L. Shiv Lal vs L. Sham Lal and Others

J.N. Wazir, C.J.—This is a second appeal and arises out of a suit instituted by Shiv Lal plaintiff against Sham Lal and others defendants for

arrears of rent of a shop. The plaintiff's case was that the shop situate in Bazaar Reasi was mortgaged by the father or the defendants by a

registered deed on 23-12-1994 for a consideration of Rs. 170/-. The mortgage was with possession and there was a lease back executed by the

mortgagor in favour of the mortgagee by which the mortgagor had to pay Rs. 1/12/- as monthly rent of the shop to the mortgagee.

The rent was equivalent to the interest due on the mortgage money. It was alleged by the plaintiff that the defendants paid rent only upto 12th Chet

2003. The plaintiff gave up his claim for the arrears of rent which was barred by time and claimed Rs. 63/- for the period of three years prior to the

institution of the suit. The defendants denied having any knowledge about the mortgage of the shop and its being rented out to the defendants by

the plaintiff.

The trial Court found that the shop was mortgaged by the father of the defendants to the plaintiff and that the mortgage being usufructuary

mortgage a lease back was executed by the mortgagor in favour of the plaintiff mortgage agreeing to pay Rs. 1/12 as rent of the shop which was

equivalent to interest on the mortgage money advanced by the plaintiff to the defendants' father. The plaintiff's suit was accordingly decreed in full.

Against that judgment and decree the defendants came up in appeal before the District Judge who allowed their appeal and vacated the decree

passed by the trial Court and dismissed the plaintiff's suit. The plaintiff has now come up in further appeal to this Court.

The case was heard by a Single Judge of this Court who finding that an intricate law point was involved referred the appeal to be heard by a

larger Bench.

Learned Counsel for the appellant has argued that the District Judge has erred in dismissing the plaintiff's suit on the ground that the plaintiff was

not entitled to recover rent of the mortgaged shop as the lease was only a device adopted by the mortgagee for securing regular payment of

interest on the mortgage and that the relationship of landlord and tenant between the plaintiff and the defendants did not exist.

In order to appreciate the argument of the learned Counsel it is necessary to examine the mortgage deed and the lease deed executed by the

parties. Mortgage deed in regard to the shop was executed by the father of the defendants in favour of the plaintiff on 23rd Chet, 1994. The lease

deed was executed on the following day, i.e., the 24th Chet, 1994. It is true that in the mortgage deed, Ex. P.A., it was stated by the mortgagor

that interest on the mortgage money would be Rs. 1 /12/- per month. He has further added a clause in the mortgage deed that at the time of

redemption of the mortgage principal with interest will be paid by the mortgagor to the mortgagee and whatever money is realised by the

mortgagee by way of rent will be adjusted towards interest.

In the lease deed executed on the following day, the mortgagor had definitely stated that he had handed over possession of the mortgaged shop to

the mortgagee and had taken the same shop on a rental of Rs. 1/12/- per month and would be liable to pay rent till he redeemed the mortgage. The

question that fails for determination is whether the two documents form part of a single transaction and can be construed as establishing relationship

only that of mortgagor and mortgagee and not that of landlord and tenant. The learned District Judge followed a ruling of Patna High Court In case

Baijnath Prasad and Others Vs. Jang Bahadur Singh and Another, in which it is laid down:

Where a mortgagor took back a lease of the mortgaged properties by executing a kirayanama in favour of the mortgagee and the so-called rent

payable under it, in fact represented the interest payable on the mortgage money and not rent for use and occupation.

Held that Kirayanama was merely a device for regular payment of interest on the mortgage money and not a lease of the properties. The

mortgagor could not therefore be deemed to be a tenant of the mortgagee and the latter was not entitled to file an application u/s 11 for eviction of

the mortgagor

and relying on that ruling he has dismissed the suit of the plaintiff holding that the plaintiff Could not bring a separate suit for interest without suing

for the entire mortgage money. From the above ruling it does not appear that the mortgage effected by the mortgagor was a usufructuary mortgage.

The lease deeds were executed by the mortgagor in favour of the mortgagee and rent was equivalent to interest payable on the total mortgage

money.

The learned Judges of the Patna High Court held that the arrangement was merely a device for regular payment of interest and not a lease of the

properties. In the present case the facts are different. The mortgagor had definitely stated in the lease deed that he had handed over possession of

the mortgaged shop to the mortgagee. The mortgagee by a separate lease deed had rented out that shop to the mortgagor. May be that rent was

equivalent to the interest on the mortgage money but that would not make any difference.

It has been held in another ruling of tho Patna High Court, Umeshwar Prasad Sinha Vs. Dwarika Prasad, that no hard and fast rule can be laid

down for determining the question as to whether two apparently separata transactions are or are not parts of a single transaction. The safest rule to

follow is that each case must be judged on its own facts as disclosed in the transaction between the Parties evidenced by one or more than one

document.

Although the mortgage deed and the lease back form part of the same transaction yet the intention of the parties is to be gathered from what they

have stated in these two documents. It is open to the Court to look behind the form of a transaction to ascertain its substance and give effect to it

according to the intention of the parties but it is a different thing to ignore the form altogether in which the parties have deliberately cast their

bargain, when such form is intended to govern their mutual rights and obligations. The Court must gather from the language used in the document

by the parties what their intention was and not infer a transaction totally different from what is contained in the document. Their Lordships of the

Madras High Court in Abdul Khadir and Others Vs. V. Subramanya Pattar, have laid down:

That though the mortgage and the lease back could and must in a case of such kind, be taken to form part of the same transaction, effect must be

given to each according to its terms and the Court could not by reading the two together, spell out a transaction totally different in character and

incidents. The usufructuary mortgage accompanied by a lease back could not be regarded as a simple mortgage.

Learned Counsel for mortgagors Respondents argued that the two documents executed showed that tho transaction was one and the same and in

fact the mortgage was not a usufructuary mortgage but only a simple mortgage and the lease back was merely a machinery for collection of interest

due on the mortgage money. I find myself unable to agree with this contention. I may mention at once that the mortgage can in no case be

construed as a simple mortgage.

The mortgagor himself had stated in the rent note that possession of the mortgage shop had been handed over to the mortgagee. It was open to the

plaintiff mortgagee to either lease back the shop to the mortgagor or to choose some other person as his tenant. If he had rented out the shop to

some one else there was nothing in law to preclude him from recovering rent from him. I fail to see how the mortgagee, if he chose the mortgagor

as his lessee and got a lease deed executed by him should be precluded from recovering rent.

As pointed out above the mere fact that the rent happens to be equal to interest on the mortgage money would be immaterial. So long as the

intention of the parties is clear from the language of the documents by which the mortgagor created possessory mortgage in favour of the

mortgagee and rented out the mortgaged property to the mortgagor it cannot be said that relationship between the parties was only of a mortgagee

and mortgagor and not that of landlord and tenant.

It is only in those cases where it is difficult to ascertain whether the mortgage is a usufructuary mortgage or a simple mortgage and where the lease

back is executed merely as a device to secure regular payment of interest it may be said that the relationship is that of mortgagor and mortgagee

and not of landlord and tenant. But in the Present case, to my mind it is absolutely clear that possession had passed to the mortgagee and he leased

back the mortgaged property to the mortgagor on a monthly rental of Rs. 1/12/-.

Our attention has been drawn to a Privy Council decision in AIR 1927 32 (Privy Council) and it is contended that the two deeds in that case

formed part of the same transaction and it was held by their Lordships of the Judicial Committee that the lease being in the nature of machinery for

the purpose of realising interest on the mortgage money the mortgagee was not entitled to recover rent.

The facts of that case were somewhat different from those of the present case. The observations made by their Lordships in that case are not of

any avail to the appellant. The mortgage in that case 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 filed a suit for redemption of the mortgage. It was held by their

Lordships of the Privy Council 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. In another case decided by the Privy Council, Abdullah Khan v. Basharat Hussain

ILR All 48, there was 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 payment of rent whereupon the mortgagee entered into possession of the property as provided in

the lease. In a subsequent suit for redemption the (sic) claimed rent and profits received by the mortgagee from the property in excess of the rent

reserved under the lease.

The High Court of Allahabad held that the mortgage though usufructuary in form was a simple mortgage carrying interest at the rate of six per cent

per annum and the mortgagor was entitled to recover rent and profits received by the mortgagee in excess of the rent reserved under the lease. On

appeal to the Privy Council the judgment of the Allahabad High Court was reversed and the mortgagee was held not accountable fox-receipts over

and above the rent reserved in the lease. Lord Macnaughten 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.

In another Privy Council case (1933) 1 ITR 219 (Privy Council) there was a usufructuary mortgage for a term of ten years and a lease of the

mortgaged property to the mortgagor for the same period at a rent which was equivalent to interest at a certain rate on the mortgage money. On

the expiry of the term, the mortgagee sued for possession of the mortgaged property. The Lahore High Court refused a decree for possession

holding that the transaction was in reality a simple mortgage. The Privy Council reversed that decision and held as under:

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.

In The Commissioner of Income Tax Vs. T.K.E. Ibrahimsa Ravuttar, , the question was whether the income received by the mortgagee-lessor,

who was a money-lender, from the mortgagor-lessee was assessable to Income Tax. The contention of 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 of five Judges of the Madras High Court 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. The same view was

taken by the Privy Council in the AIR 1935 172 (Privy Council) .

From the authorities cited above it is manifest that although the mortgage and the ease back formed part of one and the same transaction effect

must be given to each according to the averments in those documents and the Court by reading these documents together cannot spell out a

transaction totally different in character and incidents. Reading the mortgage and the lease back I am clearly of the opinion that the mortgage in the

present case was usufructuary mortgage and by virtue of lease (sic) in regard to the mortgaged shop executed by the mortgagor on 24th Chet,

1994 in favour of the mortgagee a relationship of landlord and tenant was created between the parties.

The mortgagee plaintiff was, therefore, entitled to arrears of rent from the defendants. I accordingly allow this appeal, set aside the decree of the

District Judge dismissing the suit of the plaintiff and restore that of the trial Court. In view of the fact that an intricate law point was involved in this

case I leave the parties to bear their own costs in this Court.

S. Murtaza Fazl Ali, J.

I agree with the opinion of My Lord the Chief Justice but would like to add a few words of my own. It is not disputed that in the present case

the mortgage is a usufructuary mortgage and is, therefore, governed by the Provisions of Order 34 Rule 14, Civil Procedure Code, which runs as

follows:

Where a mortgagee has obtained a decree for the payment of money in satisfaction of a claim arising under the mortgage he shall not be entitled to

bring the mortgaged property to sale otherwise than by instituting a suit for sale in enforcement of the mortgage, and he may institute such suit

notwithstanding anything contained in Order II, Rule 2.

A perusal of this rule clearly indicates that a mortgagee who has obtained a decree for the payment of money in satisfaction of a claim arising

under the mortgage is precluded from obtaining a money decree and executing it by selling the Properties mortgaged. The only condition which will

bring into application this rule is that the claim must arise under the mortgage.

This can only be so where the document of lease back recites that the rent fixed thereunder is a charge on the mortgaged properties. In the present

case a Perusal of the document of lease as also the mortgage deed does not at all show that any charge was created on the mortgaged properties

and, therefore, the lease deed should be considered as a separate transaction. It cannot be held, therefore, that the lease was merely a machinery

or device to ensure regular payment of interest.

The view taken by me is amply supported by the decision of the Privy Council in case AIR 1927 32 (Privy Council) which has been elaborately

discussed by My Lord the Chief Justice in his judgment. The mere fact that the rent under the lease was equivalent to the amount of interest is by

no means conclusive to show that the lease was a claim arising under the mortgage as contemplated by Order 34, Rule 14. I agree, therefore, that

the appeal should be allowed and the plaintiff's suit should be decreed.