Supreme Court clarifies distinction between mortgage by conditional sale and sale with option to repurchase: Ganpati Babji Alamwar vs. Digambarrao Venkatrao Bhadke (2019)

Introduction

Date of the Judgment: September 12, 2019

Citation: (2019) INSC 944

Judges: Navin Sinha, J., Indira Banerjee, J.

When a landowner transfers property with a condition to get it back, is it a sale or a mortgage? The Supreme Court of India recently addressed this question, clarifying the difference between a mortgage by conditional sale and a sale with an option to repurchase. This distinction is crucial because it determines the rights and remedies available to the parties involved. The Court examined whether a transaction where land was transferred with a clause for reconveyance was a sale or a mortgage. The judgment was delivered by a two-judge bench comprising Justice Navin Sinha and Justice Indira Banerjee.

Case Background

The plaintiffs, who were in debt to defendant no. 1 for purchases made on credit, executed an instalment bond on April 26, 1970, to repay Rs. 10,500 in three yearly installments. After defaulting on the first installment, they executed a conditional sale deed on April 29, 1971, for their agricultural land in favor of defendant no. 1 for Rs. 11,000, which included the earlier debt. The agreement stipulated that the plaintiffs could get their land back by repaying the amount by Gudi Padwa of 1973; otherwise, the sale would become absolute. When the plaintiffs failed to repay, defendant no. 1 got the land mutated in his name on May 13, 1976, and sold it to defendant no. 2 on February 13, 1978. The plaintiffs then filed a suit for redemption in 1980.

Timeline:

Course of Proceedings

The Civil Judge initially ruled that the document was a sale deed based on its nature and the conduct of the plaintiffs. However, the First Appellate Court and the High Court interpreted the document as a mortgage by conditional sale, noting the existence of a debtor-creditor relationship rather than a transferor-transferee relationship. This led to the current appeal before the Supreme Court.

Legal Framework

The case revolves around the interpretation of Section 58(c) of the Transfer of Property Act, 1882, which defines a mortgage by conditional sale. According to this section:

“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;
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.”

Arguments

Appellants’ Arguments:

• Even if the document is interpreted as a mortgage by conditional sale, the conduct of the plaintiffs in failing to repay the dues and redeem the property within the stipulated time should be considered.
• The plaintiffs did not object to the mutation proceedings or challenge the final order of mutation in favor of defendant no. 1.
• The plaintiffs concealed the execution of the installment bond and filed the suit for redemption seven years after the expiry of the repayment period.
• Possession of the land was already delivered to defendant no. 1 on the date of the agreement.
• Defendant no. 2 was a bona fide purchaser.
• The intention of the parties should be deciphered from their conduct, including after the agreement.

Respondents’ Arguments:

• The document was not a sale deed but a conditional sale deed.
• The existence of a debtor-creditor relationship is clearly established from the recitals in the agreement.
• The right of reconveyance was incorporated in the same agreement as per Section 58(c) of the Transfer of Property Act, 1882.
• Failure to pay within the stipulated period does not deprive the respondents of their right to bring a suit for redemption within 30 years under Article 61(a) of the Limitation Act, 1963.
• The appellants did not move for mutation for three years after the repayment period expired.
• The appellants did not file any suit for foreclosure under Section 67 of the Transfer of Property Act, 1882.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue:

✓ Whether the agreement dated 29.04.1971, Exhibit 52, was a mortgage by conditional sale or it was a sale with an option to repurchase.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issue:

Authorities

The court considered the following authorities:

Cases:

• Bhaskar Waman Joshi (deceased) and Ors. vs. Shrinarayan Rambilas Agarwal (deceased) and Ors., AIR 1960 SC 301 – The Supreme Court of India explained the principles for determining the nature of a document, emphasizing the need to ascertain the real character of the transaction from the deed and surrounding circumstances.
• The Godhra Electricity Co. Ltd. and another vs. The State of Gujarat and another, (1975) 1 SCC 199 – Cited by the appellants to support their submissions on the importance of considering the conduct of the parties.
• Vanchalabai Raghunath Ithape (Dead) by Lr. vs. Shankarrao Baburao Bhilare (Dead) by Lrs. and others, (2013) 7 SCC 173 – Cited by the appellants to argue that delay in filing the suit for redemption should be a relevant factor. The Supreme Court distinguished this case, noting that there was no debtor-creditor relationship.
• Bibi Fatima and others vs. M. Ahmad Hussain and others, (2017) 11 SCC 832 – Cited by the respondents to argue that the agreement was a mortgage by conditional sale. The Supreme Court noted that in this case, the respondent had continued to be in possession of the lands, and the loan was raised to discharge debts.
• Vithal Tukaram Kadam and another vs. Vamanrao Sawalaram Bhosale and others, (2018) 11 SCC 172 – Cited by the appellants to emphasize that attendant circumstances should be considered. The Supreme Court found this case to be of no avail to the appellants in the present facts.

Legal Provisions:

• Section 58(c) of the Transfer of Property Act, 1882 – Defines mortgage by conditional sale.
• Section 67 of the Transfer of Property Act, 1882 – Relating to the right to foreclosure, which was not exercised by the appellants.
• Article 61(a) of the Limitation Act, 1963 – Provides a limitation period of 30 years for the right to redeem.

Judgment

How each authority was viewed by the Court:

• Bhaskar Waman Joshi vs. Shrinarayan Rambilas Agarwal* – The Court applied the principles laid down in this case to determine the nature of the document.
• The Godhra Electricity Co. Ltd. vs. The State of Gujarat*- The Court considered the conduct of the parties as emphasized in this case, but found it was not conclusive in the present facts.
• Vanchalabai Raghunath Ithape vs. Shankarrao Baburao Bhilare* – The Court distinguished this case, noting that there was no debtor-creditor relationship.
• Bibi Fatima vs. M. Ahmad Hussain* – The Court relied on this case to support the conclusion that the agreement was a mortgage by conditional sale.
• Vithal Tukaram Kadam vs. Vamanrao Sawalaram Bhosale* – The Court found this case to be of no avail to the appellants in the present facts.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the presence of a debtor-creditor relationship and the financial condition of the plaintiffs. The court emphasized that an agriculturist would not easily dispose of their land, the source of their livelihood, for credit purchases. The financial difficulties of the plaintiffs, who had to mortgage their land for daily necessities, played a significant role in the court’s reasoning. The court also noted that the plaintiffs’ failure to object to the mutation was due to their poor financial status and should not be interpreted as an admission of sale.

Logical Reasoning:

The court considered alternative interpretations but rejected the argument that the agreement was a sale with an option to repurchase, based on the cumulative assessment of the facts and the legal principles.

The Supreme Court held that the agreement was a mortgage by conditional sale, emphasizing the debtor-creditor relationship and the financial condition of the plaintiffs. The court found that the plaintiffs’ failure to object to the mutation was not fatal, as the suit was filed within the limitation period.

The court’s reasoning included the following points:

• The document was titled “Conditional Sale Deed.”
• A debtor-creditor relationship was evident from the recitals.
• The plaintiffs were in dire financial straits.
• The suit was filed within the 30-year limitation period.

“An agriculturist will normally not so easily dispose his agricultural land, the source of his survival and livelihood merely for purchases made by him on credit.”

“Given the limitations of the plaintiffs because of their poor financial status, the fact that they may not have objected to the mutation so done three years later cannot be considered as sufficient for a contrary interpretation of the agreement dated 29.04.1971…”

“In the facts of the present case, a debtor and creditor relationship stands clearly established and hardly needs further elucidation.”

There was no dissenting opinion in the judgment. Both judges concurred on the decision.

Key Takeaways

• The presence of a debtor-creditor relationship is a key factor in determining whether a transaction is a mortgage by conditional sale or a sale with an option to repurchase.
• The financial condition of the parties can influence the interpretation of the agreement.
• The limitation period for redemption of a mortgage is 30 years under Article 61(a) of the Limitation Act, 1963.
• The conduct of the parties, including their actions after the agreement, is relevant but not conclusive in determining the nature of the transaction.
• Agriculturists are less likely to dispose of their land easily for credit purchases.

Directions

No specific directions were given by the Supreme Court in this case.

Specific Amendments Analysis

Not Applicable.

Development of Law

The ratio decidendi of this case is that the agreement was a mortgage by conditional sale, based on the presence of a debtor-creditor relationship, the financial condition of the plaintiffs, and the recitals in the agreement. The judgment does not change the previous position of law but clarifies the application of Section 58(c) of the Transfer of Property Act, 1882.

Conclusion

The Supreme Court dismissed the appeal, affirming the High Court’s decision that the agreement was a mortgage by conditional sale. The Court emphasized the importance of the debtor-creditor relationship and the financial circumstances of the parties in determining the true nature of the transaction. This judgment clarifies the distinction between a mortgage by conditional sale and a sale with an option to repurchase, providing guidance for future cases involving similar property transactions.