Recently, the Hon’ble Supreme Court in Munishamappa v. M. Rama Reddy and Ors. held that an agreement to sell does not confer any ownership or confer any title. Further, the Hon’ble Court explained a key concept under Section 54 of the Transfer of Property Act 1882. The section states that a contract to sell property only shows the intention to sell based on already agreed terms, and it does not naturally create any interest or charge on the property.
In 1990, Munishamappa (“Appellant”) and Rama Reddy (“Respondent”) entered into an agreement to sell. Before the execution of the agreement to sell, the entire sale consideration was paid, and the possession property in question was also handed over to the appellant. However, the agreement to sell was never registered, as the aim was to execute a registered sale deed in the future as specified in the terms of the agreement to sell.
In this case, the execution of the registration of the sale deed did not occur because of the Prevention of Fragmentation and Consolidation of Holdings Act, 1966 (Section 5(2)). The agreement to sell was made with the anticipation that the Fragmentation Act would soon be repealed, which eventually happened; however, even after the repeal, the agreement to sell did not lead to a registered sale deed.
On September 3, 2001, the appellant sent a legal notice to the respondent seeking execution of a sale deed, but the respondent refused to register the sale deed. Thereafter, on October 1, 2001, the appellant instituted a suit seeking specific performance of the agreement to sell; however, the trial court dismissed the suit on the grounds of limitation.
The first appellate court overturned the decision on appeal, and it was held that the suit was within the limitation period. The respondent brought the first appellate court decision before the Hon’ble High Court of Karnataka. The Court allowed the appeal based on the fact that the agreement to sell violated the Fragmentation Act, rendering it void. The present appeal before the Hon’ble Supreme Court challenges the judgement of the Hon’ble High Court.
The Supreme Court framed the issues as:
The Hon’ble Supreme Court held that the High Court cannot go beyond their scope and proceed to decide on an issue that does not really arise from the pleading. Further, the jurisdiction exercised by the first appellate court, having regard to the essential aspects such as readiness and willingness, equity, etc., for the grant of specific performance, is not to be interfered with in the absence of valid grounds that prevent the execution of a registered sale deed. The scope of Section 5 of the Fragmentation Act, which prohibits the transfer of land at the time of execution of the agreement, also cannot stand since the provision itself has become obsolete and such a claim was never pleaded