The Supreme Court has clarified that allowing a mortgagor to remain in possession of the property does not convert a “mortgage by conditional sale” into a “simple mortgage,” provided the deed explicitly states that the mortgagor’s failure to redeem the property within a stipulated time will result in the transfer of ownership to the mortgagee. This ruling aligns with the provisions of Section 58(c) of the Transfer of Property Act, 1882 (TPA).
A bench comprising Justices Vikram Nath and Prasanna B. Varale delivered this judgment while hearing a civil appeal filed by the defendant. The appeal challenged the High Court’s affirmation of the Trial Court’s decision, which allowed the respondent-plaintiff’s suit seeking redemption of the mortgaged property.
Case Background
The plaintiff had mortgaged the suit property to the defendant in 1990 for ₹75,000, agreeing to repay ₹1,20,000 (inclusive of interest) within three years. The mortgage deed contained a clause specifying that failure to repay within the stipulated period would convert the mortgage into an absolute sale.
In 1993, the plaintiff attempted to redeem the mortgage by offering ₹1,20,000 to the defendant. However, the defendant refused, arguing that the plaintiff’s failure to repay within the agreed period had transformed the mortgage into an absolute sale, as per the terms of the deed.
Aggrieved, the plaintiff filed a suit seeking redemption of the mortgage and a declaration that the defendant’s ownership claim was invalid.
The Trial Court decreed in favor of the plaintiff, holding that the clause converting the mortgage into an absolute sale was a “clog on the equity of redemption.” It permitted the plaintiff to redeem the mortgage by paying ₹1,20,000 to the defendant. The High Court upheld this decision, prompting the defendant to approach the Supreme Court.
Key Issues Considered
The Supreme Court analyzed the following factors to determine whether the transaction was a “mortgage by conditional sale”:
1. Nature of Possession: The plaintiff’s possession of the property was permissive, granted by the defendant for practical reasons, and did not indicate ownership or absolute rights.
2. Intention of the Parties: The mortgage deed, supported by witness testimony, clearly indicated that the property would become the defendant’s absolute property upon the plaintiff’s default in payment.
3. Terms of the Mortgage Deed: The deed specified that the right to reclaim the property would be extinguished upon default and allowed the defendant to use the land.
Supreme Court Findings
The Court concluded that the Trial Court and the High Court erred in treating the transaction as a simple mortgage. It observed:
• The deed satisfied all the requirements of Section 58(c) of the TPA for a “mortgage by conditional sale.”
• The plaintiff’s continuous possession of the property was permissive and did not negate the nature of the transaction as a conditional sale.
• The terms of the mortgage deed were explicit, and the intention of the parties was clear and unambiguous.
The judgment authored by Justice Vikram Nath stated:
“The permissive possession of the plaintiff was a practical arrangement as the plaintiff was already residing on the land. This arrangement does not confer additional rights beyond those specified in the mortgage deed. The courts below erred in concluding that continuous possession negated the possibility of the transaction being a mortgage by conditional sale.”
It was further held that labeling the condition as a “clog on the equity of redemption” was unwarranted, given the express terms of the deed.
Conclusion
Allowing the appeal, the Supreme Court ruled that the transaction qualified as a “mortgage by conditional sale,” and the earlier judgments had misinterpreted the nature of the possession and the deed’s terms.
Appearances
For the Petitioner(s): Mr. Kaustubh Shukla, AOR
For the Respondent(s): Mr. C.B. Gururaj, Adv.; Mr. Prakash Ranjan Nayak, AOR; Mr. Animesh Dubey, Adv.; Mr. Apoorv Nautiyal, Adv.; Mr. Arjun D. Singh, Adv.; Ms. Ankita Sharma, AOR
Case Title: Leela Agrawal vs. Sarkar & Anr.
