Difference Between 'Mortgage By Conditional Sale' & 'Sale With Condition Of Retransfer' : Supreme Court Explains

The Supreme Court in the judgment Prakash (Dead) By LR. v. G. Aradhya & Ors has explained the concepts of 'mortgage by conditional sale' and 'sale with condition of retransfer'.

Referring to Section 58(c) of the Transfer of Property Act, 1882 (TPA), the Court observed, “A deeming fiction was added in the negative that a transaction shall not be deemed to be a mortgage unless the condition for reconveyance is contained in the document which purports to effect the sale”.

The Bench comprised of Justices Hima Kohli and Rajesh Bindal.

The issue under adjudication was whether the transaction between the parties was an absolute sale of the property or it was a mortgage.

The appellant had filed the present appeal before this Court impugning the judgment of the High Court of Karnataka at Bangalore by which the appeal filed by the appellant against the judgment and decree of the trial Court was upheld.

Brief Facts:

On 16.10.1963 a property was purchased by the father of the appellant, Gangaramaiah, in the name of the appellant, who was minor at that time. On 24.12.1973 the father of the appellant, Gangaramaiah sold the aforesaid property to one Rudramma for a sum of ₹5000/- The age of the appellant, who claimed himself to be minor at that time, was mentioned as 13 years.

On the same day, another unregistered document was executed between the parties claiming to be Reconveyance Deed in terms of which on the request of the vendor, the vendee had agreed to re-transfer the property back within five years of the Sale Deed in case the sale consideration of ₹5000/- (is paid. A notice dated 24.11.1978 was got issued by the father of the appellant to the vendee seeking execution of the Conveyance Deed back in favour of the vendor in terms of the Reconveyance Deed executed. The same was replied to by the vendee, Rudramma, through her counsel on 02.12.1978 stating that the Sale Deed dated 24.12.1973 was not a mortgage by conditional sale. It was an outright sale of the property.

The matter reached the Supreme Court after the High Court upheld the trial court's refusal for mortgage of the property.

Court’s Observations

The Court examined Section 58 of the TPA wherein the terms: “mortgage”, “mortgagor” and “mortgagee” etc. have been defined. It referred to Sub-section (c) of the said provision, which deals with “mortgage by conditional sale”.

The Court observed that a perusal of the proviso to sub-section (c) of Section 58 of the 1882 Act provides that no transaction shall be deemed to be a mortgage, unless the condition is embodied in the document which effects or purports to effect the sale.

Thereafter, addressing the facts of this present case, the Court observed that there are two separate documents. “It is the undisputed case in hand that it was not a single document, the conditions contained wherein have to be considered by this Court to opine that the transaction was not a sale, but a mortgage. Admittedly, there are two separate documents.”

Further, it relied upon the case of Bishwanath Prasad Singh v. Rajendra, Prasad and another, (2006) 4 SCC 432, to discuss the scope of the said Section. The Apex Court, in the said decision, held:

“A bare perusal of the said provision clearly shows that a mortgage by conditional sale must be evidenced by one document whereas a sale with a condition of retransfer may be evidenced by more than one document. A sale with a condition of retransfer, is not mortgage. It is not a partial transfer. By reason of such a transfer all rights have been transferred reserving only a personal right to the purchaser (sic seller), and such a personal right would be lost, unless the same is exercised within the stipulated time.”

Pertinently, the decision of the Apex Court in Umabai v. Nilkanth Dhondiba Chavan, (2005) 6 SCC 243, was also referred to, which defined the distinction between mortgage by conditional sale and a sale with a condition of repurchase. In this case, the Court observed that that how in a mortgage, the debt subsists and a right to redeem remains with the debtor; but a sale with condition of repurchase is not a lending and borrowing arrangement. Proviso to Section 58(c) of the 1882 Act was referred to in this decision to hold that if the condition for re-transfer is not embodied in the document which effects or purports to effect a sale, the transaction will not be regarded as a mortgage.

Moving forward, the Court scrutinised contents of the two documents. It observed that the specific term used in the document is “reconveyance agreement” executed by Rudramma in favour of Gangaramaiah. The Court opined that the property in question had already been sold and registered in the name of Rudramma. A perusal of the contents of the Sale Deed showed that it is clearly mentioned therein that the same was an absolute sale for a total sale consideration of ₹5,000/- required by the vendor to meet domestic expenses and to meet education expenses of his minor son and to discharge some debts.

Based on these observations, the Court held:

“In terms of the Sale Deed and the Reconveyance Deed, reconsidered in the light of the enunciation of law, Court opined that the same cannot be held to be a transaction of mortgage of property. Sale of property initially, was absolute. By way of execution of Reconveyance Deed, namely, on the same day, the only right given to the appellants was to repurchase the property.”

Case Title: Prakash (Dead) By LR. v. G. Aradhya & Ors.

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