Holding

A lease and a mortgage cannot merge; unless the mortgage deed expressly indicates an implied surrender of the lessee's rights, those rights remain in abeyance and revive on redemption, so only symbolic possession, not physical possession, is to be delivered.

Summary

Behara Venkataramanayya Patro, the mortgagor, executed two usufructuary mortgage deeds in 1939 and 1942 in favour of Sambangi Thavitinaidu, who was then a sitting tenant of the same property. After obtaining a preliminary decree for redemption, the mortgagor died and his legal representatives sought a final decree and delivery of possession upon payment of dues. The tenant‑mortgagees argued that the landlord‑tenant relationship should revive on redemption, entitling them only to symbolic possession, while the lower court initially ordered physical possession to the mortgagee. The Additional District Judge reversed, holding that a lease and a mortgage cannot merge and that no implied surrender of the lessee's rights occurred. The Andhra Pradesh High Court later reversed again, but the Supreme Court allowed the appeal, restoring the view that the lease rights revive on redemption and only symbolic possession is required. Consequently, the mortgagee was not entitled to physical possession of the property.

Issues considered

Whether a lease and a usufructuary mortgage concerning the same property can merge into a single estate.
Whether, upon redemption of a usufructuary mortgage, the tenant‑mortgagee must deliver actual (physical) possession or merely symbolic possession to the mortgagee.
Whether the execution of a usufructuary mortgage implies a surrender of the lessee's rights.
Whether the landlord‑tenant relationship revives automatically upon redemption of the mortgage.

Legislation cited

Transfer of Property Act, 1882s. 101, s. 102, s. 58

Subjects

landlord-tenant relationshipusufructuary mortgageredemptionmerger of lease and mortgageimplied surrenderpossessionTransfer of Property Act

Judgment

t

SAMBANGI APPLASWAMY NAIDU & OTHERS A
•
•• .,
. BEHARA VENKATARAMANAYYA PATRO AND OTHERS

August 28, 1984 B

[V.D. TULZAPURKAR AND M.P.TAAKKAR, JJ.]
·Landlord and tenant relationship-Whether upon redemption of uSufruc.
tuary mortgage a tenant mortgage could be directed to deliver the actual ond-
phys;cal possession of the mortgaged property to the /essor-Mortgagor-}Jerger c
ofa lease and a mortgage ;n respect oft he same property, whether there can be-
Trnnsfer pf property Act, 1882 Sections 58, 101 and /OS-Interpretation of
deeds. (

RespoDdent9, predecessor Behara Venkataramanayya Patro executed
two deeds dated 30.8-1939 and 25.8-1942 in favour of one Sambaagi Thaviti-
naidoe, who was then a sitting tenant of the property. In 1951 the mortgagor D
filed a suit for redemption of the mortgages and obtained a preliminary decree
on 31-12-1952. Subsequently, the mortgagor died and the-present respondents
were brought on re~ord as his legal representatives. On 21-10-1963 the res-
pondent filed an application for pas,ing a final decree by way of ascertainment
of the amount due and for delivery of possession upon deposit of entire dues
so ascertained. The application was resisted by the appeliants on several
grounds .. According to them, on redemption, relationship of landlord and E
tenant would revive which needed to be protected and the delivery should be
of aymbolical possession only. The learned trial judge allowed the application
' -but on arl appeal preferred, the Additional District Judge SrikakuJam took
a cOntrary view relying upon Varada Bangar Raju's case AIR (l96S) A.P. 86. The
respondents, therefore, preferred a second appeal and the fearned Single
Judge of the A.P. High Court relying upon a subsequent decision in P. Satya.
E
narayana•s case ILR (1967) A.P. 1341 set aside the decision of the first
• Appellate Court. Letters Patent Appeal p!eferred by the te_nant mortgag~es
to the Division Bench of the High Court failed and hence this appeal by Spe-
cial Leave to this Court.
;,
• Allowing the appeal. the Court
G
HELD : 1 : 1 There can be no merger of a lease and a mortgage, even
where the twO transactions are in respect of the sam~ property. [6SSC]
•
1 : 2 It is well-settled that for a merger to arise. it is necessary that
less.er estate ·and a - higher estate should merge in one person at one and the
s1me time and in the s:i ne ri3ht and no interest in the proverty should remain ff
652 SUPREME COURT REPORTS ( 1985] 1 S.C.R.

A outstanding. Jn the t:ase of a lease, the es tale 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 n1erger
of a lease and a mortgage in respect of the sa1ne 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
B
regard to the mortgage, would be outstanding in the owner of th<: property and
accordingly, there would not be a co1nplete fusion of all the rights of ownership
in one person. [6SSD·F]
(

;..
Shah Mathurdas Magan/al & Ca, v, Naogappa Shankarappa & Ors.A.l.R
1976 S.C. 1565 followed. Narayana Dogra Shetty v. Ramchandra Shivrarn
C Hingne 65 Born. L.R. 449, approved.

2. Whether upon redemption of usufructuary mortgage a tenant mort-
gagee could be directed to deliver actual or physical possession of the mortga.
ged property to the lessor mortgagor and whether the original re ationship of
landlord and tenant would revive upon redemption of usufructuary mortgage
by a tenant mortgagee in possession of the n1ortgaged property by delivering •
D possession to the lessor mortgagor, will deper.d upon whether there was an
implied surrender of the Jessee's right when the usufructuary mortgage was
execcutcd which in turn depends upon \vhat was the intention of the parties at
the time of the execution of the mortgage deed in favour of the sitting tcn<'lnt
to be gathered from the terms of and conditions of the mortgage transaction in
light of the surrounding circumstance of the case. [656C.D 655G-H; 656A] •
E
2 : 2 In the instant case, the only effe:;t of the execution of usufr1.1c-
tary mortgage deeds \Vas that the lessee's right wer.;: kept in abeyance and they
revive upon redemption of the mortgage. [658E]

Tlle mortgage deed doe; not me:ition whether on rede nption physical
possession h to be deliver.ed or symbolic.ti p~ssessi >n is to b~ delivered to the
F mortgagor. [651H]
•
During the currency of the 1nortgage the li<tbility to pay rent to the
lessor-mortgagor (albeit to be discharged by adjustinent} is kept alive. If any
thing such a term cle1rly runs co-inter to any implied surrender of the lessee's
right. There is no term fixed for redemption of mortgage property which rnean i -
G that it was open to the mortgagor to redeem ihe mortgage at any time that is
to say even within a very short time and if that be so a sitting teJant cul tivat-
ing the lands under a lease, who has obliged his lessor by advancing monies to
him to tide over his financial difficulties would not give up his right as a lessee
no sooner redemption takes place, coupled with a fact that the mortgage deed
keeps alive the lessee's liability to pay rent during the currency of the mort-
gage cleary suggests that no implied surrender was intended by the parties.
H ~~
s.A. NAIDU v. B.V. PAJRO (Tulzapurkar, J.) 653

C1v1L APPELLATE JURISDICTION : Civil Appeal No. 1339 of A
1977.

Appeal by Special leave from the Judgment and Order dated
the 16th September, 1976 of the Andhra Pradesh High Court in
L.P.A., No. 199 of 1975.
B
K. Ram Kumar for the Appellant.

A. V. Rangam for the Respondent.

The Judgment of the Court was delivered by
c
TuLZAPURKAR, J. The short question involved in this appeal
is whether upon redemption of a usufructuary mortagage a tenant-
mortgagee could be directed to deliver actual or physical possession
•
of the mortgaged property to the lessor mortgagor ? By reason of
th< grant of a limited special leave the appeal has been confined to
D
that question.

Facts relevant to the question may be stated : One Behara
• Audinarayana Patro, the original owner of suit property executed
.two usufructuary mortgage deeds dated 3Q.8.1939 and 25.8.1942 in
favour of the first defendant Sambangi Thavitinaidu, who was then
E
a sitting tenant of that property. In 1951 the mortgagor filed a suit
for redemption of the mortgages and obtained a preliminary decree
on 31.12.1952. Subsequently, the mortgagor died and the respon-
dents were brought on record as his legal representatives. On
21.10.1963 the respondents filed an application for passing a final
• decree by way of ascertainment of the amount due and for delivery
F
of possession upon ·deposit of entire dues so ascertained. The
application was resisted by the first defendant and other defendants
(the appellants before us) on several grounds. Inter alia the
• appellants contended that even after depositing the entire amount
found due to them no decree directing delivery of actual or physical
possession in favour of the respondents shonld be passed but G
delivery of symbolical possession alone should be ordered inasmuch
as the appellants' possession of the suit property as a tenant or
lessee could not be disturbed. In other words, the appellants
contended that on redemption the original relationship of landlord
and tenant would revive which needed to be protected. The learned
District Munsif, Parvatipuram took the view that the relationship H
654 sUPREMe COURT RERORTS [1985] I s.c.R.

A of landlord and tenant had ceased to subsist after the mortgages -
came into existence, that the mortgage-bonds did not provide that
the said relationship would be restored or revived upon redemption
and that therefore the respondents were entitled to delivery of
physical possession upon their depositing the entire dues payable to
the appellants. The tenant-mortagees (the defendants) preferred an
B appeal against the order of the learned District Munsif and the •
learned Additional District Judge Srikakulam who heard the appeal
took the contrary view relying upon a decision of Andhra Pradesh
High Court in Varada Banga1' Raju v. Ki,.thali Avatharam & others•
. and held that the defendants-mortgagees were sitting tenants of the
c mortgaged property at the time of the execution of the mortgage-
deeds, that there was nothing in those deeds to suggest that their
rights as lessees were extinguished either by merger or implied
surrender, that the landlord-tenant relationship continued to exist
after termination of mortgagor-mortgagee relationship and therefore
the respondents were not entitled to delivery of physical possession ; •
D
he, therefore, allowed the appeal.

The respondents preferred a second appeal to the Andhra
Pradesh High Court and the learned Single Judge relying upon a
subsequent decision in P. Satyanarayana v. Janardhan Ohetty' •
E
which had distinguished the earlier decision, reversed the view of
the learned Addi. District Judge and restored th(: decree passed by
the District Munsif. The learned Judge took the view that the
question whether the relationship of landlord and tenant would
subsist even after tbe execution of the usufructuary mortgage
F depended upon the intention of the parties to be gathered from the
terms of the mortgage transaction and held that on the terms of
mortgage-deeds there was no doubt that the landlord-tenant •
relationship had ceased to exist after the relationship of mortgagor
and mortgagee came into existence and the mortgage bonds had
not specifically provided that the landlord and tenant relationship
G would be restored after the redemption of the mortgages. A Letters ,f '
Patent Appeal preferred by the tenant-mortgagees to the Division
Bench of the High Court failed and hence this appeal to this
Court.
< •
Counsel for the appellants urged upon us to accept the
H view taken by the learned District Judge that th(: two transactions

(I) AIR 1965 A.P, 1341.
(2) !LR 1967 A.P. IS6.
S.A. NAIDU"· B.V. PATRO (Tulzapurkar, J.) ' 655

namely a lease ard a usu~rnctuary mortgage could co-exist and there A
was nothing in the two mortgage deeds to · suggest that the
appellants' rights as lessee were extinguished either by merger or by
implied surrender and in that behalf strong reliance was placed upon
the earlier decision of the Andhra Pradesh High Court in Varada
Bangar Raju's case (supra),. while counsel for the respondents
B
contended that the High Court, both in second appeal as well as
Letters Patent Appeal, was right in restoring the learned District
Munsif's - decision by relying upon the later decision in
P. Batyanarayana's case (supra) and prayed for dismissal of this
appeal. ·
c
In our view 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 lessser estate and a higher estate should merge in one
person at hne and the same time and in the same right and no D
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
merger of a lease ·and a mortgage in respect of the same property
E
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 the owner of the property and
·- accordingly, there would not be a complete fusion of all the rights F
of ownership in one person. This position in law as explained by
the Bombay High Court in NarayJna Dogra Bhetty v. Ramchandra
Shivram Hingne', bas been fully approved by this Court in Shah
Mathuradas J.Iaganlal & Co. v. NJgappa Shankarappa & Ors.'
' G
In our view the answer to the question raised in this appeal
must depend upon whether there was 'an implied surrender of the
- -lessee's rights when the usufructuary mortgage was executed in his
favour by the l•swr-mortgagor. And this obviously depends upon
what was the intention of the parties at the time of the execution

(I) 65 Born. L.R. 449.
<2) A.I.R. 1976 S.C. 156$.
656 SUPREME COURT REPORTS [1935] 1 S.C.R.

A of the mortgage deed in favonr of the sitting tenant to be gathered
from the. ierms and conditions of the mortgage transaction in li::;ht
of the surrounding circumstances of the case. It may be stated
that in· both' the decisions 'or the Andhra Pradesh Hiib. Court on
which reliance was placed by the respective counsel of the parties
'in support of his own contention the question was ultimately
'D ·decided on proper construction of the terms and conditions of the
mortgage transactions; in the earlier decision the court took the
view that there was nothing in the mortgage deed to suggest that
there was an implied surrender of the lessee's rights while in the
later case the court held that the terms of the mortgage deed showed
that the lessee had impliedly surrendered his rights. In other
c words, it all depends upon whether by executing a possessory or
usufructuary mortgage in favour of a sitting tenant the parties
intended that there should be a surrender of lessee's rii:Jits or not,
and only if an implied surrender of lessee's rights could be inferred
then the mortgagor would be entitled to have delivery of physical
possession upon redemption but not otherwise.
D
In the instant case the earlier usufructuary mortgage· deed of
1939 is not on record before us but the parties have produced a
copy of E:i:Mbit A-3 which is the later usufructuary mortgage deed
dated 23.8.1942, the terms thereof are required to be construed. It
runs thus :
E
Exhibit A-3

"Deed of mortgage of land accompanied by delivery
of possession of land for Rs. 250 (in words two hundred
and fifty rupees) executed on 23rd August, 1942 in favour
' . of Sambangi Taviti Naidu, son of late Jogi Naidu' of
F
Koppula Velama Caste, living- by cultivation, resident of
Dathivalasa village, hamlet of Tummalavalasa of
Parvatipuram Sub District 'by Behara Adinarayana Patro,
son of late Behera Narayana Patro Sista Karnam, Inamdar
resident of Markonduputti village of the same Sub
District. -

The amount of principal and interest due on the
promissory note executed by me in your favour previously
on 24th April, 1940 for my necessity, the amount paid by
you on my ·behalf to the Estate towards the cist etc., 'due
H on this land and the amounts borrowed from . you by
- s.A. NAIDU v. 8.V. PATRO (TulzaPt£rkar, J.) 657

me in instalments subsequent thereto-all those amounts
are found to be Rs. 200 and I have found due to you
in this sum. The amount borrowed now for paying
the cist to the Estate and for my own maintenance is
Rs. 50. Jn all, Rs. 250 (in words two hundred and
fifty rupees). I shall pay interest at the rate of
Rs. 0-4-0 (four anna) per cent per mensum and shall dis- B
charge the principal and interest. For this, the produce
of all kinds of crops raised on the half share of the lands
previously being cultivated by you as my sub-tenant on
condition of paying 1/4 (?) share out of the Jarayathi dry
and wet lands bearing No. 1 and know as "Tummulamanu
• Polam" which passed to me as my seif·«~:::uired property, C
which has been in my possession and enjoyment till this
day, which is situate in Tumm~lavalasa village and the
boundaries etc. of which are given hereunder, shall be
utilised for paying interest due on this deed and the interest
due on the deed executed previously on 30th August, 1939
and get registered in the office of the Sub Registrar of D
Parvatipuram as No. 1148/39 and for paying the cist due
to the Govt. on my behalf and obtaining receipt in my
• name. The remaining amount shall be paid to me by
J5th January of every year and the receipt obtained from
me. When the above mentioned principal and interest are
paid to you in full, payment shall be endorsed on this deed E
,, and this deed shall be returned and the land mentioned
herein shall be delivered possession of to me."

Three or four things become amply clear on a fair reading of
the aforesaid document (I) that though the deed commences by
reciting that posses,ion of the land has been delivered thereunder it F
refers to the fact that the original mortgagee (Ist defendent) was actu-
ally cultivating the lands as a tenant of the mortgagor on crop share
basis ; that is to say the rental was payable by the tenant in the shape
of a crop share ; (2) that the mortgagor had agreed to pay interest
at the specified rate on the total loan of Rs. 250 and had under-
taken to discharge the principal and interest ; (3) that the rental of G
the land payable by the !st defendent was to be adjusted against the
interest payable by the mortgagor under this deed as well as the
earlier deed and the cist payable by him to the Government; and
excess, if any, to be paid to mortgagor; (4) that when the principal
and interest are fully repaid such payment was to be endorsed on
t)lis deed and tb.e \leed as alsQ the land shall be "delivered to the H
658 SUPREME COURT REPORTS [1985] 1 s.c.R.
-
A possession of mortgagor". It may be noted that the last
portion of the document is equivocal in that it does not mention
whether on redemption physical possession is to be delivered or
symbolical possession is to be delivered to the mortgagor. But
under the terms of the deed one thing is clear that during the
currency of the mortgage the liability to pay rent to the lessor-
B mortgagor (albeit to be discharged by adjustment) is kept alive. If
anything such a term clearly runs counter to any implied surrender
of the lessee's rights. Secondly, there is no term fixed for redemp-
tion of mortgage property which means that it was open to the
mortgagor to redeem the mortgage at any time that is to say even
c within a very short time and if that be so, would a sitting tenant
cultivating the lands under a lease, who has obliged his lessor by
advancing monies to him to tide over his finaicial difficulties
give up his rights as a lessee no sooner rederoption takes place ?
In our view, it does not stand to reason that he would do so. This
circumstance coupled with a fact that the mortgage deed keeps
D alive the lessee's liability to pay rent during the currency of the
mortgage clearly suggests that no implied surrender was intended by
the parties.

In the result, we are of the v:cw that the only effect of the
execution of usufructuary mortgage deeds in this case was that the
E
Jessee's rights were kept in abeyance and they revived upon the
redemption of mortgage. We therefore, ailow the appeal, set K

aside the impugned judgments of the High Court and restore the
direction given by the learned Additional Distriot Judge that the
respondents are not entitled to delivery of physical possession.
Respondents will pay the cost of the appeal to the appellants.
F

,, ,.._,
S.R. Appeal allowed.

•