Can A Registered Conveyance Deed Be Cancelled By Mutual Consent?

However unlikely it may seem that once the conveyance is executed there can not be any cancellation thereof, still there are instances of cancellation or attempts of cancellation of such complete document of conveyance executed between the parties.

U/s. 5 of the Transfer of Property Act, 1882 ("TOPA") it is provided that 'Transfer of property' is 'performing of an act' whereby a living person conveys the property. 'Sale' is also defined U/s.54 of TOPA, which means transfer of ownership in exchange for price. It is not mandated under the TOPA that for sale to take place the entire price/consideration has to be paid. A sale U/s.54 of TOPA includes within its scope transfer of ownership rights in exchange for price promised to be paid-part paid and part- promised.

In the matter of Latif Estate Line India Ltd. and Ors vs. Hadeeja Ammal and Ors.^[1], the aforesaid aspects around cancellation of conveyance were thoroughly discussed.

It was the case of respondent that she had paid the consideration payable under registered sale deed executed in her favour and had been put in possession of the immovable property purchased thereunder. However, after almost 10 years of registration of sale deed, the appellant being vendors therein registered a unilaterally executed cancellation deed.

The matter was decided by a single judge wherein it was held that since unilateral cancellation deed was executed without consent of other party and same did not comply with requirements of Section 32 A of the Registration Act, such cancellation deed was quashed and appeals were filed challenging the said order.

An Amicus Curie was appointed by the court. It was pointed out how a conveyance is different from any other transfer under TOPA and the peculiar aspects of conveyance which need to be considered while deciding the matter regarding cancellation thereof.

Since a sale of immovable property by a conveyance/sale deed creates right, title or interest and is for value of Rs.100/- or more, the same requires compulsorily registration as per Section 17 (b) of Registration Act, 1908.

As regards, unilateral deed of cancellation, as per Section 62 of Contract Act, 1872, it is required that to rescind any contract which does not require any further performance from parties, all the parties therein must agree and execute new contract rescinding the old one.

Court observed that the cancellation deed also ought to be executed by all parties to original sale deed.

The Specific Relief Act, 1963 U/s. 31 also provides remedy for cancellation that person against whom a written instrument is void or voidable, and who has reasonable apprehension that such instrument, if left outstanding may cause him serious injury, may sue to have it adjudged void or voidable; and the Court may, in its discretion, so adjudge it and order it to be delivered up and cancelled.

There is no provision either in the TOPA or in the Registration Act, which deals with cancellation deed of a sale. The court observed that it could be due to the reason that since the Vendor has already transferred all that he had unto the Purchaser, a cancellation deed, even if registered, would not create, assign, limit or extinguish any right, title or interest and hence such cancellation deed would have no impact in the eyes of law.

Conclusions By The Court:

• A deed of cancellation of a sale unilaterally executed by the transferor does not create, assign, limit or extinguish any right, title or interest in the property and is of no effect. Such a document does not create any encumbrance in the property already transferred. Hence such a deed of cancellation cannot be accepted for registration;
• Once title to the property is vested in the transferee by the sale of the property, it cannot be divested unto the transferor by execution and registration of a deed of cancellation even with the consent of the parties. The proper course would be to re-convey the property by a deed of conveyance by the transferee in favor of the transferor;
• Where a transfer is effected by way of sale with the condition that title will pass on payment of consideration, and such intention is clear from the recital in the deed, then such instrument or sale can be cancelled by a deed of cancellation with the consent of both the parties on the ground of non-payment of consideration. The reason is that in such a sale deed, admittedly, the title remained with the transferor;
• In other cases, a complete and absolute sale can be cancelled at the instance of the transferor only by taking recourse to the Civil Court by obtaining a decree of cancellation of sale deed on the ground inter alia of fraud or any other valid reasons.

There are instances where parties may mutually decide to cancel a registered conveyance either because the purchaser is unable to make payment of the balance consideration or for other reasons such as not obtaining necessary permissions from concerned authorities or when a third party right or encumbrance in the property comes to light subsequently.

Latif Estate Line only gives an illustration of non-payment of balance consideration, however, in this author's opinion the ratio referred to in clause (iii) above would apply to breach of any representations/ covenants, provided the parties express their intention that such breach would amount to title not being passed to the purchaser.

Such cancellation deeds may lead to situations where a seller would in collusion with a purchaser temporarily create rights in favour of a purchaser and subsequently cancel the same to play fraud on local authorities, financiers or other third parties. In order to avoid such a situation, it is necessary that a time limit be prescribed within which parties can execute such cancellation deed, as currently it appears to be open ended.

The ratio in Latif Estate Line (supra) also leaves open certain issues relating to stamp duty on such cancellations. Initially, it may seem harsh to make parties pay stamp duty at the same rate once again at the time of cancellation. However, consider the following scenario: In an English mortgage a party taking a loan mortgages the security-property by way of a conveyance in favour of the lender, and when the loan is repaid the security-property is reconveyed to the mortgagor. Thus, stamp duty is paid twice - on the conveyance from mortgagor to lender and on the re-conveyance from lender to mortgagor. As per the ratio Latif Estate Line (supra) it appears that such re-conveyance would not be required and a simple cancellation deed would suffice. Thus, if a cancellation deed entails a nil or nominal stamp duty, the parties can save on the entire stamp duty which they would have paid on such reconveyance. It is high time that TOPA, Registration Act and the stamp acts of respective States provide for legality, effect and implications of such cancellation deeds in order to remove these ambiguities.

The author is a an Advocate practicing at Mumbai High Court. Views are personal.

[1] 2011(100)AIC 672, AIR2011Mad66, 2011 (1) C C C 395 , 2011(2)C HN450, 2011(2)C TC 1,