Agreement For Sale Doesn't Transfer Title Or Create Interest In Property: Supreme Court

In a significant judgment, the Supreme Court of India has reiterated the legal principle that mere possession of a property under an agreement to sell does not confer ownership. Ownership can only be established through a duly registered sale deed as mandated by the Indian Registration Act, 1908.

Legal Framework

The Supreme Court emphasized that under Section 54 of the Transfer of Property Act, 1882, an agreement for sale of immovable property does not create any interest or transfer title in favor of the purchaser. The Court observed:

“It is well settled that an agreement for sale in respect of an immovable property does not transfer title in favour of the purchaser under the agreement. In view of Section 54 of the Transfer of Property Act, 1882, an agreement for sale does not create any interest in the property. The only mode by which an immovable property worth more than Rs.100/- (Rupees one hundred) can be sold is by a sale deed duly registered in accordance with the Indian Registration Act, 1908.”

Case Background

The case in question revolved around the ownership and possession of a property. An agreement to sell was executed in favor of a company by the original owner, late Shri M.A. Shanmugam, in exchange for the transfer of the company’s shares to him. While the company took possession of the property as part performance of the contract, no sale deed was executed in its favor by the owner. After the owner’s demise, his legal heirs executed a sale deed in favor of another party.

The National Company Law Appellate Tribunal (NCLAT) had ruled that the sale deed executed by the owner's legal heirs was not binding on the company, citing the company’s possession of the property under part performance of the agreement. This decision was challenged and ultimately overturned by the Supreme Court.

Supreme Court's Observations

A bench comprising Justice Abhay S Oka and Justice Ujjal Bhuyan highlighted several key points:

1. No Registered Sale Deed: The original owner had not executed a registered sale deed in favor of the company, which meant that ownership remained with the owner until a registered sale deed was executed.
2. Limited Jurisdiction of NCLAT: The NCLAT exceeded its jurisdiction in ruling that the sale deed executed by the legal heirs was not binding on the company. The Supreme Court noted that possession by way of part performance of the contract does not equate to ownership.
3. Specific Performance Not Pursued: The company had not filed a suit for specific performance of the agreement with the legal heirs, a necessary step to enforce the agreement for sale.

The Court stated:

“So long as the original owner had not sold the property by execution of a registered sale deed, he continued to be the legal owner of the property. Admittedly, he had not executed a sale deed in favour of the company. Therefore, the NCLAT in its limited jurisdiction could not have held that the sale deed dated 31st October, 2011 was not binding on the company as the company was in possession by way of part performance of the contract.”

Key Takeaways

1. Registered Sale Deed Is Crucial: Ownership of immovable property cannot be transferred without a duly registered sale deed.
2. Possession Alone Does Not Confer Ownership: Mere possession or part performance under an agreement to sell does not create ownership rights.
3. Legal Remedies Must Be Pursued: To enforce an agreement for sale, filing a suit for specific performance is essential.
4. Jurisdictional Boundaries: Tribunals like the NCLAT must operate within their jurisdiction and cannot adjudicate on matters beyond their scope.

This judgment serves as a crucial reminder for parties involved in property transactions to ensure compliance with statutory requirements and pursue appropriate legal remedies when disputes arise.

Case Title: INDIAN OVERSEAS BANK Vs. M.A.S SUBRAMANIAN & ORS.

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