Krishnankutty Vs. Kunjamma Pillai Sarojini Amma & Ors  INSC 387 (13 March 1996)
Jagdish Saran (J) Verma, Jagdish Saran (J) Bharucha S.P. (J) Venkataswami K.
(J) J.S. Verma, J.
1996 AIR 1659 1996 SCC (3) 424 JT 1996 (3) 383 1996 SCALE (2)827
appeal by special leave is by the defendant and it arises out of a suit for
redemption of a mortgage. The appellant was the lessee in the premises which is
a shop in which he was carrying on his bakery business from 1965. The plaintiff
later executed a mortgage in favour of the defendant on 18.7.1974 for a
consideration of Rs.13,000/-.
expiry of the period of mortgage, the plaintiff filed a suit for redemption and
recovery of possession of the premises. The defendant contested the claim for
recovery of possession, inter alia, on the ground that his possession was that
of a lessee, independent of the mortgage and even after redemption of the
mortgage the defendant was entitled to continue in possession under the lease.
The Trial Court passed a preliminary decree granting redemption and directing
recovery of possession from the defendant. The first appeal by the defendant
has been dismissed by the High Court. Hence, this appeal by the defendant.
High Court has held that there was surrender of the prior lease by the
defendant on execution of the mortgage by the plaintiff in his favour; and that
the defendant's possession of the premises at the time of mortgage being only
as mortgagee, the defendant was bound to restore possession to the plaintiff on
redemption of the mortgage.
Malage & Ors., [(1976) 3 SCC 660], the distinction between the rights of a
lessee and a mortgagee was pointed out and the conditions for the merger of the
two rights were indicated. It was held that surrender of a lease takes effect
like a contract by mutual consent on the lessor's acceptance of the act of the
lessee; and that there must be a taking of possession, not necessarily a
physical taking, but something amounting to a virtual taking of possession.
Whether this has occurred is a question of fact'. Thus, the mere fact that the
owner creates a mortgage in favour of the lessee is not by itself decisive to
hold that the prior lease was surrendered and the possession of the earlier lessee
is only that of a mortgagee on creation of the mortgage. The nature of possession,
is a question of fact in each case.
Patro & Ors., [(1984) 4 SCC 382], it was reiterated that the answer to the
question whether upon redemption of usufructuary mortgage a tenant-mortgagee
was required to deliver actual or physical possession of the mortgage property
to the lessor-mortgagor must depend upon whether there was surrender of the
lessee's right when the usufructuary mortgage was executed in his favour by the
lessor-mortgagor; and this depends upon the intention of the parties at the
time of execution of the mortgage deed in favour of the sitting tenant. Thus,
unless there was a surrender of the lessor's rights at the time of execution of
the mortgage, the mortgagor would not be entitled to obtain delivery of
physical possession upon redemption.
Kothawale, [(1995) 6 SCC 608], these decisions have been followed and it has
been held that the doctrine of merger does not apply where tenanted premises
are mortgaged in favour of the lessee. It has been held that implied surrender
of the lease would not be readily inferred. It was reiterated that unless
surrender of the lease was proved, the only effect of the mortgage was that the
lessee's rights were kept in abeyance and it would revive upon redemption of
the mortgage. It is, therefore, clear that in a case like this, the question
whether there was surrender of the lease by the lessee at the time of execution
of the mortgage in his favour by the lessor-mortgagor is a question of fact to
be answered on the evidence.
High Court, in the present case, proceeded on the erroneous assumption in law
that surrender of the lease by the lessee (defendant) must be implied from the
fact of execution of the usufructuary mortgage in his favour by the lessor
(plaintiff). As indicated, this is an erroneous assumption in law. This
question has to be decided on the contents of the deed since there is no other
evidence of surrender of the lease by the defendant on execution of the
mortgage. We find nothing in the mortgage deed (Annexure A- l) dated 18th July, 1974 read with the release deed of the
same date to prove either an express or an implied surrender of the lease by
the defendant in favour of the plaintiff on execution of the mortgage deed.
Since there is no automatic merger of the interest of a lessee with that of a
mortgagee when the same person is the lessee as well as the mortgagee, in
absence of proof of surrender of the lease by the defendant, on redemption of
the mortgage, the plaintiff is not entitled automatically to recover possession
of the leased premises. The defendant's right to continue in possession as a
lessee, therefore, continues to subsist.
the appeal is allowed. The judgments and decrees of the Courts below to the
extent they direct restoration of possession by the defendant to the plaintiffs
are set aside. The defendant appellant would get his corresponding costs
throughout from the plaintiff- respondents.