How to ascertain whether a transaction is lease or mortgage?

The guidelines for deciding - whether a transaction is a lease or a mortgage contemplate that the name given to the document is not conclusive. The question has to be decided with reference to the predominant intention of the parties as gathered from the recitals and the terms of the documents and the surrounding circumstances including conduct of the parties. In the case of a mortgage, there is a transfer of interest to secure repayment of debt and in the case of a lease, there is a transfer of a right to enjoy the property [See: T.P. Act by Mulla - 9th Edn. Page 621]. In the case of Fuzhakkal Kuttappu v. C. Bhargavi and Ors.MANU/SC/0366/1976 : [1977]1SCR696 , it has been observed that the nomenclature given to a document by the writer or even by the parties is not always conclusive. In construing a document, it is necessary to find out the intention of the parties executing such document. Such intention has to be gathered from the recital, the terms in the document and from surrounding circumstances. When there is a document of a composite character disclosing features of mortgage and lease, the Court will have to find out the pre-dominant intention of the parties executing the document viewed from the essential aspect of the reality of the transaction. In that case, it was further observed that the mortgages are not always simple, English, usufructuary as defined in T.P. Act. They may be anomalous. Even so, the essential feature of a mortgage, which is not there in a lease, is that the property transferred is a security for repayment of a debt in a mortgage whereas in a lease, it is transfer of a right to enjoy the property. In the instant case, the suit property is a shop; the transferee was put in possession as he was to carry on his business; however, he had no power to lease or sell; no rate of interest was fixed; there is nothing to indicate as to how Rs. 16,200/- was to be appropriated. In the present matter there is no evidence to show that Ex.P5 was executed as security for the alleged loan. As slated above, the tenancy of the respondent continued even after 1969 and in the above circumstances the High Court was right in holding that Ex.P5 was a device to defeat the said Act.

IN THE SUPREME COURT OF INDIA

Civil Appeal No. 4122 of 1999

Decided On: 22.07.2004

Kaveripatnam Subbaraya Setty Annaiah Setty Charities Trust

Vs. S.K. Viswanatha Setty

Hon'ble Judges/Coram:

Ashok Bhan and S.H. Kapadia, JJ.

Citation: (2004) 8 SCC 717,AIR 2004 SC 3929
Read full judgment here: Click here

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