Difference between ‘Mortgage by Conditional Sale’ and ‘Sale with a condition of Re-transfer’

Mortgage by Conditional Sale: What it means

Section 58(c) of the Transfer of Property Act, 1882 provides-

(c) 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 mortgage by conditional sale and the mortgagee a mortgagee by conditional sale:

Provided that no such transaction shall be deemed to be a mortgage, unless the condition is embodied in the document which effects or purports to effect the sale.

Difference between ‘Mortgage by Conditional Sale’ and ‘Sale with a condition of Re-transfer’

The nuances between the above two terms were clearly pointed out by the Hon’ble Supreme Court in Manjabai Krishna Patil (D) by L.Rs. vs. Raghunath Revaji Patil and Anr.[1] with several precedents. Some of the earlier judgments of Supreme Court which distinguished the above two terms were-

Bishwanath Prasad Singh v. Rajendra Prasad and Anr.[2]

“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.”

Shri Bhaskar Waman Joshi v. Shri Narayan Rambilas Agarwal[3]

“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….”

Tulsi v. Chandrika Prasad[4]

“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.”

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.[5]

Author: Vivek Verma

Image from here

[1] (2007)12SCC427

[2] AIR2006SC2965

[3] [1960] 2SCR117

[4] AIR 2006 SC 3359

[5] Manjabai Krishna Patil (D) by L.Rs. vs. Raghunath Revaji Patil and Anr. (2007)12SCC427

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