Is the absolute transfer or mortgage agreement a conditional sale? The intention of the parties is determined by: The Supreme Court



The Supreme Court noted that the intent of the parties must be examined to determine whether the document is an absolute sale or a conditional sale mortgage.

Section 58 of the Transfer of Ownership Act defines a conditional sale mortgage as follows:

“If the pledgor allegedly sells the pledged property on the condition that if the mortgage money is not paid on a certain date, the sale becomes absolute, or on the condition that with such payment, the sale becomes invalid, or on the condition that after such payment the buyer transfers the property to the seller, the transaction is called a mortgage in a conditional sale, and the pledgee as a mortgagee in a conditional sale: “

A clause to this section states that no such transaction can be considered a mortgage, unless the condition is fixed in the document that triggers the sale or is intended to effect the sale.

In this case, the document signed by the parties contained the following provisions: (i) The Claimant borrowed from the Respondent the sum of Rs 3,000 to cover his household expenses in relation to the land he owned. (ii) Title to the land was transferred to the defendant on the condition that title would be returned to him within one year from the date of the conditional sale. (iii) The defendant is required to transfer the land to the plaintiff when he has paid the sum of Rs 3,000. (iv) If the amount is not paid by the due date, the conditional sale contract may be accepted as permanent.

“The intention of the parties should be visible during the execution of the document. There is no doubt that the re-translation clause is part of the same document (Example 68). This is the condition amended in the year 1929, expressed by the clause of section 58 (c) of the Act … Thus, reading the document will show that the document was drawn up for the reason that the plaintiff borrowed an amount of Rs 3,000 / – for his household expenses, and the defendant is obliged to return the land if the amount is paid within one year. The advance of the loan and its return are part of the same document that creates the relationship between the debtor and the creditor. As such, it will be covered by the disclaimer in Section 58 (c) of the Act. “The court said on appeal by the High Court, which dismissed his claim for the foreclosure of the mortgage.

The defendant in this case relied on Vanchalabai Raghunath Ithap (deceased), L.R. against Shankarrao Baburao Bhilare argue that simply because of a term included in the same document, it is not always possible to agree that the transaction negotiated between the parties was a mortgage transaction. The panel of judges noted that, taking into account the earlier decisions in the case Umabay and Anr. against Nilkant Dhondib Chavan (Dead) and Tulsi & Ors. against Chandrika Prasad, the verdict in Vanchalbai cannot be considered as binding precedent.

Another argument put forward by the defendant was that the plaintiff had filed a ransom claim after 20 years of execution. “A foreclosure claim can be filed within 30 years from the date set for the foreclosure. The thirty-year term will begin on February 22, 1969, and the lawsuit was filed in 1989, which is in line with the statute of limitations.“, – noted the panel of judges Hemant Gupta and AS Bopanna.

On the issue of property improvement

“Section 63 of the Act provides that any accession by the pledgor during the continuation of the mortgage, the pledgor must, upon redemption, be entitled to do so in the absence of a contract to the contrary. Under section 63 (a) of the Act, the pledger’s obligation to pay for the improvement would arise if the pledgee was to incur the costs of keeping the property from deterioration or deterioration, or was necessary to prevent the collateral from becoming insufficient or performed in accordance with the lawful order of any government official or government agency. improvements, if any, were made by the pledgee.The pledgee spends such money that is necessary to preserve the pledged property for destruction, confiscation or sale; to confirm the pledger’s right to the property; to secure his ownership of it in relation to the pledger; and when the pledged property is a renewable lease, for the renewal of the lease, such costs incurred by the mortgagee may be added to the cost of improvements in the principal. However, in the absence of any positive evidence of any improvements and costs incurred, the defendants are not entitled to recover anything other than the amount of the mortgage. Since the ownership was transferred to the mortgagee, he took advantage of the usufruct from the mortgage property, which compensates not only the land user, but also the improvements he made16. The improvements were to use the usufruct of the pledged property “, he noticed when resolving the appeal.

Case: Bhimrao Ramchandra Halate (deceased) vs. Nana dinkar Yadav (Tanpura); CA 10197, 2010
Citation: LL 2021 SC 381
Coram: Judges Hemant Gupta and A.S. Bopanna

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