# [1970] 2 S.C.R. 581

- **Citation:** [1970] 2 S.C.R. 581
- **Court:** Supreme Court of India
- **Decided:** 1969-09-26
- **Case number:** Civil Appeals Nos. 2416 and 2417 of 1966
- **Bench:** M. Hidayatullah, A. N. Grover
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1970-2-s-c-r-581-4922
- **Pages:** 7

## Headnote

Mortgage-Tenancy created by mortgagee in possession does not sur·
vive the terminatjon o/ mortgage i.riterest-Landlord and tenant-Ettst
Punjab Urba.n Rent Restriction A.ct,
1949, applicability
of-EllCCt1ce
Interest (Separation) Act, 1951.
The mortgagee of a property in which a cinema was run. leased it to
tho first appellant on a monthly rental of Rs. 250/ - for a period of 5 years
renewable fdr 10 years by yearly renewals on the same terms. The leasee
waa given the full right to use the property whether by it.self or throui:ti.
agents or in partnership or by sub-leasing. The lpssee sublet the premiies
~tter equipping the house with cinema machinery on a mor...tbly rer.taL of
Ri. 1,250/-. The property had been declared evacuee property, and tho
louet applied under the Evacuee Interest (Separation) Act, 1951
for
separation of his interest.
The Competent Officer ordered sale of the
property, which was purchasod for Rs. 65,000/- by the respondent.
·:.-i1c11
(bc:tore the expiry of the term of the lease) the respondent filed a suit
aaainst the head-lessee and the sub-lessee for possession of the property.
On the questions (i) whether the respondent was entitled to po~sesslc11
belore the expiry of the full term of t'ie lease; and (ii) whether the sublca&~ were protected under the East Punj~!J Urban Rent Restriction Act,
1949.
HELD : (i) 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 repaymc;nt of a loan. A mortgagee's
interest lasts only as long as the mortgage has not been μaid off.
·1 b(:refort on 'redemption of the mortgage the title of the mortgag~e 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 crc<iting
a tenancy becomes the lessor of the property, but his
i~!er~st as leif!or
ii cctern1in0:us with his mortgage interest. The relationship of lessor and
l~ee cannot subsist beyond the mortgagee's interest unless the r..::lationship is aglreed to by, the mortgagor or a fresh relationship is recreated.
Thi.s the mortgagor or the person succeeding to the mortgagor's interest
may elect to do. But if he does not, the lessee cannot claim any righb.
beyond the term of his original lessor's interC$t, [584 F]
The exception to the above propositions is the one that flows from s.
76(a) which lays down liabilities of a mortgagee in possession.
It is
provided there that when during the continuance of the mortgage, the
mortgagee takes possession of the mortgaged property, he must manage the
property ~ a person of ofdinary prudence would manage it if it were his
own. From this it is inferred that acts done bona fide and prudently in the
ordinary course of management, may bind even after the termination of
the title of the mortgagee in possession. This principle applies ordinarily te
the management of agricultural lands and has seldom b~en extended to
\ltban property so as to tie it up in the hands of Jessees or to confer Oft
them rights under special statutes. To this again there is a3 exception. The
hue will continue to bind the mortgagor or persons deriving interest from
him if the mortgagor had concurred to grant it. [585 CJ
582
SUPREME COURT REPORTS
[1970] 2 S.C.R·
The present case was not covered by the exception because such a
long lease on a small rent. could not be said to be an act of prudence, .
whetljer it was a bona fide act or not, and whether the exemption can apply
to urban property.
Mahabir Gape and Ors. v. Harbans Narain Singh, [1952] S.C.R. 775
and Asaram & Ors. v. Mst. Ram Kali, '.' 958} S.C.R, 986, fOllowed.
(ii) A landlord means a person entitled to receive rent and a tenant
means any person by whom or on whose account rent is payable. rfhese
definitions apply if the tenancy, either real or statutory, could be said to
su1vive after the termination of the rndrtgage. The scheme of s. 10 of
the Evacuee Interest (Sepa

## Text

581
A
ALL INDIA FILM CORPORATION LTD. & ORS.
B
c
D
E
F
G
H
v.
SHRI RAJA GYAN NATH AND ORS.
September 26, 1969
[M. HIDAYATULLAH, C.J. AND A. N. GROVER, J.]
Mortgage-Tenancy created by mortgagee in possession does not sur·
vive the terminatjon o/ mortgage i.riterest-Landlord and tenant-Ettst
Punjab Urba.n Rent Restriction A.ct,
1949, applicability
of-EllCCt1ce
Interest (Separation) Act, 1951.
The mortgagee of a property in which a cinema was run. leased it to
tho first appellant on a monthly rental of Rs. 250/ - for a period of 5 years
renewable fdr 10 years by yearly renewals on the same terms. The leasee
waa given the full right to use the property whether by it.self or throui:ti.
agents or in partnership or by sub-leasing. The lpssee sublet the premiies
~tter equipping the house with cinema machinery on a mor...tbly rer.taL of
Ri. 1,250/-. The property had been declared evacuee property, and tho
louet applied under the Evacuee Interest (Separation) Act, 1951
for
separation of his interest.
The Competent Officer ordered sale of the
property, which was purchasod for Rs. 65,000/- by the respondent.
·:.-i1c11
(bc:tore the expiry of the term of the lease) the respondent filed a suit
aaainst the head-lessee and the sub-lessee for possession of the property.
On the questions (i) whether the respondent was entitled to po~sesslc11
belore the expiry of the full term of t'ie lease; and (ii) whether the sublca&~ were protected under the East Punj~!J Urban Rent Restriction Act,
1949.
HELD : (i) 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 repaymc;nt of a loan. A mortgagee's
interest lasts only as long as the mortgage has not been μaid off.
·1 b(:refort on 'redemption of the mortgage the title of the mortgag~e 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 crc<iting
a tenancy becomes the lessor of the property, but his
i~!er~st as leif!or
ii cctern1in0:us with his mortgage interest. The relationship of lessor and
l~ee cannot subsist beyond the mortgagee's interest unless the r..::lationship is aglreed to by, the mortgagor or a fresh relationship is recreated.
Thi.s the mortgagor or the person succeeding to the mortgagor's interest
may elect to do. But if he does not, the lessee cannot claim any righb.
beyond the term of his original lessor's interC$t, [584 F]
The exception to the above propositions is the one that flows from s.
76(a) which lays down liabilities of a mortgagee in possession.
It is
provided there that when during the continuance of the mortgage, the
mortgagee takes possession of the mortgaged property, he must manage the
property ~ a person of ofdinary prudence would manage it if it were his
own. From this it is inferred that acts done bona fide and prudently in the
ordinary course of management, may bind even after the termination of
the title of the mortgagee in possession. This principle applies ordinarily te
the management of agricultural lands and has seldom b~en extended to
\ltban property so as to tie it up in the hands of Jessees or to confer Oft
them rights under special statutes. To this again there is a3 exception. The
hue will continue to bind the mortgagor or persons deriving interest from
him if the mortgagor had concurred to grant it. [585 CJ
582
SUPREME COURT REPORTS
[1970] 2 S.C.R·
The present case was not covered by the exception because such a
long lease on a small rent. could not be said to be an act of prudence, .
whetljer it was a bona fide act or not, and whether the exemption can apply
to urban property.
Mahabir Gape and Ors. v. Harbans Narain Singh, [1952] S.C.R. 775
and Asaram & Ors. v. Mst. Ram Kali, '.' 958} S.C.R, 986, fOllowed.
(ii) A landlord means a person entitled to receive rent and a tenant
means any person by whom or on whose account rent is payable. rfhese
definitions apply if the tenancy, either real or statutory, could be said to
su1vive after the termination of the rndrtgage. The scheme of s. 10 of
the Evacuee Interest (Separation) Act, 1951 is that in the case of a mort·
gagor or a mortgagee, (a) the Competent Officer may pay to the Custodian oi' the claimant the amount payable under the mortgage' debt and
redeem the property oc (b) the Competent Officer may sell the mortgaged
property for satisfaction of the mortgage debt and distribute the sale proceeds thereof, or ( c) the Competent Officer mav partition the property
between the mortgngor and the mo!tgage.;: propdrtionate to their shares,
or (ci) adopt a combination of any ef these measures. It is obviou:-s that
method (b) was followed. The property was sold and the mortgage was
satisfied.
Tl:is led to the extinction of t11e mortgagee's interest and the
purch:.tser acquired fuJt title t,, the property.
The termination of the
mortgagee intere~t terminated th~ relationship of landlord and tenant and
it could not, in the circumstances, be said to run with the land.
There
being no landlord and no tenant, lhc provisions of the Rent Restriction
Act could not apply any further.
Nor could it be said that when the
mortgagor cance:led the rent note and uuthorised the mortgagee to find any
otnc! tenant, the intention we·· 1.0 alio\v expressly a tenancy beyond the
term of the mortgage. [586 EJ
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 2416
and 2417 of 1966.
Appeals from the judgment and order dated ~arch 19, 1963
of the Punjab High Court in Regular First Appeal No. 281 of
1960.
Rameshwar Nath
and Mahinder Narain, for the appellants
(in C.A. No. 2416/ 1966) and Respondents Nos. l, 2 and 4 (in
C.A. No. 2417 of 1966) .
..... ,,
·,.. N. C. Chatterjee a,nd H. P. Wanchoo, for the respondent No.
1 (in C.A. No. 2416 of 1966) and the appellant (in C.A. No.
2417 of 1966).
The Judgment of the Court was delivered by
Hidayatulluh, C.J.
These are appeals by certificate granted
by the Punja!: High Court against the judgment and decree dated
March 19, 1963.
The property in dispute is a building iQ. Jullundur City in which there is located a cinema.
It was formerly
called 'ChitraTa!kies' and now is known as 'Odeon Cinema'. The
building was constructed in 1933 on land measuring 3 kanals and
1 7 marlas.
The original owner-one Azim Baksh-migrated to
B
c
D
E
F
G
H
A
B
c
D
E
F
G
H
FILM CORP, LTD. v. GYAN NATH (Hidayatullah, C.l.)
f,83
Pakistan in 194 7 and this property was declared evacuee property.
Before migration Azim Baksh had dealt with this property in
several ways.
On January 21, . 1946 he had mortgaged the
building with possession for Rs. 70,000/- with Malawa Ram and
Gainda Mal.
On January 22, 1946 Azim Baksh took the building on lease on a rent of Rs. 162.8 annas for 11 months from the
mortgagees.
He executed a rent note.
On February 8, 1946
this rent note was cancelled.
An endorsement was made on the
. rent note to the following effect :
"With the consent of Lal Gainda Ram and Malawa
Ram, the said rent-deed has been cancelled.
Rent for
one month may be included in the mortgage amount.
The mortgagees are entitled to carry on the aforesaid
cinema in any way they like or may give the same on
lease to any body else.
I shall have no objection''.
Previously Azlffi Baksh had rented this building to Sant Ram
and Sita Ram on Rs. 150/- per mo1 h.
After the release of the
property the mortgagees leased it to Sita Ram and Sohan Lal
on Rs. 200/- per month.
This lease was terminated on July 26,
1950.
On August, 1951 the mortgagees leased it to the All India
Film Corporation Ltd., appellant No. 1 (defendant No. 2), on
Rs. 250/- per month vide Ex. D.2 W.2/1. The lease was for 5
years in the first instance from September 15, 1951 to September
14, 1956.
It was, however, renewable for 10 years by yearly
renewals.
There was a condition that renewal on the same terms
was not to !le refused.
By this lease, the lessee was given full
right to use the property whether by itself or through agents or in
partnership or by sub-leasing.
Malawa Ram and Gainda Mal partitioned their property and
this house fell to the share of Gainda Mal.
The lessee company
in its turn sub-let the premises to defendants 3 to 9 on a monthly
rent of Rs. 1,250/-. This was on May 16, 1952. Before subleasing the premises, the head lessee companv had equipped the
house with cinema machinery etc. and the sub-lease included the
use of machinery etc.
Gainda Mal applied under Evacuee Interest Separation Act,
1951 for separation of his interest.
The Competent Officer by
his order, August 25, 1955, determined the mortgage charge as
Rs. 90,807.4 annas and ordered sale of the building and land to·
gether with another plot.
The respondent in this appeal r..aja
Gyan Nath purchased the cinema with the land (3 kanals 17 marlas) for Rs. 65,000/- on December 3, lC.:55.
The sale certificate
was issued on March 3, 1956. The mortgage charge was paid off
on April 19, 1958.
584
SUPREME COURT REPORTS
[1970] 2 S.C.R.
The purchaser Raja G) .m Nath then filed a suit for possession
of this property from the head Jessee and the sub-lessees on August
5, 1959 and for mesne profits at the rate of Rs. 1,250/- per month.
The sub-lessees claimed the benefit of the East Punjab Urban Rent
Restriction Act (3 of 1949).
Later ilie plaintiff gave up his claim
to the cinema machinery, furniture and fittings.
The trial Judge
decreed the claim in full except that mesne profits were reduced
to Rs. 500/- per month and half of the costs were disallowed. Defendants 2, 4, 10 and 11 appealed against the decree to the High
Court.
The plaintiff cross-objected asking for mesne profits at
Rs. 1,250/- with interest at 6% per year and the remaining costs.
The High Court affirmed the decree, but reduced mesne profits
further from Rs. 500/- to Rs. 250/- per month.
The mesne profits were to run from the date of suit till possession with interest
at 6 % per annum.
The High Court granted a certificate to both
sides and they have filed their respective appeals.
In the High Court tmly three points were urged :
A
B
c
(1) Whether the defendants were protected by the
D
East Punjab Urban Rent Restriction Act (3 of 1949) ?
(2) What were the mesne profits ? and
(3) Whether plaintiff was entitled .to possession before the expiry of the full term of the lease with right to
E
renewals?
These are the only points which have been urged before us in
these appeals.
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 morgtagee'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 lessor of the property but his interest as
lessor is coterminous with his mortgagee interest. Section 111 ( c)
of the Transfer of Property 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
F
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A
B
c
D
E
F
G
H
FILM CORP. LTD v. GYAN NATH (Hidayatullah, C.J.)
585
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 mortgagor's
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
rulinp,s of this Court in Mahabir Gape and others v.
Harbans
Narain Singh(') and Asaram and others v. Mst. Ram Kali(').
To the above propositions there is, however, one exception.
That flows from s. 76(a) which lays down liabilities of a mortgagee
in possession.
It is provided there that when during the continuance of the mortgage, the mortgagee takes possession of the
mortgaged property, he must manage the property as a person of
ordinary prudence would manage it if it were his own.
From
this it is inferred that acts done bona fide and prudently in the
ordinary course of management, may bind even after the termination of tne title of the mortgagee in possession.
This principle
applies ordinarily to the management of agricultural lands and
has seldom been extended to urban property so as to tie it up in
the hands of lessees or to confer on them rights under special
statutes.
To this again there is an exception.
The lease will
continue to bind the mortgagor or persons deriving interest from
him if the mortgagor had concurred to grant it.
Applying these principles to the facts of this case, we find
that the property, the subject of the lease, was a house in the
city of Jullundur suitable for a cinema theatre.
This was leased
for five years on a rent of Rs. 250/- p.m.
This sum included the
use of a passage for which the rent was Rs. 100/- p.m. In effect
the rent of the building was Rs. 150/-. This was lower rent
than the rent it had fetched before.
The mortgagee further
agreed to renewal of the lease on the same terms for a further
period of 10 years.
It is in evidence that a plot only 8 marlas
formed the passage and the rent was Rs. 100/- and on that basis ·
land of 3 kanals and 17 marlas with a building fit for cinema
ought to have fetched much more.
Such a building in a growing city ought not to have been tied down for a period of fifteen
years, to a rent of Rs. 150/- or even Rs. 250/- p.m.
The learned
subordinate Judge pointed out that the annual rent of the building
was assessed at Rs. 10,800/- for the years 1950-55. This shows
how low was the actual rent.
The history of the building in the
hands of the head lessee shows that after an investment of Rs.
60,000/- the rent went upto Rs. 1,250 p.m. with additional rights
(I) [1952] S.C.R. 775.
(2) [1958] S.C.R. ~86.
586
SUPREME COURT REPORTS
(1970] 2 S.C.R.
to the head lessee.
The building without the fittings and the
land of the passage fetched Rs. 65,000/-.
Therefore a tenant
willing to pay a better rent could easily have been found.
The
case is thus not covered by the exception because we cannot hold
that such a long lease on such a small rent was an act of ,prudence,
whether it was u bona fide act or not, and whether the exception
can apply to urban property.
This brings us to the next question. It is whether the tenants
could t~ke advantage of the provisions of the East Punjab Urban
Rent Restriction Act, 1949 ?
The answer to this question depends on whether we can say that there was a tenancy to protect.
We have shown above that the lease came to an end with the
mortgagee's interest in the property. Although this was not a
case of a redemption plain and simple because a straight redemption was refused, the property was put to sale and the purchaser
paid off the mortgage in full.
The interests of the mortgagor and
mortgagee united in the person of the purchaser arid the mortgage
ceased to subsist.
In this view of the matter the purchaser,
speaking in his character as a mortgagor, could claim that the
mortgagee's .action came to an end and there did not subsist any
relationship between him and the tenants.
A
B
c
D
The respondents attempted to argue that the Rent Restriction
Act defines landlord and tenant with reference to the payment of
rent.
A landlord means a person entitl.!d to receive rent and a
E
tenant means any person by whom or on whose account rent is
payable.
These definitions apply if the tenan,y, either real or
statutory, could be said to survive after the termination oi the
mortgage .. The scheme of s. 10 of the Evacuee Interest (Separation) Act, 1951 is that in the case of a mortgagor or a mortgagee,
(a) the Competent Officer may pay to the Custodian or the claiF
mant the amount payable under the mortgage debt and redeem
the property, or (b) the Competent Officer may sell the mortgaged property for satisfaction of the mortgage debt and distribute
the sale proceeds thereof, or (c) the Competent Officer may partition the property between the mortgagor ru;d the mortgagee pro·
portionate to their shares, or (d) adopt a combination of any of
G
these measures.
It is obvious that method (b) was followed.
The
property was sold and the mortgage was satisfied.
This led to the
extinction of the mortgagees' interest and the purchaser acquired
full title to the property.
The termination of the mortgagee interest terminated the relationship of landlord and tenant and it
could not, in the circumstances, be said to run with the land.
There being no. landlord and no tenant, ' the provisions of the
H
Rent Restriction Act could not apply any further.
Nor could it
be said that when the mortgagor cancelled the rent note and autho-
•
A
B
c
FILM CORP. LTD. v. GYAN NATH (HidayatuUah, C.J.)
587
rised the mortgagee to find any oilier tenant, the intention was
to allow. expressly- a tenancy beyond the term of the mortgage.
In this view of the matter the decision of the High Court and the
court below cannot be said to be erroneous.
There remains to consider the question of mesne profits. The
High Court reduced the mesne profits to Rs. 250/- p.m. which
was the actual rent paid for the building and the passage.
There
is some doubt as to whether this sum included Rs. 100/- for the
use of the passage.
However, we think that the matter is between
the purchaser and the head lessee.
The rent of Rs. 250/-, although on a low side, was the actual rent on which the premises
were held.
The High Court was, therefore, not wrong in limiting mesne profits to that figure.
The result is that both the appeals fail and will be dismissed
with costs.
There will be a right to set off the costs and the resulting difference alone will be payable.
Y.P.
Appeals dismissed.
L3SupCI/70-7