Borrowing in the Garb of Sale Cannot Defeat Right of Redemption: : Gujarat High Court Protects Right of Redemption

“Once a Mortgage, Always a Mortgage…The Relationship of Debtor and Creditor Subsists — The Right to Redeem Cannot Be Lost by Drafting Devices”, Gujarat High Court delivered a significant judgment clarifying the thin but crucial line between a “mortgage by conditional sale” and a “sale with condition to repurchase” under Section 58(c) of the Transfer of Property Act, 1882.

Justice J. C. Doshi dismissed the Second Appeal and upheld the decree directing reconveyance of the property upon repayment of the mortgage amount. The Court held that the deed dated 24.09.1979 was not an outright sale, nor a mere agreement conferring an independent right to repurchase, but a mortgage by conditional sale, thereby preserving the statutory right of redemption under Section 60 of the Transfer of Property Act.

The ruling reiterates that when the language of a document is clear, “literal construction must be considered first,” and that courts must ascertain the true intention of the parties from the document as a whole.

The dispute concerned a shop bearing City Survey No. 2581/A in Jambusar. The plaintiffs executed a registered deed dated 24.09.1979 for Rs. 13,000/-, stipulating that after seven years, upon repayment of the said amount, the defendants would reconvey the property and restore possession.

The plaintiffs asserted that the transaction was a mortgage by conditional sale and that they were ready and willing to repay the amount after seven years. The defendants refused reconveyance, contending that the transaction was an absolute sale and that the right to repurchase was independent.

The trial court dismissed the suit. However, the First Appellate Court reversed the decision and directed the plaintiffs to deposit Rs. 14,610/- and ordered execution of reconveyance and delivery of possession. The defendant approached the High Court under Section 100 CPC.

Two substantial questions of law were framed regarding readiness and willingness and the grant of specific performance.

“Literal Construction Must Be Considered First” — Supreme Court Principles Reaffirmed

The High Court emphasized that interpretation must begin with the text of the document. Referring to Kamal Kishore Sehgal v. Murti Devi (2024 SCC OnLine SC 2582), the Court quoted:

“It is a cardinal principle of interpretation that where the language employed in the instrument is clear and unambiguous, the common literary meaning ought to be assigned in interpreting the same and one should not fall back on any other inference… literal construction must be considered first.”

The Court held that Exh. 26 had to be read in its entirety. The deed recorded that Rs. 13,000/- was taken for “household and agricultural expenses.” It imposed restrictions on the defendant’s enjoyment of the property and required reconveyance upon repayment within seven years. The condition was embodied in the same document.

These features, the Court observed, clearly indicated a borrowing arrangement and creation of a debtor-creditor relationship.

“There Is a Clear Legal Distinction” — Mortgage by Conditional Sale vs Sale with Repurchase

Relying on Bhoju Mandal v. Debnath Bhagat (AIR 1963 SC 1906), the Court reiterated:

“There is a clear legal distinction between the two concepts, a mortgage by conditional sale and a sale with a condition of repurchase. The former is a mortgage, the relationship of debtor and creditor subsists and the right to redeem remains with the debtor.”

The High Court further drew support from Patel Ravjibhai Bhulabhai v. Rahemanbhai M. Shaikh (2016) 12 SCC 216, which explained that in a mortgage by conditional sale, the debt subsists, the relationship of debtor and creditor continues, and the right of redemption survives despite expiry of stipulated time.

Applying these tests, the Court found that the amount of Rs. 13,000/- was indicative of borrowing, not market value consideration. The restrictions on enjoyment of the property further negated the theory of absolute transfer.

The Court concluded that Exh. 26 satisfied the ingredients of Section 58(c) of the Transfer of Property Act and that the plaintiffs were entitled to redeem the mortgage.

Section 100 CPC: No Substantial Question of Law Survived

The appellant argued that if the transaction was treated as a sale with condition to repurchase, the plaintiffs were required to prove readiness and willingness under Sections 10, 19 and 20 of the Specific Relief Act.

However, the High Court held that since the transaction was a mortgage by conditional sale, the suit was one for redemption and not for specific performance. The findings of the First Appellate Court were based on correct application of settled legal principles.

Referring to Jaichand (Dead) through LRs v. Sahanulal (2024 INSC 996), the Court reiterated that interference in Second Appeal is confined to substantial questions of law. It held that the questions framed at admission did not survive for consideration.

The Gujarat High Court dismissed the Second Appeal and upheld the decree directing deposit of Rs. 14,610/- and execution of reconveyance deed with delivery of peaceful possession. Interim relief was vacated.

The judgment stands as a reaffirmation that courts will pierce through form to determine substance. Where the document reveals a borrowing transaction and embodies the condition in the same instrument, the right of redemption cannot be defeated by labeling the transaction as a sale.

The decision reinforces the enduring doctrine that “once a mortgage, always a mortgage,” and that statutory right of redemption under Section 60 of the Transfer of Property Act cannot be extinguished by clever drafting or technical arguments in Second Appeal.

Date of Decision: 18/02/2026