CHENNAMMAL VS.

MUNIMALAIYA
AND ORS.

Submitted to – Dr. P.K.V. Sita Rama Rao

Subject – Property Law

Submitted by – Ms. Aditi Soni

Roll No. – 1607

2nd Year, 3rd Semester

 TABLE OF CONTENTS

INTRODUCTION ....................................................................................................................................... 1
MORTGAGE BY CONDITIONAL SALE ....................................................................................................... 2
SALE WITH AN OPTION TO REPURCHASE ............................................................................................... 6
SUPREME COURT ON MORTGAGE BY CONDITIONAL SALE .................................................................. 10
1. Tulsi and Others vs. Chandrika Prasad and Others ................................................................... 10
2. P.L. Bapuswami vs. N. Pattay Gounder ................................................................................... 10
3. Vishwanath Dadoba Karale vs. Parisa Shantappa Upadhya .................................................... 11
4. C.Cheriathan vs. P. Narayanan Embranthiri ............................................................................ 11
ARGUMENTS FROM THE APPELLANT’S SIDE......................................................................................... 13
ARGUMENTS FROM THE RESPONDENTS’ SIDE ..................................................................................... 15
 INTRODUCTION
This research project is based on the case of Chennammal vs. Munimalaiya and ors. This case
is based on the whether the deed executed by the respondent (plaintiff) in favour of the
appellant (defendant) was a deed of sale or a mortgage by conditional sale.

Respondent-plaintiff executed a simple mortgage in favour of the appellant-defendant. As

respondent-plaintiff was unable to discharge his liabilities, properties given by him as
security were sold to the appellant-defendant. Right to repurchase the properties within a
period of 3 years were however kept reserved by the respondent-plaintiff. Respondent sought
redemption of the property. Appellant contended that the deed in question was a deed of sale
and not a mortgage by conditional sale.

Respondent instituted a suit against the appellant and prayed for a decree for redemption.
District Munsiff held that the deed in question was only a mortgage by conditional sale and
not a sale deed and therefore, Trial court passed a preliminary decree for redemption
Aggrieved by the preliminary decree, the appellant-defendant preferred an appeal before the
Additional Subordinate Judge, who held that the document was an outright sale and not a
mortgage by conditional sale and allowed the appeal.

Respondent preferred second appeal before the High Court. Second appeal was allowed and
the judgment and decree of the trial court was restored. High Court held that the document in
question was only a mortgage by conditional sale. Hence, an appeal was filed before the
honourable supreme court of India. The question which was to be decide was whether the
document in question was a mortgage by conditional sale or a sale with a condition of re-
purchase. It was held by the SC that the recitals clearly show that the deed in question was
not a deed of sale but a mortgage by conditional sale and therefore, the appeal was dismissed
from the Supreme Court.1

1
Chennammal vs. Munimalaiyan and Ors. (19.10.2005 - SC) : MANU/SC/1427/2005

1
 MORTGAGE BY CONDITIONAL SALE
In case of a simple mortgage, without delivering possession of the mortgaged property, a
mortgagor binds himself personally to pay the mortgage money. He agrees, expressly or
impliedly, that in the event of his failing to pay according to his contract, the mortgagee will
have a right to sell the mortgaged property and the proceeds of sale go towards the mortgage
money. This transaction is called a simple mortgage.
A mortgage by conditional sale is different. In case of a mortgage by conditional sale, a
mortgagor ostensibly sells the mortgaged property on the condition that on default of
repayment of the mortgage money by a certain date the sale will become absolute. On the
payment being made, the sale will become void. And on the payment being made the buyer
will have to transfer the property back to the seller.
Section 58(C) of the Transfer of the Property Act defines a mortgage by conditional sale. It
is defined as an ostensible sale on the condition that on repayment, the buyer will transfer the
property back to the seller. The mortgagor states in the deed that he sells the property for the
mortgage money as a consideration subject to conditions.
So, a mortgage by conditional sale is where the mortgagor sells the property to the mortgagee
on the condition that in case of default of repayment of the mortgage money, the sale will
become absolute, and on repayment of the money the sale will become void and the
mortgagee will transfer the property back to the mortgagor.

In Gopal v. Parsotam2, Justice Mahmood said that “mortgage as understood in this country
cannot be defined better than by the definition adopted by the legislature in S.58 of the
Transfer of Property Act. It therefore makes immense sense to examine the said section of the
given Act, which holds that 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.”3

The self explanatory nature of the section is evident from its language and the way it has been
worded serves to cover a myriad of scenarios. One of the scenarios covered under this

2
(1883) 5 All 121, 137 (FB)
3
S. 58, The Transfer of property Act 1882

2
section and dealt with under a subsequent clause of the same section is that of mortgage by
conditional sale. Clause c) of section 58 of the Act4 provides that:

“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…”

The Privy Council has said that it can be assumed that the intention of the framers of the
Transfer of Property Act was to provide legal validity to pre-existing customs and practices
by framing the laws so as to include mortgage by conditional sale as a specific type of
mortgage.

Mortgages by sale were referred to by a multitude of names in the various parts of the Indian
subcontinent, from Khatkhabala in Bengal and Gahan Lahan5 in Bombay to Muddata
Kriyam6 or Peruarthum7 in Madras.

Among the followers of Islam such transactions were denoted by the phrase bye-bil-
wafa8 and were used as an evasive device against the Islamic prohibition of interest.

Mortgage by conditional sale allows the mortgagee to become the absolute owner of the
property in the event of the mortgagor defaulting on the debt repayment. Sir Pramada Charan
Banerjee’s opinions on the law of mortgage in the reported case of Balkishan versus
Legge9 were an example of lucid exposition of the law on mortgage by conditional sale,
commonly known as “bye bil wafa” in this State. The Privy Council upheld the decision on
appeal. His judgment on various aspects of property law in general and this aspect of
mortgage, that is, mortgage by conditional transfer in specific is followed by Courts and
Counsel alike throughout the country. Mortgage by conditional sale is a type of mortgage
where there occurs an ostensible sale, which is converted into absolute sale in the event that
the ostensible seller is unable to repay the loan. The ostensible seller in such a mortgage
incurs no personal liability as far as the debt is concerned. Previously the relevant sections of

4
Transfer of Property Act, 1882
5
Shankarbhai v. kassibhai (1872) 9 Bom HCR 69; Krishnaji v. Ravji (1872) 9 Bom HCR 79
6
Lakshmi v. Krishna (1871) 7 Mad HC 6
7
Shekari v. Mangalom (1876) 1 Mad 57
8
Preamble to Reg 1 of 1878
9
I. L. R. 19 Allahabad (434)

3
law pertaining to this topic were framed so as to ensure that two separate documents were
drawn up to carry out such a transaction, the sale deed and another document regarding the
reconveyance of the property. The provisions were subsequently amended to provide for both
halves of the transaction to happen through a single document. There have been cases were
confusion has arisen between such mortgages by conditional sales and pure sales of property.
In such cases, the confusion has been dealt with by taking into consideration a number of
factors, primarily the intention of the parties regarding the nature xxxxof the transaction at its
commencement. The intention of the parties has been arrived at and/or supplemented by a
number of extrinsic factors that prove helpful in the determination of the intention of the
parties while entering into the transactions under consideration. The various causes for
confusion notwithstanding, the practice of mortgaging property has been prevalent in India
and other parts of the world for a substantial amount of time under different names and
mortgage by conditional sale is no exception to this trend and it can be said that these
practices shall continue to flourish even in the times to come.

ESSENTIAL FEATURES OF A MORTGAGE BY CONDITIONAL SALE:

1. If the mortgagor fails to repay the mortgage money by a certain date, the sale becomes
absolute.
2. If the mortgagor repays the mortgage money by a certain date, the sale becomes void and
the mortgagor becomes the owner of the property.
3. The transaction resembles that of sale, though it is only a mortgage.
4. The ostensible sale becomes an absolute sale if the mortgagor fails to repay the debt by the
specified date. This can be enforced through proceedings for foreclose of the mortgage. The
order of foreclosure by a court converts the mortgage by conditional sale into an absolute
sale.

There are many advantages with this type of mortgage. In a simple mortgage, if there is a
default in the repayment of the money, the property has to be brought to sale for recovery of
the debt and there is no question of the mortgagee becoming the absolute owner of the
property. The mortgagee has to resort to lengthy legal steps. However, in the case of
mortgage by conditional sale, the mortgagor becomes a legal owner absolutely when a
defaultinpayment occurs on the specified due date. Ostensible sale in case of mortgage by
conditional sale is in reality a mortgage, subject to the conditions set out in the document. A
mortgagee cannot claim a right of ownership on the date of execution of the mortgage by
conditional sale. It is only if and when the conditions embodied in the document are not

4
complied with by the mortgagor that the mortgagee can lay claim to the ownership of the
property ostensibly sold under that document. Till then, the property continues to remain the
property of the mortgagor. The right of redemption of the mortgage vests with the mortgagor
and the mortgagee remains under an obligation to discharge the mortgage on the conditions
embodied in the document regarding repayment within the stipulated time being fulfilled.
Mortgage by conditional sale is a mortgage and not a sale. It is liable to be cancelled at the
option of the mortgagor at a subsequent date. A mortgage once created remains a mortgage
unless it is foreclosed or redeemed.

5
 MORTGAGE AND A SALE WITH A CONDITION OF
REPURCHASE

A mortgage is different from a sale with an option of repurchase. Where the condition for
repurchase is embodied in the document the presumption is that it is a mortgage,10 but when
both the sale and the agreement of repurchase are embodied in separate documents, it cannot
be a mortgage.11 The onus of proving a mortgage is n the party alleging it. 12 The test is the
intention of the parties13 and that it should be ostensible and not a real sale.14 In absence of a
debt or stipulation of interest or a charge over the property, transfer of property for a specific
time period is not a mortgage but a sale with a condition for repurchase. In cases of ambiguity
the court leans towards construction of mortgage.15 In a sale with a condition of repurchase,
the right to repurchase is personal and can be enforced strictly in accordance with the terms
of the deed,16 but in the mortgage with conditional sale, the mortgagor retains the right of
redemption for the property despite having failed to pay the loan within the stipulated time.17

Section 60 of The Transfer of Property Act, 1882 provides right of mortgagor to redeem the
property. At any time after the principal money has become due, the mortgagor has a right,
on payment or tender, at a proper time and place, of the mortgage-money, to require the
mortgagee

(a) To deliver to the mortgagor the mortgage-deed and all documents relating to the
mortgaged property which are in the possession or power of the mortgagee,

(b) Where the mortgagee is in possession of the mortgaged property, to deliver possession
thereof to the mortgagor, and

(c) At the cost of the mortgagor either to re-transfer the mortgaged property to him or to such
third person as he may direct, or to execute and (where the mortgage has been effected by a

10
Raj kishore v Prem Singh, AIR 2011 SC 382
11
Hasan Nurani Malak v Mohan Singh AIR 1974 Bom.136
12
Ahmad Husaai v. Azar Ali, AIR 1944 Oudh 305
13
Vidhyadhar v. Mankirao, AIR 1999 SC 1441
14
Mahabir Singh v. Begum Sahu, AIR 1949 Pat. 568
15
Kameshwar Singh v. Khaichow Singh AIR 1982 Bom. 437
16
Nana Tukaram v. Sonabai, AIR 1982 Bom. 437
17
Singaram v. Kalyanam Subhadra, 1914 Mad. WN 735

6
 registered instrument) to have registered an acknowledgement in writing that any right in
derogation of his interest transferred to the mortgagee has been extinguished:

Provided that the right conferred by this section has not been extinguished by the act of the
parties or by decree of a court.

The right conferred by this section is called a right to redeem and a suit to enforce it is called
a suit for redemption.

Nothing in this section shall be deemed to render invalid any provision to the effect that, if
the time fixed for payment of the principal money has been allowed to pass or no such time
has been fixed, the mortgagee shall be entitled to reasonable notice before payment or tender
of such money.

In Chennamal v. Munimalaiyan18 A executed a simple mortgage of three properties for

securing the repayment of money that he borrowed from B. He was unable to repay the
money by the stipulated time and he entered into a second contract with B. As per this
contract, he sold one out of the three properties to B with a right to repay within a period of 3
years, for Rs.3000. The possession of the property was delivered to B. A little period after the
completion of three years, A filed a suit for redemption of the mortgage. B claimed that since
it was a sale with an option of repurchase, and three years were over. A had lost the right to
exercise the option of repurchase.

The Apex court laid down the following distinguishing features between the mortgage with
conditional sale and sale with an option of repurchase:

 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.

 A mortgage by conditional sale is effected by a single document, while a sale with an option
of repurchase is generally effected with the help of two independent documents.

18
AIR 2005 SC 4397

7
 In a mortgage with conditional sale the debt subsists as it is a borrowing arrangement, while
in a sale with an option of repurchase, there is no debt but a consideration for sale.

 In a mortgage with conditional sale, the amount of consideration is far below the value of the
property in the market but in a sale with an option of repurchase the amount of consideration
is generally equal to or very near to the value of the property.

 In a mortgage with conditional sale, since this is a mortgage transaction, the right of
redemption subsists in favour of the mortgagor despite the expiry of the time stipulated in
the contract for its payment.

 The mortgagor has the option to redeem the mortgage and take back the property on the
payment of the mortgage money, after the specified time, but in a sale with an option of re-
purchase, the 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 court held here that as the consideration was one fourth of the value of the property, and
the contract took place with the help of a single document, the presumption was that it was a
mortgage by conditional sale, and the right vested with the mortgagor to redeem the property
when he was able to repay the money.

In Shanti devi v. Nand Lal, A required money to pay a previous mortgage. He borrowed
Rs.17000 from B and kept his immovable property valued at Rs.60,000 as security for its
repayment. It also specified that the liability to pay the house tax with respect to the property
and also to carry the necessary repairs would be of the mortgagor. The mortgagee under the
contract was specifically given a right to foreclose the mortgage. The mortgagor was unable
to repay the loan amount within this period of seven years. The court held that it was not a
sale with an option of repurchase but a mortgage by conditional sale. The mortgagor was held
as entitled to redeem his property.

8
CONDITION TO BE EMBODIED IN THE DOCUMENT

It is mandatory

9
 SUPREME COURT ON MORTGAGE BY
CONDITIONAL SALE
1. Tulsi and Others vs. Chandrika Prasad and Others19

Apex Court explaining difference between mortgage by conditional sale or sale with
condition to repurchase has observed that a distinction exists between a mortgage by way of
conditional sale and a sale with condition of purchase.

In the former the debt subsists and a right to redeem remains with the debtor but in case of
the latter the transaction does not evidence an arrangement of lending and borrowing and,
thus, right to redeem is not reserved thereby.

2. P.L. Bapuswami vs. N. Pattay Gounder 20

It is held that the definition of a mortgage by conditional sale postulates the creation by the
transfer of a relation of mortgagor and mortgagee, the price being charged on the property
conveyed.

In a sale coupled with an agreement to reconvey there is no relation of debtor and creditor nor
is the price charged upon the property conveyed, but the sale is subject to an obligation to
retransfer property within the period specified.

The distinction between the two transactions is the relationship of debtor and creditor and the
transfer being a security for the debt.

The form in which the deed is clothed is not decisive.

The question in each case is one of determination of the real character of the transaction to be
ascertained from the provisions of the document viewed, in the light of surrounding
circumstances.

19
(2006) 8 SCC 322
20
AIR 1966 SC 902

10
If the language is plain and unambiguous it must in the light of the evidence of surrounding
circumstances, be given its true legal effect.

3. Vishwanath Dadoba Karale vs. Parisa Shantappa Upadhya 21

The Court held the deed was a mortgage by conditional sale, and upheld the decree of
redemption for mortgage.

4. C.Cheriathan vs. P. Narayanan Embranthiri 22

The principle relating to interpreting of document as to whether the sale is mortgage by

conditional sale or sale with a condition to repurchase was discussed, and the Apex Court
held that a document, as is well known, must be read in its entirety.

When character of a document is in question, although the heading thereof would not be
conclusive, it plays a significant role.

Intention of the parties must be gathered from the document itself but therefor circumstances
attending thereto would also be relevant; particularly when the relationship between the
parties is in question

5. Bibi Fatima vs. M. Ahamed Hussain 23

The Supreme Court decided on 1st August, 2017 opined on the question that whether a
transaction is a mortgage by conditional sale or a sale with a condition of re-purchase and
stated the method of gathering the underlying difference between the same. The Apex court
held that the question has to be decided on the basis of interpretation of the document itself.
The intention of the parties is a determining factor and the document. If the words are express
and clear, effect must be given to them and any extraneous enquiry into what was thought or
intended is ruled out. The real question in such a case is not what the parties intended or
meant but what is the legal effect of the words which they used. If, however, there is
ambiguity in the language employed, then it is permissible to look into the surrounding
circumstances to determine what was intended.

21
(2008)11 SCC 504
22
(2009) 2 SCC 673
23
Civil Appeal no. 7023/2012

11
6. Shri Bhaskar Waman Joshi v. Shri Narayan Rambilas Agarwal24

“A transaction shall not be deemed to be a mortgage unless the condition referred to in the
clause is embodied in the document which effects or purports to effect the sale. But it does
not follow that if the condition is incorporated in the deed effecting or purporting to effect a
sale a mortgage transaction must of necessity have been intended. The question whether by
the incorporation of such a condition a transaction ostensibly of sale may be regarded as a
mortgage is one of intention of the parties to be gathered from the language of the deed
interpreted in the light of the surrounding circumstances. The circumstance that the condition
is incorporated in the sale deed must undoubtedly be taken into account, but the value to be
attached thereto must vary with the degree of formality attending upon the transaction. The
definition of a mortgage by conditional sale postulates the creation by the transfer of a
relation of mortgagor and mortgagee, the price being charged on the property conveyed. In a
sale coupled with an agreement to reconvey there is no relation of debtor and creditor nor is
the price charged upon the property conveyed, but the sale is subject to an obligation to
retransfer the property within the period specified. What distinguishes the two transactions is
the relationship of debtor and creditor and the transfer being a security for the debt. The form
in which the deed is clothed is not decisive. The definition of a mortgage by conditional sale
itself contemplates an ostensible sale of the property….”

7. Bishwanath Prasad Singh v. Rajendra Prasad and Anr25

“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 with a condition
of retransfer, is not mortgage. It is not a partial transfer.”

In addition, as per Section 17 of the Indian Registration Act, the agreement of re-conveyance
is not compulsorily registrable while mortgage by conditional sale is registrable.26

24
[1960] 2 SCR117
25
AIR 2006 SC 2965

26
Manjabai Krishna Patil (D) by L.Rs. vs. Raghunath Revaji Patil and Anr. (2007) 12 SCC 427

12
 ARGUMENTS FROM THE APPELLANT’S SIDE

Mr. V. Prabhakar, learned counsel for the appellant, made the following submissions:-

1) The recitals in the disputed document Ex.A1/B1 are unambiguous and clearly refer to an
absolute sale and not a mortgage by conditional sale;

2) The document in question had been executed due to the inability to discharge the principal
under the simple mortgage and, therefore, the High Court should have held that the document
in question is an outright sale;

3) The High Court has overlooked the very fact that the document in question recites that the
property would be reconveyed if the money is paid within 3 years would clearly show that a
right of re-purchase alone had been reserved while the sale effected was absolute;

4) The High Court has failed to note that the absence of stipulation as to payment of interest
but containing recitals as to payment of taxes, handing over of possession and a right to re-
purchase the property coupled with a pointed recital that the sale is being effected would
clearly establish that the document in question is an outright sale;

5) That the term "mortgage by conditional sale" referred to in Section 58(c) of the Transfer of
Property Act, 1882 could only mean that an ostensible sale effected with the right to redeem
being reserved vide in instant case an outright sale has been effected with a right to re-
purchase alone being reserved which is sufficient in itself to indicate that the document in
question is an outright sale deed;

6) That the High Court erred in interpreting the document in question as one of mortgage by
conditional sale despite clear recitals therein that the sale is an absolute sale;

7) That the respondents having lost the right to re-purchase the property by not exercising the
option as recited in the document within the period stipulated therein cannot turn around and
contend that the document in question is a mortgage by conditional sale.

In support of his contention, he relied on the following judgments:-

13
1) Tamboli Ramanlal Motilal (dead) by L.Rs. v. Ghanchi Chimanlal Keshavlal (dead) by
L.Rs. and Anr.,27

2) Chunchun Jha v. Ebadat Ali and Anr.28

3) Bhaskar Waman Joshi (deceased) and Ors. v. Shrinarayan Rambilas Agarwal (deceased)
and Ors.,29

4) Umabai and Anr. v. Nilkanth Dhondiba Chavan (dead) by LRs and Another 30

27
AIR 1992 SC 1236
28
[1955] 1 SCR 174
29
[1960] 2 SCR 117
30
(2005) 6 SCC 243

14
 ARGUMENTS FROM THE RESPONDENTS’ SIDE
According to Mr. K.K. Mani, learned counsel for the respondents, the document in question
was

a) a mortgage by conditional sale;

b) pursuant to the sale, the appellant was put in possession of the suit property;

c) right to redeem the property within a period of 3 years was reserved failing which the
appellant was entitled to have the patta transferred in her own name;

d) though the value of the property as on 22.10.1970 was Rs. 12,500/- but the deed was
executed for Rs. 3,000/-;

e) since Munimalaiyan was unable to discharge the simple mortgage, he executed the
document in favour of the appellant herein;

f) one of the property which was given as security for the simple mortgage was sold to the
appellant with a right reserved to Munimalaiyan to re-purchase the same within a period of 3
years on payment of Rs. 3,000/-.

He placed strong reliance on the judgment of the Court in P.L. Bapuswami v. N. Pattay
Gounder. 31

31
[1966]2SCR918

15
HELD -

This Court, in this case, held as under:

The attendant circumstances could be looked into only to gather the intention. Such an
intention, if explicitly expressed in the document itself, there is no scope for looking at the
attendant circumstances. If, therefore, there is no relationship of the debtor and the creditor,
the question of it being a mortgage by conditional sale does not arise. In order to appreciate
the respective contentions, it is necessary for us to analyse Ex.26 dated 11.12.1950. Before
that, it is necessary to utter a word of caution. Having regard to the nice distinctions between
a mortgage by conditional sale and a sale with an option to repurchase, one should be guided
by the terms of the document alone without much help from the case law. Of course, cases
could be referred for the purposes of interpreting a particular clause to gather the intention.
Then again, it is also settled law that nomenclature of the document is hardly conclusive and
much importance cannot be attached to the nomenclature alone since it is the real intention
which requires to be gathered. It is from this angle we propose to analyse the document. No
doubt the document is styled as a deed of conditional sale, but as we have just now observed,
that is not conclusive of the matter."32

32
: MANU/SC/1427/2005

16
CONNCLUSION

17