Second Appeal No. 189 of 1991

19th April, 2001

Petitioner Counsel: Mr. V.S.TALKUTE,Mr. N.Y.KATKAR
Respondent Counsel: Mr. PRAFULLA B. SHAH

Cases Cited:
A.I.R. 1954 S.C. 345 [Para 5]
Bhaskar Vs. Shrinarayan, AIR 1960 SC 301 [Para 5]
Nana Tukaram Vs. Sonabai, AIR 1982 Bombay 437 [Para 6]
Indira Kaur Vs. Sheo Lal Kapoor, AIR 1988 SC 1074 [Para 12]

JUDGMENT

JUDGMENT:- The only question in this Second Appeal is whether the document dated 12.12.1968 executed by the deceased-husband of the respondent is a mortgage by conditional sale or whether it is a sale coupled with an agreement to reconvey.

2. This Second Appeal is preferred by the defendants against whom both the Courts below have passed a decree for reduction in respect of the suit property which consists of two parts of land admeasuring 10 gunthas and 14 gunthas each. The Courts below have also directed the respondent to pay a sum of Rs.1200/- which was the original amount for which the document was executed. In brief the transaction as reflected in the deed is as follows:-

The respondent's late husband Sopanrao executed a document dated 12.12.1968 that he had taken an amount of Rs.1200/- from the appellant for development of his land. Under that document, which is admittedly a registered document, he further sold, all beit conditionally, the said land. He also handed over possession of the suit land. The document in question further states that the term for which the transfer will operate will be a period of five years. That if during that period, the amount taken by the respondent is returned by him, the appellant will execute a reconvenyance in favour of the respondent, failing which the sale in favour of the appellant shall be confirmed. Both the learned counsel agree that this is how the document reads as translated.

3. The document was executed by the respondent's husband Sopanrao in favour of his sister, the appellant. Admittedly, Sopanrao did not pay Rs.1200/- to the appellant within five years. While Sopanrao was alive till 1978 he did not take any steps demanding reconveyance. In fact, he did not even issue a notice demanding reconveyance. After he died, his wife issued the notice dated 2.1.1980 to her sister-in-law i.e. the appellant seeking reconveyance of the property. The appellant having declined to reconvey the property, the present suit was filed.

4. Mr.Talkute, learned counsel for the appellant, submitted that the transaction in question was not a transaction which could be construed to be a mortgage by conditional sale within the meaning of section 58(c) of the Transfer of Property Act as interpreted by the Supreme Court and this Court.

5. The law governing such transactions is enacted in section 58(c) of the Transfer of Property Act which reads as follows:-

"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."

This section was earlier considered by the Supreme Court in A.I.R. 1954 S.C. 345. Thereafter, it was again considered in Bhaskar v. Shrinaryan (A.I.R. 1960 S.C. 301). In the latter judgment, the Supreme Court observed in para 7 as follows :-

"The question whether by the incorporation of such a condition a transaction ostensibly of sale may be regarded as a mortgage is one of intention of the parties to be gathered from the language of the deed interpreted in the light of the surrounding circumstances. The circumstances that the condition is incorporated in the sale deed must undoubtedly be taken into account, but the value to be attached thereto must vary with the degree of formality attending upon the transaction. The definition of a mortgage by conditional sale postulates the creation by the transfer of a relation of mortgagor and the mortgagee, the price being charged on the property conveyed. In a sale coupled with an agreement to reconvey there is no relation of debtor and creditor nor is the price charged upon the property conveyed, but the sale is subject to an obligation to transfer the property within the period specified. What distinguishes the two transactions is the relationship of debtor and creditor and the transfer being a security for the debt. The form in which the deed is clothed is not decisive. The definition of a mortgage by conditional sale itself contemplates an ostensible sale of the property. As pointed out by the Judicial Committee of the Privy Council in Narasingerji Gyanagerji v. P. Parthasaradhi, 51 In App 305 : (A.I.R. 1924 PC 226), the circumstances that the transaction as phrased in the document is ostensibly a sale with a right of repurchase in the vendor, the appearance being laboriously maintained by the words of conveyance needlessly iterating the description of an absolute interest or the right of repurchase bearing the appearance of a right in relation to the exercise of which time was of the essence is not decisive. The question in each case is one of determination of the real character of the transaction to be ascertained from the provisions of the deed viewed in the light of surrounding circumstances. If the words are plain and unambiguous they must in the light of the evidence of surrounding circumstances be given their true legal effect. If there is ambiguity in the language employed, the intention may be ascertained from the contents of the deed with such extrinsic evidence as may by law be permitted to be adduced to show in what manner the language of the deed was related to existing facts. Oral evidence of intention is not admissible in interpreting the covenants of the deed but evidence to explain or even to contradict the recitals as distinguished from the terms of the documents may of course be given. Evidence of contemporaneous conduct is always admissible as a surrounding circumstance; but evidence as to subsequent conduct of the parties is inadmissible." (Emphasis supplied)

It is in this background that this transaction needs to be considered. The deed describes the document as a mudat kharedi Khat which may be translated as a conditional sale. It is, however, necessary to construe the document in the light of the test laid down by the Supreme Court in the passage cited above. According to Their Lordships, the distinction between a sale coupled with an agreement to reconvey on the one hand and the mortgage by conditional sale on the other, is whether the transaction creates the relationship of debtor and creditor and the transfer being a security for the debt. Their Lordships have observed that evidence of contemporaneous conduct is always admissible as a surrounding circumstance.

6. It is in the light of this position of law that the salient feature of the transaction in question may be examined. The land was, in fact, transferred by the respondent to the appellant. It's possession was given to the appellant. An amount of Rs.1200/- was received by the respondent, as stated in the agreement "for development of land". There was no stipulation as to any interest being payable by the respondent on the said amount of Rs.1200/- received from the appellant. The only other relevant stipulation is that if the amount is repaid, the appellant will execute a reconveyance. Otherwise, the sale shall be confirmed. In this view of the matter, having regard to other features, the document does not create expressly or impliedly a relationship of debtor and creditor between the respondent and the appellant. In fact, it appears that this transaction is almost identical with the transaction which is held by this Court in Nana Tukaram v. Sonabai (A.I.R. 1982 Bombay 437) to be a sale with a condition to repurchase.

7. The document in that case is described in para 11 of the judgment as follows:-

"11. In the instant case, the deed does not create, expressly or by implication, the relationship of debtor and creditor, nor is the amount paid by the transferee to the transferor made a charge on the land. There is no provision in the deed in regard to interest. Possession of the land is handed over to the transferee. Municipal taxes are made payable by the transferee. A period is stipulated, viz., five years, within which the transferor may purchase the land after making payment of the amount for which it was originally transferred. The statement in the deed that if the amount was not paid within the stipulated period the deed was to be treated as a permanent sale deed and the transferee could thereafter enjoy the land forever without the transferor and his successors claiming any ownership emphasises that the condition of repurchase was to operate only within the stipulated period and no further. These, as I see it, are indications of a sale with a condition of repurchase."

8. Now adverting to the surrounding circumstances, it seems to me, clear that the transaction was intended by the parties to be a sale with a condition of repurchase in view of the following :-

(a) The possession was handed over to the appellant.

(b) A mutation entry was effected by the appellant in pursuance of this transaction.

(c) Though the document was executed in the year 1968 by the husband of the plaintiff, the husband did not make any attempt to "redeem" the property by "repayment of loan" till his death in 1978.

(d) In fact, it is clear from the evidence of the respondent that she has stated that her husband entered into a conditional sale and has not deposed anything about the fact that he was in need of money and, therefore, borrowed some money from the appellant.

9. In fact, Mr.Shah, learned counsel for the respondents, on the other hand, submitted that the transaction was between a brother and a sister and that by itself would be the most crucial factor for holding the transaction to be one of a mortgage by conditional sale. I am not inclined to accept this argument since it is equally possible that the brother and sister could enter into a transaction which amounts to a sale with a condition of repurchase. Mr. Shah next contended that the transaction was in respect of irrigated land and the sum of Rs.1200/- is meagre. There is no direct or indirect evidence of any contemporaneous transaction on record brought to my notice in support of this contention. Even otherwise this factor ip so facto does not change the nature of the transaction because ultimately the consideration is a matter of contract between the parties.

10. In an attempt to show that the amount taken by the respondent carried interest, Mr.Shah submitted that the term of interest was impliedly entered into by the fact that possession was given to the appellant and that she was entitled to the yield of the crop. That therefore this created the relationship of debtor and creditor. Though ingenious, the argument is far-fetched. It is unacceptable.

11. Mr. Shah, learned counsel for the respondents, further submitted that there is a distinction between the transaction considered by this Court in Nana Tukaram's case (supra) and the present case in that, in the reported case, Municipal taxes were made payable by the transferee and there is no such term in the deed reflecting the present transaction. Merely because there is such an omission, I am not inclined to hold that there was no intention to effect a sale with a condition to repurchase in view of the other surrounding circumstances such as handing over of possession and a change in the mutation entries, etc. enumerated above.

12. Mr. Shah relied on a decision of the Supreme Court in Indira Kaur Vs. Sheo Lal Kapoor, reported in A.I.R. 1988 S.C. 1074. Having gone through the decision along with the learned counsel, it is clear that decision turns on the feature of that transaction. In fact, it appears that one of the salient features of that transaction was that possession was retained by the transferor and he agreed to pay Rs.80/- as rent to the transferee. The Municipal and other taxes were also agreed to be paid by the transferor. It is in those circumstances that their Lordships came to the conclusion that the transaction was one of mortgage by conditional sale.

13. Their Lordships have as regards such transaction time and again reiterated the position that where the transaction is one or the other would depend on the transaction in question. Having regard to the factors enumerated above, I am of view that the transaction in question in the present case was a transaction which amounts to a sale with a condition to repurchase and not a mortgage by conditional sale.

18. In the result, the Second Appeal is allowed and the suit filed by the respondent is dismissed with costs. Any interim order made earlier stands vacated. No interim orders are necessary in view of the dismissal of the suit.

Appeal allowed.