The house situated near Saraf Bazar in Amrawati had been purchased by her in 1950 for Rs. 4,000 and improvements had been affected by her to the property. Being in need of money, Chhabubai entered into an agreement with the Gangabai for a loan of Rs. 2,000 and it was decided that she should execute a nominal document of sale and a rent note. These documents were executed on January 7, 1953. She alleged that the documents were never intended to be acted upon, and that the rent paid by her represented in fact interest at 18% on the loan. She continued in possession of the house property throughout and, it is said, carried on repairs from time to time. She was attempting to enforce the document as a sale deed by filing suits in the Court of Small Causes for recovery of rent. As two suits had resulted in decrees, she considered it necessary to file the present suit for a declaration that she was, and continued to be, owner of the house property. In defence, the she maintained that the sale deed represented a genuine, transaction, and ownership of the house property had passed to the appellant. It was pleaded that the decrees passed by the Court of Small Causes operated as res judicata barring the respondent from pleading that the sale deed was merely a nominal transaction. Reliance was also placed on s. 92 of the Indian Evidence Act. The successive suits were filed by the appellant against the respondent in the Court of Small Causes for recovery of arrears of rent. In each suit the appellant contended that she was owner of the property and the respondent was her tenant. The tenancy was alleged on the basis of the document dated January 7, 1953 which on its terms purported to be a sale deed by the respondent in favour of the appellant. The respondent resisted the suits. The court decreed the suits on the finding that the document was a sale deed, and therefore the respondent was not the owner of the property but merely a tenant of the appellant. The question is whether this finding operates as res judicata in the instant suit.
The trial court held that the sale deed was never intended to be acted upon and decreed the suit. The appellant appealed to the District Court, Amravati, but the learned District Judge did not accept the case that a sale had taken place. He held that the transaction between the parties constituted a mortgage. He modified the trial court decree to conform to that finding.
The High Court of Bombay, in appeal, did not agree with the finding of the lower appellate court that the transaction was a mortgage and affirmed the findings of the trial court that the sale deed and rent note were sham documents, that the decrees of the Court of Small Causes did not operate as res judicata and that s. 92 of the Indian Evidence Act did not prevent the respondent from establishing the true nature of the transaction.
The High Court repelled the plea of res judicata on the ground that s. 11 of the Code of Civil Procedure governed the case, and that as a Court of Small Causes is not competent to try a suit for a declaration of title to immovable property, the court which passed the decrees relied on by the appellant was not competent to try the present suit and therefore an imperative condition of s. 11 was not satisfied.
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