Source: Supreme Court

Why in News?

A bench of Justices Hima Kohli and Rajesh Bindal observed that a transaction shall not be deemed to be a mortgage unless the condition for reconveyance is contained in the document which purports to effect the sale.

• The Supreme Court (SC) gave the observation in the matter of Prakash (Dead) By LR. v. G. Aradhya & Ors.

Background

• Two documents regarding conveyance of property through sale deed and reconveyance of same property through buy back deed were executed on the same day.
  • Both deeds were executed on the same day but as different documents.
• The vendee to whom the property was conveyed agreed to re-transfer the property back within five years of the Sale Deed in case the sale consideration of ₹5000/- (Rupees Five Thousand) is paid.
• The vendor (father of appellant) of the property sent notice to the vendee for reconveyance of property.
  • The vendee responded that it was not a mortgage by conditional sale. It was an outright sale of the property.
• The Appellant then filed a suit for redemption of mortgage which was refused by the Trial Court.
  • The order of Trial Court was upheld by the High Court.
• Subsequently, this appeal was filed before the Supreme Court.

Court’s Observation

• The SC observed that Proviso to Section 58(c) of the Transfer of Property Act, 1882 (TPA) states if the condition for re-transfer is not embodied in the document which effects or purports to effect a sale, the transaction will not be regarded as a mortgage.

Mortgage

• Mortgage is defined under Section 58 of the TPA.
  • According to the Section, it is the transfer of an interest in specific immoveable property.
• The transfer is made 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 pecuniary 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 effected is called a mortgage-deed.

Types of Mortgages

• Simple Mortgage:
  • In a simple mortgage, without delivering possession of the mortgaged property, the mortgagor binds himself personally to pay the mortgage money, and mortgagee has the right to sell the property if he fails to pay the amount.
• Mortgage by Conditional Sale:
  • In this type of mortgage, the mortgagor ostensibly sells the mortgaged property based on certain conditions.
• Usufructuary Mortgage:
  • The mortgagor delivers the possession to mortgagee and authorises him to retain such possession until payment of the mortgage-money is made, and to receive the rents and profits accruing from the property.
• English Mortgage:
  • In English Mortgage, the mortgagor binds himself to repay the mortgage-money on a certain date, and transfers the mortgaged property absolutely to the mortgagee, but subject to a proviso that he will re-transfer it to the mortgagor upon payment of the mortgage-money as agreed.
• Mortgage by Deposit of Title-deeds:
  • Where a person in any of the following towns, namely, Calcutta, Madras and Bombay delivers to a creditor or his agent documents of title to immoveable property, with intent to create a security thereon, the transaction is called a mortgage by deposit of title-deeds.
• Anomalous Mortgage:
  • A mortgage which is not a simple mortgage, a mortgage by conditional sale, an usufructuary mortgage, an English mortgage or a mortgage by deposit of title-deeds is called an anomalous mortgage.

Mortage by Conditional Sale

• According to Sub-section (c) of the Section 58 of TPA, the mortgagor ostensibly sells the mortgaged property —
  • on condition that on default of payment of the mortgage-money on a certain date the sale shall become absolute, or
  • on condition that on such payment being made the sale shall become void,
  • Or, on condition that if such payment is made the buyer shall transfer the property to the seller.
• The proviso of the section states that no such transaction shall be deemed to be a mortgage, unless the condition is embodied in the document which effects or purports to effect the sale.