IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE M.SASIDHARAN NAMBIAR THURSDAY, THE 3RD APRIL 2008 / 14TH CHAITHRA 1930 SA.No. 150 of 1995(A) ------------------------------- AS.46/1989 OF SUB COURT, TIRUR, OS.31/1986 OF MUNSIFF COURT, PARAPPANANGADI. .................... APPELLANTS/ RESPONDENTS IN THE LOWER APPELLATE COURT- PLAINTIFFS IN THE TRIAL COURT: -------------------------------------------------------------------------------------------------- 1. KUTTADAN MUNDAN'S CHILDREN KRISHNAN. 2. RAJAN (MINOR) 16 YEARS. 3. MINI (MINOR) 13 YEARS. 4. KUTTADAN MUNDAN'S WIFE ITTIAKKI. MINORS 2 AND 3 BY GUARDIAN MOTHER 4TH RESPONDENT. APPELLANTS RESIDE AT KANNAMANGALAM AMSOM AND DESOM IN TIRUR TALUK. BY ADV. SRI.T.KRISHNANUNNI. RESPONDENT/ APPELLANT IN LOWER COURT - DEFENDANT IN THE TRIAL COURT: ------------------------------------------------------------------------------------------------------------------------ IRUKULANGARA MUHAMMED, SON OF ALASSANKUTTY, RESIDING KANNAMANGALAM AMSOM AND DESOM IN TIRUR TALUK. BY ADV. SRI.K.RAMACHANDRAN. THIS SECOND APPEAL HAVING BEEN FINALLY HEARD ON 03/04/2008,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ORDER ON C.M.P. NOS. 456/1995 & 978/2001 IN S.A. N. 150/1995-A DISMISSED 03/04/2008. SD/- M.SASIDHARAN NAMBIAR, JUDGE. //TRUE COPY// prv. M.SASIDHARAN NAMBIAR,J. =========================== S.A. NO. 150 OF 1995 =========================== Dated this the 3rd day of April 2008 JUDGMENT The only substantial question in the appeal is whether Ext.A1 is a mortgage by conditional sale or a sale with a condition to repurchase. Ext.A1 document was executed on 21.3.1972. The nomenclature of the document is “jenm Avadhi theeradaram”. Ext.A1 shows that the property originally belonged to deceased Neelandan as per registered assignment deed 1570/1968 (Ext.B1). On his death it devolved on his five children, executant Mundan, his sisters Kottikutti, Karichi and brothers Peravan and Choolan. Mundan had 1/5 undivided share in the property. The total extent of the property is 31 cents. It is in R.S.No.329/2 of Kannamangalam Village. Ext.A1 recital shows that after receiving a consideration of Rs.125/-, Mundan transferred his rights in the property in favour of Muhammed, the respondent/ S.A.150/95 2 plaintiff. It was provided that if Mundan pays Rs.125/-, the consideration received under the sale deed, within a period of three years after the expiry of one year from the date of execution of the sale deed, respondent shall assign the property to Mundan or his legal heirs without any objection. It also provides that from the date of execution of Ext.A1, respondent is the absolute owner of the property including the right to alienate the property. 4th appellant is the widow and appellants 1 to 3 are the children of Mundan. Appellants instituted the suit for redemption and recovery of possession of the property contending that Ext.A1 is not a sale deed with a clause for repurchase but a mortgage by conditional sale and so they are entitled to a decree for redemption of the mortgage. Respondent the defendant in the suit resisted the suit contending that Ext.A1 is not a mortgage by conditional sale but an outright sale with a repurchase clause and under Ext.A1 if the assignor pays the consideration of Rs.125/- within S.A.150/95 3 a period of three years, respondent is to execute a sale deed in his favour and as it is not a mortgage suit for redemption is not sustainable. It was contended that under Ext.A1 only 1/5 share in the property was sold and there is no debtor creditor relationship and it is not a mortgage at all and suit is to be dismissed. 2. Learned Munsiff on the evidence of Pws.1 and 2, DW1 and Exts.A1 to A3, B1 to B9 upholding the case of appellants that it is a mortgage by conditional sale and not a sale with a repurchase clause granted a decree for redemption and recovery of possession. It was challenged before Sub Court, Tirur in A.S.46/1989. Learned Sub Judge on reappreciation of evidence found that Ext.A1 does not create a creditor debtor relationship and the fact that consideration for Ext.A1 was fixed at the intervention of mediators established that it was an outright sale and not a mortgage and set aside the findings of learned Munsiff and dismissed the suit. It is challenged in the second appeal. S.A.150/95 4 3. Second appeal was admitted formulating the following substantial questions of law. 1. Whether first appellate court followed the principles laid down in Chunchunjha v. Ebadat Ali (A.I.R. 1954 SC 345) in deciding whether the transaction is a mortgage by conditional sale or a sale with a condition to repurchase and whether Ext.B2(A1) is a sale deed and not a mortgage by conditional sale. 4. Learned senior counsel appearing for appellants and respondent were heard. 5. The argument of learned senior counsel is that Ext.B2(A1) is only a mortgage by conditional sale and learned Sub Judge did not properly appreciate the recitals in Ext.A1, in the light of S.A.150/95 5 settled legal position and on a proper appreciation of the recitals, it is clear that Ext.A1 is only a mortgage by conditional sale. Learned counsel relying on the decision of the Apex Court in Chunchunjha's case (supra) argued that the test laid down by the Apex Court was not properly applied by the first appellate court. Learned counsel appearing for respondent argued that Ext.A1 cannot be a mortgage by conditional sale as there is no creditor debtor relationship as disclosed in Ext.A1. It was pointed out that under Ext.A1 only the 1/5 fractional share was assigned and there cannot be a mortgage of a fractional share and the very fact that consideration for Ext.A1 was fixed not by either the assignor or the assignee but at the intervention of the mediators establish that it is not a mortgage but an outright sale. Learned counsel also pointed out that the property itself was valued at Rs.600/- and only its 1/5 share was sold for Rs.125/- and it cannot be a mortgage but a sale. It was also pointed out that S.A.150/95 6 there is no provision in Ext.A1 to pay interest on the consideration and what is to be paid by the executant at the time of repurchase, if any, is the exact consideration paid thereunder and first appellate court on proper appreciation of evidence rightly found that it is only a sale with a repurchase clause and not a mortgage by conditional sale. Learned counsel relied on the decisions of the Apex Court in Tamboli Ramanlal Motilal v. Ghanchi Chimanlal Keshavlal(1992 SC 1236),and Unichirakutty v. Kuttimalu & Others (1967 K.L.T.591). 6. Ext.A1 shows that the executant has only 1/5 share in the plaint schedule property. His right was transferred thereunder in favour of the respondent for a consideration of Rs.125/-. It provides that, if the executant pays the consideration of Rs.125/- within a period of three years, after the expiry of one year from the date of execution, respondent has to execute a sale S.A.150/95 7 deed in favour of the executant or his legal heirs transferring the property to the executant. It does not disclose that there was any pre-existing creditor debtor relationship between the parties at the time of execution of Ext.A1. Ext.A1 also does not disclose the purpose for which the property was sold or what purpose the consideration was received by the executant or that a debtor creditor relationship is created thereunder. It shows that the value of the executant's share in the property was fixed as Rs.125/- by the mediators was received by the executant and his right in the property was transferred to the respondent with a provision for repurchase within a period of three years. Not only that Ext.A1 does not disclose a creditor debtor relationship, it also does not provide for payment of any interest for the consideration of Rs.125/-. It also shows that consideration to be paid for repurchasing the right in the property is exactly the same consideration which was paid under the document S.A.150/95 8 even after the lapse of three years. The question is whether in such circumstance Ext.A1 is sale with a clause for repurchase or a mortgage by conditional sale. 7. Clause (c) of Section 58 of Transfer of Property Act defines mortgage by conditional sale as follows “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, 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”. 8. A mortgage by conditional sale takes the form of an ostensible sale of the property with S.A.150/95 9 the condition superadded that it shall become an absolute sale on default of payment on a certain date or subject to the proviso that the sale shall be treated as void and the property retransferred on payment being made. The transaction of mortgage by conditional sale bears the appearance of sale though in reality it is only a mortgage. To the sale is attached a condition that makes it a mortgage by conditional sale. If in that transaction parties intend that there shall be a relationship of debtor and creditor between them, the transaction is a mortgage by conditional sale and if not it is a sale and not a mortgage. The ostensible sale is subject to the proviso that it shall become an absolute sale on default of payment on the specified date. The distinction between a sale with a condition for repurchase and mortgage by conditional sale are stated in G.C.V. Subbarao's Transfer of Property Act Fourth Edition at page 829 as follows are:- 1. If the transaction is S.A.150/95 10 a mortgage, the time of repayment is not regarded as of the essence of the contract. Even after the due date the mortgagor can repay and redeem the mortgaged property, any contract to the contrary notwithstanding. This is because the forfeiture clause cannot be enforced at its literal sense. If the transaction is a sale, the option to re- purchase must be exercised strictly in accordance with the terms of the contract so that if on the due date there is a default in payment the option is irrevocably S.A.150/95 11 forfeited. The distinction is important also for another reason. In the case of a mortgage the mortgagor can assign his rights so that the assignee may pay the mortgage-money and redeem the property. If, however, the transaction is a sale with a contract for re-purchase, the benefit of the contract cannot be assigned for it creates a purely personal right. Whether the transaction is a sale or a mortgage depends upon the intention of the parties. Lord Davey in Balkishen Das v. W.F. Legee (ILR 22 S.A.150/95 12 All.149 (P.C.) laid down the mode to find out the exact nature as follows:- “Intention of the parties should be decided on a consideration of the documents themselves with only such extrinsic evidence of circumstances as might be required to show the relation of the written language is existing facts.” Their Lordships of the Judicial Committee approved the following dictum in Alderson v. White (1858) 44 ER.928. “The rule of law on this subject is one dictated by commonsense; that S.A.150/95 13 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? 9. In the case of a mortgage the mortgagor can assign his rights so that the assignee mortgagor can pay the mortgage money and redeem the S.A.150/95 14 property. On the other hand, if the transaction is a sale, with a contract for repurchase, the benefit of the contract cannot be assigned as it creates a purely personal right. The crucial test to determine whether the transaction is a sale or mortgage by conditional sale is with regard to the outstanding debt. If the parties intended to bring into existence or continue the relationship of debtor and creditor, then it would be a mortgage by conditional sale. If there is no outstanding debt, there can be no mortgage. When the reconveyance is to be made on payment of the same amount as was originally advanced, the transaction is presumably a sale. If there is a stipulation for interest, and the property is to be reconveyed on payment of the money with interest, the transaction is probably a mortgage. If there is a stipulation for retransfer of the property on payment of the same amount as the consideration for the ostensible sale, and that amount is far below the intrinsic worth of the property, the indication is strongly S.A.150/95 15 in favour of the transaction being a mortgage. When there is no bargaining as to the amount of consideration and the price is inadequate, the transaction is likely to be a mortgage. Adequacy of consideration on the other hand points out that the transaction is a sale. If possession continues with the transferor, the transaction is presumed to be a mortgage. If the clause for reconveyance gives only a short time to the vendor within which to repurchase, a sale is suggested. On the other hand a long period suggests a mortgage. 10. Learned senior counsel argued that as the repurchase clause is embodied in the same document, it is a mortgage. The following observations in Chunchun Jha v. Ebadat Ali (AIR 1954 SC 345) is relevant. It reads:- “If the sale and agreement to re-purchase are embodied in separate documents then the transaction cannot be a S.A.150/95 16 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 re-purchase is embodied in the document that effects or purports to effect the sale, then it is a matter for construction which was meant.” 11. The fact that the clause for repurchase is embodied in the same document evidenced in transaction by itself is not a ground to hold that S.A.150/95 17 transaction is not a sale but a mortgage by conditional sale. Supreme Court in Bhaskar v. Shrinarayan (A.I.R. 1960 SC 301) explained the decision of the Apex Court in Chunchunjha's case (supra) as follows:- “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 a condition of such a transaction ostensibly of sale may be regarded as a mortgage is one of intention of the parties to be gathered from S.A.150/95 18 the language of the deed in terpreted 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 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 S.A.150/95 19 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 S.A.150/95 20 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) 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 description of an absolute interest or the right of repurchase bearing the appearance of a right in relation to the exercise of S.A.150/95 21 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 with S.A.150/95 22 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 S.A.150/95 23 inadmissible.” 12. A learned single Judge of this court considered this question in Unichirakutty v. Kuttimalu (1967 K.L.T.591). As in this case there was nothing in that document to show the creation of relationship of the debtor and creditor between the parties. As in this case there was no provision for payment of interest on the consideration shown and no charge for that amount was created. As in this case what was provided in Ext.B1 therein was only to pay exactly the same consideration of Rs.1500/- received by way of purchase money. The transferee was put in possession of the property under Ext.B1. In this case also possession is with the respondent. It is on these circumstance learned single Judge held that the transaction is a sale and not a mortgage by conditional sale. The facts are identical. Added to this, Ext.A1 shows that the stamp paper was purchased by the respondent and not by the S.A.150/95 24 executant which cannot be the case if it is a mortgagee. Ext.B1 shows that the entire property was purchased in 1968 for Rs.600/-. Executant of Ext.A1 has only 1/5 share in the property. Consideration shown in Ext.A1 shows that it is the adequate consideration for sale of the fractional share of the executant. Moreover Ext.A1 shows that the consideration was fixed by mediators, which cannot be the case if the transaction is a mortgage. It is considering all these relevant aspects, first appellate court rightly found that it is not a mortgage but sale. There is no merit in the appeal. Appeal is dismissed. M.SASIDHARAN NAMBIAR JUDGE tpl/- M.SASIDHARAN NAMBIAR, J. --------------------- S.A.NO.150 /1995 --------------------- JUDGMENT 3RD APRIL,2008