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Lalchand v. Nenuram

Rajasthan High Court
Jul 25, 1962
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Structured Summary of the Opinion (Civil Second Appeal — Ejectment and Arrears of Rent)

Factual and Procedural Background

The plaintiffs brought a suit for ejectment and arrears of rent, claiming that the defendants had executed a rent note (Ex. 1) dated 15 October 1946 after taking a lease of the house property in Jodhpur. The defendants allegedly failed to pay rent; notices were served and the suit was instituted on 30 October 1950 in the Court of the Munsiff, City, Jodhpur. Two defendants (Nenuram and Shyamlal) contested the suit; proceedings went ex parte against Mst. Soni (who later died and whose name was struck off during the appeal).

The defence asserted that on 15 October 1946 the defendants had mortgaged the property to the plaintiffs for Rs. 5,500 with interest and had executed the document (Ex. 1) to secure payment of interest (i.e., it was not a rent note). The trial court accepted the defence and dismissed the suit for ejectment (relying on a Patna High Court decision — Baij Nath Prasad v. Jang Bahadur Singh), while nevertheless decreeing a sum as arrears of rent. The District Judge on first appeal upheld the dismissal of the ejectment claim. The plaintiffs filed this second appeal seeking reversal of that aspect of the decision.

The following facts are no longer in controversy: the defendants executed a mortgage deed in favour of the plaintiffs on 15 October 1946. The mortgage deed's main terms (as stated in the opinion) included:

  • Interest payable month by month amounting to Rs. 27.8.0 @ 8% per annum;
  • Possession of the mortgaged property was delivered to the mortgagees;
  • Mortgagees authorised to make necessary repairs if mortgagors did not;
  • If interest remained unpaid for six months, the interest would form part of principal with additional interest stipulated;
  • The mortgagees could recover principal and charges by sale of the mortgaged property.

On the same day the mortgagors executed a registered quabuliat (Ex. 1) reciting a lease at monthly rent Rs. 27.8.0 and agreeing to vacate when desired by the landlord. The courts below treated the mortgage deed and rent note as parts of a single transaction; they held the rent note to be a device to secure interest, and declined ejectment relief accordingly, but paradoxically awarded arrears of rent as well.

Legal Issues Presented

  1. Whether a document executed by a mortgagor (a quabuliat or rent note) on the same day as a mortgage deed, fixing rent equal to the interest payable under the mortgage, should be treated as an independent lease creating a landlord-tenant relationship entitling the mortgagee to sue for ejectment and arrears of rent.
  2. Whether, on the facts of this case, the mortgage deed and the rent note are to be read together as one transaction (so as to render the rent-note inoperative for ejectment) or treated as two independent transactions each effective in its own terms.

Arguments of the Parties

Appellant's Arguments

  • The courts below were wrong to treat the mortgage deed and the rent note as one and the same transaction; the plaintiff (mortgagee) obtained possession and then leased back the property to the defendants on the same day; that lease is a separate transaction and creates a landlord-tenant relationship.
  • The appellants relied on the decision of this Court in Jankidas v. Laxminarain to support the proposition that where a usufructuary mortgagee gives back the house on lease to the mortgagor the mortgagor becomes the tenant and the mortgagee may sue for arrears of rent and ejectment on the basis of the lease/rent note.

Respondents / Defendants' Arguments

  • The contesting defendants contended that the document (Ex. 1) was not a rent note but was executed merely to secure payment of interest under the mortgage (i.e., a device to ensure payment of interest), and therefore the plaintiffs could not rely on it to seek ejectment and arrears of rent as a landlord.

Note: The opinion states that the respondents before the court were not represented at that stage; the Court therefore examined authorities with the assistance of the appellants' counsel.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Baij Nath Prasad & Co. v. Jang Bahadur Singh & Co. Patna High Court decision relied upon by the trial court to treat mortgage and rent note as one transaction (making rent note inoperative for ejectment). Cited by the lower courts. The present Court reviewed Patna decisions including this case and disagreed with giving it decisive weight on the facts here; noted Patna's line but did not follow it on these facts.
Jankidas v. Laxminarain Authority that where a usufructuary mortgagee leases back the house to the mortgagor, the mortgagor becomes a tenant and the mortgagee can sue on the lease for arrears/ejectment even if rent equals interest. The Court described this as a clear authority supporting the appellants' position and relied on its principle in favour of treating the lease as creating a landlord-tenant relationship.
Chimmanlal v. Bahadur Singh (Allahabad High Court) Held a qabuliat drawn strictly in the form of a lease should be treated as a lease; difficult to hold it was merely to realise interest. Court cited it as an authority supporting the view that a lease-back may be a genuine lease and not merely a mechanism to realise interest.
S.A. No. 1112 of 1894 (reported in I.L.R. 23 Allahabad 338) Passage stating the common practice of granting usufructuary mortgage and subsequently granting a lease to the mortgagor, treating that lease as a true lease putting parties in the same position as ordinary lessor and lessee. Used to show regional practice and to support the proposition that lease-back arrangements are treated as leases in law.
Uttam Chandra Daw v. Rajkrishna Dalal (Calcutta High Court) Approved the view taken by the Allahabad High Court that such lease-back transactions are to be treated as leases. Cited as supportive authority endorsing the Allahabad approach.
Asa Ram v. Kishan Chand (Lahore High Court) Held that a qabuliat executed by the mortgagor should not be interpreted as a lease; mortgagees intended to secure income equal to interest and this was not precluded by law. Cited as a contrary authority illustrating that courts have held the qabuliat need not create landlord-tenant rights when it is essentially a security for interest.
Venkappa Bhatta v. Gangadhara Bhatta (Kerala High Court) Held that lease-back of usufructuarily mortgaged property does not automatically convert rent into a charge tantamount to interest; rent is not automatically interest forming part of mortgage money. Cited to support the proposition that rent payable under a lease-back need not be treated as part of mortgage debt.
Abdul Rahim v. Raghunath Sukul (Patna High Court) Held that a Zarpeshgi lease and mortgage were distinct transactions and a landlord-tenant relationship could be created by the lease deed. Referred to as an instance where Patna held the documents to be separate transactions and suit maintainable on the basis of the lease.
Umeshwar Prasad Sinha v. Dwarka Prasad (Patna High Court) Surveyed the question and suggested a test: whether on reasonable construction the property was given in security for principal and interest; refused to lay down hard and fast rules. Employed by the Court in discussing tests for whether two documents form one transaction; the present Court relied on the principles and cautioned against rigid rules.
Panaganti Ramarayaningar v. Maharaja of Venkatagiri (Privy Council) Considered whether a lease deed could be read with a mortgage such that the lease is "in the nature of a machinery for the purpose of realizing the interest" and whether arrears of rent created a charge on the property. Referenced by the Court to show that in some contexts the documents may be read together if the lease is a device to realise interest; but Court noted this does not preclude a mortgagee from suing on the lease generally.
Narasimhulu Chettiar v. K. Ramanatha Mudaliar (Madras High Court) Adopted the view that statutory provisions (e.g., Order 34, Rule 14 C.P.C.) might require viewing certain obligations as 'arising under the mortgage' but did not settle the general point. Quoted by the Court in discussing the possible statutory angle and the scope of Order 34, Rule 14 C.P.C.; cited as showing another judicial approach.
Dr. Haji Muhammad Ahsanul Tauhid v. Shah Akhtar Hussain (Patna High Court) One of the Patna decisions where the mortgage deed and lease were held to represent one transaction. Noted as part of Patna's line of authority that in some cases simultaneous execution and equivalence of rent to interest supported a finding of a single transaction; the present Court declined to adopt this blanket approach.
Ganpat Turi v. Mohammad Asraf Ali Patna decision holding the mortgage deed and the lease deed to represent two separate transactions. Referred to as showing the inconsistent approach within Patna decisions; used by the Court to demonstrate that Patna did not lay down a single final test.

Court's Reasoning and Analysis

The Court began by identifying an inconsistency in the lower courts' judgments: both courts treated the rent note as inoperative (because it was part of the mortgage transaction) and therefore rejected ejectment, yet they awarded arrears of rent based on the same rent note. The Court considered the argument of the appellants that the mortgage and the rent note (lease) are distinct transactions and relied upon precedent (notably Jankidas v. Laxminarain) supporting that view.

The Court then reviewed authority from multiple High Courts (Allahabad, Calcutta, Lahore, Kerala, Patna, Madras) and the Privy Council. From these authorities it distilled the following analytical points (as presented in the opinion):

  • There is established recognition of different forms of mortgage, including anomalous/usufructuary mortgages, where the mortgagee may obtain possession and lease back the property.
  • Whether two documents (mortgage and lease/back-rent-note) form one transaction or two must be determined on construction of the documents; courts should avoid inflexible tests.
  • In many authorities a lease-back executed in form of a lease has been treated as creating a landlord-tenant relationship and not merely a device to realise interest; in other authorities the qabuliat has been treated as a security device—so precedents are not uniform across jurisdictions.
  • One suggested test (from Patna) is whether the documents show that the property was given as security for principal and interest; if so, that supports treating the instruments as one transaction. But the Court emphasised that no hard and fast rule can be universally applied; each case depends on the documentary terms and factual context.
  • Court must, where possible, give effect to the terms of both instruments if they can stand independently; statutory considerations (e.g., Order 34, Rule 14 C.P.C.) may bear upon particular remedies but were not determinative here.

Applying these principles to the present facts, the Court observed that although both documents were executed on the same day and the monthly rent equalled the monthly interest payable under the mortgage, the documents on their face showed independence: neither document referred to the other, and each could stand independently. There was no material before the Court to show the lease was a sham or mere device to secure interest. On that basis the Court concluded that the plaintiffs were entitled to maintain a suit for ejectment on the basis of the rent note (Ex. 1).

Holding and Implications

Core Ruling: APPEAL ALLOWED — the plaintiff's suit for ejectment is decreed.

Direct consequences stated in the opinion:

  • The appeal is allowed.
  • The suit of the plaintiff for ejectment of the defendants Nenuram and Shyamlal is decreed.
  • Costs are awarded to the plaintiff in all the courts.

The opinion does not set out any extended, formal rule intended as a definitive precedent for all future cases; rather it explains the legal principles and applies them to the facts, emphasising that documents which can stand independently should be given effect. The Court did not state that it was laying down a new general rule overriding prior authorities; it analysed existing authorities and applied the principles to the facts at hand.

Show all summary ...

Bhandari, J.:— This is a civil second appeal in a suit for ejectment and arrears of rent.

2. The case set out by the plaintiffs is that the defendants had executed the rent note (Ex. 1) in their favour on the 15th of October, 1946 after taking on lease the house property situate at Jodhpur and mentioned in detail in para No. 1 of the plaint. The defendants failed to pay rent for a long time and therefore two notices were served on them for ejectment and arrears of rent and ultimately the suit was brought on the 30th of October, 1950 in the Court of the Munsiff, City, Jodhpur for ejectment and arrears of rent. Two of the defendants, namely Nenuram and Shyamlal contested the suit, while the case proceeded ex parte against Mst. Soni who died during the pendency of this appeal and her name has been struck off. The main defence raised by the contesting defendants is that on the 15th of October, 1946 the defendants bad mortgaged the suit property with the plaintiffs for Rs. 5,500/- with interest at 6 per cent per annum and further executed the document (Ex. 1) in favour of the plaintiffs to the effect that they will continue to pay Rs. 27.8.0 per month. That document is not a rent note but was written to ensure payment of interest to the plaintiffs. The plaintiff's could not base their claim for ejectment and of arrears of rent on that document. The trial court accepted the defence of the defendants and dismissed the suit for ejectment relying on a decision of Patna High Court in Baij Nath Prasad & Co. v. Jang Bahadur Singh & Co. (1). It, however, decreed the plaintiffs' suit for Rs. 1,249.4.9 as arrears of rent. On appeal by the plaintiffs, the learned District Judge upheld the decision of the trial court as regards ejectment. Hence this second appeal on behalf of the plaintiffs.

3. The facts which are no longer in controversy in the second appeal are that the defendants had executed a mortgage deed in favour of the plaintiffs on the 15th of October 1946, the main terms and conditions of which are, as follows:—

1. That the interest on the mortgage money which comes to Rs. 27.8.0 @ 8% per annum shall be paid month by month by the mortgagors to the mortgagees.

2. That the mortgagors had delivered the possession of the mortgaged property to the mortgagees;

3. The mortgagees are authorised to make necessary repairs if the same are not done by the mortgagors;

4. That in case the mortgagors did not pay interest month by month, then after interest had become due for 6 months, the amount of interest shall form part of the principal on which interest at -/8/- annas per cent per month shall be payable.

5. The mortgagors shall have the right to recover the principal amount with interest and other charges by sale of the property mortgaged.

4. On that very day the mortgagors executed the registered quabuliat (Ex. 1) in favour of the mortgagees reciting therein that they had taken on lease the property described in lease deed at a monthly rent of Rs. 27.8.0 The defendants also agreed to vacate the house as and when desired by the landlord. Now both the lower courts have taken the view that the mortgage-deed and the rent note are part and parcel of one transaction and that the rent note was executed merely as a device to ensure payment of interest and as such, the plaintiffs were not entitled to get a decree for ejectment on the basis of the rent note. It may, however, be noticed that the courts below had decreed the claim of arrears of rent on the basis of the rent note. If the finding of the court below that the rent note was in-operative in the circumstances of the case is correct, the plaintiffs should not have been awarded any decree for arrears of rent on the basis of Ex. 1. There is thus this inconsistency in the judgments of the courts below.

5. Learned counsel for the appellants has argued that the courts were wrong in treating the mortgage deeds and the rent note as part of the same transaction. It is contended that by the mortgage-deed the plaintiffs secured possession of the property mortgaged and then they leased it back on the very same day to the defendants. The transaction giving the property on lease must be treated as separate from that of mortgage. In this connection, the learned counsel has relied on the judgment of this Court in Jankidas v. Laxminarain (2). That was a case in which there was a usufructuary mortgage of the house and the mortgagees had in their turn given a lease of the mortgaged property to the mortgagor on a certain rate of rent. The mortgagee had brought the suit for arrears of rent and ejectment on the basis of rent note. Earlier they had brought the suit for arrears of rent. It was argued in that case that the appeal was barred under O. 2, r. 2 C.P.C Wanchoo, C.J as he then was, took the view that the mortgagee had claimed rent on the basis of the deed of base and that the obligation to pay it arose independently of the mortgage and out of the lease, and the mortgagee could sue for arrears of rent whenever the rent remained due. It may be noted that Baijnath's case (1) was cited. With regard to that case learned Chief Justice observed, as follows:—

“With all respect, I fail to understand why, where a usufructuary mortgagee gives back the house on lease to the mortgagor, the mortgagor dots not become a tenant of the mortgagee. The fact that the mortgage also mentions a rate of interest, and the rent is equal to the rate of interest, would not make the deed of lease anything less than what it is.”

Thus, there is a clear authority of this Court in support of the appellants.

6. The respondents before me are not represented and with the assistance of the learned counsel for the appellants, I have examined the case law on this point. There are two cases of the Allahabad High Court which must be first noticed. The first case is Chimmanlal v. Bahadur Singh (3). In that case there was a usufructuary mortgage dated the 18th of September, 1883, by Chimmanlal in favour of Bahadur Singh. The mortgagor covenanted with the mortgagee to pay interest at the rate of annas 14 per cent and at that rate of interest the mortgagor was to pay to the mortgagee Rs. 141,12.0 per annum. It was stipulated that the mortgagee should pay himself the interest from the profits of the mortgaged property and if any surplus remained out of the income, the same should be applied in reduction of the principal of the loan. By another instrument of the very same date the mortgagor executed a qabuliat by which he acknowledged to have received from the mortgagee a lease of the mortgaged premises, at an annual rental of Rs. 141,12.0, which he promised to pay by two equal half yearly instalments. The qabuliat was drawn up strictly in the form of a lease between a landlord and a tenant and set forth the remedies available to the lessor by ejectment in case of failure to pay the stipulated rent. It was held by the Allahabad High Court that on these facts it was difficult to hold that the lease was granted for realising the interest payable on the mortgage. The second case of the Allahabad High Court was—S.A No. 1112 of 1894 decided on the 8th April, 1897, and is reported at the foot note at pages 341-345 in I.L.R 23 Allahabad 338. That is a judgment of a Division Bench consisting of Edge, C.J and Blair, J. The following passage in that judgment is illuminating:—

“The transaction between the parties, that is, the granting of a usufructuary mortgage and the subsequent granting of a lease to the mortgagor of the mortgaged premises, is one exceedingly common in this part of India; whether it may be known in other parts of India we do not know. The grant of such a lease by a mortgagee to his mortgagor has been invariably treated, not only in the civil courts and in the courts of revenue, but outside the courts in these Provinces, as a transaction of lease, and as putting the parties in exactly the same position as that in which they would have stood if, instead of having been mortgagor and mort gagee, they were the Zamindar and any other person taking a lease of the land.”

From my limited experience I can say that much the same is the position obtainable in the State of Rajasthan.

7. The Calcutta High Court in Uttam Chandra Daw v. Rajkrishna Dalal (4) approved of the view taken by the Allahabad High Court in the aforesaid two cases.

8. The Lahore High Court in Asa Ram v. Kishan Chand (5), took the view that the tenant is not and cannot be permitted to go against the document and that the qabuliat executed by him should not be interpreted as a lease. It was further pointed out that the mortgagees undoubtedly intended to secure on the amount lent an income equal to interest at a certain rate but this they were not precluded from doing by any principle of law.

9. The Kerala High Court in Venkappa Bhatta v. Gangadhara Bhatta (6) has taken the view that it cannot: be held that whenever as part of the same transaction, property which is usufructuaries mortgaged is leased back to the mortgagor, the rent accrued is really interest and automatically becomes a charge on the property, to be paid as part of the mortgage money at the time of redemption if it remains in arrear.

10. Now I come to the decisions of the Patna High Court.

11. In Abdul Rahim v. Raghunath Sukul (7) there was a Zarpeshgi lease executed. It was decided that the mortgage and qabuliat were two distinct transactions and the relationship of landlord and tenant was created between the parties by the lease deed and on that basis the suit was maintainable.

12. However, in Umeshwar Prasad Sinha v. Dwarka Prasad (8), the position was again surveyed when the question arose of the application of Order 34, Rule 14 C.P.C Sinha, C.J as he then was, examined the question as to what should be the proper test to determine whether two apparently separate transactions were or were not parts of a single transaction, the learned Judge refused to lay down any hard and fast rule which could be said to govern such cases. He, however suggested that one test that may generally be applied to hold that two documents formed part of the transaction is that where it appears on a reasonable construction of the documents that the properties were given in security not only for the principal amount secured under the bond but also for the interest accruing thereupon. The learned Judge referred to the judgment of the Judicial Committee in Panaganti Ramarayaningar v. Maharaja of Venkatagiri (9) to show that the lease deed and mortgage deed in that case could be read together and held to form part of one transaction if the lease was “in the nature of a machinery for the purpose of realizing the interest due on the mort-gage”. Their Lordships of the Privy Council in that case were considering whether the defendant in that case was not entitled to set up a charge for the arrears of rent before redemption could be ordered. Section 61 of the Transfer of Property Act, as it stood at that time, enacted by implication that a mortgagor seeking to redeem shall not be entitled to do so without paying any money that may be due under a separate mortgage or charge if the latter relates to the same property. It was held that there was a simple mortgage or a charge subsisting on the property mortgaged in favour of the defendant by virtue of the lease deed and that the defendant in that case was entitled to recover the arrears of rent in that very suit. This case, therefore, cannot be taken to be an authority for the proposition that the mortgagee is not entitled to maintain the suit on the basis of the lease deed which the mortgagor had executed in his favour.

13. 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. In law mortgages of various forms are recognised and a mortgagor may secure himself not only the possession of the property but also stipulate payment of interest at a particular rate of interest. The interest may be made realizable from the usufruct of the mortgaged property. Such a transaction is a well recognised form of transaction and is known as anomalous mortgage. 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 after it. 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. It does not take the argument very far if we say that they represent one transaction. As observed by Wanchoo, C.J in Jankidas v. Laxmi Narain (2), the transactions may be one in the sense that they arise out of a common purpose. There is no reason why the rights and liabilities of the parties should not be governed by the terms of the document to which they had solemnly agreed. Cases may arise in which the terms and conditions in the two documents are so interwoven that in order to determine the true nature of the contract entered into by the parties, both must be read together and considered part of the same transaction. Such cases apart, on principle I find it difficult to accept that even in cases where the nature of the two transactions can be spelt out separately the terms of any of the documents should be treated as not binding on the parties. Of course, there might be statutory provision of law which may insist that the two transactions must be put together for a particular purpose. Thus while applying Order 34, Rule 14 CPC. there may be room for argument that the words ‘arising under the mortgage’ used in that rule are so wide in their scope as to prohibit the mortgage to bring the mortgaged property to sale in execution of a decree obtained for rent, but I am not addressing myself to this aspect of the matter at present. I may, however, mention that the Madras High Court in Narasimhulu Chettiar v. K. Ramanatha Mudaliar (1) has taken this view.

14. The decision given by the Patna High Court in Umeshwar Prasad Singha v. Dwarika Prasad* (8) has been followed by the same Court in Baijnath Prasad v. Jang Bahadur Singh (1), Dr. Haji Muhammad Ahsanul Tauhid v. Shah Akhtar Hussain (11) and Ganpat Turi…Defendant, v. Mohammad Asraf Ali…Plaintiff, . (12). In Baijnath Prasad v. Jang Bahadur Singh (1), the Patna High Court held that the mortgage deed represented one transaction. In Dr. Haji Muhammad Ahsanul Tauhid v. Shah Akhtar Hussain (11) it was held that it represented one transaction while in Ganpat Turi…Defendant, v. Mohammad Asraf Ali…Plaintiff, . (12), it was held that the mortgage deed and the lease deed represented two separate transactions. It cannot be said that the Patna High Court laid down any final test for determining whether the two transactions represented in reality one transaction but it appears in the two cases (1) Baij Nath Prasad v. Jang Bahadur and (2) Dr. Haji Muhammad Ahsanul Tauhid v. Shah Akhtar Hussain (n), the execution of the two documents at one and the same time and the rent being equivalent to the amount of interest which was payable monthly were circumstances significant enough to conclude that the two transactions were one and suit for ejectment and rent could not be decreed.

15. With great respect I do not find myself in a position to take this view of the matter.

16. In the present case, though both the documents were executed on one and the same day and monthly rate of rent fixed is equivalent to the monthly interest payable under the mortgages, yet the document showed that both are independent of each other. There is no reference of one in the other. Both can stand independently without asking any assistance from the other. Further no case has been made out that the execution of the lease deed was merely a sham transaction. Under these circumstances, I am of opinion that the plaintiff is entitled to maintain a suit for ejectment on the basis of the rent note (Ex. 1).

17. As a result of the aforesaid discussion, the appeal is allowed and the suit of the plaintiff for ejectment of the defendants Nanuram and Shyamlal is decreed with costs in all the courts.