Explained| How to know if a document is a mortgage or a conditional sale?

Supreme Court: The bench of Hemant Gupta and AS Bopanna, JJ has held that in order to determine whether a document is that of a mortgage or a conditional sale, the intention of the parties has to be seen when the document is executed

The proviso to Section 58(c) of the Transfer of Property Act, states that,

“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”

As held in Pandit Chunchun Jha v. Sheikh Ebadat Ali, AIR 1954 SC 345, a transaction which takes the outward form of a sale but in essence the documents are of a mortgage, though it is couched in the form of a sale.

“… it is impossible to compare one case with another. Each case must be decided on its own facts and circumstances. The document has to read as a whole and if any word is ambiguous, then to find out the intention of the parties when such document was executed.”

The Court was hearing the case where a sum of Rs.3,000/- was taken as a loan from the defendant for household expenses. The same was to be returned and the defendant was bound to retransfer the land. If the amount was not paid within the stipulated period, the conditional sale deed was to be taken as a permanent one.

A reading of the document showed that the document was executed for the reason that the plaintiff has borrowed a sum of Rs.3,000/- for his household expenses and the defendant is bound to retransfer the land if the amount is paid within one year. The advance of loan and return thereof are part of the same document which creates a relationship of debtor and creditor. Thus, it was held that the deed would be covered by proviso in Section 58(c) of the Act.

Further, on the question of in the absence of any positive evidence of any improvement and the cost incurred, the defendants were entitled to recover anything more than the mortgage amount, the Court explained that Section 63 of the Act contemplates that any accession by the mortgagee, during the continuance of the mortgage, the mortgagor shall on redemption be entitled to such accession in the absence of a contract to the contrary.

Under Section 63(a) of the Act, the liability of mortgagor to pay for improvement will arise if the mortgagee had to incur the costs to preserve the property from destruction or deterioration or was necessary to prevent the security from becoming insufficient or being made in compliance with the lawful order of any public servant or public authority.

However, none of the eventualities arose in the present case compelling the mortgagor to pay for the improvements if any carried out by the mortgagee.

The Court, further, stated that

“A mortgagee spends such money as is necessary for the preservation of the mortgaged property for destruction, forfeiture or sale; for supporting the mortgagor’s title to the property; for making his own title thereto good against the mortgagor; and when the mortgaged property is a renewable lease-hold, for the renewal of the lease, such expenditure incurred by the mortgagee can be added to the cost of improvements in the principal amount due.”

However, in the absence of any positive evidence of any improvement and the cost incurred, the defendants are not entitled to recover anything more than the mortgage amount.

In the case at hand, since the possession was given to the mortgagee, he has enjoyed usufruct from the mortgage property which compensates not only of the user of the land but also improvements made by him. The improvements were to enjoy the usufruct of the property mortgaged.

[Bhimrao Ramchandra Khalate v. Nana Dinkar Yadav, 2021 SCC OnLine SC 582, decided on 13.08.2021]


*Judgment by: Justice Hemant Gupta

Know Thy Judge| Justice Hemant Gupta

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