Supreme Court Reinforces Property Law Principles: Agreement to Sell Cannot Create Rights Against Third Parties

 The Supreme Court of India's recent judgment in The Correspondence, RBANMS Educational Institution v. B. Gunashekar & Ors. (Civil Appeal No. 5200 of 2025) has significantly strengthened property law jurisprudence while providing crucial protection to charitable institutions from frivolous litigation. The two-judge bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan delivered this important ruling on April 16, 2025, addressing fundamental questions about the enforceability of agreements to sell against third parties.

Background: A 148-Year-Old Institution Under Siege

The case involved R.B.A.N.M.S. Educational Institution, a charitable trust established in 1873 to serve marginalized communities in Bangalore. The institution has been in continuous possession of the disputed property since 1905, when it was initially leased the "Sappers Practice Ground," which was formally conveyed to them by the Municipal Commissioner in 1929.

The controversy arose when respondents B. Gunashekar and another filed a suit seeking permanent injunction against the institution, claiming rights based on an agreement to sell dated April 10, 2018. Under this agreement, the respondents alleged they agreed to purchase the property for Rs. 9 crores, paying Rs. 75 lakhs as advance entirely in cash. Notably, the actual vendors under this agreement were not made parties to the suit.

Legal Framework: Order VII Rule 11 as Judicial Filter

The Supreme Court extensively analyzed Order VII Rule 11 of the Code of Civil Procedure, 1908, which empowers courts to reject plaints at the threshold. Citing Dahiben v. Arvindbhai Kalyanji Bhanusali, the Court explained that this provision "serves as a crucial filter in civil litigation, enabling courts to terminate proceedings at the threshold where the plaintiff's case, even if accepted in its entirety, fails to disclose any cause of action or is barred by law".

Core Legal Principles Established

The Fundamental Rule: Section 54 of Transfer of Property Act

The Court reaffirmed the bedrock principle under Section 54 of the Transfer of Property Act, 1882, that "a contract for the sale of immovable property does not, of itself, create any interest in or charge on such property". This principle was supported by landmark precedents including Rambhau Namdeo Gajre v. Narayan Bapuji Dhotra, where the Court held that "the agreement to sell does not create an interest of the proposed vendee in the suit property".

Limited Protection Under Section 53-A

The judgment clarified that Section 53-A of the Transfer of Property Act provides protection only against the transferor, not third parties. The Court emphasized that such protection is available as "a shield only against the transferor" and "cannot be pressed in service against a third party".

Fatal Defects in the Respondents' Case

The Supreme Court identified multiple fundamental flaws that rendered the suit legally untenable:

Lack of Privity and Standing

The Court observed that "there is no privity between the respondents and the appellant" since the agreement was not between the parties to the suit. The respondents lacked legal standing to sue the appellant, as their remedy lay only against their proposed vendors.

Absence of Legal Rights Against Third Parties

The judgment held that "the respondents have no legal right that can be enforced against the appellant as their claim is impliedly barred by virtue of Section 54 of the Transfer of Property Act, 1882". The Court established that agreement holders cannot maintain suits against third parties who claim independent title and possession.

Improper Relief and Possession Issues

The respondents sought only injunction without declaration of title while not being in possession. The Court noted that the appellant had "settled possession for over a century," making "a suit for bare injunction by a proposed transferee clearly not maintainable".

Significant Policy Directions on Cash Transactions

Addressing the respondents' claim of paying Rs. 75 lakhs in cash, the Court highlighted violations of Section 269ST of the Income Tax Act, which prohibits cash transactions exceeding Rs. 2 lakhs. The Court issued comprehensive directions requiring:

·       Courts to inform Income Tax authorities when suits claim cash payments above Rs. 2 lakhs

·       Sub-Registrars to report such transactions during property registration

·       Disciplinary action against officials who fail to report such transactions

Broader Implications for Legal Practice

Protection of Charitable Institutions

The Court emphasized the need to protect institutions serving marginalized communities from "speculative litigation that can drain their resources and impede their charitable work". This principle has significant implications for charitable organizations facing similar challenges.

Judicial Efficiency and Resource Management

The judgment reinforces that courts should not hesitate to reject plainly untenable suits. As established in T. Arivandandam v. T.V. Satyapal, courts were directed to reject suits that are "manifestly vexatious and meritless".

Deterrent Against Speculative Litigation

The Court noted that the respondents were "in the habit of filing similar suits in respect of other valuable properties in Bangalore, based on various alleged agreements to sell". The judgment serves as a strong deterrent against such systematic attempts at speculative litigation.

Conclusion: Strengthening Property Rights Framework

The Supreme Court's decision in this case significantly strengthens the legal framework governing property rights by:

·       Reinforcing that mere agreement holders cannot maintain suits against third parties

·       Emphasizing the importance of completing legal formalities through registered sale deeds

·       Providing protection to genuine property owners and charitable institutions

·       Establishing safeguards against cash transaction violations

The Court allowed the appeal, set aside the lower court orders, and rejected the plaint under Order VII Rule 11(a) and (d). Additionally, it issued directions for monitoring cash transactions in property matters and cautioned against future misuse of judicial process.

This judgment represents a watershed moment in property law jurisprudence, providing clarity on the limited rights created by agreements to sell while strengthening protections for legitimate property owners and charitable institutions against speculative litigation.

                    

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