Supreme Court Clarifies Mortgage vs. Sale with Repurchase Option: Suraj Narain Kapoor vs. Pradeep Kumar (2017)

Date of the Judgment: October 24, 2017
Citation: (2017) INSC 834
Judges: Ranjan Gogoi, J., Navin Sinha, J.
Can a document that includes a clause for repurchase of property be considered a mortgage, or is it simply a sale with an option to buy back? The Supreme Court of India recently addressed this complex question in a case concerning the redemption of a mortgage. The Court had to determine whether a deed was a mortgage by conditional sale or a sale with an option to repurchase. The judgment was delivered by a two-judge bench comprising Justice Ranjan Gogoi and Justice Navin Sinha, with Justice Navin Sinha authoring the opinion.

Case Background

The case revolves around a dispute over a property transaction. The plaintiff, Suraj Narain Kapoor, claimed that a deed executed by him was a mortgage by conditional sale, while the defendants, Pradeep Kumar and others, argued it was a sale with an option to repurchase. The plaintiff sought to redeem the property, claiming his right as a mortgagor. The core dispute centered on the interpretation of the document and the intention of the parties at the time of its execution.

Timeline

Course of Proceedings

The trial court initially decreed the plaintiff’s suit for redemption, holding the document to be a mortgage by conditional sale. The first appellate court affirmed the trial court’s decision. However, the High Court reversed these concurrent findings, holding that the document was a sale with a condition for repurchase. This reversal led the plaintiff to appeal to the Supreme Court.

Legal Framework

The case primarily involves the interpretation of Section 58(c) of the Transfer of Property Act, which defines a mortgage by conditional sale. According to Section 58(c) of the Transfer of Property Act:

“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.”

The Supreme Court also considered the distinction between a mortgage by conditional sale and a sale with an option to repurchase, emphasizing that the true nature of the document depends on the intention of the parties and the recitals in the document.

Arguments

Arguments by the Appellants (Plaintiffs):

• The appellants argued that the High Court erred in reversing the concurrent findings of the trial court and the first appellate court. They contended that the deed (Exhibit-A1) was a mortgage by conditional sale, not a sale deed with an option to repurchase.

• The appellants emphasized that the inclusion of a right to redemption within the same document fulfilled the requirements of Section 58(c) of the Transfer of Property Act, indicating the intention to create a mortgage.

• They argued that the reservation of the right to redemption for only five years was not relevant, as the statutory right to redeem would extend to 30 years.

Arguments by the Respondents (Defendants):

• The respondents submitted that the High Court correctly held the deed to be a sale with a condition for repurchase, not a mortgage by conditional sale. They argued that the recitals in the document were self-explanatory and did not indicate any mortgage or loan.

• They contended that the document did not evidence any relationship of debtor and creditor. The mere presence of an option for repurchase within five years did not automatically make it a mortgage by conditional sale.

• The respondents also pointed out that the suit for redemption was not filed within the stipulated five-year period.

Issues Framed by the Supreme Court

The primary issue before the Supreme Court was:

1. Whether the document (Exhibit-A1) was a mortgage by conditional sale or 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 issues:

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 referred to Bhoju Mandal vs. Debnath Bhagat, 1963 Supp (2) SCR 82* to highlight the distinction between a mortgage by conditional sale and a sale with a condition of re-purchase.
• The Court cited Pandit Chunchun Jha vs. Sheikh Ebadat Ali and another, 1955 SCR 174* to emphasize that each case must be decided based on its own facts and circumstances.
• The Court relied on Tamboli Ramanlal Motilal (Dead) by Lrs. vs. Ghanchi Chimanlal Keshavlal (Dead) by Lrs. and another, 1993 Supp. (1) SCC 295* to support its finding that the absence of a debtor-creditor relationship indicates a sale with an option to repurchase rather than a mortgage.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the absence of any indication of a debtor-creditor relationship in the document. The court emphasized that the document was styled as a sale deed, and the recitals indicated that the vendor was selling the property to raise money, not to secure a loan. The court also noted that the suit for redemption was filed beyond the stipulated five-year period, further supporting its conclusion that the transaction was a sale with an option to repurchase.

Fact:Law Ratio

Logical Reasoning:

The court reasoned that the document did not establish a debtor-creditor relationship, which is a crucial element for a mortgage by conditional sale. The court observed that the vendor was in need of money and sold the property to raise funds, not to secure a loan. The court also noted that the suit for redemption was filed after the five-year period specified in the document, further supporting its conclusion that the transaction was a sale with an option to repurchase.

The court quoted from the judgment:

• “The recitals reveal no reference to any loan taken or mortgage created with regard to any immovable property as security for such loan, much less to discharge any debt.”
• “It does not evince the creation of a debtor and creditor relationship.”
• “On the contrary, the recitals are specific that the vendor was in need of money to run the vehicle purchased by him on hire, and was selling the shop to raise money for the purpose.”

There were no minority opinions in this case, as it was a unanimous decision.

Key Takeaways

• The true nature of a document, whether it is a mortgage by conditional sale or a sale with an option to repurchase, depends on the intention of the parties and the recitals in the document.

• The absence of a debtor-creditor relationship is a key factor in determining that a document is a sale with an option to repurchase, rather than a mortgage by conditional sale.

• The court emphasized that each case must be decided on its own facts and circumstances.

Directions

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

Development of Law

The ratio decidendi of the case is that the absence of a debtor-creditor relationship in a document, along with recitals indicating a sale for raising money, signifies that the document is a sale with an option to repurchase and not a mortgage by conditional sale. This judgment reinforces the established legal principles regarding the interpretation of such documents and does not change the previous positions of law.

Conclusion

The Supreme Court dismissed the appeal, upholding the High Court’s decision that the document was a sale with an option to repurchase. The Court emphasized that the absence of a debtor-creditor relationship and the specific recitals in the document were crucial factors in determining the true nature of the transaction.