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Gopalan Krishnankutty v. Kunjamma Pillai Sarojini Amma And Others
Factual and Procedural Background
The defendant had been in possession of a shop premises as a lessee since 1965, operating a bakery business. On 18 July 1974 the plaintiff-owner executed a usufructuary mortgage of the same premises in favour of the defendant for a consideration of Rs 13,000. After the mortgage period expired, the plaintiff instituted a suit seeking redemption of the mortgage and recovery of possession. The defendant resisted the prayer for possession, asserting that his occupancy was still rooted in the earlier lease, independent of the mortgage.
The trial court granted a preliminary decree for redemption and ordered the defendant to deliver possession. The defendant’s first appeal was dismissed by the High Court. The present appeal is brought by the defendant by special leave, challenging the direction to hand over possession.
Legal Issues Presented
- Whether the defendant-lessee had surrendered his lease—either expressly or by necessary implication—when the usufructuary mortgage was executed in his favour.
- If no surrender occurred, whether the plaintiff-mortgagor was entitled, upon redemption, to immediate recovery of physical possession from the defendant.
Arguments of the Parties
Appellant (Defendant)
- Contended that his possession stemmed from the original lease, which remained unaffected by the later mortgage; therefore, even after redemption he was entitled to continue in occupation as a tenant.
Respondent (Plaintiff)
- Relied on the trial court and High Court findings that the lease had been surrendered upon execution of the mortgage, thereby converting the defendant’s possession solely into that of a mortgagee obliged to restore possession on redemption.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Shah Mathuradas Maganlal & Co. v. Nagappa Shankarappa Malage (1976) 3 SCC 660 | Distinction between rights of a lessee and a mortgagee; surrender of a lease requires evidence of acceptance by the lessor and some act amounting to taking possession. | Used to underscore that mere creation of a mortgage in favour of a sitting tenant does not automatically imply surrender of the earlier lease; the issue is one of fact. |
| Gambangi Applaswamy Naidu v. Behara Venkataramanayya Patro (1984) 4 SCC 382 | Whether a tenant-mortgagee must deliver possession on redemption hinges on proof of surrender of the lease at the time of mortgage. | Cited to affirm that the mortgagor’s right to physical possession depends on establishing an express or implied surrender by the tenant-mortgagee. |
| Narayan Vishnu Hendre v. Baburao Savalaram Kothawale (1995) 6 SCC 608 | The doctrine of merger does not apply automatically when leased premises are mortgaged to the lessee; implied surrender is not to be readily inferred. | Followed to reinforce that, absent clear evidence of surrender, the tenant’s rights revive after redemption. |
Court's Reasoning and Analysis
The court noted that prior decisions firmly establish that surrender of a lease is a question of fact and cannot be presumed merely because a mortgage is subsequently created in favour of the lessee. The High Court’s judgment was predicated on the legal assumption that surrender should be implied from the very act of executing the mortgage—an assumption the present court labelled erroneous.
Examining the mortgage deed dated 18 July 1974 (Annexure A-1) and the contemporaneous release deed, the court found no clause or language indicating either an express surrender or any conduct amounting to an implied surrender. As no other evidence of surrender had been produced, the court concluded that the defendant’s tenancy rights had not merged with his rights as mortgagee.
Given the absence of surrender, the defendant’s status as lessee merely stood in abeyance during the mortgage term and revived upon redemption. Consequently, the plaintiff could redeem the mortgage but was not entitled to physical recovery of the premises from the defendant.
Holding and Implications
Appeal Allowed; direction to deliver possession set aside.
The plaintiff may redeem the mortgage but cannot eject the defendant, whose tenancy rights continue. The defendant is awarded costs throughout. The decision reiterates that a tenant’s leasehold interest does not merge with a subsequent mortgage in his favour unless a surrender—express or implied—is proved, thereby providing guidance for future landlord-tenant-mortgagee disputes without establishing new substantive law.
J.S Verma, J.— This appeal by special leave is by the defendant and it arises out of a suit for redemption of a mortgage. The appellant was the lessee in the premises which is a shop in which he was carrying on his bakery business from 1965. The plaintiff later executed a mortgage in favour of the defendant on 18-7-1974 for a consideration of Rs 13,000. On expiry of the period of mortgage, the plaintiff filed a suit for redemption and recovery of possession of the premises. The defendant contested the claim for recovery of possession, inter alia, on the ground that his possession was that of a lessee, independent of the mortgage and even after redemption of the mortgage the defendant was entitled to continue in possession under the lease. The trial court passed a preliminary decree granting redemption and directing recovery of possession from the defendant. The first appeal by the defendant has been dismissed by the High Court. Hence, this appeal by the defendant.
2. The High Court has held that there was surrender of the prior lease by the defendant on execution of the mortgage by the plaintiff in his favour; and that the defendant's possession of the premises at the time of mortgage being only as mortgagee, the defendant was bound to restore possession to the plaintiff on redemption of the mortgage.
3. In Shah Mathuradas Maganlal & Co. v. Nagappa Shankarappa Malage (1976) 3 SCC 660, the distinction between the rights of a lessee and a mortgagee was pointed out and the conditions for the merger of the two rights were indicated. It was held that “surrender of a lease takes effect like a contract by mutual consent on the lessor's acceptance of the act of the lessee; and that there must be a taking of possession, not necessarily a physical taking, but something amounting to a virtual taking of possession. Whether this has occurred is a question of fact”. Thus, the mere fact that the owner creates a mortgage in favour of the lessee is not by itself decisive to hold that the prior lease was surrendered and the possession of the earlier lessee is only that of a mortgagee on creation of the mortgage. The nature of possession is a question of fact in each case.
4. In Gambangi Applaswamy Naidu v. Behara Venkataramanayya Patro (1984) 4 SCC 382, it was reiterated that the answer to the question whether upon redemption of usufructuary mortgage a tenant-mortgagee was required to deliver actual or physical possession of the mortgage property to the lessor-mortgagor must depend upon whether there was surrender of the lessee's right when the usufructuary mortgage was executed in his favour by the lessor-mortgagor; and this depends upon the intention of the parties at the time of execution of the mortgage deed in favour of the sitting tenant. Thus, unless there was a surrender of the lessor's rights at the time of execution of the mortgage, the mortgagor would not be entitled to obtain delivery of physical possession upon redemption.
5. Recently in Narayan Vishnu Hendre v. Baburao Savalaram Kothawale (1995) 6 SCC 608, these decisions have been followed and it has been held that the doctrine of merger does not apply where tenanted premises are mortgaged in favour of the lessee. It has been held that implied surrender of the lease would not be readily inferred. It was reiterated that unless surrender of the lease was proved, the only effect of the mortgage was that the lessee's rights were kept in abeyance and it would revive upon redemption of the mortgage. It is, therefore, clear that in a case like this, the question whether there was surrender of the lease by the lessee at the time of execution of the mortgage in his favour by the lessor-mortgagor is a question of fact to be answered on the evidence.
6. The High Court, in the present case, proceeded on the erroneous assumption in law that surrender of the lease by the lessee (defendant) must be implied from the fact of execution of the usufructuary mortgage in his favour by the lessor (plaintiff). As indicated, this is an erroneous assumption in law. This question has to be decided on the contents of the deed since there is no other evidence of surrender of the lease by the defendant on execution of the mortgage. We find nothing in the mortgage deed (Annexure A-1) dated 18-7-1974 read with the release deed of the same date to prove either an express or an implied surrender of the lease by the defendant in favour of the plaintiff on execution of the mortgage deed. Since there is no automatic merger of the interest of a lessee with that of a mortgagee when the same person is the lessee as well as the mortgagee, in absence of proof of surrender of the lease by the defendant, on redemption of the mortgage, the plaintiff is not entitled automatically to recover possession of the leased premises. The defendant's right to continue in possession as a lessee, therefore, continues to subsist.
7. Accordingly, the appeal is allowed. The judgments and decrees of the courts below to the extent they direct restoration of possession by the defendant to the plaintiffs are set aside. The defendant-appellant would get his corresponding costs throughout from the plaintiff-respondents.
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