# SHAH MATHURADAS MAGANLAL & CO v. NAGAPPA SHANKARAPPA MALAGE & ORS

- **Citation:** [1976] 3 S.C.R. 789
- **Court:** Supreme Court of India
- **Decided:** 1976-03-23
- **Bench:** A. N. Ray, Jaswant Singh
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/shah-mathuradas-maganlal-co-v-nagappa-shankarappa-malage-ors-6833
- **Pages:** 6

## Headnote

Mortgage-Tenant in occupation taking a Possessory mortgage of the building
·'.4:ith powers to sublet w.e.f. 7-11-1953 by a Deed of mortgage· Jr. May 21st.
1953-Whether the tenancy revives on redemption of mortgage-Interpretation
of-The Transfer of Property Act, 1882 Ss. 62, ll(d)(e) and (/}-Doctrine of
surrender and Doctrine of Merger distinguished.
In the suit, for redemption of mortgage and recovery of possession, the
appellant mortgagee in possession of the suit house w.ei. 7-11-1953 by virtue
of the Deed of Possessory mortgage dt. 21-5-1953 contested on the ground
that, in view of the fact that he was a tenant prior to the mortgage, he was
entitled to retain the possession even after the redemption. The trial court
accepting the contention decreed only symbolical possession. On appeal by ·
respondent No. 1 the mortgagor, the first appellate court reversed. the decree
and ordered recovery of possession of the property on deposit of the expenses
towards repairs being a "clog on redemption''. The High Court on Second
Appeal confirmed the said orders holding that the Deed of Mortgage shows
that the relationship between the appellant and the respondent was that of a
mortgagee and mortgagor.
·
Affirmin~ the judgment of the High Court and dismissing the appeal by
special leave, the court
HELD : (i) Ordinarily the doctrine of merger applies to extinction of
mortgage security occuring by the merger of a lower in ·a higher security and
by the merger of a lesser estate in a greater estate. \Vhere the capacity in
which a person in posse,sion of the mortgagee's rights is something quite
different from the capacity in which he is in pcssession of the equity of redemption. the mere fact that thC two capacities are united iii the same physical
person cannot result in a merger. 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 outside. In the case of a lease the· estate that is in the lessor is
the reversion. In the· case of· a mortgage the estate that is outstanding being
the equity of redemption of the mortgagor, there cannot be a merger of lease
and . mortgage in respect of the same property since neither of them is a
higher or lesser estate.
[793B-D]
Narayan v. Ramchandra 65 Born. L.R. p. 449 (approved)
(ii) A surrender under Clauses (e) and (f) of the Transfer of Property·Act
is an yielding up of the term of the lessee's interest to him who bas the immediate
reversion or the lessor's interest. Implied surrender by operation of law occurs
by the creation of a new relationship or relinquishment of possession, if the
lessee accepts a new lease that in itself is a surrender. Surrender can also be
implied from the consent of the parties or from such facts as the relinQuishment
of possession by the lessee and taking over possession by the lessor. Relinquish·
ment. of possession operates as an implied surrender. There must be taking of
possession, not necessarily a physical taking, but something amounting to a
Tirtual taking of possession. Whether this bas occurred is a question of tact.
[793H, 794A-B]
(iii) (a) In the inst3.nt case, on the redemptiOn of the mortgage the
respondent bad a right to record possession both on the terms of the mortgago
deed and u/s 62 of the Transfer of Property Act (b) The provision for
subletting in the Mortgage Deed, contrary to section 15 of the Bombay, Rents,
Hotel and Lodging House. Rates Control Acfy 1957 as it stood in 1953 shows
that the character of tenant is lost; (c) Continuing the tenancy till 7-ll-19S3
c
D
E
F
G
H
A
B
790
SUPREME COURT REPORTS
[1976) 3 S.C.R.
and confirming the. possession of the appellant as mortgagee w.e.f. that date
is an unequiv5Jcal ~onduct showing that no tenancy \'\'as to exist from 7-11-1953,
but the relatlonsh1~ was that of a mortgagor and mortgagee and {d) there
wo~J~ be no questt_on . of the tenancy being kept in abeyance o

## Text

I
) ..
,I
J
l· •
789
SHAH MATHURADAS MAGANLAL & CO.
v.
NAGAPPA SHANKARAPPA MALAGE & ORS.
March 23, 1976
[A. N. RAY, C.J. AND JASWANT SINGH, JJ.)
Mortgage-Tenant in occupation taking a Possessory mortgage of the building
·'.4:ith powers to sublet w.e.f. 7-11-1953 by a Deed of mortgage· Jr. May 21st.
1953-Whether the tenancy revives on redemption of mortgage-Interpretation
of-The Transfer of Property Act, 1882 Ss. 62, ll(d)(e) and (/}-Doctrine of
surrender and Doctrine of Merger distinguished.
In the suit, for redemption of mortgage and recovery of possession, the
appellant mortgagee in possession of the suit house w.ei. 7-11-1953 by virtue
of the Deed of Possessory mortgage dt. 21-5-1953 contested on the ground
that, in view of the fact that he was a tenant prior to the mortgage, he was
entitled to retain the possession even after the redemption. The trial court
accepting the contention decreed only symbolical possession. On appeal by ·
respondent No. 1 the mortgagor, the first appellate court reversed. the decree
and ordered recovery of possession of the property on deposit of the expenses
towards repairs being a "clog on redemption''. The High Court on Second
Appeal confirmed the said orders holding that the Deed of Mortgage shows
that the relationship between the appellant and the respondent was that of a
mortgagee and mortgagor.
·
Affirmin~ the judgment of the High Court and dismissing the appeal by
special leave, the court
HELD : (i) Ordinarily the doctrine of merger applies to extinction of
mortgage security occuring by the merger of a lower in ·a higher security and
by the merger of a lesser estate in a greater estate. \Vhere the capacity in
which a person in posse,sion of the mortgagee's rights is something quite
different from the capacity in which he is in pcssession of the equity of redemption. the mere fact that thC two capacities are united iii the same physical
person cannot result in a merger. 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 outside. In the case of a lease the· estate that is in the lessor is
the reversion. In the· case of· a mortgage the estate that is outstanding being
the equity of redemption of the mortgagor, there cannot be a merger of lease
and . mortgage in respect of the same property since neither of them is a
higher or lesser estate.
[793B-D]
Narayan v. Ramchandra 65 Born. L.R. p. 449 (approved)
(ii) A surrender under Clauses (e) and (f) of the Transfer of Property·Act
is an yielding up of the term of the lessee's interest to him who bas the immediate
reversion or the lessor's interest. Implied surrender by operation of law occurs
by the creation of a new relationship or relinquishment of possession, if the
lessee accepts a new lease that in itself is a surrender. Surrender can also be
implied from the consent of the parties or from such facts as the relinQuishment
of possession by the lessee and taking over possession by the lessor. Relinquish·
ment. of possession operates as an implied surrender. There must be taking of
possession, not necessarily a physical taking, but something amounting to a
Tirtual taking of possession. Whether this bas occurred is a question of tact.
[793H, 794A-B]
(iii) (a) In the inst3.nt case, on the redemptiOn of the mortgage the
respondent bad a right to record possession both on the terms of the mortgago
deed and u/s 62 of the Transfer of Property Act (b) The provision for
subletting in the Mortgage Deed, contrary to section 15 of the Bombay, Rents,
Hotel and Lodging House. Rates Control Acfy 1957 as it stood in 1953 shows
that the character of tenant is lost; (c) Continuing the tenancy till 7-ll-19S3
c
D
E
F
G
H
A
B
790
SUPREME COURT REPORTS
[1976) 3 S.C.R.
and confirming the. possession of the appellant as mortgagee w.e.f. that date
is an unequiv5Jcal ~onduct showing that no tenancy \'\'as to exist from 7-11-1953,
but the relatlonsh1~ was that of a mortgagor and mortgagee and {d) there
wo~J~ be no questt_on . of the tenancy being kept in abeyance or the tenancy
rev1v1ng on the explfabon of the period of mortgage.
[792F G 793A-H &
794D]
'
•
'
CIVIL APPELATE JURISDICTION : Civil Appeal No. 450 of 1970
Appeal by Special Leave from the Judgment and Order dated the
6th February, 1970 of the Bombay High Court in Second Appeal
No. 634 of 1966.
S. T. Desai, K. Raj Choudhary and Veena Sharma (Mrs.) for the
Appellant.
·C
M. V. Tarkunde, V. N. Ganpule for the Respondents.
The Judgment of the Court was delivered by
RAY, C.J.-This appeal by special leave is from the judgment dated
~
6 February, 1970 of the High Court at Bombay.
The Respondent
No. 1 obtained a decree for redemption of mortgage dated 21 May,
1953 for possession of mortgaged property consisting of o shop and
D
house premises at Sangli.
The appellant was mortgagee in possession o! the property by
a Deed of Mortgage dated 21 May, 1953. The property was mortgaged for Rs. 10,000/-. No interest was to be paid.
Instead possession of the property was agreed to remain with the mortgagee. The
period for redeeming the mortgage was fixed for 10 years from
7
E
November, 1953.
The respondent mortgagor by notice dated 1 October, 1963 infor-
\.
med the appellant that he was ready and willing to redeem the mortgage.
The appellant replied that he should be paid Rs. 30,000/-
bein!( the expenses for repairs and other incidental expenses.
The
appellant also claimed that even after the redemption he was entitled
F
to retain possession because his previous tenancy right subsisted.
G
H
The Trial Court held that the tenancy of the appellant
would
revive on redemption of the mortgage. The Trial Court further decreed that the respondent was entitled to get only symbolical possession
from the appellant and thereafter get rent of the suit propertv from
the appellant.
On appeal the District Judge came to the conclusion that under
the Mortgage Deed the appellant ceased to be a tenant with effect
from 7 November, 1963 possession of the appellant thereafter was
only as a possessory mortgagee and not as a tenant. On redemption of
the mortgage the respondent was entitled to recover possession of the
propertv f0rthwith. The District Judge passed a decree for the principal mortgage amount and a sum of Rs. 4458.24 on account of'repair~
in favour of the appellant. The Di~trict Judge further gave the respondent a decree for actual possession of the property from the appellant after the respondent deposited the amount in the Court.
•
'
"
SHAH MATHURADAS v. NAGAPPA (Ray, C.J.)
7 91
The High Court on second appeal held that the Deed of Mortgage
A
shows that the relationship between the appellant and the respondent
was that of a mortgagee and mortgagor and confirmed the decree in
favour of the respondent.
Counsel for the appellant contended that in case of a tenant in
possession who takes a possessory mortgage the effect of such mortgage
is that the tenant's rights remain in abeyance during the term of martB
gage and the parties revert to their former position on redemption.
It was also said that the mortgagor respondent could not take possession from the appellant without actual eviction. The mortgage according to the appellant was usufructuary mortgage with the rernlt that at
the end of 10 years being the period of mortgage possession the mortgagee acquires the statutory protection given to the tenants.
The mortgage Deed is described as a Possessory Mortgage Deed of
the house-site and was for a sum of Rs. I0,0001-.
The r•espondent
mortgagor stated, inter alia, as follows :-
"I have given you the house-site in possessory mortgage
in consideration of the aforesaid amount. The said property
c
is in your possesion as the last tenant by the date 6 NovemD
ber, 1953. The possession thenceforth is confirmed by this
Deed of Possessory Mortgage. Hence you are to either use
the house-site and shop premises for home (personal) purpose or let it to anybody. The income that may be received
by giving the property on rent is to be appropriated by you
towards the interest on the said amount.
I shall not pay
you any interest separately. I shall not ask for the accounts
in respect of the income of the house-site from you.
I am
to pay all the Government dues.
I am also to carry out
repairs of all sorts to the house premises, and I shall do so.
If I fail to pay Government dues and if I do not defray the
costs of the repairs you are to pay all the said Government
dues and defray the costs of the repairs.
The
afore,aid
amounts which you may have to pay and spend will be paid
p
by me to yon together with interest at the rate of Rs. 0-12-0
annas twelve per cent per month.
The above
mortgaged
property is charged with the liability of repaying the aforesaid amounts.
The period of this document is 1 O years from
7 November, 1953. I shall pay you the aforesaid amount
within the said period and redeem the housesite from the mortgage. If I fail to do so you are to carry on the 'vahiwat' of
•
the housesite under the above agreement. If you do not wish
to keep the amount with me beyond the abvoe period, vou
are to sell the said mortgaged property through Court and
recover the entire amount due and payable to you."
The appellant's contentions were these : First, the defendant WM
a tenant of the suit building prior to the execution of the mortgage
•
on 21 May, 1953 and the tenancy could either exist concurrently
with the usufrnctuary mortgage or be in abseyance during t11e currency
of the mortgage but could never be extinguished as a
result of the
A
B
792
SUPREME COURT REPORTS
[1976] 3 S.C.R.
mongage.
Second, once the tenancy of the appellant continued after
the execution of the mortgage deed then there would be no question
of either express or impliea surrender of his tenancy rights during the
subsJStence of the mortgage. Third, the fact of a tenant taking a mortgage from his landlord ooes not itself extinguish the tenancy and the
effect of such a mortgage on the tenant's nghts is merely that they
are in abeyance and when the landlord redeems the mortgage, the
parties revert to their former position, and the landlord is not entitled
to get actual possession.Fourth, that the existence of possessory mortgage does not necessarily terminate the tenancy.
The respondent contended as follows :-
First, the conduct of the mortgagee along with the terms made it clear
that the appellant mortgagee surrendered his tenancy rights at the time
C
of execution of Mortgage Deed. Second, on the expiry of the period
of 10 years the appellants mortgagee could not insist upon retaining
possession on the ground of the previous right of lessee, and the lease
could not be revived on the expiration of the period of the mortgage,
Third, on the terms of the Deed of Mortgage, there was an express or
implied surrender of the lease.
Fourth, the tenancy in question was
to be continued till 6 November, 1953 though the mortgage was exeD
cuted on 21 May, 1953. The possession of the mortgage was confirmed . from 7 November, 1963 amounting to unequivocable conduct
showing that the relationship became that of. a mortgagor and mortgagee only.
E
The Deed of Mortgage shows these features indicating that there
was surrender of tenancy and the appellant was only a mortgagee.
The High Court found that there was a surrender of tenancy right.
No particular form of words is essential to make a valid surrender.
A surrender may be oral.
A
surrender may be express although
delivery of possession is necessary for surrender in the facts and circumstances of a given case.
In the present case, deliwry of possession was immediately followed by a redelivery of possession of the
appellant as mortgagee.
The Mortgage Deed
establishes
beyond
doubt that the effect of the Deed was inconsistent with the continuance
F or subsistence of the lease because the parties themselves stipulated
that the lease was to exist only upto 6 November, 1953.
On the
redemption of the mortgage the respondent had a right to recover
possession both on the terms of the mortgage deed and under section
62 of the transfer of Property Act.
G
The second feature in the Mortgage Deed is that the appellant
was given power to sub-let. Section 15 of the Bombay, Rents, Hotel
8.nd Lodging House Rates Control Act, 1947 as it stood in 1953
forbade any sub-letting. In 1959 the words 'bnt subject to any contH
ract to the contrary' were introduced into the said section 15, with the
result that in the absence of the contract to the contrary, the tenant
is not to sub-let or transfer.
Before 1959 there conld be no subletting. In the Mortgage Deed, there is provision for sub-let!ing. The
provision for sub-letting shows that the character of tenant is lost.
Third. the mortgagor is to do repair works and is also to· undertake repairs.
' \
.,
I
..
I
f
..
SHAH MATHURADAS V. NAGAPPA (Ray, C.J.)
793
Fourth, the possession was to be under the agreement.
Though the Mortgage Deed was made on 21 May,
1953, the
tenancy was continued till about 7 November, 1953. The possession
of the appellant as mortgagee was confirmed from 7 November, 1953.
This is rightly held to be uneqmvocal conduct show.mg that no tenancy
was to exist from 7 November, 1953 but the relationship was that of
mortgagor and mortgagee. If the intention of the parties was to revive
the tenancy there was no necessity of a term that the appellant might
let out the property to any one.
The contention of the appellant was that there was no surrender
and there was marger of the interest of the mortgagee and the tenant.
Ordinarily, the doctrine of marger applies to extinction of mortgage
security. This occurs by the marger of a lower in a higher security
and by the merger of a lesser estate in greater estate.
Where the
capacity in which a person in possession of the mortgagee's rights is
something quite different from the capacity in which he is in possession
of the equity of redemption, the mere fact that the two capacities
are united in the same physical person cannot result in a marger.
For a marger 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 ontside. In the case of a lease the estate that is in the lessor is a reversion. In the case of a mortgage the estate that is outstanding is the
equit.v of redemption of the mortgagtor.
Therefore, there cannot be
a merger of lease and mortgage in respect of the same property since
neither of them is a higher or leaser estate. than the other. The view
expressed in Narayan v. Ramchandra (I) is correct.
Section 111 of the Transfer of Property Act is clauses ( e)
and
(f) deal with surrender, and in clause (d) with merger. Clause (d)
states that lease in movable properties determines in case the interest
of the lessee or the lessor in the whole of the property becomes vested
at the same time in one person in the same right. When a leasehold
and a reversion coincide there is a merger of a lesser estate in the
greater. The leasehold is the lesser estate. for it is carved out of the
estate of the owner, which is the reversion.
The lesser estate
is
merged in the greater.
The lease determines and merges
in
the
rev~rs1~n. If the lessor purchases the lessee's interest, the lease
is
extmgmshed, as the same man cannot be at the same time both landlord and tenant. The interests of the lessor and of the lessee must be
m the whole of the property, otherwise there is no merger.
The
mterest of the lessor and the. less.ee in the whole of the property should
become .vested at ~he same time m one person in the same right. Thus
a lease 1s not extmgmshed because the lessee purchases a part of the
reversion.
A surrender under clauses (e) and (f) of section 111 of the
Transfer of ~roperty Act, is a~ yield~ng up of the term of the lessee's
mterest to him who has the immediate reversion
or
the
lessor's
(I) 65 Born. L. R. 449
A
B
c
D
E
F
G
H
794
SUPREME COURT REPORTS
[1976] 3 S.C.R.
A
interest.
It takes effect like a contract by
mutual consent on the
lessor's acceptance of the act of the lessee. The lessee cannot, therefore,
surrender unless the term is vested in him; and the surrender must
·,
be to a person in whom the immediate reversion expectant on the term
is vested.
Implied surrender by operation of law
occurs by
the
creation of a new relationship, or by relinquishment of possession. It
the lessee accepts a new lease that in itself is a surrender. Surrender
'3
can also be implied from the consent of the parties or from such facts
.,.
as the relinquishment of possession by the lessee and taking over
possession by the lessor.
Relinquishment of possession operates as
an implied surrender.
There must be a taking of possession,
not
necessarily a physical taking, but something amounting to a virtual
taking of possession.
Whether this has occurred is a question of
fact.
In the present case if the mortgagor was not able to redeem
~ the appellant mortgagee was to enjoy the property in accordance with
the terms of the mortgage and also to sell the property for recovery
of debts.
This feature shows that appellant surrendered the tenancy
[rom 7 November, 1953.
In the present ca5e the terms of the deed show that the mortgagee
undertook to deliver possession of the property to the mortgagor on
D
the expiry of a period of 10 years.
The Mortgage Deed shows that
the tenancy was surrendered on 7 November, 1963 and thereafter the
,A
possession was only that of mortgagor.
There would be no question
of the tenancy being kept in abeyance or the tenancy reviving on the
expiration of the pe?od of mortgage.
For these reasons the judgment of the High Court is affirmed and the
E
appeal is dismissed with costs.
.
s. R.
Appeal dismissed.
J