Mortgage By Conditional Sale Retains Debtor-Creditor Relationship, Distinct From Sale With Repurchase Option: Gujarat High Court
Emphasizing the distinction between a "mortgage by conditional sale" and a "sale with a condition to repurchase", the Gujarat High Court reiterated that a transaction which creates debtor-creditor relationship and right of redemption subsists in favour of mortgagor, must be treated as a mortgage with conditional sale. Justice J.C. Doshi referred to Supreme Court's decision in Patel...
Emphasizing the distinction between a "mortgage by conditional sale" and a "sale with a condition to repurchase", the Gujarat High Court reiterated that a transaction which creates debtor-creditor relationship and right of redemption subsists in favour of mortgagor, must be treated as a mortgage with conditional sale.
Justice J.C. Doshi referred to Supreme Court's decision in Patel Ravjibhai Bhulabhai (D) Thr. LRs v. Rahemanbhai M. Shaikh (D) Thr. LRs & Ors., (2016) where the apex court had referred to Mulla's Transfer of Property Act (11th Edition) and had said:
“In a mortgage with conditional sale, the relation of a debtor and a creditor subsists while in a sale with an option of re-purchase, there is no such relationship and the parties stand on an equal footing…the debt subsists as it is a borrowing arrangement…and the right of redemption subsists in favour of the mortgagor despite the expiry of the time stipulated in the contract for its payment...but in a sale with an option of re-purchase, there is no such relationship....original seller must re-purchase the property within the stipulated time period. If he commits a default the option of re-purchase is lost".
The high court thereafter said:
"since it is a clear case of mortgage by conditional sale, passing of decree by the learned trial Court to reconvey the title after accepting the money being mortgage money is just and righteous decision and does not call for any interference, more particularly, in view of the scope of Section 100 of the Code well explained by the Honourable Supreme Court in the case of Jaichand (dead) through LRs v. Sahanulal, reported in 2024 INSC 996".
The Court was hearing an appeal by Patel Hasanbhai Alibhai Aadambhai challenging the decree passed by the First Appellate Court directing re-conveyance of a shop property in favour of the original owners upon repayment of ₹13,000, treating the transaction as a mortgage.
The dispute arose from a registered deed dated 24 September 1979, under which the respondent-plaintiffs had received ₹13,000 from the appellants-defendants and handed over possession of the suit shop premises, with a condition that the property would be re-conveyed upon repayment of the same amount within seven years. The trial court dismissed the suit for redemption, but the First Appellate Court reversed that decision and decreed redemption and re-conveyance. Against this the appellants moved the high court.
Appearing for the appellant, Advocate Hriday Buch argued that the transaction was a sale with a condition to repurchase and not a mortgage. He submitted that since it was a sale, the plaintiffs were required to prove readiness and willingness as required in a suit for specific performance under the Specific Relief Act. He contended that the appellate court had committed an error by granting re-conveyance without properly considering this requirement.
Opposing the appeal, Advocate Rahul K. Dave for the respondents supported the appellate court's decision, submitting that the appellate court had correctly appreciated the evidence and applied the law. The present appeal did not pose a substantial question of law, but only of facts, and hence should not be entertained.
After examining the deed, the High Court noted that although the document was styled as a conditional sale, its terms created a debtor-creditor relationship and restricted the defendant's rights over the property. The Court observed that the amount of ₹13,000 was borrowed to meet household and agricultural expenses, and the defendants were obligated to return possession upon repayment.
The Court further observed that the document did not transfer absolute ownership and imposed limitations on the enjoyment of the property, which indicated that the transaction was intended as security for a loan rather than an outright sale.
Holding that the transaction was a mortgage by conditional sale, the Court found that the respondent-plaintiffs retained the right of redemption and were entitled to re-conveyance of the property upon repayment of the mortgage amount.
Finding no merit in the appeal, the Court dismissed the Second Appeal and upheld the decree directing reconveyance of the property and restoration of possession to the plaintiffs.
Case Title: Patel Hasanbhai Alibhai Aadambhai v. Patel Jayeshkumar Ishwarbhai & Ors.
Case number: R/SECOND APPEAL NO. 93 of 2006
Appearance: Mr. Hriday Buch for the Appellants and Mr Rahul Dave for the Respondents.