Muthuswami Goundan vs Nanjappa Goundan

Anantanarayanan, J.—This second appeal involves a question of considerable interest, but one which also comes up before Courts with frequency. As Ramaswami J., pointed out in B.A. Khan alias Bahadur Ali Khan Vs. Nawaz Khan and Others, it is frequently a vexed question which has to be decided upon the facts of the instant case, but in the light of principles laid down in a catena of decisions of the High Courts and the Supreme Court. The present case possesses one feature of interest, which is the fact that the transactions that this Court is called upon to interpret, viz., the sale deed exhibit B-2, the counter-part exhibit A-1 and the lease exhibit B-2 all came into existence on 10th June 1929, but prior to the enactment of the proviso to Section 58(c) of the Transfer of Property Act. As observed by the Supreme Court in Bhaskar Waman Joshi (deceased) and Others Vs. Shrinarayan Rambilas Agarwal (deceased) and Others, the proviso was added by Act XX of 1929 and prior to the amendment, there was a conflict of decisions on the point whether the condition contained in a separate deed could be taken into account in determining whether the particular deed intended a sale or a mortgage. In the present case, since the proviso does not apply, because of the relevant dates, each transaction has to be interpreted in terms of all the documents regarded together, and it is not essential for the transaction to be deemed a mortgage that it should be embodied in the same document which gives the right of reconveyance. The following facts will be sufficient for an appreciation of the problem involved in the second appeal.

The properties with which we are now concerned, and certain other properties belonged to the family of one Nanjappan and his brother Marappan, originally. There was a mortgage exhibit B-1 executed by these brothers, dated 11th August 1923. In discharge of the moiety of the debt due by Nanjappan, the ostensible document of the sale exhibit B-2 was executed by Nanjappan and his sons for Rs. 1,500 in favour of the Defendant. There was also a simultaneous agreement to reconvey the property within a period of five years, viz., exhibit A-1. Further, the property was leased back to the vendor under the document of lease, exhibit B-3. Learned Counsel for Plaintiff (Appellant) who is an assignee or rights under the two principal documents of ostensible sale and reconveyance, urge that the three documents have to be interpreted together, and that, when the probabilities are cumulatively regarded, it becomes clear that this is a mortgage by conditional sale and not a sale coupled with a contract for reconveyance. The learned Additional District Judge, who disposed of the appeal before him now concerned in second appeal, thought otherwise. For reasons set forth by him in detail he was of the view that there was no mortgage by conditional sale at all, and that there was only an outright sale coupled with a contract for conveyance. In that view, the Plaintiff could not succeed in his suit for redemption.

It is true there are certain circumstances in this case, which would prima facie lend some colour and support to the hypothesis that the transactions, regarded, together, might be properly interpreted as a mortgage by conditional sale. It is further true that these transactions have to be taken as a whole, and the circumstances arid probabilities also taken and regarded in their cumulative effect. Individually, the probabilities may not amount to much, or there might be explanations for them, which are not unsatisfactory. Nevertheless, the true test is to regard the transactions, which came into existence on the same date, and the attendant probabilities, together and not apart. I would have been inclined to accept the argument pressed in this form, but for the fact that there are other major probabilities equally relevant, which cannot be disregarded. If the picture is considered as a whole, with proper significance attached to the several factors involved, I think it would be obviously indisputable that the view of the learned District Judge in appeal is correct, and must be confirmed.

Learned Counsel cites and relies upon Lalta Prasad v. Jagdish Narain ILR (1926) All. 787. That decision was important for him because that was also a case of three deeds executed on the same date, the first of which was an ostensible sale, the second an agreement for reconveyance, and the third a lease back of the property to the vendors. Learned Counsel stresses the dicta of Ashworth J., in the decision to the effect that, in construing deeds of this class, the Court must ignore all expressions indicating that the transaction was a sale and not a mortgage, or indicating that the relationship which was to subsist was that of mortgagor and mortgagee. That proposition is clearly not to be disputed. Actually, in Bhaskar Waman Joshi (deceased) and Others Vs. Shrinarayan Rambilas Agarwal (deceased) and Others, their Lordships of the Supreme Court have reiterated it in no unmistakable terms. The point here is that the definition of a mortgage by conditional sale itself contemplates an ostensible sale; for this reason, the form in which the deed is clothed is not merely not decisive, but may be misleading criterion altogether, if the form is pressed into service to sustain an interpretation that, the transaction was an outright sale. No amount of iteration of formal words of conveyance can take way the intrinsic character of that transaction as a mortgage by conditional sale, if the surrounding circumstances justify that interpretation. In other words, the essential point is not the form, but the intention of the party, as far as it could be ascertained from surrounding facts and probabilities and the manner in which the language of the deed was related to existing facts.

In the present case, it has to be conceded that there are certain probabilities in favour of the interpretation of this transaction as amounting to a mortgage by conditional sale. The most important of them, relates to the value of the properties. There is evidence to show that the other half share of the hypotheca was purchased from the other mortgage or under exibit A-4, for Rs. 2,000. This, it was argued, indicated that the property would be worth more than Rs. 1,500. But this was met by another argument that since the purchaser under the other document exhibit A-4 would have to file a suit for partition against the co-owner, and that in order to avoid this contingency and to tempt the vendor, he perhaps paid a little more than the actual worth of the lands. That has certainly considerable pausibility; in any event, the margin is not a great deal and it does not permit any clear inference that the transaction was really not a sale, but a mortgage. Another test that is usually applied is whether the relationship of creditor and debtor was intended to continue, and whether as pointed out by Veeraswami J., in Pattay v. Bapuswami ILR (1961) Mad. 387 the repayment of the debt was to be a charge on the property conveyed. Learned Counsel stresses that the sale price is made up substantially of the prior debt due by Nanjappan, this, according to him, lends colour to the argument that what was intended was a continuance of the debtor and creditor relationship. Then we have the fact that, admittedly there was a lease back of the property to the vendor, though the lease subsisted only for a period of five years and thereafter the Defendant took possession of the property and has since been in continuous enjoyment. After all, even in the case of a sale with a simultaneous agreement to reconvey, a lease back of the property to the vendor is perfectly permissible, and not at all unknown. Again, the period of five years within which the agreement could be enforced is no clear indication one way or another. I am unable to conclude that it is so long a period that a mortgage by conditional sale is the more likely inference.

With regard to the fact that the stamp paper for the document was purchased in the name of the Nanjappan, this again, is a very stray and inconclusive feature of such transaction. It is more usual for the stamps to be purchased at the cost of the vendee, but the execution of the agreement to reconvey is itself an obligation undertaken by the vendee, which places him at a position of slight disadvantage. I agree that the documents cannot be viewed apart, for the simple reason that, if they were to be so viewed the agreement to reconvey would seem to be lacking in consideration. But, after all, an outright sale coupled with an agreement to reconvey executed by the vendee, cannot be termed a transaction unknown to law or even an infrequent one. There is a presumption in favour of any such ostensible transation being a mortgage by conditional sale. Since the transaction was of the year 1929 and the proviso was enacted in that year, the presumption would really be in the opposite, as the essential recitals are not included in the same document.

But, as I stated before, if these were the only relevant probabilities, it would be extremely difficult to come to any very definite conclusion. In such a situation, the facts and probabilities would be nicely balanced, and, personally speaking, I would be inclined to hold the transaction as amounting to a mortgage by conditional sale, rather than otherwise. But these are not the only pieces of evidence. On the contrary, there is very significant oral and documentary evidence, to a different effect altogether, to, which I must now refer. Nor can it be contended that this evidence is not relevant, or that it cannot be considered by the Court in determining the intention of the parties to the transaction.

The Plaintiff as P.W. 1 not merely claims that he is an assignee in respect of the rights under the relvant documents but swears that he was then present, and was fully cognizant of the surrounding circumstances, and the intention of the parties at that time. He gives evidence on oath, to that effect. Nevertheless, the extraordinary fact remains that the Plaintiff (P.W. 1) seems to have understood the documents as amounting to an outright sale, coupled with a contract for reconveyance. This is indisputably established by the terms of exhibit B-6 (the notice) sent by Plaintiff through his lawyer to Nanjappan on the date 20th February 1935. Learned Counsel for the Appellant seeks to overcome the effect of this document, by the argument that it is only another instance of reiteration that the transaction was an outright sale with a contract for reconveyance, in form. But that is not a proper interpretation of exhibit B-6 by any means. On the contrary, exhibit B-6 is to the effect that the parties originally intended only an outright sale, with a contract for reconveyance and that the Plaintiff (the assignee) desires to enforce the contract for reconveyance on that specific basis. Actually, the notice was sent a little beyond the period of limitation, and that is why this attempt to enforce the contract for reconveyance was unsuccesful. Nor can it be said that exhibit B-6 is irrelevant; upon the argument that the subsequent conduct of parties is not relevant, as observed by the Supreme Court in Bhaskar Waman Joshi (deceased) and Others Vs. Shrinarayan Rambilas Agarwal (deceased) and Others, . For, this is not a question of conduct at all. This is a question of a party, who was present at the time of the original transaction and who claims full knowledge of the nature of that transaction, making a subsequent and explicit admission to the effect that the intention of the parties to the original transaction was a particular intention, viz., to effect ah outright sale. That admission is relevant, as it is adverse to the interest of the party making it, under the Indian Evidence Act. It can, of course be explained, but it has not been explained. The Plaintiff (P.W. 1) has no word to say upon the contents of exhibit B-6 or why he made those specific averments.

There is a further fact. Exhibit B-6 was issued in 1935. The suit itself was filed in 1956, after a lapse of nearly twenty-one years. There will not be any question of limitation, if the transaction is a transaction of mortgage by conditional sale, as the suit will be then in time. Nor is it a question of a formal estoppel, and it need not be placed on that basis. But we must remember that an intention is a state of mind, which can only be inferred from circumstances, or from evidence and admissions of parties with knowledge. Where a party affirms a transaction as an outright sale, and does not pursue any remedy on that basis, and allows more than twenty years to lapse, before he puts forward his rights on a conflicting basis, I do not think that, even as a matter of equity, he should be permitted to do so.

I need not point out that the powers of this Court to interfere in second appeal are restricted; at least upon findings of fact. The finding that this suit transaction is an outright sale, coupled with a contract for reconveyance is a finding of fact, and not a question of law. Though legal principles have to be applied, they have to, be applied to the surrounding facts, and the inference that is drawn is exclusively a question of fact. On this consideration also, I do not think that I would be justified in interfering with the finding of the first appellate Court.

In consequence, the second appeal fails and is dismissed. Costs upon half of the usual scale to the Respondent.