An analysis on Sale and Mortgage by Conditional Sale

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Sale


The Transfer of Property Act of 1882 has a section 54 where the term “sale” is defined —“Sale” refers to the transfer of ownership in exchange for a price paid or promised, or a price paid in part and promised in part. Only a registered document can be used to transfer tangible immovable property worth one hundred rupees or more, or a reversion or other intangible thing.

A transfer of tangible immovable property with a value of less than one hundred rupees may be made by a registered instrument or by delivery of the property. When the seller places the buyer, or whoever he directs, in possession of physical immoveable property, it is called delivery.

Contract of sale: A contract for the sale of immoveable property is an agreement that the property will be sold on conditions agreed upon by the parties. It does not constitute any interest in or charge on the property in and of itself.

Mortgage by conditional sale

The Mortgage by Conditional Sale is defined as follows in Section 58 of the Transfer of Property Act:

“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 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 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.”

Judgments

In the case of Bhimrao Ramchandra Khalate vs Nana Dinkar Yadav (Tanpura) on 13 August, 2021, The Supreme Court has stated that the intent of the parties must be considered when determining whether a transaction is an absolute sale or a conditional sale mortgage.

The court also said that:  the intention of the parties has to be seen when the document is executed. It is not in dispute that the condition of retransfer is a part of the same document Such is the condition inserted by an amendment in the year 1929 expressed by the proviso of Section 58(c) of the Act. Outward form of a sale but in essence the documents are of a mortgage, though it is couched in the form of a sale. This Court held that it is impossible to compare one case with another. Each case must be decided on its own facts and circumstances. The document has to read as a whole and if any word is ambiguous, then to find out the intention of the parties when such document was executed. Therefore, a reading of the document would show that the document was executed for the reason that the plaintiff has borrowed a sum of Rs.3,000/- for his household expenses and the defendant is bound to retransfer the land if the amount is paid within one year. The advance of loan and return thereof are part of the same document which creates a relationship of debtor and creditor. Thus, it would be covered by proviso in Section 58(c) of the Act.”

In the case of Satyadeo Sharma And Ors. vs Ramsarup Sharma And Ors. on 21 November, 1963  the court said “Once a transaction is embodied 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”.

In the above case, the court found the type of transaction to be of Mortgage by conditional sale but the document was in the form of an absolute sale deed.

Conclusion

When the Transfer of Property Act was passed, it just detailed the current law as it was practised in India in Section 58 and did not include any new legal provisions. In Balkishen Das v W. H. Legge, ILR 22 All 149 (P.C.), the Judicial Committee made the same observation. According to the Special Committee on Section 58(c) Report, it was deemed desirable to establish a statutory test by which the parties’ intent could be ascertained, and it was proposed that no transaction should be deemed to be a mortgage by conditional sale unless the condition was embodied in the document that effected or purported to effect the sale. The amendment:

“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.”

After this amendment, the only thing that must be found in a document evidencing a disputed transaction is whether any of the conditions set forth in Clause (c) are embodied in that document, and only then will the document, though effecting or purporting to effect a sale, be taken as evidencing a mortgage transaction. Though there have been amendments and judgments elaborating on the difference between an outright sale deed and mortgage by conditional sale, there are still many gaps which could be addressed. The form/format in which a mortgage by conditional sale is drafted needs to be rigid. Due to this ambiguity, there exist many disputes

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