Thakar Singh v. Mula Singh
(2015) 5 SCC 209; (2015) 2 SCC (Civ) 722

Case Type/Title:
Case concerning the effect of redemption on lease granted by mortgagee under mortgage deed and extent of applicability of sec 72 of T.P. Act, 1882, in light of the doctrine of Bar Against Clogs on Redemption.

Bench/Coram:
The appeal was heard by a division bench of the Supreme Court. The coram consisted of Dipak Misra and R.F. Nariman, JJ.

Procedural History of the Case:
The appellants/mortgagors in this case filed suit for recovery of possession of the mortgaged property in trial court, since the mortgagee's lessees did not give back the physical possession of the properties to the appellants in this case even after payment of mortgaged money worth Rs. 29,000/ was done by the mortgagors.

The trial court rejected the suit giving rationale as follows that the mortgage deed clearly emphasizes that the mortgagor/appellant in this case had knowledge of and had recognized the clause which entitled the mortgagees to lease out the immovable properties to anyone along with possession. Hence it held that this recognition of the mortgagee's entitlement to lease, by the mortgagors/appellants in this case does not come to an end with redemption.

The appellant in this case, dissatisfied by the trial court's order filed first appeal in the High Court[1]. The High Court followed the Trial Court's order and dismissed the appeal by stating the following reasons that the leases of the mortgagees created during the sustenance of the mortgage deed, were recognised by the appellant/mortgagor in this case.

Also, there was a clause that stated that the mortgagors would be entitled to future payment of rents after redemption. Hence, rejected the suit for recovery of possession of mortgaged properties from the defendants. The mortgagors aggrieved by the decision of the High Court approached the Supreme Court by filing an appeal.

Facts of the case
Mortgagors (Nand Singh and Dr. Thakar Singh), the appellants in this case mortgaged several urban properties consisting of various shopscumvacant sites located in the main bazaar of Moga Town to mortgagees/defendants (Suba Singh and Saudagar Singh) (Respondents Nos. 1 and 2) for a sum of Rs. 29,000/ vide a registered mortgaged deed dated 09.03.1942. The Mortgage deed contained a clause entitling the mortgagees to either have possession or to lease the immovable properties to anyone.

The deed further stipulated that on the event of the mortgagor paying the mortgaged money back to the mortgagees the former would be entitled to receive the future rents, from the day they take possession.

Hence, as according to the mortgage deed the mortgagees leased the properties to twelve lessees (Respondent Nos. 3 to 14). After a while, the appellants/mortgagors redeemed the properties by paying the mortgaged money but the lessees of the mortgagees failed to deliver the physical possession of the properties back to the Mortgagors/Appellants in this case. The Mortgagors approached the Trial Court and High Court by filing a suit for recovery of possession.

However, the plea of the mortgagors was rejected by both the Courts. Hence aggrieved by their decisions the Mortgagors approached the Supreme Court by filing an appeal for possession and recovery of damages and to overturn the orders passed by the Trial Court and the High Court. The Supreme Court restricted itself with the decision and discussion on the 3rd and 4th issues.

Issues:

1. Whether the suit is barred under the provisions of the Rent Restrictions Act?
2. Whether the tenancy created by the mortgagees in possession of the immovable property survives the termination of the mortgagees' interest so as to bind the mortgagor?
3. Whether the possession of the properties by the lessees of the mortgagees constitutes a clog on the mortgagors' right of redemption?
4. Whether Section 72 of the Transfer of Property Act confers right to create lease to mortgagees?

Law(s) Applicable
Property Law: The Transfer of Property Act, 1882 Sections

1. 58(a) "A mortgage is the transfer of an interest in specific immoveable property for the purpose of securing the payment of money[2]"
2. 58(d) Usufructuary mortgage. -Where the mortgagor delivers the possession to the mortgagee and profits are enjoyed by the mortgagee
3. 60 Confers the right of redemption to the mortgagor; he is entitled to receive the full possession of the property on payment of mortgaged money, in the same position as it was with him before the mortgage deed took place
4. 62 Right of usufructuary mortgagor to redeem possession under certain circumstances
5. 72 Rights of a Mortgagee
6. 76(a) Liabilities of a mortgagee in possession to manage the property as a person of ordinary prudence would manage if it were his own
7. 111(c) "A lease of immoveable 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"[3]

Contentions on behalf of the Appellants

1. Learned Adv. Mr. A.P. Mohanty submitted before the Hon'ble Supreme Court that if one accurately and appropriately reads the text of the mortgage deed he would know that once redemption happens the leases would cease to have effect and hence would not be binding on the mortgagors/appellants.
    
2. He further submitted that if the Court finds out a clog on the right of redemption of the mortgagor after a true reading of the mortgage deed, then it would never uphold such interpretation of the deed and the right to take back possession, free from all encumbrances would ensue.
    
3. Moreover, it was submitted that no one cannot transfer a better title than he himself has. In the case of All Indian Film Corpn. Ltd. V. Raja Gyan Nath[4] the Court held that when a mortgagee creates tenancy, he becomes the lessor of the property. However, his interest as a lessor is coterminous with his interest as mortgagee in the first place. This is because he was able to lease out the land because there was an instrument of mortgage that took place.
    
4. It was also submitted that the position of the mortgagee as a lessor depends upon the duration of his interest as a mortgagee as according to section 111(c) of the T.P Act 1882.
    
5. Also, the counsel cited two cases to corroborate his arguments, namely Mahabir Gope v. Harbans Narain Gope[5] and Asa Ram v. Ram Kali[6] which expound the reasoning applied by this court which is as follows – the lessees rights are a subset of the rights of his lessor. In cases of a mortgagee being a lessor, the legal relation of the lessee and the lessor cannot sustain beyond the mortgagee's/lessor's interest. However, there exists one exception to this rule which is that the relationship can subsist beyond the mortgagee's interest only if it has been expressly recognized by the mortgagor or there has been a fresh agreement in this regard.
    
6. The counsel further submitted that even though section 76(a) of the Act states that the mortgagee is entitled to possess the land make use of it as a man would in ordinary prudence would as if it were his own. However, it comes with a caveat in as much as it only applies to agricultural land and refers to ordinary management decisions made with regards to those lands and has not been used by courts so as to be applicable to urban lands. If, however, the mortgagor had expressly agreed/ showed express intention or agreed to grant the lease it would bind him even after redemption[7] and merely the reference that entitlement was given to mortgagee to create lease via the mortgage deed would be binding.
   
   This mere reference does not qualify to bind the tenancy on the mortgagor after redemption[8] . This Court further held that such tenancy does not hold true after redemption and hence the provisions of section 12 of the Bombay Rent Control Act isn't applicable. Similar position was countenanced by this court in Mahabir Gope[9] with regards to the Bihar Tenancy Act.
    
7. The counsel for the appellant submitted before the Court on the principle of clog on the equity of redemption by placing reliance on Pomal Kanji Govindji v. Vrajlal Karsandas Purohit[10], in which it was held that the Court shall disregard such clogs in all aspects along with holding that leases created by mortgagee in possession would not be binding on the mortgagor after redemption regardless of the fact that the mortgagee created such lease in the performance of his right under section 76(a) of the act.
    
8. It was submitted that various High Courts[11] have reiterated time and again that long terms for redemption in the deed/agreement of mortgages itself constitute a presumption of a clog on the equity of redemption.
    
9. It was further submitted that if the Court is to hold the sustenance of the leases after the appellant's redemption of the property, then it would lead to giving a green flag to something which in substance and in effect prevents the mortgagor from getting back his own property.

Contentions on behalf of the Respondents

1. Counsel on behalf of the respondents submitted before the Hon'ble Supreme Court that the suit itself is not maintainable before the Court, as on a true and appropriate reading of the terms of the mortgage deed one can infer that the appellants/mortgagors had recognized the tenancies created by the mortgagees.
2. Hence the submatter of the dispute falls within the jurisdiction of Rent Courts. The appellants hence must find a ground for eviction of the tenants which were recognized by the them and only then they can get back physical possession.
    
3. The counsel further submitted on the aspect of the ratio of Jadavji v. Dhami[12] case, that the text of the mortgage deed was ambiguous in as much it did not specify as to when the tenants were inducted, whether before or after the commencement of the Rent Restrictions Act. Since the facts of both the cases are quite similar the counsel approached the court to refer the matter to a higher bench.
    
4. It was further submitted that the clause stating that the mortgagee could either possess or create lease giving property to anyone for lease as he prefers are in line with the provisions of T.P. Act. The mortgagee having possession of the property has a right to use it in any manner as a man would in ordinary prudence of his own property. It is true that the leases were created out of the mortgage deed however it is also true that the mortgagors erred in creating and acknowledging such clauses in the deed so as to create recognition of the leases created by the mortgagees.
    
5. It is submitted that the abovementioned notion finds strong support in another term mentioned in the mortgage deed which said that the mortgagors would be entitled to future rents on the property after redemption. On a literal and ordinary reading of this once can infer that the mortgagors firstly recognised the leases so created and agreed to become lessors to the exmortgagees' lessees after redemption.
    
6. Hence even though there is an absence of express words, we can infer the that the intention of the mortgagors was to recognise and continue to take future rents from the lessees of the mortgagees.
    
7. It was further submitted that in the case of Harihar Prasad v. Deonarain Singh[13], Venkatarama Ayyar J. held that only if the tenant could not resist ejectment under section 76 and section 21 of the TP Act and the Bihar Tenancy Act respectively, then he can be held to not possess a right of possession over the property, as a result of the interaction of both these sections.

Judgement
After hearing both sides Nariman J., delivered the judgement. With respect to the first and second issues, the Court held that the terms are not barred by the provisions of the Rent Restrictions Act as the interest of the lessees of the mortgagees is a sub set of and is dependent on the quantum of interest of the lessor as a mortgagee. Hence it means that when the interest of the mortgagee ceases to exist it leads to a seizure of the interest of the lessees of the mortgagees as well[14]. This reasoning is in line with the principle of nemo dat non quad habet.

Further as according section 111(c) of the Act mortgagees' interest as a lessor is coterminus with his position and interest as a mortgagee. Hence the relationship of the lessor and lessee cannot sustain beyond the duration of the mortgage deed unless a fresh agreement is created coupled with an express intention of doing the same by the mortgagor is also given.

Furthermore, the Jadavji[15] case does not hold authority here as the court was convinced that the terms of the deed clearly did not allow creation of lease beyond the period of mortgage. Also, the Court stated that this would not constitute prudent management. Further, the power conferred to the mortgagees was circumscribed by the stipulation of the mortgagor via the deed to take back the possession of the property after depositing the mortgaged money. Further, section 76(a) is found to apply only to agricultural land and only in terms of their ordinary management.

With respect to issue 3 the Supreme Court held that there is nothing in the mortgage deed which expressly recognizes the intention of the mortgagor that the tenancies created by the mortgagees would be binding on the mortgagor after redemption. Rather, the intention of redemption of the property is unambiguously stated.

Further, the clause stating that the mortgagors would be entitled to future rents does not amount to a conclusion of creation a lease between the mortgagor and the lessees of the exmortgagees. We must read it along with the phrase, "on taking possession," which is antithecal to the creation of lease between the mortgagor and the lessees of the exmortgagees.

The High Court and the Trial Court were erroneous in their reading of these terms of the mortgage deed because it leads to the conclusion wherein, the mortgagors would never be able to redeem their property back and enjoy it in a way that they did before the creation of the mortgage deed.

Also, in that case the mortgagors would have to wait for an indefinite period of time for the lessees of the exmortgagees to commit a wrong which would entail their eviction under the Rents Control Act. This would constitute a violation of the doctrine of bar against clogs in redemption enshrined under section 60 and 62 of the T.P Act.

It concluded the decision by considering various High Court's Judgements[16] which held that mortgagees remaining in possession after redemption constitutes a clog on the equity of redemption. The court held this position isn't different from the mortgagee's lessees that continue to have possession after redemption.

Finally with respect to issue 4 the Court held that the right to create lease/tenancies is not protected under section 72 of the TP Act. This right has certain prerequisites namely only applies to agricultural lands; limited application to urban lands; lease unsustainable after redemption by mortgagor unless fresh agreement created. This right is further coterminus with the interest lessor as a mortgagee.

The Court overturned the decision of the High Court in this regard and held that the physical possession of the property must be given back to the appellant/mortgagors by the respondents/lessees of the exmortgagees and ordered the High Court to decide on other issues that are left open, within six months of the deliverance of this judgement.
Rationale
Possession of the property after redemption by the lessees of the exmortgagees constitutes a clog on equity of redemption as the tenancies created by the mortgagees is not binding upon the mortgagors because there is an absence of express text in the mortgage deed warranting an inference that even after redemption the lease would be binding on the mortgagor.

The leases are circumscribed by the intention of mortgagor to redeem the property after payment of such money. Mortgagees' interest as a lessor is coterminus with his interest as a mortgagee i.e., it ends with end of mortgage deed. The phrase, "on taking possession" is the clear indicator of the fact that the tenancy was to end with redemption of the mortgaged property.

The phrase, "future rents" is secondary and should be read after the aforementioned phrase; reading them together would lead to an erroneous disposition as was undertaken by the High Court, which is thereby rejected.

Concurring/Dissenting Opinion (if any)
Hon'ble J. Nariman presided over the hearing of the case and gave the judgement. J. Dipak Misra assented to the judgement given. So, it was a unanimous decision by division bench of the Supreme Court.

Critical Analysis of the Judgement
In the case of Harihar Prasad Singh v. Deonarain Parsad[17], Venkatarama Ayyar J., stated that tenants could not resist ejectment if they failed to qualify under both the provisions of the section 76(a) of T.P. Act read along with section 21 of the Bihar Tenancy Act. It was held that tenants could not have a right of occupancy only if they fulfilled the criteria for ejectment under the tenancy act and the T.P. Act.

Therefore, the Court failed to take into consideration and filled the gap in facts as was brought up by the respondent counsel when he cited the Jadavji[18] case wherein it was stated that there was no clear finding as to whether the tenants were inducted before or after the commencement of the Rent Restrictions Act.

Furthermore, the Court erred in not reprimanding or at least holding that the terminology of the mortgage deed was somewhat contradictory in as much as it stated the phrase, "on taking possession" along with the phrase "future rents to be taken by mortgagors."

How can it mean that it does not imply that mortgagees' lessees would become mortgagor's lessees after redemption. And if redemption happens then how can lessees of the exmortgagees be allowed to have physical possession. The High Court and Trial Court followed the Formal Style of interpretation of the mortgage deed however the Supreme Court followed the Grand Style of interpretation.

EndNotes:

1. Nand Singh v. Mula Singh (2004) 3RCR (Civ) 642: (2004) 138 PLR 854
2. Transfer of Property Act, Section 58(a), Acts of Parliament, 1882 (India)
3. Transfer of Property Act, Section 111(c), Acts of Parliament, 1882 (India)
4. (1969) 3 SCC 79
5. (1952) SCR 775
6. (1958) SCR 986
7. Sachalmal Parasram v Ratnabai, (1973) 3 SCC 198, pp. 199200, paras 5 to 9.
8. Lalji Purushottam v. Thacker Madhavji Meghaji, (1981) 22 Guj LR 473.
9. Supra note 5.
10. (1989) 1 SCC 458
11. Vadilal Chhaganlal Soni v. Gokaldas Mansukh, AIR 1953 Bom 408; Chhedi Lal v. Babu Nandan, AIR 1944 All 204; Rashbehary Ghosh's Law of Mortgage, 6th Edn., pp. 227 and 228.
12. (1987) 4 SCC 223
13. AIR 1956 SC 305
14. Supra note 5; Supra note 6
15. Supra note 12.
16. Mohd. Muse v. Jijabhai, ILR (1885) 9 Bom 525; Parmanand Pandit v. Mata din Rai, ILR (1925) 47 All 584
17. Supra note 13.
18. Supra note 12.