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AGREEMENT TO SELL DOES NOT TRANSFER OWNERSHIP OR CONFER ANY TITLE: SUPREME COURT




INTRODUCTION

The Apex court bench consisting of Justice Vikram Nath and Justice Rajesh Bindal reiterated that the agreement to sell does not transfer ownership rights or confer any title on the purchaser of the property. While deciding a property dispute in a civil appeal. In the case, both parties had agreed to sell in 1990, the cause of the dispute was the fact that the seller later refused to sell. The main issue brought to the court was whether the agreement violated section 5 of the Karnataka Prevention of Fragmentation and Consolidation of Holdings Act. This legal restriction prohibited the registration of certain sale deeds. The sale of the certain property was deferred due to this legal restriction. However, after the law was repealed, the seller still did not execute the sale deed. This led the purchaser to file a suit in 2001.


CASE: Munishamappa V. M. Rama Reddy and Ors 

FACTS OF THE CASE:

  • The appellant and the respondents agreed to sell, in which the property in question was to be sold for Rs. 23,000 and the entire sale consideration was paid before the execution of the agreement to sell 

  • The possession of the property in question was also handed over to the appellant. 

  • It was also agreed that from the time of execution of the agreement to sell, the respondents would have no rights left and it would be the appellant who would have all the rights to the property in question. 

  • However, due to the prohibition on the registration of the sale deed, it was stipulated that the sale deed would be executed once this restriction was lifted.

  •  The agreement to sell dated restriction was lifted.

  •  The agreement dated 28.05.1990 contained all the above facts duly incorporated therein. 

  • The prohibition on the sale was due to bar contained in Section 5 of the Karnataka Prevention of Fragmentation and Consolidation of Holdings Act, 1996 (hereinafter referred to as the “Fragmentation Act”).

  • Soon thereafter i.e., on 05.02.1991, the Fragmentation Act stood repealed.

  • The appellant claims to have repeatedly requested the respondents to execute the sale deed

  • Despite the same, the respondents continued to delay the execution of the sale deed.

  • The appellant sent a legal notice to the respondents on 03.09.2001, according to which the respondents finally refused to register the sale deed on 28.08.2001.

  • When the sale deed was not executed despite the notice, the appellant instituted the suit for specific performance on 01.10.2001.


ISSUES RAISED:

  1. Whether the plaintiffs prove that the defendants are 3 the owners of the suit property and they have executed the Agreement of Sale on 28.05.1990 agreeing to sell the suit property for Rs. 23,000/- and they have received the entire Sale consideration as contended in para 2 of the plaint.

  2. Whether the plaintiff proves that they demanded the defendants to execute the Sale Deed but they have failed to execute the same. 

  3.  Whether the defendant proves that he has been ready and willing to perform his part of the contract.

  4. Whether the defendants prove that the suit is barred by time and the suit is not maintainable as contended in pan 9 & 10 of their written statement.

  5.  Whether the plaintiff proves that this is entitled to relief for specific performance of the contract.

JUDGEMENT OF THE TRIAL COURT:

The trial court dismissed the suit, on the grounds that the execution of the agreement to sell was doubtful. It also held that the suit was filed beyond the period of limitation. The date of the judgment was 28.09.2004.


JUDGEMENT OF THE APPELLATE COURT:

The first appellate court held that the suit filed was within the period of limitation and the appellant had proved the execution of the agreement to sell. The seller during cross-examination had agreed that he had executed the agreement to sell and put his signature on the document. Hence the suit was decreed. The date of the judgment was 14.01.2008.


JUDGEMENT OF THE HIGH COURT:

The high court found that the agreement to sell violated the Fragmentation Act, and there was a void. The date of the judgment was 10.11.2010.


JUDGEMENT OF THE SUPREME COURT:

The Supreme Court in its judgment stated that no issue was framed concerning the violation of the Fragmentation Act and it was not in the written statement filed by the respondent. The defense taken by the respondent was that he never executed the agreement to sell. However, during cross-examination, the respondent admitted to his signatures on the agreement to sell. Thus, since the issue itself was absent and given that both parties had pleaded any violation on the grounds of section 5 of the Fragmentation Act, the High Court made an error in holding the agreement to sell to be violative of section 5 of the Fragmentation Act.


Section 5 of the Fragmentation Act conveys that - 

The Fragmentation Act restricts the sale, lease, and subdivision of fragments, which are small pieces of land that have received a notice under Section 4.  Owners must prioritize selling fragments to neighboring landowners to encourage consolidation.  If a neighbor declines, the owner must notify authorities before selling to someone else. Fragments can only be leased to those already cultivating adjacent land, and they cannot be further subdivided.  These measures aim to prevent the creation of unproductive land parcels and promote efficient agricultural practices.


What is prohibited or barred under the Fragmentation Act is the lease/sale/conveyance or transfer of rights. Therefore, the Agreement to Sell cannot be said to be barred under 5 the Fragmentation Act. Hence the agreement to sell cannot be barred under the Fragmentation Act. Moreover, the suit had been filed after the repeal of the Fragmentation Act. The suit could have been decreed without there being any violation of the law once the Fragmentation Act itself had been repealed in February 1991.

What is further noticeable is that the respondents received the full consideration and had also transferred the possession of the property in question, as such other defenses may not be available to them. Even the issue of readiness and willingness on the part of the appellant would not be relevant. 

The impugned order and judgment of the High Court dated 10.11.2010 was set aside, and the judgment of the First Appellate Court dated 17.04.2008, decreeing the suit of the appellant was restored.


CONCLUSION:

The supreme court in the case of Munishamappa V. M. Rama Reddy and Ors clarified that an agreement to sell does not transfer the ownership rights or confer any title on the purchaser of the property. In the case mentioned above the apex court emphasized that the Act prohibited the sale, lease, or transfer of rights, which did not encompass an agreement to sell. The Supreme Court also noted the error of the High Court declaring the agreement void under the act. The Supreme Court's judgment highlighted the distinction between an agreement to sell and a sale deed, reinforcing the enforceability of the former despite past legal restrictions.


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