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Transfer of Property Act, 1882: Mortgage of suit property with tenant-Mortgage deed providing that on redemption of mortgage, mortgagee would become tenant of the mortgagor automatically as he was, prior to mortgage-Claim for possession by vendee of the mortgaged property on expiry of mortgage period-Held: Not maintainable as mortgagee is reverted as tenant-Vendee to approach appropriate forum for eviction of tenant. Pre-emption-Mortgage of property-Another agreement whereby mortgagor undertaking to give first option to purchase, to mortgagee-Held: It operates as clog on right of redemption of vendee from the mortgagor. The suit property was mortgaged under a registered mortgage deed dated 19.3.1980 to the lessee-mortgagee. The mortgage deed specifically mentioned that on redemption of the mortgage, the mortgagee would become the lessee of the mortgagor automatically as he was prior to the mortgage. After the mortgage deed, a partial release deed was signed between the parties on 21.9.1981 by which mortgagor had undertaken to give the first option to purchase, to the mortgagee. On demand of redemption, mortgagee refused and the purchaser of the property filed the suit for redemption of mortgage and for possession of the mortgaged property. During pendency of the suit, the purchaser filed application under O.12 r.6 CPC for decree on the basis of admission by the mortgagee that mortgage was for 20 years which had expired in 2000. Trial Court rejected the application, however High Court allowed the same and decreed the suit under O.12, r.6 CPC. In appeal to this Court, two points were involved (1) Whether the plaintiff had a right to get possession on redemption of his mortgage and (2) whether the provision in the agreement dated 21.9.1981 that the mortgagee will have a right of pre-emption operates as a clog on the right of redemption of the mortgagor. =Allowing the appeal, the Court HELD: 1. Where one of the terms arranged between the mortgagor and the mortgagee was that the mortgagee should have a right of pre-emption in case the mortgagor wishes to transfer the property to a third party, such a condition operates as a clog on the right of redemption of the vendee from the mortgagor. Thus second point is decided in favour of respondent who is vendee. [Para 7] [540-f, g] Lewis v. Frank Love Ltd., [1961] All E.R. 446, referred to. 2. Even before the mortgage deed was executed on 19.3.1980, the mortgagee was in actual physical possession as a tenant, and this possession continued with him as a mortgagee. Hence, when the mortgage was redeemed, it did not follow that the erstwhile mortgagee could be straightway evicted. When the mortgage comes to an end, the appellant reverted as a tenant, particularly since there was a specific term in the mortgage deed that on redemption of the mortgage the mortgagee will be a lessee as previous to the mortgage. This was a term agreed upon between the parties and the respondent cannot resile from this term. [Paras 9 and 10] [541-a, B, c] Gopalan Krishnakutty v. Kunjamma Pillai Sarojini Amma, [1996] 3 SCC 424; Cheriyan Sosamma and Ors. v. Sundaressan Pillai Saraswathy Amma and Ors. [1999] 3 SCC 25 and Narayan Vishnu Hendre and Ors. v. Baburao Savalaram Kothawal, [1995] 6 SCC 608, relied on. Shah Mathuradas Manganlal and Co. v. Nagappa Shankarappa Malage and Ors., [1976] 3 SCC 660, distinguished. 3. 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, and it depends upon the intention of the parties at the time of the execution of the mortgage. There was a specific term in the mortgage deed dated 19.3.1980 that on redemption of the mortgage, the mortgagee shall become the lessee of the mortgagor automatically as previous to the mortgage deed. Hence, there was a clear intention between the parties that the tenancy will continue when the mortgage is redeemed. It would, however, be open to the respondent to file a suit or proceeding for eviction of the appellant-tenant which will be decided on its own merits. [Paras 11, 13 and 14] [541-d, e, g, h; 542-a, b] S.N. Bhat, N.P.S. Panwar and D.P. Chaturvedi for the Appellants. P.P. Rao, N.D.B. Raju, Bharathi Raju, Guntur Prabhakar, Abhishek Gupta, Anshuman Ashok and D.S. Chadha, for the Respondent.

Mortgage debt

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CASE NO.:
Appeal (civil) 3008 of 2001

PETITIONER:
M/s. Hasthimal & Sons & others

RESPONDENT:
P. Tej Raj Sharma

DATE OF JUDGMENT: 04/10/2007

BENCH:
A. K. Mathur & Markandey Katju

JUDGMENT:
J U D G M E N T

CIVIL APPEAL NO. 3008 OF 2001

MARKANDEY KATJU, J.

1. This appeal has been filed against the impugned judgment of the 
Karnataka High Court dated 12.2.2001 in C.R.P. No. 2020/2000.

2. Heard learned counsel for the parties and perused the record.

3. This appeal has arisen out of a suit for redemption of the mortgage 
and for possession of the mortgaged property. The owner of the properties 
was one Jagadish, who mortgaged the property with the defendant-
respondent under a registered mortgage deed dated 19.3.1980 with 
possession by creating an usufructuary mortgage. It appears that after the 
mortgage deed, a partial release deed was signed between the parties on 
21.9.1981 by which Jagadish had undertaken to give the first option to 
purchase to the mortgagee. On demand for redemption, the defendant 
refused and hence the suit was filed by the plaintiff, who had purchased the 
property from Jagadish. 

4. It appears that before the aforesaid mortgage deed dated 19.3.1980 
was registered, the mortgagee was already in possession of the property as a 
tenant of the mortgagor. In the mortgage deed it was specifically mentioned 
that on redemption of the mortgage the mortgagee should become the lessee 
of the mortgagor automatically as previous to the mortgage.

5. During the pendency of the suit, the plaintiff filed application under 
Order 12 Rule 6 CPC for a decree on the basis of the admission by the 
defendant that the mortgage was for 20 years which had expired on 
20.3.2000. This application under Order 12 Rule 6 CPC was rejected by the 
trial court, but in revision the High Court set aside the order of the trial court 
and decreed the suit under Order 12 Rule 6 CPC. Hence, this appeal by 
special leave.

6. There are basically two points involved in this case  (1) Whether the 
plaintiff had a right to get possession on redemption of his mortgage and (2) 
whether the provision in the agreement dated 21.9.1981 that the mortgagee 
will have a right of pre-emption operates as a clog on the right of redemption 
of the mortgagor. 

7. Taking the second question first, learned counsel for the appellant has 
relied on a decision of the House of Lords in Lewis vs. Frank Love, Ltd, 
1961 All. E.R. 446. In this decision it was clearly laid down by the House of 
Lords that where one of the terms arranged between the mortgagor and the 
mortgagee was that the mortgagee should have a right of preemption in case 
the mortgagor wishes to transfer the property to a third party, such a 
condition operates as a clog on the right of redemption of the vendee from 
the mortgagor. We fully agree with this view. Hence, we decide this second 
point in favour of the respondent who is the vendee of the mortgagor. 

8. However, as regards the first point, we are of the opinion that the 
respondent did not have a right to possession automatically on a suit for 
redemption being decreed. 

9. It may be noted that even before the mortgage deed was executed on 
19.3.1980, the mortgagee was in actual physical possession as a tenant, and 
this possession continued with him as a mortgagee. Hence, when the 
mortgage was redeemed, it did not follow that the erstwhile mortgagee could 
be straightway evicted. When the mortgage comes to an end, the appellant 
reverted as a tenant, particularly since there was a specific term in the 
mortgage deed that on redemption of the mortgage the mortgagee will be a 
lessee as previous to the mortgage. 

10. This was a term agreed upon between the parties and we cannot see 
how the respondent can resile from this term. 

11. In Gopalan Krishnakutty vs. Kunjamma Pillai Sarojini Amma  
(1996) 3 SCC 424, a three-Judge Bench of this Court held that 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, and 
it depends upon the intention of the parties at the time of the execution of the 
mortgage. This view was reiterated by this Court in Cheriyan Sosamma & 
others vs. Sundaressan Pillai Saraswathy Amma & others  (1999) 3 
SCC 251, Narayan Vishnu Hendre & others vs. Baburao Savalaram 
Kothawal  (1995) 6 SCC 608. In these decisions also, it was held that 
there was no automatic merger of the interest of lessee with that of a 
mortgagee, in the absence of proof of surrender of the lease by the 
defendant.

12. Learned counsel for the respondent has relied upon the decision of 
this Court in Shah Mathuradas Manganlal & Co. vs. Nagappa 
Shankarappa Malage & others. (1976) 3 SCC 660. But in that case it 
was found as a fact that the mortgagee had surrendered his tenancy. Hence 
that decision is distinguishable. 

13. In the present case, there was a specific term in the mortgage deed 
dated 19.3.1980 that on redemption of the mortgage, the mortgagee shall 
become the lessee of the mortgagor automatically as previous to the 
mortgage deed. Hence, there was a clear intention between the parties that 
the tenancy will continue when the mortgage is redeemed. Hence, on this 
point we cannot agree with the High Court. Accordingly, the impugned 
judgment is set aside on this point. The appeal is allowed. No costs.14. It would, however, be open to the respondent to file a suit or 
proceeding for eviction of the appellant-tenant which will be decided on its 
own merits.

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