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Judicial Study On Mortgage By Conditional Sale

Mortgage is a terminology that most of us know in our day to day lives. The concept of mortgage is even known to a layman. The majority idea about mortgage is moreover about the simple mortgage however in legal parlance we know that the transaction is not just restricted to simple mortgage and there are many facets of mortgage.

The ambit of the transactions involving mortgage is extremely wide and includes six major types of mortgage out of which the researcher in this project is concerned with the second type of mortgage, i.e. Mortgage by conditional sale and before the researcher starts delving deep in the topic, the researcher has made an attempt to give an overview of mortgage as a whole in the introductory chapter.

Mortgage by sale is referred to as multiple names in various parts of India. Its known as Khtkhabala in Bengal, Gahan Lagan in Bombay and Muddata Kriyam or Peruarthum in Madras and in Islam its denoted by the phrase Bye-bil-Wafa. Mortgage by conditional sale allows the mortgagee to become an absolute owner of the property in case mortgagor defaults in repayment of debt.

However, the researcher in her project has made an attempt to write the relevant case laws according to the topic and has elucidated the concept with most recent judgments available as per the topic. The researcher has tried to explain the concept in detail and then substantiated them with valid case laws thus making it easier for the reader to not just understand the topic in general but rather get a legal insight of the topic as a whole.

The very concept of mortgage is defined under section 58 of the Transfer of Property Act which states that a mortgage is the transfer of an interest in an immovable property for the purpose of securing the payment of money advanced by the way of loan, an existing or a future debt, or performance of an engagement that may give rise to a pecuniary liability.[1]
The concept ideally involves two parties the mortgagor and the mortgagee.

The transferor is called the mortgagor while the transferee here is called mortgagee. When a person takes a secured loan and specifies certain immovable property as security, its deemed that he took the loan by simply mortgaging his property. The concept of mortgage is there since ancient times and was known to the oldest systems of law.

In case of common law, in England the mortgage created a legal estate in the favour of the creditor. And once the time period for repayment was lapsed and the debtor was unable to pay the entire amount the property was ceased by the creditor forever. This was regarded unjust by the rule of equity. Notwithstanding any circumstances any such condition that abridges the right of mortgagor in his property was void.[2]

Section 58[3] talks about six different types of mortgages namely:

  1. Simple mortgage,
  2. Mortgage by conditional sale,
  3. Usufructuary mortgage,
  4. English mortgage,
  5. Mortgage by the deposit of title deeds, and
  6. Anomalous mortgage.
This very classification is made on the grounds of nature of interest which is transferred for securing the loan. In this project, the researcher shall deal with the second type of mortgage i.e. Mortgage by conditional sale in details an make an attempt to see the timeline of its judicial development.

Meaning And Essential Elements

Section 58 (c) of the Transfer of Property Act deals with the concept of Mortgage by conditional sale which is apparently a sale with a condition that post the repayment of the consideration amount, the purchaser shall be liable to transfer the property again to the seller.

The act provides that- where, the mortgagor ostensibly sells the mortgaged property.

On a condition that on default of payment of the mortgage money on 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 such payment being made the buyer shall transfer the property to the seller, The transaction is called the mortgage by conditional sale and the mortgagee a mortgagee by conditional sale[4]. Here there is no personal liability of the mortgagor to pay and the liability is only limited to the property. In Balkishen v. Legge[5], wherein the privy council in reference to mortgage by conditional sale observed that the framers of act, never intended to attach personal liability of mortgagor to the mortgage and the act intended to state the existing law and practice in India while enacting the definition of mortgage.

The essential elements of the mortgage by conditional sale are:
  1. There is an ostensible sale of an immovable property.
  2. The sale is subject to any of these conditions:
    1. On the repayment of the price of the mortgage the sale would become absolute or,
    2. 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.[6]

But we must take into account that the basic principal of this form of transaction is not the finality of the test rather it is the intention of the parties that is to be taken into account while at the time of entering the transaction and creating a security for their property by the channel of mortgage.

The Concept Of Ostensible Sale

The concept of ostensible is enticing because it apparently looks like sale but in reality there is no sale. Here in mortgage of this kind there is a sale of an immovable property but in reality it is intended to secure a debt. The entire transaction appears to be sale rather than a full-fledged mortgage.

The seller agrees to sell his property on a certain sum of money but both the buyer and the seller have the knowledge that the seller is apparently taking the loan from the buyer. The intention is derived from the nature of condition attached to sale and post-sale the property did not vest in the hands of the buyer.

In Prakasam v. Rajambal[7], the facts of the case are that the document was ascribed as sale deed but the stamp paper but the stamp paper was provided by the transferor while the price provided was much lesser than the actual price of the property. A specific condition was attached that post the payment of the ‘principal' amount the property shall be reconvened.

It was held by the Madras High Court that the transaction was not an outright sale rather was mortgage by conditional sale.

In Vithal Tukaram Kadam v. Vamanrao Sawalaram Bhosale[8] the facts revolved around a loan which was taken by the plaintiff in the given case and if in case the plaintiff fails to repay the amount then the plaintiff would sell it. Apparently the borrowed amount for loan was 700 rupees while the plaintiff sold the land for 3500 Rupees. The very agreement for sale had a clause of reconveyance embodied in it upon the virtue of the clause the defendant demanded Rupees 3500 along with interest affecting relationship of the debtor and the creditor. The defendant was well aware of the nature of the transaction and he knew that he would be obliged to return the land back if the amount was paid back by the plaintiff.

The Bombay High Court held that the transaction here was more in the nature of conditional sale and not an absolute sale by the defendant.

In Rajamma(Smt.) v. B. Renuka Murthy[9] the facts of the case were that there was a certain family property that was sold for the payment of a prolonged family debt. The possession of the property was delivered to the purchasers. An undertaking was provided by the mortgagors to the mortgagee that they would repay the entire amount within the stipulated time frame that was 5 years and ensure that the sale deed gets executed.

The Supreme Court in this case held that it was not a case of simple mortgage but was of conditional sale with an option to repurchase.

Conditions Of Ostensible Sale

The intrinsic feature of this kind of mortgage is that of a sale but becomes mortgage because of a particular condition that is attached to it. The very existence of debt can be figured out from the fact that it is the nature and the manner of the condition that makes it a could be a condition that when the seller makes the repayment of the full price of the loaned property then onwards the sale shall be considered void or the buyer could reconstitute the reconveyance of the property in favour of the seller.

The other condition could be such that if the seller does not the entire amount on the agreed date then the sale shall become absolute and the entire rights in the property shall now vest in the hands of the buyer. Here it is the fulfilment of those conditions that play the key role in deciding upon the facts that whether an ostensible sale is a real sale or not or whether the property will go absolutely to the buyer or not or in what manner will the sale take place. It is subject to the conditions specified at the time of the mortgage.

However at the time of the execution of the sale deed there is no intention that sale in appearance is to sale in reality. This idea was brought about in the case of Rajawati Devi v. Prem Nandani Sinha[10] where the sale deed had embodied a condition for the repayment of the consideration money in account and the possession was supposedly to be delivered in two years during which the mortgagor had to pay back the stipulated amount, notwithstanding the fact that the amount paid was equal to the price did not necessarily make it an outright sale. The Patna High Court held that the mortgagor was entitled to take back the property.

Also the Existence for debt is a necessary condition for the existence of debtor and the creditor so the concept of mortgage could take place. Although the transaction might appear as a sale but since the intention of the parties is to treat that as a security for debt so such condition is a prerequisite for the mortgage to take place. When there is absence of such stipulation then that sale is not mortgage.

In Gurunath v. Yamanava[11] the defendant sold the land for Rupees 600 and thus the plaintiff had the possession of the aforesaid land. He in the sale deed mentioned a condition that whenever he wanted the land back will pay Rupees 600 and the maintenance amount occurred for the land and then then the plaintiff shall have to transfer the land in its entirety. The plaintiff contended before the court that this was not a mortgage of the property by the plaintiff. The Bombay High Court agreed to the plaintiff contention and said that the conditions in the document don't portray it as mortgage rather of a sale as there was no such existence of debts between the parties.

Taking into account another condition when the Mortgagee Transfers the Property to another person it is deemed that the mortgagee had no such right to execute the transfer. In the Gujarat High Court judgment it was seen that such transfers are void[12].

In Ramlal v. Phagua[13] the mortgagee had obtained the property by advancing certain sum of money as a loan to the mortgagor. In the deed the stipulated time period for the repayment of the amount by the mortgagor was 3 years and upon the payment of the amount within the time frame the mortgagee was supposed to return the property to the mortgagor. The Supreme Court held that since no title or interest was passed on to the mortgagee, he was not competent to pass on any title or convey or transfer the property to anyone else so the sale of the mortgagors property by the mortgagee to third party before the mentioned and agreed time period was held to be void.

Condition To Be Embodied In The Same Document

It is mandatory that in case of mortgage by conditional sale the condition must be embodied in the same document that effects or purports the purpose of sale. That doesn't necessarily mean that if the stipulation of reconveyance is embodied in the same document then the transaction is necessarily a mortgage. This provision was added in the by proviso to section 58 (c) by the amending act of 1929[14].

The Supreme Court in Pandit Chunchun Jha v. Sheikh Ibadat Ali held that the proviso to section 58(c) makes it specific and clear that if the condition for repurchase is not embodied in the same document then the transaction shall not be regarded as mortgage.[15]

The terms and the conditions contained in the document must necessarily adjudicate upon the nature and the character of the document as whether it is a mortgage by conditional sale or a sale with a condition to retransfer. If the document appears to contain provisions of an absolute sale without any stipulation of treating it as mortgage then a further separate document of reconveyance cannot convert it as mortgage.[16]

In Sunil v. Aghor[17] a separate document of sale deed, deed of reconveyance and lease deed were executed in the same transaction but the condition stipulating the sale as mortgage was not embodied in the sale deed. The Guwahati High Court held in this case that the transaction was not in the nature of mortgage by conditional sale. It further substantiated that the conditions effecting the sale as mortgage in one and the same document.

In Ramegowda v. Boramma[18] the deed was in nature as the sale deed and the condition to repurchase was embodied in the same document. The condition was levied that the amount of Rupees 4000 was to be repaid by the transferor within the prescribed time period and then the possession of the land will be given back to him. The second condition in the deed was that the purchaser shall have absolute right and interest and would permanently enjoy property from the date of possession.

The Karnataka High Court decided that if a condition to repurchase in provided in a separate document and the execution occurs on a different date then the nature of the transaction shall be regarded as sale and the court shall have no duty to investigate the possibility of loan if the document doesn't contain conditions of mortgage with conditional sale.

The court also concluded that by taking in account former condition we could ascertain that it was mortgage by conditional sale not sale with a condition to repurchase., but the subsequent condition indicated the nature of the document to be similar like the sale deed, thus the features of mortgage by conditional sale and the sale with a condition to repurchase were present. The transaction however was in the nature of mortgage and therefore, the transferor would be entitled to redeem mortgage and delivery of possession of the property.

In Mangtin v. Rahibhai[19] an illiterate mortgagor was made to sign a set of documents, he claimed that it was a transaction of mortgage and not of sale by purporting to two documents i.e. a mortgage document and a reconveyance deed. The Chhattisgarh High Court held that the document constituted mortgage and the burden of proof shall be upon the transferee to show that it was a case of outright sale and not mortgage. The consideration paid shall not affect or alter the nature of transaction and just because the consideration paid was equal to the market price would not make it sale.

In those cases where transactions shows some instances of sale and some of mortgages then it would depend upon the facts and circumstances of the given case. In Shivaji Dagadu Mahangade v. Aba Gopala Shinde[20] the deed stipulated that after ten years of non-repayment the sale shall become absolute. The terms were somewhat in nature of sale and some of mortgage. The plaintiff here failed to repay within the prescribed time. The Bombay High Court held that the deed now was of nature of an absolute sale deed and the plaintiff shall now not be entitled to regain the property.

But in the case of Srinivasaiah v. H.R.Channabassappa[21] where the case was about the determination of the nature of transaction that whether it was a conditional sale or an outright sale. Here the document had a title of “deed of conditional sale”, the document itself contained the condition for repurchase and offered sales money sans was held by the Supreme Court that the document was mortgage deed by conditional sale.

Mortgage By Conditional Sale With A Condition To Repurchase

A mortgage is fundamentally different from sale with condition to repurchase. Where the condition is for the repurchase and is embodied in the same document, it is presumed that it is a case of mortgage but when both the sale and the agreement to repurchase are embodied in the separate document it cannot be mortgage.

These two concepts appear to be similar but they have been elaborately distinguished as:[22]
  1. In a mortgage by conditional sale, the existence of debt between mortgagor and the mortgagee or the debtor or creditor is necessary. But in sale with a condition to repurchase there is existence of no such futuristic debt. There is no such correlation between debtor and the creditor as seller and buyer.
  2. Mortgage by conditional sale is a mere transfer of some interest in property, hence, it is the transfer of partial interest. Sale with the condition to repurchase is the transfer of the entire interest in the property except where the personal right to repurchase which will be extinguished if it is not exercised within the prescribed time period.
Now as far as the intrinsic legal nature of the both transactions are concerned they are clearly demarcated by the intention. Sometimes it is an arduous task whether it was a transaction to determine whether it is mortgage or sale with a condition to repurchase. This is majorly due to the effect that both the transactions provide for retransfer of property from buyer to the seller.

Mortgage by conditional sale is a type of mortgage where there is an occurrence of ostensible sale and which later is converted in absolute sale on the account of the seller's inability to pay the loan. The provisions have been amended with time to provide that both the document for sale and re conveyance occurs in the single and the same document.

There have been multiple instances of confusion between mortgage by conditional sale and real sale. In this project the researcher has dealt with many case laws regarding the topic and has tried to deal with the confusion taking in account a number of factors, primarily the intention of the parties and the nature and the purpose of the transaction and also has tried her best to demarcate between the concepts in a lucid manner.

Notwithstanding various intertwined pertinent concepts, the practice of mortgaging property has been prevalent in India since a long time and not just India but even in the other parts of the world under different names and it can be vehemently said that the practice of mortgage by conditional sale shall continue to flourish even in the times to come.

Thus, the researcher has tried her best to answer the research questions that were put forward by her in the beginning of the project and has adhered to the prescribed scope of the project. Also the researcher has tried to fulfil all the objectives that were laid down for this project and has tried her level best to do complete justice to the project.

  1. Transfer of property act 1882, Bare act, (Universal publishing house, 21st ed., 2014).
  2. Dr R.K Sinha, The Transfer Of Property Act 280 ( Dr. Shreedutta Arvind Pandey, 19th ed. 2018).
  3. Transfer of property act 1882,( India).
  4. MULLA , supra note 6, at 373-374
  5. Balkishen v. Legge (1899) 22 All 149 (India)
  6. SINHA, supra note 5, at 282
  7. Prakasam v. Rajambal, AIR 1975 Mad. 282. (India)
  8. Vithal Tukaram Kadam v. Vamanrao Sawalaram Bhosale, AIR 2017 Bom 232. (India)
  9. Rajamma(Smt.) v. B. Renuka Murthy, AIR 2017 SC 5046, (India
  10. Rajawati Devi v. Prem Nandani Sinha , AIR 2013 Pat 166, (India).
  11. Gurunath v. Yamanava, (1911), 35 Bom. 258.
  12. Jairambhai Ramabhai Rabari v. Bipinchandra Naranbhai Barot, AIR 2013 Guj 272, (India).
  13. Ramlal v. Phagua, AIR 2006 SC 623, (India).
  14. Section 58( c) of the the transfer of property (amendment), act 1929 [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
  15. Pandit Chunchun Jha v. Sheikh Ibadat Ali ,AIR 1954 SC 345,( India).
  16. Amir Bee v. The Sub Divisional Magistrate Sakaleshpur, AIR 1980 Kant 154, (India).
  17. Sunil v. Aghor, AIR 1989 Gau. 39 (India).
  18. Ramegowda v. Boramma, AIR 2012 , Kar 52 ( India).
  19. Mangtin v. Rahibhai, AIR 2012, Chh 77, (India).
  20. Shivaji Dagadu Mahangade v. Aba Gopala Shinde, AIR 2016 Bom.213 (India).
  21. Srinivasaiah v. H.R.Channabassappa, AIR 2017 SC 2141( India).
  22. SINHA, supra note 5, at 287-288.

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