Supreme Court reiterates agreement to sell does not transfer ownership or confer any title in property dispute

Supreme Court reiterates agreement to sell does not transfer ownership or confer any title in property dispute

While allowing the appeal, the bench set aside the decision of the Karnataka High Court

The Supreme Court has reiterated that an agreement to sell does not transfer ownership rights or confer any title on the purchaser of the property.

While deciding a civil appeal in a property dispute in the Munishamappa vs M. Rama Reddy & Ors case, the bench comprising Justice Vikram Nath and Justice Rajesh Bindal held, “The agreement to sell is not a conveyance; it does not transfer ownership rights or confers any title.”

In 1990, the parties had entered into an agreement to sell. However, later the seller refused to execute the sale deed, leading to a dispute.

The issue before the court was whether the agreement to sell was in violation of Section 5 of the Karnataka Prevention of Fragmentation and Consolidation of Holdings Act, which prohibited the registration of certain sale deeds.

While the entities had entered into an agreement to sell certain property, they deferred the execution of the sale deed due to legal restrictions under the Act.

Later, when the law was repealed, the seller refused to execute the sale deed. This led the intending purchaser to file a suit in 2001, for specific performance.

In 2004, the trial court dismissed the suit on finding that the execution of the agreement to sell was doubtful and the case was filed beyond the period of limitation. However, in 2008, the first appellate court ruled in favor of the purchaser on both counts.

On the second appeal filed by the seller, the Karnataka High Court ruled that the agreement was in violation of the Fragmentation Act and therefore, void. Thus, in 2011, the matter reached the apex court.

However, the top court disagreed with the high court. It observed that no issue was framed regarding the violation of the Act by the trial court. In fact, the issue was not even raised in the defendant’s written statement. It also noted that the seller, in his deposition during cross-examination before the trial court, admitted to signing the agreement to sell.

Thus, the Supreme Court held, “In the absence of any issue framed, and given that neither party pleaded any violation of Section 5 of the Fragmentation Act, the high court apparently erred in holding that the agreement to sell was in violation of the Act.”

Justice Nath and Justice Bindal stated that since the Fragmentation Act only barred the ‘lease/sale/conveyance, or transfer of rights’, the agreement to sell could not be said to be barred under the law.

The top court added that since the purchaser filed the suit after the law was repealed, it could have been decreed without “there being any violation to the law once the Fragmentation Act had been repealed in February 1991.”

The bench held that the high court did not hold that the suit was barred under the Limitation Act. The seller had received the full consideration and transferred the possession of the property.

Thus, while allowing the appeal, the court set aside the decision of the Karnataka High Court. Consequently, it restored the decision of the first appellate court in favor of the purchaser.

Advocates Shailesh Madiyal, Vaibhav Sabharwal, Divija Mahajan, and Akshay Kumar represented the appellant-purchaser.

Advocates Vaijayanthi Girish and Girish Ananthamurthy represented the respondent-seller.