Important Points
1. By mere execution of the usufructuary mortgage, there is no merger of pre-existing tenancy rights unless there is express or implied surrender.
2. 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.

Headnote:Transfer of Property Act-Property leased to A-Usufructuary mortgage executed thereafter to wife of A-Mortgage deed expressly saved lease hold rights-Claim on redemption that lease merged with mortgage-Not tenable-Apparently lessee and mortgagee are same person-But by mere execution of usufructuary mortgage there is no merger of pre-existing tenancy rights-On facts there was also no implied surrender of tenancy right in favour of mortgage-Lessee entitled to fixity of tenancy as lease would survive.
       Held : It is well established law that unless there was a surrender of lease hold rights at the time of execution of the mortgage, mortgagor would not be entitled to obtain delivery of physical possession of property on redemption of mortgage. 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 mortgage 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 lessee to continue in possession would survive after redemption. (Paras 1 & 9)
       From these documents it is apparent that 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. 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 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 Cherian. These documents clearly reflect the intention of the parties that lease hold rights of Abraham Cherian was kept alive despite execution of usufructuary mortgage. (Paras 7 & 8)
       We agree with the finding that husband and wife, that is, 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 Cherian and at present were in her possession, enjoyment and occupation. Therefore, it is apparent that lessee and the mortgagee were the same persons. However, there is no question of drawing any inference that husband of 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 lease hold rights by the deceased Abraham Cherian. Further, there is no question of drawing any inference that deceased lessee has surrendered the lease hold 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 mortgage property and that mortgagee was required to pay a rent of Rs. 120/- per year. On the contrary, mortgage deeds expressly saved the tenancy rights. Judgment and decree passed by the High Court is modified to the extent that on the redemption of mortgage leasehold rights of the deceased would survive as there is no surrender or implied surrender of the tenancy rights by the deceased Abraham Cherian. (Paras 12 & 13)

Judgment

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 parties expressly saved the lease hold rights. The lessee was not 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 lease hold rights. It is well established law that unless there was a surrender of lease hold rights at the time of execution of the mortgage, mortgagor would not be entitled to obtain delivery of physical possession of property on redemption of mortgage.

2. The relevant facts for deciding the aforesaid question are as under :-

By a document dated 12th June, 1932 for the suit proper owner executed a lease deed in favour of Abraham Cherian. Thereafter on 21st September, 1935 (5th Kanni 1109) (Exb. 2) usufructurary mortgage deed was executed in favour of Smt. Sosamma, wife of Abraham Cherian. Additional mortgage deeds were executed on 30th August, 1935 (Exb. P. 10) and 8th February, 1939 (Exb. P. 1). Lessee, Abraham Cherian died on 29th June, 1946. O.S. Civil Suit No. 60 of 1968 was filed before the Munsiff’s Court, Chenganacherry for redemption of the mortgage property. A preliminary decree for redemption under Order 34 rule 7 of the Code of Civil Procedure was passed on 3rd December, 1971 by the Court of Munsiff. The Court arrived at the conclusion that lessee’s right would merge at the time of execution of the mortgage deed. Appeal A.S. No. 100 of 1972 was allowed by the Additional Sub-Judge by a judgment and decree dated 5th July, 1973 by holding that the finding given by the trial Court that lease in favour of Abraham Cherian merged when 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 29th June, 1979, the learned Single Judge allowed the said appeal by holding that Exb. 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 Cherian would not survive after execution of the mortgage deed for the said property. The Court considered that though the deceased Abraham Cherian 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 Cherian himself through his wife and, therefore, the lease prior to the suit transaction in favour of Abraham Cherian 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 rights of lessee are expressly saved.

4. We would first refer to Exb. P-2 mortgage deed dated 21st September, 1993 (5th Kanni 1109) in favour of Smt. Sosamma wife of Abraham Cherian. The said document, inter alia, specifically recites as under:-

“The above said properties were those that were entrusted for pattom to your husband Abraham Cherian on 26th Edavam 1109 and at present were those in your possession, enjoyment and occupation.”

After 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.”

5. The next document is Exb

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