Case: Bhaskar Waman Joshi Vs. Shrinarayan Rambilas Agarwal

1. This is an appeal against the decree of the High Court of Judicature of Nagpur in Civil Appeal No. 10 of 1954 reversing the decree passed by the Second Additional District Judge, Amravati in Civil Appeal No. 5-A of 1954. The High Court has by its decree directed the court of first instance to pass a decree for redemption2. The appeal raises a question as to the true effect of a deed dated September 10, 1931, executed by Shri Narayan Rambilas Aggarwal and his two sons Sadan Gopal and Murli Dhar in favouur of two brothers Bhaskar Waman Joshi and Trimbak Waman Joshi. The deed ostensibly conveys an absolute title to certain properties described therein. The transferors under the deed contend that the property transferred by the deed was intended to be mortgaged under a deed of conditional sale. The transferees contend that by the deed an absolute conveyance of the property thereby conveyed was intended and that the conveyance was subject to a condition to repurchase to be exercised within a period of five years from the date of the deed. The court of first instance dismissed the suit holding that the transaction in the deed dated September 10, 1931, was of the nature of an absolute conveyance with a condition of repurchase and the period limited by the deed for recoveyance had expired long before the date of the suit. The High Court held that the transaction was a mortgage by conditional sale and on that view reversed the decree and directed that a redemption decree be passed3. The properties in dispute are three in number: (1) a house in Amravati outside the Amba Gate bearing Municipal No. 5/98, (2) a Chawl in Amravati bearing old Municipal Nos. 6/857,. 6/858and 6/859, and (3) a house situated in Dhanraj Lane Amravati bearing old Municipal No. 3/459. By the deed the properties were separately valued. The house at Amba Gate was valued at Rs. 11,500, the Chawl was valued at Rs. 26,000 and the house at Dhanraj Lane was valued at Rs. 2,000. At the date of this transaction the transferors were indebted to the Imperial Bank of India in the sum of Rs. 30,000 and Rs. 9,500 were due to the transferees and their relations and friends, and to satisfy this liability of Rs. 39,500 the deed was executed. Possession of the property transferred was delivered by calling upon the tenants in occupation to attorn to the transferees. The transferees constructed eight shops in the compound of the Amba Gate house in the year 1940-41 and made certain other constructions in the compound of the Chawl, and they sold the Dhanraj Lane house to one Suraj Mal Salig Ram. On August 26, 1943, the transferors served a notice upon Bhaskar Waman Joshi and the representatives in interest of Trimbak Waman Joshi stating that they were willing to redeem the mortgage created by the deed dated September 10, 1931, and called upon the transferees to render full, true and proper account of the amount claimable under the deed. By their reply Bhaskar Waman Joshi and the representatives of Trimbak Waman Joshi denied that the transferors had any right to redeem the property conveyed by the deed and asserted that the claim to treat the sale as a mortgage was an after thought in view of the abnormal rise in prices which had lately taken place. On September 9, 1943, the three transferors and other members of their joint Hindu family filed suit No. A of 1943 in the Court of the Additional District Judge, Amravati against Bhaskar Waman Joshi and the representatives in interest of Trimbak Waman Joshi and Suraj Mal Salig Ram for a decree for redemption alleging that the transfer incorporated in the deed dated September 10, 1931, was in the nature of a mortgage by conditional sale4. Ex. D-1 which is the deed in question recites that the transferors were indebted that they needed Rs. 39,500 to discharge their liability, that Rs. 2,320 were due to the transferees and that amount was set off and the balance of Rs. 37,180 was paid by eight cheques drawn on the Imperial Bank of India. It was then recited that the immovable properties described in the deed were conveyed in full ownership and that possession was delivered to the transferees. The deed then proceeded to recite the conditions in respect of this sale.:If our heirs or ourselves demand, re-conveyance of one, two or all the three houses of the above estate at any time within 5 (five) years of this date (this time limit shall be followed very strictly-it has been finally settled that we will lose this right if one more day expires) you or your heirs shall reconvey to us at our expenses the respective houses for their respective prices mentioned in this deed of sale. With a view that both sides should have equal rights in respect of this condition, it has been agreed between us that if our heirs or ourselves do not exercise this right of re-conveyance in respect of all the three houses or any one of them within four and a half years of this day and if for any reasons you or your heirs do not deem it proper to retain anyone or all these houses hereafter, you and your heirs have a right to take back from us or our heirs the amount of consideration of this deed of sale and to return, all the three houses or any of them in the condition in which the same may be at that time and if you or your heirs express such a desire and if we or our heirs fail to comply with it, it shall be tantamount to our breaking the agreement of reconveyance and we and our heirs will be liable to pay damages. It has been (further) agreed between us that in the event of such a reconveyance, ours heirs and ourselves will pay full prices (as mentioned in this deed of sale) of the estate in the condition in which it may be at that time that is, in the condition in which it may be on account of heavenly mishap or Government action, on account of any reason whatsoever or on account of fall in prices5. The courts below differed in their interpretation of the true effect of these conditions. In the view of the learned trial Judge, the intention of the parties was to effect an absolute sale and not a mortgage. The High Court did not agree with that view.

Court's reasoning:
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 transactionIf 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 such extrinsic evidence as may be 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 the contemporaneous conduct is always admissible as a surrounding circumstance, but evidence as to subsequent conduct of the parties is inadmissible8. In the light of these principles the real character of the document Ex. D-1 may be ascertained. This agreement strongly indicates that the parties regarded the arrangement incorporated in the deed dated September 10, 1931, as a mortgageThere is in the deed no reference to any additional amount to be spent by the transferees for erecting buildings upon the land conveyed; and the books of the transferees are referred to in the agreement only to make the accounts maintained by them binding upon the transferorsThere is, however, no clear evidence as to what municipal taxes were payable in respect of the houses, and whether the taxes were payable by the tenants or by the landlordThis statement of account abundantly shows that the municipal taxes were borne by the tenants and not by the landlords. The High Court in para, 34 of its judgment proceeded to estimate the rental of the properties at Rs. 245 per month sand capitalised the same at 5 per cent. The High Court is not shown to be in error in accepting the net monthly rental at Rs. 245 per month. There is no clear evidence on the record about the precise area of the lands covered by the structures, but it is conceded that the structures stood on an area less than one-half of the total area of the land. From the evidence especially of the valuation reports, it appears that of the Amba Gate house 5800 square feet of land were open and of the Chawl 12000 square feet of land were open. Valuation of building land with structures by capitalising the rental may yield a reliable basis for ascertaining the value of the land together with the structures only if the land is developed to its full capacity by erection of structures. If the land is not fully developed by raising structures, valuation of houses together with lands by capitalising the rent received may not furnish reliable date for assessing the market value. By aggregating the value of the land and the value of the structure separately estimated a scientifically accurate value of the land with the structure may not be obtained. But where the land is relatively valuable and the structures are old and comparatively of small value this method may afford a rough basis in the absence of other reliable date for ascertaining the value of the land and the structure. Exs. D-52 and D-53 are the reports prepared by a valuer, of the market value of the Chawal and the Amba Gate house. According to the report Ex. D-52, the value of the superstructure of the Chawl was Rs. 31,708. Out of this amount the valuer sought to deduct 20 per cent as per Superintending Engineers letter dated the 21st August, 1931. On what basis that deduction has been made has not been explained. He again proceeded to deduct 20 per cent as depreciation on the cost of the building and estimated at Rs. 20,293 the value of the superstructure. It is evident that a deliberate attempt was made by the valuer to depreciate the value of the superstructure by making at least one deduction of 20 per cent for which there is no warrant. Even assuming that this valuation of Rs. 20,293 is accurate, the value of the Chawl together with the land considerably exceeds Rs. 26,000. The valuer has valued the site at 4 as, per square foot, but no reliable evidence has been led to support that estimate, Similarly for the Amba Gate house the valuer estimated the value at Rs. 18,.556 for the superstructure and he deducted 20 per cent with effect from the 22nd August, 1931 according to the Superintending Engineers letter dated the 21st August, 1931 and 25 per cent as depreciation charges on building and arrived at the figure of Rs. 11,134 and added there to the value of the land at the rate of 4 as. per square foot. The evidence on the record does not warrant the assumption that the land was wroth only annas four per square foot. As pointed out by the High Court in view of the sale deeds Exs. P-9 and P-21 the price of the land fluctuated between Re. 1 and Rs. 2-4 as per square foot. Even if the lower of the two rates be adopted, the value of the Chawl and the Amba Gate house will considerably exceed the price embodied in the sale deed12. The house in Dhanraj Lane was valued in the draft sale at Rs. 3,500 and in the sale deed at Rs. 2,000. No explanation has been given for this disparity between the prices mentioned in the draft and the sale deed and there is substance in the contention strongly pressed by counsel for the transferors that the value of Rs. 2,000 for a house with a ground floor and two stories is artificial. The evidence discloses that the house was let out on a monthly rent of Rs. 20 and capitalising that rent at 5 per cent on the assumption that by the construction the land was fully developed, the price thereof was more than double the price set out in the deed. It is clear that this house was included in the deed to make up the total value of Rs. 39,500, the amount required by the transferors to tide over their immediate difficulties13. Counsel for the transferees sought to rely upon the evidence of subsequent conduct of the transferors as indicative of the character of the transaction as a, but as already observed, that evidence is inadmissible.