Agreement to Sell does not Confer Ownership- Supreme Court of India

Background of the Case

The Parties had entered into an Agreement to Sell (“ATS”) in respect of a particular immovable property. The requisite consideration had been paid and possession had been given prior to the execution of the aforementioned ATS. However, the ATS was never registered as the intention was to execute a registered sale deed in the future date, as per the terms of the ATS.

Basis on the above facts, the case was instituted before the Trial Court, by the plaintiff (Munishamappa v. M. Rama Reddy & Ors.) seeking specific performance of the ATS and a direction to the Respondents to execute a registered sale deed. The suit was dismissed on the grounds of limitation. However, this dismissal was carried in appeal and set aside by the first appellate court, declaring that the suit was filed within the limitation period. Thereby, the first appellate court also decreed the suit in favour of the Appellant.

Thereafter, the Respondents had appealed against the order of the first appellate court’s decision before the Hon’ble High Court of Karnataka (“HC”). The same was allowed on the grounds that ATS was in violation of section 5 of the Karnataka Prevention of Fragmentation and Consolidation of Holdings Act, 1996 (“Fragmentation Act”).

Plaintiff/Appellant – Munishamappa

Defendant/Respondent – Rama Reddy

Issues raised before Trial Court

1. Whether the defendants are the real owners of the disputed property and have executed Agreement to sell, dated 28.05.1990, after receiving entire sale consideration?
2. Whether the plaintiff proves that he demanded the defendants to execute the Sale Deed but they have failed to execute the same?
3. Whether the defendants prove 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 their written statement?
5. Whether the plaintiff is entitled for the relief for specific performance of contract?

Judgement

The Supreme Court ruled that an ATS does not transfer ownership rights or confers any title on immovable property. Additionally, since neither party had pleaded any concern or violations related to section 5 of the Fragmentation Act and the only defence taken by the Respondent was that he never executed the ATS. Therefore, HC made an error in concluding that the ATS breached Section 5 of the Fragmentation Act.

Furthermore, Supreme Court held that the execution of ATS falls outside the ambit of restrictions given under Section 5 of the Fragmentation Act. Thus, the ATS is not prohibited or barred under the Fragmentation Act. Accordingly, the Apex Court held that execution of ATS does not transfer ownership rights or confers any title on immovable property under the Karnataka Prevention of Fragmentation and Consolidation of Holdings Act, 1996.

Source

Munishamappa v. M. Rama Reddy and Ors., Civil Appeal No. 10327 of 2011, order dated 2nd November, 2023.