The Supreme Court, in Vithal Tukaram Kadam vs Vamanrao Sawalaram Bhosale, has observed that words like “repay”, “return” and “subject to this condition” in an agreement are not commensurate with a deed of absolute sale.

A bench, comprising Justice L Nageswara Rao and Justice Navin Sinha, made this observation while setting aside a high court judgment and holding that the deed in question is a mortgage by conditional sale and not a sale with an option to repurchase. The bench, referring to various precedents, said an ostensible sale with transfer of possession and ownership, but containing a clause for re-conveyance in accordance with Section 58 (c) of the Transfer of Property Act, will clothe the agreement as a mortgage by conditional sale.

“The execution of a separate agreement for re-conveyance, either contemporaneously or subsequently, shall militate against the agreement being mortgage by conditional sale. There must exist a debtor and creditor relationship. The valuation of the property, and the transaction value, along with the duration of time for re-conveyance, are important considerations to decide the nature of the agreement,” the bench said. It held that there will have to be a cumulative consideration of these factors, along with the recitals in the agreement, intention of the parties, coupled with other attendant circumstances, considered in a holistic manner.

It said: “The significance of the words “repay”, “return” and “subject to this condition” cannot be overlooked. They are not commensurate with a deed of absolute sale. The language used, conveys the distinct impression that the plaintiff did not intend to relinquish all rights, title and claims to his lands. The defendant was aware of the limited nature of right conveyed and had agreed to a conditional sale along with an obligation to return the lands if the amount was repaid.”

August 17th, 2017