Full Judgment Text
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PETITIONER:
MUSHIR MOHAMMED KHAN (DEAD) BY LRS.
Vs.
RESPONDENT:
SMT. SAJEDA BANO & ORS.
DATE OF JUDGMENT: 02/03/2000
BENCH:
Y.K.Sadharwal, S.S.Ahmad
JUDGMENT:
S. SAGHIR AHMAD, J. Habibur Rehman, who is since
dead and is represented by the present respondents, was the
owner of a house situated in Gali Masjid Peerji in
Ibrahimpura, Bhopal, which he had purchased for a sum of
Rs.3,000/- through a registered sale deed dated 24.2.1949.
On 28.12.1955, he executed a sale deed in respect of this
house in favour of the appellant, Mushir Mohammed Khan, who
also is dead and is represented by the present appellant,
for a sum of Rs.1,000/- only. A few days later, namely, on
3rd January, 1956, Mushir Mohammed Khan executed an
agreement in favour of Habibur Rehman agreeing to re-convey
the said house if the amount of Rs.1,000/- was paid back to
him within a period of two years. Habibur Rehman also
executed a rent note in favour of Mushir Mohammed Khan on
the same day. Both the documents, namely, the sale deed
dated 28.12.1955 and the agreement for re-conveyance,
executed on 3rd January, 1956, were registered on 5th
January, 1956. In terms of the rent note, Habibur Rehman
started paying Rs.20/- as rent for the house in question to
Mushir Mohammed Khan. Treating the above documents as
mortgage, Habibur Rehman, who shall hereinafter be referred
to as plaintiff, filed a suit for redemption which was
dismissed by the trial court on 5th of July, 1979. The
appeal filed thereafter was also dismissed by the Vth Addl.
District Judge, Bhopal on 21.12.1982. But the second appeal
filed by the plaintiff was allowed by the Madhya Pradesh
High Court by the impugned judgment dated 27.8.1987.
Learned counsel appearing on behalf of the appellant
[hereinafter referred to as ‘defendant’] has contended that
the High Court was in error in treating the transaction
between the plaintiff and the defendant as mortgage. He
contended that since the condition of re-conveyance was not
contained in the same document by which the property was
sold by the plaintiff to the defendant, the document could
not be treated to be a deed of mortgage. It is contended
that the agreement by which the defendant agreed to
re-convey the property in question to the plaintiff was an
entirely separate transaction between the parties and even
if that document was read along with the sale deed executed
earlier, the cumulative effect of both the transactions
would not result in a "mortgage" and they will remain two
separate transactions, namely, a sale deed by which the
property was transferred to the defendant and an agreement
by which the defendant agreed to re-convey the property to
the plaintiff. Learned counsel for the plaintiff, on the
contrary, contended that the judgment passed by the High
Court, in the circumstances of the case, was wholly
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justified inasmuch as the property which was purchased by
the plaintiff himself for a sum of Rs.3,000/- was
transferred to the defendant for a sum of Rs.1,000/- only
which was far less than the real value of the property
which, with the lapse of time, escalates specially in big
cities like Bhopal where the property in question is situate
and, therefore, the transaction cannot be treated as an out
and out sale but a mortgage which was executed by the
plaintiff to secure the loan of Rs.1,000/- advanced by the
defendant. He also contended that the plaintiff who has
remained in possession throughout, has already invested huge
amount of money in the improvement of the house and has made
additional room on the first floor which the plaintiff would
not have done if he had sold the property absolutely in
favour of the defendant. He contended that the conduct of
the plaintiff in selling the property for a lower price than
its actual value and investing huge amount even after the
sale transaction indicated that the plaintiff knew and
believed that he was still the owner of that property, which
he would redeem one day. The transaction, by conduct, was,
therefore, a mortgage and not a sale. Let us first analyse
the High Court judgment on this question before proceeding
to consider the respective contentions of the parties‘
counsel. The High Court took into consideration both the
documents together, namely, the Sale Deed [Exh. P-2]
executed by the plaintiff in favour of the defendant and the
Agreement of Re-conveyance [Exh. P-3] in the light of the
so-called surrounding circumstances and came to the
conclusion that the transaction between the parties was a
mortgage and not an absolute sale of the property in
question in favour of the defendant. After having come to
the conclusion that the transaction was a mortgage and not a
Sale Deed, the High Court attempted to find out the nature
of the mortgage. On account of the Proviso to Clause (c) of
Section 58 of the Transfer of Property Act, it came to the
conclusion that since the condition for re-conveyance of the
property in favour of the plaintiff was not contained in the
Sale Deed [Exh. P-2], the transaction could not be treated
as a "mortgage by conditional sale". The High Court,
thereafter, came to the conclusion that the prohibition
contained in the above Proviso would operate only in respect
of "mortgage by conditional sale", but not in respect of any
other mortgage as the Proviso was appended to Clause (c) of
Section 58 only. The High Court then proceeded to consider
the ingredients of Clause (d) and recorded a finding that
the transaction between the parties was a usufructuary
mortgage. Having thus found the transaction to be a
mortgage, the High Court, while reversing the judgment
passed by the trial court and the lower appellate court,
decreed the suit of the plaintiff. The question whether
there was a transaction of mortgage or sale between the
parties is to be decided, not only in the light of the
recitals made in the deed, but also in the light of other
circumstances which are established on record. It is true
that there is a difference between a "mortgage by
conditional sale" and a "sale with a condition to
re-purchase"; the basic fact remains that the form of
transaction is not always the final test and the true test
is the intention of the parties in entering into the
transaction. "Mortgage by conditional sale" is defined in
the Clause (c) of Section 58 which provides as under : "(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
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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." Proviso to this Clause was
added by Act XX of 1929 so as to set at rest the conflict of
decisions on the question whether the conditions, specially
the condition relating to reconveyance contained in a
separate document could be taken into consideration in
finding out whether a mortgage was intended to be created by
the principal deed. The Legislature enacted that a
transaction shall not be deemed to be a mortgage unless the
condition for re-conveyance is contained in the document
which purports to effect the sale. This Proviso was
considered in Chunchun Jha vs. Ebadat Ali & Anr., AIR 1954
SC 345 = 1955 (1) SCR 174, and came to be considered again
in Bhaskar Waman Joshi (D) & Ors. vs. Shrinarayan Rambilas
Agarwal (D) & Ors. AIR 1960 SC 301 = 1960 (2) SCR 117, in
which it was explained as under : "But it does not follow
that if the condition is incorporated in the deed effecting
or purporting to effect a sale a mortgage transaction must
of necessity have been intended. 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 circumstance 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
Court further considered the distinction between "mortgage
by conditional sale" and a "sale with a condition of
re-purchase" and observed as under : "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 retransfer 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 Ind.
App. 305 [AIR 1924 PC 226], the circumstance 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
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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." The view expressed by this Court in Bhaskar’s
case (supra) was repeated in the same words in P.L.
Bapuswami vs. N. Pattay Gounder AIR 1966 SC 902: "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 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
retransfer the property within the period specified. The
distinction between 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 question in each case is one of determination
of the real character of the transaction to be ascertained
from the provisions of the documents viewed in the light of
surrounding circumstances. If the language is plain and
unambiguous it must in the light of the evidence of
surrounding circumstances be given its 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." These decisions were
considered again in Vidhyadhar vs. Mankikrao & Anr., AIR
1999 SC (1st)Supp. 1441 = (1999) 3 SCC 573 and it was
observed as under : "47. The basic principle is that the
form of transaction is not the final test and the true test
is the intention of the parties in entering into the
transaction. If the intention of the parties was that the
transfer was by way of security, it would be a mortgage.
The Privy Council as early as in Balkishen Das v. Legge,
(1899) 27 Ind.Appl 58, had laid down that, as between the
parties to the document, the intention to treat the
transaction as an out and out sale or as a mortgage has to
be found out on a consideration of the contents of document
in the light of surrounding circumstances. The decision of
this Court in Bhaskar Waman Joshi v. Shrinarayan Rambilas
Agarwal, AIR 1960 SC 301 : (1960) 2 SCR 117 and P.L.
Bapuswami v. N. Pattay Gounder, AIR 1960 SC 902 : (1966)
2 SCR 918, are also to the same effect. 48. The contents
of the document have already been considered above which
indicate that defendant No. 2 had executed a mortgage by
conditional sale in favour of defendant No. 1. He had
promised to pay back Rs.1500/- to him by a particular date
failing which the document was to be treated as a sale deed.
The intention of the parties is reflected in the contents of
the document which is described as a mortgage by conditional
sale. In the body of the document, the mortgage money has
also been specified. Having regard to the circumstances of
this case as also the fact that the condition of repurchase
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is contained in the same document by which the mortgage was
created in favour of defendant No.1, the deed in question
cannot but be treated as a mortgage by conditional sale.
This is also the finding of the courts below." Applying the
principles laid down above, the two documents read together
would not constitute a ‘mortgage’ as the condition of
re-purchase is not contained in the same documents by which
the property was sold. Proviso to Clause (c) of Section 58
would operate in the instant case also and the transaction
between the parties cannot be held to be a "mortgage by
conditional sale." The High Court, after recording a finding
that the transaction cannot be treated as a "mortgage by
conditional sale", in view of the Proviso to Clause (c) of
Section 58, proceeded to consider the circumstances of the
case and came to the conclusion that although the
transaction was not a "mortgage by conditional sale", it
would definitely be a usufructuary mortgage. The High Court
was of the opinion that all the ingredients which go to
constitute a usufructuary mortgage were present in the
instant case inasmuch as the property was given away to the
defendant for a price which was less than its original price
or the market value on the date on which the sale was
executed in favour of the defendant. The High Court also
found that possession of the property in question was
symbolically delivered to the defendant and the plaintiff
also executed a rent note in favour of the defendant
promising to pay rent in respect of the premises in question
to the defendant every month. We are unable to accept the
reasoning of the High Court. We have already seen above
that the three documents read together do not constitute a
mortgage or mortgage by conditional sale inasmuch as the
condition to repurchase was not contained in the sale deed
itself. If the documents cannot be treated as creating a
mortgage on account of the prohibition contained in the
Proviso to Clause (c) of Section 58, it is difficult to
accept that these documents would create a mortgage of
another kind. The basic fact which has been ignored by the
High Court is that though in a usufructuary mortgage, the
possession has necessarily to be delivered to the mortgagee,
an agreement for reconveyance is not obtained from him.
While recording a finding on the question of usufructuary
mortgage, the High Court did not take into consideration the
second document which represented an agreement between the
parties that if the amount in question, namely, the price
money for which the sale was executed by the plaintiff in
favour of the defendant was returned within the time
stipulated by that agreement, the defendant would reconvey
the property to the plaintiff. An agreement of reconveyance
does not normally constitute part of the transaction by
which usufructuary mortgage is created. Where the parties
executed three documents almost contemporaneously, all the
three documents have to be taken into consideration to find
out the true nature of the transaction. Learned counsel for
the plaintiff referred to the decision of this Court in Smt.
Indira Kaur and others vs. Shri Sheo Lal Kapoor, AIR 1988
SC 1074, and contended that in that case too, the property
was sold and a separate agreement of reconveyance was
executed by which the purchaser had promised to reconvey the
property to the seller on return of the consideration money
for which the sale deed was executed. The seller had also
executed a rent note in favour of the purchaser and thus
continued to occupy the property as tenant. The Court held,
on consideration of all the circumstances, the transaction
to be a mortgage and not an out and out sale in favour of
the purchaser. It is contended that since in the instant
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case also the property was sold and a deed of reconveyance
was executed by the defendant in favour of the plaintiff and
possession was delivered to the defendant only symbolically
inasmuch as the plaintiff had executed a rent note under
which he had promised to pay rent every month to the
defendant, the transaction should also be treated as
mortgage. It is no doubt true that this Court in Smt.
Indira Kaur & ors. vs. Shri Sheo Lal Kapoor (supra) had
held, on considering the facts of that case, the transaction
to be a mortgage. The Court had also relied upon its
earlier decision in Govind Prasad Chaturvedi vs. Hari Dutt
Shastri, 1977 (2) SCR 877 = AIR 1977 SC 1005, in which the
facts were almost similar and in which too, it was held that
the transaction was a mortgage. But the learned counsel did
not notice the relevant observations which are reproduced
below:- "These factors clearly spell out the real intention
of the parties that it was a transaction of mortgage to
secure the sum of Rs.7000/- at approximately 13 1/2%
interest. But then it is not necessary to examine this
dimension of the matter inasmuch as the plaintiff has not
prayed for redemption though in the plaint an averment has
been made that the real intention of the parties was to
create a mortgage. As the plaint stands, and as the
plaintiff himself has preferred to enforce the agreement for
specific performance, it is not necessary to examine the
question as to whether or not the real nature of the
transaction was mortgage though it was given an appearance
of a transaction of a sale. For the same reason we need not
examine the question as to whether or not S.58(c) of the
Transfer of Property Act would have disabled the plaintiff
from claiming the relief of redemption on the basis that the
real intention of the parties was to create a mortgage and
not an absolute sale coupled with an agreement of
reconveyance. This question will have to be dealt with at
appropriate time having regard to the fact that there is an
increasing tendency in recent years to enter into such
transactions in order to deprive the debtor of his right of
redemption within the prescribed period of limitation. In
fact very often the mortgagee in place of getting a mortgage
deed executed in lieu of a loan obtains an agreement to sell
in his favour from the mortgagor so as to bring pressure on
the mortgagor by seeking to enforce specific performance to
enable the mortgagee to obtain possession of the property
for an amount smaller than the real value of the property.
We need not however probe the matter any further for the
purpose of disposing of the present appeal for the reasons
stated earlier." [Emphasis supplied] Thus, the Court did not
consider the effect of the Proviso to Section 58(c) of the
Transfer of Property Act and did not examine the matter from
that angle as the plaintiff, in that case, had not prayed
for redemption but had prayed for specific performance of
the agreement of reconveyance. This decision is, therefore,
of no use to the plaintiff. Though we, on the facts of this
case, cannot hold the transaction to constitute a mortgage
with a condition of repurchase, we also cannot hold the
transaction to be a usufructuary mortgage as held by the
High Court which, in our opinion, was in error in recording
that finding by excluding from its consideration the
agreement of reconveyance. But we also cannot lose sight of
a number of relevant factors for doing complete justice
between the parties. These factors are that though the
property was purchased by the plaintiff for a sum of
Rs.3000/- in 1949, it was sold to the defendant for a
smaller sum of Rs.1,000/- on 28.12.1955. This indicates
that the property was ostensibly transferred to the
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defendant not for its real value but for a price which was
far less than the market value which must have considerably
appreciated from 1949 when the property was purchased by the
plaintiff till 1955 when it was sold by him to the
defendant. The other circumstance was that the defendant
executed a contemporaneous document in favour of the
plaintiff by which he agreed to reconvey the property to the
plaintiff if the sum of Rs.1000/- was returned to him within
two years. That is to say, even though the defendant knew
that within two years, the value of the property would
further escalate, he agreed on a reconveyance for the
original price of Rs.1,000/- for which it was sold to him.
It is in these circumstances that the observations of this
Court in Smt. Indira Kaur and others vs. Shri Sheo Lal
Kapoor (supra), which are repeated below, become relevant :-
"........there is an increasing tendency in recent years to
enter into such transactions in order to deprive the debtor
of his right of redemption within the prescribed period of
limitation. In fact very often the mortgagee in place of
getting a mortgage deed executed in lieu of a loan obtains
an agreement to sell in his favour from the mortgagor so as
to bring pressure on the mortgagor by seeking to enforce
specific performance to enable the mortgagee to obtain
possession of the property for an amount smaller than the
real value of the property......." This might have happened
in the instant case also and instead of executing a Mortgage
deed in respect of the property in question, the plaintiff
was persuaded to execute a sale deed in favour of the
defendant who executed an agreement of reconveyance in
favour of the plaintiff. In U. Nilan vs. Kannayyan (Dead)
Through LRs. JT 1999(7) SC 621 = 1999(8) SCC 511, this
Court observed as under : "Adversity of a person is not a
boon for others. If a person in stringent financial
conditions had taken the loan and placed his properties as
security therefor, the situation cannot be exploited by the
person who had advanced the loan. The Court seeks to
protect the person affected by adverse circumstances from
being a victim of exploitation. It is this philosophy which
is followed by the Court in allowing that person to redeem
his properties by making the deposit under Order 34 Rule 5
C.P.C." Having regard to the circumstances of the case,
parties were allowed time to negotiate a settlement, but
they have failed to arrive at a compromise. Although the
plaintiff offered a sum of Rs. 1 lakh to be paid within six
months to the defendant, the defendant made a counter offer
of Rs.1.5 lakh, forgoing also the arrears of rent, to the
plaintiff, but the plaintiff is not prepared to give up the
title in the property as indicated by the letters written by
the respective counsel to the Registrar of this Court, which
were placed before us. This tussle, however, does indicate
that the amount of Rs. 1,000/- for which the property was
sold by the plaintiff in favour of the defendant, does not
represent the true market value of the property, neither on
the date on which the sale deed was executed in favour of
the defendant nor does it represent the true value of the
property today. We, therefore, dispose of this appeal by
providing that if the defendant pays a sum of Rs.2 lakhs
[forgoing also the arrears of rent uptodate] within three
months from today, the judgment passed by the High Court
shall stand set aside and those of the trial court and the
lower appellate court shall stand restored. In case,
however, the amount is not paid within the aforesaid period,
the appeal shall stand dismissed with costs.
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