A merger of leasehold and mortgage rights does not occur, reaffirming the necessity of party intention regarding tenure.

1The suit for redemption filed in 1963, from which this second appeal filed by the defendant arose, had a chequered history, which need not be mentioned here. Accepting the claim of tenancy put forward by the appellant, the Trial Court dismissed the suit. But the appellate judge reversed the decision and passed a preliminary decree for redemption negativing the tenancy claim following the decision in Godasankara Valia Raja v. Tharappan Vareed (1961 KLT 138).

2 The suit property is 59 cents of paddy field, which was leased out to the predecessor of the appellant under Ext. B1 melvaipa pattachit on 14.6.1113 and subsequently mortgaged to him on 12.8.1113 under Ext. P1. Appellant came by these rights under assignments and the respondent got the equity of redemption. These facts are not in dispute. The three questions arising for consideration are;
(a) whether leasehold right under Ext. B1 merged in Ext. 15 mortgage right ?
(b). Whether Ext. P1 operates as an implied surrender of Ext. B1; and
(c). if the above two points are found against, whether Ext. B1 itself is only a mortgage and not a lease?

3 There can be no merger of a lease and a mortgage, even where the two transactions are in respect of the same property and in favour of the same individual. For a merger to arise, it is necessary that a lesser estate and a higher estate should merge in one person at 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 outstanding with the lessor is the reversion and in the case of a mortgage, the estate outstanding with the mortgagor is the equity of redemption. Neither the lease nor the mortgage is a higher or lesser estate than the other. Therefore, there cannot be a merger of a lease and a mortgage in respect of the same property. Even if these two rights in respect of the same 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. Therefore, there cannot be a complete fusion of all the rights of ownership in one person. When S.101 and 111 (d) of the Transfer of Property Act are read together, that is the result. This position of law, explained in Shah Mathuradas Maganlal and Co. v. Nagappa Shankarappa Malega and others (AIR 1976 SC 1565), was reiterated by the Supreme Court in Gambangi Appalaswamy Naidu and others v. Behara Venkataramayya Patro (AIR 1984 SC 1728) and thus it became the law of the land Raman Pillai v. Bhaskara Panicker (1990 (2) KLT 271) followed the same. Union of a charge and the ownership of an estate is merger either because the lesser estate is drowned in the greater or because a man cannot be his own debtor. Therefore, the first question has to be answered in favour of the appellant.

4 Implied surrender or surrender by operation of law occurs by the creation of a new relationship or by relinquishment of possession. The provision of Section III(f) of the Transfer of Property Act embodied a rule of justice, equity and good conscience to agricultural leases. But, when a lessee becomes a mortgagee, his rights as lessee remain in abeyance to be restored when the mortgage right comes to an end unless there is an intention to terminate the lease. The position may be different if the lessee accepts a new lease because a new lease cannot be granted unless the old one was surrendered. In the decision in Nagappa Shankarappa Malaga's case (A. I. R 1976 S. C 1565), the deed of mortgage itself showed features indicating that there was surrender of tenancy and after acceptance of the mortgage, that right alone continued. The decision in Godasankara Vallia Raja's case (1961 KLT 138) proceeded as if a lease deed and mortgage deed contemplate two inconsistent and incompatible relations and the right under the lease deed must be deemed to have been surrendered impliedly on the mortgage deed taking effect further because it i