VENKATA KRISHNA RAO Vs. NAGENDRAM

JUDGEMENT

(1.) The two plaintiffs, father and son, are the appellants in this Second Appeal. The suit was filed for redemption of what was claimed to be a mortgage by conditional sale, Ex. P-1 dated 19-6-1931, executed by the plaintiffs in favour of the 1st defendant. The defendants contended that Ex.. P-1 was an absolute sale with a right of re-purchase in the plaintiffs and that the period for enforcing the right having expired, the suit was not maintainable. The trial court held that Ex. p-1 was a mortgage by conditional sale and decreed redemption on payment of the mortgage money as scaled down under Madras Act IV of 1938. On appeal by the defendants, the lower appellate court came to the conclusion that Ex. p-1 was not a mortgage by conditional sale but was only a sale with a contract for re-purchase and dismissed the plaintiff's suit. The plaintiffs preferred a Second Appeal to the High Court which was heard by Subba Rao J. (as he then was). The learned Judge agreed with the conclusion of the lower appellate court and dismissed the Second Appeal. The plaintiffs have preferred this Letters Patent Appeal from that judgment.

(2.) The case of the plaintiffs is that the 1st plaintiff and his brothers had executed and delivered a promissory note in favour of Lakshminarayana the deceased father of defendants 2 and 3 on 23-6-1928 and that that promissory note was itself a renewal of a previous promissory note. The debt due and payable to Lakshminarayana was allotted to the 1st plaintiff at a partition between him and his brothers and the 1st plaintiff had to pay the entire amount due to Lakshminarayana under the promissory note. The creditor made pressing demands on the 1st plaintiff for repayment of the debt and required the debtor to mortgage the properties comprised in Ex. p-1 and also deliver possession of the mortgaged properties. Accordingly, Ex. p-1 was executed to secure the debt due by the 1st Plaintiff to Lakshminarayana. The case of the defendants is that Ex. p-1 was executed as an out and out sale and the plaintiffs were given an option to purchase the property if they paid the purchase money within a period of three years from the date of Ex. p-1. The question is whether Ex. p-1 is, on its true construction, an out and out sale with an agreement for re-purchase or whether it is a mortgage by conditional sale. The fact that Ex. p-1 is in the form of a sale of the properties comprised in the document does not conclude the matter, for even in the case of a mortgage by conditional sale, there is an ostensible sale of the property with a condition that on payment of the mortgage money the buyer should re-transfer the property to the seller. The question depends upon the intention of the-parties when they entered into the transaction, whether they intended that the transfer of the properties specified in Ex. p-1 should be only by way of security or whether they intended that the property should be sold outright to the transferees, the transferors having a mere right to repurchase the property. We have to construe Ex. p-1 taking into account all the terms of the document and having regard to the surrounding circumstances. It has to be observed at the outset that the 1st plaintiff and his brothers had been indebted to Lakshminarayana the father of defendants 2 and 3 under promissory note dated 23-G-1928, out of which Ex. p-1 arose. Though the document Ex. p-1 was stated to be in favour of the 1st defendant, it has been found by the courts below that it was really taken for the benefit of Lakshminarayana and his sons, defendants 2 and 3. In other words, the document, Ex. p-1, was in lieu of a prior debt due to Lakshminarayana and the relationship between the transferor and the transferee under Ex. p-1 was that of a debtor and creditor on the date of Ex. p-1. This circumstance, however, is not decisive and Sri Kotayya for the respondent contended that having regard to the terms of Ex. p-1 the document was executed in satisfaction of the prior indebtedness of the vendor to the vendee and not by way of security for the amount shown as the consideration in Ex. p-1. It Is remarkable that the amount due under Ex. p-1 is stated to be an odd sum of Rs. 1936/- which must represent the amount due under the prior promissory note on the date of Ex. p-1. It is unlikely if the properties comprised in Ex. p-1 were sold outright, such an odd sum of Rs. 1936/- would have been specified as the price. It appears from Ex. p-1 that the properties were valued at the rate of Rs. 210/- per acre and the extent of ac. 9-22 cents valued at that rate was conveyed to the vendee. What appears to have been done was to distribute the debt of Rs. 1936/- due on the date of Ex. p-1 over the extent of the properties comprised in Ex. p-1 and a price of Rs. 210/- per acre was specified. This was obviously done in order to clothe Ex. p-1 with the character of an outright sale and to draw a veil over the real nature of the transaction as a mortgage.

(3.) It is also significant in this connection that Ex. p-1 purports to be executed for the discharge of a prior promissory note debt and there was no fresh advance of any sum of money by the vendee in favour of the vendor. This is also an indication, though a slight one, that Ex. p-1 was executed by way of security for the pre-existing debt due by the vendor to the vendee. An important term of Ex. p-1 throwing light upon the real nature of the transaction is the provision for the payment of interest by the vendor to the vendees on the sum of Rs. 1936,-recited as the consideration for the sale. Ex. p-1 recites that whether the vendees personally cultivated the lands or whether they gave them on lease, the vendees should account for a fixed rental of two putties of paddy at the prevailing price of paddy each year and the value of the annual rental should be credited towards the annual interest due on Rs. 1926/- at Rs. 1/- per cent per mensem. We have already stated that the sum cf Rs. 1936/- was the consideration recited in Ex. p-1 If there had been an outright sale under Ex. p-1 there was no need for the vendee to account to the vendor for the annual income of the property. There was also no need for the vendor to pay interest on the sum of Rs. 1936/- every year at the heavy rate of 12% per annum if the vendor has executed an outright sale. The provision for accounting by the vendor for interest and by the verdce for the ient the properties clearly shows that the relationship between the vendor and the vendee was one of debtor and creditor and one of accountability to each other. This clearly indicates that the transaction Ex. p-1 was a mortgage by conditional sale under which the mortgagee in possession was required to account for the rent of the mortgaged property and the mortgagor agreed to pay interest on the debt represented by the consideration recited in Ex. p-1. It is not merely that the usufruct is a setoff against the rent. There is a provision that after deducting the value of the annual rental from the interest accruing every year the vendor shall pay the balance of the interest due to the vendee together with the principal sum of Rs. 1936/-. The provision for account being taken between the vendor and the vendee shows that the transaction was by way of a mortgage and n6t by way of an outright sale.