Conditional Sale or Mortgage? Legal Implications of Redemption in Property Disputes

The case before the Supreme Court revolves around the dispute over the nature of a transaction executed on 22nd February 1969 between the appellant, Bhimrao Ramchandra Khalate, and the first defendant, Nana Dinkar Yadav. The crux of the case was whether the document executed was a conditional sale or a mortgage. The appellant sought redemption of the mortgaged property, claiming the transaction was a mortgage by conditional sale. However, the first appellate court, and subsequently the High Court, dismissed his claim, leading to this appeal.

The appellant, Bhimrao Ramchandra Khalate, owned 20 gunthas of agricultural land situated in Village Khunte. In need of money, he borrowed Rs. 3,000 from the first defendant on 22nd February 1969, executing a document titled ‘conditional sale deed’ as security for the loan amount. The plaintiff later requested the first defendant to reconvey the land by repaying the loan amount, but this request was refused. The first defendant later transferred the land to his brother, the second defendant, and the plaintiff filed a suit under the Transfer of Property Act, 1882, for redemption of the mortgaged property and possession.

The legal issue at the heart of the dispute is whether the transaction executed in 1969 was a conditional sale or a mortgage, and whether the plaintiff was entitled to redeem the property. This case highlights the distinction between a mortgage by conditional sale and a sale with a condition for repurchase.

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The plaintiff’s case is that the document executed was in fact a mortgage, even though it was titled as a conditional sale. This is important because under Section 58(c) of the Transfer of Property Act, a mortgage by conditional sale allows the mortgagor to redeem the property by repaying the loan amount, and the mortgagee is obligated to reconvey the property upon repayment. The document executed by the plaintiff clearly stipulated the amount to be paid within a year for redemption, failing which the sale would be considered permanent.

In response, the defendants argued that the transaction was an absolute sale, and the plaintiff had no right to redeem the property. They further argued that the suit for redemption was filed after a significant lapse of time (twenty years), and during that period, the defendants had made improvements to the property. The defendants contended that these improvements should be considered when deciding the plaintiff’s entitlement to redeem the property.

The case drew on precedents set in previous Supreme Court judgments to analyze whether the transaction was a mortgage or a conditional sale. In Pandit Chunchun Jha v. Sheikh Ebadat Ali & Anr. (1954), the Supreme Court explained that the real character of the transaction must be determined from the document’s provisions, the surrounding circumstances, and the intention of the parties at the time the document was executed. The same principle was applied here, where the Court examined whether the intention was to create a debt relationship and provide security for the loan or if the transaction was intended to be an outright sale.

In support of the plaintiff’s claim, the Court cited the judgment in Bhaskar Waman Joshi v. Shri Narayan Rambilas Agarwal (1960), where the Court held that the presence of a condition for reconveyance in the same document indicates a mortgage by conditional sale, even if the transaction outwardly appeared to be a sale. The same reasoning was applied in this case, where the document clearly provided that the land would be reconveyed to the plaintiff if the loan was repaid within a year.

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The Court also referred to the judgment in P.L. Bapuswami v. N. Pattay Gounder (1966), which distinguished a mortgage by conditional sale from a sale with a condition of repurchase, emphasizing the creation of a debtor-creditor relationship in the former. In this case, the document executed by the plaintiff and the first defendant clearly created such a relationship, with the advance of Rs. 3,000 and the obligation to repay it within a year, indicating a mortgage by conditional sale.

Furthermore, the Court referred to other cases such as Vithal Tukaram Kadam v. Vamanrao Sawalaram Bhosale (2018), which reaffirmed that a conditional sale with a clause for reconveyance constitutes a mortgage, as long as there is an existing debtor-creditor relationship. The Court in this case emphasized that it is not the form of the document but the intention of the parties that determines its true nature.

The Court also considered the defendants’ argument that the plaintiff had filed the suit after a long delay and that they had made improvements to the land during this period. The Court held that the plaintiff had filed the suit within the statutory period of 30 years for redemption, as the redemption period would commence from the date fixed for repayment under the terms of the document, i.e., 22nd February 1969. Since the suit was filed in 1989, it was well within the limitation period.

On the issue of improvements made by the defendants, the Court cited Section 63 of the Transfer of Property Act, which allows the mortgagor to reclaim improvements made by the mortgagee, unless a contract to the contrary exists. The Court found that there was no evidence to show that the defendants had incurred any costs for improvements that would entitle them to recover any additional amounts. The defendants had enjoyed the usufruct of the property, which compensated for any improvements they may have made.

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Finally, the Court concluded that the transaction executed by the plaintiff was a mortgage by conditional sale, and the plaintiff was entitled to redeem the property by repaying the loan amount. The judgments of the First Appellate Court and the High Court were set aside, and the plaintiff’s suit for redemption was decreed. The plaintiff was given three months to repay the mortgage amount.

Petitioner Name: Bhimrao Ramchandra Khalate
Respondent Name: Nana Dinkar Yadav (Tanpura) & Anr.
Judgment Date: 2021-08-13
Judgment By: Hemant Gupta, A.S. Bopanna
Petition Result: Allowed
Place of Incident: Village Khunte, Satara, Maharashtra
Total Characters in File: 13,654

Petitioner Name: Bhimrao Ramchandra Khalate.
Respondent Name: Nana Dinkar Yadav (Tanpura) & Anr..
Judgment By: Justice Hemant Gupta, Justice A.S. Bopanna.
Place Of Incident: Village Khunte, Satara, Maharashtra.
Judgment Date: 13-08-2021.

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