High CourtDivision Bench2007-10-04Appeal allowed

HASTHIMAL AND SONS v. P. TEJ RAJ SHARMA

Case / Petition Number:Civil Appeal No. 3008 of 2001

Neutral Citation:2007 SCR 537

Case Details & Bench

Court: High Court
Hon'ble Judges: A.K. Mathur
Markandey Katju
Judgment Date: 2007-10-04
Court Decision / Holding: Appeal allowed. The Supreme Court held that the pre-emption clause operates as a clog on the right of redemption in favor of the vendee. However, the tenancy term in the mortgage deed ensuring that the mortgagee would automatically become the lessee prior to the mortgage means the tenant’s rights persist after redemption; automatic possession by the vendee is not granted. The High Court’s decree on automatic possession was set aside. The vendee may pursue eviction proceedings in appropriate forums on merits; no costs were awarded.
Final Disposition: Appeal allowed

Parties to the Case

Appellants / Petitioners

HASTHIMAL AND SONS AND ORS.

Respondents

P. Tej Raj Sharma

Legal Representation & Advocates

Counsels for Petitioners

• S.N. Bhat
• N.P.S. Panwar
• D.P. Chaturvedi

Counsels for Respondents

• E P Rao
• N.D.B. Raju
• Bharathi Raju
• Guntur Prabhakar
• Abhishek Gupta
• Anshuman Ashok
• D.S. Chadha

Case Synopsis & Summary

This is a civil appeal arising from a suit for redemption of a mortgage and for possession of mortgaged property. Jagadish mortgaged the property to the respondent mortgagee by a registered mortgage deed dated 19 March 1980, with possession by usufructuary mortgage. The deed expressly provided that on redemption the mortgagee would automatically become the lessee of the mortgagor, i.e., the tenancy would continue as prior to the mortgage. A subsequent partial release deed dated 21 September 1981 undertook to give the mortgagee the first option to purchase. Upon demand for redemption the mortgagee refused, and the plaintiff-purchaser from Jagadish filed suit for redemption and possession. During litigation, an Order 12 Rule 6 CPC decree was sought and debated in the High Court. The core issues were: (1) whether the vendee-plaintiff had a right to possession on redemption, and (2) whether the pre-emption clause operates as a clog on the right of redemption. The Supreme Court, in a division bench, held that the pre-emption right indeed operates as a clog on redemption in favor of the vendee, agreeing with authority such as Lewis v. Frank Love Ltd. However, on the first point, the Court found there is no automatic possession in favor of the mortgagee-turned-tenant upon redemption; the specific term in the mortgage deed preserves tenancy. The impugned High Court judgment was thus partially set aside, the appeal being allowed, and while the vendee cannot automatically eject the tenant, eviction proceedings may be pursued on merits. The respondent may approach the appropriate forum for eviction, if applicable.

Provisions of Law Cited

Transfer of Property Act, 1882CPC, Order 12 Rule 6 (O.12 R.6 CPC)

Legal Doctrines & Maxims

Pre-emption rights can operate as a clog on the right of redemption.
Intention of the parties governs the effect of mortgage on tenancy (whether tenancy continues after redemption).
No automatic surrender of an existing lease solely by the creation of a mortgage; tenancy may endure or require separate eviction proceedings.
Mere creation of a mortgage in favor of the lessee does not automatically terminate the prior lease; context and terms govern outcome.

Submissions & Arguments

Contentions of Appellants / Petitioners

The appellants contended that upon redemption the mortgagee, being in possession as a lessee prior to the mortgage, should automatically become the tenant on redemption and the vendee should obtain possession. They argued that the clause granting the mortgagee a right of first purchase should not be treated as a clog on the right of redemption and that eviction should be determined by merits rather than a broader tenancy continuation. They sought to equate redemption with immediate termination of the mortgagee’s tenancy, enabling the vendee to possess the property upon decree for redemption.

Contentions of Respondents

The respondents contended that the mortgagee’s pre-emption/right of purchase constitutes a clog on the right of redemption, preventing automatic transfer of possession to the vendee on redemption. They relied on authorities recognizing pre-emption as a restriction on redemption, and argued that the mortgagee’s possession as lessee should persist post-redemption under the contractual terms. They also urged eviction must be sought through appropriate proceedings, not by a unilateral grant of possession on redemption.

Cited Precedents (5)

Case Name	Citation	Treatment	Explanation
Lewis v. Frank Love Ltd	[1961] All E.R. 446	Positive	Authority cited to establish that a pre-emption clause can operate as a clog on the right of redemption.
Gopalan Krishnakutty v. Kunjamma Pillai Sarojini Amma	[1996] 3 SCC 424	Positive	Supports that automatic surrender of prior lease on mortgage is not automatic; depends on intention of the parties.
Cheriyan Sosamma and Ors. v. Sundaressan Pillai Saraswathy Amma and Ors.	[1999] 3 SCC 251	Positive	Reiterates that there is no automatic surrender of lease upon mortgage without evidence of intention.
Narayan Vishnu Hendre and Ors. v. Baburao Savalaram Kothawal	[1995] 6 SCC 608	Positive	Supports that there is no automatic merger of lease with mortgage absent surrender.
Shah Mathuradas Manganal & Co. v. Nagappa Shankarappa Malage & Ors.	[1976] 3 SCC 660	Distinguished	Differentiates the present facts; in that case the mortgagee had surrendered tenancy.

Diagnostic Tool

Beta

Does this judgment govern your specific facts?

Don't risk relying on a distinguishable precedent. Enter your facts or proposition below. We will test it against HASTHIMAL AND SONS v. P. TEJ RAJ SHARMA and instantly map out authorities that support, challenge, or govern your position.

Extracted Judgment Text

Exact text extracted from official judgment records.

A ~ ,,;..., # HASTHIMAL AND SONS AND ORS. v. ## P. TEJ RAJ SHARMA OCTOBER 04, 2007 B # [A.K. MATHUR AND MARKANDEY KAT JU, JJ.) _Transfer of Property Act, 1882:_ > _Mortgage of suit property with tenant-Mortgage deed providing_ c _that on redemption of mortgage, mortgagee would become tenant of the mortgagor automatically as he was, prior to mortgage-Claim for possession by vendee of the mortgaged property on expiry of mortgage period-Held: Not maintainable as mortgagee is reverted as tenantVendee to approach appropriate forum for eviction of tenant._ D _Pre-emption-Mortgage of property-Another agreement whereby mortgagor undertaking to give first option to purchase, to mortgagee-Held: It operates as clog on right of redemption of vendee from the mortgagor._ E The suit property was mortgaged under a regist~red mortgage deed dated 19.3.1980 to the lessee-mortgagee. The mortgage deed specifically mentioned that on redemption of the mortgage, the mortgagee would become the lessee of the mortgagor automatically as he was prior to the mortgage. After the mortgage deed, a partial release deed was signed between the parties on 21.9.1981 by which mortgagor had undertaken to give the first option to purchase, to the mortgagee. F On demand of redemption, mortgagee refused and the purchaser of the property filed the suit for redemption of mortgage and for G possession of the mortgaged property. During pendency of the suit, the purchaser filed application under 0.12 r.6 CPC for decree on the basis of admission by the mortgagee 537 H 538 SUPREME COURT REPORTS [2007] 10 S.C.R. A that mortgage was for 20 years which had expired in 2000. Trial Court rejected the application, however High Court allowed the same and decreed the suit under 0.12, r.6 CPC. In appeal to this Court, two points were iuvolved (1) Whether the B. plaintiff had a right to get possession on redemption of his mortgage and (2) whether the provision in the agreem'ent dated 21.9.1981 that the mortgagee will have a right of pre-emption operates as a clog on the right ofredemption oftlie mortgagor. Allowing the appeal, the Court c HELD: 1. Where one of the terms arranged between the mortgagor and the mortgagee was that the mortgagee should have a right of preemption in case the mortgagor wishes to transfer the property to a third party, such a condition operates as a clog on the right ofredemption of D the vendee from the mortgagor. Thus second point is decided in. favour ofrespondentwho is vendee. [Para 7] (540-F, G] A. _Lewis_ v. _Frank Love Ltd,_ [1961] All E.R. 446, referred to. 2. Even before the mortgage deed was executed on 19.3.1980, the E mortgagee was in actual physical possession as a tenant, and this possession continued with him as a mortgagee. Hence, when the mortgage was redeemed, it did not follow that the erstwhile mortgagee could be straightway evicted. When the mortgage comes to an end, the appellant reverted as a tenant, particularly since there was a specific· F term in the mortgage deed that on redemption of the mortgage the mortgagee will be a lessee as previous to the mortgage. This was a term agreed upon between the parties and the respondent cannot resile from this term. [Paras 9and10] [541-A, B, C] G _Gopalan Krishnakutty_ v. _Kunjamma Pillai Sarojini Amma,_ (1996] 3 SCC 424; _Cheriyan Sosamma and Ors._ v. _Sundaressan Pillai Saraswathy Amma and Ors._ [1999] 3 SCC 25 and _Narayan Vishnu Hendre and Ors._ v. _Baburao Savalaram Kothawal,_ [1995] 6 SCC 6Q8, relied on. _Shah Mathuradas Mangan/al and Co._ v. _Nagappa Shankarappa_ H .A r HASTHIMAL AND SONS _v._ P. TEJ RAJ SHARMA 539 [KATJU, J.] A _...._, _.., _Ma/age and Ors.,_ (1976] 3 SCC 660, distinguished. 3. The mere fact that the owner creates a mortgage, in favour of the lessee is not by itself decisive to hold that the prior lease was surrendered and the possession of the earlier lessee is only that of a mortgagee on creation of the mortgage, and it depends upon the intention B of the parties at the time of the execution of the mortgage. There was a specific term in the mortgage deed dated 19.3.1980 that on redemption of the mortgage, the mortgagee shall become the lessee of the mortgagor automatically as previous to the mortgage deed. Hence, there was a clear intention between the parties that the tenancy will continue C when the mortgage is redeemed. It would, however, be open to the respondent to file a suit or proceeding for eviction of the appellant-tenant which will be decided on its own merits. (Paras 11, 13and14] (541-D, E, G, H; 542-A, BJ CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3008 of D 2001. From the Judgment and final Order dated 12.2.2001 of the High Court ofKamataka at Bangalore in C.R.P. No. 2020 of2000. S.N. Bhat, N.P.S. Panwar and D.P. Chaturvedi for the Appellants. E P.P. Rao, N.D.B. Raju, Bharathi Raju, Guntur Prabhakar, Abhishek Gupta, Anshuman Ashok and D.S. Chadha, for the Respondent. The Judgment of the Court was delivered by F MARKANDEY KAT JU, J. 1. This appeal has been filed against the impugned judgment of the Karnataka High Court dated 12.2.2001 in C.R.P. No. 2020/2000. 2. Heard learned counsel for the parties and perused the record. G 3. This appeal has arisen out of a suit for redemption of the mortgage and for possession of the mortgaged property. The owner of the properties was one Jagadish, who mortgaged the property with the defendantrespondent under a registered mortgage deed dated 19.3.1980 with possession by creating an usufructuary mortgage. It appears that after the H \ \-\ \ 540 SUPREME COURT REPORTS [2007] IO S.C.R. ~- A mortgage deed, a partial release deed was signed between the parties on 21.9.1981 by which Jagadish had undertaken to give the first option to purchase to the mortgagee. On demand for redemption, the defendant refused and hence the suit was filed by the plaintiff, who had purchased the property from Jagadish. B 4. It appears that before the aforesaid mortgage deed dated 19 .3 .1980 was registered, the mortgagee was already in possession of the property as a tenant of the mortgagor. In the mortgage deed it was specifically mentioned that on redemption of the mortgage the mortgagee C should become the lessee of the mortgagor automatically as previous to the mortgage. 5. During the pendency of the suit, the plaintiff filed application under Order 12 Rule 6 CPC for a decree on the basis of the admission by the defendant that the mortgage was for 20 years which had expired on D 20.3.2000. This application under Order 12 Rule 6 CPC was rejected by the trial c.ourt, but in revision the High Court set aside the order of the trial court and decreed the suit under Order 12 Rule 6 CPC. Hence, this appeal by special leave. 6. There are basically two points involved in this case - (1) Whether the plaintiff had a right to get possession on redemption of his mortgage and (2) whether the provision in the agreement dated 21.9.1981 that the mortgagee will have a right of pre-emption operates as a clog on the right ofredemption of the mortgagor. E F 7. Taking the second question first, learned counsel for the appellant has relied on a decision of the House of Lords in _Lewis_ v. _Frank Love, Ltd,_ [1961] All. E.R. 446. In this decision it was clearly laid down by the House of Lords that where one of the terms arranged between the mortgagor and the mortgagee was that the mortgagee should have a right G of preemption in case the mortgagor wishes to transfer the property to a third party, such a condition operates as a clog on the right of redemption of the vendee from the mortgagor. We fully agree with this view. Hence, we decide this second point in favour of the respondent who is the vendee of the mortgagor. H -'. _I_ HASTHIMAL AND SONS v. P. TEJ RAJ SHARMA 541 ~. # [KATJU,J.] 8. However, as regards the first point, we are of the opinion that A the respondent did not have a right to possession automatically on a suit for redemption being decreed. 9. It may be noted that even before the mortgage deed was executed on 19 .3 .1980, the mortgagee was in actual physical possession as a B tenant, and this possession continued with him as a mortgagee. Hence, when the mortgage was redeemed, it did not follow that the erstwhile mortgagee could be straightway evicted. When the mortgage comes to an end, the appellant reverted as a tenant, particularly since there was a specific term in the mortgage deed that on redemption of the mortgage C the mortgagee will be a lessee as previous to the mortgage. 10. This was a term agreed upon between the parties and we cannot see how the respondent can resile from this term. 11. In _Gopalan Krishnakutty_ v. _Kunjamma Pillai Sarojini Amma,_ D [1996] 3 SCC 424, a three-Judge Bench of this Court held that the mere fact that the owner creates a mortgage in favour of the lessee is not by itself decisive to hold that the prior lease was surrendered and the possession of the earlier lessee is only that of a mortgagee on creation of the mortgage, and _it depends upon the intention of the parties_ at the E time of the execution of the mortgage. This view was reiterated by this Court in _Cheriyan Sosamma & Ors._ v. _Sundaressan Pillai Saraswathy Amma & Ors.,_ [1999] 3 SCC 251, _Narayan Vishnu Hendre & Ors._ v. _Baburao Savalaram Kothawal,_ [1995] 6 SCC 608. In these decisions also, it was held that there was no automatic merger of the interest of F lessee with that of a mortgagee, in the absence of proof of surrender of the lease by the defendant. 12. Learned counsel for the respondent has relied upon the decision of this Court in _Shah Mathuradas Mangan/al & Co._ v. _Nagappa Shankarappa Ma/age & Ors.,_ [1976] 3 SCC 660. But in that case it G was found as a fact that the mortgagee had surrendered his tenancy. Hence that decision is distinguishable. 13. In the present case, there was a specific term in the mortgage deed dated 19.3.1980 that on redemption of the mortgage, the mortgagee ·\ ' 542 SUPREME COURT REPORTS [2007] 10 S.C.R. A shall become the lessee of the mortgagor automatically as previous to the mortgage deed. Hence, there was a clear intention between the parties that the tenancy will continue when the mortgage is redeemed; Hence, on this point we cannot agree with the High Court. Accordingly, the impugned judgment is set aside on this point. The appeal is allowed. No B costs. 14. It would, however, be open to the respondent to file a suit or proceeding for eviction of the appellant-tenant which will be decided on its own merits. C D.G. Appeal allowed.