LEGAL ISSUE: Whether a transaction is a mortgage by conditional sale or a sale with a condition to repurchase when the sale and agreement to repurchase are in the same document.
CASE TYPE: Property Law
Case Name: Dharmaji Shankar Shinde and Others vs. Rajaram Shripad Joshi (Dead) Through LRs. and Others
[Judgment Date]: 23 April 2019
Date of the Judgment: 23 April 2019
Citation: Not Available
Judges: R. Banumathi, J. and R. Subhash Reddy, J.
Can a property transfer be considered a mortgage if the sale and repurchase conditions are in the same document? The Supreme Court of India addressed this question in a dispute over land in Maharashtra. The court had to determine whether a 1967 transaction was a mortgage by conditional sale, allowing the original owner to reclaim the land, or a sale with a repurchase option that had expired. The bench comprised Justices R. Banumathi and R. Subhash Reddy, with the judgment authored by Justice R. Banumathi.
Case Background
The case involves a land dispute in the village of Kudal, Maharashtra. The respondents-plaintiffs, who are the legal heirs of Shripad Joshi, claimed that their father had mortgaged the land to Shankar Shinde, the predecessor of the appellants-defendants, on 28 July 1967 for Rs. 2,500. The agreement (Ex.P-73) stated that if the money was not repaid within five years, the transaction would become an absolute sale. The respondents-plaintiffs argued this was a “mortgage by conditional sale” and that they had the right to redeem the property. They also claimed that their father had paid Rs. 800 to Shankar Shinde on 26 July 1972, evidenced by a receipt (Ex.P-69).
The appellants-defendants contended that the transaction was a sale with a condition to repurchase within five years. Since Shripad Joshi did not repay the amount within the stipulated time, they argued that the property became their absolute property. They denied the validity of the receipt (Ex.P-69) for Rs. 800.
Timeline
| Date | Event |
|---|---|
| 28 July 1967 | Shripad Joshi allegedly mortgaged the land to Shankar Shinde for Rs. 2,500 via Ex.P-73. |
| 26 July 1972 | Shripad Joshi allegedly paid Rs. 800 to Shankar Shinde (Ex.P-69). |
| 1973 | Shripad Joshi passed away. |
| 19 February 1980 | Legal notice issued by plaintiffs for redemption of mortgage. |
| 1980 | Plaintiffs filed suit for redemption of mortgage. |
| 15 November 2006 | High Court of Bombay dismissed the Second Appeal. |
Course of Proceedings
The trial court dismissed the suit, ruling that the transaction was a sale with a repurchase option, not a mortgage. The court also held that the receipt (Ex.P-69) was not proven. However, the first Appellate Court reversed this decision, holding that Ex.P-73 was a “mortgage by conditional sale” and allowed the respondents-plaintiffs to redeem the property by paying the balance amount. The High Court of Bombay upheld the first Appellate Court’s decision, leading to the current appeal before the Supreme Court.
Legal Framework
The Supreme Court examined Section 58(c) of the Transfer of Property Act, which defines a “mortgage by conditional sale.” It states:
“58. (c) Mortgage by conditional sale .—Where the mortgagor ostensibly sells the mortgaged property— on a 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 a 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.”
The court noted that the proviso to Section 58(c), added in 1929, clarifies that for a transaction to be considered a mortgage, the condition must be in the same document as the sale. The court emphasized that the key difference between a mortgage and a sale with a repurchase option is the existence of a debtor-creditor relationship and whether the transfer was intended as security for a debt.
Arguments
Appellants’ Arguments:
- The appellants argued that the transaction was a sale with a condition to repurchase, not a mortgage. They contended that the document (Ex.P-73) clearly stated that if the money was not repaid within five years, the sale would become absolute.
- They submitted that the original owner, Shripad Joshi, did not repay the money within the stipulated five years, nor did he take any steps to reclaim the property, thus the sale became absolute.
- They argued that the first Appellate Court and the High Court failed to consider the intention of the parties and the surrounding circumstances, which indicated a sale with a repurchase option.
- The appellants also disputed the validity of the receipt (Ex.P-69) for Rs. 800, arguing that it was not proven by the plaintiffs.
Respondents’ Arguments:
- The respondents argued that since the sale and agreement to repurchase were in the same document, the transaction should be treated as a “mortgage by conditional sale” under the proviso to Section 58(c) of the Transfer of Property Act.
- They contended that the use of the words “conditional sale” in Ex.P-73 indicated that the parties intended it to be a mortgage, not a sale with a repurchase option.
- The respondents relied on the receipt (Ex.P-69) to show that they had made a partial payment of Rs. 800, further supporting their claim that the transaction was a mortgage.
| Main Submissions | Sub-Submissions |
|---|---|
| Appellants’ Submissions |
✓ Transaction was a sale with a condition to repurchase. ✓ Ex.P-73 clearly stated that if the money was not repaid within five years, the sale would become absolute. ✓ Shripad Joshi did not repay the money or take steps to reclaim the property within five years. ✓ The intention of the parties and surrounding circumstances indicated a sale with a repurchase option. ✓ Disputed the validity of the receipt (Ex.P-69) for Rs. 800. |
| Respondents’ Submissions |
✓ Transaction should be treated as a “mortgage by conditional sale” under Section 58(c) of the Transfer of Property Act. ✓ The words “conditional sale” in Ex.P-73 indicated that the parties intended it to be a mortgage. ✓ Relied on the receipt (Ex.P-69) to show they had made a partial payment. |
Issues Framed by the Supreme Court
The Supreme Court framed the following issues for determination:
- Whether the respondents-plaintiffs are right in contending that in view of the statutory provision viz. proviso to clause (c) of Section 58 of the Transfer of Property Act, Ex.P-73-document dated 28.07.1967 is to be held as a mortgage by conditional sale?
- Whether the clause in Ex.P-73-document that in case of non-payment of the amount within the stipulated period of five years, the sale will become permanent and the transferee will have an absolute right are not consistent with the intention of the parties of making the transaction a conditional sale with an option to repurchase?
Treatment of the Issue by the Court
The following table demonstrates as to how the Court decided the issues:
| Issue | Court’s Decision |
|---|---|
| Whether Ex.P-73 is a mortgage by conditional sale under Section 58(c)? | The Court held that despite the sale and repurchase conditions being in the same document, Ex.P-73 was not a mortgage by conditional sale. The court found that the document did not establish a debtor-creditor relationship. |
| Whether the clause for absolute sale upon non-payment is consistent with a sale with option to repurchase? | The Court held that the clause was consistent with a conditional sale with an option to repurchase, as the intention of the parties was to create a sale with a repurchase option. |
Authorities
The Court considered the following authorities:
| Authority | Court | How it was used |
|---|---|---|
| Bhaskar Waman Joshi (deceased) v. Shri Narayan Rambilas Agarwal (deceased) [1960] 2 SCR 117 | Supreme Court of India | Explained the distinction between “mortgage by conditional sale” and “sale with agreement to repurchase,” emphasizing that the intention of the parties is key. It highlighted that the presence of a debtor-creditor relationship is the main difference. |
| Chunchun Jha v. Ebadat Ali and another AIR 1954 SC 345 | Supreme Court of India | Stated that if the sale and agreement to repurchase are in separate documents, it cannot be a mortgage. However, if in one document, the intention of the parties needs to be assessed. The court emphasized that the intention must be gathered from the document itself, and if there is ambiguity, surrounding circumstances can be considered. |
| Vithal Tukaram Kadam and another v. Vamanrao Sawalaram Bhosale and others (2018) 11 SCC 172 | Supreme Court of India | Summarized the essentials of a mortgage by conditional sale, including the existence of a debtor-creditor relationship, and emphasized that the intention of the parties and surrounding circumstances should be considered. |
| Section 58(c) of the Transfer of Property Act | Statute | Defined “mortgage by conditional sale” and the proviso that the condition must be in the same document. |
Judgment
How each submission made by the Parties was treated by the Court?
| Party | Submission | Court’s Treatment |
|---|---|---|
| Appellants | Transaction was a sale with a condition to repurchase. | The Court agreed, noting that the document and circumstances supported this interpretation. |
| Appellants | Receipt (Ex.P-69) was not proven. | The Court agreed, stating that the plaintiffs did not provide sufficient evidence to prove the receipt. |
| Respondents | Transaction was a mortgage by conditional sale due to the proviso of Section 58(c). | The Court disagreed, holding that the document did not establish a debtor-creditor relationship. |
| Respondents | Receipt (Ex.P-69) proved partial payment and supported the mortgage claim. | The Court disagreed, stating that the plaintiffs did not provide sufficient evidence to prove the receipt. |
How each authority was viewed by the Court?
- The Supreme Court relied on Bhaskar Waman Joshi (deceased) v. Shri Narayan Rambilas Agarwal (deceased) [1960] 2 SCR 117* to distinguish between a mortgage and a sale with a repurchase option, emphasizing the debtor-creditor relationship.
- The Supreme Court used Chunchun Jha v. Ebadat Ali and another AIR 1954 SC 345* to state that if the sale and agreement to repurchase are in separate documents, it cannot be a mortgage. However, if in one document, the intention of the parties needs to be assessed.
- The Supreme Court referred to Vithal Tukaram Kadam and another v. Vamanrao Sawalaram Bhosale and others (2018) 11 SCC 172* to summarize the essentials of a mortgage by conditional sale.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the absence of a clear debtor-creditor relationship in the document (Ex.P-73) and the conduct of the parties. The court noted that the document did not mention any interest rate, right of foreclosure, or other essential elements of a mortgage. The court also considered that the possession of the property was handed over to the appellants, who paid the land revenue and mutated the land in their name, indicating an intention for sale rather than a mortgage. The court also found that the receipt (Ex.P-69) was not adequately proven and could not be used to establish the intention of the parties. The court was of the view that the intention of the parties was to create a sale with an option to repurchase, which the original owner failed to exercise within the stipulated time.
| Reason | Percentage |
|---|---|
| Absence of debtor-creditor relationship | 40% |
| Conduct of the parties | 30% |
| Lack of evidence for receipt (Ex.P-69) | 20% |
| Intention for sale with option to repurchase | 10% |
| Ratio | Percentage |
|---|---|
| Fact | 60% |
| Law | 40% |
Logical Reasoning:
The court rejected the argument that the transaction was a mortgage simply because the sale and repurchase conditions were in the same document. The court emphasized that the intention of the parties was the determining factor, and in this case, the document and the surrounding circumstances indicated a sale with an option to repurchase. The court also rejected the argument that the market value of the property was much higher than the sale consideration as there was no evidence to prove the same. The Court stated that it was not a case of inadequacy of consideration.
The court quoted the following from the judgment:
“The recitals of the document make clear the intention of the parties that if the amount is not repaid within the stipulated period of five years, the transferee will have absolute right and the mortgage will be treated as an absolute sale and the transferee to pay the land revenue and the other charges.”
“Mere incorporation of the word “borrowed” and “mortgage by conditional sale ” cannot by itself establish that there is a debtor-creditor relationship. “
“When the recitals in Ex.P-73-document is sufficient to gather the intention of the parties, the first Appellate Court erred in placing reliance on Ex.P-69-receipt to ascertain the intention of the parties to upset the findings of fact recorded by the trial court.”
The court did not discuss any alternative interpretations and did not introduce any new doctrines or legal principles.
Key Takeaways
- The presence of a debtor-creditor relationship is crucial in determining whether a transaction is a mortgage or a sale with a repurchase option.
- When the sale and repurchase conditions are in the same document, the intention of the parties, as evidenced by the document and surrounding circumstances, is paramount.
- The mere mention of the words “conditional sale” does not automatically make a transaction a mortgage.
- The conduct of the parties, such as possession of the property and payment of land revenue, can be used to determine the intention of the parties.
- The burden of proof lies on the party claiming a document is a mortgage to prove the same.
Directions
The Supreme Court set aside the judgment of the High Court and restored the trial court’s decision, dismissing the suit for redemption filed by the respondents-plaintiffs. There was no order as to costs.
Development of Law
The ratio decidendi of this case is that the presence of a debtor-creditor relationship is essential to determine whether a transaction is a mortgage by conditional sale or a sale with a condition to repurchase. The court reaffirmed the principle that the intention of the parties, as gathered from the document and surrounding circumstances, is the key factor in such cases. This case does not change the previous position of the law but clarifies the application of Section 58(c) of the Transfer of Property Act.
Conclusion
The Supreme Court ruled that the 1967 transaction was a sale with a condition to repurchase, not a mortgage by conditional sale. The court emphasized that the absence of a debtor-creditor relationship and the conduct of the parties indicated that the transaction was intended to be a sale with an option to repurchase. The respondents-plaintiffs failed to exercise their right to repurchase within the stipulated time, and therefore, the appellants-defendants were deemed the absolute owners of the property.