TP Act | Transaction Can't Be Regarded As 'Mortgage By Conditional Sale' If Condition For Reconveyance Is Not Specified In Same Deed : Supreme Court

The Supreme Court recently held that under Section 58(c) of the Transfer of Property Act,1882 no transaction shall be deemed to be a mortgage unless the condition for reconveyance is contained in the document which purports to effect the sale.

A division bench of Justice Hima Kohli and Justice Rajesh Bindal made the observation while dealing with a case in which two documents were executed on the same day, one was a sale deed and the other was a reconveyance/agreement of buy back deed. The Apex Court observed that the proviso to Section 58(c) of the Act was added to create a deeming fiction that a transaction cannot be deemed to be a mortgage unless the condition for reconveyance is contained in the document which purports to effect the sale.The Top Court referred to a catena of judgments with regard to the interpretation of Section 58(c) of the Act to reach this conclusion. 

In the matter at hand, the appellant had approached the Apex Court against the order of the Karnataka High Court and the trial court that had refused to grant him relief in a suit filed for redemption of mortgage.

The main issue for consideration before the Apex Court was whether the transaction between the parties was an absolute sale of the property or a mortgage.

Sr. Adv. Kiran Suri appearing for the Appellant argued that on interpretation of the documents, the intention of the vendor to mortgage the property is clearly established. The intention of the parties can be inferred from two separate documents executed on the same date, it was contended. It was also argued that even if under Section 58(c) of the Act, it is provided that clauses to treat the transaction of sale as a mortgage are to be in a single document, it was not a pre-condition.

Sr. Adv. Aditya Sondhi appearing for the Respondents argued that a case of mortgage, is not made out from the documents on record. The Respondent argued that Section 58(c) of the Act states that whether it is a mortgage or not, can be inferred from the document only when it is a single document and the clauses are contained therein. But this would not be applicable to the said matter as two separate documents were executed, it was argued.

The Apex Court examined the Sale Deed which specified that it was an absolute sale for consideration of ₹5,000/- (Rupees Five Thousand) to meet the expenses of the vendor. The Court also observed that possession of the property was to be delivered on registration of the Sale Deed, according to its terms. Additionally, the vendee was allowed to enjoy the property by getting it mutated in her name and by paying taxes. There were no encumbrances attached to the property either. 

The Apex Court refused to interfere with the order of the High Court, finding that the two deeds for sale and reconveyance together cannot be said to constitute a transaction of mortgage of property:

“In terms of the Sale Deed and the Reconveyance Deed, reconsidered in the light of the enunciation of law, as referred to above, in our opinion, 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, Civil Appeal No.706 Of 2015

Citation : 2023 LiveLaw (SC) 685

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