1. It is a defendant's appeal against the decree of the lower appellate court. It was first heard by a learned single Judge He lias referred it to a larger Bench, and it is now laid before us. Of the defendants Lachhman Das is the father, and the others are his sons.
2. The dispute relates to a shop. It belonged to one Ganga Ram and his wife, Kiran Devi. On April 10, 1951, they made a usufructuary mortgage of the shop in favour of Lachhman Das. On January 3, 1957 they sold it to Sri Hira Lal, the plaintiff. Hira Lal deposited the mortgage-money in the court under Section 83 of the Transfer of Property Act (hereinafter called the Act) on January 8, 1957. Lachhman Das withdrew the money, but did not deliver possession of the shop to Hira Lal.
He had taken several pleas in that proceeding. We are now concerned with only one of them. That plea was that before taking the usufructuary mortgage he was the tenant of the shop, and that despite redemption of the mortgage he was entitled to continue in possession of the shop as a tenant, On account of his objection the court did not deliver possession of the shop of Hira Lal. Hira Lal then instituted the suit which has given rise to this appeal. The suit was for redemption of the mortgage and delivery of possession and also for mesne profits from January 8, 1957 to the date of delivery of possession at Rs. 100 per month.
3. The plea, which was set up by Lachhman Das in the proceeding under Section 83, was again raised by him in the suit to defeat the plaintiff's claim for possession.
4. The trial Court found that Lachhman Das was the tenant of the shop when he took the usufructuary mortgage in April 1951. It was held that on the taking of the usufructuary mortgage his tenancy was not determined by virtue of Section 111(d) of the Act. Accordingly a decree for actual possession was not granted. The suit was decreed for redemption and formal possession. Mesne profits were also allowed at the rate of Rs. 300 per year from January 8, 1957 to the date of the final decree.
5. The defendants submitted to the decree, but the plaintiff filed an appeal. The lower appellate court affirmed all the findings of the trial Court except the one regarding determination of the tenancy of the defendants. The lower appellate court held that the defendants' tenancy merged in the usufructuary mortgage and came to an end. Accordingly the lower appellate court granted the plaintiff a decree for possession also.
6. The defendants then filed this appeal. Before the learned single Judge, and also before us, counsel for the plaintiff cited a number of decisions based on Section 111(f) of the Act in support of his argument of merger under Section 111(d). For reasons to be presently stated we shall not discuss them.
7. As already stated, the defendants had pleaded in the proceeding under Section 83 that at the time of the execution of the mortgage they were tenants of the shop and that on redemption their tenancy revived. So the plaintiff had notice of the plea of tenancy. However, in his plaint he has merely denied their tenancy. He did not take the alternative plea that even if they were tenants on the date of the execution of the mortgage-deed, their tenancy was merged in their mortgagee rights. Nor did he take the plea that there was implied surrender of their tenancy to the landlords when they took the mortgage. No issue was framed regarding implied surrender. Neither in the grounds of appeal nor in the argument in the lower appellate court it was urged that there was implied surrender of their tenancy.
Now, implied surrender is often a question of tact depending on the intention of the parties. Their intention is to be inferred from their conduct. It may be a question of law if their conduct necessarily implies surrender. But that could not be the case here. A usufructuary mortgage does not appeal to us to be incompatible with a lease. Moreover, the mortgage-deed bore certain features which created some doubt about implied surrender of tenancy and so needed to be explained.
Firstly, it provided that the interest on the principal would be equal to the profits of the shop. There is also a provision that whenever the principal was paid up, the mortgage would be redeemed. Tt has been found that three months before the execution of the mortgage-deed, that is, in January 1951, Lachhman Das had paid to the landlords Rs. 300 as advance-rent of the shop upto February 14, 1952, There is also a finding that the plaintiff has failed to prove that the profits of the shop could be more than Rs. 300 per annum. Neither the deed nor the evidence on record shows that the advance-rent was refunded to Lachhman Das. If it was not returned to him, what is the inference to be drawn? If the mortgage had been redeemed any time during 1951. Lachhman Das would have been a total loser. He would have got little interest on the principal amount of R,s. 3,000. Then what does the non-refund of the advance-rent show? Does it show that the lease was not surrendered?
Secondly, the shop was subject to the U. P. (Temporary) Control of Rent and Eviction Act, 1947. By virtue of Section 3 of that Act the defendants could not be evicted from the shop until the landlords had obtained permission of the District Magistrate to institute a suit for their eviction. The mortgage could be redeemed at any time. Did they forgo the valuable privilege under Section 3 in the days ofof scarce accommodation for a precarious possession as a mortgagee?
Thirdly, that Act casts the obligation ot annual repairs and of keeping the accommodation wind-proof and water-proof on the landlord. In case of usufructuary mortgage ordinarily the mortgagee bears the burden of repairs if there are adequate profits from the mortgaged property. We are aware that this obligation may be cast on the mortgagor by agreement. But we are speaking of what ordinarily happens in practice. The mortgage-deed casts the obligation of repairs on the mortgagor. That was in consonance with his obligation under the U. P. (Temporary) Control of Rent and Eviction Act.
8. All these matters needed to be explained. But there is no explanation on record because parties did not so to trial on the question of implied surrender. Accordingly we have not permitted the plaintiff to argue on that point.
9. We shall now take up the issue of merger of tenancy rights in the usufructuary mortgagee rights. Section 111(d) of the Act provides that a lease of immovable property determines 'In case the interests of the lessee and the lessor in the whole of the property become vested at the same time in one person in the same right'. The coalescence of the entire interest of the lessee and the entire interest of the lessor in one person is essential for termination of the lease. The use of the definite article before the word 'interests' in Section 111(d) shows that the entire interest of the lessor and of the leasee should coincide at the same time in one person. On this interpretation there may be merger of the two interests on inheritance or gift or purchase or exchange,
10. This interpretation is in accord with authorities and the principle underlying merger. According to Blackstone-
'.... whenever a greater estate and a less coincide and meet in one and the same person, without any intermediate estate, the less is immediately annihilated; or, in the law phrase, is said to be merged, that is, sunk or drowned in the greater, Thus, if there be tenant for years, and the reversion in fee-simple descends to or is purchased by him. the term of years is merged in the inheritance, and shall never exist any more.'
In Burton v. Barclay, (1831) 7 Bing 745 the facts were these: in July 1814 Langden, holding an estate in fee-simple, demised it for 21 years to Bates. In November 1815 Bates sublet it to Meek for the residue of his term except the last 21 days. In February 1816 Bates, by a deed-poll, gave to Langdon the next immediate reversion expectant on the determination of Meek's sub-lease. Tindal, C. J. held that Bates granted his interest to Langden for a limited time only, that is, for a term co-extensive with Meek's sub-lease. On the ex- piry of the term of the sub-lease the interest which Langden took from Bates would cease, and Bates would again be entitled to enjoy his estate for 21 days, the residue of the term originally granted to him. Tindal, C. J. then observed:
'If this be the proper construction of the deed-poll, it is a necessary consequence that cannot operate as a surrender of Bate's reversion to Langden; and, therefore, again, there is no merger of the term of Bates in the fee of Langden, (1831-7 Beng 745 at p. 757.'
11. The doctrine of merger is founded on the principle of avoidance of inconsistency In Doe d Rawlings v. Walker, (1826) 5 B & C 111, Bayley J., while repelling the argument of merger of a lease in future in the reversion, said:
'Then where is the inconsistency or incompatibility which is essential to constitute merger? Where a man, but for the doctrine of merger, would be reversioner to himself, would be tenant for years with an immediate reversion in himself for years, for life, or in fee, there is an inconsistency, and incompatibility in his filling both characters. He, in the character of reversioner, would be the person to call upon himself, if his reversion were in fee, or for life, for waste; it would be to himself he would have to perform the services due from him as a tenant; and as reversioner, even for years, he would be able to interpose his second term to protect himself from acts of forfeiture committed by him as tenant under the first; and to prevent these and similar objections the doctrine of merger is founded. (1826) 5 B & C 111 at p. 120.'
12. When the lessor makes a usufructuary mortgage of the demised premises to the lessee, the lessor does not pass on his entire interest to the lessee. By the mortgage he has transferred only an interest in the premises, and not all the rights of an owner. The interest transferred to the lessee-mortgagee consists of the right to possess and to enjoy the usufruct of the property until the mortgage-money is paid. The lessor retains with himself a legal interest in the property. This legal interest is a substantial interest. He can assign his right of redemption; he can create a second mortgage. In Ram Kinkar v. Satya Charan the Privy Council said:
'By Indian law the interest which remains in the mortgagor is a legal interest and its retention may therefore prevent the whole of the mortgagor's interest from passing to the mortgagee .
The entire interest of the lessors-mortgagors did not accordingly pass to the lessee-mort-gagee in the present case.
13. There is no inconsistency or incompatibility in one person being the lessee and usufructuary mortgagee of the same property at the same time, for his obligations as a lessee would remain suspended during the subsistence of the mortgage The principle of 'suspension' is discussed in Burton's case, (1831) 7 Bing 745. We have already stated the facts of the case. There Tindal, C. J. said:
'Suspension, which is a partial extinguishment, takes place only where the rent, or other profit a prendre issuing out of the land, comes to him who has possession of the same land for a time only.
The rent sought to be recovered in this action is that which is reserved under Meek's under-lease; and if either Bates or Langden had purchased the term granted by Meeks wider-lease, the rent in that case would have been suspended during the continuance of such underlease; for in that case there would have been an union of the rent, and of the laud itself, in the same person. So, if this action had been brought for the rent reserved under Bate's lease, there might have been a question, whether his rent was not suspended until the term granted by him to Langden had ceased; ..... (1831) 7 Bing 745 at p. 759.'
14. As a result of the foregoing discussion we have come to the conclusion that Section 111(d) did not apply to the facts of this oase, and that accordingly the tenancy of the defendants did not cease on their taking a usufructuary mortgage of the shop.
15. We shall now discuss the cases cited before us. In Kallu v. Diwan, (1902) ILR 24 All 487, the defendant was a non-occupancy tenant of some agricultural plots. He took a usufructuary mortgage of the plots from the landlord. In the suit for redemption the plaintiff contended that the tenancy was merged in the mortgage and that he should get actual possession over the plots. The lower appellate court accepted his contention and granted a decree for actual possession. Blair and Aikman, JJ. disagreed with the lower court and held that the tenancy did not merge in the mortgage. Blair J. said:
'In our opinion the effect oi the mortgage was uot to destroy the tenancy, but only to suspend the obligation of the tenancy to pay rent to the landlord while the mortgage subsisted, (1902) ILR 24 All 487 at p. 490.'
Aikman J. said,
'The effect of the mortgage was to suspend for the time being the relationship of landholder and tenant between the parties When the mortgage is redeemed, the parties are relegated to the position which they occupied immediately before the mortgage was executed, (1902) ILR 24 All 487 at p. 492.'
16. Counsel for the plaintiff has tried to distinguish this decision on the ground that it related to an agricultural tenancy. But this distinction is not sound. The tenancy was governed by the N. W. P. Rent Act, 1881. That Act did not contain any provision regarding termination of tenancy. Section 111(d) would not apply to agricultural tenancy. So the case was governed by general principles regarding termination of tenancy by merger. We have already shown that those principles are fundamentally not different from the provisions of Section 111(d) except in one respect which did not matter in that case.
17. In Paras Ram v. Dharam Chand, AIR 1935 Lah 522 the defendants were the owners of the land in suit. The land was held by occupancy tenants. The tenants gave a usufructuary mortgage of their rights to the predecessor-in-interest of the plantiffs. The defendants purchased from the tenants their right. In the plaintiffs' suit for declaration of their mortgagee rights the defendants contended that the mortgage was extinguished as there was merger of the rights of the owners and the rights of the tenants by virtue of the owners having bought the tenants' right. Rejecting the contention Beckett, J. said:
'A mortgage, as defined in the Transfer of Property Act, involves a transfer of Interest in the mortgaged land, and as long as part of this interest remains with the mortgagees it cannot be said that there has been a complete merger of the interests of the lessee and the lessor in the same person so as to attract the operation of Section 111(d), T. P. Act'
(1902) ILR 24 All 487 at p. 523.
18. Counsel for the plaintiff has relied on Sardarilal v. Ramlal, and Cottee v. Richardson, (1851) 155 ER 892. In the first case the facts were similar to the facts of our case with the immaterial difference that there the mortgage was an anomalous mortgage. Shamsher Bahadur, J. held that the tenancy was merged in the mortgage. No reasons are given in support of the view. There is no reference to Section 111(d) nor to any authority. With respect we are unable to share his view.
19. In the second case the lessee assigned, by mortgage, his interest to the lessor, and it was held that the tenancy merged in the ownership. In England an assignment of estate by mortgage makes the assignee an absolute holder of the estate, leaving with the mortgagor only an equity of redemption which is different from the right of redemption in India. The former is not, and the latter is, a legal interest in the property.
20. We allow the appeal, set aside the decree of the lower appellate court and restore the decree of the trial Court. The defendants shall get their costs here and in the lower appellate court from the plaintiff. The decree of the trial Court as regards costs stands.