IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE S.S.SATHEESACHANDRAN MONDAY, THE 1ST NOVEMBER 2010 / 10TH KARTHIKA 1932 SA.No. 395 of 1998() -------------------- AS.22/1994 of SUB COURT,NEYYATTINKARA OS.767/1981 of IST ADDL.MUNSIFF COURT,NEYYATTINKARA .................... APPELLANT(S):ADDL. 3RD RESPONDENT/L.R OF DECEASED 1ST DEFENDANT -------------------------------------------------------------------------------------------------------------- KAISHOR AMOZ, THEKKEVILA PUTHEN VEEDU, CHENNIYODE, MARANALLOOR VILLAGE, MARANALLOOR DESOM. BY ADV. SRI.L.MOHANAN ADV.D.SAJEEV RESPONDENT(S):APPELLANTS 2 TO 5 AND RESPONDENTS 2,4 AND 5 / 2ND PLAINTIFF AND LRs. OF DECEASED 1ST PLAINTIFF AND 2ND DEFENDANT AND L.Rs OF DECEASED 1ST DEFENDANT. ------------------------------------------------------------------------------------------------------------------------- 1. LEKSHMI AMMA MADHAVI AMMA, KONDAMKOTTU THEKKEKARA PUTHEN VEEDU, MARANALLOOR DESOM, do VILLAGE 2. PADMANABHAN NAIR CHANDRAN NAIR, NAGAKETTU MEKKUMKARA PUTHEN VEEDU, MARANALLOOR DESOM, do VILLAGE. 3. PADMANABHAN NAIR VIKRAMAN NAIR, -do- 4. PADMANABHAN NAIR RAJASEKHARAN NAIR, -do- 5. NELLAYI ASANATH, THENTHIYOTTU THEKKUVILA VADAKKARIKU VEEDU, MARANALLOOR DESOM, -do- VILLAGE. 6. NALLY ELSY, ROSER KATTUR VEEDU, -do- 7. NALLY VIJAYAMMA, PASUVANNARTHALA MELE PUTHEN VEEDU, KEEZHAROOR DESOM, OTTASEKHARAMANGALAM VILLAGE. ADV. SRI.G.S.REGHUNATH SRI. MOHAN JACOB GEORGE SRI. R.HARI GOPAL THIS SECOND APPEAL HAVING BEEN FINALLY HEARD ON 03/09/2010, THE COURT ON 01/11/2010 DELIVERED THE FOLLOWING: S.A No.395/1998 2 ORDER IN C.M.P No. 1102/1998 DISMISSED. 01/11/2010 Sd/- S.S.SATHEESACHANDRAN JUDGE S.S.SATHEESACHANDRAN, J -------------------------------------- 'C.R' S.A No.395 OF 1998 -------------------------------- Dated this the 1st day of November 2010 JUDGMENT The appeal is directed against the decree and judgment in A.S No.22/1994 on the file of Sub Court, Neyyattinkara, by which the dismissal of a suit for redemption, O.S No.767/1981, by the First Additional Munsiff Court, Neyyattinkara was reversed, and the case was remitted for fixing the value of improvements, after holding that the plaintiff is entitled to redeem the property and the defendants, not entitled to fixity of tenure. 2. The order of remand passed in the case should have been challenged only by way of a first appeal, but, it has been numbered and received as a Second Appeal. Having regard to the time lag, that more than a decade had passed after the appeal received on the file of this court, I find renumbering of the appeal, at this stage, is not warranted, and after hearing the counsel on both sides, it is disposed on merits. 3. The short question emerging for consideration in the appeal is whether there was implied surrender of tenancy by the first defendant in respect of suit property which formed part of the lease hold enjoyed by him, when the plaintiffs executed a S.A No.395 OF 1998 - 2 - mortgage (Ext.A1) over that property in his favour. Facts relevant to the question are illustrated thus: Plaintiffs, husband and wife, are the owners of the suit property, having an extent of one acre. They had executed a lease deed (Ext.B1) over two acres of land, which takes in the one acre of land referred to above, in favour of one Lookose Nadar Esaya Nadar, the first defendant in the suit. While that lease was subsisting, Ext.A1 mortgage deed was executed in respect of a portion of the lease hold, one acre land, in favour of the first defendant/lessee, offering another property of the plaintiffs also as security for the mortgage debt. Suit was laid to redeem the mortgage over the plaint property. The second defendant, daughter of the first defendant, was impleaded as one who claimed some right over the suit property. That defendant remained exparte and the first defendant alone contested the case. The first defendant claimed tenancy right over the suit property contending that as a tenant he has got fixity of tenure over the land under the Kerala Land Reforms Act. He also contended that the property was transferred to him for enjoyment under Ext.B1 lease and that is a superior right than what is covered by Ext.A1 mortgage deed. In the alternative, he also pleaded for value of improvements to the tune of Rs.10,000/- and S.A No.395 OF 1998 - 3 - also reimbursement of the expenses incurred, Rs.10,000/-, for making a canal in the property, in the event of redemption. 4. The trial court referred the issue raised over the claim of fixity of tenure canvassed by the first defendant to the Land Tribunal as mandated by Section 125(3) of the Kerala Land Reforms Act. The tribunal, after inquiry, upholding the claim of tenancy over the land by the first defendant answered the reference. Accepting the finding of the tribunal, the trial court dismissed the suit. Plaintiffs challenged the dismissal of the suit, and the lower appellate court, after reappreciation of the materials, reversed the finding entered by the tribunal holding that under the terms of Ext.A1, parties have only creditor - debtor relationship and the suit property had been offered as security for a loan. Setting aside the finding on fixity of tenure entered in favour of the first defendant and holding that the plaintiffs are entitled to redeem the suit property the dismissal of the suit was reversed, and the case was remitted for fixing the value of improvements. That order of remission is challenged in the appeal. 5. Pending the appeal before the court below, the first defendant and first plaintiff in the suit had passed away. The S.A No.395 OF 1998 - 4 - legal heirs of the first defendant had been brought in as additional respondents 3 to 5, and the legal heirs of first plaintiff as additional appellants 3 to 5 in the appeal A.S No.22/1994 before the lower appellate court. The order of remand passed by the lower appellate court is challenged in this appeal by one among the legal heirs of first defendant, the additional third respondent in A.S No.22/1994. 6. Suit property having an extent of one acre covered by Ext.A1 mortgage deed, admittedly, formed part of two acres of land transferred earlier in favour of the defendant under Ext.B1 lease deed. Was there implied surrender of the above one acre of land, the plaint property, by the lessee/the first defendant, in favour of the owners, the mortgagors/plaintiffs when Ext.A1 mortgage deed was executed, and if so, are they entitled to redeem the suit property is the question posed for consideration. The learned counsel for the appellants Sri.L.Mohanan, relying on “Gambangi Applaswamy Naidu and Others v Behara Venkataramanayya Patro and Others” ((1984) 4 SCC 382), “Narayan Vishnu Hendre and Others v Baburao Savalaram Kothawale” ((1995) 6 SCC 608) and “Gopalan Krishnankutty v Kunjamma Pillai Sarojini Amma and S.A No.395 OF 1998 - 5 - Others” ((1996) 3 SCC 424) contended that there was nothing in Ext.A1 mortgage deed indicating the release and surrender of the tenancy rights in favour of the owners/plaintiffs and, as such, they are not entitled to obtain delivery of physical possession of the suit property. Stressing upon that implied surrender of the lease in the absence of express terms indicating the intention of the lessee to surrender his tenancy rights on execution of a mortgage over the lease hold cannot be readily inferred it is contended by the learned counsel that the effect of the subsequent mortgage was that the lessee's rights were kept in abeyance and it would revive upon redemption of the mortgage. So much so, as there is no automatic merger of the interest of the lessee with that of a mortgagee when such lessee becomes a mortgagee of the land later, it is contended by the counsel in the absence of surrender of tenancy rights by the lessee on redemption of the mortgage, the plaintiffs are not entitled to recover possession of the leased premises. Tenancy rights of the lessee would revive on redemption of the mortgage and the mortgagor would not be entitled to obtain delivery of physical possession and such being the position, the possession of the appellant over the suit property as a tenant or lessee could not be S.A No.395 OF 1998 - 6 - disturbed, submits the counsel. Even in the event of redemption, only symbolic possession can be given as there would be a revival of the relationship of lessor-lessee as under Ext.B1 deed between the parties and there could be no physical delivery of possession, contends the counsel. The finding entered by the Land Tribunal that the defendant is entitled to fixity of tenure, as he continues as a lessee of the land, in such event require to be restored is the further submission of the counsel canvassing for restoring the dismissal of the suit by the trial court reversing the order of remand by the lower appellate court. On the other hand, the learned counsel appearing for the plaintiffs, Sri.G.S.Reghunath, contended that the terms of Ext.B1 clearly spell out that there was an implied surrender of the tenancy rights over the suit property on the execution of Ext.A1 mortgage deed, and as such, there could be no revival of any tenancy rights over that property. Pointing out that Ext.B1 lease deed in respect of two acres of property was executed directing the lessee to pay a sum of Rs.70/- per annum as rent, it is submitted that in Ext.A1 mortgage deed executed, one acre of property out of the lease hold securing loan amount of Rs.485/- there was an adjustment and waiving of Rs.35/- from the rent payable under Ext.B1 indicating S.A No.395 OF 1998 - 7 - in unmistakable term the intention of the parties that after Ext.A1 mortgage, the property thereunder is released from the lease arrangement and there was an implied surrender of tenancy by the lessee over such property. It is further canvassed by the counsel that in Ext.A1 mortgage deed, the loan obtained by the owners/plaintiffs is indemnified by another item of property furnished as security under that deed described as item No.2. So much so, according to the counsel, the intention of the parties as evidenced by the terms of Ext.A1 clearly demonstrate that there was an implied surrender of the tenancy arrangement over the property covered by the mortgage and thereafter, the possession and enjoyment of the land under that deed was only as a mortgagee and not as a lessee and as such, the property is liable to be redeemed. Reliance is placed on “T.K.Lathika v Seth Karsandas Jamnadas” ((1999) 6 SCC 632) and “Tarachand v Sagarbai Alias Chaiyalibai” ((2007) 5 SCC 392) to contend that the terms of Ext.A1 spell out clearly that there was surrender of the tenancy over the mortgaged land by the lessee, the first defendant. Learned counsel for the plaintiffs also contended that the revival of leasehold and tenancy claim, by the appellant on the basis that lease hold right over the property was only kept in S.A No.395 OF 1998 - 8 - abeyance during the subsistence of the mortgage is impermissible in view of Section 74 of the Kerala Land Reforms Act which prohibits creation of any tenancy after 01/04/1964. Reliance is placed on “Kannan v Kunhabdulla” (1981 KLT S.N Case No.169, Page No.95) to contend that the prohibition under Section 74 of the Kerala Land Reforms Act is absolute, and as such, there cannot be a revival of tenancy on redemption of the mortgage as contended by the counsel for the appellant. 5. Before adverting to the question whether there was an implied surrender of the tenancy right by the lessee on execution of Ext.A1 mortgage deed in respect of the property covered by that deed, the suit property, which, primarily require to be examined with reference to the terms of Ext.A1 deed, it has to be stated that there is no merit in the argument canvassed by the learned counsel for the plaintiffs that the revival of tenancy, if so arises on redemption, would constitute creation of a future tenancy. Reliance placed on “Kannan v Kunhabdulla” (1981 KLT S.N Case No.169, Page No.95) is misplaced as Section 74 of the Kerala Land Reforms Act prohibits only future creation of tenancies. If there was a tenancy arrangement over the land previously, but, it was kept under suspended animation in view of S.A No.395 OF 1998 - 9 - a different relationship brought in between the parties by the execution of a mortgage deed in respect of the very same property between the parties, on termination of such relationship, it is only revival of the previous tenancy and not creation of a tenancy afresh after the commencement of the Kerala Land Reforms Act. That being the situation, in case it is found that there is no implied surrender of tenancy on execution of Ext.A1, and the redemption of the mortgage would entitle the mortgagor only of symbolic possession, then, there would be revival of the tenancy right of the lessee cannot be doubted for a moment. 6. The question of implied surrender when the lessee takes a mortgage of the lease hold property has to be examined on the terms of the mortgage deed in the light of the surrounding circumstances. What are the terms of the mortgage deed and whether it would spell out implied surrender of the tenancy right held by the lessee in respect of the mortgage property, has now to be examined. The contents of the mortgage deed Ext.A1 reveal that it formed part of the lease hold under ext.B1 lease deed, enjoyed by the lessee/first defendant. One acre of the property out of the two acres covered by the lease hold was mortgaged under Ext.A1 to secure a loan of Rs.450/- providing S.A No.395 OF 1998 - 10 - another item of the property of the owners/mortgagors as well guaranteeing the mortgage debt. Under Ext.A1 when one acre of property covered by the lease hold was mortgaged for the loan obtained from the lessee, the terms agreed upon by the parties would indicate that one half of the rent payable on the lease hold ie, Rs.35/- was waived. Liability of the lessee to pay Rs.70/- as rent for the lease hold having an extent of two acres on execution of Ext.A1 mortgage deed over one acre thereof in his favour was limited and reduced to Rs.35/-. The rent payable, evidently, was confined to the remaining one acre which continued to be under his enjoyment as a lessee under Ext.B1 deed. A period of 12 years has been fixed under Ext.A1 mortgage deed for redeeming the property transferred in favour of the mortgagee. A further term has also been incorporated in Ext.A1 that on redemption of the property after the period fixed, the mortgagor will be liable, and the mortgagee entitled to, for the value of improvements effected by in the mortgaged property. The circumstances evidenced by the terms of the document Ext.A1, referred to above indicate that in respect of the property mortgaged, the relationship between the parties after the execution of the deeds was only that of a mortgagor and mortgagee. The lease deed and S.A No.395 OF 1998 - 11 - the mortgage deed contemplated two inconsistent and incompetent relations and when the lessee obtained a mortgage in respect of a portion of the lease hold, by which his liability to pay the rent for that part of lease hold as a lessee was totally extinguished, the right under the lease deed with respect to the property under Ext.A1 must be deemed to have been surrendered impliedly on the mortgage taking effect. In the context, it may be proper to take note of the principles covering the doctrine of implied surrender as discussed by the apex court in “T.K.Lathika v Seth Karsandas Jamnadas” ((1999) 6 SCC 632). It has been held thus: “ The principle which governs the doctrine of implied surrender of a lease is that when a certain relationship existed between two parties in respect of a subject matter and a new relationship has come into existence regarding the same subject matter, the two sets cannot coexist, being inconsistent and incompatible between each other ie. If the latter can come into effect only on termination of the former, then it would be deemed to have been terminated in order to enable the latter to operate”. The principle as noted above by the apex court with respect to implied surrender, it is seen, has been given expression to by a single bench of this court much earlier in “Godasankara Valia Raja v Vareed and Others” (1961 KLJ 206). The apex court in “Tarachand v Sagarbai Alias Chaiyalibai” ((2007) 5 SCC S.A No.395 OF 1998 - 12 - 392), considering the doctrine of implied surrender, has held thus: “ Whether the rights of a tenant would give way to rights of a mortgagor would essentially depend upon the terms and conditions of the mortgage. If the tenant surrenders the tenancy either explicitly or by necessary implication, the terms of the deed of mortgage shall prevail”. In such a situation, the apex court has observed that although technically a tenant may continue to occupy the premises, once the nature of possession changes resulting in change in his status, which he accepts, the same may amount to virtual taking of possession. Dilating further it has been observed that virtual taking of possession is not a sine qua non for implied surrender as the same can be created by a new relationship also. Taking note of “Gambangi Applaswamy Naidu and Others case ((1984) 4 SCC 382) (cited supra), it has been observed that where no term is fixed for redemption of mortgage property and the liability of the lessee to pay rent to the lessor is kept alive even after execution of a mortgage over the lease hold, such circumstances suggest that no clear surrender was implied by the parties, it has held in Tarachand's case (cited supra) that where contra situation is borne out by the mortgage deed evidencing the term fixed for redemption of S.A No.395 OF 1998 - 13 - mortgage property and liability by the lessee to pay rent is not kept alive, a contrary inference is permissible to be drawn. (emphasis supplied). In Ext.A1 mortgage deed, as already indicated, a term of 12 years had been fixed for redemption and in respect of the mortgaged property, the lessee's liability to pay rent, a sum of Rs.35/-, one half of the rent fixed for the two acres of property covered by Ext.B1 lease, had been given up by the mortgagor/lessor,are circumstances from which an inference that there was an implied surrender of the tenancy right over the mortgaged property by the lessee can be safely drawn. 7. The learned counsel for the appellant had relied on “Gambangi Applaswamy Naidu and Others v Behara Venkataramanayya Patro and Others” ((1984) 4 SCC 382) referred to above, to contend that there was no implied surrender of tenancy by virtue of Ext.A1 mortgage deed. As discussed above, that decision has no application to the facts of the case when examined with reference to the terms of Ext.A1 mortgage deed. The other two decisions cited by the counsel, “Narayan Vishnu Hendre and Others v Baburao Savalaram Kothawale” ((1995) 6 SCC 608) and “Gopalan Krishnankutty v Kunjamma Pillai Sarojini Amma and S.A No.395 OF 1998 - 14 - Others” ((1996) 3 SCC 424) are also found to be not applicable to the case where the terms of Ext.A1 mortgage deed demonstrate that there was an implied surrender of the tenancy rights by the lessee. True, in both the above cases, it has been held that implied surrender of the lease would not be readily inferred and the question whether there was surrender of the lease by the lessee at the time of execution of the mortgage in his favour by the lessor-mortgagor is a question of fact to be answered on the evidence. In the former decision, “Narayan Vishnu Hendre and Others v Baburao Savalaram Kothawale” ((1995) 6 SCC 608), it has also been observed thus: “Lease of a property is a very valuable right and its implied surrender would not be readily inferred. Had the parties wanted to terminate their earlier relationship of landlord and tenant on the execution of a mortgage, then one would expect a clear statement or an indication to that effect in the document itself”. In that case, holding that the conduct of the parties, not the document involved, indicated that there was no intention of the lessee to surrender his tenancy rights, it was held that on redemption of the mortgage his tenancy right would revive. Though in the present case the terms covered by Ext.A1 S.A No.395 OF 1998 - 15 - mortgage deed does not spell out express surrender of tenancy rights obtained by the lessee under Ext.B1, that would not assist the lessee where the terms under the mortgage deed demonstrate cessation of the relationship of lessor and lessee on the creation of a new relationship as mortgagor and mortgagee over the mortgaged property. The observations made by the apex court in “Tarachand v Sagarbai Alias Chaiyalibai” ((2007) 5 SCC 392), with reference to Section 111(f) of the Transfer of Property Act, which provides for termination of tenancy by implied surrender by creation of a new relationship or by relinquishment of possession is quite relevant in the context. The apex court has observed thus: “When the parties altered their position knowing fully well their mutual rights and obligations under an agreement thereto existing, the rule of estoppel shall apply. The appellant, was, thus estopped from disputing the contents of the mortgage or the relation arising thereunder. As surrender is founded upon estoppel, the intention of the parties may not be of much significance”. Ext.A1 mortgage deed stipulating the period of expiry of 12 years for redemption securing the loan availed from the lessee with the mortgage property and another item of property of the lessor/mortgagor, and foregoing the liability of the S.A No.395 OF 1998 - 16 - lessee to pay rent for the property, which, he as a lessee, but, for the mortgage was liable to pay under the terms of Ext.B1 lease deed, clearly establish that a new relationship of mortgagor/mortgagee was created between the parties on execution of Ext.A1 and there was an implied surrender by the lessee/mortgagee of the property covered by that deed. That being so, I find, the conclusion drawn by the lower appellate court that the plaintiffs are entitled to redemption of the mortgage property and on that basis reversing the dismissal of the suit and ordering for remission of the case to the trial court for determination of the value of improvements is proper and correct and it does not warrant any interference. The appeal is devoid of any merit, and it is dismissed directing both sides to suffer their cost. Sd/- S.S.SATHEESACHANDRAN JUDGE //True Copy// P.A to Judge vdv