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CASE NO.: Appeal (civil)  2411 of 2007

PETITIONER: Tara Chand

RESPONDENT: Sagarbai @ Chaiyalibai

DATE OF JUDGMENT: 09/05/2007

BENCH: S.B. Sinha & P.K. Balasubramanyan

JUDGMENT: J U D G M E N T

CIVIL APPEAL NO.     2411                2007 [Arising out of S.L.P. (C) No. 13190 of 2006]

S.B. SINHA, J.

   1.  Leave granted.

   2.  This appeal is directed against the judgment and decree dated  5.5.2006 passed by the High Court of Madhya Pradesh, Indore Bench at  Indore in Second Appeal No. 474 of 2001 whereby and whereunder the  judgment and decree dated 16.8.2001 passed by the District Judge, Jhabua in  Civil Regular Appeal No. 4A/1999 arising out of the judgment and decree  dated 23.12.1998 passed by Civil Judge, Class-1 Jhabua in Civil Suit No. 1- A/97, was reversed.  Respondent admittedly is the owner of the premises in  suit.  Appellant was a tenant under him. Respondent, however, executed a  deed of usfructuary mortgage in favour of the appellant on or about  1.10.1986, the relevant portions whereof read as under:- "Therefore, I hereby mortgage with possession  (Kabza Girvi) the entire portion of the ground floor  of my aforesaid house for a sum of Rs. 25000/-  with you mortgagee.  I the mortgagor have  received the mortgage money Rs. 25000/- from  you the mortgagee by cheque as mentioned above  and that now no mortgage money is due or payable  and possession of the ground floor of the suit  house has been delivered to you.

As the ground floor of the aforesaid house is in  possession of you the mortgagee no interest would  be payable on the aforesaid amount.  You may  keep on using the ground floor in lieu of interest  and I will have no objection thereto.

I shall keep on paying the house tax and other  taxes payable in respect of the house.

The period for redemption of the ground floor of  the said house has been settled between the parties  for 10 years.  Before the expiry of ten years I the  mortgagor shall not be entitled to get the ground  floor of the said house redeemed from the  mortgage held by you and the mortgagee.

After ten years on payment of the entire mortgage  money you the mortgagee shall vacate the house  and deliver it.

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In the event of failure to pay the entire mortgage  money within ten years you the mortgagee shall  have the right to get the mortgaged house  auctioned through court and to recover your entire  mortgage money due and I shall have no objection  thereto.

In case of any accident to the house you the  mortgagee shall be entitled to recover the entire  mortgage money from the open land and if the  entire mortgage money is not realized from open  land the balance amount may be realized  personally from me or from my other property and  I shall have no objection thereto.

If any person makes a claim in respect of this  house I the mortgagor shall be responsible for it.   If for any reason you the mortgagee shall be  responsible for it.   If for any reason you the  mortgagee is deprived of the possession of the said  house or any portion thereof you can recover the  money paid by you with expenses personally from  me or from my other property and I shall have no  objection thereof.

I the mortgagor need money to purchase this  mortgaged house and therefore, I have obtained  money from you by cheque."

            3.  The said document was an unilateral one.  It was, however, preceded  by an agreement of mortgage which is in the following terms:- "2.     I Smt. Sagarbai w/o Narayan Singh Solanki, I  am purchasing this house.  For this purpose I am  taking Rs. 25,000/- by cheque from Shri  Tarachand Gadia towards mortgage of shop.  The  registered deed being in my name I shall mortgage  the three rooms of the lower portion in which you  are running the shop at present, with you.   I shall  not pay any kind of interest on Rs. 25,000/- and  shall not take rent of the shop."

   4.  The said document was also an unilateral one.  Appellant admittedly  gave to the respondent the aforementioned sum of Rs. 25,000/-.  It is also not  in dispute that no rent was demanded or paid to the respondent by the  appellant since execution of the said Deed of Mortgage.   On expiry of 10  years from the date of mortgage, a notice was issued for redemption of  mortgage and delivery of possession.

    5. As the demand contained in the said notice was not acceded to, a suit  for redemption of the mortgage was filed by the respondent.

   6.  The issues framed in the said suit are:- 1 Whether the plaintiff mortgaged the disputed house on 1.10.86  to the defendant for a period of 10 years by a registered  document? 2. Whether the plaintiff has right to get the disputed property  redeemed from mortgage?  If so what is the effect of the same? 3. Whether inspite of the fact that plaintiff is ready and wiling to  redeem the mortgage and due to not handing over the

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possession of disputed house by defendant whether plaintiff is  entitled for damages @ Rs. 1500/- per month? 4 Whether the plaintiff has not impleaded the necessary parties  in present suit. 5. Whether the defendant took possession of the disputed house  for 10 years after paying Rs. 25000/- to Mangilal Solanki in  lieu of the rent to be paid? 6. Relief and cost

   7.  No issue, thus, was framed in regard to the purported right of the  appellant to continue in the suit premises as a tenant.  The learned Trial  Judge, however, dismissed the suit holding that the respondent being a  landlord can obtain possession of the premises in question, only in terms of  the provisions of the M.P. Accommodation Control Act, 1961 (1961 Act).    An appeal preferred thereagainst was dismissed.     

   8.  The High Court, however, by reason of the impugned judgment  allowed the second appeal preferred by the respondent herein.   

   9.  Mr. S.K. Gambhir, learned senior counsel appearing on behalf of the  appellant would submit that the Deed of Mortgage being an unilateral one  and the same not having been signed by the mortgagee, the relationship  between the parties continued to be governed by the 1961 Act.   It was  submitted that in any event, only because a deed of mortgage was executed,  the same would not amount to surrender of the tenancy rights.   It was  furthermore, contended that a merger of the lease into the mortgage shall not  be readily inferred.  Learned counsel submitted that in any view of the  matter, the terms and conditions in the agreement for mortgage as also the  deed of mortgage are inconsistent, a suit for redemption was not  maintainable.

  10.  Mr. K. Radhakrishnan, learned senior counsel appearing on behalf of  the respondent, on the other hand, would submit  (i)     There being a personal covenant contained in the deed of mortgage  and having regard to Section 59 of the Transfer of Property Act execution of  an  unilateral mortgage deed was permissible in law. (ii) The Deed of Mortgage read as a whole clearly established that there was  a personal covenant to give up vacant possession on the expiry of the period  of 10 years (iii)  The termination of tenancy by implied surrender is permissible in terms  of Section 111(f) of the Transfer of Property Act (The said Act).   

  11.  A transaction of mortgage is governed by the provisions of the said  Act.  The Deed of Mortgage dated 1.10.1986 was a registered document.  In  terms of Section 59 of the said Act, a mortgage can be effected by a  registered instrument signed by the mortgagor and attested by at least  two  witnesses. Requirements of Section 59, therefore, stood fulfilled in the  instant case.

  12.  Section 62 of the said Act provides for the right of an usufructuary  mortgagor to recover possession;  clause (b) whereof reads as under:- "Section 62(b) :- Where the mortgagee is authorized to  pay himself from such rents and profits or any part  thereof a part only of the mortgage-money, when the  term (if any) prescribed for the payment of the  mortgage-money has expired and the mortgagor pays or  tenders to the mortgagee the mortgage-money or the  balance thereof or deposits it in court as hereinafter  provided."

  13.  Indisputably, the relationship of the parties were governed by the

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provisions of the 1961 Act.   It contains a non-obstante clause protecting the  rights of the tenant.  The right of a tenant, however, would be available  provided the tenancy continues.  Once, the tenant  ceases  to be a tenant,  question of applicability of the said Act would not arise.   

  14.  Whether the rights of a tenant would give way to rights of a  mortgagor would essentially depend upon the terms and conditions of the   mortgage.   If the tenant surrenders the tenancy either explicitly or by  necessary implication, the terms of the deed of mortgage shall prevail.   Having surrendered the tenancy, it would not lie in the mouth of a mortgagor  to contend that as he had been a tenant, he would be entitled to the rights of  a tenant.

   15. The right of a Usufructuary  Mortgagor to redeem the mortgage and  recover possession is well known, and with a view to enforce the same, a  mortgagor may file a suit for redemption or may take recourse to the  summary process of deposit and notice under Section 83 of the Transfer of  Property Act.

  16.  A suit for redemption is essentially a suit for recovery of possession.    When a debt is satisfied out of the usufructs of the property or otherwise, the  mortgagor recovers possession on his title.               17.  Profits arising out of possession of the mortgage property can be taken  by the mortgagee in lieu of interest.      18.  Clause (d) of Section 58 of the said Act reads as under:- "58(d) Usufructuary mortgage. \026 Where the  mortgagor delivers possession or expressly or by  implication binds himself to deliver possession of  the mortgaged property to the mortgagee, and  authorizes him to retain such possession until  payment of the mortgage-money, and to receive  the rents and profits accruing from the property or  any part of such rents and profits and to  appropriate the same in lieu of interest, or in  payment of the mortgage-money, or partly in lieu  of interest or partly in payment of the mortgage- money, the transaction is called an usufructuary  mortgage and the mortgagee an usufructuary  mortgagee."

   19. The case at hand comes within the purview of the said clause.

  20.  The Deed of Mortgage might have been preceded by an agreement,   but, when the terms are altered by a later document which is registered, the  latter  would prevail.  We have noticed hereinbefore the effect of Section 59  of the said Act.   It is immaterial for the purpose of admissibility of the  document or otherwise, whether the mortgagee was a signatory to the Deed  of Mortgage or not.  Indisputably, the deed of mortgage has been acted  upon.   Appellant himself purchased the stamp paper for its execution.  He  knew the terms thereof.  The parties proceeded on the basis that the said  terms were binding on them.  It, therefore, does not  lie in the mouth of the  appellant now at this stage to contend, particularly when no such contention  had been raised before the courts below, that the same cannot be given effect  to.

  21.  Appellant has been allowed to use the ground floor of the premises in  question in lieu of interest, Respondent as owner of the property was to pay  the house tax and other taxes, The deed clearly stipulates the period on the  expiry whereof, the right of redemption would vest in the mortgagor.  Prior  to the expiry of the said period, the respondent could not claim recovery of  possession.  He could not have filed a suit for eviction under the 1961 Act  even if one of the other conditions laid down therefor were fulfilled.  The  terms of tenancy was fixed.   The mortgagee was to vacate the house and

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possession thereof after 10 years on payment of the entire mortgage money.    The stipulations contained in the deed do not stop there. It conferred a right  upon the mortgagee to get the house auctioned and to recover the entire  mortgage amount in the event, the amount advanced is not paid back.  Other  covenants contained also clearly show the right of the appellant as a  mortgagee and not as a tenant.   The stipulations contained in the mortgage  deed, therefore, are such that they would lead to an inference that the  tenancy was impliedly surrendered by the appellant.

  22.  Section 111(f) of the Transfer of Property Act provides for  termination of tenancy by implied surrender.

  23.  Such implied surrender may be either:- (i)     by creation of a new relationship or (ii)    by relinquishment of possession.    

  24.  When the parties altered their position knowing fully well their mutual  rights and obligations under an agreement thereto existing, the rule of  estoppel shall apply.  Appellant, was, thus estopped from disputing the  contents of the mortgage or the relation arising thereunder.  As surrender is  founded upon estoppel, the intention of the parties may not be of much  significance.

  25.  Mr. Gambhir has placed strong reliance on a decision of this Court in  Nemi Chand v Onkar Lal [(1991) 3 SCC 464].  Therein the conduct of the  parties were such, which led to an inference that the right to recover rent was  kept alive by the landlord and it was only to be adjusted against interest.  In  the said fact situation, this Court opined that the defendant therein continued  both as a mortgagee as also a lessee.  Although the said decision is  distinguishable on facts, we may notice that therein the court failed to notice  an earlier binding precedent in Shah Mathuradas Maganlal & Co. v Nagappa  Shankarappa Malage and Others [(1976) 3 SCC 660], wherein the law was  stated in the following terms:- "11.    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 November 6, 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."

  26.  Although technically a tenant may continue to occupy the premises,  once the nature of possession changes resulting in change in his status,  which he accepts, the same may amount to virtual taking of possession.

  27.  In any event, virtual taking of possession is not a sine quo non for  implied surrender as the same can be created by a new relationship also.   In  Nemi Chand (supra) this aspect of the matter has not been considered.

  28.  In Nirmal Chandra v Vimal Chand [(2001) 5 SCC 51], whereupon  again Mr. Gambhir placed strong reliance, this Court proceeded on the basis  that where the right to receive rent is kept alive, the same would run contrary

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to the intention or conduct of the parties leading to an inference of surrender  of lease.    It was held that condition No. 4 contained in the deed of mortgage  was contrary to condition No. 1 thereof and in that situation it was opined; "9.  ..... This condition nowhere speaks of surrender of  tenancy by the lessee.   It only provides that for at  least three years the shop will be in personal use of the  landlord failing which there would be revival of the  mortgagee’s capacity as a tenant.  Such a condition  cannot be said to be a clear intention of surrendering  the lease rights in the property. Whatever little effect  Condition 4 if at all may have, is negated by  Condition 1 which kept the rent alive and the element  of tenancy pervading throughout the period of  mortgage."

  29.  We may, however, notice that in Gambangi Applaswamy Naidu and  Others v Behara Venkataramanayya Patro and Others [(1984) 4 SCC 382],  an implied surrender was not inferred in the fact situation obtaining therein.

  30.  On the terms and conditions of the lease deed, in question, which was  noticed by this Court, it was observed; "....It may be noted that the last portion of the document  is equivocal in that it does not mention whether on  redemption physical possession is to be delivered or  symbolical possession is to be delivered to the  mortgagor.  But under the terms of the deed one thing is  clear that during the currency of the mortgage the  liability to pay rent to the lessor-mortgagor (albeit to be  discharged by adjustment) is kept alive.  If anything  such a term clearly runs counter to any implied  surrender of the lessee’s rights.  Secondly, there is no  term fixed for redemption of mortgage property which  means that it was open to the mortgagor to redeem the  mortgage at any time that is to say even within a very  short time and if that be so, would a sitting tenant  cultivating the lands under a lease, who has obliged his  lessor by advancing monies to him to tide over his  financial difficulties give up his rights as a lessee no  sooner redemption takes place?   In our view, it does  not stand to reason that he would do so.  This  circumstance coupled with a fact that the mortgage  deed keeps alive the lessee’s liability to pay rent during  the currency of the mortgage clearly suggests that no  implied surrender was intended by the parties."

  31.  In a case, therefore, where the term is fixed for redemption of  mortgaged property, if the lessee’s liability to pay rent is not kept alive, a  contrary inference is permissible to be drawn.  

    32.          The matter appears to be now covered in Polammarasetti Varana  Venka Satyanarayana v Suddha Apparao Naidu (Dead) and Others  [(1997)  9 SCC 244], wherein law has been laid down in the following terms; "4.  We have taken into consideration the mortgage  deed executed in 1946.  In our view, a clear  intention of only retaining the mortgagee’s interest  is to be inferred in view of the specific statement  that on redemption, the mortgagee should        deliver  possession to the mortgagor.  We may indicate that  the expression to that effect used in the mortgage  deed has been noted by the courts below.   We may  also indicate that there is no indication in the  mortgage deed as to how the rent payable by the  mortgagee qua lessee was to be adjusted between  the parties.  The absence of any mode of adjustment

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of leasehold rent implies that it was not intended that  despite the said mortgage, parties intended that the  leasehold interest was to continue.  It may also be  indicated here that leasehold interest was to expire  in 1948.  In the absence of any payment of rent for  such leasehold interest and acceptance of such  payment after expiring of the period of lease it  cannot also be contended that there was a case of  holding over by the lessee.  In the aforesaid  circumstances, the finding by the courts below that  the leasehold interest had come to an end and the  plaintiff was entitled to the redemption of the  mortgage and to take delivery of the properties  under this mortgage deed cannot be held to be unjust  or improper.  We, therefore, do not find any reason  to interfere with the impugned judgment of the High  Court.   The appeal, therefore, fails and is dismissed.   No costs."              33. In this case also, there is a clear intention on the part of the mortgagee  only to retain his interest in that capacity and not as a tenant.  The parties  altered their position, A new relationship was created.  It was acted upon and  in that view of the matter, we are of the opinion that the High Court was  correct in its view. There is, thus,  no merit in this appeal which is dismissed  accordingly with costs.   Counsel fee assessed at Rs. 10,000/-.