LEGAL ISSUE: Whether a mortgage deed with a clause converting it into a sale upon default of payment is a mortgage by conditional sale or a simple mortgage. CASE TYPE: Property Law. Case Name: Leela Agrawal vs. Sarkar & Anr. Judgment Date: November 19, 2024
Introduction
Date of the Judgment: November 19, 2024
Citation: 2024 INSC 946
Judges: Justice Vikram Nath and Justice Prasanna B. Varale
Can a mortgage agreement that includes a clause converting it into a sale upon failure to repay the loan be considered a valid sale? The Supreme Court of India recently addressed this critical question in a property dispute, clarifying the difference between a simple mortgage and a mortgage by conditional sale. The case revolves around a disagreement over a piece of agricultural land, where the mortgagor failed to repay the loan within the stipulated time, leading the mortgagee to claim absolute ownership. The judgment was delivered by a two-judge bench comprising Justice Vikram Nath and Justice Prasanna B. Varale.
Case Background
The case involves a dispute over 2 acres of agricultural land in Manendragarh, Chhattisgarh. The plaintiff, who owned the land, mortgaged it to the defendant in 1990 for ₹75,000. The mortgage deed, registered on October 17, 1990, included a clause stating that if the plaintiff failed to repay ₹1,20,000 (principal, interest, and expenses) within three years, the mortgage would convert into an absolute sale. The plaintiff attempted to redeem the mortgage in 1993 by offering ₹1,20,000, but the defendant refused, claiming ownership due to the plaintiff’s failure to repay within the three-year period. Consequently, the plaintiff filed a suit seeking redemption of the mortgage and a declaration that the defendant’s claim of ownership was invalid.
Timeline
| Date | Event |
|---|---|
| 1990 | Plaintiff mortgaged the suit land to the defendant for ₹75,000. |
| October 17, 1990 | Mortgage deed was executed and registered. |
| 1993 | Plaintiff attempted to redeem the mortgage by offering ₹1,20,000, which was refused by the defendant. |
| 2001 | Plaintiff filed Civil Suit No. 26-A/2001 seeking redemption of the mortgage. |
| November 14, 2003 | Trial Court decreed the suit in favor of the plaintiff. |
| 2004 | Defendant filed First Appeal No. 28 of 2004 before the High Court of Chhattisgarh. |
| September 6, 2018 | High Court dismissed the appeal, affirming the Trial Court’s decision. |
| 2018 | Defendant filed Review Petition No. 222 of 2018 before the High Court. |
| January 30, 2019 | High Court dismissed the review petition. |
| November 19, 2024 | Supreme Court allowed the defendant’s appeal and dismissed the plaintiff’s suit. |
Course of Proceedings
The Trial Court ruled in favor of the plaintiff on November 14, 2003, stating that the clause converting the mortgage into a sale was a clog on the equity of redemption. The court allowed the plaintiff to redeem the mortgage by paying ₹1,20,000, which was deposited with the court. The defendant appealed to the High Court of Chhattisgarh, which dismissed the appeal on September 6, 2018, upholding the Trial Court’s decision. A subsequent review petition filed by the defendant was also dismissed on January 30, 2019. The defendant then appealed to the Supreme Court.
Legal Framework
The case primarily revolves around the interpretation of Section 58 of the Transfer of Property Act, 1882, specifically clauses (b) and (c). Section 58(b) defines a simple mortgage, while Section 58(c) defines a mortgage by conditional sale. The court also considered Section 165 of the Chhattisgarh Land Revenue Code, 1959, which restricts the transfer of agricultural land under certain conditions. Section 58(c) of the Transfer of Property Act, 1882, is reproduced below:
“Section 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 affect the sale.”
Arguments
Arguments for the Defendant (Appellant):
- The mortgage deed was a mortgage by conditional sale under Section 58(c) of the Transfer of Property Act, 1882, not a simple mortgage under Section 58(b).
- The deed stipulated that if the plaintiff failed to repay the amount within three years, the mortgage would convert into an absolute sale.
- The plaintiff failed to repay within the agreed period, and thus the defendant became the rightful owner.
- The plaintiff did not personally appear to testify, and her husband’s testimony was insufficient.
- Section 165 of the Chhattisgarh Land Revenue Code, 1959, does not apply as the land is not agricultural.
- The suit should be dismissed for not seeking consequential relief of possession under Section 34 of the Specific Relief Act, 1963.
Arguments for the Plaintiff (Respondent):
- The mortgage was a simple mortgage, and the clause converting it into a sale was a clog on the equity of redemption.
- The plaintiff remained in possession of the land, indicating it was not a conditional sale.
- The exorbitant interest rate of 4% per month was unconscionable.
- The plaintiff’s husband had personal knowledge of the transaction and was competent to testify.
- Section 165 of the Chhattisgarh Land Revenue Code, 1959, applies, rendering the mortgage invalid.
| Defendant’s Submissions | Plaintiff’s Submissions |
|---|---|
| Mortgage was a conditional sale under Section 58(c) of the Transfer of Property Act, 1882. | Mortgage was a simple mortgage; conversion clause was a clog on equity of redemption. |
| Failure to repay within three years converted the mortgage to an absolute sale. | Plaintiff remained in possession, indicating it was not a conditional sale. |
| Plaintiff did not personally testify, weakening her case. | Plaintiff’s husband had personal knowledge and was competent to testify. |
| Section 165 of the Chhattisgarh Land Revenue Code, 1959, does not apply as land is not agricultural. | Section 165 of the Chhattisgarh Land Revenue Code, 1959, applies, making the mortgage invalid. |
| Suit should be dismissed for not seeking consequential relief of possession. | Exorbitant interest rate of 4% per month was unconscionable. |
Issues Framed by the Supreme Court
The Supreme Court framed the following issue for determination:
- Whether the mortgage deed dated 17.10.1990 constitutes a mortgage by conditional sale under Section 58(c) of the Transfer of Property Act, 1882, and whether the plaintiff is entitled to redeem the mortgage.
Treatment of the Issue by the Court
The following table demonstrates how the Court decided the issue:
| Issue | Court’s Decision | Brief Reasons |
|---|---|---|
| Whether the mortgage deed was a mortgage by conditional sale under Section 58(c) of the Transfer of Property Act, 1882. | Yes, it was a mortgage by conditional sale. | The deed included an ostensible sale with a condition that it would become absolute upon default of payment within a stipulated time, satisfying all ingredients of Section 58(c). The condition was embodied in the same document. |
| Whether the plaintiff is entitled to redeem the mortgage. | No, the plaintiff is not entitled to redeem the mortgage. | The plaintiff failed to repay the mortgage amount within the stipulated period. The permissive possession of the land by the plaintiff does not negate the nature of the transaction. |
Authorities
The Court considered the following legal provisions:
- Section 58(b) of the Transfer of Property Act, 1882: Defines a simple mortgage.
- Section 58(c) of the Transfer of Property Act, 1882: Defines a mortgage by conditional sale.
- Section 165 of the Chhattisgarh Land Revenue Code, 1959: Restricts the transfer of agricultural land under certain conditions.
- Section 34 of the Specific Relief Act, 1963: Relates to the maintainability of a suit for declaration without seeking consequential relief.
Authorities Considered by the Court
| Authority | How it was Considered |
|---|---|
| Section 58(c) of the Transfer of Property Act, 1882 | The court interpreted and applied this provision to determine that the mortgage deed was a mortgage by conditional sale. |
| Section 165 of the Chhattisgarh Land Revenue Code, 1959 | The court held that this provision was not applicable because the plaintiff failed to prove that the land was agricultural and that she was left with less than 10 acres of unencumbered land after the mortgage. |
| Section 34 of the Specific Relief Act, 1963 | The court did not explicitly rule on this provision, but noted that the plaintiff did not seek consequential relief of possession. |
Judgment
How each submission made by the Parties was treated by the Court?
| Submission | Court’s Treatment |
|---|---|
| Defendant’s submission that the mortgage was a conditional sale under Section 58(c) of the Transfer of Property Act, 1882. | Accepted. The court found that the mortgage deed satisfied all the ingredients of a mortgage by conditional sale. |
| Plaintiff’s submission that the mortgage was a simple mortgage and the conversion clause was a clog on the equity of redemption. | Rejected. The court held that the clause was a valid condition of a mortgage by conditional sale. |
| Plaintiff’s submission that the plaintiff remained in possession of the land. | The court acknowledged the plaintiff’s possession but noted it was permissive and did not negate the nature of the transaction as a mortgage by conditional sale. |
| Plaintiff’s submission that Section 165 of the Chhattisgarh Land Revenue Code, 1959, applies. | Rejected. The court found that the plaintiff failed to prove that the land was agricultural and that she was left with less than 10 acres of unencumbered land after the mortgage. |
| Defendant’s submission that the plaintiff did not seek consequential relief of possession. | The court did not explicitly rule on this point but noted the plaintiff’s failure to seek possession. |
How each authority was viewed by the Court?
- The court interpreted and applied Section 58(c) of the Transfer of Property Act, 1882 to determine that the mortgage deed was a mortgage by conditional sale.
- The court held that Section 165 of the Chhattisgarh Land Revenue Code, 1959 was not applicable due to lack of evidence.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the explicit terms of the mortgage deed, which clearly indicated a mortgage by conditional sale. The court emphasized that the condition converting the mortgage into an absolute sale upon default was valid and enforceable. The court also noted that the plaintiff failed to repay the mortgage amount within the stipulated period and did not provide credible evidence of any attempt to do so. The permissive possession of the land by the plaintiff was not considered sufficient to negate the nature of the transaction. The court also highlighted the plaintiff’s failure to testify personally, which undermined her case. The court also found that the applicability of Section 165 of the Chhattisgarh Land Revenue Code, 1959, was not established.
| Sentiment | Percentage |
|---|---|
| Terms of the mortgage deed | 40% |
| Failure to repay within stipulated time | 30% |
| Permissive possession | 15% |
| Plaintiff’s failure to testify | 10% |
| Inapplicability of Section 165 of the Chhattisgarh Land Revenue Code, 1959 | 5% |
Fact:Law Ratio
| Category | Percentage |
|---|---|
| Fact | 40% |
| Law | 60% |
Logical Reasoning:
The court’s reasoning was based on a thorough analysis of the mortgage deed, the conduct of the parties, and the relevant legal provisions. The court found that all the essential ingredients of a mortgage by conditional sale under Section 58(c) of the Transfer of Property Act, 1882, were satisfied. The court rejected the plaintiff’s argument that the clause converting the mortgage into a sale was a clog on the equity of redemption, holding that it was a valid condition. The court also rejected the argument that the plaintiff’s possession of the land negated the nature of the transaction, as the possession was permissive. The court emphasized the importance of adhering to the explicit terms of the registered mortgage deed. The court also considered the fact that the plaintiff failed to testify personally, which weakened her case. The court also found that the plaintiff failed to prove that the land was agricultural and that she was left with less than 10 acres of unencumbered land after the mortgage, making Section 165 of the Chhattisgarh Land Revenue Code, 1959, inapplicable.
The Supreme Court considered the argument that the plaintiff’s continued possession of the land meant that the mortgage was not a conditional sale. However, the court rejected this argument, stating that the possession was permissive and did not negate the nature of the transaction. The court also considered the argument that the clause converting the mortgage into a sale was a clog on the equity of redemption. However, the court rejected this argument, holding that the clause was a valid condition of a mortgage by conditional sale. The court also considered the argument that Section 165 of the Chhattisgarh Land Revenue Code, 1959, applied to the case. However, the court rejected this argument, finding that the plaintiff failed to prove that the land was agricultural and that she was left with less than 10 acres of unencumbered land after the mortgage. The court concluded that the mortgage deed satisfied all the ingredients of a mortgage by conditional sale under Section 58(c) of the Transfer of Property Act, 1882, and that the plaintiff was not entitled to redeem the mortgage.
“The mortgage deed indicates that the mortgagor agreed to mortgage her land to the mortgagee for a sum of ₹75,000 due to personal financial needs.”
“The use of the term “mortgage with condition to sell” and references to the mortgagee as “mortgagee with condition purchaser” indicate that the mortgagor ostensibly sold the property to the mortgagee, satisfying the first ingredient.”
“The permissive possession granted by the defendant to the plaintiff was a practical arrangement, given that the plaintiff was already residing on the land. This arrangement does not confer any additional rights upon the plaintiff beyond those specified in the mortgage deed.”
Key Takeaways
- A mortgage deed that includes a clause converting it into a sale upon default of payment can be considered a valid mortgage by conditional sale under Section 58(c) of the Transfer of Property Act, 1882.
- Permissive possession of the mortgaged property by the mortgagor does not negate the nature of the transaction as a mortgage by conditional sale.
- The terms of a registered mortgage deed are crucial in determining the nature of the transaction.
- Mortgagors must adhere to the stipulated repayment terms to avoid losing their property.
Directions
The Trial Court was directed to refund the entire amount deposited by the plaintiff, along with accrued interest, since the date of deposit.
Specific Amendments Analysis
N/A
Development of Law
The ratio decidendi of this case is that a mortgage deed that includes a clause converting it into a sale upon default of payment can be considered a valid mortgage by conditional sale under Section 58(c) of the Transfer of Property Act, 1882, provided that the condition is embodied in the same document. This judgment clarifies the distinction between a simple mortgage and a mortgage by conditional sale, emphasizing the importance of the explicit terms of the mortgage deed. The court’s decision reinforces the principle that parties are bound by the terms of their agreements and that permissive possession does not alter the nature of a transaction that is clearly defined in a registered document.
Conclusion
The Supreme Court allowed the defendant’s appeal, setting aside the judgments of the High Court and the Trial Court. The Court held that the mortgage deed was a mortgage by conditional sale under Section 58(c) of the Transfer of Property Act, 1882, and that the plaintiff was not entitled to redeem the mortgage. The Court emphasized the importance of the explicit terms of the mortgage deed and the fact that the plaintiff failed to repay the mortgage amount within the stipulated period. The judgment clarifies the legal position on mortgages by conditional sale and serves as a reminder that parties are bound by the terms of their agreements.
Category
Parent Category: Transfer of Property Act, 1882
Child Category: Section 58, Transfer of Property Act, 1882
Child Category: Mortgage by Conditional Sale
FAQ
Q: What is a mortgage by conditional sale?
A: A mortgage by conditional sale is a transaction where the mortgagor ostensibly sells the property to the mortgagee with a condition that the sale will become absolute if the mortgagor fails to repay the loan within a specified time.
Q: What is the difference between a simple mortgage and a mortgage by conditional sale?
A: In a simple mortgage, the mortgagor does not transfer ownership of the property to the mortgagee. In a mortgage by conditional sale, the mortgagor ostensibly sells the property to the mortgagee with a condition that the sale will become absolute if the mortgagor fails to repay the loan.
Q: What happens if I fail to repay my mortgage within the stipulated time in a mortgage by conditional sale?
A: If you fail to repay the mortgage within the stipulated time, the sale will become absolute, and you will lose ownership of the property.
Q: Does possession of the property by the mortgagor affect the nature of the transaction?
A: No, if the possession is permissive, it does not change the nature of the transaction if the mortgage deed clearly specifies a mortgage by conditional sale.
Q: What should I do if I have a mortgage by conditional sale?
A: You should carefully review the terms of your mortgage deed and ensure that you repay the loan within the stipulated time to avoid losing your property.
Source: Leela Agrawal vs. Sarkar & Anr.