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

The Supreme Court has reaffirmed that mere possession of a property under an agreement to sell does not confer ownership unless a sale deed is duly registered under the Indian Registration Act, 1908.

“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.”, the court observed.

The dispute pertained to the ownership and possession of the property, where an agreement to sell was executed in the Company's favour by one late Shri M.A. Shanmugam (owner of the property) against the transfer of shares of the company in his favour. The Company had the property's possession as part performance of the contract.

The agreement to sell was not executed in the Company's favour by the owner, rather after his death his legal heirs executed the sale deed in favour of some other person, not the Company.

The National Company Law Appellate Tribunal's (NCLAT's) decision- that the sale deed executed by the property owner's legal representative would not be binding on the company because it held possession over the property- formed the subject matter of the present appeal.

Setting aside the NCLAT's decision, the bench comprising Justice Abhay S Oka and Justice Ujjal Bhuyan observed that the NCLAT erred in holding that the sale deed executed by the owner's legal heirs was not binding on the company as the company was in possession by way of part performance of the contract.

The Court reasoned that when the owner itself had not executed an agreement to sell in the company's favor, nor did the company make an effort to file a suit for specific performance of the contract with the legal heirs of the property owner, then the NCLAT cannot pass such a direction to hold that the sale deed executed by the owner's legal heirs would not be binding on the company.

“In this case, the NCLAT has recorded a finding that late Shri M.A. Shanmugam who was the owner of the property subject matter of these appeals had agreed to sell the property to the company against the transfer of shares of the company in his favour. The NCLAT has recorded a finding that the company was in possession by way of part performance of the contract. Based on the said finding, the sale deed dated 31st October, 2011 purportedly executed by the legal representatives of late Shri M.A.Shanmugam has been held as not binding on the company. 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.”

Accordingly, the appeal was allowed to the extent of the aforementioned observation made by the Court.

Appearance:

For Petitioner(s) Mr. Kunal Tandon, Sr. Adv. Mr. Kush Chaturvedi, AOR Ms. Prerna Priyadarshini, Adv. Ms. Richa Sandilya, Adv. Ms. Natasha Singh, Adv. Mr. Syed Farraz Alam, Adv. Mr. Atharva Gaur, Adv. Mr. Aayushman Aggarwal, Adv. Mr. Shaurya Gupta, Adv.

For Respondent(s) Mr. R Jawahar Lal, Adv. Mr. Sayyam Maheshwari, Adv. Ms. Meghna Kumar, Adv. Mr. Balaji Srinivasan, AOR Ms. Nappinai, Sr. Adv. Mr. V. Balalji, Adv. Mr. B. Dhananjay, Adv. Mr. C. Kannan, Adv. Mr. Nizamuddin, Adv. Mr. S. Devendar, Adv. Ms. Astha Tyagi, AOR Mr. G. Balaji, AOR

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

Citation : 2025 LiveLaw (SC) 77

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