PETITIONER:
MATHURALAL
Vs.
RESPONDENT:
KESHAR BAI AND ANOTHER
DATE OF JUDGMENT:
20/02/1970
BENCH:
MITTER, G.K.
BENCH:
MITTER, G.K.
SIKRI, S.M.
BHARGAVA, VISHISHTHA
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
MATHURALAL
Vs.
RESPONDENT:
KESHAR BAI AND ANOTHER
DATE OF JUDGMENT:
20/02/1970
BENCH:
MITTER, G.K.
BENCH:
MITTER, G.K.
SIKRI, S.M.
BHARGAVA, VISHISHTHA
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
