Mortgagee-created lease ends on extinction of interest; tenants lose rent control protection, and mesne profits stand upheld.

A lease granted by a mortgagee in possession binds the mortgagor or purchaser only if it falls within prudent management or has the mortgagor's assent; a long-term lease at low rent over valuable urban property did not satisfy that standard, so it ended with extinction of the mortgagee's interest and did not bind the purchaser. Because the mortgage debt had been satisfied and the mortgagee's interest had ceased, the derivative tenancy also ended and the tenants could not invoke protection under the East Punjab Urban Rent Restriction Act, 1949. The mesne profits fixed at the premises' actual rent were also upheld, there being no sufficient reason to disturb that assessment.

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Issues: (i) whether a lease granted by a mortgagee in possession survived the extinction of the mortgagee's interest and bound the purchaser; (ii) whether the tenants could claim protection under the East Punjab Urban Rent Restriction Act, 1949 after the mortgage was satisfied and the property sold; (iii) whether the mesne profits were rightly fixed at Rs. 250 per month.

Issue (i): whether a lease granted by a mortgagee in possession survived the extinction of the mortgagee's interest and bound the purchaser.

Analysis: A mortgagee can confer only such interest as he himself possesses, and a lease created by him ordinarily ends when his own interest ends. Section 111(c) of the Transfer of Property Act recognises that a lease determines when the lessor's interest terminates. The only relevant exception is where the lease is an act of prudent management within Section 76(a) of the Transfer of Property Act, or where the mortgagor has concurred in it. On the facts, the lease was for a long period at a low rent in respect of valuable urban property and could not be treated as a prudent act binding after redemption. There was also no fresh assent by the mortgagor or successor.

Conclusion: The lease did not survive the extinction of the mortgagee's interest and did not bind the purchaser.

Issue (ii): whether the tenants could claim protection under the East Punjab Urban Rent Restriction Act, 1949 after the mortgage was satisfied and the property sold.

Analysis: The rent control protection depended upon an existing landlord-tenant relationship. Once the mortgage debt was satisfied and the mortgagee's interest came to an end, the derivative tenancy also ceased. In the circumstances, the purchaser acquired full title and the relationship necessary to attract the rent restriction law no longer subsisted. Section 10 of the Evacuee Interest (Separation) Act, 1951 was applied in the course of the sale and satisfaction of the mortgage, confirming the extinction of the mortgagee's interest.

Conclusion: The tenants could not claim protection under the Rent Restriction Act.

Issue (iii): whether the mesne profits were rightly fixed at Rs. 250 per month.

Analysis: The High Court adopted the actual rent payable for the premises as the appropriate basis. Although the figure was on the low side, it represented the rent on which the premises were actually held. No sufficient reason was shown to disturb that assessment.

Conclusion: The mesne profits were correctly fixed at Rs. 250 per month.

Final Conclusion: The decree in favour of the purchaser was upheld in all material respects, and the appellants failed to establish any ground for interference.

Ratio Decidendi: A lease created by a mortgagee in possession binds the mortgagor or successor only if it is within prudent management or otherwise assented to, and upon extinction of the mortgagee's interest the derivative tenancy and related rent-control protection ordinarily come to an end.

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