1. This Letters Patent appeal is by the defendants against the judgment of Hemeon J., in Second Appeal No. 390 of 1948, dated 18th September 1953.
2. The plaintiff (since deceased and represented by his legal representatives) brought the suit for the ejectment of the defendants from a house situated at Ganpatrao's Chhaoni, Civil Station, Nagpur, and for arrears of rent and mesne profits valued at Rs. 672/12/-. The plaintiff had previously obtained the permission of the Rent Controller. Accroding to the plaintiff, the defendants, who had sold the house to him on 15th March 1943, had taken it from that date on a monthly rent of Rs. 19/8/-. They paid rent till 15th October 1944 but not thereafter. The suit was thus for ejectment, rent and mesne profits.
3. The defendants' plea was that the transaction was a mortgage by conditional sale and that the rent note was in lieu of interest calculated at Re. 1/8/- per cent per month on the purchase price of Rs. 1,300/-. They accordingly contended that it was a mortgage without possession by conditional sale and the suit ought to have been for foreclosure and not for ejectment. They denied the relationship of landlord and tenant and stated that the transaction was an ostensible one and represented the relationship of creditor and debtor.
4. The trial Court concluded that the transaction was a mortgage by conditional sale and ordered the dismissal of the suit. On appeal the first appellate Court held that it was an outright sale with condition of repurchase and that the plaintiff was entitled to succeed and to get a decree for rent and mesne profits. The second appeal was dismissed by Hemeon J., and hence this Letters Patent appeal with the leave of the learned Single Judge.
5. The document in question was preceded by a promissory note for Rs. 1,050/- which were paid to the first appellant on 14th March 1943. Exhibit P-1, the promissory note, mentions the sale of the house and the price settled. On 15th March 1943 Exhibit P-2 was executed. It is described as a sale deed and the parties are also described as vendors and purchaser. The transaction is shown to be an absolute sale and the reason given is as follows :
'Whereas the vendors were urgently in need of this money for payment to the decree-holders Messrs C.F. Nazareth and R.F. Nazareth who had obtained a final mortgage decree against the house conveyed by the sale deed in C. S. No. 36-A of 1935, dated 7-1-35 and at present the execution of the same is pending in the Court of the 2nd Sub-Judge, 2nd Class, Nagpur, for 17-3-43, the vendors in order to have that property, are compelled to execute the sale deed and obtain money therefor. After describing the property and the absolute conveyance of title the deed goes on to incorporate the following condition: 'It is hereby agreed that in case the vendors wish to take back this house, they shall at any time within three years of the execution of this document get reconveyance of this property executed at the cost of vendors, and in which case the purchaser shall execute the re-sale of the property to the ven-dors by paying the full amount of Rs. 1300/-.'
6. The learned Single Judge relied mainly upon a statement of the law by Rao, J., in Bhaiyalal v. Kishorilal, ILK (1950) Nag 719 : (AIR 1960 Nag 198) (A), that there was no presumption that the transaction was a mortgage and that the burden was upon be defendants who desired that the document should be construed contrary to its tenor. The learned Single Judge also referred to the dictum of Lord Cranworth, L.C. in Alderson v. White, (1858) 44 ER 924 at p. 928 (B), which were quoted with approval in Bhagwan Sahai v. Bhagwan Din, ILR 12 All 387 (PC) (C). He also referred to Balkishen Das v. 'W. F. Legge, ILR 22 All 149 (PC) (D), and Jhanda Singh v. Wahid-ud-din, ILR 38 All 570: (AIR 1916 PC 49) (E).
According to the learned Judge, there was nothing to show that the relationship of creditor and debtor remained after the transaction had taken place and he was of opinion that the two terms should be interpreted as showing an outright sale coupled with an independent term for the repurchase of the house.
7. The appellants contend that the result reached by the learned Single Judge is erroneous and they rely upon a decision of the Supreme Court reported in Chunchun Jha v. Sheikh Ebadat Ali, 1955-1 SCR 174: (AIR 1954 SC 345) (F). According to the learned counsel for the appellants, the Court must start with a presumption in favour of a mortgage and that presumption can only be rebutted if the mortgage is excluded by clear words to be found in the document or, in case of ambiguity, by reference to the surrounding circumstances. The learned counsel for the respondents says that the decision of their Lordships of the Supreme Court does not lay down any such rule of presumption, and he refers to the preface to the fourth edition of Mulla's Transfer of Property Act in which Das, C.J., extracted a passage from the judgment and stated that it had settled the law which was in a state of confusion previously. The learned counsel for the respondents says that we should not give more meaning to the decision than what is contained in the passage quoted in the said preface.
8. Their Lordships', decision was interpreted by me sitting with Mangalmurti J., in Mohd, Ibrahim v. Sugrabi, 1955 Nag LJ 344 : (AIR 1955 Nag 272) (G). There I bad referred to the difference of opinion existing in the Nagpur High Court between Grille J., (as ho then was) and J. Sen J. I had then referred to the opinion of Rao, J., in Bhaiyalal's Case (A), (cit. sup.) and had stated that the view of the Kao J., approved by myself and Sinha C.J., (as he then was) in Shrinarayan v. Bhaskar, 1954 Nag LJ 64: (AIR 1954 Nag 193) (H), must be taken to be modified by the Supreme Court.
The same view of the Supreme Court case was taken by V.R. Sen, J., in Atmaram v. Krishna, S.A. No. 509 of 1949, D/- 25-1-1955 (Nag) (I), Vishwa-nath v. Samarathbai, S. A. No. 222 of 1951, D/-21-11-1935 (Nag) (J), and Sampat v. Anusaya, S. A. No. 378 of 1948, D/- 28-11-1955 (Nag) (K), and by roe sitting singly in Deorao v. Ramdas, S. A. No. 113 of 1949, D/- 5-7-1955 (Nag) (L). The learned counsel for the respondents contends that all these subsequent decisions of this Court do not faithfully represent the decision of the Supreme Court. It is therefore necessary to examine once again the decision of their Lordships.
9. The decision of their Lordships was given in a suit for redemption of what the plaintiff described as a mortgage dated 15th April 1930. Their Lordships stated that the only question for determination was whether it was a mortgage by conditional sale or a sale out and out with a condition of repurchase. Their Lordships further observed that the success or failure of the plaintiff depended upon whether the document was interpreted as a mortgage or as a sale with a condition of repurchase. It may be pointed out that the plaintiff was the appellant before their Lordships and that he succeeded in getting it established that the document was a mortgage by conditional sale.
Their Lordships described the terms of the document at page 178 after paragraphing them for convenience and omitting unnecessary words. They showed that there was a previous simple mortgage on the property to pay off and that more money was required to meet the cost of a suit. They then observed that the vendors stated that at that time there was no other way of arranging for the money without selling the property mortgaged under the previous bond. Their Lordships then quoted the operative portion of the document as follows :
'(3) Therefore, we the executants..... declare ..... that we ..... sold and vended the properties detailed below on condition (given below) for a fair and just price of Rs. 700/- .....'
Thereafter there is acknowledgment of the consideration received and an averment that the vendee was put in possession and occupation and that he was made an absolute proprietor 'in our place'. Then followed the condition of repurchase which was stated in the judgment of their Lordships to be as follows :
''(6) If we, the executants, shall repay the consideration money to the said vendee within two years ...... the property vended under this deed of conditional sale attached shall come in exclusive possession and occupation of us, the executants.
7. If we do not pay the same, the said vendee shall remain in possession and occupation thereof, generation after generation, and he shall appropriate the produce thereof.
8. We, the executants, neither have nor shall have any objection whatsoever in respect of the vended property and the consideration money. Perchance if we do so it shall be deemed null and void in Court'
Then followed certain conditions in case a flaw in the title was discovered, which do not affect the proposition, and the last condition was as follows :
'(10) Therefore we, the executants, ...... have executed this deed of conditional sale so that it may be of use in future.'
10. It would, therefore, appear that there was an outright sale, because the property could not otherwise he saved, and that there was a condition for repurchase which gave the vendors a chance of getting back the property. In dealing with this transaction their Lordships observed that it was not necessary to examine the numerous cases on the subject because each case must be decided on its own facts and because the attendant circumstances always contain from case to case 'imponderable variables''. Their Lordships, however, observed that certain broad principles remained.
11. In laying down these principles their Lordships observe that the intention of the parties is the determining factor and rely upon 27 Ind App 58: ILR 22 All 149 (PC) (JD) which, according to their Lordships, must be gathered in the first place from the document itself. Their Lordships lay down that if the words are express and clear, effect must be given to them and extraneous inquiry into what was thought or intended is ruled out
In other words, the interpretation of the document depends upon the legal effect of the words used by the parties. Their Lordships also observe that if there is ambiguity in the language employed then it is permissible to look to the surrounding circumstances to determine what is intended. Their Lordships then quote Lord Cranworth's dictum in (1858J 44 ER 924 at p. 923 (B), which is to the following effect:
'The rule of law on this subject is one dictated by commonsense; that prima facie an absolute conveyance, containing nothing to show that the relation of debtor and creditor is to exist between the parties, does not cease to be an absolute conveyance and become a mortgage merely because the vendor stipulates that he shall have a right to repurchase.. ... In every such case the question is, what, upon a fair construction, is the meaning of the instruments?'
and refer also to 17 Ind App 98: ILR 12 All 387 (PC) (C) and 43 Ind App 284: ILR 38 All 570: (AIR 1916 PC 49) (E), where the Privy Council had applied that dictum.
12. Their Lordships then say that the converse of Lord Cranworth's dictum is also true and if, on the face of it, the instrument clearly purports to be a mortgage, it cannot be turned into a sale by reference to extraneous and irrelevant considerations. Their Lordships note that difficulty only arises in the border-line cases where there is ambiguity. Their Lordships therefore lay down the rules for guidance for the Courts.
13. Their Lordships take into consideration the fact that Section 58(c) of the Transfer of Property Act was amended by the Legislature to remove the difficulty, and they therefore lay down what the Legislature intended and in which way the Legislature thought the difficulty would be obviated. Their Lordships state that after the amendment, two separate documents incorporating respectively the sale and the agreement to repurchase cannot be construed as one transaction of mortgage by conditional sale.
They then observe that, with this exclusion, it is reasonable to suppose that persons who, after the amendment, choose not to use two documents, do not intend the transaction to be a sale. Pausing here, the rule of interpretation is that if the condition of repurchase is in the document, the intention of the parties, as 'deduced from the document itself, is that prima facie it is not meant to be an outright sale. Their Lordships then add that the only escape for persons who have used a single document with two conditions is to 'displace that presumption by clear and express words', Pausing here, it is clear that the words must be in the document. Their Lordships then observed:
'If the conditions of Section 58(c) are fulfilled, then we are of opinion that the deed should be construed, as a mortgage.'
Pausing here, it is quite clear that if there is an outright sale, coupled with a condition of repurchase ia the document, and there are no clear and express words to exclude a mortgage, then it must be taken that the parties intended executing a mortgage by conditional sale rather than an outright sale with a condition of repurchase. Their Lordships in another passage state that the apparent words of the document describing it as a sale should not weigh too much if the condition of repurchase is put in the same document.
The reason given is that Section 58(c) postulates that there must be 'an ostensible sale'; and if a sale is ostensible, it must necessarily contain all the outward indicia of a real sale. The question, according to their Lordships, is not whether the words purport to make the transferee an absolute proprietor, for of course they must under Section 58(c), but whether that is done 'ostensibly' and whether conditions of a certain kind are attached.
14. As I read their Lordships' decision, I think that the result, stated in commonplace language, is this: If the purchasers do not desire that their transaction should be interpreted as a mortgage by conditional sale, they must insist on two separate documents which can never be construed as a mortgage under the law. If, however, they choose to incorporate the condition of repurchase in the same document, they must insist that clear and express words excluding the mortgage are incorporated in the same document.
If they do not insist on these two things, and the condition of repurchase is in the same document, then, however ostensible the first part conveying absolute title to the purchaser may be, Courts will hold that a mortgage was intended and they will go to the surrounding circumstances only if there be ambiguity, but not otherwise,
15. Applying the above tests, it is quite clear that here there is no ambiguity. There is an outright sale coupled with a condition of repurchase in the same document. If anything, there is an indication that the property could not be saved except by selling it temporarily with a condition for its repurchase, because if the present transaction had not been gone through the property would have been sold anyhow under the simple mortgage decree. If there was any ambiguity this circumstance, together with other circumstances pointed out by the trial Court, would have denoted an intention to raise a loan; and the fact that the rent was fixed at Rs. 19-8-0 per month, which works out as interest on Rs. 1,300 at Re. 1-8-0 per cent, per month, would have been material.
In my opinion, all this inquiry is not necessary. The condition of repurchase is incorporated in the same document. There is no ambiguity and there are no clear words excluding a mortgage. The conditions of Section 58(c), particularly the third clause, are fulfilled and therefore the transaction must be regarded as a mortgage by conditional sale and not as an absolute sale coupled with a condition of repurchase. It was on a consideration of these things that I had observed in 1955 Nag LJ 344: (AIR 1955 Nag 272) (G) as follows:
'10. It would appear from this that the approach to the problem has to be restated. Whereas under the law as understood before, a document, though ostensibly, a sale with a bare condition merely for repurchase, could be interpreted as incorporating two independent conditions creating an absolute conveyance and an option of repurchase, placing the burden upon the one who sought to interpret it against the clear tenor of the document as a mortgage that approach is not now permissible.
The inclusion of the condition of repurchase in the same document must now be taken as a token of mortgage in the first instance, and it must be left to one who contends that the conveyance was absolute with only an option of repurchase to establish it by express words to be found in the document and, in case of ambiguity, by reference to the surrounding circumstances. The need for interpretation would really arise if there be ambiguity.'
16. After considering the matter once again, I am of opinion that the law laid down in Mohd. Ibahim v. Sugrabi (G) (cit. sup.) by me and Mangal-murti, J., does not need any reconsideration. I am fortified in this view by the subsequent decisions given by V.R. Sen, J., to which I have already referred. In my opinion, the decision of Hemeon, J., must be reversed in view of the decision of the Supreme Court. I accordingly set aside the decree passed by Hemeon, J., as well as that passed by the first appellate Court and restore that of the trial Court, The costs throughout shall be borne by the plaintiff.
17. I agree.