Basic principles for determining whether a document is mortgage by conditional sale or sale with option to repurchase

Whether an agreement is a mortgage by conditional sale or sale with an option for repurchase is a vexed question to be considered in the facts of each case. The essentials of an agreement, to qualify as a mortgage by conditional sale, can succinctly be summarised. An ostensible sale with transfer of possession and ownership, but containing a Clause for reconveyance in accordance with Section 58(c) of the Act, will clothe the agreement as a mortgage by conditional sale. The execution of a separate agreement for reconveyance, either contemporaneously or subsequently, shall militate against the agreement being mortgage by conditional sale. There must exist a debtor and creditor relationship. The valuation of the property, and the transaction value, along with the duration of time for reconveyance, are important considerations to decide the nature of the agreement. There will have to be a cumulative consideration of these factors, along with the recitals in the agreement, intention of the parties, coupled with other attendant circumstances, considered in a holistic manner. The language used in the agreement may not always be conclusive.

11. In Bhaskar Waman Joshi (deceased) and Ors. v. Shrinarayan Rambilas Agarwal (deceased) and Ors. MANU/SC/0161/1959 : AIR 1960 SC 301, the principles for determination of the nature of the document were explained as follows:

7...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 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.

12. In the light of the aforesaid discussion and the facts of the present case, an examination of the recitals in the agreement dated 29.04.1971 holistically, including the heading of the document, we are left with no doubt that it was not a sale deed with an option for repurchase but a document of mortgage by conditional sale. An agriculturist will normally not so easily dispose his agricultural land, the source of his survival and livelihood merely for purchases made by him on credit. The dire financial straits of the Plaintiffs is evident from the fact that they were left with no option but to mortgage 2½ acres of their agricultural lands for credit purchase of daily necessities. The financial stringency of the Plaintiffs is apparent from their failure to repay anything even after execution of the instalment bond. Given the limitations of the Plaintiffs because of their poor financial status, the fact that they may not have objected to the mutation so done three years later cannot be considered as sufficient for a contrary interpretation of the agreement dated 29.04.1971, especially when the Appellate Court held that the Plaintiffs were in possession of the lands. In the facts of the case, a debtor and creditor relationship stands clearly established and hardly needs further elucidation. 

IN THE SUPREME COURT OF INDIA

Civil Appeal No. 3960 of 2011

Decided On: 12.09.2019

 Ganpati Babji Alamwar Vs.  Digambarrao Venkatrao Bhadke 

Hon'ble Judges/Coram:

Navin Sinha and Indira Banerjee, JJ.

Citation: AIR 2019 SC 4292

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How to ascertain that a document is mortgage by conditional sale or sale with condition to repurchase?

 The recitals reveal no reference to any loan taken or mortgage created with regard to any immovable property as security for such loan, much less to discharge any debt. It does not evince the creation of a debtor and creditor relationship. On the contrary, the recitals are specific that the vendor was in need of money to run the vehicle purchased by him on hire, and was selling the shop to raise money for the purpose. The suit for redemption was also filed beyond the period of 5 years. Significantly, the first appellate court observed that the recitals indicated that it was a sale deed, but concluded that it was a mortgage by conditional sale, only because the right to redemption was incorporated in the same document, which was but only one of the factors amongst others, to determine the true nature of the document.

9. In Tamboli Ramanlal Motilal (Dead) by L.Rs. v. Ghanchi Chimanlal Keshavlal (Dead) by L.Rs. and Anr. MANU/SC/0229/1992 : 1993 Supp. (1) SCC 295, the question was similar with regard to the nature of the document, in absence of any intention expressed with regard to creation of a debtor and creditor relationship. Holding that the document was not a mortgage by conditional sale but sale with an option to repurchase, it was held:

IN THE SUPREME COURT OF INDIA

Civil Appeal No. 1300 of 2009

Decided On: 24.10.2017

 Suraj Narain Kapoor and Ors. Vs. Pradeep Kumar and Ors.

Hon'ble Judges/Coram:

Ranjan Gogoi and Navin Sinha, JJ.

Citation:(2017) 16 SCC 487

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How to decide whether particular transaction is mortgage by conditional sale or sale with condition of repurchase?

 The question whether a transaction is a mortgage by conditional sale or a sale with a condition of re-purchase has to be decided on the basis of interpretation of the document itself. The intention of the parties is the determining factor. The intention has to be gathered, in the first place, from the document. If the words are express and clear, effect must be given to them and any extraneous enquiry into what was thought or intended is ruled out. The real question in such a case is not what the parties intended or meant but what is the legal effect of the words which they used. If, however, there is ambiguity in the language employed, then it is permissible to look into the surrounding circumstances to determine what was intended (See: Pandit Chunchun Jha v. Sheikh Ebadat Ali MANU/SC/0111/1954 : (1955) 1 SCR 174). The extrinsic evidence of surrounding circumstances, as may be required to show in what manner the language of the document is relating to the existing facts, is a relevant criteria. (See: Balkishen Das v. Legge [MANU/PR/0026/1899 : (1899) L.R. 27 IA 58]).

8. This Court in Pandit Chunchun Jha's case (supra) considered the background in which the amendment was made to Section 58 (c) of the Act by the Transfer of Property (Amendment) Act, 1929 and held as follows:

Because of the welter of confusion caused by a multitude of conflicting decisions the legislature stepped in and amended Section 58(c) of the Transfer of Property Act. Unfortunately that brought in its train a further conflict of authority. But this much is now clear. If the sale and agreement to repurchase are embodied in separate documents, then the transaction cannot be a mortgage whether the documents are contemporaneously executed or not. But the converse does not hold good, that is to say, the mere fact that there is only one document does not necessarily mean that it must be a mortgage and cannot be a sale. If the condition of repurchase is embodied in the document that effects or purports to effect the sale, then it is a matter for construction which was meant. The legislature has made a clear cut classification and excluded transactions embodied in more than one document from the category of mortgages, therefore it is reasonable to suppose that persons who, after the amendment, choose not to use two documents, do not intend the transaction to be a sale, unless they displace that presumption by clear and express words; and if the conditions of Section 58(c) are fulfilled, then we are of opinion that the deed should be construed as a mortgage.

9. One circumstance which favours the document being read as a mortgage by conditional sale is that the relationship between the parties is of a debtor and creditor and the transaction is a loan (See: Bhaskar Waman Joshi v. Narayan Rambilas Agarwal, MANU/SC/0161/1959 : (1960) 2 SCR 117, at p.122-123). The consideration amount being lesser than the market value is another circumstance by which the document can be treated as a mortgage by conditional sale. (See: P.L. Bapuswami v. N. Pattay Gounder, MANU/SC/0284/1965 : (1966) 2 SCR 918 at p. 923). The mutation not being done in favour of the transferee (See: Tulsi v. Chandrika Prasad, MANU/SC/8449/2006 : (2006) 8 SCC 322), the possession being with the transferor and the length of the period for re-transfer of the property (See: Indira Kaur v. Sheo Lal Kapoor, MANU/SC/0448/1988 : (1988) 2 SCC 488), are all circumstances which are indicative of a document being a mortgage by conditional sale.

10. On the other hand, it is settled law that a mere condition of repurchase will not make a document a mortgage by conditional sale as there can be an absolute sale with a condition for repurchase. It is also no more res integra that the mere title of the document is not determinative of the nature of the document and the document must be looked at in its entirety. (See: P.L. Bapuswami v. N. Pattay Gounder MANU/SC/0284/1965 : (1966) 2 SCR 918 at p. 921).

IN THE SUPREME COURT OF INDIA

Civil Appeal No. 7023 of 2012

Decided On: 01.08.2017

Bibi Fatima and Ors.Vs. M. Ahamed Hussain and Ors.

Hon'ble Judges/Coram:

L. Nageswara Rao and Navin Sinha, JJ.

Citation:(2017) 11 SCC 832

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How to determine whether particular document is mortgage by conditional sale or sale with option of repurchase?

 In Tulsi and Others vs. Chandrika Prasad and Others 1
(2006) 8 SCC 322
this Court explaining difference between mortgage by
conditional sale or sale with condition to repurchase has
observed as under:

“15. A distinction exists between a mortgage by way
of conditional sale and a sale with condition of
purchase. In the former the debt subsists and a
right to redeem remains with the debtor but in case
of the latter the transaction does not evidence an
arrangement of lending and borrowing and, thus,
right to redeem is not reserved thereby”.
11. In P.L. Bapuswami vs. N. Pattay Gounder 
AIR 1966 SC 902
, it is held that:
“The definition of a mortgage by conditional sale
postulates the creation by the transfer of a relation
of mortgagor and 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 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 document 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”.

12. In Vishwanath Dadoba Karale vs. Parisa Shantappa
Upadhya
, the facts of the case were somewhat similar to the
present case, and as is evident from paragraph 2 in said case,
the Court held the deed was a mortgage by conditional sale,
and upheld the decree of redemption for mortgage.
13. In C.Cheriathan vs. P. Narayanan Embranthiri 
, the
principle relating to interpreting of document as to whether
the sale is mortgage by conditional sale or sale with a
condition to repurchase was discussed, and this Court held as
under:
“12. A document, as is well known, must be read
in its entirety. When character of a document is in
question, although the heading thereof would not be
conclusive, it plays a significant role. Intention of
the parties must be gathered from the document
itself but therefor circumstances attending thereto
would also be relevant; particularly when the
relationship between the parties is in question. For
the said purpose, it is essential that all parts of the
deed should be read in their entirety”.
Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 4683 OF 2016

 Patel Ravjibhai Bhulabhai (D) Thr. LRS.
V
 Rahemanbhai M. Shaikh (D) Thr. LRS. & Ors.
Citation:(2016) 12 SCC216

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How to ascertain whether registered document is sale with a condition of repurchase or is a mortgage?

The next question to be decided in this appeal is as to whether the registered document, Exh. 34 dated 20-3-1961 is out and out sale with a condition of repurchase within 10 years or is a mortgage. In the present case Exh. 34 the document relied on by both the parties to support their contentions refers to the fact that by the said document the suit property is absolutely transferred by the plaintiffs to the defendants. However, in the said document there is one recital to the effect that if within 10 years from the date of the execution of the said document the plaintiffs return the total amount of consideration he received under the agreement i.e. Rs. 200 the defendants agreed to transfer the said property in favour of the plaintiffs. Therefore, in this case the Court has to read the document as a whole and gather the intention of the parties. If after reading the document as a whole the Court comes to the conclusion that by the said document the plaintiffs sold the suit land absolutely to the defendants and only concession is given to the plaintiffs to repurchase the said property if they return the amount they have received under this salewithin 10 years, then the said document will be construed as a document of sale with the condition to repurchase. However, on the other hand if the Court comes to the conclusion that there is a sort or relationship of creditor and debtor between the defendants and plaintiffs and the property was transferred by way of security, then in that event the document, Exh. 34 shall be termed as mortgage. In the present case after going through the terms of the document, Exh. 34 the lower Appellate Court came to the conclusion that the document, Exh. 34 is a sale and not mortgage. The title of the said document, Exh. 34 to the effect that this is a sale deed for amount of Rs. 200/-, the averment in the said document to the effect that the land described in the document is sold to the defendants, the averments to the effect that the suit property is sold to the defendants and actual possession is handed over to the defendants and that the defendants and their heirs are entitled to use it as their own property by the said document and lastly the averment to the effect that in case any legal complication or objection arises in respect of the suit land, the same shall be removed by the plaintiffs, clearly show that the transaction entered into vide Exh. 34 was out and out sale. It is true that lastly it is stated in the said document that in the event the plaintiffs pay the amount which they received under the sale deedwithin 10 years from the execution of the sale deed, the defendants agreed to resell the said property to the plaintiffs. However, taking into consideration the clear averments made in the document to the effect that the property is out and out sold by the plaintiffs to the defendants it appears that in view of the near relationship of the parties, the defendants agreed to resell the said property on the plaintiffs paying the amount which they have received under the sale deed within 10 years from the execution of the sale deed. This being proper construction of the document after reading the document, Exh. 34, as a whole, I do not see any reason to interfere with the said finding given by the lower Appellate Court, in this second appeal.

IN THE HIGH COURT OF BOMBAY

Second Appeal No. 369 of 1986

Decided On: 28.03.1995

Decided On: 29.03.1995

 Vasant Pandu alias Pandurang Birwatkar
Vs.
Shankar Dhondu Ghole and Anr.

Hon'ble Judges/Coram:
M.L. Dudhat, J.

Citation:1995(2) MHLJ471

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When plaintiff is not entitled to get reconveyance of mortgaged property?

 If the Deed is read as it is, it clearly provides that if the
Respondent failed to pay the amount within period of 10 years then the
Respondent would lose the rights to the property and the Appellant will
become owner thereof. There cannot be a dispute regarding this position
as it is the clear recital in the deed. Both the Courts have rendered a
factual finding that the Respondent – Plaintiff did not make any attempt
to pay the amount within period of 10 years. When the Civil Judge
recorded this finding, the Respondent did not file any cross-objection.
Same is the position in this Second Appeal. The District Judge has also
confirmed that the Respondent did not pay the amount within period of
10 years. The learned Counsel for the Respondent contended that the
Respondent had gone with the amount but he was turned away by the
Appellant. This version has not been accepted by both the Courts and
this factual finding has become final. Both the Court after rendering this
factual finding failed to give effect to the sequitor. The sequitor being
that the sale had become absolute. Nothing stopped the Respondent to
send the money by money order if the Appellant was not accepting the
amount. Both the parties consciously signed the deed, which contained a
clear stipulation that if amount is not paid within ten years, the deed was

to be treated as a sale deed, and the Respondent was fully aware of the
same. In fact the Trial Court at one place came to the conclusion that
the sale had become absolute but again deviated therefrom to hold that
mortgage had to be redeemed. This error has been repeated by the
District Judge. Therefore, even if the Deed is termed in either forms, the
consequence of non-payment within 10 years cannot be lost sight of.
 Going by the plain language of the Deed, if the amount was
not repaid by the Respondent within the stipulated period, the deed was
to be considered as an absolute sale deed and Appellant was to become
owner of the property. Both the Courts have rendered the finding of fact
that the amount was not paid within period of 10 years. Inspite of this
finding of fact, both the Courts have directed the Appellant to hand over
possession to the Respondent on the basis that the mortgage had to be

redeemed which is clearly erroneous.
 IN THE HIGH COURT OF JUDICATURE AT BOMBAY
 CIVIL APPELLATE SIDE JURISDICTION

 SECOND APPEAL NO. 587 OF 1993
Mr. Shivaji Dagadu Mahangade,

V/s.
Aba Gopala Shinde,
 CORAM : N.M. Jamdar, J.

 22 April, 2016.
Citation: AIR 2016 Bom 213

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What is distinction between mortgage by conditional sale or sale with condition of repurchase?

 Bare   reading   of   the

registered Sale Deed dated 21.02.1980 shows that the plaintiff and his
father sold the suit land to the defendants for an amount of Rs.6000/­
without any condition for repurchase.  Though the plaintiffs relied on
the agreement dated 29.06.1986 by which the defendants agreed to
reconvey the suit land in their favour, that agreement was not admitted
by the defendants.   Even the plaintiffs failed to prove the same by
cogent evidence to show that the said agreement was duly signed by
the defendants. 

 In order to consider as to whether the document is a document of
mortgage by conditional sale, or is a sale with condition of repurchase,
the distinction between two transactions must be borne in mind.  In the
former case, there is a relationship of debtors and creditors and the
transfer is by way of security for repayment of debt, whereas in the
later case, there is condition of reconveyance in the event the amount
equivalent to the consideration is paid by the vendor to the purchaser.
If the condition of repurchase is contained in a separate deed, the
original sale deed can never be regarded as mortgage in view of the
provisions of Section 58(c) of the Transfer of Property Act, 1882. 
It is true that the condition of the repurchase is not contained in
the   document   of   transfer   itself,   but   it   is   contained   in   a   separate
document. The document of transfer cannot be regarded as a mortgage
by a conditional sale, in view of provisions of Section 58(c) of the
Transfer of Property Act, where a condition is contained in a separate
document. The deed of transfer would be regarded as an out­and­out
sale and the condition contained in a separate document would only be
regarded as separate agreement for reconveyance. In that event, the
conditions   for   reconveyance   including   condition   of   time   would   be
required to be strictly complied.   In case of Agreement for Sale of
immovable   property,   time   is   generally   not   an   essence   of   Contract.
However,   the   Agreement   to   reconvey   is   essentially   entered   by   the
purchaser with the vendor in the nature of concession, wherein timewould ordinarily be regarded as an essence of contract.  In that event,
the   original   vendor   would   be   required   to   strictly   comply   with   the
conditions including the condition of time, contained in the agreement
of reconveyance.
 Admittedly, in the case in hand, there was no provision in the
Sale deed dated 21.02.1980 to reconvey the property to the plaintiffs.
There   was   an   alleged   separate   agreement   dated   29.06.1986.
Therefore, in view of Section 58(c) of the Transfer of Property Act,  in
view of the Judgment of the Apex Court in the matter of Vanchalabai
(supra) and in the matter of C. Cheriathan (Supra), it is crystal clear
that on the basis of sale deed dated 21.02.1980 and the subsequent
agreement dated 29.06.1986, the plaintiffs are not entitled for decree
to direct the defendants to execute the reconveyance in respect of the
suit land in their favour. These facts are properly considered by the
Appellate Court, hence, I do not find any reason to interfere in the well

reasoned order on this point. 

IN THE HIGH COURT OF  JUDICATURE AT BOMBAY.
CIVIL APPELLATE JURISDICTION.
SECOND APPEAL NO.   161  OF   2013
WITH
CIVIL APPLICATION NO.  502  OF   2013
 Shri. Nanda @ Sadanand Dattu Barmukh 
Vs
Shri. Chhotubhai Kasambhai Inamdar 
CORAM : K. K. TATED, J.
DATED   : 04/09/2015.
Citation; 2016(2) ALLMR162

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