S. 58(c) TPA | Mere Possession Of Property By Mortgagor Wouldn't Make 'Mortgage By Conditional Sale' A 'Simple Mortgage' : Supreme Court

The Supreme Court observed that allowing a mortgagor to stay in possession does not make the transaction a 'simple mortgage' if the deed specifies that the mortgagor's default in redeeming the property within the stipulated time would lead to transfer of the mortgage property to the mortgagee under 'mortgage by conditional sale' as per Section 58(c) of the Transfer of Property Act, 1882 (“TPA”).

The bench comprising Justice Vikram Nath and Justice Prasanna B. Varale was deciding a civil appeal filed by the defendant against the High Court's decision affirming the Trial Court's decision allowing the respondent-plaintiff's suit seeking redemption of the mortgaged-suit property.

The Respondent-plaintiff mortgaged a suit property to the Respondent in 1990 for ₹75,000 with an agreement to repay ₹1,20,000 (including interest) within three years. The mortgage deed included a clause stating that failure to redeem within the stipulated period would convert the mortgage into an absolute sale.

In 1993, the plaintiff attempted to redeem the mortgage by offering ₹1,20,000 to the defendant. However, the defendant refused to accept the payment, asserting that, according to the terms of the mortgage deed, the mortgage had transformed into an absolute sale due to the plaintiff's failure to repay the amount within the stipulated time.

Aggrieved by the defendant's refusal to accept the payment against redemption of the suit property, the plaintiff filed a suit seeking redemption of the mortgage and a declaration that the defendant's claim of ownership was invalid.

The trial court decreed the suit and held that the condition of converting the mortgage into a sale was a 'clog on the equity of redemption' and allowed the plaintiff to redeem the mortgage by paying ₹1,20,000 to the defendant.

The High Court upheld the trial court's decision leading to the filing of the appeal by the defendant before the Supreme Court.

The key factors that need to be considered while deciding whether the mortgage was by conditional sale or not are:

“• Nature of Possession: The possession was permissive and at the discretion of the defendant. It was not an indication of ownership or an absolute right but was granted to safeguard the property.

• Intention of the Parties: The intention, as explicitly stated in the mortgage deed and corroborated by DW1's testimony, was that the property would become the absolute property of the defendant upon default of payment within the stipulated period.

• Terms of the Mortgage Deed: The mortgage deed allowed the defendant to use the land and specified that the right of the mortgagor to reclaim the property would be extinguished upon default.”

Setting aside the impugned decisions, the judgment authored by Justice Vikram Nath observed that the courts below erred in not holding the transactions as mortgage by conditional sale as all the ingredients of Section 58(c) TPA stand fulfilled.

“Therefore, it can be concluded that all the essential ingredients of a mortgage by conditional sale under Section 58(c) of the Act are satisfied in the present case as there was an ostensible sale of the property by the mortgagor to the mortgagee and the sale was conditional, stipulating that upon default of payment within three years, the sale would become absolute as well as that the condition was embodied in the same document, i.e. the mortgage deed, that effected the transaction.”

Also, the Court found that the below court erred in concluding that the continuous possession of the plaintiff negated the possibility of the transaction being a mortgage by conditional sale.

“The permissive possession granted by the defendant to the plaintiff was a practical arrangement, given that the plaintiff was already residing on the land. This arrangement does not confer any additional rights upon the plaintiff beyond those specified in the mortgage deed. The Trial Court and the High Court erred in concluding that the continuous possession of the plaintiff negated the possibility of the transaction being a mortgage by conditional sale.”, the court observed.

In essence, the Court said that from the intention of the parties, as mentioned in the mortgage deed, a possession of the property remains with the plaintiff-mortgagor with a stipulation that the transfer would become absolute upon the mortgagor's default in redeeming the property within the given time limit. The Court noted that such a transaction qualified as a mortgage by conditional sale.

Moreover, the court noted that the plaintiff's possession over the mortgaged property would be deemed as 'permissive possession', disentitling him to claim additional benefits out of the mortgage deed.

“At this juncture, we must address that the Trial Court and the High Court placed significant emphasis on the fact that the plaintiff remained in possession of the suit land after the execution of the mortgage deed. They inferred that since possession was not delivered to the defendant, the transaction could not be a mortgage by conditional sale but was instead a simple mortgage. However, this conclusion overlooks critical aspects of the evidence and the nature of the possession in the present case. It is an admitted position by both parties that the plaintiff (mortgagor) remained in possession of the suit land after the execution of the mortgage deed. Importantly however, the nature of this possession was permissive and for the purpose of safeguarding the property.”, the court observed.

"The Trial Court and the High Court erred in disregarding the express terms of the registered mortgage deed and in holding that the condition was a clog on the equity of redemption without sufficient basis. The permissive possession of the suit land by the plaintiff does not negate the nature of the transaction. The conditions stipulated in the mortgage deed fulfil all statutory requirements of mortgage by conditional sale, and the intention of the parties regarding the same was clear and unambiguous. The Trial Court and the High Court erred in their interpretation by placing undue emphasis on possession without considering its permissive nature and the explicit terms of the mortgage deed.", the Court held.

Accordingly, the appeal was allowed.

Appearances:

For Petitioner(s) V. Chitambaresh, Senior Advocate,Mr. Kaustubh Shukla, AOR

For Respondent(s) Mr. C.B.gururaj, Adv. Mr. Prakash Ranjan Nayak, AOR Mr. Animesh Dubey, Adv. Mr. Apoorv Nautiyal, Adv. Mr. Arjun D. Singh, Adv. Ms. Ankita Sharma, AOR

Case Title: LEELA AGRAWAL VERSUS SARKAR & ANR.

Citation : 2024 LiveLaw (SC) 967

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