The essentials of an agreement, to qualify as a mortgage by conditional sale, can succinctly be broadly summarized. An ostensible sale with transfer of possession and ownership, but containing a clause for reconveyance in accordance with Section 58 (c) of the Transfer of Property Act, will clothe the agreement as a mortgage by conditional sale. The execution of a separate agreement for reconveyance, either contemporaneously or subsequently, shall militate against the agreement being mortgage by conditional sale. There must exist a debtor and creditor relationship. The valuation of the property, and the transactional value, alongwith the duration of time for reconveyance, are important considerations to decide the nature of the agreement. There will have to be a cumulative consideration of these factors, alongwith the recitals in the agreement, intention of the parties, coupled with other attendant circumstances, considered in a holistic manner. Vishal Tukaram Kadam v. Vamanrao Sawalaram Bhosale, 2017 (5) AWC 4821.
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The Appeal under Section 18 of the Securitisaton Act is permissible only against the order passed by Debt Recovery Tribunal under Section 17 of the Act. Under Section 17, the scope of enquiry is limited to the steps taken under Section 13(4) against the secured assets. The partial deposit before the DRAT as a pre-condition for considering the appeal on merits in terms of Section 18 of the Act, is not a secured asset. It is not a secured debt either, since the borrower or the aggrieved person has not created any security interest on such pre-deposit in favour of the secured creditor. If that be so, on disposal of the appeal, either on merits or on withdrawal, or on being rendered infructuous, in case, the appellant makes a prayer for refund of the pre-deposit, the same has to be allowed and the pre-deposit has to be returned to the appellant, unless the Appellate Tribunal, on the request of the secured creditor but with the consent of the depositors, had already appropriated the pre-deposit towards the liability of the borrower, or with the consent, had adjusted the amount towards the dues, or if there be any attachment on the pre-deposit in any proceedings under section 13(10) of the Act read with Rule 11 of the Security Interest (Enforcement) Rules, 2002, or if there be any attachment in any other proceedings known to law. Axis Bank v. S.B.S. Organics Pvt. Ltd., 2016 (132) RD 507.
Though no principle of law has been laid by the Hon’ble Supreme Court in the Judgment of Persn Medicinal Plants Pvt. Ltd. v. Indian Bank, decided on 25.02.2011 but it clearly indicates that in a given situation where an amount more than the amount due from the borrower/guarantor had already been realized by auction sale, which stands confirmed and the possession of the property also had been handed over to the Bank which is utilizing the same or is utilizing the property having purchased the same in the said auction, insistence on the deposit referred to under proviso to Section 18 would be contrary to the legislative intent as also the express provision as is evident from the use of the words “50% of the amount of debt due from him”.
A similar view has been taken by a Division Bench of the Punjab and Haryana High Court in similar fact situation in the case of S.R. Forging Ltd. v. UCO Bank and another, 2013 (1) DRTC 734, which reads as under:
“At this stage, we find that out of total due amount of Rs. 18.24 crores, Rs. 17.75 crores have been received by the bank in a public auction. Therefore, the deposit of 50% of the amount due prior to sale from the petitioner would be wholly unjustified. The proviso to section 18 of the Act restricts the entertainment of the appeal unless the borrower deposits 50% of the amount of the debt claimed by the Secured Creditors. Once Rs. 17.75 crores have been received by the secured creditors, that is more than 50% of the debt due from the petitioners, the purpose of the proviso stands satisfied”. Akash Ganga Airlines Ltd. v. DRAT, 2015 (5) AWC 5186.
In Triveni Shankar Saxena v. State of U.P., 1992 Supp (1) SCC 524, the Hon’ble Supreme Court held as follows: “The word ‘lien’ originally means binding from the latin ligamen. Its lexical meaning is ‘right to retain’. The word ‘lien’ is now variously described and used under different contexts such as ‘contractual lien’, ‘equitable lien’, ‘specific lien’, ‘general lien’, ‘partners lien’, etc. In Halsbury’s Laws of England, (4th Edition, Vol. 28 at p. 221, para 502) it is stated: “502. Legal Lien.—In its primary or legal sense “lien” means a right at common law in one man to retain that which is rightfully and continuously in his possession belonging to another until the present and accrued claims [of the person in possession] are satisfied.” Similarly in, K. Saradambal v. Jagannath and Brothers, (1972) 42 Comp Cas 359 (Mad), it was held: “A legal lien differs from a mortgage and pledge in being an unassignable personal right which subsists only so long as possession of the goods subsists. A mortgage is an assignable right in the property charged and does not depend on possession. A pawn or pledge gives a special assignable interest in the property to the pawnee . A lien is, however, included in the definition of mortgage in the Law of Property Act, 1925. Where an equitable mortgage is created by deposit of title deeds, the mortgagee has a legal lien on the deeds deposited.’ The word lien is defined in the Law Lexicon by P. Ramanatha Iyer as: “A lien may be defined to be a charge on property for the payment of a debt or duty, and for which it may be sold in discharge of the lien. A lien, in a limited and technical sense, signifies the right by which a person in possession of personal property holds and retains it against the owner in satisfaction of a demand due to the party retaining it; but in its more extensive meaning and common acceptation it is understood and used to denote a legal claim or charge on property, either real or personal, As security for the payment of some debt or obligation; it is not strictly a right in or right to the thing itself but more properly constitutes a charge or security thereon.’ The word ‘lien’ is defined in Stroud’s Judicial Dictionary, 3rd Edition, at p. 1644 as: “A lien.—(without effecting a transference of the property in a thing)-is the right to retain possession of a thing until a claim be satisfied; and it is either particular or general.’ Bombay Stock Exchange v. V.S. Kandalgaonkar, (2015) 2 SCC 1.
Lease and Mortgage are species of the same genus viz., the ‘transfer of property’. Both of them bring about transfer of property, but with a substantial change as to the nature of disposition. The principal objective of a mortgage is to provide security for repayment of amount, whereas the one under lease is that the owner of an item of immovable property permits another to use it on payment of rent. Except in the case of usufructuary mortgage and mortgage through conditional sale, the possession of the property continues to be with the mortgagor.
In the case of lease, the transferee invariably gets the possession of the property. Apart from the broad difference, there are certain minute important aspects, that differentiate the mortgage from lease. Once a transaction of mortgage is brought about, the mortgagor gets the right to redeem and the mortgagee gets the corresponding tight to foreclose the mortgage. The nature of decree to be passed in a suit for foreclosure of mortgage differs substantially from the one to be passed in a suit for recovery of possession of property from a lessee. A preliminary decree is to be passed and it is followed by final decree. Chapter IV of the Transfer of Property Act, 1882 confers rights and places obligations on the mortgagors, on the one hand, and mortgagees, on the other hand, which are typical and germatone to such transactions. Prescription of any fixed term is alien to mortgages.
Lease, on the other hand, involves, just the permission being accorded by an owner of property, to another, to use it. The consideration therefor is the rent fixed with the consent of the parties. In a given case, the lease may be nominal or phenomenal. Further law does not prohibit the rent being paid in the form of adjustment from the amount due from the lessor to the lessee. What becomes important is the objective underlying the transaction, namely use of the property belonging to the lessor by the lessee, on payment of rent and for a stipulated term. Chapter V of the Act enlists the rights, which a lessor has against the lessee and vice versa. Termination of lease on the one hand, and foreclosure/redemption of mortgage, on the other hand, have nothing in common. When such is the radical difference between the two transactions, it is not at all possible to take the one for the other. Gita Cotton Trading Company v. CCRA, Hyderabad and another, 2013(121) RD 661 (AP).
Rule of lis pendens applies to suit on mortgagee as well. Lord Justice Turner has succinctly dealt with this principle in the leading case of Bellamy v. Sabine (1857) 1 De G J 566. The doctrine is intended to prevent one party to a suit making an assignment inconsistent with the rights which may be decided in the suit and which might require a further party to be impleaded in order to make effectual the court’s decree. Law is well settled that a mortgagee, who has purchased a mortgaged property in execution of his mortgage decree is entitled to avoid a transfer on the ground that it was mortgaged by the mortgagor during the pendency of a mortgage suit. Section 52 of the TPA prevents a mortgagor from creating any lease during the pendency of mortgaged suit so as to effect the right of a mortgagee or the purchaser. Sunita Jugakishore Gilda v. Ramanlal Udhoji Tanna, 2013 (6) AWC 5652 (SC).
The word ‘sale’ has been defined under Section 54 of the Transfer of Property Act. The definition says that sale is a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised.
Ownership is defined as the relation between a person and an object forming the subject matter of his ownership. It consists in a complex of rights, all of which are right in rem, being good against all the world and not merely against specific person. Owner will have a right to possess the thing which he owns. He may not necessarily have possession of the property or he may have been wrongly deprived of it or may have voluntarily divested himself of it. The owner normally has the right to use and enjoy the thing and right to manage it, i.e. the right to decide how it shall be used. Whereas the right to possession is a right in the strict sense. The position of an owner differs from that of a non-owner in possession in that the latter’s interest is subject to be determined at some future set point. Lastly, the ownership has a residuary character. He might have divested his position by creating lease or mortgage, still his ownership would consist of residuary rights, i.e. the right which remains when all these lesser rights have been given away. Shanti Bhushan v. State of U.P., 2013 (3) AWC 2700.