Holding

There is no automatic merger of a lease with a usufructuary mortgage; the lease survives redemption unless an express or implied surrender is proved.

Summary

The plaintiff, Cheriyan Sosamma, held a usufructuary mortgage over a property that had earlier been leased to her husband Abraham Cherian. After the husband's death, the landlord sought redemption of the mortgage, claiming that the lease merged with the mortgage and thus the lessee's rights were extinguished. The Supreme Court examined whether a lease automatically merges with a mortgage upon redemption, especially when the lessee and mortgagee are the same person or spouses, and whether the lease could be deemed surrendered by implication from the mortgage documents. The Court held that no automatic merger occurs; a lease survives unless there is an express or implied surrender, which must be discerned from the parties' intention at the time of the mortgage. The mortgage deeds explicitly preserved the lease and required payment of rent, indicating the parties' intention to keep the lease alive. Consequently, on redemption, the lessee's right to possession continues, and the mortgagor is not entitled to physical possession. The appeal was partly allowed, modifying the lower court's decree to the extent that the leasehold rights survive.

Issues considered

Whether a lease merges with a usufructuary mortgage on redemption when the lessee is also the mortgagee or spouse of the mortgagee.
Whether the lease can be deemed surrendered by implication from the terms of the mortgage deed.
Whether the mortgagor is entitled to physical possession of the property upon redemption of the mortgage.

Legislation cited

Transfer of Property Act, 1882

Subjects

leaseusufructuary mortgagemerger of interestsimplied surrenderredemptionpossessionTransfer of Property Act

Judgment

\
A CHERIYAN SOSAMMA AND ORS.
-~
v.
SUNDARESAN PILLAI SARASWATHY AMMA AND ORS.

JANUARY 20, 1999
B
[S. SAGHIR AHMAD AND M.B. SHAH, JJ.)

Tra11sfer of Property Act, 1882:

Usufrnctuwy 11101tgage-Executio11 of-!11 favour of wife of lessee of
C same property-Merger of lease and mortgage-A1isi11g of-Lease agreeme11t
i11te11ded to be co11ti11ued despite executio11 of mortgage deed-Lessee a11d
mortgagee lived together as husba11d a11d wife-Held : 11tere is 110 automatic
merger of interest of lessee with that of the mortgaged property upo11 redemp·
tion of mortgage-171ere is 110 automatic swrender of lease a11d, therefore,
D mortgagor is 11ot e11titled to delivery of physical possession of property upon
redemption of mortgage-Implied surre11der of the lessee's rights would · •
depe11d upo11 the i11te11tion of parties at the time of execution of the mortgage >
deed-Lessee was the husband of the mortgagee and were living
together-Reasonable infere11ce that the transactio11 was really entered into by
the deceased -lessee, though in the name of his wife.
E
The respondent-owner leased his property in favour of the husband
of the appellant by executing lease deeds. Thereafter, usufructuary
mortgage deed was executed in favour of the appellant. Both the appellant
and her husband were living together and continued to do so till the death
p of the husband. From the recitals in the mortgage deed it was apparent . _.,
that the parties unequivocally and without any reservation intended that
the leasehold rights of the husband were kept alive despite execution of the
usufructuary mortgage. The respondent, after the death of the husband,
filed a suit for redemption of the mortgaged property. A preliminary
decree for redemption under Order 34 Rule 7 of the Code of Civil Proce-
G dure, 1908 was passed by the Court of MunsilI on the ground that the
lessee's right would merge at the time of execution of the mortgage deed.
The appellate court allowed the appeal by holding that there was no .?'
merger of the lease and the mortgage. However, the High Court allowed
the second appeal by restoring the preliminary decree for redemption of
H the mortgage. Hence this appeal.
172
CHERIYAN SOSAMMA v. S. PILLAI S. AMMA 173
Allowing the appeal partly, this Court A
"""tC .

HELD : 1.1. The question whether upon redemption of usufructuary
mortgagee a tenant-mortgage was required to deliver actual or physical
possession of the mortgaged property to the lessor-mortgagor depends
upon the intention of the parties at the time of the execution of the
B
mortgage deed. There is no automatic merger of the interest of a lessee
...
"- with that of a mortgagee when the same person is the lessee as well as the
mortgagee, in the absence of proof of surrender of the lease. Unless there
is merger of both rights on redemption of the mortgage the plaintiff is not
entitled to recover physical possession of the property. The right of lessee
to continue in possession would survive even after redemption. [178-A-B] c
1.2. The implied surrender of the lessee's right when the usufruc-
tuary mortgage was executed would depend upon what was the intention
of the parties at the time of execution of the mortgage deed in favour of
the siting tenant and the same has to be gathered from the terms and D
•y conditions of the mortgage transaction in the light of the surrounding
circumstances of the case. Unless there was surrender of leasehold rights
at the time of execution of the mortgage, mortgagor would not be entitled
to obtain delivery of physical possession of property on redemption of
mortgage. [178-G-H; 179-B) E
2. There can be no merger of a lease and a mortgage, even where the
two transactions are in respect of the same property, it is well-settled that
for a merger to arise, it is necessary that 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 outstanding. In the F
,. case of a lease, the estate that is outstanding in the lessor is the reversion;
in the case of a mortgage, the estate that is outstanding is the equity of
redemption of the mortgagor. Accordingly, there cannot be a merger of a
lease and a mortgage in respect of the same property since neither of them
is a higher or lesser estate than the other. Even if the rights of the lessee G
and the rights of the mortgagee in respect of a property were to be united
~ in one person the reversion in regard to the lease and the equity of
redemption in regard to the mortgage would be outstanding in the owner
of the property and accordingly, there would not be a complete fusion of
all the rights of ownership in one person. [178-C-F) H
174 SUPREME COURT REPORTS (1999) 1 S.C.R.
A Sambangi Applaswamy Naidu v. Behara Venktaramanayya Patro,
[1985) 1 SCR 651; Shah Mathuradas Magan/a/ & Co. v. Nagapa Shankarap-
pa Ma/age, [1976) 3 SCC 660; Nemi Chand v. Onkar Lal, (1991) 3 JT 106
and Gopalan Krishnamurthy v. Kunjamma.Pillai Sarojini Amma, [1996) 3
sec 424, relied on.
B Narayana Dogra Shetty v. Ramachandra Shivram Hingne, 65 Born LR
449 (Born), approved.
..
3.1. _In the present case the recitals in the documents are unam-
biguous and leave no doubt that the lease has continued, the parties
c expressly saved their leasehold rights. The lessee was not a party to the
mortgage deed and there is no evidence on record from which it can be
inferred or implied that the lessee surrendered his leasehold rights. The
contention that as the mortgage deed provides that the possession of the
property is handed over to the mortgagee, wife of the lessee, impliedly
leasehold rights are surrendered is without any substance. Whether
D
deceased-lessee was an actual party to the mortgage transaction was not •
much material as it was impossible in the circumstances to contend that :;;_
transaction was entered into behind the back of the deceased-lessee. The
deceased-lessee and his wife were living together and reasonable inference
in the circumstances would be to conclude that the transaction was really
E entered into by the deceased-lessee himself though in the name of his wife.
Hence, the lease prior to the suit transaction in favour of the deceased-·
lessee would not survive. In the mortgage deed it is mentioned that the
properties were entrusted for pattom to the deceased-lessee and at present
were in the possession, enjoyment and occupation of the appellant. There-
fore, it is apparent that the deceased-lessee and the mortgagee were the
F - -.
same persons. However there is no question of drawing any inference that
~
husband of mortgagee surrendered his tenancy rights at the time to
mortgage. There is no merger of pre- existing rights unless there is express
or implied surrender. In the facts of the present case, there is no question
of implied surrender of leasehold rights by the deceased-lessee. Further,
G there is no question of drawing any inference that the deceased-lessee has
surrendered the leasehold rights as it would be totally inconsistent with --r

the recitals and terms of the mortgage deeds. [179-C·D; 177-F] y

3.2. The Judgment and decree passed by the Qigh Court is modified
H to the extent that -on the redemption of mortgage, leasehold rights of the
CHERIYAN SOSAMMAv. S. PILLAIS.AMMA[SHAH, J.) 175

<o::)( · deceased would survive as there is no surrender or implied surrender of A
the tenancy rights by the deceased-lessee. The judgment and the decree
passed by Trial Court, which is confirmed by the High Court, would stand
modified to the aforesaid extent. [180-8)

CIVIL APPELLATE JURISDICTJON: Civil Appeal No. 1435 of
~. B
From the Judgment and Order dated 29.1.79 of the Kerala High
Court in S.A. No. 995 of 1975.

Ms. Lily Thomas and R. Satish for the Appellants.
c
T.L.V. Iyer, K.M.K. Nair and Vipin Nair for the Respondents.

The Judgment of the Court was delivered by

SHAH, J. The short question involved in this appeal is whether the
lease executed in favour of Abraham Cherian, Husband of the mortgagee D
. would survive after the execution of the mortgage deed. In our view from
the evidence on record, it is apparent that parties expressly saved the lease
hold rights. The lessee was not party to the mortgage deed and there is no
evidence on record from which it can be inferred or implied that the lessee
surrendered his lease hold rights. It is well established law that unless there E
was a surrender or lease hold rights at the time of execution of the
mortgage, mortgagor would not be entitled to obtain delivery of physical
possession of property on redemption of mortgage.

The relevant facts for deciding the aforesaid question are as under :
F
By a document dated 12th June, 1932 for the suit property, the owner
executed a lease deed in favour of Abraham Cherian. Thereafter on 21st
September, 1935 (5th Kanni 1109) (Exb. 2) usufructuary mortgage deed
was executed· in favour · of Smt. Sosamma, wife of Abraham Cherian.
Additional mortgage deeds were executed on 30th August, 1935 (Exb.
P.10) and 8th February, 1939 (Exb. P.1). Lessee, Abraham Cherian died G
on 29th June. 1946. O.S. Civil Suit No. 60 of 1968 was filed before the
Munsiffs Court Chenganacherry for redemption of th~ mortgage property.
A preliminary decree for redemption under Order 34 rule 7 of the Code
of Civil Procedure was passed on 3rd December, 1971 by the Court of
Munsiff. The Court arrived at the conclusion that lessee's right would H
176 SUPREME COURT REPORTS [1999] 1 S.C.R.
\
A merge at the time of execution of the mortgage deed. Appeal A.S. No. 100
of 1972 was allowed by the Additional Sub-Judge by a judgment and decree
dated 5th July, 1973 by holding that the finding given by the trial court that
lease in favour of Abraham Cherian merged when mortgage deed was
executed in favour of the first defendant cannot be upheld. Against that
B judgment and decree, Second Appeal No. 995 of 1975 was filed before the
High Court of Kerala. By a judgment and decree dated 29th June, 1979, •
the learned Single Judge allowed the said appeal by holding that Exb. P-1, -{ 1
P-2 and P-10 create mortgagor and mortgagee relationship between the
parties. The Court held that the lease arrangement in favour of the first
defendant's husband Abraham Cheriyan would not survive after execution
C of the mortgage deed for the said property. The Court considered that
though the deceased Abraham Cheriyan was not an actual party to the
mortgage transaction yet a reasonable inference could be drawn that the
transaction was really entered into by Abraham Cherian himself through
his wife and, therefore, the lease prior to the suit transaction in favour of
D Abraham Cherian will not survive and the defendants cannot claim any
0 . '
right of fixity of tenure on the basis of the lease. The Court, therefore, ;:><
restored the preliminary decree under Order 34 rule 7 of the Code of Civil
Procedure for redemption of the mortgage.

At the time of hearing of this appeal, learned counsel appearing for
E the appellants referred to the mortgage deed and additional mort~age
deeds to show that by the said deeds rights of lessee are expressly saved.

We would first refer to Exb. P-2 mortgage dated 21st September,
1935 {5th Kaanni 1109) in favour of Smt. Sosamma wife of Abraham
Cherian. The said document, inter alia, specifically recites as under : . >
F
"The above said properties were those that were entrusted for
pattom to your husband Abraham Cherian on 26th Edavam 1109
and at present were those in your possession, enjoyment and
occupation."
G After aforesaid narration in the last para, it is specifically provided
as under:

"The pattom cin the properties as it is agreed to include the
rent for the building the sum of Rs. 120 per year should be paid
H regularly every month as it is being paid at present to me without
CHERIYAN SOSAMMA v. S. PILLAI S. AMMA [SHAH, J.] 177

fail and the pattom amount should not be adjusted either in the A
•
principle amount of mortgage or the interest."

The next document is Exb. P-10 additional mortgage deed dated 30th
August, 1935 (4.1.1111). The said deed also provides as under :

"As per the conditions in the mortgage agreement you have B
agreed to pay a sum of Rs. 120 per year as pattom for the
properties included in this and after excluding pattom amount
which I have received up to this date you have got right to adjust
the future rent due for the future interest due to you as per the
said mortgage agreement and under this additional mortgage
agreement and the balance pattom (rent) shall be received by me · C
every year and within the stipulated period."

Same is the position in the further second additional mortgage deed
dated 8th February, 1939 (Exb. P-1). This document provides as under:
• •
"You are made to believe that there is no encumbrance on this D
)(

property except the melvaipa lease arrangement to your husband
Abraham Cherian (item No. 2) No. 203 dated 30 Chingam 1112
M.E., and the encumbrances which you have as stated earlier."

From these documents it is apparent that parties unequivocally E
without any reservation continued the lease agreement after execution of
the mortgage. The recitals in the documents are unambiguous and leave
no doubt that the lease has continued, and, therefore, in our view, it
SUTVlves.

The first document itself provides that the mortgagee would be F
required to pay Rs. 120 per year regularly as rent and that rent amount
could not be adjusted either in the principal amount of mortgage or
interest. Similarly, by the additional mortgage deeds aforesaid right to
recover the rent is continued. The last additional mortgage deed specifi-
cally recites that there are no encumbrances on the property except lease G
arrangement with the mortgagee's husband Abraham Cherian. These docu-
ments clearly reflect the intention of the parties that lease hold rights of
Abraham Cherian was kept alive despite execution of usufructuary
mortgage.

This Court, in a series of cases has concluded the question by holding H
178 SUPREME COURT REPORTS [1999) 1 S.C.R.

A that the question whether upon redemption of usufructuary mortgage a
• tenantTmortgagee was required to deliver actual or physical possession of
the mortgage-property to the lessor- mortgagor depends upon the intention
of the parties at the time of the execution of the mortgage deed. There is
no automatic merger of the interest of a lessee with that of a mortgagee
when the same person is the lessee as well as the mortgagee, in the absence
B of proof of surrender of the lease. Unless, there is merger of both rights
on redemption of the mortgage, the plaintiff is not entitled to recover
physical possession of the property. The right of lessee to continue in
possession would survive after redemption.

c The learned counsel for the appellants rightly referred to the
decision of this Court in the case of Sambangi Applaswamy Naidu & Others
v. Behara Venkataramanayya Patro and Others, [1985) 1 SCR 651 wherein
the Court has held that there can be no merger of a lease and a mortgage,
even where the two transactions are in respect of the same property, it is
D well- settled that for a merger to arise, it is necessary that 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 outstanding.
In the case of a lease, the estate that is outstanding in the lessor is the
reversion; in the case of a mortgage, the estate that is outstanding is the
equity of redemption of the mortgagor. Accordingly, there cannot be a
E merger of a lease and a mortgage in respect of the same property since
neither of them is a higher or lesser estate than the other. Even if the rights
of the lessee and the rights of the mortgagee in respect of a property were
to be united in one person the reversion in regard to the lease and the
equity of redemption in regard to the mortgage would be outstanding in
F the owner of the property and accordingly, there would not be a complete
...
__i,.-
fusion of all the rights of ownership in one person. This position in law as
explained by the Bombay High Court in Narayana Dogra Shetty v.
Ramachandra Shivram Hingne reported in 65 Born. LR 449 has been fully
approved by this Court in Shah Mathuradas Maganlal & Co. v. Nagappa
Shankarappa Ma/age, [1976) 3 SCC 660. The Court also held that with
G regard to the implied surrender of the lessee's rights when the usufructuary
mortgage was executed would depend upon what was the intention of the "3
parties at the time of execution of the mortgage deed in favour of the sitting
tenant and the same has to be gathered from the terms and conditions of
the mortgage transaction in the light of the surrounding circumstances of
H the case. The aforesaid decision is relied upon by this Court in the case of
·r-

CHERIYAN SOSAMMA v. S. PILLAI S. AMMA [SHAH, J.) 179

Nemi Chand v. Onkar Lal, (1991) 3 J.T. 106. A
··'t"

Further, in the case of Gopalan Krish11a11kutty v. Kunjamma Pillai
Sorojini Amma, [1996) 3 SCC 424, the Court after considering earlier
decisions held that on execution of mortgage in favour of the the lessee,
there is no automatic merger of the interest of a lessee with that of a
y

mortgagee when the same person is the lessee as well as the mortgagee, in B
> the absence of proof of surrender of the lease by the defendant. Hence, on
>-
redemption of the mortgage, the plaintiff is not entitled automatically to
recover possession of the lease premises.

Hence, the contention of the learned counsel for the respondents c
that as the mortgage deed provides that the possession of the property is
handed over to the mortgagee, wife of the lessee, impliedly lease hold rights
are surrendered is, in our view, without any substance. The High Court
arrived at the conclusion that whether Mr. Cherian was an actual party to
the mortgage transaction, was not much material as it was impossible in D
the circumstances to contend that transaction was entered into behind
x the back of Mr. Cherian; Mr. C::herian and his wife were living together and
reasonable inference in the circumstances would be to conclude that the
transaction was really entered into by Mr. Cherian himself though in the
name of his wife. Hence, the lease prior to the suit transaction in favour
of Cherian would not survive. We agree with the finding that husband anq E
wife, that is, lessee and mortgagee, were living together. As quoted above
in the mortgage deed, it is mentioned that the properties were entrusted
for pattom to Abraham Cherian and at present were in her possession,
enjoyment and occupation. Therefore, it is apparent that lessee and the
mortgagee were the same persons. However, there is no question of F
...,. drawing any inference that husband of mortgagee surrendered his tenancy
I
... rights at the time of mortgage. As stated earlier, by mere execution of the
usufructuary mortgage, there is no merger of pre-existing tenancy rights
unless there is express or implied surrender. In the facts of the present
case, there is no question of implied surrender of lease hold rights by the
deceased Abraham Cherian. Further, there is no question of drawing any G
r
inference that deceased lessee has surrendered the lease hold rights as it
. :---....,.. would be totally inconsistent with the recitals and terms of the mortgage
deeds. There was no necessity of providing in all the aforesaid three
documents that there was a lease arrangement with regard to the mortgage
property and that mortgagee was required to pay a rent of Rs. 120 per H
180 SUPREME COURT REPORTS [1999] 1 S.C.R.
A year. On the contrary, mortgage deeds expressly saved the tenancy rights.
In the result, the appeal is allowed, judgment and decree passed by
the High Court is modified to the extent that on the redemption of
mortgage, leasehold rights of the deceased would survive as there is no
surrender or implied surrender of the tenancy rights by the ·deceased
B Abraham Cherian. The Judgment and the decree passed by the Trial Court
which is confirmed by the High Court would stand modified to the
aforesaid extent.

The appeal is partly allowed with no order as to costs.

v.s.s. Appeal partly allowed.