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PETITIONER: PANDIT CHUNCHUN JHA

       Vs.

RESPONDENT: SHEIKH  EBADAT  ALI  AND ANOTHER.

DATE OF JUDGMENT: 14/04/1954

BENCH: BOSE, VIVIAN BENCH: BOSE, VIVIAN MUKHERJEA, B.K. HASAN, GHULAM AIYYAR, T.L. VENKATARAMA

CITATION:  1954 AIR  345            1955 SCR  174  CITATOR INFO :  D          1963 SC1906  (7)  D          1992 SC1236  (11,15,18,21)

ACT:     Transfer of Property Act (Act IV of 1882)-Section  58(c) as  amended by Act XX of 1929-Document-Wether a mortgage  or sale  outright  -Principles  for  determining  whether   the document is one or the other.

HEADNOTE: There  is  no hard and fast rule for determining  whether  a given transaction is a mortgage by conditional sale or  sale outright with a condition for repurchase. Each  case must be decided on its own facts.   The  numerous decisions  of  the High Courts on the point are of  no  help because  two  documents are seldom  expressed  in  identical terms. The  intention of the parties is the determining factor  but the  intention  must be gathered from  the  document  itself which  has to be construed to find out the legal  effect  of the words used by the parties.  If the words are express and clear,  effect  must ’be given to them  and  any  extraneous enquiry  into what was thought or in. tended is  ruled  out. If however there is ambiguity in the language employed  then it  is permissible to look to the surrounding  circumstances to determine what was intended. 175 In  view of the provisions of the amended section  58(c)  of the  Transfer of Property Act, if the sale and agreement  to repurchase  are  embodied in separate  documents,  then  the transaction  cannot be a mortgage whether the documents  are contemporaneously  executed or not.  But the mere fact  that there is only one document does not necessarily mean that it must be a mortgage and, cannot be a sale.  If the  condition of  repurchase is embodied in the document that  effects  or purports  to  affect  the  sale, then it  is  a  matter  for construction which was meant. Balkishen  Das v. Legge (27 I.A. 58), Alderson v. White  (44 E.R.  924 at 928), Bhagwan Sahai v. Bhagwan Din (17 I.A.  98 at

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102), and Thanda Singh v. Wahid-ud-din (43 I.A. 284 at  293) referred to.

JUDGMENT:     CIVIL  APPELLATE  JURISDICTION: Civil Appeal No.  98  of 1953.    Appeal  by  Special Leave from the  Judgment  and  Decree dated  the 27th day of January, 1949, of the High  Court  of Judicature at Patna in Appeal from Appellate Decree No.  690 of 1947 against the Decree dated the 13th January, 1947,  of the Court of the District Judge, Bbagalpur, in Title  Appeal No. 161 of 1946 arising out of the Judgment and Decree dated the  25th  July, 1946, of the Court of  the  1st  Additional Subordinate Judge, Bhagalpur, in Title Suit No. 80 of 1945. N.C.  Chatterjee, (A.  N. Sinha and S. P. Verma, ,with  him) for the appellant. Murtaza Fazl Ali and Rajinder Narain, for respondent No. I. 1954.  April 14.  The Judgment of the Court was delivered by BOSE  J.-This  is  a plaintiff’s appeal in a  suit  for  re- demption  of what the plaintiff calls a mortgage dated  15th April, 1930.  The only question for determination is whether this is a mortgage by conditional sale or a sale out and out with a condition of repurchase.  If the former the plaintiff succeeds.  If the latter he is out of Court. The  property covered by the disputed deed belonged  to  one Bijai  Tanti who died leaving a widow Mst.  Phaguni and  two sons  Siban  Tanti and Chander Tanti.  On  25th  May,  1922, Siban Tanti alone executed a 176 simple  mortgage in favour of the second defendant  for  Rs. 25.   Then on 6th May, 1927, Siban Tanti, Chander Tanti  and Mst.   Phaguni  mortgaged  the same property  to  the  first defendant  for Rs. 250.  This was also a   simple  mortgage. After  this came the transaction in suit dated  15th  April, 1930.   The same three persons executed the  disputed  deed. This   was   in  favour  of  the   first   defendant.    The consideration  mentioned in the deed is Rs. 634-10-0 due  on the  second mortgage and Rs. 65-6-0 taken in cash to  enable the  executants to meet the expenses of certain  commutation proceedings  under  section 40 of the Bihar Tenancy  Act  in respect of this very land. The  second defendant sued on his mortgage of 1922 but  did: not join the subsequent mortgagee, the first defendant.   He obtained a decree against the mortgagors alone and  executed it  in 1940.  He himself purchased the property  in  dispute and took possession on 20th March, 1943.  Shortly-after,  on 19th  August, 1943, he sold this land to the  plaintiff  for Rs. 400. The  plaintiff’s title is derived from the second  defendant who stepped into the shoes of the mortgagors because of  his suit  against the mortgagors in 1940.  The plaintiff’s  case is  that the transaction of 15th April, 1930, is a  mortgage and,  as the subsequent mortgagee was not joined as a  party to  the earlier suit, the plaintiff is entitled  to  redeem. The  first defendant’s case is that the transaction of  15th April, 1930, was not a mortgage but an out and out sale with a  covenant for repurchase which became infructuous  because no  attempt was made to act on the covenant within the  time specified.  The learned trial Judge and the lower  appellate Court  both  held that the document was a  mortgage  and  so decreed  the  plaintiff’s claim.  The High Court  on  second appeal  reversed  these  findings and held it  was  a  sale. Consequently  the learned Judges dismissed  the  plaintiff’s

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suit.  The plaintiff appeals here. The  question whether a given transaction is a  mortgage  by conditional  sale  or a sale outright with  a  condition  of repurchase  is  a vexed one which invariably gives  rise  to trouble and litigation.  There are numerous 177 decisions  on the point and much industry has been  expended in some of the High Courts in collating and analysing  them. We think that is a fruitless task because two documents  are seldom expressed in identical terms and when it is necessary to  consider  the attendant circumstances  the  imponderable variables which that brings in its train make it  impossible to  compare one case with another.  Each must be decided  on its own facts.  But certain broad principles remain. The  first  is  that the intention of  the  parties  is  the determining  factor:  see Balkishen Das V. Legge  (1).   But there  is nothing special about that in this class of  cases and here, as in every other case where a document has to  be construed  the  intention  must be gathered,  in  the  first place,  from the document itself.  If the words are  express and clear., effect must be given to them and any  extraneous enquiry into what was thought or intended is ruled out.  the real  question  in  such  a case is  not  what  the  parties intended or meant but what is the legal effect of the  words which  they  used.  If, however, there is ambiguity  in  the language  employed,  then it is permissible to look  to  the surrounding  circumstances to determine what  was  intended. As Lord Cranworth said in A Aderson v. White (2) : "The  rule  of  law  on this  subject  is  one  dictated  by commonsense;  that  prima  facie  an  absolute   conveyance, containing  nothing to show that the relation of debtor  and creditor is to exist between the parties, does not cease  to be  an  absolute  conveyance and become  a  mortgage  merely because the vendor stipulates that he shall have a right  to repurchase...............  In every such case  the  question is,  what, upon a fair construction, is the meaning  of  the instruments? Their  Lord-ships of the Privy Council applied this rule  to India  in  Bhagwan Sahai v. Bhagwan Din (3)  and  in  Jhanda Singh v. Wahid-ud-din (4). The  converse also holds good and if, on the face of it,  an instrument  clearly purports to be a mortgage it  cannot  be turned into a sale by reference to a host of (1) 27 I.A. 58.              (3) 17 I.A. 98 at 102. (2) 44 E.R. 924 at 928.      (4) 43 I.A. 284 at 293. 23 178 extraneous  and irrelevant considerations.  Difficulty  only arises  in the border line cases where there  is  ambiguity. Unfortunately,   they  form  the  bulk  of  this   kind   of transaction. Because of the welter of confusion caused by a multitude  of conflicting decisions the Legislature stepped in and amended section   58(c)   of   the   Transfer   of   Property   Act. Unfortunately  that brought in its train a further  conflict of authority.  But this much is now clear.  If the sale  and agreement to repurchase are embodied in separate  documents, then  the  transaction  cannot be  a  mortgage  whether  the documents  are, contemporaneously executed or not.  But  the converse  does not hold good, that is to say, the mere  fact that  there is only one document does not  necessarily  mean that  it  must be a mortgage and cannot be a sale.   If  the condition  of  repurchase is embodied in the  document  that effects or purports to effect the -sale, then it is a matter for construction which was meant.  The Legislature has  made

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a   clear  cut  classification  and  excluded   transactions embodied  in  more than one document from  the  category  of mortgages,  therefore  it  is  reasonable  to  suppose  that persons  who,  after the amendment, choose not  to  use  two documents,  do  not  intend the transaction to  be  a  sale, unless  they displace that presumption by clear and  express words; and if the conditions of section 58(c) are fulfilled, then we are of opinion that the deed should be construed  as a mortgage. The  document with which we are concerned, Exhibit A, is  in the  following terms and our first duty is to  construe  the language  used  and see whether it is  ambiguous.  (We  have paragraphed the document for convenience of construction and have omitted unnecessary words). (1)"  Rs.  634 principal with interest  under  a  registered rehan bond " (simple mortgage) " dated the 6th May, 1927, is justly due............ by us the executants.  Now we further require  Rs.  65-6-0 more to meet costs of  the  suit  under section 40." (Bihar Tenancy Act). (2)(I;  and at present there is no other way in view  rather it seems impossible and difficult to arrange for 179 the  money without selling the property let out in  rehan  " (simple mortgage) " under the above mentioned bond." (3)  "  Therefore, we the executants  declare....   that  we sold -and vended the properties,detailed below on  condition (given below) for a fair and just price of Rs. 700  " (4)  "That   we   set  off  Rs.  634-   10-0   against   the consideration  money " (torn) " payable under the  aforesaid bond in favour of the said vendee and received Rs. 65-6-0 in cash  from  the  said  vendee.   In  this  way  the   entire consideration money was realised from the said vendee." (5)  "  and  we  put  the  said  vendee  in  possession  and occupation  of the vended property detailed below  and  made him an absolute proprietor in our places." (6)  " If we, the executants, shall repay the  consideration money  to the said vendee within two  years............  the property vended under this deed of conditional sale attached shall come in exclusive possession and occupation of us  the executants." (7)  "  If  we do not pay the same, the  said  vendee  shall remain  in  possession and  occupation  thereof,  generation after  generation,  and  he shall  appropriate  the  produce thereof." (8)  "  We, the executants, neither have nor shall have  any objection  whatsoever in respect of the vended property  and the consideration money.  Perchance if we do so it shall  be deemed null and void in Court." "and we declare also that the vended property is flawless in every  way  and  that  if  in  future  any  kind  of  defect whatsoever  be found on account of which the said vendee  be dispossessed  of  a portion or the  entire  property  vended under this deed of conditional sale and will have to pay the loss or damage, in that event we, the executants, (a)  shall  be  liable to be prosecuted under  the  criminal procedure, and (b)  we  shall pay the entire consideration  money  together with  loss and damage and interest at the rate of Rs. 2  per mensem per hundred rupees from the date 180 of  the execution of this deed till the date of  realisation from our person and other properties (c)and we shall not claim the produce of the vended property for  the  period of vendee’s possession   against  the  said vendee  or his heirs and representatives."

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(10) " Therefore  we, the executants......... have executed this  deed of conditional sale so that it may be of  use  in future." In  our opinion, this language is not free  from  difficulty and  is ambiguous.  The deed purports to be a sale  and  has the outward form of one but at the same time it calls itself a"conditional   sale."   It  has,however,  no   clause   for retransfer   and  instead  says  (clause  6)  that  if   the executants  pay  the money within two yeas, the  property  " shall come in exclusive possession and occupation of us, the executants."  That  is  clear about the  possession  but  is silent  about  the title.  In the context we can  only  take these  words  to mean that if there is  payment  within  the specified  time, then the title will continue to  reside  in the  executants;  for  what else can a  right  of  exclusive possession import in these circumstances ? It  is relevant to note in passing that this  silence  about title  would be proper in a mortgage for there  the  owner’s title remains in him all the while and so a reconveyance  is unnecessary.  But if there is an out and out sale the  title could  not  revert to the original owner  without  a  proper reconveyance.  Clause (7) appears to underline this  because it  couples the transferee’s; right to remain in  possession and  occupation and to appropriate the produce "  generation after generation " with the non-payment of the money  within the time set out.  It is true the words of conveyance in the earlier  part Of the deed (clause 5) would pass an  absolute title if they stood alone but the document must be read as a whole and it must also be remembered that it was executed by ignorant  justice  and scribed by a man whose  knowledge  of conveyancing  was,  on  the  face  of  it,  rudimentary  and defective.  The deed lacks the precision of a practised hand and that probably accounts. for its ambiguities: that  there is ambiguity is patent from what we have said. 181 The  next step is to see whether the document is covered  by section 58(c) of the Transfer of Property Act, for- if it is not, then it cannot be a mortgage by conditional sale.   The first point there is to see whether there is an " ostensible sale." That means a transaction which takes the outward form of a sale, for the essence of a mortgage by conditional sale is  that though in substance it is a mortgage it is  couched in the form of a sale with certain conditions attached.  The executable clearly purported to sell the property in  clause (5)  because they say so, therefore, if the  transaction  is not in substance a mortgage, it is unquestionably a sale: an actual sale and not merely an ostensible one.  But if it  is a mortgage, then the condition about an " ostensible sale  " is fulfilled. We  next turn to the conditions.  The ones relevant  to  the present purpose are contained in clauses (6) and (7).   Both are  ambiguous,  but  we have already said that  on  a  fair construction  clause  (6) means that if the  money  is  paid within the two years then the possession will revert to  the executants  with the result that the title which is  already in  them  will  continue to  reside  there.   The  necessary consequence  of  that is that the  ostensible  sale  becomes void.   Similarly, clause- (7), though clumsily worded,  can only mean that if the money is not paid, then the sale shall become  absolute.  Those are not the actual words used  but, in our opinion, that is a fair construction of their meaning when the document is read as a whole.  If that is what  they mean,  as  we hold they do, then the matter  falls  squarely within the ambit of section 58(c). Now, as we have already said, once a transaction is embodied

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in  One document and not two and once its terms are  covered by  section 58(c) then it must be taken to be a mortgage  by conditional sale unless there are express words to  indicate the  contrary,  or, in a case of  ambiguity,  the  attendant circumstances necessarily lead to the opposite conclusion. There are no express words here which say that this is not a mortgage  but there is ambiguity, so we must probe  further. The respondents, who claim that this 182 is  a  sale  and  not a  mortgage,  rely  on  the  following circumstances.  They are all culled from the deed itself First,  they  point  to  clause  (5)  which  says  that  the transferee has been made the absolute proprietor in place of the  executants.  Those, they say, are the  operative  words and  point to an out and out transfer of title.  Next,  they point to clause (2) where the executants say that they  have no  other  Means of raising the money they  want  except  by selling the property.  The respondents argue that the word " sale " could not have been used inadvertently because it  is contrasted  with a mortgage in the very same sentence.   The word " mortgage "is also used in clause (1), therefore it is clear  that when a mortgage is intended the word "  mortgage is used.  It must follow that when the word " sale is  used, a  sale  must  have been meant. The only  weakness  in  this argument is that when a mortgage is by conditional sale this is the form it has to take, because section 58(c) postulates that  there must be an " ostensible sale " and if a sale  is ostensible  it  must  necessarily contain  all  the  outward indicate  of a real sale.  The question we  are  considering can  only  arise  when the word " sale "  is  used  and,  of course, a sale imports a transfer of title.  The use of  the words  It  absolute proprietor in our places "  carries  the matter  no further because the essence of every sale  is  to make  the  vendee the absolute proprietor of what  is  sold. The  question here is not whether the words purport to  make the  transferee, an absolute proprietor, for of course  they must  under  section  58(c),  but whether  that  is  done  " ostensibly  " and whether conditions of a certain  kind  are attached. The  learned counsel for the respondents next relied on  the fact  that clause (3) says that the price paid was  a  "fair and just?’ one and that the Courts below have found that the consideration  was not inadequate. , He also relies  on  the fact  that no interest was charged, that the transferee  was placed in possession of the property and was Dot to account- for the usufruct also on the fact that a short term,  namely two years, was fixed for repayment. 183 But  on the other side, there is the very  significant  fact that  Rs.  65-6-0 was borrowed to enable the  executants  to carry  on  commutation proceedings under section 40  of  the Bihar Tenancy Act (that is, for substitution of a cash  rent instead  of one in kind) in respect of this  very  property: (clause 1).  It was admitted before us, and the lower Courts so  find, that the commutation proceedings related  to  this very  land.  The learned High Court Judges discount this  by saying   that  there  is  no  evidence  to  show  that   the proceedings, which were started in 1929, continued after the deed.  But that is a mistake apparently due to the fact that the copy of the entry in the Rent Schedule, produced  before the learned Judges, inadvertently omitted the date.  Mr.  N. C.  Chatterjee  produced  a certified copy  of  the  revenue record  here and that gives the missing date.  From that  it is clear that the proceedings continued till 18th February,- 1931,  that is to say, for some ten months after  the  deed.

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This,  we think, is crucial.  Persons who are selling  their property  would hardly take the trouble to borrow  money  in order to continue revenue proceedings which could no  longer benefit  them  and could only enure for the  good  of  their transferees. There is another point in favour of the appellant, and  that is that the surrounding circumstances show that there was  a relationship  of  debtor and creditor between  the.  parties existing  at the date of the suit transaction.  The bulk  of the  consideration went in satisfaction of the  mortgage  of 6th May, 1927.  In those circumstances, seeing that the deed takes  the  form  of a mortgage by  conditional  sale  under section  58(c)  of  the  Transfer of  Property  Act,  it  is legitimate to infer, in the absence of clear indications  to the  contrary, that the relationship of debtor and  creditor was intended to continue. The  point  made  on behalf of  the  respondents  about  the adequacy  of the consideration and the absence  of  interest can be explained.  The transferee was to take possession  of the  property  and  would thus get the  produce  and  it  is evident to us from the tenor of the document that he was not to be accountable for it. 184 We say this because the indemnity clause (clause 9) says  in sub-clause  (b)  that  in  the  event  of  the  transferee’s possession being disturbed the executants would among  other things,  pay  him,  in  addition  to  damages,  the   entire consideration  together  with interest at 2  per  cent.  per month  from the date of the deed and would not  require  the transferee to account for the usufruct.  It is true this can also  be  read  the other way  but  considering  these  very drastic  provisions  as  also  the  threat  of  a   criminal prosecution  in sub-clause (a), we think the transferee  was out  to  exact  more  than  his  pound  of  flesh  from  the unfortunate  rustics  with whom he was dealing and  that  he would  not  have agreed to account for the  profits:  indeed that  is his own case, for he says that this was a sale  out and  out. In these circumstances, there would be no need  to keep  a reasonable margin between the debt and the value  of the  property  as  is  ordinarily done  in  the  case  of  a mortgage.   Taking everything into consideration, we are  of opinion  that  the deed is a mortgage  by  conditional  sale under section 58(c) of the Transfer of Property Act. The appeal is allowed.  The decree of the High Court is  set aside  and  that of the lower appellate  Court  is  restored except as to costs. The original owners of the property have lost it.  The value of  the property was put at over Rs. 10,000 in  the  special leave petition.  The second defendant oust,.,, the  original owners  by  getting  a mortgage decree for Rs.  130  in  his favour on a mortgage of only Rs. 25 and purchasing it at the auction himself.  He is no longer in the picture as he  sold it  to  the  plaintiff  for  Rs.  400.   The  plaintiff  has accordingly  obtained property which on his own  showing  is worth  more  than Rs. 10,000 for only Rs.  400.   The  first defendant spent only Rs. 250 plus Rs. 65-6-0 on it: Rs. 315- 6-0  and the consideration of the disputed deed is only  Rs. 700. it is evident that both sides are speculators.  In  the circumstances we direct that each party bear its own costs.                                  Appeal allowed, 185