Holding

A pre‑emptive right in a mortgage agreement constitutes a clog on the mortgagor’s right of redemption, and where the mortgage deed expressly provides that the mortgagee shall revert to being the lessee on redemption, the mortgagee is not automatically dispossessed and possession must be obtained through a separate eviction proceeding.

Summary

The suit involved a property mortgaged to the defendant under a deed dated 19‑03‑1980, which expressly provided that on redemption the mortgagee would revert to being the lessee of the mortgagor. A subsequent partial‑release deed dated 21‑09‑1981 gave the mortgagee a right of first option to purchase the property. The purchaser of the property filed a suit for redemption and possession; the High Court decreed the suit under Order 12 Rule 6 CPC, granting possession to the purchaser. On appeal, the Supreme Court examined (i) whether the purchaser was entitled to automatic possession on redemption, and (ii) whether the pre‑emptive right constituted a clog on the mortgagor’s right of redemption. The Court held that the pre‑emptive clause is a clog on the right of redemption, and that, because the mortgage deed expressly made the mortgagee a tenant after redemption, the mortgagee could not be evicted automatically; the purchaser must obtain possession through a separate eviction proceeding. Accordingly, the High Court’s decree was set aside and the appeal was allowed.

Issues considered

Whether the purchaser (vendee) has an automatic right to possession of the mortgaged property upon redemption of the mortgage.
Whether a clause granting the mortgagee a right of pre‑emption (first option to purchase) operates as a clog on the mortgagor’s right of redemption.

Legislation cited

Transfer of Property Act, 1882

Subjects

mortgageredemptionright of pre‑emptionclog on redemptiontenancypossessionTransfer of Property ActOrder 12 Rule 6 CPCleasemortgagee as tenant

Judgment

~ HASTHIMAL AND SONS AND ORS. A
v.
P. TEJ RAJ SHARMA

OCTOBER 04, 2007
B
[A.K. MATHUR AND MARKANDEY KATJU, JJ.)

Transfer ofProperty Act, 1882:

Mortgage ofsuit 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 ofthe mortgaged property on expiry ofmortgage
period-Held: Not maintainable as mortgagee is reverted as tenant-
Vendee to approach appropriate forum for eviction oftenant. 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 ofredemption ofvendee
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 F
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.

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 ofthe 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 ofthe terms arranged between the mortgagor
and the mortgagee was that the mortgagee should have a right of pre-
emption 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· .A

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 r
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
HASTHIMAL AND SONS v. P. TEJ RAJ SHARMA 539
[KATJU, J.]
Ma/age and Ors., (1976] 3 SCC 660, distinguished. A

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 ofthe 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 ofthe 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 KATJU, 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 defendant-
respondent 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.
E 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.
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 H
·\'
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.