Source: Supreme Court 

Why in News? 

A bench of Justice BV Nagrathna and Justice N Kotiswar Singh held that transfer of property of value greater than Rs. 100 should be by way of a registered sale deed.                    

• The Supreme Court held this in the case of Sanjay Sharma v. Kotak Mahindra Bank Ltd & Ors (2024).

What was the Background of Sanjay Sharma v. Kotak Mahindra Bank Ltd & Ors.  Case?  

• The dispute relates to a property situated in Old Rajinder Nagar, Delhi which was owned by Champa Bhen Kundia. 
• There were several transactions of the property by way of unregistered sales. These included: 
  • Firstly, to her son Chandu Bhai (2000) 
  • Then to Satnam Singh and Surinder Wadhwa (2001) 
  • Finally to Raj Kumar Vij (respondent No. 2) through an Agreement to Sell (2001) 
• This property was mortgaged by Champa Bhen Kundia to get a loan from Associated India Financial Service Pvt Ltd. 
• The loan was eventually transferred to Kotak Mahindra Bank and the notice was served under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) due to non-payment of loan in 2006. 
• In pursuance to the legal proceedings the bank took the possession of the premises through a Court Receiver.  
• Respondent no 2 and others filed a case in the Debt Recovery Tribunal (DRT). 
• DRT ordered them to deposit ₹2,00,000 to retain possession. While the order was complied by others Respondent 2 did not make the payment. 
• Thereafter auction of the premises was conducted and the appellant won the auction with a bid of Rs. 7,50,000. 
• Thereafter, sale certificate was issued to the appellant. 
• Challenge to the Auction: 
  • The Respondent No. 2 challenged the auction in the Appellate Tribunal. 
  • The DRT set aside the auction and allowed Respondent No. 2 to redeem the property with 9% interest 
  • The auction winner (appellant) challenged DRT's order in Appellate Tribunal 
  • The Appellate Tribunal sided with the appellant and restored the auction sale. 
  • They noted that Respondent No. 2's ownership claims were disputed 
  • Thereafter a writ petition was filed in the Delhi High Court wherein the Appellate Tribunal’s decision was reversed. 
  • Thus, the order of DRT setting aside the auction was restored. 
• The Delhi High Court gave the following order: 
  • Return of Rs. 7,50,000 to the auction winner with interest 
  • The Court allowed Respondent 2 to redeem the mortgage. 
  • Further, interest of 9% was set as the rate of interest for repayment. 
• The Appellant who is the auction winner is aggrieved by the above order passed by the Division Bench of the Delhi High Court. 

What were the Court’s Observations?  

• The Court observed that although learned counsel for respondent No.2 emphasized the fact that respondent No.2 is presently in possession of the scheduled premises on the strength of the registered General Power of Attorney dated 16.04.2001 as well as the agreement to sell of the same date, the fact remains that the agreement to sell executed by Smt. Champa Bhen Kundia is not by a registered document. 
• It was further observed that in the absence of there being any registration of the above mentioned agreement, the appellant could not have detected, whether there was any kind of prior interest created in favour of respondent No.2.  
• In fact, for the very same reason, respondent No.1 also would not have been in the knowledge of the said fact even if due diligence exercise had been carried out by the Bank as stated above as the agreement to sell was not a registered instrument. 
• Therefore, all the documents relied upon by respondent No.2 to claim ownership of the basement of the secured asset are unregistered documents and fail to meet the requirements of a valid sale under Section 54 of the Transfer of Property Act 
• Respondent No.2 thus did not have any title to claim the ownership of the premises as the agreement on which he relies is an unregistered sale deed. 
• The auction sale was done in due compliance with the statutory requirements and constituted a valid sale. 
• The Court held that ample opportunities were given to the respondent to avail the right of redemption but the same were not availed by the respondent. 
• Hence, the Court set aside the order of the High Court and restored the order of  the Appellate Tribunal  
• The Court ordered that the premises should be handed over to the Appellant i.e. the auction purchaser. 

What is Sale and How is it Made? 

• Section 54 of the Transfer of Property Act, 1882 (TPA) 
  • Section 54 of the TPA, defines a “sale” as the transfer of ownership in exchange for a price that is either paid, promised, or part-paid and part-promised. 
  • This provision further describes the manner in which a sale is effected. It stipulates that, in the case of tangible immovable property valued at one hundred rupees or more, the transfer can be made only through a registered instrument. 
  • The use of the term “only” signifies that, for tangible immovable property valued at one hundred rupees or more, a sale becomes lawful only when it is executed through a registered instrument. 
  • Where the sale deed requires registration, ownership does not pass until the deed is registered, even if possession is transferred, and consideration is paid without such registration. 
  • The registration of the sale deed for an immovable property is essential to complete and validate the transfer. 
  • Until registration is effected, ownership is not transferred. 
• Section 17 of Registration Act, 2008 
  • Section 17 of the Registration Act, 1908 provides for documents that are compulsorily registrable.   
  • It provides that conveyance by way of sale of a property whose value exceeds Rs 100 shall be by way of a registered sale deed. 

What are the Case Laws on Sale by Registered Sale Deed? 

• Babasheb Dhondiba Kute v. Radhu Vithoba Barde (2019) 
  • The Court held that the conveyance by way of sale would take place only at the time of registration of a sale deed in accordance with Section 17 of the Registration Act, 2008. 
  • Till then there is no conveyance in the eyes of law 
• Suraj Lamps and Industries v. State of Haryana (2012) 
  • The Court in this case held that immovable property can be transferred only by way of a registered deed of conveyance. 
  • The Court also in this case deplored the practice of transferring the title to the property by way of ‘SA/GPA/WILL’ transfers. 
  • The Court further held that as per Section 54 of TPA sale of an immovable property can only happen by way of a registered instrument and an agreement to sell does not create any right title or interest in the subject matter.