Thursday, 25 May 2017

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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