Pandit Chunchun Jha Vs. Sheikh Ebadat
Ali & ANR  INSC 42 (14 April 1954)
BOSE, VIVIAN MUKHERJEA, B.K.
HASAN, GHULAM AIYYAR, T.L. VENKATARAMA
CITATION: 1954 AIR 345 1955 SCR 174
CITATOR INFO :
D 1963 SC1906 (7) D 1992 SC1236 (11,15,18,21)
Transfer of Property Act (Act IV of
1882)-Section 58(c) as amended by Act XX of 1929-Document-Wether a mortgage or
sale outright -Principles for determining whether the document is one or the
There is no hard and fast rule for
determining whether a given transaction is a mortgage by conditional sale or
sale outright with a condition for repurchase.
Each case must be decided on its own facts.
The numerous decisions of the High Courts on the point are of no help because
two documents are seldom expressed in identical terms.
The intention of the parties is the
determining factor but the intention must be gathered from the document itself
which has to be construed to find out the legal effect of the words used by the
parties. If the words are express and clear, effect must 'be given to them and
any extraneous enquiry into what was thought or in. tended is ruled out.
If however there is ambiguity in the language
employed then it is permissible to look to the surrounding circumstances to
determine what was intended.
175 In view of the provisions of the amended
section 58(c) of the Transfer of Property Act, 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
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 affect the sale, then it
is a matter for construction which was meant.
Balkishen Das v. Legge (27 I.A. 58), Alderson
v. White (44 E.R. 924 at 928), Bhagwan Sahai v. Bhagwan Din (17 I.A. 98 at
102), and Thanda Singh v. Wahid-ud-din (43 I.A. 284 at 293) referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 98 of 1953.
Appeal by Special Leave from the Judgment and
Decree dated the 27th day of January, 1949, of the High Court of Judicature at
Patna in Appeal from Appellate Decree No. 690 of 1947 against the Decree dated
the 13th January, 1947, of the Court of the District Judge, Bbagalpur, in Title
Appeal No. 161 of 1946 arising out of the Judgment and Decree dated the 25th
July, 1946, of the Court of the 1st Additional Subordinate Judge, Bhagalpur, in
Title Suit No. 80 of 1945.
N.C. Chatterjee, (A. N. Sinha and S. P.
Verma, ,with him) for the appellant.
Murtaza Fazl Ali and Rajinder Narain, for
respondent No. I.
1954. April 14. The Judgment of the Court was
delivered by BOSE J.-This is a plaintiff's appeal in a suit for re- demption of
what the plaintiff calls a mortgage dated 15th April, 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.
The property covered by the disputed deed
belonged to one Bijai Tanti who died leaving a widow Mst. Phaguni and two sons
Siban Tanti and Chander Tanti. On 25th May, 1922, Siban Tanti alone executed a
176 simple mortgage in favour of the second defendant for Rs.
25. Then on 6th May, 1927, Siban Tanti,
Chander Tanti and Mst. Phaguni mortgaged the same property to the first
defendant for Rs. 250. This was also a simple mortgage.
After this came the transaction in suit dated
15th April, 1930. The same three persons executed the disputed deed.
This was in favour of the first defendant.
The consideration mentioned in the deed is Rs. 634-10-0 due on the second
mortgage and Rs. 65-6-0 taken in cash to enable the executants to meet the
expenses of certain commutation proceedings under section 40 of the Bihar
Tenancy Act in respect of this very land.
The second defendant sued on his mortgage of
1922 but did: not join the subsequent mortgagee, the first defendant. He
obtained a decree against the mortgagors alone and executed it in 1940. He
himself purchased the property in dispute and took possession on 20th March,
1943. Shortly-after, on 19th August, 1943, he sold this land to the plaintiff for
The plaintiff's title is derived from the
second defendant who stepped into the shoes of the mortgagors because of his
suit against the mortgagors in 1940. The plaintiff's case is that the
transaction of 15th April, 1930, is a mortgage and, as the subsequent mortgagee
was not joined as a party to the earlier suit, the plaintiff is entitled to
The first defendant's case is that the
transaction of 15th April, 1930, was not a mortgage but an out and out sale
with a covenant for repurchase which became infructuous because no attempt was
made to act on the covenant within the time specified. The learned trial Judge
and the lower appellate Court both held that the document was a mortgage and so
decreed the plaintiff's claim. The High Court on second appeal reversed these
findings and held it was a sale.
Consequently the learned Judges dismissed the
plaintiff's suit. The plaintiff appeals here.
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 177 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.
The first is that the intention of the
parties is the determining factor: see Balkishen Das V. Legge (1). 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
As Lord Cranworth said in A Aderson v. White
"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 Lord-ships of the Privy
Council applied this rule to India in Bhagwan Sahai v. Bhagwan Din (3) and in
Jhanda Singh v. Wahid-ud-din (4).
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 (1) 27 I.A. 58. (3) 17 I.A. 98 at 102.
(2) 44 E.R. 924 at 928. (4) 43 I.A. 284 at
23 178 extraneous and irrelevant
considerations. Difficulty only arises in the border line cases where there is
Unfortunately, they form the bulk of this
kind of transaction.
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 document with which we are concerned,
Exhibit A, is in the following terms and our first duty is to construe the
language used and see whether it is ambiguous. (We have paragraphed the
document for convenience of construction and have omitted unnecessary words).
(1)" Rs. 634 principal with interest
under a registered rehan bond " (simple mortgage) " dated the 6th
May, 1927, is justly due............ by us the executants. Now we further
require Rs. 65-6-0 more to meet costs of the suit under section 40."
(Bihar Tenancy Act).
(2)(I; and at present there is no other way
in view rather it seems impossible and difficult to arrange for 179 the money
without selling the property let out in rehan " (simple mortgage) "
under the above mentioned bond." (3) " Therefore, we the executants
declare.... that we sold -and vended the properties detailed below on condition
(given below) for a fair and just price of Rs. 700 " (4) "That we set
off Rs. 634- 10-0 against the consideration money " (torn) " payable
under the aforesaid bond in favour of the said vendee and received Rs. 65-6-0
in cash from the said vendee. In this way the entire consideration money was
realised from the said vendee." (5) " and we put the said vendee in
possession and occupation of the vended property detailed below and made him an
absolute proprietor in our places." (6) " If we, the executants, shall
repay the consideration money to the said vendee within two years............
the property vended under this deed of conditional sale attached shall come in
exclusive possession and occupation of us the executants." (7) " If
we do not pay the same, the said vendee shall remain in possession and
occupation thereof, generation after generation, and he shall appropriate the
produce thereof." (8) " We, the executants, neither have nor shall
have any objection whatsoever in respect of the vended property and the consideration
money. Perchance if we do so it shall be deemed null and void in Court."
"and we declare also that the vended property is flawless in every way and
that if in future any kind of defect whatsoever be found on account of which
the said vendee be dispossessed of a portion or the entire property vended
under this deed of conditional sale and will have to pay the loss or damage, in
that event we, the executants, (a) shall be liable to be prosecuted under the
criminal procedure, and (b) we shall pay the entire consideration money
together with loss and damage and interest at the rate of Rs. 2 per mensem per
hundred rupees from the date 180 of the execution of this deed till the date of
realisation from our person and other properties (c)and we shall not claim the
produce of the vended property for the period of vendee's possession against
the said vendee or his heirs and representatives." (10) " Therefore
we, the executants......... have executed this deed of conditional sale so that
it may be of use in future." In our opinion, this language is not free
from difficulty and is ambiguous. The deed purports to be a sale and has the
outward form of one but at the same time it calls itself a" conditional
sale." It has however, no clause for retransfer and instead says (clause
6) that if the executants pay the money within two yeas, the property "
shall come in exclusive possession and occupation of us, the executants."
That is clear about the possession but is silent about the title. In the
context we can only take these words to mean that if there is payment within
the specified time, then the title will continue to reside in the executants;
for what else can a right of exclusive possession import in these circumstances
? It is relevant to note in passing that this silence about title would be
proper in a mortgage for there the owner's title remains in him all the while
and so a reconveyance is unnecessary. But if there is an out and out sale the
title could not revert to the original owner without a proper reconveyance.
Clause (7) appears to underline this because it couples the transferee's; right
to remain in possession and occupation and to appropriate the produce "
generation after generation " with the non-payment of the money within the
time set out. It is true the words of conveyance in the earlier part Of the
deed (clause 5) would pass an absolute title if they stood alone but the
document must be read as a whole and it must also be remembered that it was
executed by ignorant justice and scribed by a man whose knowledge of
conveyancing was, on the face of it, rudimentary and defective. The deed lacks
the precision of a practised hand and that probably accounts. for its
ambiguities: that there is ambiguity is patent from what we have said.
181 The next step is to see whether the
document is covered by section 58(c) of the Transfer of Property Act, for- if
it is not, then it cannot be a mortgage by conditional sale. The first point
there is to see whether there is an " ostensible sale." That means a
transaction which takes the outward form of a sale, for the essence of a
mortgage by conditional sale is that though in substance it is a mortgage it is
couched in the form of a sale with certain conditions attached. The executable
clearly purported to sell the property in clause (5) because they say so,
therefore, if the transaction is not in substance a mortgage, it is
unquestionably a sale: an actual sale and not merely an ostensible one. But if
it is a mortgage, then the condition about an " ostensible sale " is
We next turn to the conditions. The ones
relevant to the present purpose are contained in clauses (6) and (7). Both are
ambiguous, but we have already said that on a fair construction clause (6)
means that if the money is paid within the two years then the possession will
revert to the executants with the result that the title which is already in
them will continue to reside there. The necessary consequence of that is that
the ostensible sale becomes void. Similarly, clause- (7), though clumsily
worded, can only mean that if the money is not paid, then the sale shall become
absolute. Those are not the actual words used but, in our opinion, that is a
fair construction of their meaning when the document is read as a whole. If
that is what they mean, as we hold they do, then the matter falls squarely
within the ambit of section 58(c).
Now, as we have already 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
There are no express words here which say
that this is not a mortgage but there is ambiguity, so we must probe further.
The respondents, who claim that this 182 is a
sale and not a mortgage, rely on the following circumstances. They are all
culled from the deed itself First, they point to clause (5) which says that the
transferee has been made the absolute proprietor in place of the executants.
Those, they say, are the operative words and point to an out and out transfer
of title. Next, they point to clause (2) where the executants say that they
have no other Means of raising the money they want except by selling the
property. The respondents argue that the word " sale " could not have
been used inadvertently because it is contrasted with a mortgage in the very
same sentence. The word " mortgage "is also used in clause (1),
therefore it is clear that when a mortgage is intended the word " mortgage
is used. It must follow that when the word " sale is used, a sale must
have been meant. The only weakness in this argument is that when a mortgage is
by conditional sale this is the form it has to take, because section 58(c)
postulates that there must be an " ostensible sale " and if a sale is
ostensible it must necessarily contain all the outward indicate of a real sale.
The question we are considering can only arise when the word " sale "
is used and, of course, a sale imports a transfer of title. The use of the
words It absolute proprietor in our places " carries the matter no further
because the essence of every sale is to make the vendee the absolute proprietor
of what is sold.
The question here is not whether the words
purport to make the transferee, an absolute proprietor, for of course they must
under section 58(c), but whether that is done " ostensibly " and
whether conditions of a certain kind are attached.
The learned counsel for the respondents next
relied on the fact that clause (3) says that the price paid was a "fair
and just?' one and that the Courts below have found that the consideration was
not inadequate. , He also relies on the fact that no interest was charged, that
the transferee was placed in possession of the property and was Dot to account-
for the usufruct also on the fact that a short term, namely two years, was
fixed for repayment.
183 But on the other side, there is the very
significant fact that Rs. 65-6-0 was borrowed to enable the executants to carry
on commutation proceedings under section 40 of the Bihar Tenancy Act (that is,
for substitution of a cash rent instead of one in kind) in respect of this very
(clause 1). It was admitted before us, and
the lower Courts so find, that the commutation proceedings related to this very
land. The learned High Court Judges discount this by saying that there is no
evidence to show that the proceedings, which were started in 1929, continued
after the deed. But that is a mistake apparently due to the fact that the copy
of the entry in the Rent Schedule, produced before the learned Judges,
inadvertently omitted the date. Mr. N. C. Chatterjee produced a certified copy
of the revenue record here and that gives the missing date. From that it is
clear that the proceedings continued till 18th February,- 1931, that is to say,
for some ten months after the deed.
This, we think, is crucial. Persons who are
selling their property would hardly take the trouble to borrow money in order
to continue revenue proceedings which could no longer benefit them and could
only enure for the good of their transferees.
There is another point in favour of the
appellant, and that is that the surrounding circumstances show that there was a
relationship of debtor and creditor between the. parties existing at the date
of the suit transaction. The bulk of the consideration went in satisfaction of
the mortgage of 6th May, 1927. In those circumstances, seeing that the deed
takes the form of a mortgage by conditional sale under section 58(c) of the
Transfer of Property Act, it is legitimate to infer, in the absence of clear
indications to the contrary, that the relationship of debtor and creditor was
intended to continue.
The point made on behalf of the respondents
about the adequacy of the consideration and the absence of interest can be
explained. The transferee was to take possession of the property and would thus
get the produce and it is evident to us from the tenor of the document that he
was not to be accountable for it.
184 We say this because the indemnity clause
(clause 9) says in sub-clause (b) that in the event of the transferee's
possession being disturbed the executants would among other things, pay him, in
addition to damages, the entire consideration together with interest at 2 per
cent. per month from the date of the deed and would not require the transferee
to account for the usufruct. It is true this can also be read the other way but
considering these very drastic provisions as also the threat of a criminal
prosecution in sub-clause (a), we think the transferee was out to exact more
than his pound of flesh from the unfortunate rustics with whom he was dealing
and that he would not have agreed to account for the profits: indeed that is his
own case, for he says that this was a sale out and out. In these circumstances,
there would be no need to keep a reasonable margin between the debt and the
value of the property as is ordinarily done in the case of a mortgage. Taking
everything into consideration, we are of opinion that the deed is a mortgage by
conditional sale under section 58(c) of the Transfer of Property Act.
The appeal is allowed. The decree of the High
Court is set aside and that of the lower appellate Court is restored except as to
The original owners of the property have lost
it. The value of the property was put at over Rs. 10,000 in the special leave
petition. The second defendant oust,.,, the original owners by getting a
mortgage decree for Rs. 130 in his favour on a mortgage of only Rs. 25 and
purchasing it at the auction himself. He is no longer in the picture as he sold
it to the plaintiff for Rs. 400. The plaintiff has accordingly obtained
property which on his own showing is worth more than Rs. 10,000 for only Rs. 400.
The first defendant spent only Rs. 250 plus Rs. 65-6-0 on it: Rs. 315- 6-0 and
the consideration of the disputed deed is only Rs. 700. it is evident that both
sides are speculators. In the circumstances we direct that each party bear its