M.B Shah, J.— The short question involved in this appeal is whether the lease executed in favour of Abraham Cheriyan, husband of the mortgagee would survive after the execution of the mortgage deed. In our view from the evidence on record, it is apparent that the parties expressly saved the leasehold rights. The lessee was not a party to the mortgage deed and there is no evidence on record from which it can be inferred or implied that the lessee surrendered his leasehold rights. It is well established law that unless there was a surrender of leasehold rights at the time of execution of the mortgage, the mortgagor would not be entitled to obtain delivery of physical possession of property on the redemption of mortgage.
2. The relevant facts for deciding the aforesaid question are as under:
By a document dated 12-6-1932 for the suit proper, the owner executed a lease deed in favour of Abraham Cheriyan. Thereafter on 21-9-1935 (5th Kanni 1109) (Exb. 2) usufructuary mortgage deed was executed in favour of Smt Sosamma, wife of Abraham Cheriyan. Additional mortgage deeds were executed on 30-8-1935 (Exb. P-10) and 8-2-1939 (Exb. P-1). The lessee, Abraham Cheriyan died on 29-6-1946. OS Civil Suit No. 60 of 1968 was filed before the Munsiff's Court, Chenganacherry for redemption of the mortgaged property. A preliminary decree for redemption under Order 34 Rule 7 of the Code of Civil Procedure was passed on 3-12-1971 by the Court of the Munsiff. The Court arrived at the conclusion that the lessee's right would merge at the time of execution of the mortgage deed. Appeal AS No. 100 of 1972 was allowed by the Additional Sub-Judge by a judgment and decree dated 5-7-1973, by holding that the finding given by the trial court that the lease in favour of Abraham Cheriyan merged when the mortgage deed was executed in favour of the first defendant cannot be upheld. Against that judgment and decree, Second Appeal No. 995 of 1975 was filed before the High Court of Kerala. By a judgment and decree dated 29-6-1979, the learned Single Judge allowed the said appeal by holding that Exbs. P-1, P-2 and P-10 create mortgagor and mortgagee relationship between the parties. The Court held that the lease arrangement in favour of the first defendant's husband, Abraham Cheriyan would not survive after execution of the mortgage deed for the said property. The Court considered that though the deceased Abraham Cheriyan was not an actual party to the mortgage transaction, yet a reasonable inference could be drawn that the transaction was really entered into by Abraham Cheriyan himself through his wife and, therefore, the lease prior to the suit transaction in favour of Abraham Cheriyan will not survive and the defendants cannot claim any right of fixity of tenure on the basis of the lease. The Court, therefore, restored the preliminary decree under Order 34 Rule 7 of the Code of Civil Procedure for redemption of the mortgage.
3. At the time of hearing of this appeal, learned counsel appearing for the appellants referred to the mortgage deed and additional mortgage deeds to show that by the said deeds, the rights of the lessee are expressly saved.
4. We would first refer to Exb. P-2, mortgage deed dated 21-9-1993 (5th Kanni 1109) in favour of Smt Sosamma, wife of Abraham Cheriyan. The said document, inter alia, specifically recites as under:
“The abovesaid properties were those that were entrusted for pattom to your husband, Abraham Cheriyan on 26th Edavam 1109 and at present were those in your possession, enjoyment and occupation.”
5. After the aforesaid narration in the last para, it is specifically provided as under:
“The pattom on the properties as it is agreed to include the rent for the building, the sum of Rs 120 per year should be paid regularly every month as it is being paid at present to me without fail and the pattom amount should not be adjusted either in the principal amount of mortgage or the interest.”
6. The next document is Exb. P-10, additional mortgage deed dated 30-8-1935 (4.1.1111). The said deed also provides as under:
“As per the conditions in the mortgage agreement, you have agreed to pay a sum of Rs 120 per year as pattom for the properties included in this and after excluding pattom amount which I have received up to this date, you have got right to adjust the future rent due for the future interest due to you as per the said mortgage agreement and under this additional mortgage agreement and the balance pattom (rent) shall be received by me every year and within the stipulated period.”
7. Same is the position in the further second additional mortgage deed dated 8-2-1939 (Exb. P-1). This document provides as under:
“You are made to believe that there is no encumbrance on this property except the melvaipa lease arrangement to your husband, Abraham Cheriyan (Item 2) No. 203 dated 30 Chingam 1112 ME, and the encumbrances which you have as stated earlier.”
8. From these documents, it is apparent that the parties unequivocally, without any reservation, continued the lease agreement after execution of the mortgage. The recitals in the documents are unambiguous and leave no doubt that the lease has continued, and, therefore, in our view, it survives.
9. The first document itself provides that the mortgagee would be required to pay Rs 120 per year regularly as rent and that rent amount could not be adjusted either in the principal amount of mortgage or interest. Similarly, by the additional mortgage deeds aforesaid, the right to recover the rent is continued. The last additional mortgage deed specifically recites that there are no encumbrances on the property except lease arrangement with the mortgagee's husband, Abraham Cheriyan. These documents clearly reflect the intention of the parties that leasehold rights of Abraham Cheriyan were kept alive despite execution of usufructuary mortgage.
10. This Court, in a series of cases has concluded the question by holding that the question whether upon redemption of usufructuary mortgage, a tenant-mortgagee was required to deliver actual or physical possession of the mortgaged property to the lessor-mortgagor depends upon the intention of the parties at the time of the execution of the mortgage deed. 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 the absence of proof of surrender of the lease. Unless there is merger of both rights on redemption of the mortgage, the plaintiff is not entitled to recover physical possession of the property. The right of the lessee to continue in possession would survive after redemption.
11. The learned counsel for the appellants rightly referred to the decision of this Court in the case of Gambangi Applaswamy Naidu v. Behara Venkataramanayya Patro (1984) 4 SCC 382, (1985) 1 SCR 651 wherein the Court has held that there can be no merger of a lease and a mortgage, even where the two transactions are in respect of the same property; it is well settled that for a merger to arise, it is necessary that a lesser estate and a higher estate should merge in one person at once (sic one) and the same time and in the same right and no interest in the property should remain outstanding. In the case of a lease, the estate that is outstanding in the lessor is the reversion; in the case of a mortgage, the estate that is outstanding is the equity of redemption of the mortgagor. Accordingly, there cannot be a merger of a lease and a mortgage in respect of the same property since neither of them is a higher or lesser estate than the other. Even if the rights of the lessee and the rights of the mortgagee in respect of a property were to be united in one person, the reversion in regard to the lease and the equity of redemption in regard to the mortgage would be outstanding in the owner of the property and accordingly, there would not be a complete fusion of all the rights of ownership in one person. This position in law as explained by the Bombay High Court in Narayan Dogra Shetty v. Ramchandra Shivram Hingne (1963) 65 Bom LR 449 has been fully approved by this Court in Shah Mathuradas Maganlal & Co. v. Nagappa Shankarappa Malage (1976) 3 SCC 660. The Court also held that with regard to the implied surrender of the lessee's rights when the usufructuary mortgage was executed would depend upon what was the intention of the parties at the time of execution of the mortgage deed in favour of the sitting tenant and the same has to be gathered from the terms and conditions of the mortgage transaction in the light of the surrounding circumstances of the case. The aforesaid decision is relied upon by this Court in the case of Nemi Chand v. Onkar Lal (1991) 3 SCC 464, JT (1991) 3 SC 106.
12. Further, in the case of Gopalan Krishnankutty v. Kunjamma Pillai Sarojini Amma (1996) 3 SCC 424 the Court after considering earlier decisions held that on execution of the mortgage in favour of the lessee, 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 the absence of proof of surrender of the lease by the defendant. Hence, on redemption of the mortgage, the plaintiff is not entitled automatically to recover possession of the leased premises.
13. Hence, the contention of the learned counsel for the respondents that as the mortgage deed provides that the possession of the property is handed over to the mortgagee, wife of the lessee, impliedly leasehold rights are surrendered is, in our view, without any substance. The High Court arrived at the conclusion that whether Mr Cheriyan was an actual party to the mortgage transaction, was not much material as it was impossible in the circumstances to contend that the transaction was entered into behind the back of Mr Cheriyan; Mr Cheriyan and his wife were living together and the reasonable inference in the circumstances would be to conclude that the transaction was really entered into by Mr Cheriyan himself though in the name of his wife. Hence, the lease prior to the suit transaction in favour of Cheriyan would not survive. We agree with the finding that the husband and wife, that is, the lessee and mortgagee, were living together. As quoted above in the mortgage deed, it is mentioned that the properties were entrusted for pattom to Abraham Cheriyan and at present were in her possession, enjoyment and occupation. Therefore, it is apparent that the lessee and the mortgagee were the same persons. However, there is no question of drawing any inference that the husband of the mortgagee surrendered his tenancy rights at the time of mortgage. As stated earlier, by mere execution of the usufructuary mortgage, there is no merger of pre-existing tenancy rights unless there is express or implied surrender. In the facts of the present case, there is no question of implied surrender of leasehold rights by the deceased Abraham Cheriyan. Further, there is no question of drawing any inference that the deceased lessee has surrendered the leasehold rights as it would be totally inconsistent with the recitals and terms of the mortgage deeds. There was no necessity of providing in all the aforesaid three documents that there was a lease arrangement with regard to the mortgaged property and that the mortgagee was required to pay a rent of Rs 120 per year. On the contrary, the mortgage deeds expressly saved the tenancy rights.
14. In the result, the appeal is allowed, the judgment and decree passed by the High Court is modified to the extent that on the redemption of mortgage, the leasehold rights of the deceased would survive as there is no surrender or implied surrender of the tenancy rights by the deceased Abraham Cheriyan. The judgment and the decree passed by the trial court which is confirmed by the High Court would stand modified to the aforesaid extent.
15. The appeal is partly allowed with no order as to costs.