DHARMASHASTRA NATIONAL LAW UNIVERSITY,

JABALPUR

CONDITIONAL MORTGAGE

SEMESTER – VI

SUBMITED TO
Mr. ANIMESH JHA
ASSISTANT PROFESSOR (LAW)
SUBMITTED BY
LAKSHYA DAWAR
3rd Year B.A. LL. B (Hons.)
BALLB/114/21

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 TABLE OF CONTENTS
INTRODUCTION............................................................................................... 3

ESSENTIAL ELEMENTS ................................................................................. 4

THE IDEA OF PRESUMPTIVE PURCHASE.............................................. 5

CONDITION TO BE EMBODIED IN THE SAME DOCUMENT .............. 6

MORTGAGE BY CONDITIONAL SALE WITH A CONDITION TO

REPURCHASE ................................................................................................... 8

CONCLUSION.................................................................................................... 9

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INTRODUCTION

Most of us are familiar with the term “Mortgage” from our daily lives. Even the layperson
understands the notion of a mortgage. The general public's conception of a mortgage also
focuses on the simple mortgage however legalese tells us that there are numerous dimensions
to mortgages and that the transaction is not limited to simply simple mortgages.
The scope of mortgage transactions is very broad and includes six major types of mortgages,
of which the author in this project is primarily interested in the second type, mortgage by
conditional sale. Prior to diving deep into the subject, the author has attempted to provide an
overview of mortgages generally in the introductory chapter.
According to Section 58 of Transfer of Property Act1, “A mortgage is the transfer of an interest
in specific immoveable property for the purpose of securing the payment of money advanced
or to be advanced by way of loan, an existing or future debt, or the performance of an
engagement which may give rise to a pecuniary liability. The transferor is called a mortgagor,
the transferee a mortgagee; the principal money and interest of which payment is secured for
the time being arc called the mortgage -money, and the instrument (if any) by which the transfer
is affected is called a mortgage deed”.

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 a mortgage by conditional sale and
the mortgagee a mortgagee by conditional sale2”. In “Prakash (Dead) By LR. v. G. Aradhya
& Ors., The Hon’ble Supreme Court clarified the meanings of mortgage by conditional sale
and sale with conditions of retransfer3.
The Court noted, A deeming fiction was added in the negative that a transaction shall not be
deemed to be a mortgage unless the condition for reconveyance is contained in the document

1
The Transfer of Property Act, 1882, Act No. 4 of 1882 (India).
2
Id. at 1.
3
Prakash (Dead) By Lr v. G. Aradhya & Ors, (2023) 08 SC CK 0048 (India).

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which purports to affect the sale, referring to Section 58(c) of the Transfer of Property Act,
1882 (TPA)4.

ESSENTIAL ELEMENTS

The idea of a mortgage through a conditional sale is covered by Section 58(c) of the Transfer
of Property Act. This type of transaction appears to have a clause stating that the buyer must
return the property to the seller after repaying the consideration amount 5. According to the
statute, the mortgagee supposedly sells the property that is mortgaged. either with the
requirement that the sale become final upon the mortgage funds' nonpayment by a specific date,
or with the requirement that the sale become null and void with the completion of said payment.
The buyer will transfer the property to the seller subject to the payment being made. This type
of transaction is known as a mortgage by conditional sale, and the mortgagee is referred to as
a mortgagee by conditional sale.

In this case, the mortgagor's liability is restricted to the property and does not include any
personal obligations. “In the case of Balkishen v. Legge6,” the privy council made an
observation regarding mortgages through conditional sales. They noted that the act's framers
never intended for the mortgagee to be personally liable for the mortgage; rather, they intended
for the act to define a mortgage by stating the applicable laws and practices in India at the time
it was passed.

The following are the key components of the mortgage via conditional sale:
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1. There is a purported real estate transaction.
2. The following terms and conditions apply to the sale: When the mortgage balance was paid
off, the sale would be finalised, or the transaction will either end when the mortgage is paid
off or the buyer will return the property to the seller.
3. The requirement needs to be included in the same document.

“However, we must remember that the fundamental tenet of this type of transaction is not the
test's finality, but rather the parties' intention, which must be considered at the time of entering
the transaction and establishing a security for their property through the mortgage channel.”

4
Id. at 3.
5
Id. at 1.
6
W.F. Legge v. Balkishen Das and Ors, (1897) ILR 19 ALL 434 (India).
7
Id. at 1.

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THE IDEA OF PRESUMPTIVE PURCHASE

The allure of the ostensible premise lies in the way it appears to be a sale but in actuality it is
not. Although an immovable property is being sold in this type of mortgage, the true purpose
of the transaction is debt security. In its entirety, the deal seems more like a sale than a formal
mortgage. Both the buyer and the seller are aware that the seller is ostensibly taking the loan
from the buyer, even if the seller agrees to sell his home for a specific amount of money. The
nature of the conditions associated with the sale and the fact that the property did not transfer
to the buyer after the sale determine the intention”.
According to the facts of the case in “Prakasam v. Rajambal”, 8the document was claimed to
be a sale deed, but the stamp paper was given by the transferor, and the amount given was far
less than the real cost of the land. There was an explicit requirement that the property be
reconvened when the “principal” amount was paid. The Madras High Court ruled that the deal
constituted a “mortgage by conditional sale” rather than an outright sale.

The case of “Vithal Tukaram Kadam v. Vamanrao Sawalaram Bhosale” 9concerned a loan that
the plaintiff had taken out, with the threat of selling it if they were unable to repay the sum.
The plaintiff reportedly sold the land for 3,500 Rupees, although the loan amount was just 700
Rupees. The sale agreement contained a clause of reconveyance, which the defendant invoked
to recover Rupees 3,500 plus interest, so impacting the debtor-creditor relationship. The
defendant understood the terms of the agreement and that, should the plaintiff repay the money,
he would have to give the land back. According to the Bombay High Court, the defendant did
not make an outright sale in this case; rather, the transaction was more along the lines of a
conditional sale.

In the case of Ramlal v. Phagua,10 the mortgagee acquired the property by lending the
mortgagor a specific amount of money. The deed specified a three-year payback period for the
mortgagor, and the mortgagee was required to restore the property to the mortgagor once the
money was paid within that time. The sale of the mortgagor's property by the mortgagee to a
third party before the specified and agreed time period was held to be void by the Supreme
Court, which held that since no title or interest had been passed on to the mortgagee, he was
not competent to pass on any title or convey or transfer the property to anyone else.

8
Prakasam v. Rajambal, AIR 1975 MADRAS 282 (India).
9
Vithal Tukaram Kadam v. Vamanrao Sawalaram Bhosale, AIR 2017 Bom 232 (India).
10
Ramlal v. Phagua, AIR 2006 SC 623 (India).

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CONDITION TO BE EMBODIED IN THE SAME DOCUMENT

When a mortgage is secured by a conditional sale, the condition must be expressed in the same
instrument that affects or seeks to achieve the transaction's goal. This does not imply that a
transaction is a mortgage only because the reconveyance clause is included in the same
instrument. The amending act of 1929 introduced this clause as a proviso to section 58(c).11
The proviso to section 58(c) makes it explicit and obvious that if the condition for repurchase
is not incorporated in the same instrument12, then the transaction shall not be treated as
mortgage, the “Supreme Court ruled in Pandit Chunchun Jha v. Sheikh Ibadat Ali”.13
The terms and circumstances of the document must unavoidably decide the nature and
character of the document, such as whether it is a sale with a retransfer requirement or a
mortgage by conditional sale. A subsequent, independent deed of reconveyance cannot
transform a document that seems to contain terms of an absolute sale without any mention of
treating it as a mortgage.
In Sunil v. Aghor14, the condition requiring the sale to be a mortgage was not included in the
sale deed, despite the fact that a distinct sale deed, a deed of reconveyance, and a lease deed
were all executed in the same transaction. In this case, the Guwahati High Court ruled that the
transaction did not qualify as a mortgage by conditional sale. It also confirmed that the terms
affecting the transaction were included in the mortgage in a single document.
The deed in Ramegowda v. Boramma was unique in that it contained both the condition to be
repurchased and the selling deed. The transferor was given the requirement to repay the amount
of Rupees 4,000 15within the allotted time frame in order to regain possession of the land. The
buyer must have full right and interest in the property and be able to enjoy it permanently as of
the date of possession, according to the second condition of the deed.
The Karnataka High Court made the decision that, in the event that a condition to be purchased
is stated in a different document and is executed on a different date, the transaction will be
considered a sale, and the court will not be required to look into the possibility of a loan if the
document does not include conditions of mortgage with conditional sale.

11
Id. at 1.
12
Id. at 1.
13
Pandit Chunchun Jha v. Sheikh Ibadat Ali, 1954 AIR 345 (India).
14
Sunil v. Aghor, AIR 1989 Gau. 39 (India).
15
Ramegowda v. Boramma, AIR 2012 Kar, 52 (India).

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The court also determined that, by considering the previous condition, it was a mortgage by
conditional sale rather than a sale with a condition to repurchase; however, the subsequent
condition suggested that the nature of the document was similar to that of the sale deed,
indicating the presence of both conditions. However, as the transaction was mortgage-related,
the transferor would be eligible to receive delivery of the property's possession and redeem the
mortgage.
An illiterate mortgagor was forced to sign a set of documents in Mangtin v. Rahibhai 16, where
he purportedly signed two documents a mortgage instrument and a reconveyance deed and
claimed that the transaction was one of mortgage rather than sale. The Chhattisgarh High Court
ruled that the instrument was a mortgage and that the transferee would have to provide evidence
to support their claim that the transaction was an outright sale rather than a mortgage. Even if
the consideration paid was the same as the asking amount, it wouldn't constitute a sale because
it wouldn't change the nature of the transaction.
It would rely on the particular facts and circumstances of the case in those situations where
transactions indicate a combination of mortgages and sales. The deed in Shivaji Dagadu
Mahangade v. Aba Gopala Shinde 17stated that the sale would become final after ten years of
non-repayment. The agreements had elements of a mortgage and some aspects of a sale. In this
case, the plaintiff neglected to reimburse within the allotted period. According to the Bombay
High Court, the plaintiff no longer has the right to reclaim the property because the deed now
has the characteristics of an absolute sale deed.
However, in the case of Srinivasaiah v. H.R. Channabassappa18, the issue was identifying
whether the transaction was an outright sale or one with conditions attached. This document
was titled “deed of conditional sale,” and it offered sales money without interest as well as a
repurchase condition. The Supreme Court ruled that the document was a mortgage deed subject
to a conditional sale.

16
Mangtin v. Rahibhai, AIR 2012 CHH 77 (India).
17
Shivaji Dagadu Mahangade v. Aba Gopala Shinde, AIR 2016 BOMBAY 213 (India).
18
Srinivasaiah v. H.R. Channabassappa, AIR 2017 SUPREME COURT 2141 (India).

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MORTGAGE BY CONDITIONAL SALE WITH A CONDITION TO
REPURCHASE

A mortgage differs from a sale with a buy option in its essence. It is assumed that a mortgage
has occurred when the repurchase condition is included in the same contract; nevertheless, a
mortgage cannot occur when the sale and the repurchase agreement are contained in different
documents.
Although these two ideas seem identical, they have been carefully differentiated as- 19
1. There must be debt between the mortgagor and the mortgagee, the debtor, or the
creditor in order for there to be a mortgage by conditional sale. But there is no such
futuristic debt in a sale with a repurchase requirement. Debtor and creditor are not
correlated in the same way as seller and buyer are.
2. Because a mortgage by conditional sale only transfers a portion of the ownership
interest in the property, it is only a partial transfer of interest. The full interest in the
property is transferred upon a sale with the option to repurchase, with the exception of
the personal right to do so, which will expire if it is not used within the allotted time
frame.
Regarding the inherent legal characteristics of the two transactions, their intentions clearly
define them. Determining whether a transaction is a sale with a condition of purchase or a
mortgage can be a laborious effort at times. This is primarily because both transactions allow
for the transfer of property from the buyer to the seller.

19
Id. at 1.

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CONCLUSION

A mortgage by conditional sale is a sort of mortgage in which an apparent sale occurs, but later,
due to the seller's incapacity to repay the loan, it becomes an absolute sale. Over time, the
requirements have been modified to ensure that the sale and re- transfer of a document occur
in one and the same document. Mortgage by conditional sale and real sale have been confused
on several occasions. In order to address the confusion, the researcher considered various
factors, including the parties' intentions and the nature and purpose of the transaction. She also
made an effort to clearly distinguish between the concepts by analysing numerous case laws
pertaining to the topic.

The practice of mortgaging property has been around for a while in India and other parts of the
world under different names, despite various related concepts that are intertwined. It can be
said with certainty that the practice of mortgage by conditional sale will continue to flourish in
the future. As a result, the author has stuck to the project's authorised scope and made every
effort to address the study questions that posed at the conditional mortgage.