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'Mortgage by Conditional Sale' and 'Sale with the Condition of retransfer'.

The mortgagor (borrower) had borrowed a sum from the Mortgagee and transferred the land to the mortgagee by showing the amount borrowed as consideration. Simultaneously, on the same date, another agreement was executed between the parties for reconveyance of the said property in favour of the Mortgagor on repayment of the borrowed money. This article explores whether the said sale can be considered as a Mortgage by conditional sale or not in the light of the recent judgement of the Supreme Court of India in the matter of RAKASH (DEAD) BY LR. Versus G. ARADHYA & ORS 2023 (SC) 685

Section 58(c) of the Transfer of Property Act, 1908 deals with Mortgages by conditional Sale. As per the said section, if the mortgager sells the mortgaged property on the condition that on default of the payment of the mortgage money on a specific date, the sale shall become absolute. If the mortgagor makes the payment to the mortgagee based on the terms of the said deed, the sale shall become void. Such type of transfer of property is called mortgage by Conditional Sale. In order to consider a mortgage as a conditional sale, the said conditions should be embodied in the document executed for sale. If the condition for reconveyance is not embodied in the document, it cannot be considered a conditional sale and will be deemed an absolute sale. A deeming fiction was added to the proviso to Section 58(c) of the Act in the negative that a transaction shall not be deemed a mortgage unless the condition for reconveyance is contained in the document which purports to effect the sale.[1]

A sale with a condition to retransfer / reconveyance is not a mortgage. In case of a sale with the condition to retransfer, all the rights of the seller are being transferred except the personal right to get the property retransferred as agreed upon. In contrast to the agreement for conditional sale, the agreement for retransfer can be on multiple documents executed between the respective parties.

If there is a Mortgage by conditional sale without specific conditions to retransfer on payment of the dues, the same shall be considered as an absolute sale where the rights of the purchaser will get crystalised. The said scenario will remain the same, even if a simultaneous, separate agreement is executed between the same parties for the reconveyance of the said land in case of the settlement of the dues. The reason for not considering said two simultaneously executed documents as ‘Mortgage by Conditional Sale is the non-adherence to the conditions stated in Section 58(2) of the Transfer of Property Act. In a mortgage, the debt subsists, and a right to redeem remains with the debtor, but a sale with a condition of the repurchase is not a lending and borrowing arrangement. There does not exist any debt, and no right to redeem is reserved thereby.[2]

So, it can be concluded that a Sale Deed shall become absolute in the absence of a specific clause for reconveyance in the same agreement itself and due to that reason, the said document shall not be deemed as a document for a mortgage by conditional sale.

Bijoy P Pulipra

[1] RAKASH (DEAD) BY LR. versus G. ARADHYA & ORS 2023 (SC) 685 : 2023 INSC 743 [2] Umabai v. Nilkanth Dhondiba Chavan [(2005) 6 SCC 243]


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