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PETITIONER:

MUSHIR MOHAMMED KHAN (DEAD) BY LRS.

Vs.

RESPONDENT:

SMT. SAJEDA BANO & ORS.

DATE OF JUDGMENT: 02/03/2000

BENCH:

Y.K.Sadharwal, S.S.Ahmad

JUDGMENT:

S. SAGHIR AHMAD, J. Habibur Rehman, who is since

dead and is represented by the present respondents, was the

owner of a house situated in Gali Masjid Peerji in

Ibrahimpura, Bhopal, which he had purchased for a sum of

Rs.3,000/- through a registered sale deed dated 24.2.1949.

On 28.12.1955, he executed a sale deed in respect of this

house in favour of the appellant, Mushir Mohammed Khan, who

also is dead and is represented by the present appellant,

for a sum of Rs.1,000/- only. A few days later, namely, on

3rd January, 1956, Mushir Mohammed Khan executed an

agreement in favour of Habibur Rehman agreeing to re-convey

the said house if the amount of Rs.1,000/- was paid back to

him within a period of two years. Habibur Rehman also

executed a rent note in favour of Mushir Mohammed Khan on

the same day. Both the documents, namely, the sale deed

dated 28.12.1955 and the agreement for re-conveyance,

executed on 3rd January, 1956, were registered on 5th

January, 1956. In terms of the rent note, Habibur Rehman

started paying Rs.20/- as rent for the house in question to

Mushir Mohammed Khan. Treating the above documents as

mortgage, Habibur Rehman, who shall hereinafter be referred

to as plaintiff, filed a suit for redemption which was

dismissed by the trial court on 5th of July, 1979. The

appeal filed thereafter was also dismissed by the Vth Addl.

District Judge, Bhopal on 21.12.1982. But the second appeal

filed by the plaintiff was allowed by the Madhya Pradesh

High Court by the impugned judgment dated 27.8.1987.

Learned counsel appearing on behalf of the appellant

[hereinafter referred to as `defendant'] has contended that

the High Court was in error in treating the transaction

between the plaintiff and the defendant as mortgage. He

contended that since the condition of re-conveyance was not

contained in the same document by which the property was

sold by the plaintiff to the defendant, the document could

not be treated to be a deed of mortgage. It is contended

that the agreement by which the defendant agreed to

re-convey the property in question to the plaintiff was an

entirely separate transaction between the parties and even

if that document was read along with the sale deed executed

earlier, the cumulative effect of both the transactions

would not result in a "mortgage" and they will remain two

separate transactions, namely, a sale deed by which the

property was transferred to the defendant and an agreement

by which the defendant agreed to re-convey the property to

the plaintiff. Learned counsel for the plaintiff, on the

contrary, contended that the judgment passed by the High

Court, in the circumstances of the case, was wholly

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justified inasmuch as the property which was purchased by

the plaintiff himself for a sum of Rs.3,000/- was

transferred to the defendant for a sum of Rs.1,000/- only

which was far less than the real value of the property

which, with the lapse of time, escalates specially in big

cities like Bhopal where the property in question is situate

and, therefore, the transaction cannot be treated as an out

and out sale but a mortgage which was executed by the

plaintiff to secure the loan of Rs.1,000/- advanced by the

defendant. He also contended that the plaintiff who has

remained in possession throughout, has already invested huge

amount of money in the improvement of the house and has made

additional room on the first floor which the plaintiff would

not have done if he had sold the property absolutely in

favour of the defendant. He contended that the conduct of

the plaintiff in selling the property for a lower price than

its actual value and investing huge amount even after the

sale transaction indicated that the plaintiff knew and

believed that he was still the owner of that property, which

he would redeem one day. The transaction, by conduct, was,

therefore, a mortgage and not a sale. Let us first analyse

the High Court judgment on this question before proceeding

to consider the respective contentions of the parties`

counsel. The High Court took into consideration both the

documents together, namely, the Sale Deed [Exh. P-2]

executed by the plaintiff in favour of the defendant and the

Agreement of Re-conveyance [Exh. P-3] in the light of the

so-called surrounding circumstances and came to the

conclusion that the transaction between the parties was a

mortgage and not an absolute sale of the property in

question in favour of the defendant. After having come to

the conclusion that the transaction was a mortgage and not a

Sale Deed, the High Court attempted to find out the nature

of the mortgage. On account of the Proviso to Clause (c) of

Section 58 of the Transfer of Property Act, it came to the

conclusion that since the condition for re-conveyance of the

property in favour of the plaintiff was not contained in the

Sale Deed [Exh. P-2], the transaction could not be treated

as a "mortgage by conditional sale". The High Court,

thereafter, came to the conclusion that the prohibition

contained in the above Proviso would operate only in respect

of "mortgage by conditional sale", but not in respect of any

other mortgage as the Proviso was appended to Clause (c) of

Section 58 only. The High Court then proceeded to consider

the ingredients of Clause (d) and recorded a finding that

the transaction between the parties was a usufructuary

mortgage. Having thus found the transaction to be a

mortgage, the High Court, while reversing the judgment

passed by the trial court and the lower appellate court,

decreed the suit of the plaintiff. The question whether

there was a transaction of mortgage or sale between the

parties is to be decided, not only in the light of the

recitals made in the deed, but also in the light of other

circumstances which are established on record. It is true

that there is a difference between a "mortgage by

conditional sale" and a "sale with a condition to

re-purchase"; the basic fact remains that the form of

transaction is not always the final test and the true test

is the intention of the parties in entering into the

transaction. "Mortgage by conditional sale" is defined in

the Clause (c) of Section 58 which provides as under : "(c)

Mortgage by conditional sale. Where 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

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such payment being made the sale shall become void, or on

condition that on such payment being made the buyer shall

transfer the property to the seller, the transaction is

called a mortgage by conditional sale and the mortgagee a

mortgagee by conditional sale. Provided 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." Proviso to this Clause was

added by Act XX of 1929 so as to set at rest the conflict of

decisions on the question whether the conditions, specially

the condition relating to reconveyance contained in a

separate document could be taken into consideration in

finding out whether a mortgage was intended to be created by

the principal deed. The Legislature enacted that a

transaction shall not be deemed to be a mortgage unless the

condition for re-conveyance is contained in the document

which purports to effect the sale. This Proviso was

considered in Chunchun Jha vs. Ebadat Ali & Anr., AIR 1954

SC 345 = 1955 (1) SCR 174, and came to be considered again

in Bhaskar Waman Joshi (D) & Ors. vs. Shrinarayan Rambilas

Agarwal (D) & Ors. AIR 1960 SC 301 = 1960 (2) SCR 117, in

which it was explained as under : "But it does not follow

that if the condition is incorporated in the deed effecting

or purporting to effect a sale a mortgage transaction must

of necessity have been intended. The question whether by

the incorporation of such a condition a transaction

ostensibly of sale may be regarded as a mortgage is one of

intention of the parties to be gathered from the language of

the deed interpreted in the light of the surrounding

circumstances. The circumstance that the condition is

incorporated in the sale deed must undoubtedly be taken into

account, but the value to be attached thereto must vary with

the degree of formality attending upon the transaction." The

Court further considered the distinction between "mortgage

by conditional sale" and a "sale with a condition of

re-purchase" and observed as under : "The definition of a

mortgage by conditional sale postulates the creation by the

transfer of a relation of mortgagor and the mortgagee, the

price being charged on the property conveyed. In a sale

coupled with an agreement to reconvey there is no relation

of debtor and creditor nor is the price charged upon the

property conveyed, but the sale is subject to an obligation

to retransfer the property within the period specified.

What distinguishes the two transactions is the relationship

of debtor and creditor and the transfer being a security for

the debt. The form in which the deed is clothed is not

decisive. The definition of a mortgage by conditional sale

itself contemplates an ostensible sale of the property. As

pointed out by the Judicial Committee of the Privy Council

in Narasingerji Gyanagerji v. P. Parthasaradhi, 51 Ind.

App. 305 [AIR 1924 PC 226], the circumstance that the

transaction as phrased in the document is ostensibly a sale

with a right of repurchase in the vendor, the appearance

being laboriously maintained by the words of conveyance

needlessly iterating the description of an absolute interest

or the right of repurchase bearing the appearance of a right

in relation to the exercise of which time was of the essence

is not decisive. The question in each case is one of

determination of the real character of the transaction to be

ascertained from the provisions of the deed viewed in the

light of surrounding circumstances. If the words are plain

and unambiguous they must in the light of the evidence of

surrounding circumstances be given their true legal effect.

If there is ambiguity in the language employed, the

intention may be ascertained from the contents of the deed

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with such extrinsic evidence as may by law be permitted to

be adduced to show in what manner the language of the deed

was related to existing facts. Oral evidence of intention

is not admissible in interpreting the covenants of the deed

but evidence to explain or even to contradict the recitals

as distinguished from the terms of the documents may of

course be given. Evidence of contemporaneous conduct is

always admissible as a surrounding circumstance, but

evidence as to subsequent conduct of the parties is

inadmissible." The view expressed by this Court in Bhaskar's

case (supra) was repeated in the same words in P.L.

Bapuswami vs. N. Pattay Gounder AIR 1966 SC 902: "The

question whether by the incorporation of such a condition a

transaction ostensibly of sale may be regarded as a mortgage

is one of intention of the parties to be gathered from the

language of the deed interpreted in the light of the

surrounding circumstances. The definition of a mortgage by

conditional sale postulates the creation by the transfer of

a relation of mortgagor and the mortgagee, the price being

charged on the property conveyed. In a sale coupled with an

agreement to reconvey there is no relation of debtor and

creditor nor is the price charged upon the property

conveyed, but the sale is subject to an obligation to

retransfer the property within the period specified. The

distinction between the two transactions is the relationship

of debtor and creditor and the transfer being a security for

the debt. The form in which the deed is clothed is not

decisive. The question in each case is one of determination

of the real character of the transaction to be ascertained

from the provisions of the documents viewed in the light of

surrounding circumstances. If the language is plain and

unambiguous it must in the light of the evidence of

surrounding circumstances be given its true legal effect.

If there is ambiguity in the language employed, the

intention may be ascertained from the contents of the deed

with such extrinsic evidence as may by law be permitted to

be adduced to show in what manner the language of the deed

was related to existing facts." These decisions were

considered again in Vidhyadhar vs. Mankikrao & Anr., AIR

1999 SC (1st)Supp. 1441 = (1999) 3 SCC 573 and it was

observed as under : "47. The basic principle is that the

form of transaction is not the final test and the true test

is the intention of the parties in entering into the

transaction. If the intention of the parties was that the

transfer was by way of security, it would be a mortgage.

The Privy Council as early as in Balkishen Das v. Legge,

(1899) 27 Ind.Appl 58, had laid down that, as between the

parties to the document, the intention to treat the

transaction as an out and out sale or as a mortgage has to

be found out on a consideration of the contents of document

in the light of surrounding circumstances. The decision of

this Court in Bhaskar Waman Joshi v. Shrinarayan Rambilas

Agarwal, AIR 1960 SC 301 : (1960) 2 SCR 117 and P.L.

Bapuswami v. N. Pattay Gounder, AIR 1960 SC 902 : (1966)

2 SCR 918, are also to the same effect. 48. The contents

of the document have already been considered above which

indicate that defendant No. 2 had executed a mortgage by

conditional sale in favour of defendant No. 1. He had

promised to pay back Rs.1500/- to him by a particular date

failing which the document was to be treated as a sale deed.

The intention of the parties is reflected in the contents of

the document which is described as a mortgage by conditional

sale. In the body of the document, the mortgage money has

also been specified. Having regard to the circumstances of

this case as also the fact that the condition of repurchase

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is contained in the same document by which the mortgage was

created in favour of defendant No.1, the deed in question

cannot but be treated as a mortgage by conditional sale.

This is also the finding of the courts below." Applying the

principles laid down above, the two documents read together

would not constitute a `mortgage' as the condition of

re-purchase is not contained in the same documents by which

the property was sold. Proviso to Clause (c) of Section 58

would operate in the instant case also and the transaction

between the parties cannot be held to be a "mortgage by

conditional sale." The High Court, after recording a finding

that the transaction cannot be treated as a "mortgage by

conditional sale", in view of the Proviso to Clause (c) of

Section 58, proceeded to consider the circumstances of the

case and came to the conclusion that although the

transaction was not a "mortgage by conditional sale", it

would definitely be a usufructuary mortgage. The High Court

was of the opinion that all the ingredients which go to

constitute a usufructuary mortgage were present in the

instant case inasmuch as the property was given away to the

defendant for a price which was less than its original price

or the market value on the date on which the sale was

executed in favour of the defendant. The High Court also

found that possession of the property in question was

symbolically delivered to the defendant and the plaintiff

also executed a rent note in favour of the defendant

promising to pay rent in respect of the premises in question

to the defendant every month. We are unable to accept the

reasoning of the High Court. We have already seen above

that the three documents read together do not constitute a

mortgage or mortgage by conditional sale inasmuch as the

condition to repurchase was not contained in the sale deed

itself. If the documents cannot be treated as creating a

mortgage on account of the prohibition contained in the

Proviso to Clause (c) of Section 58, it is difficult to

accept that these documents would create a mortgage of

another kind. The basic fact which has been ignored by the

High Court is that though in a usufructuary mortgage, the

possession has necessarily to be delivered to the mortgagee,

an agreement for reconveyance is not obtained from him.

While recording a finding on the question of usufructuary

mortgage, the High Court did not take into consideration the

second document which represented an agreement between the

parties that if the amount in question, namely, the price

money for which the sale was executed by the plaintiff in

favour of the defendant was returned within the time

stipulated by that agreement, the defendant would reconvey

the property to the plaintiff. An agreement of reconveyance

does not normally constitute part of the transaction by

which usufructuary mortgage is created. Where the parties

executed three documents almost contemporaneously, all the

three documents have to be taken into consideration to find

out the true nature of the transaction. Learned counsel for

the plaintiff referred to the decision of this Court in Smt.

Indira Kaur and others vs. Shri Sheo Lal Kapoor, AIR 1988

SC 1074, and contended that in that case too, the property

was sold and a separate agreement of reconveyance was

executed by which the purchaser had promised to reconvey the

property to the seller on return of the consideration money

for which the sale deed was executed. The seller had also

executed a rent note in favour of the purchaser and thus

continued to occupy the property as tenant. The Court held,

on consideration of all the circumstances, the transaction

to be a mortgage and not an out and out sale in favour of

the purchaser. It is contended that since in the instant

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case also the property was sold and a deed of reconveyance

was executed by the defendant in favour of the plaintiff and

possession was delivered to the defendant only symbolically

inasmuch as the plaintiff had executed a rent note under

which he had promised to pay rent every month to the

defendant, the transaction should also be treated as

mortgage. It is no doubt true that this Court in Smt.

Indira Kaur & ors. vs. Shri Sheo Lal Kapoor (supra) had

held, on considering the facts of that case, the transaction

to be a mortgage. The Court had also relied upon its

earlier decision in Govind Prasad Chaturvedi vs. Hari Dutt

Shastri, 1977 (2) SCR 877 = AIR 1977 SC 1005, in which the

facts were almost similar and in which too, it was held that

the transaction was a mortgage. But the learned counsel did

not notice the relevant observations which are reproduced

below:- "These factors clearly spell out the real intention

of the parties that it was a transaction of mortgage to

secure the sum of Rs.7000/- at approximately 13 1/2%

interest. But then it is not necessary to examine this

dimension of the matter inasmuch as the plaintiff has not

prayed for redemption though in the plaint an averment has

been made that the real intention of the parties was to

create a mortgage. As the plaint stands, and as the

plaintiff himself has preferred to enforce the agreement for

specific performance, it is not necessary to examine the

question as to whether or not the real nature of the

transaction was mortgage though it was given an appearance

of a transaction of a sale. For the same reason we need not

examine the question as to whether or not S.58(c) of the

Transfer of Property Act would have disabled the plaintiff

from claiming the relief of redemption on the basis that the

real intention of the parties was to create a mortgage and

not an absolute sale coupled with an agreement of

reconveyance. This question will have to be dealt with at

appropriate time having regard to the fact that there is an

increasing tendency in recent years to enter into such

transactions in order to deprive the debtor of his right of

redemption within the prescribed period of limitation. In

fact very often the mortgagee in place of getting a mortgage

deed executed in lieu of a loan obtains an agreement to sell

in his favour from the mortgagor so as to bring pressure on

the mortgagor by seeking to enforce specific performance to

enable the mortgagee to obtain possession of the property

for an amount smaller than the real value of the property.

We need not however probe the matter any further for the

purpose of disposing of the present appeal for the reasons

stated earlier." [Emphasis supplied] Thus, the Court did not

consider the effect of the Proviso to Section 58(c) of the

Transfer of Property Act and did not examine the matter from

that angle as the plaintiff, in that case, had not prayed

for redemption but had prayed for specific performance of

the agreement of reconveyance. This decision is, therefore,

of no use to the plaintiff. Though we, on the facts of this

case, cannot hold the transaction to constitute a mortgage

with a condition of repurchase, we also cannot hold the

transaction to be a usufructuary mortgage as held by the

High Court which, in our opinion, was in error in recording

that finding by excluding from its consideration the

agreement of reconveyance. But we also cannot lose sight of

a number of relevant factors for doing complete justice

between the parties. These factors are that though the

property was purchased by the plaintiff for a sum of

Rs.3000/- in 1949, it was sold to the defendant for a

smaller sum of Rs.1,000/- on 28.12.1955. This indicates

that the property was ostensibly transferred to the

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defendant not for its real value but for a price which was

far less than the market value which must have considerably

appreciated from 1949 when the property was purchased by the

plaintiff till 1955 when it was sold by him to the

defendant. The other circumstance was that the defendant

executed a contemporaneous document in favour of the

plaintiff by which he agreed to reconvey the property to the

plaintiff if the sum of Rs.1000/- was returned to him within

two years. That is to say, even though the defendant knew

that within two years, the value of the property would

further escalate, he agreed on a reconveyance for the

original price of Rs.1,000/- for which it was sold to him.

It is in these circumstances that the observations of this

Court in Smt. Indira Kaur and others vs. Shri Sheo Lal

Kapoor (supra), which are repeated below, become relevant :-

"........there is an increasing tendency in recent years to

enter into such transactions in order to deprive the debtor

of his right of redemption within the prescribed period of

limitation. In fact very often the mortgagee in place of

getting a mortgage deed executed in lieu of a loan obtains

an agreement to sell in his favour from the mortgagor so as

to bring pressure on the mortgagor by seeking to enforce

specific performance to enable the mortgagee to obtain

possession of the property for an amount smaller than the

real value of the property......." This might have happened

in the instant case also and instead of executing a Mortgage

deed in respect of the property in question, the plaintiff

was persuaded to execute a sale deed in favour of the

defendant who executed an agreement of reconveyance in

favour of the plaintiff. In U. Nilan vs. Kannayyan (Dead)

Through LRs. JT 1999(7) SC 621 = 1999(8) SCC 511, this

Court observed as under : "Adversity of a person is not a

boon for others. If a person in stringent financial

conditions had taken the loan and placed his properties as

security therefor, the situation cannot be exploited by the

person who had advanced the loan. The Court seeks to

protect the person affected by adverse circumstances from

being a victim of exploitation. It is this philosophy which

is followed by the Court in allowing that person to redeem

his properties by making the deposit under Order 34 Rule 5

C.P.C." Having regard to the circumstances of the case,

parties were allowed time to negotiate a settlement, but

they have failed to arrive at a compromise. Although the

plaintiff offered a sum of Rs. 1 lakh to be paid within six

months to the defendant, the defendant made a counter offer

of Rs.1.5 lakh, forgoing also the arrears of rent, to the

plaintiff, but the plaintiff is not prepared to give up the

title in the property as indicated by the letters written by

the respective counsel to the Registrar of this Court, which

were placed before us. This tussle, however, does indicate

that the amount of Rs. 1,000/- for which the property was

sold by the plaintiff in favour of the defendant, does not

represent the true market value of the property, neither on

the date on which the sale deed was executed in favour of

the defendant nor does it represent the true value of the

property today. We, therefore, dispose of this appeal by

providing that if the defendant pays a sum of Rs.2 lakhs

[forgoing also the arrears of rent uptodate] within three

months from today, the judgment passed by the High Court

shall stand set aside and those of the trial court and the

lower appellate court shall stand restored. In case,

however, the amount is not paid within the aforesaid period,

the appeal shall stand dismissed with costs.

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