A executes a document in favour of B stating, “I hereby sell my house to B for ₹ 5,00,000. If I repay the amount within 3 years, B shall retransfer the property to me; otherwise, the sale shall become absolute.” The condition is included in the same document. A fails to repay within 3 years. B claims absolute ownership. Examine the correct legal position under the Transfer of Property Act, 1882.

Question

“… we had referred to the ill - effects of what is known as General Power of Attorney Sales (for short ‘GPA Sales’) or Sale Agreement/General Power of Attorney/Will transfers (for short ‘SA/GPA/WILL’ transfers). Both the descriptions are misnomers as there cannot be a sale by execution of a power of attorney nor can there be a transfer by execution of an agreement of sale and a power of attorney and will. As noticed in the earlier order, these kinds of transactions were evolved to avoid prohibitions/conditions regarding certain transfers, to avoid payment of stamp duty and registration charges on deeds of conveyance, to avoid payment of capital gains on transfers, to invest unaccounted money … and to avoid payment of ‘unearned increases’ due to Development Authorities on transfer.
The modus operandi in such SA/GPA/WILL transactions is for the vendor or person claiming to be the owner to receive the agreed consideration, deliver possession of the property to the purchaser and execute the following documents or variations thereof:
(a) An Agreement of sale by the vendor in favour of the purchaser confirming the terms of sale, delivery of possession and payment of full consideration and undertaking to execute any document as and when required in future.
or
An agreement of sale agreeing to sell the property, with a separate affidavit confirming receipt of full price and delivery of possession and undertaking to execute sale deed whenever required.
or
(b) An Irrevocable General Power of Attorney by the vendor in favour of the purchaser or his nominee authorizing him to manage, deal with and dispose of the property without reference to the vendor
or
A General Power of Attorney by the vendor in favour of the purchaser or his nominee authorizing the attorney holder to sell or transfer the property and a Special Power of Attorney to manage the property
(c) A will bequeathing the property to the purchaser (as a safeguard against the consequences of death of the vendor before transfer is effected).
These transactions are not to be confused or equated with genuine transactions where the owner of a property grants a power of Attorney in favour of a family member or friend to manage or sell his property, as he is not able to manage the property or execute the sale, personally. These are transactions, where a purchaser pays the full price, but instead of getting a deed of conveyance gets a SA/GPA/WILL as a mode of transfer, either at the instance of the vendor or at his own instance.”
[Extracted from Suraj Lamp & Industries (P) Ltd v. State of Haryana (2012) 1 SCC 656].

Answer 1

Step 1: Read the document carefully.
A sells his house to B for 5,00,000, but adds a condition in the same paper: if A repays the money within 3 years, B must give the house back; if A fails, the sale becomes absolute. A fails to repay. We must find the true legal nature of this deal under the Transfer of Property Act, 1882.

Step 2: Spot the special feature.
This is not a plain sale. There is a repayment option and a reconveyance promise, all written in one document. This pattern has a specific legal name.

Step 3: Apply Section 58(c).
Section 58(c) defines a mortgage by conditional sale. It applies when an owner ostensibly sells property on the condition that, on default of payment, the sale becomes absolute, with a promise to reconvey if payment is made.

Step 4: Note the same document rule.
The proviso to Section 58(c) is important: it is a mortgage only if the condition is contained in the same document that effects the sale. Here the condition is in the same document, so it is a mortgage by conditional sale, not an outright sale.

Step 5: What happens on default?
Because it is a mortgage, B does not automatically become the absolute owner when 3 years pass. To get full ownership, B (the mortgagee) must file a suit for foreclosure as the Act requires.

Step 6: Eliminate the wrong options.
Option B (void for uncertainty) is wrong because the terms are clear. Option C (outright sale, automatic ownership) is wrong because it is really a mortgage. Option D (lease with repurchase) is wrong because there is no lease here. So B, C, and D fail.

Step 7: Final answer.
It is a mortgage by conditional sale, and B must seek foreclosure through court.
\[ \boxed{\text{It is a mortgage by conditional sale; B must seek foreclosure through court.}} \]

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The Correct Option is A

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