Introduction
In India, the Transfer of Property Act, 1882[1] contains the provisions for an array of concepts including the concept of mortgage. Apart from this, the Hindu and Muslim personal laws also recognize the concept of mortgage. The concept of mortgage is very similar to the concept of ‘hypotheca’ of Roman law.[2] Here, if the debtor failed to pay the debt, the creditor could get the property of the debtor for sale and recover the debt himself. In Muslim law, it is known as ‘bye-bil-wafa’ which originated to evade the Islamic prohibition of Interest. The concept of mortgage by conditional sale gradually made way into the Hindu Law to serve the purpose of securing financial agreements.[3] The act of transferring the interest of an immoveable property for the purpose of securing a loan or for the performance of an engagement is called as a Mortgage in simple terms.
Meaning and Definition of Mortgage by Conditional Sale
The concept of Mortgage is defined under Section 58 of the Transfer of Property Act, 1882.[4] In layman terms, when the loan is secured against an immovable property of the debtor then it is called a mortgage. There are six kinds of mortgages specified under Section 58 namely– Simple mortgage, Mortgage by conditional sale, Usufructuary mortgage, English mortgage, Mortgage by the deposit of title deeds or equitable mortgage, and Anomalous mortgage.
Section 58(a) of the act defines mortgage as “the transfer of an interest in a specific immovable property for the purposes of- securing the payment of money that is advanced or is to be advanced by way of loan, any existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability.”
The transferor or the person who mortgages the property is called as the ‘mortgagor’. Whereas, the transferee or the person to whom the said property is mortgaged is called as the ‘mortgagee’. The instrument by way of which the transfer is effected is called as a ‘mortgage deed’. The property that is mortgaged and is the subject of the mortgage is called the ‘mortgaged property’
Section 58(c) of the act defines mortgage by conditional sale. In this type of mortgage, the mortgagor ostensibly sells the mortgaged property but on a condition that on default of payment of the mortgage money, the sale shall become absolute, or on a condition that on the payment of mortgage money, the sale shall become void, or on a condition that on such payment of mortgage money the buyer shall transfer the property back to the seller. Such transaction is called a mortgage by conditional sale and the mortgagee- a mortgagee by conditional sale.
In the case of Gokal Das vs Gobar Dhan Das, it was held that the mortgagor in this sale holds no personal pecuniary liability.[5] The liability here, lies solely on the property.
This is a type of mortgage in which there is an ostensible sale which gets converted into an absolute sale if the ostensible seller of the property is unable to repay the loan. Even though this whole transaction looks like a conditional sale, still, the intention of the parties here is to secure the money which the seller takes as a loan from the purchaser which is an essential ingredient of mortgage.
In the case of Prakasam vs Rajambal [6] a document was ascribed as a sale deed. The price provided in the stamp paper by the transferor was much lesser than the actual price of the property. In this case, a specific condition was attached that stated that post the payment of the ‘principal’ amount the property shall be reconvened. Hence, the Madras High Court that this transaction was not an outright sale but was rather a mortgage by conditional sale.
Essential elements of Mortgage by Conditional Sale
- The Mortgagor ostensibly sells the mortgaged property.
- This ostensible sale is bound by a condition.
- The sale shall become absolute on the lapse of payment by a decided date. (Thumbuswamy v. Hossain Rowthen) [7]
- If the payment is made, then the sale is void.
- If the payment is made, then the property is returned to the seller by the buyer.
Condition of the sale to be embodied in the Same Document
The proviso to Section 58(c) was added by the Amending Act of 1929.[8] It states that it is mandatory that in a mortgage by conditional sale, the condition must be embodied in the same document that is effecting or purporting the purpose of sale. The said amendment is not retrospective in nature.
By way of this proviso, it is emphasized that the provision of repurchase shall be included in the original sale deed itself rather than in a separate document. If these are in separate documents then the nature of transaction would not be a mortgage by conditional sale even if they are executed simultaneously. It is important to note that there is distinction between the concept of mortgage and sale with a condition to repurchase.
In a mortgage by conditional sale, it is necessary that there is an existence of debt between mortgagor and the mortgagee or the debtor or creditor. Whereas, in sale with a condition to repurchase there is no existence of such futuristic debt. Mortgage by conditional sale is the transfer of partial interest. On the other hand, sale with a condition to repurchase is the transfer of the entire interest. When the legal nature of the both transactions are examined they are clearly separated by the intention.
Case Laws
In the case of Pandit Chunchun Jha vs Sheikh Ebadat Ali [9] , the Supreme Court held that the proviso to Section 58(c) makes is very clear and specific that the transaction shall not be regarded as a mortgage if the condition for repurchase is not embodied in the same document.
In Vidhyadhar v. Mankikrao [10], it was held that that the intention of the parties is a crucial factor to determine the nature of the transaction.
In the case of Mangtin vs Rahibhai [11], the Chhattisgarh High Court held that the burden of proof shall lie upon the transferee to prove that a transaction was a case of outright sale and not mortgage. The consideration that is paid shall not affect or alter the nature of the transaction.
Conclusion
Mortgage by conditional sale is a kind of mortgage in which there is an ostensible sale which is later converted in an absolute sale on the failure of payback of the mortgaged amount within a stipulated period of time. In India, It is governed under Section 58(c) of the Transfer of Property Act, 1882. It is basically a practice of loan-lending. It is one of the earliest kinds of mortgage to be practiced. It originated as a custom under numerous legal systems and over the course of time, congregated into the one broad concept of law.
References
[1] THE TRANSFER OF PROPERTY ACT, 1882
[2] Paridhi Goel, ‘Understanding different types of mortgage under the Transfer of Property Act, 1882’ (Ipleaders online blog, 13 July 2021)
[3] Law Corner Online Blog, ‘Mortgage by Conditional Sale under Transfer of Property Act, 1882’ 23 March 2022
[4] Section 58 in the Transfer of Property Act, 1882
[5] Gokal Das vs Gobar Dhan Das, (1880) ILR 2 All 633
[6] Prakasam v. Rajambal, AIR 1975 Mad. 282
[7] Thumbusawmy Moodaly v. Hossain Rowthen, (1875) I.L.R. 1 Mad
[8] Stuti, ‘Judicial Study on Mortgage by Conditional Sale, (Legal Service India E-journal)
[9] Pandit Chunchun Jha v. Sheikh Ebadat Ali, AIR 1954 SC 345
[10] Vidhyadhar v. Mankikrao, AIR 1999 SC 1441
[11] Mangtin v. Rahibhai, AIR 2012, Chh 77
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