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The intention of the parties must match the clauses specified in a certain deed: Supreme Court of India

When the dispute revolves around the classification of a document, 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. This was held by Hon’ble Justice Hemant Gupta in the case of Bhimrao Ramchandra Khalate (Deceased) Through Lrs. Vs. Nana Dinkar Yadav (Tanpura) & Anr. [CIVIL APPEAL NO. 10197 OF 2010] on the 13th of August before the Hon’ble Supreme Court at New Delhi.

The brief facts of the case are, the plaintiff was the owner of 20 gunthas of agricultural land1 situated in Village Khunte. The plaintiff was in need of money so he borrowed Rs.3,000/- from defendant No. 1 on 22.2.1969 by executing a document titled “conditional sale deed” as a security for the loan amount. The plaintiff requested defendant No. 1 to reconvey the suit land by accepting the loan amount of Rs.3,000/- but defendant No. 1 refused to do so. On 25.2.1989, defendant No. 1 transferred the suit land in favour of his brother (defendant No. 2). The plaintiff filed a suit against the defendants on 5.4.1989 under the Transfer of Property Act, 1882 for redemption of mortgaged property and possession. The claim of the plaintiff is that the transaction dated 22.2.1969 was in the nature of mortgage even though it was titled as the conditional sale. The plaintiff is in appeal before this Court aggrieved against the judgment passed by the High Court on 11.8.2006 in second appeal whereby the order passed by the First Appellate Court on 14.1.2000 was affirmed, while dismissing the suit for redemption of the mortgage property.

To analyze whether the particular document was of conditional sale or mortgage, the court relied on the judgement in Shri Bhaskar Waman Joshi v. Shri Narayan Rambilas Agarwal AIR 1960 SC 301, wherein, it was held that, “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 transaction. 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 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 sale of the property. 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. It there is ambiguity in the language employed, the intention may be ascertained from the contents of the deed with 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”.

The court also relied on P.L. Bapuswami v. N. Pattay Gounder, AIR 1966 SC 902 wherein, it was 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 subject to an obligation to retransfer property within the priod 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 price charged upon the property conveyed, but the sale 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 of 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. 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 by law be permitted to be adduced to show in what manner the language of the deed was related to existing facts”. Applying the rationale in these cases, the court allowed the appeal by holding, “In view of the judgments mentioned above, the intention of the parties has to be seen when the document is executed. It is not in dispute that the condition of retransfer is a part of the same document Such is the condition inserted by an amendment in the year 1929 expressed by the proviso of Section 58(c) of the Act. outward form of a sale but in essence the documents are of a mortgage, though it is couched in the form of a sale. This Court held that it is impossible to compare one case with another. Each case must be decided on its own facts and circumstances. The document has to read as a whole and if any word is ambiguous, then to find out the intention of the parties when such document was executed. Therefore, a reading of the document would show that the document was executed for the reason that the plaintiff has borrowed a sum of Rs.3,000/- for his household expenses and the defendant is bound to retransfer the land if the amount is paid within one year. The advance of loan and return thereof are part of the same document which creates a relationship of debtor and creditor. Thus, it would be covered by proviso in Section 58(c) of the Act.”

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