Whether A Deed Is Of Absolute Transfer Or Mortgage By Conditional Sale? Intention Of Parties Determines : Supreme Court

The Supreme Court has observed that the intention of parties has to be looked into to consider whether a document is of absolute sale or mortgage by conditional sale.

Section 58 of the Transfer of Property Act defines the Mortgage by conditional sale as follows:

"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:"

The proviso to this section states 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.

In this case, the document executed between the parties had these clauses: (i) The plaintiff has borrowed a sum of Rs.3,000/- from the defendant for his household expenses in respect of the land which was in his possession. (ii) The possession of land was handed over to the defendant on the condition that the possession will be given back to him within one year from the date of conditional sale deed. (iii) The defendant is bound to retransfer the land to the plaintiff when he repays the amount of Rs.3,000/-. (iv) If the amount is not paid within the stipulated period, the conditional sale deed may be taken as a permanent one.

"The intention of the parties has to be seen when the document is executed. It is not in dispute that the condition of retransfer is a part of the same document (Ex. 68). Such is the condition inserted by an amendment in the year 1929 expressed by the proviso of Section 58(c) of the Act.... Therefore, a reading of the document would show that the document was executed for the reason that the plaintiff has borrowed a sum of Rs.3,000/- for his household expenses and the defendant is bound to retransfer the land if the amount is paid within one year. The advance of loan and return thereof are part of the same document which creates a relationship of debtor and creditor. Thus, it would be covered by proviso in Section 58(c) of the Act. " the Court said while considering an appeal filed by the High Court which dismissed his suit for redemption of Mortgage.

The defendant in this case relied on Vanchalabai Raghunath Ithape (Dead) by LR v. Shankarrao Baburao Bhilare  to contend that merely because of a term incorporated in the same document it cannot always be accepted that the transaction agreed between the parties was a mortgage transaction. The bench observed that, in view of earlier judgments in Umabai & Anr. v. Nilkanth Dhondiba Chavan (Dead) and Tulsi & Ors. v. Chandrika Prasad, the judgment in Vanchalbai cannot be treated as binding precedent. 

Another argument raised by the defendant was that plaintiff has filed suit for redemption after 20 years of execution of the document. "The suit for redemption can be filed within 30 years from the date fixed for redemption. The period of 30 years would commence on 22.2.1969 and the suit was filed in the year 1989, which is within the period of limitation", the bench of Justices Hemant Gupta and AS Bopanna observed.

On the question of improvements to the property

"Section 63 of the Act contemplates that any accession by the mortgagee, during the continuance of the mortgage, the mortgagor shall on redemption be entitled to such accession in the absence of a contract to the contrary. Under Section 63(a) of the Act, the liability of mortgagor to pay for improvement will arise if the mortgagee had to incur the costs to preserve the property from destruction or deterioration or was necessary to prevent the security from becoming insufficient or being made in compliance with the lawful order of any public servant or public authority. None of the eventualities arose in the present case compelling the mortgagor to pay for the improvements if any carried out by the mortgagee. A mortgagee spends such money as is necessary for the preservation of the mortgaged property for destruction, forfeiture or sale; for supporting the mortgagor's title to the property; for making his own title thereto good against the mortgagor; and when the mortgaged property is a renewable lease-hold, for the renewal of the lease, such expenditure incurred by the mortgagee can be added to the cost of improvements in the principal amount due. However, in the absence of any positive evidence of any improvement and the cost incurred, the defendants are not entitled to recover anything more than the mortgage amount. Since the possession was given to the mortgagee, he has enjoyed usufruct from the mortgage property which compensates not only of the user of the land but also improve16 ments made by him. The improvements were to enjoy the usufruct of the property mortgaged", it observed while allowing the appeal.

Case: Bhimrao Ramchandra Khalate (Deceased) vs. Nana dinkar Yadav (Tanpura) ; CA 10197 OF 2010
Citation : LL 2021 SC 381
Coram: Justices Hemant Gupta and AS Bopanna

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