Supreme Court Clarifies Mortgage by Conditional Sale: Sopan vs. Syed Nabi (2019)

Date of the Judgment: July 16, 2019
The Supreme Court of India addressed a critical question regarding the interpretation of sale deeds and related agreements in the context of mortgage by conditional sale. The core issue revolved around whether a sale deed, accompanied by a separate agreement for reconveyance, should be construed as a mortgage by conditional sale under Section 58(c) of the Transfer of Property Act, 1882. This case clarifies the legal requirements for a transaction to be considered a mortgage by conditional sale, particularly when the sale and reconveyance agreements are in separate documents. The judgment was delivered by a bench of Justices R. Banumathi and A.S. Bopanna, with Justice A.S. Bopanna authoring the opinion.

Case Background

The case originated from a dispute between Sopan (the defendant) and Syed Nabi (the plaintiff) concerning land in Survey No. 2/A. The plaintiff had taken financial assistance from the defendant over time. On December 10, 1968, the plaintiff executed a registered sale deed in favor of the defendant for the land, with a stated consideration of Rs. 5,000. Simultaneously, a separate agreement was made, where the plaintiff could get the land back by repaying the amount. On August 29, 1969, another agreement was made, acknowledging a total debt of Rs. 7,224, to be repaid by “Velamavasya,” failing which the sale would become absolute. The plaintiff, claiming the transaction was a mortgage, sought to redeem the property, while the defendant argued it was an absolute sale due to non-payment.

Timeline

Course of Proceedings

The Civil Court initially ruled in favor of the plaintiff, decreeing the suit for redemption of mortgage. The Additional District Judge at Latur, in the first appeal, reversed this decision, holding that the transaction was an absolute sale. The High Court of Judicature at Bombay, in the second appeal, overturned the lower appellate court’s decision, favoring the plaintiff and decreeing the suit. The defendant then appealed to the Supreme Court.

Legal Framework

The Supreme Court analyzed the case based on Section 58(c) of the Transfer of Property Act, 1882, which defines a mortgage by conditional sale. The provision states:

“58(c) Mortgage by conditional sale. 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.”

The key aspect of this provision, as emphasized by the court, is the proviso which mandates that the condition for the sale to be considered a mortgage must be included in the sale document itself.

Arguments

Plaintiff’s Arguments:

• The plaintiff contended that the sale deed should be construed as a mortgage by conditional sale because of the contemporaneous agreement (Exhibit 24) and the subsequent agreement (Exhibit 14/1), which indicated a debtor-creditor relationship.
• The plaintiff argued that the agreement for reconveyance established that the transaction was not an outright sale but a mortgage.
• The plaintiff relied on P.L. Bapuswami vs. N. Pattay Gounder (1966) 2 SCR 918 to support the argument that the transaction should be construed as a mortgage.
• The plaintiff also referred to Pandit Chunchun Jha vs. Sheikh Ebadat Ali (1955) 1 SCR 174 to contend that the subsequent document would rebut the presumption of an absolute sale.

Defendant’s Arguments:

• The defendant argued that the sale deed was an absolute sale and not a mortgage.
• The defendant contended that the agreement for reconveyance was a separate transaction and did not convert the sale deed into a mortgage.
• The defendant pointed out that the plaintiff failed to repay the amount within the stipulated time, making the sale absolute.
• The defendant highlighted that the revenue entries were changed in his name, indicating an absolute sale.

Issues Framed by the Supreme Court

The primary issue before the Supreme Court was:

1. Whether the sale deed dated 10th December, 1968, along with the contemporaneous agreement and the subsequent agreement, should be construed as a mortgage by conditional sale under Section 58(c) of the Transfer of Property Act, 1882.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The court distinguished P.L. Bapuswami vs. N. Pattay Gounder (1966) 2 SCR 918* and Pandit Chunchun Jha vs. Sheikh Ebadat Ali (1955) 1 SCR 174* stating that the facts of those cases were different and did not support the plaintiff’s claim.
• The court followed Dharmaji Shankar Shinde & Ors. vs. Rajaram Sripad Joshi (D) Lrs. and Ors. (2019) 6 SCALE 682* which clarified that a sale with a mere condition of retransfer is not a mortgage unless the condition is in the sale deed itself.
• The court distinguished Bhimabai Mahadeo Kambekar vs. Arthur Import and Export Co. (2019) 3 SCC 191* stating that while mutation entries do not create title, they are relevant to the context of the case.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the strict interpretation of Section 58(c) of the Transfer of Property Act, 1882, particularly its proviso. The court emphasized that for a transaction to be considered a mortgage by conditional sale, the condition must be explicitly stated within the sale document itself. The court also considered the factual matrix of the case, noting that the plaintiff had not repaid the amount within the agreed timeframe, further strengthening the defendant’s claim of an absolute sale.

The court’s reasoning was as follows:

The court rejected the plaintiff’s argument that the separate agreement for reconveyance could convert the sale deed into a mortgage. The court emphasized that the proviso to Section 58(c) of the Transfer of Property Act, 1882, requires that the condition for mortgage be included in the document that effects the sale. Since the sale deed did not contain such a condition, it could not be considered a mortgage by conditional sale.

The court observed that the sale deed (Exhibit 23) clearly indicated an absolute sale, with the plaintiff assuring the defendant of ancestral possession. The subsequent agreements, while indicating an intention for reconveyance, did not alter the nature of the sale deed.

The court also noted that the plaintiff’s failure to repay the amount by the agreed date further solidified the defendant’s claim of an absolute sale. The court also considered the mutation proceedings, where the revenue entries were changed in the defendant’s name, as a relevant circumstance indicating an absolute sale.

The court emphasized that if the plaintiff wanted to enforce the agreement for reconveyance, the proper remedy was to file a suit for specific performance, not for redemption of mortgage.

The Supreme Court quoted from the judgment:

• “From a perusal of the proviso to Section 58(c) as emphasised, it indicates that no transaction shall be deemed to be a mortgage unless the condition is embodied in the document which effects or purports to effect the sale.”
• “Therefore, any recital relating to mortgage or the transaction being in the nature of a conditional sale should be an intrinsic part of the very sale deed which will be the subject matter.”
• “At best the said agreement (Exh.24) can only be treated as an agreement whereby the defendant had agreed to reconvey the property subject to the repayment being made as provided thereunder.”

There were no dissenting opinions in this case.

Key Takeaways

• A sale deed, accompanied by a separate agreement for reconveyance, is not automatically considered a mortgage by conditional sale.
• The condition for a mortgage by conditional sale must be explicitly stated in the sale deed itself, as per the proviso to Section 58(c) of the Transfer of Property Act, 1882.
• Separate agreements for reconveyance are treated as independent contracts, and the remedy for their enforcement lies in a suit for specific performance, not redemption of mortgage.
• Failure to repay the amount within the agreed time frame can lead to the sale becoming absolute, extinguishing the right of reconveyance.

Directions

The Supreme Court set aside the judgment of the High Court and restored the judgment of the lower appellate court, dismissing the plaintiff’s suit for redemption of mortgage.

Development of Law

The ratio decidendi of this case is that for a transaction to be considered a mortgage by conditional sale, the condition must be embodied in the document which effects or purports to effect the sale. This clarifies the interpretation of Section 58(c) of the Transfer of Property Act, 1882, and reinforces the requirement for the condition to be included in the sale deed itself. This judgment reiterates the existing legal position and emphasizes the importance of adhering to the statutory requirements for a transaction to be considered a mortgage by conditional sale.

Conclusion

The Supreme Court’s judgment in Sopan vs. Syed Nabi clarifies that a sale deed and a separate agreement for reconveyance do not automatically constitute a mortgage by conditional sale. The condition for a mortgage must be explicitly included in the sale deed itself. This judgment reinforces the importance of adhering to the statutory requirements of Section 58(c) of the Transfer of Property Act, 1882, and provides clarity on the distinction between a mortgage by conditional sale and an absolute sale with an agreement for reconveyance.