Sanjeev Narula v. Tata Capital Financial Services Ltd

judgment are as follows: "10. The appellant herein contends that despite such reciprocal obligations on the part of the parties, the plaintiff-respondent did not fulfill his obligation in terms thereof. It was in the aforementioned context, another arrangement was said to have been arrived at on 27.07.1995, pursuant whereto and in furtherance whereof, the respondent herein offered to take an amount of Rs. 32 lakhs enabling him to purchase the flat of his choice in the vicinity instead of the concerned flat for which the appellant herein agreed to pay the said amount. For the reasons stated hereinafter, we may not consider that part of submissions of the learned Counsel for the purpose of this case.

¶11It appears that a notice of motion was filed before the High Court by way of a Chamber summons, which was supported by an affidavit affirmed by the respondent herein. In the said affidavit, although the other clauses of the consent terms entered into by and between the parties on 01.11.1991 had been mentioned but erroneously Clauses 9 and 10, which impose obligation on his part, had been omitted. We do not appreciate such deliberate omission on the part of the respondent. The said notice of motion was withdrawn on 30.07.2001. ***

¶13Having heard the learned Counsel for the parties, we are of

the opinion that as the High Court as also this Court are acting on the basis of the terms of the consent decree, the reciprocal obligations of the parties should be directed to be acted upon simultaneously. We are not satisfied that the consent terms were in any manner substituted by another agreement between the parties. We, therefore, are of the opinion that the parties should be directed to give effect to the terms of the consent decree. We have noticed hereinbefore, whereas the appellant herein is to handover the flat to the respondent, the respondent was also obligated to transfer the land situated in the District of Pune. Both the parties have failed to comply with their mutual obligations."

¶25The court now deals with the appellants' contention with respect to the transaction being either a mortgage by conditional sale or a sale with a condition of repurchase, or its being an English mortgage, with the further contention that the right to redeem was not extinguished. The guiding principles on this aspect are embodied in clause (c) of section 58 of the Transfer of Property Act, 1886 (the "TP Act") which defines "Mortgage by conditional sale" as follows: "(c) Mortgage by conditional sale.

Where the mortgagor ostensibly sells the mortgaged property - on condition that on default of payment of the mortgage money on a certain date the sale shall become absolute, or on condition that on such payment being made the sale shall become void, or on condition that on such payment being made the buyer shall transfer the property to the seller, the transaction is called a mortgage by conditional sale and the mortgagee a mortgagee by conditional sale.

Provided that no such transaction shall be deemed to be a mortgage, unless the condition is embodied in the document

which effects or purports to effect the sale."

¶26The contents of the transaction evidenced by the deed executed between the parties largely give form to the nature of such transaction. However, nomenclature of the transaction – given by the parties is always inconclusive of its true nature; it is guided by intention of the parties entering into the transaction; in addition to the conditions of repurchase and the extent of a debtor-creditor relationship between the parties, contained within such document.

¶27In the case reported as Vanchalabai Raghunath Ithape (D) by L.Rs. Vs. Shankarrao Baburao Bhilare (D) by L.Rs. and Ors.(2013) 7 SCC 173 the question to be addressed by the Court was whether the transaction in question was a mortgage by conditional sale or a sale transaction with a condition of repurchase. The trial court, in consideration of the provisions of section 58(c) of the TP Act, did not consider it to be a sale transaction and held it to be a mortgage transaction by conditional sale. The plaintiff's suit for redemption was accordingly decreed by the trial court, which declared that the plaintiff was entitled to redeem the suit property after paying the requisite amount to the defendant. Aggrieved by this judgment, the defendant appealed. The District Judge allowed the appeal, holding that there was no relationship of debtor and creditor between the parties nor was it a case that the defendant was known to the plaintiff before the transaction and consequently, the transaction in question was an absolute sale with a condition of repurchase, and that the plaintiff failed to get the land re-conveyed within stipulated period. In the plaintiff's second appeal the High Court affirmed the District Judge's observations that the document in

question was one of absolute sale with condition of repurchase. The Supreme Court, in an appeal by special leave, by the plaintiff, noticed the findings of the lower appellate court, and highlighted how although there was a presumption that the transaction was a mortgage by conditional sale in cases where the whole transaction is in one document, but the mere incorporation of a term in the same document cannot always mean that the transaction agreed between the parties was a mortgage transaction. The Supreme Court, quoted the observations from Williams v. Owen 1840 5 My. And Cr. 303: English Reports (ER) 41 (Chancery) 386 where it was held as follows: "It was held that in a mortgage the debt subsists and a right to redeem remains with the debtor, but a sale with a condition of repurchase is not a lending and borrowing arrangement; no debt subsists and no right to redeem is reserved by the debtor, but only a personal right to purchase. This personal right can only be enforced strictly according to the terms of the deed and at the time agreed upon."

¶28It was held that it was not in dispute that after transfer of the land to the respondent, they came in possession and used and enjoyed the suit property as an absolute owner, and it was only after 11 years that the plaintiff filed the suit alleging that the suit property was mortgaged in favour of the respondent with a condition to reconvey the land. Thus, the Supreme Court upheld the High Court's decision of not interfering with the findings of the first appellate court. In C. Cheriathan v. P. Narayanan Embranthiri and Ors. AIR 2009 SC 1502, interpreting the vexed question of whether a deed amounted to one of absolute conveyance with a condition of repurchase or a mortgage with conditional sale, reading the ingredients of section 58(c), the Supreme Court held as follows:

"…One of the ingredients for determining the true nature of transaction, therefore, is that the condition of repurchase should be embodied in the document which effects or purports to effect the sale. Indisputably, the said condition is satisfied in the present case.…A document, as is well known, must be read in its entirety. When character of a document is in question, although the heading thereof would not be conclusive, it plays a significant role. Intention of the parties must be gathered from the document itself but therefore circumstances attending thereto would also be relevant; particularly when the relationship between the parties is in question."

¶29There, the Supreme Court did not sustain the impugned judgment wherein the High Court allowed interpreting the document in contention to be a deed of mortgage and consequently holding that, inter alia, redemption was maintainable, and set it aside. In an earlier judgment, Tamboli Ramanlal Motilal (dead) by L.Rs. Vs. Ghanchi Chimanlal Keshavlal (dead) by L.Rs. & Anr AIR 1992 SC 1236, likewise, in considering whether the document in question was a mortgage by conditional sale within the meaning of section 58 (c) of the TP Act, or a sale with option to repurchase, highlighted the decision in Pandit Chunchun Jha v. Sheikh Ebadat Ali & Anr. [1955] 1 SCR 174, and stated as follows: "…Having regard to the nice distinctions between a mortgage by conditional sale and a sale with an option to repurchase, one should be guided by the terms of the document alone without much help from the case law. Of course, cases could be referred for the purposes of interpreting a particular clause to gather the intention. Then again, it is also settled law that nomenclature of the document is hardly conclusive and much importance cannot be attached to the nomenclature alone since it is the real intention which requires to be gathered. It is from this angle we propose to analyse the document. No doubt the document is styled as a deed of conditional sale, but as we have

just now observed, that is not conclusive of the matter.

What does the executant do under the document? He takes a sum of Rs. 5,000/- in cash. The particulars are (a) Rs. 2,499/- i.e. Rs. 899/- by mortgage of his house on 27.1.1944 and (b) Rs. 1,600/- by a further mortgage on 31.5.1947 totalling to Rs. 2,499/-. Thereafter, an amount of Rs. 2,501/- in cash was taken from the transferee. The purpose was to repay miscellaneous debts and domestic expenses and business. It is to be carefully noted that this amount of Rs. 5,000/- was not taken as a loan at all. As rightly observed by the High Court, by executing this document the executant discharges all the prior debts and outstandings. Where, therefore, for a consideration of a sum of Rs. 5,000/- with the conditional sale is executed, we are unable to see how the relationship of the debtor and the creditor can be forged in. In other words, by reading the documents as a whole, we are unable to conclude that there is a debt and the relationship between the parties is that of a debtor and a creditor. This is a vital point to determine the nature of the transaction.

The property is sold conditionally for a period of five years and possession is handed over. At the same time, the document proceeds to state "Therefore, you and your heirs and legal representatives are hereafter entitled to use, enjoy and lease the said houses under the ownership right. (Emphasis supplied)

…The further clause in the document is to the effect that the executant shall repay the amount within a period of five years and in case he fails to repay neither he nor his heirs or legal representatives will have any right to take back the said properties. Here only the right of the transferor is emphasised, while the right of the transferee to foreclose the mortgage is not spoken to. That would be so, if the document were to be a mortgage by conditional sale. Only in such a case the first condition spoken to under Section 58(c) will come into play. It is well-settled in law that the right of redemption and foreclosure are co-extensive. The absence of such a right of the

mortgagee could only mean that it is a conditional sale.

The last important clause is after the period of five years the transferee will have a right to get the municipal records mutated in his name and pay tax. Thereafter, the transferee will have an absolute right to mortgage, sell, or gift the suit property. Neither executant nor anyone else could dispute the title. All the above clauses are clearly consistent with the express intention of making the transaction a conditional sale with an option to repurchase."

¶30Therefore, whether a transaction amounts to a mortgage by conditional sale or a sale with an option of repurchase has to be determined in the light of the ingredients of the contended document, read in the light of section 58(c) of the TP Act, as interpreted in the various precedents as demonstrated above. In the present case, as noticed earlier, the deed was not an "ostensible sale": the first ingredient necessary to attract Section 58 (c). It merely recognized a pre-existing creditor debtor relationship and reiterated the equitable mortgage created earlier; the terms of the consent award then conferred an option upon the creditor, Tata Capital, to treat the instrument as a conveyance in the event of default in re-payment. Thus, the instrument was never a sale, to begin with; it became a sale deed, by default, as it were, upon the default of the debtor/Sanjeev Narula. So far as English mortgage goes, the terms of Section 58 (e) are categorical; the mortgagor should "bind" himself to pay the amount by a certain date and transfer the property absolutely. Here, the question of transfer "absolutely" never happened. It was contingent upon the happening of an event, i.e. the appellants' default.

¶31The above discussion was necessary not only because the appellant contended that the right to redeem property was not extinguished, but also to

discern the true character of the transaction. The right to redeem a mortgage is characterized as a valuable statutory one, and not easily derogable. It is only by the conduct of parties, or by decree of court, that it can be extinguished (Ref Proviso to Section 60, TP Act, and Achaldas Durgaji Oswal(supra)). In this case, by the act of parties, the appellant consented to the consent terms enlarging it into a conveyance (with its attendant methodology of receiving consideration, as agreed, for such sale). Therefore, the proviso to Section 60 operated to preclude redemption. In view of the foregoing discussion, the court is satisfied that the appellant's right to redemption was not unfairly or in an unconscionable manner, extinguished.

¶32In the light of the above discussion, the appellants' contention that the consent Award is a nullity in the light of Booz Allen (supra) is rejected as insubstantial since in the present case, the ratio of that judgment is inapplicable and the property described as above stands transferred to the books of Tata Capital and the enforcement of the mortgage, per se, is not in dispute at all. The title to the property passed in effect of the consent terms and thus, the Appellants cannot be permitted to revert the status of the property at this stage.

¶33This court is of opinion that the learned Single Judge correctly concluded on the inapplicability of the decision in Booz Allen (supra) to the present case, though, the conclusion reached on the position of the described property is incorrect. The sequitur to the non-application of the decision in Booz Allen (supra) does not render the arbitral award (and the transfer of title of the described property) a nullity. Yet, that does not result in automatic rejection of the appellants' objections.

¶34What can be seen is that the agency of the court was not necessary for

enforcement of the mortgage; it enlarged upon the occurrence of the event agreed to by the parties, i.e. default in repayment of the appellants' dues. The conveyance embodied in the consent terms operated to confer title to the property, to Tata Capital. Therefore, the ownership of the property changed. Because of this development, neither did Tata Capital need to approach the court either to seek enforcement of its dispute pertaining to any mortgage nor for sale of property. Those are situations covered by Booz Allen (supra). As far as Sanjeev Narula's argument with respect to re-conveyance is concerned, the terms of the consent award clearly envisioned that Tata Capital could register the property by virtue of the consent terms.

¶35The transfer of title to the described property meant that the rights of parties under the consent award worked itself out. However, neither the terms of consent, nor did the award confer, however, any right upon Tata Capital to claim possession of the suit property. The absence of any right to possession, and the submissions of Tata Capital, that the award did not enforce the mortgage, but merely recorded the consent of parties to agree to convey the described property in its favour, which worked itself out, without court intervention, meant that the execution petition, in effect, really sought something over and above the award. In other words, while Tata Capital's contentions about inapplicability of Booz Allen (supra) are sound, yet, those arguments preclude it to use the remedy of execution, which is not appropriate to work out substantive remedies, such as a claim to possession. Consequently, Tata Capital's claim over the possession of the property by way of filing an execution petition for enforcement of the consent Award was not maintainable, as it is not the case that a dispute has arisen from the enforcement of the mortgage that was subsequently arbitrated.

¶36In the light of the above discussion, it is held that the appellants' objection to maintainability of the execution proceeding, OMP (EN)

(COMM) No. 46/ 2016 for enforcement of the consent Award dated

28.02.2013 has to succeed, as execution is not the appropriate remedy for claiming possession. However, the appellants' contentions with respect to nullity of the award are rejected as insubstantial. As the result of this discussion, Tata Capital has to file a separate suit for seeking possession of the premises. Tata Capital is granted six weeks' time to approach the Court; till such time, the directions made by the learned Single Judge in the order of

30.03.2017 maintaining status quo of the described property shall bind the parties. The appeal is partly allowed in the above terms. No costs.

S. RAVINDRA BHAT (JUDGE)

YOGESH KHANNA (JUDGE) AUGUST 04, 2017

* IN THE HIGH COURT OF DELHI AT NEW DELHI Reserved on: 11.05.2017 Pronounced on: 04.08.2017 + EFA (OS) (COMM) 3/2017 & C.M. APPL.5425/2017 SANJEEV NARULA ..... Appellant Through: Sh. Nakul Mohta and Sh. Johnson Subba, Advocates. versus TATA CAPITAL FINANCIAL SERVICES LTD....... Respondents Through: Sh. Saurabh Kirpal, Sh. Aditya Shankar, Ms. Meghna Mishra, Sh. Rohan Sharma and Sh. Naman Joshi, Advocates. CORAM: HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE YOGESH KHANNA MR. JUSTICE S. RAVINDRA BHAT % 1. The appellant is aggrieved by a judgment dated 10.01.2017 of a learned Single Judge rejecting his objection to the maintainability of execution proceedings filed by the Respondent, Tata Capital Financial Services Limited (hereinafter, also referred to as "Tata Capital") for the enforcement of an arbitral award. 2. The facts of the case briefly, that Tata Capital sanctioned a term loan to Lilliput Kidswear Ltd. ("Lilliput", together with Mr. Narula referred to as the "Appellants") for a tenure of 48 months together with interest and other terms set out in the sanction letter dated 28th July 2011. Sanjeev Narula was a Director of Lilliput at the relevant time. He acted as guarantor and signed a deed of personal guarantee on 28th July 2011 in his personal capacity to secure the loan. The guarantee was furnished in favour of Tata Capital, irrevocably, unconditionally and personally, guaranteeing repayment of all the amounts due and payable by Lilliput under the term loan agreement. As guarantor, Mr. Narula created equitable mortgage of built-up immovable property admeasuring 586.44 sq yards at 94, Block-D, Okhla Industrial Estate, Phase-1, New Delhi (herein, also referred to as the "described property") in favour of Tata Capital by depositing the original title deeds. A Memorandum of Entry dated 13th October, 2011 recorded this. Due to non- payment of the outstanding dues, despite repeated reminders, to both Lilliput and Mr. Narula, Tata Capital filed Arbitration Petition No. 782 of 2012 in the High Court of Bombay, under Section 9 of the Arbitration and Conciliation Act, 1996 ("the Act") against both Lilliput and Mr. Narula. 3. The parties later sought to resolve their disputes on mutually agreed consent terms dated 8th February 2013 in the said proceedings in the Bombay High Court. In the meanwhile, a sole Arbitrator had already been appointed by the parties. The Bombay High Court in Arb. P. No. 782/ 2012 passed an order dated 8th February 2013 recording that the consent terms had been tendered. They were taken on record and the said petition was disposed of in its terms. On 28th February 2013, the parties appeared before the sole Arbitrator and he passed the following consent Award: "Heard advocates for parties. Both advocates have informed me that by an order dated February, 2013 in Arbitration Petition No. 782 of 2012 the parties have tendered the consent terms before the Hon'ble High Court. The copy of the said consent terms are tendered today. A copy of the order dated 8thFebruary, 2013 is taken on record along with the copy of the consent terms. The consent terms dated February, 2013 which is sought to be tendered before me has been filed in the aforesaid petition and Hon'ble High Court has disposed of the petition in terms of these consent terms. As per clause 9 of the consent terms parties have agreed to file these consent terms before me and to pass the consent award in terms on these consent terms. Since, the Hon'ble High Court has accepted these consent terms by order dated February, 2013 these directions mentioned in clause 9 are binding on me. I therefore pass the Consent Award in terms of these consent terms which is tendered today. The parties shall pay Arbitrator's fees for 2 days (4 hours) @20000/- per hour shared equally and reading fees Rs. 50000/- shared equally amounting to Rs. 65000/- each for the Claimant and the Respondent respectively. The payment should be sent on or before 10th March, 2013 to