption he  was entitled  to retain possession because his previous tenancy right subsisted.      The Trial  Court held that the tenancy of the appellant would revive  on redemption of the mortgage. The Trial Court further decreed that the respondent was entitled to get only symbolical possession  from the appellant and thereafter get rent of the suit property from the appellant.      On appeal  the District  Judge came  to the  conclusion that under  the Mortgage  Deed the  appellant ceased to be a tenant with  effect from  7 November, 1963 possession of the appellant thereafter  was only as a possessory mortgagee and not  as   a  tenant.  On  redemption  of  the  mortgage  the respondent  was  entitlled  to  recover  possession  of  the property forthwith.  The District  Judge passed a decree for the principal  mortgage amount  and a  sum of Rs. 4458 24 on account of  repairs in favour of the appellant. The District Judge further  gave  the  respondent  a  decree  for  actual possession of  the property  from the  appellant  after  the respondent deposited the smount in the Court. 791      The High  Court on  second appeal held that the Deed of Mortgage shows  that the  relationship between the appellant and the respondent was that of a mortgagor and mortgagor and confirmed the decree in favour of the respondent.      Counsel for  the appellant  contended that in case of a tenant in  possession who  takes a  possessory mortgage  the effect of  such mortgage  is that the tenant’s rights remain in abeyance  during the  term of  mortgage and  the  parties revert to  their former  position on redemption. It was also said that the mortgagor respondent could not take possession from the  appellant without  actual eviction.  The  mortgage according to  the appellant  was usufructuary  mortgage with the result  that at  the end of 10 years being the period of mortgage possession  the mortgagee  acquires  the  statutory protection given to the tenants.      The mortgage Deed is described as a Possessory Mortgage Deed of  the house-site  and was  for a sum of Rs. 10,000/-. The respondent mortgagor stated, inter alia, as follows:-           "I have  given you  the house-site  in  possessory      mortgage in  consideration of the aforesaid amount. The      said property  is in  your possesion as the last tenant      by  the   date  6   November,  1953.   The   possession      thenceforth is  confirmed by  this Deed  of  Possessory      Mortgage. Hence  you are  to either  use the house-site      and shop premises for home (personal) purpose or let it      to anybody.  The income  that may be received by giving      the property  on rent  is to  be  appropriated  by  you      towards the  interest on  the said  amount. I shall not      pay you  any interest  separately. I  shall not ask for      the accounts in respect of the income of the house-site      from you.  I am  to pay  all the  Government dues. I am      also to  carry out  repairs of  all sorts  to the house      premises,  and  I  shall  do  so.  If  I  fail  to  pay      Government dues and if I do not defray the costs of the      repairs yor are to pay all the said Government dues and      defray the  costs of the repairs. The aforesaid amounts      which you  may have to pay and spend will be paid by me      to you together with interest at the rate of Rs. 0- 12-      0 annas  twelve per cent per month. The above mortgaged      property is  charged with the liability of repaying the      aforesaid amounts.  The period  of this  document is 10      years from  7 November,  1953.  I  shall  pay  you  the      aforesaid amount  within the said period and redeem the

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    housesite from the mortgage. If I fail to do so you are      to carry  on the  ’vahiwat’ of  the housesite under the      above agreement.  If you do not wish to keep the amount      with me  beyond the  abvoe period,  you are to sell the      said mortgaged  property through  Court and recover the      entire amount due and payable to you."      The appellant’s  contentions  were  these:  First,  the defendant was  a tenant  of the  suit building  prior to the execution of  the mortgage  on 21  May, 1953 and the tenancy could  either   exist  concurrently  with  the  usufructuary mortgage or  be in  abseyance during  the  currency  of  the mortgage but could never be extinguished as a result of the 792 mortgage.  Second,   once  the   tenancy  of  the  appellant continued after  the execution  of the  mortgage  deed  then there would  be no  question of  either express  or  implied surrender of  his tenancy  rights during  the subsistence of the mortgage.  Third, the fact of a tenant taking a mortgage from his landlord does not itself extinguish the tenancy and the effect  of such  a mortgage  on the  tenant’s rights  is merely that  they are  in abeyance  and  when  the  landlord redeems the  mortgage, the  parties revert  to their  former position, and  the landlord  is not  entitled to  get actual possession.Fourth, that the existence of possessory mortgage does not necessarily terminate the tenancy.      The respondent contended as follows:- First, the  conduct of  the mortgagee  along with  the terms made it  clear that  the appellant mortgagee surrendered his tenancy rights  at the  time of  execution of Mortgage Deed. Second, on  the  expiry  of  the  period  of  10  years  the appellants  mortgagee   could  not   insist  upon  retaining possession on  the ground  of the  previous right of lessee, and the  lease could not be revived on the expiration of the period of  the mortgage,  Third, on the terms of the Deed of Mortgage, there  was an  express or implied surrender of the lease. Fourth,  the tenancy  in question was to be continued till 6 November, 1953 though the mortgage was executed on 21 May, 1953. The possession of the mortgage was confirmed from 7 November,  1963 amounting to unequivocable conduct showing that  the  relationship  became  that  of  a  mortgagor  and mortagee only.      The Deed  of Mortgage  shows these  features indicating that there  was surrender  of tenancy  and the appellant was only a  mortgagee. The  High Court  found that  there was  a surrender of  tenancy right.  No particular form of words is essential to  make a  valid surrender.  A surrender  may  be oral. A  surrender  may  be  express  although  delivery  of possession is  necessary for  surrender  in  the  facts  and circumstances of a given case. In the present case, delivery of possession  was immediately  followed by  a redelivery of possession of  the appellant as mortgagee. The Mortgage Deed establishes beyond  doubt that  the effect  of the  Deed was inconsistent with  the continuance  or  subsistence  of  the lease because  the parties  themselves stipulated  that  the lease was  to exist  only upto  6  November,  1953.  On  the redemption of  the mortgage  the respondent  had a  right to recover possession  both on  the terms  of the mortgage deed and under section 62 of the transfer of Property Act.      The second  feature in  the Mortgage  Deed is  that the appellant was  given power  to sub-let.  Section 15  of  the Bombay, Rents,  Hotel and  Lodging House  Rates Control Act, 1947 as  it stood  in 1953  forbade any sub-letting. In 1959 the words ’but subject to any contract to the contrary’ were introduced into the said section 15, with the result that in the absence  of the  contract to the contrary, the tenant is

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not to  sub-let or  transfer. Before  1959 there could be no subletting. In  the Mortgage  Deed, there  is provision  for sub-letting. The  provision for  sub-letting shows  that the character of tenant is lost.      Third, the  mortgagor is to do repair works and is also to undertake repairs. 793      Fourth, the possession was to be under the agreement.      Though the  Mortgage Deed was made on 21 May, 1953, the tenancy was  continued till  about  7  November,  1953.  The possession of  the appellant as mortgagee was confirmed from 7 November,  1953. This  is rightly  held to  be unequivocal conduct  showing  that  no  tenancy  was  to  exist  from  7 November, 1953  but the  relationship was  that of mortgagor and mortgagee. If the intention of the parties was to revive the tenancy  there was  no necessity  of  a  term  that  the appellant might let out the property to any one.      The contention  of the  appellant was that there was no surrender and  there was  marger  of  the  interest  of  the mortgagee and the tenant. Ordinarily, the doctrine of marger applies to  extinction of  mortgage security. This occurs by the marger of a lower in a higher security and by the merger of a  lesser estate in greater estate. Where the capacity in which a  person in  possession of  the mortgagee’s rights is something quite  different from  the capacity in which he is in possession  of the  equity of  redemption, the  mere fact that the  two capacities  are united  in the  same  physical person cannot result in a marger.      For a  marger 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  outsion. In the case of a lease the estate that is in the lessor is a reversion. In the case of a  mortgage the  estate that is outstanding is the equity of redemption  of the mortgagtor. Therefore, there cannot be a merger  of lease  and mortgage  in  respect  of  the  same property since neither of them is a higher or leaser estate. than the  other. The view expressed in Narayan v. Ramchandra (1) is correct.      Section 111  of the Transfer of Property Act is clauses (e) and  (f) deal  with surrender,  and in  clause (d)  with merger. Clause  (d) states  that lease in movable properties determines in  case the interest of the lessee or the lessor in the whole of the property becomes vested at the same time in one  person in  the same  right. When  a leasehold  and a reversion coincide  there is  a merger of a lesser estate in the greater.  The leasehold  is the lesser estate, for it is carved out  of  the  estate  of  the  owner,  which  is  the reversion. The  lesser estate  is merged in the greater. The lease determines  and merges in the reversion. If the lessor purchases the  lessee’s interest, the lease is extinguished, as the same man cannot be at the same time both landlord and tenant. The  interests of  the lessor and of the lessee must be in  the whole  of the  property, otherwise  there  is  no merger. The  interest of  the lessor  and the  lessee in the whole of  the property should become vested at the same time in one  person in  the same  right.  Thus  a  lease  is  not extinguished because  the lessee  purchases a  part  of  the reversion.      A surrender under clauses (e) and (f) of section 111 of the Transfer  of Property Act, is an yielding up of the term of the  lessee’s interest  to  him  who  has  the  immediate reversion or the lessor’s 794 interest. It  takes effect like a contract by mutual consent

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on the  lessor’s acceptance  of the  act of  the lessee. The lessee cannot,  therefore,  surrender  unless  the  term  is vested in him; and the surrender must be to a person in whom the immediate  reversion expectant  on the  term is  vested. Implied surrender by operation of law occurs by the creation of a  new relationship,  or by relinquishment of possession. It the  lessee accepts  a new  lease that  in  itself  is  a surrender. Surrender can also be implied from the consent of the parties  or from  such facts  as the  relinquishment  of possession by  the lessee  and taking over possession by the lessor. Relinquishment  of possession operates as an implied surrender.  There  must  be  a  taking  of  possession,  not necessarily a  physical taking, but something amounting to a virtual taking of possession. Whether this has occurred is a question of  fact. In  the present case if the mortgagor was not able  to redeem the appellant mortgagee was to enjoy the property in  accordance with  the terms  of the mortgage and also to  sell the  property  for  recovery  of  debts.  This feature shows  that appellant surrendered the tenancy from 7 November, 1953.      In the present case the terms of the deed show that the mortgagee undertook to deliver possession of the property to the mortgagor  on the  expiry of  a period  of 10 years. The Mortgage Deed  shows that  the tenancy  was surrendered on 7 November, 1963  and thereafter  the possession was only that of mortgagor.  There would  be no  question of  the  tenancy being kept  in abeyance  or  the  tenancy  reviving  on  the expiration of the period of mortgage.      For these  reasons the  judgment of  the High  Court is affirmed and the appeal is dismissed with costs. S.R.                                       Appeal dismissed. 795