Introduction
This article delves into a recent judgment that provides crucial clarity on the nature of mortgages by conditional sale under the Transfer of Property Act, 1882. It examines the distinction between a simple mortgage and a mortgage by conditional sale, particularly focusing on the implications of possession and the enforceability of conditions transforming a mortgage into an absolute sale upon default.
1. Factual Background and Procedural History
The dispute originated from an agricultural land transaction involving a plaintiff, the undisputed owner of a 2-acre plot in Manendragarh, and a defendant. In 1990, the plaintiff, seeking funds, mortgaged the land to the defendant for ₹75,000, executing a registered mortgage deed on October 17, 1990. The plaintiff contended that an oral agreement allowed redemption within three years upon repayment of ₹1,20,000, including principal, interest, and expenses, and she remained in possession of the land during this period.
In 1993, the plaintiff attempted to redeem the mortgage by offering ₹1,20,000, but the defendant refused, claiming the mortgage had converted into an absolute sale due to the plaintiff’s failure to repay within the stipulated time as per the mortgage deed. Aggrieved, the plaintiff filed Civil Suit No. 26-A/2001 before the Additional District Judge, Manendragarh, seeking mortgage redemption and a declaration that the defendant’s ownership claim was invalid. The defendant contested, asserting the mortgage deed’s condition for conversion into a sale upon default and claiming rightful ownership.
The Trial Court, on November 14, 2003, decreed the suit in favor of the plaintiff, holding that the condition converting the mortgage to a sale was a clog on the equity of redemption. It allowed the plaintiff to redeem by paying ₹1,20,000, which the plaintiff deposited with the court. The defendant appealed to the High Court of Chhattisgarh at Bilaspur (First Appeal No. 28 of 2004), which dismissed the appeal and affirmed the Trial Court’s decision on September 6, 2018. The defendant’s subsequent Review Petition No. 222 of 2018 was also dismissed by the High Court on January 30, 2019. Consequently, the defendant appealed to the Supreme Court of India.
2. Identification of Legal Issues
The central legal issue before the Supreme Court was:
- Whether the mortgage deed dated October 17, 1990, constituted a mortgage by conditional sale under Section 58(c) of the Transfer of Property Act, 1882, and consequently, whether the plaintiff was entitled to redeem the mortgage.
A related issue was the applicability of Section 165 of the Chhattisgarh Land Revenue Code, 1959, regarding restrictions on the transfer of agricultural land. The maintainability of the plaintiff’s suit for declaration without seeking consequential relief of possession under Section 34 of the Specific Relief Act, 1963, was also raised.
3. Arguments of the Parties
Arguments for the Defendant (Appellant): The defendant contended that the lower courts erred in classifying the mortgage deed as a simple mortgage under Section 58(b) of the Transfer of Property Act, 1882. Instead, it was argued to be a mortgage by conditional sale under Section 58(c) of the Act, with a clear stipulation for automatic conversion into an absolute sale if the plaintiff failed to repay the mortgage amount with interest within three years. The defendant argued that the plaintiff failed to tender the amount within the agreed period, making the defendant the lawful owner of the suit land. They emphasized that the terms of the registered mortgage deed were fully explained to the plaintiff, and there was no credible evidence to suggest otherwise. Furthermore, the defendant highlighted that the plaintiff did not personally appear in the witness box, with her husband deposing on her behalf as her power of attorney holder.
The defendant also argued that Section 165 of the Chhattisgarh Land Revenue Code, 1959, was inapplicable because the suit land was not agricultural, as residential structures had been constructed on it. Lastly, the defendant submitted that the plaintiff’s suit for declaration was not maintainable without seeking the consequential relief of possession, as required by Section 34 of the Specific Relief Act, 1963.
Arguments for the Plaintiff (Respondent): The plaintiff supported the concurrent findings of the Trial Court and the High Court, arguing that the mortgage was a simple mortgage. They contended that the condition purporting to convert it into an absolute sale upon default was a “clog on the equity of redemption” and thus void. The plaintiff maintained that she remained in continuous possession and cultivation of the suit land, indicating that the transaction was not a mortgage by conditional sale. The exorbitant interest rate of 4% per month was cited as unconscionable, supporting the claim that the terms were oppressive.
Regarding the plaintiff’s husband’s testimony, it was argued that he had personal knowledge of the transaction and was competent to testify, and his evidence was credible and sufficient. The plaintiff also contended that Section 165 of the Chhattisgarh Land Revenue Code applied, rendering the mortgage invalid because the plaintiff was left with less than 10 acres of un-irrigated land after the mortgage.
4. Court’s Analysis and Reasoning
The Supreme Court meticulously analyzed the provisions of Section 58(c) of the Transfer of Property Act, 1882, defining a “mortgage by conditional sale.” The Court outlined the essential ingredients:
- The mortgagor ostensibly sells the mortgaged property to the mortgagee.
- Such ostensible sale is subject to one of three conditions: (a) default of payment on a certain date makes the sale absolute, (b) payment makes the sale void, or (c) payment requires the buyer to retransfer the property.
- The condition must be embodied in the same document that effects or purports to effect the sale.
Applying these ingredients to the present case, the Court found that the mortgage deed dated October 17, 1990, satisfied all criteria. The deed used terms like “mortgage with condition to sell” and referred to the mortgagee as “mortgagee with condition purchaser,” indicating an ostensible sale. Clause 1 of the deed explicitly stated that if the mortgagor failed to repay the money with interest within three years, the mortgage deed would be treated as a sale deed, and the mortgagor would lose all rights to claim possession, with the mortgagee becoming the owner. The Court noted that this clearly established the condition for the sale to become absolute upon default. Furthermore, Clauses 6 and 7 of the mortgage deed reinforced that the condition for conversion of the mortgage into an absolute sale was embodied within the same document, satisfying the proviso to Section 58(c).
The Court then addressed the lower courts’ emphasis on the plaintiff’s continued possession of the suit land. The Supreme Court held that this conclusion overlooked critical aspects of the evidence and the nature of possession. It was an admitted position that the plaintiff remained in possession, but this possession was permissive and for the purpose of safeguarding the property, as evident from the defendant’s testimony. The Court reasoned that such permissive possession, granted out of convenience because the plaintiff was already residing on the land, does not confer additional rights beyond those in the mortgage deed and does not negate the transaction’s character as a mortgage by conditional sale. The Court emphasized that the intention of the parties, as explicitly stated in the deed and corroborated by testimony, was that the property would become the defendant’s absolute property upon default. Allowing the plaintiff to retain both possession and the funds without fulfilling her obligations would lead to unjust enrichment. Therefore, the reliance on possession by the lower courts to conclude it was a simple mortgage was deemed erroneous.
The Supreme Court also noted that the plaintiff failed to repay the mortgage amount within the stipulated three years, and her assertion of the defendant’s refusal to accept repayment was unsubstantiated. The Court highlighted that the plaintiff’s failure to personally testify and instead relying on her husband as a power of attorney holder, undermined her claims, especially regarding matters within her personal knowledge.
Regarding the applicability of Section 165 of the Chhattisgarh Land Revenue Code, the Court observed that the defendant asserted the land was not agricultural due to residential structures, a claim supported by testimony. The plaintiff failed to provide concrete evidence (e.g., revenue records, land use certificates) to establish the agricultural nature of the land or that she was left with less than 10 acres of unencumbered un-irrigated land. In the absence of clear evidence, the applicability of Section 165 could not be presumed. Moreover, even if applicable, the provision would render the transaction voidable at the instance of the State or the affected party, neither of whom had challenged the transaction at the earliest opportunity.
The Court concluded that the Trial Court and High Court erred in disregarding the express terms of the registered mortgage deed and in holding that the condition was a clog on the equity of redemption without sufficient basis. The conditions stipulated in the mortgage deed fulfilled all statutory requirements of a mortgage by conditional sale, and the parties’ intention was clear and unambiguous.
5. Final Conclusion and Holding
The Supreme Court concluded that the mortgage deed dated October 17, 1990, constituted a valid mortgage by conditional sale under Section 58(c) of the Transfer of Property Act, 1882. The condition converting the mortgage into an absolute sale upon default was found to be valid and enforceable. The plaintiff’s failure to repay the mortgage amount within the stipulated period and her lack of credible evidence for attempting to do so were significant. The plaintiff’s failure to testify personally also undermined her case. The applicability of Section 165 of the Chhattisgarh Land Revenue Code was not established.
Accordingly, the appeals were allowed, and the suit filed by the plaintiff was dismissed. The judgments and decrees of the High Court and the Additional District Judge were set aside. The Trial Court was directed to refund the entire amount deposited by the plaintiff, along with accrued interest. The Court also noted, as a caution, that since the plaintiff’s possession was admitted by the defendant, it would be open for the defendant to pursue appropriate legal remedies for possession in accordance with law.
FAQs:
1. What is the difference between a simple mortgage and a mortgage by conditional sale?
A simple mortgage typically involves the transfer of interest in property as security for a loan, with the mortgagor retaining possession. In contrast, a mortgage by conditional sale involves an ostensible sale of the property, with a condition that the sale becomes absolute upon default of payment or becomes void upon payment, and the condition must be part of the same transaction document.
2. Does continued possession by the original owner prevent a transaction from being a conditional sale?
Not necessarily. While possession is a factor, courts examine the nature of possession. If the possession is permissive and intended to safeguard the property rather than indicating absolute ownership, it may not negate the character of a mortgage by conditional sale if other statutory conditions are met.
3. What is a “clog on the equity of redemption” in property law?
A “clog on the equity of redemption” refers to any stipulation in a mortgage deed that directly or indirectly prevents the mortgagor from regaining their property upon repayment of the debt. Such clauses are generally held to be void as they defeat the fundamental right of redemption. However, conditions forming part of a genuine mortgage by conditional sale are distinct and can be enforceable.
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