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Case Analysis: Bishwanath Prasad Singh v. Rajendra Prasad (2006) 4 SCC 432

A Mortgage is the transfer of an interest in specific immovable property to secure 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.[1]

Where the Mortgager ostensibly sells the mortgaged property on a 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 the condition that on such payment being made, the buyer shall transfer the property to the seller, the transaction is called mortgage by conditional sale.[2]

A mortgage is different from a sale with the condition of repurchase. Where the condition for repurchase is embodied in the document, the presumption is that it is a mortgage, but when both the sale and the agreement of repurchase are embodied in separate documents, it cannot be a mortgage. The onus of proving the mortgage is on the party alleging it.

The test is the intention of the parties and it should be ostensibly and not a real sale. In a sale with the condition of repurchase, the right to repurchase is personal and can be enforced strictly as per the terms of the deed but in a mortgage with a conditional sale, the mortgagor retains the right of redemption for the property, despite having failed to pay the loan within the stipulated time.[3] A mortgage by conditional sale is affected by a single document, while a sale with an option of re-purchase is generally affected with the help of two independent documents.[4]

The present case in hand will help to clear the difference between a mortgage by conditional sale and a sale with a condition of repurchase. Also, the application of the principle of res judicata will get much clearer with the help of this judgement.

Bishwanath Prasad Singh v. Rajendra Prasad & Anr, (2006) 4 SCC 432
(Before S.B. Sinha and P.K. Balasubramanyan, JJ)
Civil Appeal No. 1276 of 2006, decided on February 24, 2006

Advocates who appeared in this case:

P.S. Mishra, Senior Advocate (Tathaghat H. Vardhan, Upendra Mishra, Dhruv Kr. Jha, Amitesh C. Mishra, Ravi C. Prakash and C.D. Singh, Advocates, with him) for the Appellant;
Vijay Hansaria, Senior Advocate (Sheetal Prasad Juneja, Advocate, with him) for the Respondents.

Facts of the Case
On 24-06-1977, a transaction took place between the Appellant and the Respondents wherein the vendors (Respondents) sold the property/land to the vendee (Appellant) through a registered agreement on the vaibulwafa (Baib-ul-Wafa) condition.

According to the deed, the vendor agreed that the vendee or his successor or heirs whenever will pay the consideration amount of Rs. 3000 within 23 months from the date of the agreement, i.e., up to June 1978 after harvesting of the crops, i.e., paddy or rabi, then the vendor or his legal heirs or his successors after receiving the said consideration amount of Rs. 3000 will execute the sale deed of the property mentioned in Column 5 of the deed in favour of the vendee or his legal heirs or successor. The sale deed and the agreement for re-conveyance of the property were two separate documents.

The Respondents alleged that the transaction dated 24-06-1977, although ostensibly expressed in the shape of a deed of sale was a transaction of a usufructuary mortgage. The appellant allegedly gave an advance of Rs. 3000 on their executing a deed of usufructuary mortgage in respect of the suit land.

However, the appellant asked him to execute a deed of sale on the ground that he did not possess any money laundering license whereupon indisputably such a deed was executed on 24-06-1977. The appellant in turn executed the registered deed of agreement in his favour whereby and whereunder the respondent agreed to execute a deed of reconveyance on his receipt of the said sum of Rs. 3000.

Respondents filed a suit in the Trial Court to take back the possession of the property but the said suit was dismissed holding that the deed of sale dated 24-06-1977 coupled with the said agreement of reconveyance did not constitute a mortgage. The appeal by the Respondents against the said order was also dismissed.

Respondents also filed a miscellaneous application in the Court of Munsif, Daltonganj purporting to be under Section 83[5] of the Transfer of Property Act seeking its permission to deposit an amount of Rs. 3000 wherein the respondent was permitted to do the same despite being objected by the appellant that the transaction in question was not a mortgage.

The Respondents thereafter filed the second appeal before the High Court which was allowed. The High Court in its judgment came to the conclusion that the recital of both documents spelt out that the real intention of the parties was that the transaction was to be one of the mortgage holdings that the said deed of mortgage was executed by the respondents in favour of the appellant to secure a loan of Rs. 3000.

The present appeal before the Supreme Court of India is directed against the judgment and order dated 11-09-1988 passed by a learned Single Judge of the Jharkhand High Court, Ranchi.

Issues Involved:
The Trial Court, in view of the pleadings of the parties, framed the following issues:

Is the suit as framed maintainable?
Have the plaintiffs got a cause of action for the suit?
Is the sale deed dated 24-06-1977 real transaction of Usufructuary mortgage deed in view of the agreement of the same day executed by the defendant and, if so, are the plaintiffs entitled to a decree as prayed for?
To what relief or reliefs, if any, are the plaintiffs entitled?

The purported substantial question of law framed by the High Court is as under:

"Whether in view of the admission made by Respondent 2 in Ext. 2 to the effect that the parties understood the document to be a deed of Baib-ul-Wafa, the learned court committed an error of law in construing Ext. A without taking into consideration the admissions made by the parties to the aforementioned effect, in view of the decision in Indira Kaur v. Sheo Lal Kapoor."

Arguments
The counsel appearing on behalf of the appellant raised a question in support of this appeal. It was contended that having regard to the provisions of Section 58(c)[6] of the Transfer of Property Act, the High Court committed a manifest error in holding the transaction to be one of mortgage as the said plea could not have been raised having regard to the provisions of Section 91[7] and Section 92[8] of the Evidence Act.

It was further contended that the order dated 22-03-1979 passed by the civil court in Miscellaneous Case No. 14 of 1978 filed under Section 83[9] of the Transfer of Property Act did not operate as res judicata as thereby no issue between the parties was heard and finally decided.

It was further submitted that in view of the recitals in that said deed dated 24-06-1977, the High Court committed an error in holding that by reason thereof the right, title and interest of the respondents did not pass on to the appellant herein. It was argued that the High Court also committed a manifest error in interfering with the concurrent findings of the trial court as also the first appellate court.

On the contrary, the counsel appearing on behalf of the Respondents supported the judgment of the High Court. It was submitted that the order dated 22-03-1979 would operate as res judicata in view of the fact that the issue as to whether the said transaction evidenced by the deed dated 24-06-1977 constituted a mortgage or a sale, had been determined thereby and the Court of Munsif was a court exercising limited jurisdiction while entertaining an application under Section 83[10] of the Transfer of Property Act and therefore Explanation VIII to Section 11[11] of the Code of Civil Procedure is attracted.

Reasoning of the Court
The Hon'ble Supreme Court observed that it is not in dispute that the deed in question was titled a "Deed of Sale". The respondents were described as "vendors" and the appellant as a "vendee". The nature of the deed was mentioned as a "sale deed (kewala)". The amount paid by the appellant to the respondents was treated to be the consideration money. In the recitals made therein the purpose of executing the deed of sale was stated to be for repaying the debts taken by the respondent from several moneylenders and it was recited that they did not have any source of income to repay their debts and no means of liquidating the debts except to sell out the said land.

The Trial Court also arrived at a concurrent finding that the said transaction did not constitute a mortgage, and thereby the respondent executed a deed of sale in favour of the appellant and the appellant, in turn, executed an agreement for reconveyance in their favour. "Baib-ul-wafa" was held to be a deed of conditional sale with a contract of lease purchase and not a mortgage with a conditional sale.

The Hon'ble Supreme Court observed that a deed as is well known must be construed having regard to the language used therein. The Court noticed that the right, title and interest of the respondents herein were conveyed absolutely in favour of the appellant because of the said deed of sale. The sale deed does not reside in any other transaction or of the advance of any sum by the appellant to the respondents which was entered into by and between the parties.

Baib-ul-Wafa

The Hon'ble Court referred to various authorities to define Baib-ul-Wafa.

According to P. Ramanatha Aiyer's Advanced Law Lexicon[12], it is stated:

Bai-ul-wafa:
There is no unanimity of opinion among the jurisconsults of Islam on the point whether a transaction of baib-ul-wafa is a valid sale, a fasid sale or a mortgage. Hence, it was held that 'the court is consequently to the equities of the case and the opinion (of jurists) which might be conformable to the equities of the case and may carry out the real intention of the parties.

The Hon'ble Court noticed that the nature of the deed was stated to be an agreement (ekrarnama), the nature of the document was not stated to be "bai-ul-wafa" as mentioned in the clauses of the sale deed. It is noted that the expressions "vendor", "vendee", "sold" and "consideration" have been used.

These expressions together with the fact that the sale deed was to be executed within a period of 23 months, i.e., up to June 1978, evidently the expression "vaibulwafa" as a condition was loosely used. Furthermore, the agreement was also executed for a fixed period.

The other terms and conditions of the said agreement (ekrarnama) also clearly go to show that the parties understood the same to be a deed of reconveyance and not a mortgage or a conditional sale. The terminology "vaibulwafa" used in the agreement does not carry any meaning. It could be either "baib-ul-wafa" or "bai-bil-wafa".

In terms of Section 91[13] of the Evidence Act, if the terms of any disposition of property are reduced to writing, no evidence is admissible in proof of the terms of such disposition of property except the document itself. The Court relied upon the judgements of Ishwar Dass Jain v. Sohan Lal[14] and Roop Kumar v. Mohan Thedani[15] for admissibility of oral evidence when a party relied upon a document.

The Hon'ble Court observed that by the bare perusal of Section 58(c)[16] of the Property Act clearly shows that a mortgage by conditional sale must be evidenced by one document, whereas a sale with the condition of retransfer may be evidenced by more than one document. A sale with the condition of retransfer is not a mortgage. It is not a partial transfer. Because of such a transfer, all rights have been transferred, reserving only a personal right to the purchaser, and such a personal right would be lost, unless the same is exercised within the stipulated time.

The Court relied upon the judgements of Pandit Chunchun Jha v. Sk. Ebadat Ali[17] and Mushir Mohd. Khan v. Sajeda Bano[18] to conclude that a transaction shall not be deemed to be a mortgage unless the condition for reconveyance is contained in a document which purports to affect the sale. The Hon'ble Court cited the case of Umabai v. Nilkanth Dhondiba Chavan[19] to explain that there exists a distinction between a mortgage by conditional sale and a sale with the condition of repurchase.

The High Court relied upon Indira Kaur v. Sheo Lal Kapoor[20], wherein the court took into consideration the factors adumbrated therein, particularly a long-stipulated period of 10 years for conveying the property and the vendee was prohibited from selling and parting with his right, title and interest for 10 years.

The vendor was allowed to occupy the property as a tenant on payment of Rs 80 per month. No order of mutation was passed in his favour. The agreement was executed evidently because the plaintiff would not have executed the sale deed unless an agreement to sell by a contemporary document was also executed to enable the plaintiff to impose specific performance within 10 years. It was therefore a transaction entered into with open eyes by the defendant and there was no question of granting any concession.

The Hon'ble Supreme Court observed that in the instant case, the transfer is complete and not partial. No stipulation has been made that the appellant cannot transfer the property. Not only that, the appellant was put in possession of the land, and his name was also mutated. The Court compared the decision of Ramlal v. Phagua[21] with the present case and held that the said decision cannot have any application in the instant case. As it was held there in that case that the sale deed in question was not a real sale deed, but was by way of a surety. In that case, the defendant categorically admitted that the plaintiff had taken a loan. It is in that situation, that the transaction was held to be a mortgage.

Res Judicata

The Hon'ble Court observed that Section 83[22] of the Transfer of Property Act merely permits the mortgager to deposit the mortgage amount. Even in a case where such a deposit is made in the event of the mortgagee refused to accept the deposit, the mortgagor would have no option but to institute a suit for redemption relying on the mortgage money deposited.

The respondent did not file a suit for redemption. It may be that the appellant objected to the said deposit, but even though the purported mortgage amount was allowed to be deposited, the same being not binding upon the mortgagee as he could not be compelled to accept the same, the question of applying the principles of res judicata would not arise. By reason of such a deposit, the status of the parties is not altered.

For filing a suit for redemption by the mortgagor, a deposit under Section 83[23] is not a precondition. It was also observed that the function of a court in terms of Section 83[24] is procedural in nature. The Court cited Chandramani Pradhan v. Hari Pasayat[25]; Rajendra Kumar v. Kalyan[26]; Mahila Bajrangi v. Badribai[27] and UOI v. Pramod Gupta[28] in the judgement to support this reasoning.

Judgement
It is clear that what was involved in this case, was the sale followed by a contemporaneous agreement for the reconveyance of the property. Such an agreement to reconvey is an option contract and the right has to be exercised within the period of the limitation provided. It has also been held that in such an agreement for reconveyance, time is of the essence of the contract.

The plaintiffs, not having sued within the time for reconveyance, it would not be open to them to seek a declaration that the transaction of sale entered into by them, construed in the light of the separate agreement for reconveyance executed by their purchaser, should be declared to be a mortgage. Such a suit would also be hit by Section 91[29] of the Evidence Act, subject to the exceptions contained in Section 92[30] of the Act.

The essential requirement of a bar by res judicata is that a matter should have been directly and substantially in issue in prior litigation, and it should have been heard and finally decided by a court of competent jurisdiction. The deposits under Section 83[31] of the Transfer of Property Act have to be made in a court in which the mortgagor might have instituted a suit for redemption.

That is not a court of limited jurisdiction in the sense of the term as used in Explanation VIII to Section 11[32] of the Code of Civil Procedure. Thus, the plea of the bar of res judicata has only to be rejected.

The question of determination of (sic) being a pure question of law, the principles of res judicata shall have no application. Therefore, the High Court committed a manifest error in interfering with the judgment and decree passed by the trial court as also the appellate court in the exercise of its jurisdiction under Section 100[33] of the Civil Procedure Code. The impugned judgment of the High Court cannot be sustained and is set aside. Accordingly, the appeal is allowed, with costs.

Case Comment
The present case in hand is one of the leading recent landmark judgements based on the Transfer of Property Act, 1882. This case deals majorly with Section 58(c)[34] of the Act and proviso thereto which talks about mortgage by conditional sale. The most curious thing about this case is that the Trial Court made the precise judgement while the High Court erred while delivering its judgement. The whole case revolves around the transaction that took place on 24-06-1977 and the agreement signed between the vendor and the vendee on baib-ul-wafa condition.

It is evident from the judgement that a deed must be construed having regard to the language used therein. In terms of Section 91[35] of the Evidence Act, if the terms of any disposition of property are reduced to writing, no evidence is admissible in proof of the terms of such disposition of property except the document itself.

A mortgage by conditional sale must be evidenced by one document whereas a sale with a condition of retransfer may be evidenced by more than one document. A sale deed with a condition of retransfer is not a mortgage. It is not a partial transfer. Because of such a transfer, all rights have been transferred, reserving only a personal right to the purchaser, and such a personal right would be lost, unless the same is exercised within the stipulated time.

For filing a suit for redemption by the mortgagor, a deposit under Section 83[36] of the Transfer of Property Act, 1882 is not a precondition. The function of the court in terms of Section 83[37] is procedural in nature. The essential requirement of a bar by res judicata is that a matter should have been directly and substantially in issue in prior litigation, and it should have been heard and finally decided by a court of competent jurisdiction.

The deposits under Section 83[38] of the Transfer of Property Act have to be made in a court in which the mortgagor might have instituted a suit for redemption. That is not a court of limited jurisdiction in the sense of the term as used in Explanation VIII to Section 11[39] of the Code of Civil Procedure.

The Judgement by the Supreme Court fails to provide the accurate facts of the case. One has to infer the facts from the judgement but nowhere brief facts were mentioned explicitly. The law points raised by the judges and the authorities cited in the judgement show the thorough research of the Judicial Staff. The judgement stands up to the mark to act as a precedent as many law points are explained deeply in the Judgement.

Though, the judgement delivered by the Supreme Court provided justice in the true sense but here also in this case speedy justice is not given. The transaction took place in 1977, the suit was initiated in 1978 itself, and final justice was given in 2006. This highlights the burden on the Indian Judiciary and the pendency of cases which can be treated by increasing the number of judges in the Judiciary.

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