Sale deed or Mortgage by Conditional Sale

Transfer of Property Act, 1882; Section 58.

Determination of Sale Deed containing condition for repurchase.

A bare reading of the original document reveals that it is styled as a sale deed. The vendor specifically recites that he had purchased the property for a sum of Rs.1500/- by sale deed dated 22.6.1948, from its original owners. That he was the exclusive owner of the property, which was not encumbered in any manner and that he had absolute title and authority singularly, to deal with the same to the exclusion of his brothers, from whom he had separated long ago. He was selling the shop for a sum of Rs.4000/- because he had purchased a motor vehicle, which he wanted to run on hire. On receipt of the consideration money he was voluntarily transferring all right, title and interest in the property to the vendee and his legal heirs for all times to come. If the property was found to be encumbered in any manner, the vendee could approach the court, for return of the sale amount, including against the immovable property of the vendor. If the amount was returned within a period of 5 years, either in installments or in lump-sum, the purchaser would execute the sale deed in his favour.

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.

In Tamboli Ramanlal Motilal (Dead) by Lrs. vs. Ghanchi Chimanlal Keshavlal (Dead) by Lrs. and another, 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:-

“17. What does the executant do under the document? He takes a sum of Rs.5,000 in cash. The particulars are (a) Rs.2,499 i.e. Rs. 899 by mortgage of his house on January 27, 1944 and (b) Rs. 1,600 by a further mortgage on May 31, 1947 totaling to Rs. 2,499. Thereafter, an amount of Rs. 2,501 in cash was taken from the transferee. The purpose was to repay miscellaneous debts and domestic expenses and business. It has to be carefully noted that this amount of Rs.5,000 was not taken as a loan at all. As rightly observed by the High Court, by executing this document the executant discharges all the prior debts and outstanding. Where, therefore, for a consideration of a sum of Rs.5,000 with the conditional sale is executed, we are unable to see how the relationship of debtor and creditor can be forged in. In other words, by reading the documents as a whole, we are unable to conclude that there is a debt and the relationship between the parties is that of a debtor and a creditor. This is a vital point to determine the nature of the transaction.

18. The property is sold conditionally for a period of five years and possession is handed over. At the same time, the document proceeds to state ’Therefore, you and your heirs and legal representatives are hereafter entitled to use, enjoy and lease the said houses under the ownership right’.” (emphasis supplied)

In the facts and circumstances of the present case, and for reasons discussed, we find no reason to interfere with the order impugned holding that the document in question was a sale deed with an option to repurchase and not a mortgage by conditional sale.

[Source: Suraj Narain vs. Pradeep Kumar, decided by SC on 24 October, 2017]


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s