1. These two appeals Nos. 4 and 5 of 1962 under Clause 10 of the Letters Patent involve the same question. They are between the same parties. Both the appeals therefore are being disposed of by this judgment which is common to both of them. Circumstances leading to these appeals are as follows: -
Appellants, who are the trustees of Motidas Beragi Trust filed the present suit, which has given rise to these appeals, against the respondents who are father and sons for ejectment, arrears of rent Rs. 885/- and mesne profits Rs. 75/-. The suitwas based on a rent-note dated 24-9-1947 executed by defendants Ramjatan and his major son Ram-sajjan, the former signing the rent-note for himself and his minor son Bapulal. This rent-note was a sequel to a deed of mortgage executed by them in favour of the plaintiff. The mortgage transaction was for Rs. 11,000/.-. The deed contained a stipulation to pay interest at Annas 8 per cent per month. The mortgage was of anomalous sort and it was mentioned to be possessory mortgage with a stipulation to pay the mortgage amount in two instalments one of Rs. 3000/-at the end of nine months and the balance of Rs. 8000/- at the end of a year and a half this being the period for which the mortgage transaction was to subsist. The deed further provided that the house was being leased back to the mortgagor on a monthly rent of Rs. 55/- which was equal to the interest which the mortgagor was liable to pay. The rent-note was in the usual printed form and the executants namely the defendants referred therein to their having mortgaged this house with the plaintiffs and stated that they had taken it back on rent of Rs. 55/-. P. M. There was a term in the rent-note that in case the rent for more than six months was ia arrears the landlords were entitled to eject them. This rent-note too was registered.
2. The defence set up by the defendants to this suit for ejectment etc., which is material for these appeals, was that the document sued upon was neither a lease-deed nor a Kabuliyat. It was according to the defendants an incomplete document for its being effective as a lease as the same was not signed by the other party. It was asserted that the defendants had never delivered possession to the plaintiff and had not obtained it back from them. They did not and do not reside there as tenants. They occupy the house and continue to be in possession as its owners. Whatever amount was stated to have been paid as rent was in fact paid as interest. The suit document it is said, was not a rent-note but a note executed for interest only.
3. On the basis of this contention the issue Nos. 1 and 2 which were framed by the trial court were as follows : --
Issue No : 1. Whether the rent-note dated 24-9-1947 is an incomplete document for want of lessors' signature and hence unenforceable?
Issue No : 2. Whether the defendants are the plaintiff's tenants on rent of Rs. 55/- P. M. ?
4. The trial court found issue No. 1 in favour of the plaintiffs and against the defendants. It was held that the document sued upon was a rent-note and was not an incomplete one due to absence of lessor's signature. Reliance in this connection was placed on the commentary of Mulla on the Transfer of Property Act page 658 (page 627 of the 4th edition) which refers to the decision in AIR 1951 Pat 160, Hari Prosad v. Abdul Haq.
5. Dealing with the second issue the trial court referred to and relied upon the decision in AIR 1957 Pat 24, Ramnarain v. Sukhi, and held that though the documents have taken shape of a usufructuary mortgage bond and a lease back both constitute parts of the same transaction and the second document though in form purports to be a rent-deed was really a mere device for regular payment of interest and that no relationship of landlord and tenant was created thereby. On this view he held that although the plaintiffs were entitled to a decree for rent which is the same thing as interest they were not entitled to a claim for ejectment. As a result of these conclusions the trial Court dismissed the plaintiffs' claim for ejectment but decreed that for the recovery of Rs. 941/- plus notice charges Rs. 1-2-0.
6. Plaintiffs appealed against this decision contending that the finding regarding issue No. 2 was incorrect and that a decree for ejectment ought to have been passed : this was Civil Regular Appeal No. 90 of 1957.
7. The defendants also appealed contending that the trial Court had erred in not treating the document sued upon as an incomplete one and incapable of supporting any claim either for ejectment or for rent or interest. This appeal was Civil Regular Appeal No. 130 of 1957.
The first appellate Court affirmed the conclusions of the trial Court. It was held in para 8 of its judgment : --
'It cannot then be disputed that no relationship of landlord and tenant was created under the Rent Note and the plaintiffs were not entitled to enforce the rent note for the purposes of evicting the defendants'.
8. Contention raised on behalf of the defendants that after the expiry of a year and a half, for which period the property had been mortgaged the right of the plaintiffs to sue for ejectment of rent no longer subsisted, was negatived by the learned Judge by observing : --
'So long (as) the mortgage subsisted obliga-tions under the deed would also continue. The defendants would be deemed as tenants holding over and therefore liable to pay rent in lieu of interest. I would draw the attention of the respondents to the observations of Meredith, J., quoted on page 28 in AIR 1957 Pat 24.'
It accordingly dismissed both the appeals.
9. Both parties preferred second appeals. They are Civil Second Appeal Nos. 167 and 168 of 1959.
10. The learned Single Judge proceeded to consider whether the rent-note sued upon created a relationship of land-lord and tenant. He referred to the grounds on which the lower appellate court had held that no relationship of landlord and tenant had been created between the parties and that it was merely a device for securing regular payment of interest. These grounds were (1) Kent payable by the defendants was liable to be appropriated towards interest, (2) the amount of rent agreed to be paid and the interest which had been agreed to be payable by the defendants were equal to each other, and (3) interest was payable every month. The conclusions thus reached by the lower appellate Court were conclusions on a question of fact that question being whether the rent-note was merely a device to pay interest. Reliance was placed upon the observations of their Lordships of the Supreme Court reported in AIR 1959 SC 1204 Paras Nath v. Mohani Dasi, where their Lordships have held that the finding as to the fictitious character of a trust-deed was a finding of fact and not of law. On this view he dismissed both the appeals but granted leave in both cases.
11. The plaintiffs have now preferred appeals against the decisions in both cases probably by way of extra caution because of the observations of the learned Additional District Judge in the appeal preferred by the defendants that the rent-note was merely a device to secure regular payment of interest and did not create any relationship of landlord and tenant although at the same time it had held that the position of the defendants was that of tenants holding over and as such they were liable to pay rent.
12. It is contended on behalf of the appellants that the refusal of the learned single Judge to consider the propriety of the findings of the learned Additional District Judge on the ground that they involve pure findings of fact clearly involves refusal to exercise jurisdiction vested in him by law. Reliance placed upon the decision of the Supreme Court in AIR 1959 SC 1204 in this connection is erroneous. It is further contended that the Learned Additional District Judge, as the first appellate court erroneously held that the right of the plaintiffs to secure defendants' eviction, which is based on the rent-note executed by defendants Nos. 1 and 3 cannot be enforced because it was merely a device to secure regular payment of interest and that his only right is to sue for the mortgage money by enforcing the mortgage bond. The effect of this view, according to the learned counsel, is to convert what is really a usufructuary-cum-simple mortgage into a simple mortgage simpliciter. This the learned Judge was not entitled to do as that would involve giving effect to a document in terms different from what the parties intended. Reliance in this connection was placed upon the decisions in Balkishen Das v. W. F. Legge 27 Ind App 58 (PC), Abdullah Khan v. Bas-harat Husain 40 Ind App 31 (PC), Mian Feroz Shah v. Sohbat Khan, AIR 1933 PC 178 (180) and Abdul Khadir v. Subramanaya Pattar, AIR 1940 Mad 946 (948).
13. On behalf of the respondents reliance was placed upon the decisions reported in AIR 1957 Pat 24, AIR 1960 Pat 106, Md. Ahsanul Tauhid v. Akhtar Hussain and AIR 1958 Bombay 8, Harilal Bhagwanji v. Hemshankar.
14. This question has often arisen in two different contexts. Firstly it arises where the mortgagee relies upon the lease-deed which is simultaneously executed along with the deed of mortgage and seeks to obtain eviction. The usual contention put forward on behalf of the mortgagor tenant is that he is in fact not a tenant as the lease was in fact not intended. It was merely a convenient arrangement made by mutual agreement, to ensure regular payment of interest. In such cases the Court must tear off the veil which the parties cast upon the real nature of the transaction and after viewing beneath the surface must give effect to the real nature of the transaction.
15. The second context in which it arises, is when the mortgagee obtains decree on the basis of the lease deed and later seeks to enforce the covenant for payment of the mortgage-money contained in the document by seeking to sell the mortgaged property. The contention of the mortgagor in such cases is that although what is sought to be recovered is in the form of rent it is in fact interest and the mortgagee having already sued for interest after the mortgage-money had become due he cannot sue for the principal; his claim is barred by Order 2 Rule 2 C. P. C.
16. In either of these cases the question which arises is the same whether we can treat the transaction differently from what is discernible in the documents themselves.
17. Occasion for answering this question arose before their Lordships of the Privy Council in somewhat similar context in a case reported in 40 Ind App 31 (PC) Abdullah Khan v. Basha-rat Hussain. Basharat Husain in that case was the mortgagor and Husain Ali Khan was a usufructuary mortgagee whose right and interest vested in the appellant Abdullah Khan. The usufructuary mortgage was followed four days later by means of a lease by the mortgagee to the mortgagor at annual rent which was equivalent to interest at 6% per annum. About 10 months later the mortgagee obtained back possession to which he was entitled under the terms of the mortgage deed as the mortgagor fell in arrears and the mortgagee brought a suit for his eviction. The mortgagor then filed a suit for redemption and called for accounts from the mortgagee contending that although under the terms of the mortgage-deed the mortgagee was to receive rents and profits in lieu of interest on the mortgage money the real intention of the parties, as gathered from prior negotiation, conversation and subsequent conduct was that the mortgagee was really entitled to interest at 6% per annum and not the whole of the profits which exceeded that figure arrived at on computation of interest at that rate and that the mortgagee was accountable for the profits since the date he obtained possession. The mortgagee naturally resisted this claim relying upon the terms of the mortgage-deed- The High Court accepted the contention of the mortgagor and directed accounts to be taken. It held that the mortgage and lease back to the mortgagor were parts of the same transaction although the lease deed appeared to be four days subsequent. Their Lordships of the Privy Council while considering this aspect observed : --
'Their Lordships agree with the High Court in thinking that the mortgage and the lease were parts of one and the same transaction. But there is no inconsistency between the two instruments. Nor would there have been any inconsistency if the mortgage itself had contained a provision granting a lease on the terms upon which the lease was actually granted'.
18. Accordingly they held that it was not permissible to read the mortgage deed differently from what it says by reference to prior negotiations and conversation. Reliance was placed on behalf of the appellant upon the decision in 27 Ind App 58 (PC), wherein it was held thatin view of Section 92 of the Evidence Act, 1872, no evidence of any oral agreement or statement can be admitted as between the parties to any such deed for the purpose of contradicting, varying or adding to or subtracting from its terms subject to exceptions contained in that section.
19. It is clear from their Lordships decision that it was considered immaterial whether usufructuary mortgage and lease back were contained in two different documents or in one and the same document. The effect had to be given, according to them, to the mortgage-deed as it read.
20. Next Privy Council decision having a bearing on this question is 60 Ind App 273 : (AIR 1933 PC 178). The suit out of which the appeal before the Privy Council arose was filed by the mortgagee for possession of the property covered by the usufructuary mortgage dated March 12, 1917. The Judicial Commissioner had held that reading the mortgage-deed with the lease of even date on rent representing yearly interest on the mortgage debt and taking into account the fact that possession had remained all along with the mortgagor the transaction should only be construed as a simple mortgage and the mortgagee only entitled to his mortgage debt and interest and could not sue for possession. Their Lordships observed in connection with this view taken by the Judicial Commissioner :-
'Their Lordships find themselves unable to accept the view of the Judicial Commissioner as to the nature of the the transaction evidenced by the two documents in question. It is not suggested that there is anything in the Act of 1900, before referred to, which would invalidate a possessory mortgage accompanied by a lease back to the mortgagor, nor do their Lordships think that there is anything in itself suspicious about such an arrangement. The mortgagee may well have preferred to leave the cultivation of the land in the hand of the mortgagor, being entitled to take possession at any time if the provisions of the lease were not adhered to. Assuming this to have been one of the conditions upon which the mortgage was agreed to, the mere absence of a formal handing over of the land to the mortgagee, and a handing back by him to the mortgagor in the character of lessee, is, they think, of little significance. The reality of the transaction is, moreover, supported by the mutation in the Government records. Section 92 of the Evidence Act forbids the admission or consideration of evidence as to the intentions of the parties, or to contradict the express terms of the document: see 27 Ind App 58 (PC).'
Thus Their Lordships negatived the contention that even after the termination of period for which the lease was granted the mortgagee was not entitled to possession in pursuance of his right under the deed because parties had intended otherwise than what the arrangement outwardly re presented.
21. Next case to be considered is 62 Ind App 215 : (AIR 1935 PC 172), Income Tax Commissioner, B. and O. v. Maharajadhiraj of Darbhanga. In that case in a similar transaction of usufructuary mortgage of agricultural property and leaseback of the same to the mortgagor, income-tax authorities had contended that although what was agreed to be paid by the mortgagor to the mortgagee periodically was called 'rent' it was in fact nothing else than interest and was assessable to income-tax as such and was not exempt as an agricultural income. The Privy Council refused to regard the amount paid as anything else than rent which is exempted from income-tax as an agricultural income. In a similar case relating to income-tax which arose under similar conditions as above Special Bench of five Judges of the Madras High Court (Jackson, J., dissenting) in Commr. of Income Tax, Madras v. Ibrahimsa Rowther, ILR 51 Mad 455 : (AIR 1928 Mad 543.), took the same view.
22. In AIR 1940 Mad 946 there was a usufructuary mortgage and lease back of even date and it was found that the mortgage and lease formed part of the same transaction. There was no stipulation in the mortgage-deed to pay interest although there was covenant to pay the principal amount after a stated period. The mortgagee brought a suit for the principal amount and also claimed his dues under the lease deed in the same suit and called it arrears of interest. The Court in decreeing the claim also called it rent or interest thus making no distinction between the two. However, , at a subsequent stage the mortgagor sought scaling down of the amount which was payable under the lease-deed calling it interest under the Madras Agriculturists' Relief Act of 1938. It was then that the real controversy arose. The mortgagee called it rent while mortgagor called it interest on the ground that in spite of the form which the transaction took the payment in substance was in lieu of interest. When the matter reached the High Court, Division Bench consisting of Wadsworth and Patanjali Sastri, JJ., observed :-
'Though the mortgage and the lease back can and must in a case of this kind, be taken to form part of the same transaction, effect must be given to each according to its terms and the Court cannot, by reading the two together, spell out a transaction totally different in character and incidents.'
According to them when it is said that the transaction of lease is simply a machinery provided by the parties for regular payment of interest all that is done is to emphasise that the lease is a component part of the mortgage transaction. But their being component parts of the same transaction did not mean that the two deeds were inconsistent with each other and that it was possible to give effect to each according to its terms.
23. Sitting singly I had considered the question in 1962 MPLJ (SN) 163, Isufali v. Majid-khan whether the cause of action on the basis of an anomalous mortgage for enforcement of the mortgage and that on the basis of rent-note which is executed as a sequal are different or the same. It was held that although the causes of action are inter-connected as being part of the same transaction are not one and that suit on the basis of the first is not hit by Order 2 Rule 2 because of an earlier suit on the basis of second.
24. Coote on Mortgages has observed at pag-682 (Ninth edition) : -
'An agreement in the mortgage deed that the mortgagor shall be tenant at will to the mortgagee, creates a strict tenancy at will, though an annual rent be reserved Doe d Bastow v. Cox, (1847) II QB 122. And the relation of landlord and tenant may be created between them by a clause to that effect although''the mortgagor alone executes the deed : Morton v. Woods, (1869) 4 QB 293; and the subsequent occupation of the premises by the mortgagor will be held to be under the tenancy, though the receipts given for the half yearly payments of the rent are given in the name of interest (West v. Fritche, (1848) 3 Ex 216).'
25. However in AIR 1914 Pat 5, Umeshwar Prasad v. Dwarika Prasad, Patna High Court struck a different note, Fazl Ali, C. J. and Sinha, J., who constituted the Division Bench held :-
'But I may suggest that one test may generally be applied to enable the Court to say that the two documents form part of one and the same transaction where it appears on a reasonable construction of the documents, that the properties were given in security not only for the principal amount secured under 'the sudbharna bond but also for the interest accruing thereupon. In other words where the Court finds that though the documents have taken the shape firstly of a mere usufructuary mortgage bond, the mortgagee purporting to take possession of the mortgaged properties, but in reality the second document whereby possession is purported to be given back to the mortgagor is merely a device to ensure regular payment of the interest, which also is secured on the same mortgage properties, it may generally be said that they are parts of the same transaction. Such a transaction may be evidenced by more than one document which may have been executed on different dates with varying periods of their operation, and possibly, even in the name of different parties, benami for the real mortgagor and mortgagee. The Court has to look upon the transaction as a whole after tearing off the veil attempted to be thrown round the real intent of the parties.'
This decision was later followed in AIR 1955 Pat 357, Baijnath Prasad v. Jang Bahadur Singh, AIR 1957 Pat 24 and AIR 1960 Pat 106, Shah, J., in AIR 1958 Bom 8, followed Patna view. The decision in AIR 1957 Pat 24 (supra), was dissented from in AIR 1958 Madh Pra 319, Iqrar Ahmed v. Hulkey. The reasoning of the Patna High Court regarding the two deeds being parts of the same transaction is sufficiently met by the observations of the Privy Council in 40 Ind App 31 (PC) and 60 Ind App 273 : (AIR 1933 PC 178), as also of the Madras High Court in AIR 1946 Mad 946 (Supra). Similar view is exprersed in 1962 MPLJ (SN) 163.
26. It is no doubt true that where both parties give a particular form to a transaction different from its real nature with a view to cause loss to the third party the Court may in an action in which that third party is concerned tear of the veil and take into account its real nature. Occasion for doing this arises in cases of pre-emption where the vendor and vendee put a certain price in the sale transaction higher than what in reality is paid to the vendor with a view to damp an attempt at pre-emption by the pre-emptor. Many other cases in which third party's interest is affected can be conceived. In such cases it is certainly not only open but incumbent upon the Court to tear off the veil and ascertain the true agreement and as against third party Section 92 of the Evidence Act does not come in the way. Another case between the parties themselves may arise where one party by reason of his disadvantageous position may be prevailed upon to give to the transaction a different form though it may adversely affect him in the long run. In such cases also it is permissible to look below the form. The Courts are in such a case, generally authorised by a statute not to be bound by the outward appearance of the transaction. But where in the ordinary bargain between competent persons transaction bearing particular legal form is deliberately entered into, it is not the function of the Court to ignore it and read it as something else merely because it suits one of the parties to it at a particular moment. ,
27. In our opinion the view taken in AIR 1944 Pat 5 (Supra), and in subsequent Patna decisions does not appear to take sufficient notice of the Privy Council decisions referred to above and with great respect does not appear to be sound.
28. The learned single Judge in the present case ought to have examined the question from the point of view discussed above instead of holding that this question is based on a finding of fact. The decision in AIR 1959 SC 1204 (Supra), upon which reliance was placed by him has, with great respect no application. Whether a particular deed of trust represents genuine transaction or is a fictitious one may be a question of fact. But whether it is permissible to read a document differently from 'what its tenor justifies is a question of law. The circumstances mentioned by him namely that rent payable was liable to be appropriated towards interest, interest and rent tallied with each other and that interest like rent was payable every month are not inconsistent with the transaction being a lease. His refusal to exercise jurisdiction under the circumstance cannot be said to be proper and deserves to be set aside.
29. Letters Patent Appeal No. 4 of 1962 istherefore allowed and plaintiff's claim, for ejectment is decreed. After the dismissal of defendantsAppeal No. 130 of 1957 there was really no propriety for the plaintiffs to prefer further appealshe being the successful party. Letters PatentAppeal No. 5 of 1962 is therefore dismissed. Theresult of dismissal of Civil Regular Appeal No.130 of 1957 is that plaintiff's claim for rent, decreed by the trial Court stands. The plaintiffs areentitled to their costs of Letters Patent AppealNo. 4 of 1962 and also of Courts below.