M/s Ram Kumar Jagat Ram vs Jai Bhagwan and others

M.R. Sharma, J.—This appeal under Clause X of the Letters Patent arise out of the following facts. Sham Lal Defendant No. 2 owned the shop in dispute. He mortgaged the same with posession in favour of Ishwar Chander Defendant No. 1 vide mortgage deed dated August 23, 194(sic) Exhibit D. 22, for a sum of Rs. 10,000/-. Subsequently, on November 7, 1945, another charge of Rs. 2,000/- was created by Defendant No. 2 in favour of Defendant No. 1 vide mortgage deed Exhibit D. 23. The mortgagee took possession of the shop in dispute and rented it out in favour of the Appellant in 1956. Vide registered sale deed dated February 28, 1967, Exhibit P. 1. Sham Lal Defendant No. 2 sold the equity of redemption for a sum of Rs. 18,000/- to Jai Bhagwan and others, Plaintiff Respondents.

Jai Bhagwan and others, the Plaintiff-Respondents, filed a suit for redemption and impleaded the Appellant as a Defendant in that suit because they claimed actual possession of the shop in dispute for him. On the pleadings of the parties certain issues were raised and the material issue for the decision of this case is issue No. 3, which reads as under:

Whether Defendant No. 3 is not liable to be ejected in this suit ?

The learned trial Judge decided this issue against the Appellant and a decree for actual possession of the shop in dispute was granted in favour of Jai Bhagwan and others, the Plaintiff Respondents. The Appellant who was originally arrayed as Defendant No. 3, filed a first appeal against the judgment and decree of the learned trial Judge, which was dismissed vide judgment under appeal.

The sole point which calls for determination is whether a tenancy created by a mortgagee in possession subsists after the redemption of the mortgage or not It has been argued on behalf of the Appellant that the acts of the mortgagee in possession as a person of ordinary prudence for managing the mortgaged property also bind the mortgagor. Defendant No. 3 by creating a tenancy in favour of the Appellant acted as a man of ordinary prudence and the tenancy so created should not be put an end to after the extinguishment of the mortgage.

It is settled law that no person can transfer a title better than the one he himself possesses. A mortgagee with possession, in the absence of any special convenant to the contrary in the mortgage deed is liable to surrender vacant possession of the mortgaged property as and when the mortgage money is offered to him. He is of course entitled to enjoy the usufruct of the property during the subsistence of the mortgage in lieu of the money advanced by him. For deriving this benefit, he has to act in such a manner that his ultimate liability to surrender vacant possession at the time of redemption of the mortgage is not (sic) tentionally diminished if he inducts a tenant on the mortgaged property, the rights of the tenant so inducted come to an end at the time of the extinguishment of the mortgage. This principle has been enuniciated by their Lordships of the Supreme Court in the The All India Film Corporation Ltd., and Others Vs. Sri Raja Gyan Nath and Others, as under:

The first question to consider is this ; Did the tenancy created by the mortgagee in possession survive the termination of the mortgagee interest so as to be binding on the purchaser. A general proposition of law is that no person can confer on another a better title than he himself has. A mortgage is a transfer of an interest in specific immovable property for the purpose of securing repayment of a loan A mortgagee''s interest lasts only as long as the mortgage has not been paid off. Therefore, on redemption of the mortgage the title of the mortgagee comes to an end. A derivative title from him must ordinarily come to an end with the termination of the mortgagee''s title. The mortgagee by creating a tenancy becomes the lesser of the property but his interest as lessor is co-terminious with his mortgagee interest. Section (sic) (c) of the Transfer of Properly Act provides that a lease of immovable property determines where the interest of the lessor in the property terminates on or his power to dispose of the same, extends only to the happening of any event by the happening of such event. The duration of the mortgagee''s interest determines his position as the lessor. The relationship of lessor and lessee cannot subsist beyond the mortgagee''s interest unless the relationship is agreed to by the mortgagor or a fresh relationship is recreated. This the mortgagor or the person succeeding to the mortgagors interest may elect to do. But if he does not, the lessee cannot claim any rights beyond the term of his original lessor''s interest. These propositions are well-understood and find support In two rulings of this Court in Mahabir Gop and Ors. v. Harbans Narain Singh, 1952 S.C.R. 715 and Assaram v. Mst. Ram Kali, 1958 S.C.R. 986.

The above principle is, however, subject to one exception which flows from Section 76 (a) of the Transfer of Property Act (hereinafter called the Act), which reads as under:

Liabilities of mortgagee in possession. When, during the continuance of the mortgagee, the mortgagee takes possession of the mortgaged property:

(a) he must manage the property as a person of ordinary prudence would manage it it it were his own.

How should a man of ordinary prudence manage a property at a given time depends upon the facts and circumstances of each case. He may himself put the property to his own use or may hand it out to others for being used on his behalf in such a manner that as and when the property is sought to be returned its vacant possession is capable of being handed over to the mortgagor. It is significant to notice that Section 7(sic) (a) of the Act merely refers to the management of the property and does not expressly mention anything about the creation of a lease. The reason is obvious because the creation of a lease of the property is also one way of managing it and Section 108 (a) (b) of the Act expressly lays down that a lessor is bound, on the request of a lessee, to put the latter in possession of the leased property.

The difficulty, however, arises in those cases in which there is a statutory bar on the rights of a lessor to claim possession of the leased premises from the lessee. In such cases, if a mortgagee creates a tenancy he cannot be deemed to manage the property prudently commensurate with his liability to surrender vacant possession of the same at the time of termination of the mortgage. I may also make it clear that the action of a mortgagee has to be judged with reference to the time when he creates a tenancy If at that time, there is no bar against the termination of the tenancy at his will the creation of the tenancy by him would be regarded as an act of good management and it would not be affected by subsequent legislation which augments the tight of a tenant, for, even as a man of ordinary prudence the mortgagee could not have foreseen that the Legislature, would improve the rights of the tenants.

It cannot be disputed that the East Punjab Urban Rent (sic) es-triction Act applies to urban areas in the State of Haryana. A tenant of a shop situate in such areas cannot be ejected as long as he continues to pay the rent. If a mortgagee were to creat a tenancy in respect of such a shop, he would certainly place the rights of his mortgagor in serious jeopardy. In the presence of Rent Restriction Laws he would think twice before letting out his own shop to a tenant. What he cannot think as good and proper for himself cannot be regarded as good and proper for his mortgagor.

In Jagan Nath Piare Lal Vs. Mittar Sain and Others, a Full Bench of this Court held that a tenant inducted by the mortgagee remains a tenant during the continuation of the mortgage and on the redemption of the mortgage the tenancy comes to an end. With utmost respect I would say that the principle euuniciated in this judgment is in perfect accord with the principles enunciated above. Even otherwise, while sitting in Division Bench, I am bound to follow this view with respect.

In M/s. Sachalmal Parasram v. Mst. Rattanbai, AIR 1972 SC 137 it was held that a tenancy created by the mortgagee in possession does not survive the termination of the mortgagee''s interest, and the principle of section 76(a) of the Act that the acts done bonafide and prudently in the ordinary course of management may bind the mortgagor even after the termination of the title of the mortgagee in possession applies ordinarily to the management of agricultural lands.

In view of the aforementioned authoritative pronouncement, the view taken by the learned Judge in Chambers is unassilable. The appeal deserves to fail and is accordingly dismissed with costs.

S.S. Sandhawalia, J.

I agree.