Holding

Redemption of a mortgage does not automatically merge the lease; tenancy rights revive unless there is a clear, express or implied surrender, and eviction must be sought under the Madhya Pradesh Accommodation Control Act, not under Section 83.

Issues considered

Whether redemption of a mortgage automatically merges the mortgagee‑tenant’s lease, giving the mortgagor right to possession under Section 83 of the Transfer of Property Act.
Whether tenancy rights terminate on execution of a mortgage in favour of the tenant.
Whether the landlord can obtain possession of the premises by a suit under Section 83 or must invoke the Madhya Pradesh Accommodation Control Act, 1961.

Legislation cited

Subjects

mortgageleaseredemptionautomatic mergertenancy rightsSection 83evictionMadhya Pradesh Accommodation Control Actlandlord‑tenantpossession

Judgment

'
I

NIRMAL CHANDRA A
v.
VIMALCHAND
~

MAY 8, 2001

[D.P. MOHAPATRA AND BRIJESH KUMAR, JJ.] B

Transfer of Property Act, 1882-S.83-Landlord--Mortgage of leased
property in favour of tenant-Redemption of mortgage-Termination of
tenancy rights-Whether automatic?-Held, No-There can be no automatic
merger of mortgage and lease and both operate independent of each other- c
Unless there is express or implied intention to the contrary, on redemption
ofmortgage, lease would revive and tenant entitled to continue in possession-
... :Moreover, relief of possession cannot be granted to landlord under S. 83-
Landlord has to file eviction suit under the relevant provisions of Rent
Control Act-Madhya Pradesh Accommodation Control Act, 1961-S.12.
D
Appellant-landlord executed a registered mortgage deed in respect of
a shop in favour of respondent-tenant According to the terms & conditions
x of the mortgage, appellant was entitled to get the mortgage redeemed on
expiry of ten years. Condition no. 1 of the Mortgage deed laid down that the
interest on mortgage money and rent would be equal. Whereas Condition no. E
4 provided that after redemption of mortgage, the mortgagor/lessor would
use the shop for his own purpose for at least three years and if in case it
was given on rent, the mortgagee shall have the right to take back possession
_.,
in his capacity as tenant On completion of stipulated period, appellant-landlord
::..._ made a request for redemption of the mortgage and served a notice to that
effect without any avail Thereafter, respondent-landlord filed a petition under
F
Section 83 of the Transfer of Property Act, which was allowed by Trial Court
directing respondent-tenant to hand over the possession of the property.
However, on Revision Single Judge of High Court set aside the order of trial
Court holding that tenancy rights had not been surrendered and on redemption
of mortgage, the respondent-tenant would be entitled to continue in possession G
as tenant of the premises; tenancy rights could be brought to an end only
under the provisions of Madhya Pradesh Accommodation Control Act Hence
the present appeal.
·'
~
Dismissing the appeal, the Court
571 H
572 SUPREME COURT REPORTS [2001] 3 S.C.R.

A HELD : 1.1. There is no automatic merger of mortgage and lease rights
where mortgage is executed in favour of a ten?Jlt and on redemption of
mortgage, the tenancy rights kept in abeyance would revive and entitle the +
tenant to continue in possession even after the redemption of the mortgage.
On execution of mortgage, tenancy rights would terminate ~nly if it is clear
B expressly or impliedly by conduct or other related circumstances that the
parties had intended so, which would be a question of fact. Thus, as a normal .
rule except if intention being to the contrary, mortgage and lease operate
independent of each other and on mortgage coming to an end by redemption,
tenancy would revive. [577-B-C]

C Gambangi Appa/aswamy Naidu and Ors. v. Behara Venkataramanayya
Patro, AJR (1984) SC 1728; Gopal Krishnankutty v. Kunjamma Pillai Sarojini
Arna and Ors., AIR (1996) SC 1659; Narayan Vishnu Hindre and Ors. v.
Baburao Savalaram Kathawale, [1995] 6 SCC 608; Nemi Chand v. Onkar ..
Lal, AIR (1991) SC 2046 and Nand Lal and Ors. v. Sukh Dev andAnr., (1987]
Supp. SCC 87, relied on.
D
1.2. In the instant case, Condition No. 1 of the mortgage deed provides
that the payment of rent is kept alive. It is sought to be adjusted by the
amount of interest payable by the mortgagor-lessor to the lessee. Thus, it
is quite clear that element of tenancy and payment of rent operated through-
E out the period of mortgage. It is not denied that during all this period, the
tenant remained in actual possession. His status as a tenant never ceased
as amount of interest to which he was entitled to was adjusted towards rent
payable by him as a tenant of the accommodation to the landlord. Where rent .
is kept alive, it runs contrary to the intention or conduct of the parties
leading to any inference of surrender of lease. Further Condition no. 4 nowhere
F speaks of surrender of tenancy by the lessee. It only provides that for at least
three years shop will be in personal use of the landlord failing which there
would be revival of the mortgagee's capacity as tenant. Such a condition
cannot be said to be a clear intention of surrounding the lease rights in the
property. [577-G-H; 578-A~C]
G 2. High Court was justified in holding that in view of Section 12 of
the Madhya Pradesh Accommodation Control Act it was not possible to grant
relief of possession of the tenanted premises to the landlord-lessor. The said
Act is a special Act dealing with the subject of eviction of the tenants and
Section 12 of the Act provides that notwithstanding any rule to the contra.,
H contained in any other law or contract, no suit shall be filed in any civil court
NIRMAL CHANDRA v. VIMAL CHAND [BRIJESH KUMAR, J.] 573
against a tenant for his eviction except on the grounds enumerated therein.
I
A
_. If the tenant consented to hand over the possession and acts upon such consent,
it would entirely be a different matter and whichever provisions of Madhya
Pradesh Accommodation Control Act, 1961 may then be applicable shall
become operative but in case the possession is not handed over, there is no
other way except to file a suit under Section 12 of the act to bring about
determination of the tenancy by a decree of the Court on the grouuds B
permissible under the provision. [579-C-D]

Mis. Sachamal Parasram v. Smt. Ratnabai and Ors., [1973) 3 SCC 198,
l held inapplicable.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 686 of c
1997 .
....
From the Judgment and Order dated 30.8.96 of the Madhya Pradesh
High Court in C.R,. No. 795of1995.
I

S.S. Khanduja, Y.P. Dhingra and B.K. Satija for the Appellant. D
'
A.K. Chitale, Niraj Sharma and Ms. Shilpa Chitale for the Respondent.

The Judgment of the Court was delivered by

BRIJESH KUMAR, J. This appeal has been preferred against the
judgment and decree dated August 30, 1996 passed by a learned Single Judge E
of Madhya Pradesh High Court, Gwalior Bench allowing the revision petition
preferred by the' respondent Vimal Chand and setting aside the order passed
by the trial court by which the respondent was directed to hand over the
-"._ physical possession of the disputed property to Nirmal Chandra in proceedings
under Section 83 of the Transfer of Property Act. F
The controversy involved in this case relat~s to the nature of possession
of a tenant-mortgagee and the obligations of the respective parties in the
event of redemption of mortgage in so far as it relates to the possession of
such properties. We have heard learned counsel appearing for the parties and
have also gone through orders passed by the Courts below. G
The respondent Vimal Chand is a tenant of the appellant Nirmal Chandra
in respect of a shop situate at Pared Chauraha, Bhind, Madhya Pradesh. It
is not in dispute that the tenancy of the said shop had been coming down
since long. The appellant-landlord however executed a mortgage deed, duly
registered, in respect of the shop in question in favour of the tenant- H
_.I

574 SUPREME COURT REPORTS (2001) 3 S.C.R.

A respondent Nirmal Chandra. The mortgage was for a sum of Rs. 10,000. The
mortgage deed was executed on 19.4.1973. According to the appellant he was
handed over the possession of the property. According to the terms and -*:-
conditions of 11).e mortgage the appellant ·was entitled to get the mortgage
redeemed on expiry of ten years. On' completion of ten years the appellant
requested the respondent to receive the mortgage money and redeem the
B mortgage and a notice is said to have been served on 6.12.1983 but it brought
not results. Hence, he moved a petition unqer Section 83 of the Transfer of
Property Act in the Court of a Civil Judge by depositing a sum of Rs. 10,000
in the Court. The respondent-tenant filed its reply contesting the case of the
petitioner- landlord in respect to the possession of the property. The execution A
C of the mortgage deed was not denied but it was pleaded that he has been
tenant of the accommodation in question since a long time and according to
the conditions of the mortgage agreement rent and the interest was agreed
to be equal. The delivery of possession on mortgage was only symbolic in :.>·

nature and the tenant-respondent namely, the mortgagee continued to be in
possession. This position has not been disputed before us during the hearing
D of the case.

Section 83 of the Transfer of Property Act provides as under:
"83. Power to deposit in Court money due on mortgage. - At any
time after the principal money [payable in respect of any mortgage has
E become due] and before· a suit for redemption of the mortgaged
property is barred, the mortgagor, or any other person entitled to
institute such suit, may deposit, in any court in which he might have
instituted such suit, to the account of the mortgagee, the amount
remaining due on the mortgage.
Right to money deposited by mortgagor:- The Court shall
F
thereupon cause written notice of the deposit to be served on the
mortgagee, and the mortgagee may, on presenting a petition (verified
in manner prescribed by law for the verification of plaints) stating the
amount then due on the mortgage, and his willingness to accept the
money so deposited in full discharge of such amount, and on
G depositing in the same court the mortgage-deed [and all documen~s
in his possession or power relating to the mortgaged property), apply
for and receive the money, and the mortgage-deed , [and all such other
documents] so deposited shall be delivered to the mortgagor or such
other person as aforesaid.

H [Where the mortgagee is in possession of the mortgaged, property,
NIRMAL CHANDRA v. VIMAL CHAND [BRIJESH KUMAR, J.] 575
__ .. the court shall, before paying to him the amount so deposited, direct ' A
him to deliver possession thereof to the mortgagor and at the cost of
the mortgagor either to re-transfer the mortgaged property to the\
mortgagor or to such third person as the mortgagor may direct or to
execute and (where the mortgage has been effected by a registered
instrument) have registered an acknowledgment in writing that any B
right in derogation of the mortgagor's interest transferred to the
mortgagee has been extinguished.]"

For coming to a conclus~on that on redemption of a mortgage, the
mortgagor is to be handed over the possession of the property, learned trial
court considered certain decisions of the Madhya Pradesh High Court referred C
to in the order and Shah Mathuradas Magan/al & Co. v. Nagappa
Shankarappa Ma/age, AIR (1976) S.C. 1565 and observed that where the
mortgagee was in possession and no interest was agreed to be paid nor any
time limit to return the amount, in such a situation the tenancy rights will come
to an end and on redemption of the mortgage, the possession shall be handed
over to the mortgagor. It was also observed that intention of the parties was D
to be taken into account as to whether the tenancy was liable to be continued
or not. The petition was allowed with a direction to the respondent to hand
over the possession of the property to the mortgagor-landlord, the appellant
in this appeal.

Aggrieved by the order passed by the trial court, the respondent-tenant E
preferred a revision which has been allowed as indicated earlier and set aside
the part of the order directing handing over the. possession of the mortgaged
property to the mortgagor-landlord. Considering the terms and conditions of
the mortgage, the revisional court came to the conclusion that tenancy rights
had not been surrendered and on redemption of the mortgage, the respondent- F
tenant would be entitled to continue in possession as tenant of the premises.
It was also found that tenancy rights could only be brought to an end under
the provision as contained in the Madhya Pradesh Accommodation Control
Act. It is against the said order that this appeal has been preferred.

Before considering the terms and conditions of the mortgage deed, it G
may be better to first consider the legal position on the point. In a case
reported in AIR (1984) SC 1728, Gambangi Appa/aswamy Naidu and others
v. Behara Venkataramanayya Patro, this Court held that there can be no
merger of lease and a mortgage, even where the two transactions are in
respect of the same property as for a merger it is necessary that lesser estate
and a higher estate should merge in one person at one and the same time and H
576 SUPREME COURT REPORTS [2001] 3 S.C.R.

A no interest in the property should remain outstanding. Neither of the two
rights are higher or lesser estate than the other. It is further observed that a
tenant mortgagee could be directed to deliver the possession of the property
at the time of reqemption only if at the time of the mortgage there was
surrender oflease rights in favour of the lessor. It all depends on the intention
of the parties .at the time of execution of the mortgage and its terms and
B conditions as well as the surrounding circumstances. On facts it was found
that rent was payable by the lessee in the shape of share in the crop and there
was an adjustment of rent and interest that is to say liability to pay rent
during mortgage was kept alive which runs counter to implied surrender of
lease rights. It was further held that the mere fact that owner creates a
C mortgage in favour of a'lessee is not by itself decisive to hold that the prior
lease was surrendered and the possession on the earlier lease was only that
of a mortgagee. The nature of possession would however be a question of
fact in each case. In Gopalan KRJSHNANKUITYv. Kunjamma Pillai Sarojini
Amma and others, AIR (1996) S.C. 1659, a Bench of Three Judges of this
Court, held that unless there was a surrender of the lessee's rights, at the time
D of execution of mortgage deed, mortgagor would not be entitled to obtain
delivery of physical possession on redemption of mortgage. The question of
actual surrender of rights depends upon the intention of the parties at the
time cf execution of the mortgage. It would be a question of fact depending
upon evidence. It is further observed that in absence of proof of surrender
E of lease by the defendant, there is no automatic merger of an interest as lessee
with that of the mortgagee when the same person is lessee as well as mortgagee.
On redemption of the mortgage, the mortgagee is not entitled automatically
to recover possession of the lease. In Narayan Vishnu Hendre and others
v. Baburao Savalaram Kothawale, [1995] 6 SCC 608 this Court held that
doctrine of merger does not apply where tenanted premises are mortgaged in
F favour of the lessee and such an inference cannot readily be inferred in the
absence of any clear statement or indication in the deed or conduct of the
parties. It has also been observed that lease of a property is a very valuable
right and its implied surrender on execution of a mortgage would not be
inferred unless there was a clear statement or indication to that effect in the
G document itself. Redemption of mortgage would revive the tenancy of the
mortgagee, the only effect of mortgage was that the lessee's rights were kept
in abeyance and they stood revived by the redemption of the mortgage. In
Nemi Chandv. Onkar Lal, AIR (1991) S.C. 2046 in similar situation it was held
that where it was stipulated that neither interest nor rent was payable as both
amount.s were equal, it clearly shows that rent was kept alive and there was
H no merger of lease. Lessee was held entitled to be in possession· of the
I
~

NIRMAL CHANDRA v. VIMAL CHAND [BRIJESH KUMAR, J.] 577

-
_,.(
property as lessee despite the redemption of mortgage. In Nand Lal and
others v. Sukh Dev and another, [1987] Supp S.C.C. 87 also the same view
A
was taken that tenancy rights would get revived on redemption of the mortgage
and the lessee mortgagee would not be liable to be evicted.

From a perusal of the decisions of this Court as indicated above, it
clearly emerges that there is no automatic merger of two rights where mortgage B
is executed
0
in favour of a tenant and on redemption of mortgage, the tenancy
rights kept in abeyance would revive and entitle the tenant to continue in
possession even after the redemption of the mortgage. On execution of
mortgage, tenancy rights would terminate only if it is clear expressly or
impliedly by conduct or other related circumstances that the parties had
c
- intended so which would be a question of fact. Thus as a normal rule except
in intention being to the contrary, mortgage and lease operate independent
of each other and on mortgage coming to an end. by redemption, tenancy
would revive.

In the light of the law on the point indicated above we may now advert D
to the terms and conditions of the mortgage deed in hand. The Condition
No.I .of the mortgage deed lays down that the interest of the mortgage money
and the rent of the shop would be equal. The Condition No.4 which is also
relevant and as quoted, on being translated into English, in the order of the

.. High Court, is as follows:
"After the expiry of the period of ten years when I get the shop
redeemed; I would use it for my own purpose for at least three years.
E

After getting it redeemed, I would neither give it on rent nor keep any
partner with me. In case it is given to someone on rent, the mortgagee
shall have right to take back possession of the shop in his capacity
as a tenant."
F

It is to be noticed that under Condition No.1 the payment of rent is kept alive.
.\
It is sought to be adjusted by the amount of interest payable by the mortgagor-
lessor to the lessee. Thus it is quite clear that element of tenancy and
payment of rent operated throughout the period of mortgage. It is not denied
G'
before us that during all this period, the tenant remained in actual possession.
His status as a tenant never ceased as amount of interest to which he was
entitled to on Rs.10,000 advanced to mortgagor was adjusted towards rent
payable by him as a tenant of the accommodation to the landlord. In similar
circumstances we have already seen that in the cases of Gambangi
Appalaswamy Naidu as well as Nemi Cchand (Supra) this Court he!d that H
)

578 SUPREME COURT REPORTS (2001] 3 S.C.R.

A where rent is kept alive, it runs contrary to the intention or conduct of the
parties leading to any inference of surrender of lease. In our view this fact >--
alone is enough to hold that there was no merger of two rights nor surrender
of tenancy could be inferred on the facts and circumstances or on the basis
of the terms and conditions of the mortgage. As a matter of fact, Condition
No.4 on which much reliance has been placed by the learned counsel for the
B appellant does not help him very much. It is no doubt initially indicated on
expiry of ten years on redemption of mortgage the lessor would use the shop
for his own purpose for at least three years. It would neither be given on ~ent
nor he shall have any partner with him. It is further provided that in case it
is given to some one on rent, the mortgagee shall have the right to take back
C possession in his capacity as tenant (emphasis supplied by us). This condition
no where speaks of surrender of tenancy by the lessee. It only provides that
for at least three years shop will be in personal use of the landlord failing
which there would be revival of the mortgagee's capacity as tenant. Such a
-·
condition cannot be said to be a clear intention of surrendering the lease
rights in the property. Whatever little effect Condition No.4 if at all may have,
D is negated by Condition No. l which kept the rent alive and the element of
tenancy pervading throughout the period of mortgage.

Next, we also find that the High Court has rightly observed that in view
of Section 12 of the M.P. Accommodation Control Act it was not possible to
E grant relief of possession of the tenanted premises to the landlord-lessor. The
relevant parts of Section 12 are quoted below:

"Sec.12 Restriction on eviction of tenants.-(1) Notwithstanding
anything to the contrary contained in any 9ther law or contract, no
suit shall be filed in any Civil Court against a tenant for his eviction
F from any accommodation except on one or more of the following
grounds only namely:-
I
(a) .................................... .

(b) .................................... .
G (d) ................................... .

(e) .................................. .

(f) that the accommodation let for non-residential purposes is required
bona-fide by the landlord for the purpose of continuing or starting his
H business or that any of his major sons or unmarried daughters if he
7--

NIRMAL CHANDRA v. VIMAL CHAND [BRIJESH KUMAR, J.] 579

is the owner thereof or for any person for whose benefit the A
~
accommodation is held and that the landlord or such person has no
_, other reasonable suitable non-residential accommodation of his own
in his occupation in the city or town concerned."

In the case in hand it can best be said that the accommodation was
needed by the landlord for his own use more particularly in view of the fact B
that earlier he had also filed a suit for eviction of the respondent- tenant on
the ground of his bona fide requirement, in the civil court which was pending
) at the time of execution of the mortgage. The Madhya Pradesh Accommodation
Control Act 1961 is a special Act dealing with the subject of eviction of tl}e
tenants and as provided under Section 12 of the Act, notwithstanding any
rule to the contrary contained in any other law or contract, no suit shall be
c
. filed in any civil court against a tenant for his eviction on the grounds
enumerated therein. In this light of the matter if the tenant consented to hand
over the possession and acts upon such consent, it would entirely be a
different matter and whichever provisions of Madhya Pradesh Accommodation
Control Act, 1961 may then be applicable shall become operative but in case D
the possession is not handed over there is no other way except to file a suit
,l-.
under Section. 12 of the Madhya Pradesh Accommodation Control Act to
bring about determination of the tenancy by a decree of the Court on the
grounds permissible under the provision. This we find yet another hurdle in
the way of the appellant in making a request for decree for possession of the
property in question. One more case was brought to our notice reported in
E
[1973] 3 SCC 198, Mls.Sachamal Parasram v. Smt. Ratnabai and others. In
that case the mortgagee in possession had admitted one tenant who was
__,,,_ sought to be evicted on the redemption of the mortgage. The tenant of the
mortgagee sought benefit of rent control laws. It was held that he was not
entitled to that benefit. This case has no application to the facts and point F
of law involved is this case.

In view of the discussion held above, there is no merit in the appeal and
it is accordingly dismissed~ Costs easy.

S.Y.K Appeal dismissed. G