Sri Srinivasaiah Vs. H.R. Channabasappa - Supreme Court
The original plaintiff – M.N. Channabasappa was the owner of the suit land (described in detail in schedule to the plaint). He fell in need of money in 1969. He, therefore, approached the original defendant No.1 – B.M. Narayana Shetty and requested him to give some money to overcome the financial crisis faced by him during that time.
Defendant No.1 agreed and accordingly gave Rs.1500/- to the plaintiff by way of loan. In order to secure the repayment, the plaintiff on request made by defendant No.1 executed a document on 28.07.1969 (Ex-P-1) in favour of defendant No.1 and got the same registered with the sub-Registrar, Kanakpura. Defendant No.1 was also placed in possession of the suit property pursuant to the document.
On 30.06.1987, the plaintiff sent a legal notice to defendant No.1 and offered to repay Rs.1500/- to him with a further request to redeem the suit land in his favour in terms of the conditions of Ex. P-1.
The plaintiff contended that the Ex.P-1 was essentially a mortgage deed executed by him in favour of defendant No.1 by way of security for repayment of the loan given to him by defendant No.1. The plaintiff contended that in terms of the conditions of Ex.P-1, he delivered possession of the suit land to defendant No.1 for a period of 5 years to enable defendant No.1 to reap the fruits of the suit land and on repaying Rs.1500/- within five years, restore the possession of the suit land by redeeming the mortgage.
Defendant No.1 sent a reply to the notice on 13.08.1987. He denied the plaintiff’s offer and contended therein that the document dated 28.07.1969 (Ex.P-1) is not a “mortgage deed” as described by the plaintiff in the notice but it is in substance a “sale deed” out and out in relation to the suit land executed by the plaintiff in his favour for Rs.1500/- pursuant to which defendant No.1 was also placed in possession of the suit land as owner. It was contended that defendant No.1, in the meantime, on 25.09.1986 sold the suit land to the appellant herein (defendant No.2) by executing the deed of sale for consideration.
The plaintiff filed Second Appeal before the High Court out of which this appeal arises. The High Court admitted the appeal on the following substantial questions of law:-
“(i) Whether the interpretation placed by the first Appellate Court as the suit document to hold that it is not a mortgage by conditional sale is proper?
(ii) Whether the finding of the first Appellate Court that even if it is construed as a mortgage by conditional sale that the suit is barred by law of limitation is false?”
In Chunchun Jha’s case (supra), this Court examined this very question as to what constitutes “a mortgage by conditional sale or a sale out and out with a condition of repurchase“.
The learned Judge, Vivian Bose J., in his distinctive style of writing speaking for the Bench posed the question as under:
“This is a plaintiff’s appeal in a suit for redemption of what the plaintiff calls a mortgage dated 15-4-1930. 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.”
His Lordship then examined the question in the context of several leading English authorities on the subject and Section 58(c) of the T.P. Act and laid down the following test for deciding the true nature of the document. This is what His Lordship held:
“5. 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 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.
6. The first is that the intention of the parties is the determining factor: see
# Balkishen Das v. Legge. 22 Ind. App.58 (P.C.) (A)
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
# Alderson v. White (1858) 44 E.R.924
at p. 928 (B)-
“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 Lordships of the Privy Council applied this rule to India in Bhagwan Sahai v. Bhagwan Din3 and in
# Jhanda Singh v. Wahid-ud-din, AIR 1916 PC 49
at p.54 (D).
7. 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 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.
8. 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 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 original plaintiff – M.N. Channabasappa was the owner of the suit land (described in detail in schedule to the plaint). He fell in need of money in 1969. He, therefore, approached the original defendant No.1 – B.M. Narayana Shetty and requested him to give some money to overcome the financial crisis faced by him during that time.
Defendant No.1 agreed and accordingly gave Rs.1500/- to the plaintiff by way of loan. In order to secure the repayment, the plaintiff on request made by defendant No.1 executed a document on 28.07.1969 (Ex-P-1) in favour of defendant No.1 and got the same registered with the sub-Registrar, Kanakpura. Defendant No.1 was also placed in possession of the suit property pursuant to the document.
On 30.06.1987, the plaintiff sent a legal notice to defendant No.1 and offered to repay Rs.1500/- to him with a further request to redeem the suit land in his favour in terms of the conditions of Ex. P-1.
The plaintiff contended that the Ex.P-1 was essentially a mortgage deed executed by him in favour of defendant No.1 by way of security for repayment of the loan given to him by defendant No.1. The plaintiff contended that in terms of the conditions of Ex.P-1, he delivered possession of the suit land to defendant No.1 for a period of 5 years to enable defendant No.1 to reap the fruits of the suit land and on repaying Rs.1500/- within five years, restore the possession of the suit land by redeeming the mortgage.
Defendant No.1 sent a reply to the notice on 13.08.1987. He denied the plaintiff’s offer and contended therein that the document dated 28.07.1969 (Ex.P-1) is not a “mortgage deed” as described by the plaintiff in the notice but it is in substance a “sale deed” out and out in relation to the suit land executed by the plaintiff in his favour for Rs.1500/- pursuant to which defendant No.1 was also placed in possession of the suit land as owner. It was contended that defendant No.1, in the meantime, on 25.09.1986 sold the suit land to the appellant herein (defendant No.2) by executing the deed of sale for consideration.
The plaintiff filed Second Appeal before the High Court out of which this appeal arises. The High Court admitted the appeal on the following substantial questions of law:-
“(i) Whether the interpretation placed by the first Appellate Court as the suit document to hold that it is not a mortgage by conditional sale is proper?
(ii) Whether the finding of the first Appellate Court that even if it is construed as a mortgage by conditional sale that the suit is barred by law of limitation is false?”
In Chunchun Jha’s case (supra), this Court examined this very question as to what constitutes “a mortgage by conditional sale or a sale out and out with a condition of repurchase“.
The learned Judge, Vivian Bose J., in his distinctive style of writing speaking for the Bench posed the question as under:
“This is a plaintiff’s appeal in a suit for redemption of what the plaintiff calls a mortgage dated 15-4-1930. 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.”
His Lordship then examined the question in the context of several leading English authorities on the subject and Section 58(c) of the T.P. Act and laid down the following test for deciding the true nature of the document. This is what His Lordship held:
“5. 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 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.
6. The first is that the intention of the parties is the determining factor: see
# Balkishen Das v. Legge. 22 Ind. App.58 (P.C.) (A)
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
# Alderson v. White (1858) 44 E.R.924
at p. 928 (B)-
“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 Lordships of the Privy Council applied this rule to India in Bhagwan Sahai v. Bhagwan Din3 and in
# Jhanda Singh v. Wahid-ud-din, AIR 1916 PC 49
at p.54 (D).
7. 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 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.
8. 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 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.”
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