Source: Supreme Court 

Why in News? 

Recently, the Supreme Court in the matter of Leela Agrawal v. Sarkar & Anr.  has held that mere possession by mortgagor does not constitute a “simple mortgage” when the original mortgage was “Mortgage by Conditional Sale”. 

What was the Background of the Leela Agrawal v. Sarkar & Anr. Case?

• The case revolves around a land mortgage transaction between two parties: 
• The plaintiff (a landowner) mortgaged a 2-acre agricultural plot to the defendant due to financial needs. 
• The initial mortgage amount was ₹75,000, with an agreement that the plaintiff could redeem the land within three years by repaying a total of ₹1,20,000 (which included principal, interest, and expenses). 
• The mortgage deed contained a critical clause: if the plaintiff failed to repay the amount within three years, the mortgage would automatically convert into an absolute sale in favor of the defendant. 
• In 1993, when the plaintiff attempted to repay the mortgage amount of ₹1,20,000, the defendant refused to accept the payment.  
• The defendant argued that according to the mortgage deed's terms, the land had already become her absolute property due to the plaintiff's failure to repay within the stipulated time frame. 
• Dissatisfied with the defendant's refusal, the plaintiff filed a civil suit in 2001 seeking: 
  • Redemption of the mortgage 
  • A declaration that the defendant's claim of ownership was invalid 
• The case hinged on interpreting the nature of the mortgage - Whether it was a simple mortgage or a mortgage by conditional sale, and the validity of the conversion clause. 
• The Trial Court held that the condition converting the mortgage into a sale was a "clog on the equity of redemption." 
• The case was then appealed before the Chhattisgarh High Court dismissed the defendant's appeal and emphasized that the plaintiff remained in possession of the land, which suggested it was a simple mortgage and agreed that the conversion clause was a clog on the equity of redemption 
• Aggrieved by the decision, the present appeal was filed before the Supreme Court. 

What were the Court’s Observations? 

• The Supreme Court made the following observations: 
  • Found that the mortgage deed satisfied all ingredients of a mortgage by conditional sale under Section 58(c) of the Transfer of Property Act, 1882 (TPA) 
  • Observed that the permissive possession by the plaintiff did not negate the nature of the transaction 
  • Criticized the lower courts for:  
    • Placing undue emphasis on possession 
    • Overlooking the explicit terms of the mortgage deed 
    • Disregarding the clear intention of the parties 
  • Noted that the plaintiff failed to:  
    • Personally testify in court 
    • Provide credible evidence of attempted repayment 
    • Establish the applicability of Section 165 of the Chhattisgarh Land Revenue Code, 1959 
  • Ultimately allowed the appeals and:  
    • Set aside the judgments of both the Trial Court and High Court 
    • Dismissed the plaintiff's suit 
    • Directed the Trial Court to refund the deposited amount with accrued interest 
• The Supreme Court essentially overturned the previous courts' interpretations, finding in favor of the defendant's understanding of the mortgage deed. 

What is Mortgage? 

• Mortgage is defined by Section 58 (a) of TPA as a transfer of an interest in specific immoveable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt, or the performance of an engagement which may give rise to a pecuniary (monetary) liability. 
• The transferor is called a mortgagor, the transferee a mortgagee; the principal money and interest of which payment is secured for the time being are called the mortgage-money, and the instrument (if any) by which the transfer is affected is called a mortgage-deed. 

What is the Difference Between Simple Mortgage and Mortgage by Conditional Sale?