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2014(10)S.C. – CIVIL APPEAL NO. 1740 OF 2007 Dr. Thakar Singh (D) by Lrs.& Anr. ………Appellants Vs. Sh. Mula Singh (D) thr. LR. & Ors. ………Respondents

(REPORTABLE)

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 1740 OF 2007

Dr. Thakar Singh (D) by Lrs.& Anr. ………Appellants

Vs.

Sh. Mula Singh (D) thr. LR. & Ors. ………Respondents

J U D G M E N T

R.F. NARIMAN, J.

1. In this Civil Appeal an interesting question arises for decision. One
Nand Singh and Dr. Thakar Singh filed a suit for recovery for possession of
various shops cum vacant sites situated in the main Bazar of Moga Town
against 14 defendants. The suit property had been mortgaged to one Suba
Singh and Saudagar Singh, defendants 1 and 2, for a sum of Rs.26,000/- vide
registered mortgage deed dated 9th March 1942. After taking an additional
amount of Rs.3,000/- from the aforesaid Suba Singh and Saudagar Singh, the
plaintiffs executed an additional registered mortgage deed dated 3rd March
1943. The material terms of the mortgage deed dated 9th March 1942, with
which we are concerned, reads as follows:
“Now we the executants while in our full senses and with our
free will having mortgaged with possession the aforesaid shops,
Ahatas including lane passage together with material (malba)
chob kari (wooden shafts) etc., including well together with
right to ingress and egress convenience and residence in favour
of Suba Singh s/o Mutsada Singh, caste Jat resident of Wara Bhai
and Saudagar Singh son of Sh. Rattan Singh caste Jet r/o Jawahar
Singh Didar Singh wala in equal share for a sum of Rs.26,000/-
(Twenty Six thousand) only half of which comes to Rs.13000/-
(Thirteen thousand) only possession of which has been given to
them. The present mortgagees shall get the actual possession
from the previous mortgagees after paying their mortgage money
to them and after getting the land redeemed from them. The
mortgagees are competent either to be in occupation themselves
or to give on rent to anyone. Whenever the total mortgage money
is paid in two lots the half of the mortgage property shall be
got redeemed in two lots at the discretion of the mortgagors.
The redemption of southern side of the lane shall be deemed to
be half and that of the northern side shall be other half,
meaning thereby that it will be discretion of the mortgagors to
redeem the southern side of lane or the northern side on receipt
of the half of the mortgage money. We shall be liable for any
proceedings arising out of any objection thereto. We shall also
be liable to make good the loss or damage caused to the
mortgagees on account of any legal or factual defect in the
mortgaged property. The expenses for white washing and
plastering shall be borne by the mortgagees, but the expenses of
repairs and reconstructions shall be borne by us, the
executants. In case of our failure, the mortgagees shall get it
done after giving notice to us and then we shall be liable to
pay the expenses borne by the mortgagees. On the payment of
mortgage money when the mortgage money is paid, from that day on
taking possession we shall be entitled to receive rent in
future.” (Underlining ours)

2. On 25th August 1969, the plaintiffs redeemed the mortgaged properties
by depositing a sum of Rs.29,000/- . The cause of action for filing the
present suit arose on account of the fact that physical possession of the
suit property was not handed over to the plaintiffs even after the
redemption of the mortgaged property. The defendants 1 and 2 are said to
have rented out portions of the suit property to defendants 3 to 14. Since
the defendants failed to deliver possession, the plaintiffs filed a suit
for possession and recovery of damages. In the Trial Court, a number of
issues were struck between the parties. In the present appeal, we are
concerned basically with Issue 4, which reads as under:
“Whether the suit is barred under the provisions of the Rent
Restrictions Act?”

The Trial Court decided the case on all 11 issues and held that on a true
reading of the mortgage deed, the mortgagor had recognized the tenants of
the mortgagee whose tenancy therefore did not come to an end with
redemption of the mortgage. In First Appeal, the High Court of Punjab and
Haryana did not go into any of the other issues including the issue as to
whether the tenancies were created before or after the execution of the two
mortgage deeds. It held on a reading of a clause in the first mortgage
deed that since the mortgagors would be entitled to future rent after
redemption, it is clear that the mortgagors recognized all tenants created
by the mortgagees during the subsistence of the mortgage. Issue No.4 was
answered accordingly and the suit for vacant possession of the suit
property from defendants was held not to be maintainable in law.

3. Learned counsel for the appellants raised a two-fold contention
before us. Firstly, a correct reading of the two mortgage deeds would only
lead to the conclusion that on redemption all tenancies created by the
mortgagees would cease to have any effect and would not be binding on the
mortgagors. Alternatively, it was also argued that if it were found that
on a true construction of the mortgage deed the mortgagors’ right to
redeem was in fact clogged such clog would not be countenanced by the
courts and full effect of redemption including the right to take back
possession of the mortgaged property free from all encumbrances would
ensue. Learned counsel for the respondents basically supported the
judgment under appeal and argued that it was clear from a reading of the
mortgage deed that the mortgagors had in fact recognized tenancies created
by the mortgagees and therefore the present suit would not be maintainable
– the mortgagors have to go to a Rent Court to make out some ground of
eviction against tenants recognized by them.

4. The right of a mortgagor to redeem is dealt with by Section 60 of the
Transfer of Property Act. Section 60 reads as follows:
“60. Right of mortgagor to redeem
At any time after the principal money has become due, the
mortgagor has a right, on payment or tender, at a proper time and
place, of the mortgage-money, to require the mortgagee (a) to
deliver to the mortgagor the mortgage-deed and all documents
relating to the mortgaged property which are in the possession or
power of the mortgagee, (b) where the mortgagee is in possession
of the mortgaged property, to deliver possession thereof to the
mortgagor, and (c) at the cost of the mortgagor either to re-
transfer the mortgaged property to him or to such third person as
he may direct, or to execute and (where the mortgage has been
effected by a registered instrument) to have registered an
acknowledgement in writing that any right in derogation of his
interest transferred to the mortgagee has been extinguished:

Provided that the right conferred by this section has not been
extinguished by act of the parties or by decree of a Court.

The right conferred by this section is called a right to redeem
and a suit to enforce it is called a suit for redemption.

Nothing in this section shall be deemed to render invalid any
provision to the effect that, if the time fixed for payment of
the principal money has been allowed to pass or no such time has
been fixed, the mortgagee shall be entitled to reasonable notice
before payment or tender of such money.”

Section 62 also recognizes the right of a usufructuary mortgagor to recover
possession under certain circumstances. Further, the rights of a mortgagee
in possession are dealt with by Section 72 of the Transfer of Property Act.
Suffice it to say that the right to create tenancies is not one of the
rights enumerated in this section. Section 76 (a) deals with a
usufructuary mortgagee managing the property as a person of ordinary
prudence would manage if it were his own. Section 111(c) of the Transfer
of Property Act states:

“S. 111 Determination of lease. —A lease of immovable property
determines –-

(c) where the interest of the lessor in the property terminates
on, or his power to dispose of the same extends only to, the
happening of any event –- by the happening of such event;”

In All Indian Film Corpoation Ltd. & Ors. v. Sri Raja Gyan Nath & Ors.
[1969 (3) SCC 79], a similar question arose before this Court. In the
facts of that case, the mortgage was redeemed on 19th April 1958 after
which the respondent No.1 filed a suit for possession of the property from
the head lessee and his sub-lessees. The sub-lessees claimed the benefit
of the East Punjab Urban Restriction Act. In repelling the contention of
the sub-lessees that they were protected tenants as against the mortgagor,
this Court stated:

“7. The first question to consider is this: Did the tenancy
created by the mortgagee in possession survive the termination
of the mortgagee interest so as to be binding on the purchaser?
A general proposition of law is that no person can confer on
another a better title than he himself has. A mortgage is a
transfer of an interest in specific immovable property for the
purpose of securing -repayment of a loan. A mortgagee’s interest
lasts only as long as the mortgage has not been paid off.
Therefore on redemption of the mortgage the title of the
mortgagee comes to an end. A derivative title from him must
ordinarily come to an end with the termination of the
mortgagee’s title. The mortgagee by creating a tenancy becomes
the lessor of the property but his interest as lessor is co-
terminous with his mortgagee interest. Section 111(c) of the
Transfer of Property Act provides that a lease of immovable
property determines where the interest of the lessor in the
property terminates on, or his power to dispose of the same,
extends only to the happening of any event-by the happening of
such event. The duration of the mortgagee’s interest determines
his position as the lessor. The relationship of lessor and
lessee cannot subsist beyond the mortgagee’s interest unless the
relationship is agreed to by the mortgagor or a fresh
relationship is recreated. This the mortgagor or the person
succeeding to the mortgagor’s interest may elect to do. But if
he does not, the lessee cannot claim any rights beyond the term
of his original lessor’s interest. These propositions are well-
understood and find support in two rulings of this Court in
Mahabir Gope and Ors. v. Harbans Narain Singh [1952]1SCR775 and
Asaram and Ors. v. Mst. Ram Kali [1958] S.C.R.986

8. To the above propositions there is, however, one exception.
That flows from Section 76(a) which lays down liabilities of a
mortgagee in possession. It is provided there that when during
the continuance of the mortgage, the mortgagee takes possession
of the mortgaged property, he must manage the property as a
person of ordinary prudence would manage it if it were his own.
From this it is inferred that acts done bona fide and prudently
in the ordinary course of management, may bind even after the
termination of the title of the mortgagee in possession. This
principle applies ordinarily to the management of agricultural
lands and has seldom been extended to urban property so as to
tie it up in the hands of lessees or to confer on them rights
under special statutes. To this again there is an exception. The
lease will continue to bind the mortgagor or persons deriving
interest from him if the mortgagor had concurred to grant it.”

This judgment was followed in M/s. Sachalmal Parasam v. Smt. Ratnabai &
Ors. [1973 (3) SCC 198] at paragraphs 5 to 9.

5. In Pomal Kanji Govindji & Ors. v. Vrajlal Karsandas Purohit & Ors.
[1989 (1) SCC 458], this Court dealt with the same question and arrived at
two basic conclusions. The first is that a clog on the equity of redemption
will be disregarded by a Court of law and secondly that a lease created by
a mortgagee in possession of an urban immovable property would not be
binding on the mortgagor after redemption of a mortgage even assuming such
lease is as a prudent owner of property would have granted in the usual
course of management. This Court held:

“32. It is a settled law in England and in India that a mortgage
cannot be made altogether irredeemable or redemption made
illusory. The law must respond and be responsive to the felt and
discernible compulsions of circumstances that would be equitable,
fair and just, and unless there is anything to the contrary in
the statute, court must take cognisance of that fact and act
accordingly. In the context of fast changing circumstances and
economic stability, long-term for redemption makes a mortgage an
illusory mortgage, though not decisive. It should prima facie be
an indication as to how clogs on equity of redemption should be
judged.
33. In the facts and the circumstances and in view of the long
period for redemption, the provision for interest @ ½ per cent
per annum payable on the principal amount at the end of the long
period, the clause regarding the repairs etc., and the
mortgagor’s financial condition, all these suggest that there was
clog on equity. The submissions made by Mr. Sachar and Mr. Mehta
are, therefore, unacceptable.
35. Before we dispose of the contentions on the second aspect, we
must deal with some of the decisions of the Gujarat High Court to
which reference had been made and some of which was also referred
before us. We have noticed the decision of the Gujarat High Court
in Khatubai Nathu Sumra v. Rajgo Mulji Nanji. In Maganlal
Chhotalal Chhatrapati v. Bhalchandra Chhaganlal Shah, P.D. Desai,
J. as the learned Chief Justice then was, held that the doctrine
of clog on the equity of redemption means that no contract
between a mortgagor and mortgagee made at the time of the
mortgage and as a part of the mortgage transaction or, in other
words, as a part of the loan, would be valid if it in substance
and effect prevents the mortgagor from getting back his property
on payment of what is due on his security. Any such bargain which
has that effect is invalid. The learned Judge reiterated that
whether in a particular case long term amounted to a clog on the
equity of redemption had to be decided on the evidence on record
which brings out the attending circumstances or might arise by
necessary implication on a combined reading of all the terms of
the mortgage. The learned Judge found that this long term of
lease along with the cost of repairing or reconstruction to be
paid at the time of redemption by the mortgagor indicated that
there was clog on equity of redemption. The learned Judge
referred to certain observations of Mr. Justice Macklin of the
Bombay High Court where Justice Macklin had observed that
anything which does have the appearance of clogging redemption
must be examined critically, and that if the conditions in the
mortgage taken as a whole and added together do create
unnecessary difficulties in the way of redemption it seems that
is a greater or less clog upon the equity of redemption within
the ordinary meaning of the term. In our opinion, such
observations will apply with greater force in the present
inflationary market. The other decision to which reference may be
made is the decision of the Gujarat High Court in Soni Motiben v.
M/s. Hiralal Lakhamshi. This also reiterates the same principle.
In Vadilal Chhaganlal Soni v. Gokaldas Mansukh also, the same
principle was reiterated. In that case, it was held by
Gajendragadkar, J., as the learned Chief Justice then was, that
the agreement between the mortgagor and mortgagee was that the
mortgagor was to redeem the mortgage 99 years after its execution
and the mortgagee was given full authority to build any structure
on the plot mortgaged after spending any amount he liked. It was
held that the two terms of the mortgage were so unreasonable and
oppressive that these amounted to clog on the equity of
redemption. Similar was the position in the case of Sarjug Mahto
v. Smt. Devrup Devi, where also the mortgage was for 99 years. In
Chhedi Lal v. Babu Nandan, the court reiterated that freedom of
contract unless it is vitiated by undue influence or pressure of
poverty should be given a free play. In the inflationary world,
long term for redemption would prima facie raise a presumption of
clog on the equity of redemption. See also the observations in
Rashbehary Ghose’s ‘Law of Mortgage’ 6th Edn. pages 227 and 228.
39. On the second aspect of the question whether the right of the
tenants of the mortgagees are protected after the redemption of
mortgage, reliance was placed by the First Appellate Court on the
decision of the Full Bench of the Gujarat High Court in Lalji
Purshottam v. Thacker Madhavji Meghaji. There urban immovable
property was mortgaged with possession, mortgagee creating lease
during the subsistence of the mortgage. The question was whether
after redemption of mortgage such lease is binding on the
mortgagor. It was held that Section 76(a) of the Transfer of
Property Act would not apply to such cases. There must be express
words showing an intention if tenancy was to be created beyond
the term of the mortgage. Mere reference that mortgagee is
entitled to lease property does not create a binding tenancy on
the mortgagor. After the redemption of the mortgage the
relationship of landlord and tenant does not exist. Such tenant,
therefore, does not get any protection under Section 12 of the
Bombay Rent Control Act, it was held. The Gujarat High Court had
referred to several decisions of this Court. In Mahabir Gope
v. Harbans Narain Singh which was a decision dealing with a lease
created by a mortgagee with possession under the Bihar Tenancy
Act, this Court reiterated that the general rule is that a person
cannot by transfer or otherwise confer a better title on another
than he himself has. A mortgagee cannot, therefore, create an
interest in the mortgaged property which will enure beyond the
termination of his interest as mortgagee. Further the mortgagee,
who takes possession of the mortgaged property, must manage it as
person of ordinary prudence would manage if it were his own; and
he must not commit any act which is destructive or permanently
injurious to the property. Reliance maybe placed for this purpose
on Section 76, clauses (a) and (e) of the Transfer of Property
Act, 1882. It was held that the provisions of Sections 20 and 21
of the Bihar Tenancy Act, did not apply to the lessees since they
were not ‘settled raiyats’ and the lessees could not claim to
have secured under the statute occupancy rights in the land. It
was further held that the mortgagor was entitled to the
possession of the land upon redemption of the mortgage. In a
slightly different context in Harihar Prasad Singh v. Mst. of
Munshi Nath Prasad, this Court was concerned with a mortgage with
possession effected on agricultural land. This Court had to
consider in that decision whether under the provisions of the
Bihar Tenancy Act the tenant inducted on the mortgaged property
during the pendency of the mortgage could claim right to remain
in possession after the redemption. Venkatarama Ayyar, J.,
speaking for the Court pointed out that if the tenant could not
resist the suit for ejectment either by reason of
Section 76(a) of the Transfer of Property Act or Section 21 of
the Bihar Tenancy Act, the tenant could not get such a right as a
result of the interaction of both those sections. This Court
ultimately held that the tenants inducted by the mortgagee with
possession had failed to establish that they had any right of
occupancy over the suit lands and that the plaintiffs were
entitled to a decree in ejectment, with future mesne profits as
claimed in the plaint. Thus a right claimable under
Section 76(a) of the Transfer of Property Act because of a lease
created in the course of prudent management of the property was
put on a different footing altogether from a right created by a
special statute.

46. We have noted hereinbefore the ratio and the basis of the
decision of this Court in Jadavji Purshottam v. Dhami Navnitbhai
Amaratlal. Shri Mehta submitted that there was no clear finding
as to when the tenants were inducted whether before or after the
Rent Restriction Act and therefore, he pleaded that the matter
should be referred to the larger Bench. In view of the facts
found in this case which were similar to the facts mentioned in
Jadavji Purshottam’s case, there is no specific authority in the
lease which stated that the lease would continue beyond the
period of mortgage. There is no extended authority as
contemplated in Jadavji Purshottam case found in this case. The
submission was that the matter should be considered by a larger
Bench in the light of the Jadavji Purshottam case. We are unable
to accept the said submission. In this case the words in the
mortgage deed, as we are taken through, did not clearly allow
creation of tenancy beyond the period of mortgage. That, in any
event, would not have been prudent management, hence, there is no
finding that the mortgage deed permitted, either expressly or
impliedly, creation of tenancy beyond the period. We think that
the tenants were not entitled to protection after redemption of
mortgage. Furthermore, in all these cases the authority of the
mortgagees to lease out the property, expressed or implied, was
circumscribed by a stipulation that the mortgagee should re-
deliver the possession of the property when the mortgage was
redeemed. In that context, we are of the opinion that the
submissions on behalf of the tenants cannot be entertained.”

(Emphasis supplied)

6. In Shivdev Singh & Anr. v. Sucha Singh & Anr. [2000 (4) SCC 326],
this Court held that a mortgage for a period of 99 years being an
unreasonably long period before which redemption could not take place would
be a clog on the equity of redemption and would therefore be disregarded by
the Court. On the facts of the case, the mortgage deed was dated 19th
March 1968 and the mortgage was sought to be redeemed long before the
period of 99 years came to an end. It was held that such redemption was
possible and the 99 year period was held unenforceable. It was further
held that it is a right of the mortgagor on redemption to get back the
subject of the mortgage and to hold and enjoy the property in the same
manner as he was entitled to hold and enjoy it before the mortgage. If he
is prevented from so doing such prevention is bad in law.

7. There is a long line of High Court judgments which hold that a
mortgagee continuing in possession as a tenant after redemption is a clog
on redemption and is invalid as it prevents the mortgagor from getting back
the property in the same condition as he gave it when the mortgage was
executed. In Mahomed Muse v. Jijibhai Bhagvan [(1885) 9 Bom 524 at pg 525],
it was held:
“The objection to the condition in the mortgage, that if the
mortgagor redeemed the land, the mortgage right only should be
extinguished, and the lands should remain in the right hands of
the mortgagee, he paying a rent of 2 Rupees per bigha, has not
been dealt with by the Assistant Judge, although it was raised by
the fourth ground of the plaintiffs’ appeal. Such a condition,
although it does not exclude the right of redemption, fetters it
with the onerous obligation of accepting the mortgagee as a
perpetual tenant, and ought not, therefore, in our opinion, to be
enforced in a Court of Equity.”
In Parmanand Pandit v. Mata Din Rai [(1925) 47 All 582 at pg 584], it was
held:

“As to the first point, it seems to me that the condition that
even after redemption the mortgagees would hold on the land, was
a clog on the equity of redemption. Conditions which prevent or
impede the right of redemption even after redemption, if such
conditions are entered into at the same time when the mortgage is
made, must be taken to be a clog on the equity of redemption. On
the other hand, a subsequent contract which modifies the right of
redemption may not be such a clog. Although the principle
underlying the rule of a clog on redemption is very old yet it
still prevails and will not permit any device or contrivance,
being part of the mortgage transaction or contemporaneous with
it, to prevent or impede redemption. It follows that any covenant
under which some right to retain possession is reserved to the
mortgagee even after the property is redeemed is a clog on
redemption as it both prevents and impedes redemption. That such
a clause amounts to a clog on redemption is covered by authority.
In the case of Mahomed Muse v. Jijibhai Bhagvan, which was
followed by a learned judge of this court in the case of Sheo
Singh v. Birbahadur Singh, and has been subsequently followed by
the Madras High Court in the case of Ankinedu v. Subbiah, a
covenant under which the mortgagee, even after redemption, was
entitled to retain the property on payment of a fixed rent, was
considered to be a clog on the equity of redemption and
unenforceable in a court of equity. I am accordingly of opinion
that the clause cannot bind the mortgagor’s representatives and
that, therefore, if they have paid the entire amount due, they
are entitled to take possession of the land unencumbered of any
contract for the grant of perpetual lease.”

To the same effect the following judgments have also held that a mortgagee
remaining in possession as a tenant post-redemption is invalid as a clog on
redemption:

Sheo Singh v. Birbahadar Singh, (1910) 6 IC 707 (All) at pg 708, 709;

Aukinidu v. Subbiah, (1912) 35 Mad 744 at pg 749;

Daolal Rai v. Sheikh Chand, (1915) 31 IC 869 (Nag) at pg 870;

Ram Narain Pathak v. Surathnath, (1920) 57 IC 327 (Pat) at pg 338;

Bhimrao v. Sakharam, AIR 1922 Bom 277 at pg 278;

Satyavatamma v. Padmanabhan, AIR 1957 AP 30 at para 19;

Gobind Ram v. Rajphul Singh, AIR 1973 P & H 94 at para 11, and

Maina Devi v. Thakur Mansingh & Ors., AIR 1986 Raj 44 at para 30.

8. On the facts of this case, it will be seen that the mortgagees were
entitled to create tenancies by virtue of the mortgage deed dated 9th March
1942. However, there is nothing in the language of the mortgage deed to
indicate clearly that the tenancies created by the mortgagees would be
binding on the mortgagors. At the highest, after redemption, and after
possession is taken, the mortgagor or mortgagors will also be entitled to
receive rent in future. It will be seen that the mortgagor’s right to get
back possession is expressly recognised by the mortgage deed without any
clear and unambiguous language entitling tenants created by the mortgagees
to become tenants of the mortgagors. The entitlement to receive rent in
future can by no stretch be held to create a tenancy between the mortgagor
and the tenants of the mortgagees. This phrase has to be reconciled with
the expression immediately preceding it namely “on taking possession”. It
is clear that taking of possession from the mortgagees and his tenants is
completely antithetical to recognizing the mortgagees’ tenants as the
mortgagors’ tenants. If the clause is to be read in the manner that the
High Court has read it, the mortgagors would not be able to get back
possession on redemption which would in fact be a serious interference with
their right to redeem the property inasmuch as the mortgagors would have to
evict such tenants after making out a ground for eviction under the Rent
Act. Such ground can only be bonafide requirement of the landlord or some
ground based on a fault committed by the tenant such as non-payment of rent
or unlawful subletting etc. Further, such ground may never become available
to the mortgagor/landlord or may become available only after many years.
It has already been seen that a mortgagee continuing in possession after
redemption as tenant of the mortgagor is regarded as a clog on redemption.
The position is not different if the mortgagee’s tenants continue in
possession after redemption. This would necessarily have to be disregarded
as a clog on redemption as the right to redeem would in substance be
rendered illusory. In the circumstances, the judgment of the Punjab and
Haryana High Court dated 31st March 2004 is set aside. All other issues
are left open and can be agitated before the High Court. It will be open to
all parties to raise such pleas as are available to them in law.
Considering that the cause of action in the suit arose in 1969, the High
Court is requested to take up RFA No.238/1979 to decide the other issues as
early as possible and preferably within six months from the date of
delivery of this judgment.

………………………………J.
(Dipak Misra)
…….……………………….J.
(R.F. Nariman)
New Delhi,
October 14, 2014.

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