ARTICLE
7 January 2025

Leela Agrawal (Appellant) v. Sarkar And Ans. (Respondents) - Civil Appeal No's. 12538-12539 Of 2024

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In the year 1990, the Plaintiff mortgaged a suit property to the Respondent for ₹75,000 with an undertaking to repay ₹1,20,000 including interest within three years.
India Real Estate and Construction

Background facts*

  • In the year 1990, the Plaintiff mortgaged a suit property to the Respondent for ₹75,000 with an undertaking to repay ₹1,20,000 including interest within three years.
  • The mortgage deed contained a clause which stipulated that if the amount was not repaid within the agreed period, the mortgage would convert into an absolute sale.
  • In 1993 the Plaintiff tried to redeem the mortgage by offering ₹1,20,000 to the Respondent.
  • In response, the Respondent refused to accept the payment on the ground that the mortgage had already resulted in an absolute sale as the payment was not made within the time limit of three years.
  • Aggrieved by the defendant's refusal to accept the payment, the Plaintiff filed a Suit seeking redemption of the mortgage Civil Suit No. 26-A/2001 before the Court of Additional District Judge, Manendragarh and a declaration that the defendant's claim of ownership was invalid.
  • The trial court decreed the Suit, holding that the condition of converting the mortgage into a sale was a 'clog on the equity of redemption.' It allowed the Plaintiff to redeem the mortgage by paying ₹1,20,000 to the defendant.
  • Aggrieved by the Trial Court's judgment, the defendant filed First Appeal No. 28 of 2004 before the High Court of Chhattisgarh at Bilaspur.
  • The decision of the trial court was reinforced by the High Court, and therefore, the defendant lodged an Appeal to the Supreme Court

Issue(s) at hand*

  1. Whether the transaction was a mortgage by conditional sale or a simple mortgage?
  2. Does the mortgagor's continued possession of the property negate the possibility of the transaction being a mortgage by conditional sale?
  • Was the clause converting the mortgage into an absolute sale upon default a clog on the equity of redemption?

Whether the transaction fulfil the statutory requirements of a mortgage by conditional sale under Section 58(c) of the TPA?

Arguments of the Parties

  • Arguments by the Appellant-
    The Appellant stated that the courts below erred in holding that the mortgage deed dated 17.10.1990 was a simple mortgage under Section 58(b) of the Transfer of Property Act, 1882. In fact, it was a mortgage by conditional sale under Section 58(c), with a stipulation that on default in repayment within three years, the mortgage would become an absolute sale in favour of the defendant. Counsel further argued that, the Plaintiff failed to repay the mortgage amount along with interest within the stipulated three-year period. Consequently, the defendant lawfully became the owner of the suit property in accordance with the terms of the registered deed, which were fully explained to the Plaintiff. In addition, the Counsel also argued that Section 165 of the Chhattisgarh Land Revenue Code, 1959, does not apply to the present case as the Suit land is not agricultural land, and a residential structure has been constructed on it. Also, as per Section 34 of the Specific Relief Act, 1963, a Suit for declaration without seeking consequential relief is not maintainable.
  • Arguments by the Respondents-
    The learned Counsel for the Respondent supported the concurrent findings of the Trial Court, and the High Court rightly held that the transaction was a simple mortgage. The condition to convert the mortgage into an absolute sale upon default is a clog on the equity of redemption and is therefore void. Further, the Counsel also stated that the Plaintiff remained in possession of the land throughout, cultivating it continuously. This uninterrupted possession is evidence that the transaction was not a mortgage by conditional sale. The counsel argued that the interest rate of 4% per month was excessively high. Furthermore, they contended that Section 165 of the Code applies to this case, as the mortgage left the Plaintiff with less than 10 acres of unirrigated land, thereby rendering the mortgage invalid under the Code's provisions.

Findings of the Court

  • On the ground of conditional sale: All the ingredients of Section 58(c) TPA, Supreme Court observed that the essential ingredients of a mortgage by conditional sale under Section 58(c) of the Act are satisfied as there was an ostensible sale of the property by the mortgagor to the mortgagee and the sale was conditional upon default of payment within three years. The Court held the condition that the sale would become absolute upon default as valid and enforceable. It was also emphasised that the condition was embodied in the same document, the mortgage deed, which effected the transaction.
  • On the ground of continuous possession: The Plaintiff was already residing on the land, and the defendant allowed this arrangement. This permissive possession does not grant the Plaintiff any rights beyond those in the mortgage deed. The Trial Court and High Court erred in concluding that the Plaintiff's continuous possession negated the possibility of the transaction being a mortgage by conditional sale.
  • The Plaintiff's possession of the land was for convenience and does not change the nature of the mortgage transaction. The rights and obligations are defined by the mortgage deed, and the Plaintiff's possession does not grant additional rights. The lower courts erred by focusing too much on the aspect of possession to conclude that the transaction was a simple mortgage.
  • On the grounds of Section 165(2) of Chhattisgarh Land Revenue Code, the Plaintiff failed to provide concrete evidence, such as revenue records or land use certificates, to prove the agricultural nature of the land or to show records of less than 10 acres of unencumbered, un-irrigated land after the transaction.
  • The Trial Court and the High Court made errors in their interpretation by placing undue emphasis on possession without considering its permissive nature and the explicit terms of the mortgage deed. The permissive possession of the suit land by the Plaintiff does not negate the nature of the transaction. The conditions stipulated in the mortgage deed fulfil all statutory requirements of a mortgage by conditional sale, and the intention of the parties regarding the same was clear and unambiguous.

Our viewpoint*

  • This case observed about the permissive possession of the mortgagor by conditional sale into a simple mortgage under Section 58(b) of the Transfer of Property Act, 1882. It explains that if a mortgagor stays in possession, it does not make the transaction a 'simple mortgage'. The Supreme Court points out that the nature of the transaction would depend on the terms of the mortgage deed itself, which might contain conditions relating to the transfer upon default.
  • The continued possession of the property by the mortgagor was permissive and made to preserve the land and not confer title. This working agreement, wherein the mortgagor has been residing on the land, does not eliminate the characterization of the transaction as a mortgage by conditional sale.
  • As all conditions of Section 58(c) of TPA were satisfied, including the requirement that the sale would become absolute upon default and that this condition was part of the same deed, the Court emphasized the significance of strict compliance with statutory requirements in property transactions.
  • The judgment critically clarifies about possession, concerning the determination of mortgage types by holding that possession alone, though permissive, cannot act as an explicit term in a registered mortgage deed.
  • The Court based its determination on explicit deed language and testimony to find that parties clearly intended the condition in which failure to make redemption within three years would make the sale absolute. It is in this sense, again, that documented agreements always precede property disputes.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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