Case: Shah Mathuradas Maganlal and Company Vs. Nagappa Shankarappa Malage and Others

This appeal by special leave is from the judgment dated 6 February, 1970 of the High Court at Bombay. The Respondent No. 1 obtained a decree for redemption of mortgage dated 21 May, 1953 for possession of mortgaged property consisting of a shop and house premises atappellant was mortgagee in possession of the property by a Deed of Mortgage dated 21 May, 1953. The property was mortgaged for Rs. 10, 000/-. No interest was to be paid. Instead possession of the property was agreed to remain with the mortgagee. The period for redeeming the mortgage was fixed for 10 years from 7 November, 1953.The respondent mortgagor by notice dated 1 October, 1963 informed the appellant that he was ready and willing to redeem the mortgage. The appellant replied that he should be paid Rs. 30, 000/- being the expenses for repairs and other incidental expenses. The appellant also claimed that even after the redemption he was entitled to retain possession because his previous tenancy right subsisted.The Trial Court held that the tenancy of the appellant would revive on redemption of the mortgage. The Trial Court further decreed that the respondent was entitled to get only symbolical possession from the appellant and thereafter get rent of the suit property from theappeal the District Judge came to the conclusion that under the Mortgage Deed the appellant ceased to be a tenant with effect from 7 November, 1963 possession of the appellant thereafter was only as a possessory mortgagee and not as a tenant. On redemption of the mortgage the respondent was entitled to recover possession of the property forthwith. The District Judge passed a decree for the principal mortgage amount and a sum of Rs. 4458 24 on account of repairs in favour of the appellant. The District Judge further gave the respondent a decree for actual possession of the property from the appellant after the respondent deposited the amount in the Court.The High Court on second appeal held that the Deed of Mortgage shows that the relationship between the appellant and the respondent was that of a mortgagor and mortgagor and confirmed the decree in favour of the respondent.

Court's reasoning:
For a marger to arise, it is necessary that a lesser e state 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 outsion. In the case of a lease the estate that is in the lessor is a reversion. In the case of a mortgage the estate that is outstanding is the equity of redemption of the mortgagtor. Therefore, there cannot be a merger of lease and mortgage in respect of the same property since neither of them is a higher or leaser estate. than the other. The view expressed in Narayan v. Ramchandra (1) is111 of the Transfer of Property Act is clauses (e) and (f) deal with surrender, and in clause (d) with merger. Clause (d) states that lease in movable properties determines in case t he interest of the lessee or the lessor in the whole of the property becomes vested at the same time in one person in the same right. When a leasehold and a reversion coincide there is a merger of a lesser estate in the greater. The leasehold is t he lesser estate, for it is carved out of the estate of the owner, which is the reversion. The lesser estate is merged in the greater. The lease determines and merges in the reversion. If the lessor purchases the lessees interest, the lease is extinguished, as the same man cannot be at the same time both landlord and tenant. The interests of the lessor and of the lessee must be in the whole of the property, otherwise there is no merger. The interest of the lessor and the lessee in the whole of the property should become vested at the same time in one person in the same right. Thus a lease is not extinguished because the lessee purchases a part of the reversion.A surrender under clauses (e) and (f) of section 111 of the Transfer of Property Act, is an yielding up of the term of the lessees interest to him who has the immediate reversion or the lessors interest. It takes effect like a contract by mutual consent on the lessors acceptance of the act of the lessee. The lessee cannot, therefore, surrender unless the term is vested in him; and the surrender must be to a person in whom the immediate reversion expectant on the term is vested. Implied surrender by operation of law occurs by the creation of a new relationship, or by relinquishment of possession. It the lessee accepts a new lease that in itself is a surrender. Surrender can also be implied from the consent of the parties or from such facts as the relinquishment of pos session by the lessee and taking over possession by the lessor. Relinquishment of possession operates as an implied surrender. There must be a taking of possession, not necessarily a physical taking, but something amounting to a virtual taking of possession. Whether this has occurred is a question of fact. In the present case if the mortgagor was not able to redeem the appellant mortgagee was to enjoy the property in accordance with the terms of the mortgage and also to sell the property for recovery of debts. This feature shows that appellant surrendered the tenancy from 7 November,the present case the terms of the deed show that the mortgagee undertook to deliver possession of the property to the mortgagor on the expiry of a period of 10 years. The Mortgage Deed shows that the tenancy was surrendered on 7 November, 1963 and thereafter the possession was only that of mortgagor. There would be no question of the tenancy being kept in abeyance or the tenancy reviving on the expiration of the period of mortgage.