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Friday, July 29, 2016

right to redeem the mortgage = 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 Order 34 C.P.C.






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

     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.

      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
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]

     CIVIL  APPELLATE JURISDICTION: Civil Appeal No. 774  of
     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
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
      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.
   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
    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
     1. The  rent  note executed  simultaneously  with the
mortgage was a mere device to secure payment of interest and
did not record
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
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.
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
    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.
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.
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
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
G.C.      Appeal dismissed.

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