“(c) Mortgage by conditional sale.—
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.”
Distinguishing features between ‘mortgage by conditional sale’ and ‘sale with an option to repurchase’ are enumerated in Mulla’s Transfer of Property Act (11th Edition) as under:
- In a mortgage with conditional sale, the relation of a debtor and a creditor subsists while in a sale with an option of re-purchase, there is no such relationship and the parties stand on an equal footing.
- A mortgage by conditional sale is effected by a single document, while a sale with an option of repurchase is generally effected with the help of two independent documents.
- In a mortgage with conditional sale the debt subsists as it is a borrowing arrangement, while in a sale with an option of repurchase, there is no debt but a consideration for sale.
- In a mortgage with conditional sale, the amount of consideration is far below the value of the property in the market but in a sale with an option of repurchase the amount of consideration is generally equal to or very near to the value of the property.
- In a mortgage with conditional sale, since this is a mortgage transaction, the right of redemption subsists in favour of the mortgagor despite the expiry of the time stipulated in the contract for its payment.
- The mortgagor has the option to redeem the mortgage and take back the property on the payment of the mortgage money, after the specified time, but in a sale with an option of re-purchase, the original seller must re-purchase the property within the stipulated time period.
- If he commits a default the option of re-purchase is lost.
Supreme Court on Mortgage by Conditional Sale
1. Tulsi and Others vs. Chandrika Prasad and Others, (2006) 8 SCC 322
Apex Court explaining difference between mortgage by conditional sale or sale with condition to repurchase has observed that a distinction exists between a mortgage by way of conditional sale and a sale with condition of purchase.
In the former the debt subsists and a right to redeem remains with the debtor but in case of the latter the transaction does not evidence an arrangement of lending and borrowing and, thus, right to redeem is not reserved thereby.
2. P.L. Bapuswami vs. N. Pattay Gounder, AIR 1966 SC 902
It is held that the definition of a mortgage by conditional sale postulates the creation by the transfer of a relation of mortgagor and mortgagee, the price being charged on the property conveyed.
In a sale 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 property within the period specified.
The distinction between 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 question in each case is one of determination of the real character of the transaction to be ascertained from the provisions of the document viewed, in the light of surrounding circumstances.
If the language is plain and unambiguous it must in the light of the evidence of surrounding circumstances, be given its true legal effect.
3. Vishwanath Dadoba Karale vs. Parisa Shantappa Upadhya, (2008)11 SCC 504
The Court held the deed was a mortgage by conditional sale, and upheld the decree of redemption for mortgage.
4. C.Cheriathan vs. P. Narayanan Embranthiri, (2009) 2 SCC 673
The principle relating to interpreting of document as to whether the sale is mortgage by conditional sale or sale with a condition to repurchase was discussed, and the Apex Court held that a document, as is well known, must be read in its entirety.
When character of a document is in question, although the heading thereof would not be conclusive, it plays a significant role.
Intention of the parties must be gathered from the document itself but therefor circumstances attending thereto would also be relevant; particularly when the relationship between the parties is in question.
For the said purpose, it is essential that all parts of the deed should be read in their entirety.
See Also : Patel Ravjibhai Bhulabhai (D) Thr. LRS. Vs. Rahemanbhai M. Shaikh (D) Thr. LRS. [Supreme Court of India, May 02, 2016]