Full Judgment Text
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PETITIONER:
ALL INDIA FILM CORPORATION LTD. & ORS.
Vs.
RESPONDENT:
SHRI RAJA GYAN NATH AND ORS.
DATE OF JUDGMENT:
26/09/1969
BENCH:
ACT:
Mortgage--Tenancy created by mortgagee in possession does
not Survive the termination of mortgage interest--Landlord
and tenant--East Punjab Urban Rent Restriction Act,
1949, applicability of--Evacuee Interest (Separation) Act,
1951.
HEADNOTE:
The mortgagee of a property in which a cinema was run.
leased it to the first appellant on a monthly rental of Rs.
250/- for a period of 5 years renewable for 10 years by
yearly renewals on the same terms. The lessee was given the
full right to use the property whether by itself or through.
agents or in partnership or by sub-leasing. The lessee
sublet the premises after equipping the house with cinema
machinery on a monthly rental of Rs. 1,250/-. The property
had been declared evacuee property, and the lessee applied
under the Evacuee Interest (Separation) Act, 1951 for
separation of his interest. The Competent Officer ordered
sale of the property, which was purchased for Rs. 65,000/-
by the respondent. Then (before the expiry of the term of
the lease) the respondent filed a suit against the head-
lessee and the sub-lessee for possession of the property. On
the questions (i) whether the respondent was entitled to
possession before the expiry of the full term of the lease;
and (ii) whether the subleases were protected under the East
Punjab 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
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 lessor of
the property, but his interest as lessor is coterminous with
his mortgage interest. 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. [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
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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 the 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
base will continue to bind the mortgagor or persons deriving
interest from him if the mortgagor had concurred to grant
it. [585 C]
582
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, whether it was a bona fide act or
not, and whether the exemption can apply to urban property.
Mahabir Gope and Ors. v. Harbans Narain Singh, [1952]
S.C.F. 775 and Asaram & Ors. v. Mst. Ram Kali, [1958] 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. These definitions apply if the tenancy,
either real or statutory, could be said to survive after the
termination of 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 claimant 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 and the mortgagee
proportionate to their shares, or (d) adopt a combination of
any of 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 mortgagee’s
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 Rent Restriction Act could not apply any further.
Nor could it be said that when the mortgagor cancelled the
rent note and authorised the mortgagee to find any other
tenant, the intention was to allow expressly a tenancy
beyond the term of the mortgage. [586 E]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 2416 and
2417 of 1966.
Appeals from the judgment and order dated March 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. 1, 2 and 4 (in
C.A. No. 2417 of 1966).
N.C. Chatterjee and 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
Hidayatullah, C.J. These are appeals by certificate
granted by the Punjab High Court against the judgment and
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decree dated March 19, 1963. The property in dispute is a
building in Jullundur City in which there is located a
cinema. It was formerly’ called ’Chitra Talkies’ and now is
known as ’Odeon Cinema’. The building was constructed in
1933 on land measuring 3 kanals and 17 marlas. The original
owner-one Azim Baksh--migrated to
583
Pakistan in 1947 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 Gamda Mal. On January 22, 1946 Azim Baksh
took the building on leaseon 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 Azim Baksh had rented this building to Sant
Ram and Sita Ram on Rs. 150/- per month. 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 be
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
company 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 together with another plot. The
respondent in this appeal Raja Gyan Nath purchased the
cinema with the land (3 kanals 17 marlas) for Rs. 65,000/-
on December 3, 1955. The sale certificate was issued on
March 3, 1956. The mortgage charge was paid off on April
19, 1958.
584
The purchaser Raja Gyan Nath then filed a suit for
possession of this property from the head lessee 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 the 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
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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 only three points were
urged:
(1) Whether the defendants were protected
by the 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 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 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 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
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
rulings of this Court in Mahabir Gope and others v.
Hatbans Narain Singh(1) and Asaram and others v. Mst. Ram
Kali(2).
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 the title of the mortgagee in possession.
This principle applies ordinarily to the management of
agricultural lands and has seldom been extended to urban
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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
(1) [1952] S.C.R. 775. (2) [1958] S.C.R. 986.
586
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 a 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 take advantage of the provisions of the East
Punjab Urban Rent Restriction Act, 1949 ? The answer to
this question deFends 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 anti 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.
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 entitled
to receive rent and a tenant means any person by whom or on
whose account rent is payable. These definitions apply if
the tenancy, either real or statutory, could be said to
survive after the termination of 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 claimant
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
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distribute the sale proceeds thereof, or (c) the Competent
Officer may partition the property between the mortgagor and
the mortgagee proportionate to their shares, or (d) adopt a
combination of any of these measures. It is obvious that
method Co) 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 Rent Restriction Act could not apply any further.
Nor could it be said that when the mortgagor cancelled the
rent note and autho-
587
rised the mortgagee to find any other 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.
SupCl/70--7
588