SC on Mortgage by conditional sale or Sale with condition to repurchase?

Today, i.e. on 23rdApril 2019, the Hon’ble Supreme Court, in the matter of Dharmaji Shankar Shinde And Others v. Rajaram Shripad Joshi (Dead) Through Lrs. And Others, observed that even if the transaction and condition to repurchase are embodied in one document, it cannot be termed as “mortgage by conditional sale” if the intention of the parties and the surrounding circumstances indicate otherwise.

The Hon’ble Supreme Court observed that:

In a “mortgage by conditional sale”, the transfer is made as a security to a loan taken by the mortgagor-owner; whereas in a “sale with a condition to repurchase”, the sale is made by the vendor-owner reserving with himself a right to repurchase it within a stipulated time. (Para 10)

A sale with a condition of retransfer is not a mortgage since the relationship of debtor and creditor does not exist and there is no debt for which the transfer is made as a security. (Para 10)

Whether the document is a “mortgage by conditional sale” or “sale with a condition to repurchase” is to be ascertained from the intention of the parties. It is trite law that the intention of the parties should be gathered from the recitals of the document itself. (Para 10)

As per proviso to Section 58(c) of the Transfer of Property Act, if the sale and agreement to repurchase are embodied in the separate documents then the transaction cannot be a “mortgage by conditional sale” irrespective of whether the documents are contemporaneously executed; but the converse does not hold good. (Para 13)

The real character of the transaction is to be ascertained from the provisions of the deed viewed in the light of the surrounding circumstances. (Para 14)

If the words are plain and unambiguous then in the light of the evidence of the surrounding circumstances, it must be given their true legal effect. (Para 14)

If there is any ambiguity in the language employed, the intention is to be ascertained from the contents of the deed and the language of the deed is to be taken into consideration to ascertain the intention of the parties. Evidence of contemporaneous conduct of the parties is to be taken into consideration as the surrounding circumstances. (Para 14)

Even if the transaction and condition to repurchase are embodied in one document, it cannot be termed to be a “mortgage by conditional sale” if the intention of the parties and the surrounding circumstances indicate otherwise. (This inference has been drawn on the basis of Para 27)

Copy of judgement: Judgement_23-Apr-2019

-Tushar Kaushik

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