Unregistered Agreement To Sell Confers Legal Right Upon Beneficiary To Seek Execution Of Subsequent Sale Instrument From Transferor: J&K HC

For this limited purpose, a suit based on such an agreement is maintainable under the law, the court stated while reaffirming the legal sanctity of such agreements in specific circumstances.

Citing Section 49 of the Registration Act Justice Sanjay Dhar explained that an unregistered agreement to sell immovable property is admissible as evidence which allows it to be used in a suit for specific performance or as proof of any related transaction not requiring registration.

Justice Dhar added that while a suit can be filed based on such an unregistered agreement, it's important to note that the transferee (buyer) under this agreement may not be protected from the actions of the transferor (seller). This is because an unregistered agreement to sell has no legal effect under Section 53A of the Transfer of Property Act, which deals with the transfer of ownership of immovable property, the court reasoned.

These observations came in a dispute that arose from an Agreement to Sell executed between Om Parkash and others (appellants/Sellers) and Khazoor Singh and another (respondents/Buyers) for 225 kanals of land in Bharnara, Udhampur. The total sale consideration was fixed at ₹4.5 lakh, out of which ₹20 lakh was paid by the plaintiffs as advance. The remaining ₹4.3 lakh was to be paid upon execution of the sale deed, scheduled for July 3, 2022.

The respondents claimed that the appellants had misrepresented themselves as sole owners of the entire land, while they were co-owners of only 80 kanals. Despite multiple requests and legal notices, the appellants failed to execute the sale deed. The respondents also alleged that they had taken possession of the suit property and incurred expenses for its improvement.

Subsequently the respondents filed a suit before the District Judge, Udhampur, seeking specific performance of the agreement and interim relief to prevent further alienation of the land. The trial court granted the interim relief directing the parties to maintain status quo. Aggrieved by this decision, the appellants approached the High Court.

The appellants contended that the unregistered Agreement to Sell was inadmissible under Section 17(1-A) of the Registration Act. They also argued that the respondents failed to make the final payment on time, rendering the agreement unenforceable.

Ex adverso the respondents argued that the unregistered Agreement to Sell was admissible under the proviso to Section 49 of the Registration Act, which permits such agreements to be used as evidence in suits for specific performance.

Justice Dhar commenced by examining the principles governing temporary injunctions under the Civil Procedure Code (CPC). Section 94 of the CPC empowers courts to grant interim relief to prevent injustice, while Order 39, Rule 1 provides for injunctions to safeguard disputed properties from being alienated or wasted during litigation.

Relying on the Supreme Court's ruling in Dalpat Kumar vs. Prahlad Singh (1992), the Court reiterated that a plaintiff seeking temporary injunction must establish a prima facie case, demonstrate irreparable injury in the absence of relief, and prove that the balance of convenience lies in their favor. The Court emphasized that an injunction is a discretionary relief requiring judicial prudence to prevent significant harm to either party.

Addressing the appellants' contention regarding the inadmissibility of the unregistered Agreement to Sell, the Court analyzed Section 17(1-A) of the Registration Act. It noted that while the section mandates registration of agreements involving immovable property for protection under Section 53-A of the Transfer of Property Act, the proviso to Section 49 of the Registration Act allows unregistered agreements to be used as evidence in suits for specific performance.

Justice Dhar explained that the lack of registration affects only the rights under Section 53-A, which protects transferees in possession from actions by the transferor. However, it does not negate other rights arising from the agreement, including the right to seek specific performance. The Court concluded that the respondents had a valid legal basis to maintain their suit despite the unregistered status of the agreement.

Proceeding to evaluate whether the respondents had defaulted in adhering to the terms of the agreement the court observed that the agreement stipulated payment of the balance sale consideration on July 3, 2022, contingent on the appellants effecting the transfer of the property in the revenue records.

“Since the taking of steps for entering the suit land in the name of plaintiff No.1 was a step anterior to the obligation of plaintiff No.2 to pay the balance amount of sale consideration, therefore, the contention of the appellants that the plaintiffs have failed to perform their part of obligation under agreement to sell and, as such, forfeited their right to seek specific performance of the agreement, appears to be without any merit”, the court remarked.

Justice Dhar further noted that the appellants entered into a subsequent agreement with a third party without terminating the original agreement, which indicated bad faith. This conduct, combined with the appellants' failure to act on their contractual obligations, prima facie pointed to a breach on their part rather than on the respondents', the court opined.

Commenting on appellants argument that the respondents' delay in filing the suit suggested abandonment of the contract the Court clarified that whether time was the essence of the contract and whether the respondents were ready and willing to perform their part of the agreement were issues requiring a detailed trial and could not be resolved at the interim stage.

Upholding the trial court's direction to maintain status quo on the disputed land, reasoning that altering the property's status during litigation would jeopardize the respondents' rights Justice Dhar emphasized that interim orders are designed to preserve the subject matter of the dispute and prevent irreparable harm.

“In the face of aforesaid position, the discretion exercised by the trial Court in directing the parties to maintain status quo with respect to 80 kanals of land in question does not deserve to be interfered with by this Court in exercise of its appellate jurisdiction”, the court concluded and dismissed the petition.

Case Title: Om Parkash and others Vs Khazoor Singh and another

Citation: 2024 LiveLaw (JKL) 340

Click Here To Read/Download Judgment