Validity of Registered Sale Deed despite Non-Payment of Consideration

It is a settled position of law that an Agreement to Sell with respect to an immovable property does not, of itself, transfer rights or ownership in the immovable property in favour of the transferee unless the sale deed is registered in terms of Section 17 of the Registration Act, 1908. Without registration, the Agreement to Sell merely constitutes a bargain upon which the property is to be transferred. For a detailed examination of the provisions and law in this regard, refer here. The registration of sale deed marks the final act in the process of transfer of an immovable property pursuant to which the transferee gains title and ownership to the immovable property. However, if despite the execution of the Agreement to Sell and its registration thereof, the transferee has not paid the entire consideration or the balance consideration to the transferor, does that operate as a bar for transfer of the immovable property in favour of the transferee, entitling the transferor to seek a decree of cancelation of the registered sale deed?

Transferor is only entitled to a statutory charge over the property

Section 54 of the Transfer of Property Act 1882 [“the Act”] defines ‘Sale’ as follows-

“54. “Sale” is a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised.”

The words “price paid or promised or part-paid and part-promised” indicate that actual payment of whole of the price at the time of execution of sale deed is not a sine qua non to the completion of sale. Even if whole of the price is not paid but the document is executed and thereafter registered, if the property is of the value of more than Rs 100, the sale would be complete¹. Another important provision which is pertinent to note is Section 55(4)(b) of the Transfer of Property Act-

“55. In the absence of a contract to the contrary, the buyer and seller of immovable property respectively are subject to the liabilities, and have the rights, mentioned in the rules next following, or such of them as are applicable to the property sold:

(1)-(3)***

(4) The seller is entitled-

(a)***

(b) where the ownership of the property has passed to the buyer before payment of the whole of the purchase money, to a charge upon the property in the hands of the buyer, any transferee without consideration or any transferee with notice of the non-payment, for the amount of the purchase money, or any part thereof remaining unpaid, and for interest on such amount or part from the date on which possession has been delivered.”

Section 55(4)(b) of the Transfer of Property Act stipulates that where the ownership of the property is transferred to the buyer before payment of the whole of the sale price, the vendor is entitled to a charge on that property for the amount of the sale price as also for interest thereon from the date of delivery of possession. The charge does not entitle the seller to retain possession of the property as against the buyer but positively gives him a right to enforce the charge by suit².

Therefore, a conjoint reading of the aforesaid provisions of the Act provides the following position of law-

Payment of consideration is not a sin qua non to the completion of sale.
In case the balance consideration or whole of the consideration still remains to be paid despite registration of the sale deed, the seller/transferor in that event is only entitled to a statutory charge on the immovable property to the extent of unpaid consideration and not entitled to retain the possession against the transferee. The transfer of property in favour of the transferee is valid and complete despite nonpayment of the consideration.

Case Laws

The law on this issue emanates from a judgment rendered by the Supreme Court in Vidhyadhar vs Manikrao and Anr³. The case pertained to mortgage of property by Defendant No.2 in favour of Defendant No. 1 for Rs 1500 with a stipulation that if the entire amount of 1500 is returned to Defendant No. 1 before 15.03.1973, the property would be given back to Defendant No. 2. The Defendant No. 1, however, refused to take the amount by Defendant No.2. Subsequently, the Defendant No.2 sold the property to the Plaintiff for a sum of Rs 5000 by way of a registered sale deed, who brought a suit against the Defendant No.1 and 2 to redeem the property, with the Defendant No.2 entirely supporting the cause of the Plaintiff against the Defendant No.1. The Trial court allowed the suit for redemption filed by the Plaintiff by directing the Plaintiff to make the payment of Rs 1500 to redeem the property. The aforesaid decree was affirmed in appeal, however, in second appeal, the High Court returned a finding that the transaction between Defendant No. 2 and the Plaintiff for sale of the suit property did not constitute ‘sale’ as the Plaintiff had only paid a sum of Rs 500 and the remaining amount of Rs 4500 still remained to be paid. On appeal by way of SLP, the Supreme Court observed that even if the finding of the High Court is taken to be correct viz. entire consideration was not paid by the Plaintiff, that would not invalidate the registered sale deed and transfer of property in favour of the Plaintiff by the Defendant No.2. In that event, as per Section 55(4)(b) of the Act, the Defendant No.2 seller/transferor is only entitled to a statutory charge over the property to the extent of unpaid consideration.

This issue again fell for consideration in Dahiben vs Arvind Bhai Kalyanji Bhanushali⁴. The Plaintiff sold the property to the Respondent No. 1 by way of registered sale deed, who in turn, sold the property to Respondent No. 2 and 3. Later the Plaintiff brought a suit against the Respondents for cancellation of Sale deed in favour of Respondent No. 1 on the account of non-payment of entire consideration by the Respondent No. 1. The Supreme Court relied upon the ratio of Vidhyadhar (supra) and reiterated that even if the whole price is not paid, but the document is executed, and thereafter registered, the sale would be complete, and the title would pass on the transferee under the transaction. The non-payment of a part of the price would not affect the validity of the sale. Once the title in the property is already passed, even if the balance consideration is not paid, the sale could not be invalidated on this ground.

Besides the above, the decisions in the matter of Raj Dutt and Ors. vs Nageshwar and Ors.⁵; Bajinath Singh vs Paltu & Ors.⁶; Chandrashankar Manishankar vs. Abhla Mathur and Ors⁷ and Sukaloo and Anr. vs Puna⁸ also affirm the aforesaid position of law.

Exception to the Rule- Intention of parties

The rule, as culled out by the Supreme Court in the judgments discussed above is that the rights, title and ownership in an immovable property is transferred in favor of the transferee upon execution of sale deed and its registration. In that event, even nonpayment of the balance consideration would not invalidate the sale deed and entitle the transferor to a decree of cancellation of sale deed. The only remedy available to the transferor in that event is to sue for the balance consideration by seeking a statutory bar upon the property in terms of Section 55(4)(b) of the Act. However, the rule is not absolute and in some facts and circumstances, the courts have invalidated a registered sale deed by drawing out various exceptions to the rule.

In Bishundeo Narain Rai vs. Anmol Devi⁹ the Supreme Court had the occasion to consider as to when the ownership and title in a property will pass to the transferee, under a deed of conveyance. The court observed that a conjoint reading of Section 8 and 54 of the Transfer of Property Act postulates that on execution and registration of a sale deed, the ownership passes to the transferee however, that would be on the terms and conditions embodied in the deed indicating the intention of the parties. The ownership will transfer to the transferee upon execution of a registered sale deed unless a different intention is either expressed or necessarily implied which has to be proved by the party asserting that title has not passed on registration of the sale deed.

In Kaliaperumal vs Rajagopal and Ors¹⁰ the parties entered into a registered sale deed for sale of an immovable property in favour of the Appellant for a consideration of Rs 43,000/-. The Respondents however refused to give possession to the Appellant on the ground that the Appellant has only paid a sum of Rs 3000/- and the balance consideration still remained to be paid. The Appellant filed a suit for specific performance. The Trial Court and Appellant court held that the Appellant is entitled to possession on completion of registration of sale deed and the Respondent is only entitled to a charge on the immovable property to the extent of unpaid consideration. On second appeal, the High Court held that the parties intended to not pass the title to the appellant till full consideration was paid. Since the Appellant failed to make full consideration, the title to the property never passed to the Appellant.

On Appeal before Supreme Court, the court recognised the rule that that payment of consideration is not a condition precedent for completion of sale, and in the event of nonpayment of consideration, the transferor is only entitled to charge upon the property for the unpaid price as per Section 54(4)(b). However, the Supreme Court emphasized that this is not an invariable rule as the true test of passing of property is intention of the parties. Supreme Court observed that registration is prima facie proof of an intention to transfer the property, however, it is not proof of operative transfer if payment of consideration is a condition precedent for passing of the property. Court further observed that the question whether the parties intended that transfer of the ownership should be merely execution and registration of sale deed or whether they intended the transfer of the property to take place only after receipt of the entire consideration, would depend on the intention of parties. Such intention can be gathered from the from the recitals of the following-

The recitals of the sale deed.
If recitals are ambiguous or insufficient then the surrounding circumstances and conduct of the parties can be looked into for ascertaining the intention subject to limitation placed by Section 92 of Evidence Act.

Applying the above principles to the facts of the present case, the Supreme Court held that the title did not pass on to the Appellant despite execution and registration of the sale deed for the following reasons-

The operative portion of the sale deed stated that the vendors have agreed to receive Rs 40,000/- in the presence of the Sub-Registrar on the date of registration of the sale deed and the property was to be transferred upon receipt of the balance consideration. Since the Appellant failed to make the balance consideration, therefore the title did not pass upon the Appellant on execution or registration of sale deed.
The suit property was never delivered to the Appellant despite the execution of registered sale deed. The Respondents continued to be in possession of the suit property.
The Appellant was never ready and willing to pay the balance consideration.

Therefore, the Supreme Court, in the aforesaid case, carved out an exception to the general rule i.e. intention of the parties.

The exception to the rule carved out by the Supreme in Kaliaperumal (supra), was followed by the Supreme Court in Janak Dulari Devi and Ors. vs Kapildeo Rai and Ors.¹¹, wherein the Supreme Court refused to recognize a registered sale deed since the consideration was not paid by the transferee.

Sale deed is void if consideration is not paid

The aforementioned line of judgments unambiguously elucidate that a registered sale deed is not void for nonpayment of entire consideration or balance consideration. In that event, the only remedy available to the vendor is to seek a statutory charge upon the property to the extent of unpaid price as per Section 55(4)(b) of the Act. Payment of consideration is not a condition precedent for completion of sale. Although some exceptions have been carved out by the Supreme Court in Kaliaperumal (supra), however, the said judgment holds the general rule intact.

However, in Kewal Kishan vs Rajesh Kumar & Ors.¹², the Supreme Court took a stark departure from the trajectory of the previous judgements as discussed herein above, on the issue. Supreme Court in the aforesaid case observed that a sale deed of an immovable property executed without payment of price and if it does not provide for payment of price at a future date, such a sale deed is void and of no legal effect. The facts of the said case pertained to sale of a portion of the suit property jointly owned by Appellant and the Respondent. The Respondent, executed two sale deeds in favour of his wife and minor son, respectively, acting on a power of attorney executed by the Appellant in his favour. The Supreme Court however, observed that since no consideration was paid by the wife and the minor son, therefore the sale deed is void and of no consequence. Therefore, the Supreme Court held that no title was transferred under the purported sale deeds being devoid of any consideration.

The aforesaid judgment of the Supreme Court emphasized upon the application of Section 54 of the Act which inter alia states that a sale has to be for a price. The said price may be payable in future. It may be partly paid and the remaining part can be made payable in future. However, if a sale deed is executed without payment of price, and the said price is not even promised to be paid in future, then such a sale transaction is void.

Divergent views of High Courts

Therefore, three line of judgments govern the position of law on the issue. The line of judgments emanating from Vidhyadhar (supra) categorically states that a registered sale deed is not void for want of consideration. In that event the vendor is only entitled to a statutory charge over the property as per Section 55(4)(b) of the Act. The second line of judgments emanating from Kaliaperumal (supra) also affirms the aforesaid position of law as laid down in Vidhyadhar (supra), however, subject to just exceptions. Lastly, the ratio in Kewal Kishan (supra) stands in one corner of the spectrum and states that sale deed without consideration is void. The said judgment is without any reference to the application of Section 55(4)(b) nor discusses the law laid down by the Supreme Court in the line of judgments emanating from Vidhyadhar (supra). All the aforesaid decisions of the Supreme Court have been rendered by two judge benches.

A Division Bench of the Chhattisgarh High Court in Rajak vs Smt. Geetadevi Gupta¹³, refused to apply the ratio laid down in Kewal Kishan (supra) and chose to align with the ratio laid down in Dahiben (supra) viz. nonpayment of consideration does not invalidate a registered sale deed. The Division Bench observed that the since the aforesaid earlier decision of the Supreme Court, was not brought to the knowledge of the Supreme Court in Kewal Kishan (supra), the said decision is per incuriam. However, a single judge bench of Allahabad High Court in Munni Lal vs Mohd. Rafik Kidwal¹⁴ disagreed with the reasoning of the Chhattisgarh High Court in Geetadevi (supra) and observed that a decision of the Supreme Court cannot be ignored by the High Court recording it as per incuriam, unless it be a case which is clearly against the ratio of a Bench of higher strength of the Supreme Court. Therefore, the Allahabad High Court in Munni Lal (supra) , after going through a detailed analysis of the judgments discussed above, chose to align itself with the law laid down in Kewal Kishan (supra), stating that the ratio in Kewal Kishan is the latest law upon the issue and it is not open to the High Court to go behind the reasoning in the decision and choose earlier decisions as laying down the correct law. It is pertinent to mention that on this very issue, the Supreme Court recently held that if two decisions of the Supreme Court appear inconsistent with each other, then the High Courts are not to follow one and overlook the other, but should try to reconcile and respect them both¹⁵.Subsequently, another division bench of Chattisgarh High Court, in the matter of Ashif Memon vs Noor Begam¹⁶ again refused to follow the ratio laid down in Kewal Kishan (supra) on the ground that the Supreme Court in the said matter did not consider the ratio laid down in Dahiben (supra).

The ratio laid down in Kewal Kishan (supra) is the correct position of law on its own facts

Section 54 of the Transfer of Property Act stipulates that sale takes place in exchange for a price. The “Price” may be-

Paid
or Pormised
or Part paid and part promised

Therefore, payment of consideration is imperative for a valid sale to take place. However, when the Agreement to Sell is registered and still the payment remains unpaid or partly paid, then that would not operate as a bar for completion of sale. In that case Section 55(4)(b) is attracted and ratio laid down in Vidyadhar (supra) line of judgments would follow viz. even if whole of the price is not paid or price is partly paid, but the document is executed and registered, the sale would be complete and title would pass on to the transferee. The transferor in this case is only entitled to sue for the balance consideration and file suit for enforcement of charge under Section 55(4)(b) to the extent of unpaid consideration.

Therefore, it is imperative to cull out a distinction between a ‘contract for sale’ or Agreement to Sell and a registered sale deed. This was duly recognised by the Supreme Court in Ramesh Chand (D) through LRs vs Suresh Chand & Anr¹⁷. A contract for sale is merely a bargain that the property would be transferred on the terms specified in the Agreement. However, it is only when the Agreement is registered, is when the title passes on to the transfree. In the case of the former i.e. Agreement to Sell/Contract for sale, non-payment of sale consideration would invalidate the Agreement, however, in case of the latter, i.e. Registered Sale Deed, nonpayment of consideration would not operate as a bar for completion of sale.

In Kewal Kishan (supra) there is one peculiar aspect which the Chattisgarh High Court and the Allahabad High Court failed to to note and thus fell in error by interpreting that the said decision does not lay down the correct position of law. In Kewal Kishan (supra), the sale deed was not registered, rather the sale was effected by way of General Power of Attorney which is an invalid mode of transferring ownership of immovable property as held by the Supreme Court in Suraj Lamps. Therefore, Section 55(4)(b) could not be attracted in the facts of Kewal Kishan (supra) nor the ratio laid down in Vidyadhar (supra) line of judgments. In Kewal Kishan (supra) the sale deed only recorded that the consideration has been paid however no evidence was led to show payment of consideration. The consideration in that case was not paid, nor promised nor part paid and part promised. In the absence of registered sale deed coupled with no evidence to show whether the consideration was paid, the Supreme Court correctly concluded that the Sale deed was void. Thereafter, the Supreme Court categorically stated that since the properties were sold on the basis of Power of Attorney therefore, it was a sham transaction. Therefore, it is incorrect to question the ratio laid down in Kewal Kishan (supra) and there was no occasion for the Supreme Court to discuss the ratio laid down in Vidyadhar (supra) line of judgments since the facts in Kewal Kishan (supra) did not involve a registered sale deed.

The confusion, if any, is caused by the recent judgment of the Supreme Court in the matter of Shanti Devi (since deceased) Through LRS. Goran vs Jagan Devi & Ors¹⁸. In this case it was undisputed that the sale deed was registered with respect to the suit property. The Plaintiff had filed suit for injunction restraining the Defendant from interfering with her peaceful possession of the suit property and in the alternative sought joint possession of the Suit property. It was Plaintiff’s case that she never received any sale consideration from the Defendant even though the registered sale deed recorded that out of payment of Rs 15000/-, Rs 9000/- was received by the Plaintiff. In the aforesaid facts, when sale consideration is allegedly not paid but the sale deed is registered, the ratio laid down in Vidyadhar(supra) line of judgments is attracted and the registered sale deed cannot be said to be void. However, the Supreme Court drew sustenance from the ratio laid down in Kewal Kishan (supra) and held that since there was no evidence to the effect whether the Plaintiff actually received consideration from the Defendant, the Sale deed was void. This observation is in complete ignorance of the fact that in Kewal Kishan (supra) the sale deed was not registered. The aforesaid judgment is silent upon the ratio laid down in Vidyadhar (supra) line of judgments and the application of Section 55(4)b of the Transfer of Property Act.

It is pertinent to note that the Supreme Court in Dehiben(supra) in similar facts and circumstances, had observed as follows “…even if the averments of the Plaintiffs are taken to be true that the entire sale consideration had not in fact been paid, it could not be a ground for cancellation of the sale deed. The Plaintiffs may have other remedies in law for recovery of the balance consideration, but could not be granted the relief of cancellation of registered sale deed” Therefore, the judgment rendered by the Supreme Court in Shanti Devi (supra) is sub silentio and appears to be per-incuriam as it failed to note the settled position of law emanating from the Vidyadhar (supra) line of judgments that non-payment of sale consideration does not invalidate the sale if the sale deed is registered.

Conclusion

The following position of law emerges from a conspectus of the above cases-

A registered sale deed with respect to an immovable property is not void for want of entire or balance consideration. The title to the immovable property passes on to the transferee and in that event the only remedy available to the transferor is to seek a statutory charge upon the immovable property as per Section 55(4)(b) of the Act, to the extent of the unpaid consideration.
Some exceptions to the above rule have been carved out by the Supreme Court in Kaliaperumal (supra) viz. a registered sale deed can be invalidated if the intention of the parties shows that the parties intended to transfer title only upon payment of entire consideration. The intention of the parties can be gathered from-
1. The recitals of the sale deed.
2. If recitals are ambiguous or insufficient then the surrounding circumstances and conduct of the parties can be looked into for ascertaining the intention subject to limitation placed by Section 92 of Evidence Act.
The Supreme Court in Janak Dulari (supra) explained that the following recital in a sale deed would postulate that the parties intended to transfer title only upon payment of consideration-“Where the sale deed recites that on receipt of the total consideration by the vendor, the property was conveyed and possession was delivered, the clear intention is that title would pass and possession would be delivered only on payment of the entire sale consideration. Therefore, where the sale deed recited that on receipt of entire consideration, the vendor was conveying the property, but the purchaser admits that he has not paid the entire consideration or if the vendor proves that the entire sale consideration was not paid to him, title in the property would not pass to the purchaser.”
There is a difference between a ‘contract for sale’ or Agreement to Sell and a registered sale deed. This was duly recognised by the Supreme Court in Ramesh Chand (D) through LRs vs Suresh Chand & Anr¹⁹. A contract for sale is merely a bargain that the property would be transferred on the terms specified in the Agreement. However, it is only when the Agreement is registered, is when the title passes on to the transfree. In the case of the former i.e. Agreement to Sell/Contract for sale, non-payment of sale consideration would invalidate the Agreement, however, in case of the latter, i.e. Registered Sale Deed, nonpayment of consideration would not operate as a bar for completion of sale.
The ratio laid down by the Supreme Court in Shanti Devi (supra) appears to be per incuriam as the same is devoid of any reference to the application of Section 55(4)(b) of the Act or discussion on the earlier line of decisions on the issue.

By Daksh Pandit