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

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INTRODUCTION

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. Mortgage by conditional sale was very well known in this
country. Among the Muslims it was a common mode of securing a debt. In a simple
mortgage, the mortgagee gets also the interest. Since taking interest was considered
against the principles of Islam, simple mortgage could not be common among them
and they introduced bye-bil-wafa which was mortgage by conditional sale. In this
form of mortgage, the Muslim creditor got his principal money and interest in the
shape of an enhanced price on repayment. At the same time, recovery of loan and
hus religious beliefs both were safe. It was common also among the Hindus as a
mortgage which became a sale on non-payment of debt. The Transfer of Property
Act has now recognized this form of mortgage with modifications.

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-

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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.
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

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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. For instance, a sale deed provided : If at any time I require back the land
I will pay you the aforesaid Rs. 600/- and any money you may have spent for
bringing the land into good condition , and purchase back the land. On these facts
the Bombay High Court held that the document was not mortgage, it was a sale
because no debt existed between parties.1

Conditions:

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
1
Gurunath v. Yamanava,(1911) 35 Bom. 258

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fulfillment or non-fulfillment of condition. However, at the time of execution of the

sale deed there is no intention that the sale in appearance is to result into sale in
reality.2

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. This provision was
added by proviso to Section 58(c) by the Amending Act of 1929. In Pandit
Chunchun Jha v. Sheikh Ibadat Ali, 3 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 unless the condition is laid down in the same
document.4 Before this amendment, there was some doubt as to whether the sale
deed amounted to mortgage if condition was laid down in a separate document.
Now, the law is clear that such condition must be included in the sale deed itself. 5 In
Sunil v. Aghor,6 separate documents of sale deed, deed of reconveyance and lease
deed were executed in the same transaction but the condition effecting the sale as a
mortgage was not embodied in the sale-deed itself. The Gauhati High Court held
that the transaction was not in the nature of mortgage by conditional sale. The Court
further observed that the condition purporting to effect a sale as mortgage
transaction must be incorporated in one or the same document. Where documents for
sale and re-sale were executed on two different dates, the Rajasthan High Court held
that the transaction could not be treated as mortgage under Section 58(c) of the T.P.
Act.7

2
Rajwati Devi v. Prem Nandini Sinha, AIR 2013 Pat 166
3
AIR 1954 SC 345
4
Raj Kishore v. Prem Singh, AIR 2011 SC 382
5
The principle was applied in Manjabai Krishna Patil v. Raghunath Revaji Patil,(2007) 12 SCC 427
6
AIR 1989 Gau. 39
7
Askaran v. Madan Lal , AIR 1995 Raj. 131

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In a case before the Supreme Court , the plaintiffs father entered into a transaction
with the defendant. The deed was titled as aconditional sale. The market price of the
land was higher than the specified consideration at the relevant point of time. The
transaction was that the plaintiff was to have the title in the property for a period of
five years. He was to remain in possession for that period only. The plaintiff was
entitled to tender the amount not only at the expiry of the period but also before. On
such tender the defendant was required to execute the deed of conveyance in favour
of the plaintiff. The terms of the sale and conditions of re-purchase were recorded in
the same document. It was held that the transaction was not a sale but a mortgage. 8

In another Supreme Court decision, the property conveyed was leasehold interest in
half share of the plot in dispute. The stipulation for re-purchase with a time-limit
was included in the same document. The amount payable on re-purchase was not
stipulated. The vendee was given possession with right to attorn to the landlord.
There was nothing to show borrower-lender relationship. The transferor has already
acquired the other half of the property. The Court attached importance to the facts
that the parties being related, there was a less chance of a mortgage transaction
between them. Hence, it was a transaction of conditional sale.9

Where both the features of a mortgage deed by conditional sale and as sale with
condition to repurchase existed in the same document, the court held that the Courts
lean to construe a document in favour of the person who is claiming the right to
redeem, the court took the document to be that of a mortgage entitling the plaintiff to
redeem the mortgage and get back his possession.10

Registration- Where the consideration amount or the mortgage money is Rs. One
hundred or more, the document must be registered.

MATERIAL FACTS OF THE CASE

8
Vishwanath Dadoba Karale v. Parisa Shantappa Upadhye, AIR 2008 SC 2510
9
C. Cherathan v. P. Narayanan, Embranthiri, AIR 2009 SC 1502
10
Ramegowda v. Boramma, AIR 2012 Kr. 52

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

ISSUE:

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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
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:

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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.

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

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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.

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.

Mortgage by Conditional Sale and Sale with condition of Repurchase

Distinction between- Mortgage by conditional sale and a sale with condition of
repurchase appear to be almost similar transactions. But, these two transactions may
be distinguished as under-

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1. In a mortgage by conditional sale,the existence of debt between seller and buyer

is necessary. But in a sale with condition of repurchase (retransfer) there does not
exist any debt. There is no relation of debtor and creditor between sellor and
buyer.
2. Mortgage by conditional sale is transfer of only some interest in the property ; it
is, therefore , transfer of partial interest. Sale with condition of repurchase is
transfer of all the interest in property except a personal right of repurchase which
is lost if not exercised within a certain date.

In so far as the legal nature of these two transactions is concerned, the distinction
is clear. Mortgage by conditional sale involves existence of debt whereas there is
no debt in a sale with condition of repurchase. But, sometimes it is difficult to
decide whether the transactions is mortgage or sale with condition to repurchase.
This is so because in effect both the transactions provide for retransfer of
property by buyer to seller. However, existence or non- existence of any debt
between seller and buyer makes a fundamental difference between the two. The
existence of such a debt is a matter of intention of the parties which may be
known on the basis of facts and circumstances of each case. An agreement for
repurchase was executed subsequent to the sale-deed and there was no condition
in the deed that on failure to make payment by seller the sale shall becomes
absolute. The Madhya Pradesh High Court held that the transaction was a sale; it
was not mortgage by conditional sale.11
On the other hand , in Balubhai Jethabhai Shah v. Chhanabhai Bamanbhai, 12 the
stipulation in the document described it to be a transaction of conditional sale.
The condition provided that at any time within 10 years of its execution the seller
could return the same amount of consideration as paid by the buyer and
thereupon the land would be returned to seller. The Gujarat High Court held that
it was a mortgage by conditional sale and there was no outright sale. The court
observed that mere description of the transaction in a document that there was a
sale, does not make the document a sale-deed ; the relevant factor is the intention
of the parties. The court observed further that no buyer intending to purchase the
immovable property would put his title to jeopardy for a period of 10 years nor
11
Ranjan Khan v. Baba Raghunath Das , AIR 1992 MP 22.
12
AIR 1991 Guj. 85.

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would be agree to return the property for the same price at which he has
purchased during any time upto 10 years from the date of purchase. Reference in
such document to possession being handed over at time of sale as well as at time
after sale has returned the sale consideration to buyer, was also indicative of the
fact that no outright sale was intended and the parties intended to bring about
relationship of a creditor and a debtor securing the debt by mortgaging the land.

Mushir Mohammad Khan v. Sajeda Bano,13 is an interesting case in this regard.

There was a separate agreement of reconveyance executed by purchaser under
which he promised to reconvey the property to the seller on return of the sale-
consideration. There was also a third document executed by seller in favour of
purchase in the form of rent note. The Supreme Court held that on considering
these documents, the transaction was not a mortgage or mortgage by conditional
sale nor a usufructuary mortgage. Where the parties have executed three
documents, almost simultaneously, all the three documents are to be taken into
account to find out the true nature of the transaction. The Supreme Court
observed that the Madhya Pradesh High Court (which treated the transaction as
usufructuary mortgage) did not take into consideration the second document
which represented an agreement between parties, that if the price money for
which sale was executed by the plaintiff in favour of the defendant, was returned
within the stipulated time, the defendant would reconvey the property to the
plaintiff. Further , the Supreme Court observed that although it was found that
plaintiff (seller) had offered Rs. 1 lakh to be paid within six months, the
defendant (purchaser) made a counter offer of Rs. 1.5 lakhs but, the plaintiff was
not prepared to transfer the title in the property. This indicated that the amount
(Rs. 1000) for which the property was sold did not represent the true market
value, neither at the time of sale deed executed in favour of defendant(purchaser)
nor subsequently. Accordingly, in order to do justice in such situations, the Apex
court held that if the defendant (purchaser) pays a sum of Rs. 2 lacs (foregoing
also the arrears of rent update) within three months, the judgement of High Court
shall stand set aside i.e. the transaction would not be treated as usufructuary
mortgage . In case the amount is not paid within aforesaid period the appeal
shall stand dismissed.

13
AIR 2000 SC 1085

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NOTE- In this case the Apex court expressed concern on increasing tendency in
recent years to enter into such transaction in order to deprive the debtor of his
right of redemption within the prescribed period of limitation. Judgements as
given in this case, would discourage an unscrupulous mortgagee who in place of
getting the mortgage-deed exexcuted in lieu of agreement to sell in his favour frm
the mortgagor so as to pressurize the mortgagor by seeking to enforce specific
performance by mortgagee for obtaining possession for an amount smaller than
the real value of the property.

STIPULATION FOR RETURN OF PROPERTY IN A DOCUMENT OF SALE

The transferor sold his land to the purchaser by way of a document of sale. The
purchaser was put in possession and used and enjoyed the property as an absolute
owner. But the sale document contained a stipulation that on repayment of the
sale document , the purchaser would return the property to the seller in a
document of sale does not constitute the transaction to be a mortgage by
conditional sale. The suit for retake of property was filed in this case a long time
after the period stipulated for return has expired. Such suit was liable to be
dismissed.14

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.

14
Vanchalabai Raghunath Ithape v. Shankarrao Babu Rao Bhilare, AIR 2013 SC 2924

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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.

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