PROPERTY LAW - I

TABLE OF CONTENTS

TOPIC PAGE NO.

LEGAL PROVISION RULING THE CASE 2

MATERIAL FACTS OF THE CASE 5

ISSUE 6

JUDGEMENT 6

REASONS FOR DECISION 7

CRITICAL COMMENTS 9

Manjabai Krishna Patil Vs. Raghunath Revaji Patil Page 1

 PROPERTY LAW - I

LEGAL PROVISION RULING THE CASE

Mortgage by Conditional Sale is an apparent sale with a condition that upon

repayment of the consideration amount, the purchaser shall transfer the property to
the seller. Although, the whole transaction looks into like a conditional sale yet, in
essence the intention of the parties is to secure the money which the seller takes as
loan from the purchaser. The Transfer of Property Act, 1882 provides for Mortgage
by Conditional Sale as follows:

Section 58(c) - Mortgage by conditional sale : Where, the mortgagor ostensibly

sells the mortgaged property-

on condition that on default of payment of the mortgage-money on a certain

date the sale shall become absolute, or
on condition that on such payment being made the sale shall become void, or
on condition that on such payment being made the buyer shall transfer the
property to the seller,

the transaction is called a mortgage by conditional sale and the mortgagee a

mortgagee by conditional sale.

PROVIDED that no such transaction shall be deemed to be a mortgage, unless the

condition is embodied in the document which effects or purports to effect the sale.

Essential elements of Mortgage by Conditional Sale:

According to section 58(c) the mortgage by conditional sale has following essential
elements:
1. There is an ostensible sale of an immovable property.
2. The sale is subject to any of the following conditions:
On non-payment of mortgage money the sale would become absolute or,
On payment of mortgage-money, the sale shall become void or the buyer
shall retransfer the said property to the seller.

Manjabai Krishna Patil Vs. Raghunath Revaji Patil Page 2

 PROPERTY LAW - I

3. The condition must be embodied in the same document.

Ostensible sale:

Ostensible Sale means a sale which apparently looks like a sale but in reality there is
no sale. In this mortgage, apparently there is a sale of an immovable property but in
reality it is intended to secure a debt. The whole transaction is given the appearance
of a sale. The seller would sell his property for a certain sum of money. But, seller
and buyer both know and intend that seller is taking loan from the buyer. Such
intention is inferred from the nature of condition attached to the sale. Accordingly,
after the sale, the property does not vest in the buyer. In Prakasam v. Rajambal , the
document was described as a sale deed but the stamp paper was provided by
transferor and the consideration(price) was much less than the actual value of the
property. There was a specific condition that on payment of principal amount the
transaction was a mortgage by conditional sale and not an outright sale. Where A,
the owner of a land, gave possession of his land to B on receipt of money from him,
and under the agreement B was to execute reconveyance of payment of amount by A
otherwise the sale was to be confirmed, the Bombay High Court held that the
transaction was sale with condition to repurchase and not a mortgage by conditional
sale. It may be noted that in this case, payment of interest was not stipulated in the
agreement. Accordingly, the court found that there was no intention of parties to
treat the transfer of land as security for debt which is an essential features of a
mortgage.

Existence of debt:

Although in appearance the transaction may be like a sale but, since the intention of
the parties is to treat it as security for debt, therefore there must exist a relation of
debtor and creditor between the seller and the buyer. The existence of debt is
necessary. Where no debt exists between seller and the buyer, the sale is not
mortgage.

Conditions:

Manjabai Krishna Patil Vs. Raghunath Revaji Patil Page 3

 PROPERTY LAW - I

The characteristic feature of this form of mortgage is that it is a sale but becomes
mortgage because of any peculiar condition attached to it. The existence of debt is
inferred from the very nature of condition which makes it a mortgage. The condition
may be that when the seller repays the price the sale shall be void or the buyer would
execute reconveyance of the property in favour of the seller. Or, the condition may
be that if the seller does not repay the price on a certain date, the sale would become
absolute, i.e., the property shall vest in the buyer. Thus, whether an ostensible sale
becomes a sale in the real sense and property goes to the buyer absolutely or the sale
does not take place and the property continues to belong to seller, depends on
fulfillment or non-fulfillment of condition.

Condition in the same document:

It is necessary that any of the conditions mentioned above, must be incorporated in

the same document which has been executed as a sale deed. In Pandit Chunchun Jha
v. Sheikh Ibadat Ali, the Supreme Court held that proviso to section 58(c) makes it
clear that if condition for repurchase is not embodied in the document which effects
or purports to effect the sale, the transaction cannot be regarded as mortgage. Thus
as ostensible sale with any of the conditions mentioned above, cannot be regarded as
mortgage if condition was laid down in a separate agreement.

Manjabai Krishna Patil Vs. Raghunath Revaji Patil Page 4

 PROPERTY LAW - I

MATERIAL FACTS OF THE CASE

Appellants herein were owners of land bearing Survey No. 198/3/2

admeasuring 2 acres at Village Waghad.

Appellants being in need of money, approached the respondents to sell the

mentioned land for Rs. 6,000.

After negotiations having been held, a deed of sale was executed by the
appellants in favour of the respondents on 29.11.1966 for a sum of Rs. 6,000.

However, the said deed was registered on 17.12.1966. On the same day an
agreement of reconveyance was also executed in terms whereof the
respondents agreed to convey the property back to the appellants herein after
five years on receipt of the amount of consideration specified therein.

The respondents failed and/or neglected to act in terms of the said agreement
of reconveyance, a suit for specific performance was filed by the appellants
herein against the respondents.

The said suit was decreed. However, on an appeal preferred there against by
the respondents, the First Appellate Court rejected the contention of the
respondents that time was of the essence of contract. The appeal was allowed,
stating that the agreement of reconveyance was the part and parcel of the
agreement of sale. {In the Second Appeal filed by the appellants herein being
aggrieved by and dissatisfied with the said judgment, the High Court also
opined that as the document of reconveyance was part and parcel of the same
transaction and being compulsorily registerable; for want of registration, the

Manjabai Krishna Patil Vs. Raghunath Revaji Patil Page 5

 PROPERTY LAW - I

same was neither admissible in evidence nor enforceable through a court of

law.

ISSUE:

Whether the sale was mortgage by conditional sale and the agreement for the
reconveyance of the property was the part and parcel of the agreement of sale, the
sale deed being executed on 29.11.1966 and agreement of reconveyance being
executed on 17.12.1966?

Argument forwarded by Appellants:

Mr. Chinmoy Khaladkar, the learned Counsel appearing on behalf of the appellants,
submitted that keeping in view the fact that the deed of sale was executed on
29.11.1966, and the agreement of reconveyance was executed on 17.12.1966, the
same was not required to be registered.

Argument forwarded by Respondents:

Mr. S.V. Deshpande, the learned Counsel appearing on behalf of the respondents, on
the other hand, submitted that although the sale deed was executed on 29.11.1966,
but having been registered on 17.12.1966 itself on which date the agreement of
reconveyance was executed, the same must be held to be a part of the same
transaction and, thus, was compulsorily registerable.

JUDGEMENT:

The Supreme Court held that the sale was not a mortgage by conditional sale and
that the agreement for the reconveyance of the property was not the part and parcel
of the agreement of sale. Rather it was an absolute sale as the reconveyance was

Manjabai Krishna Patil Vs. Raghunath Revaji Patil Page 6

 PROPERTY LAW - I

executed on a date different from that of execution of sale deed, and was not part of
the sale deed document itself.

Reasons for Decision:

In connection to the arguments forwarded by both the parties, the court drew its
attention to the agreement of reconveyance dated 17.12.1966, the relevant portion
whereof reads as under:

I, above referred vendee write down that you above referred vendor are selling
the land to me for 6,000/- upon the condition that after cultivation for 5 years
this particular land would be reconveyed to Pandrinath Ukhardu Patil as soon
as he repays the amount i.e. 6,000. But within 5 years all the earnings of the
land would be enjoyed by me as an interest.

The basic fact of the matter was not in dispute. Two documents were executed on
different dates and at different places. The deed of sale was executed at Tal, the
purported agreement of reconveyance was executed at Waghad. By reason of the
sale deed dated 29.11.1966, the respondents obtained possession of the entire suit
property. The property was transferred absolutely so as to enable the vendee to use
the same till their life time as also by their legal representatives. Appellants declared
that they would have no right, title and interest in the said land, nor they would have
ownership right and in case anyone claimed any such right, the same would be
treated as cancelled. An easementary right was also conveyed.

It was stipulated that the land was not encumbered as the mortgage which had been
created in respect of the said land, has been redeemed and in the event "anything is
found", 'they would be responsible for the same'. The amount of consideration was
received on different dates at different places. The said deed must, therefore, be
construed to be a deed of absolute sale.

Manjabai Krishna Patil Vs. Raghunath Revaji Patil Page 7

 PROPERTY LAW - I

Furthermore, Section 58 (c) of the Transfer of Property Act, 1882 provides for
mortgage by way of conditional sale as:

Mortgage by conditional sale: Where, the mortgagor ostensibly sells the mortgaged
property -

on condition that on default of payment of the mortgage-money on a certain

date the sale shall become absolute, or
on condition that on such payment being made the sale shall become void, or
on condition that on such payment being made the buyer shall transfer the
property to the seller,

the transaction is called mortgage by conditional sale and the mortgagee a

mortgagee by conditional sale:

Provided that no such transaction shall be deemed to be a mortgage, unless the

condition is embodied in the document which effects or purports to effect the sale.

Proviso appended to Section 58(c) is clear and unambiguous. A legal fiction is

created thereby that the transaction shall not be held to be a mortgage by conditional
sale, unless a condition is embodied in the document which effects or purports to
effect the sale. Where two documents are executed, the transaction in question
would not amount to a mortgage by way of conditional sale. In a case of this nature,
ordinarily the same would be considered to be a deed of sale coupled with an
agreement of reconveyance.

Applying the principles laid down above, the two documents read together would
not constitute a mortgage as the condition of repurchase is not contained in the same
documents by which the property was sold. The proviso to clause (c) of Section 58
would operate in the instant case also and the transaction between the parties cannot
be held to be a mortgage by conditional sale.

Manjabai Krishna Patil Vs. Raghunath Revaji Patil Page 8

 PROPERTY LAW - I

In the instant case, no relationship of debtor or creditor came into being. No security
was created and in fact conveyance of the title of the property by the respondent to
the appellant was final and absolute.

Also the transaction is not a mortgage by conditional sale and having regard to the
provisions of Section 17 of the Indian Registration Act, the agreement of re-
conveyance was not compulsorily registerable.

CRITICAL COMMENTS

For Mortgage by Conditional Sale, there must be an ostensible sale of an

immovable property, the sale being subject to following conditions:

On non-payment of mortgage money the sale would become absolute or,

On payment of mortgage-money, the sale shall become void or the buyer
shall retransfer the said property to the seller.

And the condition must be embodied in the same document.

If the condition is not part and parcel of the sale deed itself, then the sale
would not be a mortgage by conditional sale but it would be an absolute sale
and the proviso to section 58(c), Transfer of Property Act, 1882 would apply.

There must exist a creditor-debtor relationship between the buyer and the
seller to certain the existence of a debt and thus the sale to be a mortgage by
conditional sale.

The existence of debt can be inferred from the very nature of the condition
which makes it mortgage.

The acts of the parties are important as to certain the nature of the sale. That id
to say the parties must act in a way as if a debt has been created for the sale to
be a mortgage by conditional sale.

Manjabai Krishna Patil Vs. Raghunath Revaji Patil Page 9