'Document Of Conditional Sale' Or 'A Mortgage', Supreme Court Interprets Section 58 (C) of the Transfer of Property Act

A Bench of the Supreme Court has gone into the question as to whether the deed involved in the case is a 'document of conditional sale' or 'a mortgage' under section 58 (C) of the Transfer of Property Act, 1882, in an appeal arising out of a  suit of redemption. The Bench observed that "the intention of the parties has to be seen when the document is executed."

Section 58 (C) of the Act defines, '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.)

After referring to the case law on the subject, the Bench observed, In view of the judgments mentioned above, the intention of the parties has to be seen when the document is executed. It is not in dispute that the condition of retransfer is a part of the same document (Ex. 68). Such is the condition inserted by an amendment in the year 1929 expressed by the proviso of Section 58(c) of the Act. As held in Pandit Chunchun Jha, a transaction which takes the outward form of a sale but in essence the documents are of a mortgage, though it is couched in the form of a sale. This Court held that it is impossible to compare one case with another. Each case must be decided on its own facts and circumstances. The document has to read as a whole and if any word is ambiguous, then to find out the intention of the parties when such document was executed."

With respect to the deed involved in the case, the Bench comprising of Justice Hemant Gupta and Justice AS Bopanna found that, "Therefore, a reading of the document would show that the document was executed for the reason that the plaintiff has borrowed a sum of Rs.3,000/- for his household expenses and the defendant is bound to retransfer the land if the amount is paid within one year. The advance of loan and return thereof are part of the same document which creates a relationship of debtor and creditor. Thus, it would be covered by proviso in Section 58(c) of the Act."

The Bench dealt with the arguments advanced by Counsel for the Defendants in the suit thus:-

1) The suit for redemption was filed after twenty years of the document being executed. 

The Bench observed:-

"The argument that plaintiff has filed suit for redemption after 20 years of execution of the document is not tenable as the suit for redemption can be filed within 30 years from the date fixed for redemption. The period of 30 years would commence on 22.2.1969 and the suit was filed in the year 1989, which is within the period of limitation."

2) Defendants have made improvements over the land. Thus, the plaintiff would not be entitled to seek redemption.

The Bench held:-

"Section 63 of the Act contemplates that any accession by the mortgagee, during the continuance of the mortgage, the mortgagor shall on redemption be entitled to such accession in the absence of a contract to the contrary. Under Section 63(a) of the Act, the liability of mortgagor to pay for improvement will arise if the mortgagee had to incur the costs to preserve the property from destruction or deterioration or was necessary to prevent the security from becoming insufficient or being made in compliance with the lawful order of any public servant or public authority. None of the eventualities arose in the present case compelling the mortgagor to pay for the improvements if any carried out by the mortgagee."

The Bench further noted,

"A mortgagee spends such money as is necessary for the preservation of the mortgaged property for destruction, forfeiture or sale; for supporting the mortgagor's title to the property; for making his own title thereto good against the mortgagor; and when the mortgaged property is a renewable lease-hold, for the renewal of the lease, such expenditure incurred by the mortgagee can be added to the cost of improvements in the principal amount due. However, in the absence of any positive evidence of any improvement and the cost incurred, the defendants are not entitled to recover anything more than the mortgage amount. Since the possession was given to the mortgagee, he has enjoyed usufruct from the mortgage property which compensates not only of the user of the land but also improvements made by him. The improvements were to enjoy the usufruct of the property mortgaged."

Facts of the Case

The Plaintiff was the owner of 20 gunthas of agricultural land situated in Village Khunte. The Plaintiff borrowed an amount of Rs.3,000/- from Defendant No. 1 on 22.2.1969 by executing a document titled "conditional sale deed" as a security for the loan amount. The Plaintiff requested Defendant No. 1 to re-convey the suit land by accepting the loan amount of Rs.3,000/-, but defendant No. 1 refused to do so. On 25.2.1989, Defendant No. 1 transferred the suit land in favour of his brother (Defendant No. 2). The Plaintiff filed a suit against the Defendants on 5.4.1989 for redemption of mortgaged property and possession under the Transfer of Property Act, 1882. 

The Trial Court decreed the suit while the First Appellate Court and the High Court dismissed the suit. The Supreme Court allowed the appeal and decreed the suit.

 Parties : Bhimrao Ramchandra Khalate (deceased) through Legal Heirs Vs. Nana Dinkar Yadav (Tanpura) & Anr.