Non Payment of part of Sale Consideration does not make a Sale Deed ‘Void’ nor constitutes a valid ground for Cancellation
The Apex Court in the case of Dahiben vs. Arvindbhai Kalyanji Bhanusali (Gajra)(D) Thr Lrs decided on July 9, 2020 has categorically held that non-payment of a part of sale consideration does not make the registered Sale Deed ‘void’ nor does it constitute a valid ground for its cancellation. It is common knowledge that in Real Estate transactions, cheques are given as a part of sales consideration at the time of execution of sale-deed, which areduly mentioned in the said sale-deed. The seller feels assured as he has a conviction that the sale deed executed by him is conditional, subject to encashment of the said cheques and in the event of the cheques being dishonoured the sale deed would automatically become ‘void’ & infructuous but the legal position does not conform to his belief. The matter has come up before the various High Courts and the Apex Court who have categorically held that, in such a case, the seller has to move to the civil courts by filing a suit for recovery of his balance consideration but can neither claim the said sale deed as invalid nor can file a suit for cancellation of the said sale deed on this ground.
The brief facts of the said case are that agricultural land situated in District Surat owned by the Plaintiffs were transferred by them through a registered sale deed dated 02-07-2009 to Respondent No. 1 for a consideration of Rs. 1,74,02,000/-. The Respondent No. 1 – purchaser issued 36 cheques for Rs. 1,74,02,000 towards payment of the sale consideration in favour of the Plaintiffs, the details of which were set out in the said registered Sale Deed. The Respondent No. 1 subsequently sold the said land to Respondent Nos. 2 and 3 herein vide registered Sale Deed dated 01.04.2013, for a sale consideration of Rs. 2,01,00,000/-. The Plaintiffs thereafter filed Special Civil Suit before the Principal Civil Judge, Surat against the original purchaser i.e. Respondent No. 1, and also impleaded the subsequent purchasers i.e. Respondent Nos. 2 and 3 as defendants praying that the Sale Deed dated 02.07.2009 be cancelled and declared as being illegal, void, ineffective and not binding on them, on the ground that the sale consideration had not been paid in entirety by Respondent No. 1. The Plaintiffs contended that they were totally illiterate and were not able to read and write and had put their thumb impressions on the Sale Deed dated 02.07.2009 without due understanding of its contents. According to the Plaintiffs, the Sale Deed was obtained without payment of full consideration & the Respondent No.1 had paid only Rs. 40,000 through 6 cheques, and remaining 30 cheques for Rs.1,73,62,000 were “bogus” cheques, which remained unpaid. The Plaintiffs prayed for restoring the physical possession of the said lands to them. The Respondents pleaded that the Plaintiffs was barred by limitation and that no cause of action had been disclosed in the plaint. The Gujarat High Court upheld the order of the trial court holding that the suit filed by the Plaintiff was barred by limitation.
The Apex Court bench summarized the law applicable for deciding an application under Order VII Rule 11 CPC. The Court referred to the judgment in Vidyadhar v. Manikrao (1999) 3 SCC 573 and Section 54 of the Transfer of Property Act, 1882, the court said that the words “price paid or promised or part paid and part promised” indicates that actual payment of the whole of the price at the time of the execution of the Sale Deed is not a sine qua non for completion of the sale. The Court held thus:
“The Plaintiffs have made out a case of alleged non-payment of a part of the sale consideration in the Plaint, and prayed for the relief of cancellation of the Sale Deed on this ground. Section 54 of the Transfer of Property Act, 1882 provides as under: “54. ‘Sale’ defined.—‘Sale’ is a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised.” The definition of “sale” indicates that there must be a transfer of ownership from one person to another i.e. transfer of all rights and interest in the property, which was possessed by the transferor to the transferee. The transferor cannot retain any part of the interest or right in the property, or else it would not be a sale. The definition further indicates that the transfer of ownership has to be made for a “price paid or promised or part paid and part promised”. Price thus constitutes an essential ingredient of the transaction of sale. In Vidyadhar v. Manikrao & Anr (1999) 3 SCC 573 this Court held that the words “price paid or promised or part paid and part promised” indicates that actual payment of the whole of the price at the time of the execution of the Sale Deed is not a sine qua non for completion of the sale. Even if the whole of the price is not paid, but the document is executed, and thereafter registered, the sale would be complete, and the title would pass on to the transferee under the transaction. The non-payment of a part of the sale price would not affect the validity of the sale. Once the title in the property has already passed, even if the balance sale consideration is not paid, the sale could not be invalidated on this ground. In order to constitute a “sale”, the parties must intend to transfer the ownership of the property, on the agreement to pay the price either in praesenti, or in future. The intention is to be gathered from the recitals of the sale deed, the conduct of the parties, and the evidence on record. In view of the law laid down by this Court, 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 the registered Sale Deed.”
It would be pertinent to reproduce the relevant extract of the judgement in Vidyadhar v. Manikrao & Anr (Supra), which reads thus:
“35. Even if the findings recorded by the High Court that the plaintiff had paid only Rs. 500 to defendant No. 2 as sale consideration and the remaining amount of Rs. 4,500 which was shown to have been paid before the execution of the deed was, in fact, not paid,the sale deed would not, for that reason, become invalid on account of the provisions contained in Section 54 of the Transfer of Property Act which provide as under:
54. “Sale” is a transfer of ownership in exchange for a price paid or promised or part- paid and part-promised.
Such a transfer, in the case of tangible immoveable property of the value of one hundred rupees and upwards, or in the case of a reversion or other intangible thing, can be made only by a registered instrument.
In the case of tangible immoveable property, of a value less than one hundred rupees, such transfer may be made either by a registered instrument or by delivery of the property.
Delivery of tangible immoveable property takes place when the seller places the buyer, or such person as he directs; in possession of the property.
A contract for the sale of immoveable property is a contract that a sale of such property shall take place on terms settled between the parties.
It does not, of itself, create any interest in or charge on such property.
36. The definition indicates that in order to constitute a sale, there must be a transfer of ownership from one person to another, i.e., transfer of all rights and interests in the properties which are possessed by that person are transferred by him to another person. The transferor cannot retain any part of his interest or right in that property or else it would not be a sale. The definition further says that the transfer of ownership has to be for a “price paid or promised or part-paid and part-promised”. Price thus constitutes an essential ingredient of the transaction of sale. 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 the execution of sale deed is not sine qua non to the completion of the sale. Even if the 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 complete.
37. There is a catena of decisions of various High Courts in which it has been held that even if the whole of the price is not paid, the transaction of sale will take effect and the title would pass under that transaction. Tocite only a few, in Gyatri Prasad v. Board of Revenue and Ors. (1973) Allahabad Law Journal 412, it was held that non-payment of a portion of the sale price would not effect validity of sale. It was observed that part payment of consideration by vendee itself proved the intention to pay the remaining amount of sale price. To the same effect is the decision of the Madhya Pradesh High Court in Sukaloo and Anr. v. PunauAIR 1961 MP 176.
38. The real test is the intention of the parties. In order to constitute a “sale”, the parties must intend to transfer the ownership of the property and they must also intend that the price would be paid either in presenti or in future. The intention is to be gathered from the recital in the sale deed, conduct of the parties and the evidence on record.”
It would be trite to refer to the case of Bishundeo Narain Rai vs. Anmol Devi & Ors. 1998 (7) SCC 498 where the Apex Court had occasion to consider the question as to when the ownership and title in a property will pass to the transferee, under a deed of conveyance. The Apex Court observed:
“Section 8 of the Transfer of Property Act declares that on a transfer of property all the interests which the transferor has or is having at that time, capable of passing in the property and in the legal incidence thereof, pass on such a transfer unless a different intention is expressed or necessarily implied. A combined reading of Section 8 and Section 54 of the Transfer of Property Act suggests that though on execution and registration of a sale deed, the ownership and all interests in the property pass to the transferee, yet that would be on terms and conditions embodied in the deed indicating the intention of the parties. It follows that on execution and registration of a sale deed, the ownership title and all interests in the property pass to the purchaser 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. Such intention can be gathered by intrinsic evidence, namely, from the averments in the sale deed itself or by other attending circumstances subject, of course, to the provisions of Section 92 of the Evidence Act, 1872.”
It is pertinent to refer to the case of Kaliaperumal vs. Rajagopal & Anr. 2009 (4) SCC 193,wherein the Apex Court considered the present issue and held:
“It is now well settled that payment of entire price is not a condition precedent for completion of the sale by passing of title, as Section 54 of Transfer of Property Act, 1882 (“the Act”, for short) defines `sale’ as a transfer of ownership in exchange for a price paid or promised or part paid and part promised. If the intention of parties was that title should pass on execution and registration, title would pass to the purchaser even if the sale price or part thereof is not paid. In the event of non-payment of price (or balance price as the case may be) thereafter, the remedy of the vendor is only to sue for the balance price. He cannot avoid the sale. He is, however, entitled to a charge upon the property for the unpaid part of the sale price where the ownership of the property has passed to the buyer before payment of the entire price, under Section 55(4)(b) of the Act. Normally, ownership and title to the property will pass to the purchaser on registration of the sale deed with effect from the date of execution of the sale deed. But this is not an invariable rule, as the true test of passing of property is the intention of parties. Though registration is prima facie proof of an intention to transfer the property, it is not proof of operative transfer if payment of consideration (price) is a condition precedent for passing of the property.
The answer to the question whether the parties intended that transfer of the ownership should be merely by execution and registration of the 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 the parties. Such intention is primarily to be gathered and determined from the recitals of the sale deed. When the recitals are insufficient or’ ambiguous the surrounding circumstances and conduct of parties can be looked into for ascertaining the intention, subject to the limitations placed by section 92 of Evidence Act 1872. There is yet another circumstance to show that title was intended to pass only after payment of full price. Though the sale deed recites that the purchaser is entitled to hold, possess and enjoy the scheduled properties from the date of sale, neither the possession of the properties nor the title deeds were delivered to the purchaser either on the date of sale or thereafter. It is admitted that possession of the suit properties purported to have been sold under the sale deed was never delivered to the appellant and continued to be with the respondents. In fact, the appellant, therefore, sought a decree for possession of the suit properties from the respondents with mesne profits. If really the intention of the parties was that the title to the properties should pass to the appellant on execution of the deed and its registration, the possession of the suit properties would have been delivered to the appellant.”…..
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.”
It is trite to refer to the case of Baijnath Singh vs. Paltu and others, (1908) ILR 30, Allahabad Page 125, wherein the Allahabad High Court observed that if the sale deed recites that the sale consideration was paid but it is found by the court that no sale consideration passed, the non-payment of purchase money does not prevent the passing of the ownership of purchased property from the vendor to the purchaser and the purchaser, notwithstanding such non-payment, can maintain a suit for possession of the property.
In another case Chandrashankar Manishankar vs. Abhla Mathur and others, AIR (39) 1952 Bombay 56, it was held that it may be that the recital in the document stating payment of the consideration is not true but that does not invalidate the document. It is not necessary that the whole of the price should be paid to make the sale valid as Section 54 of the Transfer of Property Act mandates that the price may be paid or promised wholly or in part. The Court also held that if the consideration was not actually paid, but the document shows that there was an intention to pay, then in that case the document is not rendered invalid on account of the non-payment of the consideration. If, on the other hand, the intention was not to pay any consideration, then the document is void and of no effect.
It is worthwhile to refer to Rajendra Prakash vs Smt. Babita Gupta Alias Pratiba 2000 (3) AWC 2253, wherein the Allahabad High Court was seized of a similar matter. A deed of sale was registered by the plaintiff in favour of the defendant in consideration of a sum of Rs. 1,25,000 paid by cheque without any payment by cash. The cheque was dishonoured by the bank on the ground of insufficient fund. The plaintiff requested the defendant as well as by notice sent under registered post asking the defendants either to pay the consideration or to get the sale deed declared illegal and void. The defendant did not pay any amount nor did take any steps for declaration of the sale deed void. It was claimed on behalf of the plantiff that the impugned sale deed being without consideration conferred no title to the defendant since the same is void, illegal and in-operative and not binding. On behalf of the defendant, it was contended that in view of Section 54 of the Transfer of Property Act, 1882, even if the consideration is not paid, the sale deed would not become void if there is an intention to convey the property between the parties. The only remedy open to an aggrieved vendor is to sue for recovery of the consideration. Relying on Section 55, sub-section 4 (b) of the Transfer of Property Act 1882, it was contended on behalf of the defendant that at best on account of non-payment of the consideration the amount of consideration would be a charge in the property sought to be conveyed and the provisions of Transfer of Property Act would definitely override those of the Contract Act in case of conflict and inconsistency between the two.
It would be relevant to quote a passage from Mulla on the Transfer of Property Act, 1882 at page 303 of the Sixth Edition. The said passage reads as follows:
“The payment of price is not necessarily a sine qua non to the completion of the sale. If the intention is that property should pass on registration, the sale is complete as soon as the deed is registered whether the price has been paid or not, and the purchaser is entitled to sue for possession although he has not paid the price. This is clear from the words of the Section, “price paid or promised or part-paid or part-promised”. But when although the deed recited that the price was not paid, and it was not in fact paid and so also possession was not delivered, it was held that the inference was irresistible that no title passed. A condition that price shall be paid in a year provided that possession was given within that time does not invalidate the sale deed. If the price is not paid, the seller cannot on that account set aside the conveyance. He can only sue for the price; and he will have a charge on the property for the unpaid purchase-money. This is a non-possessory charge as explained in the note under Section 55(4)(b) and it will not justify the seller refusing to give possession.”
A few important decisions of the Courts are worth mentioning on the issue. Kashidas v. Chaithuru, (1914) 19 Cal LJ 289 and Ghosh v. Rohini (1908) 13 Cal WN 692 have held more than a century agoin case of a sale, if the intention of the parties is that the property would pass on registration, the sale is complete as soon the deed is registered whether the price has been paid or not. Same view has been taken in the case of Raj Nath Singh v. Paltu and others. 1908 All U 96, where it was held that non-payment of consideration would not invalidate the deed of sale. The Allahabad High Court in the case of Gayatri Prasad v. Board of Revenue and others1973 All LJ 412,has taken the same view. In another case, where admittedly consideration was paid in part,the Andhra Pradesh High Court in the case of Kutcheriakota Vijayalakshmi v. Radimeti Rajaratnamba and others. AIR 1991 AP 50 took the same view. The Orissa High Court in Basanti Mohanty v. Brahmanand Das and othersAIR 1996 Ori 86 also held that if the intention is that property should pass on registration, the sale is complete as soon as the deed is registered, whether the price has been paid or not, and the purchaser is entitled to sue for possession although he has not paid the price. The decision of the Apex Court in the case of State of Kerala v. Cochin Chemical Refineries Ltd AIR 1968 SC 1361, where in a case of mortgage though the loan was not advanced, the deed of mortgage was held to be valid and not void and ineffective.
Thus, from the aforesaid decisions it transpires that it is not necessary that the whole of the price should be paid. The price may be paid or promised wholly or in part. If according to the content of the document the consideration was not actually paid, but the document shows that there was an intention to pay, then in that case the document is not rendered invalid on account of the non-payment of full or part of the consideration. However, if the intention was not to pay any consideration or the document is without any consideration, the document is void and of no effect. There is a distinction between a sale where the consideration is intended to be paid and is not paid and where the consideration is not intended to be paid at all. Thus, in case the vendor has executed the sale deed with an intention of transferring the property in question but the consideration has not actually passed to him, in such a case the provisions of Section 55 of the Transfer of Property Act, 1882 will be applicable where unpaid amount shall remain a charge on the property. Such a sale-deed would be legal and valid and the vendee shall have a legal title of the property transferred and the Vendor shall have no right to challenge the said sale deed.There is a caution for those selling their Real Estate Property, not to transfer their property on the basis of cheques but only on receiving the entire sale consideration through RTGS, bank transfers or Bank Drafts else they shall be constrained tofight a long & cumbersome battle in the civil courts for realisation of the sale consideration, which is bound to dent their time, energy and money with no guarantee of favourable orders.