Supreme Court Upholds Mortgage by Conditional Sale Despite Separate Agreement: Atul Chandra Das vs. Rabindra Nath Bhattacharya (2019)

Introduction

Date of the Judgment: April 4, 2019

Citation: 2019 INSC 331

Judges: Ashok Bhushan, J., K.M. Joseph, J.

Can a sale be considered a mortgage if the agreement to re-transfer the property is not in the sale deed itself but in a separate document? The Supreme Court of India addressed this question in a case concerning a property dispute in West Bengal. The core issue revolved around whether a transaction should be classified as a mortgage by conditional sale, even when the condition for re-transfer was not included in the original sale deed but in a separate agreement. This case highlights the interplay between the Transfer of Property Act, 1882, and state-specific money-lending laws. The judgment was delivered by a two-judge bench consisting of Justice Ashok Bhushan and Justice K.M. Joseph, with Justice K.M. Joseph authoring the opinion.

Case Background

The dispute began with a property sale in 1959. The Bhattacharyas, the original owners, sold the property to Bholanath Auddy on November 28, 1959. Simultaneously, Bholanath created a tenancy in favor of the Bhattacharyas with a monthly rent of Rs. 50. It was agreed that the Bhattacharyas would vacate the premises after two years. Subsequently, on August 15, 1960, Bholanath entered into an agreement to sell the property to Atul Chandra Das for Rs. 9,000. When Bholanath failed to fulfill this agreement, Atul Chandra Das filed a suit for specific performance (O.S. No. 171 of 1962), which was decreed in his favor on November 30, 1977. Following the decree, a sale deed was executed in favor of Atul Chandra Das. He then sought to evict the Bhattacharyas, claiming to be the new landlord.

The Bhattacharyas, however, claimed that the initial sale to Bholanath was not a genuine sale but a mortgage by conditional sale. They argued that they had borrowed Rs. 8,000 from Bholanath on September 28, 1959, and had mortgaged the property to secure the loan. They contended that an agreement for sale was entered into on December 7, 1959, with nominees of the mortgagors, stipulating a re-transfer of the property within two years for Rs. 10,000. They alleged that the agreement between Bholanath and Atul Chandra Das was collusive and fraudulent. The Bhattacharyas filed a suit (O.S. No. 1271 of 1980) seeking a declaration that the initial sale was a mortgage and that they had the right to redeem the property.

Timeline

Course of Proceedings

The trial court ruled in favor of the Bhattacharyas, holding that the initial sale was indeed a mortgage by conditional sale and dismissed the suit filed by Atul Chandra Das. The High Court of Calcutta upheld this decision, dismissing the first appeals filed by Atul Chandra Das. This led to the current appeal before the Supreme Court.

Legal Framework

The case primarily revolves around the interpretation of Section 58(c) of the Transfer of Property Act, 1882, and Section 37(a) of the Bengal Money-Lenders Act, 1940.

Section 58(c) of the Transfer of Property Act, 1882, defines a mortgage by conditional sale:

“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 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 proviso to Section 58(c) states that a transaction can only be considered a mortgage if the condition for re-transfer is included in the sale deed itself.

Section 37(a) of the Bengal Money-Lenders Act, 1940, provides an exception to this rule:

“37(a) Saving as to mortgage by conditional sale. – In the case where any loan is secured by a mortgage and the mortgagor ostensible sells the mortgaged property on any of the conditions specified in sub -section (c) of section 58 of the Transfer of Property Act, 1882 (4 of 1882) then, notwithstanding anything to the contrary contained in the proviso to the said sub -section, the transaction shall always be deemed to be a mortgage by a conditional sale and the mortgagee a mortgagee by conditional sale for the purpose of the said sub-section.”

Section 37(a) of the Bengal Money-Lenders Act, 1940, states that even if the condition for re-transfer is in a separate document, the transaction can still be considered a mortgage by conditional sale.

Arguments

Arguments by the Appellant (Atul Chandra Das):

• The courts below erred in finding the sale of November 28, 1959, to be a mortgage, as the condition for re-transfer was not in the sale deed itself but in a separate agreement dated December 7, 1959. This violates the proviso to Section 58(c) of the Transfer of Property Act, 1882, which mandates that the condition must be in the same document as the sale.
• The courts wrongly relied on Section 37A of the Bengal Money-Lenders Act, 1940, as the suit filed by the Bhattacharyas was not under this Act and no account was demanded within the meaning of the Act. Reliance was placed on the judgment of the Single Bench in Swarnalata Tat v. Chandni Charan Dey and Ors. AIR 1984 Calcutta page 130.
• Section 37(A) of the Bengal Money-Lenders Act, 1940, is repugnant to the central law, Section 58(c) of the Transfer of Property Act, 1882.

Arguments by the Respondent (Bhattacharyas):

• The sale deed dated November 27, 1959, did not transfer any title to Bholanath, and therefore, Bholanath could not transfer any title to Atul Chandra Das.
• The suit for specific performance was collusive.
• The transaction was a mortgage by conditional sale, and they were entitled to redeem the property.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issues addressed by the Court were:

1. Whether the transaction between the Bhattacharyas and Bholanath was a mortgage by conditional sale, despite the condition for re-transfer being in a separate document.
2. Whether the suit filed by the Bhattacharyas was maintainable under the Bengal Money-Lenders Act, 1940.
3. Whether Section 37(a) of the Bengal Money-Lenders Act, 1940, is repugnant to Section 58(c) of the Transfer of Property Act, 1882.

Treatment of the Issue by the Court

Authorities

The Court considered the following legal provisions:

• Section 58(c) of the Transfer of Property Act, 1882: Defines mortgage by conditional sale and requires the condition to be in the same document.
• Section 37(a) of the Bengal Money-Lenders Act, 1940: Overrides the proviso to Section 58(c) of the Transfer of Property Act, 1882, in cases of loans secured by mortgage.
• Section 2(12) of the Bengal Money-Lenders Act, 1940: Defines “loan.”
• Section 2(22) of the Bengal Money-Lenders Act, 1940: Defines “suit to which this Act applies.”
• Section 36 of the Bengal Money-Lenders Act, 1940: Deals with the power of the court to reopen transactions.
• Section 38 of the Bengal Money-Lenders Act, 1940: Enables borrowers to seek a direction for taking accounts.
• Article 254 of the Constitution of India: Deals with inconsistency between laws made by Parliament and laws made by the Legislatures of States.

The Court also considered the following case:

Judgment

How each authority was viewed by the Court?

• Section 58(c) of the Transfer of Property Act, 1882: The Court acknowledged that the proviso to this section requires the condition for re-transfer to be in the same document as the sale deed. However, it held that this requirement was overridden by Section 37(a) of the Bengal Money-Lenders Act, 1940.
• Section 37(a) of the Bengal Money-Lenders Act, 1940: The Court relied on this section to hold that the transaction was a mortgage by conditional sale, even though the condition for re-transfer was in a separate document.
• Swarnalata Tat v. Chandni Charan Dey and Ors. AIR 1984 Calcutta page 130: The Court distinguished this case, stating that the present case involved a claim for redemption, which was not present in the cited case.
• Article 254 of the Constitution of India: The Court used this provision to hold that Section 37(a) of the Bengal Money-Lenders Act, 1940, would prevail over Section 58(c) of the Transfer of Property Act, 1882, due to Presidential assent.

What weighed in the mind of the Court?

The Supreme Court’s decision was influenced by several factors, including the legislative intent behind Section 37(a) of the Bengal Money-Lenders Act, 1940, the factual circumstances of the case, and the need to protect borrowers from exploitation. The court emphasized that the state legislature had intended to override the proviso to Section 58(c) of the Transfer of Property Act, 1882, by enacting Section 37(a) in the Bengal Money-Lenders Act, 1940. The court also noted that the Bhattacharyas continued to possess the property and pay taxes, and that the market value of the property was significantly higher than the consideration mentioned in the sale deed, indicating that the transaction was indeed a mortgage by conditional sale.

The Court also considered the fact that the suit filed by the Bhattacharyas included reliefs relating to redemption, which is covered under the Bengal Money-Lenders Act, 1940. The court rejected the argument that Section 37(a) of the Bengal Money-Lenders Act, 1940, was repugnant to Section 58(c) of the Transfer of Property Act, 1882, by invoking Article 254(2) of the Constitution, as the state law had received presidential assent.

Logical Reasoning:

The Court’s reasoning was based on a combined reading of Section 58(c) of the Transfer of Property Act, 1882, and Section 37(a) of the Bengal Money-Lenders Act, 1940. The Court held that the State legislature had consciously overridden the proviso to Section 58(c) to protect borrowers. The Court also noted that the Bhattacharyas continued to be in possession of the property and paid taxes, which supported their claim that the transaction was a mortgage by conditional sale.

The Court rejected the argument that the suit filed by the Bhattacharyas was not maintainable under the Bengal Money-Lenders Act, 1940, as the reliefs sought included redemption. The Court also rejected the argument that Section 37(a) was repugnant to Section 58(c), as Article 254(2) of the Constitution saved the provision due to Presidential assent.

The Court quoted the following from the judgment:

“Reading of Section 37(a) brings out the Legislative intent with unambiguous clarity and therefore the High court was right in relying upon Section 37(a) of the State Act to find that though it was by agreement dated 07.12.1959 which is a separate document that condition to make it a mortgage was incorporated it would not make any difference.”

“In this case proceeding on the basis that there is an inconsistency between Section 58(c) of the Transfer of Property Act and Section 37(A) of the State Act, in view of the assent given by the President, the matter falls under Article 254(2). Therefore, despite the inconsistency, Section 37(A) of the State Act will prevail in the State.”

“We have found that the provisions of 37(A) is traceable to the Entry ‘Transfer of Property’ in the Concurrent List and that Article 254(2) saves the provision.”

Key Takeaways

• In West Bengal, a transaction can be deemed a mortgage by conditional sale even if the condition for re-transfer is in a separate document, due to Section 37(a) of the Bengal Money-Lenders Act, 1940.
• State laws can override the proviso to Section 58(c) of the Transfer of Property Act, 1882, if they are enacted to protect borrowers and receive Presidential assent.
• Courts will consider the factual circumstances of the case, such as possession, payment of taxes, and market value of the property, to determine the true nature of the transaction.
• Suits for redemption are covered under the Bengal Money-Lenders Act, 1940.

Directions

No specific directions were given by the Supreme Court in this case. The appeals were dismissed, upholding the decisions of the lower courts.

Development of Law

The ratio decidendi of this case is that Section 37(a) of the Bengal Money-Lenders Act, 1940, overrides the proviso to Section 58(c) of the Transfer of Property Act, 1882, in cases of loans secured by mortgage in West Bengal. This judgment clarifies that a transaction can be considered a mortgage by conditional sale even if the condition for re-transfer is in a separate document, provided the state law permits it and has received Presidential assent. This is a departure from the strict interpretation of Section 58(c) of the Transfer of Property Act, 1882, which requires the condition to be in the same document as the sale deed.

Conclusion

The Supreme Court dismissed the appeals, upholding the High Court’s decision that the transaction was a mortgage by conditional sale. The Court relied on Section 37(a) of the Bengal Money-Lenders Act, 1940, which allows a transaction to be considered a mortgage even if the condition for re-transfer is in a separate document. This judgment reinforces the importance of state-specific laws in property disputes and highlights the protection afforded to borrowers under money-lending legislation.