SC on which agreement can be termed as mortgage by conditional sale

The Hon’ble Supreme Court, on 12th September 2019, in the matter of Ganpati Babji Alamwar (D) By Lrs. Ramlu And Others v. Digambarrao Venkatrao Bhadke And Others pronounced that in case of an ostensible sale with transfer of possession and ownership, but containing a clause for reconveyance in accordance with Section 58(c) of the Transfer of Property Act, the execution of a separate agreement for reconveyance, either contemporaneously or subsequently, shall militate against the agreement being mortgage by conditional sale.

The Hon’ble Supreme Court observed that;

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. (Para 10)

An ostensible sale with transfer of possession and ownership, but containing a clause for reconveyance in accordance with Section 58(c) of the Transfer of Property 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. (Para 10)

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. (Para 10)

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. (Para 12)

When the mortgagor, in a mortgage by conditional sale, is in possession of the mortgaged land and is unable to repay anything due to poor financial status, the fact that such mortgagor may not have objected to the mutation so done three years later cannot be considered as sufficient for a contrary interpretation of the agreement. (This inference has been drawn 0n the basis of Para 12)

The limitation for the right to redeem, under Article 61(a) of the Limitation Act 1963, is 30 years. (Para 12)

Copy of judgement: Judgement_12-Sep-2019

-Adv. Tushar Kaushik

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