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Bombay High Court · body

2012 DIGILAW 60 (BOM)

Vibhit Enterprises Pvt. Ltd. v. M. B. Constructions

2012-01-10

ROSHAN DALVI

body2012
Judgment 1. The parties in the aforesaid suits have entered into two transactions, one being an agreement simplicitor and the other being a deed of mortgage both dated 18th July 2005. The deed of mortgage has been executed immediately prior to the agreement. The deed of mortgage is registered; the agreement is not. The Plaintiff in Suit No.172/2011 (Vibhit) has sought performance of the agreement in which it is shown as the purchaser. The Plaintiff in Suit No.325/2011 (MBC) has sought to redeem the mortgage upon payment of the mortgage amount a day prior to its due date. 2. Under the agreement the Defendant in Suit No.172/2011 M/s. M.B. Constructions Ltd. (MBC) as the owner of an immovable property desired to acquire new properties adjacent thereto. For want of sufficient finance the Plaintiff in Suit No.172/2011 M/s. Vibhit Enterprises Pvt. Ltd. (Vibhit) agreed to acquire two new properties in the name of MBC and jointly developed the properties with MBC. Since joint development was not possible the parties agreed that Vibhit would pay Rs.5.5 crores to acquire the properties from out of its funds as an investment, and notwithstanding the deed of mortgage entered into by the parties earlier on that day, MBC would allot to Vibhit 23 residential flats with 23 car parking spaces together admeasuring 17764.10 sq. ft. carpet area to be constructed by MBC as shown in the sanctioned plans to Vibhit. The parties laid down the terms and conditions for the construction of the flats more specially the time limit therein being 30 months from the date of the agreement. Vibhit was not concerned with the profits and losses of the firm. MBC was accepted to be the sole owner. 3. The parties further agreed that Vibhit would be entitled to sell those flats to third parties without payment of transfer charges to MBC and MBC would handover those flats and car parking spaces to Vibhit along with the occupation certificate. Upon failure of this covenant they would pay additional liquidated compensation to Vibhit @ Rs.6/per day per sq. ft. of saleable area and for securing such payment would allot additional flats aggregating to 4463.15 sq. ft. of carpet area to Vibhit. This is stated to be 10 other flats in addition to 23 aforesaid flats. 4. Upon failure of this covenant they would pay additional liquidated compensation to Vibhit @ Rs.6/per day per sq. ft. of saleable area and for securing such payment would allot additional flats aggregating to 4463.15 sq. ft. of carpet area to Vibhit. This is stated to be 10 other flats in addition to 23 aforesaid flats. 4. The parties recorded that to secure and safeguard Vibhit’s interest they had entered into a separate deed of mortgage in furtherance of the agreement and as the part and parcel thereof. The agreement was to be read along with the deed of mortgage. The additional compensation under the deed of mortgage was stated to be the same as the additional compensation payable under the agreement. 5. The deed of mortgage set out the same recitals with regard to the acquisition of immovable properties to be developed by MBC who were in need of finance and who had approached Vibhit for advance of Rs.5.5 crores who had financed the entire cost of acquisition of the properties sought to be purchased and developed and which were adjacent to the lands which the MBC had owned. The advance of Rs.5.5 crores was against the security of the properties described in the schedules to the mortgage deed. The partners of MBC stood guarantee for the repayment of the sum advanced and were shown as guarantors to the mortgage deed. The MBC as well as the guarantors guaranteed to repay the mortgage debt on or before 5th January 2008 together with the agreed liquidated compensation thereto. The parties agreed to the liquidated compensation in a sum of Rs. 7,68,98,100/. This, therefore, constituted the principal sum advanced of Rs. 5.5 crores and the interest as calculated and quantified by the parties which was expressly shown in the aforesaid liquidated amount. The MBC gave two postdated cheques also dated 6th January 2008 for Rs.5.5 crores and Rs. 7,68,98,100/aggregating Rs.13,18,98,100/. The parties further agreed that if the amount was paid on the due date mentioned in the mortgage deed, the properties mortgaged would be released from the mortgage by executing a deed of release. If the mortgagor defaulted in payment, the parties agreed for payment of further additional liquidated compensation of Rs.43,96,603/p.m payable from 6th January 2008 to the mortgagee until the repayment of the liquidated amount constituting the aforesaid principal amount and the interest amount. 6. If the mortgagor defaulted in payment, the parties agreed for payment of further additional liquidated compensation of Rs.43,96,603/p.m payable from 6th January 2008 to the mortgagee until the repayment of the liquidated amount constituting the aforesaid principal amount and the interest amount. 6. The execution of the two agreements is admitted. 7. The interpretation put by both the parties thereupon is diametrically different. Vibhit would contend that the agreement entered between the parties can be specifically enforced since under the agreement 23 flats and 23 car parking spaces were reserved only for being handed over to Vibhit within 30 months in consideration of the amount of Rs.5.5 crores paid by Vibhit for purchase of the adjoining properties. Upon failure to perform MBC’s covenants, Vibhit would be entitled to further flats and car parking spaces to the extent of the area of the constructed flats mentioned in the agreement. Vibhit would simultaneously contend that notwithstanding the deed of mortgage it is not enjoined to accept the repayment of the principal amount as well as the liquidated interest amount payable under the deed of mortgage, but is entitled to enforce the possession of the flats being given to it. 8. MBC, on the other hand, would contend that the agreement, which is unregistered and upon which Vibhit cannot sue, coupled with a deed of mortgage executed on the same day and expressly showing only the agreement for financing the amount for purchase of the properties by MBC being made by Vibhit, Vibhit would be entitled only to enforce the agreement, if MBC would default in payment of the mortgage debt on the due date. It, therefore, contends that if MBC were to honour the due date of the mortgage and repay the principal as well as the interest amount as per the terms of the deed of mortgage, the advance made would be fully satisfied and the agreement would not be enforceable. 9. Indeed, as contended on behalf of MBC the agreement between the parties dated 18th July 2005 makes specific reference to the fact that MBC intended to develop the properties for which Vibhit financed the purchase. They were to jointly acquire the properties, but could not jointly develop the same. The properties were purchased by MBC out of the funds provided by Vibhit, but were to absolutely belong to MBC. It was shown as Vibhit’s investment. They were to jointly acquire the properties, but could not jointly develop the same. The properties were purchased by MBC out of the funds provided by Vibhit, but were to absolutely belong to MBC. It was shown as Vibhit’s investment. Vibhit paid the amount to enable the MBC to acquire the properties and was not concerned with profit and loss as contended on behalf of the Vibhit. 10. However, the agreement makes a specific reference to the fact of allotment of flats, notwithstanding what was stated in the deed of mortgage which was to be specifically in furtherance of and as a part and parcel of the agreement, and the development of the properties was to be saving and excepting the allotment of the flats by MBC. The construction was to be done solely by MBC within the specified time limit of 30 months to allot the flats. Any default in that time limit would require allotment of further flats. 11. Counsel on behalf of both the parties argued at length as to how the intent of the parties was expressed in the aforesaid two documents. 12. Mr. Kapadia argued that the dominant purpose of the transaction between the parties was to finance the purchase of the land for which MBC agreed to an unconscionable rate of interest as liquidated interest which was in the nature of liquidated damages to be paid on a specified due date. The fact that it was expressly mentioned that Vibhit had only financed MBC, invested its amounts out of its own funds and was not interested in the profits and losses of the development showed a transaction of finance simplicitor. 13. Mr. Kapadia showed the salient features of the agreement of the mortgage laying down the rights of the parties thus: The transaction under the agreement was a loan and was paid not for purchase of flats, but for acquiring the land making Vibhit a financer and not a purchaser of the land. It granted Vibhit the right to call upon MBC to repurchase the flats at an agreed rate (clause 9(d)). The mortgage was only a security for the payment of money together with the PDCs. The deed of mortgage itself showed that amount was lent as advance and that the mortgagee can call back the principal debt and release the security. It granted Vibhit the right to call upon MBC to repurchase the flats at an agreed rate (clause 9(d)). The mortgage was only a security for the payment of money together with the PDCs. The deed of mortgage itself showed that amount was lent as advance and that the mortgagee can call back the principal debt and release the security. The guarantors under the mortgage guaranteed the mortgage debt and, therefore, agreement for sale was merely an additional security. 14. Mr. Madon on behalf of Vibhit argued that the development of the properties and the allotment of the flats mentioned in the agreement showed that the finance was given essentially for development of the properties and not merely as a loan and consequently, the agreement was executed notwithstanding the deed of mortgage which was in furtherance of the agreement and part and parcel thereof. Hence, he contended that, the allotment of the flats was the dominant intention of the parties and the purpose of the payment. The payment was made for obtaining the flats which Vibhit could sell to third parties without payment of transfer charges and not to finance any other part of the development by MBC. It was, therefore, that Vibhit expressly stated that it was not concerned with the profit and loss of the development; it was only concerned with obtaining 23 flats within the time frame or further flats upon default. Mr. Madon argued that the parties calculated the market value of the properties that those 23 flats would fetch at the end of 30 months and consequently derived at the liquidated amount of interest payable under the deed of mortgage which was only to secure the properties being the flats which were to be allotted. He, therefore, contended that Vibhit had the option to recover the principal with the liquidated interest on the due date of the deed of mortgage or the allotment of the flats. He argued that if the real estate value had depreciated Vibhit may have opted the return of the amount invested + the interest. Since the real estate value appreciated, Vibhit rightly sought to enforce the allotment of the flats. 15. A reading of the two documents admittedly executed between the parties and sought to be interpreted by them does not show even an implied exclusion of the agreement by the deed of mortgage. Since the real estate value appreciated, Vibhit rightly sought to enforce the allotment of the flats. 15. A reading of the two documents admittedly executed between the parties and sought to be interpreted by them does not show even an implied exclusion of the agreement by the deed of mortgage. The deed of mortgage was executed earlier in point of time and is accordingly recited in the agreement itself. Though the expression “in furtherance of this agreement” and “part and parcel thereof” in clause 11 of the agreement are not consistent with one another, the agreement read as a whole shows the amount being paid for allotment of flats. Since the value of the flats is generally expected to be appreciated, and both the parties as businessmen would be a match for one another, they appreciated and calculated the value of the property being 23 flats as would appreciate within 30 months of the date of the agreement and thereafter and sought to cover the costs of the appreciation by way of the liquidated interest amount mentioned in the deed of mortgage. The consolidated amount would represent the value of the 23 flats and car parking spaces at the end of 30 months when the mortgage amount itself would be due and payable. 16. It must be appreciated that if Vibhit only intended to finance MBC for which purpose it lent Rs.5.5 crores and secured the repayment of that amount with interest by mortgage of the property as also by collateral security of two postdated cheques representing the principal and interest amounts, there would have been no need to enter into the agreement at all. The mortgage of the immovable property and the collateral security would more than suffice to insulate Vibhit against the loss of the amount. The interest amount agreed between the parties, though at an unconscionable rate, was also secured. It is only if the agreement between the parties was ultimately to obtain flats in the constructed property that an agreement of the kind as in this case would be entered into. Similarly for a flat purchaser of 23 flats in a given construction an additional insulation is expected that would be by way of mortgage as also postdated cheques. It is only if the agreement between the parties was ultimately to obtain flats in the constructed property that an agreement of the kind as in this case would be entered into. Similarly for a flat purchaser of 23 flats in a given construction an additional insulation is expected that would be by way of mortgage as also postdated cheques. The mortgage amount would be not only the principal amount, which a usual flat purchaser would pay before possession of the flat is given to him/her, but in this case takes into account the appreciation of the value of the property to be developed, constructed and allotted at a future date. 17. It appears that the parties themselves agreed, understood and acted upon the two aforesaid documents executed by them in much the same vein. 18. On the date of the agreement itself MBC sent to Vibhit a letter showing precisely the flats allotted to Vibhit. Two days thereafter MBC provided additional collateral security by way of 8 other cheques of Rs.43,96,603/representing the interest amounts payable p.m after January 2008 by MBC in case of default of payment of the amounts mentioned in the deed of mortgage as specified therein. These cheques are dated February to September 2008 which is for the months immediately after the due date of the mortgage. The said letter specifies that it would be at the option of Vibhit either to claim entitlement of the flats mentioned in the agreement or to claim encashment of the cheques. It calls upon Vibhit to return the cheques if it exercised the option to receive the flats. It specifies that the remaining terms and conditions of both the deed of mortgage and the agreement remained “in tact and binding”. It specifies in the postscript that the compensation for the delay would start from 6th January 2008. It is stated to be in the handwriting of the partner of the MBC. It is this postscript which is disputed by Vibhit. Whereas MBC would contend that it is relateble to the mortgage by way of the monthly interest amount secured by the PDCs, it is contended by Vibhit that except for the option specifically mentioned by MBC and confirmed by Vibhit under the said letter dated 20th July 2005, the aspect of compensation for delay was not a part of the said letter. 19. 19. This sole aspect of dispute need not delay the findings with regard to the interpretation of the intent of the parties because in the further letter dated 27th August 2005 MBC expressly stated that they confirmed their obligation to execute sale agreement in favour of the nominees of Vibhit for flats admeasuring 22227.25 sq.ft. (larger than what is mentioned in the agreement itself being 17764.10 sq. ft.). Under the said letter MBC requested Vibhit to “keep on hold” the execution of the agreements until 30th September 2005. MBC was, therefore, agreeable to execute agreements for the flats to be allotted to Vibhit in the month after the execution of the aforesaid agreement. These would be agreements for purchase of flats. Vibhit or its nominees would be the flat purchasers. 20. Under the said letter Vibhit further expressed its intention that the individual sale agreements could be directly entered into between their joint ventures and Vibhit’s nominee to which MBC would be confirming parties. Hence whilst MBC requested permission to enter into a joint venture for development with a third party from Vibhit, it assured Vibhit of its obligations under the agreement dated 18th July 2005. It wrote thus: “We assure that in no way your interest and our commitment to you will be jeopardized”. MBC agreed to execute individual agreements on or before 30th September 2005 and to get them duly stamped and registered in favour of Vibhit’s nominees. This would be the precursor to the allotment of flats, if not the allotment itself. 21. After a couple of months on 13th October 2005 MBC again wrote Vibhit stating that the joint venture was in final stage and the individual sale agreements would be signed by 30th November 2005. It reiterated its assurances mentioned in the letter dated 27th August 2005. 22. The same exercise repeated itself on 12th April 2006 with the change only in further dates. 23. It can, therefore, be seen that soon after the execution of the agreement and whilst the obligation to enter into sale agreements with the nominees of Vibhit for each of the flats to be allotted as flat purchasers was pending and the development by MBC proceeded and a joint venture was also completed, MBC abided by the agreement and assured Vibhit of its enforcement and execution. This was during the mortgage period and before its redemption in 2008, 30 months after the execution of the agreement and the date of mortgage. 24. The 30 months period under the agreement would expire on 17th July 2008. The due date of the mortgage expressly mentioned in the deed of mortgage was 5th January 2008. The tables turned at the time of the end of the mortgage period. It was essentially also the period of performance of the reciprocal promises of MBC under the agreement. 25. On 4th January 2008 a day before the due date of the mortgage MBC honoured the payment under the mortgage deed and claimed the redemption. It sent two DDs for Rs.5.5 crores and Rs.7,68,98,100/aggregating to Rs.13,68,98,100/representing the principal as well as the liquidated compensation amount under the mortgage and it sought redemption of the mortgage under its letter dated 4th January 2008. Vibhit did not accept the amount and did not sign the deed of reconveyance and release which would accompany the acceptance of the mortgage amount with interest. It appears that the parties thereafter negotiated to withdraw the letter dated 4th January 2008 which would require them to makeup accounts for what could have been payable and made in monitory terms as would be available to Vibhit, but the negotiations appear to have failed. 26. Vibhit, therefore, sued for specific performance of the agreement dated 18th July 2005 and MBC for redemption of the mortgage debt. MBC contends that Vibhit’s suit is not maintainable as it is not under a registered agreement and that the agreement constitutes a clog on its equity in redeeming the mortgaged property. A specific performance suit is maintainable under the proviso to Section 49 of the Indian Registration Act. It will have to be seen whether the agreement entered into as analogous to and together with a deed of mortgage itself constituted a clog on the equitable redemption. 27. Both the parties have applied for interim reliefs in the aforesaid Notices of Motion for protection of the properties agreed to be allotted under the agreement and for the release from the shackles of the mortgage respectively. It would be essentially upon the interpretation of the aforesaid documents as hereinabove set out, deciphering the intention of the parties to the agreement, that the relief would be granted to either party. It would be essentially upon the interpretation of the aforesaid documents as hereinabove set out, deciphering the intention of the parties to the agreement, that the relief would be granted to either party. Aside from the fact that it can be seen that this is not a case of grant of a loan secured by a mortgage simpliciter, it may be seen that the agreement itself would not constitute any clog upon the equity of redemption as claimed by MBC. 28. Section 60 of the Transfer of Property Act, 1882 gives the right to the mortgagor to redeem the mortgaged property. The relevant part of the Section runs thus: “Right of mortgagor to redeem. – At any time after the principal money has become [due], the mortgagor has a right, on payment or tender, at a proper time and place, of the mortgagemoney, to require the mortgagee (a) to deliver [to the mortgagor the mortgagedeed and all documents relating to the mortgaged property which are in the possession or power of mortgagee], (b) where the mortgagee is in possession of the mortgaged property, to deliver possession thereof to the mortgagor, and (c) at the cost of the mortgagor either to retransfer the mortgaged property to him or to such third person as he may direct, or to execute and (where the mortgage has been effected by a registered instrument) to have registered an acknowledgment in writing that any right in derogation of his interest transferred to the mortgagee has been extinguished”. The right of redemption is, therefore, after the principal amount becomes due under the statute. In this case the principal amount was to become due on 5th January 2008; the right to redeem would be any time thereafter. MBC returned the principal as well as the interest amount a day prior to the date the amount become due. Upon repayment in the normal course the payer would be released from his obligations and would have his property released. 29. MBC returned the principal as well as the interest amount a day prior to the date the amount become due. Upon repayment in the normal course the payer would be released from his obligations and would have his property released. 29. This right of redemption is subject to an exception set out in the proviso to Section 60 of the TPA which runs thus: “Provided that the right conferred by this section has not been extinguished by act of the parties or by [decree] of a Court.” Hence before or after the due date when the mortgagor exercises his right to redeem under Section 60 of the Transfer of Property Act, 1882, such right should not have been extinguished by act of parties or a decree of the Court. If the parties have so acted as to extinguish the right of redemption, the right of redemption would not be statutorily available. In this case after the execution of the deed of mortgage on the same day the parties by their very act in executing the agreement extinguished that right. In fact it would have been questionable if Vibhit had sought to enforce the mortgage in pursuance to the agreement. The right of foreclosure and sale which Vibhit would have as a mortgagee would follow the right of redemption of MBC as the mortgagor. Vibhit, perhaps, would not itself be able to sell the mortgaged property in view of the agreement other than under the terms of the agreement which was executed later than the deed of mortgage and notwithstanding the execution of the mortgage though the mortgage deed was stated to be in furtherance of the agreement as also a part and parcel thereof. The agreement which was later in time would prevail specially when the mortgagee had the option to enforce the agreement which option was admittedly accepted and granted by MBC itself as reflected in the aforesaid correspondence. 30. Mr. Kapadia argued that payment of the bank draft would constitute complete performance for claiming redemption by the mortgagor under the deed of mortgage. 30. Mr. Kapadia argued that payment of the bank draft would constitute complete performance for claiming redemption by the mortgagor under the deed of mortgage. In fact he argued that even if that was not paid, if the mortgagor even after filing the suit brought the money into Court or sought to pay off the mortgagee, he would still be entitled to redeem the property and release it from the mortgage at any time (See in the case of Harbans Vs. Om Prakash & Ors. AIR 2006 SC 896) That contention would be absolutely correct, but for the specific agreement between the parties in this case. Hence that agreement would extinguish the mortgage by the act of parties under the proviso to Section 60 of the Transfer of Property Act 1882. 31. Mr. Kapadia also argued that the terms of the deed of mortgage which was a registered document could not be varied by an unregistered agreement to sell. The variation was in the recital to the agreement itself showing the agreement to allot flats to the mortgagee shown as the purchaser or its nominees. This constituted variance of the terms of the mortgage and such variance of a registered document cannot be allowed. It may be mentioned that this argument may hold good in case of two documents not compulsorily registerable when one of them is registered or two documents compulsorily registerable when one of them is not. A mortgage is statutorily, compulsorily registerable document under Section 17(1)(b) of the Registration Act; an agreement is not necessarily so. Consequently, it does not matter that the clauses in the agreement which is unregistered may be at variance with the mortgage deed, a document which only creates a security for an amount paid. 32. In the case of S. Saktivel(dead) by L.Rs., Vs. M. Venugopal Pillai 2000 AIR 2633 it was observed that parol evidence would be inadmissible to substantiate an oral contract and hence after a written registered agreement is executed, a subsequent oral agreement modifying or rescinding it could not be entertained. It is an elementary principle of evidence that an oral arrangement would be excluded by the written document. The similar analogy cannot be applicable to two written agreements admittedly executed where one is registered and the other is not. Consequently, the case of SanatKumar Das & Ors. Vs. Indra Nath Barman & Ors. It is an elementary principle of evidence that an oral arrangement would be excluded by the written document. The similar analogy cannot be applicable to two written agreements admittedly executed where one is registered and the other is not. Consequently, the case of SanatKumar Das & Ors. Vs. Indra Nath Barman & Ors. 21 Calcutta Weekly Notes 740 and the case of SaiyidAbdullah Khan Vs. Saiyid Basharat Husain 17 Calcutta Weekly Notes 233 where oral evidence varying the terms of mortgaged deed was not countenanced are not applicable to this case. 33. Mr. Kapadia also argued that despite the usual requirement of pleadings that the Plaintiff is ready and willing to perform its part of contract, Vibhit has not shown any such readiness and willingness to be entitled to specific performance of the agreement and the consequential interim reliefs. It may be mentioned that the readiness and willingness to perform a part of the agreement is necessarily the unperformed part. Hence when certain covenants are to be performed by two contracting parties, but are yet not performed in them entirely, the party who may have performed a part of the promise and is ready and willing to perform the other part which may be performed only upon the performance of the reciprocal promise of the other party, would be entitled to aver such readiness and willingness to be entitled to claim the relief of specific performance and consequential and ancillary interim reliefs. The party who has completely performed its part cannot be called upon to perform any more. Vibhit is one such party. It was not to perform any other reciprocal promises. It had already made payment of the full amount called upon consequent upon which and in consideration for which 23 flats and 23 car parking spaces were to be allotted to it within the specified time frame being 30 months. In a case such as that even in a suit for specific performance the averement of readiness and willingness would be essentially cliche. The agreement may only be read to show that Vibhit would be ready and willing to do anything under the agreement, if left out, and if called upon. It would hence be entitled to sue for specific performance and claim interim reliefs. 34. Mr. Kapadia contended that the second agreement was without any consideration and consequently void. The agreement may only be read to show that Vibhit would be ready and willing to do anything under the agreement, if left out, and if called upon. It would hence be entitled to sue for specific performance and claim interim reliefs. 34. Mr. Kapadia contended that the second agreement was without any consideration and consequently void. An agreement without consideration would be void under Section 2(d) of the Contract Act as nudumpactum. However consideration may be past, present or in futuro. A past consideration and specially consideration past only a few hours in this case would not render a second document void for want of consideration. 35. The case of Indran Ramaswami Pandia Thalavar Vs. Anthappa Chettiar and Ors. Madras (1906) 16 ML 1422] in which the second bond given for the same amount originally advanced was held to be without consideration and the case of RamchandraChntaman Vs. Kalu Raju & Anr. 20.11.1877 Bombay High Court in which a fresh agreement was obtained later without consideration, relied upon by Mr. Kapadia are facts wholly distinct from the present case of 2 equally situated parties entering upon a uniquely secure business deal. 36. Mr. Kapadia drew attention to the judgments showing that the mortgagor seeking to deposit monies in Court with the permission of the Court was held not debarred from the right to redeem (See AchaldasDurgaji Oswal (deceased) through L.Rs Vs. Ramvilas Gangabisan Heda (deceased) through L.Rs 2003 AIR S.C. 1017) under the elementary provision of law that the mortgaged property could be redeemed at any time (see in the case of HarbansVs. Om Prakash & Ors. 2006 AIR SC 686). 37. By far the most urged ground is the case of MBC that the mortgage could never be taken to be an agreement to sell on the doctrine “Once a mortgage is always a mortgage”. Mr. Kapadia drew my attention to the judgment in the case of ChandrakantShankarrao Machale Vs. Smt. Parubai Bhairu Mohite (dead) through L.Rs. AIR 2008 SC 3255 to claim that the property under the mortgage was liable to be released upon the Plaintiff claiming the redemption of mortgage by reconveyance of the property despite the contention of the Defendant that the parties treated the transaction as a lease. In that case the Defendant was in possession as a mortgagee. He could not prove his possession as a tenant. In that case the Defendant was in possession as a mortgagee. He could not prove his possession as a tenant. It was held that as the status of parties cannot be changed from a mortgagee to a lessee under an unregistered lease deed, the Plaintiff was entitled to a decree of redemption. It was in that context that it was observed that the deed of mortgage which was a registered document could be varied and altered only by other registered document. The non-registration of the lease would not show the execution of such a document. Hence the Defendant in that case had to separately prove his possession as a mortgagee which was not shown. Consequently, the registered deed of mortgage under which the parties would admit execution of the document would naturally prevail over the disputed and unregistered lease deed under which one party claimed to be the lessee which was disputed by another and which was not proved. 38. The basic law relating to mortgage upon the principle “once a mortgage is always a mortgage” is based upon the economic and social reality allowing the mortgagor to remain the owner of his property and to have it released from the mortgage by making payment at any time prior to its sale by the mortgagor. Consequently, the equitable principle that no fetters can be put upon such mortgage by a contract entered into thereafter or by a contract of mortgage which could itself be taken as any other contract is held void under the English common law as applied by the Courts in England as well as in India. It will apply with greater force in India, given the disparities in the economic position of mortgagors and mortgagees so that a clog on the right to redeem would be taken to be oppressive or unconscionable for parties who are not economically at par. The exception to this rule however would be made out by a contract entered into subsequently stipulating an option to purchase and which would be enforced only in the absence of any oppression or unfairness on the part of the mortgagee. That would leave out only a contract independent of the mortgage and forming no part of the consideration for it. (See De Beers Consolidated Mines Ltd. Vs. British South Africa Co. 1912 AC 52 at 67 and in the case of Parashram Yeshvantshet Alwe Vs. That would leave out only a contract independent of the mortgage and forming no part of the consideration for it. (See De Beers Consolidated Mines Ltd. Vs. British South Africa Co. 1912 AC 52 at 67 and in the case of Parashram Yeshvantshet Alwe Vs. Lakshmibai Babaji Samant AIR 1929 Bombay 186). 39. Based upon such English law general principles of the clog upon the equity of redemption are set out under the judge – made law in India. 40. A right of preemption is held to constitute a clog (See M/s. Hasthimal & Sons & Ors. Vs. P. Tej Raj Sharma AIR 2007 SC 3246 . 41. In the case of PomalKanji Govindji & Ors. Vs. Vrajlal Karsandas Purohit & Ors. AIR 1989 SC 436 long termred emption of urban immovable property was considered as a rule of justice, equity and good conscience. The Court held that under the freedom of contract though parties may take into account factors like inflation and rise in prices of real estate, they cannot take advantage of oppressed or depressed people. The Supreme Court held that the rules of equity must be adopted to fit in that reality of the situation and the individuality of the transaction. A clog which is unjust and inequitable not allowing the mortgagor to take back his mortgaged property could not be allowed. However each case had to be judged on its facts and in its perspective and hence long term redemption by itself may not constitute a clog on the equity of redemption. The circumstances under which the mortgage was created, the economic and financial position of the mortgagor, his relationship with the mortgagee, economical and social conditions in the country at that time, customs covering the transaction and circumstances of the parties had to be seen. Even in the period granting 99 years for redemption with interest at ½ % p.a on the principal amount the clauses relating to repairs and the financial condition of the mortgagor demonstrated a clog. It was held that the provision inserted to prevent redemption meant that there was a clog which the Courts could ignore, if it deprived the mortgagor of the right to redeem. Following the case of VermonVs. It was held that the provision inserted to prevent redemption meant that there was a clog which the Courts could ignore, if it deprived the mortgagor of the right to redeem. Following the case of VermonVs. Sethell (1762) 28 ER 838 and p.839 it was observed that the Court, as a Court of conscience was very jealous of persons taking securities for a loan and converting such securities into purchases resulting in injustice for the necessitous men who are not necessarily free men. Consequently, the Court held that even when a clause provided that the mortgage had to be redeemed within a specified period of six months was bad since the redemption becomes illusory and nonexistent and, if it prevented the mortgagor thereby from redeeming the mortgage, it will be inequitable and hence unenforceable. Similarly a mortgage could not be transformed into a conveyance by the mortgagee who would be in a better financial condition visavis the mortgagor. 42. The principle set out for the mortgage in India would apply to the case of bonded labourers and since such labour is prohibited a mortgage by a mortgagor in such station in life would be protected. Such a principle has been extended to the Transfer of Property Act and upon the law as set out in the case of PomalKanji (supra) the station in life of the two contracting parties would be most material to see. The Court would have to consider whether a later transaction would constitute a clog or would constitute an exception under the proviso to Section 60. In the former case, it would not be allowed by the Court, but in the latter case it would have to be. 43. A reconveyance enumerated in the document itself would be regarded as a mortgage and not an absolute sale (See in the case of Vasantrao S/o. Manoharrao Neb (since deceased by L.Rs) Vs. Kishanrao S/o Shankarrao Neb & Ors. AIR 2008 Bombay 42 wherein the Court observed: “The question is always of the intention of the parties. The extraneous evidence can be considered only when the terms of the documents are vague. However, if the terms of the document are clear enough then it is not necessary to consider the other evidence. In the present case, there was no concession granted as such. The extraneous evidence can be considered only when the terms of the documents are vague. However, if the terms of the document are clear enough then it is not necessary to consider the other evidence. In the present case, there was no concession granted as such. What is explicit from the terms of the document is that if the mortgage amount is returned within period of five years, then mortgage will be redeemed and if it is not so done, then document itself would be treated as sale. Obviously, understanding between parties to the document was clear. They intended to bring about mortgage. It is not a case where right of ownership was transferred in favour of said Vasantrao Neb or his father. The amount was also referred as “mortgage amount”. Such a document was, therefore, held to constitute a mortgage. It was observed that the name of the mortgagor continued as a owner and the mortgagee did not get his name mutated as owner. The contention stipulated in the document was, therefore, held illegal and void. 44. In the case of Shivdev Singh & Anr. Vs. Sucha Singh AIR 2000 SC 1935 prescribing the period of mortgage of 99 years was held to constitute a clog. The right to redemption cannot be taken away and hence it was held that the Court would ignore any contract, the effect of which to deprive the mortgagor of his right to redeem the mortgage. Hence the Court considered that the following question would be required to be answered as held in the case of G & C. Kreglinger Vs. New Patagonia Meat & Cold Storage Company Ltd. AC 1914 25 at pg 35 & 36 held that: “The reason then justifying the Court’s power to relieve a mortgagor from the effects of his bargain is its want of conscience. Putting it in mere familiar language the Court’s jurisdiction to relieve a mortgagor from his bargain depends on whether it was obtained by taking advantage of any difficulty or embarrassment that he might have been in when he borrowed the moneys on the mortgage. Was the mortgagor oppressed? Was he imposed upon? If he was, then he may be entitled to relief.” The Court accordingly recited the observations in the case of PomalKanji thus: “Freedom of contract is permissible provided it does not lead to taking advantage of the oppressed or depressed people. Was the mortgagor oppressed? Was he imposed upon? If he was, then he may be entitled to relief.” The Court accordingly recited the observations in the case of PomalKanji thus: “Freedom of contract is permissible provided it does not lead to taking advantage of the oppressed or depressed people. The law must transform itself to the social awareness. Poverty should not be unduly permitted to curtail one’s right to borrow money on the ground of justice, equity and good conscience on just terms. If it does it is bad. Whether it does or not does, must be however, depend upon the facts and the circumstances of each case”. The doctrine “clog on equity of redemption” was held to be rule of justice, equity and good conscience. It must be adopted to the reality of situation and the individuality of transaction. The Court should take note of the time, the condition, the price spiral, the term bargain and the other obligations in the background of the financial conditions of the parties”. 45. Similarly mortgage created in favour of the State Finance Corporation obviously could be only a mortgage and the STC Act was held not to be able to wipe out the statutory right of redemption under Section 60 of the TP Act. The right of the mortgagee, therefore, still subsisted and the mortgagor was held entitled to redeem (See New Kenilworth Hotels (P) Ltd. Vs. Ashoka Industries Ltd. & Ors. (1995) 1 SCC 161 ). 46. The property allowed to remain in the possession of the mortgagee on his paying a fixed rent was a contention which could not be enforced by a Court of equity (See Mahomed Muse & Ors. Vs. Jijibhai Bhagvan & Ors. ILR 1885 June 18 524). 47. This is not one such case. The contracting parties are at par. They would get even on each score. They knew their business well. Each made the most of the situation in which he was. None was an oppressed. The agreement, the deed of mortgage and the post dated cheques were documents of the same genre – to create security for the amount invested in the property to be invested. The aforesaid law would, therefore, not apply. 48. In the case of GopalSingh & Ors. Vs. Massa Singh through Gurdial Kaur (Smt) & Ors. None was an oppressed. The agreement, the deed of mortgage and the post dated cheques were documents of the same genre – to create security for the amount invested in the property to be invested. The aforesaid law would, therefore, not apply. 48. In the case of GopalSingh & Ors. Vs. Massa Singh through Gurdial Kaur (Smt) & Ors. (1997) 11 SCC 429 the Court held that there was no clog as the mortgage was obtained by the respondents without taking any advantage of any difficulty or embarrassment. It was observed that since the mortgage amount was virtually the market price of the land, the terms of the deed could not be considered to be unconscionable and as it was virtually a sale, the question of raising any clog did not arise. 49. In the case of Chandrakant Shankarrao Machale Vs. Smt. Parubai Bhairu Mohite (dead) through L.Rs 2008 AIR SC 3255) unregistered lease deed after the execution of the mortgage deed was held not to constitute a lease in favour of the mortgagee. That however was in an usual contract of mortgage under registered documents which were sought to be varied or altered by a unregistered document of lease. Since the unregistered document could not be proved except by the admission of the mortgagor, the proposition was so made. In this case the parties have admittedly executed the aforesaid 2 documents in the aforesaid circumstances. Admitted documents do not need to be proved; they need only be interpreted. The execution of the later document would extinguish the mortgage except at the option of Vibhit and only for security as agreed between the parties. 50. The case of the parties based upon the interpretation of the aforesaid admittedly executed documents and the admitted correspondence show the parties intent to secure the payment made by Vibhit and received by MBC for the flats which were to be allotted or by the return of the monies with the stipulated rate of interest as a liquidated amount at the option of Vibhit whether it be upon purchase of the land or directly for the sale of the flats. The amount paid by Vibhit would enure for the development of the property upon which the flats could be constructed and out of which 23 flats and 23 car parking spaces could be allotted. The amount paid by Vibhit would enure for the development of the property upon which the flats could be constructed and out of which 23 flats and 23 car parking spaces could be allotted. That being the essence of the agreement between the parties, the performance under the contract could not be by payment of the liquidated amount at the option of MBC on or before the due date of the mortgage. 51. Vibhit is, therefore, seen to have made out a prima facie case for allotment of 23 flats and 23 car parking spaces which was the worth and value of the amount paid by Vibhit as would be upon appreciation of the real estate as intended and calculated by the parties at the end of 30 months. Vibhit having exercised that option by refusing to accept the DD of MBC would be entitled instead to the allotment of 23 flats and 23 car parking spaces, without more. The exercise of that option is in terms of the calculated appreciation of the property. It would further appreciate in future. Consequently, upon default further flats which are also claimed by Vibhit would, by analogy, be interest upon interest at an egregiously unconscionable rate and can never be allowed. The 23 flats by themselves as opted by Vibhit would be the return on its investment along with the appreciated value. Consequently, 23 flats and 23 car parking spaces require to be protected pending the suit. Hence, the following order: 1. MBC may continue its development of the suit plot of land and the construction of the buildings. 2. MBC shall not sell, transfer, alienate or create any third party rights in any of the flats in any of the buildings constructed by it until it sets apart 23 flats aggregating to 17764.10 sq. ft. of municipal carpet area and 23 car parking spaces for Vibhit. 3. The title deeds deposited with the Prothonotary and Senior Master of this Court shall remain in her custody until further orders. 4. There shall be no other order in both the Notices of Motion. Both the Notices of Motion are disposed off accordingly.