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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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