Leading judgment on basic concept of mortgage

  It is important to remember that mortgage is a transfer of

interest in specific immovable property towards “security for repayment

of a debt”.   The interest itself may be different in different forms of

mortgage.  In a simple mortgage, what is transferred is a power of sale,

whilst in a usufructuary mortgage it is the  right of the mortgagor  to the

enjoyment of the  usufruct.   In a mortgage  by conditional sale or an

English mortgage what is transferred is the right of ownership subject to

a condition that on default of payment on a certain date the sale shall

become absolute, or that on such payment being made the sale shall

become   void,   or   that   on   such   payment   being   made   the   buyer   shall

transfer the property to the seller.  Whatever be the form of mortgage,

the transfer is of “some” interest only and not of the “whole” interest of

the mortgagor. Unlike in the case of a sale in payment of a debt which

extinguishes the debt,  the debt always subsists in a mortgage. When  a

mortgagor mortgages his immovable property, he does not cease to be

its owner; the equity of redemption still vests in him.  This equity is lost

unto him only when there is a final decree of foreclosure or sale in favour

of the mortgagee.   This has always been our law and a mortgage by

conditional sale is no exception to it.                                                                                                                    

    IN THE HIGH COURT OF JUDICATURE AT BOMBAY

              CIVIL APPELLATE JURISDICTION

SECOND APPEAL NO.306 OF 1994

Pandurang Maruti Dombale Vs  Bapurao Piraji Owal & Ors.

CORAM :  S.C. GUPTE, J.

      

  DATED  :  25 JANUARY 2017

Citation: 2017(3) ALLMR 348

This  Second  Appeal  challenges  a  judgment  and  order   of

Additional District Judge at Satara   in Regular Civil Appeal No.291 of

1988.  By the impugned judgment and order, the learned District Judge

allowed the appeal of Respondent Nos. 1 to 3 (Original   Defendants)

from a judgment and decree passed in the suit filed by the Appellant  in

the Court of Civil Judge, Junior Division at Phaltan.

2. The suit was for recovery of possession of the suit property

and   profits   on   the   basis   of   a   contract   of   conditional   sale   dated   22

November 1972.  The Appellant's case is that  the predecessor­in­interest

of Defendant Nos. 1 and 2 and their mother­ Defendant No.3, one Piraji

Krishna Owal, was the owner of the suit property.  He took an amount of

Rs. 2,500/­ from the Appellant and executed a registered conditional sale

in his favour.  Though the document of conditional sale recited that the

possession was given to the Appellant on the date of execution, it is an

admitted position that the possession was not so delivered.   It is the

Appellant's case that the amount of Rs.2,500/­ was not repaid by Piraji

within the stipulated period of five years and that the conditional sale in

favour   of   the   Appellant   has   become   absolute.   The   Appellant   had,

accordingly, in his suit prayed for possession of the property.  The plaint

shows that it is the Plaintiff's (Appellant's) own   case that the amount

received by the Appellant towards this conditional sale was mortgage

money and that this mortgage money was not received back by the

Appellant within the stipulated period of five years.  The plaint inter alia

contains   a prayer for foreclosure, i.e. a declaration that in case the

Defendants   were   unable   to   pay   the   mortgage   money,   their   right   of

redemption may be treated as forfeited.   There is no manner of doubt

that this suit, therefore, is based on a mortgage by conditional sale and

prays for a decree of foreclosure.  The Defendants, whilst opposing the

suit,   have   filed   a   counter­claim   for   redemption   of   mortgage,   and

deposited the mortgage money in Court.

3. The   Trial   Court   came   to   a  conclusion   that   the   oral   and

documentary evidence on record did not show that the document in

question was a simple mortgage; that the document made an actual

transfer of interest in favour of the Plaintiff; that it was a conditional

sale;   and   that   the   condition   in   the   document   for   handing   over   the

possession   of   the   suit   property   by   the   vendor   to   the   purchaser   was

breached in that the Defendants and their predecessor had “not taken

                                                                                                                    

care   in   handing   over   the   possession   of   the   suit   property   to   the

Appellant”.  The Trial Court, in the premises, came to the conclusion that

the   Appellant,   who   holds   title   to   the   suit   property,   could   recover

possession of the same from the Defendants, who are in unauthorised

occupation thereof.   The judgment of the Trial Court shows   that the

distinction between an outright sale with an agreement of re­conveyance

and   a mortgage by conditional sale was lost on the Trial Court.   It

appears   to   have   merely   compared   two   transactions,   namely,   simple

mortgage   and   outright   sale,   though   it   accepted   the   sale   to   be     a

conditional sale.

4. When the matter went in appeal before the  District Court,

the Court noted that the Trial Court, despite framing an issue concerning

redemption of mortgage, came to a conclusion that the Defendants  were

not entitled to claim redemption, purportedly on the ground of their

failure   to   prove   readiness   and   willing   to   perform   their   part   of   the

contract, presumably by repaying the mortgage money to the Appellant.

The first Appellate Court found this conclusion to be rather strange in

that the Trial Court had apparently treated the suit as if it were for

specific performance of a contract for sale, when  in effect it was a suit

for foreclosure in respect of a mortgage.  The first Appellate Court came

to the conclusion that the decree of foreclosure could only be passed if

the Defendant could not ask for redemption but that since, in the instant

case, the Defendants  had filed a counter­claim claiming redemption and

also deposited the mortgage amount in the Court, it was necessary for

the   Trial   Court   to   pass   a   decree   of   redemption   rather   than   for

foreclosure.

                                                                                                               

5. The impugned judgment and order of the first Appellate

Court is clearly unexceptionable.  The whole case of the Appellant before

the courts below  was of  mortgage by conditional sale and failure  of the

mortgagor to repay the mortgage money, entitling the former to a decree

of foreclosure.  Learned Counsel for the Appellant submits that if one has

regard to the deed itself, it is apparent that it is an out and out sale and

not a document of mortgage.  Learned Counsel relies on the judgment of

our Court in the case of Sanjay Punamchand Pipada vs. Rahata Vividh

Karyakari Society Ltd.1

and submits that in view of Section 8 of the

Transfer of Property Act, where a document has to be construed, the

intention must be gathered, in the first place, from the document itself; if

the   words   expressed   are   clear,   effect   must   be   given   to   them;   It   is

permissible to look at other factors including surrounding circumstances

only if there is any ambiguity in the language employed.  I am afraid it is

not open   to the Appellant to advance this contention in the face of a

specific pleading in his suit that the amount received towards conditional

sale was mortgage money   and that in view of non­repayment of the

mortgage money within the stipulated period, he was entitled to a decree

of foreclosure.  The deed in the present case clearly lends itself to this

interpretation, which is but a common case of the parties.

6. It is important to remember that mortgage is a transfer of

interest in specific immovable property towards “security for repayment

of a debt”.   The interest itself may be different in different forms of

mortgage.  In a simple mortgage, what is transferred is a power of sale,

whilst in a usufructuary mortgage it is the  right of the mortgagor  to the

1 2014(7) LJSOFT 36

                                                                                                                    

enjoyment of the  usufruct.   In a mortgage  by conditional sale or an

English mortgage what is transferred is the right of ownership subject to

a condition that on default of payment on a certain date the sale shall

become absolute, or that on such payment being made the sale shall

become   void,   or   that   on   such   payment   being   made   the   buyer   shall

transfer the property to the seller.  Whatever be the form of mortgage,

the transfer is of “some” interest only and not of the “whole” interest of

the mortgagor. Unlike in the case of a sale in payment of a debt which

extinguishes the debt,  the debt always subsists in a mortgage. When  a

mortgagor mortgages his immovable property, he does not cease to be

its owner; the equity of redemption still vests in him.  This equity is lost

unto him only when there is a final decree of foreclosure or sale in favour

of the mortgagee.   This has always been our law and a mortgage by

conditional sale is no exception to it.

7. The statutory provisions, which are reflected in Sections 58,

60 and 67 of the Transfer of Property Act and Order XXXIV of the Code

of Civil Procedure make this position clear.  Clause (a) of Section 58 of

the Transfer of Property Act defines a mortgage as “transfer of an interest

in specific immovable property for the purpose of securing the payment

of money advanced or to be advanced   by way of loan, an existing or

future debt, or the performance of an engagement which may give rise to

a   pecuniary   liability.”     Clause   (c),   which   deals   with   mortgage   by

conditional sale, provides as follows :­

“(c)    Mortgage   by   conditional   sale.­­­­Where   the   mortgagor

ostensibly sells the mortgaged property­

                                                                                                                    

       on a condition that on default of payment of the mortgagemoney

on a certain date the sale shall become absolute, or

     on a condition that on such payment being made the sale shall

become void, or 

       on a 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.”

Section 60 of the Transfer of Property Act provides for the

mortgagor's right to redeem. At any time after the principal money has

become due, the mortgagor has a right, on payment or tender of the

mortgage money, at a proper time and place, to require the mortgagee to

deliver to the mortgagor the mortgage­deed and all documents relating

to the  mortgaged property which are in  possession  or power  of  the

mortgagee and at the cost   of the mortgagor either to re­transfer the

mortgaged property to him or to his nominee and to have registered an

acknowledgement in writing that any right in derogation of his interest

transferred to the mortgagee has been extinguished.   Section 67 deals

with the mortgagee's right to foreclosure or sale. In the absence of a

contract   to   the   contrary,   the   mortgagee   has,   at   any   time,   after   the

mortgage­money has become due to him and “before a decree has been

made   for   the   redemption   of   the   mortgaged   property”   or   before   the

mortgage­ money has been paid or deposited as provided in Section 67, a

right to obtain from the court a decree that the mortgagor shall be

absolutely debarred of his right to redeem the property or a decree that

                                                                                                                    

the  property be sold.   It is pertinent to note  that the  right to seek

foreclosure is not available to any mortgagee other than a mortgagee by

conditional sale or a mortgage under an anomalous mortgage by the

terms of which  he is entitled to foreclose.  So also, the right to seek sale

is   not   available   to   a   usufructuary   mortgagee   or   a   mortgagee   by

conditional sale.  What the scheme of this Section indicates is that the

only remedy of a mortgagee by conditional sale is to apply for foreclosure

and not for  a decree of sale.  Order XXXIV Rule 2 of the Code of Civil

Procedure proceeds for a preliminary decree in a foreclosure suit.  By this

preliminary decree, the Court orders an account  to be taken of what is

due to the plaintiff on the date of such decree towards principal, interest,

costs, etc. and declares the amounts so due at that date and directs that if

the defendant pays into   court the amounts so declared as   due on or

before such date as the court may fix within six months of the court

confirming and countersigning the account, the plaintiff shall deliver up

to the defendant, or to such person as the defendant may appoint, all

documents relating to the mortgage of the property and re­transfer, if so

required,   the   property   to   the   defendant   at   his   cost   free   from   the

mortgage (sub­rule (1) of Rule 2).  Rule 3 of Order XXXIV provides for a

final decree in a foreclosure suit.  The rule provides that if, before a final

decree   debarring   the   defendant   from   all   the   right   to   redeem   the

mortgage has been passed, the defendant makes payment into the court

of all amounts due to him under sub­rule (1) of Rule 2, the court shall,

on application made by  the defendant, pass a final decree ordering the

plaintiff  to deliver up the documents referred to the preliminary decree

and, if necessary, to re­transfer the mortgaged property as directed in the

decree.   Only if such payment is not made by the defendant that   the

                                                                                                                    

court   shall,   on   the   application   of   the   plaintiff,   pass   a   final   decree

declaring that the defendant and all persons claiming through or under

him are debarred from all right to redeem the mortgaged property.  This

scheme makes it clear that at all events, and in case of all mortgages,

where a foreclosure decree can be passed, the mortgagor retains his right

of redemption until a final decree of foreclosure  is passed.  As the law

stands, there cannot, thus, be any exception to the impugned judgment

and order of the first Appellate Court. 

8. Learned Counsel for the Appellant  relied on the judgment of

the Supreme Court in the case of  Vanchalabai Raghunath Ithape vs.

Shankarrao Baburao Bhilare2

.  In the case before the Supreme Court,

the plaintiff had filed a suit claiming redemption and re­conveyance of

the suit property after accepting the amount of mortgage money.  The

defendant   contested   the   suit   by   contending   that   the   transaction   in

question was not a mortgage but an outright sale.   The court actually

went through the terms and conditions in the document and came to  a

conclusion that the transaction in  question was an absolute sale with an

agreement of repurchase.  The court held that for the purpose of bringing

a transaction within the meaning of mortgage by  conditional sale, the

first condition was of an ostensible sale of the  mortgaged property on a

condition  that the  buyer   shall  transfer  the  property  to the  seller  on

payment of a certain  sum. The Court held that though there was a

presumption that the transaction was a mortgage by conditional sale

when the whole transaction was contained in our document, merely

because of a term incorporated in the same document, the transaction

between the parties need not always be termed as a mortgage.  In the

2 2013 (12) (JSOFT (SC) 500

                                                                                                                    

particular case before it, the court found the document to be a document

of absolute sale with a contract to repurchase  rather than a mortgage by

conditional sale. The plaintiff's suit, in the premises, was dismissed.  This

judgment has no bearing on the facts of our case, where the Plaintiff

Appellant went to the Court with a specific case, as noted by me above,

that   the   document   executed   was   in   the   nature   of   mortgage   by

conditional sale.

9. It is lastly contended by learned Counsel for the Appellant

that   the   Appellant   must   be   paid   not   only   the   principal   amount   of

mortgage money, but also interest upto the date of payment of mortgage

amount by the Respondents into the Court.  Counsel relies on Section 84

of the Transfer of Property Act to claim such interest.  Under Section 83

of the Transfer of Property Act, at any time after the principal money

payable in respect of any mortgage has become due but before a suit for

redemption is barred, the mortgagor can deposit in Court the amount

remaining due on the mortgage.   Section 84 provides that when the

mortgagor so deposits the amount under Section 83, interest on the

principal money shall cease from the date of such deposit.  Section 84, in

other   words,   provides   for   cessation   of   interest   and   not   payment   of

interest.  Payment of interest on the principal money due upto the date of

the suit is a matter of contract, whilst interest pendente lite is a matter of

law under Section 34 of the Code of Civil Procedure.  In the case of a suit

for redemption, sale  or  foreclosure, the  Court awards interest under

Rule 11 of Order XXXIV of the Code of Civil Procedure.  In the  present

case, there is admittedly no contractual interest payable.   There is no

prayer for any pendente lite interest in the suit.  None is awarded by the

                                                                                                                    

Court   below   and   there   is   no   ground   raised   in   the   Second   Appeal

questioning the omission to award interest.  No substantial question of

law, accordingly, can be said to arise out of this appeal.

10. In the premises, there is no merit in the appeal.  The appeal

is, accordingly, dismissed.  No order as to costs.

( S.C. GUPTE, J. ) 

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