Mathuralal Vs. Keshar Bai & ANR
 INSC 29 (20 February 1970)
20/02/1970 MITTER, G.K.
CITATION: 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 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 we 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 case 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.
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
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 mortgagee 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 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
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
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
(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 mortgage, 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
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 him 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 mortgage
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.
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.