Jagta vs Hari Chand

K.V. Gopalakrishnan Nair, J.—The Appellant who is the Defendant in the suit mortgaged his house to the Respondent-Plaintiff. The

mortgage purported to be possessory in character. On the day the mortgage was registered, the mortgagee leased the property back to the

mortgagor under a separate deed reserving a monthly rent and providing that in default of payment of rent the lessee will be liable to be evicted.

The lease back did not stipulate that the arrear of rent will be a charge on the mortgage property, nor did the mortgage deed create a charge for

interest on the property but it provided that the rent of the mortgaged house was to be equal to the interest due on the mortgage money.

The mortgagor-lessee kept a considerable amount of rent in arrear and the mortgagee-lessor instituted a suit for eviction and arrears of rent in

the court of the Subordinate Judge at Jammu. The suit was decreed. On appeal, the Addl. District Judge at Jammu confirmed the decision of the

trial court. The mortgagor-lessee has, therefore, come up in second appeal to this Court.

The learned Counsel for the Appellant has raised before me a question of law based on what he claims to be a true construction of the mortgage

and the lease back. According to him. these two documents form parts of a single transaction and the relationship between the parties is only that

of mortgagor and mortgagee and not of lessor and lessee. His entire case is based on the contention that the effect of the mortgage and the lease

back read together is to create a simple mortgage under which the mortgagee has no right to possession of the property but is entitled only to

enforce the security for recovering the mortgage debt.

The learned Counsel for the Respondent has on the other hand strenuously urged that the character and incidents of the transaction are very

different from what is contended for on behalf of the Appellant. The transaction between the parties was to create a possessory mortgage entitling

the mortgagee to retain possession of the property and to enjoy it as he may choose by letting it out to the mortgagor himself or to any other

person. The suit is based on the lease back which manifestly created the relationship of lessor and lessee and consequently the Respondent is

entitled to a decree in ejectment as well as for arrears of rent.

The dispute between the parties necessitates an examination of the true character and incidents of the transaction between them. Before doing

so, it is well to set out the general principle governing the construction of documents of this character. While it is permissible as a matter of

construction to look behind the form of the transaction to ascertain its substance and give effect to it according to the intention of the parties, it is

not permissible to ignore the form in which the parties have deliberately cast their bargain when such form is clearly intended to govern their mutual

rights and obligations.

The parties to a transaction have undoubtedly the right to decide what shall be the nature of the contract between them and what shall be its terms

and so long as there is nothing illegal or against public policy in it. It is not open to a court of law to ignore it and construct a new contract for the

parties. The intention of the parties has ordinarily to be gathered from what they have expressed it to be in the documents executed by them. It will

be incorrect for a court to approach the matter with a pre-conceived legal theory and try to put upon the express terms of the contract a strained

and artificial construction so as to make them accord with that legal theory.

The mortgage deed in the instant case expressly recites that the mortgagee is to have possession of the property. It proceeds to say that actual

possession has been handed over to the mortgagee. Furthermore, the mortgage deed embodies an unambiguous provision that the mortgagee is

entitled to live in the mortgaged house himself or to lease it out to somebody else and collect the rent. The rent so collected by the mortgagee is to

be considered equal to the interest on the mortgage money. The lease deed reiterates that a mortgage with possession has been executed by the

Appellant to the Respondent and that the Appellant has taken the property on lease on a monthly rent.

It also stipulates that in default of payment of rent, the lessor, mortgagee will be entitled to evict the lessee-mortgagor. Provision is also made for

evicting the mortgagor-lessee from the house on the mortgagee-lessor giving a month's notice for the purpose. These recitals clearly indicate to my

mind that the intention of the parties was that the mortgagee should be entitled to possession and enjoyment of the mortgaged property until the

mortgage is duly redeemed.

But it is strenuously contended by the Appellant's learned Counsel that the mortgage and the lease back constitute parts of the same transaction

and that the lease deed is nothing but a machinery for the collection of interest due to the mortgagee on the mortgage money and that consequently

it must be held that the parties intended only to create a simple mortgage without any right on the part of the mortgagee to disturb the possession of

the mortgagor. Strong reliance for this contention is placed on the decision of the AIR 1927 32 (Privy Council) , where their Lordships of the

Judicial Committee observed at page 361 as follows:

It is contended before this Board on behalf of the Defendant-Appellant that the two deeds, Exs. A and I, should be read together as they form

parts of one transaction, the lease being in the nature of machinery for the purpose of realizing the interest due on the mortgage.... Their Lordships

are of opinion that these contentions on behalf of the Appellant must prevail.

I do not think these observations of the Privy Council are of real assistance to the Appellant in this case. The mortgage in the case before the Privy

Council was a combination of a simple and a usufructuary mortgage and was accompanied. as to part of the mortgaged property by a lease back

to the mortgagor. The lease provided that if the parties defaulted in payment of the rent reserved, the rent arrear should be charged on the property

mortgaged. The mortgagor fell into arrears with rent. Without discharging the rent arrears, he brought an action for redemption of the mortgage and

for possession of the mortgaged property. The mortgagee claimed that the mortgagor, as a condition of redemption, was bound to pay the arrears

of rent also.

The Privy Council held that Section 61 of the Transfer of Property Act by implication entitled the mortgagee to insist the payment of arrears of rent

which were also charged on the property mortgaged. The observations quoted above must be understood with reference to these facts of the case.

They do not and cannot be construed to mean that where a possessory mortgage and a lease back constitute parts of the same transaction and the

lease back is in the nature of machinery for realising interest on the mortgage debt the true bargain between the parties must be understood as one

of simple mortgage.

It is useful in this connection to refer to an earlier decision of the Privy Council in Abdullah Khan v. Basharat Hussain ILR 35 All 48. That was a

case of a usufructuary mortgage with a lease back of the property mortgaged to the mortgagor. The mortgage provided that the profits of the

property mortgaged should be enjoyed by the mortgagee in lieu of interest on the mortgage money The rent reserved under the lease was

equivalent to interest at six per cent per annum on the mortgage money but was less than the annual yield of the property. The mortgagor-lessee

defaulted in paying the rent whereupon the mortgagee entered into possession of the property as provided in the lease. In a subsequent suit for

redemption, the question arose whether the mortgagee was accountable for the rents and profits received by him from the property in excess of the

rent reserved under the lease. The High Court of Allahabad held that he was on the ground that the mortgage was usufructuary only in form and the

security was really intended to be a simple mortgage carrying interest at the rate of six per cent, per annum. On appeal to the Privy Council, this

decision was reversed and the mortgage was held not accountable for receipts over and above the rent reserved in the lease. Lord Macnaghten

who delivered the judgment of the Board observed:

Their Lordships agree with the High Court in thinking that the mortgage and the lease were parts of one and the same transaction, But there is no

inconsistency between the two instruments. Nor would there have been any inconsistency if the mortgage itself had contained a provision for

granting a lease on the terms upon which the lease was actually granted.

This, in my opinion, is unmistakable authority for the view that although the mortgage and the lease back form parts of one and the same

transaction, effect must be given to each according to its provisions and the court cannot by reading the two together spell out a transaction totally

different in character and incidents. To the same effect more or less is the decision of the (1933) 1 ITR 219 (Privy Council) . That was a case of a

usufructuary mortgage for a term of ten years accompanied by a lease of the mortgaged property to the mortgagor for the same period at a rent

which represented interest at a certain rate on the mortgage debt.

On the expiry of the term, the mortgagee sued for possession of the mortgaged property. The court in India refused a decree for possession

holding that the transaction was in reality a simple mortgage. The Privy Council reversed that decision and held that the mortgage has to be

construed as a possessory mortgage which it plainly purported to be.

They observed:

The mortgagee may well have preferred to leave the cultivation of the land in the hands of the mortgagor, being entitled to take possession at any

time if the provisions of the lease were not adhered to. Assuming this to have been one of the conditions upon which the mortgage was agreed to,

the mere absence of a formal handing over of the land to the mortgagee and a handing back by him to the mortgagor in the character of lessee, is,

they think, of little significance.

Their Lordships further held that ""S. 92 Evidence Act forbids the admission or consideration of the evidence as to the intention of the parties, or to

contradict the express terms of the document.

I may also refer to a decision of a Special Bench of five judges of the Madras High Court in The Commissioner of Income Tax Vs. T.K.E.

Ibrahimsa Ravuttar, . The question there related to the assessability of the income received by the mortgagee-lessor who was a money lender from

the mortgagor-lessee. The contention of the Income Tax authorities was that the so-called ""rent"" was on a true construction of the mortgage and

the lease back and having regard to the substance of the transaction really interest received in the course of money lending and as such assessable

to Income Tax. The Special Bench repelled this contention holding that what the mortgagee-lessor received from the mortgagor-lessee was only

rent payable by a lessee and as such was covered by the exemption relating to agricultural income. To the same effect is the decision of the Privy

Council in the AIR 1935 172 (Privy Council) .

It is unnecessary to cite more authorities on the same point. It follows from the authorities already cited that merely because a mortgage and a

lease back form parts of one and the same transaction there is no warrant for holding that the true bargain between the parties is only that of a

simple mortgage and that the rent reserved under the lease back is only interest on the mortgage money and that the mortgagee is not entitled to

possession of the property mortgaged.

The learned Counsel for the Appellant has placed strong reliance on the decision of a single Judge of the Patna High Court reported in

Ramnarain Pasi Vs. Sukhi Tiwary, . It appears to have been somewhat broadly held in that case that where there is a usufructuary mortgage and a

lease back forming parts of one and the same transaction the relationship between the parties is not of landlord and tenant, but of mortgagor and

mortgagee and that the rent stipulated in the lease deed is only interest on the mortgage money. These observations have to be confined to the facts

of that case, but if they are to be understood as laying down a general proposition of law, I would with great respect differ from them. It has also

been brought to my notice that the Chief Justice of the Punjab High Court in Ramudhar v. Hari Chand AIR 1958 Punj 140 has expressed his

dissent from the view adopted by the Patna High Court in Baijnath Prasad and Others Vs. Jang Bahadur Singh and Another, which was relied

upon in Ramnarain Pasi Vs. Sukhi Tiwary, . On a careful consideration of the matter, I am definitely of the opinion that the view adopted in the

Patna decision is not sound as a proposition of law of general application.

On a consideration of the authorities already referred to and the recitals in the mortgage deed and the lease back in the present case. I am

clearly of the view that the transaction in question is a mortgage with possession which authorizes a mortgagee to remain in possession of the

property or to lease it out to any person of his choice including the mortgagor. The relationship between the parties under the lease deed on which

the present action is brought is that of lessor and lessee and the Plaintiff-Respondent is therefore entitled to evict the Appellant-Defendant and also

recover the arrears of rent from him.

It follows from the foregoing that the appeal has to be dismissed with costs.