It is not the form in which deed is clothed, but the nature of transaction, which is decisive #indianlaws

A document, as is well known, must be read in its entirety. When character of a document is in question, although the heading thereof would not be conclusive, it plays a significant role. Intention of the parties must be gathered from the document itself but therefor circumstances attending thereto would also be relevant; particularly when the relationship between the parties is in question. For the said purpose, it is essential that all parts of the deed should be read in their entirety. In the instant case, the document in question had a condition that the amount mentioned when paid back within five years from the date of execution, the property would be returned and in the event of failure, the no right to claim back will exist. 

The suit of the Respondents (Plaintiffs in original trial) for redemption of suit property was decreed by High Court. Plaintiffs had executed a deed in favor of Defendant, titled as conditional sale providing therein that if the repayment is made within a period of five years, the defendants shall give back the property in suit with possession to the plaintiffs with further stipulation that the plaintiffs would have no right to get back the property after the expiry of the period of five years. Suit was instituted by the plaintiffs on repayment of the mortgage money and further sought to recover the possession of the property with mesne profits. The plaintiffs pleaded that the deed in question was a mortgage deed, and as such they have right to redeem the same.

The suit was contested on the ground that deed in question was not a mortgage transaction but a conditional sale with stipulation of repurchase within a period of five years.

The trial court had held that plaintiffs have failed to prove that the transaction was a mortgage and further that the suit was barred by time, accordingly the same was dismissed. High Court in second appeal reversed the decree passed by the two courts below and that’s how matter came up before the Supreme Court.

The limitation, as observed by Court, was not pressed as Article 60(a) of Limitation Act, 1963 provides thirty years period for filing the suit for redemption. The question arose was whether document in question, in its true interpretation, is mortgage by conditional sale or the sale with option to repurchase?

The Court compared provisions of Section 58 (c) and 60 of The Transfer of Property Act, 1882 dealing with mortgage by conditional sale and right of mortgagor to redeem the property.

As noted by Court, in a mortgage with conditional sale, the relation of a debtor and a creditor subsists while in a sale with an option of re-purchase, there is no such relationship and the parties stand on an equal footing. The mortgage by conditional sale is effected by a single document, while a sale with an option of repurchase is generally effected with the help of two independent documents.

In a mortgage with conditional sale the debt subsists as it is a borrowing arrangement, while in a sale with an option of repurchase, there is no debt but a consideration for sale.

Further, in a mortgage with conditional sale, the amount of consideration is far below the value of the property in the market but in a sale with an option of repurchase the amount of consideration is generally equal to or very near to the value of the property.

Then, in a mortgage with conditional sale, since this is a mortgage transaction, the right of redemption subsists in favour of the mortgagor despite the expiry of the time stipulated in the contract for its payment. The mortgagor has the option to redeem the mortgage and take back the property on the payment of the mortgage money, after the specified time, but in a sale with an option of re-purchase, the original seller must re-purchase the property within the stipulated time period. If he commits a default the option of re-purchase is lost.

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 document 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.

A document, as is well known, must be read in its entirety. When character of a document is in question, although the heading thereof would not be conclusive, it plays a significant role. Intention of the parties must be gathered from the document itself but therefor circumstances attending thereto would also be relevant; particularly when the relationship between the parties is in question. For the said purpose, it is essential that all parts of the deed should be read in their entirety.

In the instant case, the document in question had a condition that the amount mentioned when paid back within five years from the date of execution, the property would be returned and in the event of failure, the no right to claim back will exist.

As the document reveals and legal position supports, the deed in question was held to be a mortgage by way of conditional sale and the decree was held to have rightly passed.

[Patel Ravjibhai Bhulabhai (D) Thr. Lrs. vs.

Rahemanbhai M. Shaikh (D) Thr. Lrs. & Ors.]

SC, 02.05.2016

Civil Appeal No. 4683 of 2016